Real Matters Inc.

Good day and thank you for standing by. Welcome to the Q3 2025 Real Matters Earnings Conference Call. At this time, all participants are in a 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Lynn Beauregard, Vice President, Investor Relations and Corporate Communications. Please go ahead. Lynn Beauregard, Vice President, Investor Relations and Corporate Communications, Please go ahead.

Lynn Beauregard, Vice President, Investor Relations and Corporate Communications, Please go ahead. Lynn Beauregard, Vice President, Investor Relations and Corporate Communications, Please go ahead. Lynn Beauregard, Vice President, Investor Relations and Corporate Communications, Please go ahead. Lynn Beauregard, Vice President, Investor Relations and Corporate Communications, Please go ahead. Lynn Beauregard, Vice President, Investor Relations and Corporate Communications, Please go ahead. Lynn Beauregard, Vice President, Investor Relations and Corporate Communications, Please go ahead. Lynn Beauregard, Vice President, Investor Relations and Corporate Communications, Please go ahead. Lynn Beauregard, Vice President, Investor Relations and Corporate Communications, Please go ahead. Lynn Beauregard, Vice President, Invest The release, accompanying slide presentation, as well as 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 Cost-Sharing 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 forum for the year ended September 30th, 2024, which is available on CEDAR 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 RMDNA for the three and nine months ended June 30, 2025, where you'll also find reconciliations to the nearest IFRS accounting standards measures. With that, I will turn it over to Brian. Brian?

Thank you, Lynn. Good morning, everyone, and thank you for joining us on the call today. Real Matters delivered double-digit sequential growth in all three segments in the third quarter. Consolidated revenues were up 22% from the second quarter of 2025 as we benefited from a seasonal uptick in purchase origination market volumes and to a lesser extent marginally better market conditions for refinance origination. Q3 consolidated net revenue was up 18% quarter over quarter and we posted positive consolidated adjusted EBITDA of $0.3 million, up from a loss of $1.9 million in the second quarter of 2025. Our proven performance track record remains strong as we maintained our top position across lender scorecards and added four new clients during the third quarter. Following the end of the quarter, we secured several notable wins, including the successful launch of our second Tier 1 lender in U.S. title, And in appraisal, we launched a new top 15 lender and significantly expanded market share with one of our top 50 lenders. Our ongoing ability to capture market share and launch new clients continues to underscore the company's competitive strength and our ability to grow amid persistent market headwinds. U.S. appraisal revenues were up 22% sequentially, principally as a result of the spring market increase in purchase origination volumes, albeit from a very low level. We posted U.S. appraisal net revenue margins of 26.2%, and we remained in the range of our target operating model for the 11th quarter in a row. U.S. appraisal adjusted EBITDA increased to $4 million from $2.6 million in the second quarter, due to the top line growth. U.S. title revenues increased to $2.8 million from $2.3 million in the second quarter, driven by slightly better refinance market volumes, as well as an important market share increase with the largest reverse mortgage lender in the U.S. Our U.S. title business continues to build momentum. Third quarter origination volumes were up 52% year over year, outpacing the estimated market volume growth as a result of our expanding client base and net market share gains, and the pipeline remains strong. With the increase in refinance origination revenues, net revenue margins increased 900 basis points on a year-over-year basis to 52.6% in the third quarter. We launched the largest credit union in the US during the quarter, And as I mentioned earlier, we are now live with our second tier one lender, which marks an important milestone for Real Matters that was several years in the making. I'd like to take this opportunity to recognize the team for their relentless focus and dedication to delivering an extraordinary experience for our lenders and ultimately homeowners. Our network management model continues to differentiate us in the market and is a key driver behind winning new customers and increasing market share with existing customers, which fuels our overall growth. As our foundation grows, we are increasingly well positioned to benefit from market dynamics, which will amplify our growth trajectory and unlock meaningful operating leverage. Today, there are nearly 12 million outstanding mortgages with rates above 6%. Approximately 8 million of those mortgages have rates above 6.5%, making them prime rate refinance candidates when interest rates dip below 6%. In the last few weeks, we have seen the spread between the 10-year Treasury yield and the 30-year mortgage rate begin to revert toward the long-term historical average. Turning to Canada, revenues for the segment were up 19% on a quarter-over-quarter basis, and adjusted EBITDA increased 21% sequentially to $1.3 million. We launched two new clients in Canada during the third quarter. With that, I'll hand it over to Rodrigo.

