Due to the
improved performance of the rental division, management has
determined that the offer for a majority of assets of the rental
division received on February 6, 2007 is no longer acceptable.
We have determined that a spin-off of the division to
shareholders is the best method for maximizing shareholder
Gordon Reykdal, Chairman and CEO, Rentcash
Rentcash Inc (TSXV: RCS)
reported net income for the quarter ended March 31, 2007 dropped over 80% to $450,000
from $2.8 million in the same quarter last year. Diluted
earnings per share were $0.02, compared to $0.14 in the same quarter last year.
Rentcash said the drop in net income was the result of:
- a decrease in store level operating results due to a restructuring of
processes and controls in the brokerage division
- increased expenses related to the strengthening of the management
team and operational functions in key areas such as internal audit,
risk management, training and government relations,
- a significant increase in training and development activities and
higher professional fees,
- the addition of an internal collection department and check cashing
call centre in the brokerage division,
- costs related to the consolidation of stores in the rental division,
- a $300,000 write-down of future tax assets in the rental division.
Rentcash also announced that the company has declined the offer for InsaRent
received in February of this year. Instead, Rentcash will "spin-off of the rental division to the
Rentcash will hold a conference call to discuss its first quarter results
ended March 31, 2007 on Thursday, May 10, 2007 at 12:30 p.m.
A link to the live webcast will be available from My RTO
Gordon Reykdal, Chairman and CEO commented, "Due to the improved
performance of the rental division, management has determined that the offer
for a majority of assets of the rental division received on February 6, 2007
is no longer acceptable. We have determined that a spin-off of the division to
shareholders is the best method for maximizing shareholder value."
Reykdal said the year-long
restructuring of the Company's brokerage division is complete. "I've traveled across the
country over the past couple of months spending a full day with every store
manager in our retail network reinforcing our overall direction. Managers are
well briefed on how to generate earnings growth and I am energized by their
commitment to the success of our Company."
"Q3 07 marks the first quarter for which
year-over-year comparisons can reasonably be made, and the outlook is good.
Despite reduced earnings, store operating performance has improved in recent
months and retention payments to third party lenders are contained and poised
to decrease in subsequent quarters. New products are making an increased
contribution to store volumes and our base of new customers is growing.
Positive trending in key areas signals that improved financial performance is
achievable in future periods. Management's decision to eliminate rollovers
will serve us well, as several provincial governments are now moving forward
with industry rules that will include a ban on rollovers."
Reykdal concluded, "Product diversification and building
relationships with new and existing customers have been key elements of our
forward strategy. Our recently launched '50 % off check cashing' promotion
has resulted in volume growth and customer retention. A prepaid credit card is
currently being tested and will soon be launched in regions across the
country. These initiatives will be complemented in the coming months with a
customer loyalty program and online lending product."
Revenue for the third quarter totaled $36.0 million, a decrease of
$2.0 million (5%) compared to $38.0 million in the same quarter last year.
Year-to-date, revenue was $110.5 million, a decrease of 5% compared to $116.5
million in the first nine months of fiscal 2006. The third quarter revenue
decrease reflects the closure of 26 stores in the rental division over the
past nine months and a 7% decrease in same store sales in the brokerage
division. The year-over-year decrease in brokerage same store sales has
diminished from a high of 17% in the first quarter of this year to 7% this
quarter and 4% in the month of March. Management believes the improvement
reflects the impact of recent training and development initiatives and the
renewed emphasis on growth. Management also believes that the recent
initiatives along with the seasonality of the brokerage business should
positively impact average same store sales in the fourth quarter relative to
the third quarter of this year.
Expenses for the third quarter totaled $25.3 million, a 9% increase
compared to $23.3 million in the same quarter last year. The increase resulted
from the increased number of brokerage stores and the strengthening of
operational and management capacity in key areas including internal audit,
risk management, training and government relations. The increase also was due
to a significant increase in training activities, higher professional fees and
the addition of a collection department and check cashing call centre.
Year-to-date, expenses totaled $73.4 million, an increase of 7% compared to
$68.4 million for the first nine months of fiscal 2006.
Third party lender retention payments for the third quarter totaled
$5.7 million, compared to $6.2 million in the same quarter last year. The
lower payments were consistent with total loans brokered decreasing to $121
million this quarter from $133 million in the same quarter last year.
Year-to-date, retention payments totaled $17.9 million, compared to $20.9
million for the nine months ended March 31, 2006. As a percentage of brokerage
revenue, retention payments have declined consistently over the past three
quarters from 19.8% to 19.1%. For the nine months ending March 31, 2007,
retention payments represented 19.5% of brokerage revenue compared to 21.2%
for the nine months ending March 31, 2006. Management believes that the focus
on improving processes and controls as well as the establishment of an
internal collection department should have a positive impact on retention
payments in future periods.
Amortization of rental assets for the quarter improved to $2.3 million
(38% of rental revenue), compared to $2.9 million (42% of rental revenue) in
the third quarter last year due to initiatives designed to increase higher
margin rental revenue and improve the margin on product sales. Year-to-date,
the amortization of rental assets totaled $7.5 million (41% of rental
revenue), consistent with $7.5 million (42% of rental revenue) for the first
nine months of fiscal 2006.
Amortization of capital and intangible assets for the quarter totaled
$1.4 million, compared to $1.2 million in the third quarter last year. The
increase reflects an increased number of brokerage stores and approximately
$130,000 in costs associated with the closure of stores in the rental
division. Year-to-date, amortization of capital and intangible assets was
$4.1 million (including $230,000 of store closure costs), compared to $3.1
million for the nine months ended March 31, 2006.
The Company's income taxes for the third quarter include the impact of a
$300,000 write-down of future tax assets in the rental division. Excluding the
impact of the write-down, the Company's effective tax rate was 39.0% in the
third quarter and 39.2% year-to-date. The adjusted effective rates were higher
than the consolidated statutory tax rate of approximately 34.5% due to the
impact of stock based compensation which is not deductible for tax purposes.
At the end of the quarter, the Company had cash of $14.2 million and
positive working capital of $6.4 million. Over the past year, the Company's
working capital position has improved $13.5 million from a deficit of
$7.1 million as at March 31, 2006.
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