All amounts in Canadian dollars unless otherwise indicated.
- Growth in loan portfolio continued as Callidus closed and
funded a new loan representing approximately $26 million of facilities in the quarter.
- Total revenue of $54.5 million
increased 103% ($27.7 million) from
second-quarter 2017 and 41% ($16
million) from third-quarter 2016, primarily due to the
timing of the consolidation of both Bluberi Gaming Technologies
Inc. ("Bluberi") in first-quarter 2017 and Otto Industries North
America Inc. ("Otto") in second-quarter 2017.
- Net loss of $17.6 million for
third-quarter 2017 compared to net loss of $25.8 million in the prior quarter and net income
of $5.2 million in the prior-year
period.
- Loss of $0.35 per share (diluted)
for third-quarter 2017 compared to loss of $0.51 per share (diluted) in the prior quarter
and earnings of $0.10 per share
(diluted) for third-quarter 2016.
- As at November 10, 2017, the
Company had purchased 2,222,189 Common Shares, or 89% of the total
shares eligible, pursuant to the NCIB at a weighted average price
of $13.36 per common share.
TORONTO, Nov. 13, 2017 /CNW/ - Callidus Capital
Corporation (TSX:CBL) (the "Company" or "Callidus") today announced
its unaudited financial and operating results for the third quarter
ended September 30, 2017.
Financial Highlights
|
For Three Months
Ended
|
For Nine Months
Ended
|
($ 000s unless
otherwise indicated)
|
Sept 30,
2017
|
Jun 30,
2017
|
Sept 30,
2016
|
Sept 30,
2017
|
Sept 30,
2016
|
Net loans receivable
(before derecognition),
end of period
|
482,896
|
472,324
|
1,074,515
|
482,896
|
1,074,515
|
Gross loans
receivable (before derecognition),
end of period (1)
|
1,038,592
|
1,028,423
|
1,268,034
|
1,038,592
|
1,268,034
|
Average loan
portfolio outstanding (1)
|
1,024,383
|
1,029,803
|
1,217,965
|
1,090,760
|
1,197,390
|
Gross yield (%)
(1)
|
10.7%
|
11.2%
|
19.0%
|
14.7%
|
19.6%
|
Total revenues
(2)
|
54,539
|
26,884
|
38,579
|
113,002
|
120,087
|
Net (loss)
income
|
(17,569)
|
(25,801)
|
5,162
|
(46,887)
|
59,695
|
Earnings per share
(diluted)
|
($0.35)
|
($0.51)
|
$0.10
|
($0.93)
|
$1.18
|
Unrecognized non-IFRS
yield enhancements,
end of period (1)
|
112,700
|
115,800
|
42,500
|
112,700
|
42,500
|
Recognized yield
enhancements (3)
|
900
|
-
|
2,800
|
6,700
|
38,100
|
Leverage ratio (%)
(1)
|
37.1%
|
37.1%
|
40.3%
|
37.1%
|
40.3%
|
|
|
(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 Q3-2017: $9.8 million)
and in loss on derivative assets associated with loans (YTD
Q3-2017: loss of $3.1 million).
|
(4)
|
Income statement data
is after derecognition, unless otherwise indicated.
|
Business Update (As at November
10, 2017)
Loan Portfolio – The Company's loan pipeline, measured on a
gross basis, is currently approximately $3.3
billion. If presented on a basis consistent with past
reporting parameters, the pipeline measure at September 30, 2017 was $1.55 billion, with $428
million in signed-back term sheets; and currently stands at
$1.37 billion, with $428 million in signed-back term sheets. As
a result of ongoing, continuous process changes and improvements,
the Company revised its measure of its loan pipeline of potential
borrowers, to include what was internally categorized as lower
probability in order to present what Management believes is a more
appropriate measure of opportunities being pursued and a better
reflection of the size of the addressable market. The Company
made this revision as there have been instances of migration of
opportunities within the pipeline from lower to higher probability
categories and vice versa.
As previously disclosed, the Company has term sheets of
approximately $428 million signed
back by prospective borrowers which is included in the estimated
pipeline number and is the subject of ongoing due diligence.
As previously disclosed, Callidus undertakes extensive due
diligence before closing on a loan transaction and there can be no
assurance that the results of the due diligence will be
satisfactory to Callidus.
The Company has observed an increase in the prospects and deal
pipeline, an encouraging sign given the goal to re-start growth,
however, the Company continues to maintain a cautious approach in
reviewing potential prospects. During the quarter, Callidus
closed and funded a new loan representing approximately
$26 million of facilities.
Net loans receivable decreased from year-end due to the
repayment of 6 loans totaling $377
million partially offset by the funding of existing loans
and the origination of two new loans in the current year. In
addition, the Company recognized businesses acquired as a result of
loan enforcement proceedings which led to the acquisition of
Bluberi Gaming Technologies Inc. in the first quarter of 2017 and
Otto Industries North America Inc. in the second quarter of
2017. Upon those acquisitions, the associated loans of
$221 million were removed from loans
receivable and those companies' financial results were consolidated
in the Company's financial statements.
