Dominion Lending Centres Inc. (TSX:DLCG) (“DLCG” or the
“Corporation”) is pleased to report its financial results for the
three (“Q3-2023”) and nine months ended September 30, 2023. For
complete information, readers should refer to the interim financial
statements and management discussion and analysis which are dated
November 7, 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”).
Q3-2023 Summary
- Q3-2023 funded volumes of $17.7 billion, representing a 9%
decrease as compared to the three months ended September 30, 2022
(“Q3-2022”);
- Q3-2023 revenue of $19.6 million, representing a 9% increase as
compared to Q3-2022, primarily from an increase in Newton revenues
from lender renewals and increased Velocity adoption;
- Q3-2023 Adjusted EBITDA of $10.1 million as compared to $9.4
million during Q3-2022, representing an 8% increase over the prior
year period;
- The Corporation recorded net income for Q3-2023 of $5.3 million
as compared to net income of $29.4 million in Q3-2022, primarily
due to a non-cash finance expense on the Preferred Share Liability
of $0.9 million compared to a recovery of $27.8 million in
Q3-2022;
- 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 Q3-2023; and
- During Q3-2023, the Corporation made repurchases under the
normal-course issuer bid (“NCIB”) of 15,550 Common Shares at an
average price of $2.15 per share.
Gary Mauris, Executive Chairman and CEO,
commented, “With our continued focus to onboard our brokers onto
our connectivity platform Velocity, we have seen an increase in
revenues and adjusted EBITDA in Q3-2023. This increase in revenues
resulted in an increase in our adjusted EBITDA margins to 52% in
Q3-2023, due to our fixed cost structure. However, our funded
mortgage volumes remain lower than Q3-2022 by 9%. While we are
seeing improvements in our funded mortgage volumes in Q3-2023, the
Canadian real estate market continues to face headwinds largely
caused by increased interest rates contributing to lower housing
transactions. We anticipate seeing further recovery in our margins
and mortgage volumes, as we expect the market to stabilize over the
next 12-18 months.”
Selected Consolidated Financial
Summary:Below is the summary of our financial results for
the three and nine months ended September 30, 2023 and September
30, 2022.
|
Three months ended Sept. 30, |
|
Nine months ended Sept. 30, |
|
(in thousands, except KPIs) |
|
2023 |
|
|
2022 |
|
Change |
|
|
2023 |
|
|
2022 |
|
Change |
|
Revenues |
$ |
19,578 |
|
$ |
17,934 |
|
9% |
|
$ |
46,759 |
|
$ |
56,786 |
|
(18%) |
|
Operating expenses |
|
10,699 |
|
|
9,283 |
|
15% |
|
|
32,362 |
|
|
31,954 |
|
1% |
|
Income from operations |
|
8,879 |
|
|
8,651 |
|
3% |
|
|
14,397 |
|
|
24,832 |
|
(42%) |
|
Other (expense) income, net |
|
(1,434) |
|
|
22,829 |
|
NMF(4) |
|
|
(9,364) |
|
|
(5,089) |
|
(84%) |
|
Income before tax |
|
7,445 |
|
|
31,480 |
|
(76%) |
|
|
5,033 |
|
|
19,743 |
|
(75%) |
|
Add back: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
939 |
|
|
951 |
|
(1%) |
|
|
2,848 |
|
|
3,014 |
|
(6%) |
|
Finance expense |
|
832 |
|
|
678 |
|
23% |
|
|
2,329 |
|
|
1,710 |
|
36% |
|
Finance expense (recovery) on the Preferred Share liability |
|
880 |
|
|
(27,758) |
|
NMF(4) |
|
|
7,991 |
|
|
492 |
|
NMF(4) |
|
Gain on sale of an equity-accounted investment |
|
- |
|
|
(525) |
|
NMF(4) |
|
|
- |
|
|
(525) |
|
NMF(4) |
|
Non-cash impairment of an equity-accounted investment |
|
- |
|
|
4,778 |
|
NMF(4) |
|
|
- |
|
|
4,778 |
|
NMF(4) |
|
Other adjusting items |
|
20 |
|
|
(208) |
|
NMF(4) |
|
|
(288) |
|
|
(185) |
|
(56%) |
|
Adjusted EBITDA(1) |
$ |
10,116 |
|
$ |
9,396 |
|
8% |
|
$ |
17,913 |
|
$ |
29,027 |
|
(38%) |
|
Adjusted EBITDA margin(1) |
|
52% |
|
|
52% |
|
-% |
|
|
38% |
|
|
51% |
|
(25%) |
|
Key Performance Indicators (“KPIs”) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded mortgage volumes(2) |
|
17.7 |
|
|
19.4 |
|
(9%) |
|
|
42.3 |
|
|
57.2 |
|
(26%) |
|
Number of franchises(3) |
|
526 |
|
|
539 |
|
(2%) |
|
|
526 |
|
|
539 |
|
(2%) |
|
Number of brokers(3) |
|
8,081 |
|
|
8,221 |
|
(2%) |
|
|
8,081 |
|
|
8,221 |
|
(2%) |
|
% of funded mortgage volumes submitted through Velocity(2)(5) |
|
64% |
|
|
56% |
|
14% |
|
|
63% |
|
|
54% |
|
17% |
|
(1) Please see the Non-IFRS Financial
Performance Measures section of this document for additional
information.(2) Funded mortgage volumes are presented in billions
and are a key performance indicator that allows us to measure
performance against our operating strategy.(3) The number of
franchises and brokers are as at the respective period end date
(not in thousands).(4) The percentage change is not a meaningful
figure.(5) Representing the percentage of funded mortgage volumes
that were submitted through Velocity.
