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 and year ended December 31, 2023 (“Q4-2023” and “annual”, respectively). For complete information, readers should refer to annual audited consolidated financial statements, management discussion and analysis (“MD&A”) and annual information form (“AIF”) which are dated March 19, 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, “2023 was, on the whole, a difficult year for our industry. The headwinds faced by the Canadian real estate and lending markets, largely caused by increased interest rates, resulted in fewer mortgage transactions during the year. However, with our continued focus on recruitment and on onboarding of brokers onto our connectivity platform ‘Velocity’, we have seen an increase in funded volumes, revenues, and adjusted EBITDA in the fourth quarter (as compared to Q4 2022). We anticipate seeing further recovery in our margins and mortgage volumes as the market stabilizes over the next 12-18 months, and we believe that we are well-situated for the future as we anticipate that those prior headwinds will change course and turn to industry-wide tailwinds, with pent-up real estate transaction demand and the prospect of declining interest rates starting in 2024.”

Financial Highlights

• Q4-2023 funded volumes of $14.2 billion and annual funded volume of $56.5 billion, representing a 1% increase and 21% decrease as compared to 2022, respectively;
• Q4-2023 revenue of $15.8 million and annual revenues of $62.5 million, representing a 13% increase and 12% decrease compared to 2022, respectively;
• Q4-2023 and annual adjusted EBITDA were $6.5 million and $24.4 million as compared to $3.0 million and $32.1 million in Q-4 2022 and annual 2022, respectively;
• The Corporation’s annual net income for 2023 decreased to $64 thousand from $12.3 million in 2022, primarily from lower income from operations from decreased funded volume and higher 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 Q4-2023 ($5.8 million for the full fiscal year);
• During 2023, the Corporation made repurchases under the normal-course issuer bid (“NCIB”) of 125,493 Common Shares at an average price of $2.46 per share; and
• The Corporation amended and restated its credit facility to mature on December 19, 2026. The Corporation’s balance sheet remained strong with a debt-to-EBITDA ratio of 1.31:1.00 at December 31, 2023.

Selected Consolidated Financial Summary:Below is the summary of our financial results for the three months and year ended December 31, 2023 and same periods ending December 31, 2022.

Three months ended December 31,									Year ended December 31,
(in thousands, except per share and KPIs)		2023			2022		Change			2023			2022		Change
Revenues	$	15,758		$	13,934		13%		$	62,517		$	70,720		-12%
Income from operations		3,914			1,554		152%			18,311			26,386		-31%
Adjusted EBITDA (1)		6,507			3,031		115%			24,420			32,058		-24%
Adjusted EBITDA margin		41%			22%		19%			39%			45%		-6%
Free cash flow attributable to common shareholders (1)		2,035			723		181%			7,459			12,164		-39%
Net (loss) income (2)		(2,003)			(1,314)		-52%			64			12,286		-99%
Adjusted net income (loss) (1)		1,775			(175)		NMF (3)			6,748			8,997		-25%
Diluted (loss) earnings per Common Share (2)		(0.04)			(0.03)		-36%			-			0.25		-100%
Adjusted diluted earnings per Common Share (1)		0.04			(0.00)		NMF			0.14			0.18		-22%
Dividends declared per share	$	0.03		$	0.03		-%		$	0.12		$	0.09		33%
Key Performance Indicators (“KPIs”)
Funded mortgage volumes (4)		14.2			14.0		1%			56.5			71.3		-21%
Number of franchises (5)		542			539		1%			542			539		1%
Number of brokers (5)		8,192			8,221		0%			8,192			8,221		0%
% of funded mortgage volumes submitted through Velocity (6)		65%			57%		8%			63%			55%		8%

(1) Please see the Non-IFRS Financial Performance Measures section of this document for additional information.(2) Net income for the three months and year ended December 31, 2023 includes $1.9 million and $9.9 million respectively, of non-cash finance expense on the Preferred Share liability (December 31, 2022 – $1.9 million and $2.4 million, respectively). 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 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 December 31, 2023, the Corporation saw an increase in revenues over the three months ended December 31, 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, especially as increased interest rates have decreased Canadian housing sales activity. Consequently, our funded mortgage volumes were flat during the three-month period and decreased during the year ended December 31, 2023, when compared to 2022’s equivalent periods. The decrease in annual funded volumes has resulted in a decrease in revenues during the year ended December 31, 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 December 31, 2023 but have decreased during the year ended December 31, 2023, when compared to 2022’s equivalent periods.

Income from operations during the three months ended December 31, 2023 increased from higher revenues and lower operating expenses, and decreased during the year ended December 31, 2023 from lower revenues, partly offset by lower operating expenses. The Corporation’s operating expenses have decreased during the three months and year ended December 31, 2023 when compared to 2022, primarily due to:

• lower direct costs for commissions and expenses proportionate to funded volume;
• variances in advertising fund expenditures due to the timing of advertising campaigns; and
• lower professional fees, partially offset by higher personnel costs.

Net income decreased during the three months and year ended December 31, 2023, compared to the prior year periods. The changes over the previous year are primarily from period-over-period variances in revenue and other expenses. Other expenses increased during the three months and year ended December 31, 2023 primarily from period-over-period variances in Finance expense on the Preferred Share liability (refer to the Preferred Shares section of accompanying MD&A), finance expense and impairment losses recognized for equity-accounted investments.

