All amounts in Canadian dollars unless otherwise indicated.
Highlights
- The pipeline of potential borrowers, measured on a gross basis
is currently approximately $2.9
billion. If presented on a basis consistent with past
reporting parameters, the pipeline measure at March 31, 2018 was $1.4
billion, and currently stands at $1.3
billion with four signed back term sheets totaling
$316 million.
- Total revenue of $56.2 million in
the first quarter of 2018 increased 78% ($24.7 million) from the same period in 2017,
primarily due to the consolidation of three additional businesses,
partially offset by lower interest and fees in the lending
business.
- A provision for loan losses of $15.0
million, the vast majority of which was non-cash, was
recorded in Q1-2018, down from $19.4
million recorded in the first quarter of 2017. Approximately
$7.6 million of the provision is
non-cash and related to unrealized foreign exchange movements with
the remainder primarily attributed to a non-cash $4.7 million provision on one specific loan
concentrated in the energy sector.
- In Q1-2018 Callidus recognized a recovery in the statements of
comprehensive income of $29.8 million
under the Catalyst guarantee due to the recognition of specific
loan loss provisions and other asset impairments in the quarter and
confirmation of coverage of the Catalyst guarantee related to a
specific loan.
- In January 2018, the Company
gained control of one of its borrowers (Midwest Asphalt
Corporation) and the revenue and net loss of the acquired business
since the acquisition date are recorded in the statements of
comprehensive income. Callidus is in the process of finalizing the
fair values of all assets acquired and liabilities assumed.
- Net loss of $7.0 million in
Q1-2018 compared to a loss of $3.5
million in the prior year period.
- Loss of $0.13 per share (diluted)
for the first quarter of 2018 compared to a loss of $0.07 in the same period in 2017.
TORONTO, May 15, 2018 /CNW/ - Callidus Capital Corporation
(TSX:CBL) (the "Company" or "Callidus") today announced its
unaudited financial and operating results for the quarter ended
March 31, 2018.
|
|
|
For Three Months
Ended
|
($ 000s unless
otherwise indicated)
|
Mar 31,
2018
|
Dec 31,
2017
|
Mar 31,
2017
|
Net loans receivable
(before derecognition), end of period
|
244,709
|
247,306
|
584,639
|
Gross loans
receivable (before derecognition), end of period
(1)
|
1,106,140
|
1,046,983
|
1,016,135
|
Average loan
portfolio outstanding (1)
|
1,080,836
|
1,055,468
|
1,218,125
|
Gross yield (%)
(1)
|
6.3%
|
10.8%
|
20.2%
|
Total
revenues(2)
|
56,248
|
52,808
|
31,579
|
Net interest margin
(%) (1)
|
-0.4%
|
1.9%
|
7.7%
|
Net (loss)
income
|
(7,023)
|
(171,599)
|
(3,518)
|
Earnings per share
(diluted)
|
($0.13)
|
($3.37)
|
($0.07)
|
Unrecognized non-IFRS
yield enhancements, end of period(1)
|
77,900
|
75,000
|
123,000
|
Recognized yield
enhancements(3)
|
-
|
900
|
5,800
|
Leverage ratio
(%)(1)
|
38.2%
|
37.3%
|
39.9%
|
2018 amounts are
under IFRS 9 and 2017 amounts are under IAS 39.
|
|
|
(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 statements of income in total
revenues (Q1-2018 – nil; Q1-2017 - $7.0 million) and in loss on
derivative assets associated with loans (Q1-2018 – nil; Q1-2017 -
loss of $1.2 million). Unrecognized yield enhancements are non-IFRS
measures and are further summarized in "Yield-Enhancement
Agreements".
|
(4)
|
Income statement data
is after derecognition, unless otherwise indicated.
|
Business Update (As at May 15,
2018)
Loan Portfolio – The Company's pipeline, measured on a
gross basis is currently approximately $2.9
billion. If presented on a basis consistent with past
reporting parameters, the pipeline measure at March 31, 2018 was $1.4
billion, and currently stands at $1.3
billion with four signed back term sheets totaling
$316 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 four term sheets
totaling $316 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.
