easyhome Ltd.
TSX : EH

easyhome Ltd.

November 07, 2006 07:00 ET

easyhome Ltd. Announces Record Quarterly Revenues and Net Income

Revenue Growth 17.6%, Adjusted Operating Income Increased 34.5% Diluted EPS $0.26

EDMONTON, ALBERTA--(CCNMatthews - Nov. 7, 2006) - easyhome Ltd. (TSX:EH), Canada's leading merchandise leasing company, today announced its results for the third quarter ending September 30, 2006.

Third quarter highlights are:

- Revenue increased $4.5 million to $30.2 million from $25.7 million for the same quarter last year, an improvement of 17.6%.

- Same store revenue growth of 8.1% building on 8.8% for the third quarter and 4.1% in the second quarter 2006.

- Potential monthly lease revenue increased to $8,718,000 from $7,568,000 in the third quarter of 2005, an improvement of 15.2%.

- 20 consecutive quarters of comparable growth.

- $0.5 million of losses from stores open less than 12 months (2005 - $0.5 million).

- Operating income improved $0.6 million to $4.4 million from $3.8 million in 2005. Adjusted for the impact of the $0.5 million reversal of the class action settlement provision, which occurred in the third quarter of 2005, operating income increased $1.1 million or 34.5%.

- Net income increased $0.3 million to $2.7 million, an improvement of 14.7%. Adjusted for the $0.5 million settlement reversal in the third quarter of 2005, net income improved $0.6 million or 32.3%.

- Diluted earnings per share of $0.26 up 13.0% from reported diluted earnings per share in 2005 of $0.23 up 30.0% from 2005's diluted earnings per share adjusted for the settlement reversal, of $0.20.

- Opened 9 stores and two financial services kiosks.

Year-to-date highlights are:

- Revenue increased $12.2 million or 16.2% from $75.5 million in 2005 to $87.7 million in 2006.

- Same store revenue growth of 6.0%.

- Opened 18 stores and 3 financial services kiosks.

- Net income of $6.4 million versus $3.9 million in the comparable period in 2005. Net income in 2006 was impacted by a $0.4 million future income tax expense related to reductions in future federal income tax rates. Adjusted net income for 2006 of $6.8 million is up $1.0 million or 17.0% from 2005's net income adjusted for the class action settlement provision.

- Fully diluted earnings per share of $0.62 versus $0.38 in 2005. Diluted earnings per share in 2006 adjusted for the future tax rate changes was $0.66, up $0.09 or 15.8% from 2005's diluted earnings per share adjusted for the class action settlement provision.

Commenting on the results, David Ingram, President and CEO said, "We are delighted with our Company's performance this quarter. The record revenues were our highest comparable increase since the second quarter of 2005. This was driven by our best ever third quarter for growth in customers and the resulting improvement to the potential monthly lease revenue. All our major product categories experienced unit growth in the quarter with the exception of electronics which turned positive in September, as expected, due to the impact of lower pricing and high demand for flat panel technology."

Mr. Ingram added, "I am particularly pleased that we were able to achieve an operating margin of approximately 15% which has been an internal goal for our business model. In the third quarter, easyhome continued to execute its new store expansion program, opening 9 new stores, and adding 2 financial services kiosks. A total of 18 stores have opened in 2006 and the Company expects to complete the year with a total of 28 new stores, bringing the total store count at the end of 2006 to 190 stores. In addition to this, there currently are 5 Leon's kiosks, 3 financial services kiosks and one license store, which will not change by yearend."

Concluding, Mr. Ingram stated, "The business continues to improve and our key metrics, by which we measure ourselves against our US competitors, reflect that improvement. We are now well positioned to benefit from the key Holiday Season, as demand for the latest electronics will increase units on lease and will likely increase the average transaction value. We are, therefore, optimistic for continued momentum in our fourth quarter."

Donald K. Johnson, Chairman of the Board, commented, "In our second quarter press release, management identified a number of non-recurring factors that negatively impacted the second quarter EPS. The third quarter results confirm that these issues were non-recurring in nature, and we are on track to continue to deliver on our growth strategy. We are also pleased to report that easyhome's revenue growth and operating profit margin in the third quarter were the highest of our North American peer group."

