DLC Releases Q3-2022 Results; Achieves YTD Funded Volumes of $56.8 Billion

VANCOUVER, British Columbia, Nov. 10, 2022 (GLOBE NEWSWIRE) — Dominion Lending Centres Inc. (TSX:DLCG) (“DLCG” or the “Corporation”) is pleased to report its financial results for the three months ended September 30, 2022 (“Q3-2022”) and nine months ended September 30, 2022. For complete information, readers should refer to the interim financial statements and management discussion and analysis which are available on SEDAR at www.sedar.com and on the Corporation’s website at www.dlcg.ca. All amounts are presented in Canadian dollars unless otherwise stated.

Reference herein to the Dominion Lending Centres Group of Companies (the “DLC Group” or “Core Business Operations”) includes the Corporation and its three main subsidiaries, MCC Mortgage Centres Canada Inc. (“MCC”), MA Mortgage Architects Inc. (“MA”), and Newton Connectivity Systems Inc. (“Newton), and excludes the Non-Core Business Asset Management segment and their corresponding historical financial and operating results. The “Non-Core Business Asset Management” segment represents the Corporation’s share of income in its equity-accounted investment in Cape Communications International Inc. (“Impact”), the expenses, assets and liabilities associated with managing Impact, the non-core credit facility, and public company costs. The Non-Core Business Asset Management segment also includes the Corporation’s share of income in Club16 Limited Partnership (“Club16”) up to the date of sale (refer to discussion below).

Q3-2022 Summary

• Q3-2022 funded volumes of $19.5 billion, representing a 14% decrease as compared to Q3-2021;
• Q3-2022 DLC Group revenue of $17.9 million, representing a 20% decrease as compared to Q3-2021;
• Q3-2022 DLC Group Adjusted EBITDA of $10.2 million as compared to $13.8 million during Q3-2021, representing a 26% decrease over the prior period;
• The Corporation’s net income for Q3-2022 increased to $29.4 million from $1.0 million in Q3-2021, primarily due to a non-cash finance recovery on the Preferred Share Liability of $27.8 million compared to a $6.6 million expense in Q3-2021;
• On August 31, 2022, the Corporation completed the sale of its 58.4% interest in Club16 to Club16 management for $16.5 million cash and a $1.5 million promissory note (the “Club16 Sale”), resulting in a gain on the Club16 Sale of $0.5 million. The Corporation applied the cash proceeds from the Club16 Sale against the outstanding balance of the Junior Credit Facility, resulting in a remaining balance of $4.5 million as at Q3-2022;
• During Q3-2022, the Corporation recognized a non-cash impairment loss of $4.8 million to reflect the recoverable value of Impact;
• The Corporation declared a quarterly dividend of $0.03 per class A common share, resulting in a dividend payment of $1.5 million for Q3-2022; and
• During Q3-2022, the Corporation made repurchases under the normal-course issuer bid (“NCIB”) of 106,140 Common Shares at an average price of $3.04 per share.

Gary Mauris, Executive Chairman and CEO, commented, “As an organization, we continue to focus on expanding our network of mortgage professionals and franchises through targeted recruiting initiatives, as demonstrated by mortgage broker growth of over 9% year-over-year, to over 8,200 mortgage professionals. And while we recognize funded volumes reduced 14% in Q3-2022 relative to Q3-2021, funded volumes are down less than 2% on a year-to-date basis, which is a meaningful achievement in today’s real estate environment. Higher interest rates have contributed to lower housing transactions across the market, however, we expect the market to stabilize over the next 12-18 months given the continued supply demand imbalances in the overall Canadian real estate market. Further, the Company remains well positioned to navigate the current housing market as well as to strategically deploy capital to grow its’ mortgage professional and funded volume base given our low leverage and strong cash flows.”

Selected Consolidated Financial Summary:
Below is the summary of our financial results for the three and nine months ended September 30, 2022 and September 30, 2021.

(1) Please see the Non-IFRS Financial Performance Measures section of this document for additional information.
(2) Net income for the three and nine months ended September 30, 2022 includes ($27.8) million non-cash finance recovery and $0.5 million non-cash finance expense on the Preferred Share liability, respectively (September 30, 2021 – $6.6 million expense and $16.9 million expense). The quarterly reassessment of the Corporation’s outlook and forecast has declined to reflect current housing market headwinds, resulting in a decrease in the Corporation’s Preferred Share liability during the three months ended September 30, 2022 (see the Preferred Shares section).
(3) The percentage change is Not a Meaningful Figure (“NMF”).

