DLCG Dominion Lending Centres Inc

Dominion Lending Centres Inc. (TSX:DLCG) (“DLCG” or the “Corporation”) is pleased to report its financial results for the three months ended March 31, 2023 (“Q1-2023”). For complete information, readers should refer to the interim financial statements and management discussion and analysis which are dated May 9, 2023 and 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.

DLCG 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”).

Q1-2023 Summary

• Q1-2023 funded volumes of $9.4 billion, representing a 41% decrease as compared to the three months ended March 31, 2022 (“Q1-2022”);
• Q1-2023 revenue of $11.6 million, representing a 32% decrease as compared to Q1-2022;
• Q1-2023 Adjusted EBITDA of $2.6 million as compared to $6.2 million during Q1-2022, representing a 58% decrease over the prior year period;
• The Corporation’s net loss for Q1-2023 decreased to $47 thousand from $22.5 million in Q1-2022, primarily due to a non-cash finance expense on the Preferred Share Liability of $0.9 million compared to an expense of $25.7 million in Q1-2022;
• The Corporation declared a quarterly dividend of $0.03 per class A common share (“Common Share”), resulting in a dividend payment of $1.5 million in Q1-2023; and
• During Q1-2023, the Corporation made repurchases under the normal-course issuer bid (“NCIB”) of 17,870 Common Shares at an average price of $2.82 per share.

Gary Mauris, Executive Chairman and CEO, commented, “The Canadian real estate market continued to face headwinds in Q1-2023 from increased interest rates, resulting in a decrease in funded volumes of 41% from Q1-2022. While funded volumes for the quarter were down compared to the prior year quarter, we note that the Corporation achieved record Q1 funded volumes in Q1-2022. 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. We further note that adjusted EBITDA margins have fallen during Q1-2023, compared to Q1-2022, due to the decline in funded volumes and related revenues. The Corporation incurs fixed costs and a decrease in revenues negatively impacts adjusted EBITDA margins. As the first quarter of the year typically yields the lowest revenues in the year, we anticipate improved margins over the course of fiscal 2023. We remain optimistic for fiscal 2023 and we will continue to focus on the onboarding of our brokers onto our proprietary connectivity platform Velocity and expanding our network of mortgage professionals and franchises through targeted recruiting initiatives.”

Selected Consolidated Financial Summary:Below is the summary of our financial results for the three months ended March 31, 2023 and March 31, 2022.

(in thousands)			2023						2022			Change
Revenues			$	11,638				$	17,029			(32			%)
Operating expenses			10,308						11,701			(12			%)
Income from operations			1,330						5,328			(75			%)
Other (expense) income, net			(1,144				)		(26,514		)	96			%
Income (loss) before tax			186						(21,186		)	NMF			(5)
Add back:
Depreciation and amortization			964						1,029			(6			%)
Finance expense			678						432			57			%
Finance expense on the Preferred Share liability			890						25,715			(97			%)
Other adjusting items			(79				)		250			NMF			(5)
Adjusted EBITDA (1)			$	2,639				$	6,240			(58			%)
Adjusted EBITDA margins (1)			23				%		37		%	(38			%)
Free cash flow attributable to common shareholders (1)		$		(1,369			)	$		1,141		NMF
Net loss (2)				(47			)			(22,490	)	100		%
Adjusted net income (1)				198						1,082		(82		%)
Diluted loss per Common Share (2)				(0.00			)			(0.50	)	100		%
Adjusted earnings per Common Share (1)				0.00						0.02		(100		%)
Dividends declared per share		$		0.03				$		-		NMF

(1) Please see the Non-IFRS Financial Performance Measures section of this document for additional information.(2) Net loss for the three months ended March 31, 2023 includes $0.9 million of non-cash finance expense on the Preferred Share liability (March 31, 2022 – $25.7 million). The Corporation recognized a revaluation recovery during the three months ended March 31, 2023, compared to an expense during the comparative year period, as a result of our outlook and forecast.

Income from operations was lower during the three months ended March 31, 2023, when compared to the same period in the previous year, primarily due to lower revenues from lower funded mortgage volumes, partly offset by lower operating expenses. Operating expenses decreased during the current year period, primarily from a decrease in general and administrative expenses and a recovery on share-based payments compared to an expense in the previous year period. General and administrative expenses decreased primarily from lower professional fees of $1.3 million, associated with higher legal expenses in 2022, partly offset by higher personnel costs. The share-based payments recovery was a result of a decrease in the Corporation’s share price since December 31, 2022, and fewer restricted share units outstanding and no phantom share units outstanding as at March 31, 2023 compared to March 31, 2022. These are partly offset by higher direct costs from higher advertising fund expenses.

The decrease in income from operations contributed to a decrease in adjusted EBITDA during the three months ended March 31, 2023, when compared to the same period in the previous year.

