easyhome Ltd. Reports Third Quarter 2008 and Year-to-Date Results
MISSISSAUGA, ONTARIO--(Marketwire - Nov. 10, 2008) - easyhome Ltd. (TSX:EH), Canada's leading merchandise leasing company, today announced its results for the third quarter ended September 30, 2008.
Third Quarter Results
Revenue for the three-month period ended September 30, 2008, was $38.9 million, an increase of 9.4% from $35.5 million for the same period a year ago. Same-store revenue growth was 4.9% compared with 8.9% for the third quarter of 2007. Operating income decreased to $2.9 million from $4.9 million a year earlier. Net income for the period was $1.5 million, compared with $2.7 million, in the third quarter of 2007. Diluted earnings per share were $0.14 versus $0.26 last year.
As previously announced, we installed our new IT system in the second quarter of 2008. This rollout, coupled with attention to the integration of Insta-rent Inc. ("Insta-rent"), has lead to widespread execution issues, as our staff's attention to corporate stores was diluted. Consequently, the second quarter experienced softer deliveries, a condition that continued into the first two months of the third quarter. As a result, the Company's lease portfolio didn't grow as planned, causing both reduced revenues and profitability in the third quarter. This was compounded by weaker collections in the quarter which adversely impacted charge-offs. Deliveries, however, began to improve late in the third quarter, with this strengthening continuing into the early part of the fourth quarter. Furthermore, a focused effort on collections in October brought our outstanding amounts down to its lowest level in several years. These improving trends, coupled with the increased revenues from the acquisition of Insta-rent are expected to bring improved results in the upcoming quarters.
The acquisition of Insta-rent is a significant opportunity for easyhome. It has provided experienced personnel, and more importantly, allows the Company to grow its customer base by approximately 10%. Since acquiring 89% of Insta-rent on September 25, 2008, the existing workforce has been reduced by more than 50%, and the majority of the locations have been closed, moving the related business into nearby easyhome stores. Subsequent to the end of the quarter, the Company acquired the remaining 11% of Insta-rent.
"Easyhome has experienced unprecedented change in the second and third quarters of 2008," said David Ingram, President and Chief Executive Officer of easyhome. "In addition to opening five new stores, we implemented a new, system-wide information technology system, and acquired the operations of Insta-rent. The benefits of these changes will be significant and long-term. They will enhance our market position, increase our customer base, grow our revenues, and lead to greater efficiency. This long-term gain has had short-term costs, as a combination of factors depressed our financial results for the second and third quarters."
Year-to-Date Results
For the first nine months of 2008, revenue was $118.4 million, an increase of 12.9% compared with $104.9 million for the same period last year. Same-store revenue growth was 10.1%, up from 8.7% for the same period a year earlier. Operating income for the period was $12.5 million compared with $15.3 million for the first nine months of 2007. Net income was $7.2 million for the first nine months of 2008 compared with $9.0 million for the same period last year. On a fully diluted per share basis, net income was $0.68 compared with $0.85.
The Company has opened 100 stores since 2004, significantly increasing both the size and profitability of the Company. This, however, resulted in increased debt levels to fund store openings and start-up losses. For 2009, the Company has shifted its focus to opening fewer corporate stores and an increased number of franchise stores. This will allow stores to focus on the key functions of leasing and collecting. As a result, we expect to utilize less capital in our business in 2009, allowing us to reduce our debt levels by the end of 2009.
David Ingram further commented, "Our business strategy is solid, and with improved technology and the acquisition of Insta-rent, we are better positioned than ever to grow our business. In 2009, we will shift our focus to operational excellence to extract full value from our rapid expansion by executing the basics of our business, and growing from a position of strength. To this end, for 2009 we are targeting 8-10 new corporate stores, 15-20 new franchise stores and total revenue growth of 15-20%.
Donald K. Johnson, Chairman of the Board, commented, "The management team has made progress in executing these transformational steps at easyhome. We believe the benefits of these efforts will be clear to shareholders during ensuing quarters. The Board strongly supports management's intensified focus on our core operations, cash flow, and profitability."
The Board of Directors has approved a dividend payment of $0.085 per share payable on January 5, 2009 to the holders of common shares of record as at the close of business on December 1, 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.
As at September 30, 2008, easyhome Ltd. had 222 stores, including 207 Canadian corporate stores, nine U.S. corporate stores, five Canadian franchised stores and one 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'.