Rodrigo? Thank you, Brian, and good morning, everyone. Seasonally, the third quarter should be better for purchase origination volumes in our U.S. appraisal segment due to the spring home buying season. However, enduring affordability issues, high rates, and a volatile microenvironment resulted in a softer spring market this year. For our U.S. appraisal and U.S. title segments, relative changes in interest rates are the biggest driver of refinance origination volumes. Although the spread between the 10-year Treasury yield and the 30-year mortgage rate tightened to 240 basis points, the average 30-year mortgage rate remained flat quarter over quarter, while the spot rate increased by 24 basis points into a quarter. peaking at 6.89% and then declining to 6.77% towards the tail end of the quarter. We estimate that addressable purchase mortgage origination market volumes were relatively flat year-over-year, but up on a sequential basis, while addressable refinance origination volumes increased year-over-year and sequentially, directionally in line with Fannie and MBA estimates. Turning to our segmented financial performance, I'll start with our U.S. appraisal segment, where we recorded revenues of $32.6 million, down 13% from the same period last year, principally due to lower addressable markets. The comparable quarter also included higher volumes from a temporary reallocation of market share from one of our leading clients, which returned to prior levels over the course of fiscal 2025. Year over year, revenues from purchase mortgage originations were down 23% and revenues from refinance originations were down 4%. Home equity revenues were down 5% 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 Q3. U.S. appraisal net revenue was $8.6 million for the third quarter, down from $10.3 million in Q3 24, and net revenue margins decreased by 140 basis points, mostly due to the distribution of transaction volumes as it relates to geographies, clients, and product mix. We posted net revenue margin of 26.2% in Q3 25, which remains within our target operating model range. Third quarter U.S. appraisal operating expenses were down 8% year-over-year to $4.5 million, due primarily to lower salaries and benefit costs and our ongoing efforts to prudently manage expenses. We posted U.S. appraisal adjusted EBITDA of $4 million, compared with $5.5 million from the third quarter of fiscal 2024, as lower net revenue was partially offset by lower operating expenses. Turning to our U.S. title segment, third quarter revenues increased 30% year over year to $2.8 million, and refinance origination revenues were up 66%, mainly due to net market share gains with clients and higher refinance mortgage market origination volume. U.S. title net revenue was $1.5 million, up 57% from the third quarter last year, and net revenue margins increased to 52.6% from 43.6%, mostly due to higher volume service, which diluted our fixed costs, as well as higher proportion of incoming order volumes that closed. U.S. title operating expenses were up 10% year over year, mainly due to hiring additional sales personnel to accelerate new sales. and we are already seeing returns on that investment with new client wins and our growing pipeline. We recorded an adjusted EBITDA loss of 1.7 million for the US title segment compared with the 1.9 million loss we recorded in the third quarter of fiscal 2024. In Canada, third quarter revenues increased modestly to $10 million, due to an increase in market volumes and net market share gains with existing and new clients. Net revenue was flat at 1.9 million, and net revenue margins decreased by 30 basis points, mostly due to the business mix of transaction volumes. Canadian adjusted EBITDA was 1.3 million, in line with the third quarter of fiscal 2024. Third quarter consolidated revenue and net revenue were down 8% and 10% year-over-year to $45.4 million and $11.9 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 positive consolidated adjusted EBITDA of $0.3 million compared with $1.7 million in third quarter of fiscal 2024. Our business remains resilient and we continue to operate from a position of strength due to our solid balance sheet. At quarter end, we had no debt and cash of $43.8 million, down from $45.7 million at March 31st, 2025, mostly due to the timing of changes in working capital. With that, I'll turn it back over to Brian. Brian? Thank you, Rodrigo.

So in summary, the third quarter delivered solid sequential growth despite soft market conditions. We launched four new clients and maintained our position at the top of lender scorecards. Overall, we are making excellent progress in achieving our long-term objectives by launching new clients and growing market share. We have achieved a major milestone with the launch of our second tier one lender in US title, and we are focused on scaling the business with more new client wins and market share growth on the horizon. We also have the capacity to take on additional volume with our existing operating cost base. We believe there is substantial pent-up demand in the U.S. mortgage market. In recent weeks, the spread between the 10-year Treasury yield and 30-year mortgage rates has begun to narrow, and it's currently within 60 basis points of the long-term historical average of 170 basis points. Typically, homeowners require approximately a 50 basis point incentive to consider financing. Additionally, Americans hold record levels of home equity today. 82% of borrowers have at least 30% equity in their homes, representing a significant and potentially accessible source of liquidity in a recessionary environment. Combined with the 8 million mortgages currently carrying rates above 6.5%, These factors reinforce our confidence in the market's near-term growth prospects. Over the past 30 years, the US mortgage market has experienced several cycles of growth and decline. Historical trends tell us that although the market is currently experiencing a protracted period of decline, it is likely to rebound as economic conditions stabilize and demand for housing persists. With $44 million in cash, zero debt, discipline cost management, and expanding client base and increasing market share. Real Matters is strategically positioned to drive growth as the mortgage market inevitably transitions to its next expansion phase. 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. 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. With that, operator, we'd like to open it up now for questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to 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 Gavin Fairweather with Cormark. Your line is now open.

