Q2-2023 Summary
- Q2-2023 funded volumes of
$14.8 billion , representing a 32% decrease as compared to the three months endedJune 30, 2022 (“Q2-2022”); - Q2-2023 revenue of
$15.5 million , representing a 29% decrease as compared to Q2-2022; - Q2-2023 Adjusted EBITDA of
$5.2 million as compared to$13.4 million during Q2-2022, representing a 61% decrease over the prior year period; - The Corporation incurred a net loss for Q2-2023 of
$3.2 million as compared to net income of$6.7 million in Q2-2022, primarily due to a non-cash finance expense on the Preferred Share Liability of$6.2 million compared to an expense of$2.5 million in Q2-2022; - 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 Q2-2023; and - During Q2-2023, the Corporation made repurchases under the normal-course issuer bid (“NCIB”) of 70,167 Common Shares at an average price of
$2.57 per share.
Selected Consolidated Financial Summary:
Below is the summary of our financial results for the three and six months ended
Three months ended | Six months ended | |||||||||||||||
(in thousands, except KPIs) | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||
Revenues | $ | 15,543 | $ | 21,823 | (29 | %) | $ | 27,181 | $ | 38,852 | (30 | %) | ||||
Operating expenses | 11,355 | 10,970 | 4 | % | 21,663 | 22,671 | (4 | %) | ||||||||
Income from operations | 4,188 | 10,853 | (61 | %) | 5,518 | 16,181 | (66 | %) | ||||||||
Other (expense) income, net | (6,786 | ) | (1,404 | ) | (383 | %) | (7,930 | ) | (27,918 | ) | 72 | % | ||||
(Loss) income before tax | (2,598 | ) | 9,449 | NMF(5) | (2,412 | ) | (11,737 | ) | 79 | % | ||||||
Add back: | ||||||||||||||||
Depreciation and amortization | 945 | 1,034 | (9 | %) | 1,909 | 2,063 | (7 | %) | ||||||||
Finance expense | 819 | 600 | 37 | % | 1,497 | 1,032 | 45 | % | ||||||||
Finance expense on the Preferred Share liability | 6,221 | 2,535 | 145 | % | 7,111 | 28,250 | (75 | %) | ||||||||
Other adjusting items | (229 | ) | (227 | ) | (1 | %) | (308 | ) | 23 | NMF(5) | ||||||
Adjusted EBITDA (1) | 5,158 | 13,391 | (61 | %) | 7,797 | 19,631 | (60 | %) | ||||||||
Adjusted EBITDA margin (1) | 33 | % | 61 | % | (46 | %) | 29 | % | 51 | % | (43 | %) | ||||
Key Performance Indicators (“KPIs”) | ||||||||||||||||
Funded mortgage volumes (2) (3) | 14.8 | 21.8 | (32 | %) | 24.6 | 37.9 | (35 | %) | ||||||||
Number of franchises (4) | 541 | 545 | (1 | %) | 541 | 545 | (1 | %) | ||||||||
Number of brokers (4) | 7,981 | 8,106 | (2 | %) | 7,981 | 8,106 | (2 | %) | ||||||||
% of funded mortgage volumes submitted through Velocity (3) (6) | 63 | % | 55 | % | 15 | % | 62 | % | 53 | % | 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 Corporation has amended its funded mortgage volumes. Please refer to the Key Performance Indicators subsection below for further discussion.
(4) The number of franchises and brokers are as at the respective period end date (not in thousands).
(5) The percentage change is not a meaningful figure.
(6) Representing the percentage of submitted funded mortgage volumes that are inputted through Velocity.
Three months ended | Six months ended | |||||||||||||||
(in thousands, except per share) | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||
Free cash flow attributable to common shareholders (1) | $ | 2,186 | $ | 5,507 | (60 | %) | $ | 817 | $ | 6,648 | (88 | %) | ||||
Net (loss) income (2) | (3,157 | ) | 6,709 | NMF | (3,204 | ) | (15,781 | ) | 80 | % | ||||||
Adjusted net income (1) | 1,660 | 5,268 | (68 | %) | 1,858 | 6,349 | (71 | %) | ||||||||
Diluted (loss) income per Common Share (2) | (0.07 | ) | 0.14 | NMF | (0.07 | ) | (0.34 | ) | 79 | % | ||||||
Adjusted diluted earnings per Common Share (1) | 0.03 | 0.11 | (73 | %) | 0.04 | 0.13 | (69 | %) | ||||||||
Dividends declared per share | $ | 0.03 | $ | 0.03 | Nil | $ | 0.06 | $ | 0.03 | 100 | % |
(1) Please see the Non-IFRS Financial Performance Measures section of this document for additional information.
(2) Net loss for the three and six months ended
With a decrease in housing sales activity due largely to increased interest rates, the Corporation saw a decline in funded mortgage volumes during the three and six months ended
- an increase in advertising expense associated with the recommencement of certain corporate events; and
- higher advertising fund expenditures due to the timing of advertising initiatives.
Partly offsetting the decreases to income from operations are:
- a higher share-based payment recovery, primarily from 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 atJune 30, 2023 when compared toJune 30, 2022 ; and, - a decrease in legal fees during the six months ended
June 30, 2023 , when compared to the prior year period.
