Real Matters Inc.

are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 1, 2024. I would now like to turn the conference over to Leanne Borgaard, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Real Matters Financial Results conference call for the third quarter ended June 30th, 2024. With me today are Real Matters Chief Executive Officer Brian Lang and Chief Financial Officer Rodrigo Pinto. This morning, before market opened, we issued a news release announcing our results for the three and nine months ended June 30th, 2024. The release, accompanying slide presentation, as well as the financial statements and MD&A are posted in the investor section of our website at realmatters.com. During the call, we may make certain forward-looking statements which reflect the current expectations of management with respect to our business and the industry in which we operate. However, there are a number of risks, uncertainties, and other factors that could cause our results to differ materially from our expectations. Please see the slide entitled Cautionary Note Regarding Forward-Looking Information in the accompanying slide presentation for more details. You can also find additional information about these risks in the risk factors section of the company's annual information form for the year ended September 30, 2023, which is available on CDAR Plus and in the investor section of our website. As a reminder, we refer to non-GAAP measures in our slide presentation, including net revenue, net revenue margins, adjusted EBITDA, and adjusted EBITDA margins. Non-GAAP measures are described in our MD&A for the three and nine months ended June 30, 2024, where you will also find reconciliations to the nearest IFRS measures. With that, I'll turn the call over to Brian. Brian?

Thank you, Lynn. Good morning, everyone, and thank you for joining us on the call today. I'll kick things off by going over the business highlights of the quarter. Rodrigo will then follow up with a brief discussion of the financial highlights, and we'll then update you on our target operating model before we take questions. We delivered solid performance in the third quarter. Consolidated revenues increased 17% sequentially to $49.5 million due to growth in all three segments, and third quarter consolidated revenues were up 8% year over year. We delivered positive consolidated adjusted EBITDA of $1.7 million in Q3, mainly due to continued strong operating leverage in our U.S. appraisal and Canadian segments. The spread between the 30-year fixed-rate mortgage and the 10-year Treasury yield widened by approximately 10 basis points sequentially, and the U.S. 30-year fixed-rate mortgage was range-bound at around 7%, which continued to weigh on refinance volumes. This, combined with other lingering macro market factors, muted some of the seasonal purchase origination volumes we tend to see at this time of the year. We estimate that third quarter U.S. mortgage market origination volumes increased 25% quarter over quarter. However, they were down 3% year over year, bottom bouncing in this historically low mortgage origination market. Notwithstanding external market forces, we continue to focus on our core operations in the quarter, driving performance, efficiency, and delivering strong operating leverage. Third quarter U.S. appraisal mortgage origination revenues were up 15% quarter over quarter due to the seasonality of purchase transactions. We posted year over year market share increases with four of our top U.S. appraisal clients, and we maintained our top position on lender scorecards. U.S. appraisal net revenue margins held strong at 27.6%, down modestly from the record we posted in the second quarter, and net revenue was up 12% quarter over quarter, mainly due to a seasonal increase in our purchase origination revenues. With the increase in volumes on our platform and relatively flat operating expenses, we continue to see strong operating leverage in the business, and increased our U.S. appraisal adjusted EBITDA 25% quarter-over-quarter to $5.5 million. Third-quarter U.S. title segment revenues were up 5% quarter-over-quarter, as a slight decline in refinance origination revenues was offset by an increase in REO and home equity revenues. With the change in our revenue mix, Net revenue margins were down 40 basis points sequentially, and we posted an adjusted EBITDA loss of $1.9 million compared with a loss of $1.7 million in the second quarter, principally due to a one-off expense recovery that benefited us in the second quarter. We launched in two channels with one new client and U.S. title in the third quarter. We continue to progress our discussions with lenders and advance the pipeline with a view of launching new title clients onto our platform. The RFP cycle is active and moving forward. As most lenders look toward the increasing probability of lower rates and higher refinance volumes in 2025, we are well positioned to help them address that market opportunity. Today, 14% of outstanding mortgages have an interest rate above 6%, 24% of outstanding mortgages have an interest rate above 5%, and the inventory of mortgages being written at higher rates continues to climb, growing the pool of potential future refinance candidates. In Canada, revenues were up 30% quarter over quarter, in line with stronger spring market activity. We hit record, near record, net revenue margins of 19% in Canada in the third quarter, and net revenue was up 31% sequentially. That, combined with a stable cost base, resulted in strong operating leverage, and we increased adjusted EBITDA by 46% quarter over quarter to $1.3 million.