Flow Capital Corp.

Good morning, ladies and gentlemen. Welcome to Flow Capital's earnings call for Q4 and year-end 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 here in the conference, you may press star-zero for operator assistance at any time. I would like to welcome everyone to remind everyone that today's discussions may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on full capital's risks and uncertainties related to these forward-looking statements, please refer to the YE 2025 Companies Management Discussion and Analysis, which is available on CEDAR. Today's call has been recorded on Friday, April 17, 2026. I would now like to turn the meeting over to Alex Baluta, Chief Executive Officer of School Capital.

Thank you very much, Joelle, and thank you, everybody, for joining here for our Q4 and 2025 year-end financial results. I am joined by our CFO, Michael Denny. You can find our results filed on CDAR or in the investor relations section on our website. For the 12 months ended December 31st, we recorded $13.2 million in revenue. That's up 41% from the year earlier period. We had a 79% increase in recurring free cash flow to $3.4 million on a per share basis. That was 11 cents up from 6 cents. We also deployed Almost $28 million in new capital during the year. And book value per share is up to $1.27 from $1.20 at the end of the prior year. All in all, it was an excellent year. That is the highest growth rate we've recorded in revenue and the highest revenue that we've recorded since we transitioned to actions forever, since our entire history. But if you recall, in early, late 2018, we transitioned to venture bet away from what the prior company used to do, which was royalties.

And that's been a very successful transition.

