Q1 2024 Real Matters Inc Earnings Call

[music].

Welcome to the real Match's Q1, 'twenty 'twenty four earnings conference call. At this time all lines are in listen only mode. Following the presentation, we will conduct a question and answer session.

Any time during this call you require immediate assistance. Please press star zero for the off right. So this call is being recorded on February the first 2024.

Ill turn the conference over to Lindsey I regard. Please go ahead.

Thank you operator, and good morning, everyone welcome to ROE matters financial results Conference call for the first quarter ended December 31, 2023 with me today are real matters, Chief Executive Officer, Brian Lynch, and Chief Financial Officer Rodrigo Prieto.

Morning, before market opened we issued a news release announcing our results for three months ended December 31, 2023, the release accompanying slide presentation 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 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 expectations.

Please see the slide entitled cautionary note regarding forward looking information and 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 32023, which is available on SEDAR plus any of 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 EBITDA and adjusted EBITDA margin non-GAAP measures are described in our MD&A for the three months ended December 31, 2023, where you will also find reconciliations to the nearest isos 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 today.

I'll kick things off by going over the business highlights of the quarter. Rodrigo will then follow up with a brief discussion of the financial highlights before we take questions.

We delivered solid results in the first quarter against the backdrop of a bottom bouncing mortgage origination market Consol.

Consolidated revenues were down 7% year over year, compared with an estimated U S mortgage origination market decline of 18%.

Consolidated net revenue was relatively flat and we reduced our adjusted EBITDA loss by two thirds to $1 1 million as a result of improved net revenue margins across all three segments.

And a lower cost base.

We continue to leverage our platform to improve our net revenue margins, while driving our performance advantage, which is key to increasing market share and winning new clients.

While the mortgage market continues to hover around historical lows, our focus remains on setting the business up for long term success.

Building market share, winning new business and positioning the company for improved financial performance when market conditions improve and we start to see growth in volumes from these historical lows.

First quarter U S appraisal purchase and refinance revenues outperformed the market year over year purchase revenues were down 10% compared to an estimated market decline of 21%.

And refinance revenues were down 5% compared with an estimated market decline of 8%.

We launched one new client in the first quarter increased our market share on a sequential basis with two of our top clients.

We posted record high net revenue margins of 27, 9% and a year over year adjusted EBITDA increase of 16% in U S appraisal in Q1.

In U S title centralized title revenues were flat year over year, compared with an estimated market decline of 10%.

As we discussed on our last conference call, we launched a second channel with our tier one lender at the end of September increasing our market share with that client.

U S titled net revenue was up 18% year over year, and we reduced our adjusted EBITDA loss in this segment by 44% to $1 6 million in the first quarter.

The focus for title remains on readying ourselves to scale for growth as the market recovers and market share increases.

We continue to work the pipeline with a view to adding new clients in 2024.

In Canada, we saw lower market volumes for appraisal services, which we're able to us set in part with market share gains.

Revenues were down 12% year over year. However, a 90 basis point increase in net revenue margins helped temper the decline in net revenues, we launched two new clients in Canada in the first quarter.

During the first quarter, our sales team was highly engaged with existing and potential new clients at the annual mortgage Bankers Association convention discussing how we can leverage our capabilities to better serve their needs and strategically expand our relationships, particularly entitle.

Our focus remains on leveraging our current performance and various strategies to onboard new clients and build franchise value for the long term.

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

Thank you, Brian and good morning, everyone as Brian outlined earlier, the U S mortgage market declined on a year over year basis in the first quarter why is it typical to see some sequential decline due to seasonality U S. Mortgage rates peaked above 8% in October which further reduced <unk>.

<unk> volumes, particularly on the purchase side.

Fortunately rates is slowly start to come down from their peak towards the end of the first quarter and the industry outlook is improving.

Should the mortgage rates drop either fruit rate cuts or spread compression, we see the potential for market volumes to recover from their historical starts at Lowe's.

These included the refinance market.

Approximately 15% of current mortgage mortgages have an interest rates above 6%, which translates to approximately 7 million refinance candidates when rates come down.

Well continue we continue to firmly believes that the markets will recover over the mid to long term and so we remain focused on things, we can control and ensuring that we do what's necessary to grow our client base and our market share managing our our operating efficiency and driving towards our fiscal 'twenty to 'twenty five star.

While maintaining a strong balance sheet.

Turning to our first quarter financial performance I will start with our U S. Appraisal segment, where we recorded revenues of $26 8 billion down 5% from the same period last year as lower market volumes were partially offset by new client launches and the increase in our.

Market share with our clients.

As Brian mentioned earlier, we outperformed the market in the first quarter, our origination revenues were down 8% year over year compared with an estimated addressable market decline of 19%.

Home equity revenues were up 7% year over year as we relaunched in the home equity channel with some of our existing lenders in fiscal 'twenty to 'twenty, three and hence and had strong market share growth further entrenching those clients relationships.

U S appraisal mats revenue was $7 5 million for the first quarter relatively flat compared with $7 6 million in Q1 'twenty three.

We continue to see strong mats revenue margins in the first quarter with an increase of 90 basis points year over year, hitting a record high of 27, 9%.