Oh, hey, good morning. Thanks for taking my questions. Maybe just to start on U.S. appraisal, I think you said the addressable market was about flat, but you did see a bit of a decline year over year. I know you touched on the temporary volume that was in the comparable period, but just curious for any other color you could provide in terms of what you saw in terms of lender market share and channel mix out there in the market?

Sure. Thanks, Gavin. Morning. Good to hear from you. So, listen, on the appraisal side of the business, again, I think we talked about it being a solid quarter. I think one of the big moves on appraisal this quarter for us was we were able to, subsequent to the quarter, launch a top 15 lender. as well as substantially grow our market share with one of the top 50 lenders in the U.S. And so when I think about the long-term franchise value of the business, Gavin, I think the team continues to do the things we need to do around market share and putting new clients on the board. The year-over-year comparison, as you know with the volume that we've got right now, you're going to get some distortion in the numbers. So number one, we mentioned it was a softer spring than we expected. So, so definitely the spring market wasn't, wasn't exactly what we were expecting. Um, and number two, this time last year, uh, there was an incident, uh, in the, in the industry. And one of our competitors, uh, had to shut sort of shut down their business for an amount of time. And so we were allocated a significant increase in market share with, uh, one of our biggest tier one customers. So when you do the year-over-year comparison, we have now had that temporary allocation back to where it was before all of this happened in Q2 of last year. So that's why there's a little bit of noise in the numbers, Gavin. But when we normalized that, we were in line with the market. And again, I think we're much more focused on the long term with the appraisal business.

Thanks so much. Appreciate the color. And then maybe just on Tidal, you touched on the long-term kind of target operating model, but maybe just going back to share a little bit, given the recent wins and momentum that we've seen in the Tidal business, and I understand there's still a few sales processes underway. How are you feeling about kind of market share over the next two or three years for that business and what might be achievable?

Thanks for the question, Gav. I think you've mentioned the word that's most on our mind, which is momentum. We talked this time last year about investing in the business from a sales standpoint, making sure that we were focused on building out the stable of customers that we've got, and then, of course, staying very focused and sharp on the market share with our existing customers. As I mentioned, I think we've got some very good news around that, both with the launch in this past quarter of the largest credit union in the US on our title platform, as well as doubling market share with the largest reverse mortgage lender in the United States that's on our platform. That's a reasonably substantial number. If I go back to our knitting and the fundamentals of our business, that's what it's all about. It's about getting a new customer on and then demonstrating our performance using our network platform to drive the market share up. As we look to the pipeline, Gavin, the pipeline remains very strong. We've got a few top 100s in the pipeline in discussions right now in RFPs or SOWs. We've talked about a Tier 1 coming on in the next few quarters. In our view, this investment in sales that we made last year, I think we're starting to see that really pay off, both in delivering some new customers as well as making sure that the pipeline is robust.

That's great. And then lastly, maybe for Rodrigo, just on title net revenue margins, if you kind of isolate the refinance origination market, are you still running in the 60s in that business? I'm just trying to think about modeling that line as rate refi starts to dominate your mix again.

Yeah, thanks, Gavin. Yeah, we are running on the 60%. You know, as we discussed before, we need additional volume. That helps with our net revenue margins, and we feel confident with the right volumes we'll get to the target operating model range.

Thanks so much. I'll pass the line.

Thanks, guys. Thanks.

Thank you. Our next question comes from the line of Thanos Machopoulos. From BMO Capital Markets, your line is now open.

Hi, good morning. With the new administration in the U.S., has there been any change to the regulatory environment or potential pending regulatory changes that might have an impact on your markets or not really?

