Dealnet Capital Corp.
TSX VENTURE : DLS

Dealnet Capital Corp.

November 29, 2016 07:30 ET

Dealnet Reports Significant Cash Generation in Record Quarter

TORONTO, ONTARIO--(Marketwired - Nov. 29, 2016) - Dealnet Capital Corp. ("Dealnet" or the "Company") (TSX VENTURE:DLS), reported today its results for the three and nine month periods ending September 30, 2016. All results are reported under International Financial Reporting Standards ("IFRS") and in Canadian dollars, unless otherwise specified.

Performance in the third quarter is underscored by the following significant operational achievements (compared to the second quarter):

  • Increased quarterly originations by 12% to $23.0 Million.
  • Increased consumer finance receivables by 17% to $117.6 Million.
  • Increased quarterly securitizations by 103% to $21.2 Million.
  • Increased consumer finance segment profit by 124% to $0.8 Million.
  • Increased outstanding consumer finance agreements by 11% to a total of 24,723.
  • Increased positive cash flow from operating activities by $14.2 Million to $1.3 Million.
  • Increased cash and cash equivalents by $3.3 million to $5.2 Million.
  • Achieved breakeven on a combined segmented basis.

The Company continues to manage to very specific and related internal Key Performance Indicators and has achieved growth and improvement in each as described in the table below:

in (000s) Q3 2016 Q2 2016 Q1 2016 Growth Q2-Q3 Growth Q1-Q2
Originations $ 23,049 $ 20,545 $ 12,333 12 % 67 %
Securitizations $ 21,197 $ 10,457 $ 7,887 103 % 33 %
Cash Provided by (Used in) Operating Activities $ 1,343 $ (12,893 ) $ (9,492 ) $ 14,236 $ (3,401 )
Cash and Cash Equivalents $ 5,161 $ 1,899 $ 7,654 $ 3,262 $ (5,755 )
Finance Receivables $ 117,581 $ 100,571 $ 83,018 17 % 21 %
Equity $ 55,049 $ 51,966 $ 49,624 6 % 5 %

Originations and Securitizations

Third Consecutive Quarter of Record Origination Volumes of $23.0 Million driven by strategic relationships with distributors and manufacturers of home improvement products. Dealnet's active dealer count currently is over 400 and is projected to double by the end of 2017. The growth in securitizations has increased cash and liquidity available to the Company. When finance receivables are securitized, the Company receives an amount equal to the cost of the loan along with a premium representing the present value of payments that are earned over the term of the loan securitized. Cash received from securitizations replenishes the Company's own cash and the amount made available under term debenture facilities. Together these liquid assets are used to warehouse finance receivables over the period from origination to securitization. This cycle of origination, warehousing and securitization occurs continuously throughout each quarter.

Cash and Cash Provided by Operating Activities

Increased Cash and Cash Equivalents to $5.2 Million compared to $1.9 Million in the second quarter. This increase is a result of (i) net cash proceeds of $2.7 Million from financing activities; (ii) net cash proceeds from operating activities of $1.3 Million arising from increased securitization activity and a reduction in net losses; and net of (iii) $0.8 Million of cash used in investing activities including transactions announced in the quarter.

Increased Cash Provided by Operating Activities by $14.2 Million to positive $1.3 Million compared to ($12.9) Million in the second quarter of 2016 and ($9.5) Million in the first quarter of 2016. This significant development is attributable to increased securitization activity in the quarter.

Finance Receivables and Equity

For the fourth consecutive quarter, both finance receivables and equity continued to grow. This equity growth reduces operating leverage and supports the ability to further grow finance receivables by maintaining or increasing operating leverage. The Company has judiciously managed the intake of new dealers and OEMs to ensure that early growth in finance receivables did not outpace the equity to support such growth and that appropriate leverage levels are maintained. The Company has additional capacity to grow quarterly originations due to the increase in equity from warrant exercises.

Subsequent to September 30, 2016, the Company received cash proceeds of $3.45 Million through the exercise of an additional 8.3 million common share purchase warrants.

Consumer Finance Business Segment

Increase in Consumer Finance Business Segment Profit by 124% to $0.8 Million, compared to a $0.4 Million in the prior quarter. Dealnet has now achieved breakeven on a combined segment profit (loss) basis (please see Note 20 of the unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2016).

"Leadership has demonstrated significant discipline in managing all key performance indicators, resulting in a record quarter. We have achieved breakeven in both business segments, with the consumer finance business contributing a material segment profit. We expect this trend to continue on a quarterly basis as finance receivables grow through originations. Higher securitization activity will continue to support our growth strategy. As we head into 2017, we are well positioned to generate significant cash and, with our portfolio of strong funding facilities, execute on our origination targets." stated Michael Hilmer, Chief Executive Officer.

Issuance of Additional $10M Debenture

The Company is also pleased to announce that on November 28, 2016, through a wholly owned subsidiary, it issued a debenture for $10 million under its existing secured debenture facility structure previously announced in January 2016. The debenture is in addition to the existing $13 million of debentures currently outstanding under the structure. The new debenture has a fixed interest rate of 6.0% and a term of five years with an option to extend for an additional five years at the holder's option. Like the previously issued debentures, the funds may be used for the origination of consumer finance contracts in the HVAC and home improvement space. With $23 million of debentures now available for warehousing of finance contracts, the Company has considerable capacity to grow originations on a quarterly basis.

RECENT BUSINESS AND OPERATIONAL HIGHLIGHTS

  • Appointment of Daniel Wittlin, financial services veteran and founder of Blue Chip Leasing to the Board of Directors.
  • Entered into three strategic relationships with home improvement distributors and manufacturers expected to expand Dealnet's dealer base and drive origination volumes. The new relationships are summarized as follows:
    • An international distributor of HVAC and fireplace equipment whose Canadian subsidiary provides products from over 200 manufacturers to more than 100 dealers concentrated in major cities in Ontario and Quebec.
    • A leading manufacturer of residential water treatment equipment, with relationships with over 125 home improvement dealers across Canada.
    • A high-end window manufacturer with over 75 dealers located in Ontario.
  • Closed a securitization facility with a major Canadian life insurance company providing $75 Million in funding for the Company's lease and loan products.
  • Closed a $20 Million funding facility with a large financial institution.
  • Renewed an existing securitization facility with a Schedule 1 Bank.

Q3 2016 CONFERENCE CALL DETAILS:

DATE: Tuesday, November 29, 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: 1838236
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/

Forward Looking Statement

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.

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.

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