Flow Capital Corp.

Good morning, ladies and gentlemen. Welcome to Flow Capital's earnings call for your Q3 of 2025. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has difficulties hearing in the conference, you may press star zero for operator assistance at any time. I would like to remind everyone that today's discussion may contain forward-looking statements Thank you very much. November 14th, 2025. I'll now like to turn the meeting over to Alex Baluta, Chief Executive Officer of Flow Capital.

Thank you very much, Constantine, and thank you everybody for joining our conference call for Q3 of 2025. My name is Alex Baluta, the CEO of Flow Capital, and I'm joined by Michael Denny, our Chief Financial Officer. Last night, we reported Q3. You will find the results filed on CDAR. You'll see the highlight press release released on the wires, and you'll also find the results on our website under the investor section. Before I start the formal part of the call, I would like to say invite, welcome PWC, PricewaterhouseCoopers, to the company as our auditor. We're thrilled to have them on board, and you'll see as well for this quarter when you look at our financials, we've changed the format in the presentation of our financial statements. From our perspective, it's much more readable and much more clearly and fairly represents the progress or just the performance of the company in any given period. In particular, you probably remember in prior calls, I would complain about IFRS making the presentation of revenue difficult to understand. It's, in my opinion, much clearer now in the revised format, and you will see us continue to use that format going forward. For the quarter, we had another strong quarter with record revenues. Again, revenues up 38% year-over-year to $3.4 million and up 5.6% sequentially. We continue to generate positive free cash flow. Free cash flow is up 15% year-over-year. I think this represents our 25th quarter of profitability. I'll probably stop talking about that going forward because we expect to remain profitable. We only deployed 4 million in the quarter. It was an excellent deal. Positive that we did the deployment, although it was a little bit below our expected or targeted deployment. Nevertheless, we did deploy $4 million. And book value per share was up 5 cents a share from immediately prior quarter. So from Q2, it was up 5 cents to $1.22. Primarily based on profitability, a little bit of a push from FX. Total investments grew year-over-year 24% to over $75 million now. And I'll talk about it a bit more, but our portfolio continues to perform well. Some other highlights in the quarter include making progress on some of our legacy deals that go back four or five years now in terms of helping them get to an exit that we expect will be positive for us over time. We've deployed several new AI initiatives. We've really embraced AI and the opportunity AI represents in terms of both efficiency, growth in marketing, really all across various operational sections of the company. We're deploying it, competitive tracking, deal tracking. We're seeing a remarkable increase in productivity and even the opportunity to generate some new information that we didn't have to better manage our business. Marketing, although I don't have a lot of details to provide, marketing continues to perform quite well. We've initiated a lot of new marketing activities over the last three quarters and even earlier. Leads on a year-over-year basis at the top of the funnel and actually in the middle of the funnel are up 26% year-over-year. Also, quite proud to say that we are number two versus all of our competitors in terms of organic search. based on some of the tools that are out there providing those kind of statistics. So we've done a really good job on our website, on content, on other activities and marketing that help generate brand and organic leads. I'm very proud of that. The portfolio continues to perform well. No real material changes. Interestingly, we have had a lot of early buyouts this year that were a little bit unanticipated. And it's usually good news when that happens. VeriV was a transaction that was repaid early. In August, in April, we had BallotReady, which was acquired by a competitor. That was an early successful exit. One of our best performing companies bought us out in October, a company in the real estate space, a software platform for real estate. are very, you know, we continue, it's worth pointing out, we continue to hold equity positions, very small equity positions in most of these companies. And sometimes they work out, sometimes they don't. But for that one, I'm particularly optimistic about their future. They're a real rocket ship. They're doing well and I wish management well. Fantastic client. Glad to have been part of their journey. We have a couple of other transactions that One company we've transitioned to an amortizing transaction, which should be a loan which should be repaid within the following couple of quarters. So I count that as a buyout. And then we also have a transaction that's close to closing some change of control activities, which I think will also be positive for them and for us. We did have a final exit in one of our companies that didn't work out. I won't mention the name, but there were some very odd circumstances, unfortunate, not odd, but unfortunate circumstances around the company, the platform that they were built on, and competition from that platform provider. Unfortunately, the company faced challenges. We did recently close the sale of the assets of that company. However, a cash-on-cash return to date was approximately 90%. So the point I'm trying to make here is that as a senior secured lender, we do everything we can to work with our companies when they stumble. We worked with this company for a long time. In the end, the customers found a home. We returned 90 cents on the dollar cash on cash to date. The new buyer is optimistic about the future, and we continue to retain a position in the new buyer and an obligation on their behalf to continue to pay us. But to date, Our cash on cash return was 90 cents on the dollar. So even in transactions where it doesn't work out, and sometimes that happens, the type of investing we do provides us with good security and the opportunity. Our investments aren't zeros or heroes. It's not like we lose money on any investment, in fact, because we are a lender who takes cash interest. Glad for the ultimate outcome for the company. There is still some opportunity, but I also count that as essentially an exit in the portfolio. So we're seeing a couple more exits this year than we'd expected. But overall, the portfolio continues to perform well with a mid-20s long-term seven-year IRR at the top of the portfolio. That is a fantastic number that I'm very proud of. It is a function of the quality of the deals that we've chosen, the quality of the companies that we've worked with, and also the quality of the team that we've built here over the last several years. We really do focus on making sure we make the right decisions and sometimes that slows our deployment, but it does add to strong growth. This was our ninth growth sequentially on a sequential basis. Sorry, let me rephrase that. Ninth quarter in a row where we've grown sequentially our revenue. If you do it right, you have the right team, you make the right choices, the portfolio performs well, your returns are great, and you can grow. Having said that, we are seeing some pressure in the marketplace that's kind of crystallized over the last couple of quarters. We're seeing some increased competition from new, smaller entrants. For example, we've in the past seen family offices try to enter this business, do a few deals, and then leave. We're seeing a couple of those types of competitors come to market. Not a major disruption, but still may add a term sheet or two to compete against in a transaction. We're seeing, broadly speaking, more capital allocated to private credit. Now, we're a small sliver corner of the private credit market, but there is capital coming into the market. We've done a TAM analysis, sort of a bottoms-up analysis of the number of transactions in our particular space. and we are seeing that actually year over year the number of transactions are the type that we would do which as a reminder are companies generating sort of greater than three or four or five million revenue who need somewhere between two and ten million dollars and are growing at 20% or more. The year over year count in deals is down 15%. Now I think that's because In the 22, 23, 24 timeframe, a lot of companies got religion in terms of breaking even in profitability while they tried to, during uncertain times around COVID, tried to ensure that they got profitable so that they could live forever. And you're now seeing VCs pivot entirely to investing in AI-native companies only. And so some of these companies in our target market are at a point where they're continuing to grow, but perhaps not as much as they could be growing if they had capital to deploy. So they're not currently in the market looking for capital. I actually expect that to change. I expect that a lot of the companies that have now stabilized their businesses to come back to market to try and get additional growth capital, and given that venture capitalists are not necessarily investing in SaaS, unless it's an AI native company that is directly in SAS. I think that represents an excellent opportunity in our space. I'm looking forward to the future. And given the progress that we've made on marketing, I think we'll be right in the middle of the pack in terms of seeing more and more deals that come to market in our target space. A couple of other things we're seeing is occasionally we've seen some irrational competition from some of the major banks, particularly in Canada, where They provide lines of credit that are not priced for the risk. They seem to be priced for something else, meaning competing with other banks in Canada that are trying to enter this market as well. It's fine. It's a short-term disruption. I don't think it will end well for them. Nevertheless, there seem to be a lot of moving pieces in the market today that we focus in. I don't mean to put a negative spin on it. I think we've always had competition. but it has slowed our close rate a little bit. The one thing I will say is that we're not, the type of structure that we are in terms of capital structure, which is a evergreen fund, we are not forced to deploy capital. We can be patient. We have a senior lender. By the way, one of the other highlights in the quarter is that we, well, this is post-quarter, we increased the line of credit with our U.S. Thank you very much. So in spite of what our little bit of additional competition than we normally see, it's not a challenge for us is basically the bottom line. And having said that, the pipeline continues to be strong. We've missed some deals, but we have a lot of deals that we're working on. And as I said earlier, our leads are up 25%. And I think the growth in our leads is accelerating. So Having said all that, I'll pause there. If anybody has any questions, I'll turn it over to the operator. Johnson King, you there?

Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. If you'd like to withdraw from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any case. One moment while we prepare the Q&A roster. Your first question comes from the line of Ed Fribola from Philoba from Espartan. Please go ahead.

Good quarter, Alex. Ed grabbed a bit of a... keeping up the growth. I guess I'm just wondering about the deal that you said. I guess the deal you referenced for October, that's not in the financials.

Is that right? The deal is for October. The revenue from that deal was in the financials. The transaction actually closed in Q4. You're right. So any impact from that from the buyout will be in Q4. Okay, and that could be positive, I guess. Yeah, I don't, most of the times it's possible, but in this case, there's very little, the positive perspective on that transaction is a long-term position that we hold in the equity, which, you know, again, it's worth pointing out that in all of our transactions, we usually get a very small sliver of equity. It's much, much smaller than a venture capitalist would take, and that's one of the value propositions, is that Our capital is minimally dilutive. But, you know, with our auditors, we always try to fairly value the warrant positions and equity positions that we have. So I wouldn't expect it to be any material impact one way or the other on our financial statements in Q4. But I do highlight it as the long-term opportunity in that company is one that I'm most excited about. It's just an excellent company. So that was the point I was trying to make.

Okay, so you're going to hang on to the equity even as they exit the loan? In that particular case, yes. Sometimes we have other transactions.

We have a couple of different structures that we can deploy for, let's call it bonus. It's equity-like. Sometimes it's warrants on common equity. Sometimes it's exit fees. But in that case, it's a long-term warrant.

I see. Okay. And just... I noticed you're paying tax, which I guess is a good thing. Is the tax, is that going to be going forward, that you're going to be paying tax, and is it going to be about that rate, or what is the outlook for tax going forward?

Yeah, remember, we continue to have operating losses that are a legacy from before seven years ago. We are profitable. We are recording tax, but then that tax is sheltered by a reduction in our deferred tax assets. There may be small tax transactions related with small U.S. taxes, I think, but at this point, we're not paying cash taxes. We are burning through that... That asset, do you remember the current value, the top line value of the asset? The first and a half? Yeah. So that's, we still, basically, we still have $7.5 million of tax sheltering prior to us actually paying tax cash. So, cash taxes. So, the short answer is no, we're not actually paying any cash tax today.

I see. Okay. Well, thanks for clarifying that. Thank you. Yeah.

Thanks, Ed.

Quick reminder, if you'd like to ask a question, please press star followed by the number one. If you are using a speakerphone, please make sure to lift your handset before pressing any case. There are no further questions at this time. I'd like to turn the call back to Alex Baluta for closing comments. Sir, please go ahead.

Thank you, Constantine. Thank you, everybody, for your attendance or either live or listening to the recording. As always, Michael and I are here at any time if you have any questions and we look forward to speaking to you again early in the new year on Q4 results for the full year. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.