(1) Please see the Non-IFRS Financial Performance Measures section of this document for additional information.
(2) Adjusted EBITDA for the nine months ended September 30, 2022 includes an increase in professional fees of $1.6 million compared to the nine months ended September 30, 2021 primarily from elevated legal costs and expenses incurred in the first quarter of 2022.

The Corporation’s net income increased during the three months ended September 30, 2022 when compared to the same period in the previous year, primarily due to non-cash finance recovery on the Preferred Share liability of $27.8 million compared to $6.6 million expense during the three months ended September 30, 2021. In addition, interest expense decreased $0.5 million from lower interest rates under the Junior Credit Facility when compared to the previous Sagard credit facility. The increase was partly offset by a decrease in revenues and a non-cash impairment on Impact. The non-cash finance recovery on the Preferred Share liability in the current quarter was due to the Corporation’s outlook and forecast softening from its previous outlook and forecast assessed during the second quarter of 2022. The Corporation recognized a non-cash impairment on Impact of $4.8 million to reflect the recoverable value of Impact.

For the nine months ended September 30, 2022 the Corporation’s net income increased when compared to the same period in the previous year, primarily due to lower non-cash finance expense on the Preferred Share liability, partially offset by the non-cash impairment on Impact and higher general and administrative expenses from increased legal costs and expenses and personnel costs. The Corporation recognized a $0.5 million non-cash finance expense on the Preferred Share liability during the nine months ended September 30, 2022 compared to a $16.9 million non-cash finance expense in the prior year period. The non-cash finance expense during the nine months ended September 30, 2022 reflects changes in our outlook and forecast since it was assessed on December 31, 2021. The Corporation recognized a non-cash impairment on Impact of $4.8 million to reflect the recoverable value of Impact. The increase in expenses was partly offset by lower interest expense from lower interest rates under the Junior Credit Facility when compared to the previous Sagard credit facility, and a recovery on share-based compensation.

Adjusted net income for the three months ended September 30, 2022 decreased due to lower income from operations from decreased revenues, partly offset by lower income tax expense. Adjusted net income for the nine months ended September 30, 2022 increased compared to the same periods in the previous year primarily from a decrease in interest expense and lower adjusted net income allocated to the Preferred Shareholders, partly offset by a decrease in income from operations.

Adjusted EBITDA was lower for the three and nine months ended September 30, 2022 when compared to the same periods in the previous year. The decrease in adjusted EBITDA for the third quarter is primarily from lower revenues from lower funded mortgage volumes, partly offset by lower direct costs and general and administrative expenses from decreased advertising fund expenses and decreased personnel costs. The decrease for the nine months ended September 30, 2022 is primarily due to higher general and administrative expenses and a slight decrease in revenues. The increase in expenses is from elevated legal costs and expenses incurred in the first quarter of 2022, and increased personnel costs.

The decrease in free cash flow attributable to common shareholders during the three and nine months ended September 30, 2022 when compared to the same periods in the prior year was due to the decrease in adjusted EBITDA, partly offset by lower cash interest paid and lower income tax expense.

Selected Segmented Financial Summary:

(1) Operating expenses are comprised of direct costs, general and administrative expenses, share-based payments (recovery) expense, and depreciation and amortization expense.
(2) Please see the Non-IFRS Financial Performance Measures section of this document for additional information.
(3) Adjusted EBITDA for the nine months ended September 30, 2022 includes an increase in professional fees of $1.6 million compared to the nine months ended September 30, 2021 primarily from elevated legal costs and expenses incurred in the first quarter of 2022.

Non-IFRS Financial Performance Measures
Management presents certain non-IFRS financial performance measures which we use as supplemental indicators of our operating performance. These non-IFRS measures do not have any standardized meaning, and therefore are unlikely to be comparable to the calculation of similar measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Non-IFRS measures are defined and reconciled to the most directly comparable IFRS measure. Non-IFRS financial performance measures include Adjusted EBITDA, Adjusted net income, Adjusted earnings per share, and free cash flow. Please see the Non-IFRS Financial Performance Measures section of the Corporation’s MD&A dated November 10, 2022, for the three and nine months ended September 30, 2022, for further information on these measures. The Corporation’s MD&A is available on SEDAR at www.sedar.com.

