Q1 2022 Real Matters Inc Earnings Call

Good day, and thank you for standing by welcome to the real matters first quarter 2022 conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need the breast star one on your <unk>.

Telephone.

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I would now like to hand, the conference over to your speaker today men Beauregard. Thank you. Please go ahead.

Thank you operator, and good morning, everyone welcome to real matters financial results Conference call for the first quarter ended December 31, 'twenty 'twenty. One with me today are real matters, Chief Executive Officer, Brian Lynch, and Chief Financial Officer Bill Herman.

This morning before market opened we issued a news release announcing our Q1 results for the three months ended December 31, 2021, the release accompanying slides as well as the financial statements and MD&A are posted in the investors section of our website at real matters Dot com.

During the call we may make certain forward looking statements, which reflect the current expectations of management with respect where business and the industry in which we operate however, there are a number of risks uncertainties and other factors that could cause results to differ materially from our expectations. Please see the slide entitled caution regarding forward looking information.

The accompanying slide presentation for more detail 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 30th 2021 which is available on SEDAR 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 margin adjusted EBITDA and adjusted EBITDA margin non-GAAP measures are described in our MD&A for the three months ended December 31, 2021 where you will also find reconciliation to the nearest ifr arrest measures with that I'll now turn the call over to Brian .

Thank you Lynn and good morning, everyone and thank you for joining us on the call.

I will kick things off today by discussing some of the highlights of our first quarter and some of the key drivers behind our numbers.

Bill will then take a deeper dive into our segment financials and I will wrap up the call with some brief remarks prior to taking questions.

Turning to slide three we reported consolidated revenues of $107 $8 million as strong growth in our U S appraisal and Canadian segments was offset by a decline in U S title.

We grew share with our clients and delivered record first quarter net revenue in U S appraisal.

Our U S title operations continued to perform well delivering against our tier one lender scorecard in the quarter and landing us a top our tier two clients scorecards.

With plenty of movement in the 10 year Treasury yield the U S mortgage rate environment was dynamic with significantly higher rates presenting a market headwind for our business in the first quarter.

First quarter mortgage market volumes were also more in line with the seasonality. We typically see in the October to December timeframe with a slowdown in activity due to the holidays.

That said, our first quarter U S appraisal mortgage origination revenues, which includes purchase and refinance increased 13, 9% year over year compared to an estimated one 5% decline in total origination market volumes.

The increase in U S. Appraisal revenues was principally driven by the mix of volume serviced net market share gains and new client additions.

In the quarter, we launched four new lenders in U S appraisal and one new channel with an existing top 100 clients.

U S appraisal purchase revenues were down 8% compared to an estimated market decline of nine 3%.

It's worth noting that the purchase market in the prior year quarter was exceptionally robust. It was the highest first quarter purchase market volume, we have seen since going public making it a tough year over year comparable.

U S appraisal refinance revenues were up 23, 3% compared to an estimated market increase of 10, 8% in the addressable refinance market.

Our market estimate includes a year over year decline in the use of GSE waivers, which helped increase the size of the addressable refinance market for appraisal and offset the 31, 2% total market decline for refinance market activity.

In our U S title segment first quarter centralized title revenues declined 66% year over year against an estimated market decline of 31, 2%.

Outside of market movements, we continue to focus on performance is the main driver of growth in our title business.

We continue to perform at the top of our tier two lenders scorecards and is a direct result, we continue to win market share.

In addition, we expect that our performance on the tier one lender scorecard will set the stage for further market share growth and the expansion of channels with this lender.

The performance of equity we are building today will also help support the sales cycle with prospective clients.

We want we launched one new top 100 lender in title in the quarter and subsequent to quarter end, we launched an additional top 100 clients.

We continue to move our pipeline forward and remain focused on bringing on new lenders throughout the year.

And our Canadian segment first quarter revenues were up 13, 2% year over year from increasing market share with certain Canadian clients and increased revenues from insurance inspection services.

With that I'll hand, it over to Bill Bill.

Okay.

Thank you, Brian and good morning, everyone.

Turning to slides four and five for a closer look at our financial results.

U S appraisal segment revenues increased 14, 1% year over year.

$79 3 million due to the mix of volume serviced.

Share gains with existing clients and new client additions, which were offset in part by lower estimated addressable market volumes.

Transaction costs in our U S. Appraisal segment increased 16, 9% year over year and net revenue increased four 2% to $16 4 million, while our net revenue margins declined 200 basis points to 26% compared to the same period last year.

The decline in net revenue margins was due in part to the mix of mortgage origination volume service, which included complex properties with higher appraisal fees.

That said and as Brian mentioned earlier, we delivered record first quarter U S appraisal net revenue this quarter.

Operating expenses in this segment increased 14, 7% to $7 9 million in the first quarter of fiscal 2022 due to higher capacity levels in the quarter and the mix of volume service.

