Real Matters Overview March 2018 Jason Smith Chief Executive - - PowerPoint PPT Presentation

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Real Matters Overview March 2018 Jason Smith Chief Executive - - PowerPoint PPT Presentation

Real Matters Overview March 2018 Jason Smith Chief Executive Officer Caution Regarding Forward-Looking Statements This presentation contains forward-looking statements that relate to our current expectations and views of future events


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Real Matters Overview

March 2018

Jason Smith Chief Executive Officer

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Caution Regarding Forward-Looking Statements

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This presentation contains forward-looking statements that relate to our current expectations and views of future events including but not limited to future market share and transaction volumes. In some cases, these forward-looking statements can be identified by words or phrases such as ‘‘forecast’’, ‘‘target’’, ‘‘goal’’, ‘‘may’’, ‘‘might’’, ‘‘will’’, ‘‘expect’’, ‘‘anticipate’’, ‘‘estimate’’, ‘‘intend’’, ‘‘plan’’, ‘‘indicate’’, ‘‘seek’’, ‘‘believe’’, ‘‘predict’’, or ‘‘likely’’, or the negative of these terms, or other similar expressions intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe might affect our financial condition, results of operations, business strategy and financial needs. A comprehensive discussion of the risks that impact Real Matters can be found in the Company's Annual Information Form dated December 27, 2017 available on SEDAR at www.sedar.com. Actual results may differ materially from those indicated or underlying forward-looking statements as a result of various factors, including those described under the heading “Important Factors Affecting Results from Operations” outlined in the Strategy and Outlook section of the Company’s MD&A for the quarters ended December 31, 2017 and 2016. Real Matters cautions that the list of risk factors and uncertainties is not exhaustive and other factors could also adversely affect its

  • results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information

and are cautioned not to place undue reliance on such information. Information contained in forward-looking statements in this presentation is provided as of the date of this presentation and we disclaim any obligation to update any forward-looking statements, whether as a result of new information or future events or results, except to the extent required by applicable securities laws. All of the forward-looking statements made in this presentation are qualified by these cautionary statements and other cautionary statements or factors contained herein and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. No Non-GA GAAP M Measu sures This presentation makes reference to certain Non-GAAP financial measures. Real Matters prepares its financial statements in accordance with International Financial Reporting Standards ("IFRS" or “GAAP”). However, the Company considers certain Non-GAAP financial measures as useful additional information in measuring its financial performance and condition. These measures, which the Company believes are widely used by investors, securities analysts and other interested parties in evaluating our performance, do not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similarly titled measures presented by

  • ther publicly traded companies, nor should they be construed as an alternative to financial measures determined in accordance with
  • IFRS. Non-GAAP measures include “Adjusted EBITDA”, “Net Revenue” and “Adjusted Net Income or Loss”. See "Non-GAAP measures" in

Real Matters’ MD&A for the quarters ended December 31, 2017 and 2016 for a more complete description of these terms.

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FY2015 FY2016 FY2017

Real Matters Overview

Leading Provider of Network Management Services for the Mortgage Lending and Insurance Industries

  • Platform combines proprietary technology and network management capabilities with

tens of thousands of independent Field Agents, such as residential real estate appraisers

  • Realized significant success and disrupted segments of the mortgage lending and

insurance industries

  • Clients include more than 60 of top 100 mortgage lenders in the U.S.1 and

three of the Big Five Banks in Canada

  • Provides one in 15 residential mortgage appraisals in the U.S.2
  • Recently won MSAs with five Tier 1 mortgage lenders in the U.S.
  • Adjusted EBITDA3 positive since FY2012
  • Invested significantly in our technology
  • Entered title and closing market – provides opportunity to leverage our Platform

and client relationships to grow title and closing market share

Strong Market Share Growth and Financial Performance

  • 1. Based on having completed at least one transaction with Real Matters in the fiscal year ended September 30, 2017. Top 100 mortgage lenders according to Inside Mortgage Finance website: Top 100 Mortgage Lenders (twelve months ended December 31, 2016). 2. Management

estimate based on data from the MBA Mortgage Finance Forecast Report of October 24, 2017. 3. Net Revenue and Adjusted EBITDA are non-GAAP measures. See “Non-GAAP Measures” on page 2 of this Presentation. 4. Management estimates of the residential mortgage appraisal market size of calendar 2016 based on data from the MBA Mortgage Finance Forecast Report of October 24, 2017, plus management estimates of the title market size measured by written premium based data from American Land Title Association Data as of June 30, 2017. Total addressable market based on roll-out of the Company’s Next Generation Closing strategy. 5. Management estimate based on data from the MBA Mortgage Finance Forecast Report of October 24, 2017. 6. Management estimate of Residential Title Written Premium Market Share based

  • n data from the American Land Title Association as of June 30, 2017 and Demotech, Inc. for period ending December 31, 2015.

