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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Crown Capital Q4 2017 Results Conference Call.Please note that today's call contains forward-looking statements within the meaning of the applicable Canadian securities legislation. Forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause actual financial results, performance or achievements to be materially different from estimated future results, performance or achievements expressed or implied by those forward-looking statements. For a description of the risks associated with Crown's business, please refer to the company's filings for Q4 and year-end 2017 at sedar.com.Chris Johnson, Chief Executive Officer, you may begin your conference.
All right. Well, thank you, Sharon, and good morning, and welcome to Crown Capital's Fourth Quarter 2017 Results Conference Call. I'm joined today by Michael Overvelde, our Chief Financial Officer. I'll start today's call with a few comments on the portfolio before Mike reviews the financials, then we'll open up the call to questions.It was a solid fourth quarter for Crown and we closed a successful 2017. We added 3 new investments to the portfolio and a fourth in early 2018. The detail to these transactions are covered in our disclosures, so I'll comment only at a high level at this time.In December, we completed a $7 million term loan with Active Exhaust Corporation. They're a manufacturer of complete exhaust systems for major global OEMs in the off-road equipment sector. Active has a 50-year track record and strong fundamentals, including long-term production agreements and a highly experienced management team. Crown's financing was used to support a management buyout of the minority shareholders, a recurring situation we've seen many times over the years.Last month, we completed an $8 million term loan with Canadian Helicopters Limited. They're the largest helicopter transportation services in Canada with a network of 11 fixed-base operations and 91 helicopters supporting operations throughout the country. This is a very well-established operation, solid reputation and multiyear contracts with blue-chip customers. The company is well positioned to benefit from improving commodity markets and -- as well as increased usage of helicopters in air ambulance and disaster relief efforts. Again, like Active, our financing was used to support a management buyout of the business. In addition to these 2 investments, we made important progress with the realization of our loan to Petrowest. As we discussed on our last call, during the quarter, the Alberta Court approved the acquisition of Petrowest's Civil division by RBee, a newly established company owned by the RBee Management and Crown Fund IV and a syndicate partner. RBee is a very well-run business with a long history of profitability, and we believe we entered at a very extremely attractive entry price. We are expecting to monetize excess working capital and surplus assets over the next 6 months, which will be used to prepay a portion of Crown's loans and effectively lower the purchase price of the business.As you'll read in our Q4 financials, we now expect to recover the full amount of our loan to Petrowest in addition to all fees and interest receivable from Petrowest, which will enable us to generate a healthy return from this investment. While the dismantling of Petrowest and the corresponding destruction of value and jobs disheartens me, I'm satisfied that we supported the company as long as we could and that we achieved a successful outcome for our investors.In aggregate, we deployed the $113.6 million in 2017, including the $18.2 million that was redeployed to RBee. We also started 2018 with a sizable transaction, a $33 million term loan to Baylin Technologies, a publicly listed global provider of innovative wireless antenna solutions. We syndicated a $3 million loan to 2 of our institutional LPs. Baylin has the characteristics of the successful businesses we target, including a long-standing blue-chip customer base and very positive industry trends, combined with robust revenue and EBITDA growth. Our loan was used of finance a strategic acquisition which significantly expanded Baylin's presence in the fast-growing wireless infrastructure market.Building a high-quality book is key to success, and we're generally pleased with the performance and outlook of our portfolio of companies. I'd encourage you to review the company update section of our MD&A for more detail, including the risk ratings for each loan. In addition to these operating highlights, we delivered strong financial performance in the fourth quarter, including 65 growth -- 65% growth in revenue and 90% growth in our adjusted EBIT. Our business has significant operating leverage, so as we scale and put more capital to work, we expect to generate growing earnings and cash flow to fund an increasing dividend. Last month, we declared a dividend of $0.15 per common share, which represents an increase of 15% over the previous quarterly dividend, $0.13 per share. Since the beginning of last year, we've increased the dividend 3 times for a total increase of 36%. As we further scale the business, we expect that we'll be able to provide Crown investment in increasing dividend, combined with continuous growth of our book value.With that, I'll turn the call over to Mike, who will review the financial results.