Yield Enhancements and Provision for Loan Losses – At
September 30, 2017, the total
recognized yield enhancements taken into income over the last three
quarters totaled approximately $6.7
million (or $0.13 per
share).
Provision for loan losses of $9.7
million was recorded in the statement of income for the
current quarter. The majority of this provision related to
decreases in collateral values across certain loans and is subject
to volatility quarter over quarter.
During the current quarter, the Company recognized a recovery of
$7.0 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 $15.5
million under the Catalyst guarantee due to the recognition
of specific loan loss provisions in the first nine 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 September 30,
2017, the Company had purchased 1,887,858 Common Shares
pursuant to the NCIB at a weighted average price of $13.88 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 approximately 75%, total
liquidity as at September 30, 2017
would be able to support approximately $300
million of new loans. In addition, as businesses
acquired through loan enforcement proceedings are rehabilitated, we
will pursue opportunities to monetize those businesses,
particularly when we believe capital may be deployed in
opportunities that will generate superior returns. Timing of
these monetizations is uncertain and will be assessed on a case by
case basis, taking into account performance of each business and
the macro-economic conditions impacting the sector in which it
operates.
In March 2017, the Company
extended the maturity of its senior debt from March 31, 2017 to the earlier of September
30, 2017 and the date when the privatization closes. In
September 2017, the Company extended
the maturity of its senior debt from September 30, 2017 to the earlier of March 31, 2018 and the date when the
privatization transaction closes. All other terms remain
substantially unchanged.
In March 2017, the Company
extended the maturity of its subordinated bridge facility from
April 30, 2017 to October 31, 2017. In October 2017, the Company extended the maturity
of its revolving unsecured subordinated bridge facility to the
earlier of (i) April 30, 2018 and
(ii) the day following the repayment of its senior debt in
full. All other terms remain substantially unchanged.
Privatization Process – The Company continues to pursue a
privatization and has no material facts or changes to report.
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
|
Fair value of
controlling interest in borrower expected to be recognized into
income upon disposition is estimated at $112.7 million as at
September 30, 2017.
|
Assumptions
|
The valuation
technique used a discounted cash flow with the following
significant unobservable inputs and estimates:
(1) Risk adjusted discount rate: 18.4%
(2) Long term growth rate: 8.0%
(3) Annual average EBITDA: $44.3
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.
(5) A royalty agreement is entered into in early 2018 with a large
diversified gaming company.
(6) A South American country legislates and creates a regulatory
framework for the gaming industry by 2019.
|
Risk
Factors
|
Significant risk
factors that could cause actual results to differ materially from
the estimates used in the valuation include: (1) Bluberi's ability
to secure new business from a large diversified gaming company in
Canada; (2) Bluberi'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 cash flows would result in a
yield enhancement range between $89.3 million to $136.2
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) Bluberi 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; (9) Bluberi
successfully enters into a royalty agreement in early 2018; (10) a
South American country legislates and creates a regulatory
framework for the gaming industry by 2019 and Bluberi is able to
achieve forecasted results in the region; (11) 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. Negotiations on the royalty agreement
between Bluberi and a gaming company are in an advanced
stage.
|
Management uses both IFRS and non-IFRS measures to monitor and
assess the operating performance of the Company'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 Company 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 September 30, 2017 and December 31, 2016.
|
|
|
|
|
($ 000s)
|
After
Derecognition
Sept 30,
2017
|
Before
Derecognition
Sept 30,
2017
|
After
Derecognition
Dec 31,
2016
|
Before
Derecognition
Dec 31,
2016
|
Loan
facilities
|
$
|
1,064,784
|
$
|
1,115,136
|
$
|
1,176,642
|
$
|
1,421,771
|
Gross loans
receivable
|
1,013,585
|
1,038,592
|
1,100,304
|
1,313,994
|
Less: Discounted
facilities
|
(7,575)
|
(7,575)
|
(7,575)
|
(7,575)
|
Less: Allowance for
loan losses
|
(226,865)
|
(227,564)
|
(164,973)
|
(166,732)
|
Less: Impairment on
goodwill and businesses acquired
|
(30,720)
|
(30,720)
|
(19,359)
|
(19,359)
|
Less: Businesses
acquired(1)
|
(289,837)
|
(289,837)
|
(91,206)
|
(91,206)
|
Net loans
receivable
|
$
|
458,588
|
$
|
482,896
|
$
|
817,191
|
$
|
1,029,122
|
(1)
|
Businesses acquired are presented in the statement of financial
position by their respective assets and liabilities.
|
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 third quarter
2017 results on Tuesday, November 14, 2017 at 8 a.m.
Eastern Time. The dial in number for the call is (647)
427-7450 or (888) 231-8191 (reference number: 40085315). A
taped replay of the call will be available until November 22, 2017 at (416) 849-0833 or (855)
859-2056 (reference number: 40085315).
SOURCE Callidus Capital Corporation