All amounts in Canadian dollars unless otherwise indicated.
- Growth in loan portfolio resumes with the addition of new
$30 million facility in the
quarter.
- Total revenue of $26.9 million
decreased 15% ($4.7 million) from
first-quarter 2017 and 31% ($11.9
million) from second-quarter 2016, primarily due to
consolidation of Bluberi Gaming Technologies Inc. ("Bluberi") in
first-quarter 2017 and Otto Industries North America Inc. ("Otto")
in second-quarter 2017.
- Net loss of $25.8 million for
second-quarter 2017 (including the $28
million non-cash impact of a present value calculation
update associated with the future disposition of collateral)
compared to net loss of $3.5 million
in the prior quarter and net income of $37.5
million in the prior-year period.
- Loss of $0.51 per share (diluted)
for second-quarter 2017 compared to loss of $0.07 per share (diluted) in the prior quarter
and earnings of $0.73 per share
(diluted) for second-quarter 2016.
- As at August 9, 2017, the Company
had purchased 1,259,730 Common Shares pursuant to the NCIB at a
weighted average price of $15.33 per
common share.
TORONTO, Aug. 10, 2017 /CNW/ - Callidus Capital
Corporation (TSX:CBL) (the "Company" or "Callidus") today announced
its unaudited financial and operating results for the second
quarter ended June 30, 2017.
Financial Highlights
|
For Three Months
Ended
|
For Six Months
Ended
|
|
($ 000s unless
otherwise indicated)
|
Jun 30,
2017
|
Mar 31,
2017
|
Jun 30,
2016
|
Jun 30,
2017
|
Jun 30,
2016
|
|
Net loans receivable
(before derecognition), end of period
|
472,324
|
581,134
|
997,006
|
472,324
|
997,006
|
|
Gross loans
receivable (before derecognition), end of
period(1)
|
1,028,423
|
1,016,135
|
1,171,985
|
1,028,423
|
1,171,985
|
|
Average loan
portfolio outstanding (1)
|
997,006
|
1,218,125
|
1,147,323
|
1,123,948
|
1,187,102
|
|
Gross yield
(%)(1)
|
11.2%
|
20.2%
|
20.0%
|
16.3%
|
19.7%
|
|
Total
revenues(2)
|
26,884
|
31,579
|
38,812
|
58,463
|
81,508
|
|
Net interest margin
(%)(1)
|
3.5%
|
7.7%
|
12.5%
|
5.7%
|
12.5%
|
|
Net (loss)
income
|
(25,801)
|
(3,518)
|
37,461
|
(29,318)
|
54,533
|
|
Earnings per share
(diluted)
|
$(0.51)
|
$(0.07)
|
$0.73
|
$(0.58)
|
$1.08
|
|
ROE (%)
|
(25.3)%
|
(3.3)%
|
29.2%
|
(14.1)%
|
21.6%
|
|
Unrecognized non-IFRS
yield enhancements, end of period(1)
|
115,800
|
110,400
|
22,200
|
115,800
|
22,200
|
|
Recognized yield
enhancements(3)
|
-
|
5,800
|
34,800
|
5,800
|
34,800
|
|
Leverage ratio
(%)(1)
|
37.1%
|
39.9%
|
38.5%
|
37.1%
|
38.5%
|
|
|
|
(1)
|
Refer to
"Forward-Looking and Non-IFRS Measures" in this press release.
These financial measures are not recognized measures under IFRS and
do not have a standardized meaning prescribed by IFRS. Therefore,
they may not be comparable to similar measures used by other
issuers.
|
|
(2)
|
Certain comparative
figures have been reclassified to conform with current period
presentation.
|
|
(3)
|
Recognized yield
enhancements are recorded in the statement of income before
derecognition in total revenues (YTD Q2-2017: $7.0 million) and in
loss on derivative assets associated with loans (YTD Q2-2017: loss
of $1.2 million).
|
|
(4)
|
Income statement data
is after derecognition, unless otherwise indicated.
