Callidus Capital Reports 2017 Full year and Fourth Quarter Results
All amounts in Canadian dollars unless otherwise indicated.
Continued Corporate Plan to Restore and Build Shareholder Value
The Corporation is committed to restoring and building shareholder value and intends to do so, by: (i) prudently growing the loan portfolio, (ii) actively managing the loan portfolio to minimize realized losses and with a goal to maximize recovery of the non-cash loan loss provisions recorded to date, (iii) maximize the cash-flow and value of businesses consolidated, (iv) prudently increasing leverage, including seeking external source of financing at the subsidiary level, (v) enhancing the management team as appropriate, and (vi) considering other transactions that could support and / or benefit the Corporation's plan.
- The pipeline of potential borrowers on a gross basis is currently $2.2 billion. If presented on a basis consistent with past reporting parameters, the pipeline measure at December 31, 2017 was $1.35 billion, and currently stands at $1.4 billion with two signed back term sheets totaling US$150 million.
- The Company extended the maturities of its senior debt and bridge facilities: (i) the senior debt to the earlier of March 31, 2019 and the date when a privatization transaction closes; and (ii) bridge facility to the earlier of April 30, 2019 and the day following the repayment of its senior dent in full, but no earlier than January 1, 2019.
- Turnaround plans at subsidiaries namely C&C Wood Products Inc. and Bluberi Gaming Technologies Inc. are taking hold and positioning each to expect further benefits from new management and products in 2018 and 2019.
- Total revenue of $165.8 million in 2017 increased 3.5% ($5.7 million) from 2016, primarily due to the elimination of interest revenue offset by revenue from the three consolidated businesses.
- Net loss of $218.5 million for 2017 compared to income of $1.2 million in the prior year due primarily to higher provision for loan losses and impairments, which are virtually all non-cash, and lower interest revenue in the current year due to effect of consolidation of businesses acquired. During Q4-2017, the Company recorded a provision for loan loss of $131.9 million on one specific loan concentrated in the energy sector. Please refer to the Highlights section of the MD&A for more details.
- Loss of $4.32 per share (diluted) for 2017 compared to earnings of $0.02 per share (diluted) in 2016.
- As at December 20, 2017, the Company had completed and purchased 2,495,839 million Common Shares pursuant to the NCIB at a weighted average price of $13.03 per common share for approximately $32.5 million.
TORONTO, April 2, 2018 /CNW/ - Callidus Capital Corporation (TSX:CBL) (the "Company" or "Callidus") today announced its audited financial and operating results for the full year and fourth quarter ended December 31, 2017.
Financial Highlights
| For Three Months Ended |
Year Ended |
||||
| ($ 000s unless otherwise indicated) |
Dec 31, 2017 |
Sept 30, 2017 |
Dec 31, 2016 |
Dec 31, 2017 |
Dec 31, 2016 |
| Net loans receivable (before derecognition), end of period |
247,306 |
482,896 |
1,029,122 |
247,306 |
1,029,122 |
| Gross loans receivable (before derecognition), end of period (1) |
1,046,983 |
1,038,592 |
1,313,994 |
1,046,983 |
1,313,994 |
| Average loan portfolio outstanding (1) |
1,055,468 |
1,024,383 |
1,282,593 |
1,081,937 |
1,218,691 |
| Gross yield (%) (1) |
10.8% |
10.7% |
20.1% |
13.9% |
19.5% |
| Total revenues(2) |
52,808 |
54,539 |
39,978 |
165,810 |
160,065 |
| Net interest margin (%) (1) |
1.9% |
2.5% |
11.1% |
4.0% |
11.7% |
| Net (loss) income |
(171,599) |
(17,569) |
(58,542) |
(218,486) |
1,153 |
| Earnings per share (diluted) |
($3.37) |
($0.35) |
($1.16) |
($4.32) |
$0.02 |
| Unrecognized non-IFRS yield enhancements, end of period(1) |
75,000 |
112,700 |
123,500 |
75,000 |
123,500 |
| Recognized yield enhancements(3) |
900 |
900 |
(23,800) |
6,700 |
14,400 |
| Leverage ratio (%)(1) |
37.3% |
37.1% |
40.4% |
37.3% |
40.4% |
| (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 (2017: $9.8 million) and in loss on derivative assets associated with loans (2017: loss of $3.1 million). |
| (4) |
Income statement data is after derecognition, unless otherwise indicated. |
Business Update (As at April 2, 2017)
Loan Portfolio – The Company's loan pipeline, measured on a gross basis, is currently approximately $2.2 billion. If presented on a basis consistent with past reporting parameters, the pipeline measure at December 31, 2017 was $1.35 billion and currently stands at $1.4 billion, with two signed back term sheets totaling approximately US$150 million. 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 US$150 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 2017, after Callidus announced restarting growth, it closed and funded two new loans representing approximately $54 million of facilities.
