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Press release from Marketwire

easyhome Ltd. Reports 2012 Second Quarter Results, Provides Update on Financing

Monday, August 13, 2012

easyhome Ltd. Reports 2012 Second Quarter Results, Provides Update on Financing17:24 EDT Monday, August 13, 2012MISSISSAUGA, ONTARIO--(Marketwire - Aug. 13, 2012) - easyhome Ltd. (TSX:EH) (the "Company" or "easyhome"), Canada's largest merchandise leasing company and a growing provider of financial services, today announced its results for the second quarter ended June 30, 2012.easyhome delivered strong revenue growth during second quarter of 2012. Revenue for the quarter increased 5.7% to $48.9 million, driven primarily by the expansion of the easyfinancial Services business and the related growth of its consumer loans receivable portfolio. Adjusted earnings for the quarter, excluding unusual and non-recurring items, was $2.3 million, down from $2.7 million reported in the second quarter of 2011. Reported earnings per share for the quarter were 17 cents and adjusted earnings were 20 cents compared to 23 cents for the second quarter of 2011.During the second quarter of 2012 and in responses to its negative performance, the Company completed a restructuring of its leasing business. 13 locations with unsatisfactory performance were closed and a large portion of their active lease portfolios and assets were transferred to nearby locations. Changes were made to the leadership of the leasing business and seven senior positions were eliminated. Finally, operating procedures were adjusted to return the focus of field staff from administration processes to leasing, collecting and customer relationships. This restructuring resulted in a charge to operating income of $1.4 million during the quarter but will be offset by expected net savings of $1.4 million in the second half of the year and further savings into the future.Other highlights for the second quarter of 2012 include:Corporate same store revenue growth of 6.4% The easyfinancial Services consumer loans receivable portfolio closed at $55.8 million, representing a year-over-year increase of 58%, and easyfinancial Services revenue for the second quarter of 2012 increased 56% compared to the second quarter of 2011 Stabilization of the easyhome lease asset portfolio, arresting a declining trend in prior quarters Non-recurring charges for restructuring, insurance reimbursements and other items of $0.4 million or 3 cents per share were recognized as a reduction of operating income in the current quarter Adjusted operating earnings, excluding non-recurring charges, unchanged from the second quarter of 2011 Adjusted EBITDA margin of 10.5% Cash flow from operating activities of $13.8 million "We had a mixed performance for the quarter," said David Ingram, easyhome's President and Chief Executive Officer. "Our easyfinancial Services business continued to deliver strong growth and strong results and our corporate expenditures for the second quarter of 2012 were reduced from the comparable period in the prior year. Our leasing business, however, reported lower revenues and lower earnings. The negative performance of this, our largest business unit, necessitated a restructuring of its network and operations which was completed in the second quarter of 2012."Second Quarter ResultsFor the second quarter ended June 30, 2012, easyhome generated revenues of $48.9 million, an increase from $46.3 million in the second quarter of 2011. At the store level, including easyfinancial, same store revenue growth for the quarter was 6.4%, consistent with the second quarter of 2011.On a segmented basis, easyfinancial Services revenues increased 56% to $8.8 million from $5.6 million for the same period last year. The improvement is a result of the increase in the consumer loans receivable portfolio from $35.3 million to $55.8 million. The Company's leasing operations recorded revenues of $39.7 million, down from $40.3 for the same period last year and franchising operations recorded revenues of $0.4 million, up from $0.3 million for same period last year.Operating income, which is income before interest expense and income taxes, decreased 11.8% to $3.4 million from $3.9 million in the second quarter of 2011. Operating income for the second quarter of 2012 was reduced by $0.4 million in restructuring charges and other unusual and non- recurring items. Excluding these items, adjusted operating income was $3.9 million, essentially unchanged from the second quarter of 2011. As a percentage of revenue, adjusted operating income was 7.9% compared to 8.4% in the second quarter of 2011.Net income for the second quarter of 2012 was negatively impacted by higher interest and income tax expenses. Interest expense increased due to a higher level of net borrowings required to support the growth of the easyfinancial Services business and a higher rate of interest. Income tax expense increased as the expense in the second quarter of 2011 included a $0.2 million reduction as a result of the finalization of tax amounts previously