Our ability to leverage our platform resulted in a solid year over year margin increase and kept us at the high end of the range of our fiscal 'twenty five targets of 26% to 28%.

U S appraisal operating expenses declined 10% year over year to $4 8 million in the first quarter.

U S appraisal adjusted EBITDA was $2 7 million for the quarter up 16% from the first quarter of fiscal 2023.

Adjusted EBITDA margins increased to 35, 8% from the 34% we posted in the first quarter last year as a result of improved net revenue margin profile and the reduction of operating expenses.

Turning to our U S title segment first quarter revenues declined 14% year over year to 2 million due to lower refinance origination volumes.

As Brian outlined earlier revenues from centralized title services. The core of our long term business and title were flat year over year compared to an estimated 10% market decline.

U S titled net revenue was $1 million up 18% from the first quarter last year and that's revenue margins margins increased to 47, 3% from 34, 7%, mostly due to a higher closing rates for income incoming order volumes and <unk>.

Aligned in lower margin home equity volumes.

We've reduced U S tight oil permitting expenses by 31% year over year to $2 6 million and we recorded an adjusted EBITDA loss of $1 6 million for the U S title segment compared with a loss of $2 9 million in the first quarter of fiscal 2023.

An improvement of 44% due to the year over year reduction in operating expenses and our net revenue margin improvement.

In Canada first quarter revenues were down 12% year over year to $6 6 million due to lower market volumes.

And that's revenue decreased to $1 2 million from $1 4 million. We recorded in the first quarter of 2023, however margins expanded by 90 basis points year over year as we continued to leverage our appraisal work in a lower market environment.

Canadian adjusted EBITDA was down 160000 year over year.

In total first quarter consolidated net revenue of $9 7 million was relatively flat compared to last year as margin improvements in all three segments helped offset the decline in consolidated revenues.

Consolidated operating expenses were down 12% year over year to 11 6 million in the first quarter.

We've reduced our consolidated adjusted EBITDA loss year over year to $1 1 million from a loss of $2 9 million in the first quarter of 2023.

Finally, our balance sheet remains strong with no debt and cash of $45 1 million at December 31, 2023 up from $42 3 million at year end, mainly due to working capital changes during the period.

With that I'll turn it back over to Bryan Bryan.

Thank you Rodrigo.

In summary, we were pleased with our performance in the first quarter relative to a bottom bouncing mortgage origination market.

Our U S appraisal purchase and refinance revenues outperformed the market declines we posted record net revenue margins in U S. Appraisal increased net revenue in U S title and we reduced our cost base by 12% from the first quarter of 2023.

These factors allowed us to reduce our adjusted EBITDA loss by two thirds on a year over year basis.

Looking ahead, we remain focused on preparing for scale.

Our operations are optimized and we have the capacity to scale up with our existing cost base when market conditions improve.

We have a strong balance sheet with more than $45 million in cash and no debt.

Overall, I'm very confident about our financial position and our ability to continue to grow market share and launched new clients.

Our focus is on long term growth as it always has been we believe in the long term earnings potential of our business and we remain focused on our fiscal 2025 objectives.

With that operator wed like to open it up for questions now.

Yes.

Thank you if you wish to ask a question. Please style cri one on your telephone.

Keep out now sorry, its star one on your telephone keypad ounce entered the queue.

Once your names right now so you can ask a question. If your final question is I'll answer it before sometimes to speak you can download start sue to cancel.

So once again Thats star one to ask a question will start soon.

So.

Our first question comes from the line of Richard Tse National.

National Bank financial. Please go ahead your line is open.

Yes. Thank you for those comments with respect to our title and close Rfps under what conditions do you see them kind of moving ahead more aggressively is it just are of a turn on broad volumes or is there something more discrete there.

Thanks, Richard I appreciate the question and I think you sort of underlying what I think one of the big changes is the momentum of the market actually sort of rebounding off of these historic lows that we've been at so our titled pipeline for Us has been slower than <unk>.

Spect is simply I think due to the fact that we are at such a historically low volume levels.

That said, there's definitely I think a pivot now in the market, where lenders were pulling back on their spending and capacity and now they are definitely I think starting to look forward. The sentiment is shifting towards a more positive view of the spring market coming up as well as I think the feds.

<unk> now around stabilizing rates and having them now starting to move down so that for US I think continues to keep us very optimistic Richard on the Rfps with tier ones.

This quarter, our expectations are high that we will see one.

And as well as continue to focus on the tier twos and tier threes in our pipeline.

Okay, and I guess related to the title and close Rfps.

But how many competitors would be kind of in that market today and I. My guess is that your incumbency on the appraisal side definitely gives you an edge is that still the same as it was before.

Yes, Richard I think that is a big differentiator for US is not only the fact that we have relationships on the appraisal side, but the fact that we performed well and continue to increase share with those players.

So I think that will do us very well we have of course got our master services agreements and so.

And our view of the RFP process at least for US we've been through this with all of them in the past it should be something that we can move with forward with some pace. So I think that's what we're looking at and to your question around competitors.

The competitors remain in the title space, the big title insurers, which again in our view, we compete incredibly well against them.

