TORONTO, April 01, 2019 (GLOBE NEWSWIRE) -- Difference Capital Financial Inc. (“DCF” or the “Company”) (TSX:DCF), today reports its financial results for the three months and year ended December 31, 2018.
Full Year and Fourth Quarter 2018 Financial Highlights
- The portfolio produced a gross gain of $4.9 million for the fourth quarter and $2.0 million for the full year 2018, primarily driven by write-ups in the Company’s Vena Solutions Inc. (“Vena”) and Ethoca Solutions Inc. (“Ethoca”) investments plus unrealized foreign exchange gains on U.S. dollar denominated assets, partially offset by fair value losses in six private positions.
- Net asset value1 per share as of December 31, 2018 is $7.21. This compares to $6.58 at September 30, 2018, and $7.74 at December 31, 2017.
- Net income for the fourth quarter was $3.6 million or $0.62 per share and net loss for 2018 was $3.2 million or $0.55 per share compared to net income of $4.0 million or $0.69 per share for fourth quarter of 2017 and a loss of $1.2 million or $0.20 per share for the year 2017.
- In March 2018, the Company sold its indirect stake in the 618 acre undeveloped land known as the Eagle in Rancho Mirage, California for initial gross proceeds of approximately $14.3 million.
- The Company also sold its common and preferred shares in Thunderbird Entertainment Inc. (“Thunderbird”) in March 2018, generating net proceeds of $5.75 million.
- The Company issued a $6.7 million non-brokered private placement of 12% senior debentures maturing June 30, 2020 (the “Private Debentures”).
- In June and July 2018, the Company redeemed all $29.2 million of its 8% unsecured convertible debentures maturing July 31, 2018 (the “Convertible Debentures”).
2019 Successful Exits
- As announced on January 9, 2019, the Company sold the majority of its stake in Vena Solutions Inc. and generated approximately $13 million.
- As a result of the Vena sale, the Company was able to redeem all of the Private Debentures in full later that month.
- On March 12, 2019, Ethoca announced that it was being acquired. The Company expects to receive proceeds of at least $10 million in the second quarter and a further contribution to net asset value of $4.3 million on the sale of its Ethoca shares.
- When the Ethoca transaction closes, the company expects to have approximately $12.6 million in cash ($2.20 per common share) and no debt.
| (figures are in $000 except per share amounts and shares outstanding) | Q4 2018 | FY 2018 | Q4 2017 | FY 2017 | ||||||||
| Net gain (loss) on investments and marketable securities | 4,860 | 1,959 | 5,201 | 3,202 | ||||||||
| Other income | 67 | 448 | 298 | 1,611 | ||||||||
| Total Portfolio Contribution | 4,927 | 1,997 | 5,499 | 4,813 | ||||||||
| Total expenses and financing costs | (1,317 | ) | (5,213 | ) | (1,472 | ) | (5,994 | ) | ||||
| Net income (loss) | 3,610 | (3,216 | ) | 4,027 | (1,181 | ) | ||||||
| Earnings (loss) per share | $ | 0.62 | $ | (0.55 | ) | $ | 0.69 | $ | (0.20 | ) | ||
| FY 2018 | FY 2017 | |||||||||||
| Total assets | 64,466 | 77,033 | ||||||||||
| Total liabilities | 22,519 | 31,995 | ||||||||||
| Net asset value | 41,947 | 45,038 | ||||||||||
| Shares outstanding | 5,815,924 | 5,816,721 | ||||||||||
| Net asset value per share | $ | 7.21 | $ | 7.74 | ||||||||
| Share price | $ | 3.30 | $ | 3.75 | ||||||||
2018 Review
During 2018, the Company generated liquidity from the disposition of its U.S. real estate and Thunderbird investments, and the $6.7 million Private Debenture offering. The Company was therefore able to fully redeem the $29.2 million in principal amount of its 8% convertible unsecured debentures (the “Convertible Debentures”) outstanding on or before July 31, 2018.
The Company benefited from a large valuation gain on Vena, the majority of which was sold in January 2019, equating to a life-to-date return of 4X capital invested. Positive developments at Ethoca and secondary market activity supported a significant valuation increase in this holding in 2018. Subsequent to the year-end, an S&P 100 financial services firm announced that it entered into an agreement to acquire Ethoca. The Company achieved a 4X disposition on its TouchBistro Inc. ("TouchBistro") investment after three years, albeit on a small investment of $250,000. Valuation decreases on six of its private company holdings, five of which occurred in the fourth quarter, pushed the Company to a loss for the year. During 2018, the Company sold $4.0 million of Mogo Finance Technology Inc. (“Mogo”) convertible debentures and purchased $5.9 million of Mogo common shares.
For the year ended December 31, 2018, the Company realized $0.6 million of net capital gain on investments and marketable securities. The realized capital gain was primarily attributed to the disposition of the Company’s investment in TouchBistro ($0.8 million). The realized gains were partially offset by realized loss on the sale of Thunderbird preferred shares.
