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, 2022 (“Q1-2022”). 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 investments in Club16 Limited Partnership and Cape Communications International Inc. (“Impact”) (collectively, the “Non-Core Assets”), the expenses, assets and liabilities associated with managing the Non-Core Assets, the non-core credit facility, and public company costs.

Q1-2022 Financial Highlights

• Record Q1 funded volumes of $15.9 billion, representing an 18% increase as compared to Q1-2021;
• Record Q1 DLC Group revenue of $17.0 million representing a 23% increase as compared to Q1-2021;
• Q1-2022 DLC Group Adjusted EBITDA of $7.8 million as compared to $8.4 million during Q1-2021, representing a 7% decrease over the prior period, noting, Q1-2022 DLC Group Adjusted EBITDA included an increase in professional fees and expenses of $1.5 million compared to Q1-2021;
• On January 11, 2022, DLCG announced the final results of the substantial issuer bid where the Corporation purchased 1,781,790 class “A” common shares (“Common Shares”) that were validly tendered to the bid for an aggregate cost of $6.7 million (which shares were cancelled and returned to treasury);
• On February 3, 2022, the Corporation’s Common Shares were listed for trading on the Toronto Stock Exchange (“TSX”);
• On February 28, 2022, DLCG acquired the remaining 30% of Newton that DLCG did not already own; and
• Subsequent to the end of the quarter, on April 13, 2022, the Corporation announced the implementation of a quarterly dividend of $0.03 per share with respect to its Common Shares.

Gary Mauris, Executive Chairman and CEO, commented, “We are pleased to announce our first quarter financial and operating results for the period ended March 31, 2022. During the first quarter, our team of mortgage professionals were able to maintain the strong growth DLCG achieved in fiscal 2021 by posting in 2022, record Q1 funded mortgage volumes of $15.9 billion - an 18% increase over the prior period. The record results achieved during the first quarter has strengthened the outlook and forecast for the remainder of the fiscal year. The stronger outlook has resulted in a significant increase in the Corporation’s Preferred Share liability and associated non-cash finance expense of $25.7 million, contributing to the $22.5 million net loss for the three months ended March 31, 2022. The Preferred Share liability may continue to fluctuate quarter over quarter as we are required to revalue the liability on a quarterly basis depending on our results and outlook. Once again, we would like to thank our team and continue to be incredibly proud of our mortgage professionals across the country who continue to drive record funded volume growth.”

Selected Consolidated Financial Highlights:Below are the highlights of our financial results for the three months ended March 31, 2022 and March 31, 2021.

	Three months ended March 31,
(in thousands, except per share)		2022			2021		Change
Revenues	$	17,029		$	13,888		23%
Income from operations		5,328			5,000		7%
Adjusted EBITDA (1)		6,240			7,019		(11%)
Free cash flow attributable to common shareholders (1)		1,141			(1,067	)	NMF (3)
Net loss (2)		(22,490	)		(100	)	NMF (3)
Adjusted net income (1)		1,082			227		377%
Diluted loss per Common Share (2)		(0.50	)		(0.01	)	NMF (3)
Adjusted earnings (loss) per Common Share (1)	$	0.02		$	(0.00	)	NMF (3)

(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, 2022 includes $25.7 million of non-cash finance expense on the Preferred Share liability (March 31, 2021 – $3.1 million). As the Corporation’s outlook and forecast for the 2022 fiscal year has strengthened since its prior budgeting period in fourth quarter of 2021, the Corporation’s Preferred Share liability increased significantly during the three months ended March 31, 2022.(3)   The percentage change is Not a Meaningful Figure (“NMF”).

