Real Matters Inc.

Good day, and thank you for standing by. Welcome to the Real Matters Second Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lynn Beauregard, Vice President, 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 second quarter ended March 31st, 2025. 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 six months ended March 31st, 2025. The release, accompanying slide presentation, as well as financial statements and MD&A are posted in the investor relations 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 Orb Looking Information in the Company 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, 2024, which is available on CDAR Plus and in the Investor Relations section of our website. As a reminder, we refer to non-GAAP measures in our slide presentation, including net revenue, net revenue margins, adjusted net income or loss, adjusted net income or loss per diluted share, adjusted EBITDA, and adjusted EBITDA margins. Non-GAAP measures are described in our MD&A for the three and six months ended March 31st, 2025, where you will also find reconciliation to the nearest IFRS accounting standards 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. Our business delivered solid results in the second quarter as we continued to deliver top-of-the-scorecard performance and onboard new customers. We posted consolidated net revenue of $10.1 million compared with $11.5 million in the second quarter of 2024, mainly due to a double-digit decline in the addressable U.S. purchase mortgage origination market. Our U.S. title segment delivered strong year-over-year growth, driven by net market share gains with clients and higher refinance origination market volumes. We posted double-digit revenue growth in U.S. title and Canada year-over-year, and we continued to leverage our network management model and disciplined cost management to drive net revenue and EBITDA margin improvements. U.S. appraisal revenues were down 9% sequentially, However, we outperformed an estimated double-digit decline in market volumes. Our net revenue margins improved by 80 basis points quarter over quarter to 27.3%, keeping us in the range of our target operating model for the 10th quarter in a row. And U.S. appraisal adjusted EBITDA increased to $2.6 million from $2.4 million in the first quarter due to lower operating expenses. We maintained our leadership position in U.S. appraisal, ranking as a top performer on lender scorecards. Our U.S. appraisal business is in a strong position. We have additional capacity with our existing operating cost base, which should deliver strong operating leverage once more volumes flow across our platform. U.S. title revenues were 2.3 million, down from 2.5 million in the first quarter, which was a relatively robust quarter, as you'll recall, driven by closings from the short-lived September interest rate rally. On a year-over-year basis, our U.S. title business continues to build momentum. We outpaced estimated market volume growth in the second quarter and posted an increase in refinance origination revenues of 40% year-over-year as a result of our growing client base and net market share gains. With the increase in refinance origination revenues, net revenue margins increased 810 basis points on a year-over-year basis to 52.1%, in the second quarter. We launched one new client in two channels in Q2, and we expect that our new tier one title client will go live in the coming months. Our sales efforts are in full swing as we are confident that this is the time to amplify our efforts to capture more market share. Over the past five years, we've consistently expanded our client base, steadily bringing new clients onto our platform. However, the full impact of this growth hasn't yet been reflected in our results due to the current state of the refinance market. We believe this growing client base represents a coiled spring poised to create significant momentum as market volumes rebound. With nearly 10 million outstanding mortgages with rates above 6% and nearly 7 million mortgages above 6.5%, the pool of rate term refinance candidates continues to grow. Americans also have record levels of equity in their homes. 82% of borrowers have at least 30% equity, which could become a readily accessible source of cash in a recessionary environment. Turning to Canada, revenues for the segment were up 11% on a year-over-year basis, and net revenue margins remain near all-time highs at 19%. We launched two new clients in Canada during the second quarter. With that, I'll hand it over to Rodrigo.