And then a couple of other players that no that will be in play, but there is really only a handful of national strong national providers, Richard So again, I'm very optimistic about where we will stand on the rfps.

Okay and just one last quick one for me I'm wondering if you maybe update us on how much incremental revenue you could support under the current opex in each of our appraisal and title and that's it for me. Thanks.

Thanks, Richard I appreciate it.

We look at capacity right now in order to continue to fulfill the needs of the tier ones that we're working with especially on title. We do have a fair bit of excess capacity right now Richard So our view is that we could take on three to four times, the volume, which to your revenue comment is more or less akin to that three to four times.

And on the appraisal side, we've got about 30% still of excess capacity. So the benefit for us. It means as the market does start to torque and we start seeing the upward climb in volumes.

I think we're very well positioned to manage with our capacity until the market really takes off then we'll have to look at our at our Opex, but I think we're in good stance for the short term.

Okay, great. Thank you.

Okay.

Our next question comes from the line of Daniel Chan at TD Cowen. Please go ahead you are monocytes.

Hi, good morning.

And that the RFP process can move pretty quickly can you just remind us how long you think that could take from inception to revenue contribution.

Sure. So Dan I think our view is we're looking to have some revenue by the end of the year. So that that RFP, then could take anywhere from usually three to six months, but being conservative if we say six months that sort of gets us to the end of our fiscal.

Great that's helpful.

And then you mentioned that some of the lenders are getting a little bit more positive is that just a broad statement across all of your customer base or is that more specific to the larger bank lenders because when you look at the bank lenders they continue to lose share this quarter.

Wondering if they are indicating to you whether they're ready to start ramping back up thank you.

Thanks, Danielle I mean, if we split sort of bank to non bank. The non banks are definitely very competitive in an environment like this when there is volatility in the rates stand in the banks tend to like a market where the rates are a little steadier. So I definitely think theres been a sentiment change now with the with the banks and so I think.

Are more engaged.

They frankly spent most of last year, taking costs out of the business and so I think in the way they're communicating with US. They are now looking at the other side of that ramp.

As I say I think the sentiment is shifting I think theres, an optimistic view to the second half of our fiscal year spring market I think there are some expectations around that coming back.

Operator: Welcome to the RealMatters Q1 2024 Earnings Conference. At this time, all lines are in. Following the presentation, we will conduct a Richard Tse, If at any time during this call you require immediate... Please press star zero for the option.

And are starting to see some more refinance volume in the second half of the year.

Thanks, Brian.

Lynn Borough: The call is being recorded on February 1st. I'd now like to turn the conference over to Lynn Borough. Thank you, operator, and good morning, everyone. Welcome to Real Matters' financial results conference call for the first quarter ended December 31, 2023. With me today are Real Matters' Chief Executive Officer, Brian Lang, and Chief Financial Officer, Rodrigo Villa.

Thanks, Dan.

Thank you next question comes from the line of Thomas most helpless.

Capital markets. Please go ahead.

Hi, good morning.

With respect to the net revenue margins for title can you remind us how that <expletive>.

Unnamed: Thank you. Thank you, Robert. Thank you. Thank you. Thank you, Brian. Thank you. Thank you, Richard. Thank you. Thank you, Richard. Thank you, Brian. Thank you, Richard. Thank you. Thank you, Richard. Thank you, Brian. Thank you, Richard.

Progress in our recovery, there's some moving parts there I mean, firstly in terms of Bob Hello volumes are doing currently and then second in terms of the current mix.

Lynn Borough: Hi. This morning before the market opened, we issued a news release announcing our results for the three months ending December 31st, 2023. The release, accompanying slide presentation, as well as the financial statements and NDNA, are posted in the Investors section of our website at realmatters.com. During the call, we may make certain forward-looking statements that 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 expectations.

So how would you expect.

That's it progressed as long as pickup.

Sure.

So.

Again, we are in the different markets rights when Youll see the mix of products that we are dealing with today, it's very different than what we used to see historically.

We do expect that it will go back to where centralized title services is the core of the business and it will be.

Very high portion of our title revenues.

When we get to that point.

Lynn Borough: Please see the slide entitled Cautionary Note Regarding Forward-Looking Information in the accompanying Slide Presentation for more details. You can also find additional information about these risks in the Risk Factors section of the Company's Annual Information Form for the year ended September 30, 2023, which is available on CDAR Plus and in the Investor 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 EBITDA, and adjusted EBITDA margins. Non-GAAP measures are described in our MD&A for the three-month end of December 31, 2023, where you will also find reconciliation to the nearest IFRS measures. With that, I'll now turn the call over to you. Thank you, Lynn.

And where we believe we will get close to the our fiscal 2020 fives targets of 60% to 65% net revenue margins.

Okay. That's helpful.

And I note that.

Over the last while we have been doing.

Some work from an R&D perspective, better leverage AI and analytics.

Is there any anything of note to report there is an up there are no questions.

Well I think we continue that transition that we've shared than us and our move to the cloud. So the majority of our business is now sitting in the cloud.

And there's some capabilities that we now have access to which are I think really valuable for the operations of the business to in particular around the large language models as well as photo recognition. So our team has been pushing through proof of concepts, we're actually going to launch.

