EDLEUN ACHIEVED SIGNIFICANT PROGRESS DURING ITS THIRD QUARTER IN IMPLEMENTING
ITS CONSOLIDATION AND GROWTH STRATEGIES IN THE CANADIAN CHILD CARE INDUSTRY
CALGARY, Nov. 24 /CNW/ - Edleun Group, Inc. ("Edleun" or the "Company") (TSX-V: EDU), a leading consolidator and developer of child care facilities across Canada, today announced its operational and financial results for the three and nine month periods ended September 30, 2010. All amounts are in Canadian dollars unless otherwise specified.
Selected Highlights for the Third Quarter and Period Subsequent to September 30, 2010
- Acquired six child care centres in Alberta for cash consideration of $7.1 million; subsequent to quarter end, on October 29, 2010 the Company announced the acquisition of an additional three centres in Calgary for $2.2 million. These additions to a rapidly growing portfolio make Edleun one of Canada's leading childcare operators in a fragmented industry that includes an estimated 8,800 centres across the country;
- Commenced renovations on the 11 child care centres acquired in May 2010 and the six child care centres acquired in July 2010 under the Company's capital improvement program for acquired centres. These improved and upgraded centres reflect Edleun's commitment to bring enhanced quality to childcare;
- Nutritional certification, through a leading dietician, of Edleun's current eight week rotating menu, as well as review of the food ingredients, adjustments to the menu and ongoing collaboration. This reflects Edleun's operating strategy of implementing corporate-wide nutritional meal programs and educational curricula;
- At quarter's end, cash and cash equivalents of $ 12.9 million was available to fund operations, acquisitions and development; and
- To help fund its growth strategy, the Company announced on November 18, 2010 that it will enter into a five year $25 million credit facility agreement with a Canadian bank. This credit facility will enable the funding of additional acquisitions as well as provide construction and longer term take-out financing for the development of new child care centres consistent with Edleun's strategic plan. This facility provides Edleun with a source of non-dilutive capital and improved financial flexibility in the execution of its near-term growth strategy, as well as funds for the building of its first new child care centres.
"The Company's rapid growth continued in the third quarter. Since its creation in May 2010, Edleun has doubled in size while enhancing its human and financial resources for the dramatic growth that lies ahead," said Mr. Leslie Wulf, Chief Executive Officer of Edleun. "During the quarter we acquired six additional centres, substantially completed the upgrade of our Calgary based centres, and, subsequent to quarter end, succeeded in acquiring three additional centres. With the upgrading process well underway at our Calgary centres, occupancy at the end of the quarter increased by 6.2 per cent over the immediately preceding quarter. This reflects management's ability to improve utilization, even during the slower summer months."
Financial Review
Edleun commenced its operations following a series of transactions completed on May 14, 2010. References to the results for the three months ended June 30, 2010 ("Q2") represent operations for 47 days. Results for the three months ended September 30, 2010 ("Q3") are for a full quarter.
For Q3, the Company reported revenue of $2,269,749 (September 30, 2009 - $nil), centre margin of $615,602 (September 30, 2009 - $nil) and net loss of $850,795 (September 30, 2009 - $nil). Q3 revenues compared to the Q2 period increased due to a full quarter of contribution from 11 operating centres compared to a contribution over a 47-day period in Q2, and the addition of six centres that contributed during two months of Q3.
For the nine months ended September 30, 2010 the Company reported revenue of $3,137,001 (September 30, 2009 - $ nil), centre margin of $888,653 (September 30, 2009 - $nil) and net loss of $2,604,110 (September 30, 2009 - $nil).
Centre margin on sequential quarter basis was $615,602 for Q3 compared to $273,051 for Q2, an increase of $342,551. During Q2, 11 centres generated an aggregate margin for a period of 47 days. Q3 aggregate centre margin includes 11 centres contributing for a full quarter and six centres contributing for two months during the traditionally slow summer quarter. Aggregate centre margins as a percentage of revenue for Q3 and Q2 were 27% and 31%, respectively. The modest decline in Q3 aggregate centre margin percentage reflects lower initial occupancies in six centres acquired in July as well as the effects of in-process renovations and traditional summer seasonality. For the summer 2011 season, the Company anticipates that a broader introduction of summer camp programs will mitigate the financial impact of traditional summer seasonality.
