All amounts in Canadian dollars unless otherwise indicated.
TORONTO, Nov. 3, 2016 /CNW/ - Callidus Capital
Corporation (TSX:CBL), ("Callidus" or the "Company"), today
announced its unaudited financial and operating results for the
third quarter ended September 30,
2016.
"Over the course of the last year Callidus has unlocked and
created substantial value for its shareholders, as reflected in a
share price that is up approximately 100% year-to-date and a
dividend that has increased 70% since May. While the company
could have initiated a privatization process when the shares were
severely depressed, it was our firm belief that a transfer of value
from public shareholders to a third party would have been
unconscionable as a fiduciary for the public shareholders. As
such, we created a plan to restore value for all continuing
shareholders that was in keeping with our philosophy of
incrementalism, as evidenced by the NCIB, then the introduction and
increase to dividends, and then by the increasing SIB which allowed
tendering shareholders to access liquidity while participating in
the price increases, and simultaneously rewarding those
shareholders who remained our partners."
"We simultaneously took steps to strengthen the underlying
business, expand our reporting, and create debt facilities that
would support substantial growth with reduced risk and a lower cost
of capital," commented Newton
Glassman, Executive Chairman and CEO of Callidus.
"Callidus has met, and intends to meet, every commitment laid out
in our original four-step capital markets plan while delivering
good operational performance. However, we continue to believe
that the shares are significantly undervalued. Therefore, we
have hired Goldman Sachs as financial advisor to run a
privatization process, that hopefully ensures all stakeholders
receive full and fair value for their shares, including taking into
consideration the Company's operating performance, growth prospects
and the increasing momentum within the business. As we
clearly stated when we initiated our capital markets plan, we will
take every step necessary to ensure that all the Company's
shareholders have the opportunity to realize maximum value for
their investment."
David Reese, President and COO
added, "We are pleased with the progress and performance of the
company over the quarter. From a high level, we
restarted growth in the loan portfolio, highlighted by a
$1.1 billion pipeline and over
$340 million in signed-back term
sheets and balance of funding for the largest loan in our
portfolio. We also added $23.1
million in yield enhancements which will contribute to
future earnings, an increase of 40% in one quarter. Failing
to recognize yield enhancements booked, runs the risk of
transferring value from current to future shareholders, due to
technical and timing issues. This quarter's recognition of
yield enhancements demonstrates it is a fundamental part of the
business, just like provisions are, they are basically the opposite
sides of the same restructuring coin, but can result in significant
mismatching of timing in income recognition. The major
developments in our capital markets program were underpinned by the
steady performance in our underlying business, with a consistently
strong gross yield (19%) and ROE of 17.1% before provisions and
yield enhancements. We speak in terms of performance in
pre-provisions and yield enhancements terms, since over the medium
to longer term, provisions and yield enhancements operate as
countervailing forces on our results. In the short-term, the
temporary differences that result from provisions generally
occurring at the beginning of a reorganization process, and the
yield enhancements occurring at the conclusion of the process, can
have an exaggerated impact on our results and can differ in
timing. This quarter, we saw the application of strict
technical IFRS rules result in the non-cash, accounting impact of a
provision related to "yellow metal" on our steady operating
results. We expect such to be volatile, as the federal government
plans with respect to infrastructure spending get implemented and
demand for "yellow metal" rises, technical IFRS requirements may
well result in this provision being re-evaluated. Over time,
we would expect to recover deviations from the 1.5% to 2.0%
provisioning target through either future adjustments such as
observed here, or ultimate yield enhancements."
- Goldman, Sachs & Co. ("Goldman Sachs") announced as
financial advisor and is to lead the privatization process of the
Company, which is expected to be completed before the end of the
second quarter of 2017.
- Yield enhancement valuations increased 40% to $80.6 million, with $2.8
million taken into income in third quarter 2016.
- Loan pipeline increased 17% from last quarter to $1.1 billion, including over $340 million of signed-back term sheets and
additional funding under current facilities.
- Dividend increased for the second time in 2016, to $1.20 per share per year – a 70% increase since
May 2016.
- Substantial Issuer Bid extended and purchase price increased to
$16.50 per share in August in
response to upward movement in trading range of the stock price. On
October 31, 2016 the total number of
shares eligible under the Offer was increased by 1.5 million to 5.1
million shares. For remaining shareholders, this results in
extraordinary value creation, as the National Bank valuation
(completed at the time the SIB was initiated in April 2016) was developed before several value
accretive events occurred – particularly the recognition of the
size and ongoing nature of the yield enhancements. Therefore,
the NBF valuation likely serves as a floor for future
valuations.
