Dealnet Renews and Expands Funding Facilities to Support 2018 Business Plan

• Dealnet's bank and life insurance funding partners renew securitization facilities providing capacity for more than $100 million of planned originations in 2018 with an average five basis point reduction in previous funding costs
• A new warehouse funding facility by a Canadian life insurance company provides additional capacity of $15 million and lowers interim funding costs by approximately 170 basis points
• A new $200 million funding agreement entered into with a global private investment fund to support growth in the origination of Canadian-based home improvement loans and leases over the next two years
• $7 million of the 9% secured debentures totalling $23 million repaid on November 29, 2017
• Impact Mobile reports record revenue and profit for the three-month period of $2.6 million and $1.1 million
• Company reports Q3-2017 adjusted net loss declines to $1.9 million versus $3.1 million in the previous period after excluding $13.7 million of non-cash charges to goodwill and intangible assets and $1.1 million of one-time severance costs incurred during the period

TORONTO, Nov. 29, 2017 /CNW/ - Dealnet Capital Corp. ("Dealnet" or the "Company") (TSX VENTURE: DLS), reported today its financial results for the three-month and nine-month periods ending September 30, 2017. All results are reported under International Financial Reporting Standards ("IFRS") and in Canadian dollars, unless otherwise specified.

Subsequent to the end of the three-month period ending September 30, 2017, the Company announced the following initiatives:

• On October 16, 2017, in accordance with the representations and warranties made at the time of the EcoHome acquisition from Chesswood Group Limited ("Chesswood"), the Company reached an agreement with Chesswood to amend and restate the remaining outstanding $2 million secured promissory note, and among other things, obtained an additional loan in the amount of $5.5 million, for an aggregate principal amount of $7.5 million. The amended secured promissory note bears interest at the prime rate plus three percent per annum, with specific monthly repayment provisions, and final principal repayment of $1 million due on the maturity date of October 16, 2020;
• On October 27, 2017, the Company announced the appointment of Brent Houlden as Interim Chief Executive Officer. Mr. Houlden was identified by the Board as the ideal candidate to advance the initiatives required to focus the Company on the achievement of profitability. He has extensive experience and knowledge in the areas of corporate strategy, finance and operations and has served as a director of the Company since 2015. For more than 20 years, Mr. Houlden was a senior partner with Deloitte where he held various leadership positions building Deloitte's Consulting and Financial Advisory practices;
• On November 24, 2017, the Company renewed an existing securitization facility with a Canadian life insurance company funding partner (the "Lifeco Funding Partner") to provide for the investment by the Lifeco Funding Partner of up to $50 million in new secured home improvement loans and leases originated by the Company;
• Concurrently, the Lifeco Funding Partner agreed to provide the Company with an additional $15 million facility to complement the Company's existing warehouse funding facilities which are used to accumulate and season originated loans and leases prior to their securitization;
• On November 27, 2017, the Company renewed an existing securitization facility with a Schedule 1 bank (the "Bank Funding Partner") to provide for the investment by the Bank Funding Partner of up to $40 million in new secured home improvement loans and leases originated by the Company;
• On November 29, 2017, the Company repaid $7 million of the 9% secured debentures totalling $23 million previously extended from October 13, 2017 to January 11, 2018. The remaining outstanding balance of $16 million is fully secured by eligible HVAC, home improvement and other finance contracts and is expected to be repaid when due;
• On November 29, 2017, the Company entered into a new funding agreement with a global private investment fund to purchase up to $200 million of Canadian-based home improvement loans and leases originated by the Company over the next two years;
• On November 27, 2017, the Company accepted the resignation of Tamara Paton from the board of directors. The Company expressed appreciation to Ms. Paton for her contribution over the last six months and does not plan to appoint a replacement at this time in keeping with other initiatives that have been taken to right-size the Company's cost structure.

The funding initiatives undertaken subsequent to the end of the quarter support the Company's planned origination activity in 2018 and are expected to reduce its funding costs by between 35 and 40 basis points through 2018 relative to the funding costs incurred year-to-date in 2017. Cost reduction initiatives undertaken during and subsequent to the end of the period have reduced the Company's cash operating expenses by approximately $1 million quarter over quarter.

"The Company has initiated, advanced or completed a number of important steps that position Dealnet to achieve profitability in late 2018," said Brent Houlden, Dealnet's Interim Chief Executive Officer. "In addition to putting in place these increased funding facilities, we have reduced our funding costs, increased our sales force and taken steps to reduce our operating expenses through the elimination of administrative headcount and the containment of general and administrative expenses. Throughout the organization, all of our employees are now singularly focused on executing the 2018 Business Plan to achieve our profitability objectives," added Mr. Houlden.