Thanks for the question, Thanos. No, I mean, I'd say there's been some personnel changes at some of the departments in the U.S., but from a regulation standpoint, there has been no changes. I mean, the only thing, listen, of course, we're not going to comment much on what's going on from a governmental standpoint down there. The one thing I can say to you, though, is I would make the bold assertion that the administration is both pro-real estate and pro-lower interest rates. So, again, when I look out to the future, I think we believe that there's a real optimistic view around the 12 million mortgages that are currently sitting at 6% and the 8 million that are at 6.5%. Our view is that that pool is something that will definitely come into play in the not-too-distant future. Of course, if we could call the market, we would, but I think that's really what we're looking at from sort of a government standpoint. As well as I think the other point, Thanos, is there's definitely a lot of talk about bank deregulation, and you've probably seen some of that from some of the leaders from the banks, both from J.P. Morgan and Wells. There was definitely in their shareholder letters, some very specific requests and recommendations around bank deregulation. And so I think that's, again, something that this administration would be quite supportive of.

Great. The U.S. appraisal net revenue margin, it was down just a little bit year on year and sequentially. Anything to call out, or is that just a mixed dynamic?

It's just a mixed dynamic. I think that, as you know, Thanos, that goes up and down a little bit. It's still within our target operating model range, which is most important for us. But it's just a channel mix.

Great. I'll pass it along. Thank you.

Thanks a lot, Thanos.

Thank you. Our next question comes from the line of Robert Young with Canaccord Genuity. Your line is now open.

Hi. Good morning. The EBICDOT ranges you gave at the end of the prepared comments, could you rehash the context there? I think I missed it. Was that rehashing the long-term model or your capacity?

No, that was the target operating model that we've put out there, Rob. So those numbers are reflective of in a more normalized market, When we take a look out and our volumes are up at levels that are much more normalized, that's when we're driving call it $100 to $120 million in adjusted EBITDA.

Okay, got it. And then could you rehash where you are on capacity after adding the share on the second tier one in title? Maybe rehash or update us with what the available capacity before you have to start adding or adding to OpEx would be?

Sure, Rob. Today we are still at the 30% additional capacity in appraisal and three to four times in title. Bringing this tier one, we can say that we'll get to two times capacity in title instead of three to four, so we don't see a need to hire at this point or increase our capacity with the new clients we are seeing. That's where we are. We continue, Rob, to work very closely with our clients to ensure that we can make those decisions at the right time when we see volumes spiking up.

Okay, great. And then the last couple of quarters, you've noted that you've been adding sales expertise, sales headcount, and I think that's on the title side. Can you... Where are you with that? Are you still adding sales? And is that what's driving some of these share gains? Is that something that's been fruitful and is that something you're going to continue or maybe even accelerate from here?

Yeah, so I mean, this was mainly a 2024 investment, Rob. So that's frankly when we started bringing on some more sales individuals. We brought a couple on at the very start, Q1 of this year. But since then, we've got, I think, the right stable now of sales folks, at least for the the near term, and they're the ones that I think are helping us really build the pipeline as well as deliver new customers on the platform. So I think you're not going to see an increase in expenses there. That's really just, as you know, with volume where it is, the little distortion is... We wouldn't even talk about this, frankly, in a normalized market, but in this market, that's where you get a little bit of OPEX on the title side of the business.

Got it. Last question for me would be... maybe update us on some of the comments last quarter on the Mr. Cooper acquisition. I think it said that, you know, that servicing business was an opportunity for you. I think that closes later this year. Has anything changed there, or is that still something that would be, you know, a 2026 benefit?

Yeah, no, I think the timing is definitely more of a 2026 benefit, Rob, but we've been in fairly significant discussions with Rocket around that, and they've been quite I think transparent on their view that they are going to end up spending time and using the servicing platform of Mr. Cooper for the servicing side of the business. But all of that other mortgage management, mortgage service management of the business is going to go to Rocket. So our view is and continues to be that that service portfolio that Mr. Cooper has is as they start bringing those candidates into the funnel and start looking to refinance them, that Rocket will be managing all of that. And as you probably know, they have a quite a bit bigger book, servicing book than Rocket. And Rocket is very good at bringing those customers into the fold and then signing them back up for a refinance when need be. So Our view is that in 2026, we should see a significant increase in volume from Rocket. Now, you know Rocket right now. Rocket is one of our biggest appraisal customers, so I think there's a really positive upside to that.

Okay. Thanks a lot. Thanks for taking the questions. No problem.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Our next question comes from the line of Martin Toner with ATB Capital Markets. Your line is now open.

