MONTREAL, Aug. 13, 2020 — Knight Therapeutics Inc. (TSX: GUD) (“Knight” or “the Company”), a leading pan-American (ex-US) specialty pharmaceutical company, today reported financial results for its second quarter ended June 30, 2020. All currency amounts are in thousands except for share and per share amounts. All currencies are Canadian unless otherwise specified.
Q2 2020 Highlights
Financials
- Revenues were $53,250, an increase of $50,046 or 1,562% over prior year.
- Interest income generated of $3,678 a decrease of $2,482 or 40% over prior year.
- Net income for the period was $15,512 a decrease of $3,444 or 18% over prior year.
- Adjusted earnings1 of $9,972 an increase of $5,408 or 119% over prior year.
Corporate Developments
- Completed the Normal Course Issuer Bid (“NCIB”) launched in July 2019 with a total purchase of 12,053,692 common shares at an average price of $7.14 per share.
- Appointed Janice Murray and Nicolás Sujoy on the Board of Directors.
Products
- Received regulatory approval from Health Canada for Ibsrela™ for the treatment of irritable bowel syndrome with constipation (“IBS-C”).
- Obtained the exclusive Canadian commercial rights for Trelstar®, approved for the treatment of advanced prostate cancer.
Strategic Investments
- Received US$5,000 for the full repayment of the strategic loan issued to Triumvira Immunologics Inc.
- Amended strategic loan issued to Synergy CHC Corp. and loaned an additional US$2,500.
- Received distributions of $10,019 from strategic fund investments and realized a gain of $5,001.
Key Subsequent Events
- Launched a NCIB in July 2020 to purchase up to 10,856,710 common shares of the Company.
- Launched the tender offer for the acquisition of the remaining 48.8% of Biotoscana Investments S.A (“GBT”).
- Obtained regulatory approval for Lenvima® in Ecuador.
“Since the start of the pandemic, our focus has been to continue the integration our transformative acquisition while ensuring the safety of our colleagues and product supply for patients. We are pleased with the progress made at building a pan-American (ex-US) specialty pharmaceutical with the launch of our tender offer to buy the remaining 48.8% of GBT. Furthermore, we have advanced our commercial presence and product pipeline with the regulatory approval of Ibsrela™ in Canada and Lenvima® in Ecuador and the in-licensing of Trelstar®,” said Jonathan Goodman, CEO of Knight Therapeutics Inc.
__________________________________________________________________________________________________
1 Adjusted earnings is not a defined term under IFRS, refer to the definition below for additional details.
SELECT FINANCIAL RESULTS
[In thousands of Canadian dollars]
| Q2-20 | Change | |||||||||||
| KNIGHT1 | GBT1,2 | TOTAL | Q2-19 | $3 | %4 | |||||||
| Revenues | 4,323 | 48,927 | 53,250 | 3,204 | 50,046 | 1,562 | % | |||||
| Gross margin | 3,005 | 19,232 | 22,237 | 2,947 | 19,290 | 655 | % | |||||
| Selling and marketing | 1,016 | 8,035 | 9,051 | 1,348 | (7,703 | ) | 571 | % | ||||
| General and administrative | 2,661 | 5,510 | 8,171 | 3,883 | (4,288 | ) | 110 | % | ||||
| Research and development | 837 | 1,482 | 2,319 | 984 | (1,335 | ) | 136 | % | ||||
| Amortization of intangible assets | 387 | 5,417 | 5,804 | 423 | (5,381 | ) | 1,272 | % | ||||
| Operating Loss | (1,896 | ) | (1,212 | ) | (3,108 | ) | (3,691 | ) | 583 | 16 | % | |
| Interest income | 3,678 | – | 3,678 | 6,160 | (2,482 | ) | 40 | % | ||||
| Interest expense | 1,172 | 1,094 | 2,266 | – | (2,266 | ) | N/A | |||||
| Foreign exchange loss | 2,116 | 1,940 | 4,056 | 1,024 | (3,032 | ) | 296 | % | ||||
| Net income (loss) | 19,482 | (3,970 | ) | 15,512 | 18,956 | (3,444 | ) | 18 | % | |||
| Basic net earnings (loss) per share | 0.15 | (0.02 | ) | 0.13 | 0.13 | (0.00 | ) | 0 | % | |||
| Adjusted earnings | 2,371 | 7,601 | 9,972 | 4,564 | 5,408 | 119 | % | |||||
1 Refer to operating segment disclosure in Section 22 of management discussion and analysis for the quarter ended June 30, 2020 for definition of “Knight” and “GBT”
2 Includes fair value adjustments recorded on the business combination
3 A positive variance represents a positive impact to net income and a negative variance represents a negative impact to net income
4 Percentage change is presented in absolute values
| YTD-20 | Change | |||||||||||
| KNIGHT1 | GBT1,2 | TOTAL | YTD-19 | $3 | %4 | |||||||
| Revenues | 7,495 | 91,594 | 99,089 | 6,160 | 92,929 | 1,509 | % | |||||
