DirectCash Payments Inc.

TSX : DCI


DirectCash Payments Inc.

March 24, 2014 07:00 ET

DirectCash Payments Inc. Announces Results of Operations for the Three Months and Year Ended December 31, 2013

CALGARY, ALBERTA--(Marketwired - March 24, 2014) - DirectCash Payments Inc. (TSX:DCI) ("DCPayments" or the "Company") today announced consolidated financial results for the three months and year ended December 31, 2013.

Financial and Operational Highlights:

  • Increased the full year Gross Profit 32% to $121 million
  • Increased the full year EBITDA 20% to $68 million
  • Business continues to generate solid financial results with Funds from Operations payout ratio of 61% for the year ended December 31, 2013
  • Successfully completed the acquisition and integration underway of Threshold Financial Technologies Inc., providing a significant presence in the highly strategic credit union and financial institution payments processing services segment
  • Entered into two Canadian vault cash rental agreements with a major Canadian financial institution for up to $100 million
  • Negotiated amendments existing Credit Agreement to provide greater operational flexibility
  • Issued 950 thousand new shares to the public at $16.00 with gross proceeds of $15.2 million
  • Mexico business on track and performing with our new bank sponsor
  • Subsequent to the quarter, re-negotiated vault cash rental agreement in Australia, improving cash flow

Management's Commentary

"Our results in 2013 were driven by strong contributions from our recent acquisition of Threshold and continued organic growth. Looking forward to 2014, DCPayments' is well positioned to continue its success in integrating the Threshold acquisition made in 2013 and generating shareholder value" said Jeffrey Smith, DCPayments' President and Chief Executive Officer.

DCPayments will continue to increase efficiencies and to pursue growth through additional accretive acquisitions as opportunities arise. DCPayments' stable and contracted revenue stream in our various geographic markets will continue to provide consistent cash dividends to DCPayments' Shareholders.

Summary financial and operating results for the three months and year ended December 31, 2013 are set forth below and complete copies of the Company's Financial Statements and Management's Discussion & Analysis ("MD&A") are available on SEDAR at (www.sedar.com).

Summary Operating and Financial Results

Three months ended Year ended
December 31 December 31
2013 2012 2013 2012
Summary operating results
Number of machines
Active ATM terminals(1), December 20,333 19,398 20,333 19,398
ATM transactions 30,135,757 27,422,405 111,340,960 75,155,042
Summary financial results
($ thousands, except for per share amounts)
Gross profit(2) $32,633 $32,432 $121,441 $91,702
Gross profit margin(3) 49.7% 49.8% 50.3% 47.7%
EBITDA(4) 17,909 18,318 67,686 56,564
EBITDA margin(5) 27.3% 28.1% 28.0% 29,4%
Net income (loss) (1,268) 1,672 85 6,328
Net income (loss) attributable to common shareholders (1,276) 1,829 59 6,857
Per share, basic (0.07) 0.11 0.00 0.46
Per share, diluted (0.07) 0.11 0.00 0.46
Funds from operations(5) $8,301 $13,127 $37,910 $37,771
Funds from operations per share, basic 0.49 0.79 2.27 2.54
Funds from operations per share, diluted 0.49 0.79 2.26 2.53
Dividends declared 5,959 5,741 23,181 20,708
Dividends declared per share 0.35 0.35 1.38 1.38
Funds from operations payout ratio(5) 72.0% 43.7% 61.2% 54.8%
Total assets 444,398 451,692 444,398 451,692
Total long-term debt $233,076 $197,889 $233,076 $197,889
Common shares outstanding, end of period 17,589 16,639 17,589 16,639

(1)DCPayments has included statistics only for sites that recorded a transaction in the last calendar month of the period indicated; amounts reported for 2013 exclude 489 ATMs which do not process transactions on the DCPayments transaction processing switch platform but for which DCPayments manages the ATMs
(2)Gross profit is calculated as Revenue less Cost of sales
(3)Gross profit margin means gross profit expressed as a percentage of Revenue
(4)An additional GAAP measure - see definition under "Additional GAAP Measure"
(5)A non-GAAP measure - see definition under "Non-GAAP Measures"

Outlook

We believe the integration of Threshold's CUFI Business will strengthen the Company's strategic position in the payments business and position DCPayments as one of Canada's leading independent providers of end-to-end transaction processing and payment solutions. The Threshold Acquisition gives DCPayments a significant presence in the highly strategic credit union and financial institution payments processing services segment and an ATM outsourcing business. In addition, the acquisition added approximately 1,000 transacting ATMs to the DCPayments network in Canada.