For the three months, for the fourth quarter, revenue was up 33% to $3.6 million. Recurring free cash flow was up 66% to $900,000. and we deployed $4.5 million in new investments in the quarter. Overall assets at the end of the year invested into investment assets has grown to 22% to $73.5 million and those assets are primarily in loans but I'll mention later on in the call that we are starting to increasingly do small equity investments. One thing I did want to highlight is you'll note that the presentation of our financial statements has changed somewhat. We've tried to simplify it, and we also want to mention that we have a new auditor this year in Pricewaterhouse, and that has been an excellent experience, and I do want to thank them for their guidance and hard work that they put in. For the year, we deployed $27.5 million. Of that, $17.7 million was into new investments. and 9.8 million was into follow-on investments or existing tranches into existing investments. I do want to point out that that's an important part of our model which is those follow-on investments and it's become an increasingly important part of our model. We do small and initially tranches, might be two or three or four million and then as the company continues to deliver, we then may add in some cases up to four additional tranches. From our perspective, that is actually a de-risked investment in that we've watched the company perform and we're very comfortable with their capabilities and therefore we're very comfortable investing additional capital into the business. And so almost 10 million of our deployments last year were into follow-on investments into existing companies. It's also worth noting that a small portion of our investments are now going into actual direct equity. For the year, we did about $1.2 million of equity. This is not a core part of our business, but often what we'll do is take larger equity positions in some of the existing investments that we have. Again, it's because of the quality of the investment. It's because of our comfort with the company, with the growth and with management, and that adds upside to our overall performance as we go forward. Repayments in the year was $12 million. That was across four deals. Of those $12 million in four deals that we paid, about $470,000 in cash came in in the form of early prepayment fees. Again, an important part of our overall model. Three of those transactions had IRRs or I should say two had IRRs north of 23%, one had an IRR north of 30%, and one had a slightly negative IRR. However, it's interesting to point out that that company continues to exist. It has been restructured. We have a meaningful position not only in a debt instrument to that company but also in equity. It's another important part of our model is that we spend a lot of time working with our investing companies to ensure that there's a good outcome, even if that takes multiple years. In fact, there was another deal this year that we exited after four and a half to five years post-investment. That was an investment that years ago didn't work and was written off. But we continue to work with management. We continue to you know providing guidance and in the end it was a very successful outcome and from that deal we actually continue to have equity upside. So it's a part of our strategy not only to ensure we get better returns but also to work with all stakeholders in the companies that we invest in. Looking at the overall portfolio I mentioned it's 73 and a half million in invested assets or invested capital. There's 13 loans, which I call poor loans. There's also three non-poor loans. Very, very small amount of assets in that, but 16 loans in total. We have 22 warrant, or warrant, well, let's call them equity-like positions. And we have 16 either private or public equity positions. Again, this is a very, very important part of our model is that In the 38 positions that we have that are equity-like, and when I say equity-like, sometimes we have what's called an exit fee or a success fee. It's not a warrant. It's actually a success fee that is paid upon the exit of the company, and that may happen well after our loan is repaid. These warrants and equity positions represent an important part of our overall return, but also an important buffer for us. So by that I mean not all the equity positions will turn into positive outcomes. In fact, the way we evaluate it is probably less than a third of all warrant positions ever translated into any sense. However, when they do work, they work meaningfully well, meaning that they do make up for our losses. And that's historically been our experience. To the extent that we do have a principal loss, which is very rare in one of our underlying entities, The warrants on our other entities more than makes up for those losses. What that means is that, in real numbers, is that over the last seven years, more than seven years, our top-line portfolio IRR is about 24%. That is a really strong track record because, quite frankly, I'm proud of us, I'm proud of the team, I'm proud of our structure and our approach to have achieved 24% portfolio-level IRR is pretty remarkable and I think it's now well proven in terms of our approach, our approach to quality underwriting, our approach to risk management, risk assessment. And so it's something that we hope to continue in the future. Overall, the health of the portfolio I think is very good today. Probably as good as it's been over the last several years. Now I want to talk a little bit about industry. You've probably heard some industry headlines about private capital, private credit bubble. And to be honest, there's lots of moving pieces. You know, I look at it as if you go back into the 22, 23, 25 timeframe, a lot of capital made its way into, a lot of extra capital made its way into private credit. In some instances, more than doubling or tripling the amount of capital available. and the entire credit sectors like the BDCs in the U.S., for example. That led to pricing pressure. That led to aggressive loans. Eventually, that led to some bad news. And you've seen some of those, some bigger bad news stories in the broader private credit sector. That led to fear, uncertainty and doubt on an investor's perspective. And that led to redemption, which has finally led to gating. What you saw was positive headlines in the 22, 23, 24 timeframe, concern headlines in 25, and now more concern headlines in 26. And many of these private credit funds who are open to investors have been gated, meaning they've stopped redemptions in order to ensure that they don't have a mismatch between their assets and their liabilities. So that pricing part, we're a small section of the private space, specifically focused on venture debt and growth venture debt. And we have seen pricing pressure in our space. Headline interest rates have come down. IRR overall has come down. Now, for us, we're in a unique position. And when I say come down, it's by no means they're still in the low teens. It's come down from where it was before. I don't think there's a bubble, and frankly, I don't have the expertise or insight to prove otherwise, but we are seeing some pressure, but it's not overwhelming pressure. But it's important to point out our model and our approach. We have an evergreen fund, meaning the money comes with $38 million in equity. The money from a return transaction or repayment of a loan comes back into our balance sheet. and then we generally redeploy that. What we don't have is deployment pressure because we also have lines of credit that are repayable lines of credit, essentially warehouse lines. So, we can pay down our warehouse line without having to keep excess capital on our balance sheet, which means we don't have, we're not paying for excess capital, which means you don't have price or margin erosion pressure based on paying interest on a line of principal or I should say capital that is undeployed. And that's a unique benefit of our model. It's important because it allows us to continue to be very selective, to continue to maintain our high standards in underwriting, and continue to, therefore, try and generate a very strong top of the funnel, or I should say top of the portfolio of returns. So we are being very selective. We continue to be selective and we'll always be selective. But that does mean that we may not close as many deals as we may have wanted to or we may have been able to in the past. Nevertheless, I do feel that given that a lot of the major funds are gated, that means they're not going to be deploying capital as aggressively. And I think that what we saw was a trickle down of pricing pressure over the last several years. I suspect and expect that that's going to reverse over time over the coming quarters and pricing pressure will ease. and the plan and the capital will continue. So one thing is certain is that high growth companies, the type that we invest in and really if we solve for one thing that we look for when we invest in and that is growth. We invest in growth companies that are growing greater than 20% doing revenue usually above $5 million and we'll invest anywhere from $2 to $10 million into those companies. and himself for growth. And while that industry itself, not the industry, that sector is also seeing uncertainty with AI. There continue to be deals underwritten and I expect that the volume of deals underwritten that could use minimally dilutive growth capital will recover over the coming quarters. Lastly, those are really wrapping up my formal comments. I do want to mention that we continue to have As many of you know and many of you are invested in, our SAFERS is a form of yield security that we provide to investors. For Canadian dollar denominated SAFERS, the return is 8%. That's at its floor. It's actually a floating rate. The floor is 8%, the consuming is 12%. If for investors with more than a million dollars, the floor rate is 8.5%. For U.S. dollar denominated safer investors, the current yield on sub-million dollar investments is 9.14%. And on investments greater than a million, it's 9.64%. And for investors who are interested in yield, please feel free to call us at any time. With that, I'll pause my commentary and open it up for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Ed Silva with Martin. Your line is now open.