Net loans receivable post-derecognition decreased from year-end due to the full repayment of 7 loans totaling $380 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, Otto Industries North America Inc. in the second quarter of 2017, and C&C Resources Inc. in the fourth quarter of 2017. Upon those acquisitions, the associated loans of approximately $325 million were removed from loans receivable and those companies' financial results were consolidated in the Company's financial statements.
Acquired Subsidiary Companies - Newton Glassman, Executive Chairman and Chief Executive Officer of Callidus Capital said "As an asset based lender, Callidus extends loans initially based on the collateral available to support them. During 2017 three businesses were removed from the loan portfolio and consolidated on our statements as we took action in order to protect our collateral in each of those loans."
"We have strengthened, and in some cases replaced the management teams at what are now our subsidiaries and have been working with them to implement strategic decisions and execute new business plans as part of their respective turnarounds. While the acquired companies are at various stages in said turnarounds, we are pleased in particular with the progress to date achieved at C&C Resources ("C&C"), a forestry products company, and at Bluberi Gaming Technologies, a gaming company."
"After completing a strategic capital investment program C&C is well positioned to benefit from record commodity prices for dimensional lumber. A new CEO has been brought in to expand C&C's existing products along with a line of new value-added, engineered wood products that would redefine and improve both revenue and EBITDA by employing lower grade output from sawmills as the inputs for its value added process. Importantly, these value added products would not be subject to current U.S. softwood lumber duties. C&C's new management team is also investigating opportunities to improve efficiency and increase lumber recovery across all mills through a reasonable capital expenditure program."
"Bluberi's rehabilitation is also well underway having introduced new products in the second half of 2017, revamped the product line and made changes to management. For example, Bluberi launched a new slot machine box/game hybrid in the fourth quarter of 2017 which has been well received based on channel checks with customers. The prototype of another premium product was introduced at the Global Gaming Expo industry trade show in October 2017. It is now in late stage development and we expect this will drive revenue growth starting in 2019. In addition, Bluberi has invested resources in both internal development and external acquisitions to improve and grow its game library. We anticipate the positive financial impact of these investments will be reflected in Bluberi's 2018 and 2019 results in what industry analysts have estimated is a growing market. Bluberi is now moving towards more revenue sharing arrangements as opposed to outright sales in an effort to increase value."
"As part of our recapitalization and refinancing strategy, we are now seeking or will shortly begin the process of seeking external financing at the subsidiary level for both C&C and Bluberi to provide a source of low cost capital to supplement the operational turnarounds of each of these businesses."
Yield Enhancements and Provision for Loan Losses – At December 31, 2017, the total recognized yield enhancements taken into income over the year totalled approximately $6.7 million.
Non-cash provision for loan losses of $217.4 million (2016 - $134.3 million) was recorded in the statements of income for the current year. The vast majority of the provision was recognized in Q4-2017 related to a non-cash provision for loan loss of $131.9 million on one specific loan concentrated in the energy sector.
The Company believes that as a result of certain events that culminated in Q4-2017, it was appropriate for the Company to record a non-cash $131.9 million provision for loan loss on this specific loan. These events included sanctions imposed by the U.S. and Canadian governments prohibiting certain types of business activity in the South American country where the borrower has significant commercial interests; a default on sovereign bonds and subsequent sovereign rating downgrade of the same country; and the nation's military appearing to have assumed management control of the borrower's main customer (a state-owned oil and gas company). Assuming valuation parameters remain unchanged, should the borrower's project proceed and it successfully secures follow-on business at the end of its contract, the increase in the value could result in the gross loans receivable being more than fully repaid in whole, with a complete reversal of the non-cash $131.9 million provision. Assuming valuation parameters remain unchanged, should the contract not proceed, the gross loans receivable outstanding to the borrower would be impaired by a further $64 million as at December 31, 2017. Please refer to the Highlights section of the MD&A for more details.
