DirectCash Income Fund announces results of operations for the three and nine
months ended September 30, 2009
TSX: DCI.UN
Q3 2009 Financial and Operational Highlights compared to Q3 2008: ----------------------------------------------------------------- - Increased EBITDA 17% to $7.5 million - Increased distributable cash flow 21% to $6.7 million - Distributable cash flow payout ratio has been reduced to 65% from 77% - Increased the number of prepaid cash card transactions by 14%
Management's Commentary
"We continue to be pleased with our strong financial results in 2009, with significant improvements in EBITDA and Distributable Cash Flow. We have seen gains in each of our business segments, and are excited about our performance in
DirectCash will continue to focus on growth in a sustainable manner via organic means and through additional accretive acquisitions as opportunities arise. DirectCash's stable, contracted revenue stream, dominant market positions, and continued growth will continue to provide consistent cash distributions to DirectCash's Unitholders. In addition, DirectCash is considering new geographic markets, such as the recently initiated Mexican operation which is now adding to recurring services revenue growth and gross profit margins.
For purposes of comparison, DirectCash provides the following selected operational and financial data:
Operational Highlights ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Number of machines ATM terminals - active(1) 6,344 6,081 6,344 6,081 Debit terminals - active(1) 3,094 3,091 3,094 3,091 Number of transactions ATM transactions 7,941,845 8,318,237 22,832,724 22,941,768 Debit terminal transactions 2,793,966 2,587,409 7,725,829 7,106,394 Prepaid cash card activations 723,282 536,036 2,282,184 1,947,021 Prepaid cash card transactions 1,765,069 1,173,983 5,748,377 4,894,453 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) DirectCash has included statistics only for sites that recorded a transaction in the past calendar month.
On a year over year basis, the number of active ATMs increased by 263. The net increase is a result of the gain of a customer with approximately 90 locations during the third quarter, an acquisition made at the end of the second quarter and additional ATMs placed in
ATM revenues increased when compared to 2008 due to the impact of Mexican ATM operations and the overall increase in the number of ATMs in operation during the period.
The slight decrease in ATM transactions reflects the impact of a maturing ATM market in
The number of active debit terminals has slightly increased. In the first quarter of 2009 DirectCash lost a major debit terminal customer due to insolvency, which impacted 185 sites. DirectCash has since recovered this loss with additional organic growth. Given the relatively flat year over year growth in the number of active debit terminal sites, DirectCash still posted respectable increases in transactions for the three and nine months ended
The growth in prepaid card activations is a result of new customer relationships and growth within existing relationships. The MasterCard prepaid card program continues to find traction and displace some debit card activations.
The increase in prepaid card transactions is due to the same reasons noted above, as well as an increase in transactions per card as prepaid products continue to gain consumer acceptance and confidence. Activation and transaction volume figures include both prepaid debit and prepaid credit cards.