The Corporation incurred a decrease in net loss during the three months ended March 31, 2023, when compared to the three months ended March 31, 2022, primarily to due lower other expense partly offset by lower income from operations. Other expenses decreased primarily due to lower finance expense on the Preferred Share liability of $24.8 million, from a revaluation recovery during 2023, compared to a revaluation expense in 2022. The Corporation’s outlook and forecast for the 2023 fiscal year has softened since its prior forecast period in the fourth quarter of 2022, resulting in a decrease in the Corporation’s Preferred Share liability during the three months ended March 31, 2023.

Adjusted net income for the three months ended March 31, 2023 decreased compared to the same period in the previous year primarily from lower income from operations driven by decreased revenues from lower funded mortgage volumes. The decrease in adjusted net income contributed to the decrease in free cash flow attributable to common shareholders during the three months ended March 31, 2023, when compared to 2022. Further decreasing free cash flow attributable to common shareholders was an increase in maintenance capital expenditures, as the Corporation continues its franchise renewal efforts.

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 May 9, 2023, for the three months ended March 31, 2023, 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 (loss) before income tax, which is the most directly-comparable measure calculated in accordance with IFRS:

	Three months ended March 31,
(in thousands)	2023			2022
Income (loss) before income tax	$	186		$	(21,186	)
Add back:
Depreciation and amortization		964			1,029
Finance expense		678			432
Finance expense on the Preferred Share liability (1)		890			25,715
		2,718			5,990
Adjustments to remove:
Share-based payments (recovery) expense		(96	)		210
Promissory note interest income		(37	)
Foreign exchange loss		13			15
Loss on contract settlement		44			25
Other income (2)		(3	)		-
Adjusted EBITDA (3)	$	2,639		$	6,240

(1) As the Corporation’s outlook and forecast for the 2023 fiscal year has softened, the Corporation recognized a revaluation recovery on the Preferred Share liability during the three months ended March 31, 2023 compared to an expense in the previous year period.(2) Other income in the three months ended March 31, 2023 relates to a gain on the disposal of intangible assets.(3) Amortization of franchise rights and relationships of $1.0 million for the three months ended March 31, 2023 (March 31, 2022 – $0.8 million) is classified as a charge against revenue, and has 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:

	Three months ended March 31,
(in thousands)	2023			2022
Cash flow (used in) / provided by operating activities	$	(935	)	$	1,821
Changes in non-cash working capital and other non-cash items		3,409			4,132
Cash provided by operations excluding changes in non-cash working capital and other non-cash items		2,474			5,953
Adjustments:
Distributions from equity-accounted investees (1)		-			150
Maintenance CAPEX		(4,156	)		(3,160	)
Newton NCI portion of cash provided from continuing operations		-			(191	)
Lease payments (1)		(158	)		(147	)
Loss on settlement of a contract		44			25
Other non-cash items		(3	)		-
		(1,799	)		2,630
Free cash flow attributable to Preferred Shareholders (2)		430			(1,489	)
Free cash flow attributable to common shareholders	$	(1,369	)	$	1,141

(1) Comparative amounts presented reflect the Corporation’s common shareholders’ proportion and have excluded amounts attributed to Newton NCI holders.(2) Free cash flow attributable to the Preferred Shareholders is determined based on free cash flow of the Core Business Operations (the Core Business Operations for these purposes excludes certain public company costs and cash flows associated with the Junior Credit Facility and the equity-accounted investment, Cape Communications International Ltd. (“Impact")).

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

	Three months ended March 31,
(in thousands)	2023			2022
Net loss	$	(47	)	$	(22,490	)
Add back:
Foreign exchange loss		13			15
Finance expense on the Preferred Share liability (1)		890			25,715
Loss on contract settlement		44			25
Promissory note interest income		(37	)		-
Other income		(3	)		-
Income tax effects of adjusting items		(1	)		(2	)
		859			3,263
Adjusted net income attributable to Preferred Shareholders (2)		(661	)		(2,181	)
Adjusted net income	$	198		$	1,082
Adjusted net income attributable to common shareholders		188			893
Adjusted net income attributable to non-controlling interest		10			189
Diluted adjusted earnings per Common Share	$	0.00		$	0.02

(1) As the Corporation’s outlook and forecast for the 2023 fiscal year has softened, the Corporation recognized a revaluation recovery on the Preferred Share liability during the three months ended March 31, 2023, compared to an expense in the previous year period.(2) Adjusted net income attributable to the Preferred Shareholders is determined based on adjusted net income of the Core Business Operations (the Core Business Operations for these purposes excludes certain public company costs and cash flows associated with the Junior Credit Facility and the equity-accounted investment, Impact).

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, and our anticipation that our adjusted EBITDA margin will improve over fiscal 2023.

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 ~7,850 agents and ~539 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:

James BellCo-President403-560-0821jbell@dlcg.ca

Robin BurpeeCo-Chief Financial Officer403-455-9670rburpee@dlcg.ca