| Gross margin | 5,613 | 36,484 | 42,097 | 5,218 | 36,879 | 707 | % | |||||
| Selling and marketing | 2,212 | 16,953 | 19,165 | 2,195 | (16,970 | ) | 773 | % | ||||
| General and administrative | 5,180 | 11,409 | 16,589 | 7,578 | (9,011 | ) | 119 | % | ||||
| Research and development | 1,604 | 3,464 | 5,068 | 1,610 | (3,458 | ) | 215 | % | ||||
| Amortization of intangible assets | 710 | 11,133 | 11,843 | 849 | (10,994 | ) | 1,295 | % | ||||
| Operating Loss | (4,093 | ) | (6,475 | ) | (10,568 | ) | (7,014 | ) | (3,554 | ) | 51 | % |
| Interest income | 8,327 | – | 8,327 | 12,050 | (3,723 | ) | 31 | % | ||||
| Interest expense | 3,187 | 2,235 | 5,422 | – | (5,422 | ) | N/A | |||||
| Foreign exchange (gain) loss | (2,493 | ) | 11,456 | 8,963 | 2,677 | (6,286 | ) | 235 | % | |||
| Net income (loss) | 25,927 | (19,892 | ) | 6,035 | 24,145 | (18,110 | ) | 75 | % | |||
| Basic net earnings (loss) per share | 0.20 | (0.08 | ) | 0.12 | 0.17 | (0.05 | ) | 30 | % | |||
| Adjusted earnings | 5,382 | 11,030 | 16,412 | 9,193 | 7,219 | 79 | % | |||||
1 Refer to operating segment disclosure in Section 22 of management discussion and analysis for the quarter ended June 30, 2020 for definition of “Knight” and “GBT”
2 Includes fair value adjustments recorded on the business combination
3 A positive variance represents a positive impact to net income and a negative variance represents a negative impact to net income
4 Percentage change is presented in absolute values
| Change | ||||||
| 06-30-20 | 12-31-19 | $ | %1 | |||
| Cash, cash equivalents, restricted cash and marketable securities | 566,837 | 536,182 | 30,655 | 6 | % | |
| Trade and other receivables | 77,844 | 108,182 | (30,338 | ) | 28 | % |
| Inventory | 71,836 | 70,870 | 966 | 1 | % | |
| Financial assets | 174,880 | 159,151 | 15,729 | 10 | % | |
| Accounts payable, accrued and other liabilities | 68,526 | 96,156 | (27,630 | ) | 29 | % |
| Bank loans | 46,014 | 55,579 | (9,565 | ) | 17 | % |
1 Percentage change is presented in absolute values
Revenue: For the quarter ended June 30, 2020, GBT’s financial results accounted for $48,927 of incremental revenues ($21,813 in Brazil, $10,684 in Argentina, $8,464 in Colombia and $7,966 in the rest of the Latin American region). Knight’s revenues increased by $1,119, or 35% attributable to timing of sales of Impavido®, the growth in Movantik® and the in-licensing of Trelstar.
Gross margin: For the quarter ended June 30, 2020, the gross margin decreased to 42% compared to the same period in the prior year. In addition, the Company added an inventory provision of $1,638 due to impact of COVID-19 on certain new product launches. The gross margin would have been 47%, an increase of 5%, from 42% after excluding the adjustment of hyperinflation accounting in accordance with IAS 29.
Selling and marketing: The increase of $7,703 for the quarter is primarily driven by the consolidation of GBT.
General and administrative: GBT’s financial results accounted for $5,510 of incremental general and administrative expenses for the three-month ended June 30, 2020. Knight’s general and administrative expenses for three-month period ended June 30, 2020 decreased by 31% or $1,222 compared to the same period prior year. The decrease is mainly due to $1,652 of non-recurring expenses incurred in the same period prior year on professional fees related to the activist campaign, public proxy battle and related litigations between the Company and dissident shareholder Meir Jakobsohn, Medison’s CEO, partially offset by additional expenses incurred due to the growth of the Company.
Research and development: GBT’s financial results accounted for $1,482 of incremental research and development expenses for the three-month period ended June 30, 2020. There was no significant variance in Knight’s research and development expenses.
Amortization of intangible assets: The amortization of the definite-life intangible assets acquired in the GBT transaction represents $5,417 for the three-month period ended June 30, 2020. There was no significant variance in Knight’s amortization.
Interest income: Interest income is the sum of interest income on financial instruments measured at amortized costs and other interest income. For the quarter, interest income was $3,678 a decrease of 40% or $2,428 compared to the same period prior year. The decrease is due to lower interest rates, lower average cash and marketable securities balances partially offset by a higher average loan balance.
