FCF Founders Advantage Capital Corp

Founders Advantage Capital Corp. (TSXV:FCF) (“FAC” or the “Corporation”) is pleased to report its financial results for the three months and year ended December 31, 2017 (“Q4 2017” and “Annual”, respectively). For complete information, readers should refer to the full 2017 Annual Report on the Corporation’s website at www.advantagecapital.ca or to the audited consolidated financial statements and management discussion and analysis (“MD&A”), which are available on SEDAR at www.sedar.com. All amounts are presented in Canadian dollars unless otherwise stated.

Stephen Reid, President and CEO, commented, “We are pleased to report our 2017 financial results for the three and twelve months ended December 31, 2017.  In 2017, we further diversified our investment portfolio by completing two acquisitions, successfully integrated Newton Connectivity Systems into DLC’s operations and entered into a credit facility with Sagard Credit Partners. We believe we are well positioned for additional growth in 2018 and reaffirm our previously reported 2018 Outlook that the Corporation anticipates its proportionate share of annual adjusted EBITDA from its four investees to be between $21.5 million to $22.5 million for the year ended December 31, 2018.”

Selected Consolidated Financial Highlights:

	Three months ended							Period ended (1)
(000’s except per share amounts)	December 31, 2017			December 31, 2016				December 31,2017				December 31, 2016
Revenues	$	27,952		$		9,277		$		82,905		$			22,938
Income (loss) from operations		51				(1,606	)			5,438					(6,337		)
Adjusted EBITDA (2)		2,849				998				18,145					3,097
Adjusted EBITDA margin		10	%			11	%			22	%				14		%
Net loss for the period		(5,699	)			(1,916	)			(657	)				(7,279		)
Net (loss) income attributable to:
Shareholders of FAC	$	(6,697	)	$		(2,410	)	$		(6,212	)	$			(9,794		)
Non-controlling interests	$	998		$		494		$		5,555		$			2,515
Adjusted EBITDA attributable to:
Shareholders of FAC	$	333		$		(211	)	$		7,592		$			(1,499		)
Non-controlling interests	$	2,516		$		1,209		$		10,553		$			4,596
FAC proportionate share of annual adjusted EBITDA (3)	$	3,133		$		1,812		$		15,064		$			6,894
Loss per share:
Basic	$	(0.18	)	$		(0.07	)	$		(0.17	)	$			(0.42		)
Diluted	$	(0.18	)	$		(0.07	)	$		(0.17	)	$			(0.42		)

1. The December 31, 2017 period is for the 12 months from January 1, 2017 to December 31, 2017. The December 31, 2016 period is for the 15 months from October 1, 2015 to December 31, 2016. The Corporation elected to change its year end from September 30 to December 31 in 2016.
2. 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.
3. FAC proportionate share of annual adjusted EBITDA is comprised of the adjusted EBITDA of all operating segments attributable to FAC without considering FAC corporate costs.

Review of 2017 Annual Financial and Operational Highlights

Overall, FAC has experienced significant growth since commencing its new business model in early 2016. Since that time, $146 million in capital has been deployed in the completion of four acquisitions and FAC has built a foundation of people and processes which will allow for additional growth without meaningful incremental resources. The timing of the acquisitions and the resulting growth renders period over period results less comparable. Highlights of 2017 significant transactions include:

• Completed the acquisition of a 52% interest in Cape Communications International Inc. (operating as Impact Radio Accessories) (“Impact”) on March 1, 2017.
• Completion of a $75.0 million USD term credit facility with Sagard Credit Partners LP (“Sagard”) on June 14, 2017 (with $42.0 million drawn at closing).
• Completed the acquisition of a 50% interest in Astley Gilbert Limited (“AG”) on October 31, 2017.

Adjusted EBITDA for the Franchise segment includes a loss of $0.3 million from Newton Connectivity Systems Inc. (“NCS”) which is primarily a result of non-recurring severance costs of $0.3 million.  The NCS operations had incurred a current year adjusted EBITDA loss of $1.2 million prior to undergoing restructuring in Q2, 2017.  Since restructuring the operation has generated $0.9 million of adjusted EBITDA earnings. Please see the Corporation’s MD&A and financial statements for additional information relating to these financial impacts.