Q3-2017 Financial Results

Portfolio Growth

As at September 30, 2017, Dealnet's portfolio of finance receivables increased to $171.1 million with approximately 32.2 thousand financing contracts in place up from $169.7 million as at June 30, 2017 when the Company had approximately 31.6 thousand contracts in place.

Consumer Finance Originations

During the three-month period ending September 30, 2017, the Company originated $11.1 million of new consumer finance receivables representing an increase of 16.8% from the $9.5 million of new originations reported in the previous quarter. Applications for financing submitted in the third quarter increased by 27% to $19.6 million from the $15.4 million received in the previous quarter. The increase in originations and applications reflects the Company's efforts to accelerate the onboarding of more qualified dealers from existing OEM relationships.

Mobile Engagement Reports Record Revenue and Profit

Impact Mobile, the Company's Mobile Engagement segment which was acquired by the Company in July 2014, reported record revenue and profits for the third quarter of 2017 at $2.6 million and $1.1 million, respectively. Revenue for the nine months ended September 30, 2017 was $7.5 million and segment profit was $3.0 million. Impact Mobile is a North American-wide technology and customer engagement company providing end-to-end cloud based, carrier-grade messaging and routing infrastructure with offices in Toronto and New York.

Gross Profit

For the three-month period ending September 30, 2017, the Company reported gross profit of $4.6 million versus $4.3 million reported in the previous quarter.

Operating Expenses

The Company initiated a review of operating expenses in the third quarter to identify opportunities for immediate cost savings. As a result, general and administrative expenses in the three-month period ending September 30, 2017 declined to $2.3 million from $2.7 million reported in the previous quarter. Excluding severance costs, salaries, wages and benefits declined in the third quarter to $3.2 million from $3.8 million in the previous quarter. Total operating expenses excluding non-recurring items were $1.0 million lower quarter over quarter. This focus on expense efficiency is an important part of the Company's plan to achieve profitability.  

Adjustments to Goodwill & Intangible Assets

Due to significantly lower than expected cash flows from the dealer relationships and brand and trademarks acquired from Chesswood in the EcoHome transaction, during the third quarter of 2017 the Company determined that an indicator of impairment existed for these assets. As a result, during the period the Company recognized an impairment loss of $10.6 million for these dealer relationships and $0.6 million for the brand and trademarks. In addition, as part of its annual impairment testing of goodwill, the Company determined that the carrying value of its Live Engagement segment exceeded its fair value. As a result, during the period the Company recognized an impairment loss of $1.8 million for its goodwill, $0.5 million for its Computer software intangible asset and $0.2 million for its Customer relationships intangible asset in this segment.

Net Loss

The Company recorded a loss before income taxes of $16.6 million for the three months ended September 30, 2017 compared to a loss before income taxes of $3.1 million for the three months ended June 30, 2017 and a loss before income taxes of $1.6 million for the corresponding quarter in 2016. Adjusting for the impairment loss of $13.7 million and non-recurring severance costs of $1.1 million included in salaries, wages and benefits, net loss for the three months ended September 30, 2017 would have been $1.9 million, a $1.3 million improvement over the prior quarter, and $234 thousand higher than the same period in 2016.

Tangible Net Worth

The tangible net worth of the Company, which excludes goodwill and intangible assets, is reported at $20.8 million as at September 30, 2017, down from $23.5 million as at June 30, 2017.

The following table summarizes some of the Key Performance Indicators that the Company uses to measure the achievement of its business plan objectives:

The financial statements for the three-month and nine-month periods ending September 30, 2017 together with management's discussion and analysis of these results have been filed on SEDAR and are available on the Company's website at www.dealnetcapital.com.

The Company will host a conference call to discuss these results on November 30, 2017 commencing at 10:00 A.M. Eastern Time.

Conference Call Details:

About Dealnet Capital Corp.

Dealnet is a specialty finance company servicing the $20 billion home improvement finance market through both dealer-based and direct homeowner-based originations of secured finance assets (equipment leases and loans). The company earns net finance income over the term of these assets and from fee income derived from the transaction support services that it provides to its dealer network. The Company also uses its engagement platform to provide customer support services on a contract basis to third-party institutions.

For additional information please visit www.sedar.com.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Forward-looking Statements

This news release contains certain "forward-looking information" within the meaning of applicable securities law. Forward looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "would", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur. These statements are only predictions. Forward-looking information is based on the opinions and estimates of management at the date the information is provided, and is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. For a description of the risks and uncertainties facing the Company and its business and affairs, readers should refer to the Company's Management's Discussion and Analysis. The Company undertakes no obligation to update forward-looking information if circumstances or management's estimates or opinions should change, unless required by law. The reader is cautioned not to place undue reliance on forward-looking information.

SOURCE Dealnet Capital Corp.