Highlights
- Free Cash Flow(1) for the three months ended
September 30, 2023 , was$5.3 million , an increase of$5.0 million compared to the three months endedJune 30, 2023 . - The Company's Canadian auto financing Segment continued to experience strong originations, with total originations of
$108.2 million (2) for the nine months endedSeptember 30, 2023 , an increase of 12.0% from the same period in the prior year. - The Vault Home consumer financing business had total originations of
$72.5 million for the nine months endedSeptember 30, 2023 , a substantial increase from$20.1 million from the same period in the prior year. - During the nine months ended
September 30, 2023 , the Company continued entering into new agreements with investment managers and financial institutions for the non-recourse sale of leases and loans in exchange for fees. During the nine months endedSeptember 30, 2023 ,$334.0 million ofU.S. and Canadian finance receivables were sold under such arrangements (year endedDecember 31, 2022 -$270.1 million ).
"The third quarter results continued to reflect the macroeconomic headwinds that started at the beginning of 2023," said
"In the quarter, we focused on the variables within our control – in particular operating expenses. We made considerable progress reducing costs across the entire organization. Compared to the previous quarter, personnel expenses in the quarter were down
"Investor appetite for commercial and consumer loans with established securitization programs continues to attract new capital. As we enter the final quarter of the year, we were excited to announce our new joint venture partnership with
Summary of Third Quarter Results
The Company reported consolidated net income of
The Company's
The Company's Canadian equipment financing segment generated revenue of
The Company's Canadian auto financing segment generated revenue of
The Company recognized a provision for credit losses in the third quarter of
The Free Cash Flow(2) for the quarter was
Outlook
Our Canadian entities are performing well overall. While pleased with this result, we are cautious about the market given the rise in interest rates, the observable weakness in
We expect to close the first sale of assets to our newly announced joint venture with Wafra in the fourth quarter. Under these arrangements,
As a result of our ongoing emphasis on asset management, we expect a substantial portion of our originated assets to be held in off-balance sheet structures in the future, enabling
Consolidated Operating and Financial Results
Financial Highlights | For the Three Months | For the Nine Months | |||
(in CDN $000s, except EPS) | Ended | Ended | |||
2023 | 2022 | 2023 | 2022 | ||
Revenue | |||||
Interest expense | (32,111) | (17,284) | (91,729) | (46,504) | |
Net charge-offs | (17,315) | (5,542) | (47,426) | (9,039) | |
30,587 | 50,228 | 102,458 | 143,746 | ||
Personnel expenses | (12,984) | (17,127) | (46,168) | (47,477) | |
General and administrative expenses | (11,616) | (11,849) | (40,602) | (32,790) | |
Depreciation | (466) | (477) | (1,390) | (1,342) | |
Adjusted Operating Income(2) | |||||
Decrease/(increase) in non-cash allowance for credit losses | (3,472) | (3,542) | (8,024) | (24,928) | |
Amortization of intangible assets | (706) | (660) | (2,077) | (1,844) | |
Operating Income | 1,343 | 16,573 | 4,197 | 35,365 | |
Unrealized loss on foreign exchange | (653) | (549) | (560) | (1,003) | |
Income Before Taxes | |||||
Net Income | |||||
Earnings Per Share – Basic | |||||
Earnings Per Share – Diluted | |||||
Free Cash Flow(2) | |||||
Free Cash Flow Per Share – Diluted | |||||
(2)- See "Non-GAAP Measures" below. |
Notes
(1) NON-GAAP MEASURES
Adjusted Operating Income and Free Cash Flow are not recognized measures under International Financial Reporting Standards and do not have standardized meanings. Therefore, these measures may be different from similarly labelled measures presented by other companies. Furthermore, these measures are based primarily on the significant banking and lending agreements of the Company and its subsidiaries to determine compliance with financial covenants and calculate 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 the removal of other non-cash or non-recurring items such as (i) non-cash gain (loss) on financial instruments 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 calculation. Adjusted EBITDA is therefore included as a non-GAAP measure relevant for a wider audience of the Company's financial reporting users.
"Adjusted Operating Income" is operating income (loss) as presented in the unaudited interim condensed consolidated statements of income, adjusted to exclude the 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 software, is a function of acquisitions. The cost of maintaining the broker relationships after the 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 the 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. It reflects our creditor-approved formulas for Adjusted EBITDA and Free Cash Flow that drive our maximum permitted dividends, both relevant measures for the Company's financial reporting users.
"Free Cash Flow" or "FCF" is Adjusted EBITDA less maintenance capital expenditures, the tax effect of the non-cash change in the allowance for ECL 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 that 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 Company's resilience 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 a measure of the cash flow produced by the Company's businesses in a period. It is also management's view that the measure reduces the impact of significant non-cash charges and recoveries that do not reflect the actual cash flows of the businesses, and can vary considerably in amount from period to period.
"Free Cash Flow per share - Diluted" is FCF divided by the weighted average number of shares outstanding during the period for income attributable to common shares on a fully diluted basis.
(2) Origination volumes include contracts that were originated by the Company's 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
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SOURCE
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