Thank you, Brian, and good morning, everyone. The second quarter has historically marked the trough period of our fiscal year due to purchase market seasonality, which affects our appraisal business in the US and Canada. In contrast, relative changes in interest rates are the biggest driver of refinance volumes for our US appraisal and US title segments. We estimate that addressable mortgage origination market volumes were down both sequentially and year-over-year due to a rising interest rate environment. The average 30-year mortgage rate increased by 20 basis points from Q1 2025 compared to a decrease of 60 basis points in 2024 from fiscal Q1 to fiscal Q2. Turning to our segmented financial performance, I'll start with our U.S. appraisal segment, where we recorded revenues of $26.7 million, down 18% from the same period last year due to lower addressable market volumes. Revenues from purchase mortgage originations were down 26%, and revenues from refinance originations were down 11%, in line with lower addressable market volumes associated with this quarter's rising interest rate environment. Home equity revenues were down 12% year over year, mainly due to a lower addressable market for home equity transactions, partially offset by net market share gains with existing and new clients. Home equity revenues accounted for 25% of the segment's revenues in Q2. U.S. appraisal net revenue was $7.3 million for the second quarter, down from $9.2 million in Q2-24, and net revenue margins decreased by 100 basis points mostly due to the distribution of transactions volume as it relates to geographies, clients, and product mix. We posted net revenue margins of 27.3% in Q2 2025, which remains well within our target operating model range. Second quarter U.S. appraisal operating expenses were down 2% year-over-year to $4.7 million due primarily to lower salaries and benefits costs. We posted U.S. appraisal adjusted EBITDA of $2.6 million compared with $4.4 million from the second quarter of fiscal 2024 as lower net revenue was partially offset by lower operating expenses. Turning to our U.S. title segment, second quarter revenues increased 11% year-over-year to 2.3 million, and refinance origination revenues were up 40%, mainly due to net market share gains with clients and higher refinance mortgage market origination volume. U.S. title net revenue was 1.2 million, up 32% from the second quarter last year, and net revenue margins increased to 52.1%, from 44%, mostly due to higher volumes serviced, which diluted our fixed costs, as well as higher proportion of income order volumes that closed. U.S. title operating expenses were up 29% year over year, mainly due to hiring additional sales personnel to accelerate market share increases, and to a lesser extent, increased variable costs associated with higher volumes. We recorded an adjusted EBITDA loss of $2.1 million for the U.S. title segment, compared with $1.7 million loss we recorded in the second quarter of fiscal 2024. In Canada, second quarter revenues increased 11% year over year to $8.3 million, primarily due to higher market volumes and net market share gains with existing and new clients for appraisal services and insurance inspections. Net revenue was up 11% to $1.6 million, with a 10 basis points increase in net revenue margins in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 as we continue to leverage our platform. Canadian adjusted EBITDA was $1 million, up from $900,000 in the second quarter of fiscal 2024. In total, second quarter consolidated revenue and net revenue were down 11 and 13 percent year-over-year to 37.3 million and 10.1 million respectively as lower U.S. appraisal segment revenues were partially offset by an increase in revenues from our U.S. title and Canada segments. We recorded a consolidated adjusted EBITDA loss of 1.9 million and compared with positive consolidated adjusted EBITDA of $700,000 in the second quarter of fiscal 2024. We continue to successfully navigate through unprecedented market uncertainty, and our business is well positioned to face the current macro environment. We have a very strong balance sheet with no debt and cash of $45.7 million, down from $49 million at December 31, 2024, due to the timing of changes in working capital and a modest adjusted EBITDA loss. With that, I'll turn it back over to Brian. Brian?

Thank you, Rodrigo. The business delivered solid performance in the second quarter, reflecting continuing operational discipline, resilience, and growing momentum in our title business. We posted double-digit year-over-year revenue growth in U.S. title in Canada and we continued to leverage our network management model and discipline cost management to drive net revenue and EBITDA margin improvements. We delivered leading performance on scorecards and we launched three new clients. As we've experienced in the past, economic and financial market uncertainties can create significant opportunity for the mortgage industry. We continue to closely watch the impact of policy decisions in the United States on the 10-year Treasury yield, which is a leading indicator of mortgage rates. Even minor decreases in interest rates like those we saw last fall can have a significant positive impact on origination volumes, especially from today's historically low volumes. We have the capacity to take on more volume with our existing operating cost base, and we are ready to scale. We remain confident that the U.S. mortgage origination market represents a significant growth opportunity for our business. Under our target operating model, we believe that our U.S. appraisal segment has the potential to deliver $50 to $65 million in adjusted EBITDA, and our U.S. title business could generate $30 to $45 million of adjusted EBITDA. We look forward to leveraging our model to continue to demonstrate the through-cycle earnings potential of our business in line with our focus on scale and market share growth. We continue to focus on the things we can control, which is solid execution of our strategy, broadening our client base, and deepening our customer relationships, particularly in US title where we have significant runway for growth. With $46 million in cash and no debt, sound cost discipline, and a growing client base, Real Matters remains well positioned to capitalize on mortgage market improvements. With that, operator, we'd like to open it up for questions now.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Thanos Machopoulos with BMO Capital Markets. Your line is now open.