	Three months ended March 31,
(in thousands)		2022			2021		Change
Adjusted EBITDA (1)
Core Business Operations	$	7,756		$	8,380		(7%)
Non-Core Business Asset Management		(1,516	)		(1,361	)	(11%)
Adjusted EBITDA (1)(2)	$	6,240		$	7,019		(11%)

(1)   Please see the Non-IFRS Financial Performance Measures section of this document for additional information.(2)   Three months ended March 31, 2022 adjusted EBITDA includes an increase in professional fees of $1.5 million compared to the three months ended March 31, 2021 primarily from elevated legal costs and expenses associated with the stay of the class action legal claim, an ongoing arbitration, the settlement of legal claims, and the completion of the Newton Acquisition.

Q1-2022 HighlightsThe Corporation incurred a higher net loss during the three months ended March 31, 2022 when compared to the same period in the previous year, primarily due to higher finance expense on the Preferred Share liability of $22.6 million and higher general administrative expenses from increased legal costs and expenses and personnel costs. As the Corporation’s outlook and forecast for the 2022 fiscal year has strengthened since its prior budgeting period in the fourth quarter of 2021, the Corporation’s Preferred Share liability increased significantly during the three months ended March 31, 2022. The increase is partly offset by higher DLC Group revenues from an increase in funded mortgage volumes.

Adjusted net income for the three months ended March 31, 2022 increased compared to the same period in the previous year primarily from higher income from operations driven by increased revenues from higher funded mortgage volumes. The increase in adjusted net income contributed to the increase in free cash flow attributable to common shareholders during the three months ended March 31, 2022 when compared to 2021.

Adjusted EBITDA decreased during the three months ended March 31, 2022 when compared to the same period in the previous year from higher general administrative expenses, primarily due to elevated legal costs and expenses associated with the stay of the class action legal claim, an ongoing arbitration, the settlement of legal claims, and the completion of the Newton Acquisition, partly offset by higher revenues from an increase in funded mortgage volumes.

Selected Segmented Financial Highlights:

	Three months ended March 31,
(in thousands)		2022			2021		Change
Revenues
Core Business Operations	$	17,029		$	13,888		23%
Revenues		17,029			13,888		23%
Operating expenses (1)
Core Business Operations		10,667			7,482		43%
Non-Core Business Asset Management		1,034			1,406		(26%)
Operating expenses (1)		11,701			8,888		32%
Income (loss) from operations
Core Business Operations		6,362			6,406		(1%)
Non-Core Business Asset Management		(1,034	)		(1,406	)	(26%)
Income from operations		5,328			5,000		7%
Adjusted EBITDA (2)
Core Business Operations		7,756			8,380		(7%)
Non-Core Business Asset Management		(1,516	)		(1,361	)	(11%)
Adjusted EBITDA (2)(3)	$	6,240		$	7,019		(11%)

(1)  Operating expenses are comprised of direct costs, general and administrative expenses, share-based payments, and depreciation and amortization expense.(2)  Please see the Non-IFRS Financial Performance Measures section of this document for additional information.(3)  Three months ended March 31, 2022 adjusted EBITDA includes an increase in professional fees of $1.5 million compared to the three months ended March 31, 2021 primarily from elevated legal costs and expenses associated with the stay of the class action legal claim, an ongoing arbitration, the settlement of legal claims, and the completion of the Newton Acquisition.

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 11, 2022, for the three months ended March 31, 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 (loss) income before income tax, which is the most directly-comparable measure calculated in accordance with IFRS:

	Three months ended March 31,
(in thousands)	2022			2021
(Loss) income before income tax	$	(21,186	)	$	680
Add back:
Depreciation and amortization		1,029			1,046
Finance expense		432			1,247
Finance expense on the Preferred Share liability(1)		25,715			3,146
		5,990			6,119
Adjustments to remove:
Share-based payments expense		210			895
Foreign exchange loss (gain)		15			(58	)
Loss on contract settlement		25			86
Other income(2)		-			(63	)
Acquisition, integration and restructuring costs(3)		-			40
Adjusted EBITDA(4)(5)	$	6,240		$	7,019