Interest expense: GBT’s financial results accounted for $1,094 of incremental interest expense for the three-month period ended June 30, 2020 mainly related to interest on its bank loans. Knight’s portion of interest expense is mainly related to interest accretion on the Mandatory Tender Offer (“MTO”) liability of $1,165 for the three-month period ended June 30, 2020.
Foreign exchange gain or loss: For the quarter ended June 30, 2020, GBT’s financial results accounted for $1,940 of foreign exchange loss of which $1,048 relates to unrealized losses on intercompany balances, and $892 relates to losses on third party balances. Furthermore, Knight recorded a foreign exchange loss of $2,116 due to losses on certain US dollar denominated net assets.
Net income or loss: For the quarter net income was $15,512 a decrease of $3,444 compared to the same period last year. The variance mainly resulted from the above-mentioned items as well as (i) net gain on the revaluation of financial assets measured at fair value through profit or loss of $16,499 (Q2-19 $19,755) , (ii) net gain on MTO liability of $3,222 due to unrealized gain on the foreign exchange revaluation of the Brazilian real denominated MTO liability, offset by unrealized loss on forward and non-deliverable forward contracts, (iii) realized gain on the NCIB’s automatic share purchase plan of $1,299 (v) loss on hyperinflation of $527 due to net monetary positions under hyperinflation accounting.
Adjusted Earnings: For the three-month period ended June 30, 2020, adjusted earnings were $9,972 an increase of $5,408 or 119% compared to the same period last year. The consolidation of GBT’s financial results accounted for $7,601 of the increase which is partially offset by a decrease in Knight’s interest income.
Cash, cash equivalents, restricted cash and marketable securities: As at June 30,2020, Knight had $566,837 in cash and cash equivalents an increase of $30,655 or 6% as compared to December 31, 2019. The variance is primarily due to cash inflow related to sale of shares in associate partially offset by share repurchase through NCIB and acquisition of intangibles.
Trade and other receivable: As at June 30, 2020, Knight had $77,844 in trade and other receivables, a decrease of $30,338 compared to December 31, 2019. The decrease of $21,823 relates to a decrease in both short term and long term trade receivables due to depreciation of Latin American (“LATAM”) currencies, the net collection of collection of receivables and an increase in estimated credit loss provision recorded in 2020. The remaining difference is mainly due to collection of a distribution receivable from a fund investment, a decrease in interest receivable due to timing of the maturities of the marketable securities as well as a decline in interest rates.
Inventory: Overall increase in inventories of $966 as compared to December 31, 2019 is due to timing of inventory purchases and new product launches and the impact of hyperinflation adjustments, partially offset by the depreciation of LATAM currencies as well as inventory provisions.
Financial assets: The increase of $15,729 as compared to Q4 2019 in financial assets is due to the following: (i) increase of $3,243 attributable to loans and receivables as a result of additional loans issued and gain on foreign exchange (ii) decrease in equity investments of $5,687 due to disposal and revaluation, and (iii) increase of $18,173 attributable to fund investments due to capital calls, foreign exchange gains and mark to market adjustments partially offset by distribution received.
Accounts payable, accrued, and other liabilities: Decrease in accounts payable and accrued liabilities balance of $27,630, or 29% is mainly due payments of inventory purchases , payments of GBT transaction fees , the depreciation of LATAM currencies and lower accrual balance as compared to December 31, 2019 due to timing.
Bank Loans: As at June 30, 2020, bank loans were at $46,014, a decrease of $9,565 or 17% mainly due to loan repayment of $7,518 and the foreign exchange revaluation, partially offset by additional loan issued to a subsidiary of GBT.
Product Updates
On January 8, 2020, Knight announced it has partnered with Debiopharm in an exclusive agreement that grants Knight the Canadian rights to commercialize Trelstar® (triptorelin), an agonist analogue of the natural gonadotropin-releasing hormone (GnRH). Trelstar® is currently approved and sold in Canada. During the quarter, Knight took over commercial activities of Trelstar® in Canada.
On April 17, 2020, Knight obtained regulatory approval for Ibsrela™ (tenapenor) expected to be launched in Canada in early 2021. Knight entered into an exclusive licensing agreement with Ardelyx on March 16, 2018 to commercialize tenapanor in Canada. Ibsrela™ is a minimally-absorbed small molecule that acts locally in the gastrointestinal (“GI”) tract to inhibit the sodium-hydrogen exchanger NHE3, resulting in an increase in bowel movements and a decrease in abdominal pain for IBS-C patients. Tenapenor is also being evaluated to reduce phosphate absorption and lower elevated serum phosphate concentrations in patients with chronic kidney disease (CKD) on dialysis. On June 30, 2020, Ardelyx announced that it had submitted a New Drug Application to the US Food and Drug Administration for the control of serum phosphorus in adult patients with CKD on dialysis
In July, Knight obtained regulatory approval for Lenvima® (lenvatinib) in Ecuador for the treatment of (i) unresectable hepatocellular carcinoma (HCC); (ii) advanced renal cell carcinoma (RCC), in combination with everolimus; and, (iii) differentiated thyroid cancer (DTC).