Thanks, Chris. Good morning, everyone. I'm just going to very quickly go over the highlights for the quarter. Total revenue was $8.9 million, that's up 65% from $5.4 million in Q4 2016 due to higher interest revenue earned by CCF IV LP, and that in itself is due to a higher level of investment. We also had a higher level of net investment gains in the quarter, partially offset by a slightly lower fee income. Now if I'm looking a little bit more closely at the components of revenue, we generated interest revenue of $5.5 million in the quarter, that's up 53% from the same period last year, again, primarily due to increased lending activity in assets in CCF IV. We recorded a net gain on investments of $1.6 million compared to the loss of $0.4 million in the same period last year. Most significant contributors to this were an increase in the fair value of the Petrowest loan to par value to reflect our expectation of a full recovery of the loan principal. We also had an increase in the fair value of resource loan from par value, and these were partially offset by decreases in the fair value of the Medicure and Marquee warrants as well as a decrease in the fair value of the Touchstone royalty.As Chris mentioned, our 24 -- our Q4 2017 revenues included both interest of $1.1 million and fee income of $0.2 million related to Petrowest. Now that we expect a full recovery of all amounts owing to us, we've included all revenues that would have accrued to us by December 31. And we're comfortable with expecting that recovery.Fees and other income in the quarter were $1.9 million. Now that's down modestly from $2.2 million for the same period last year, but we still consider that to be a strong result. Although, again, this was a decent level in Q4, Q4 2016 was particularly strong for fees as we'd closed $60 million of new investment deals in that quarter.Total expenses in the fourth quarter were $1.9 million, that's down from $2.2 million in Q4 2016. Just to walk you through that, G&A was flat in Q4 and year-on-year. Share-based comp was also flat quarter-on-quarter and year-on-year. What moved was salaries expense. That decreased by $0.4 million in the -- year-on-year in the quarter. But for the year as a whole, it was up slightly from $2.3 million to $2.4 million. The difference there just has to do with the timing of the bonus accruals, which were a little bit more about evenly dispersed through the year this year, a little bit less back-end weighted. Last year, a little bit more was achieved in Q4.Adjusted EBIT was $3.4 million, an increase of 90% compared with $1.8 million in Q4 2016. The total comprehensive income net of controlling interest was $2.1 million or $0.22 per basic share in the fourth quarter compared with $0.9 million or $0.09 per basic share in Q4 last year. In Q4, we announced a quarterly dividend of $0.13 per share payable on December 1. And for the full year, we paid out $0.50 per share in dividends. In February 6, we announced another increase to $0.15 per share. And as Chris mentioned, a growing dividend is an important attribute -- investment attribute to Crown, and we expect to announce further increases as we execute on the business plan.Total assets at year-end were $229.1 million, including cash and cash equivalents of $41.1 million. I'll just explain that, just the higher cash level than usual. We had I guess pre-funded by raising a capital from our noncontrolling interest limited partners to fund that Baylin deal which closed in January. That funding was done in December, which explains much of that higher cash balance.Total equity increased to $104.4 million, that's $10.98 per basic share. With the cash in our balance sheet, credit facility and committed LP capital, we remain financially well positioned to pursue our growth objectives. At year-end, we had access to approximately $89 million for additional portfolio investments. As I mentioned, shortly after the year end, we invested $30 million of that in the Baylin investment, left us with about $59 million net of that to be deployed -- or available to be deployed.And with that, I'll turn it back to Chris for closing comments.
All right. Well, thank you, Mike. So looking ahead, we believe the business is well positioned for strong growth in 2018. Our focus this year is to continue to build a diversified portfolio of high-quality businesses which will drive both short-term and long-term revenue for Crown. And this will also drive an acceleration of our bottom line, which we'll have more money to work and reduce less -- have less cash drag than we did through 2017. Entrepreneurs need intelligent, non-dilutive capital alternatives, and Crown has an exceptional platform to service their needs. We continue to see strong demand and a healthy transaction pipeline for 2018. We currently have a number of deals at different stages of the investment process, and we're seeing the deals across a wide variety of sectors, including manufacturing, energy, business services, industrial and technology. Demand for mid-market borrowers is matched by continued strong demand from institutional investors seeking exposure to private credit. We increased $100 million -- we raised $100 additionally to Fund IV last year while adding also new LPs to this fund. These conditions support our objectives to build and diversify our funding base. As we deploy more capital and apply modest leverage, our business will allow us to generate significant increase in earnings, cash flows and our dividends.With that, we look forward to updating you with our release in Q1 -- of Q1 in May. And we'll turn the call over to the operator for questions.