The following table presents a summary of the DirectCash's selected consolidated financial information for the three and nine months ended
Financial Highlights ------------------------------------------------------------------------- Three Months Ended Nine Months Ended (thousands) September 30 September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenues Recurring services revenue $ 19,344 $ 16,540 $ 55,610 $ 46,858 Products revenue 5,691 6,075 16,897 19,259 Interest income 10 95 79 429 ------------------------------------------------------------------------- Total revenue $ 25,045 $ 22,710 $ 72,586 $ 66,546 ------------------------------------------------------------------------- Gross Profit Recurring services and interest $ 11,113 $ 9,588 $ 31,851 $ 27,304 Gross profit margin 57.4% 57.6% 57.2% 57.7% Products 201 159 1,001 1,227 Gross profit margin 3.5% 2.6% 5.9% 6.4% ------------------------------------------------------------------------- Total gross profit $ 11,314 $ 9,747 $ 32,852 $ 28,531 Total gross profit margin 45.2% 42.9% 45.3% 42.9% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Expense and other income: Selling, general and administrative 3,129 2,940 9,739 8,640 Long-term incentive plan 396 415 1,044 930 Interest 204 549 728 1,537 Foreign exchange translation (gain)/loss 308 - 266 - Depreciation of equipment 760 656 2,324 1,838 Amortization of intangible assets 2,231 5,071 8,525 14,349 ------------------------------------------------------------------------- $ 7,028 $ 9,631 $ 22,626 $ 27,294 ------------------------------------------------------------------------- Net earnings before income taxes $ 4,286 $ 116 $ 10,226 $ 1,236 ------------------------------------------------------------------------- Income taxes - 179 - ------------------------------------------------------------------------- Net earnings $ 4,286 $ 116 $ 10,047 $ 1,236 Net earnings per unit 0.34 0.01 0.81 0.10 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Add back: Interest 204 549 728 1,537 Depreciation of equipment 760 656 2,324 1,838 Amortization of intangible assets 2,231 5,071 8,525 14,349 Income taxes - - 179 - ------------------------------------------------------------------------- EBITDA $ 7,481 $ 6,392 $ 21,803 $ 18,960 EBITDA margin 29.9% 28.1% 30.0% 28.5% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total assets $ 116,854 $ 124,649 $ 116,854 $ 124,649 Total debt $ 36,860 $ 40,470 $ 36,860 $ 40,470 Total debt net of cash $ 14,985 $ 22,244 $ 14,985 $ 22,244 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Revenue
Total revenue has increased by 9% for the nine months ended
Revenue by Line of Business ------------------------------------------------------------------------- Three months ended Nine months ended (thousands) September 30 September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) ATM Business $ 11,268 $ 10,229 $ 31,959 $ 28,617 Prepaid products business 13,234 12,024 39,225 36,640 Debit terminal business 543 457 1,402 1,289 ------------------------------------------------------------------------- Total Revenue $ 25,045 $ 22,710 $ 72,586 $ 66,546 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Revenue by type ------------------------------------------------------------------------- ------------------------------------------------------------------------- Recurring services $ 19,344 $ 16,540 $ 55,610 $ 46,858 Products 5,691 6,075 16,897 19,259 Interest 10 95 79 429 ------------------------------------------------------------------------- Total Revenue $ 25,045 $ 22,710 $ 72,586 $ 66,546 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Revenue - Recurring Services
Recurring services revenue relates to revenue earned from transaction processing activities, including DirectCash's ATM, debit terminal and prepaid product lines of business.
The increase of 19% over 2008 in recurring services revenue is attributable to both the ATM and prepaid products line of businesses. The increase in ATM recurring services revenue is related to the revenues generated from
There is historic seasonality in processing transaction volumes, with the highest ATM transaction activity in
Revenue - Products
Product revenue includes sales of ATM machines, debit terminals and related parts, as well as prepaid products, consisting of prepaid cards (debit and credit), prepaid telephone cards, both physical ("hard cards") and electronic ("virtual vouchers").
For the three and nine months ended
ATM sales were up due to sales in
Interest Income
Interest income declined significantly during the period on a year over year basis as a result of the impact of lower interest rates that can be realized on funds held in short term deposits.