Adjusted EBITDA in U S appraisal decreased modestly to $8 6 million from $8 8 million in the first quarter of fiscal 2021.

And adjusted EBITDA margins contracted 51, 9% on lower net revenue margins and higher payroll costs due to higher capacity levels in the quarter and the mix of volume service.

Turning to our U S title segment revenues declined 59, 4% year over year on lower estimated refinance volumes of 31, 2%.

<unk> revenues totaled zero point $5 million, representing a decline of $1 9 million from the first quarter of fiscal 2021 as a result of rationalizing this service offering last year.

Transaction costs in our U S titled segment decreased 58, 9%.

Net revenue margins were strong at 66, 4%.

The modest contraction in net revenue margins against the same quarter last year was due to the flow of volumes between comparative quarters, partially offset by higher net revenue margins from a diversified title.

The other title revenues.

Operating expenses in this segment decreased $4 8 million to $10 3 million in the first quarter of fiscal 2022 due to lower volumes serviced.

Adjusted EBITDA was 0.4 million in the first quarter of fiscal 2022 down from the $11 6 million, we posted in the same quarter last year and adjusted EBITDA margins contracted four 1% falling to the impact of lower volumes.

As we've done in the past, we will continue to manage operating expenses relative to volumes service, while ensuring that we make the right decisions to support our long term objectives.

In Canada revenues increased 13, 2% on a year over year basis to $12.2 million.

Net revenue margins contracted by 180 basis points due to the mix of appraisal services supplied.

The appraiser Onboarding.

Canadian segment operating expenses were 0.7 million in the first quarter up from 0.4 million in the first quarter of fiscal 2021, and adjusted EBITDA margins decreased to 57, 7% from 73, 7% in the same quarter last year due to an increase in operating expenses.

People to higher payroll and related costs other expense and FX.

Last year, we redeployed certain Canadian staff to service the title business was the resumption of more normal operations in Canada. Following the removal of certain Covid restrictions. These employees have returned to the Canadian segment.

In total first quarter consolidated net revenue was $28 8 million compared to the $44 million reported in the first quarter of fiscal 2021 due to lower revenues in our U S title segment.

Solidago net revenue margins were 26, 7% in the first quarter of fiscal 2022 down from the 36, 6% we posted in the first quarter of fiscal 2021, reflecting lower margins in our U S appraisal and Canadian segments, and lower net revenue generated by our U S titled segment.

Consolidated adjusted EBITDA was $5 9 million in the first quarter of fiscal 2022 down from $17 4 million in the same quarter last year.

And consolidated adjusted EBIT margins decreased to 26% due primarily to lower volumes serviced in our U S title segment.

Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $73 3 million at December 31, 2021.

In the quarter, we directed 100% of the free cash flow, we generated this quarter the share purchases under our NCI be purchasing approximately 700000 shares at a cost of $5 1 million.

At the end of the quarter, we still have 3 million shares remaining under our current and CIB and we intend to continue to be active in the NCI B, which we will balance with other strategic opportunities as they present themselves.

With that.

I will turn the call back over to Bryan Bryan.

Thanks Bill.

Overall, we're feeling good about the business as we continue to focus on operational performance managing scale, launching new customers and driving market share growth for <unk>.

Long term potential for our business has not changed and we remain confident that we will achieve our fiscal 2025 objectives.

As Bill mentioned earlier, our view is that the current trading price of our shares is not reflective of the value of our business.

Which presents an opportunity to return value to shareholders through share purchases under our current in CIB.

With that operator, we'd like to open it up for questions now.

Okay.

As a reminder to ask a question you will need to press star one on your telephone again to ask a question at Star then the number one on your telephone keypad, Let me draw. Your question. Please press the pound key.

Please stand by while we compile the Q&A roster.

Our first question comes from the line of Daniel Chan of TD Securities. Your line is open.

Hi, Good morning, guys, Brian last quarter, you talked about how some tier one customers who are coming back into play.

Just wondering how that pipeline has progressed over the last quarter.

And whether you have some visibility on the timing of those customers potentially coming on board to the platform.

Got it so so Dan I know that specifically a title question and so I think one of the benefits. We continue to see is that our performance on appraisal with all of our tier ones continues to be incredibly robust and we keep hitting the top of the scorecard with them and as I've discussed in the past.

We use that performance equity to drive our conversations on the title side.

So I think with the tier one that we currently have on the title platform performance incredibly strong in the first quarter. So we will continue to work on driving that and I've mentioned the majority of tier ones right now are in conversations around title. So we will continue to play that off with.

Some market dynamics that are going on our team will continue to lean in though and drive for more tier one.

Speaker 1: lean in though and drive for more tier one coming onto the platform in the future.

Coming onto the platform in the future.

