New Management Team Protecting Shareholder Value Following Small’s Destructive Tenure at Dealnet
TORONTO, April 16, 2020 (GLOBE NEWSWIRE) — Dealnet Capital Corp. (“Dealnet” or the “Company”) (TSX VENTURE: DLS) today provides a comparison of operating performance under Dr. Steven Small (“Small”) and the new leadership team that exposes Small’s value destruction and mismanagement. Following Small’s departure, Brent Houlden and the new leadership team moved with skill and discipline to fully address the legacy issues created by Small. Within one quarter of Small’s termination, the new leadership team dramatically reduced quarterly losses. For the last six quarters, the Company has been operating as expected, with no unusual surprises or adjusted earnings.
“The numbers demonstrate Small’s track record of value destruction and mismanagement,” states the Company. “A series of flawed plans, executional failures and operational missteps under Small’s leadership failed to address fundamental issues at Dealnet, which was on the brink of bankruptcy and running out of cash. The new management team and the Board addressed this untenable situation.”The Company concluded: “The new management team’s focus is on moving the business forward, in the best interests of all shareholders. Although Small continues to make misleading statements, the numbers tell the story and the Company believes its sophisticated and valued shareholders can separate fact from fictionSmall joined Dealnet on June 16, 2015 as Executive Chairman, the most senior management position at Dealnet. During his tenure, the Company reported total losses from continuing operations of over $64M and had no credible plan to reaching profitability. All of the equity investment raised by Small was lost through mismanagement. In contrast, the new leadership team turned the business around, re-ignited growth and has avoided any shareholder dilution. Examples of mismanagement under Small and improvements under the new team can be found below. An investor presentation with further details can be found at www.dealnetcapital.com/additional-info/.Small’s Failed Purchase and Operation of EcoHome Saved by New ManagementDealnet purchased EcoHome on February 18, 2016 for $34.5M ($3.2M of ‘hard’ net assets and $31.3M of goodwill).
Under Small’s leadership, originations spiked the following three quarters as a result of non-commercial and reckless credit underwriting, resulting in a cumulative default rate of 15% in 2016. Alarmed by the spiraling delinquencies, Dealnet’s funders stepped in at the beginning of 2017 and required Small’s management team to change its credit underwriting practices. Almost all of EcoHome’s goodwill was written off at the end of 2017, due to dealer terminations and poor operating results from Small’s leadership team. Under Houlden’s leadership, Dealnet has now reached the 2016 origination highs but with a 37% higher risk adjusted margin – better credit quality, better yield, better dealers, better cost of funds and no subprime business. The cumulative default rate of originations under the new management team are tracking under 2%, versus the 2016 cumulative default rate of 15% under Small.Under the prudent business skills of the new leadership team, EcoHome’s net asset value has grown by over 8X from acquisition date. In addition, EcoHome has contractual residual cashflows of $75M commencing in 2022 and the new management team has taken proactive enforcement actions to gain access to the rights to end of term payments on 16,000 leases. Call Centre Business Posted Significant Operating Losses Under Small, Now Profitable and GrowingOn September 30, 2015, Small championed the purchase of Gemma Communications for $3.7M. Following its purchase, Gemma incurred operating losses of $9.5M. In order to stem the operating losses, the new leadership team was forced to put Gemma Communications into bankruptcy on March 9, 2018.One Contact also had a history of significant operating losses, but was turned around by the new leadership team and has now achieved eight consecutive profitable quarters. Today, One Contact is a well-managed business which has increased its gross profit to 36%, retained its customers, incurred no service level penalties in 2019 and is winning new profitable accounts while deploying its omnichannel capabilities and leading technology. Small’s Excessive Overhead Spending Brought Under ControlIn Q4 2016, overheads were $6.8M as Small and management rewarded themselves for three quarters of EcoHome growth, just prior to delinquencies skyrocketing and originations cratering. Since the end of the turnaround in Q3 2018, management has lived up to its commitment to keep overheads at $3M per quarter. As the business has grown, overheads as a percentage of the finance receivable book value have declined from over 5% to approximately 1%. Protecting Shareholder ValueWhile taking the necessary steps to turn Dealnet around, the new leadership team has protected shareholder equity by avoiding shareholder dilution. There have been six quiet quarters since the completion of the turnaround in the third quarter of 2018, and Dealnet continues its path to profitability.Shareholders are urged to review the investor presentation with further details at www.dealnetcapital.com/additional-info/.About Dealnet Capital Corp.Dealnet is the parent company of subsidiaries operating in two market segments, consumer finance and call centre. The Company operates in the consumer finance segment in Canada through EcoHome Financial Inc. (“EcoHome”) and its call centre segment under the One Contact banner (“One Contact”).EcoHome is a specialty finance company serving the $20 billion Canadian home improvement finance market. EcoHome develops and supports consumer sales financing programs for approved dealers and distributors under agreements with original equipment manufacturers (OEMs) that supply a wide range of home improvement products to the retail market. Through a dealer network, EcoHome underwrites, originates, funds and services the prime quality loans and leases that homeowners need to finance the acquisition and installation of capital assets that improve the quality, comfort and safety of their homes. One Contact offers customer support services to third-party institutions across Canada and the U.S. and to EcoHome.For additional information please visit www.sedar.com.Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.Forward-looking StatementsThis news release contains certain “forward-looking information” within the meaning of applicable securities law. Forward looking information is frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “would”, “potential”, “proposed” and other similar words, or statements that certain events or conditions “may” or “will” occur. These statements are only predictions. Forward-looking information is based on the opinions and estimates of management at the date the information is provided and is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. For a description of the risks and uncertainties facing the Company and its business and affairs, readers should refer to the Company’s Management’s Discussion and Analysis. The Company undertakes no obligation to update forward-looking information if circumstances or management’s estimates or opinions should change, unless required by law. The reader is cautioned not to place undue reliance on forward-looking information.Contact Information