Brad Ness: Great, thanks. A couple more here. On Digital Boundary Group, you had a strong revenue increase in the quarter of $1.8 million. Is that sustainable, or is that an anomaly or a seasonal boost in revenue, or do you think that’s more reoccurring?
David Taylor: I think that’s more reoccurring in that we received a large contract with one of the largest corporations in Canada to do app testing, and it’s very profitable. It’s a specialized type work that DBG is doing for this large corporate. And the only constraint really is finding enough app testers. So, we’re actively trying to hire as many as we can to bolster that business. So, yes, we’re excited. DBG, I think round numbers was $10 million in revenue, $5.86 million in gross profit. That should just keep going up the same trajectory. App testing, like I say, is a wonderful business for us and all the other products we have in DBG such as sophisticated penetration testing. There’s always an – there’s an increasing demand for it.
Brad Ness: Absolutely. You said $10 million in revenue. I’m showing $5.7 million for the year. What is that line? Is that expectations?
David Taylor: Yes, what we show is – no, we show gross profit on our statements and total revenue – Shawn’s on the line, I think it was 9.8 for the year, Shawn, total revenue?
Shawn Clarke: That’s right, David. Yes, Brad, you’re right. You’re looking at gross profit of 5.7 as published, and David’s talking about revenue, topline revenue of sales, sir.
Brad Ness: Oh, so it’s in the income statement. When I see non-interest income of $1.8 million, that’s not revenue? You said that’s net?
Shawn Clarke: On the quarter, Brad, you’re right, $1.8 million and that is – that’s gross profit at DBG. And the challenge there is integrating that with the bank statement. So, it’s the most intuitive way we can merge the two income streams to have it somewhat sort of align with how the bank’s statements are structured. So, you’re right. What you’re looking at is gross profit.
Brad Ness: Okay. And Shawn, what was revenue for the quarter?
David Taylor: Approximately (indiscernible), right around three.
Shawn Clarke: Yes. We published the total
Brad Ness: It would be the $3 million? Okay. So, you’re saying core revenue of Digital Boundary Group was $3 million, and the $1.8 million you report in the income statement is the lower gross profit part of that?
Shawn Clarke: That’s right. About $2.8 million on the quarter, Brad, for sales, and then two point – or 1.8 as you meant for gross margin or gross profit. My apologies.
Brad Ness: Okay. And if that’s something you could present going forward, that would definitely be helpful so I can differentiate that. But let’s see. Lastly here, when I add back that $1.8 million and $1.1 million, roughly $0.10 a share, it comes up to 1.1, ROA, 11% ROE kind of on a core basis. So, I imagine that’s a good starting place as I think about profitability next year, early next year. How much leverage should I think you have in this model? if you continue to grow 20 plus percent, do you get to 15% ROE? I know you do eventually, but what’s the timing of something like that?
David Taylor: Well, we do get to 15. That’s the number we use in our planning. And a good question is on the timing. Presently, the point-of-sale business in Canada is still growing rapidly, which is quite surprising to me in that it’s driven by the actual cost per month of the item that the person’s purchasing, and interest rates, of course, have a huge bearing on that. So, you would think it would dampen down, but presently, it’s still growing rapidly in Canada, like I was saying earlier, not to the extent that we – the year we just completed, 70 odd percent growth. In the States, the model looks really attractive from the real-life customers we’ve been dealing with and pitching to. So, the major constraint to get into that 15% ROE is how long it takes us to be granted the acquisition of the holding for the bank.
That’s what’s holding us back in the United States. We are – we created a sort of interim company we call VersaFinance to hold these assets. And it’s quite cumbersome. So, we’ve actually been backing off until we’ve got that US license. So, that’s the gating item on rapid growth and a huge improvement in ROE. Now, I’m just saying that, as you noted, we end the year at a run rate of about $100 million in revenue, and fixed costs are – Shawn will know better than I, but on a – without any extraneous items, they’re probably running around 55.
Brad Ness: We’re already starting to – is that number – you would have it, Shawn?
Shawn Clarke: Yes, sir.
David Taylor: Yes, so we’re already starting the year with a $45 million pretax. If we did nothing else, I mean, if we didn’t grow a bit, and we are growing rapidly still in the Canadian market, so it’s – we really are heading into 2023 with a full head of steam. And then, if it turns out that the bankruptcies increase, they seem to be already, well, that all – that helps our margin too, because the – what we pay on the – on what are really operating accounts, is a lot less than we pay on GICs. So, I hate to be so optimistic when all my colleagues are looking at their boots and weeping at times. But our – so I was saying earlier, our little bank is designed for this type of economy and looking really good. You didn’t hear us complaining about loan losses or cracks in the portfolio or any of those things.
In fact, the only loan we had in arrears paid off the next day, not just a crazy anomaly in accounting that you show a loan compared to one day, the next day it pays off. We’re going into the market with a really solid portfolio, a full head of steam of existing loans and customers growing. And if the recession kicks in, as everybody thinks it does, that just means an abundance of economical price deposits for us.
Brad Ness: Got it. Thank you, gentlemen, and happy holidays.
David Taylor: Same to you, Brad.
Shawn Clarke: Thanks. Hope to see you again sometime in the winter months. I might be spending a little time in my place in Florida, so it won’t be too short a ride to go up to where you are.
Brad Ness: Sounds good. Just let me know.
Shawn Clarke: Absolutely.