For the year ended December 31, 2018, the Company recorded $0.9 million of unrealized gain on investments and marketable securities. The significant changes in unrealized gain of the Company’s investment portfolio during the year were as follows: an $8.3 million increase in the valuation of Vena Solutions due to the Vena’s significant financing that closed in early January 2019, and to which the Company sold the majority of its Vena common shares; a $2.7 million valuation increase in Ethoca Solutions based on comparison of its operating metrics to comparable companies; and $1.6 million in unrealized currency gain on the Company’s U.S. dollar denominated assets; offset by: a reduction in value of Mogo common shares of $4.2 million; a reduction in unrealized gain in Mogo convertible debentures of $0.8 million; and unrealized fair value reductions ranging between $0.6 million and $1.4 million each for Baanto, Blue Ant, BrainScope, Carta Worldwide, ScribbleLive, and Waterloo Innovation Network LP, totalling $5.6 million.
Net income for the quarter ended December 31, 2018 was $3.6 million, or $0.62 per share compared to a net income of $4.0 million, or $0.69 per share for the quarter ended December 31, 2017 and a net loss of $0.8 million, or $0.15 per share for the quarter ended September 30, 2018.
For the three months ended December 31, 2018, the Company had a net realized loss on disposition of investments and marketable securities of $0.1 million, compared to a realized gain on disposition of $0.4 million during the same period last year and a realized loss of $0.0 million during the third quarter of 2018.
For the three months ended December 31, 2018, the Company recorded $5.0 million of unrealized gain on investments and marketable securities, compared to an unrealized gain of $4.8 million during the same period last year and an unrealized gain of $0.1 million during the third quarter of 2018. The significant changes in unrealized gain (loss) of the Company’s investments and marketable securities during the quarter were as follows: the Company recorded an unrealized gain of $8.3 million on its Vena investment; an unrealized gain of $2.7 million on its Ethoca investment; and, an unrealized currency gain on its U.S. dollar denominated assets of $0.6 million; offset by marked-to-market losses of publicly listed investments and marketable securities including Mogo of $2.0 million; and, fair value write-downs on investments in Baanto, Blue Ant, BrainScope, Cardiac Dimensions, Carta, and Waterloo Innovation Network LP totalling $4.0 million.
Total expenses for the year ended December 31, 2018 were $5.2 million, compared to $6.0 million for the year ended December 31, 2017. The significant components of expenses were as follows: financing costs for the year ended December 31, 2018 were $2.2 million compared to $3.2 million during the same period in 2017, as the Company redeemed its Convertible Debentures on June 15 and July 31 but also incurred interest on its Private Debentures issued on June 21, 2018; compensation expense for the year ended December 31, 2018 was $1.6 million versus $1.3 million in 2017 as the Company accrued for severance costs in 2018 associated with terminating its acting CFO; and, professional fees - which include audit, legal, accounting and directors’ fees - for the year ended December 31, 2018 were $0.9 million compared to $0.8 million in 2017.
2019 Outlook
Thanks to two significant transactions announced after the year-end, Vena and Ethoca, we have excess cash on the balance sheet and no debt for the first time since 2013. We will continue to seek opportunities to prudently monetize investments and generate cash to reinvest into selective existing holdings, new private opportunities and undervalued small-capitalization public technology companies. We are not expecting any further industry trade sales in the next two to three quarters, nor any immediate IPO exits from our portfolio. However, industry merger and acquisition activity in the next 9 to 18 months is quite possible, as are the opportunities for secondary sales.
Please refer to the section regarding forward-looking statements which form an integral part of this release. These results, along with the audited financial statements and the company's MD&A, are available on the company's website at www.differencecapital.com and on SEDAR at www.sedar.com.
About Difference Capital Financial Inc.
Difference Capital Financial Inc. invests in and advises growth companies. We leverage our capital market expertise to help unlock value in technology, media and healthcare companies as they approach important milestones in their business lifecycle.
Caution Regarding Forward-Looking Statements
Certain statements contained in this press release may be deemed “forward-looking statements.” Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” “projects,” “potential,” “scheduled,” “will seek,” “towards,” and similar expressions, or that events or conditions “will,” “would,” “may,” “could,” or “should” occur. Although DCF believes that the expectations reflected in those forward-looking statements are reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon. These statements speak only as of the date of this press release. DCF undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.
1 Net asset value (“NAV”) is a non-IFRS financial measure and is calculated by subtracting the aggregate fair value of the liabilities of the Company from the aggregate fair value of its assets. Net asset value per share is calculated by dividing NAV by the number of common shares outstanding as at the measurement date. The term net asset value per share does not have any standardized meaning according to IFRS and therefore may not be comparable to similar measures presented by other companies.
Contact Information
Henry Kneis
Chief Executive Officer
(416) 649-5090
www.differencecapital.com