TORONTO, May 12, 2022
/CNW/ - Chesswood Group Limited ("Chesswood" or the "Company")
(TSX: CHW), a publicly traded North American specialty finance
company providing commercial equipment leases and loans, automotive
loans, and home improvement financing, today reported its results
for the quarter ended March 31,
2022.
Q1 2022 Highlights
- Successful acquisition of Rifco Inc. (thereby indirectly
acquiring Rifco National Auto Finance Corporation ("Rifco"))
on January 14, 2022, providing
Chesswood with a platform to enter the Canadian auto financing
sector.
- Renewal of corporate revolving credit facility allowing
borrowings of up to US$300 million,
with a further US$100 million
accordion feature.
- Strong origination volumes of $383.4
million in the equipment finance segment and $28.1 million in the automotive finance segment,
resulting in record gross finance receivables of $2.2 billion as at March
31, 2022.
- Adjusted earnings of $8.8
million1 ($0.46 per
fully diluted share) and record free cash flow generation of
$15.22 million
($0.732 per fully diluted
share).
- Adjusted return on equity1 of 18.3%.
"Chesswood achieved record first quarter free cash flow
generation of $15.22
million or $0.732 per
fully diluted share" said Ryan Marr,
Chesswood's President & CEO. "Our teams' efforts across all
operating divisions are delivering exceptionally strong results as
evidenced by their portfolio performance and operating
results."
In the quarter, Chesswood announced its first off-balance sheet
investment collaboration with a third-party institutional
investor. In exchange for delivering receivables originated
by Chesswood's U.S. Equipment Financing Segment, Chesswood will
earn origination fees, as well as, recurring management fees and
servicing fees. "We are pleased to have successfully launched
our first forward flow agreement that provides Chesswood with
additional funding to maintain the rapid growth experienced by our
vendor programs in the U.S. while also providing another source of
revenues without the associated balance sheet risk," said Marr.
Summary of Q1 Results
The Company reported consolidated net income of $1.7 million in the first quarter ended
March 31, 2022 compared to a net
income of $6.3 million in the first
quarter of 2021. The Q1 2022 net income was significantly impacted
by an accounting requirement to immediately recognize the full loss
provision ($9.3 million) for Rifco's
portfolio on the date of the acquisition through the consolidated
statements of income. The adjusted net income1 excluding
that one-time non-recurring item was $8.8
million, an increase of $2.5
million year-over-year.
The U.S. Equipment Financing Segment reported interest revenue
on leases and loans of $30.6 million
and ancillary and other income of $3.6
million, a total increase of $11.0
million year over year. The increase is the result of
the growing finance receivables portfolio, offset by an increasing
mix of prime receivables.
The Canadian Equipment Financing Segment reported interest
revenue on leases and loans of $11.0
million and ancillary and other income of $3.4 million, a total increase of $11.2 million year over year. The increase
reflects the expansion of the Canadian Equipment Financing Segment
as a result of the merger with Vault Credit Corporation in Q2 2021
and the tremendous portfolio receivable growth since
then.
The Canadian Auto Financing Segment reported interest revenue on
leases and loans of $8.3 million and
ancillary and other income of $0.3
million. Excluding the $9.3
million initial provision for the purchased portfolio
($7.21 million tax
adjusted), the segment would have contribution a total of
$0.7 million of net income to the
Company's consolidated net income after tax.
Overall operating costs were up $14.7
million period over period to $25.8
million. The acquisition of Rifco increased operating
expenses by $2.8 million, with a
majority related to costs associated with personnel, collections,
marketing, and other operating costs.
Other expenses from the equipment financing segments mainly
consisting of costs directly attributable to originations were up
$3.5 million as a result of scaling
the businesses. In addition, the growth of the equipment financing
segments and their originations required a 94% increase in the
number of employees from the same period in the prior year,
increasing personnel costs by $5.5
million.
Free cash flow2 for the period was $15.2 million, up $11.5
million from Q1 2021. The increase in free cash flow
is the result of growing revenues, lower net charge-offs due to
strong collections, and the acquisition of Rifco.
Outlook
Credit performance remains high, as evidenced by our 2021 ABS
tranche rating upgrades received in May from Moody's. Our teams
expect gross charge-offs to normalize throughout the year, however
supply chain disruption is likely to keep recovery levels high
relative to historical performance. As a result, net
charge-offs are expected to remain low.
Rising inflation data led to a shift in the U.S. and Canadian
central bank interest rate policy beginning in March. The current
projection for rate increases places short term rates up 2.5% by
the beginning of 2023. Our teams are evaluating relevant product
pricing in the context of the current market environment. As the
broader market increases loan rates, we expect loan demand to
decline moderately.
We expect our off-balance sheet funding strategy to accelerate
throughout 2022 as Chesswood Capital Management is in discussions
with other private credit investors. These collaborations provide
investors with the opportunity to earn strong risk adjusted returns
while Chesswood benefits from a reduction in balance sheet risk and
the ability to earn recurring fee-based revenue. As we expand
this initiative, we expect Chesswood's return on equity to rise as
less balance sheet equity is required to fund loan
growth.