$16B

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Large Addressable Market with Significant Runway for Growth

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$33.7 $68.3 $92.3 $5.3 $12.8 $9.4 FY2015 FY2016 FY2017 Net Revenue Adjusted EBITDA FY2013 FY2013 FY2015 FY2016 FY2017

17%

2017 YoY Title & Closing Market Share6 Growth 3 3

2.4% 6.5% (in $ millions) 0.2% 0.3%

30%

2017 YoY

Mortgage Appraisal Market Share5 Growth

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How Our Network Management Platform Works

  • 1. Based on Real Matters` actual average for a standard interior appraisal in Prince William County, VA, during Fiscal Q3 and Q4 2016 (April to September 2016). Traditional Appraisal Management Company turn times and defect rates are management estimates of average competitor

metrics based on internal market research and do not relate to any particular competitor or geographic region.

2 to 35%

Increased Client Market Share (illustrative)

1 2 4

$77 $28 $12

$355

Appraiser Fee

  • Ave. Direct Cost Per Appraisal

Cost to Serve Contribution Margin

Best Performing Appraiser

Case Study: Prince William County, Virginia1 $472

Lender Fee

Real Matters

3

Traditional AMC

Turn Time 7-9 days

5.3 days

Defect Rate 15-20%

5.6%

Real Matters

Better Performance

Case Study: Prince William County, Virginia1

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Established and Growing Blue Chip Client Base

Client Engagement Activities Request for Information Request for Proposal On-site Visits Master Services Agreement Audits Technology Integration Roll-out Plan Market Share Expansion After Deployment

Year 1 BUILD Year 2 GROW Year 3 OPTIMIZE 0-15% 35-40%

  • Blue-chip client base developed over lengthy and

complex sales cycle

  • Proven compliance and regulatory systems in place to

meet client requirements and help retain and develop key clients Up to 5 Years to get to 1st Transaction

Lengthy and Complex Sales Cycle Developed Blue Chip Client Base

29% 28% 35% 8% Tier 1 Tier 2 Tier 3 Tier 4

~7,000 Mortgage Banks, Lenders and Credit Unions 31-100 Mortgage Banks, Lenders and Credit Unions 7-30 Mortgage Banks, Lenders and Credit Unions Top 5 Banks by Asset Size and the Largest Non-Bank Mortgage Lender

Source: Inside Mortgage Finance Top 100 Mortgage Lenders List – March 31, 2017

U.S. Customer Segmentation

Real Matters clients include 60 of top 100 mortgage lenders in the U.S.1 and all Tier 1 mortgage lenders

  • 1. Based on having completed at least one transaction with Real Matters in the fiscal year ended September 30, 2017. Top 100 mortgage lenders according to Inside Mortgage Finance website: Top 100 Mortgage Lenders (12 months ended December 31, 2016).
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Track Record of Increasing Appraisal Market Share with Clients

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  • Tier 1 mortgage lenders represent approximately 30%3 of annual

spend on residential mortgage appraisals

  • Real Matters often obtains more transaction volume relative to

competitors based on its ability to outperform

  • Real Matters has historically developed long-term client relationships

and achieved a client retention rate of approximately 95%4 30%3

Recent launches with Tier 1 clients through typical cycle are expected to result in significant market share increases over the next 5 years

  • 1. Appraisal Market Share based on management estimates based on data from the MBA Mortgage Finance Forecast Report of October 24, 2017. 2. CAGR means Compound Annual Growth Rate. 3. Management estimates based on Inside Mortgage Finance website: Top 100 Mortgage

Lenders (12 months ended December 31, 2016). 4. Retention rate calculated since launch based on number of clients who have completed at least one transaction with the Company in the fiscal year ended September 30, 2017. Based on Real Matters clients on Inside Mortgage Finance website: Top 100 Mortgage Lenders (12 months ended December 31 2016).