In 2000 the Company adopted its current amortization policy for leased assets. It was at that time, and continues to be, the most conservative such policy among the Company's North American peers. In the third quarter, Management reviewed the continuing suitability of the policy in view of past experience and current circumstances. It was concluded that, under certain conditions, the current policy fully amortizes leased assets prematurely while useful life remains. Therefore, the following changes to the Company's leased asset amortization policy were made prospectively on October 1, 2006.

1. Leased assets that have not been on lease for 90 consecutive days after arrival in the store will be amortized straight-line over 36 months rather than 18 months. Then, when the asset does go on lease, amortization will revert to the units of activity basis rather than remaining on the straight-line basis as previously done.

2. Amortization of computers will commence at the earlier of the date of first lease or 90 days after arrival in the store. Computers were previously amortized commencing on date of arrival in the store.

Commenting on these changes, David Ingram noted, "These changes will better reflect the useful life of the assets in our lease portfolio. They will also encourage better commercial decisions in our stores about weekly leasing rates and disposal prices resulting in modest revenue increases."

It is estimated that the changes will reduce annual amortization expense by some $2 million to $2.5 million and enable the Company to commence claiming capital cost allowance for tax purposes in excess of amortization for accounting purposes. Consequently, the future tax asset will be gradually reduced through income with a corresponding reduction in cash taxes payable.

The Board of Directors have approved a dividend payment of $0.06 per share payable on January 4, 2007 to the holders of common shares of record as at the close of business on November 30, 2006.

The above analysis refers to certain financial measures that are not determined in accordance with generally accepted accounting principles ("GAAP") in Canada. These measures do not have standardized meanings and may not be comparable to similar measures presented by other companies. Although measures such as operating income and same store revenue growth do not have standardized meanings prescribed by GAAP, these measures are defined herein or can be determined by reference to our financial statements. We discuss these measures because we believe that they facilitate the understanding of the results of our operations and financial position.

easyhome Ltd., with 186 stores, is Canada's largest merchandise leasing company and the fourth largest in North America, offering top quality, brand-name household furnishings, appliances and home electronic products to consumers under weekly or monthly leasing agreements. easyhome Ltd. is listed on the TSX under the symbol 'EH'.

Certain information included in this news release may constitute forward-looking statements. Forward-looking statements are based on current expectations and may include various risks and uncertainties. These risks and uncertainties could cause or contribute to actual results that are materially different from those expressed or implied. The Company disclaims any obligation or intention to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.



CONSOLIDATED BALANCE SHEETS
(unaudited)
As at:

September 30, December 31,
(in 000's) 2006 2005
---------------------------------------------------------------------------
$ $
ASSETS

Amounts receivable 2,818 2,174
Prepaid expenses 1,402 888
Lease assets 59,255 50,946
Capital assets 8,294 6,044
Future tax assets 7,363 6,888
Intangible assets and deferred costs 120 188
Goodwill 10,779 10,779
---------------------------------------------------------------------------
90,031 77,907
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
Bank revolving term loan 4,859 1,115
Trade accounts payable 8,835 8,810
Accrued liabilities 1,223 1,211
Accrued payables, bonuses and other employee
costs 1,929 2,751
Dividends payable 609 396
Deferred lease inducements 929 539
Unearned revenue 488 365
Income taxes payable 4,213 1,619
---------------------------------------------------------------------------
23,085 16,806
---------------------------------------------------------------------------

Shareholders' equity

Common shares 46,729 46,212
Contributed surplus 1,422 680
Retained earnings 18,795 14,209
---------------------------------------------------------------------------
66,946 61,101
---------------------------------------------------------------------------
90,031 77,907
---------------------------------------------------------------------------
---------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(unaudited)

Three months ended Nine months ended
September 30, September 30,
(in 000's, except earnings per share) 2006 2005 2006 2005
-------------------------------------------------------- ------------------
$ $ $ $
REVENUE
Lease 24,654 21,411 72,281 63,090
Other 5,506 4,245 15,414 12,383
-------------------------------------------------------- ------------------
30,160 25,656 87,695 75,473
-------------------------------------------------------- ------------------

