Dominion Lending Centres Inc.

Good afternoon and thank you for standing by. Welcome to Dominion Lending Center's first quarter 2026 results conference call. At this time, all participants will be in listen-only mode. After the speaker's presentation, there will be a question and answer period. If you would like to ask a question during this time, simply press start followed by the number one on your telephone keypad. If you would like to re-do your question, press start one again. Please note this call is also accessible via webcast and replay of the webcast will be available on the corporation's website at www.dlcg.ca. During the call, management's remarks may contain forward-looking information that is based on certain assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. please refer to our forward-looking information disclosure in the MD&A for the quarter ended March 31, 2026, which can be found on CEDAR Plus and on the corporation's website. In addition, during the call, the corporation may refer to specific non-IFRS measures. These measures are also defined in the MD&A for the quarter ended March 31, 2026. The corporation's MD&A includes reconciliations of non-IFRS measures to the most directly comparable IFRS measures. Management believes that these non-IFRS measures provide useful information to investors regarding the corporation's financial condition and results of operations as they provided additional critical metrics of this performance. These non-IFRS measures are not recognized under IFRS, do not have any standardized meaning prescribed under IFRS, and may differ from Similarly named measures reported by other issuers and accordingly may not be comparable. This measure should not be considered as a substitute for the related financial information prepared by IFRS. I would now like to turn the call over to Gary Morris, Chairman and CEO of Dominion Lending Center.

Good afternoon, everyone, and thank you for joining us today on our first quarter 2026 Earning Conference Call. On the call with me today is Jeff Haag, our Chief Financial Officer, Chris Kaye, Executive Vice Chair and Co-Founder, Eddie Cotillo, President, and James Bell, Executive Vice President and CLO. I'm pleased to report that we delivered a solid quarter despite a challenging year-over-year comparison and the impact of winter storms early in the period. We generated 7% revenue growth driven by continued expansion in new revenues strength in the renewal market, and growth in our broker network, which more than offset softness in the housing market. Adjusted EBITDA margins expanded to 44%, up from 43% last year, resulting in a 9% growth in adjusted EBITDA for the quarter. Our funded mortgage volume was flat compared to Q1 2025, as we saw a decline in January due to winter storms and a particularly difficult comparison month, which was offset by a return to growth in both February and March. Looking ahead, we remain positive on the outlook for 2026 as we continue to execute on our growth strategy. As we've highlighted on prior calls, a core priority for the DOC G Group is investing in the success of our franchise and broker partners. In late 2024, we launched Gold Rush, leveraging our Velocity platform to help brokers stay top of mind with clients in a more continued and efficient way. This initiative has been very successful, driving increased customer engagement and volume growth, for our participating brokers. Building on that momentum in 2026, we introduced GoalGetter, a 12-week sales program that I'm personally leading with approximately 600 brokers. The program is designed to equip participants with new tools, techniques, and insights to help grow their business. We believe these initiatives have been important contributors to the growth and recruitment, and we plan to continue investing in programs that support our partners going forward. We also remain disciplined in managing our balance sheet with a debt to adjusted EBITDA of 1.06 times exiting Q1, 2026 with a clear focus on generating strong cashflow and allocating capital strategically to support long-term growth. This includes prioritizing high return organic and inorganic opportunities, maintaining a sustainable dividend and executing opportunistic share repurchases. During the quarter, we completed 51% equity investment in ClearTrust, a large existing franchise, and a 50% equity investment in Dunderade Management, which increases our exposure to the growing alternative lending market. In addition, our board approved an increase to our quarterly dividend to $0.05 per share, up from $0.04 per share effective June 2026. We continue to maintain a robust pipeline of potential acquisitions, With the strength of our balance sheet, we're well-positioned to deploy capital in ways that enhance our broker network, broaden our market reach, and drive sustained growth. With that in mind, I'll turn the call over to Jeff to walk through our first quarter financial results in more detail.

