ALARIS EQUITY PARTNERS INCOME TRUST MANAGEMENT DISCUSSION AND ANALYSIS
For the three months ended March 31, 2024
MANAGEMENT DISCUSSION AND ANALYSIS
This management's discussion and analysis ("MD&A") is dated May 9th, 2024, and should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2024, and 2023 for Alaris Equity Partners Income Trust ("Alaris" or the "Trust"). The Trust's condensed consolidated financial statements and the notes thereto have been prepared in accordance with International Accounting standard 34 and are recorded in Canadian dollars. Certain dollar amounts in the MD&A have been rounded to the nearest thousands of dollars.
This MD&A contains forward-looking statements that are not historical in nature and involve risks and uncertainties. Forward-looking statements are not guaranteed as to Alaris' future results since there are inherent difficulties in predicting those. Accordingly, actual results could differ materially from those expressed or implied in the forward-looking statements. See "Forward-Looking Statements" for a discussion of the risks, uncertainties and assumptions relating to those statements. Some of the factors that could cause results or events to differ from current expectations include, but are not limited to, the factors described under "Risks and Uncertainty". This MD&A also refers to certain Non-GAAP and Other Financial Measures, including Adjusted Earnings, components of Corporate Investments, EBITDA, Adjusted EBITDA, Alaris net distributable cashflow, Earnings Coverage Ratio, Run Rate Payout Ratio, Actual Payout Ratio, Run Rate Revenue, Run Rate Cash Flow, IRR and Per Unit amounts. The terms Adjusted Earnings, components of Corporate Investments, EBITDA, Adjusted EBITDA, Alaris net distributable cashflow, Earnings Coverage Ratio, Run Rate Payout Ratio, Actual Payout Ratio, Run Rate Revenue, Run Rate Cash Flow, IRR and Per Unit amounts (collectively, the "Non-GAAPand Other Financial Measures") are financial measures used in this MD&A that are not standard measures under International Financial Reporting Standards ("IFRS") . The Trust's method of calculating the Non-GAAP and Other Financial Measures may differ from the methods used by other issuers. Therefore, the Trust's Non-GAAP and Other Financial Measures may not be comparable to similar measures presented by other issuers.
Partner company names are referred to as follows: LMS Management LP and LMS Reinforcing Steel USA LP (collectively, "LMS"), SCR Mining and Tunneling, LP ("SCR"), Ohana Growth Partners, LLC ("Ohana"), formerly known as PF Growth Partners, LLC ("PFGP"), DNT Construction, LLC ("DNT"), Unify Consulting, LLC ("Unify"), Accscient, LLC ("Accscient"), Heritage Restoration, LLC ("Heritage"), Fleet Advantage, LLC ("Fleet"), Sono Bello, LLC ("Sono Bello" or "Body Contour Centers") formerly known as Body Contour Centers, LLC, GWM Holdings, Inc. and its subsidiaries ("GWM"), Amur Financial Group Inc. ("Amur"), Stride Consulting LLC ("Stride"), Carey Electric Contracting LLC ("Carey Electric"), Edgewater Technical Associates, LLC ("Edgewater"), 3E, LLC ("3E"), Vehicle Leasing Holdings, LLC, dba D&M Leasing ("D&M"), Sagamore Plumbing and Heating, LLC ("Sagamore"), Federal Management Partners, LLC ("FMP") The Shipyard, LLC ("Shipyard"), and Cresa, LLC. ("Cresa"). Former partner company names are referred to as follows: Brown & Settle Investments, LLC and a subsidiary thereof (collectively, "Brown & Settle"), Falcon Master Holdings LLC, dba FNC Title Service ("FNC"), and Sandbox Acquisitions, LLC and Sandbox Advertising LP (collectively, "Sandbox").
The Non-GAAP and Other Financial Measures should only be used in conjunction with the Trust's audited consolidated financial statements, excerpts of which are available below, complete versions of these statements are available on SEDAR at www.sedar.com.