EXPENSES
Salaries and benefits 8,258 7,352 25,007 21,624
Selling, general and administrative 2,676 2,409 8,479 7,886
Occupancy costs 3,920 3,302 11,234 9,474
Automotive and travel 1,321 1,163 3,808 3,218
-------------------------------------------------------- ------------------
16,175 14,226 48,528 42,202
-------------------------------------------------------- ------------------
Amortization
Amortization of lease assets 9,056 7,751 26,374 22,580
Amortization of capital assets,
intangible assets and deferred costs 503 388 1,473 1,179
-------------------------------------------------------- ------------------
9,559 8,139 27,847 23,759
-------------------------------------------------------- ------------------
Total operating expenses including
amortization and before class action
settlement 25,734 22,365 76,375 65,961
-------------------------------------------------------- ------------------
Operating income before class action
settlement 4,426 3,291 11,320 9,512
Class action settlement expense - (500) - 3,100
-------------------------------------------------------- ------------------
Operating income 4,426 3,791 11,320 6,412
Interest expense 63 21 159 73
-------------------------------------------------------- ------------------
Income before income taxes 4,363 3,770 11,161 6,339
-------------------------------------------------------- ------------------
Income taxes
Current 2,238 288 5,197 288
Future (557) 1,145 (475) 2,121
-------------------------------------------------------- ------------------
1,681 1,433 4,722 2,409
-------------------------------------------------------- ------------------
Net income for the period 2,682 2,337 6,439 3,930

Retained earnings, beginning of period 16,733 10,918 14,209 10,112
Common share dividends (620) (394) (1,853) (1,181)
-------------------------------------------------------- ------------------
Retained earnings, end of period 18,795 12,861 18,795 12,861
-------------------------------------------------------- ------------------
-------------------------------------------------------- ------------------
Earnings per share

Basic 0.26 0.24 0.64 0.41
Diluted 0.26 0.23 0.62 0.38
-------------------------------------------------------- ------------------
-------------------------------------------------------- ------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended Nine months ended
September 30, September 30,
(in 000's) 2006 2005 2006 2005
-------------------------------------------------------- ------------------
$ $ $ $
OPERATING ACTIVITIES
Net income for the period 2,682 2,337 6,439 3,930
Items not affecting cash:
Recognition of stock based
compensation 281 129 715 326
Amortization of lease assets 9,056 7,751 26,374 22,580
Amortization of capital assets,
intangible assets and deferred
costs 503 388 1,473 1,179
Future income taxes (557) 1,145 (475) 2,121
Net change in non-cash operating items -
Lease assets (13,308) (9,581) (34,683) (27,101)
Class action settlement provision - (500) - 3,100
Other 1,809 (1,017) 1,164 (4,453)
-------------------------------------------------------- ------------------
Cash flow from operating activities 466 652 1,007 1,682
-------------------------------------------------------- ------------------

INVESTING ACTIVITIES
Purchase of capital assets (1,720) (669) (3,846) (1,781)
Proceeds on disposition of capital
assets 132 164 191 353
-------------------------------------------------------- ------------------
Cash used in investing activities (1,588) (505) (3,655) (1,428)
-------------------------------------------------------- ------------------

FINANCING ACTIVITIES
Advance (repayment) of bank revolving
term loan 1,719 221 3,744 (420)
Issuance of common shares on exercise
of options and warrants 12 20 517 1,186
Common share dividend payments (609) (388) (1,613) (1,020)
-------------------------------------------------------- ------------------
Cash provided by (used in) financing
activities 1,122 (147) 2,648 (254)
-------------------------------------------------------- ------------------

Net change in cash - - - -
-------------------------------------------------------- ------------------
-------------------------------------------------------- ------------------


Contact Information

  • easyhome Ltd.
    David Ingram
    President & Chief Executive Officer
    (905) 272-2788
    or
    easyhome Ltd.
    Chris Fregren
    Vice President and Chief Financial Officer
    (905) 272-2788
    or
    easyhome Ltd.
    Donald K. Johnson
    Chairman of the Board
    (416) 359-4119