Jeff, over to you. Thanks, Gary, and good afternoon, everyone. For the first quarter of 2026, revenue increased 7% year-over-year to $20.0 million, and with revenue from franchise and brokering of mortgages increasing by 2% and Newton revenue increasing 20% year over year. The growth in Newton revenue was driven by the increase in velocity adoption to 85% this quarter from 79% in Q1 2025. And as Jerry mentioned, funded mortgage volumes were flat year over year due to winter storm activity early in the quarter, combined with a difficult comparison quarter. Turning to expenses, Direct costs decreased 27% year-over-year due to cost savings from the realignment of our sales team structure in Q4 of 2025 and due to lower advertising fund expenditures. On a percentage of revenue basis, direct costs decreased 7.8% compared to 11.4% in Q1 2025. General and administrative expenses increased 14% compared to Q1 2025. On a percentage of revenue basis, general and administrative expenses increased 49.0% from 45.8% in Q1 2025. The increase was driven primarily by higher personnel costs, a $400,000 increase in advertising expenses, primarily related to certain of the corporation's 20th anniversary marketing initiatives, and higher IT costs. The higher personnel costs were the result of higher headcount, wage inflation, and higher EBITDA-based executive incentive compensation. Adjusted EBITDA grew 9% year-over-year in the quarter to $8.7 million, and adjusted EBITDA margins improved to 44% in the first quarter of 2026 compared to 43% in the first quarter of 2025. Current quarter's adjusted EBITDA margins benefited from the strong performance of Newton. Included in adjusted EBITDA is a $0.3 million loss from our equity-accounted investment in Hartwood, but we do continue to expect Hartwood to reach profitability in 2026. Net income of $4.8 million decreased $1.5 million compared to Q1 2025 due to a $1.4 million gain on the sale of an equity-accounted investee that was recorded in Q1 of 2025, which did not occur in 2026. Adjusted diluted earnings per common share were consistent at $0.06 for the quarter, as the higher revenue and margins were offset by higher stock-based payment expense and higher other expenses. The increase in share-based payments reflects the impact of great investing for both April 2024 and April 2025 RSU grants, as compared to the prior year, which only reflected the expense related to the April 2024 grant. Strong cash flow from operations adjusted for non-cash working capital fluctuations was offset by higher maintenance capital expenditures for franchise renewal payments, which resulted in $6.8 million in free cash flow, which was consistent with Q1 of 2025. Our debt to trailing 12 months adjusted EBITDA ratio for the period ending March 31, 2026 was 1.06 times compared to 0.58 times at the same period last year. The increase in debt was due primarily to several strategic investments completed during the quarter, including the acquisition of a 51% equity interest in ClearTrust Mortgages and a 50% equity interest in Dunderave Management Limited, as well as investments in franchise renewal and recruiting and a $3.2 million change in non-cash working capital due primarily to timing of commissions payable. I'll now pass it back over to Gary for some concluding remarks.

Thanks, Jeff. Building on the lessons and successes of the past 20 years, we remain focused on the future, leveraging technology and innovation to drive greater efficiencies and enhance the value we deliver to our partners and our clients. While we remain mindful of ongoing macroeconomic uncertainty, we maintain our positive outlook for 2026, supported by the continued execution of our long-term growth strategy, strong profitability, and disciplined approach to capital allocation. I would like to thank our employees, brokers, franchise partners, and lenders for their ongoing commitment and support, as well as the shareholders for their continued confidence in the business. With that, I will now turn the call over to the operator to open the line for questions. Operator?

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Gary Ho with the Guardian's Capital Markets. Your line is open.

Thanks. Good afternoon, gentlemen. Let me just start off for Gary and Chris. When I look back at the company's history, you've been quite opportunistic at acquisitions when housing markets are a bit softer. So a couple comes to mind, the MCC in 2013 and ME in 2015 and So when you look at the current softer housing activity, I know refi is still pretty good. Do you see opportunities to do meaningful tuck-ins? Your balance sheet definitely supports that. So how does the M&A landscape look today?

Yeah, hey, Gary, good to hear from you. You know, Gary, listen, it's always been sort of our secret sauce in refining More difficult periods, we seem to excel when people just kind of batten down the hatches and try to get through it. We thrive because we really understand how important it is to be in front of as many agents as possible to show them ways to do more business with their existing database. And it's usually a time where people are open to education, coaching, and learnings. So we're seeing that now. I'm leading that really successful group, the Goalgetter Program, which has been really great. We're talking to a lot of teams, a lot of individual brokers right now about transitioning. Our recruiting is up to almost, I think maybe just a little bit over 50% of our plan that we sort of wrote out for this year. And with those conversations comes more opportunities on Duckins. So we're having those conversations. I mean, Listen, they still have to make sense for us, and we have to be able to get them, you know, at a multiple that we think is fair. They have to be accretive to, you know, our existing business. And they have to be, you know, accretive to sort of our culture as well. So the short answer, really to summarize what I just said, is that we're seeing opportunities. We expect to see more opportunities for businesses.

balance of this year and we're quite optimistic on us continuing to grow via bolt organic and uh and those documents you speak of okay great and then my second question your q1 funding mortgage volume was flat year over year and i think you've talked to us uh about a tough year over year comp in in previous calls so maybe a two-part question so one If you had to guess, how much did the winter storms impact your funded mortgage volumes in this quarter? And second, what's your outlook for the balance of the year and anything to detract you from that $100 billion targeting exiting next year?

