easyhome Ltd. Reports Second Quarter 2008 Results and Announces Agreement to Acquire Insta-Rent Inc.
MISSISSAUGA, ONTARIO--(Marketwire - Aug. 14, 2008) - easyhome Ltd. (TSX:EH), Canada's leading merchandise leasing company, today announced its results for the second quarter ended June 30, 2008. For the June quarter end, revenue increased to $39.8 million, up 13.6% from $35.0 million in the second quarter of 2007. Same store revenue growth was 8.7% continuing a trend of 27 consecutive quarters of comparable revenue growth. Operating income was $3.9 million, a decrease of 17.3% to the same period a year ago. Diluted earnings per share were $0.21 versus $0.26 last year.
For the six month period ended June 30, 2008, revenue increased to $79.6 million, up 14.7% from $69.4 million in the comparable period in 2007. Operating income was $9.7 million in the first half of 2008, compared with $10.4 million for the same period in 2007, a decrease of $0.7 million or 6.9%. Diluted earnings per share were $0.54 in the first six months of 2008, a decrease of $0.05 or 8.5% compared with 2007 diluted earnings per share of $0.59.
There were two primary factors impacting this performance. The first was reduced price-point marketing to generate new leases coupled with the liquidation of older distressed merchandise from the inventories. The current period includes increased lease asset amortization of 2.3% of revenues over the same quarter a year ago. The second, and perhaps more impactful factor was the implementation of a new information technology system, which touches all aspects of the customer transaction from taking payments through writing new leases and additionally extends to all management reporting.
Commenting on the results, David Ingram, President and Chief Executive Officer of easyhome said, "While our net income for the second quarter was a disappointment, I am confident that the issues have been isolated and that our management team has initiated the appropriate actions to correct them. We implemented initiatives in March to improve the new agreement margins through both selective price increases and vendor cost reductions which we believe will bring the amortization expense to historic levels by the end of the third quarter."
Mr. Ingram continued, "While we anticipated many of the potential issues with the new system rollout, it was still a significant undertaking for our associates. The new point of sale system ultimately diverted operational focus from key areas of deliveries and cash collection, which we can measure and attribute to having a negative effect on easyhome's income. All stores are now converted and we expect to have worked through most of the operational transition issues in this quarter."
Mr. Ingram concluded, "Despite reporting our first earnings decline since the second quarter of 2006, I am encouraged by a number of positive developments in the quarter. Our strategy to diversify our business units is building a foundation for long-term growth. easyfinancial, with 9 kiosks, is now contributing to earnings and will be well placed for expansion in 2009. easydecor, our rent-to-rent product for the staging community, is also making a modest profit. With the announcement of easygates in May of successfully signing 2 franchise development agreements for 16 stores, we are confident in our plans for expansion into the United States. We are excited by the Insta-Rent opportunity and in particular, welcome customers and associates to our organization. With the combination of focused execution and diversified growth platforms, we are well positioned to continue our 8 years of sequential growth."
Insta-Rent Inc. Acquisition
easyhome also announces that it has entered into an agreement (the "Support Agreement") with Insta-Rent Inc. ("Insta-Rent") pursuant to which easyhome will offer to purchase all the issued and outstanding common shares of Insta-Rent for cash consideration of $0.50 per share (the "Offer"). The total net cash consideration payable under the Offer will be approximately $10.2 million plus related transaction costs and will be funded by bank borrowings.
Insta-Rent has 44 kiosks located in the Brick stores, as well as 6 stand-alone stores. The purchase is expected to close by the end of September 2008. Subsequent to the closing, easyhome plans to rationalize the existing locations in the Brick, with a view to maximizing synergies from this transaction, including running some as a sales kiosk or full-service kiosk. In addition we anticipate closing 4 free standing stores, as well as many of the 70 storage units which Insta-Rent currently stores its idle inventory. Furthermore, we intend to dispose of approximately 50 excess delivery vehicles. At the same time, easyhome will redirect many of the 8300 Insta-Rent customers to easyhome stores as approximately 70% of the Insta-Rent locations are within 6 km of an easyhome store.