Operations for the nine months ended September 30, 2010 were impacted by, among other things, start up costs and the adoption of new accounting guidelines as set out in CICA Handbook Section 1582, pursuant to which property pre-acquisition and transaction costs for the three and nine months ended September 30, 2010 amounting to $222,084 and $483,324, respectively, were expensed as incurred. As the Company executes its consolidation and development strategy in the Canadian child care market, it will routinely incur such expenses which will, as compared to previous accounting rules, serve to negatively impact the Company's reported net income / loss during the periods incurred.
The Company's business, which includes the ownership of a significant portfolio of real estate, reflects expenses that include non-cash charges such as depreciation, stock based compensation expense and deferred taxes, and property acquisition costs as noted above. Reflecting these factors and consistent with the practice of the Canadian real estate industry, the Company focuses on Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) as key financial metrics to measure and compare operating performance. FFO and AFFO are non-GAAP supplemental financial measures and a complete reconciliation containing adjustments from GAAP net income to FFO and AFFO is included in this press release. See the section below titled "Non-GAAP Supplemental Financial Measures" for more information.
AFFO for the three and nine months ended September 30, 2010 was calculated by adjusting the net loss for: property acquisition costs expensed as incurred; depreciation and stock-based compensation expense; and expenses incurred in respect of the period prior to the Company's commencement of operations and revenue generation on May 15, 2010.
AFFO for the three months and nine months ended September 30, 2010 was negative $431,870 and negative $688,013, respectively. This result was anticipated, given the Company began its operations with 11 child care centres, added six child care centres on July 30, 2010, but has not yet reached a level of centre margin sufficient to cover General and Administrative Expenses ("G&A") associated with a scalable public company. AFFO is expected to improve in subsequent quarters as the Company deploys its cash on hand and funds available through the proposed credit facility towards the acquisition and development of additional centres. The Company currently estimates its annual corporate, public company and administrative expenses to be approximately $3.6 million. Using the Company's $12.9 million of cash on hand and funds available from the proposed $25 million credit facility to complete accretive acquisitions, three of which were closed subsequent to September 30, 2010, Edleun expects to generate incremental centre margin to cover and exceed G&A.
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||
Net loss for the period | $ | (850,795) | $ | - | $ | (2,604,110) | $ | - | ||||||||||
Depreciation | 110,341 | - | 127,852 | - | ||||||||||||||
Property acquisition costs | 222,084 | - | 483,324 | - | ||||||||||||||
FFO | $ | (518,370) | $ | - | $ | (1,992,934) | $ | - | ||||||||||
Stock based Compensation - Finders Fees | - | - | 300,000 | - | ||||||||||||||
Stock based Compensation - Option Grants | 86,500 | - | 441,816 | - | ||||||||||||||
Non-recurring relocation costs and pre-Qualifying Transaction amounts expensed | - | - | 323,524 | - | ||||||||||||||
Accrued 2010 public company costs prior to Qualifying Transaction | - | - | 239,581 | - | ||||||||||||||
AFFO | $ | (431,870) | $ | - | $ | (688,013) | $ | - |
AFFO was negative $205,642 for Q2 and negative $431,870 for Q3, a decrease of $226,228 on a sequential quarter basis. The principal reason for the increase in negative AFFO was a full quarter of operations in Q3 compared to a period of 47 days for Q2, vacancy levels in the centres acquired in Q3 and slightly higher G&A expenses in Q3.
As the Company undertook a substantial renovation and retrofit program at all of its centres acquired to date, AFFO does not include an adjustment for maintenance capital expenditures. This notwithstanding, in the future the Company will have an allowance for maintenance capital expenditures.