DCPayments is the largest deployer of ATMs in Australia and New Zealand with 6,348 transacting ATMs as at December 31, 2013. The Company actively seeks growth opportunities through the existing ATM business platform and capitalizes on the less mature Australian market, where transactions and gross profits per ATM are significantly greater than in the mature Canadian ATM market.

Since the acquisition in the United Kingdom in May 2012, DCPayments has grown to be the third largest deployer of non bank branded ATMs in the United Kingdom and has added 870 ATMs. As at December 31, 2013 DCPayments had 5,570 transacting ATMs in United Kingdom. DCPayments' focus in this market moving forward is to continue to grow the ATM business in Europe through quality accretive acquisitions and organic growth, adding other product offerings to its Europe division and increasing our margins. In the ATM business in Canada, emphasis continues to be on maintaining existing customer relationships. With the addition of Threshold we will be able to capitalize on synergies between the two organizations. We expect this acquisition will increase our ability to service the existing and acquired customer relationships and increase our sales presence with other clients in Canada.

Our Mexico operations, although small, have been challenging due to a change in our bank sponsor arrangement in 2013 and an inability to charge foreign exchange fees at historical levels. A new bank sponsor was obtained and Mexico operations resumed throughout Q3 and Q4 2013. We expect the operation to restore its historical transaction volume and contribute to the Americas' divisional gross profit.

In the banking services line of business our focus is diversification both domestically and internationally, to reduce historical reliance on a small group of large volume customers in certain market segments. The Threshold Acquisition provides DCPayments with greater diversification in the banking services business in terms of both customer base and product offering. In January 2014 the Company launched a Prepaid Visa card offering, adding scale and choice for our clients. In 2014, the Company launched a new innovative prepaid card offer in Australia whereby ATM customers can buy a prepaid card that can only be used at DCPayments' ATM allowing customers to make withdrawals in a greater amount of cash at certain facilities.

We continue to focus on the management and operation of our businesses. DCPayments believes it is well positioned with a strong balance sheet and a steady cash flow stream from operations based on long term contracts, geographically diversity and across a number of industries.

Conference Call

A conference call will be held on Monday, March 24, 2014 at 2:00 p.m. Mountain Standard Time (MST) to review fourth quarter and year end 2013 results. Jeffrey J. Smith, President & CEO, Brenda G. Hughes, Chief Financial Officer, and Amanda J. Gallacher, Vice President, Investments, will host the call.

DCPayments invites participants to listen to the conference call by calling toll-free 1-800-769-8320 or local dial-in: 1-416-340-8527. A replay of the conference call will be available until March 31, 2014 by dialing toll-free 1-800-408-3053 or locally 1-905-694-9451 and entering passcode 7750126.

Additional GAAP Measure:

DCPayments has presented earnings before interest, taxes, depreciation and amortization ("EBITDA") as a subtotal in its consolidated statement of operations. EBITDA is an important measure utilized by management in assessing the financial performance of the Company relative to its operating plans and budgets. It is also the measurement utilized by the holders of our long-term debt in calculating financial covenants. The Company has presented EBITDA prior to the deduction for acquisition-related expenses. These expenses relate to the corporate acquisitions completed in 2013 and 2012 which resulted major expansion of the Company and are non-recurring in nature. The Company has also presented EBITDA prior to unrealized foreign exchange gains and losses and non-recurring other gains. The Company utilizes this presentation of EBITDA because it is consistent with the definition under DCPayments credit facility. The Company's EBITDA may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to EBITDA as reported by such issuers. The Company has provided a reconciliation between EBITDA and net income (loss) which is disclosed in the "EBITDA" discussion below.

Non-GAAP Measures:

There are a number of financial calculations that are not defined performance measurements under GAAP but which DCPayments believes are useful and accepted performance measurements utilized by the investing public in assessing the overall financial performance of the Company and to compare cash flows between entities.

EBITDA margin:

EBITDA margin means EBITDA expressed as a percentage of total revenue.

EBITDA per share:

EBITDA per share is calculated on the same basis as basic net income (loss) per share, utilizing the basic and diluted weighted average number of common shares outstanding during the period presented.

Funds from operations and funds from operations per share:

DCPayments calculates funds from operations as net income (loss) plus or minus depreciation, amortization, deferred income taxes expense (benefit), non-cash finance costs and unrealized foreign exchange loss (gain) and after provision for productive capital maintenance expenditures (see discussion below). Funds from operations per share is calculated on the same basis as basic net income (loss) per share, utilizing the basic and diluted weighted average number of common shares outstanding during the period presented. Readers are cautioned that funds from operations cannot be assured to continue at equivalent levels in the future. DCPayments' funds from operations and funds from operations per share may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to funds from operations and funds from operations per share as reported by such issuers. The reconciliation between funds from operations and net income (loss) is disclosed in the "Funds from Operations" discussion below.