Forward-Looking Information
This news release includes forward-looking information about easyhome including its business operations, strategy and its recent Insta-rent 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, due to, but not limited to important factors such as the integration of the Insta-Rent operations with easyhome's. The reader is cautioned to consider these and other factors carefully and not place undue reliance on easyhome's forward-looking statements. Management of easyhome is 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:
September 30 December 31,
(in 000's) 2008 2007
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$ $
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ASSETS
Amounts receivable 5,069 4,057
Consumer loans 3,463 1,919
Income taxes receivable 891 -
Prepaid expenses 2,883 1,740
Lease assets 81,938 77,072
Property and equipment 17,339 12,799
Future tax assets 8,457 5,947
Intangible assets and deferred costs 4,050 1,946
Goodwill 15,654 10,779
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139,744 116,259
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Bank revolving term loan 23,189 13,770
Accounts payable and accrued liabilities 13,774 14,025
Accrued employee costs 3,045 3,078
Dividends payable 893 726
Deferred lease inducements 2,538 2,591
Unearned revenue 519 498
Income taxes payable - 1,624
Long-term debt 8,797 -
Minority interest 1,403 -
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54,158 36,312
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Shareholders' equity
Common shares 49,113 48,521
Contributed surplus 2,531 1,985
Retained earnings 33,942 29,441
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85,586 79,947
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139,744 116,259
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CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Three months ended Nine months ended
(in 000's, except September 30, September 30,
earnings per share) 2008 2007 2008 2007
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$ $ $ $
----------------------------------------------------------------------------
REVENUE
Lease 31,111 28,839 95,262 85,383
Other 7,751 6,681 23,180 19,491
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38,862 35,520 118,442 104,874
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EXPENSES
Salaries and benefits 11,774 9,863 34,825 29,667
Selling, general and administrative 3,752 3,424 11,166 10,090
Occupancy 5,623 4,872 16,497 14,304
Automotive and travel 1,836 1,568 5,231 4,501
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22,985 19,727 67,719 58,562
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Amortization
Amortization of lease assets 11,865 10,185 35,394 29,023
Amortization of property and
equipment, intangible assets and
deferred costs 1,144 710 2,792 2,004
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13,009 10,895 38,186 31,027
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Total operating expenses and
amortization 35,994 30,622 105,905 89,589
----------------------------------------------------------------------------
Operating income 2,868 4,897 12,537 15,285
Interest expense 253 202 719 562
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Income before income taxes 2,615 4,695 11,818 14,723
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Income taxes
Current 1,096 1,756 4,178 4,814
Future 25 195 451 952
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1,121 1,951 4,629 5,766
----------------------------------------------------------------------------
Net income and comprehensive income
for the period 1,494 2,744 7,189 8,957
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Earnings per share
Basic 0.14 0.26 0.69 0.87
Diluted 0.14 0.26 0.68 0.85
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)
Three months ended Nine months ended
September 30, September 30,
(in 000's) 2008 2007 2008 2007
----------------------------------------------------------------------------
$ $ $ $
----------------------------------------------------------------------------
Retained earnings, beginning of
period 33,340 20,691 29,441 20,718
Transitional adjustment on the
adoption of new accounting policies - - - (27)
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Retained earnings, beginning of
period as restated 33,340 20,691 29,441 20,691
Net income for the period 1,494 2,744 7,189 8,957
Common share dividends (893) (726) (2,688) (2,190)
----------------------------------------------------------------------------
Retained earnings, end of period 33,941 22,709 33,942 27,458
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended Nine months ended
September 30, September 30,
(in 000's) 2008 2007 2008 2007
----------------------------------------------------------------------------
$ $ $ $
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CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income for the period 1,494 2,744 7,189 8,957
Items not affecting cash:
Recognition of stock based
compensation 317 220 747 764
Amortization of lease assets 11,864 10,185 35,394 29,023
Amortization of property and
equipment, intangible assets
and deferred costs 1,144 710 2,792 2,004
Future income taxes 37 195 463 952
Net change in non-cash operating
items
Lease assets (11,383) (10,847) (34,290) (34,153)
Other (2,259) 563 (11,853) (5,609)
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1,214 3,770 442 1,938
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INVESTING ACTIVITIES
Purchase of property and equipment (3,217) (1,409) (7,644) (4,784)
Purchase of intangible assets and
deferred costs - (1,875) (41) (1,935)
Business acquisition (8,797) - (8,797) -
Proceeds on disposition of
property and equipment (80) 117 (78) 371
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(12,094) (3,167) (16,560) (6,348)
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FINANCING ACTIVITIES
Advance (repayment) of bank
revolving term loan 2,992 (651) 9,450 5,536
Advance (repayment) of long term
debt 8,797 - 8,797 -
Issuance of common shares on
exercise of options 1 771 454 920
Shares purchased for cancellation (17) - (86) -
Common share dividend payments (893) (723) (2,497) (2,046)
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10,880 (603) 16,118 4,410
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Net change in cash for the period - - - -
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