Earnings call transcript: Flow Capital Q4 2025 sees record revenue growth

Flow Capital Corp, with a market capitalization of $16.59 million, reported robust financial results for the fourth quarter of 2025, showcasing significant growth in both revenue and free cash flow. The company’s strategic focus on venture debt investments has driven a 44% increase in interest revenue and a 61% rise in recurring free cash flow. According to InvestingPro analysis, the stock appears slightly undervalued at current levels, despite remaining unchanged in the latest trading session.

Key Takeaways

• Record Q4 revenue growth of 44% in interest revenue.
• Full-year revenue increased by 31% to $9.3 million.
• Deployed a record $28.5 million in new investments.
• Stock price remained stable post-earnings announcement.

Company Performance

Flow Capital’s performance in Q4 2025 highlights the success of its venture debt-focused strategy. The company achieved a 44% increase in interest revenue, amounting to $2.7 million, and a 61% rise in recurring free cash flow, totaling $545,000. For the full year, revenue grew by 31% to $9.3 million, while free cash flow surged by 88% to $1.9 million. The company maintains an impressive gross profit margin of 100% and receives a FAIR overall financial health score from InvestingPro. These results underscore Flow Capital’s ability to capitalize on the growing venture debt market, which saw a 95% increase in US originations in 2024.

Financial Highlights

• Revenue: $9.3 million, up 31% year-over-year.
• Free cash flow: $1.9 million, up 88% year-over-year.
• Assets increased by 13% to $72 million.
• Book value per share rose from $1.19 to $1.20.

Outlook & Guidance

Flow Capital provided guidance for the upcoming years, with an EPS forecast of -$0.01 for both FY2024 and FY2025. Revenue is expected to reach $4.07 million in FY2024 and $4.23 million in FY2025. The company remains committed to scaling its business with a focus on increasing average deal sizes while maintaining a selective investment approach.

Executive Commentary

CEO Alex Beluda emphasized the company’s strategic positioning in the venture debt market, stating, "We target zero losses in our portfolio." He also noted the trend of companies staying private longer, which aligns with Flow Capital’s investment strategy. Beluda highlighted the company’s current asset level of $70 million in a market that deploys approximately $50 billion, indicating significant growth potential.

Risks and Challenges

• Market volatility and economic downturns could impact venture capital funding.
• Increased competition in the venture debt market may pressure margins.
• Regulatory changes could affect the company’s investment strategy.
• Dependence on a small number of high-growth technology companies poses concentration risks.

Flow Capital’s Q4 2025 results reflect its strategic focus on venture debt investments and its ability to navigate a growing market. With a stable stock price and a clear path for future growth, the company appears well-positioned to capitalize on industry trends. InvestingPro data reveals strong financial fundamentals, including an exceptional current ratio of 8.05 and a remarkable 55.56% return over the past year. Subscribers can access 6 additional exclusive ProTips and a comprehensive Pro Research Report for deeper insights into Flow Capital’s investment potential.

Full transcript - Flow Capital Corp (FW) Q4 2024:

Joanna, Conference Call Moderator: morning, ladies and gentlemen. Welcome to Flow Capital’s Earnings Call for Q4 and Year End twenty twenty four. At this time, all participants are in a 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.

I would like 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 Flow Capital’s risks and uncertainties related to these forward looking statements, please refer to the Dillon twenty twenty four company’s management discussion and analysis, which is available on SEDAR. Today’s call is being recorded on Friday, 05/02/2025. I would now like to turn the meeting over to Alex Beluda, Chief Executive Officer of Flow Capital.

Please go ahead.

Alex Beluda, Chief Executive Officer, Flow Capital: Thank you, Joanna, and thank you everybody for joining or for listening to the recording. Yesterday morning on May 1, we released our financial results for fiscal twenty twenty four and Q4. I am joined today by my CFO, Michael Denny. And our numbers, including a recording of this call, our press release and our financial statements can be found on our website at flowcap.com or as filed on SEDAR. Q4 was another record quarter for us, capping off a record year.

I’m gonna keep these comments unscripted and relatively brief. I’ll give you an overview of what we’re seeing. And as usual, you have any questions, please call us or email us at any time. For q four, we had a 44% increase in interest revenue to $2,700,000, which is a record for us on a quarterly basis. We had a 61% increase in recurring free cash flow to 545,000, and we reported 2¢ per share in free cash flow per share in the quarter.

For the full year, we had a 31% increase in revenue to $9,300,000, an 88% increase in free cash flow to $1,900,000 for the year, and we reported $06 in free cash flow per share. Our assets year over year increased 13% to $72,000,000. During the year, we deployed a record $28,500,000 in new deployments, and our book value per share went up 1p from $1.19 to a dollar 20 per share. Some of the other numbers that you won’t see in our press release or in our financial statements, I’ll highlight now, show the long term track record of progress. Just as a reminder, it was in mid twenty eighteen that we pivoted the company, changed the name to call it Flow Capital and focus squarely on the venture debt space.