Yeah, no, I don't have anything that gives me any concern about our $100 billion target. I'm actually super bullish on it. You know, I've said to you guys since the very first, you know – you know, one of these calls that we had that please don't ever judge me by a quarter, judge me by the year and judge me over what I'm going to do in, uh, in multi-years. And when I say I, I mean us as a group, I have the best leadership team, uh, group in, uh, in, uh, in the country. Uh, I look at January, you know, did those storms, uh, sort of impact it? Yeah. There's no questions, right. It def it definitely hits new home purchases. Uh, people aren't out there. They aren't, you know, uh, doing open houses. Uh, it does slow down, uh, the, the economy. There's also been a lot of, as we know, a lot of geopolitical events that are going on. The orange man across the border, as Mr. Trump has been, difficult for the macroeconomics of most markets. But, you know, it's interesting because if you look in our Q1 numbers that we just released, both February and March were up over last year. And last year was a great year for us. January last year was historically high. I think January itself last year was up over 80%. And Q1 last year was up, you know, 46%. So I don't have anything right now that, you know, I have caused. You know, the one area that I look at my Q1 numbers this year that we missed the boat on a little bit and I'll take it right on the chin here. I should have been watching closer, but we spent more money on events, 20th anniversary events in different markets across the country than probably we should have inside of a single quarter or maybe overall. So I've had a really hard chat with my team and we're very mindful of events and expenses around events going forward. And, you know, I'm one of those guys where, you know, We do most things right, and occasionally we have the odd miss, and I should have been keeping a closer eye on how many events are going on in that period. But overall, we're pretty satisfied with where we're at.

Okay, great. Thanks for that. And then maybe just the last one pretty quick. We've noticed a notable drop in the broker count to 86, 89 in Q1. So what drove that decrease sequentially?

Same thing every year, right? Every year, you know, at the beginning of the year, you get all of the, depending on the province, but you get all of the relicensing. And when you get the relicensing requirements, there is people that just, you know, are doing it sort of, you know, I don't want to say it's a hobby. I think their intention is to be a good, you know, full-time broker, but just realize they can't make it. It's no different in the real estate business. So, you know, every year we see a meaningful drop in the same period. So, What I look at more importantly that drives the business is funded volume. I look at same-store sale increases. The actual dropping of individual broker count isn't anything that is surprising to us at all.

Okay, great. Those are my questions. Appreciate your time. Thanks, Gary. Appreciate you.

Your next question comes from the line of Matthew Lee with Canaccord Genuity. Your line is open.

Hi, guys. Maybe just to follow up on that broker count question from Gary. You know, in the past couple years, you know, that number between Q4 and Q1 has been maybe like 150 or, you know, less brokers that leave. You know, the number is much more substantial this year. And I'm wondering, is there any particular reason why people are leaving the industry at a higher rate? It's just, you know, maybe they're looking at the environment and saying it's going to be tougher slogging.

Yeah, I mean, I'm sure there's some of that, right? I mean, listen, typically when they are leaving is typically at the beginning of the year. They just come through sort of the December, January period, which is typically the slowest part of the year, both in the real estate space and in the broker space. And, you know, quite frankly, I mean, you know, there was a lot of, you know, uncertainty up until this last year leading up to it. So, you know, I just think that it's natural when a market, you know, sort of flattens out a little bit that you'll see an increase. But, you know, even though that, I don't know your numbers, typically 150 a year, we usually see higher relicensing drop-off numbers than that. But, you know, I don't look at it as anything that is a warning sign that are alarming to us. It's, you know, we're in the business where, you know, new brokers, when there's more new brokers coming in, you get more fall off because new brokers, you know, a high percentage of them, you know, don't make it any more than a year or two.

It is a sales business.

Go ahead. Yeah, I mean, it is a sales business, right? And it is a commission-based business. So, you know, if the forecast for the future is muted or flat, there isn't as many, you know, new people coming into the business. It's more about, you know, sort of the top number of new people coming into the business. You know, that slows down more than, you know, the other end.

