Dealnet Capital Corp.
TSX VENTURE : DLS

Dealnet Capital Corp.

April 27, 2017 07:00 ET

Dealnet Reports Record Portfolio Growth in Fiscal 2016

- Finance receivables increased 70 times to $137.5 million at the end of 2016 from $1.9 million at the end of 2015

- Cash used in operating activities declined 90 percent to $0.48 million from $4.89 million in the previous year

- Cash balances increased by 62 percent to $17.1 million from $10.5 million at the end of the previous year

- Tangible net worth increased 67 percent to $18.8 million from $11.3 million at the end of the previous year

- Gross margin was maintained at 40 percent while gross profit increased by 128 percent over the previous year

- Operating expenses improved by 51 basis points to 166 percent of gross profit from 217 percent in the previous year

TORONTO, ONTARIO--(Marketwired - April 27, 2017) - Dealnet Capital Corp. ("Dealnet" or the "Company") (TSX VENTURE:DLS), reported today its financial results for the year ending December 31, 2016. All results are reported under International Financial Reporting Standards ("IFRS") and in Canadian dollars, unless otherwise specified.

"I am very pleased with the significant achievements that we have made in transforming the Company over the past 14 months with a broader base of revenue, a growing portfolio of finance assets, deeper and diversified funding relationships, improved operating efficiency, a stronger balance sheet and an expanding customer, dealer and OEM network," said Michael Hilmer, Dealnet's Chief Executive Officer. "Last year, the pace of change at Dealnet was purposeful and these 2016 financial results reflect an early indication of the longer-term benefits from these changes that we expect to realize in future periods," added Mr. Hilmer.

The following financial results are indicative of the Company's transformation over the 2016 reporting period:

Growth in Finance Receivables

During 2016, the Company increased its portfolio of loans and leases from $1.9 million at the end of 2015 to $137.5 million at the end of 2016. Approximately half of this 70-fold increase in finance receivables is attributable to organic growth resulting from the expansion of the Company's product offerings and deeper penetration of the Company's existing dealer network.

Increased Cash Generation/Cash Balances

During 2016, cash used in operating activities decreased by 90 percent to $0.48 million from $4.89 million in the previous year. This improved operating efficiency is the result of scaling incremental revenue at a faster pace than the operating expenses required to generate that revenue. Cash and Cash Equivalents increased by 62 percent to $17.1million at the end of 2016 compared to $10.5 million at the end of the previous year.

At the end of the year, the Company also benefited from a revaluation of the assets it acquired in the EcoHome transaction. As a result of this revaluation, the Company booked a $9.4 million increase in tangible assets and a $9.6 million decrease in intangible assets in the fourth quarter of 2016. Also as a result of these adjustments, the Company recorded a $3.62 million incremental non-cash expense in the fourth quarter, which contributed $0.02 per share to the reported $0.05 per share loss for the year. This adjustment is expected to have a nominal impact on the expenses reported in future periods. Other events in the quarter contributed one-time in quarter expenses making up the majority of the incremental EPS loss.

Increased Tangible Net Worth

The Company's balance sheet was strengthened during 2016, increasing tangible net worth by 67 percent from $11.3 million at the end of the previous year to $18.8 million at the end of 2016. Subsequent to year-end, the Company issued $6.7 million in equity to fund a portfolio purchase and received approximately $4.1 million from the exercise of previously issued warrants. As a result, the Company has sufficient liquidity and capital resources to fund the growth objectives in its current business plan.

Increased Gross Profit / Gross Profit Margins

For the year ended December 31, 2016, the Company's Consumer Finance business reported finance income of $8.69 million ($248 thousand in 2015), and finance and direct expenses of $4.73 million ($392 thousand in 2015) resulting in a $3.96 million contribution to gross profit (-$144 thousand in 2015).

The Company's Engagement business reported revenue of $26.69 million ($15.66 million in 2015), and cost of sales of $16.34 million ($9.24 million in 2015) resulting in a $10.36 million contribution to gross profit ($6.43 million in 2015).

This 128% year-over-year increase in gross profit significantly exceeded the 74% increase in operating expenses incurred during the year contributing to an 18% reduction in the reported per share loss of $0.05 for 2016 from a per share loss of $0.06 reported in the previous year.

Other Strategic Highlights

  • On January 12, 2016, the Company closed an agreement with the investment management arm of one of Canada's leading insurance companies to amend and increase an existing debenture facility bringing the total amount outstanding under the facility to $10 million;
  • On February 5, 2016, the Company closed a bought deal private placement of 54,545,700 subscription receipts at a price of $0.55 per subscription receipt for gross proceeds of $30 million;
  • On February 18, 2016, Dealnet closed the acquisition of EcoHome from Chesswood Group Limited for total consideration of $34.45 million;
  • During 2016, the Company received cash proceeds of $12.52 million from the exercise of 38.3 million common share purchase warrants;
  • On May 24, 2016, Dealnet announced that it had entered into a strategic alliance agreement with an HVAC manufacturer to provide a tailored vendor finance program to the manufacturer's dealer network across Canada;
  • In July 2016, the Company closed a securitization facility with a major Canadian life insurance company providing $75 million in available funding for the Company's lease and loan products;
  • During July 2016, the Company renewed an existing securitization facility with a Schedule 1 Bank. The Company typically securitizes $3-4 million per month under this facility;
  • During July 2016, Dealnet closed a $20 million available funding facility with a major Canadian financial institution;
  • On August 24, 2016, Dealnet purchased various mobile messaging contracts from an arms-length party for total consideration of approximately $894 thousand;
  • On November 28, 2016 Dealnet announced that through a wholly owned subsidiary, it issued a debenture for $10 million under its existing secured debenture facility structure;
  • During 2016, the Company launched a new national distributor of plumbing products having approximately 4,000 dealer relationships across Canada and launched an HVAC OEM relationship that has approximately 300 dealers across Canada.

Recent Developments

  • On January 13, 2017, the Company closed on the purchase of a portfolio of consumer finance rental contracts valued at approximately $29.2 million from a prominent Ontario dealer who operates in one of the Company's key verticals;
  • On February 2, 2017, the Company announced that it had entered into three strategic relationships with OEMs that are expected to expand the Company's dealer base and further drive origination volumes;
  • On February 2, 2017, the Company launched a new financial technology platform and new vendor finance platform that automates credit adjudication and application processing and various back office functions for its dealers;
  • On April 13, 2017, a Dealnet subsidiary closed a further $20 million debenture under its existing secured debenture facility structure.

"The Company's strong performance through 2016 puts us on track, together with our established funding facilities and expanded customer, dealer and OEM network, to accelerate our cash generation and grow our portfolio of earning assets through 2017 and beyond," stated Michael Hilmer, Chief Executive Officer.

Conference Call Details

DATE: Thursday, April 27, 2016
TIME: 10:00 A.M. EST
DIAL IN NUMBER: Local / International: 416-340-2216
North American Toll Free: 866-223-7781
REPLAY NUMBER: Local / International: 905-694-9451
North American Toll Free: 800-408-3053
Passcode: 1103297

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 an engagement enabled consumer finance company that is initially focused on home improvement finance solutions including heating ventilation and air conditioning financing and leasing. Dealnet leverages its large-scale customer service and engagement technology platform to attract home improvement dealers by providing front and back office services to them resulting in dealer origination growth.

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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