Founders Advantage Releases Q3 2017 Results; Revenue and Earnings Increase for the Fourth Consecutive Quarter; Provides 2018 Outlook

Calgary, Alberta – November 27, 2017 – Founders Advantage Capital Corp. (TSXV: FCF) (the “Corporation”) is pleased to report its financial results for the three months and nine months ended September 30, 2017 (“Q3 2017”). Readers should refer to the interim condensed consolidated financial statements and management discussion and analysis (“MD&A”) for complete information, which are available on SEDAR at www.sedar.com and on the Corporation’s website at www.advantagecapital.ca.

All amounts are presented in Canadian dollars unless otherwise stated.  Dominion Lending Centres Limited Partnership is referred to herein as “DLC”, Club16 Limited Partnership is referred to herein as “Club16”, Cape Communications International Inc. (operating as Impact Radio Accessories) is referred to herein as “Impact” and Astley Gilbert Limited is referred to herein as “Astley Gilbert”. Included within the DLC segment is the operations of Newton Connectivity Systems Inc., herein referred to as “NCS”.

Selected Consolidated Financial Highlights

For the three months ended For the nine months ended
(000’s except per share amounts) September 30,
2017
June 30,
2017
September 30,
2016
September 30,
2017
September 30,  2016
Revenues $  21,759 $  19,500 $ 10,643 $  54,953 $ 13,661
Income (loss) from operations  4,537  2,640 699  5,387 (4,076)
Adjusted EBITDA (1)  7,875  5,274  4,907  14,490 2,675
Net income (loss) for the period 3,611  3,091 (1,171) 5,042 (4,247)
Net income (loss) attributable to:
Shareholders $  1,140 $  975 $ (2,842) $ 485 $ (6,268)
Non-controlling interests $  2,471 $  2,116 $ 1,671 $  4,557 $ 2,021
Adjusted EBITDA attributable to:
Shareholders $  4,335 $  2,599 $ 2,120 $  7,224 $  (713)
Non-controlling interests $  3,540 $  2,675 $ 2,787 $  7,266 $  3,388
Income (loss) per share:
Basic $  0.03 $  0.03 $ (0.08) $  0.01 $ (0.27)
Diluted $  0.03 $  0.03 $ (0.08) $  0.01 $ (0.27)
  • One of the measures we use to assess our overall performance is adjusted EBITDA, which is a supplemental measure of our income from operations in which depreciation and amortization, finance expense and other unusual or one-time items are added back to income from operations to arrive at adjusted EBITDA. Please see the “Non-IFRS Measures” section of this document for additional information.

Review of Q3 2017 Consolidated Financial Results

Q3 2017 Overview

The Corporation’s financial performance improved significantly over the prior quarter, primarily driven by DLC.  In particular, we note the following from our three month financial results ended September 30, 2017 (with the comparative period being the three month period ended June 30, 2017 as the three month period ended September 30, 2016 does not provide a meaningful comparison):

  • Consolidated revenues for the current quarter increased by $2.3 million over the three months ended June 30, 2017 to $21.8 million, which can be attributed primarily to the DLC operations.

 

  • Consolidated adjusted EBITDA has increased during the current period to $7.9 million from $5.3 million in the three months ended June 30, 2017.

 

  • Consolidated Income from operations for the three months ended September 30, 2017 increased to $4.5 million from $2.6 million during the three months ended June 30, 2017.

 

  • DLC’s revenues for the three months ended September 30, 2017 have increased by $4.1 million to $12.9 million over the three months ended June 30, 2017. This increase in revenues can be attributed to $1.5 million in seasonal increases in DLC’s volume of funded mortgages and $2.7 million in increased revenues from NCS.

 

  • DLC’s adjusted EBITDA has increased by $5.0 million over the three months ended June 30, 2017 to $7.6 million. The increase in adjusted EBITDA is primarily due to a $4.1 million increase in DLC’s revenues, as well as a decline in DLC’s operating expenses of $0.9 million.

Newton Connectivity Systems Inc. 

As previously reported, DLC acquired NCS in December 2016 and incurred costs and expenses in the first half of 2017 to restructure and integrate NCS.  We are pleased to report that NCS has already become a meaningful contributor for DLC and generated increased connectivity and other revenues for the quarter.  The increased NCS revenues resulted in DLC recognizing an additional $2.7 million in revenue during the three months ended September 30, 2017 when compared to the previous quarter.

Prior to the acquisition of NCS, DLC was not involved in the lender connectivity sector. NCS now provides DLC with the opportunity to vertically integrate lender connectivity with its network of mortgage brokers.  In addition to connectivity revenue, NCS also generates revenue from insurance referrals, NCS’s underwriting platform (Isaac), integrated payroll software (EZ Pay) and various other revenue streams.  NCS continues to create and build lender, broker and supplier workflows that complements management’s long-term strategy of connectivity and underwriting consumer, broker and business-to-business applications.