Hi, Alex. Congrats on the quarter of the year. Thank you. I joined late. Thanks for the cover. Did you mention the book value for share?

Yeah.

Book value for share was $1.27 up from $1.20 the prior year. Very nice. I think that's it for me, but thanks and look forward to it. Thank you, Ed. Thanks for being a long-time supporter and happy to chat at any time.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. There are no further questions at this time. I will now turn the call over to Alex for closing remarks.

Operator, it looks like there's one other question that just popped up from Trevor Wilcox. Can we allow him to ask that question, please? Yes.

Thank you. Good morning. Can you hear me? Yes, Trevor. Great. Thank you very much. Thank you, team, for the review. A couple quick questions. Can you characterize what drove The big increase in revenue this year, I think that's great. And can you characterize the three main things that drove that?

Yeah, it's really, it's just additional employment of capital. It's, you know, our objective is, well, really two things. One, new deals, and two, follow-on investments into existing deals. This is, you know, our average duration of the loans that we issue is three years, 36 months. or at least that's at the time of issuance. The average duration, we're usually repaid early on many of them. So let's assume that that's 30 months on average, average deployed. And then so if we're deploying more capital per year than we're getting repaid and the average duration is two and a half to three years, you'll see us continue to grow our portfolio. So it's really a function of the deployment of capital and both into new deals and existing deals. So there's no, you know, we've been squarely focused on that market now for eight years. It's our core business. We are doing slightly more, and when I say slightly, just on the order of less than 5% of our total assets into equity, which are non-yielding investments, but we're squarely focused on making investments into cash-yielding, monthly pay loans to high-growth companies, and we're simply deploying more than we've had repaid. It's actually, Trevor, a very simple business. You know, source, find high-growth companies, make, you know, very strong risk-adjusted credit decisions, monitor those companies, work with those companies, and it's, you know, In the vast majority of cases, those companies refinance us through either an exit, they sell the company, they refinance us with cheaper credit, or they do a large equity raise. And over this year, I expect you'll see one or two of those. That's a natural progression of our portfolio, but it's pretty straightforward.

No magic. It's hard work. That's great. And then my follow-on to that is What's the challenges in terms of keeping that growth going?

Yeah, so I mentioned the industry headwinds. It's a challenge where with pricing pressure, we want to be careful that we don't make investment decisions that on a risk-adjusted basis don't have the necessary hurdles. So one of the challenges is kind of staying the course of quality and slowing down deployments when the industry is, I don't want to use the word irrational, but when the industry is behaving in a manner that puts us outside of our comfort zone from a risk-return perspective. So we have to be careful. We don't have deployment pressure. But if deployment slows down, you'll see our top-line revenues slow down. So it grows slow down. If we have early repayments, which we have had, as I said, our average duration is less than 36 months, and usually those early repayments are good. It's because companies get funded by – something good has happened to that company. They've grown. They've gotten cheaper. They've grown into an equity round. Those repayments come with prepayment fees, and so there's upside to our book value per share, in particular with early repayments, but that then comes with a reduction in revenue, and we have to deploy. So the challenges are making sure that we see enough deals and invest in high-quality companies, and in a market where there's pricing pressure because of excess capital that flowed into the market in 22, 23, and 24, I wouldn't be surprised to see a slower growth rate in the coming quarters just because we're being more preferable in deployment.