In our third quarter financial report, FAC issued updated 2017 guidance for our expected proportionate share of annual adjusted EBITDA of approximately $15.0 – $15.4 million. This outlook did not factor in any earnings from the AG acquisition that occurred on October 31, 2017 and assumed a full year of earnings from Impact. Adjusting for AG and Impact to compare to our guidance target, our adjusted proportionate share of annual adjusted EBITDA would be $15.2 million.

Q4 2017 Overview

The Corporation’s financial performance improved over the same quarter in the previous year. This variance is reflective of the timing of the acquisitions, as the Q4, 2016 results included only Dominion Lending Centres Limited Partnership (“DLC”) results and a partial month for Club16 Limited Partnership (“Club16”). The Q4, 2017 quarterly results include a full quarter of results for Club16, Impact, and NCS; and two months of results for AG. Improved revenues for the quarter were partly offset by an increase in operating costs for those recent acquisitions.

Compared to Q3, the Corporation’s adjusted EBITDA has decreased from $8.2 million to $2.8 million due primarily to seasonality of operations in the Franchise segment where Q2 and Q3 are historically the most active quarters in the mortgage broker sector. The Consumer Products and Services segments also saw a seasonal drop in earnings in Q4, as well as increased advertising costs of $0.2 million related to opening of a new facility in January, and a rent adjustment of $0.2 million.  Acquisition costs in the Business Products and Services segment of $0.5 million were incurred in Q4 which also impacted adjusted EBITDA. In addition, a $1.1 million realized foreign currency loss was incurred in the Corporate and Consolidated segment related to converting the Sagard USD funds to CAD to fund the AG acquisition.

On a net income basis, the Q4 net income contains non-cash charges such as a $2.5 million of impairment on a legacy investment in Vital Alert Communications Inc. (full year impact of $2.5 million) and a $3.3 million fair value loss on the non-controlling interest liability related to Impact ($4.3 million full year).

Please see the Corporation’s MD&A and financial statements for additional information relating to these financial impacts.

Overview of Financial Results for Segments

We currently operate a corporate head office and three business segments – Business Products and Services, Consumer Products and Services and Franchise. Please see the Corporation’s MD&A for a comprehensive discussion relating to the financial results for the segments.

Non-IFRS Measures

Adjusted EBITDA for both our corporate head office and investees is defined as earnings before finance expense, 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 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. Please see the Corporation’s MD&A for a reconciliation of adjusted EBITDA to its nearest IFRS measure.

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 business owners 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:

Amar Leekha Senior Vice President 403-455-6671 aleekha@advantagecapital.ca

Melanie Litoski Chief Financial Officer 403-455-7563 mlitoski@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 Note Regarding 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,” “intend,” or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to, the 2018 outlook and the Corporation’s expectation that it is positioned for growth.

Such forward-looking information is necessarily based on a number of estimates and assumptions, including material estimates and assumptions, related to the factors identified below that, while considered reasonable by the Corporation as at the date of this press release in light of 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 and undue reliance should not be placed on such statements and information. Such factors include, but are not limited to, changes in taxes and capital; increased operating, general and administrative, and other costs; changes in interest rates; general business, economic and market conditions; our ability to obtain the required capital to finance our investment strategy and meet our commitments and financial obligations; our ability to source additional investee entities and to negotiate acceptable acquisition terms; our ability to obtain services and personnel in a timely manner and at an acceptable cost to carry out our activities; DLC’s ability to maintain its existing number of franchisees and add additional franchisees; changes in Canadian mortgage lending and mortgage brokerage laws; material decreases in the aggregate Canadian mortgage lending business; the timely receipt of required regulatory approvals; changes in the fees paid for mortgage brokerage services in Canada; changes in the regulatory framework for the Canadian housing sector; demand for DLC, Club16, Impact and AG’s products remaining consistent with historical demand; our ability to realize the expected benefits of the DLC, Club16, Impact and AG transactions; our ability to generate sufficient cash flow from investees and obtain financing to fund planned investment activities and meet current and future commitments and obligations; the uncertainty of estimates and projections relating to future revenue, taxes, costs and expenses; changes in, or in the interpretation of, laws, regulations or policies; 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.

Many of these uncertainties and contingencies can 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 press release are qualified by these cautionary statements. The foregoing list of risks is not exhaustive. For more information relating to risks, see the Risk Factors section in our MD&A and the risk factors identified in our 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 laws, we undertake no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.