Brian Lang: Good morning, everyone, and thank you for joining us on the call today. I'll kick things off by going over the business highlights of the quarter. Rodrigo will then follow up with a brief discussion of the financial highlights before we take questions. We delivered solid results in the first quarter against the backdrop of a bottom-bouncing mortgage origination market. Consolidated revenues were down 7% year-over-year compared with an estimated US mortgage origination market decline of 18%.

Some of that capability at the back end of this quarter.

And so there is value for us in that it helps us all on the performance side, so again sort of helping us around our turnaround times, but it also helps us from a cost standpoint in managing our our capacity around some of the areas where these models will really help the business. So that's really been I think the key focus for us.

Brian Lang: Consolidated net revenue was relatively flat, and we reduced our adjusted EBITDA loss by two-thirds to $1.1 million as a result of improved net revenue margins across all three segments and a lower cost base. We continue to leverage our platform to improve our net revenue margins while driving our performance advantage, which is key to increasing market share and winning new clients. While the mortgage market continues to hover around historical lows, our focus remains on setting the business up for long-term success, building market share, winning new business, and positioning the company for improved financial performance when market conditions improve, and we start to see growth in volumes from these historical lows. In the first quarter, U.S. appraisal purchase and refinance revenues outperformed the market year over year. Purchase revenues were down 10% compared to an estimated market decline of 21%, and refinance revenues were down 5% compared with an estimated market decline of 8%.

It makes it a little more streamlined.

Furnace as well as allows us to deliver better service for the customers.

Great. Thanks.

Thanks, guys.

Thank you.

Question comes from the line of Robert Young at Canaccord Genuity. Please go ahead dumanis item.

Hi, Good morning, you noted spreads coming down and.

People are hopeful that rates will come down and so I'm just curious what you see in the current quarter.

Maybe just for modeling purposes understanding.

If the if the spring market starting at the end of March as a catalyst.

How should we be thinking about Q2, and then is that spring market a catalyst to think about how Q3 performance.

Sure.

Thanks, Rob.

Q2.

Again, we can't call the market right.

And Fannie are calling for a fairly flat market sequentially.

Brian Lang: We launched one new client in the first quarter, and increased our market share on a sequential basis with two of our top clients. We posted record high net revenue margins of 27.9% and a year-over-year adjusted EBITDA increase of 16% in US appraisal in Q1. In U.S. title, centralized title revenues were flat year-over-year compared with an estimated market decline of 10%.

Outside of that we are going to see an increase of about half a million dollars in our opex for Q2, and that's due to usual payroll taxes seasonality as we have to pay <unk> social insurance.

That's basically how we are seeing for Q2.

Going to second half of the year again, we can't call the market, but yes. There is you know.

Brian Lang: As discussed in our last conference call, we launched a second channel with our Tier 1 lender at the end of September, increasing our market share with that client. U.S. title net revenue was up 18% year over year, and we reduced our adjusted EBITDA loss in the segment by 44% to $1.6 million in the first quarter. The focus for Title remains on readying ourselves to scale for growth as the market recovers and market share increases. We continue to work the pipeline with a view to adding new clients in 2024. In Canada, we saw lower market volumes for appraisal services, which were able to offset in part with market share gains. However, revenues were down 12% year over year.

Estimates from Fannie MBA word.

And it's interesting because the range is really wide right now so you'll have.

On the refi side.

Expectations of 50% to 100% increasing volumes for the second half will follow.

Our fiscal years and on the purchase.

Again, you have from flat to 10, 12% increasing purchases for the second half of the year.

That's that's basically part.

We are reading out there in the market right now.

Okay. Thanks, that's really helpful and if I did dial in a little deeper on the spreads coming down.

<unk> here.

In the beginning of the year is that the tier one banks getting more aggressive or is there some other dynamic.

Brian Lang: However, a 90 basis point increase in net revenue margins helped temper the decline in net revenues. Additionally, we launched two new clients in Canada in the first quarter. During the first quarter, our sales team was highly engaged with existing and potential new clients at the annual Mortgage Bankers Association Convention, discussing how we can leverage our capabilities to better serve their needs and strategically expand our relationships, particularly in title. Our focus remains on leveraging our current performance and various strategies to onboard new clients and build franchise value for the long term. With that, I'll hand it over to Rodrigo. Rodrigo?

At play and then maybe if I just extend that one step further like is there a catalyst that investors can look at.

Like would the spreads coming down or obviously, a fed rate change would be it would be a positive thing but are there any other catalysts to look at.

Around this potential upswing.

Yes, I think that's I mean, there are other macro elements as you know Rob that are sort of got people interested and engaged right now with inflation and consumer spending, but but we look at the fed and so the fed I think has been very clear.

Then of course think of Canada here that rate cuts are done I'm sorry rate increases are done. So I think that has definitely helped with the big tier ones. They want no volatility or very limited volatility and so I think it's taken that out of the equation for them and now it's a matter of when some of the rates are going to start coming down.

