First Quarter Highlights
- The Canadian Equipment Financing Segment and Canadian Auto Financing Segment continued to experience strong volumes, with total originations of
$145.2 million and$39.6 million , respectively(2). This resulted in increases of 12.9% and 40.9% from the same period in the prior year, respectively. - During the quarter,
Chesswood launched theChesswood Canadian Asset Backed Credit Fund ("CABCF"), a fund that allows private investors access toChesswood generated Canadian lease and loan receivables. - During the three months ended
March 31, 2023 ,$106.0 million ofU.S. and Canadian finance receivables were sold through various off-balance sheet conduits. Chesswood generated Free Cash Flow per diluted share of$0.28 .
"Net income was adversely impacted by an increase in our provision for expected credit losses associated with rising
"The economic consequence of rapidly rising interest rates appears to be impacting
"Market conditions have weakened and therefore we are focusing on elements of the business we can control within the organization. Our collections teams are best in class and have refined their processes using what they learned during several past downturns. Our team has not lost sight of the scale and earnings power this business has achieved and will benefit from once economic conditions normalize" added
Summary of First Quarter Results
The Company reported consolidated net income of
The
The Canadian Equipment Financing Segment generated revenue of
The Canadian Auto Financing Segment generated revenue of
The Company recognized a provision for credit losses of
Free cash flow1 for the period was
Outlook
Our Canadian entities are performing well, and credit performance appears to be diverging from the U.S. While pleased with this result, we are approaching this cautiously knowing that
At this point, it is difficult to determine the severity of the credit weakness we will see over the next few quarters. The combination of high interest rates and weakening credit creates a difficult environment for any financial services operator. We believe, however, that the pressure of one of these two variables will dissipate before year end. Our strategy remains unchanged as we continue focusing on maintaining liquidity, controlling costs, and applying discipline in our pricing and application review decisions in order to not only get through this uncertain environment but to take advantage of opportunities.
Consolidated Operating and Financial Results | ||
Financial Highlights | For the Three Months | |
(in CDN | Ended | |
2023 | 2022 | |
Revenue | ||
Interest expense | (30,957) | (12,087) |
Net recoveries (charge-offs) | (12,874) | 407 |
37,312 | 45,570 | |
Expenses: | ||
Personnel | (16,743) | (14,589) |
Other expenses | (13,030) | (10,166) |
Depreciation | (460) | (433) |
Adjusted Operating Income(1) | ||
Decrease in Allowance for expected credit losses | (5,108) | (17,073) |
Amortization | (659) | (591) |
Operating income | 1,312 | 2,718 |
Other non-cash items | 256 | 59 |
Income before income taxes | ||
Net income | ||
Earnings Per Share – Basic | ||
Earnings Per Share – Diluted | ||
Free Cash Flow | ||
Free Cash Flow Per Share – Diluted | ||
(1) - See "Non-GAAP Measures" below. | ||
(1) NON-GAAP MEASURES
Adjusted Operating Income and Free Cash Flow are not recognized measures under International Financial Reporting Standards and do not have a standard meaning. Accordingly, these measures may not be comparable to similar measures presented by other issuers. Furthermore, these measures are based primarily on the significant banking and lending agreements of the Company and its subsidiaries for the purposes of determination of compliance with financial covenants as well as calculation of permitted dividends and cash available for purchases of shares under the Company's normal course issuer bid.
"EBITDA" is Net Income (Loss) as presented in the unaudited interim condensed consolidated statements of income, adjusted to exclude interest expense, income taxes, depreciation and amortization, and goodwill and intangible asset impairment. EBITDA is included in one of the Company's significant bank agreements where it is used for financial covenant purposes.
"Adjusted EBITDA" is EBITDA as further adjusted for inclusion of interest on debt facilities as a deduction from net income (loss), and further removal of other non-cash or non-recurring items such as (i) non-cash gain (loss) on interest rate derivatives and investments, (ii) non-cash unrealized gain (loss) on foreign exchange, (iii) non-cash share-based compensation expense, (iv) non-cash change in finance receivable allowance for ECL, (v) restructuring and other transaction costs, and (vi) any unusual and material one-time gains or expenses. Adjusted EBITDA is a measure of performance defined in one of the Company's significant bank agreements and is the basis for the Company's Free Cash Flow (as defined below) calculation. Adjusted EBITDA is therefore included as a non-GAAP measure that is relevant for a wider audience of users of the Company's financial reporting.
"Adjusted Operating Income" is Operating Income (Loss) as presented in the unaudited interim condensed consolidated statements of income, adjusted to exclude amortization of intangible assets and the change in allowance for ECL. Adjusted Operating Income is intended to reflect the recurring income from the Company's businesses. Amortization of intangible assets, which includes the expense related to broker relationships and non-compete clauses, is a function of acquisitions. The cost of maintaining the broker relationships after acquisition, being internally generated intangible assets, cannot be measured and is therefore not recognized as an asset, meaning that once these acquisition-related intangibles have been fully amortized they are not replenished, and the amortization expense will cease. The change in the allowance for ECL can be calculated from continuity of the allowance for ECL in Note 5(c) - Finance Receivables in the unaudited interim condensed consolidated financial statements as the difference between the provision for credit losses and the net charge-offs during a period. The change in allowance for ECL is a non-cash item and reflects our creditor approved formulas for Adjusted EBITDA and Free Cash Flow that drives our Maximum Permitted Dividends (as defined below), both relevant measures for users of the Company's financial reporting.
"Free Cash Flow" or "FCF" is Adjusted EBITDA less maintenance capital expenditures, tax effect of the non-cash change in the allowance for expected credit losses and tax expense. Cash receives significant attention from primary users of financial reporting. Free Cash Flow provides an indication of the cash the Company generates which is available for servicing and repaying debt, investing for future growth and providing dividends to our shareholders. The FCF measure provides information relevant to assessing the resilience of the Company to shocks and the ability to act on opportunities. Free Cash Flow is a calculation that reflects the agreement with one of the Company's significant lenders as to a measure of the cash flow produced by the Company's businesses in a period. It is also management's view that the measure significantly reduces the impact of large non-cash charges and/or recoveries that do not reflect actual cash flows of the businesses and can vary greatly in amounts from period to period.
"Free Cash Flow per diluted share" is FCF divided by the weighted average number of shares outstanding during the period for income attributable to common shares and
(2) Origination volumes include contracts which were originated by the Canadian Equipment Financing Segment and Canadian Auto Financing Segment and sold to investment managers and financial institutions.
ABOUT
For information on
www.ChesswoodGroup.com
www.PawneeLeasing.com www.TandemFinance.com
www.VaultPay.ca www.VaultCredit.com
www.Rifco.net www.WaypointInvestmentPartners.com
www.EasyLegal.ca
NO STOCK EXCHANGE, SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED HEREIN
SOURCE
© Canada Newswire, source