TORONTO, Aug. 4, 2022
/CNW/ - Chesswood Group Limited ("Chesswood" or the "Company")
(TSX: CHW), a publicly traded North American specialty finance
company providing commercial equipment leases and loans, automotive
loans, home improvement financing, and asset management, today
reported its results for the three and six months ended
June 30, 2022.
Q2 2022 Highlights
- Successful acquisition on May 25,
2022 of Waypoint Investment Partners Inc., an integrated
platform to structure and distribute private credit solutions to
Canadian investors.
- Strong origination volumes of $467.7
million in the equipment finance segment and $35.4 million in the automotive finance segment,
resulting in record gross finance receivables of $2.5 billion as at June
30, 2022.
- Utilized off balance sheet funding with a third party
institutional investor for US$97.4
million of net investment in finance receivables under the
asset management segment's first forward flow arrangement, which
provides Chesswood with origination, management, and servicing
fees.
- Earnings of $9.7 million
($0.46 per fully diluted share) and
record free cash flow generation of $15.71 million ($0.751 per fully diluted share).
- Return on equity for the quarter of 19.3%.
"Chesswood generated strong earnings and free cash flow in the
second quarter of 2022. On a consolidated basis, our businesses
achieved record levels of free cash flow, driven by our diversified
portfolio of more than $2 billion of
commercial and consumer net finance receivables," said Ryan Marr, Chesswood's President & CEO.
"Origination levels were strong throughout the quarter, driven in
particular by growth in our vendor channel in addition to our
unique full credit spectrum underwriting capability," added Mr.
Marr.
"The second quarter included results from our first asset
management flow agreement with an institutional investor. Our team
delivered approximately US$97.4
million of U.S. Equipment Financing Segment net investment
in finance receivables under this program, with the expectation to
continue delivering at a similar pace into year end," said Mr.
Marr. "It was also the first complete reporting quarter of Rifco
following the acquisition of the business in January 2022 and we are very excited with how
this segment has integrated into our operations," added Mr.
Marr.
"We are adjusting our pricing to adapt to the rising interest
rate environment. Our teams are working hard to help
customers face this new reality, while at the same time ensuring we
have a well-diversified portfolio. Our team anticipates volumes
will slow as we progress throughout the year, albeit still at
levels supporting net growth. Our focus on growing fee-based
earnings streams brings us closer to our goals of enhancing
earnings predictability and growth and reducing balance sheet
risk," said Mr. Marr.
Summary of Q2 Results
The Company reported consolidated net income of $9.7 million in the three months ended
June 30, 2022 compared to net income
of $7.8 million in the same period in
2021, an increase of $1.9 million
compared to the same period in the prior year. The increase was
primarily the result of the addition of Rifco National Auto Finance
Corporation ("Rifco"), which was acquired in January 2022, which contributed $2.6 million in the three months ended
June 30, 2022.
The U.S. Equipment Financing Segment reported interest revenue
on leases and loans in the quarter of $32.5
million and ancillary and other income of $5.3 million, a total increase of $14.2 million compared to the same period in the
prior year. The increase is the result of the growing finance
receivables portfolio.
The Canadian Equipment Financing Segment reported interest
revenue on leases and loans in the quarter of $14.0 million and ancillary and other income of
$2.9 million, a total increase of
$10.1 million compared to the same
period in the prior year. The increase reflects the expansion of
the Canadian Equipment Financing Segment as a result of the merger
with Vault Credit Corporation in Q2 2021 and the tremendous
portfolio receivables growth since then. The Canadian Equipment
Financing Segment had record breaking originations in Q2 2022 of
$203.4 million.
The Canadian Auto Financing Segment reported interest revenue on
leases and loans in the quarter of $10.6
million and ancillary and other income of $0.4 million.
Overall operating costs were up $14.3
million compared to the same period in the prior year, to
$27.6 million. A majority of the
increase relates to costs associated with personnel, collections,
marketing, and other operating costs.
Other expenses from the equipment financing segments were up
$3.8 million compared to the same
period in the prior year, mainly consisting of costs attributable
to originations as a result of scaling the businesses. In addition,
the growth of the equipment financing segments and their
originations required a 57% increase in the number of employees
from the same period in the prior year, increasing personnel costs
by $4.6 million.
Free cash flow2 for the period was $15.7 million, up $7.6
million from Q2 2021. The increase in free cash flow
is the result of growing revenues and the acquisition of Rifco.