Thanks very much for taking the question. Most of my questions have been answered. Can you tell us how much of the gains in title were market share versus market? And maybe kind of update us on the pace at which one would expect to gain share with a new title customer.

Fantastic. Okay. Well, so we're going to have to wait to see exactly what the market numbers are going to look like, Martin. So I don't think we can give you a black and white answer on that. What I can say is that a good portion of the growth in title was from market share, continued market share gains with some of our biggest customers. And as I mentioned, we, that the largest reverse mortgage lender in the US is an important customer on the pipeline, on the portfolio, and they doubled their market share. So I think it's going to be a mix of both, and it's hard to break it out yet until we get all the market information. So that's sort of on that piece. And then onboarding new customers, I think historically what we've talked about is it taking a good portion of a year to get ourselves up in the 10% range of market share with customers, and that was our experience in the appraisal side of the business. I think because we've built up so much performance equity with these customers and most of the customers, of course, that we are bringing on title, we already service on the appraisal side. So I expect that timeframe to be shrunk substantially from where it was. And I frankly think in this particular case of the second tier one that we've brought on, their market share target is well above 10% on what they would like to allocate to us. And so our goal is by the end of this calendar year, to get ourselves up to the market share target they have for us. So you would think going into next year, calendar January and onwards, we should see a good chunk of that market share, if not all of it, on the platform.

Superb. Thank you very much. That's all for me.

Thanks, Martin.

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

Yes. Thank you. Um, Brian, I think in the past, uh, you sort of talked about some of your traditional lenders kind of losing some of their volumes as they maybe deem besides the business. Um, can you maybe update us in terms of where those, um, clients would stand now? And, uh, what do you think the callous would be for them to sort of bring volumes back?

Yeah. Thanks for the, thanks for the question, Richard. As you mentioned, I think in a very, very low volume market, there's a couple of challenges for some of the big lenders. The biggest one simply being that from a profitability standpoint, because they have a substantial footprint, most of them, as well as they've got an awful lot more regulation they need to manage their way through, it's very difficult to be profitable when the volume is where it is now. The flip side to that, and there's lots of data out there on this, is that when the market is more robust, they can scale up much faster than some of their competitors in the space. So the value for us, which, by the way, is not too dissimilar to our business in that you guys know that our margins move incredibly once we get more scale in the business. So there's, I think, a correlation there with us and some of our biggest lending partners. So that's sort of, I think, piece one to the story. As far as when the market is in a place where they want to invest more, it's frankly a lot of that has to do, again, back to their profitability. So they're looking for volume, I think, to start increasing so that they can manage that profitability. And so I think you'll see that whether it's some rate changes, whether the supply of purchase starts picking up because, as we know, the demand is there on the purchase side of the business. But once those metrics, I think, start moving a little bit more in a larger direction, in a higher direction, I think, Richard, we'll see them definitely start stepping back in. And by the way, we saw this last year. So we saw this in September and October of last year. When rates were coming down, we definitely saw the tier ones step in and really start making sure that, number one, they retain their customers, which is absolutely paramount for them, as well as start going out and recruiting new customers.

Okay. Would it be fair to say that when volumes kind of return to a normalized level, because of that shift, you would actually see a bit more of an outsized benefit relative to the market?

Absolutely. I think it would be a very reasonable, if not significant, outsized benefit when that starts happening. And again, that's why we've, as you know, Richard, that's why we spend so much time making sure that we had the big tier one players. We've got the big non banks, you know, the longterm franchise value of the organization is built on their backs. And so our view is that we will definitely get a tailwind beyond just the volume tailwind. We will definitely get a share tailwind from those big lenders.

Okay. And then, you know, obviously as we sort of wait to enter another cycle here, as you look ahead, What are you thinking collectively in the background as a way to potentially moderate sort of this volatility of this business going forward? I know in the past you've talked about expanding in the data side, potentially to do that, but is that still on the minds of management and the board? And do you require kind of a cycle here where you pick up cash to pursue those strategies?

Yes, it sounds like you're laying out our inorganic strategy there, Richard. So that's exactly what it is. In this market, we're trying to be very thoughtful and prudent around managing our balance sheet, which hopefully you see that with the $40-plus million that we've had on the books, as well as no debt. That being said, we are continuing to actively look at less cyclical opportunities, data being one of them, as areas in which we can expand the business. so that as we move through this next cycle, we try and take some of that cyclicality out of the business. So we'll continue to look at that, and to your point, I think we get more opportunistic once we're able to start generating some more free cash flow.

Okay, great. Thank you. Thanks, Richard.

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