Case Studies Appraisal Market Share

MSAs with Tier 1 Lenders Drive Growth

FY2013 FY2014 FY2015 FY2016 FY2017 2.4% 6.5%

FY2021 Target 15% to 20% 28%

Mortgage Appraisal Market Share1 CAGR2

Tier 1 Lender A Recently launched Tier 1 Lender B Tier 2 Lender A Tier 2 Lender B

0% 1.6% 3.5% 4.7% 4.7% 0 mth 1 mth 2 mth 3 mth 4 mth 2.0% 18.0% 20.0% 25.0% 29.0% 1 mth 6 mth 9 mth 12 mth 18 mth 10.0% 12.0% 25.0% 25.0% 40.0% 1 mth 6 mth 12 mth 24 mth 36 mth 1.0% 55.0% 85.0% 85.0% 85.0% 1 mth 6 mth 12 mth 24 mth 36 mth

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Porting Our Platform Approach in Appraisals to the Title and Closing Market

Title Search Closing Network Management Escrow Funding

Key Opportunities for Improvement

  • Reducing the number of closings

that require the borrower to re-sign

  • Improving network management to

prevent missed or re-scheduled closing appointments

  • Improve borrowers’ experience

Large Addressable Market

$13B includes purchase and refinance Ability to sell title and closing to existing appraisal clients through existing MSAs

Key Business Opportunity Key Components of Title and Closing Business

Similar Mortgage Customer Base Process Ripe for Disruption 1 2 3

Significant area of inefficiency

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Title and Closing Strategy Expands Addressable Market, Leverages Core Platform

Acquire Platform Growth Strategies

Acquired Linear Title & Closing in April 2016

  • Full-service title and closing business
  • Leading independent provider
  • National U.S. footprint and license coverage area
  • Established in-house search capabilities
  • Deep understanding of industry requirements
  • Currently servicing Tier 3 and 4 Tier mortgage lenders

Growth Strategies

2019

2013-2015

Title and closing identified as strategic growth opportunity

2016 2017

May-Aug Determined lender key pain points Apr 2016 Real Matters acquires Linear Sep-Oct Tested concepts with existing clients Nov-Feb Developed technical requirements Feb-Mar Developed initial prototype H2 2017 Pilot transactions with select existing clients

2018

2017 Launch beta version Launch Tier 2 mortgage lender

2019

Launch Tier 1 mortgage lender

  • 1. Subject to a number of known and unknown risks. See “Forward-Looking Information” on page 2 of this Presentation.

Next Generation Closing Roll-Out Strategy1 1 2

Continue to grow existing Linear business

  • Increase market share with existing Tier 3 and Tier 4 clients
  • Grow pipeline of new Tier 3 and Tier 4 clients
  • Offer title and closing services to existing Solidifi appraisal clients

Launch Next Generation Closing

  • Solution geared toward servicing Tier 1 and Tier 2 clients
  • Purchase and refinance strategy

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Large Addressable Market

  • Includes both U.S. residential mortgage

appraisal market and title and closing market

  • Focused on key large clients
  • Top I00 mortgage lenders

represent ~90% of market

  • Agents represent ~70%
  • f market
  • Primarily focused on

centralized refinance title today

Total Addressable Market3 Appraisal Market1 Title & Closing Market2

  • Increased regulation
  • Lenders increasingly focused on core operations
  • Lenders increasingly focused on end consumer
  • Growing role of technology

$16B

$3B $13B

Industry Trends

  • 1. Management estimates based on data for calendar year 2016 from the MBA Mortgage Finance Forecast Report of October 24, 2017. 2. Title Written Premiums data from the American Land Title Association as of June 30, 2016. 3. Management estimates of the residential mortgage

appraisal market size for calendar 2016 based on data from the MBA Mortgage Finance Forecast Report of October 24, 2017, plus management estimates of the title market size measured by written premium based data from American Land Title Association Data as of June 30, 2017. Total addressable market based on roll-out of the Company’s Next Generation Closing strategy.