Gross Profits
In total, gross profits have increased by 16% and 15% respectively for the three and nine months ended
Gross profit by Line of Business ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) ATM Business $ 6,314 $ 5,856 $ 18,665 $ 17,015 gross profit margin 56.0% 57.2% 58.4% 59.5% Prepaid products business 4,614 3,602 13,175 10,696 gross profit margin 34.9% 30.0% 33.6% 29.2% Debit terminal business 386 289 1,012 820 gross profit margin 71.3% 63.2% 72.2% 63.6% ------------------------------------------------------------------------- Total Gross Profit $ 11,314 $ 9,747 $ 32,852 $ 28,531 gross profit margin 45.2% 42.9% 45.3% 42.9% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Gross profit by type ------------------------------------------------------------------------- ------------------------------------------------------------------------- Recurring services and interest $ 11,113 $ 9,588 $ 31,851 $ 27,304 gross profit margin 57.4% 58.0% 57.3% 58.3% Products 201 159 1,001 1,227 gross profit margin 3.5% 2.6% 5.9% 6.4% ------------------------------------------------------------------------- Total Gross Profit $ 11,314 $ 9,747 $ 32,852 $ 28,531 gross profit margin 45.2% 42.9% 45.3% 42.9% ------------------------------------------------------------------------- -------------------------------------------------------------------------
Gross Profitability - Recurring Services
Total gross profits from recurring services revenue and interest income for the three and nine months ended
The increase in gross profitability for recurring services can be attributed to the following factors:
(a) positive contribution from the Mexican ATM operations, (b) the impact of the ATM acquisitions made during 2008, and (c) the higher activity in prepaid card activations and transactions.
Gross profit margins on a year over year comparison increased by about two percentage points due to a relative shift from lower margin prepaid phone cards to higher margin prepaid cash cards.
The ATM recurring services gross margins improved as a result of the Mexican ATM operations and the impact of the 2008 Canadian acquisitions resulting in more active machines and higher revenue per transaction.
The increase in activation and transaction levels in the prepaid products line of business resulted in the increase in contribution from the recurring services business segment.
Gross Profitability - Products
Gross profit from the sale of products for the three and nine months ended
The decline can be explained primarily by:
(a) lower margin contributions on the sales of ATMs and debit terminals as the business model continue to lean towards full ownership and rental of units; (b) lower margin contributions from the telephone cards as revenues declined on a year over year basis; and (c) higher inventory obsolescence write downs in the first two quarters of 2009 due to increased security requirements in our industry.
DirectCash has a strategic focus of keeping ATM and debit terminal purchase prices as low as possible for the DirectCash customer in order to maximize the number of machines that can be placed. DirectCash believes that this strategy will result in additional long-term revenue generating services contracts.
Selling, General & Administrative Expenses ("SG&A")
For the three and nine months ended
The increase is the result of higher salaries and benefits incurred from Mexican operations, as well as the addition of some key staff members brought on to assist in DirectCash's growth.
As a percentage of gross profits, SG&A was 27% (YTD - 30%) during the three months ended
Long-term incentive plan ("LTIP")
Details of the Long-term incentive plan can be found in the notes to the financial statements.
Subsequent to the quarter, the board increased the base threshold from
Interest Expense
For the nine months ended
All DirectCash debt is currently on floating interest rates. A one percent change in interest rates would result in an approximate
Net Earnings
Net earnings for the three and nine months ended
The disparity between net earnings and cash distributions is primarily due to amortization of intangible assets related to ATM, debit terminal and prepaid product contracts. Typically, these contracts include automatic renewals for a further minimum five year period (new contracts are six years) unless the customer terminates the contract within a specified time period and includes a right of first refusal to match a competitor's bona fide offer on renewal. Thus, while a contract acquired by DirectCash may have a fixed initial term (which is the time period over which amortization of this intangible asset occurs) DirectCash's experience is that DirectCash is usually able to keep the applicable ATMs attached to the DirectCash network with no or little capital expenditure. Also, any ATM added by organic growth (i.e. through the DirectCash sales force) has a much lower capital cost that ATM locations added through acquisition.
EBITDA
For the three and nine months ended
Capital Expenditures ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 ------------------------------------------------------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- Per consolidated financial statements: Acquisitions $ 365 $ - $ 1,965 $ 6,850 Other capital expenditures 813 356 2,404 1,419 Other intangible expenditures 113 11 637 105 ------------------------------------------------------------------------- $ 1,291 $ 367 $ 5,006 $ 8,374 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Split between growth and maintenance: Growth capital $ 693 $ 116 $ 3,901 $ 7,283 Maintenance capital 598 251 1,105 1,091 ------------------------------------------------------------------------- $ 1,291 $ 367 $ 5,006 $ 8,374 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Growth capital expenditures relate to acquisitions and other expenditures that increase DirectCash's productive capacity, while maintenance capital expenditures maintain productive capacity at existing levels.
