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Private & Confidential DLS:TSXV Q2 2016 Financial Results August 29, 2016
Private & Confidential
PRIVATE & CONFIDENTIAL
DLS:TSXV
Q2 2016 Financial Results
August 29, 2016
Private & Confidential
Forward Looking Statements
Page 2
Certain information in this presentation are forward-looking and relate to Dealnet Capital anticipated financial position, business strategy, events and courses of action. Words or phrases such as “anticipate,” “objective,” “may,” “will,” “might,” “should,” “could,” “can,” “intend,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” “target”, “goal”, “is set to”, “is designed to” or similar expressions suggest future outcomes. Forward-looking statements include, among other things, statements about: our expectations regarding our expenses, sales and operations; our future customer concentration; our anticipated cash needs and our estimates regarding our capital requirements and our need for additional financing; our ability to anticipate the future needs of our customers; our plans for future products and enhancements of existing products and services; our future growth strategy and growth rate; partnerships and transactions that are subject to negotiations; possible expansion into new markets and our anticipated trends, including the growth rate of our loan originations and challenges in the markets in which we operate. Such statements reflect our current views with respect to future events and are based on assumptions and subject to significant risks and uncertainties. Such assumptions include, without limitation, that Dealnet Capital will conduct its operations in a manner consistent with its expectations and, where applicable, consistent with past practice; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax and regulatory regimes; our ability to conclude new partnerships or transactions in a satisfactory manner; certain cost assumptions; the continued availability of adequate debt and/or equity financing and cash flow to fund our capital and operating requirements as needed; and the extent of our liabilities. Although we believe that the assumptions underlying these statements are reasonable, they may prove to be incorrect. Given these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements.
Our actual results, performance or achievements could differ materially from those contemplated, expressed or implied in our statements as a result of various risk factors, including, but not limited to, business, economic and capital market conditions; market conditions and the demand and pricing; our relationships with our customers, business partners; our ability to conclude new partnerships or transactions in a satisfactory manner; competition in our industry; our ability to manage our growth; fluctuation in our quarterly operating results; and our dependence on key personnel. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future event or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. Neither we nor any of our representatives make any representation or warranty, express or implied, as to the accuracy, sufficiency or completeness of the information in this presentation. Neither we nor any of our representatives shall have any liability whatsoever, under contract, tort, trust or otherwise, to you or any person resulting from the use of the information in this presentation by you or any of your representatives or for omissions from the information in this presentation.
Private & Confidential
Q2 2016 Highlights
Record quarterly originations of $20.5 Million, a
67% increase over the prior quarter which marks
the first full quarter of EcoHome Financial volumes.
Consumer finance receivables grew to $100.6
Million, a 21% increase over the prior quarter.
Consumer finance business segment profit of $0.4
Million.
Outstanding consumer finance agreements now
total 22,224, a 15% increase from the prior quarter.
Record quarterly engagement revenue of $6.7
Million, a 3% increase from the prior quarter with
margin at 36%.
Cash proceeds of $4.1 Million from warrant
exercises in the quarter.
Page 3
Key Performance Indicators
Q2 2016 Q1 2016 % Change
Engagement
Revenue $6.7 MM $6.5 MM +3%
Margin% 36% 37%
Consumer
Finance
Finance
Receivables*
$100.6 MM $83.0 MM +21%
Quarterly
Originations
$20.5 MM $12.3 MM +67%
Net Income
Before Taxes
($2.3) MM ($3.4) MM +34%
*Finance receivable is net of servicing, pre-payments and amortization.
Private & Confidential
Strong Quarterly Portfolio Growth
Page 4
$83.0
$100.6
Q1 2016 Q2 2016
Consumer Finance Receivables(C$ millions)
Highlights
• Consumer Finance Business reported first quarterly segmented profit of $0.4 Million
• Material origination growth
• Active dealers over 330 and growing
$20.5
2015 Q1 2016 Q2 2016
Origination Volumes(C$ millions)
Private & Confidential
Portfolio Breakdown as of June 30, 2016
Page 5
19,274
22,224
Q1 2016 Q2 2016
# of Consumer Finance ContractsAddition of 2,950 Contracts
74%
26%
Leases Loans
Portfolio By Categories
10 Year 5 Year
Private & Confidential
Geographic Distribution of Loan Portfolio
Page 6
.
90%
7%1%
1% 1%
Our Lending Companies are Nationally Licensed and are gradually expanding into other provinces.
Private & Confidential
New in Quarter OEM Relationships Announced
Global HVAC Manufacturer
200 Dealers Across Canada
Onboarding 80 Dealers
Page 7
Each Dealer
1-5 Deals a
Month
1-5 Deals a
Average Deal Size
$5,000
@ 100 DealersPotential Annual
Origination
Volumes
$6 MM to $30
MM
Annually at full
deployment
Sample Economics:
Private & Confidential
Management of Expenses & Narrowing Losses
Page 8
.
• Consumer Finance SG&A expense as a percentage of interest revenue for that segment improved
from 50% from the prior quarter to 47% in the current quarter.