OVERVIEW
Alaris' investment and investing activity refers to providing equity to private companies to meet their business and capital objectives, which includes management buyouts, dividend recapitalization and growth and acquisitions. Alaris achieves this by investing its unitholder capital, as well as debt, through wholly-owned subsidiaries of Alaris, which are referred to as "Acquisition Entities".
These investments into private businesses (individually, a "Private Company Partner" and collectively the "Partners") are primarily in the form of preferred equity, in addition to common equity, subordinated debt and promissory notes ("Preferred Investments"). The Acquisition Entities earn distributions, dividends and interest ("Distributions"), on preferred equity, subordinated debt and promissory notes that are received in regular monthly or quarterly payments that are contractually agreed to between the Acquisition Entity and each Private Company Partner. These payments are set for twelve months at a time and are adjusted annually based on the audited performance of each Private Company Partner's gross revenue, gross profit, same store sales or other similar "top-line" performance measures (the reset metric). The preferred equity investments have the ability to appreciate through these reset metrics and typically include a premium upon exit or redemption.
The Acquisition Entities' minority common equity investments in Partners participate in the growth and distributions in proportion to their ownership percentage. Receipt of distributions on the common equity is not fixed in advance, but rather paid as cashflows permit and at the direction of the Partners' board. Alaris believes that the use of common equity in certain transactions will: (a) better align the interests with those of the Partners; (b) provide higher overall returns, including capital
For the three months ended March 31, 2024 | Page 2 of 23 |
MANAGEMENT DISCUSSION AND ANALYSIS
appreciation on investments realized at exit, than preferred equity alone; and (c) enable Alaris to increase its capital investment. Common equity distributions are not fixed or set in advance, but rather will be paid as declared and cashflow of a Partner permits.
Based on the investment structure, the Acquisition Entities may earn additional revenue from carried interest, and other earnings related to the particular investment. In addition to these Acquisition Entities, Alaris has a service company which is focused on the management of the Acquisition Entities and Partner Investments and earns revenue from Acquisition Entities and third parties for the provision of their services. Alaris has limited general and administrative expenses with only twenty employees.
The simplified diagram below illustrates the type of subsidiaries included within Alaris' corporate structure and the basis on which they are accounted for following the change in Alaris' investment entity status in January of 2024, as described below.
Alaris continually evaluates its investment structure and strategies to ensure it is in a position to increase unitholder value. Alaris may adopt additional innovative investment structures and strategies that complement and enhance its existing preferred equity strategy and that increase its growth profile, diversify its revenue streams and strengthen its relationships with and available investment offerings for existing and prospective Partners. Additional investment structures and strategies may include the raising and managing of third-party capital to allow Alaris to make additional investments in existing Partners, including in common equity of existing Partners, and to earn management fees and carried interest.
In January of 2024, Alaris determined that it met the definition of an "investment entity", as defined by IFRS 10, Consolidated financial statements ("IFRS10"). While this does not represent a change in accounting standards, this change in status has fundamentally changed how Alaris prepares, presents and discusses its financial results relative to prior periods.
Accordingly, users of this interim MD&A and the unaudited interim consolidated financial statements to which it relates should exercise significant caution in reviewing, considering and drawing conclusions from period-to- period comparisons and changes. Alaris is required to provide comparative financial statements and to discuss in the accompanying MD&A both the current and prior period information and changes therein, however, the change in Alaris' "investment entity" status and, as a result, the presentation of its financial results can cause direct comparisons between dates or across periods to be inappropriate or not meaningful if not carefully considered in this context. IFRS 10 requires that this change in accounting is made prospectively and as a result prior periods are not restated, herein or in the Q1 financial statements, to reflect the change in Alaris' investment entity status.