Financial Highlights
|
For the Three Months
|
|
(in CDN $000's, except
EPS)
|
Ended March 31
|
|
|
2022
|
2021
|
|
Revenue
|
$57,250
|
$26,309
|
|
Interest
expense
|
(12,087)
|
(5,895)
|
|
Net recoveries
(charge-offs)
|
407
|
(4,899)
|
|
|
45,570
|
15,515
|
|
Expenses:
|
|
|
|
Personnel
|
(14,589)
|
(5,699)
|
|
Other
expenses
|
(10,166)
|
(4,805)
|
|
Depreciation
|
(433)
|
(238)
|
|
Adjusted Operating
Income(1)
|
$20,382
|
$4,773
|
|
Decrease/(Increase) in Allowance for Credit Losses
|
(17,073)
|
4,439
|
|
Amortization – intangible assets
|
(591)
|
(333)
|
|
Operating income (loss)
|
2,718
|
8,879
|
|
Mark-to-market adj. on swaps/caps
|
-
|
126
|
|
Other
non-cash items
|
59
|
(26)
|
|
Income (loss) before taxes
|
$2,777
|
$8,979
|
|
|
|
|
|
Net income (loss)
|
$1,679
|
$6,313
|
|
Earnings Per Share – Basic
|
$0.10
|
$0.36
|
|
Earnings Per Share – Diluted
|
$0.09
|
$0.35
|
|
|
|
|
|
Free Cash Flow
|
$15,208
|
$3,756
|
|
Free Cash Flow Per
Share – Diluted
|
$0.73
|
$0.21
|
|
(1) - See
"Non-GAAP Measures" below.
|
|
|
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|
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NON-GAAP MEASURES
Adjusted Operating Income, Adjusted
Net Income, Adjusted Return on Equity, and Free Cash Flow are not
recognized measures under International Financial Reporting
Standards and do not have a standard meaning. Accordingly, these
measures may not be comparable to similar measures presented by
other issuers.
1 "Adjusted Net Income (Loss)" is Net Income (Loss)
as presented in the consolidated statements of income adjusted for
one-time non-recurring items.
"Adjusted Return on Equity" is a non-GAAP ratio representing
Adjusted Net Income (Loss) divided by average equity as presented
in the consolidated statements of financial position.
($
thousands)
|
Three months ended
March 31, 2022
|
Net income
|
1,679
|
Business combination
initial allowance on a purchased portfolio
|
7,166
|
Adjusted net income
(loss)
|
8,845
|
Annualized
|
x 4
|
Average equity,
excluding one time items
|
193,426
|
Adjusted return on
equity
|
18.3%
|
The total provision for credit losses booked on the acquired
Rifco portfolio was $9.3 million.
This provision was tax adjusted using Alberta's statutory rate of 23% to determine
the adjustment to net income.
2 "EBITDA" is Net Income (Loss) as presented in the
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 credit
losses ("ACL"), (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 as defined below. 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.
"Free Cash Flow" or "FCF" is defined as Adjusted EBITDA less
maintenance capital expenditures, tax effect of the non-cash change
in the allowance for 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 concurrent 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 defined as FCF divided by
the weighted average number of shares outstanding during the period
for income attributable to common shares and Exchangeable
Securities (as defined below in the "Statement of Financial
Position" section) on a fully diluted basis.
ABOUT CHESSWOOD GROUP
LIMITED
Through three wholly-owned subsidiaries in the United States and five subsidiaries in
Canada, two of which are
wholly-owned, Chesswood Group Limited is a North American specialty
finance company publicly traded on the Toronto Stock Exchange.
Colorado-based Pawnee Leasing
Corporation, founded in 1982, finances a highly diversified
portfolio of commercial equipment leases and loans through
relationships with over 600 brokers in the United States. Tandem Finance Inc.
provides financing in the U.S. through the equipment vendor
channel. In Canada, Blue Chip
Leasing Corporation has been originating and servicing commercial
equipment leases and loans since 1996. Vault Credit Corporation
specializes in equipment leases and commercial loans across
Canada, allowing for customizable
financing solutions while catering to a wide spectrum of credit
tiers, equipment types and sectors by offering industry-leading
service levels, experienced underwriters and account
administrators. Blue Chip and Vault Credit operate through a
nationwide network of more than 60 brokers. Vault Home was launched
in September 2021 and focuses on
providing home improvement and other consumer financing solutions
in Canada. Rifco National Auto
Finance Corporation, with the mission to help Canadians own
automobiles, seeks to create sustainable long-term competitive
advantages through personalized partnerships with dealers,
innovative products, the use of industry-leading data and
analytics, and leading collection practices. Chesswood Capital
Management ("CCM") and Chesswood Capital Management USA ("CCM USA") will provide private credit alternatives
to investors seeking exposure to lease and loan receivables,
including those originated by Chesswood subsidiaries.
Based in Toronto, Canada,
Chesswood Group Limited's shares trade on the TSX under the symbol
CHW.
To learn more about Chesswood Group Limited, visit
www.ChesswoodGroup.com.
The websites of
Chesswood Group Limited's operating businesses are:
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www.PawneeLeasing.com
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www.BlueChipLeasing.com
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www.TandemFinance.com
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www.VaultCredit.com
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www.VaultPay.com
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www.Rifco.net
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This press release contains forward-looking statements that
involve a number of risks and uncertainties because they relate to
events and depend on circumstances that will occur in the future.
Many factors could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements (including the ultimate duration and severity of the
COVID-19 pandemic, the impact of the military conflict in
Ukraine and related multinational
sanctions, the successful growth of Vault Home, the successful
integration of RIFCO Inc., and the successful launch of CCM and CCM
USA). By its nature, this
information is subject to inherent risks and uncertainties that may
be general or specific and which give rise to the possibility that
expectations, forecasts, predictions, projections or conclusions
will not prove to be accurate, that assumptions may not be correct
and that objectives, strategic goals and priorities will not be
achieved. Additional information about the risks and uncertainties
of the Company's businesses and material factors or assumptions on
which information contained in forward-looking statements is based
is provided in its publicly filed documents, including the
Company's annual information form and management's discussion and
analysis of the financial condition and performance, which are
available electronically through the System for Electronic Document
Analysis and Retrieval at www.sedar.com.
NO STOCK EXCHANGE, SECURITIES COMMISSION OR OTHER REGULATORY
AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED
HEREIN.
SOURCE Chesswood Group Limited