Outlook for Fiscal 2018

As previously announced, the Corporation has acquired a 60% interest in DLC, a 60% interest in Club16, a 52% interest in Impact and a 50% interest in Astley Gilbert.  For fiscal 2018, the Corporation expects its proportionate interest of annual adjusted EBITDA from its four investees to be between $21.5 million – $22.5 million.  The above guidance is prior to the Corporation’s corporate expenses (including G&A).  Further, the above guidance does not reflect any additional acquisitions that the Corporation intends on completing in 2018. For a discussion and update on the Corporation’s 2017 guidance, please see “Outlook and Strategic Objectives” section of the MD&A for Q3 2017.

All outlook amounts set out above are considered forward-looking financial information and are subject to the cautionary statement included in this press release.

As at the date hereof, the Corporation has an aggregate of 38.1 million class A common shares issued and outstanding.

Overview of Financial Results for Investees

Please see the Corporation’s MD&A for Q3 2017 for a comprehensive discussion relating to the financial results for DLC, Club 16 and Impact for the three and nine months ended September 30, 2017.  The Q3 2017 financial results do not include any amounts from Astley Gilbert as such transaction was completed on October 31, 2017, being subsequent to the end of the financial quarter.

Non-IFRS measures

Adjusted EBITDA for both our corporate head office and investees is defined as earnings before interest, taxes, and non-cash items such as depreciation and amortization, share-based payments, losses recognized on the sale of investments, and any unusual non-operating one-time items such as corporate start-up costs, reorganization costs and other revenues. Adjusted EBITDA is also adjusted for expenses relating to prior mineral property impairment reversal and arbitration. Readers are cautioned that adjusted EBITDA should not be construed as a substitute or an alternative to applicable generally accepted accounting principle measures as determined in accordance with IFRS.

About Founders Advantage Capital Corp.

The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a permanent investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing controlling interest acquisitions of cash flow positive middle-market privately held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation’s innovative platform offers contractual incentives for growth in favour of our investees. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue managing the business while partnering with a long-term partner.

The Corporation’s common shares are listed on the TSX Venture Exchange under the symbol “FCF”.

For further information, please refer to the Corporation’s website at www.advantagecapital.ca.

Contact information for the Corporation is as follows:

Stephen Reid
Chief Executive Officer
403-455-7350
sreid@advantagecapital.ca
James Bell
Chief Operating Officer
403-455-2218
jbell@advantagecapital.ca

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

Cautionary Statement Regarding Forward-Looking Financial 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”, “intend”, or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:

  • the Corporation’s anticipated proportionate EBITDA of its investees for fiscal 2018;
  • the completion of additional acquisitions;
  • the ability of our investee entities to distribute cash to the corporate head office;
  • the revenue from investees in future quarters being greater than the revenue from investees for the current period;
  • our business plan and investment strategy; and
  • general business strategies and objectives.

 

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

  • taxes and capital, operating, general & administrative and other costs;
  • interest rates;
  • general business, economic and market conditions;
  • the ability of Founders Advantage to obtain the required capital to finance our investment strategy and meet our commitments and financial obligations;
  • the ability to source additional investee entities and to negotiate acceptable acquisition terms;
  • the ability of Founders Advantage to obtain services and personnel in a timely manner and at an acceptable cost to carry out our activities;
  • that DLC will maintain its existing number of franchisees and will add additional franchisees;
  • the continuation of existing Canadian mortgage lending and mortgage brokerage laws;
  • the absence of material decreases in the aggregate Canadian mortgage lending business; and
  • the timely receipt of required regulatory approvals.

 

Although the Corporation believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as the Corporation can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Corporation and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

  • the expected benefits of the DLC, Club16, Impact and Astley Gilbert transactions not being realized;
  • the ability to generate sufficient cash flow from investees and obtain financing to fund planned investment activities and meet current and future commitments and obligations;
  • general business, economic and market conditions;
  • changes in interest rates;
  • the uncertainty of estimates and projections relating to future revenue, taxes and costs and expenses;
  • changes in, or in the interpretation of, laws, regulations or policies;
  • the ability to obtain required regulatory approvals in a timely manner;
  • the outcome of existing and potential lawsuits, regulatory actions, audits and assessments; and
  • other risks and uncertainties described elsewhere in this document and in our other filings with Canadian securities authorities.

 

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled “Risk Factors” in the Corporation’s current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, the Corporation undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

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