Dealnet Reports 2017 Financial Results

Turnaround initiatives enacted in the last six months expected to deliver $0.02 per share of annualized cost savings in 2018

TORONTO, April 23, 2018 /CNW/ - Dealnet Capital Corp. ("Dealnet" or the "Company") (TSX VENTURE: DLS), reported today its financial results for the three-month and twelve-month periods ending December 31, 2017. All results are reported under International Financial Reporting Standards ("IFRS") and in Canadian dollars, unless otherwise specified.

For the twelve-month period ending December 31, 2017, the Company reported an adjusted net loss of $11.3 million or $0.04 per share prior to the recognition of $31.5 million of non-cash impairment charges and $1.9 million in non-recurring severance costs incurred in the third and fourth quarters of 2017 versus a loss of $10.5 million or $0.05 per share reported in the previous twelve-month period.  The 2017 adjusted net loss includes a $1 million increase in the allowance for credit losses at December 31, 2017 over the prior year end.

Subsequent to the end of the three-month period ending December 31, 2017, the Company announced the following:

• On January 11, 2018, the Company repaid in full $16.0 million of secured debentures when due;
• On February 18, 2018 the Company repaid in full $2.5 million of unsecured vendor take-back notes before its maturity;
• On March 9, 2018, the Company filed assignments to allow for an orderly, court supervised wind-up of Gemma Communications eliminating approximately $3.6 million in annual operating losses;
• On April 5, 2018 the Company announced that it had commenced writing consumer finance contracts in the Province of Quebec; and
• On April 9, 2018, the Board of Directors appointed Mr. Brent Houlden to the position of President and Chief Executive Officer of the Company and appointed Harold Bridge as Chairman.

During and subsequent to the end of the period, the Company implemented targeted measures to right-size corporate overhead costs and re-align the management team with the following initiatives:

• Excess office space has been eliminated and the entire Consumer Finance operation has been consolidated from three office locations down to one;
• The management structure has been streamlined with the elimination of the internal Project Management Office and the role of Executive Chairman; and
• The Company's workforce has been reduced by more than 240 employees and the short-term incentive plan has been cancelled until profitability is achieved
• The Consumer Finance business has been re-engineered by:
• Expanded and re-organized national sales force with a structured account management program;
• Improved dealer experience by implementing systems enhancements to the Dealer Portal;
• Entered the Quebec market creating a national footprint to support large scale dealers and OEMs;
• Introduced stronger credit adjudication analytics with respect to delinquencies and defaults;
• Improved collection process to resolve aged outstanding receivables;
• Revised product offerings to drive profitability and align with new consumer protection legislation enacted in Ontario; and
• Obtained funder support for originations across an expanded range of products.

As a result of these turnaround initiatives, including the elimination of $1.9 million of non-recurring severance costs incurred in 2017, the Company has locked in annualized savings amounting to more than $4.5 million, or $0.02 per share which are expected to significantly contribute to the achievement of profitability by the end of the current fiscal year.

"A lot has been accomplished in the last six months to eliminate overhead, exit operations that were draining cash, re-engineer key parts of our consumer finance business, clean up the balance sheet, diversify our capital sources and reduce our funding costs," said Brent Houlden, Dealnet's President and Chief Executive Officer. "This work was urgently needed before we could turn our attention to the task that is now our singular focus – driving organic profitable portfolio growth in our core Consumer Finance business," added Mr. Houlden.

2017 Financial Highlights

Portfolio Growth

As at December 31, 2017, Dealnet's portfolio of finance receivables after allowance for credit losses increased to $170.7 million with 32,509 financing contracts in place up from $137.5 million of finance receivables after allowance for credit losses as at December 31, 2016 when the Company had 27,289 contracts in place.

Portfolio Quality

The percentage of past due balances in the Company's portfolio of finance receivables decreased significantly from the previous fiscal year. As at December 31, 2017, approximately 6.5 percent of leases and 2.5 percent of loans were reported as past due versus 11.7 percent of leases and 3.2 percent of loans as at December 31, 2016.