|
Business Update (As at August 8,
2017)
Privatization Process – Consistent with previous disclosure, the
Company is continuing the process of soliciting proposals intended
to lead to the privatization of Callidus. The complexity and
diversity of the structures that have been proposed, has
unfortunately resulted in the process taking longer than originally
expected. As part of the formal privatization process, and as
an alternative to proposals received, the Company has retained the
services of a placement agent and advisory firm with experienced
personnel dedicated to raising capital for alternative investments,
including "private debt funds". The potential pursuit of a
private debt fund as a competitor in the privatization process is
specifically being explored because it may result in greater value
to the Company's public shareholders than the proposals otherwise
available to the Company. Should it be determined that the
"private debt fund" is the preferred privatization
alternative, Catalyst Capital Group Inc. ("CCGI")
has advised that funds it manages would most likely
participate and would do so on the same economic terms as the
public shareholders. There can be no certainty regarding
whether such a private debt fund transaction will be effected, its
timing or the amounts that may be raised, if any. No proposal
for any private debt fund has been received nor has this
alternative been reviewed by the Special Committee of the Board of
Directors established in connection with the privatization
process.
As is typical of any process prior to final and definitive
agreement, there can be no certainty that a transaction will be
concluded or as to what price may be offered or accepted.
CCGI, which manages funds that own approximately 68% of the issued
and outstanding shares of Callidus, remains committed to completing
a transaction on terms consistent with the previously published
valuation range of $18 to $22 per
share.
Loan Portfolio – As a result of ongoing, continuous process
changes and improvements, the Corporation revised its measure of
growth prospects, referred to as its pipeline of potential
borrowers, to include what was internally categorized as lower
probability in order to present what Management believes is a more
accurate measure of opportunities being pursued and a better
reflection of the size of the addressable market. The Corporation
included this category as there have been instances of migration of
opportunities within the pipeline from lower to higher probability
categories.
This pipeline, measured on a gross basis is currently
approximately $2.3 billion, with a
US$255 million signed-back term
sheet. If presented on a basis consistent with past reporting
parameters, the pipeline measure at June 30,
2017 was $1,150 million, and
currently stands at $810 million. The
Corporation has observed an increase in the prospects and deal
pipeline, an encouraging sign given the goal to re-start growth. As
noted previously, the Corporation closed and funded a new loan
during the quarter. The Corporation continues to maintain a
cautious approach in reviewing potential prospects as it has
observed a rising number of deals being signed by competitors as
credit dollars continue to pour back into the market.
During the quarter, Callidus closed and funded a new loan
representing approximately $30
million (US$22.8 million) of
facilities. As previously disclosed, the Company has a term
sheet of approximately $330 million
(US$255 million) signed back by a
prospective borrower which is included in the estimated pipeline
number and is the subject of ongoing due diligence. If due
diligence is satisfactory, the term sheet is expected to convert
into new loan facilities near the end of the third quarter.
As previously disclosed, Callidus undertakes extensive due
diligence before closing on a loan transaction and has historically
closed on between 60% and 80% of signed back term sheets.
There can be no assurance that the results of the due diligence
will be satisfactory to Callidus.
Net loans receivable decreased from the year end primarily due
to the recognition of businesses acquired as a result of the
acquisition of Bluberi in first-quarter 2017 (valued at
approximately $127 million) and Otto
in second-quarter 2017 (valued at approximately $92 million).
Yield Enhancements and Provision for Loan Losses – At
June 30, 2017, the total recognized
yield enhancements taken into income over the last two quarters
totaled approximately $5.8 million
(or $0.12 per share).
Provision for loan losses of $35.0
million was recorded in the statement of income for the
current quarter. The majority (approximately $28 million or 80%) of this provision related to
the present value impact associated with the disposition of
collateral that is expected to be fully realized over a longer
period of time.
During the current quarter, the Company recognized a recovery of
$6.9 million under the Catalyst
guarantee due to the recognition of specific loan loss provisions
in the quarter. During the current year-to-date period, the
Company recognized a recovery of $8.5
million under the Catalyst guarantee due to the recognition
of specific loan loss provisions in the first six months of
2017.