The decrease in income from operations drove the decrease in adjusted EBITDA and adjusted EBITDA margins during the three and six months ended
The Corporation incurred a net loss during the three months ended
Adjusted net income for the three and six months ended
Key performance indicators
During the three months ended
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
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 | Six months ended | |||||||||||||||
(in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
(Loss) income before income tax | $ | (2,598 | ) | $ | 9,449 | $ | (2,412 | ) | $ | (11,737 | ) | |||||
Add back: | ||||||||||||||||
Depreciation and amortization | 945 | 1,034 | 1,909 | 2,063 | ||||||||||||
Finance expense | 819 | 600 | 1,497 | 1,032 | ||||||||||||
Finance expense on the Preferred Share liability (1) | 6,221 | 2,535 | 7,111 | 28,250 | ||||||||||||
5,387 | 13,618 | 8,105 | 19,608 | |||||||||||||
Adjustments to remove: | ||||||||||||||||
Share-based payments recovery | (225 | ) | (221 | ) | (321 | ) | (11 | ) | ||||||||
Promissory note interest income | (39 | ) | - | (76 | ) | - | ||||||||||
Foreign exchange loss | 7 | 1 | 20 | 16 | ||||||||||||
Loss (gain) on contract settlement | 24 | (52 | ) | 68 | (27 | ) | ||||||||||
Other expense (2) | 4 | 45 | 1 | 45 | ||||||||||||
Adjusted EBITDA (3) | $ | 5,158 | $ | 13,391 | $ | 7,797 | $ | 19,631 |
(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 six months ended
(2) Other expense in the three and six months ended
(3) Amortization of franchise rights and relationships of
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 | Six months ended | ||||||||||||||
(in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||
Cash flow from operating activities | $ | 5,345 | $ | 11,644 | $ | 4,410 | $ | 13,465 | |||||||
Changes in non-cash working capital and other non-cash items | (75 | ) | (1,053 | ) | 3,334 | 3,079 | |||||||||
Cash provided from operations excluding changes in non-cash working capital and other non-cash items | 5,270 | 10,591 | 7,744 | 16,544 | |||||||||||
Adjustments: | |||||||||||||||
Distributions from equity-accounted investees (1) | 150 | 331 | 150 | 481 | |||||||||||
Maintenance CAPEX | (1,253 | ) | (1,048 | ) | (5,409 | ) | (4,208 | ) | |||||||
Lease payments (1) | (158 | ) | (153 | ) | (316 | ) | (300 | ) | |||||||
Acquisition, integration and restructuring costs | - | 45 | - | 45 | |||||||||||
Loss (gain) on settlement of a contract | 24 | (52 | ) | 68 | (27 | ) | |||||||||
Other non-cash items (2) | 4 | - | 1 | (191 | ) | ||||||||||
4,037 | 9,714 | 2,238 | 12,344 | ||||||||||||
Free cash flow attributable to Preferred Shareholders (3) | (1,851 | ) | (4,207 | ) | (1,421 | ) | (5,696 | ) | |||||||
Free cash flow attributable to common shareholders | $ | 2,186 | $ | 5,507 | $ | 817 | $ | 6,648 |
(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 three and six months ended
(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 Share liability section of this document).
The following table reconciles adjusted net income from net (loss) income, which is the most directly-comparable measure calculated in accordance with IFRS:
Three months ended | Six months ended | |||||||||||||||
(in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Net (loss) income | $ | (3,157 | ) | $ | 6,709 | $ | (3,204 | ) | $ | (15,781 | ) | |||||
Add back: | ||||||||||||||||
Foreign exchange loss | 7 | 1 | 20 | 16 | ||||||||||||
Finance expense on the Preferred Share liability(1) | 6,221 | 2,535 | 7,111 | 28,250 | ||||||||||||
Loss (gain) on contract settlement | 24 | (52 | ) | 68 | (27 | ) | ||||||||||
Promissory note interest income | (39 | ) | - | (76 | ) | - | ||||||||||
Other expense(2) | 4 | 45 | 1 | 45 | ||||||||||||
Income tax effects of adjusting items | (2 | ) | (12 | ) | (3 | ) | (14 | ) | ||||||||
3,058 | 9,226 | 3,917 | 12,489 | |||||||||||||
Core Business Operations’ adjusted net income attributable to Preferred Shareholders(3) | (1,398 | ) | (3,958 | ) | (2,059 | ) | (6,140 | ) | ||||||||
Adjusted net income | 1,660 | 5,268 | 1,858 | 6,349 | ||||||||||||
Adjusted net income attributable to common shareholders | 1,656 | 5,259 | 1,844 | 6,151 | ||||||||||||
Adjusted net income attributable to non-controlling interest | 4 | 9 | 14 | 198 | ||||||||||||
Diluted adjusted earnings per Common Share | $ | 0.03 | $ | 0.11 | $ | 0.04 | $ | 0.13 |
(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 six months ended
(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 Share liability section of this document).
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 (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
Contact information for the Corporation is as follows:
Co-President
403-560-0821
jbell@dlcg.ca
Co-Chief Financial Officer
403-796-5429
rburpee@dlcg.ca
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