Gross Profit

For the twelve-month period ending December 31, 2017, the Company reported gross profit of $16.8 million, an increase of 17.2 percent from the $14.3 million reported in the same period last year.  Gross profit from the Mobile Engagement segment increased 35.8 percent from $5.6 million in 2016 to $7.6 million in 2017 while gross profit in the Live Engagement segment declined 20.9 percent year-over-year from $4.7 million in 2016 to $3.7 million in 2017. Gross profit in the Consumer Finance segment increased 36.4 percent year-over-year from $4.0 million in 2016 to $5.4 million in 2017.

Operating Expenses

Consolidated operating expenses before depreciation and amortization, business acquisition costs, share-based compensation and adjusted for the $31.5 million non-cash impairment charge increased 27.5 percent from $20.7 million in 2016 to $26.4 million in 2017. Operating expenses in the Mobile Engagement segment increased 26 percent from $2.6 million in 2016 to $3.2 million in 2017. Operating expenses in the Live Engagement segment, before the non-cash impairment charge, were unchanged at $6.3 million in 2016 versus $6.3 million in 2017. Operating expenses in the Consumer Finance segment, before the non-cash impairment charge, increased 76.0 percent from $3.9 million in 2016 to $6.8 million in 2017.

Operating Loss

The Company's consolidated operating loss before depreciation and amortization and share-based compensation and adjusted for the $31.5 million non-cash impairment charge was $9.7 million for the twelve-month period ending December 31, 2017 versus $6.4 million for the same period last year.  Operating profit in the Mobile Engagement segment increased 44 percent from $3.1 million in 2016 to $4.4 million in 2017. Operating loss in the Live Engagement segment, before the non-cash impairment charge, increased 64.5 percent from $1.6 million in 2016 to $2.6 million in 2017. Operating loss in the Consumer Finance segment, before the non-cash impairment charge, was $1.4 million in 2017 versus an operating profit of $0.1 million in 2016.

Tangible Net Worth

The tangible net worth of the Company, which excludes goodwill and intangible assets, is reported at $17.8 million as at December 31, 2017 down from $20.8 million as at September 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:

	Q4 2017	Q4 2016	FY 2017	FY 2016
Finance Receivables	$171M	$138M	$171M	$138M
Organic and Acquired Originations	$12.8M	$22.0M	$72.2M	$77.7M
Average Yield on Earning Assets	8.3%	7.9%*	8.5%	8.3%
Weighted Average Interest Expense	5.2%	4.2%	4.8%	4.3%
Net Interest as a % of Interest Income	38%	49%*	43%	48%
Engagement Income as a % of Revenue	45%	41%	44%	39%
Securitizations	$10.6M	$31.3M	$49.2M	$70.8M
Corporate Tangible Leverage	10.4	7.7	10.4	7.7
Tangible Net Worth	$17.8M	$18.8M	$17.8M	$18.8

* Q4 2016 comparative figures have been calculated taking into effect final purchase price allocation determined at year-end 2016.

The financial statements for the three-month and twelve-month periods ending December 31, 2017 together with management's discussion and analysis of these results have been filed on SEDAR and are available via the Company's website at www.dealnetcapital.com.

The Company will host a conference call to discuss these results on April 24, 2018 commencing at 10:00 A.M. Eastern Time.

Conference Call Details:

Date:	Tuesday April 24, 2018
Time:	10:00 A.M. Eastern Time
Dial-in Number:	Local / International: 416-764-8688
	North American Toll Free: 1-888-390-0546
Conference ID:	17172525
Replay Number:	Local / International:	416-764-8677
	North American Toll Free:	1-888-390-0541
	Replay Passcode:	172525#
Website:	To view the press release or any additional financial information, please visit the Investor Relations section of the Dealnet website at: http://www.dealnetcapital.com/investors/

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.

Brent Houlden, Chief Executive Officer, [phone] ext.1145, [email protected]; John Sadler, Senior Director - Corporate Communications, [phone] ext. 1348, [email protected]