As at March 31, 2018, net loans
receivable remained relatively flat from year-end as increased
funding was offset by higher provisions for loan losses and
impairments on businesses acquired and the consolidation of
Midwest Asphalt Corporation in the first quarter of 2018 as
this loan was removed from loans receivable and the company
was consolidated in the financial statements.
Acquired Subsidiary Companies – The consolidation of
Midwest Asphalt Corporation in the first quarter of 2018 brings to
six the total number of loans removed from loans receivable
and consolidated in the financial statements in order to protect
collateral in each of those loans.
Callidus continues to work with these subsidiaries to implement
strategic decisions and execute new business plans as part of their
respective turnarounds and is pleased with the progress achieved to
date at several of them.
Provision for Loan Losses – Provision for loan losses of
$15.0 million, the vast majority of
which was non-cash, (2017 - $19.4
million) was recorded in the statements of income
for the current quarter. Of this total provision,
approximately $7.6 million is
non-cash and related to unrealized foreign exchange movements with
the remainder primarily attributed to a non-cash $4.7 million provision on one specific loan
concentrated in the energy sector as a result of a delay in
future expected cashflows.
During the first quarter of 2018, the Company recognized a
recovery in the statements of comprehensive income of $29.8
million under the Catalyst guarantee due to the recognition of
specific loan loss provisions and other asset impairments in the
quarter and confirmation of coverage of the Catalyst guarantee
related to a specific loan.
Normal Course Issuer Bid – Subsequent to quarter
end, in April 2018, the Toronto Stock Exchange accepted
Callidus' notice of intention to undertake a normal course issuer
bid ("NCIB"). Under the terms of the NCIB, Callidus may acquire up
to 2,648,529 of its common shares, representing 5% of the
52,970,597 common shares comprising Callidus' total issued and
outstanding common shares as of April 2, 2018, and will be
purchased only when and if the Company considers it advisable. The
NCIB will terminate on the earlier of April 17, 2019 or
on the date on which the maximum number of common shares that can
be acquired pursuant to the NCIB have been purchased.
The Company's directors and management believe that from time to
time the market price of Callidus' common shares does not reflect
the underlying value of the common shares and that the purchase of
common shares for cancellation at such times is a prudent corporate
measure that will both increase the proportionate interest in the
Company of, and be advantageous to, all of the Company's remaining
shareholders.
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
March 31, 2018 would be able to
support in excess of $400 million of
new loans, up from approximately $300
million at year end. In addition, as business
acquisitions are rehabilitated, we will pursue opportunities to
monetize these investments where and when we believe capital
may be deployed in opportunities that generate superior
returns. Timing of these divestitures is uncertain and will be
assessed on a case by case basis, taking into
account performance of the investment and the macro-economic
conditions impacting the sector of the investment.
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
Statement
|
Fair value of
controlling interest in a subsidiary expected to be recognized into
income upon disposition is estimated at $77.9 million as at March
31, 2018.
|
Assumptions
|
The valuation
technique used a discounted cash flow with the following
significant unobservable inputs and estimates:
(1) Risk adjusted discount rate: 24.0%(a) (avg. of two
rates: 15.9% (core operations)(b) and 32.1% (growth
operations)(c) (2) Long term growth rate:
2.5%(d) (3) Annual average EBITDA: $59.1
million(e)
(4) Bluberi obtains required licenses and successfully enters key
North American and Latin American markets where it does not have
operations.
(a) The forward looking information ("FLI") disclosure
reflects financial forecasts with separate and distinct assumptions
for 'core' and 'non-core' business operations, as described below,
including different discount rates to reflect the different risks
associated with each operation.
(b) Core business operations include: electronic gaming
machine ("EGM") sales and revenue sharing arrangements with
customers in North America and a royalty contract with a large,
diversified gaming company. North America markets are not
identified for competitive reasons.