|
Three months ended Sept. 30, |
|
Nine months ended Sept. 30, |
|
(in thousands, except per share) |
|
2023 |
|
|
2022 |
|
Change |
|
|
2023 |
|
|
2022 |
|
Change |
|
Free cash flow attributable to common shareholders(1) |
$ |
4,607 |
|
$ |
4,793 |
|
(4%) |
|
$ |
5,424 |
|
$ |
11,441 |
|
(53%) |
|
Net income(2) |
|
5,271 |
|
|
29,381 |
|
(82%) |
|
|
2,067 |
|
|
13,600 |
|
(85%) |
|
Adjusted net income(1) |
|
3,115 |
|
|
2,822 |
|
10% |
|
|
4,973 |
|
|
9,171 |
|
(46%) |
|
Diluted income per Common Share(2) |
|
0.11 |
|
|
0.61 |
|
(82%) |
|
|
0.04 |
|
|
0.28 |
|
(86%) |
|
Adjusted diluted earnings per Common Share(1) |
|
0.06 |
|
|
0.06 |
|
-% |
|
|
0.10 |
|
|
0.19 |
|
(47%) |
|
Dividends declared per share |
$ |
0.03 |
|
$ |
0.03 |
|
-% |
|
$ |
0.09 |
|
$ |
0.06 |
|
50% |
|
(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, 2023 includes $0.9 million and $8.0 million of
non-cash finance expense on the Preferred Share liability,
respectively (September 30, 2022 – $27.8 million recovery and $0.5
million expense, respectively). The Preferred Share liability is
revalued at the end of each reporting period to reflect our most
recent outlook and forecast.
During the three months ended September 30,
2023, the Corporation saw an increase in revenues over the three
months ended September 30, 2022, from higher Newton revenues
primarily due to an increase in Velocity adoption and lender
contract renewals. However, headwinds continue to impact the
Canadian housing market primarily by decreasing Canadian housing
sales activity due largely to increased interest rates, as
evidenced by a decrease in funded mortgage volumes during the three
and nine months ended September 30, 2023, compared to the previous
year periods. The decrease in funded volumes has resulted in a
decrease in revenues during the nine months ended September 30,
2023.
As the Corporation’s operating expenses are
largely fixed in nature and are not proportionate to changes in
revenues, changes in the Corporation’s revenues have a more
pronounced impact to adjusted income, adjusted EBITDA and adjusted
EBITDA margins. As such these metrics have increased with higher
revenues during the three months ended September 30, 2023 and have
decreased during the nine months ended September 30, 2023, when
compared to the previous year periods.
Income from operations during the three months
ended September 30, 2023 increased from higher revenues, partly
offset by higher operating expenses; and decreased during the nine
months ended September 30, 2023 from lower revenues and higher
operating expenses. The Corporation’s operating expenses have
increased during the three and nine months ended September 30, 2023
when compared to the previous year periods, primarily due to:
- higher advertising
fund expenses from timing of expenditures;
- an increase in
advertising expenses from increased event costs (associated with
the recommencement of certain corporate events); and,
- higher personnel
costs.
The increase in operating expenses combined with
an increase in other expenses has driven a decrease in net income
during the three and nine months ended September 30, 2023, compared
to the previous year periods. In the prior year period, the
Corporation recognized a revaluation recovery of $33.2, which
contributed to net income during the three months ended September
30, 2022. Comparatively, the third quarter of 2023 recognized a
revaluation recovery of $3.5 million, resulting in lower net income
during the three months ended September 30, 2023, when compared to
the third quarter of 2022. The Dividend Entitlement (defined in our
MD&A dated November 7, 2023) changes due to updates in our
outlook and forecasts. Refer to the Preferred Shares section in our
MD&A dated November 7, 2023 for further information. This
decrease in net income is partly offset by an impairment loss
recognized in 2022 and an increase in income from equity-accounted
investments in 2023.