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Growth Strategy

Disrupt title and closing market

$13B3 annual U.S. market spend – current market share of approximately 0.3%4

  • Leverage our Platform to disrupt the closing process and drive better performance
  • Leverage existing Tier 1 and Tier 2 MSAs to accelerate sales cycle

Continue to pursue acquisition opportunities

  • Leverage our Platform
  • Strategically complement existing business

Continue to grow residential mortgage appraisal market share

$3.2B1 annual U.S. market spend – current market share of approximately 6.5%2

  • Deployment of recent Tier 1 client wins expected to drive growth
  • 1. Management estimates based on MBA Mortgage Finance Forecast Report of October 24, 2017.
  • 2. Management estimates based on data from the MBA Mortgage Finance Forecast Report of October 24, 2017.

3.Title Written Premiums data from the American Land Title Association as of June 30, 2017. 4. Management estimate of Residential Title Written Premium Market Share based on data from the American Land Title Association as of June 30, 2017 and Demotech, Inc. for period ending December 31, 2015.

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Market Share Targets1 At End of F2017 FY2021 Target

Total U.S. Residential Mortgage Appraisal Market Spend $3.2B2

U.S. Mortgage Appraisal Market Share 6.5%3 15% to 20%

Total U.S. Title and Closing Market Spend $13B4

U.S. Title and Closing Market Share 0.3%5 1% to 3%

Long-Term Target Operating Model

Financial Targets Baseline FY2021 Target Revenues CAGR6 38%7 20% to 25% Net Revenue8Margin (% of revenues) 31%9 35% to 40% Adjusted EBITDA10 Margin (% of Net Revenue) 10%11 25% to 30%

  • 1. Subject to a number of known and unknown risks. See “Forward-looking Information” on page 2 of this Presentation. 2. Management estimates based on data for fiscal 2017 from the MBA Mortgage Finance Forecast Report of October 24, 2017. 3. Management estimates based on

data from the MBA Mortgage Finance Forecast Report of October 24, 2017. 4. Title Written Premiums data from the American Land Title Association as of June 30, 2017. 5. Management estimate of Residential Title Written Premium Market Share based on data from the American Land Title Association as of June 30, 2017 and Demotech, Inc. for period ending December 31, 2015. 6. CAGR means compound annual growth rate. 7. Revenue CAGR for Real Matters F2014 to F2017. 8. Net Revenue is a Non-GAAP Measure. See “Non-GAAP Measures” on page 2 of this Presentation. 9. Net Revenue Margin for Real Matters for fiscal 2017. 10. Adjusted EBITDA is a Non-GAAP Measure. See “Non-GAAP Measures” on page 2 of this Presentation. 11. Adjusted EBITDA Margins for Real Matters for fiscal 2017

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Q1 2018 Financial Results

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Consolidated Market Adjusted Revenue Growth of 19%

(28% in appraisal, 4% in title and closing)

Appraisal

  • New Tier 2 lenders
  • Ranked #1 on Tier 1 lender scorecards

Q1 2018 Highlights

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Quarterly U.S. Revenues vs. Average U.S. Mortgage Origination Market

Purchase Originations (billions) Rate Refinance Originations (billions)

Source: July MBA, Fannie Mae and Freddie Mac

Title and Closing

  • Significantly advanced Top 100 pipeline

+30%

2016-2017 Appraisal Market Share

$396 $372 $525 $583 $542 $389 $476 $477 $416 $349 $475 $470 $44 $46 $77 $81 $79 $65 $77 $83 $74 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $0 $100 $200 $300 $400 $500 $600 $700 FY16 - Q1 FY16 - Q2 FY16 - Q3 FY16 - Q4 FY17 - Q1 FY17 - Q2 FY17 - Q3 FY17 - Q4 FY18 - Q1 FY18 - Q2 FY18 - Q3 FY18 - Q4

Total Real Matters Revenues (millions)

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Q1 2018 Segment Revenue

Q1 2018 Q1 2017 Change U.S. Appraisal and Ancillary $49.9 $49.7 0.5% Title and Closing 16.2 21.7 (26%) Other 0.3 0.4

  • Total U.S.