Understood. So we should expect kind of brokers to continue trending upwards as we go through the year?

Yeah, I mean, listen, we continue to onboard and we continue to recruit. You know, I think that number will continue to grow as it has for, you know, a long period of time.

Okay, and maybe just to verify your question, you know, from industry sources, it feels like the recovery and housing activity continues to kind of be pushed out. If we get kind of a stabilization in Canadian real estate instead of a rebound, you know, how do you think about long-term growth and profitability for Dominion?

Yeah, I mean, listen, with the Middle East tensions and, you know, obviously the pressure on global oil prices, you know, I think that... I think that everyone expects this year to be more of a neutral year than even a growth year. But I think that going forward, I mean, listen, we're in the money business. Everyone needs it. Everybody wants it. Nobody minds paying for it. And we've had a continuous sort of uptick for year after year. I expect that the rest of this year to rebound, to be very close to what we think about in terms of plan. Historically, Q3 and Q4 are always the quarters that outpace the beginning of the year. Long term, I think there's more Canadians understanding the value of mortgage brokers. I think you're seeing that by banks that are coming back into the space that weren't in the space before. National Bank has just announced that they're expanding their broker services across the country. Traditionally, they were only really aggressive in Quebec from a broker perspective. So I think it speaks really well for our industry going forward, and we're quite optimistic about it.

All right. Sounds good.

Thank you.

Your next question comes from the line of Stephen Boland with Raymond James. Your line is open.

Thanks. Just a question on, I appreciate your candor on expenses, but in your prepared remarks, I think you talked about a higher headcount. Where specifically are you adding resources within the company?

Primarily we're adding resources around the technology piece of our business. You know, it's a growing sector. We're realizing that the more services that we can do for brokers, things like Gold Rush, where we actually create, upload, maintain their entire database and their ability to stay in touch with past customers is giving us a sort of outsized return. So, you know, primarily most of our increased manpower is coming around the deck.

And I guess my second question is, again, I appreciate you saying that Hartwood's going to be profitable in the second half. So, you know, how much volume are you throwing at that entity at this point in terms of, you know, number of mortgages, types of mortgages, maybe just a little bit more color on that right now?

Yeah, great question. You know, listen, we have to convince, you know, all of our brokers who have had longstanding relationships with other lenders, you know, that would compete with Heartwood that we are a really good option. And, you know, we're doing that. Our application count is ticking up nicely month after month. We've obviously expanded from Ontario into British Columbia. That is going to continue to add, you know, origination volume to Heartwood. But, you know, it takes a little bit of time. It's a new business. You know, I think that we're satisfied with sort of, you know, the pace of what Heartwood is doing in originations right now. We have, you know, somewhere around $150 million of loans on the books. And our awareness just through our own broker distribution or getting in front of more brokers more often now, I think, is starting to resonate. So, you know, I expect that Heartwood will continue to, you know, move in the right direction.

Okay. And you mentioned February and March. You saw a little rebound in funded volumes. Can you talk about April a little bit?

Yeah, I mean, listen, I can't talk about April because we don't give guidance. But, you know, what I will say to you is that we're encouraged by the April activity, right? You know, I mean, I think I expect it to, you know, follow the same trend that February and March follows. All right. Appreciate that. Thanks. Yeah. I mean, it's been a, listen, it's been a bit of a softer, you know, Q1, a more sluggish Q1, right. There's a lot of things that are, you know, driving that obviously, right. We just talked about, you know, the, the global tensions, geopolitical tensions, obviously. And then you have, you know, the prolonged winter storm and you just have Q1, which is, you know, other than last year, which is historically, you know, the, the slowest quarter in the, in the year. So, you know, I don't, I don't look at any of that, and it doesn't discombobulate me or make me worried about what the balance of the year is going to look like. Thanks for the comments. Yeah, my pleasure.

Your next question comes from the line of Jeff Fenwick with ATB Carmart Capital Markets. Your line is open.

Hi, good afternoon, everybody. Yeah. I think most of the questions have been answered here, but maybe one on direct costs. It looks like we're seeing the benefit of the transaction you did with some of those legacy brokers or sales agents to the end of last year. But I think also it sounded like maybe just some timing on some of the things that factor into that direct cost line are also there. Can you sort of speak to, like, are we going to – is that sort of level – where we're going to be going forward or in terms of like a relative to sales basis, or maybe there's a bit of timing and some catch up here that goes into the year on, on the direct cost side of things.

