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, 2024 (“Q1-2024”). For complete information, readers should refer to the interim financial statements and management discussion and analysis which are dated May 7, 2024 and are available on SEDAR+ at www.sedarplus.ca 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”).

Gary Mauris, Executive Chairman and CEO, commented, “Continuing our momentum from Q4-2023, we were pleased to report a 14% increase in funded volumes for Q1-2024 compared to Q1-2023. We believe the Canadian residential real estate market has stabilized following multiple interest rate increases and market activity seems to be increasing. DLCG is well-positioned for the real estate market recovery and we are laser-focused on recruitment and retention of franchises and brokers and onboarding of brokers onto our connectivity platform ‘Velocity’. With significant mortgage renewals on the horizon for many Canadian over the next three years, we’ve also launched a new campaign for our mortgage professionals called “Gold Rush” that makes it easier for brokers to stay connected with their clients and remain top-of-mind. As such, we remain optimistic for fiscal 2024, and we anticipate seeing further positive momentum in our mortgage volumes, revenues, and margins as the real estate market improves over the next 12-18 months with the prospect of declining interest rates starting in 2024.” 

Q1-2024 Summary

• Q1-2024 funded volumes of $11.2 billion, representing a 14% increase as compared to 2023;
• Q1-2024 revenue of $13.7 million, representing a 17% increase compared to 2023;
• Q1-2024 adjusted EBITDA of $5.0 million as compared to $2.6 million in Q1-2023;
• The Corporation’s Q1-2024 net income increased to $2.6 million from net loss of $47 thousand in Q1-2023, primarily from higher income from operations from increased funded volume and lower non-cash finance expense on the Preferred Share Liability;
• The Corporation declared a quarterly dividend of $0.03 per class A common share (“Common Share”), resulting in a dividend payment of $1.4 million in Q1-2024; and
• Subsequent to Q1-2024, on April 25, 2024, the Corporation disposed of its interest in Impact for proceeds of $3.7 million. The proceeds from sale were applied against the Junior Credit Facility.

Selected Consolidated Financial Summary: Below is the summary of our financial results for the three months ended March 31, 2024 and March 31, 2023.

	Three months ended March 31,
(in thousands, except per share and KPIs)	2024		2023		Change
Revenues	$	13,636	$	11,638	17%
Income from operations		3,468		1,330	161%
Adjusted EBITDA (1)		4,996		2,639	89%
Adjusted EBITDA margin		37%		23%	14%
Free cash flow attributable to common shareholders (1)		650		(1,369)	NMF(3)
Net income (loss) (2)		2,631		(47)	NMF(3)
Adjusted net income (1)		1,439		198	627%
Diluted earnings per Common Share (2)		0.05		-	NMF(3)
Adjusted diluted earnings per Common Share (1)		0.03		-	NMF(3)
Dividends declared per share	$	0.03	$	0.03	-
Key Performance Indicators (“KPIs”)
Funded mortgage volumes (4)		11.2		9.8	14%
Number of franchises (5)		512		539	(5%)
Number of brokers (5)		8,170		7,856	4%
% of funded mortgage volumes submitted through Velocity (6)		68%		60%	8%

(1)	Please see the Non-IFRS Financial Performance Measures section of accompanying MD&A for additional information.
(2)	Net income for the three months ended March 31, 2024 includes $0.2 million of non-cash finance recovery on the Preferred Share liability (March 31, 2023 – $0.9 million). The Preferred Share liability is revalued at the end of each reporting period to reflect our most recent outlook and forecast. Refer to the Preferred Shares section of accompanying MD&A.
(3)	The percentage change is not a meaningful figure.
(4)	Funded mortgage volumes are presented in billions and are a key performance indicator that allows us to measure performance against our operating strategy.
(5)	The number of franchises and brokers are as at the respective period end date (not in thousands).
(6)	Representing the percentage of the DLC Group’s funded mortgage volumes that were submitted through Velocity.

During the three months ended March 31, 2024 the Corporation saw an increase in revenues over the three months ended March 31, 2023 from higher Newton revenues primarily due to an increase in Velocity adoption and lender contract renewals. Further, our funded mortgage volumes increased during the three-month period when compared to 2023’s equivalent periods. The increase in funded volumes also contributed to the increase in revenues during the three months ended March 31, 2024.

As the Corporation’s operating expenses are largely fixed in nature and are not necessarily proportionate to changes in revenues, changes in the Corporation’s revenues have a more pronounced impact on adjusted income, adjusted EBITDA, and adjusted EBITDA margins. As such, these metrics have increased with higher revenues during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023.

Income from operations increased from higher revenues and lower operating expenses during the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The Corporation’s operating expenses have decreased during the three months ended March 31, 2024 when compared to 2023, primarily due to lower direct costs from a decrease in advertising fund expenditures due to timing of advertising campaigns compared to prior year, partly offset by costs for commissions and certain expenses which are proportionate to funded volume.

Net income increased during the three months ended March 31, 2024, compared to the prior year period. The changes over the previous year period are primarily from higher revenue and lower other expenses. Other expenses decreased during the three months ended March 31, 2024 primarily from period-over-period variances in finance recovery (expense) on the Preferred Share liability (refer to the Preferred Shares section of the accompanying MD&A), finance expense, and impairment loss recognized for equity-accounted investments.