Strategic Lending Update
On February 20, 2019, the Company entered into a US$5,000 secured loan with Triumvira for the development of its novelty T cell therapies and obtained the exclusive rights to commercialize Triumvira’s future products in select countries. On April 16, 2020, Triumvira repaid the loan and all remaining accrued interest.
On August 9, 2017, Knight issued a secured loan of US$10,000 with an annual interest rate of 10.5% for a three-year term to Synergy. On May 8, 2020, the Company amended certain terms in its loan agreement with Synergy. The Company has issued an additional loan of US$2,500 to Synergy which bears interest at 12.5% per annum and matures on May 8, 2021.
NCIB
On July 10, 2020, the Company announced that the Toronto Stock Exchange approved its notice of intention to make a NCIB. Under the terms of the NCIB, Knight may purchase for cancellation up to 10,856,710 common shares of the Company which represented 10% of its public float as at July 6, 2020. The NCIB commenced on July 14, 2020 and will end on the earlier of July 13, 2021 or when the Company completes its maximum purchases under the NCIB. Furthermore, Knight entered into an agreement with a broker to facilitate purchases of its common shares under the NCIB. Under Knight’s automatic share purchase plan, the broker may purchase common shares which would ordinarily not be permitted due to regulatory restrictions or self-imposed blackout periods. As at August 13, 2020, the Company has not purchased any shares under the 2020 NCIB.
Acquisition of GBT
On July 15, 2020, Knight announced the launch of the tender offer for the acquisition and delisting of the remaining 48.8% Brazilian Depository Receipts (“BDRs”)of GBT. When tendering their BDRs, the public shareholders may choose between the following two offers:
- BRL 10.96 per BDR plus interest at the Selic rate calculated from November 29, 2019 with an amount equivalent to 20% deposited in an escrow account to secure the sellers’ indemnification obligations under the purchase agreement for the GBT Transaction, provided that BRL 0.91 of the escrow amount shall be mandatorily paid on or at any time prior to November 29, 2022. The escrow amount will be released equally over a period of three years from closing, net of claims in accordance with the terms and conditions of the Share Purchase Agreement.
- BRL 10.15 per BDR in cash on the settlement date plus interest at the Selic rate calculated from
November 29, 2019.
BDR holders will be able to tender their BDRs at an auction that will take place on August 14, 2020 and the settlement will be completed within 2 business days of the auction.
COVID-19 Update
The recent outbreak of the coronavirus, or COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. Certain countries where the Company has significant operations, have required entities to limit or suspend business operations and have implemented travel restrictions and quarantine measures. Knight is continuing to work to alleviate some of the pressure that the global COVID-19 pandemic has placed on our healthcare systems and ensure that we maintain supply of our medicines to patients. The Company and its employees have transitioned to working remotely, including our field sales and medical teams. The Company has taken steps to establish digital and virtual channels to ensure that physicians and patients continue to receive continued support. Knight is developing return to field or office protocols on a country by country basis. Furthermore, the Company has not faced any inventory shortages and has sufficient liquidity to meet all operating requirements for the foreseeable future. As the date hereof, the outbreak has not had a material impact on the Company’s results.
Conference Call Notice
Knight will host a conference call and audio webcast to discuss its first quarter results today at 8:30 am ET. Knight cordially invites all interested parties to participate in this call.
Date: August 13, 2020
Time: 8:30 a.m. ET
Telephone: Telephone: Dial-in information will be provided to participants following pre-registration
Webcast:www.gud-knight.com or Webcast
This is a listen-only audio webcast. Media Player is required to listen to the broadcast.
Replay: An archived replay will be available for 30 days at https://www.gud-knight.com
Please pre-register in advance of the call.
This method will allow you to join the call seconds before it goes live without having to hold for a live agent to pick up your line, which has proven to be an issue with the influx of callers during the COVID-19 pandemic.
Online pre-registration: http://www.directeventreg.com/registration/event/9194534
Phone pre-registration: 1-(888)-869-1189 and provide the Conference ID: 9194534 to the Live Agent who will take your details.
Once you register, you will receive a confirmation which will have the dial in number and both the Direct Event Passcode and your unique Registrant ID to join this call. For security reasons, please do NOT share this information with anyone else.
About Knight Therapeutics Inc.
Knight Therapeutics Inc., headquartered in Montreal, Canada, is a specialty pharmaceutical company focused on acquiring or in-licensing and commercializing innovative pharmaceutical products for Canada and Latin America. Knight owns a controlling stake in Grupo Biotoscana, a pan-Latin American specialty pharmaceutical company. Knight Therapeutics Inc.’s shares trade on TSX under the symbol GUD. For more information about Knight Therapeutics Inc., please visit the company’s web site at www.gud-knight.com or www.sedar.com.