accounted for using estimates. No such adjustment was required in 2012.Net income decreased to $2.0 million or 17 cents per share for the second quarter of 2012, compared with net income of $2.7 million or 23 cents per share for the second quarter of 2011. Adjusted net income for the second quarter of 2012, excluding the restructuring and other charges, was $2.3 million or 20 cents per share.Six Months ResultsFor the first half of the year, easyhome recorded revenues of $98.7 million, up 6.7% compared with $92.5 million in the first six months of 2011. Operating income for the period was $7.6 million compared with $7.7 million in the first six months of 2011. Adjusted operating earnings for the second quarter of 2012, excluding the restructuring and other charges, was $8.1 million, an increase of 4.5% over the first six months of 2011. Diluted earnings per share decreased from 43 cents to 39 cents. Adjusted net income, adjusted for unusual items, was $5.0 million compared with $5.1 million for the same period last year. On a per share basis and excluding unusual items, diluted earnings per share was 42 cents compared with 43 cents a year ago.Cash flow provided by operating activities for the six months ended June 30, 2012 was $26.2 million. Included in these cash flows was a net investment in the easyfinancial Services consumer loans receivable portfolio of $12.1 million. If this net investment in the loan portfolio was treated as cash flow from investing activities, cash flow from operating activities would be $38.3 million. This cash flow from operating activities enabled the Company to invest in the portfolios to drive future revenue growth of all business units and maintain its total dividend payments for the quarter.Update on FinancingThe Company previously communicated that additional sources of financing over and above its currently available credit facility are required in order for it to continue to grow and achieve the full long-term growth opportunities available, particularly within the easyfinancial Services business. Although the additional financing required has not yet been secured, the Company has made progress during the quarter.First, availability under the existing credit facility was set to reduce from $40 million to $35 million on July 1, 2012. The higher limit of $40 million was extended until August 30, 2012 to allow the Company sufficient time to complete the negotiations for additional debt financing.Second, the Company is negotiating a new financing structure with both its banking partners and other providers of debt financing that will see the total debt limit increase to up to $65 million. This financing, together with the cash flow generated by operations, would allow the Company to achieve its growth expectations for approximately the next 12 to 18 months.David Ingram commented, "We anticipate completing the negotiations and documentation of these new facilities within the next 45 days to allow for renewed and continued growth in the second half of 2012. There are no assurances, however, that the proposed financing will be completed on the contemplated terms or at all."Donald K. Johnson, Chairman of the Board, commented, "Although easyhome continues to face challenges during this difficult economic environment, the Company has a solid growth strategy and disciplined approach that will create long-term value for shareholders."The Board of Directors has approved a quarterly dividend payment of $0.085 per share payable on October 5, 2012 to the holders of common shares of record as at the close of business on September 27, 2012.About easyhomeAs at June 30, 2012, easyhome Ltd. operated 204 easyhome leasing stores (including 7 consolidated franchise locations), 94 easyfinancial locations and had 45 franchise locations.easyhome Ltd. is Canada's largest merchandise leasing company and the third largest in North America, offering top quality, brand-name household furnishings, appliances and home electronic products to consumers under weekly or monthly leasing agreements through both corporate and franchise stores. In addition, the Company offers a variety of financial services, including loans, prepaid cards and cheque cashing through its easyfinancial Services business. easyhome Ltd. is listed on the TSX under the symbol 'EH'. For more information, visit www.easyhome.ca.The above analysis refers to certain financial measures, including same store revenue growth, gross consumer loans receivable, adjusted earnings, adjusted operating earnings and adjusted EBITDA, which are not determined in accordance with International Financial Reporting Standards ("IFRS"). These measures do not have standardized meanings and may not be comparable to similar measures presented by other companies. These measures are defined in our Management's Discussion and Analysis for the period which is available on SEDAR or on the Company's website at www.easyhome.ca or can be determined by reference to our financial statements. We discuss these measures because we believe that they facilitate the understanding of the results of our operations and financial position.Forward-Looking StatementsThis news release includes forward-looking statements about easyhome Ltd., including its business operations, strategy and expected financial performance and condition. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as 'expects', 'anticipates', 'intends', 'plans', 'believes' or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future financial performance (including revenue, earnings or growth rates), ongoing business strategies or prospects about future events is also a forward-looking statement. Forward- looking statements are based on certain factors and assumptions, including expected growth, results of operations and business prospects and are inherently subject to, among other things, risks, uncertainties and assumptions about our operations, economic factors and the industry generally. They are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by us, due to, but not limited to important factors such as our ability to enter into new lease and/or financing agreements, collect on existing lease and/or financing agreements, open new locations on favourable terms, secure new franchised locations, purchase products which appeal to our customers at a competitive rate, cope with changes in legislation, react to uncertainties related to regulatory actions, raise capital under favourable terms, manage the impact of litigation (including shareholder litigation), control costs at all levels of the organization and maintain and enhance our system of internal controls. We caution that the foregoing list is not exhaustive. The reader is cautioned to consider these and other factors carefully and not place undue reliance on forward-looking statements, which may not be appropriate for other purposes. We are under no obligation (and expressly disclaim any such obligation) to update or alter the forward-looking statements whether as a result of new information, future events or otherwise, unless otherwise required by law.(tables follow)easyhome Ltd.INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(Unaudited) (expressed in thousands of Canadian dollars) As atAs atJune 30,December 31,20122011ASSETS (note 6)Current assetsCash1,1971,019Amounts receivable3,8105,893Income taxes recoverable-600Consumer loans receivable (note 4)34,01332,619Prepaid expenses1,1271,316Total current assets40,14741,447Amounts receivable1,4481,365Consumer loans receivable (note 4)18,73512,319Lease assets63,51166,996Property and equipment (note 5)12,38812,612Deferred tax assets (note 10)5,3572,933Intangible assets4,9724,126Goodwill17,32517,325TOTAL ASSETS163,883159,123LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilitiesBank revolving credit facility (note 6)32,92133,123Accounts payable and accrued liabilities18,15319,504Income taxes payable3,934-Dividends payable (note 7)1,0091,007Deferred lease inducements535598Unearned revenue4,2884,562Provisions (note 9)42424Total current liabilities61,26458,818Accounts payable and accrued liabilities293727Deferred lease inducements1,7841,959Provisions (note 9)35377Total liabilities63,69461,581Contingencies (note 13)Shareholders' equityShare capital (note 7)60,45260,207Contributed surplus2,9423,171Accumulated other comprehensive loss(57)(52)Retained earnings36,85234,216Total shareholders' equity100,18997,542TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY163,883159,123See accompanying notes to the interim condensed consolidated financial statementseasyhome Ltd.INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME(Unaudited) (expressed in thousands of Canadian dollars except earnings per share) Three months endedSix months endedJune 30,June 30,June 30,June 30,2012201120122011REVENUELease revenue38,67239,37678,91180,158Interest income5,7903,46911,0306,312Other4,4413,4198,7495,99748,90346,26498,69092,467EXPENSES BEFORE DEPRECIATION AND AMORTIZATIONSalaries and benefits (note 8)15,56015,13532,02529,825Advertising and promotion2,3031,8724,1563,466Bad debts2,3251,3904,3262,514Occupancy6,3846,21713,04712,674Distribution and travel1,9332,0583,7143,939Other3,1423,3766,6796,588Restructuring and other items (note 9)436-436-32,08330,04864,38359,006DEPRECIATION AND AMORTIZATIONDepreciation of lease assets12,12211,36124,19823,812Depreciation of property and equipment9967781,9711,624Amortization of intangible assets115171229277Impairment (net) (note 5)166292822913,39912,33926,68025,742Total operating expenses45,48242,38791,06384,748Operating income3,4213,8777,6277,719Interest expense463336947633Income before income taxes2,9583,5416,6807,086Income tax expense (note 10)Current3,534(781)4,451(449)Deferred(2,606)1,608(2,424)2,4399288272,0271,990Net income2,0302,7144,6535,096Basic earnings per share (note 11)0.170.230.390.43Diluted earnings per share (note 11)0.170.230.390.43See accompanying notes to the interim condensed consolidated financial statementsFOR FURTHER INFORMATION PLEASE CONTACT: David Ingrameasyhome Ltd.President & Chief Executive Officer(905) 272-2788ORSteve Goertzeasyhome Ltd.Senior Vice President and Chief Financial Officer(905) 272-2788