Speaker 2: Okay, thanks. And then Bill, what are your thoughts on the size of your operations on the title and clothing side as we move through the rest of the year? Give me your view of how the market may shape up. Do you think you need to restructure that business at all?

Okay. Thanks, and then bill.

What are your thoughts on on the.

The size of your operations under the tolling clothing side as we move through the rest of the year given your view of how the market may shape, but do you think you need to restructure that business settle.

Yeah.

Great question Dan.

Speaker 3: When I think about the title business and OpEx in particular, I think, you know, we've said before, and I'll say it again, that it really is balancing that market dynamic against

When I think about the title business and Opex in particular, I think we've said I've said before and I'll say it again that it really is a balancing that market dynamic against.

Speaker 3: uh you know costs in the business but we also have to be

Costs in the business, but we also have to be mindful of whats what we expect to present itself in the back half of the year. So I think we're going to be prudent manager of managers of our opex spend.

Speaker 3: mindful of what we expect to present itself in the back half of the year.

Speaker 3: I think we're going to be prudent managers of our off-expend in the coming quarters, in particular, and then again, we've always got to satisfy with that long-term view of, you know, what's coming next. So, super, super hopeful that we've got some additional volumes coming our way from Channel Expansion with our current install base in title, and that will help support the current.

In the coming quarters in particular, and then again, we've always got to satisfy it with that long term view of whats coming next so.

Super Super hopeful that we've got some additional volumes coming our way from channel expansion with our current install base entitle and that'll help how it helps support the current spend level.

Speaker 2: And that's helpful. And then Brian , one last one for me. At your investor day, you did present data analytics play, and you did mention that you may acquire into that.

And Thats helpful.

And then Brian one last one for me at your Investor Day, you did present.

Data analytics play and you did mentioned that you may acquire into that.

Speaker 2: Just wondering how you're thinking about that strategy, balancing the volatility in the market against declining valuations in this space, whether acquiring into the space is still in the playbook. Thank you.

Just wondering how that how you're thinking about that strategy balancing the volatility in the market against declining valuations in the space whether acquiring into the space is still out in the playbook. Thank you.

Speaker 1: Great, thanks Dan. I mean, long term Dan, as you mentioned, data is an important third leg stool of the strategy. So we will continue to work on developing our strategic plan around data. That being said, as you mentioned, with the market dynamics as they are right now, I don't foresee in the very near future us doing anything from an acquisition standpoint from data, but we will continue to progress our strategy.

Great. Thanks, Dan I mean long term Dan as you mentioned data is in a very important third leg stool of the strategy. So we will continue to work on developing our strategic plan around data that being said as you mentioned with the market dynamics as they are right now I don't foresee.

In the very near future us doing anything from an acquisition standpoint from data, but we will continue to progress our strategy.

Great. Thank you.

Speaker 4: Our next question comes from the line of Richard Che of National Bank Financial. Your line is now open.

Our next question comes from the line of Richard Jaffe of match National Bank Financial Your line is now open.

Speaker 2: Yes, thank you. You know, Brian , you guys had some pretty great numbers on the appraisal side, given the backdrop in the market here. Just wondering if you can kind of give us a sense of the share gains and appraisals with respect to your tier one lender clients.

Yes. Thank you.

Brian you guys had some pretty neat.

Great numbers on the appraisal side, given the backdrop of a market here. Just wondering if you can kind of give us a sense of with share gains in our appraisals with respect to your tier one of their clients.

Sure. Good morning, Richard So on appraisal as you mentioned the performance continues to be incredibly strong Richard we actually as of the new year, we had reviews with two of our tier ones and we are again number one on both of those scorecards. So as we've talked about with performance and operational.

Speaker 1: Yes, so on appraisal, as you mentioned, the performance continues to be incredibly strong, Richard, we actually as of the new year, we had reviews with two of our

Speaker 1: tier ones and we are again number one on both of those score cards. So as we've talked about with performance and operational excellence, we continue to move market share. And so we're seeing that come through with the performance that we've got in the business. So you know across the tier ones, we continue to be at the top of the score card and continue to move market share. And frankly, Richard, not just with those.

<unk>, we continue to move market share and so we're seeing that come through with the performance that we've got in the business. So you know across the tier ones. We continue to be at the top of the scorecard and continue to move market share and frankly, Richard not just with those lenders.

Speaker 1: lenders, but we also are seeing it across our tier twos and threes.

Lenders, but we also are seeing it across our tier twos and threes.

Okay, and then I guess related to that question. If you look at sort of your other tier ones that may not be serve out their max.

Speaker 2: And then if you sort of, I guess, related that question, if you look at sort of your other tier ones that may not be sort of out there max in terms of allocation.

Terms of allocations to real buyers like can you give us some context of how much room is left there.