G&A represents costs incurred for corporate level activities and includes executive salaries, centre development and operations management and costs ancillary to the public listing for the Company's shares. For the nine month period, G&A was impacted by relocation costs, set up costs for the corporate office and costs incurred in connection with, and prior to, the closing of the Qualifying Transaction.
Nine months ended September 30, 2010 |
||
Non-recurring relocation costs and pre-Qualifying Transaction amounts expensed | $ | 323,524 |
Accrued 2010 public company costs for the period prior to Qualifying Transaction | 239,581 | |
G&A for operations for 139 days | 1,439,325 | |
Total reported G&A | $ | 2,002,430 |
G&A expenses for Q3 were $942,006 compared to $1,009,924 for the 47-day period ended June 30, 2010. Q3 represents a first full quarter of operations while Q2 included non-recurring relocation costs, set up costs for the corporate office and costs incurred in connection with, and prior to, the closing of the Qualifying Transaction.
The Company has early adopted the CICA Handbook Section 1582 "Business Combinations" and, as such, is required to expense all acquisition costs related to the transactions detailed in Note 3 of the unaudited interim consolidated financial statements for the three and nine months ended September 30, 2010; property acquisition costs incurred during these periods were $222,084 and $483,324, respectively.
Stock-based compensation expense for the nine month period includes $300,000 for finder's fees to parties associated with San Anton Capital Inc. in connection with the Qualifying Transaction and is non-recurring in nature. Stock-based compensation expense related to the fair value of stock options granted to management and board members following the Qualifying Transaction for the three and nine months ended September 30, 2010 was $86,500 and $441,816, respectively.
The basic and diluted weighted average number of shares outstanding for the three and nine months ended was 92,220,301 and 49,714,678, respectively. Basic and diluted loss per share for the three and nine months ended September 30, 2010 were $(0.009) and $(0.052), respectively.
As at September 30, 2010, the Company had working capital of $12,695,024 and cash and cash equivalents of $12,855,548. On November 18, 2010 the Company announced it will enter into a five year $25 million credit facility agreement with a Canadian bank.
Investing activities for the three months ended September 30, 2010 were $9,211,764, comprised of $7,052,396 for the acquisition of six centres and $2,120,392 for renovations on acquired centres. It is typical that acquisitions undergo renovation, remodelling and, or re-branding programs to upgrade acquired facilities to the Company's standards. The Company believes that, once renovated, its physical premises clearly differentiate its centres from other centres that may present competition and when combined with its education and developmental programs will provide long-term benefits for both its occupancy and centre-level financial performance. Renovation costs increased over the amount originally anticipated due to (i) establishing a program to further promote the Company's brand through higher levels of expenditure on playgrounds and premises; (ii) acceleration of certain maintenance capital expenditures, the result of which will be lower costs in future periods; (iii) certain necessary environmental, air quality expenditures; and (iv) expenditures related to expansion of its licensed capacity at several of its centres.
Edleun's Continuing Business Opportunity
Since its creation in May 2010 the Company has doubled its size and laid the foundation to further execute its business plan. The Company is pleased that it has attracted a breadth of supportive institutional and retail equity investors and proposed financing from a significant Canadian bank.
Edleun believes that it will create long term value for its stakeholders through management's focus on:
- Brand and Quality
- Deliver new standards of child care in Canada, including:
- Standardized curriculum
- Nutritious meal programs
- High quality physical premises
- Continuous learning and professional development for staff
- Position Edleun as the number one provider of high quality child care in Canada
- Create a standard of excellence through which all Edleun stakeholders will benefit
- Organic Growth
- Optimize occupancy rates and margins at each Edleun centre
- Selective expansion of the licensed capacity at existing child care centres
- Increasing profitability by expanding the services and revenues with ancillary uses at its existing centres
- Create value through sustainable and growing cash flow and capital appreciation
- Strategic Growth
- Acquire centres and develop new child care centres in under-served markets
- Maintain rapport with existing investors and investment analysts while creating and expanding the Company's exposure to capital markets and investors
- Optimize the company's overall cost of, and access to, capital through a prudent mix of debt and equity instruments
Conference Call
Edleun Group Inc. will hold a conference call on Thursday, November 25th, 2010 at 11:00a.m. EST, to discuss the results of the third quarter of fiscal 2010. The Company's full Financial Statements and Management's Discussion and Analysis will be available on on SEDAR at www.sedar.com.