[Operator Instructions] Your first question comes from Chris Murray from AltaCorp Capital.
Chris, just talking about the bid pipeline. In your commentary and in your outlook, you talk about the fact that you expected to have the majority of deployments done by mid-2018. Can you give us some flavor on -- and you gave us some broad buckets in terms of industry. But just some flavor on how that pipeline looks? And what gives you the confidence that you can actually hit that target?
I don't recall saying mid-2018. I apologize if ever I said that. No. We're...
It's in your outlook statement, so that's just why I'm...
Well, I think -- well, maybe that's a -- I'll have to go back at the exact words. We were are expecting a strong first half. We're not expecting to meet our full year targets by mid-'18. And we're still expecting to do about $100 million, hopefully, on a conservative basis, maybe slightly more than that this year. But we do expect, given that we've already got $30 million represented in our books for Baylin this year, we're well advanced on that objective.
Okay. And then in terms of the pipeline, any sort of breakdown on where you're at in terms of the maturity of that pipeline? And your confidence in getting that closed?
Yes. Well, Just as I said, we have a number of deals at different stages of it. That would include things we're negotiating, things that are in due diligence and things that are getting close to final for that. So it's -- they're not done until they're done. So if they -- that happens, so you just have to keep pushing all things forward to get those numbers. But it's -- that's where we'd want to be as having. So a number of transactions at different stages.
Okay. Sounds good. If I do my calculations correctly, you talked about roughly the $89 million at the end of the year, maybe $59 million after the Baylin transaction. That probably gives you enough capital to fund this Fund IV through the, I guess, the target of $300 million. I guess, the question after that is what are your thoughts about further growth and opportunities? Should we be thinking that there's a Fund V? Or just what are your thoughts around -- I guess, 2 pieces of this. Where do you go next? And the second piece is how do you fund that additional growth?
Well, we have a really good base of limited partners, probably the best I've ever seen or could have wanted for. They've been largely growing with us at -- I mean, like, the major ones have been growing with us at each raise we've done. And we've been adding new ones to the pool as we go. I've seen no indication from any of those partners that they don't want to continue growing with us. So the exact structuring of fund and funds beyond 2018 is actually in the works right now with them and -- but there's just more demand for -- from them, institutions, than there is than we're seeing right now in the market. At least, we're keeping that more or less slightly in balance of having more of a backlog for capital than we do actually have investment transactions.
And Chris, [indiscernible]. This is Michael Overvelde here. I'm just going to jump in with a quick -- what might be a clarification question to your mid-2018 question. In the outlook section, I guess, what we've said is that we intend to have deployed the vast majority of our cash and cash equivalents and basically get through the funding availability that we've defined here as about $59 million by mid-2018, which would sort of correspond to that pace of $100 million a year type investment. And of course, as Chris is explaining, that's not a static number because as we deploy capital -- and there's the prospect of raising additional capital through the funds and for ourselves as well.
Your next question comes from Brenna Phelan from Raymond James.
Can you talk about how the Crushing business is doing? What kind of trends you're seeing there? Any steps you've taken to start to streamline operations and ramp up revenue?
I can talk a bit about it. It's a private business and we don't really want to tell the world everything we're doing inside of a private business. But I can tell you, we closed in March -- I'm sorry, November 1. So it's only been a few months. The company has been operating at a higher level revenue than would have projected. It's just the -- there's -- the demand for that services in Western Canada is tied to infrastructure, continues to be very strong, and we're seeing 2018 to shape up to be a nice year. We think the management team is one of the most, if not the most experienced team in the industry. And we're advancing the company to basically further its domination and cost leadership. And so there's just some operational changes that they're working through and to really increase profitability of the business. So yes, it is relatively new. And as we wanted to -- [indiscernible] want it. When you buy a business, you need to sort of establish things, and then you can really start making changes, and so. But everything we've seen now has been encouraging.
Great. And then in terms of your pipeline, are you seeing lots of demand for the sort of smaller loans, like the $7 million and $8 million you did near the end of the year? Or are they more -- are they bigger?