Speaker 1: Yeah, so Richard, we talked to our biggest tier ones where we have significant market share and they've made it incredibly clear to us that there is no ceiling with them. So we continue to drive towards that long-term view of 50% for

Yes, so Richard we've talked to our biggest tier ones, where we have significant market share and they've made it incredibly clear to us that there are there is no ceiling with them. So we continue to drive towards that long term view of 50% for the lenders that we talk about that are on the.

Speaker 1: the lenders that we talk about that are on the front of the train. So those that are in the high 30s, low 40s percent, and of course the ones that are at the back, we continue to see progression there as we try and move them to the high 20s and into the 30s. So frankly, we're seeing that entire train move, Richard, as we expect.

The front of the train so those that are that are in the high thirties, low, 40% and and of course the ones that are at the back we continue to see progression there as we try and move them to the high high Twenty's and into the 30. So frankly, we're seeing that entire train move Richard as.

As we expect it to.

Okay and just the last one for me with respect to the waivers and I'm sure you're going through your filing here and you're still sort of pointing to 2025, when we kind of see.

Speaker 2: impact of sort of those waivers coming off. Like has the environment changed at all? Obviously, you know, if you look at the volumes of the market.

A meaningful impact on sort of those waivers coming off like it has.

The environment changed at all obviously you know if you look at.

The volumes in the market and the backdrop, you would think that.

We would actually see that sooner, but maybe kind of give us a bit of color or update there.

Sure I mean, if we look back at least quarter over quarter, Richard We see last year, we were up in the in the 30 plus percent range.

Speaker 1: Sure, I mean if we look back at least quarter over quarter, Richard, we see last year we were up in the 30 plus percent range.

Speaker 1: This year, our expectation is that we'll be down in the lower 20% range. So we're definitely seeing the progress that we had looked for with decline in the waiver rate.

This year, our expectation is that we'll be down in the lower 20% range. So we're definitely seeing the progress that we had had looked for with declining declines in the waiver rates as we look at Richard I mean, unfortunately, its difficult to comment on what's going to happen with the 10 year over the next.

Speaker 1: As we look out Richard, I mean unfortunately it's difficult to comment on what's going to happen with the 10 year over the next couple of quarters and other dynamics in the market. But our view again continues to be that long term that waiver rate will continue to to come down. You're going to get it no matter what in our view over the next few quarters if refi if refi continues to to come down rate refi and we see cash out coming back up.

Couple of quarters and other dynamics in the market, but our view again continues to be that long term that waiver rate will continue to come down youre going to get it no matter what in our view over the next few quarters. If refi if refi continues to to come down a rate refi and we see cashews.

Coming back up if I reflect back to 2018.

Speaker 1: If I reflect back to 2018, 80% when we saw the rates moving up, 80% of the refinance volume with cash out volume and with...

80% when we saw the rates moving up 80% of the refinance volume was cashew volume and with over.

Speaker 1: You know, over $9.1 trillion of value in homeowners homes. And from what we can see from research, a fair bit of appetite for home renovations and those sorts of things, we have a feeling there will still be a pretty decent, refy market as we go forward. But and therefore that mix of the, what's in the waivers will definitely, I think continue to drive that waiver right down.

Over nine one trillion dollars of value in homeowners homes and from what we can see from from.

Research a fair bit of appetite for home renovations and those sorts of things we have a feeling there will still be a pretty decent refi.

Our kit as we go forward, but and therefore that mix of the what's in the waivers will definitely I think continue to drive that waiver rate down.

Okay, great. Thank you.

Thanks Richard.

Speaker 4: Next question comes from the line of standards, mischievous of BMO capital markets. Your line is now open.

Our next question comes from the line of Thanos Michel Bolus of BMO capital markets. Your line is now open.

Speaker 5: Hi, good morning. Brian , can you speak to just given all the volatility in the market, is that having any impact on customer behavior in terms of how the lender are thinking about how they allocate share or will there structure a total of discussions in terms of how they're thinking about bringing on a new supplier?

Hi, good morning.

Can you speak to just given all the volatility in the market is that having any impact on customer behavior in terms of.

The lenders are thinking about how they allocate share or with respect to your title discussions in terms of how they're thinking about bringing on <unk>.

This fire.

Speaker 1: Yes, so Thanos, I was fortunate enough to spend some time last quarter with our Tier 1 in the title space with the leader of that group.

Yeah. So Santos I was fortunate enough to spend some time last quarter with our our tier one in the title space with the leader of that group and what they shared with me is as they looked out over the year within their customer base. They felt they had.

Speaker 1: And what they shared with me is as they looked out over the year, within their customer base, they felt they had 40% of their customers that were still refinanceable up to 4%. So still a significant target within their own customer base. So as they were looking at capacity planning for the year, frankly, they were looking at keeping it quite steady.