Hi, good morning. Brian, could you maybe expand on how your customers are reacting to the current conditions and the uncertainty I guess, with respect to the discussions you're having with you for other channels or, you know, title and other opportunities, and also in terms of just their behavior in the market and the stance you're taking versus the non-banks?

Sure. Thanos, thanks for the question. So, how are customers reacting to what's going on? And I assume you mean, Thanos, a fair bit south of the border. So I think one of the opportunities for us, which frankly started last fall, but definitely continues, is this opportunity in title and the focus that we've had on our title pipeline. So I think as we continue to be top of scorecard and perform incredibly well with our existing customers, Thanos, we're in the throes of quite a few RFPs. And so I think it's actually because of some of the uncertainty in the market, I think it's just continuing the momentum that we've had on some of the big lenders starting to look to put RFPs in place around title. And so if I take a look at the RFPs that we've had on the go, we've talked about closing our second big tier one, and so we continue to move that forward both technically and through contracts, and we're feeling very good that we're going to see volume in the upcoming months. We've also got another tier one where we're engaging now in that RFP with them, and so that's more a year-end goal with us. Some of the non-banks to address that side, Thanos, one of the biggest service providers in the U.S. now. We are in RFP conversations with them, and there's a couple of tier twos. So, I mean, on the title side of the business, I think we're seeing some continued momentum, Thanos, and I think a lot of it has to do with some of the uncertainty in the market, as well as, you know, we mentioned this RF refinance pool of opportunity that continues to grow and now is you know, in the numbers of 10 millions that's over 6% and 70% of that, so 7 million over 6.5%. So I think with all of that, I think that's sort of what we're seeing at least on the title side of the business with particular customers. The other interesting thing we've seen in this past quarter specifically is a couple of the big tier one lenders have come out quite publicly, Thanos, and talked about the regulatory environment and the impact on their businesses with the regulation that's in place now. And so what's encouraging for us, I think, around that is there's definitely quite a push from some of those tier one leaders that they want to get back in the market, win more market share, and really try and drive more, for us, origination volume into the pipes. So I'll take that also as a positive, and we've actually seen that in some of our numbers from the last quarter with some of our big players really stepping up and starting to accelerate their volume growth compared to the average across our customer base. So I think that's how I would address that, at least as far as what's going on, I think, politically, Thanos.

That's a very helpful color. Thank you. Um, and then just a quick one on, um, expenses, obviously the Canadian dollars had a, um, big, well, I guess the US dollar rather has had a, you know, a bit of a move. Um, and, um, in light of that and just some of the investments you're making, uh, how should we think about the OPEX trajectory in the near term?

Sure. I'm going to get Rodrigo to address that.

Yeah. The devaluation of the Canadian dollars, as we shared before, it helps our business as, as, you know, We have a lot of expenses in Canadian dollars, and we have most of our revenues in U.S. dollars. As you know, we report in U.S. dollars. So overall, devaluation of the Canadian dollar vis-a-vis the U.S. dollars, it helps our operating expenses to get lower, if I can put it that way, as we report in U.S. dollars.

Yes, the question was just we've had quite a move in the other direction, though. So if we think about the impacts going forward, and then in the context of other investments you may or may not be making, just what would be your thoughts on the OPEX trajectory?

Yeah, as you know, it's impossible to call FX rates at this point. It went in the other direction, but we feel like it was almost like a recovery from the decline we saw a couple of quarters ago. So I would say it's back to normal. So we are not expecting or foreseeing any major changes going forward.

Yeah, and Thanos, we're going to continue to invest in the areas that we have let you guys know that we are investing in. So we're going to continue to invest in our platform and in the tech work that we're doing, which we think will have us set up for some really good success in the fall and the spring, which is when a lot of that tech is going to hit and land. And then on the sales title side, we're starting to see, I think, the benefits of those investments. So those two, we're going to continue to keep the level of investment that we've got today, Thanos.

