- Increased earnings by $728 thousand from the first quarter of 2019
- Secured a $6.25 million 12-month term loan at prime + 4%
- Prepaid a $1.9 million Chesswood credit facility five months early
- Undertook initiatives to preserve value and conserve liquidity during COVID-19
TORONTO, May 21, 2020 (GLOBE NEWSWIRE) -- Dealnet Capital Corp. ("Dealnet" or the "Company") (TSX VENTURE: DLS), reported today its financial results for the quarter ended March 31, 2020. All results are reported under International Financial Reporting Standards ("IFRS") and in Canadian dollars, unless otherwise specified.
In the first quarter of 2020, the Company earned net income of $114 thousand – the first quarterly positive net income from continuing operations in the Company’s current history – compared to a loss of $614 thousand in the first quarter of 2019.
The full impact of COVID-19 is unknown. The largest impact of COVID-19 on the Company to date has been a significant reduction in the level of originations. The timeframe and degree of contraction remains uncertain and is dependent upon the resumption of business activities by our dealers. A prolonged reduction in origination activity will materially reduce the Company’s cash flows.
COVID-19 will likely increase the level of delinquencies. Delinquencies increased in the first quarter of 2020 due to COVID-19 disruptions, but the level of delinquencies declined in April 2020. To date, payment deferral inquiries have been nominal and only one consumer has submitted an application for a payment deferral so far. There may be future adjustments to our credit provisioning based on both portfolio performance and economic forecasts.
In the first quarter of 2020, One Contact had one of its best quarterly performances even though COVID-19 caused two of its customers to temporarily reduce their volumes and delayed the ramp-up of a major new account. The call centre business has been classified as an essential service in both Canada and the United States, but there is a risk of a short-term shutdown in the event of a wide-spread COVID-19 infection.
Sufficient Liquidity to Fund On-going Operations
As reported in the fiscal 2019 financial statements, the Company’s ability to continue as a going concern was dependent upon the Company raising liquidity to fund its on-going operations and finance the impacts of COVID-19 on the business. That need for immediate liquidity has now been resolved through the following actions taken by Management:
- Obtained a $6.25 million, 12-month term loan with a Schedule 1 Bank in partnership with the Export Development Corporation. The loan bears interest at the bank’s prime rate + 4% with an annual guarantee fee of 1.8%.
- Prepaid a $1.9 million Chesswood credit facility five months early.
- Reduced employee compensation by $1 million in fiscal 2020.
- Optimized the Company’s working capital position, along with deferring all major capital projects to future years.
- Collected other assets totalling $1.2 million which were receivable as of December 31, 2019.
- Applied to the Paycheck Protection Program in the United States and the Canada Emergency Wage Subsidy program in Canada.
In addition to the above actions taken by Management, the Company also has:
- Excess capacity in its warehouse facilities of $4.3 million as of March 31,2020, which could either be used to fund originations of finance receivables or to repay the facilities.
- $14 million of cash reserves with the Company’s securitization partners, of which $4.0 million can be used to fund future credit losses.
- One Contact which is unencumbered by security interests.
“I am proud of how the entire Dealnet team has stepped up during COVID-19. Continuing to manage the business while proactively responding to the pandemic was a challenge given the unprecedented pace and extent of change,” said Brent Houlden, CEO of Dealnet. “Since issuing our 2019 financials on April 3rd, we have significantly improved our liquidity and Dealnet is now on strong financial footing to weather the disruptions caused by COVID-19 and to emerge ready to seize the market opportunities for future compounding growth” he added.
First Quarter 2020 Financial Highlights
Originations and Fee Revenue
First quarter 2020 organic originations of $14.2 million was a 13.3% increase compared to $12.5 million in the same quarter of prior year. Fee and ancillary revenue increased 11% to $536 thousand in the first quarter compared to $482 thousand in the same quarter last year. From mid-March onwards, COVID-19 has significantly reduced the Company’s originations.
Net Interest Margin
Net interest margin increased by 19.2% to $2.3 million in the first quarter from $1.9 million for the same quarter last year.
Overall delinquency rates in our portfolio increased to 5.4% as at March 31, 2020 compared to 4.3% in the prior quarter and 4.8% in the same quarter of 2019. Mid-way through March 2020, the entire workforce had to quickly adapt to working from home. This resulted in a temporary disruption of the billing/collection process, which contributed to a spike in delinquencies. In addition, there has been a marginal increase in stop payments and NSFs. Additional collection efforts are underway to cure the delinquent accounts, but the closure of the Courts has temporarily stopped our legal enforcement actions. Subsequent to March 31, 2020, delinquency performance has held, and the aging profile of our portfolio actually improved in April 2020.
Provision for credit losses was $0.17 million in the first quarter of 2020 ($0.14 million in first quarter 2019). The increased credit loss provision was driven by a combination of portfolio growth, the change in the aging profile of the portfolio, and adjustments to both the macro economic forecasts and probabilities used in our stress testing to reflect a more pessimistic near term future environment given the impact of COVID-19. The allowance for credit losses recognized on the balance sheet as a percentage of finance receivables is 1.09% (1.05% at end of fourth quarter 2019).
Call Centre Performance
The Call Centre segment profitability increased 55% ($538 thousand in the first quarter of 2020 as compared to $347 thousand in the same quarter of prior year). One Contact has received significant client accolades due to the high service levels it has continued to provide its clients throughout COVID-19, including the recent commitment by one of its major clients to a further 12-month extension. Receivables related to the business are current with no uncollectible accounts.
Overheads in the first quarter of 2020 remained constant at the $1 million a month target even though the portfolio has grown. With the onset of COVID-19, headcount has been reduced and the associated salary reductions and lower performance bonuses will save the Company $1 million in fiscal 2020. The Canada Emergency Wage Subsidy will further reduce salary expense in fiscal 2020.
Key Performance Indicators
The following table summarizes some of the Key Performance Indicators that the Company uses to measure the achievement of its business plan objectives:
|Q1 2020||Q4 2019||Q1 2019|
|Average Yield on Earning Assets1||9.0%||9.0%||9.1%|
|Weighted Average Interest Expense1||4.7%||4.7%||4.9%|
|Net interest margin1||4.3%||4.3%||4.2%|
|Call Centre Gross Margin||37%||37%||35%|
|Tangible Net Worth1||$33.4M||$34.1M||$34.4M|
|Net Income (Loss) from Continuing Operations||$114K||$(189K)||$(614K)|
|Direct Operating Expense Ratio1||5.3%||5.6%||6.1%|
|1 This is a non-GAAP measurement. Refer to Non-GAAP Measures on page 25 of the first quarter 2020 management’s discussion and analysis for the definition of this measurement.|
The Company will rely on the relief granted by the Ontario Securities Commission under Ontario Instrument 51-504 – Temporary Exemptions from Certain Requirements to File or Send Securityholder Materials (and similar orders published by other provincial regulators) in respect of the filing of its executive compensation disclosure for fiscal 2019, which the Company intends to include in the information circular for its 2020 annual meeting. The relief provides an extension for executive compensation disclosure normally required to be filed within 180 days of a reporting issuer’s financial year-end.
The financial statements and management’s discussion and analysis for the first quarter of 2020 have been filed on SEDAR. The Company has also posted a slide deck with audio commentary summarizing the financial results. All materials are available on Dealnet's corporate website at www.dealnetcapital.com.
About Dealnet Capital Corp.
Dealnet is the parent company of subsidiaries operating in two market segments, consumer finance and call centre. The Company operates in the consumer finance segment in Canada through EcoHome Financial Inc. (“EcoHome”) and its call centre segment under the One Contact banner (“One Contact”).
EcoHome is a specialty finance company serving the $20 billion Canadian home improvement finance market. EcoHome 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. Through a dealer network, EcoHome 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.
One Contact offers customer support services to both EcoHome and third-party institutions across Canada and the U.S.
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, including the effects of Covid-19, 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.
|Contact Information |
Chief Executive Officer
(905) 695-8557 ext.1145
|Michael Koshan |
Chief Financial Officer and Treasurer
(905) 695-8557 ext. 1113