Forward-Looking Statement
This document contains forward-looking statements for Knight Therapeutics Inc. and its subsidiaries. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Knight Therapeutics Inc. considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared but cautions the reader that these assumptions regarding future events, many of which are beyond the control of Knight Therapeutics Inc. and its subsidiaries, may ultimately prove to be incorrect. Factors and risks, which could cause actual results to differ materially from current expectations are discussed in Knight Therapeutics Inc.’s Annual Report and in Knight Therapeutics Inc.’s Annual Information Form for the year ended December 31, 2019 as filed on www.sedar.com. Knight Therapeutics Inc. disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information or future events, except as required by law.
CONTACT INFORMATION:
| Investor Contact: | |
| Knight Therapeutics Inc. | |
| Samira Sakhia | Arvind Utchanah |
| President & Chief Operating Officer | Chief Financial Officer |
| T: 514-678-8930 | T. 514.484.4483 ext. 115 |
| F: 514-481-4116 | F. 514.481.4116 |
| Email: info@gudknight.com | Email: info@gudknight.com |
| Website: www.gud-knight.com | Website: www.gud-knight.com |
IMPACT OF HYPERINFLATION
[In thousands of Canadian dollars]
The Company applies IAS 29, Financial Reporting in Hyperinflation Economies, as the Company’s Argentine subsidiaries used the Argentine Peso as their functional currency. IAS 29 requires that the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy be adjusted based on an appropriate general price index to express the effects of inflation. If the Company did not apply IAS 29, the effect on the Company’s operating income would be as follows:
Q2-20
| Reported under IFRS |
Excluding impact of IAS 29 |
Variance | ||||||
| $1 | %2 | |||||||
| Revenues | 53,250 | 54,526 | (1,276 | ) | 2 | % | ||
| Cost of goods sold | 31,013 | 28,956 | (2,057 | ) | 7 | % | ||
| Gross margin | 22,237 | 25,570 | (3,333 | ) | 13 | % | ||
| Gross margin (%) | 42 | % | 47 | % | ||||
| Expenses | ||||||||
| Selling and marketing | 9,051 | 9,315 | 264 | 3 | % | |||
| General and administrative | 8,171 | 8,192 | 21 | 0 | % | |||
| Research and development | 2,319 | 2,375 | 56 | 2 | % | |||
| Amortization of intangible assets | 5,804 | 6,092 | 288 | 5 | % | |||
| Operating Loss | (3,108 | ) | (404 | ) | (2,704 | ) | 669 | % |
1 A positive variance represents a positive impact to net income due to the application of IAS 29 and a negative variance represents a negative impact to net income due to the application of IAS 29
2 Percentage change is presented in absolute values
YTD-20
| Reported under IFRS |
Excluding impact of IAS 29 |
Variance | ||||||
| $1 | %2 | |||||||
| Revenues | 99,089 | 100,014 | (925 | ) | 1 | % | ||
| Cost of goods sold | 56,992 | 53,971 | (3,021 | ) | 6 | % | ||
| Gross margin | 42,097 | 46,043 | (3,946 | ) | 9 | % | ||
| Gross margin (%) | 42 | % | 46 | % | ||||
| Expenses | ||||||||
| Selling and marketing | 19,165 | 19,303 | 138 | 1 | % | |||
| General and administrative | 16,589 | 16,526 | (63 | ) | 0 | % | ||
| Research and development | 5,068 | 5,096 | 28 | 1 | % | |||
| Amortization of intangible assets | 11,843 | 11,651 | (192 | ) | 1 | % | ||
| Operating Loss | (10,568 | ) | (6,533 | ) | (4,035 | ) | 62 | % |
1 A positive variance represents a positive impact to net income due to the application of IAS 29 and a negative variance represents a negative impact to net income due to the application of IAS 29
2 Percentage change is presented in absolute values
The Company has provided an explanation of the basics of accounting under Hyperinflation (IAS 29). Refer to the investor relations section at www.gud-knight.com for a copy of the presentation.
RECONCILIATION TO ADJUSTED EARNINGS
[In thousands of Canadian dollars]
Non-IFRS measure: EBITDA and Adjusted earnings
The Company discloses non-IFRS measures that do not have standardized meanings prescribed by IFRS. The Company believes that shareholders, investment analysts and other readers find such measures helpful in understanding the Company’s financial performance and in interpreting the effect of the GBT Transaction on the Company. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and may not have been calculated in the same way as similarly named financial measures presented by other companies.
The Company uses the following non-IFRS measures:
EBITDA: Operating (loss) income adjusted to exclude amortization and impairment of intangible assets, depreciation, purchase price allocation accounting, and the impact of IAS 29 (accounting under hyperinflation) but to include costs related to leases. In addition, EBITDA does not reflect the portion of GBT’s adjusted earnings attributable to the non-controlling interests.
Adjusted earnings: Operating (loss) income adjusted to exclude amortization and impairment of intangible assets, depreciation, acquisition costs, non-recurring expenses incurred but to include interest income earned net of interest expenses and costs related to leases. In addition, the adjusted earnings does not reflect the portion of GBT’s adjusted earnings attributable to the non-controlling interests.