Normal Course Issuer Bid – In January 2017, Callidus commenced a normal course
issuer bid ("NCIB") with respect to the common shares (see news
release dated January 25,
2017). As at August 9, 2017,
the Company had purchased 1,259,730 Common Shares pursuant to the
NCIB at a weighted average price of $15.33 per common share.The Company intends to
continue purchases under the NCIB as long as the common shares of
the Company continue to trade at a discount to the Company's view
of fair value.
Liquidity and Changes to Credit Facility – The
Corporation's primary sources of short-term liquidity are cash and
cash equivalents and undrawn credit facilities. Assuming a
participation rate for Catalyst Fund V of 75% and continued usual
increases in our senior debt facilities, total liquidity as at
June 30, 2017 would be able to
support approximately $300 million of
new loans.
The revolving credit facility was terminated on July 17, 2017 as there was $nil outstanding at
the end of the revolving period and beginning of the amortization
period. As loan growth is restarted, discussions with
potential lenders about a warehouse facility continue, with the
objective of finding a replacement, flexible warehouse facility
given the Corporation's actively managed loan portfolio.
Management believes it will be successful in obtaining an
appropriate warehouse facility. The Company has two
facilities maturing in the next three months. Management
believes that these facilities will either be extended or
replaced.
Callidus Response to False Allegations Published by the Wall
Street Journal – On August 9,
2017, Callidus issued a statement regarding false
allegations by supposedly "independent" individuals abusing the OSC
whistleblower process. The allegations about the Company
and its majority shareholder, The Catalyst Capital Group Inc.,
were irresponsibly published by the Wall Street Journal
even after a comprehensive briefing held with Wall Street
Journal reporters on August 8, 2017.
For example, as part of that meeting it was made clear that
the treatment of the Catalyst guarantee for Callidus loans made to
Xchange Technology Group was in accordance with all applicable
accounting requirements. As well, full disclosure was
contained in both Catalyst's financial reports to its limited
partners and through Callidus' public disclosures on an ongoing
basis. The accounting treatment and disclosure were entirely
appropriate and there is no basis for allegations to the contrary,
facts the Wall Street Journal chose to ignore.
These allegations presented are primarily based on anonymous
sources and are believed to have been initiated by individuals
against whom Callidus has current litigation relating to the
enforcement of guaranties. Those individuals have already had
the opportunity to present their allegations in court without
success. That is because the allegations are false.
The Company knows of no legitimate basis for any whistleblower
complaint. In fact, It is extraordinary that the media
has been given copies of confidential whistleblower reports that
neither Callidus nor Catalyst has ever seen. Callidus
believes that those individuals, having failed in court, are filing
deliberately misleading whistleblower reports with the Ontario
Securities Commission so that they can then leak them to the
press in the hope that the press will publish the allegations.
As a result, the media and public markets are misled and the
legitimate OSC 'whistleblower' process is exploited for personal
advantage, and to do damage to the market value of Callidus, and to
the reputation, operations and investments of its majority
shareholder, Catalyst.
Any abuse of the 'whistleblower' process is a very serious
matter that has significant consequences. For that reason,
Callidus believes that it is the actions of those individuals that
warrants investigation.
Changes to the Management Team – The Company remains committed
to the goal of doubling the loan portfolio over the next two to
three years. In support of that goal, the Company has added
an additional senior Underwriter and Originator to the Management
team.
Geoffrey Zbikowski has joined
Callidus as Vice President, Head of Originations - Western
Region. Geoffrey was previously a Managing Director with
White Oak Global Advisors, LLC's Origination team. He is
currently based in California and
will primarily cover the US market. Geoffrey began his career
in the Financial Restructuring Group at CIBC World Markets.
Michael Pisani has joined
Callidus as Vice President, Portfolio/Underwriting. Michael
has broad experience across lending platforms and industries
including asset-based, cash flow, franchise, manufacturing,
transportation, aircraft, debtor-in-possession and real
estate. He most recently served as Senior Vice President and
Workout Leader for Wells Fargo Equipment Finance. Prior to
that he was Vice President, Corporate Finance at GE Capital, and
Assistant Vice President for CIT Business Credit Canada.
Forward-Looking and Non-IFRS Statements
Certain statements made herein contain forward-looking
information. Although Callidus believes these statements to
be reasonable, the assumptions upon which they are based may prove
to be incorrect. Furthermore, the forward-looking statements
contained in this press release are made as at the date of this
press release and Callidus does not undertake any obligation to
update or revise any of the included forward-looking statements,
whether as a result of new information, future events or otherwise,
except as may be required by applicable securities laws.
As previously announced, the Company is subject to an
Ontario Securities Commission continuous disclosure review.
As a result, it is continuing to revise its disclosure and
approach and is providing additional disclosure with respect to
material assumptions used in connection with reporting in relation
to unrecognized yield enhancements as well as risk factors and
significant future events and milestone assumptions in relation to
valuations.
The following table outlines certain significant forward-looking
statements contained in this release and provides the material
assumptions used to develop such forward-looking statements and
material risk factors that could cause actual results to differ
materially from the forward looking statements.
|
Forward-looking
Statement
|
The fair value of the
derivative asset associated with loans represents a warrant to
acquire a 10% equity interest in a borrower with a total value of
$1.9 million on June 30, 2017.
|
|
Assumptions
|
The valuation
technique primarily used a discounted cash flow on an anticipated
project that the borrower expects to secure with the following
significant unobservable inputs and estimates:
(1) Risk adjusted discount rate (contract): 16%
(2) Risk adjusted discount rate (terminal): 20%
(3) Annual average EBITDA (EBITDA margin): US$79.0 million
(21%)
(4) Contract probability: 95%
(5) Capital injection of US$32 million assumed to occur in
2017
|
|
Risk
Factors
|
Significant risk
factors that could cause actual results to differ materially from
the estimates used in the valuation of the warrant include: (1) the
borrower's ability to secure the project contract; (2) the
borrower's ability to complete an equity transaction; (3) the
borrowers' ability to achieve the forecasted EBITDA targets; (4)
unexpected changes in working capital requirements; (5) political
risk associated with the country of operations; (6) competitor
risk; and (7) execution risk. A 10% decrease or increase in the
cashflows would result in a valuation range between $0.4 million to
$3.4 million.
|
|
Significant Future
Events/Milestone Assumptions to Support the Top End of the
Valuations
|
(1) borrower
finalizes contract documentation without material delays;
(2) borrower completes capital injection transaction in 2017;
(3) borrower is able to execute project and achieve forecasted
results; and
(4) political risk does not materially disrupt contract
cashflows
|
|
Updates for the
Current Year
|
-
|
|
|
|
Forward-looking
Statement
|
Fair value of
controlling interest in borrower expected to be recognized as
income upon disposition is estimated at $115.8 million on June 30,
2017.
|
|
Assumptions
|
The valuation
technique used a discounted cash flow with the following
significant unobservable inputs and estimates:
(1) Risk adjusted discount rate: 16.5%
(2) Long term growth rate: 10.0%
(3) Annual average EBITDA: $30.0
million
(4) Significant new business from a large diversified gaming
company in Canada that is controlled in common with the Company by
The Catalyst Capital Group Inc., including the deployment of 7,000
slot machines.
|
|
Risk
Factors
|
Significant risk
factors that could cause actual results to differ materially from
the estimates used in the valuation include: (1) the borrower's
ability to secure new business from a large diversified gaming
company in Canada; (2) the borrower's ability to achieve the
forecasted EBITDA targets; (3) competitor risk and unexpected
changes in working capital requirements; (4) the possibility that
Bluberi may not receive the regulatory approval required to sell
games into the provinces in which the large diversified gaming
company operates; (5) the absence of a term sheet or agreement with
the large diversified gaming company - while terms to acquire games
from Bluberi have been discussed, there currently is no agreement
between Bluberi and the large diversified gaming company detailing
any prospective transaction between the parties; (6) the risk that
the large diversified gaming company may not require the 7,000 slot
machines; and (7) the risk that Bluberi may not be able to reach
the production demands that would be required to sell 7,000 slot
machines as it has, historically, never sold games at this volume
or of this type.
A 10% decrease or
increase in the cashflows would result in a yield enhancement range
between $92.5 million to $139.0 million.
|
|
Significant Future
Events/Milestone Assumptions to Support the Top End of the
Valuations
|
(1) Callidus and a
commonly controlled enterprise are able to reach an agreement for
deployment of 7,000 slot machines;
(2) borrower is able to achieve forecasted results; (3) regulatory
approval by the provinces of Ontario, British Columbia and Alberta
for the deployment of the 7,000 slot machines occurs within 3 - 6
months from the start of the application process, which has yet to
commence; (4) Bluberi is able to successfully procure contract
manufacturing to meet demand; (5) working capital to meet demand is
funded by Callidus; (6) the slot machines to be deployed meet
the standards of the large diversified gaming company; (8) the
7,000 slot machines are deployed over 3 years; and (9) the business
is sold three years after the start of the deployment of the 7,000
machines at which time, the unrecognized yield enhancement would be
realized.
|
|
Updates for the
Current Year
|
(1) Callidus obtained
control of the underlying borrower; and (2) The ultimate
controlling shareholder of the Company, of Bluberi and of a large
diversified gaming company ("the gaming company") are funds managed
by The Catalyst Capital Group Inc. On March 30, 2017, it
wrote a letter setting forth the mutual understanding of Catalyst,
Bluberi and the gaming company with respect to Bluberi selling to
the gaming company 7,000 electronic gaming machines (slot machines)
before December 31, 2019. That sale would be subject to,
among other things, Bluberi receiving the necessary licensing as
well as a definitive purchase agreement being entered into. The
gaming company has 11 locations slated for expansion and growth in
Ontario over the next few years and will control up to 5,500 slot
machines. In addition, the gaming company is continuing to bid on
other gaming opportunities and, if successful, could control over
15,000 slot machines in Ontario. On July 13, 2017, the
President of the gaming company confirmed its potential to purchase
up to 7,000 slot machines from Bluberi but advised that the timing
would be over the following three years subject to, among other
things, regulatory and board approval and regulatory approval has
yet to be applied for.
The Company had
previously disclosed during a public analyst call following
issuance of its first quarter results that the unrecognized yield
enhancement related to Bluberi had been valued by third parties and
that those valuations had taken into account the order for 7,000
slot machines. Those third party valuations pertained to the
absence of any loan impairment in relation to Bluberi and did not
take into account the order for up to the 7,000 slot machines or
any excess value relating to any such orders.
|
Management uses both IFRS and non-IFRS measures to monitor and
assess the operating performance of the Corporation's operations.
Throughout this press release, management uses the following terms
and ratios which do not have a standardized meaning under IFRS and
are unlikely to be comparable to similar measures presented by
other organizations:
Average loan portfolio outstanding is calculated before
derecognition for the annual periods using daily loan balances
outstanding. The average loan portfolio outstanding grosses up the
loans receivable for (i) businesses acquired, (ii) the allowance
for loan losses, and (iii) discounted facilities. This information
is presented to enable readers to see, at a glance, trends in the
size of the loan portfolio.
Gross yield is defined as total revenues before
derecognition divided by the average loan portfolio outstanding
after adjusting for loans classified as businesses acquired. While
gross yield is sensitive to non-recurring fees and yield
enhancements earned (for example, as a result of early repayment),
the Corporation has included this information as it believes the
information to be instructive given the frequency of receipt of
non-recurring fees and enables readers to see, at a glance, trends
in the yield of the loan portfolio.
