Dealnet Reports 2018 Financial Results
TORONTO, March 25, 2019
- 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.
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:
Average Yield on Earning Assets
Weighted Average Interest Expense
Net interest margin
Engagement Income as a % of Revenue
Tangible Net Worth
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:
Tuesday March 26, 2019
10:00 A.M. Eastern Time
Local / International: 416-764-8688
North American Toll Free: 1-888-390-0546
Local / International: 416-764-8677
North American Toll Free: 1-888-390-0541
Replay Passcode: 000217#
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.
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.
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