For the three months ended March 31, 2024 | Page 3 of 23 |
MANAGEMENT DISCUSSION AND ANALYSIS
ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
Investment Entity Status
In January 2024, the Trust concluded that it met the definition of an "investment entity", as defined by IFRS 10,. This change in status resulted from the change in how the Trust commits to its investor(s) that its business purpose is to invest funds solely for the returns from capital appreciation, investment income or both. Over time, Alaris' investment strategy has evolved and now focuses not only on the Distributions on Preferred Investments but also combined exit returns driven by both the preferred equity exit premium and common equity capital appreciation. This conclusion will be reassessed on a continuous basis.
As a result of this change in status, the assets and liabilities of the Trust's subsidiaries that are themselves investment entities or intermediate holding companies, have been derecognized from the Trust's consolidated statement of financial position, and the Trust's investments in these subsidiaries have been recognized as Corporate Investments totaling $650.5 million as at January 1, 2024. The Trust recognized a gain on the deconsolidation of its Investment entity subsidiaries of $30.3 million on January 1, 2024. Included in this gain is the reclassification of the translation reserve into earnings, reflecting the foreign currency translation differences of certain subsidiaries. The Corporate Investments are subsequently measured at fair value through profit (loss) ("FVTPL"). The change in investment entity status is being accounted for prospectively from January 1, 2024, in accordance with IFRS 10.
As a result of this change in status, the following financial statement items are now recognized within Alaris' unaudited interim consolidated financial statements:
-
Corporate Investments
Corporate Investments include Alaris' investments in its subsidiaries, primarily consisting of the Acquisition Entities, that meet the investment entity exception to consolidation criteria in IFRS 10. These subsidiaries primarily invest Alaris unitholder capital and debt in Alaris' Private Company Partners. Corporate Investments are measured at fair value through profit or loss in accordance with IFRS 9. The fair value of these Corporate Investments includes the fair value of intercompany loans receivable from the Acquisition Entities. - Management and advisory fees
Management fees and advisory fees are earned for services provided directly to certain of the Trust's Acquisition Entities which are calculated on a cost-plus margin approach, as well as transaction fees earned from partner investments. Revenues earned from management and advisory fees are recognized over time as the services are provided.
Assessment as investment entity
Judgment is required when making the determination whether an entity or its subsidiaries meet the definition of an investment entity pursuant to IFRS 10.
Alaris conducts its business primarily through controlled subsidiaries (held either directly or indirectly), which consist of entities providing investment-related services as well as investment holding companies. Certain of these entities were formed for legal, tax, regulatory or similar reasons by Alaris and share a common business purpose. The assessment of whether Alaris, the parent entity, meets the definition of an investment entity was performed on an aggregate basis with these entities.
The criteria which define an investment entity are, as follows:
- An entity that obtains funds from one or more investors for the purpose of providing those investors with investment management services.
- An entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
- An entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.
For the three months ended March 31, 2024 | Page 4 of 23 |
MANAGEMENT DISCUSSION AND ANALYSIS
When determining whether the Trust met the definition of an investment entity under IFRS 10, Alaris management applied significant judgement when assessing the entity's business purpose and how the Trust commits to its investor(s) that its business purpose is to invest funds solely for the returns from capital appreciation, investment income or both.
Key estimates used in measuring fair value of Corporate Investments
The fair value of Corporate Investments is measured using an adjusted net asset method. The measurement of the fair value of the Corporate Investments is significantly impacted by the fair values of the net assets of the Acquisition Entities, which include the underlying Partner investments held directly and indirectly by them. Significant assumptions used in the valuation of the net asset value, specifically of other long term assets within the Acquisition Entities, included the timing of collection, and proceeds thereon, as well as the probability weighting of outcomes. The fair value is assessed at each reporting date with changes in fair value recognized in net earnings.