Outlook
Following quarter end, Pawnee announced another ABS transaction
for USD$346.6 million. The
transaction is expected to close in early August. For the
second half of 2022, our team is prioritizing balance sheet
liquidity. Economists predict that chances for a recession
are building as central banks continue to tighten monetary
policy. We therefore believe a defensive approach is
warranted in the current environment.
We will continue to build our managed assets through our
Chesswood Capital Management division. Our team continues to
see strong investor interest for Chesswood originated finance
receivables in addition to entertaining interest from other
originators looking for diversified funding away from traditional
conduits. Following the acquisition of Waypoint, Chesswood's
Asset Management division is now positioned to distribute and
manage investment funds across all asset classes, and we expect to
continue leveraging this capability as we progress throughout the
remainder of 2022.
Financial
Highlights
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For the Three
Months
|
|
For the Six
Months
|
(in CDN $000's, except
EPS)
|
Ended June
30
|
|
Ended June
30
|
|
2022
|
2021
|
|
2022
|
2021
|
Revenue
|
$68,985
|
$30,524
|
|
$126,235
|
$56,833
|
Interest
expense
|
(17,133)
|
(7,739)
|
|
(29,220)
|
(13,634)
|
Net recoveries
(charge-offs)
|
(3,904)
|
(989)
|
|
(3,497)
|
(3,910)
|
|
47,948
|
23,774
|
|
93,518
|
39,289
|
Expenses:
|
|
|
|
|
|
Personnel
|
(15,761)
|
(7,240)
|
|
(30,350)
|
(12,939)
|
Other
expenses
|
(10,775)
|
(5,454)
|
|
(20,941)
|
(10,259)
|
Depreciation
|
(432)
|
(261)
|
|
(865)
|
(499)
|
Adjusted Operating
Income(1)
|
$20,980
|
$10,819
|
|
$41,362
|
$15,592
|
Decrease/(Increase) in Allowance for Credit Losses
|
(4,313)
|
152
|
|
(21,386)
|
4,591
|
Amortization – intangible assets
|
(593)
|
(361)
|
|
(1,184)
|
(694)
|
Operating income
(loss)
|
16,074
|
10,610
|
|
18,792
|
19,489
|
Mark-to-market adj. on swaps/caps
|
-
|
132
|
|
-
|
258
|
Other
non-cash items
|
(513)
|
294
|
|
(454)
|
268
|
Income (loss) before
taxes
|
$15,561
|
$11,036
|
|
$18,338
|
$20,015
|
|
|
|
|
|
|
Net income
(loss)
|
$9,651
|
7,812
|
|
$11,330
|
$14,125
|
Earnings Per Share –
Basic
|
$0.52
|
$0.43
|
|
$0.62
|
$0.79
|
Earnings Per Share –
Diluted
|
$0.46
|
$0.40
|
|
$0.55
|
$0.74
|
|
|
|
|
|
|
Free Cash
Flow
|
$15,745
|
$8,143
|
|
$30,953
|
$11,899
|
Free Cash Flow Per
Share – Diluted
|
$0.75
|
$0.42
|
|
$1.48
|
$0.63
|
(1) - See
"Non-GAAP Measures" below.
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NON-GAAP MEASURES
Adjusted Operating Income, Adjusted Net Income, Adjusted Return on
Equity, and Free Cash Flow are not recognized measures under
International Financial Reporting Standards and do not have a
standard meaning. Accordingly, these measures may not be comparable
to similar measures presented by other issuers.
1 "EBITDA" is Net Income (Loss) as presented in the
consolidated statements of income, adjusted to exclude interest
expense, income taxes, depreciation and amortization, and goodwill
and intangible asset impairment. EBITDA is included in one of the
Company's significant bank agreements where it is used for
financial covenant purposes.
"Adjusted EBITDA" is EBITDA as further adjusted for inclusion of
interest on debt facilities as a deduction from net income (loss),
and further removal of other non-cash or non-recurring items such
as (i) non-cash gain (loss) on interest rate derivatives and
investments, (ii) non-cash unrealized gain (loss) on foreign
exchange, (iii) non-cash share-based compensation expense,
(iv) non-cash change in finance receivable allowance for credit
losses ("ACL"), (v) restructuring and other transaction costs, and
(vi) any unusual and material one-time gains or expenses. Adjusted
EBITDA is a measure of performance defined in one of the Company's
significant bank agreements and is the basis for the Company's Free
Cash Flow calculation as defined below. Adjusted EBITDA is
therefore included as a non-GAAP measure that is relevant for a
wider audience of users of the Company's financial reporting.