(1)   As the Corporation’s outlook and forecast for the 2022 fiscal year has strengthened since its prior budgeting period in fourth quarter of 2021, the Corporation’s Preferred Share liability increased significantly during the three months ended March 31, 2022.(2)   Other income in the three months ended March 31, 2021 relates to the derecognition of sales tax receivables and payables on initial acquisition of the Core Business Operations in 2016.(3)   Acquisition, integration and restructuring costs for the three months ended March 31, 2021 relate to the restructuring and amalgamation of the Corporation from Founders Advantage Capital Corp. to Dominion Lending Centres Inc. (4)   Three months ended March 31, 2022 adjusted EBITDA includes an increase in professional fees of $1.5 million compared to the three months ended March 31, 2021 primarily from elevated legal costs and expenses associated with the stay of the class action legal claim, an ongoing arbitration, the settlement of legal claims, and the completion of the Newton Acquisition.(5)   The amortization of franchise rights and relationships within the Core Business Operations of $0.8 million for the three months ended March 31, 2022 (March 31, 2021 – $0.6 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:

	Three months ended March 31,
(in thousands)	2022			2021 (2)
Cash flow from operating activities	$	1,821		$	4,613
Changes in non-cash working capital and other non-cash items		4,132			1,329
Cash provided from operations excluding changes in non-cash working capital and other non-cash items		5,953			5,942
Adjustments:
Distributions from equity-accounted investees (1)		150			250
Maintenance CAPEX (1)		(3,160	)		(465	)
NCI portion of cash provided from continuing operations		(191	)		(372	)
Lease payments (1)		(147	)		(140	)
Acquisition, integration and restructuring costs (1)		-			40
Loss on settlement of a contract (1)		25			86
Other non-cash items (1)		-			(63	)
		2,630			5,278
Free cash flow attributable to Preferred Shareholders		(1,489	)		(6,345	)
Free cash flow attributable to common shareholders	$	1,141		$	(1,067	)

(1)   Amounts presented reflect the Corporation’s common shareholders’ proportion and have excluded amounts attributed to NCI holders.(2)   The Corporation’s calculation of free cash flow was amended during the three months ended September 30, 2021. Free cash flow for the three months ended March 31, 2021 has been updated to conform with the current year calculation, to exclude an adjustment for “investments in equity-accounted investees” and replacing the adjustment of “CDC attributable to Preferred Shareholders” with an adjustment for “free cash flow attributable to the Preferred Shareholders”.

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)	2022			2021 (1)
Net loss	$	(22,490	)	$	(100	)
Add back:
Foreign exchange loss (gain)		15			(58	)
Finance expense on the Preferred Share liability (2)		25,715			3,146
Loss on contract settlement		25			86
Other income		-			(63	)
Acquisition, integration and restructuring costs		-			40
Income tax effects of adjusting items		(2	)		36
		3,263			3,087
Core Business Operations’ adjusted net income attributable to Preferred Shareholders		(2,181	)		(2,860	)
Adjusted net income	$	1,082		$	227
Adjusted net income (loss) attributable to common shareholders		893			(159	)
Adjusted net income attributable to non-controlling interest		189			386
Diluted adjusted earnings (loss) per Common Share	$	0.02		$	(0.00	)

(1)   The Corporation’s calculation of adjusted net income was amended during the three months ended September 30, 2021. Adjusted net income for the three months ended March 31, 2021 has been updated to conform with the current year calculation, replacing the previous adjustment for “Core Business Operations’ net income attributable to Preferred Shareholders” with an adjustment for “Core Business Operations’ adjusted net income attributable to Preferred Shareholders”.(2)   As the Corporation’s outlook and forecast for the 2022 fiscal year has strengthened since its prior budgeting period in fourth quarter of 2021, the Corporation’s Preferred Share liability increased significantly during the three months ended March 31, 2022.

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 ~7,860 agents and ~535 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

Amar LeekhaSr. Vice-President, Capital Markets403-455-6671aleekha@dlcg.ca