An important component of the fair value within the Acquisition Entities is the valuation of the underlying Partner investments held directly or indirectly which require significant judgement due to the absence of quoted market values, inherent lack of liquidity and long term nature of such investments. Investments at fair value are measured using a discounted cash flow model or capitalized cash flow. Significant assumptions used in the valuation of the preferred unit investments include the discount rate, timing of exit and changes in future distributions. Significant assumptions used in the valuation of the common equity investments include the discount rate, terminal value growth rate, cash flow multiple and estimated future cash flows. Significant assumptions used in the valuation of the convertible preferred unit investments include the discount rate, estimated future cash flows, and cash flow multiple. See Note 3 in the accompanying unaudited condensed consolidated interim financial statements for the three months ended March 31, 2024 for related disclosure on assumptions used in fair value assessments.
RESULTS OF OPERATIONS
Note where the financial information for Q1 2024 is comparable to specific information from the prior period Q1 2023 condensed consolidated interim financial statements, amounts have been provided for comparative purposes and have not been restated given the prospective nature of this change. As noted above, users of this interim MD&A and the unaudited condensed consolidated interim financial statements to which it relates should exercise significant caution in reviewing, considering and drawing conclusions from period-to-period comparisons and changes.
Net book value1
31-Mar | 31-Dec | ||||
$ thousands except per unit amounts | 2024 | 2023 | Change in | % Change | |
Total Assets | $ 1,073,401 | $ 1,474,894 | |||
Total Liabilities | $ 87,985 | $ 514,071 | |||
Net book value | $ 985,416 | $ 960,823 | $ 24,593 | +2.6% | |
Weighted average basic units (000's) | 45,498 | 45,498 | |||
Net book value per unit | $ 21.66 | $ 21.12 | $ 0.54 | +2.6% |
- Net book value and net book value per unit are Non-GAAP financial measures and represents the equity value of the company or total assts less total liabilities and the same amount divided by weighted average basic units outstanding. Net book value and net book value per unit are used by management to determine the growth in assets over the period net of amounts paid out to unitholders as distributions. Management believes net book value and net book value per unit are useful measures from which to compare the Trust's growth period over period. The Trust's method of calculating these Non-GAAP financial measures may differ from the methods used by other issuers. Therefore, they may not be comparable to similar measures presented by other issuers.
During Q1 2024, net book value increased by $0.54 per unit to $21.66 per unit at March 31, 2024 ($21.12 per unit - December 31, 2023). The increase in per unit net book value is the result of the current quarters earnings of $1.62 basic earnings per unit, less the earnings impact of the gain on reclassification of the translation reserve of $0.74 per unit, and further reduced by the quarterly dividend declared and paid of $0.34 per unit.
For the three months ended March 31, 2024 | Page 5 of 23 |
MANAGEMENT DISCUSSION AND ANALYSIS
The following per unit results are supplementary financial measures and are provided for the three months ended March 31, 2024, and where comparable 2023. Revenue and other operating income, net gain on Corporate Investments, general and administrative expenses, unit based compensation, finance costs, and cash from operations are outlined below as obtained from the Trust's accompanying condensed consolidated interim financial statements for the three months ended March 31, and 2023, all divided by the weighted average basic units outstanding.
Revenue and Operating Income
Three months ended | |
March 31 | |
$ thousands except per unit amounts | 2024 |
Net gain on Corporate Investments | $ 15,935 |
Management and advisory fees | $ 3,772 |
Interest and dividend income from Acquisition Entities | $ 10,607 |
Total revenue and operating income | $ 30,314 |
Revenue and operating income per unit | $ 0.67 |
The net gain on Corporate Investments was $15.9 million for the three months ended March 31, 2024. This gain represents the current period increase in Acquisition Entities net asset value. The drivers of Corporate Investments fair value increases are outlined in the below table and discussed by caption in the following.