Great. I'll pass the line. Thank you.

Thank you. Thank you. Our next question comes from the line of Martin Toner with ATB Capital Markets. Your line is now open.

Good morning. Thanks for taking my question. Do you think that Rocket's recent acquisitions will cause them to – will it benefit their partners like RealMatters? And do you think it will accelerate the timeline for them to do some RFPs, especially in title?

Great question, Martin. So, listen, I can't, of course, speak for Rocket, but if I just take a look back in time, and especially with our relationship with Rocket Martin, I go back historically and I take a look at the bump in volume that the Brexit, so there was a little bit of Brexit RFI, so there was a good bump in volume in 2016, and frankly, that opened the door on the appraisal side of the House for us to become a provider and partner with Rocket. So that's sort of how we kicked off the relationship when there was a real increase in volume. So if we think about today, you know, Rockets publicly stated their ambitions around moving market share, and so they have very strong ambitions to move market share by 2027. And with both the Redfin and the Mr. Cooper acquisition, There is fairly significant volume opportunities there. Mr. Cooper has not been a customer of ours, so that for us is all incremental upside volume opportunity. So if we take a look at it, we've sort of run some numbers, and there's sort of half a million orders there over the next couple of years that, in our view, are going to find their way back into, on the appraisal side, the sort of share that we have with them today, And probably more importantly, what it opens up, I think, for us is an opportunity on the title side. So Rocket, of course, has been a major target for us on moving them into title, moving us into title as a partner of theirs. And so, Martin, with all this incremental volume and the ambition around market share gains, our view is that this definitely will open up the RFP title conversation and frankly move it along. And I think that for us is probably the biggest opportunity in the, I'll call it near term. So in summary, I think there's shorter term opportunity on the appraisal side of the business, simply by the Mr. Cooper volume coming onto the Rocket platform. Longer term, I think the real opportunity is for us to start moving the RFP conversations with Rocket along, which I think is a 2026 ambition of ours.

Thank you very much. That's it for me.

Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your touchstone telephone. Our next question comes from the line of Robert Young with Canaccord Genuity. Your line is now open.

Hi. I'd like to ask if you could expand on the opportunity with the service provider that you said you have an RFP opportunity with in title and then Obviously, you just talked about Mr. Cooper. What is it about the servicing businesses? What is the opportunity for Real Matters? I think, for me at least, that's a new category of potential customer there.

Sure. Mr. Cooper falls into the same category. Is there one of the biggest service providers or big servicing shops in the U.S.? ? Rob, and so the one that we're talking to is of the same elk. And so they're a very significant player. And in the servicing space, the way servicing generally works is these are the organizations that kind of manage the mortgage, collect the payments. And so they get a very good understanding of a significant customer base of mortgage owners. And so what their job is, Rob, and what they really focus on is then going and expanding or building on top of the base that they've got, as well as with the base they have. Because of the data they've got on each of those customers, they're able to target those customers at the right time to refinance them. So there's a really significant refinance opportunity within those portfolios. That's frankly what they do. Besides just servicing, they're really focused on re-upping all those customers and refinancing them. So that's where the real opportunity is for us. When they refinance, they, of course, need both an appraisal and title work done. And so, again, our view is this is a real opportunity for the future. Again, building sort of long-term franchise value in both sides of the business, but definitely in the title side of the business. This is a real opportunity for us.

Do you think these services would be similar to a Tier 1 bank in the way they allocate share? Would they use a balanced scorecard or allocate share gradually? Or would this be something where you could add a lot of volume in a short period of time?

Well, they are going to be significant volume players, so they are in the same realm as Tier 1s as far as volume goes, Rob, so I'll give a check mark on that. As far as uptick and how fast we can build our share with them, they do manage very similarly to the big Tier 1s around performance and scorecards and those sorts of good things. So that is definitely how we will increase our market share. My assumption is it'll take a little bit for us to move with them simply because we haven't had them on our appraisal platform as we have had lots of our other customers that we're looking at on title. So they'll be very similar to bringing on a new customer. There'll be a ramp. And we'll have to see, as I say, a lot of it, Rob, depends on this refinance pool that's growing and the timing of when a lot of that refinance comes to market. If the volume is significant, then our view would be our market share opportunity is probably fast. If it's still in the lower market, then we're definitely going to have to build market share.