During the current quarter, the Company recognized a recovery of $23.9 million (2016 - $32 million) under the Catalyst guarantee due to the recognition of specific loan loss provisions in the year.
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 December 20, 2017, the Company had completed and purchased 2,495,839 million Common Shares pursuant to the NCIB at a weighted average price of $13.03 per common share for approximately $32.5 million.
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 continued participation rate for Catalyst Fund V of 75% which Catalyst has assured the Company, total liquidity as at December 31, 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 and/or gain liquidity from 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. In March 2018, the maturity of its senior debt was extended to the earlier of March 31, 2019 and the date when the privatization transaction closes. All terms other than $15.5 million of scheduled amortization in the year and potential cash sweeps, remain 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 April 30, 2018 and the day following the repayment of its senior debt in full. In March 2018, the Company extended the maturity date of its revolving unsecured subordinated bridge facility to the earlier of April 30, 2019 and the day following the repayment of its senior debt in full, but no earlier than January 1, 2019. 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.
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 |
Fair value of controlling interest in a subsidiary expected to be recognized into income upon disposition is estimated at $75.0 million as at December 31, 2017. |
| Assumptions |
The valuation technique used a discounted cash flow with the following significant unobservable inputs and estimates: (1) Risk adjusted discount rate: 24.1% (avg. of two rates: 16.4% (core operations) and 31.7% (growth operations) (2) Long term growth rate: 2.5% (3) Annual average EBITDA: $59.1 million (4) Bluberi obtains required licenses and successfully enters key North American markets where it does not have operations. |
| 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 achieve the forecasted EBITDA targets; (2) competitor risk and unexpected changes in working capital requirements; (3) the possibility that Bluberi may not receive the regulatory approval required to sell games into key, new North American markets; (4) delays in the creation of a regulatory framework in a key targeted South American country. A 10% decrease or increase in the cashflows would result in a yield enhancement range between $54.4 million to $93.7 million. |
| Significant Future |
(1) Bluberi is able to achieve forecasted results; (2) regulatory approval is obtained in key new markets; (3) Bluberi is able to successfully procure contract manufacturing to meet demand; (4) working capital to meet demand is funded by Callidus (or other 3rd party); (5) the slot machines to be deployed meet the standards of the growing customer base; (6) a targeted 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. |
| Updates for the |
(1) Callidus obtained control of the underlying borrower; (2) negotiations on the royalty agreement between Bluberi and a gaming company were completed; (3) successfully developed and launched a new gaming cabinet; (4) materially increased game library; and (5) completed reorganization of corporate structure to streamline the licensing process. |
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 December 31, 2017 and December 31, 2016.
| After |
Before |
After |
Before |
|||||
| ($ 000s) |
December 31, |
December 31, |
December 31, |
December 31, |
||||
| Loan facilities |
$ |
1,096,888 |
$ |
1,146,510 |
$ |
1,176,642 |
$ |
1,421,771 |
| Gross loans receivable |
1,022,193 |
1,046,983 |
1,100,304 |
1,313,994 |
||||
| Less: Discounted facilities |
(7,575) |
(7,575) |
(7,575) |
(7,575) |
||||
| Less: Allowance for loan losses |
(358,217) |
(359,079) |
(164,973) |
(166,732) |
||||
| Less: Impairment on goodwill and businesses acquired(1) |
(57,421) |
(57,421) |
(19,359) |
(19,359) |
||||
| Less: Businesses acquired(1) |
(375,602) |
(375,602) |
(91,206) |
(91,206) |
||||
| Net loans receivable |
$ |
223,378 |
$ |
247,306 |
$ |
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 the 2017 full year and fourth quarter results on Tuesday, April 3, 2018 at 8.30 a.m. Eastern Time. The dial in number for the call is (647) 427-7450 or (888) 231-8191 (reference number: 1488996). A taped replay of the call will be available until April 10, 2018 at (416) 849-0833 or (855) 859-2056 (reference number: 1488996).
SOURCE Callidus Capital Corporation
Investor Relations | (416) 945-3240 | [email protected]
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