Net gain on Corporate Investments (2)
Three months ended | |
March 31 | |
$ thousands except per unit amounts | |
2024 | |
Partner related changes in net gain on Corporate Investments (i) | $ 47,428 |
Acquisition Entities operating losses (ii) | $ (17,632) |
Corporate Investments earnings distributed to Trust (iii) | $ (13,861) |
Net gain on Corporate Investments | $ 15,935 |
Net gain on Corporate Investments per unit | $ 0.35 |
- Each of the components of Corporate Investments are Non-GAAP financial measures and are presented for better comparability to prior year reporting. These amounts are reconciled to information from note 3 of the condensed consolidated interim financial statements below. The Trust's method of calculating these Non- GAAP financial measures may differ from the methods used by other issuers. Therefore, they may not be comparable to similar measures presented by other issuers.
- Partner related changes in net gain on Corporate investment:
Three months ended | |||
March 31 | |||
$ thousands | 2024 | 2023 | % Change |
Partner Distribution revenue - Preferred, including realized foreign exchange | $ 38,193 | $ 35,752 | +6.8% |
Partner Distribution revenue - Common | $ 601 | $ 936 | -35.8% |
Net realized gain from Partners investments | $ 1,959 | $ 12,500 | -84.3% |
Net unrealized gain / (loss) on Partners investments | $ 6,675 | $ (11,678) | +157.2% |
Partner related changes in net gain on Corporate Investment | $ 47,428 | $ 37,510 | +26.4% |
Partner related changes in net gain on Corporate Investment per unit | $ 1.04 | $ 0.83 | +25.3% |
Note - In Q1 2023, Partner Distribution revenue - Preferred, including realized foreign exchange and Partner Distribution revenue - Common were presented as one line on the face of the income statement titled "Revenues, including realized foreign exchange gain" in the amount of $36,688.
During the three months ended March 31, 2024 Partner related changes in net gain on Corporate Investments, which are reflective of revenue and income from Partners, increased by 26.4%. Preferred Partner distribution revenue increased by 6.8% period over period driven by new investments in FMP and Shipyard as well as LMS
For the three months ended March 31, 2024 | Page 6 of 23 |
MANAGEMENT DISCUSSION AND ANALYSIS
paying full Distributions in Q1 2024, as compared to Q1 2023 when LMS had deferred Distributions for the first half of the year due to margin compression and resulting pressure on certain covenants in their senior credit facility. These increases were partially offset by a reduction in Partner Distributions in Q1 24 due to Heritage deferring Distributions to support cashflow flexibility and a reduction in Sono Bello's preferred Distributions on account of the strategic transaction that occurred during Q1 2023.
Net realized gains on Partner investments decreased in Q1 2024, as compared to Q1 2023, due to the Sono Bello strategic transaction in Q1 2023 realizing a $12.5 million gain, which in turn was offset by the majority of the unrealized fair value loss of $11.7 million in Q1 2023. In Q1 2024 net realized gains from Partner investments of $2.0 million was earned from the collection of the remaining FNC indemnity proceeds, (which are recorded when collection is assured).The net unrealized fair value gain in Q1 2024 of $6.7 million was largely driven by increases to the fair value of Alaris' investment in Sono Bello, Edgewater and Fleet. See the Partner Section for further details on changes to the fair value of Partner investments in addition to Partner updates.
- Less: Acquisition Entities operating losses
Three months ended | |||
March 31 | |||
$ thousands | 2024 | 2023 | % Change |
Transactions costs | $ 1,362 | $ 1,351 | +0.8% |
Finance costs, senior credit facility and convertible debentures Note 1 | $ 8,011 | $ 5,382 | +48.8% |
Income tax expense - current | $ 5,031 | $ 2,228 | +125.8% |
Income tax expense - deferred | $ 2,325 | $ 2,470 | -5.9% |
Operating costs and other | $ 903 | na | |
Acquisition Entities operating losses | $ 17,632 | $ 11,431 | |
Note 1: In Q1 2023, the Trust's total Finance costs of $6,517 was made up of $2,977 of interest and facility fees on the senior credit facility, $2,405 of interest and accretion on the convertible debentures, and $1,135 of interest on the senior unsecured debentures. Finance costs incurred by the Acquisition Entities relate to the senior credit facility and convertible debentures. The 2023 comparative has been adjusted to reflect these debt facilities for comparability.