40% of their customers that were still refinance a bowl up to 4% so still a significant target within their own customer base. So as they were looking at capacity planning for the year.

Frankly, they were looking at keeping it quite steady.

Speaker 1: So I think the dynamic that we'll see play through the sort of back part of this quarter and usually launches with Super Bowl where one of the bigger players in the market does a lot of advertising around Super Bowl. We then see a more aggressive advertising plan.

I think the dynamic that we'll see it play through the back part of this quarter and usually launches.

With Super Bowl, where we're one of the bigger players in the market does it a lot of advertising around Super Bowl. We then see a more aggressive advertising plan.

Speaker 1: generally across the board. So we'll see how that plays through and therefore generally what type of volume that that along with of course the 10 year sort of plays through in the market.

Generally across the board so we'll see how that plays through.

And therefore generally what type of volume that did that along with of course, the 10 year.

Plays through in the market. So, let's I mean, I think generally we're seeing our lenders be quite thoughtful about what they think the opportunity is this year. They still think theres a theres a strong market for refi they definitely willing to dig into their customer base in order to to encourage some of those that refi activity.

Speaker 1: So that's, I mean, I think generally we're seeing our lenders be quite thoughtful about what they think the opportunity is this year. They still think there's a strong market for ReFy. They definitely will need to dig into their customer base in order to encourage some of those, that ReFy activity. And Black Knight continues to put out a report that says somewhere around 7 million.

Black Knight continues to put out a report that said somewhere around $7 million.

Speaker 1: North American homeowners are in the

North American homeowners are in the the black too to make a.

Speaker 1: the black to make a, to actually mortgage their homes to make a refinance. So again, we'll just sort of have to see how that all flows through, I think, Thanos. And for us, as you know, market share is really driven by performance. So with our operations team and title continuing to move the needle up on the score cards, we expect that we will continue to win market share with our customers.

They actually mortgage their homes to make a refinance so again, we'll just have to see how that all flows through I think Dennis and for US as you know market share is really driven by performance so with our operations team entitled continuing to move the needle up on the scorecards. We expected that we will continue to win market share with.

Our customers.

Speaker 5: Grace, then the FHA last fall, I talked about ramping.

Great.

And then the FHA last fall had talked about ramping up the use of desktop appraisals I.

Speaker 1: that's top of praises. I guess first we have to start to see that. And then secondly, has that resulted in any sort of change in your business in terms of share or revenue?

I guess first thing have you started to see that and then secondly.

Has that resulted in any sort of change.

Change in your business in terms of share of our revenue per transaction or anything.

Speaker 1: yeah thanks that i mean interestingly we still don't have the uh... the specific

Yeah. Thanks, Dennis I mean, interestingly, we still don't have the.

The specifics around the desktop announcements.

Speaker 1: around the desktop announcements. So unfortunately, you know, months after that announcement, we still don't sort of have the requirements.

Unfortunately months after that announcement, we still don't have the.

The requirements around around what needs to be done around desktops that being said right now anyway sent us the way we're looking at it.

Speaker 1: around what needs to be done around desktops. That being said right now, anyways, then, it's the way we're looking at.

Speaker 1: at some of those non-usual

Some of those non.

Usual.

Appraisals is frankly for US right now the the margin in that business is still very complementary to the margin in our business. We of course can do desktops, if required but we are not seeing.

Speaker 1: Appraisals is, frankly, for us right now, the margin in that business is still very complementary to the margin in our business. We, of course, can do desktops if required, but we are not seeing a real increase in that business right now. We're still seeing the 1004s and the work that we generally do as playing by far the vast majority of appraisal orders.

A real increase in that business right now, we're still seeing the the tenant for us and the work that we generally do as playing by far the vast majority of appraisal orders.

Great. Thanks, So at this point.

Great. Thanks, Dennis.

Speaker 4: Our next question comes from Rob Young of Canaccord Genuity. Your line is now open.

Our next question comes from Rob Young of Canaccord Genuity. Your line is now open.

Speaker 6: Good morning. I just wanted to get more context around something you said earlier in the call. You said that you wanted to be mindful of what you thought might present itself in the back half of the year around volumes. Is that just the market returning to normal seasonality and your expectations that things will get busy in the April time period, or is it the channel expansion?

Hi, good morning.

Wanted to get more context around something you said earlier in the call. You said that you wanted to be mindful of.

What you thought might present itself in the back half of the year around volumes and so is that just the market returned to normal seasonality and your expectations that things will get busy in the April time period or is there is it the channel expansion.

Speaker 6: Maybe put some more context around that is if that was just a title comment or just a general.

Maybe if you can put some more context around that as we have thought it was just a title comment or just a general comment.