• Corporate segment expenses for the current quarter were $1.30 million, relatively unchanged from
$1.32 million in the previous quarter illustrating operating leverage.
• Cash used in operating activities before changes in working capital balances related to operations
was $0.92 million for Q2 compared to $2.22 million in the prior quarter.
• Loss before income taxes of $2.26 million during Q2, this is a 34% improvement from the $3.43
million loss before income taxes in Q1.
Highlights
• Dealnet’s platform is scalable without adding significant costs - G&A holding in line despite
acquisitions.
• Management is focused on managing expenses in relation to loan book size while investing in
strategic technology and leadership to support future growth while being sensitive to ROE
objectives in future years.
*Loss Includes non cash items – Depreciation Amortization and share based compensation approximating $400,000 monthly
Private & Confidential
Segmented Profit & Loss
Page 9
.
In $000’s Engagement Finance
Revenue $6,483 $1,064
Segment Profit /
(Loss) $436 ($108)
In $000’s Engagement Finance
Revenue $6,658 $2,455
Segment Profit /
(Loss) $120 $368
Q2 2016 Q1 2016
Highlights
• Both segments are now profitable, despite non-recurring integration costs realized in both segments
• Integration of acquisitions effectively complete
• Q2 profit includes realization of integration expenses
Private & Confidential
Current Funding Relationships
Page 10
Up to $100 Million Funding Facility
Asset Management Arm of Canadian Insurer
$75 Million Securitization Facility
Major Canadian Life Insurance Co.
Securitization Facility ($3-4 Million Month)
Schedule 1 Bank
$20 Million Funding Facility
Financial Institution Government Sponsored
Average Direct Cost of Funding Below 4% Based on Current Market Pricing
• Priced using contracted spread over the Government of Canada’s nearest duration bond at the time of
securitization.
• Declining spread based on funding usage volume in certain facilities.
• Dealnet expects new capital or funding relationships to be put in place at similar or lower costs of funds
as a normal course of business going forward.
Private & Confidential
Balance Sheet Discussion
Page 11
Key Achievements
Q3 – Closed 2 new securitization facilities and
renewed a third for approximately $130M of
annual volume
Q2 – Gross Finance receivable originations of
$20.5M [Q1-$12.3M]
Q2 - $4.1M cash proceeds from exercise of 13.7M
warrants
Q2 – Increased debenture facility from $10M to
$13M
Q1 – February 18th closed acquisition of EcoHome
Q1 – February 5th closed bought deal private
placement for gross proceeds of $30M
in 000's
June 30,
2016
March 31,
2016
December 31,
2015
$ $ $
Cash and cash equivalents 1,899 7,654 10,812
Cash reserves 6,571 6,402 -
Trade receivables 5,805 5,100 3,866
Finance receivables 100,571 83,018 1,904
Other assets 2,474 4,977 3,452
Property and equipment 1,168 1,147 979
Intangibles 20,690 21,137 1,530
Goodwill 22,706 22,706 2,060
Assets 161,884 152,141 24,603
Accounts payable and accrued liabilities 8,084 7,354 3,619
Other liabilities 66 1,856 1,867
Debentures, notes payable and loans 22,905 20,256 3,804
Secured borrowings 78,483 72,586 -
Deferred revenue 380 465 425
Total Liabil ities 109,918 102,517 9,715
Share capital 49,318 45,357 12,682
Contributed surplus 7,388 6,888 5,298
Other comprehensive income 37 39 58
Deficit (4,777) (2,660) (3,150)
Shareholder's Equity 51,966 49,624 14,888
Liabil ities and Shareholder's Equity 161,884 152,141 24,603
Subsequent to Q2 the company completed material securitizations with their funders as a normal course
operating function.
Private & Confidential
Capital Injection via Cash from Warrant Exercises
Page 12
Equity was increased by $4.1 million through the exercise of warrants in the quarter.
$3.5 Million of additional cash proceeds from warrant exercises were received subsequent to Q2. Year to
date total of $8.1 Million received from the exercise of warrants increasing working capital.
Potential additional cash proceeds of $11.9 Million if all warrants expiring over the next 12 months are
exercised.
Warrants
Outstanding
Outstanding Avg. PriceExpected
Proceeds
September 2016 1.0 MM $0.30 $0.3 MM
December 2016 5.6 MM $0.30 $1.7 MM
February 2016 16.2 MM $0.50 $8.1 MM
August 2017 3.2 MM $0.55 $1.8 MM
TOTAL 26.0 MM ~$11.9 MM
**Excludes 2.0 Million expiring January 2019 with a $.67 conversion price.
Private & Confidential
Dealnet Capital Structure as of August 26, 2016
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TSX Venture Exchange DLS
Basic Shares Outstanding 242 MM
Fully Diluted Shares Outstanding 297 MM
Warrants 28 MM
Options 16 MM
Expected Cash Proceeds from Warrants ~$13.2 MM
Current Share Price $.61
Private & Confidential
PRIVATE & CONFIDENTIAL
DLS:TSXV
Thank You