It's all over the place, and it always has. Like, if you -- so you go $7 million, $8 million, $33 million and what the next one's going to be. It's -- we're open for business sort of in that $5 million to $30 million range. We'll do a little more in that if we want and we find syndicate partners who will take that exposure from us. But it's -- a deal is a deal, and we don't -- yes, the larger deals make more impact, but the smaller deals provide more diversification. So there's benefits to both, and I think it's important to is to look at all opportunities as to what's a good deal. And if it's a good deal, we want to have it in our portfolio.
And what's looking really interesting now? Still lots of opportunity in junior resource kind of stuff?
Yes. That's certainly -- nothing's changed on that front, like, there's a -- that's going to be a multiyear situation. I expect that there's just been a withdrawal of capital that has yet to really fix itself. And so you're left with a fairly open industry to do business in. Our challenge, I think we mentioned in the past, is that we are a diversified business. And as we only -- we want to keep our direct energy lending exposure to about 30%, and which we're below that today. But it's -- that doesn't give us a ton of room. So we are looking at some things to maybe expand that capital available for just that industry. But no, it's -- the pipeline is actually pretty widespread. We have a number of deals at different stages, and there's no sort of rhyme or reason as to what industries they're coming from.
Your next question is from Stephen MacLeod from BMO Capital Markets.
So just talking a little bit more about the pipeline. I mean, I know it sounds like you're fully funded through the first half of this year. And if I understand correctly, that if you take the $30 million plus the $59 million left, that will get you to roughly your $100 million. Do you have any -- in addition to LPs participating in the next fund, do you have any public market needs? Or how else would you look to bridge that financing gap?
Well, we have a debt facility we have yet to really pull on. That's the next obvious thing to do. And we are looking at other structures that either, more funds or other types of ways of sort of non-dilutive ways of getting capital on our own balance sheet. Those will start taking shape probably over the next quarter or so. But suffice to say, we're developing the capital ahead of where we see having to deploy the money. And at this point in time, we don't see any issues in terms of filling our capital buckets up to do what we need to do this year.
Right. Okay. That's great. And then when -- just looking at the expense bucket. Is 2017 sort of a good run rate? Or maybe this -- maybe the back half of 2017 a good run rate for what you to expect moving forward?
Just actually, I haven't looked at it by the half. But in terms of overall 2017, and the 2018 will be a bit above that, but not above -- substantially above it.
Okay. Great. And then just finally, when you look at the breakdown between, like, special sits versus long-term deals, I mean, obviously, there's been a bias towards the special situations deals. Is that something that you expect to go forward? Is that where you're seeing the most demand?
Well, just maybe remind everybody, like, on previous calls, we said we started prioritizing special sits because we had more depth of capital there. The long term was to be funded on an accretive basis on our own balance sheet, which until the equity markets really allow for that, that strategy's going to be minimized. And now we do have other things, these things take time, and there's other ways to raise our balance sheet money that will enable us to get back to what we want, set out to do with the long-term strategy. So to the extent we can get those things completed, then you'll see us moving more with the long-term piece. And I'm hopeful we'll have that relatively soon.
[Operator Instructions] Your next question comes from Stephen Boland from GMP Securities.
Just one question. When I go through the risk weightings of your loans, the only one that seemed to jump up was Ferus. Maybe you could just talk about what happened there. And is there any concern there on that loan?
Probably, I'll start with the easier part. There's no concern with that loan. They -- we -- it's -- they operate in an industry that's, despite in energy services, is in the better part of energy service. Things are still moving there. They support the sort of nonconventional drilling markets, and that's booming. The bump up in Q4 was the -- there's a lot of factors that go into risk rating, but those I can say would just be more of a shift of demand we're expecting to see in Q4. We've just seen that move to Q1. So I think from a financial ratio, stepped up a bit. But from the business standpoint and certainly from the sort of asset collateral value, nothing's changed.
[Operator Instructions] We do not have any questions over the phone line at this time. I will turn the call over to the presenters.
Okay. Well, I appreciate everybody's time this morning. And as always, if anybody wants to chat, we're available off-line as well. Talk to you in a couple of months.
This concludes today's conference call. You may now disconnect.
Bye.