The Corporation recognized a non-cash impairment loss of $3.5 million for the year ended December 31, 2023 (December 31, 2022—$4.8 million), representing the difference between the carrying value of two of our investments (primarily Impact) and their estimated recoverable amounts. The Corporation identified the financial performance and its technological and market environments of these investments as indicators of impairment and determined the recoverable value of each investment based on its fair value less cost of disposal, an income-based approach whereby a present value technique is employed that takes into account estimated future cash flows based on assumptions that would be common to any market participant. This approach requires management to make estimates and assumptions about EBITDA, discount rates and perpetual growth rates (level 3 within the fair value hierarchy).

Free cash flow increased during the three months ended December 31, 2023 from higher adjusted cash flows from operations from higher income from operations and lower maintenance CAPEX; but decreased during the year ended December 31, 2023 from lower adjusted cash flows from operations from lower income from operations and higher maintenance CAPEX. Maintenance CAPEX has increased during the year ended December 31, 2023 due to the Corporation’s continued recruitment and 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 March 19, 2024, for the three months and year ended December 31, 2023, 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 December 31,							Year ended December 31,
(in thousands)				2023			2022			2023			2022
(Loss) income before income tax			$	(846)		$	(750)		$	4,187		$	18,993
Add back:
Depreciation and amortization				939			971			3,787			3,985
Finance expense				820			645			3,149			2,355
Finance expense on the Preferred Share liability (1)				1,931			1,905			9,922			2,397
				2,844			2,771			21,045			27,730
Adjustments:
Share-based payments expense (recovery)				263			215			(70)			(104)
Promissory note income				(35)			(49)			(151)			(49)
Foreign exchange loss				10			40			36			79
Loss on contract settlement				9			67			67			115
Gain on disposal of equity-accounted investment				-			-			-			(525)
Non-cash impairment of equity-accounted investments				3,390			-			3,466			4,778
Other income (2)				26			(13)			27			34
Adjusted EBITDA (3)			$	6,507		$	3,031		$	24,420		$	32,058

(1) The Corporation recognized a lower revaluation recovery on the Preferred Share liability during the year ended December 31, 2023, compared to the previous year period. Refer to the Preferred Shares section of the MD&A for further details.(2) Other expense in the three months and year ended December 31, 2023 relates to a loss on the disposal of intangible assets. Other (income) expense for the three months ended December 31, 2022 relates to a gain on disposal of a lease and gain on disposal of an intangible asset; the year ended December 31, 2022 also included acquisition, integration and restructuring costs.(3) Amortization of franchise rights and relationships of $1.2 million and $4.9 million for the three months and year ended December 31, 2023, respectively (December 31, 2022 – $0.9 million and $3.3 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 December 31,							Year ended December 31,
(in thousands)				2023			2022			2023			2022
Cash flow from operating activities			$	3,433		$	(1,300)		$	17,086		$	15,873
Changes in non-cash working capital and other non-cash items				1,426			4,247			4,378			12,225
Cash provided from operations excluding changes in non-cash working capital and other non-cash items				4,859			2,947			21,464			28,098
Adjustments:
Distributions from equity-accounted investees (1)				46			50			321			677
Maintenance CAPEX				(680)			(1,212)			(6,719)			(5,629)
Lease payments (1)				(126)			(157)			(602)			(610)
Loss on contract settlement				9			67			67			115
Other non-cash items (2)				(89)			(13)			(88 )			(155)
				4,019			1,682			14,443			22,496
Free cash flow attributable to Preferred Shareholders (3)				(1,984)			(959)			(6,984)			(10,332)
Free cash flow attributable to common shareholders			$	2,035		$	723		$	7,459		$	12,164

(1) Comparative amounts presented reflect the Corporation’s Common Shareholders’ proportion and exclude amounts attributed to Newton’s NCI holders.(2) Other non-cash items for the three months and year ended December 31, 2023 represent the non-cash impairment of equity-accounted investees, foreign exchange loss and promissory note income. The three months ended December 31, 2022 includes a gain on disposal of a lease and gain on disposal of an intangible asset; the year ended December 31, 2022 also includes 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 (as defined in the Preferred Shares section of the 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 December 31,							Year ended December 31,
(in thousands)				2023			2022			2023			2022
Net (loss) income			$	(2,003)		$	(1,314)		$	64		$	12,286
Adjustments:
Gain on sale of an equity-accounted investment				-			-			-			(525)
Non-cash impairment of equity-accounted investments				3,390			-			3,466			4,778
Foreign exchange loss				10			40			36			79
Finance expense on the Preferred Share liability (1)				1,931			1,905			9,922			2,397
Loss on contract settlement				9			67			67			115
Promissory note interest income				(35)			(49)			(151)			(49)
Other expense (income) (2)				26			(13)			27			34
Income tax effects of adjusting items				(3)			(4)			(7)			(22)
				3,325			632			13,424			19,093
Income attributable to Preferred Shareholders (3)				(1,550)			(807)			(6,676)			(10,096)
Adjusted net income (loss)				1,775			(175)			6,748			8,997
Adjusted net income (loss) attributable to common shareholders				1,770			(188)			6,727			8,772
Adjusted net income attributable to non-controlling interest				5			13			21			225
Diluted adjusted earnings per Common Share			$	0.04		$	(0.00)		$	0.14		$	0.18

(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 MD&A. (2) Other expense in the three months and year ended December 31, 2023 relates to a loss on the disposal of intangible assets. Other (income) expense for the three months ended December 31, 2022 relates to a gain on disposal of a lease and gain on disposal of an intangible asset; the year ended December 31, 2022 also included 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 (as defined in the Preferred Shares of the 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 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 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;
• 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; 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 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:

Eddy CocciolloPresident647-403-7320eddy@dlc.ca	James BellEVP, Corporate and Chief Legal Officer403-560-0821jbell@dlcg.ca

NEITHER THE TSX EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.