Adjustments to operating (loss) income include the following:
- With the adoption of IFRS 16, the lease payments of Knight are not reflected in operating expenses. The IFRS 16 adjustment approximates the cash outflow related to leases of Knight.
- Acquisition costs relate to expenses of $104 for the quarter, for the acquisition of GBT.
- Other non-recurring expenses relate to expenses incurred by Knight that are not due to, and are not expected to occur in, the ordinary course of business. For the quarter ended June 30, 2020, Knight recorded one-time costs of $304 related to restructuring activities including severance to certain employees as part of restructuring and integration of GBT
- Interest income Includes “Interest income on financial instruments measured at amortized cost” and “Other interest income”. Primarily from interest earned on loans, cash and cash equivalents, marketable securities and accretion on loans receivable.
- Interest expense on bank loans includes GBT’s interest expense mainly related to interest on its bank loans and excludes Knight’s interest accretion
For the three-month and six-month periods ended June 30, 2020, the Company calculated adjusted operating income as follows:
| Q2-20 | YTD-20 | |||||||||||||||
| KNIGHT1 | GBT1,2 | TOTAL | Q2-19 | KNIGHT1 | GBT1,2 | TOTAL | YTD-19 | |||||||||
| Operating (loss) income | (1,896 | ) | (1,212 | ) | (3,108 | ) | (3,691 | ) | (4,093 | ) | (6,475 | ) | (10,568 | ) | (7,014 | ) |
| Adjustments to operating (loss) income: | ||||||||||||||||
| Amortization of intangible assets | 387 | 5,417 | 5,804 | 423 | 710 | 11,133 | 11,843 | 849 | ||||||||
| Depreciation of property, plant and equipment |
121 | 1,689 | 1,810 | 96 | 222 | 3,312 | 3,534 | 193 | ||||||||
| Lease costs (IFRS 16 adjustment) | (68 | ) | (683 | ) | (751 | ) | (76 | ) | (149 | ) | (1,436 | ) | (1,585 | ) | (125 | ) |
| Impact of PPA accounting | – | 233 | 233 | – | – | 865 | 865 | – | ||||||||
| Impact of IAS 29 | – | 2,992 | 2,992 | – | – | 3,843 | 3,843 | – | ||||||||
| EBITDA | (1,456 | ) | 8,436 | 6,980 | 3,248 | (3,310 | ) | 11,242 | 7,932 | (6,124 | ) | |||||
| Acquisition costs | 104 | – | 104 | – | 320 | – | 320 | – | ||||||||
| Other non-recurring expenses | 45 | 259 | 304 | 1,652 | 45 | 2,023 | 2,068 | 3,267 | ||||||||
| Interest income | 3,678 | – | 3,678 | 6,160 | 8,327 | – | 8,327 | 12,050 | ||||||||
| Interest expense on bank loans | – | (1,094 | ) | (1,094 | ) | – | – | (2,235 | ) | (2,235 | ) | – | ||||
| Adjusted earnings | 2,371 | 7,601 | 9,972 | 4,564 | 5,382 | 11,030 | 16,412 | 9,193 | ||||||||
1 Refer to operating segment disclosure in Section 22 of management discussion and analysis for the quarter ended June 30, 2020 for definition of “Knight” and “GBT
2 Not adjusted for the non-controlling interest of 48.8%
INTERIM CONSOLIDATED BALANCE SHEETS
[In thousands of Canadian dollars]
[Unaudited]
| As at | June 30, 2020 | December 31, 2019 |
| ASSETS | ||
| Current | ||
| Cash, cash equivalents and restricted cash | 359,593 | 174,268 |
| Marketable securities | 191,927 | 235,045 |
| Trade receivables | 66,779 | 85,845 |
| Other receivables | 9,107 | 17,622 |
| Inventories | 71,836 | 70,870 |
| Prepaids and deposits | 1,937 | 3,306 |
| Other current financial assets | 14,410 | 26,303 |
| Income taxes receivable | 3,032 | 8,265 |
| Total current assets | 718,621 | 621,524 |
| Marketable securities | 15,317 | 126,869 |
| Trade receivables | 1,958 | 4,715 |
| Prepaids and deposits | 3,706 | 4,652 |
| Right-of-use assets | 4,821 | 6,409 |
| Property, plant and equipment | 22,948 | 22,639 |
| Investment property | 1,518 | 1,740 |
| Intangible assets | 164,950 | 173,372 |
| Goodwill | 80,443 | 88,262 |
| Other financial assets | 160,470 | 132,848 |
| Deferred income tax assets | 5,012 | 3,991 |
| Other long-term receivable | 42,423 | 41,582 |
| 503,566 | 607,079 | |
| Assets held for sale | 2,561 | 76,700 |