(c) Growth operations include: EGM sales and revenue
sharing arrangements with Class Three ("C-3") customers and revenue
sharing arrangements with customers in a South American country.
The South American country is not identified for competitive
reasons.
(d) Consistent with discount rate used in the previous
quarter.
(e) Represents an annual average figure over a 4-year
forecast period and not representative of Bluberi's current
results.
|
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 and non-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 $57.6 million to $98.3
million.
|
Significant Future
Events/Milestone Assumptions to Support the Top End of the
Valuations
|
(1) Bluberi is able
to achieve forecasted results; (2) regulatory approval is obtained
in key new markets and Bluberi is able to achieve forecasted
results in these regions; (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; (7) regulatory approval is granted to allow Bluberi
to operate in Ontario, BC and Alberta.
|
Updates for the
Current Year
|
|
The Company has amended its Q4-2017 forward looking information
disclosure in connection with an Ontario Securities Commission
continuous disclosure review. The Ontario Securities Commission has
not reviewed nor expressed an opinion about the amended
disclosure.
These amendments to the Company's disclosure, are intended: (i)
for an investor to better understand the assumptions and related
risks of Unrecognized Yield Enhancement; (ii) to support that the
Company has a reasonable basis for Unrecognized Yield Enhancement,
and (iii) to meet the disclosure requirements in Section 4A.3(b)
and Section 4A.3(c) of NI 51-102. Therefore, readers should refer
to the forward-looking information disclosure in this MD&A,
which supersedes and replaces the disclosure for the year ended
December 31, 2017. The Company has worked closely with key
stakeholders, including shareholders, in developing the amended
disclosure which we believe continues to provide our investors with
useful and clear insight into the Company's performance while
complying with applicable regulatory requirements.
Amended Q4-2017 Forward-Looking Information:
Forward-looking
Statement
|
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(1)
|
The valuation
technique used a discounted cash flow with the following
significant unobservable inputs
and
estimates:
(1) Risk adjusted
discount rate: 24.1%(a) (avg. of two rates: 16.4% (core
operations)(b) and 31.7%
(growth
operations)(c))
(2) Long term growth
rate: 2.5%(d)
(3) Annual average
EBITDA: $59.1 million(e)
(4) Bluberi obtains
required licenses and successfully enters key North American
markets where it does not have operations.
(f)
(a) The forward looking
information ("FLI") disclosure for the year-ended December 31, 2017
("Q4-17 FLI"), reflects updated financial forecasts with separate
and distinct assumptions for 'core' and 'non-core' business
operations, as described below, including different discount rates
to reflect the different risks associated with each
operation.
(b) Growth
operations include: electronic gaming machine ("EGM") sales and
revenue sharing arrangements with customers in North America and a
royalty contract with a large, diversified gaming company. North
America markets are not identified for competitive
reasons.
(c)
Non-core business operations include: EGM sales and revenue sharing
arrangements with Class Three ("C-3") customers an revenue sharing
arrangements with customers in a South American country. The South
American country is not identified for competitive
reasons.
(d)
Decrease from 8.0% used in the previous quarter given revised
expectation for future growth.
(e)
Increase from $44.3 million in the previous quarter based on
revised financial forecast prepared by company management in Q4
2017 and supported by positive market reception to performance of
new products evidenced in growth of order book and pipeline. The
changes in assumptions include revised mix of sale of machines and
revenue sharing arrangements to align with industry trend. The
nature of forecast costs of the arrangements include cost of
development and manufacture of game consoles, and overhead
allocation.
