- Improved yields, better credit quality and reduced
operating expenses set the stage for scalable, profitable
growth
- Current capital structure and funding relationships
capable of supporting an over 90% increase in finance
assets
- Continuing along the Path to Profitability
TORONTO, March 25, 2019 /CNW/ - Dealnet Capital Corp.
("Dealnet" or the "Company") (TSX VENTURE: DLS), reported today its
financial results for the three-month and twelve-month periods
ending December 31, 2018. All results
are reported under International Financial Reporting Standards
("IFRS") and in Canadian dollars, unless otherwise specified.
For the twelve-month period ending December 31, 2018, the Company reported net
income of $16.8 million or
$0.06 per share. This included
income of $25.6 million from
discontinued operations driven by the gain on sale of Impact Mobile
("Impact") of $24.6 million.
Adjusting for the discontinued operations, the Company reported a
net loss from continuing operations of $8.8
million or $0.03 per share
versus a net loss from continuing operations of $48.8 million or $0.17 per share for the previous twelve-month
period.
In 2018, the Company achieved the following objectives to
position Dealnet for scalable, profitable growth going forward:
- Recapitalized the balance sheet to increase tangible net worth
to $34.9 million or $0.12 per share positioning the Company's capital
structure for the next stage of portfolio growth;
- Improved the productivity of the dealer network increasing
consumer finance revenue to a record $3.94
million in Q4 and $15.4
million for FY 2018;
- Increased dealer support and incentives to target more than
$5 million of quality profitable
originations per month;
- Incorporated risk-based pricing on new originations increasing
the average yield on earning assets to 8.7% in Q4 and 8.8% in FY
2018;
- Higher net interest margin of 49% in both Q4 and FY 2018;
and
- Reduced operating expenses to $3.0
million in Q4, representing a go-forward run-rate of
$1 million per month
As a result of these strategic initiatives, including the
streamlining of operations, reduction of headcount and the
elimination of $12 million of annual
run-rate overhead costs, the Company is now positioned to scale up
its operations with confidence that continued portfolio growth will
deliver commensurate and increasing profitability to the bottom
line.
"The Company used 2018 to refocus the allocation of capital,
eliminate unproductive overhead, and increase the competitiveness
of its home improvement finance offerings," said Brent Houlden, Dealnet's President and Chief
Executive Officer. "With these fundamental improvements to our
operating structure and business model, we can now move confidently
to the next stage of Dealnet's evolution – scalable, profitable
growth."
2018 Financial Highlights
Rightsizing the operations
Headcount has been reduced 52% to 73 salaried staff at the end
of the year, and overhead costs have been cut by almost half to the
current run-rate of $1 million per
month. To achieve these savings, the Company implemented
significant process improvements and system enhancements to ensure
that its operations are efficient and scalable to support expected
future growth of the Consumer Finance and Live Engagement
businesses.
New management team
The Company streamlined its senior executive team to ensure the
most effective leadership is in place to lead Dealnet into the next
stage of its growth. This process has included hiring into
new roles of General Counsel, Credit Risk Officer, and President of
One Contact, as well as naming a new Chief Financial Officer and
Chief Technology Officer.
Recapitalization of Dealnet
In July 2018, the Company sold
Impact Mobile for total cash consideration of approximately
$27.9 million. The Company recorded
an after-tax gain of $24.6 million,
which has been completely offset by available tax losses.
With the sale, the Company's tangible net worth has improved
from $17.8 million at December 31, 2017 to $34.9
million, or $0.12 per share,
as at December 31, 2018. With
this improvement, the Company's tangible leverage ratio decreased
from 10.4:1 to 4.9:1 over the commensurate period. With this
capital base, the Company can support a portfolio of up to
$350 million representing an over 90
percent increase on the $182.8
million of finance receivables reported at the end of
2018.
The sale allowed Dealnet to recapitalize and solidify its
balance sheet without having to do a dilutive equity raise or incur
costly debt to support operations. With this higher tangible
net worth and cash position and no large debt repayments due until
2021, the Company is able to concentrate on growth.
Call centre operations profitable
The Company's Live Engagement operations under One Contact
continue to offer call centre services out of Toronto, Ontario and Reno, Nevada for both the Consumer Finance
operations and external clients. One Contact is now led by a
highly-experienced call centre executive who is focused on growing
the business. The restructuring of the Company's Live
engagement operations which included the Gemma operations
liquidation in March 2018, has
succeeded in converting the Live Engagement back to
profitability. One Contact earned segment profit of
$564 thousand for the year.
Strong origination growth
The Company's Consumer Finance segment originated $14.0 million in the fourth quarter, 22% higher
than the $11.5 million of
originations in the third quarter of 2018, and 20% higher than the
$11.7 million originated in the
fourth quarter of 2017. This represented our strongest
quarter to date of organic originations in 2018. With the
introduction of risk-based pricing and improving the overall dealer
experience through continuous enhancements to the online dealer
portal, the Company was able to generate this growth with improved
credit quality and at a higher net interest margin.