Sure. Jeff Pegg, do you want to jump in on that one? I can, I can help add some color, but go ahead.

Yeah, we saw a couple of notable items in our direct costs that had a, had a bit of an impact, as I mentioned, a little lower in the ad fund spending this quarter, which will catch up next quarter. But yeah, we did also see some savings in respect of the sales team reorientation that we spoke about in the last quarter. So definitely two items that helped, so to speak, the first quarter. The ad fund item will kind of unwind later in the year. We always have an amount that we need to spend. It's just a matter of timing, so it can be a bit lumpy.

Okay, great. And then maybe just one last one here in terms of new initiatives. I mean, you've certainly been busy on investments, but just the thought process this year about opportunities for cross-selling and referral sales. I know you had struck an agreement with Sonnet last year. Maybe that's worth updating us on in terms of how that's going and what that's making you think about in terms of opportunities to plug in maybe some other types of referral relationships such as that.

Yeah, Sonnet, you know, is a program that we think is going to integrate really well with our distribution. They've been working really hard. I've got to give them a lot of credit on getting user experience, you know, to a point that, you know, we would rank as solid. We have just, again, just recently in the last couple weeks, put out a pilot on it. So that will slowly wrap up over the next 12 to 18 months. That takes some time. It's a new additional cross-sell. We are also continuing to do a pretty good job with MPP. Our mortgage protection plan numbers have been fairly solid right now. And Jeff, we're looking at other areas, you know, that we think might be opportunistic for us over the, you know, the next year or two, you know, that I, you know, we hope that will come to fruition, right, that we're getting, you know, sort of closer on. There's an opportunity, we spoke about it before, around data. We really have some of the most, you know, time-sensitive data available in the Canadian finance space, not only in submission volume, but actual funded volume. So, You know, these are all levers that we're looking at.

Okay, great. Thank you. That's all I have. Thanks very much, Jeff.

Your next question comes from the line of Jim Byrne with Acumen Capital. Your line is open.

Yeah, thanks, guys. Maybe just one on Dunder Ray, but just see the contribution here in the quarter. I recognize it was acquired in February, but maybe just help us understand You know, is there seasonality to that business? Is that, you know, should we extrapolate or think about that business kind of growing over the course of the year? Or is this kind of a typical run rate for that Dunderave?

James, do you want to jump in? I know you just had a call yesterday with the Dunderave leadership team, and I'm happy to add color as well.

Sure. Hi, Jim. Thanks for your question. Yeah, absolutely. Lumpy is the answer for Dunderave. If you think about Dunderave, they charge fees on two sides, right? Assets under management. But the juicier fees, if you will, are under the lender fees. And the lender fees get charged when the loans get placed. So if no loans get placed, then you're in a month where there's low fees. So their fees can range anywhere from $10,000 in one month to $200,000, right? So that becomes very lumpy. But we just had a great meeting with them. Their loan book looks good. It's business as usual there. So our expectations are fully intact on the year there, that it just comes down to timing on their revenue cycles. Does that make sense? Yeah, yeah, that's helpful.

And keep in mind just real quick that you're only seeing one month of activity there just based on the timing of the acquisition.

Yeah, I got it. Yeah, no, I recognize that. Thanks.

I'll now turn the call back over to Gary Morris for closing remarks.

Yeah, listen, thanks to all the great questions today and thanks to all of our partners at the investors at the institutions. You know, when I said earlier, I don't have any warning flags or anything that is concerning as us. I really, truly don't, right? You know, when I look at our internal plan for Q1, it's sort of what expected, what was expected. Sometimes you hope that you have, you know, a huge sort of tailwind behind you and that's nice when it happens. And when it doesn't, uh, you know, that, um, you know, is what it is. Uh, but we're very encouraged, uh, you know, the feeling that, you know, we're getting from the street right now, uh, just the activity of the DOCG group and, you know, and how, uh, front and center and visible and the sort of vibe that we have, you know, um, in comparison to our competitors right now, uh, is, is really market leading. I feel really, really positive about it. So listen, we're, we're, we're, you know, excited about the rest of the year. You know, I, you know, there's going to be obviously some macroeconomic, you know, headwinds that we're going to continue to deal with, but you know, I think it'll be a very good year for us and we're quite encouraged and our recruiting is, you know, off to a very fast start this year, which is always something that we use to backfill anything else that might be muted in our business. So we're encouraged. So with that guys, you know, I'll just say thanks very much for all the great questions and feel free to reach out directly anytime.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.