Acquisition Entities operating losses reduce the overall net gain on Corporate Investments during the period.
During the three months ended, March 31, 2024 transaction costs of $1.4 million remained relatively consistent when compared to the same period in Q1 2023. Finance costs relate to the debt held directly by the Acquisition Entities, the senior credit facility and the convertible debentures. For the three months ended March 31, 2024, finance costs were up by 48.8% over Q1 2023 as a result of higher average debt outstanding in Q1 2024, coupled with higher realized interest rates due to both increases in market rates as well as changes in Alaris' interest rate swap contracts. Two favorable swap contracts expired in June 2023 partially replaced with a new contract in July 2023 .
Current and deferred taxes incurred by the Acquisition Entities in the three months ended March 31, 2024 of $7.4 million (2023 - $4.7 million) increased by 56.6% largely as a result of higher net earnings of the Acquisition Entities in the current period.
Operating costs and other reflect administrative costs directly attributed to the Acquisition Entities and in the prior year were a component of the consolidated general and administrative costs and as such are not reflected in the prior period comparative above. Q1 2024 operating costs and other of $0.9 million are primarily related to the amortization of directly held insurance premiums and accounting and legal costs related to the entity's operations or Partner investments.
For the three months ended March 31, 2024 | Page 7 of 23 |
MANAGEMENT DISCUSSION AND ANALYSIS
- Less: Corporate Investments earnings distributed to Trust:
Three months ended | |
$ thousands | March 31 |
2024 | |
Management and advisory fees paid to Trust | $ 3,254 |
Interest on intercompany loans and dividends paid to the Trust | $ 10,607 |
Corporate Investments earnings distributed to Trust (iii) | $ 13,861 |
The Acquisition Entities incur costs for services and debt provided by the Trust. As a result, these costs decrease the net gain recorded on Corporate Investments but increase income directly within the Trust resulting in no net impact to earnings. Management and advisory fees paid to the Trust amounted to $3.3 million in Q1 2024, as compared to the Trust's Management and advisory fee income of $3.7 million, the difference relates to transaction fees earned directly by the Trust related to the Sono Bello investment.
Interest on intercompany loans payable to the Trust amounted to $10.6 million in Q1 2024, which is consistent to the amount of income the Trust recorded in the same period.
General and administrative expenses
Three months ended | |||
March 31 | |||
$ thousands except per unit amounts | 2024 | 2023 | % Change |
Salaries and benefits | $ 2,475 | $ 2,004 | +23.5% |
Corporate and office | $ 1,055 | $ 1,414 | -25.4% |
Legal and accounting fees | $ 580 | $ 13,542 | -95.7% |
General and administrative | $ 4,110 | $ 16,960 | -75.8% |
General and administrative per unit | $ 0.09 | $ 0.37 | -75.7% |
General and administrative expenses per unit, (which includes salaries and benefits, corporate and office, and legal and accounting fees), for the three months ended March 31, 2024 decreased by 75.7%. Salaries and benefits expense of $2.5 million (2023 - $2.0 million) increased by $0.5 million due to an increase in management bonus expense as compared to the prior year as well as an increase in employees at Alaris. Corporate and office expenses of $1.1 million decreased by 25.4% as compared to the prior year as a result of the amortization of certain insurance premiums that are now recorded within the Acquisition Entities. Legal and accounting fees of $0.6 million (2023 - 13.5 million) decreased by $13.0 million or 95.7%, primarily due to the elimination of legal costs associated to the Sandbox litigation and settlement of that dispute in early 2023. Also contributing to the decrease is that, in Q1 2024 and go forward direct legal and accounting fees incurred by the Acquisition Entities are recorded and reflected within the net gain on Corporate Investments as discussed above.