To access the conference call by telephone, dial (647) 427-7450 or 1-888-231-8191. Please connect approximately 15 minutes prior to the beginning of the call. The conference call will be archived for replay until Thursday, December 2, 2010, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-800-642-1687 and enter the reservation number: 27644982 followed by the number sign.
A live audio webcast of the conference call will be available at: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3329260. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above website for 90 days.
Non-GAAP Supplement Financial Measures
The Company uses "centre margin" as a performance indicator of child care centre operating results. Centre margin does not have a standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures by other companies. Centre margin is determined by deducting centre expenses from revenue.
The Company also uses FFO and AFFO as indicators of financial performance. FFO and AFFO do not have standardized meanings prescribed by GAAP. FFO and AFFO are presented to assist in the analysis of the Company's performance. The Company's method of calculating FFO and AFFO may be different from other corporations and, accordingly, may not be comparable to such other corporations. FFO and AFFO: (i) do not represent cash flow from operating activities as defined by GAAP; (ii) are not indicative of cash available to fund all liquidity requirements, including capital for growth; and (iii) are not to be considered as alternatives to GAAP net income for the purpose of evaluating operating performance.
About Edleun Group Inc.
Edleun is a leading provider of high-quality, educational child care in Canada. The Company is committed to providing children, families and employers with access to, and choice of, quality early childhood education programs, helping Canadians balance their work and family lives. Edleun's goal is to become the leading educational and child care provider in Canada. The Company's objectives include the acquisition and improvement of existing child care centres and development of new child care centres across Canada.
For further information, please contact either Leslie Wulf, Chief Executive Officer or Dale Kearns, Chief Financial Officer, of Edleun Group, Inc. at (403) 800-0890, or Nick Hurst of the Equicom Group, Inc. at (403) 218-2835.
Forward-Looking Statements
Certain statements in this Release which are not historical facts may constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Any statements related to Edleun's projected revenues, earnings, growth rates, revenue mix, staffing and resources, and product plans are forward looking statements as are any statements relating to future events, conditions or circumstances. The use of terms such as "believes", "anticipated", "expected", "projected", "targeting", "estimate", "intend" and similar terms are intended to assist in identification of these forward-looking statements. Readers are cautioned not to place undue reliance upon any such forward-looking statements. Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause the actual results, performance, achievements or developments of Edleun to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions. Except as required by law, Edleun does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.
The Company undertakes no obligation, except as required by law, to update publicly or otherwise any forward-looking information, whether as a result of new information, future events or otherwise, or the above list of factors affecting this information. Many factors could cause the actual results of Edleun to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Unaudited Interim Consolidated Balance Sheets
As at September 30, 2010
September 30, 2010 | December 31, 2009 | ||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 12,855,548 | $ | - | |||
Accounts receivable | 836,569 | 110 | |||||