Okay. And then last question for me, just maybe clarifying something you said earlier. I think you suggested that a recession in the U.S., not hoping for a recession, obviously, but I think you suggested that that's potentially driving RFP activity higher. Could you just explain that, if I heard that right, and then I'll pass on.

Sure. Well, I think just broadly speaking, Rob, when there's economic and financial market uncertainty, I think it just creates significant opportunities within the mortgage industry. So again, if I look back and I mentioned 2016, if we look at COVID, when there is uncertainty in the market, often that drives lenders to start thinking about the what-if scenarios on what could happen. And so this refinance pool that's building, a lot of lenders are looking at that. And if recession were to hit, then most likely interest rates are going to need to be managed. I'm not going to call the market. I'm not going to suggest what's going to happen. But if that were to happen, then rates would go down. And as we've said, there's not a lot of downward movement that needs to happen in the rates for there to be a real opportunity for a very significant portion of the market to refinance. So that's why I think these RFPs are continuing to move with the same momentum is because a lot of those lenders are looking to the future and making sure that they've got their bases covered when that refinance volume comes online.

Okay. Thank you. Appreciate that. I'll pass the line.

No problem.

Thank you. Our next question comes from the line of Richard C. with National Bank Financial. Your line is now open.

Oh, yeah. Thank you. Just sort of a two-part question. Can you maybe update us on your aspirations for data? And then sort of the second one, I don't know if it's but you have sort of talked about adjacent acquisition opportunities in the past. And so I guess the question on that side is why not maybe look at some of those? You've got quite a bit of cash. You know, valuations are probably low. And then arguably you probably have some capacity given things are still fairly quiet. So, you know, I know there may be a little bit offbeat questions, but just kind of curious what your thoughts would be on those.

No problem, Richard. Yeah, so on the data front, We've talked about doing some organic work right now, which is what we have been doing, but we do continue to look at acquisition opportunities, Richard. I think up until now, over the past couple of quarters, we haven't found a really great fit, but we'll continue to look at those, continue to look at building out the organic work that we're doing, and hopefully there'll be a marriage between those two at some point in upcoming quarters. So that's on the data front, and again, with the data that we've got, we continue to see, looking ahead at long-term franchise value, there's definitely a real opportunity for us to monetize the data in a very robust way. On the, I think you said acquisitions that are adjacent, thank you, adjacent acquisitions, Again, we would prioritize that we've been looking and we've been open about looking at the title side of things. And so we continue to keep our eyes open. We've been participating in conversations around that. So again, that would be something that we continue to look at. And then those are, I think, really are the two areas where we've sort of focused our management's time and energy when it comes to looking at potential outside opportunities, and I'm aligned with you, Richard, on your comments around valuations, et cetera. They still are some pretty healthy valuations, so I'm not sure that that's come down significantly, but we're going to continue to look at those as it makes sense. And, of course, that all being said, Richard, we continue to really drive the core business, keep an eye on making sure that we're making the headway we want, both from a performance, market share, and new customer standpoint, building out the sort of stable of the future.

Okay, great. Thanks. And just the last one for me, you know, you have a reasonable amount of cash on the balance sheet. So is it sort of the same amount that's kind of required as before, just to sort of give comfort to your customers? Or is there an opportunity to maybe deploy some of that capital into buybacks for whatever it may be? Just kind of want to get an update on that.

Sure. Sure, Richard. So again, we are trying to be financially prudent as much as we can. We want to keep our healthy balance sheet. As Brian suggested before, there's several discussions about RFPs. And that's a key question, right? Showing liquidity and a healthy balance sheet. It's one of the first questions we get when we participate on those RFPs. So at this point, we We feel it's prudent to maintain our balance sheet as is. And as soon as we have more visibility, any changes in the markets looking forward, we believe we can then start thinking deeper into capital allocations and how to allocate our capital to perhaps better returns.

Great. Thank you.

Thank you. And I'm currently showing no further questions at this time. This does conclude today's conference call. Thank you for your participation. You may now disconnect.