Productive capital maintenance expenditures for the full year are expected to be slightly higher than 2008 due to increased security infrastructure expenditure requirements. Growth capital expenditures can vary widely between reporting periods due to the intermittent nature and varying size of acquisitions.
Acquisition
On
On
The majority of the assets acquired consist of the residual rights in contracts to operate and place ATM machines at certain locations. These contracts are valued based on the remaining term of each agreement and the expected net cash flow from that agreement value is allocated to intangible assets and amortized in accordance with our policy. This corporation was a distributor of DirectCash and therefore the number of ATMs acquired was already included in our ATM count.
The acquisition was initially funded from our revolving credit facility. The acquisitions were accounted for by the purchase method and the results of operations have been included in the Fund's consolidated statement of earnings from the acquisition dates.
This purchase equation is preliminary and subject to changes pending receipt of final information.
The fair values of the assets acquired are as follows:
------------------------------------------------------------------------- 2009 ------------------------------------------------------------------------- Assets acquired: Intangible assets $ 340,950 Equipment 24,050 ------------------------------------------------------------------------- Total consideration 365,000 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Liquidity and Capital Resources
DirectCash believes that the funds generated from operations will be sufficient to allow DirectCash to meet ongoing requirements for working capital, maintenance capital expenditures including investments in technology capital, interest expense, and cash distributions to Unitholders.
DirectCash's actual cash generated from operations will be dependent upon future financial performance, which in turn will be subject to financial, tax, business and other factors.
As of
------------------------------------------------------------------------- (thousands) Utilized Limit Available ------------------------------------------------------------------------- Revolving credit facility $ 4,360 $ 20,000 $ 15,640 Acquisition credit facility 32,500 40,000 7,500 ------------------------------------------------------------------------- $ 36,860 $ 60,000 $ 23,140 ------------------------------------------------------------------------- -------------------------------------------------------------------------
The revolving credit facility is used for ATM cash loading, working capital requirements and commercial letters of credit. A letter of credit in favour of MasterCard International was increased to US$ 1.5 million (CDN$ 1.6 million) due to the increase in volume in the MasterCard prepaid card program.
The acquisition credit facility is used to facilitate acquisitions and to fund business growth opportunities.
Both facilities are demand in nature. Notwithstanding the demand nature of the facilities, there are no scheduled principal repayments.
During the second quarter the Bank increased our lending rate due to current global market conditions on both facilities to Prime plus 1%. This increase will be phased in over four quarters in equal increments, starting
DirectCash is subject to the following primary lending covenants:
------------------------------------------------------------------------- September 30, 2009 Covenant Limit ------------------------------------------------------------------------- Funded Debt to Recurring Quarterly Revenue 1.97:1 (less than) 10:1 Fixed Charge Cover Ratio 29:1 (greater than) 4:1 Senior Debt to EBITDA 1.25:1 (less than) 2:1 -------------------------------------------------------------------------
DirectCash operated well within its loan covenant limits and anticipates continuing to do so in the future. Breach of DirectCash's bank loan covenants could result in the triggering of remedies by DirectCash's lenders, which could negatively impact distribution payments.
Additional Information
Additional information about DirectCash, including DirectCash's Annual Information Form and other public filings is available on SEDAR (www.sedar.com) and on DirectCash's website (www.directcash.net).