Insta-Rent currently has annualized revenues of approximately $18 million. We anticipate with the merging of the operations into easyhome's that the transaction could deliver an incremental $0.30 to $0.35 per share to easyhome's shareholders in 2009. For 2008, there will be a modest appreciable affect on earnings until the completion of the transition.
Donald K. Johnson, Chairman of the Board, commented, "easyhome has an excellent track record of value creation and a strong growth strategy. Our management team was able to quickly identify and correct the cause of the earnings decline. We are confident that management has dealt effectively with the issues. The acquisition of Insta-Rent will further strengthen the company and enhance value for shareholders."
The Board of Directors of Insta-Rent has unanimously agreed to recommend acceptance of the Offer to the shareholders of Insta-Rent. In addition, Insta-Rent shareholders (including directors and officers of the Company and its largest shareholder, Mr. Gordon Reykdal) representing approximately 60% of the issued and outstanding Insta-Rent common shares on a fully-diluted basis have agreed to tender their shares to the Offer. The Support Agreement also provides that Insta-Rent shall not, directly or indirectly, solicit or initiate any inquiries, discussions or negotiations with any third party with respect to any alternative transaction. In the event a transaction is not completed, Insta-Rent has agreed to pay easyhome a termination fee of $365,000 in certain circumstances. The board of directors of Insta-Rent has received an opinion from Paradigm Capital Inc. that the Offer is fair, from a financial point of view, to the shareholders of Insta-Rent.
easyhome anticipates mailing the Offer on or about August 20, 2008. The Offer will be open for 35 days unless extended by easyhome and is conditional upon, among other things, a minimum of 66 2/3% of the Insta-Rent shares being properly tendered under the Offer.
The Board of Directors has approved a dividend payment of $0.085 per share payable on October 6, 2008 to the holders of common shares of record as at the close of business on September 22, 2008.
The above analysis refers to certain financial measures that are not determined in accordance with generally accepted accounting principles ("GAAP") in Canada. These measures do not have standardized meanings and may not be comparable to similar measures presented by other companies. Although measures such as operating income and same store revenue growth do not have standardized meanings prescribed by GAAP, these measures are defined herein 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.
easyhome Ltd. has 221 stores, including 209 Canadian corporate stores, 8 U.S. corporate stores, 3 Canadian franchised stores and 1 licensed Canadian store. 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. easyhome Ltd. is listed on the TSX under the symbol 'EH'.
This news release includes forward-looking information about easyhome Ltd. including its business operations, strategy and expected financial performance and condition, and the accretive effect of the proposed Insta-Rent acquisition, (which has been included to provide management's estimate of the effect of such acquisition). 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 statements that may be made concerning future financial performance (including revenues, 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 agreements, collect on existing lease agreements, open new locations on favourable terms, purchase products which appeal to our customers at a competitive rate, cope with changes in legislation and the impact of litigation, control costs at all levels of the organization and maintain and enhance our system of internal controls and integrate the Insta-Rent operations with our own. 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.
Notice Of No Auditor Review Of Interim Financial Statements
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.
The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.