| Total assets | 1,224,748 | 1,305,303 |
INTERIM CONSOLIDATED BALANCE SHEETS (continued)
[In thousands of Canadian dollars]
[Unaudited]
| As at | June 30, 2020 | December 31, 2019 |
| LIABILITIES AND EQUITY | ||
| Current | ||
| Accounts payable and accrued liabilities | 66,518 | 94,406 |
| Lease liabilities | 1,508 | 1,788 |
| Other liabilities | 1,588 | 1,750 |
| Other financial liabilities | 181,357 | 184,023 |
| Bank loans | 44,074 | 50,557 |
| Income taxes payable | 14,334 | 15,447 |
| Other balances payable | 2,617 | 2,833 |
| Total current liabilities | 311,996 | 350,804 |
| Lease liabilities | 3,766 | 4,812 |
| Accounts payable and other liabilities | 420 | – |
| Bank loans | 1,940 | 5,022 |
| Other balances payable | 7,245 | 1,699 |
| Deferred income tax liabilities | 20,383 | 27,860 |
| Total liabilities | 345,750 | 390,197 |
| Shareholders’ equity | ||
| Share capital | 699,067 | 723,832 |
| Warrants | 785 | 785 |
| Contributed surplus | 16,882 | 16,463 |
| Accumulated other comprehensive income | 16,923 | 17,405 |
| Retained earnings | 58,209 | 52,246 |
| Attributable to shareholders of the Company | 791,866 | 810,731 |
| Non-controlling interests | 87,132 | 104,375 |
| Total equity | 878,998 | 915,106 |
| Total liabilities and equity | 1,224,748 | 1,305,303 |
INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS)
[In thousands of Canadian dollars, except for share and per share amounts]
[Unaudited]
| Three months ended June 30, |
Six months ended June 30, |
|||||||
| 2020 | 2019 | 2020 | 2019 | |||||
| Revenues | 53,250 | 3,204 | 99,089 | 6,160 | ||||
| Cost of goods sold | 31,013 | 257 | 56,992 | 942 | ||||
| Gross margin | 22,237 | 2,947 | 42,097 | 5,218 | ||||
| Expenses | ||||||||
| Selling and marketing | 9,051 | 1,348 | 19,165 | 2,195 | ||||
| General and administrative | 8,171 | 3,883 | 16,589 | 7,578 | ||||
| Research and development | 2,319 | 984 | 5,068 | 1,610 | ||||
| Amortization of intangibles | 5,804 | 423 | 11,843 | 849 | ||||
| Operating loss | (3,108 | ) | (3,691 | ) | (10,568 | ) | (7,014 | ) |
| Interest income on financial instruments measured at amortized cost | (2,340 | ) | (4,901 | ) | (5,723 | ) | (9,826 | ) |
| Other interest income | (1,338 | ) | (1,259 | ) | (2,604 | ) | (2,224 | ) |
| Interest expense | 2,266 | – | 5,422 | – | ||||
| Other income | 135 | (17 | ) | 110 | (370 | ) | ||
| Net gain on financial instruments measured at fair value through profit or loss | (16,499 | ) | (19,755 | ) | (9,769 | ) | (24,532 | ) |
| Net gain on mandatory tender offer liability | (3,222 | ) | – | (4,744 | ) | – | ||
| Realized gain on sale of asset held for sale | - | – | (2,948 | ) | – | |||
| Realized gain on automatic share purchase plan | (1,299 | ) | – | (4,168 | ) | – | ||
| Share of net income of associate | – | 372 | - | (320 | ) | |||
| Foreign exchange loss | 4,056 | 1,024 | 8,963 | 2,677 | ||||
| Loss on hyperinflation | 527 | – | 804 | – | ||||
| Income before income taxes | 14,606 | 20,845 | 4,089 | 27,581 | ||||
| Income tax | ||||||||
| Current | 1,464 | 638 | 4,465 | 2,169 | ||||
| Deferred | (2,370 | ) | 1,251 | (6,411 | ) | 1,267 | ||
| Income tax (recovery) expense | (906 | ) | 1,889 | (1,946 | ) | 3,436 | ||
| Net income for the period | 15,512 | 18,956 | 6,035 | 24,145 | ||||
| Attributable to: | ||||||||
| Shareholders of the Company | 17,449 | 18,956 | 15,740 | 24,145 | ||||
| Non-controlling interests | (1,937 | ) | – | (9,705 | ) | – | ||
| Attributable to shareholders of the Company | ||||||||
| Basic (loss) earnings per share | 0.13 | 0.13 | 0.12 | 0.17 | ||||
| Diluted (loss) earnings per share | 0.13 | 0.13 | 0.12 | 0.17 | ||||
| Weighted average number of common shares outstanding | ||||||||
| Basic | 131,045,101 | 142,861,274 | 133,094,626 | 142,856,785 | ||||
| Diluted | 131,369,206 | 143,215,379 | 133,403,376 | 143,230,442 | ||||
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
[In thousands of Canadian dollars]
