Mr. Steve King reports

ALARIS EQUITY PARTNERS INCOME TRUST RELEASES 2023 THIRD QUARTER RESULTS

Alaris Equity Partners Income Trust has released its results for the three and nine months ended Sept. 30, 2023. The results are prepared in accordance with International Accounting Standard 34. All amounts herein are in Canadian dollars unless otherwise noted.

Highlights:

• The results for the three months ended Sept. 30, 2023, include revenue of $47.2-million and revenue per unit of $1.04, each of which represent approximate 10-per-cent increases as compared with Q3 2022. In addition, Q3 2023 revenue was ahead of prior periods guidance by 26 per cent.
• EBITDA (earnings before interest, taxes, depreciation and amortization) of $83.9-million and EBITDA per unit of $1.85 in the three months ended Sept. 30, 2023, each represent increases of approximately 110 per cent as compared with Q3 2022.
• As a result of these improvements in revenue and EBITDA per unit in the current quarter as compared with Q3 2022, basic earnings per unit of $1.40 is 109 per cent higher than in the prior year and represents a record quarter for Alaris.
• In Q3 2023 the trust had a net unrealized and realized gain on investments of $40.0-million as a result of increases in the fair value of specific investments, of which $27.8-million relates to an increase in the fair value of the Fleet investment, which was partially offset by decreases in the fair value of certain other investments.
• Subsequent to Sept. 30, 2023, Alaris received a common dividend of $5.9-million (U.S.) from Fleet Advantage LLC, which was recorded as revenue during the three and nine months ended Sept. 30, 2023. To date, the trust has received a total of $11.8-million (U.S.) of common distributions since the initial investment in Fleet, exceeding the total capital invested from Q4 2021 of $8.0-million (U.S.).
• The trust deployed approximately $130.1-million in the nine months ended Sept. 30, 2023, which yields initial annual contracted distributions of approximately $13.4-million, or 30 cents per unit.
• The weighted average combined earnings coverage ratio for Alaris's partners is greater than 1.5 times with 10 of 20 partners greater than 1.5 times. In addition, 13 of the trust's total partners have either no debt or less than 1.0 times senior debt to EBITDA (earnings before interest, taxes, depreciation and amortization) on a trailing-12-month basis.
• For the three months ended Sept. 30, 2023, Alaris generated basic earnings per unit of $1.40 and paid out 34 cents of distributions per unit, resulting in a 7-per-cent improvement in the book value per unit to $20.90 at Sept. 30, 2023.
• After adjusting for the settlement and legal costs related the Sandbox Acquisitions LLC and Sandbox Advertising LP litigation the actual payout ratio for Alaris for the nine months ended Sept. 30, 2023, was 65 per cent. The settlement of this dispute has resulted in a reduction of legal costs within general and administrative expenses.

"Our third quarter continues to show the strength of our diversified portfolio. This period displayed substantial increases in revenue and earnings, highlighted by a $40-million increase in the fair value of our investments. Growing book value by over a $1.00 per share in the quarter despite much higher interest rates being used in the calculations than we had a year ago shows the value that is being created for our unitholders. Our portfolio fundamentals remain strong, with adequate cash flow buffers, low debt levels and businesses with long track records of profitability," said Steve King, president and chief executive officer.

For the three months ended Sept. 30, 2023, revenue per unit increased by 9.5 per cent compared with the same period in 2022. The increase is the result of additional common distributions and preferred distributions earned from new investments in Sagamore Plumbing and Heating LLC, Federal Management Partners LLC (FMP) and The Shipyard LLC. The majority of the common distributions relate to a $5.9-million (U.S.) common dividend declared by Fleet Advantage. While Fleet made a comparable distribution in Q3 2022, a portion of which was recorded as a realized gain rather than revenue. Partially offsetting these increases were the redemption of Falcon Master Holdings LLC, doing business as FNC Title Service, in Q4 2022, as well as a reduction in distributions from Body Contour Centers LLC (BCC or Body Contour Centers) as a result of the strategic transaction that occurred in Q1 2023. The previous preferred units in BCC were exchanged for newly issued convertible preferred units which are entitled to an 8.5-per-cent distribution as well as participating in any common distribution above 8.5 per cent, paid when declared and as cash flows permit.

For the nine months ended Sept. 30, 2023, revenue per unit decreased by 13.4 per cent, which is primarily related to $17.2-million ($13.7-million (U.S.)) of deferred distributions received from Kimco in Q2 2022 as part of their redemption. After reducing total revenue earned in the nine months ended Sept. 30, 2022, of $138.9-million by the $17.2-million ($121.7-million), the adjusted period over period decrease was 1.1 per cent. Contributing to the decrease in revenue per unit was the deferral of distributions by LMS Management LP and LMS Reinforcing Steel USA LP (collectively, LMS) in the first six months of 2023, the redemption of FNC and a reduction in distributions from BCC as a result of the strategic transaction as discussed herein. Partially offsetting these decreases in the nine months ended Sept. 30, 2023m were higher common distributions in the current period and distributions from new investments in Sagamore, FMP and Shipyard. In both the three and nine months ended Sept. 30, 2023, the average exchange rate was more favourable than in the comparable period, contributing in an improvement in United States-denominated distribution revenue.