Prepaid expenses | 693,330 | - | |||||
Investment | 154,952 | - | |||||
14,540,399 | 110 | ||||||
Property and equipment | 14,750,818 | - | |||||
Goodwill | 9,244,366 | - | |||||
$ | 38,535,583 | $ | 110 | ||||
Liabilities and Shareholders' Equity | |||||||
Current Liabilities | |||||||
Accounts payable and accrued liabilities | $ | 1,760,034 | $ | 75,000 | |||
Deferred revenue | 85,341 | ||||||
1,845,375 | 75,000 | ||||||
Shareholders' Equity | |||||||
Share capital | 38,479,190 | 110 | |||||
Contributed surplus | 890,128 | - | |||||
Deficit | (2,679,110) | (75,000) | |||||
36,690,208 | (74,890) | ||||||
$ | 38,535,583 | $ | 110 |
Unaudited Interim Consolidated Statements of Operations, Comprehensive Loss and Deficit
For the three and nine months ended September 30, 2010 and 2009
Three months ended September 30, |
Nine months ended September 30, |
||||||||
2010 | 2009 | 2010 | 2009 | ||||||
Revenue | $ | 2,269,749 | $ | - | $ | 3,137,001 | $ | - | |
Centre expenses | |||||||||
Salaries, wages and benefits | 1,259,644 | - | 1,750,668 | - | |||||
Other operating expenses | 394,503 | - | 497,680 | - | |||||
615,602 | - | 888,653 | - | ||||||
Operating leases | 116,313 | - | 148,437 | - | |||||
General and administrative | 942,006 | - | 2,002,430 | - | |||||
Property acquisition costs | 222,084 | - | 483,324 | - | |||||
Stock-based compensation | 86,500 | - | 741,816 | - | |||||
Depreciation | 110,341 | - | 127,852 | - | |||||
1,477,244 | - | 3,503,859 | - | ||||||
Loss before the undernoted items | (861,642) | - | (2,615,206) | - | |||||
Other income | 10,847 | - | 11,096 | - | |||||
Net loss and comprehensive loss | $ | (850,795) | $ | - | $ | (2,604,110) | $ | - | |
Net loss per share | |||||||||
Basic and diluted | $ | (0.009) | $ | - | $ | (0.052) | $ | - | |
Weighted average number of common shares | |||||||||
Basic and diluted | 92,220,301 | - | 49,714,678 | - | |||||
Deficit, beginning of period | $ | (1,828,315) | $ | - | $ | (409,244) | $ | - | |
Reverse takeover adjustment | |||||||||
Legal parent deficit, beginning | - | - | 264,942 | - | |||||
Legal parent net loss, January 1, 2010 to May 14, 2010 | - | - | 69,302 | - | |||||
Net loss | (850,795) | - | (2,604,110) | - | |||||
Deficit, end of period | $ | (2,679,110) | $ | - | $ | (2,679,110) | $ | - |
Unaudited Interim Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2010 and 2009
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
Cash provided by (used in): | ||||||||||||
Operating activities: | ||||||||||||
Net Loss | $ | (850,795) | $ | - | $ | (2,604,110) | $ | - | ||||
Items not affecting cash: | ||||||||||||
Depreciation | 110,341 | - | 127,852 | - | ||||||||
Stock-based compensation | 86,500 | - | 741,816 | - | ||||||||
Change in non-cash working capital | (15,214) | - | 210,704 | - | ||||||||
(669,168) | - | (1,523,738) | - | |||||||||
Investing activities | ||||||||||||
Acquisitions | (7,052,396) | - | (20,452,396) | - | ||||||||
Reverse takeover cash acquisition | - | - | 814,267 | - | ||||||||
Property and equipment | (2,120,392) | - | (2,670,740) | - | ||||||||
Restricted cash | (38,796) | - | (154,952) | - | ||||||||
(9,211,764) | - | (22,463,821) | - | |||||||||
Financing activities | ||||||||||||
Proceeds of share issue | - | - | 40,742,500 | - | ||||||||
Share issuance costs | (32,738) | - | (3,899,393) | - | ||||||||
(32,738) | - | 36,843,107 | - | |||||||||
Change in cash and cash equivalents | (9,913,670) | - | 12,855,548 | - | ||||||||
Cash and cash equivalents, beginning of period | 22,769,218 | - | - | - | ||||||||
Cash and cash equivalents, end of period | $ | 12,855,548 | $ | - | $ | 12,855,548 | $ | - |
%SEDAR: 00025544E
For further information:
Leslie Wulf, Chief Executive Officer or Dale Kearns, Chief Financial Officer, of Edleun Group, Inc. at (403) 800-0890, or Nick Hurst of the Equicom Group, Inc. at (403) 218-2835
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