- Revenue of $44.2 million,
decreased 4% ($1.8 million) from
second quarter 2016 and decreased 9% ($4.3
million) from third quarter 2015.
- ROE was 17.1% before provisions and yield enhancements (4.1%
after), a decrease from 17.7% in the prior quarter and 20.5% in
third quarter 2015. The ROE of 17.1% would be 28.2% if the
unrealized yield enhancements were taken into income.
- Net income was $22.1 million
before provisions and yield enhancements ($5.2 million after), a decrease of 2%
($0.4 million) from the prior quarter
and 15% ($3.4 million) from the prior
year period. The net income of $22.1
million would be $37.0 million
if the unrealized yield enhancements were taken into income.
- Earnings per share (diluted) of $0.43 per share before provisions and yield
enhancements ($0.10 after), a
decrease of 2% ($0.01 per share) from
last quarter and 28% ($0.12 per
share) from the third quarter of 2015. The earnings per share
(diluted) of $0.43 per share would be
$0.73 per share if the unrealized
yield enhancements were taken into income.
Corporate Initiatives Update
Privatization Process to be led by Goldman Sachs – On
October 31, 2016, the Company
announced Goldman Sachs has been engaged to act as financial
advisor and is to lead the previously announced privatization
process. The formal process is now underway and is
expected to be completed before the end of the second quarter of
2017.
Substantial Issuer Bid Extended and Expanded in Size – During
the third quarter, the Company increased the purchase price under
its outstanding Substantial Issuer Bid ("the Offer") for the second
time to $16.50 per share, from an
initial price of $14.00 per share,
reflecting the significant increase in the trading price range for
Callidus shares since the initiation of the program. On
October 31, 2016, the Company
announced that it was increasing the number of shares eligible
under the current Offer by an additional 1.5 million shares, to
purchase up to 5,071,428 common shares for cancellation. As at
October 31, 2016, the Company had
taken up and paid for 2,840,944 shares, or approximately 56% of the
total eligible under the Offer.
Securitization Facility Expected to Close in Mid-November – As
previously announced, the Company has received provisional
investment grade ratings for loans to be issued through a new
securitization program. The securitization, with four
investment grade debt tranches ranging from AAA (sf) to BBB (sf)
that represent approximately two-thirds of the structure, will be
initiated at $165 million and is
expected to close on or about November
15, 2016. It will allow the Company to lever the
current loan portfolio by an incremental $25
million, and is expected to further reduce Callidus' cost of
funds going forward. Given both the pipeline and signed back
term sheets, this facility will likely be expanded once fully
utilized to help fund future growth while continuing to drive the
cost of capital down. The Company remains committed to
doubling the loan portfolio over the next two to three years.
Operations Update
Loan Portfolio - During the quarter, one borrower fully repaid
its loan ($10.4 million in
commitments), bringing the year-to-date full repayments to
$171.8 million from seven loans,
while we have kept gross loans receivable fairly constant at
approximately $1.2 billion.
Subsequent to the end of the third quarter, there were two
additional full repayments totaling $23.1
million. Furthermore, during the quarter, the number
of loans on the watch-list was reduced from 13 to 10 loans while
the average loan portfolio outstanding grew by 6% ($71 million) to $1.2 billion compared to Q2
2016, as the funding of loans more than offset repayments and
write-offs. Callidus wrote-off $9
million in gross loans receivable in the third quarter
relating to four watch-list loans, and recovered $9 million related to these loans from the
Catalyst guarantee. At September 30,
2016, there were 28 loans in the portfolio.
Yield Enhancements Continue to Grow - Over half of the loans in
the portfolio are generating yield enhancements, clearly
demonstrating such is a fundamental part of the business.
Total yield enhancements are internally valued at $80.6 million, an increase of 40% ($23.1 million) from second quarter
2016. Recognition of yield enhancement to income is
strictly dictated by IFRS rules and can therefore result in timing
issues. We are concerned this accounting issue may result in
a value transfer from current to future shareholders. For
example, during the quarter, only $2.8
million of that total value was brought into income,
increasing the year-to-date total recognized in income to
$38.1 million. Yield enhancements are
a fundamental part of the business model, have exceeded all market
expectations in just two quarters, and will continue to grow.