"Free Cash Flow" or "FCF" is defined as Adjusted EBITDA less
maintenance capital expenditures, tax effect of the non-cash change
in the allowance for credit losses and tax expense. Cash receives
significant attention from primary users of financial reporting.
Free Cash Flow provides an indication of the cash the Company
generates which is available for servicing and repaying debt,
investing for future growth and providing dividends to our
shareholders. The FCF measure provides information relevant to
assessing the resilience of the Company to shocks and the ability
to act on opportunities. Free Cash Flow is a calculation that
reflects the agreement with one of the Company's significant
lenders as to a measure of the cash flow produced by the Company's
businesses in a period. It is also management's concurrent view
that the measure significantly reduces the impact of large non-cash
charges and/or recoveries that do not reflect actual cash flows of
the businesses and can vary greatly in amounts from period to
period.
"Free Cash Flow per diluted share" is defined as FCF divided by
the weighted average number of shares outstanding during the period
for income attributable to common shares and Exchangeable
Securities (as defined below in the "Statement of Financial
Position" section) on a fully diluted basis.
ABOUT CHESSWOOD GROUP LIMITED
Through three
wholly-owned subsidiaries in the United
States and five subsidiaries in Canada, two of which are wholly-owned,
Chesswood Group Limited is a North American specialty finance
company publicly traded on the Toronto Stock Exchange. Colorado-based Pawnee Leasing Corporation,
founded in 1982, finances a highly diversified portfolio of
commercial equipment leases and loans through relationships with
over 600 brokers in the United
States. Tandem Finance Inc. provides financing in the U.S.
through the equipment vendor channel. Blue Chip Leasing Corporation
has been originating and servicing commercial equipment leases and
loans in Canada since 1996. Vault
Credit Corporation specializes in equipment leases and commercial
loans across Canada, allowing for
customizable financing solutions while catering to a wide spectrum
of credit tiers, equipment types and sectors by offering
industry-leading service levels, experienced underwriters and
account administrators. Blue Chip and Vault Credit operate through
a nationwide network of more than 60 brokers. Vault Home Credit
Corporation was launched in September
2021 and focuses on providing home improvement and other
consumer financing solutions in Canada. Rifco, with the mission to help
Canadians own automobiles, seeks to create sustainable long-term
competitive advantages through personalized partnerships with
dealers, innovative products, the use of industry-leading data and
analytics, and leading collection practices. Through Waypoint
Investment Partners Inc. ("Waypoint"), a Toronto-based investment manager and exempt
market dealer, and Chesswood Capital Management USA Inc., Chesswood Capital Management ("CCM")
provides private credit alternatives to Canadian and U.S. investors
seeking exposure to lease and loan receivables, including those
originated by Chesswood subsidiaries.
Based in Toronto, Canada,
Chesswood Group Limited's shares trade on the TSX under the symbol
CHW.
To learn more about Chesswood Group Limited, visit
www.ChesswoodGroup.com.
The websites of Chesswood Group Limited's operating businesses
are:
www.PawneeLeasing.com
www.BlueChipLeasing.com
www.TandemFinance.com
www.VaultCredit.com
www.VaultPay.com
www.Rifco.net
www.WaypointInvestmentPartners.com
This press release contains forward-looking statements that
involve a number of risks and uncertainties because they relate to
events and depend on circumstances that will occur in the future.
Many factors could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements (including the ultimate duration and severity of the
COVID-19 pandemic, the impact of the military conflict in
Ukraine and related multinational
sanctions, the successful growth of Vault Home, the successful
integration of Rifco and Waypoint, and the successful growth of
CCM). By its nature, this information is subject to inherent risks
and uncertainties that may be general or specific and which give
rise to the possibility that expectations, forecasts, predictions,
projections or conclusions will not prove to be accurate, that
assumptions may not be correct and that objectives, strategic goals
and priorities will not be achieved. Additional information about
the risks and uncertainties of the Company's businesses and
material factors or assumptions on which information contained in
forward-looking statements is based is provided in its publicly
filed documents, including the Company's annual information form
and management's discussion and analysis of financial condition and
performance, which are available electronically through the System
for Electronic Document Analysis and Retrieval at
www.sedar.com.
NO STOCK EXCHANGE, SECURITIES COMMISSION OR OTHER REGULATORY
AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED
HEREIN.
SOURCE Chesswood Group Limited