Rodrigo Villa: Thank you, Brian, and good morning, everyone. As Brian outlined earlier, the US mortgage market declined on a year-over-year basis in the first quarter. While it's typical to see some sequential decline due to seasonality, US mortgage rates peaked above 8% in October, which further reduced origination volumes, particularly on the purchase side. Fortunately, rates slowly started to come down from their peak towards the end of the first quarter, and the industry outlook is improving. Should mortgage rates drop, either through rate cuts or spread compression, we see the potential for market volumes to recover from their historical lows. This includes the refinance market. Approximately 15% of current mortgages have an interest rate above 6%, which translates to approximately 7 million refinanced candidates when rates come down.

But to your point I think that there is some compression in the spread that we've seen to start the year and I wouldn't be surprised if we see some more of that over the next couple of quarters as the tier ones become much more comfortable and confident.

There'll be less volatility in the in the overall rate environment.

Okay. Thanks, that's really helpful I'll pass the line.

Thanks, Rob.

Thank you just as a reminder, sponsors since if you do wish to ask a question. Please style star one on your telephone Keypads now. The next question comes from the line of Gavin said, what I'd call. Marc. Please go ahead your maintenance item.

A couple from me on the appraisal business nice to hear that you are continuing to gain share with some of your larger clients. There I think it was last quarter, where you said.

Rodrigo Villa: We continue to firmly believe that the market will recover over the mid- to long-term, and so we remain focused on things we can control, ensuring that we do what's necessary to grow our client base and our market share, manage our operating efficiency, and drive towards our fiscal 2025 targets while maintaining a strong balance sheet. Turning to our first quarter financial performance, I'll start with our U.S. appraisal segment, where we recorded revenues of $26.8 million, down 5% from the same period last year as lower market volumes were partially offset by new client launches and an increase in our market share with our clients. As Brian mentioned earlier, we outperformed the market in the first quarter. Our origination revenues were down 8% year-over-year compared with an estimated addressable market decline of 19%. Home equity revenues were up 7% year-over-year as we relaunched the Home Equity Channel with some of our existing lenders in fiscal 2023 and had strong market share growth, further entrenching those clients' relationships. U.S. appraisal net revenue was $7.5 million for the first quarter, relatively flat compared with $7.6 million in Q1'23.

There's a second time, where he went over 50%. So just curious for your.

Your view on kind of the cerus dealing with with clients is changing or the way that clients are thinking about kind of vendor diversification is changing.

Yeah again, I don't I don't think we've changed our view on that I think we stated in 2020 that we thought we could get a couple of the tier ones above 50% and to your point.

I think we've done a good job of that gain that share and the gaining share.

And there's still of course opportunity now with I think both those tier ones and others to continue to expand that share opportunity Kevin.

It's the focus of our team and it's clear in some of the scorecards, we're seeing that that focus on continuing to expand our performance differentiation against competitors is where the teams are wholly focused so I think as we continue to expand that that that competitive differentiation that we've got.

Performance on our scorecards I think there's continued opportunity for us to expand share across the board.

Okay, and then just on <unk>.

U S net revenue margins, you're kind of right at the top end of your 26% to 28% range that that's baked into your targets could we potentially see some upside beyond that level or is this kind of partly aided by a bit of a slower market and skinny hang up the network just.

Rodrigo Villa: We continue to see strong net revenue margins in the first quarter, with an increase of 90 basis points year-over-year, hitting a record high of 27.9%. Our ability to leverage our platform resulted in a solid year-over-year margin increase and kept us at the high end of the range of our fiscal 25 targets, of 26 to 28 percent. U.S. appraisal operating expenses declined 10% year-over-year to $4.8 million in the first

Be curious for your perspective on how to think about that going forward.

Sure.

So our.

Our view is that youre going to see very similar net revenue margin profile.

That you saw in Q1 across the year right.

Again like.

We do believe we will stay in that range, 26% to 28%, which is our fiscal 'twenty to 'twenty five targets.

Yes.

Rodrigo Villa: U.S. appraisal adjusted EBITDA was $2.7 million for the quarter, up 16% from the first quarter of fiscal 2023. Adjusted EBITDA margins increased to 35.8% from the 30.4% we posted in the first quarter last year as a result of improved net revenue margin profile and the reduction of operating expenses. Turning to our U.S. title segment, first quarter revenues declined 14% year-over-year to $2 million due to lower refinance origination volume. However, as Brian outlined earlier, revenues from centralized title service, the core of our long-term business in title, were flat year over year compared to an estimated 10% market decline. U.S. title net revenue was $1 million, up 18% from the first quarter last year, and net revenue margins increased to 47.3% from 34.7%, mostly due to a higher closing rate for incoming order volumes and the decline in lower-margin home equity volumes.

Some.

Small ups and downs as volume changes, but we are confident of our net revenue margin profile as these.

Great. That's it for me thank you.

Thanks, Kevin Thanks.

Thank you and we currently have one further question in the queue. That's from the line of Martin China, It's a C P.

<unk> capital markets. Please go ahead your line is open.

Thank you very much good morning.

Most of my questions have been answered, but I just would like you to comment on your customers a little bit.

This market can move really quickly and your lender customers need to be forward looking just wondering if you can comment on what theyre doing to be prepared.