Speaker 1: Sure. Well, I mean, it's interesting you bring that up, Rob. I mean, that would impact both of our businesses. I think the original comment was a little bit more around title. But as you know, seasonality really starts kicking in around March, April . So, on the appraisal side of the business, we should see some robust growth there, just because we assume that purchase will be a strong part of the program for Q3 and Q4.

Sure well I mean, it's interesting you bring that up Rob I mean that would impact both of our businesses I think the original comment was a little bit more around title, but as you know.

Seasonality really starts kicking in around March April so on the appraisal side of the business, we should see some some robust growth there just because we assume that purchase will will be a strong part of the program for Q3 and Q4.

Speaker 1: I think that comment when it was made earlier was more around title and our view that

I think that comment when it was made earlier was more around title and our view that.

Speaker 1: With market share, we assume to continually gain market share with the performance that we're seeing.

With market share, we assumed to continually gain market share with the performance that we're seeing.

Speaker 1: against the tier one and tier two. But beyond that, we've talked about channel expansion. And so our view is that in Q3 and Q4, we should see some of that channel expansion with both the tier one and the tier two that we launched last year. So I think that's more specifically what that comment would be about, Rob.

Against the tier one and tier two but beyond that we've talked about channel expansion and so our view is that in Q3 and Q4, we should see some of that channel expansion with both the tier one and the tier two that we launched last year. So I think that's that's more specifically what that comment would be about rub.

Okay, and then I wanted to just maybe at a very simple we understand better the.

You said that there was.

Share gain in title but.

Title revenue decline is quite a bit higher than the estimated market decline that you gave them so I'm trying to.

Putting those two statements in a context, where you're gaining share against the steeper decline relative to the market.

Speaker 1: Yeah, so I mean, our focus, as you know, Rob, has been on freeing up capacity in our system to make sure that we are very focused on performing and driving operational excellence with the tier one and tier twos that we have on the platform today.

Yes.

Our focus as you know Rob has been on freeing up capacity in our system to make sure that we are very focused on performing and driving operational excellence with the tier one and tier twos that we have on the platform today and so that that performance. We know drives market share we see the benefit in market share grew.

Speaker 1: And so that performance we know drives market share. We see the benefit in market share growth with those customers.

With those customers and so that's why we are focused in the second half of the year on continuing to grow market share with those customers and expand.

Speaker 1: And so that's why we are focused in the second half of the year on continuing to grow market share with those customers and expand.

Speaker 1: expand our share with those customers. So sometimes that comes with some challenges with the tier threes and tier fours, but as you know, we are wholly focused on driving tier one and tier two performance in market share.

Expand our share with those customers. So sometimes that comes with some challenges with the tier threes and tier fours, but as you know we are wholly focused on driving tier one and tier two performance in market share.

Speaker 6: I guess the other thing that could be a driver is the emphasis of Tier 3 and Tier 4 earlier in the year. Is that still something that's in place, or have you started to re-engage with some of those customers yet, de-emphasized to provide more capacity?

And I guess, the other thing that that could be a driver as the de emphasis of that tier three and tier four.

Earlier in the year is that still something that is in place or have you started to reengage with some of those customers yet.

Do you have decisive data we might more capacity.

Speaker 1: Yeah, we've been fortunate there, Rob. We have had some windbacks, but as I say, I mean, the real focus long-term for the 2025 targets is to make sure that we continue to move the Tier 1s and Tier 2s in the right direction. Okay.

Yeah, we've been fortunate there Rob we have had some win backs, but as I say I mean, the real focus long term for the 2025 targets is to make sure that we continue to move the tier ones and tier twos in the right direction.

Okay. Okay. Thanks for taking the questions.

Thanks, Rob.

Speaker 4: Again, if you would like to ask a question, please press star then the number one on your telephone keypad.

Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Speaker 7: Our next question comes from the line of Gavin Fairweather of Cormark. Your line is now open. Oh, hey. Good morning. I thought we could start on you as title and focus on your tier.

Our next question comes from the line of Gavin Fairweather of core Mark Your line is now open.

Oh, Hey, good morning, I thought we could start on youth title and focus on your tier one I think it's been three quarters that its been live now and I think initially you had said that you were targeting 5% to 10% share over the course of the first year. So maybe you can provide us with an update on how you're tracking against that target in and any thoughts on that.

Speaker 7: provide us with an update on how you're tracking against that target and...

Your share with that client can move over there over the second year of going on.

Thanks, Kevin Yeah. So we I think we shared at the end of last year that we we'd had a very good year with the tier one and to your point, we talk about getting the 5% to 10% in the first year and after the first couple of quarters. We were very fortunate to have got ourselves into the double.

Speaker 1: Thanks, Kevin. Yeah, so we I think we shared at the end of last year that we we'd had a very good year with the tier one. And to your point, we talk about getting the 5 to 10% in the first year.

Speaker 1: And after the first couple of quarters, we were very fortunate to have got ourselves into the double digits. So, we continue to focus on ramping that share, Gavin, and we will continue to focus on ramping that share. I think one of the unique opportunities there is beyond driving just the share with the business we have today is to expand the channels with that customer. And as I say, I think we're very optimistic.

Digits. So we continue to focus on ramping that share Gavin and we will continue to focus on ramping that share I think one of the unique opportunities. There is beyond driving just the share with the business. We have today is is to <unk>.

Spanned the channels with that customer and as I say I think we're very optimistic.

Speaker 7: barring market movements, et cetera, but we're very focused on bringing that channel up live in the second half of this year. So that's really, I think, where we're going with tier ones, continue to perform, continue to win market share in the core business, and then diversify into another channel. That's great. And then just secondly, for me in US appraisal, the net revenue margins have been kind of hovering just over 20% in recent quarters, given kind of the shift in.

Barring market movements et cetera, but we're very focused on bringing that channel up live in the second half of this year. So that's really I think where we're going with with tier ones continue to perform continue to win market share in the core business and then diversify into into another channel.

That's great and then just secondly from me and U S. Appraisal of the net revenue margins have been kind of hovering just over 20% in recent quarters, given kind of a shift in mix towards more complex jobs I guess I'm wondering if that's a good run rate for now do you see a pathway to maybe back towards the 23 or 24% level, perhaps by passing on some of the.

Increased costs that you are seeing onto the lenders.

It's a good question Gavin I'm going to ask Bill to take that question Bill.

Sure Thanks, Brian and Great question Gavin.

Speaker 3: I think the in the short term, Gavin, I would say to you, there's still elevated levels of refinance activity. And so as a consequence, I think we're still sitting firmly in the more complex camp, at least in the near term. So.

I think the.

In the short term.

Gavin I would say to you there's still elevated levels of refinance activity and so as a consequence I think we're.

Still sitting.

Firmly in the in the more complex camp at least in the near term so.

Speaker 3: From a run rate perspective, I would think somewhere in the neighborhood of what you saw in this first quarter of the year would probably be fair for at least the next couple, but certainly longer term once the refinance market starts to settle and cool down a bit, then we fully expect margin expansion easily up into the 23, 24 percent.

From a run rate perspective, I would think somewhere in the neighborhood of what you saw in this first the first quarter of the year would probably be fair for at least the next couple.

But certainly longer term once the refinance market starts to to.

And and cool down a bit then we fully expect margin expansion easily up into the 23, 24%, which which where we were pre COVID-19 and then secondarily I think we've still got as you know.

Speaker 3: which where we were pre-COVID and then secondarily, I think we've still got.

Speaker 3: you know, you know, lots of room to expand into the 26 to 28%.

Lots of room to expand into the 26% to 28% range by 2025.

Great. That's it for me thank you.

Speaker 4: Our next question comes from the line of Martin Toner of ATB Capital Market. Your line is now open.

Our next question comes from the line of Martin the owner of <unk> capital markets. Your line is now open.

Speaker 8: Hi, thanks guys for asking, for taking my question. So you've lost share in title for three quarters now. Can you guys talk a little bit about the pace of.

Hi, Thanks, guys for asking you for taking my question. So you've lost share in title for three quarters. Now can you guys talk a little bit about.

The pace of.

Speaker 8: increase at the tier one and when that those market share losses

Increase at the tier one and when that those market share losses might turn around.

Speaker 1: Yeah, so, so Martin, I think, when we take a look at the title business, we've, we've looked back, as you know, and and communicated that we made some decisions around

Yes, so so Martin I think when we take a look at the title business. We've we've looked back as you know and and communicated that we made some decisions around.

Speaker 1: our Tier 3, Tier 4 portfolio in order to open up the capacity to take on the Tier 1s and 2s. And so our view is I think you should see that market share ramp start moving in the right direction in the second half of this year, aligned with market share growth with our current customers, as well as that channel expansion piece.

Our tier three tier four portfolio in order to open up the capacity to take on the tier ones and twos and so.

Our view is I think you should see that market share ramp start moving in the right direction in the second half of this year.

Lined with market share growth with our current customers as well as that channel expansion piece and then layer on top of that new customers. As we mentioned we brought in sort of during the quarter and just subsequent to the quarter. We brought into more top 100 customers. So I think youll start seeing that momentum.

Speaker 1: And then later on top of that, new customers, as we mentioned, we brought in sort of during the quarter and just subsequent to the quarter, we brought in two more top 100 customers. So I think you'll start seeing that momentum continue into the second half and you should see that market share start tracking in the positive trajectory.

New into into the second half and you should see that market share start tracking in the in the positive.

And the positive trajectory.

Speaker 8: That's great, thanks. Now, with some of the estimates out there for the refinance market, even with share gains, it might be tough to not lose more volume. What might that mean for?

That's great. Thanks.

Now with some of the estimates out there for the refinance market.

Even with share gains it might be tough to not lose more volume what might that mean for.

EBITDA in title.

Okay.

Speaker 1: So I think that question is around, I believe, anyways, is around how do we manage our costs, our cost-based, Martin, depending on the volumes in the market. And so I think there's two ways we look at that. The first one is we are very focused on execution and operating the business appropriately. And so.

So I think the question is around I believe anyways is around how do we manage our costs our cost base Martin depending on the volumes in the market and so I think there's two ways. We look at that the first one is we are very focused on execution and operating the business.

Appropriately and so.

Speaker 1: With volumes, if there is significant movement in volumes, then we manage OPEX to that, but we have to balance that with the fact that we have aspirations out to 2025, which includes

With volumes if there is significant movement in volumes than we manage opex to that but we have to balance that with the fact that we have aspirations out to 2025, which includes bringing on new customers expanding our share with the customers, we have and that <unk>.

Speaker 1: bringing on new customers, expanding our share with the customers we have.

Speaker 1: And that performance that we've got with our Tier 1 and Tier 2, that, of course, is paramount for us, that we continue to drive the types of results that we're seeing on their scorecards. So, I think that's the balance that we have, Martin, as we look forward. We look forward to some of the short-term headwinds that we're experiencing, and I think we've demonstrated in the past that

Performance that we've got with our tier one and tier two that of course.

Is paramount for us that we continue to drive the types of results that we're seeing on their scorecards. So I think that's the balance that we have Martin as we look forward. We look forward to some of the short term headwinds that we're experiencing and I think we've demonstrated in the past that we are quite agile in managing our opex array.

Speaker 1: quite agile in managing our OPEX around that, but we also need to ensure that we

On that but we also need to ensure that we.

Speaker 1: We keep some OpEx capacity for our expected expansions in market and our market expansions, as well as our new customers that we're expecting in the second half of the year.

We keep some opex capacity for our expected expansions in market and our market expansions as well as our new customers that we're expecting in the second half of the year.

Okay.

Speaker 8: Great, thank you very much. If I can ask one more. In the MDNA, it references

Great. Thank you very much if I can ask one more in the MD&A it references.

Timing of orders as a reason for lower margins in title.

Speaker 8: timing of orders as a reason for lower margins in title.

<unk>.

Speaker 8: Is that, I mean, that sounds like share gains are kind of kicking in. Um, I believe.

Is that I mean.

That sounds like share gains are kind of kicking in.

I believe.

Speaker 8: You said the same thing last year at this time, and it translated into adding your first tier one. Can you give us any more color on new?

You meant you said the same thing last year at this time and that translated into a adding your first tier one.

Can you give us any more color on new customers.

Speaker 1: Yeah, yeah, I can, Martin. So when we talk about flow, the reason we address that is because that is very relevant for our net revenue margin in title.

Yes, I can Martin so when we talk about flow. The reason we address that is because that is very relevant for our net revenue margin in title.

Speaker 1: So flow for us simply means that from the start of a title order, it takes us somewhere around 45 days until we see the revenue and there's some expenses that we need to take up front.

So flow for us simply means that from the start of a title order. It takes us somewhere around 45 days until we see the revenue and there are some expenses that we need to take upfront. So.

Speaker 1: So when you see very strong margins, as you saw this past quarter, it often means that we are delivering more in that quarter. Therefore, we're realizing more revenue than we are necessarily spending on orders.

So when you see very strong.

Margins as you saw this past quarter. It often means that we are we are delivering more in that fourth quarter. Therefore, we are realizing more revenue than we are necessarily spending on orders and again a chunk of that has to do with the 10 year treasury the trajectory that we've seen on that moving.

Speaker 1: And again, a chunk of that has to do with the 10 year treasury, the trajectory that we've seen on that moving up.

Up and potential impacts headwind impacts from volume as we look forward. So that's really the dynamic that plays there it's not relative to just a particular launch of one or another.

Speaker 1: and potential impacts, headwind impacts from volume as we look forward. So that's really the dynamic that plays there. It's not relative to just a particular launch of one or another, but really the dynamics between how the market is moving and therefore how we are closing and opening orders within that particular quarter.

But really the dynamics between how the market is moving.

And therefore, how we are closing and opening orders within that particular quarter.

Got it okay. Thank you that's all for me.

Great. Thanks.

Speaker 4: There are no further questions coming in at this time. Please continue.

There are no further questions coming in at this time. Please continue.

Speaker 1: Okay, well thank you operator, that I think then wraps things up for today. Appreciate all of you joining the call and please take care. Thank you.

Okay, well. Thank you operator that I think then wrap things up for today appreciate all of you joining the call and please take care. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker 4: This concludes today's conference call. Thank you for participating. You may now disconnect.

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