We now have a six and a half year, almost seven year pushing seven year track record of performance in the space. For the last twenty two quarters, we’ve been profitable. That’s five full years of recorded and reported profitability. Q four this year represented the sixth sequential quarter in a row of revenue growth. And so our longer term track record and performance is really we’re quite proud of here.

If you look at our business model, there’s an awful lot of operating leverage in our model, and you’re just starting to see that. OpEx in 2020 was $3,000,000. OpEx in 2025 came in at $3,400,000. Now revenue over that time period was up 75%. OpEx was up 13%, and recurring free cash flow from 2020 to 2025 was up a 88%.

So you can see, in particular, in this last year where recurring free cash flow was up almost a %, we’re starting to get operating leverage in our business as we increase in scale. Now I will say that our management expense ratio, which is a typical metric that you’ll see for asset managers, it’s a little different for us because we’re we’re a public company, so we’re not an LPGP structure. But nevertheless, we look at it internally as a metric to manage our business by, and we’re still pretty high at 5%. We feel strongly that the opportunity here for us to continue to scale our business is here. I’ll talk about the market and the industry overall in a minute.

And as we scale, we’ll see increasing operating leverage in our business driven primarily by the number of people that we need to manage our business, which you’ll see, we’re starting to get that operating leverage. So managing credit ratio is still high, but in in spite of that, OpEx only up 13% in five years and free cash flow up 88. Our net interest margin continues to be good. Actually, it’s getting even better now as rates are coming down more more more more aggressively in Canada, but also in America. Our assets or I should say our our balance sheet, we carry roughly we carry about almost 37,000,000 in equity.

And about 28 currently, about $28,000,000 in debenture or debt, both of which are directly invested into our our our portfolio, half of that debt is denominated in US dollars and half of that debt is denominated in Canadian dollars. So we do get the benefit of dropping rates. And, you know, while we did offer floating loans during while the rates are going up, very few companies avail themselves of that. And so what you see is we have a fixed most of our portfolio is is fixed interest and not floating. And as rates come down, we’re benefiting from some increased margin.

It’s not as big a benefit as the operating leverage we’re seeing, but we are seeing some benefit there. You know, over the last five years, you’ve seen us work to balance kind of three different pillars of our business, including deal flow, assets capital, and people. At any given time, we had not enough of one and too much of another. You know? But I think I feel, and it’s showing up in our numbers, that we’re getting to the stage where we have, I think, a fantastic team.

We have the capacity with the current team on hand to do a lot more business than we’re doing. We’re also slowly increasing our average deal size from what was in the, you know, sometimes sub $1,000,000.05 years ago to on average, we won’t look at a deal now below 2,000,000 US unless it’s very special. So you’re seeing our average deal price creep up, but we have a a team that can scale to significantly more capacity. We have access to capital during the year. We one of our highlights of the year was we closed a a three year line of credit, a warehouse line, we like to call it, with Triumph Bank in The US.

I will say they’re a fantastic partner, and I’ll recommend them to anybody else if you want in our business, if you want a recommendation. And deal So, you know, and right now, we’re we’re actually quite busy in our current pipeline, but deal flow is is quite lumpy actually. Sometimes it’s excellent. Sometimes it’s not so good. It’s it’s more a function of yield.

You know, historically, over the last four, five years, we’ve we’ve been seeing about a thousand top of the funnel leads, and we’ve been closing on less than 1% of that. To me, that’s a function of our focus on quality, frankly, and that’s one of the reasons why we continue to have an excellent long term track record. We’ve press released in the past our our our five year rolling top line performance on our on our portfolio is in the 24 to 26% range in terms of IRR, even better if you go back six and a half years. But our our you know, back to the NIM, the NIM is increasing as rates come down. So if I look at our portfolio overall, it’s in it’s in quite good standing.

We did have some write downs this year. Part of that a big part of that was mark to market on our equity portfolio. You know, just as a reminder for people maybe new to the story, when we do investments, they’re senior secured loans in high growth businesses. Our value proposition is is primarily directed at high growth companies, primarily technology companies. When we when we do loan, we we we we take a cash interest, very, very little pick.

It’s cash interest, but the unique aspect is it’s not amortizing, which in our industry is quite unique. But along with that, we take a small sliver of warrants. You know, it might be anywhere from one to 2% of the company in terms of warrants, and and that’s really just a function of math in terms of warrant coverage, the average size of the company. You know, our loans are capped. We don’t do more than one time JRR for a SaaS company.

We don’t do more than 20% of the enterprise value at underwriting. But when we underwrite, we get a a small sliver of warrants. So warrant portfolio now is in the mid twenty, twenty two, twenty five. I can’t remember the exact number. Michael can tell me.

Our current portfolio at the end of twenty four had 15 names in it. And so you’re still seeing a build a treasure trove of these warrant positions in these high growth companies. And and frankly, some work, some don’t. But but on our loans, you know, we’re laser focused on getting repaid. But we did have some mark to market declines at valuations in our sectors, the segments that we focused on did come down from ’21, ’20 ’2, ’20 ’3 to where they are now.