This market kind of like gets back to business.

Thanks, Martin as I mentioned, a little bit earlier, I think they spent an awful lot of last year kind of catching up on managing capacity down and.

And so frankly the work that we're doing with them right. Now is they have asked us to really focus our head with them on if volumes were to go up 50%, 100% how would we continue to support them and drive the type of performance, we're seeing today in the market.

Rodrigo Villa: We reduced U.S. title operating expenses by 31% year-over-year to $2.6 million, and we recorded an adjusted EBITDA loss of $1.6 million for the U.S. title segment compared with a loss of $2.9 million in the first quarter of fiscal 2023, an improvement of 44% due to the year-over-year reduction in operating expenses and a net revenue margin improvement. In Canada, first quarter revenues were down 12% year-over-year to $6.6 million due to lower market volume.

Quite a bit more.

More robust than it is today, so they're definitely looking for it I mean, I think that's where I'm, suggesting there's some change in the sentiment there definitely looking forward and talking about how we would manage in a in a more robust market. So.

We'll have to see the Devil's in the details over the next couple of months and quarters on where we see both rates and consumer sentiment, but definitely they are focused on the the increase in volume that they foresee in the next couple of quarters.

Rodrigo Villa: Net revenue decreased to 1.2 million from 1.4 million we recorded in the first quarter of 2023. However, margins expanded by 90 basis points year over year as we continue to leverage our appraiser network in a lower market environment. Canadian Adjusted EBITDA was down 160,000 EUR per year. In total, first quarter consolidated net revenue of $9.7 million was relatively flat compared to last year, as margin improvements in all three segments helped offset the decline in consolidated revenue. Consolidated operating expenses were down 12% year-over-year to $11.6 million in the first quarter.

That's great. Thanks.

In this past quarter did share shift much beat from large banks to smoking.

I did share shift amongst the banks is that the question from from big to small.

Yes, correct.

Yes.

If you take a look at the public disclosures of the tier ones. They definitely had a tough quarter. This past quarter, but remember it's they've had a tough year. So it's not something different and something new that we're seeing.

And I think this is something that they very much have halved.

I have done on purpose right. So they have taken a step back Martin in a market like this because it becomes very rate competitive and with some of the volatility as I mentioned earlier around some of the 10 year Treasury type rates. So.

Brian Lang: We've reduced our consolidated adjusted EBITDA loss year over year to $1.1 million from a loss of $2.9 million in the first quarter of 2023. Finally, our balance sheet remains strong with no debt and cash of $45.1 million at December 31, 2023, up from $42.3 million at year-end, mainly due to working capital changes during the period. With that, I'll turn it back over to Brian.

Our view is they are now starting to reposition themselves and as I say with less volatility.

From a macro I think they will now start stepping back in and going beyond just their customer base and looking for new customers.

That's great. Thanks, so much that's all for me.

Brian Lang: Thank you, Rodrigo. So, in summary, we were pleased with our performance in the first quarter relative to a bottom-bouncing mortgage origination market. Our U.S. appraisal purchase and refinance revenues outperformed the market decline. We posted record net revenue margins in U.S. appraisal, increased net revenue in U.S. title, and we reduced our cost base by 12% from the first quarter of 2023. These factors allowed us to reduce our adjusted EBITDA loss by two-thirds on a year-over-year basis.

Thank you and that was the final question in the queue. So with this now concludes the conference. Thank you very much for attending you may now disconnect your lines.

Thank you. Thank you.

Brian Lang: Looking ahead, we remain focused on preparing for scale. Our operations are optimized, and we have the capacity to scale up with our existing cost base when market conditions improve. We have a strong balance sheet with more than $45 million in cash and no debt.

Operator: Overall, I'm very confident about our financial position and our ability to continue to grow market share and launch new clients. Our focus is on long-term growth, as it always has been. We believe in the long-term earnings potential of our business, and we remain focused on our fiscal 2025 objective. With that operator, we'd like to open it up for questions. Thank you. If you wish to ask a question... Style 01, that now.

Operator: Sorry, it's Star 1, now. Once your name has been announced, you can ask your question. Please make sure your question has been answered before it's your turn, and Darla Starr, too, to count.

Richard Tse: Once again, that's star 1 to ask a question, or star 2 to ask a question. Our first question comes from the line. Bank Financial, please go ahead. Yes, thank you for those comments. With respect to title and close, under what conditions? Progressive, www.plastics-car.com, Broad Valley.

Brian Lang: Thanks, Richard. I appreciate the question. And you've sort of underlined what I think one of the big changes is, the momentum of the market actually sort of rebounding off of these historic lows that we've been at. So, you know, our title pipeline for us has been slower than expected, simply, I think, due to the fact that we are at such historically low volume levels. That said, there's definitely, I think, a pivot now in the market where lenders were pulling back on their spending and capacity, and now they are definitely, I think, starting to look forward. The sentiment is shifting towards a more positive view of the spring market coming up, as well as I think the Fed's positioning now around stabilizing rates and having them now start to move down.