(f)
Updated financial forecasts exclude assumption that 7,000 games are
deployed to a large diversified gaming company. North America
markets are not identified for competitive reasons.
|
Risk
Factors(1),(2)
|
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
Events/Milestone Assumptions to Support the Top End of the
Valuations(1),(2)
|
(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
Current Year
|
(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; (5) completed
reorganization of corporate
structure to
streamline the licensing process; (6) commenced the regulatory
approval process in Ontario and British Columbia and anticipates
receiving approval by the end of 2018. The Alberta approval process
has commenced but lags Ontario and British Columbia and is not
expected until 2019. The length of the approval process is not
unusual in the industry.
|
|
|
(1)
|
Q4-17 FLI excludes
assumption, associated risks and significant future
events/milestone assumptions (e.g. regulatory approval) in relation
to the deployment of 7,000 slot machines noted in previous
quarters. While the order remains a possibility, and progress has
been made on conditions precedent, including the 'playability' of
games, company management is considering whether a revenue sharing
arrangement compared with an outright order would create longer
term value. In the interim, company management has been
prioritizing more immediately actionable opportunities.
|
(2)
|
Q4-17 FLI includes
disclosure of an opportunity in a South American country; the
updated financial forecast noted above, includes forecast financial
results for this region based on: (i) discussions with local market
experts, (ii) previous operating experience in the region prior to
the current regulatory framework and (iii) extrapolating data from
other, non-North American markets in which the company currently
operates. The forecast assumes the sale of existing EGMs and
related products in this market rather than the sale of new
product. The company continues to pursue development of this
market. No definitive agreements will be available until regulatory
approvals are in place. Legislation to legalize regulated gaming in
this country remains pending. Management believes that there are a
number of reasons that would be positive for legislation to
proceed, including: (i) significant investments by large, major
gaming companies in the region, and (ii) the poor economic backdrop
of the country in recession, continues to pressure the government
to increase tax revenue, which could be addressed by legalization
of gaming.
|
As noted previously,
as business acquisitions are rehabilitated, we will pursue opportunities to
monetize these investments where
and when we believe, capital may
be deployed in opportunities that generate superior
returns. Timing of these divestitures is
uncertain and will be assessed on a case by
case basis, taking into account performance of the
investment and the macro-economic conditions impacting the sector
of the investment.
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 net 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.
|
|
|
|
|
($ 000s)
|
After
Derecognition March
31,
2018
|
Before
Derecognition March
31,
2018
|
After
Derecognition December 31,
2017
|
Before
Derecognition December 31,
2017
|
Loan
facilities
|
$
|
1,126,182
|
$
|
1,177,171
|
$
|
1,096,888
|
$
|
1,162,483
|
Gross loans
receivable
|
1,081,376
|
1,106,140
|
1,022,193
|
1,046,983
|
Less: Discounted
facilities
|
(7,575)
|
(7,575)
|
(7,575)
|
(7,575)
|
Less: Allowance for
loan losses
|
(318,646)
|
(320,541)
|
(358,217)
|
(359,079)
|
Less: Cumulative
change in fair value of financial
instruments(1)
|
(47,980)
|
(47,980)
|
-
|
-
|
Less: Impairment on
goodwill and businesses acquired(2)
|
(71,233)
|
(71,233)
|
(57,421)
|
(57,421)
|
Less: Businesses
acquired(2)
|
(414,102)
|
(414,102)
|
(375,602)
|
(375,602)
|
Net loans
receivable
|
$
|
221,840
|
$
|
244,709
|
$
|
223,378
|
$
|
247,306
|
2018 amounts are
under IFRS 9 and 2017 amounts are under IAS 39.
|
(1)
|
Certain loans
receivable have been reclassified from loans receivables at
amortised cost under IAS 39 to loans receivables measured at FVTPL
under IFRS 9.
|
(2)
|
Businesses acquired
are presented in the statements 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 original
loan agreement including 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
statements of comprehensive income as a part of interest income,
fee income or as a financial instrument at fair value through
profit or 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 first quarter 2018 results on Wednesday, May
16, 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: 4765977). A taped replay of the call will be available
until May 22, 2018 at (416) 849-0833
or (855) 859-2056 (reference number: 4765977).
SOURCE Callidus Capital Corporation