Free cash flow of the Corporation has decreased
during the three and nine months ended September 30, 2023 when
compared to the same periods in the previous year, primarily from
an increase in maintenance capital expenditures, as the Corporation
continues its franchise renewal efforts, and increased operating
expenses.
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 7,
2023, for the three and nine months ended September 30, 2023, for
further information on key performance indicators. 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:
|
Three months ended Sept. 30, |
|
Nine months ended Sept. 30, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Income before income tax |
$ |
7,445 |
|
$ |
31,480 |
|
$ |
5,033 |
|
$ |
19,743 |
|
Add back: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
939 |
|
|
951 |
|
|
2,848 |
|
|
3,014 |
|
Finance expense |
|
832 |
|
|
678 |
|
|
2,329 |
|
|
1,710 |
|
Finance expense (recovery) on the Preferred Share liability(1) |
|
880 |
|
|
(27,758) |
|
|
7,991 |
|
|
492 |
|
|
|
10,096 |
|
|
5,351 |
|
|
18,201 |
|
|
24,959 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Share-based payments recovery |
|
(12) |
|
|
(308) |
|
|
(333) |
|
|
(319) |
|
Promissory note income |
|
(40) |
|
|
- |
|
|
(116) |
|
|
- |
|
Foreign exchange loss |
|
6 |
|
|
23 |
|
|
26 |
|
|
39 |
|
(Gain) loss on contract settlement |
|
(10) |
|
|
75 |
|
|
58 |
|
|
48 |
|
Gain on sale of an equity-accounted investment |
|
- |
|
|
(525) |
|
|
- |
|
|
(525) |
|
Non-cash impairment of an equity-accounted investment |
|
- |
|
|
4,778 |
|
|
- |
|
|
4,778 |
|
Other income(2) |
|
76 |
|
|
2 |
|
|
77 |
|
|
47 |
|
Adjusted EBITDA(3) |
$ |
10,116 |
|
$ |
9,396 |
|
$ |
17,913 |
|
$ |
29,027 |
|
(1) The Corporation recognized a
lower revaluation recovery on the Preferred Share liability during
the nine months ended September 30, 2023, compared to the previous
year period.(2) Other expense in the three and
nine months ended September 30, 2023 relates to a loss on the
disposal of intangible assets and a loss on other equity-accounted
investment. Other expense for the three and nine months ended
September 30, 2022 relates to acquisition, integration and
restructuring costs.(3) Amortization of franchise
rights and relationships of $1.1 million and $3.7 million for the
three and nine months ended September 30, 2023, respectively
(September 30, 2022 – $0.8 million and $2.4 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 Sept. 30, |
|
Nine months ended Sept. 30, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Cash flow from operating activities |
$ |
9,243 |
|
$ |
3,708 |
|
$ |
13,653 |
|
$ |
17,173 |
|
Changes in non-cash working capital and other non-cash items |
|
(382) |
|
|
4,899 |
|
|
2,952 |
|
|
7,978 |
|
Cash provided from operations excluding changes in non-cash
working capital and other non-cash items |
|
8,861 |
|
|
8,607 |
|
|
16,605 |
|
|
25,151 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Distributions from equity-accounted investees(1) |
|
125 |
|
|
146 |
|
|
275 |
|
|
627 |
|
Maintenance CAPEX |
|
(630) |
|
|
(209) |
|
|
(6,039) |
|
|
(4,417) |
|
Lease payments(1) |
|
(160) |
|
|
(153) |
|
|
(476) |
|
|
(453) |
|
Acquisition, integration and restructuring costs(1) |
|
- |
|
|
2 |
|
|
- |
|
|
47 |
|
(Gain) loss on settlement of a contract(1) |
|
(10) |
|
|
75 |
|
|
58 |
|
|
48 |
|
Other non-cash items(2) |
|
- |
|
|
2 |
|
|
1 |
|
|
(189) |
|
|
|
8,186 |
|
|
8,470 |
|
|
10,424 |
|
|
20,814 |
|
Free cash flow attributable to Preferred Shareholders(3) |
|
(3,579) |
|
|
(3,677) |
|
|
(5,000) |
|
|
(9,373) |
|
Free cash flow attributable to common
shareholders |
$ |
4,607 |
|
$ |
4,793 |
|
$ |
5,424 |
|
$ |
11,441 |
|
(1) Comparative amounts presented reflect the
Corporation’s common shareholders’ proportion and have excluded
amounts attributed to Newton NCI holders.(2) Other non-cash items
for the nine months ended September 30, 2023 represent the loss on
disposal of intangible assets. The three and nine months ended
September 30, 2022 represents the Newton NCI portion of cash
provided from operations.(3) Free cash flow attributable to the
Preferred Shareholders is determined based on free cash flow of the
Core Business Operations.