Gross loans receivable is defined as the sum of (i) the
aggregate amount of loans receivable on the relevant date, (ii) the
loan loss allowance on such date, (iii) the book value of
businesses acquired as they appear on the balance sheet, and (iv)
discounts on loan acquisitions. The following is a reconciliation,
before and after derecognition, of gross loans receivable to net
loans receivable in the Statement of Financial Position and a
summary of gross loans receivable as at June
30, 2017 and December 31,
2016.
|
|
|
|
|
($ 000s)
|
After
Derecognition
Jun 30,
2017
|
Before
Derecognition
Jun 30,
2017
|
After
Derecognition
Dec 31,
2016
|
Before
Derecognition
Dec 31,
2016
|
|
Loan
facilities
|
$
1,034,694
|
$1,067,131
|
$
1,176,642
|
$
1,421,771
|
|
Gross loans
receivable
|
1,012,411
|
1,028,423
|
1,100,304
|
1,313,994
|
|
Less: Discounted
facilities
|
(7,575)
|
(7,575)
|
(7,575)
|
(7,575)
|
|
Less: Allowance for
loan losses
|
(217,134)
|
(217,473)
|
(164,973)
|
(166,732)
|
|
Less: Impairment on
goodwill and businesses acquired
|
(26,409)
|
(26,409)
|
(19,359)
|
(19,359)
|
|
Less: Businesses
acquired(1)
|
(304,642)
|
(304,642)
|
(91,206)
|
(91,206)
|
|
Net loans
receivable
|
$
456,651
|
$
472,324
|
$
817,191
|
$
1,029,122
|
|
|
|
(1)
|
Businesses acquired
are presented in the statement of financial position by their
respective assets and liabilities.
|
Net interest margin is defined as net interest
income divided by average loan portfolio outstanding.
Return on equity ("ROE") is defined as net income after
derecognition divided by quarterly average shareholders'
equity. Return on equity is a profitability measure that
presents the annualized net income as a percentage of the capital
deployed to earn the income.
Yield enhancement is defined as a component of a
lending arrangement that Callidus negotiates in addition to the
fees and interest rate called for in the original loan agreement
including but not limited to additional fees, profit participation
arrangements and equity and equity like instruments. Should a
value be determined for the enhancement and depending on its
contractual nature, the related amount may be recognized in the
statement of comprehensive income as a part of interest income, fee
income or gain/loss on derivative assets associated with loans, may
be recognized as an available-for-sale equity interest with value
changes recorded in other comprehensive income/loss ("recognized
yield enhancements"), or, may be unrecognized, which includes yield
enhancements related to controlling interests ("unrecognized
non-IFRS yield enhancements"), depending on the appropriate
accounting treatment under IFRS.
Leverage ratio is defined as total debt (net of
unrestricted cash and cash equivalents) divided by gross loans
receivable before derecognition. Total debt consists of the senior
debt, revolving credit facilities, collateralized loan obligation
and subordinated bridge facility.
The non-IFRS measures should not be considered as the sole
measure of the Corporation's performance and should not be
considered in isolation from, or as a substitute for, analysis of
the Corporation's financial statements.
About Callidus Capital Corporation
Established in 2003, Callidus Capital Corporation is a Canadian
company that specializes in innovative and creative financing
solutions for companies that are unable to obtain adequate
financing from conventional lending institutions. Unlike
conventional lending institutions who demand a long list of
covenants and make credit decisions based on cash flow and
projections, Callidus credit facilities have few, if any, covenants
and are based on the value of the borrower's assets, its enterprise
value and borrowing needs. Callidus employs a proprietary system of
monitoring collateral and exercising control over the cash inflows
and outflows of each borrower, enabling Callidus to very
effectively manage risk of loss. Further information is available
on our website, www.calliduscapital.ca.
Conference Call
Callidus will host a conference call to discuss second quarter
2017 results on Friday, August 11, 2017 at 11:00 a.m.
Eastern Time. The dial in number for the call is (647)
427-7450 or (888) 231-8191 (reference number: 40047945). A
taped replay of the call will be available until August 18, 2017 at (416) 849-0833 or (855)
859-2056 (reference number: 40047945).
SOURCE Callidus Capital Corporation