Productive capital maintenance expenditures:

DCPayments differentiates capital expenditures between growth and productive capital maintenance. There is no such distinction under GAAP, however DCPayments believes it is important to differentiate between them. Maintenance capital expenditures represent an adjustment to funds from operations while growth capital does not.

Maintenance capital expenditures are defined as expenditures required to service and maintain DCPayments' existing productive capacity, while growth capital is expended to increase DCPayments' productive capacity by adding additional sources of revenue not currently in existence. Current measures of productive capacity that DCPayments utilizes include ATMs and debit terminals under contract. Maintenance capital expenditures include software and hardware upgrades to existing infrastructure, ATM and debit terminal equipment upgrades necessary to meet changing regulatory requirements, contract extension incentives including replacement of equipment under existing or renewed contracts, and fleet vehicle purchases and upgrades. Examples of growth capital expenditures include the acquisition of a competitor's assets, the cost of an ATM in a new location, or technology costs related to new sources of revenue.

Readers are cautioned that the Company's computation of maintenance capital expenditures may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to productive maintenance capital expenditures as reported by such issuers.

Non-cash working capital:

Non-cash working capital is not a defined GAAP measure. DCPayments calculates changes in non-cash working capital as changes during a reporting period in current assets (excluding cash, cash in circulation and restricted funds) and current liabilities (excluding bank overdraft, restricted funds and current portion of long-term debt).

Dividends:

Shareholders of DCPayments receive monthly payments in the form of dividends Dividends are funded by the generation of funds from operations of the business. All of the income generated at the level of the various subsidiaries of the Company is taxed by applicable government authorities with the remaining after-tax funds either being retained by the subsidiary or distributed up to the Company where it can be made available for payment of dividends by DirectCash. Continued future distribution of dividends (and the amount of any dividends) is subject to DirectCash's Board of Directors approval. DirectCash's Board of Directors is not obligated to distribute all net available cash as dividends to shareholders.

Forward Looking Information:

This Press Release offers our assessment of DCPayments' future plans and operations and contains "forward-looking information" relating to future events as defined under applicable Canadian securities legislation. The Company's actual results or performance could differ materially from those expressed in, or implied by, this forward-looking information. DCPayments can give no assurance that any of the events anticipated will transpire or occur or, if any of them do, what benefits or costs we will derive from them. Forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond DCPayments' ability to control, including but not limited to general economic conditions, interest rates, foreign currency rates, consumer spending, borrowing trends and regulatory changes to name a few. Additional risks and uncertainties are described in DCPayments' Annual Information Form for the year ended December 31, 2013 which is available at www.SEDAR.com.

The forward-looking information contained in this Press Release is expressly qualified by this cautionary statement. Certain statements that contain words such as "could", "may", "believe", "should", "expect", "will", "intends", "plan", "anticipates", "potential", "estimates", "continues" or similar words relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation.

The assumptions and estimates relating to the forward-looking information referred to above are updated quarterly and except as required by law, we do not undertake to update any other forward-looking information.

Forward-looking information and statements contained in this Press Release include statements related to DCPayments' projected growth in operations in the Americas, Australasia and Europe, ability to complete accretive acquisitions on a go forward basis, ability to grow organically though the Company's sales force, ability to provide consistent cash dividends, ability to increase our margins, expansion of DCPayments' merchant base through new and innovative products and services, impact of acquisitions in the United Kingdom, Australia and Canada including realizing on expected synergies and ability to realize the anticipated benefits of acquisitions, ability to continue to acquire long-term recurring services contracts and negotiate renewals thereof in advance of their expiry, ability to maintain current customer relationships, ability to increase product offerings in the markets we operate in, the impact of the vault cash rental agreements on the Company's operations and cash flow, ability to diversify into new industry segments or to increase diversification in terms of product offerings and the number of customers served and the possible increase in capital expenditures for technology and infrastructure or due to regulatory mandated security upgrade changes and the sufficiency of funds generated from operations to fund the same.

Readers are cautioned that our expectations, estimates, projections and assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. With respect to forward-looking statements contained within this MD&A, expectations are based on our current strategic plan and management forecasts, the historical financial performance and operational data of acquired entities, our existing contracts schedule, forecast and budgeted projections of increased capital expenditures required based on management's view of the age of capital assets currently in use by DirectCash.

The assumptions and estimates relating to the forward-looking information referred to above are updated quarterly and except as required by law, we do not undertake to update any other forward-looking information.

Additional information about DCPayments is available on SEDAR (www.sedar.com) or DirectCash's website at www.directcash.net.

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