CONSOLIDATED BALANCE SHEETS
(unaudited)
As at:
June 30, December 31,
(in 000's) 2008 2007
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$ $
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ASSETS
Amounts receivable 7,519 5,976
Prepaid expenses 2,142 1,740
Lease assets 76,450 77,072
Property and equipment 15,686 12,799
Future tax assets 5,521 5,947
Intangible assets and deferred costs 1,875 1,946
Goodwill 10,779 10,779
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119,972 116,259
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Bank revolving term loan 20,228 13,770
Accounts payable and accrued liabilities 8,368 14,025
Accrued employee costs 2,322 3,078
Dividends payable 893 726
Deferred lease inducements 2,644 2,591
Unearned revenue 543 498
Income taxes payable 291 1,624
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35,289 36,312
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Shareholders' equity
Common shares 49,129 48,521
Contributed surplus 2,215 1,985
Retained earnings 33,340 29,441
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84,684 79,947
-----------------------------------------------------------------------
119,972 116,259
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see accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Three months ended Six months ended
June 30, June 30,
(in 000's, except earnings per share) 2008 2007 2008 2007
----------------------------------------------------------------------------
$ $ $ $
----------------------------------------------------------------------------
REVENUE
Lease 31,449 28,441 64,150 56,544
Other 8,324 6,576 15,429 12,810
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39,773 35,017 79,579 69,354
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EXPENSES
Salaries and benefits 11,700 10,114 23,050 19,802
Selling, general and administrative 4,091 3,546 7,414 6,666
Occupancy 5,489 4,736 10,875 9,432
Automotive and travel 1,786 1,546 3,395 2,933
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23,066 19,942 44,734 38,833
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Amortization
Amortization of lease assets 11,905 9,671 23,529 18,838
Amortization of property and equipment,
intangible assets and deferred costs 880 660 1,648 1,294
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12,785 10,331 25,177 20,132
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Total operating expenses and
amortization 35,851 30,273 69,911 58,965
----------------------------------------------------------------------------
Operating income 3,922 4,744 9,668 10,389
Interest expense 234 209 466 360
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Income before income taxes 3,688 4,535 9,202 10,029
----------------------------------------------------------------------------
Income taxes
Current 1,325 1,698 3,082 3,058
Future 132 26 426 758
----------------------------------------------------------------------------
1,457 1,724 3,508 3,816
----------------------------------------------------------------------------
Net income and comprehensive income for
the period 2,231 2,811 5,694 6,213
----------------------------------------------------------------------------
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Earnings per share
Basic 0.21 0.28 0.54 0.61
Diluted 0.21 0.26 0.54 0.59
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see accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)
Three months ended Six months ended
June 30, June 30,
(in 000's) 2008 2007 2008 2007
----------------------------------------------------------------------------
$ $ $ $
----------------------------------------------------------------------------
Retained earnings, beginning of
period 32,002 23,367 29,441 20,718
Transitional adjustment on the
adoption of new accounting policies - - - (27)
----------------------------------------------------------------------------
Retained earnings, beginning of
period as restated 32,002 23,367 29,441 20,691
Net income for the period 2,231 2,811 5,694 6,213
Common share dividends (893) (739) (1,795) (1,465)
----------------------------------------------------------------------------
Retained earnings, end of period 33,340 25,439 33,340 25,439
----------------------------------------------------------------------------
----------------------------------------------------------------------------
see accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended Six months ended
June 30, June 30,
(in 000's) 2008 2007 2008 2007
----------------------------------------------------------------------------
$ $ $ $
----------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income for the period 2,231 2,811 5,694 6,213
Items not affecting cash:
Recognition of stock based
compensation 234 232 445 544
Amortization of lease assets 11,905 9,673 23,529 18,840
Amortization of property and
equipment, intangible assets and
deferred costs 880 660 1,648 1,294
Future income taxes 132 26 426 757
Net change in non-cash operating
items -
Lease assets (12,436) (10,103) (22,907) (23,306)
Other 1,430 110 (9,594) (6,172)
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4,376 3,409 (759) (1,830)
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INVESTING ACTIVITIES
Purchase of property and equipment (2,750) (1,760) (4,427) (3,375)
Purchase of intangible assets and
deferred costs (41) (23) (41) (60)
Proceeds on disposition of property
and equipment (2) 64 4 251
----------------------------------------------------------------------------
(2,793) (1,719) (4,464) (3,184)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Advance (repayment) of bank
revolving term loan (624) (1,004) 6,458 6,188
Issuance of common shares on
exercise of options 3 28 453 149
Shares purchased for cancellation (69) - (69) -
Common share dividend payments (893) (714) (1,619) (1,323)
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(1,583) (1,690) 5,223 5,014
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Net change in cash for the period - - - -
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see accompanying notes to consolidated financial statements
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