Financial Highlights
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
($ 000s unless
otherwise indicated)
|
Sept 30,
2016
|
Jun 30,
2016
|
Sept 30,
2015
|
Sept 30,
2016
|
Sept 30,
2015
|
Average loan
portfolio outstanding (1)
|
$
|
1,217,965
|
$
|
1,147,323
|
$
|
1,101,675
|
$
|
1,197,390
|
$
|
964,724
|
Total revenue (after
derecognition)
|
44,169
|
45,931
|
48,419
|
139,640
|
122,839
|
Gross yield (%)
(1)
|
19.0%
|
20.0%
|
19.7%
|
19.6%
|
18.7%
|
Net interest margin
(%) (1)
|
11.0%
|
12.5%
|
13.6%
|
11.9%
|
13.3%
|
Net
income before provisions and yield
enhancements(2)
|
22,053
|
22,433
|
25,406
|
66,960
|
61,843
|
Earnings per share
before provisions and yield enhancements
(diluted)(2)
|
$0.43
|
$0.44
|
$0.55
|
$1.32
|
$1.22
|
ROE before provisions
and yield enhancements (%)(2)
|
17.1%
|
17.7%
|
20.5%
|
17.5%
|
17.1%
|
Leverage ratio
(%)(1)
|
40.3%
|
38.5%
|
52.8%
|
40.3%
|
52.8%
|
(1)
|
Refer to "Description
of Non-IFRS Measures" in the MD&A. 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)
|
Reported net income
for Q3-2016 was $5.2 million and for YTD-2016 was $59.7
million. Reported earnings per share (diluted) for Q3-2016
was $0.10 and for YTD-2016 was $1.18. Reported ROE for
Q3-2016 was 4.1% and for YTD 2016 was 15.7%.
|
- Our Third Quarter 2016 MD&A, Unaudited Financial Statements
and Issuer Bid Circular are available on our website
(www.calliduscapital.ca) or on SEDAR (www.sedar.com).
- Average loan portfolio outstanding was $1,218 million, an increase of 6% ($71 million) from the prior quarter, and an
increase of 11% ($116 million) from
the same quarter last year.
- Revenue of $44.2 million,
decreased 4% ($1.8 million) from
second quarter 2016 and decreased 9% ($4.3
million) from third quarter 2015.
- Gross yield for the quarter was 19.0%, a decrease from 20.0% in
the prior quarter, and from 19.7% in the same quarter last
year. As noted previously, gross yields can be "lumpy"
quarter to quarter.
- ROE was 17.1% before provisions and yield enhancements (4.1%
after), a decrease from 17.7% in the prior quarter and 20.5% in
third quarter 2015. The ROE of 17.1% would be 28.2% if the
unrealized yield enhancements were taken into income.
- Net income $22.1 million before
provisions and yield enhancements ($5.2
million after), a decrease of 2% ($0.4 million) from the prior quarter and 15%
($3.4 million) from the prior year
period. The net income of $22.1
million would be $37.0 million
if the unrealized yield enhancements were taken into income.
- Earnings per share (diluted) of $0.43 per share before provisions and yield
enhancements ($0.10 after), a
decrease of 2% ($0.01 per share) from
last quarter and 28% ($0.12 per
share) from the third quarter of 2015. The earnings per share
(diluted) of $0.43 per share would be
$0.73 per share if the unrealized
yield enhancements were taken into income.
- Leverage ratio of 40.3% at the end of the current quarter,
which was relatively consistent with the prior quarter.
Leverage was lower than is normally targeted, as cash was held to
support the outstanding Substantial Issuer Bid. This had a
negative impact on both the ROE and net income.
- As at September 30, 2016, the
estimated collateral value across aggregate net loans receivable
was approximately 151%. It should be noted that there is no
cross-collateralization of the asset coverage as between
borrowers.
- Provision for loan losses for the third quarter was
$25.8 million. The majority of
this provision related to a decrease in appraised values within a
specific industry (coal) for an appraisal change on "yellow
metal".
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.
Forward-Looking 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 publicly
or to 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.
Conference call
Callidus will host a conference call to discuss Q3 2016 results
on Friday, November 4, 2016 at 8:00 a.m. Eastern
Time. The dial in number for the call is (647) 427-7450 or
(888) 231-8191 (reference number: 93992304). A taped replay of
the call will be available until November
11, 2016 at (416) 849-0833 or (855) 859-2056 (reference
number: 93992304).
SOURCE Callidus Capital Corporation