The following table reconciles adjusted EBITDA from income before income tax, which is the most directly-comparable measure calculated in accordance with IFRS:

(1) Though Corporation’s overall outlook and forecast has softened since its prior budgeting period in the fourth quarter of 2021, resulting in a revaluation recovery, the Corporation also recognizes accretion expense which results in a net expense on the Preferred Share liability during the nine months ended September 30, 2022 (see the Preferred Share section).
(2) Other income in the three and nine months ended September 30, 2021 related to a legal settlement and the derecognition of sales tax receivables and payables on initial acquisition of the Core Business Operations in 2016, respectively.
(3) Acquisition, integration and restructuring costs for the three and nine months ended September 30, 2021 related to the restructuring and amalgamation of the Corporation from Founders Advantage Capital Corp. to Dominion Lending Centres Inc. These costs for the nine months ended September 30, 2022 relate to the transition of the Corporation from the TSX Venture Exchange to the TSX.
(4) Adjusted EBITDA for the nine months ended September 30, 2022 included an increase in professional fees of $1.6 million compared to the nine months ended September 30, 2021 primarily from elevated legal costs and expenses incurred in the first quarter of 2022.
(5) The amortization of franchise rights and relationships within the Core Business Operations of $0.8 million and $2.4 million for the three and nine months ended September 30, 2022 (September 30, 2021 – $0.7 million and $2.0 million) are classified as a charge against revenue, and have not been added back for Adjusted EBITDA.

The following table reconciles free cash flow from cash flow from operating activities, which is the most directly-comparable measure calculated in accordance with IFRS:

(1) Amounts presented reflect the Corporation’s common shareholders’ proportion and have excluded amounts attributed to NCI holders.

The following table reconciles adjusted net income from net income, which is the most directly-comparable measure calculated in accordance with IFRS:

(1) Though Corporation’s overall outlook and forecast has softened since its prior budgeting period in the fourth quarter of 2021, resulting in a revaluation recovery, the Corporation also recognizes accretion expense which results in a net expense on the Preferred Share liability during the nine months ended September 30, 2022 (see the Preferred Share section).

Forward-Looking Information
Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate,” “believe,” “estimate,” “will,” “expect,” “plan,” or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to: our expectation that the market will stabilize over the next 12-18 months.

Such forward-looking information is based on many estimates and assumptions, including material estimates and assumptions, related to the following factors below that, while considered reasonable by the Corporation as at the date of this MD&A considering management’s experience and perception of current conditions and expected developments, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to:

• Changes in interest rates;
• The DLC Group’s ability to maintain its existing number of franchisees and add additional franchisees;
• Changes in overall demand for Canadian real estate (i.e. such as immigration);
• Changes in overall supply for Canadian real estate (i.e. such as new housing start levels);
• At what period in time, the Canadian real estate market stabilizes;
• Changes in Canadian mortgage lending and mortgage brokerage laws;
• Material decreases in the aggregate Canadian mortgage lending marketplace;
• Changes in the fees paid for mortgage brokerage services in Canada;
• Changes in the regulatory framework for the Canadian housing and lending sectors;
• Demand for the Corporation’s products remaining consistent with historical demand.

Many of these uncertainties and contingencies may affect our actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that forward-looking statements are not guarantees of future performance. All forward-looking statements made in this document are qualified by these cautionary statements. The foregoing list of risks is not exhaustive. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities laws, we undertake no obligation to update publicly or revise any forward-looking statements or information, whether because of new information, future events or otherwise.

About Dominion Lending Centres Inc.
The DLC Group is Canada’s leading network of mortgage professionals. The DLC Group operates through Dominion Lending Centres and its three main subsidiaries, MCC Mortgage Centre Canada Inc., MA Mortgage Architects Inc. and Newton Connectivity Systems Inc., and has operations across Canada. The DLC Group’s extensive network includes ~8,200 agents and ~540 locations. Headquartered in British Columbia, the DLC Group was founded in 2006 by Gary Mauris and Chris Kayat.

Contact information for the Corporation is as follows: