Dealnet Capital Corp.
TSX VENTURE : DLS

Dealnet Capital Corp.

August 17, 2017 07:30 ET

Dealnet Processes More Than $21 Million New Financing Applications in Q2-2017

- Backlog of approved loans grows as dealer network expands and new origination channels are scheduled for H2 opening

- Consumer companion to the Company's dealer origination platform enters pilot program three months ahead of schedule

- Engagement segment gross margin increases by more than 18% over the previous period to $2.8 million

- Net book value of past due accounts declines to 5.0% of portfolio from 5.4% at the end of the previous quarter

- Gross profit increases to $4.3 million over the previous quarter while net loss remains flat at $0.01 per share

TORONTO, ONTARIO--(Marketwired - Aug. 17, 2017) - Dealnet Capital Corp. ("Dealnet" or the "Company") (TSX VENTURE:DLS), reported today its financial results for the three-month and six-month periods ending June 30, 2017. All results are reported under International Financial Reporting Standards ("IFRS") and in Canadian dollars, unless otherwise specified.

For the three-month period ending June 30, 2017, the Company reported gross profit of $4.3 million in line with the $4.2 million reported in the previous quarter. The Company's salary wages and benefits remained relatively flat at $3.76 million versus $3.74 million in the previous quarter. General and administrative expenses were $2.55 million for the three months ended June 30, 2017 compared to $2.12 million for the prior quarter. The increase was primarily due to higher professional fees related to the 2016 external audit and investments in technology and compliance processes that were made to support the Company's consumer-focused initiatives. As a result of these increased costs, which are not expected to recur in future periods, the Company recorded a loss of $3.11 million ($0.01 per share) for the three months ended June 30, 2017 compared to a loss of $2.85 million ($0.01 per share) for the previous period.

The average yield on the Company's portfolio of finance assets decreased by 20 basis points to 8.6 percent during the three-month period ending June 30, 2017 from 8.8 percent during the previous three-month period ending March 31, 2017. The Company's weighted average interest expense increased to 4.9 percent during the three-month period ending June 30, 2017 compared to 4.2 percent during the previous three-month period. Net Book Value of past due accounts as at June 30, 2017 declined to 5.0 percent of the portfolio from 5.4 percent reported at the end of the previous period ended March 31, 2017. The Company's tangible net worth as at June 30, 2017 was $23.5 million versus $18.8 million as at December 31, 2016. The Company's tangible leverage ratio declined to 7.4:1 at the end of Q2-2017 from 7.7:1 as at December 31, 2016.

During the period, the Company received more than $21 million of new finance submissions from its expanded network of more than 600 dealers and booked $9.5 million of new consumer finance receivables from its approved application backlog. After accounting for these portfolio additions and net of liquidations from customer initiated transactions and contractual principal repayments, the Company's portfolio of finance assets increased to $169.7 million as at June 30, 2017 from $169.1 million reported at the end of the previous period and from $137.5 million as at December 31, 2016.

"I am very pleased to confirm that during the second quarter we successfully advanced the timetable for the introduction of our consumer companion to the Company's dealer origination platform," said Michael Hilmer, Dealnet's Chief Executive Officer. "This marketplace platform has the potential to significantly accelerate both the fee income and the net finance income that the Company earns going forward. We are currently deploying this platform as a pilot program commencing this month and have signed agreements with third party professional organizations that will give us access to approximately 1,000 pilot business professional users, each with their own network of prospective homeowner borrowers," added Mr. Hilmer.

During the period the Company increased its warehouse facility from $23 million to $43 million to accumulate a larger pool of finance assets to seed new funding conduits that the Company is expecting to bring on stream in the second half of the year. Securitization volume declined to $3.9 million in the three-month period ending June 30, 2017 from $24.9 million in the previous quarter. Interest expense for the three months ended June 30, 2017 was $2.1 million or 4.9% of average finance assets, compared to $1.65 million or 4.2% percent of average finance assets in the prior quarter. Together, these factors resulted in the gross margin contribution from the Consumer Finance segment decreasing from $1.8 million in the previous quarter to $1.4 million in the three month period ending June 30, 2017.

"We have positioned the Company's treasury for the expected growth that is now showing up in our backlog while fully recognizing that this funding strategy has come with some short-term costs. By deferring large scale securitizations and using more expensive shorter duration funding for new originations during the period, we sacrificed some net interest margin and some net income for the reporting period,. However, given the long duration nature of the asset class, it was deemed wise to trade this short-term increase in interest expense in favour of improved long term earning potential of these assets," said Mr. Hilmer.

"We expect the margins from our Consumer Finance segment to normalize once we reduce our utilization of our warehouse facility in favour of the lower cost funds available through our securitization programs," said Paul Leonard, Dealnet's Chief Financial Officer.

The following table summarizes some of the Key Performance Indicators that the Company uses to measure the achievement of its business plan objectives:

Q2 2017 Q1 2017 Q4 2016 Q2 2016
Finance Receivables $170M $169M $138M $101M
Organic and Acquired Originations $9.5M $39M $22M $20.5M
Average Yield on Earning Assets 8.6% 8.8% 7.9%* 8.1%
Weighted Average Interest Expense 4.9% 4.2% 4.1%* 4.5%
Consumer Finance Gross Margin as a % of Total Revenue 14% 19% 13%* 17%
Engagement Gross Margin as a % of Total Revenue 28% 25% 30%* 26%
Securitizations $3.9M $24.9M $31.3M $10.5M
Tangible Leverage 7.4 6.1 7.7 11.8
Tangible Net Worth $23.5M $26.2M $18.8M $8.6M
* Q4 2016 comparative figures have been calculated taking into effect final purchase price allocation determined at year-end 2016.

The financial statements for the three-month and six-month periods ending June 30, 2017 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 on Thursday, August 17, 2017 commencing at 10:00 A.M. EST to discuss these results.

Conference Call Details

Date: Thursday August 17, 2017
Time: 10:00 A.M. Eastern Time
Dial-in Number: Local / International: 416-340-2216
North American Toll Free: 1-866-223-7781
Replay Number: Local / International: 905-694-9451
North American Toll Free: 1-800-408-3053
Passcode: 4054129#
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/

About Dealnet Capital Corp.

Dealnet is a specialty finance company powered by its proprietary, scalable engagement platform to service the $20 billion home improvement finance market through both dealer-based and direct homeowner-based originations of secured finance assets (equipment leases and loans). The company earns net finance income over the term of these assets and from fee income derived from the transaction support services that it provides to its dealer network. The Company also uses its engagement platform to provide 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 including statements regarding the Company. 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.

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