As the trust's cash from operations, prior to changes in working capital, excludes primarily all non-cash items in the trust's consolidated statement of comprehensive income, the cash from operations, prior to changes in working capital per unit and the changes from period to period is an important tool to use to summarize the ability for Alaris to generate cash. The per-unit decrease in the three months ended Sept. 30, 2023, as compared with the prior period of 17.5 per cent is primarily the result of an increase in current income tax expense, partially offset by higher revenue and lower general and administrative expense per unit. For the nine months ended Sept. 30, 2023, the per-unit decrease of 33.9 per cent is mainly due to a decline in revenue per unit as discussed, as well as a higher current income tax expense in 2023 and higher general and administrative costs as compared with 2022. After reducing the nine months ended Sept. 30, 2022, revenue by the deferred distributions received from Kimco, and excluding costs associated to the Sandbox litigation in both comparable periods, the adjusted nine months ended Sept. 30, 2023, per-unit change in cash from operations, prior to changes in working capital is a decrease of 12.8 per cent compared with the prior year.

For the three months ended Sept. 30, 2023, EBITDA per unit increased by 110.2 per cent compared with Q3 2022 primarily as a result of a net realized and unrealized gain on investments in Q3 2023 of $39.6-million as compared with a net realized and unrealized loss on investments in Q3 2022 of $7.1-million. For the nine months ended Sept. 30, 2023, EBITDA per unit increased by 3.0 per cent compared with the first nine months of 2022, partially due to the net realized and unrealized gain on investments of $50.4-million as compared with the gain of $2.5-million in the prior period, which was partially offset by an increase in general and administrative expenses as a result of the litigation and legal costs associated with the Sandbox settlement in the first half of 2023.

Basic earnings per unit increased by greater than 100 per cent in Q3 2023 and by 0.9 per cent in the nine months ended Sept. 30, 2023, each as compared with the respective periods in 2022. The per unit changes are closely aligned to the changes in EBITDA per unit as discussed herein; however, slightly lower due to an increase in income tax expense in both periods.

Outlook

The trust deployed approximately $130.1-million in the nine months ended Sept. 30, 2023, consistent with Alaris's acquisition of investments in its condensed consolidated interim statement of cash flows. The $47.2-million of total revenue in Q3 2023 was above previous guidance of $37.6-million primarily due to the common distribution received from Fleet of $8.0-million ($5.9-million (U.S.)), distributions earned following the initial investment in Shipyard, and a higher average U.S. dollar than anticipated. Outlined herein, the outlook for the next 12 months includes run rate revenue that is expected to be approximately $166.4-million. This includes current contracted amounts, an additional $2.4-million (U.S.) from Ohana related to deferred distributions during COVID-19, and an estimated $5.8-million of common dividends. Alaris expects total revenue from its partners in Q4 2023 of approximately $39.9-million.

The attached run-rate cash flow table outlines the trust's expectation for revenue, general and administrative expenses, interest expense, tax expense, and distributions to unitholders for the next 12 months. The run-rate cash flow is a non-GAAP (generally accepted accounting principles) financial measure and outlines the net cash from operating activities, net of distributions paid, that Alaris is expecting to have over the next 12 months. This measure is comparable with net cash from operating activities less distributions paid, as outlined in Alaris's condensed consolidated interim statements of cash flows. The trust's method of calculating this non-GAAP financial measure may differ from the methods used by other issuers. Therefore, it may not be comparable with similar measures presented by other issuers.

Run-rate general and administrative expenses are currently estimated at $15.5-million and include all public company costs. The trust's run-rate payout ratio is expected to be within a range of 65 per cent and 70 per cent when including run-rate revenue, overhead expenses and its existing capital structure. The attached table sets out the trust's estimated run-rate cash flow as well as the after-tax impact of positive net deployment, the impact of every 1-per-cent increase in SOFR (secured overnight financing rate) based on current outstanding U.S. dollar debt and the impact of every one cent change in the U.S.-dollar to Canadian-dollar exchange rate.

The senior debt facility was drawn to $262.6-million at Sept. 30, 2023, net of the unamortized debt amendment and extension fees of $2.4-million. The annual interest rate on the facility, inclusive of standby charges on available capacity, was approximately 7.6 per cent for the nine months ended Sept. 30, 2023.

The condensed consolidated interim statements of financial position, condensed consolidated interim statements of comprehensive income and condensed consolidated interim statements of cash flows are attached to this news release. Alaris's financial statements and MD&A (management's discussion and analysis) are available on SEDAR+ and on the trust's website.

Earnings release date and conference call details

Alaris management will host a conference call at 9 a.m. MT (11 a.m. ET), Thursday, Nov. 9, 2023, to discuss the financial results and outlook for the trust.

Participants must register for the call using a link provided in the original version of this news release. Preregister to receive the dial-in numbers and unique PIN to access the call seamlessly. It is recommended that you join 10 minutes prior to the event start (although you may register and dial in at any time during the call). Participants can access the webcast on-line. A replay of the webcast will be available two hours after the call and archived on the same Web page for six months. Participants can also find the link on the trust's website,.

An updated corporate presentation will be posted to the trust's website within 24 hours.

About Alaris Equity Partners Income Trust

The trust, through its subsidiaries, indirectly provides alternative financing to private companies in exchange for distributions with the principal objective of generating stable and predictable cash flows for payment of distributions to unitholders of the trust. Distributions from the partners are adjusted each year based on the percentage change of a top-line financial performance measure such as gross margin and same-store sales and rank in priority to the owners' common equity position.

We seek Safe Harbor.