Yeah. Great. Thank you. I got one other question, but I don't want to... No, go ahead.

There's no other callers, so go ahead and ask. Okay.

I think you've covered the private markets and the challenges that were reflected with that. I don't see this... having the same exposure. It's not the same. But what you spoke to is managing the risk of the portfolio. And I think the way that you provision your loan loss and look at your expected loss in the different phases is good. And that's where my question is in terms of how you're managing that process because the quality of it is going to be key.

Yeah, so the 24% seven-year IRR that I mentioned includes losses and write-downs. We're pretty aggressive, or maybe it's the opposite, conservative. We tend to write down our loans and warrants quickly. Like, we don't like writing them up. They're uncertain. They're long-term. So we try to be very careful. It really comes down to a philosophy. I mentioned earlier we had four retainers. We actually had five. The fifth, though, was a deal that had been written down to zero years ago, but we continue to work with management. It's very important to be focused on... Let me step back. We monitor all our companies monthly. Every company always has to provide its monthly financial statements. We monitor trends. We have covenants. We talk to all of our management teams monthly, if not more. And we will often give them a heads up on their performance because, let's be honest, management of growth companies are optimists. They have to be. And we have to be focused on the non-optimistic scenario. And we will often say, hey, guys, this metric is starting to get offside. are you concerned? What can we do about it? How do we manage that? And so the point of having covenants is to be able to provide stronger guidance and management. But even before a covenant is tripped, it doesn't happen that often, but it does happen, we're watching and monitoring behavior of companies. And without overstating it, we're experts in, particularly on our credit team, in understanding growth in high growth companies. And often management teams aren't. And so We spend a lot of time, we spend a big, a lot of time building a sort of an infrastructure to track the behavior and the performance of companies. And then we stay on top of it. So you'll find many of our companies will, frankly, they said to us, you give us better feedback than our board does. And I don't mean to disparage board members. That's not always the case in both companies. But what we find is that we're very helpful. The feedback is that we're helpful because of our knowledge, because of our over of our monitoring, and we'll help them manage their businesses. That is super important for us to manage our risk. Because if a company is missing on metrics, but they can slow down their growth rate and reduce their burn, that not only helps us, that helps them and their stakeholders. So there's an entire process that we have in place of monitoring, reporting, management, communication, etc. If something does go off the rails, we then continue to work with those teams. It has been a long-term investment of our time to work with those companies that have gotten into trouble. We'll write them off in terms of our own carrying value and our asset base. But ultimately, we saw a successful exit this year, late in the year, of a company that was struggling and working to repair itself for over four years. That's important, that it represents upside to us. that also represents the safe exits for the other stakeholders. And it's just our philosophy. What we won't do is unless we absolutely have to, we just won't walk away from a company. So it's a long answer to there is heavy lifting in this business, but it's served us very well. We'll continue to behave that way. And at the end of the day, you know, the other thing that I mentioned earlier is that the upside on our equity positions has historically more than made up for the downside in modest principal loss that we may have experienced in some of our prior investments. One other point to mention, you know, in another one of our portfolio companies that had struggles, we returned $0.92 on the dollar. We continue to have a position that the assets were then sold to another entity. and we have a meaningful common equity position in that entity plus a kind of a loan that is repaid through revenue. It's not royalty. It's just to call it a deferred purchase price. And so already we made 92 cents on the dollar. That company and the assets lives to fight another day and we continue to have upside. So it's a long answer to monitoring companies, managing risk, working with management teams, not having pressure to deploy. And it's a full circle in all the component pieces of our strategy and our approach.

Fantastic. Thank you, Ron. Sounds like you've got lots of good management going on, lots of use of flexibility that you've got. Thank you.

Yeah. Thanks again for your support, Trevor, and your questions.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. There are no further questions at this time. I will now turn the call over to Alex for closing remarks.

Thank you very much, Joelle. Thank you, everybody, for listening. As I said, you can find our results on our website on CDAR, our Q1 website. Numbers will be out within four to six weeks. And so we'll be talking to you relatively shortly again. Thank you all for your time.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.