Non-GAAP Measures
There are a number of financial calculations that are not defined performance measurements under GAAP but which DirectCash believes are useful and accepted performance measurements utilized by the investing public in assessing the overall financial performance of income trusts.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
EBITDA represents gross profits less selling, general and administrative expenses ("SG&A") and long-term incentive plan expenses, and is not a defined performance measure under GAAP. DirectCash believes that EBITDA is a useful supplementary disclosure commonly used by the investing community to assess and compare cash flows between entities. EBITDA specifically excludes depreciation, amortization, income taxes and interest expense. DirectCash's EBITDA may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to EBITDA as reported by such issuers. The most directly comparable GAAP measure is Net Earnings. A reconciliation between EBITDA and Net Earnings is disclosed in the "Financial Highlights" schedule later on.
Standardized distributable cash flow and standardized distributable cash flow per unit
On
Distributable cash flow and distributable cash flow per unit
Distributable cash flow and distributable cash flow per unit are non-GAAP measures generally used by Canadian open-ended income funds as an indicator of financial performance. Readers are cautioned that distributable cash flow is not a defined performance measure under GAAP and that distributable cash flow cannot be assured. DirectCash calculates distributable cash flow as equal to the consolidated funds flow from operations before changes in non-cash working capital, after provision for productive capital maintenance capital expenditures (see discussion below). DirectCash's distributable cash flow and distributable cash flow per unit may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to distributable cash flow and distributable cash flow per unit as reported by such issuers.
Unitholders receive cash distributions sourced from distributions made by DirectCash LP indirectly to the Fund. DirectCash Group's policy is to distribute, to the maximum extent possible, the cash earned from operations to Unitholders, less amounts estimated to be required for expenses, productive capital maintenance, cash redemptions or repurchases of Units, any current tax liability, or other obligations, debt repayments and any reasonable reserves established. The Fund makes monthly cash distributions to Unitholders on the last business day of each month to Unitholders of record on the last business day of the preceding month.
Since
Productive capital maintenance expenditures
DirectCash differentiates capital expenditures between growth and productive capital maintenance ("Maintenance Capital"). There is no such distinction under GAAP. However, DirectCash believes it is important to differentiate between them as maintenance capital expenditures represent a discretionary adjustment to distributable cash flow while growth capital does not.
Maintenance capital expenditures are defined as expenditures required to service and maintain DirectCash's existing productive capacity, while growth capital is expended to increase DirectCash's productive capacity by adding additional sources of revenue not currently in existence. Current measures of productive capacity that DirectCash utilizes include ATMs and debit terminals under contract (see "Operational Highlights"), Software and hardware upgrades to existing infrastructure, ATM and debit terminal equipment upgrades necessary to meet changing regulatory requirements, contract extension incentives, and fleet vehicle purchases and upgrades, are some examples of maintenance capital expenditures.
Examples of growth capital expenditures include the acquisition of a competitor's assets, the cost of an ATM in a new location, or technology costs related to new sources of revenue.
Readers are cautioned that productive capital maintenance expenditure is not a defined performance measure under GAAP. DirectCash's computation of productive maintenance capital expenditure may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to maintenance capital expenditures as reported by such issuers.
Non-cash working capital
Non-cash working capital is not a defined GAAP measure. DirectCash calculates non-cash working capital as current assets less current liabilities, but excluding cash and credit facilities. A summary of this calculation is contained in the MD&A.
Forward-looking Statements
This Press Release contains certain forward-looking statements relating to future events. Forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond DirectCash's ability to control, including the impact to DirectCash's business, general economic conditions, consumer spending, borrowing trends and regulatory changes to name a few. Certain statements that contain words such as "could", "believe", "expects", "expected", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation. In particular, forward-looking information and statements contained in this Press Release include statements related to DirectCash's projected growth in
Additional information about the Fund is available on SEDAR (www.sedar.com) or the Fund's website at www.directcash.net.
For further information: The officer who may be contacted for further information is: Hendrik J. Lombard, C.F.O., DirectCash Management Inc., Manager of DirectCash Income Fund, Bay No. 6, 1420 - 28th Street N.E., Calgary, Alberta, T2A 7W6, Direct Telephone: (403) 387-2103, Fax: (403) 451-3003, E-mail: [email protected]
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