Unit-based compensation
Three months ended | |||
March 31 | |||
$ thousands except per unit amounts | 2024 | 2023 | % Change |
Unit-based compensation | $ 2,481 | $ 1,779 | +39.5% |
Unit-based per unit | $ 0.05 | $ 0.04 | +25.0% |
Unit-based compensation in the three months ended March 31, 2024, of $2.5 million increased from $1.8 million in the comparable prior period. The increase is a result of a greater number of issued and outstanding units to management as of Q1 2024 as compared to the prior year in large part due to the performance hurdle calculation resulting in double the vesting of previously issued PTU's being satisfied. Also contributing to the increase in in the current period is the change in the Trust's unit price during Q1 2024 as compared to the relative change in the Trust's unit price during Q1 2023 and the nature of the calculation for the RTU and PTU liability being re-valued each period.
For the three months ended March 31, 2024 | Page 8 of 23 |
MANAGEMENT DISCUSSION AND ANALYSIS
Finance costs
Three months ended | |||
March 31 | |||
$ thousands except per unit amounts | 2024 | 2023 | % Change |
Finance costs, senior unsecured debenture Note 1 | $ 1,145 | $ 1,135 | +0.9% |
Finance costs, senior unsecured debentures per unit | $ 0.03 | $ 0.03 | +0.0% |
Note 1: In Q1 2023, the Trust's total Finance costs of $6,517 was made up of $2,977 of interest and facility fees on the senior credit facility, $2,405 of interest and accretion on the convertible debentures, and $1,135 of interest on the senior unsecured debentures. Finance costs incurred by the Trust in Q1 2024 relate to the senior unsecured debentures. The 2023 comparative has been adjusted to reflect this item for comparability.
As a result of the conversion to Investment Entity Accounting and the related deconsolidation or the Acquisition Entities the above finance costs only reflect the costs related to the senior unsecured debenture held by the Trust. Costs relating to the senior credit facility and the convertible debenture are reflected above in the net gain on Corporate Investments. Finance costs in the three months ended March 31, 2024 of $1.1 million (2023 - $1.1 million) resulting in a marginal change due to accretion on the liability increasing over time.
Adjusted Earnings (3)
Three months ended | |||
$ thousands except per unit amounts | March 31 | ||
2024 | 2023 | % Change | |
Earnings | $ 73,773 | $ 5,553 | |
Add back: Foreign exchange (gain) loss | $ (20,779) | $ 215 | |
Add back: Gain on derecognition of previously consolidated entities | $ (30,260) | na | |
Adjusted earnings | $ 22,734 | $ 5,768 | +294.1% |
Adjusted earning per unit | $ 0.50 | $ 0.13 | +284.6% |
- Adjusted earnings and Adjusted earnings per unit are a Non-GAAP financial measure and Non-GAAP Ratio and refer to earnings determined in accordance with IFRS, before impact of the one time gain on derecognition of previously consolidated entities and foreign exchange gain (loss) and the same amount divided by weighted average basic units outstanding. Adjusted earnings and Adjusted earnings per unit are used by management to determine earnings excluding fluctuations due to unrealized changes in exchange rates that impact earnings and specifically the fair value of Corporate investment. Management believes Adjusted earning and Adjusted earnings per unit are useful measures from which to compare the Trust's earnings period over period. The Trust's method of calculating these Non-GAAP financial measures and ratio may differ from the methods used by other issuers. Therefore, they may not be comparable to similar measures presented by other issuers.
In the three months ended March 31, 2024, Adjusted earnings per unit increased by greater than 100% as compared to 2023. The increase in Adjusted earnings per unit was primarily driven by higher Partner income both in Distribution revenue as well as in net increases in the fair values of Partner investments. Also contributing to the improvement is lower general and administrative costs as compared to the prior period due to legal costs associated to the settlement of the Sandbox litigation in Q1 2023, which are no longer applicable. Partially offsetting these increases in Adjusted earnings per unit is higher total finance costs and higher taxes as compared to Q1 2023.