[Unaudited]
| Three months ended June 30, | Six months ended June 30, | |||||||
| 2020 | 2019 | 2020 | 2019 | |||||
| OPERATING ACTIVITIES | ||||||||
| Net income for the period | 15,512 | 18,956 | 6,035 | 24,145 | ||||
| Adjustments reconciling net income to operating cash flows: | ||||||||
| Deferred income tax (recovery) expense | (2,370 | ) | 1,251 | (6,411 | ) | 1,267 | ||
| Share-based compensation expense | 227 | 698 | 697 | 1,155 | ||||
| Depreciation and amortization | 7,614 | 519 | 15,377 | 1,042 | ||||
| Net gain on financial instruments | (16,499 | ) | (19,755 | ) | (9,769 | ) | (24,532 | ) |
| Net gain on mandatory tender offer liability | (3,222 | ) | – | (4,744 | ) | – | ||
| Realized gain on sale of asset held for sale | – | – | (2,948 | ) | – | |||
| Realized gain on automatic share purchase plan | (1,299 | ) | – | (4,168 | ) | – | ||
| Interest expense | 2,266 | – | 5,422 | – | ||||
| Foreign exchange loss | 4,056 | 1,024 | 8,963 | 2,677 | ||||
| Loss on hyperinflation | 527 | – | 804 | – | ||||
| Share of net income of associate | - | 372 | - | (320 | ) | |||
| Other adjustments | (750 | ) | (13 | ) | (414 | ) | (183 | ) |
| 6,062 | 3,052 | 8,844 | 5,251 | |||||
| Changes in non-cash working capital and other items | 3,483 | (600 | ) | (20,305 | ) | 1,896 | ||
| Other long-term receivable | – | – | – | (18,242 | ) | |||
| Dividends from associate | – | – | – | 4,159 | ||||
| Interest payments on bank loans | (1,473 | ) | – | (1,634 | ) | – | ||
| Cash inflow (outflow) from operating activities | 8,072 | 2,452 | (13,095 | ) | (6,936 | ) | ||
| INVESTING ACTIVITIES | ||||||||
| Purchase of marketable securities | (20,000 | ) | (84,252 | ) | (33,415 | ) | (183,145 | ) |
| Purchase of intangible assets | (10,093 | ) | – | (12,407 | ) | (1,989 | ) | |
| Purchase of property and equipment | (1,125 | ) | (4 | ) | (1,501 | ) | (4 | ) |
| Exercise of warrants | – | – | (386 | ) | – | |||
| Issuance of loans receivables | (7,364 | ) | (201 | ) | (7,364 | ) | (18,051 | ) |
| Purchase of equity investments | – | (6 | ) | (397 | ) | (6 | ) | |
| Investment in funds | (7,445 | ) | (5,463 | ) | (13,000 | ) | (12,570 | ) |
| Proceeds on sale of asset held for sale | – | – | 77,000 | – | ||||
| Proceeds on maturity of marketable securities | 118,113 | 150,584 | 194,559 | 271,548 | ||||
| Proceeds from repayments of loans receivable | 7,751 | 2,044 | 7,769 | 2,701 | ||||
| Proceeds from disposal of equity investments | – | – | 2,919 | – | ||||
| Proceeds from distribution of funds | 10,019 | 1 | 12,109 | 677 | ||||
| Cash inflow from investing activities | 89,856 | 62,703 | 225,886 | 59,161 | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from exercise of stock options | 480 | – | 480 | – | ||||
| Proceeds from contributions to share purchase plan | 40 | 56 | 113 | 116 | ||||
| Proceeds from bank loans | – | – | 11,922 | – | ||||
| Repurchase of common shares through Normal Course Issuer Bid | (17,954 | ) | – | (31,265 | ) | – | ||
| Principal repayment of lease liabilities | (758 | ) | (70 | ) | (1,585 | ) | (137 | ) |
| Principal repayments on bank loans | (6,787 | ) | – | (7,518 | ) | – | ||
| Cash outflow from financing activities | (24,979 | ) | (14 | ) | (27,853 | ) | (21 | ) |
| Increase in cash and cash equivalents during the period | 72,949 | 65,141 | 184,938 | 52,204 | ||||
| Cash, cash equivalents and restricted cash, beginning of the period | 286,942 | 231,110 | 174,268 | 244,785 | ||||
| Net foreign exchange difference | (298 | ) | (1,340 | ) | 387 | (2,078 | ) | |
| Cash and cash equivalents, end of the period | 359,593 | 294,911 | 359,593 | 294,911 | ||||
| Cash and cash equivalents | 359,593 | 294,911 | ||||||
| Short-term marketable securities | 191,927 | 301,829 | ||||||
| Long-term marketable securities | 15,317 | 148,532 | ||||||
| Total cash, cash equivalents and marketable securities | 566,837 | 745,272 | ||||||