They bounced a little in ’24, but nevertheless, we had mark to market write downs on some of our our our non loan portfolio. We did have two loans that we took additional ECLs on. They they continue to be active businesses. We’re working on some restructuring of those companies. And so you’ll see that reflected in our in in our total assets.

Now that’s why our our book value per share growth is only 1p this year. But overall, our loss ratios continue to be small, and we continue to have excellent top line performance in the portfolio over both the five and since inception perspective. And by the way, again, as a reminder, while while this was a turnaround of a different entity, you know, we consider inception to be the date that we changed our name, which is early twenty eighteen to flow capital and pivoted into venture debt. And that’s where we are are using our since inception timeline from. Now in terms of the overall market, you know, it’s very interesting.

This is a a very fast growing segment of the broader venture ecosystem. So you’ll see companies are staying private much longer. I heard a stat. I can’t remember exactly where it was from, but there’s 4,000 fewer public companies in North America today than there was I think it was a decade ago. So companies aren’t going public.

Companies are staying private longer. Certainly, this AI boom, you’re seeing incredibly large funding rounds of private companies, which unlike anything we’ve seen in the past, we don’t play in that verified air, obviously. But broadly speaking, that’s applicable to the entire market. In 2024, we saw the venture debt marketplace in America, and it’s properly tend to Canada and and and Europe as well, grow by 95 in terms of originations. Originations were up to $53,000,000,000 in America.

Again, up 95% year over year in 2024. Now there were fewer deals, the larger deal size, so you’re seeing that trend. But in in the space that we play, which is much more of a smaller deal size, we’re doing companies within a minimum of 3,000,000 in revenue. Average revenue is increasing close to double digits now. As I mentioned before, some of the requirements we have in terms of our types of deals we do, but but we’re seeing more companies turn to venture debt as well.

And as I mentioned earlier, we’ve had challenges. We’ve always been trying to manage our people, our access to capital, and our deal flow. I think the challenge today is just continuing to see those great deals. And and since we have a less than 1% close rate, you can see that we’ll continue to be very selective. As we you know, some of the models here we have are we target zero zeros and zero losses in our portfolio.

We also we also understand how hard it is to repay a capital loss of a million dollars based on the net interest margin on the rest of your portfolio. So we are laser focused on doing the best quality deals we can find. And inside of that or because of that, we’re still growing profitably, and we’re having excellent year over year performance. And we do feel strongly that the opportunity here is for us I mean, look, we’re 70,000,000 in assets in a in an industry that probably does 50,000,000,000 in deployments. You know, we’re we’re gonna we’re we’re we have a lots and lots of headroom.

You know, in fact, in terms of competition, I’d say it’s the same. We’re not we some we we lose some deals to other term sheets. We sometimes don’t you know, we’re noncompetitive bids. We’ve seen some of the industry players that we used to see leave the industry. They were funded by family offices.

They weren’t sort of they were looking at this opportunistically, not as as an asset class that they wanted to grow into over the next ten years or fifteen years like we do. So we’ve actually seen some competitors leave. Some of the competitors that were more focused on revenue based financing, you saw that blow up on the down well, the the original version of blow up, not the upside, the downside. They they exited the industry, and I think the the bloom on that revenue based financing rose is is long gone. It’s it’s it’s not as good for companies as, you know, term loans like ours, which are non amortizing.

So, arguably, we’re seeing less competition, but I wouldn’t say we’re not seeing any. We’re we’re we’re we’re always trying to tailor our rates in our solutions. And and, you know, frankly, as you’re right, the way we differentiate primarily is that we’re non amortizing loans. And so most of the loans that companies are getting from competitors might have an interest holiday of six months, twelve months, and then they’re amortizing. You know, our perspective is we pick great companies and we wanna be fully deployed for longer, but also the companies can use our capital for longer because it’s non amortizing and they pay out in the bullet.

And when they pay, it’s either a refi. It’s a it’s an m and a transaction. You’ll see in q one, we released a couple of weeks ago, one of our companies was acquired. They’ll do an equity raise, or they’ll grow and they’ll start paying out of cash flow. So there’s lots of ways for companies to pay us back.

And I think with that, I’ll end my statements for the quarter and open it up for questions.

Joanna, Conference Call Moderator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the 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 confirm the polling process, please press star followed by the two.

And if you’re using a speakerphone, please select the handset before pressing any keys. As a reminder, for any questions, please press star one now. There appear to be no questions. Back over to you, mister Alex Beluda.

Alex Beluda, Chief Executive Officer, Flow Capital: Thank you, Joanna. Thank you, everybody, for attending and or for listening to the recording. Again, please feel free to email us or call us at any time, and we’ll see you in only a couple of short weeks as we report Q1 later on in May. Thank you very much.

Joanna, Conference Call Moderator: Ladies and gentlemen, thank you. This concludes your conference call for today. We thank everyone for participating, and we ask that you please disconnect your lines.

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