Mr. Brent Houlden reports

DEALNET REPORTS 2019 FINANCIAL RESULTS

DealNet Capital Corp. has released its financial results for the year ended Dec. 31, 2019. All results are reported under international financial reporting standards, unless otherwise specified.

The company reported a net loss from continuing operations of $1,783,000, or one cent per share, for the year ended 2019, versus a net loss of $8,780,000, or three cents per share, for the year ended 2018. The current-year loss represents an improvement of 80 per cent over the prior year.

In 2019, the company demonstrated continued evidence of compounding profitable growth:

• Year-over-year EcoHome Financial Inc. profitable origination growth of 36 per cent: With favourable and improving cost of finances, a growing dealer base, a dealer-friendly rate card, a knowledgeable sales force, and competitive product offerings, EcoHome has significant room for continued origination growth.
• Year-over-year net portfolio growth of 10.3 per cent: The company has introduced targeted initiatives to increase originations and reduce prepayments.
• Year-over-year fee growth of 37 per cent: Future fee growth will be earned by monetizing EcoHome's 39,000-homeowner customer base through strategic partnerships and relationships.
• Year-over-year increase in One Contact's gross profit of 19 per cent: Higher gross margins and no service level penalties incurred in 2019.
• Year-over-year cost reduction of 15 per cent: Having streamlined operations in 2018, the company has continued and maintained a steady overhead of $1-million per month in 2019.

"DealNet's current priority is the safety and well-being of its employees during COVID-19 and ensuring the company's business continuity plans are carefully executed," said Brent Houlden, DealNet's president and chief executive officer. "We have built a dynamic organization that delivers compounding, profitable growth with a war chest of contractual, residual cash flow of $75-million and the rights to end-of-term payments on approximately 16,000 leases," added Mr. Houlden.

Financial highlights 2019

Originations and portfolio growth

Annual originations in 2019 increased by 36 per cent to $60.4-million, compared with $44.4-million in 2018. The company started 2019 with a net portfolio of finance receivables of $182.8-million with over 35,000 contracts in place and ended the year at $201.7-million and over 38,000 contracts.

Net interest margin

Net interest margin increased by 11 per cent to $2.1-million in the fourth quarter (9-per-cent yield) from $1.9-million (8.7-per-cent yield) for the same quarter last year. For the year ended December, 2019, net interest margin increased to $7.8-million (9-per-cent yield) from $7.5-million (8.8-per-cent yield) in the prior year.

Fee revenue

Fee and ancillary revenue was $1,107,000 for the fourth quarter of 2019, compared with $574,000 in the fourth quarter of 2018. For 2019, fee revenue was $3,054,000, compared with $2,224,000 in the prior year.

Portfolio performance

The aging profile of the finance-receivable portfolio improved meaningfully over comparative periods. Overall delinquency rates dropped to 4.3 per cent as at Dec. 31, 2019, as compared with 4.6 per cent in the prior quarter and 5.8 per cent in the same quarter in 2018. The primary driver of this decline was in the less-than-90-days bucket, which fell to 1 per cent as compared with 2 per cent as at Dec. 31, 2018.

Provision for credit losses was $1.27-million in 2019 ($45,000 in 2018). The provision recognized in 2019 was a combination of an increase to the underlying provision for future credit losses and actual realized credit losses. The increased credit loss provision was driven by a more refined analysis of the portfolio and the underlying assumptions used to determine expected losses based on actual, historical portfolio performance, along with changes to the underlying variables and methodology used for stress testing the portfolio for changes to macroeconomic factors. The allowance for credit losses recognized on the balance sheet as a percentage of finance receivables is 1.05 per cent (0.95 per cent in 2018).

Call-centre performance

Call-centre gross margin was $1,002,000 (37 per cent) for the fourth quarter of 2019, as compared with $625,000 (27 per cent) in the fourth quarter of 2018. Gross margin for the year ended 2019 was $3,395,000 (36 per cent), compared with $2,852,000 (28 per cent) for the prior year.

Operating expenses

Salaries, wages and benefits, together with general and administrative expenses, totalled $2.8-million, an improvement of 7 per cent compared with the $3-million recorded in the prior quarter and in line with the $2.8-million recorded in the same quarter last year. For the year ended 2019, overheads totalled $11.8-million, an improvement of 15 per cent compared with the $13.9-million recorded in the prior year.

Key performance indicators

The included table summarizes some of the key performance indicators that the company uses to measure the achievement of its business-plan objectives.

                                   Q4 2019  Q4 2018  FY 2019  FY 2018

Finance receivables                $201.7M  $182.8M  $201.7M  $182.8M
Organic originations                $18.9M   $14.1M   $60.4M   $44.4M 
Average yield on earning assets       9.0%     8.7%     9.0%     8.8%  
Weighted-average interest expense     4.7%     4.4%     4.9%     4.5%  
Net interest margin                   4.3%     4.3%     4.1%     4.3%  
Call-centre gross margin               37%      27%      36%      28%  
Tangible leverage                      5.7      4.9      5.7      4.9  
Tangible net worth                  $34.1M   $34.9M   $34.1M   $34.9M 
Direct operating expense ratio        5.6%     6.3%     6.2%     7.9%  

The financial statements for the 2019 fiscal year, together with management's discussion and analysis of these results, have been filed on SEDAR. The company has also posted a slide deck with audio commentary summarizing the financial results. All materials are available on DealNet's corporate website.

Impact of COVID-19

Subsequent to Dec. 31, 2019, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The situation is dynamic, with various cities and countries around the world responding in different ways to address the outbreak. There are meaningful, direct and indirect effects developing, and the company will continue to monitor the impact of the outbreak on its business. The company's future cash flows, operating results and financial position may be materially affected as a result of this outbreak.

Management has taken steps in response to COVID-19. All of the operations of EcoHome are being conducted remotely. Since many of the activities of One Contact include credit-card payments, confidential customer data and direct access into third party systems, it is not possible for these activities to be performed remotely. Accordingly, One Contact has taken steps to protect its employees including by social distancing, providing access to additional cleaning supplies and ensuring that employees who should be self-isolating are not allowed into the call centres.

COVID-19 will increase the level of delinquencies, decrease originations and fees, reduce call-centre volumes, and increase credit spreads on securitizations, and could result in the complete closure of either or both call centres. At this time, it is not possible to determine the financial and cash-flow impact of COVID-19.

About DealNet Capital Corp.

DealNet is the parent company of subsidiaries operating in two market segments: consumer finance and call centres. The company operates in the consumer-finance segment in Canada through EcoHome and its call-centre segment under the One Contact banner.

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