As at December 31, 2018, Dealnet's
portfolio of finance receivables after allowance for credit losses
increased to $182.8 million with
35,226 financing contracts in place up from $170.7 million of finance receivables after
allowance for credit losses as at December
31, 2017 when the Company had 32,509 contracts in place.
Portfolio Quality
The average credit score of Dealnet's consumer receivables is
727 as at December 31, 2018 compared
to 726 at September 30, 2018 and 724
as at December 31, 2017. The average
credit score for the fourth quarter originations was 730 versus 714
for the fourth quarter of 2017 while average yield for the fourth
quarter originations was 8.7% versus 8.3% for the fourth quarter of
2017.
The following table summarizes some of the Key Performance
Indicators that the Company uses to measure the achievement of its
business plan objectives:
|
|
|
|
|
|
Q4
2018
|
Q4
2017
|
FY
2018
|
FY
2017
|
Finance
Receivables
|
$182.8M
|
$170.7M
|
$182.8M
|
$170.M
|
Organic
Originations
|
$14.0M
|
$11.7M
|
$44.4M
|
$42.3M
|
Average Yield on
Earning Assets
|
8.7%
|
8.3%
|
8.8%
|
8.5%
|
Weighted Average
Interest Expense
|
4.4%
|
5.1%
|
4.5%
|
4.8%
|
Net interest
margin
|
49%
|
38%
|
49%
|
43%
|
Engagement Income
as a % of Revenue
|
27%
|
26%
|
28%
|
24%
|
Tangible
Leverage
|
4.9
|
10.4
|
4.9
|
10.4
|
Tangible Net
Worth
|
$34.9M
|
$17.8M
|
$34.9M
|
$17.8M
|
The financial statements for the three-month and twelve-month
periods ending December 31, 2018
together with management's discussion and analysis of these results
have been filed on SEDAR and are available on the Company's website
at www.dealnetcapital.com.
The Company will host a conference call to discuss these results
on March 26, 2018 commencing at
10:00 A.M. Eastern Time.
Conference Call
Details:
|
|
Date:
|
Tuesday March 26,
2019
|
Time:
|
10:00 A.M. Eastern
Time
|
|
|
Dial-in
Number:
|
Local /
International: 416-764-8688
|
|
North American Toll
Free: 1-888-390-0546
|
|
|
Conference
ID:
|
59000217
|
|
|
Replay
Number:
|
Local /
International: 416-764-8677
|
|
North American Toll
Free: 1-888-390-0541
|
|
Replay Passcode:
000217#
|
|
|
Website:
|
To view the press
release or any additional financial information, please visit the
Investor Relations section of the Dealnet website at:
http://www.dealnetcapital.com/investors/
|
Annual General and Special Meeting
The Company will be hosting its Annual General and Special
Meeting at Gardiner Roberts LLP, Adelaide Centre, East Tower, 22
Adelaide Street West, Suite 3600, Toronto, on May 22,
2019 at 2:00 pm (Toronto time).
About Dealnet Capital Corp.
Dealnet is a specialty finance company serving the $20 billion Canadian home improvement finance
market. The Company develops and supports consumer sales financing
programs for approved dealers and distributors under agreements
with original equipment manufacturers (OEMs) that supply a wide
range of home improvement products to the retail market. The
Company runs its Consumer Finance segment through the operating
business, EcoHome Financial Inc. Through a dealer network, the
Company underwrites, originates, funds and services the prime
quality loans and leases that homeowners need to finance the
acquisition and installation of capital assets that improve the
quality, comfort and safety of their homes.
In addition, the Company operates its Engagement segment in the
business communications industry in Canada and the U.S. under the One Contact
banner, offering customer support services on a contract basis to
third party institutions.
For additional information please visit www.sedar.com.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in policies of the TSX Venture
Exchange) accepts responsibility for the adequacy or accuracy of
this release.
Forward-looking Statements
This news release contains certain "forward-looking information"
within the meaning of applicable securities law. Forward looking
information is frequently characterized by words such as "plan",
"expect", "project", "intend", "believe", "anticipate", "estimate",
"may", "will", "would", "potential", "proposed" and other similar
words, or statements that certain events or conditions "may" or
"will" occur. These statements are only predictions.
Forward-looking information is based on the opinions and estimates
of management at the date the information is provided, and is
subject to a variety of risks and uncertainties and other factors
that could cause actual events or results to differ materially from
those projected in the forward-looking information. For a
description of the risks and uncertainties facing the Company and
its business and affairs, readers should refer to the Company's
Management's Discussion and Analysis. The Company undertakes no
obligation to update forward-looking information if circumstances
or management's estimates or opinions should change, unless
required by law. The reader is cautioned not to place undue
reliance on forward-looking information.
SOURCE Dealnet Capital Corp.