The Corporation recognized a non-cash impairment loss of $0.3 million for the three months ended March 31, 2024 on its equity-accounted investment in Impact, representing the difference between the investment’s carrying value and its estimated recoverable amount. The investment in Impact has been reclassified as ‘held for sale’ (see Outlook section of accompanying MD&A).

Free cash flow increased during the three months ended March 31, 2024 from higher adjusted cash flows from operations from higher income from operations and lower maintenance CAPEX.

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 7, 2024 for further information on key performance indicators. The Corporation’s MD&A is available on SEDAR+ at www.sedarplus.ca.

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

	Three months ended March 31,
(in thousands)	2024		2023
(Loss) income before income tax	$	3,214	$	186
Add back:
Depreciation and amortization		939		964
Finance expense		764		678
Finance (recovery) expense on the Preferred Share liability		(154)		890
		4,763		2,718
Adjustments:
Share-based payments recovery		-		(96)
Promissory note income		(31)		(37)
Foreign exchange loss		16		13
Loss on contract settlement		10		44
Non-cash impairment of equity-accounted investment		236		-
Other expense (income) (1)		2		(3)
Adjusted EBITDA (2)	$	4,996	$	2,639

(1)	Other expense (income) for the three months ended March 31, 2024 and March 31, 2023 relates to a loss (gain) on the disposal of intangible assets.
(2)	Amortization of franchise rights and relationships of $1.3 million for the three months ended March 31, 2024 (March 31, 2023 – $1.0 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)		2024		2023
Cash flow from operating activities		$	5,087	$	(935)
Changes in non-cash working capital and other non-cash items			(569)		3,409
Cash provided from operations excluding changes in non-cash working capital and other non-cash items			4,518		2,474
Adjustments:
Distributions from equity-accounted investees			185		-
Maintenance CAPEX			(3,133)		(4,156)
Lease payments			(112)		(158)
Loss on contract settlement			10		44
Other non-cash items (1)			(13)		(3)
			1,455		(1,799)
Free cash flow attributable to Preferred Shareholders (2)			(805)		430
Free cash flow attributable to common shareholders		$	650	$	(1,369)

(1)	Other non-cash items for the three months ended March 31, 2024 represent foreign exchange loss and promissory note income. The three months ended March 31, 2023 includes gain on disposal of an intangible asset.
(2)	Free cash flow attributable to the Preferred Shareholders is determined based on free cash flow of the Core Business Operations (as defined in the Preferred Shares section of accompanying MD&A).

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

		Three months ended March 31,
(in thousands)		2024		2023
Net income (loss)		$	2,631	$	(47)
Adjustments:
Foreign exchange loss			16		13
Finance (recovery) expense on the Preferred Share liability (1)			(154)		890
Non-cash impairment of equity-accounted investment			236		-
Loss on contract settlement			10		44
Promissory note interest income			(31)		(37)
Other expense (income) (2)			2		(3)
Income tax effects of adjusting items			(3)		(1)
			2,707		859
Income attributable to Preferred Shareholders (3)			(1,268)		(661)
Adjusted net income			1,439		198
Adjusted net income attributable to common shareholders			1,435		188
Adjusted net income attributable to non-controlling interest			4		10
Diluted adjusted earnings per Common Share		$	0.03	$	-

(1)	The Preferred Share liability is revalued at the end of each reporting period to reflect our most recent outlook and forecast. Refer to the Preferred Shares section of the accompanying MD&A.
(2)	Other expense (income) for the three months ended March 31, 2024 and March 31, 2023 relates to a loss (gain) on the disposal of intangible assets.
(3)	Adjusted net income attributable to the Preferred Shareholders is determined based on adjusted net income of the Core Business Operations (as defined in the Preferred Shares section of accompanying MD&A).

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 outlooks. Forward-looking information in this document includes, but is not limited to: our anticipation of further recovery in our mortgage volumes, revenues, and margins as we expect the market to 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 press release 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 (via factors such as immigration);
• Changes in overall supply for Canadian real estate (via factors 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 and regulations;
• Changes in the Canadian mortgage lending marketplace;
• Changes in the fees paid for mortgage brokerage services in Canada; and
• 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. Dominion Lending Centres Inc. is Canada’s leading network of mortgage professionals. DLCG operates through Dominion Lending Centres Inc. and its three main subsidiaries, MCC Mortgage Centre Canada Inc., MA Mortgage Architects Inc. and Newton Connectivity Systems Inc., and has operations across Canada. DLCG extensive network includes nearly 8,200 agents and over 500 locations. Headquartered in British Columbia, DLC was founded in 2006 by Gary Mauris and Chris Kayat.

DLCG can be found on X (Twitter), Facebook and Instagram and LinkedIn @DLCGmortgage and on the web at www.dlcg.ca. 

Contact information for the Corporation is as follows:

James Bell EVP, Corporate and Chief Legal Officer 403-560-0821 jbell@dlcg.ca		Eddy Cocciollo President 647-403-7320 eddy@dlc.ca

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