Brian Lang: So that for us, I think, continues to keep us very optimistic, Richard, about the RFPs with Tier 1s. I think this quarter, our expectations are high that we'll see one, and as well as continue to focus on the Tier 2s and Tier 3s in our pipeline, and I guess related, mark. Yeah, Richard, I think that is a big differentiator for us, not only the fact that we have relationships on the appraisal side but the fact that we perform well and continue to increase our share with those players.

Brian Lang: So I think that will do us very well. We've, of course, got our master services agreements. And so, you know, in our view, the RFP process, at least for us, we've been through this with all of them in the past.

Brian Lang: It should be something that we can move forward with at some pace. So I think that's what we're looking at. And to your question about competitors, you know, the competitors remain in the title space, the big title insurers, which, again, in our view, we compete incredibly well against them. And then a couple of other players that no doubt will be in play.

Brian Lang: But there are really only a handful of strong national providers, Richard. So, again, I'm very optimistic about where we will stand on the RFP. How much?

Brian Lang: When we look at capacity right now, in order to continue to fulfill the needs of the Tier 1s that we're working with, especially on title, we do have a fair bit of excess capacity right now, Richard. So our view is that we could take on three to four times the volume, which Tier Revenue Common is more or less akin to that, three to four times. And on the appraisal side, we've got about 30% still of excess capacity. So the benefit for us is that as the market does start to turn, and we start seeing the upward climb in volumes, I think we're very well positioned to manage with our capacity until the market really takes off; then we'll have to look at our off-shore capacity. But I think we're in a good stance for the short term. Bye now. Our next question comes from the line of Daniel Chan. Please go ahead. Hi, good morning.

Brian Lang: You mentioned that the RFP process can move pretty quickly. Can you just remind us how long you think that could take from inception to revenue contribution? Sure, Dan. I think our view is we're looking to have some revenue by the end of the year. So that RFP then could take anywhere from usually three to six months.

Brian Lang: But being conservative, if we say six months, that sort of gets us to the end of our fiscal year. Great, that's helpful. And then you mentioned that some of the lenders are getting a little bit more positive. Is that just a broad statement across all your customer base? Or is that more specific to the larger bank lenders?

Brian Lang: Because when you look at the bank lenders, they've continued to lose share this quarter. I was just wondering if they're indicating to you whether they're ready to start ramping back up. Thanks, Dan.

Brian Lang: Yeah, I mean, if we split sort of bank to non-bank, the non-banks are definitely very competitive in an environment like this when there is volatility in the rates, Dan, and the banks tend to like a market where the rates are a little steadier. So, I definitely think there's been a sentiment change now with the banks, and so I think they are more engaged. They frankly spent most of last year taking costs out of the business, and so I think in the way they're communicating with us, they're now looking at the other side of that ramp. As I say, I think the sentiment's shifting. I think there's an optimistic sort of view to the second half of our fiscal year spring market. I think there's some expectations around that coming back. And I'm starting to see some more refinance volume in the second half of the year. Now, next question, on the line with Hennessy. PM. Hi, good morning.

Rodrigo Villa: With respect to the net revenue margins for title, can you remind us how that should progress in a recovery? I know there are some moving parts there. I mean, firstly, in terms of the low volumes you're doing currently, and then secondly, in terms of the current mix.

Rodrigo Villa: So how would you expect that to progress as long as they got? Sure. So, again, we are in a different market, right, when you see the mix of products that we are dealing with today. It's very different than what we used to see historically.

Rodrigo Villa: We do expect that it will go back to where centralized title services are the core of the business and will be a very high portion of our title revenues. When we get to that point, it's then that we believe we'll get close to our fiscal 2025 targets of 60 to 65 percent net revenue margin. Okay, that's helpful.

Brian Lang: Um, and I know that over the last while you've been doing some work from an R&D perspective to better leverage AI and analytics. Is there anything of note to report there as an update, or not at all? Well, I think we continue that transition that we've shared, Thanos, in our move to the cloud. So the majority of our business is now sitting in the cloud. And there are some capabilities that we now have access to, which are, I think, really valuable for the operations of the business, two in particular around the large language models, as well as photo recognition.

Brian Lang: So our team's been pushing through proof of concepts, and we're actually going to launch some of that capability at the back end of this quarter. And so there's value for us in that it helps us all on the performance side. So again, sort of helping us with our turnaround times. But it also helps us from a cost standpoint in managing our capacity around some of the areas where these models will really help the business.

Brian Lang: So that's really been, I think, the key focus for us. Makes us a little more streamlined, Thanos, as well as allows us to deliver better service for the customer. Great, I'll pass the line.

Operator: Our next question comes from the line of Robert Young at... Hi, good morning. You noted the spreads coming down, and people are hopeful that rates will come down. And so I'm just curious what you see in the current quarter, maybe just for modeling purposes, understanding, you know, if the spring market starting at the end of March is a catalyst. How should we be thinking about Q2 and then is the spring market a catalyst to think about how Q3 performs? Sure. Thanks, Rob.

Rodrigo Villa: So, Q2, again, we can't call the markets, right? But MBA and Fannie are calling for a fairly flat market sequentially. Outside of that, we are going to see an increase of about half a million dollars in our OPEX for Q2, and that's due to usual payroll tax seasonality, as we have to pay CPP, EI, and Social Insurance.

Rodrigo Villa: That's basically how we are seeing for Q2. Going to the second half of the year, again, we can't call the markets. But yes, there's estimates from Fannie, MBA, where, and it's interesting because the range is really wide right now. So you have, on the refi side, expectations of a 50% to 100% increase in volumes for the second half of our fiscal year. And on purchases, again, you have from a flat to 10%, 12% increase in purchases for the second half of the year. That's basically what we are reading out there in the market right now. Okay, thanks. That's really helpful. And if I just dial in a little deeper on the spreads coming down, you know, just here in the beginning of the year, is that the tier one banks getting more aggressive, or is there some other dynamic at play?

Brian Lang: And then maybe I can just extend that one step further, is there a catalyst that investors can look at? With the spreads coming down, obviously, a Fed rate change would be a positive thing, but are there any other catalysts to look at? around this potential upswing. Yeah, I think that's important. There are other macro elements, as you know, Rob, that are sort of getting people interested and engaged right now with inflation and consumer spending. But, but, you know, we look at the Fed.

Brian Lang: And so the Fed, I think, has been very clear. And then, of course, Bank of Canada here says that rate cuts are done, sorry, rate increases are done. So I think that has definitely helped with the big tier ones; they want no volatility or very limited volatility. And so I think it's taken that out of the equation for them.

Brian Lang: And now it's a matter of when some of the rates are going to start coming down. But to your point, I think that there's some compression in the spread that we've seen so far this year. And I wouldn't be surprised if we see some more of that over the next couple of quarters, as the tier ones become much more comfortable and confident that there'll be less volatility in the overall rate environment. Okay, thanks. That's really helpful. I'll pass the line.

Operator: Thanks for having me. Thank you. Just as a reminder to participants, if you do wish to ask a question, please dial star 1. The next question comes from the line of Gavin Fairweather at Cormark, please go ahead. Oh, hey, a couple for me.

Brian Lang: I'm curious for your, for you on kind of the share. Yeah, Gavin, I don't, I don't think we've changed our view on that. I think we stated in 2020 that we thought we could get a couple of the tier ones above 50%, and to your point, I think we've done a good job of that share in the gain in share. And there's still, of course, opportunity now with, I think, both those tier ones and others to continue to expand that share opportunity, Gavin. I think it's the focus of our team, and it's clear in some of the scorecards we're seeing that that focus on continuing to expand our performance differentiation against competitors is where the team's wholly focused.

Brian Lang: So I think as we continue to expand that competitive differentiation that we've got and performance on our scorecards, I think there's continued opportunity for us to expand share across the board. Okay, and then just on U.S. Net Revenue margins, you're kind of right at the top end of your... Could we potentially see some upside beyond that level?

Rodrigo Villa: Sure. So, Gavin, our view is that you're going to see a very similar net revenue margin profile that you saw in Q1 across the year, right? Again, we do believe we will stay in that range, 26 to 28 percent, which is our fiscal 2025 target. Yeah, it may have some... small ups and downs as volume changes, but we are confident about our net revenue margin profile as well. Great. Thanks, Kevin. Thanks, and we currently have one further on the line from Martin Tone. Please go ahead. Thank you very much. Good morning.

Operator: Most of the questions have been answered, but I just would like you to comment on your customers a little bit. This market can move really quickly, and your lender customers need to be forward looking. Just wondering if you could comment on what they're doing to be prepared, you know, as this market kind of gets back to business. Thanks, Martin.

Brian Lang: As I mentioned a little bit earlier, I think they spent an awful lot of last year kind of catching up on managing capacity. And so, frankly, the work that we're doing with them right now is that they have tasked us to really focus ahead with them on if volumes were to go up 50%, 100%, how would we continue to support them and drive the type of performance we're seeing today in a market that's quite a bit more robust than it is today. So they're definitely looking forward to it. I mean, I think that's where I'm suggesting there's some change in sentiment.

Brian Lang: They're definitely looking forward and talking about how we would manage in a more robust market. So, you know, we'll have to see the devil in the details over the next couple of months and quarters on where we see both rates and consumer sentiment, but definitely, they are focused on the increase in volume that they foresee in the next couple of quarters. That's great, thanks. In this past quarter, did the share shift much from large banks to small banks? Did shares shift amongst the banks? Or is that the question, from big to small?

Martin: Yeah, correct. Yeah, I mean, again, if you take a look at the public disclosures of the tier ones, they definitely had a tough quarter this past quarter. But remember, they've had a tough year.

Brian Lang: So it's not something different. It's not something new that we're seeing. And I think this is something that they very much have done on purpose, right?

Brian Lang: So they've taken a step back, Martin, in a market like this because it has become very rate competitive and with some of the volatility, as I mentioned earlier, around some of the 10-year Treasury type rates. So our view is that they are now starting to reposition themselves. And as I say, with less volatility, I think they will now start stepping back in and going beyond just their customer base and looking for new customers.

Brian Lang: That's great. Thanks so much. That's all for me. And that was the final question.

Operator: Thank you very much. Thank you. Thank you all very much.