For the three months ended March 31, 2024 | Page 9 of 23 |
MANAGEMENT DISCUSSION AND ANALYSIS
Adjusted EBITDA()
Three months ended | |||
March 31 | |||
$ thousands except per unit amounts | 2024 | 2023 | % Change |
Earnings | $ 73,773 | $ 5,553 | |
Depreciation and amortization | 126 | 56 | |
Finance costs | 1,145 | 6,517 | |
Total income tax expense | (282) | 4,698 | |
EBITDA | $ 74,762 | $ 16,824 | +344.4% |
Adjustments: | |||
Gain on derecognition of previously consolidated entities | $ (30,260) | $ - | |
Foreign exchange | (20,779) | 215 | |
Sandbox litigation and legal costs | - | 13,100 | |
Finance costs, senior credit facility and convertible debentures | 8,011 | - | |
Acquisition Entities income tax expense - current | 5,031 | - | |
Acquisition Entities income tax expense - deferred | 2,325 | - | |
Adjusted EBITDA | $ 39,090 | $ 30,139 | +29.7% |
Adjusted EBITDA per unit | $ 0.86 | $ 0.67 | +28.4% |
() Adjusted EBITDA and EBITDA are Non-GAAP financial measures and refer to earnings determined in accordance with IFRS, before depreciation and amortization, interest expense (finance costs) and income tax expense. EBITDA is used by management and many investors to determine the ability of an issuer to generate cash from operations. Adjusted EBITDA and Adjusted EBITDA per unit, which is a non-GAAP ratio that removes the impact from unrealized fluctuations in exchange rates and their impact on the Trust's investments at fair value, as well as one time items and the impact of finance costs and taxes included within the net gain on Corporate Investments incurred by the Acquisition Entities and, on a per unit basis, is and the same amount divided by weighted average basic units outstanding. Management believes Adjusted EBITDA, EBITDA and Adjusted EBITDA per unit are useful measures from which to determine the Trust's ability to generate cash available for servicing its loans and borrowings, income taxes and distributions to unitholders. The Trust's method of calculating these Non-GAAP financial measures and ratio's may differ from the methods used by other issuers. Therefore, they may not be comparable to similar measures and ratios presented by other issuers.
For the three months ended March 31, 2024, adjusted EBITDA per unit increased by 28.4% compared to Q1 2023 primarily as a result of an increase in Partners Distributions and net realized and unrealized gains in the fair value of Partner investments. Refer to Partner related changes in net gain on Corporate Investments above for further detail on this increase. Partially offsetting the increase in adjusted EBITDA per unit was an increase in the current periods unit-based compensation expense described above.
Net cash from operating activities
Three months ended | |
$ thousands except per unit amounts | March 31 |
2024 | |
Net cash from operating activities | $ 22,269 |
Net cash from operating activities per unit | $ 0.49 |
As the Trust's cash from operations excludes almost all non-cash items in the Trust's consolidated statement of comprehensive income, the net cash from operating activities per unit and the changes from period to period is an important tool to use to summarize cash flow in the period.
For the three months ended March 31, 2024, net cash from operating activities was $22.3 million. Due to the Trust's change in accounting status on January 1, 2024 and the timing and movement of cash flow from Acquisition Entities into the Trust, this measure is no longer comparable to Q1 2023. Net cash from operating activities reflects the Trust's ability to generate earnings from the Acquisition Entities and the timing of related cash flows being distributed up to the Trust, net of any contributions and operating cash outflows.
In order to provide an overview of cash generated by Alaris and its wholly-owned subsidiaries, the Trust in combination with the Acquisition Entities, the Alaris Net Distributable Cashflow table below summarizes all third party cash receipts and
For the three months ended March 31, 2024 | Page 10 of 23 |
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Alaris Equity Partners Income Trust published this content on 09 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 May 2024 22:14:44 UTC.
