Highlights
- Canadian Auto Financing Segment total originations of
$77.5 (1) million for the six months endedJune 30, 2023 , an increase of 22% from the same period in the prior year. - The Vault Home consumer financing business had total originations of
$42.7 million for the six months endedJune 30, 2023 , a substantial increase from$8.5 million in the same period in the prior year. - Total assets under management have significantly increased, reaching
$434.3 million atJune 30, 2023 , which has resulted in increased recurring fee income generated by our asset management segment.
"Delinquency trends in Q1 remained a headwind in the second quarter, leading to a higher provision for credit losses for the year to date," said
"We are not satisfied with the operating results in the first half of 2023 and have begun implementing cost savings measures for the remainder of the year. The impact of higher interest rates poses a significant challenge for
"Investor appetite for commercial and consumer loans with established securitization programs continues to attract new capital. As a result, the opportunity for
Summary of Second 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
The quarter's free cash flow(2) for the quarter 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 cautious, knowing that
The combination of high interest rates and higher credit losses creates a difficult environment for financial services operators. However, we believe that the source of this weakness is beginning to stabilize, as evidenced by pricing increases across our divisions as well as off-balance sheet management opportunities for new originations. In the meantime, we are focused on liquidity and cost control to manage through future quarters.
Consolidated Operating and Financial Results | |||||
Financial Highlights | For the Three Months | For the Six Months | |||
(in CDN $000s, except EPS) | Ended | Ended | |||
2023 | 2022 | 2023 | 2022 | ||
Revenue | |||||
Interest expense | (28,661) | (17,133) | (59,618) | (29,220) | |
Net charge-offs | (17,237) | (3,904) | (30,111) | (3,497) | |
34,559 | 47,948 | 71,871 | 93,518 | ||
Personnel expenses | (16,441) | (15,761) | (33,184) | (30,350) | |
General and administrative expenses | (15,956) | (10,775) | (28,986) | (20,941) | |
Depreciation | (464) | (432) | (924) | (865) | |
Adjusted Operating Income(2) | |||||
Decrease/(increase) in non-cash allowance for credit losses | 556 | (4,313) | (4,552) | (21,386) | |
Amortization of intangible assets | (712) | (593) | (1,371) | (1,184) | |
Operating Income | 1,542 | 16,074 | 2,854 | 18,792 | |
Other non-cash items | (163) | (513) | 93 | (454) | |
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) Origination volumes include contracts that were originated by the Canadian Auto Financing Segment and sold to investment managers and financial institutions.
(2) 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 (as defined below) 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 (as defined below), 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 significantly 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 diluted share" is FCF divided by the weighted average number of shares outstanding during the period for income attributable to common shares and
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
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SOURCE
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