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 Sept. 30, |
|
Nine months ended Sept. 30, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Net income |
$ |
5,271 |
|
$ |
29,381 |
|
$ |
2,067 |
|
$ |
13,600 |
|
Add back: |
|
|
|
|
|
|
|
|
Gain on sale of an equity-accounted investment |
|
- |
|
|
(525) |
|
|
- |
|
|
(525) |
|
Non-cash impairment of an equity-accounted investment |
|
- |
|
|
4,778 |
|
|
- |
|
|
4,778 |
|
Foreign exchange loss |
|
6 |
|
|
23 |
|
|
26 |
|
|
39 |
|
Finance expense (recovery) on the Preferred Share liability
(1) |
|
880 |
|
|
(27,758) |
|
|
7,991 |
|
|
492 |
|
(Gain) loss on contract settlement |
|
(10) |
|
|
75 |
|
|
58 |
|
|
48 |
|
Promissory note interest income |
|
(40) |
|
|
- |
|
|
(116) |
|
|
- |
|
Other income (2) |
|
76 |
|
|
2 |
|
|
77 |
|
|
47 |
|
Income tax effects of adjusting items |
|
(1) |
|
|
(4) |
|
|
(4) |
|
|
(18) |
|
|
|
6,182 |
|
|
5,972 |
|
|
10,099 |
|
|
18,461 |
|
Core Business Operations’ adjusted net income attributable to
Preferred Shareholders (3) |
|
(3,067) |
|
|
(3,150) |
|
|
(5,126) |
|
|
(9,290) |
|
Adjusted net income |
|
3,115 |
|
|
2,822 |
|
|
4,973 |
|
|
9,171 |
|
Adjusted net income attributable to common shareholders |
|
3,113 |
|
|
2,808 |
|
|
4,957 |
|
|
8,959 |
|
Adjusted net income attributable to non-controlling interest |
|
2 |
|
|
14 |
|
|
16 |
|
|
212 |
|
Diluted adjusted earnings per Common Share |
$ |
0.06 |
|
$ |
0.06 |
|
$ |
0.10 |
|
$ |
0.19 |
|
(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 Share liability section of
this document.(2) Other expense in the three and nine months ended
September 30, 2023 relates to a loss on the disposal of intangible
assets and disposal of a other equity-accounted investment. Other
expense for the three and nine months ended September 30, 2022
relates to acquisition, integration and restructuring costs.(3)
Adjusted net income attributable to the Preferred Shareholders is
determined based on adjusted net income of the Core Business
Operations.
Management ChangeEffective
November 20, 2023, Robin Burpee (Co-CFO) will be leaving the
Corporation and Geoff Hague will transition to Chief Financial
Officer from Co-CFO. Geoff joined DLC in 2009 and was appointed
Chief Financial Officer in January 2014. He was appointed Co-CFO of
the Corporation in January 2021, when it amalgamated with Founders
Advantage Capital Corp. (“FAC”). Robin was appointed Chief
Financial Officer of FAC in May 2019 and helped transition the
Corporation from FAC to Dominion Lending Centres Inc. James Bell,
Co-President of the Corporation commented: “On behalf of the
management team, board of directors and shareholders, I’d like to
thank Robin for her many contributions over the last four years.
Robin is a talented finance professional, and an excellent teammate
and we wish her much success in her next role. Notwithstanding
Robin’s departure, the finance team at DLCG is in good hands as
Geoff Hague will continue as Chief Financial Officer of the
Corporation”.
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 anticipation of further recovery in our
margins and mortgage volumes 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
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 (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;
- 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.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 over 8,000 agents and over 520
locations. Headquartered in British Columbia, DLC was founded in
2006 by Gary Mauris and Chris Kayat.
DLCG can be found on Twitter, Facebook and
Instagram and LinkedIn @DLCGmortgage and on the web at
www.dlcg.ca."
Contact information for the Corporation is as
follows:
James
BellCo-President403-560-0821jbell@dlcg.ca
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SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE
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OF THIS RELEASE.
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