$66.4 $71.8 (7%) Canada Appraisal and Ancillary $6.5 $6.2 5% Other 0.9 0.9

  • Total Canada

$7.4 $7.1 4%

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  • Modest increase in U.S. appraisal and ancillary revenues related to market share gains and new customers.
  • Decline in the refinance mortgage origination market significantly impacted title and closing revenues due

to its high correlation to refinance related volumes.

  • Increase in Canadian appraisal and ancillary due to higher volumes and FX, partially offset by lower market activity.
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Q1 2018 Summary Financial Information

Q1 2018 Q1 2017 Change Revenues $73.9 $78.9 (6%) Net Revenue1 $22.5 $26.0 (14%) Adjusted EBITDA1 $2.4 $5.5 (56%) Net loss $(5.4) $(2.3) − Adjusted Net Income1 $1.3 $1.9 (34%)

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  • 1. Net Revenue, Adjusted EBITDA and Adjusted Net Income are Non-GAAP measures. See pages 7-9.
  • Organic revenue growth driven by market share gains and new clients helped offset the estimated market decline.
  • Q1 2018 included acquisition revenue of $1.1 million from the consolidation of joint ventures previously

accounted for as equity investees.

  • Net revenue margins impacted by change in revenue mix in the U.S., lower margin work completed in our title and

closing service line and transition of certain title and closing service offerings to a network management model.

  • Network effect in appraisal business delivered margin improvements in the first quarter of 2018.
  • Higher operating expenses in Corporate segment included stock-based compensation expense and higher public

company costs – remainder of the opex increase driven by investment to support our growth.

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Recon conciliation

  • n o
  • f

No Non-GAAP Me Measu asures

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Net Revenue

Net Revenue should not be construed as a measure of income or of cash flows. The reconciling items between net income or loss and Net Revenue are detailed in the unaudited condensed consolidated statement of operations and comprehensive income or loss for the three months ended December 31, 2017 and 2016. A reconciliation between net income or loss and Net Revenue is provided below. Management typically calculates Net Revenue as follows:

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2017 2016 Net loss (5,389) $ (2,285) $ Operating expenses 20,378 20,522 Acquisition and IPO (recovery) costs (7) 421 Integration expenses 50

  • Amortization

5,316 5,198 Interest expense 156 254 Interest income (106)

  • Net foreign exchange gain

(642) (3,741) (Gain) loss on fair value of warrants (767) 4,505 Re-measurement gain on previously held equity method investment (499)

  • Net income from equity accounted investees
  • (105)

Income tax expense 3,995 1,248 Net Revenue 22,485 $ 26,017 $ Three months ended December 31 2017 2016 Revenues 73,870 $ 78,894 $ Less: Transaction costs 51,385 52,877 Net Revenue 22,485 $ 26,017 $ Three months ended December 31

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Adjusted EBITDA

Management typically calculates Adjusted EBITDA as follows:

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2017 2016 Net loss (5,389) $ (2,285) $ Stock-based compensation expense 284

  • Acquisition and IPO (recovery) costs

(7) 421 Integration expenses 50

  • Amortization

5,316 5,198 Interest expense 156 254 Interest income (106)

  • Net foreign exchange gain

(642) (3,741) (Gain) loss on fair value of warrants (767) 4,505 Re-measurement gain on previously held equity method investment (499)

  • Net income from equity accounted investees
  • (105)

Income tax expense 3,995 1,248 Adjusted EBITDA 2,391 $ 5,495 $ Three months ended December 31 2017 2016 Revenues 73,870 $ 78,894 $ Less: Transaction costs 51,385 52,877 Less: Operating expenses 20,378 20,522 Add: Stock-based compensation expense 284

  • Adjusted EBITDA

2,391 $ 5,495 $ Three months ended December 31

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Adjusted Net Income

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2017 2016 Net loss (5,389) $ (2,285) $ Stock-based compensation expense 284

  • Acquisition and IPO (recovery) costs

(7) 421 Integration expenses 50

  • Amortization of intangibles

4,890 4,814 Net foreign exchange gain (642) (3,741) (Gain) loss on fair value of warrants (767) 4,505 Re-measurement gain on previously held equity method investment (499)

  • Related tax effects

(1,371) (1,818) Impact of the statutory income tax rate change (U.S. tax reform) 4,707

  • Adjusted Net Income

1,256 $ 1,896 $ Weighted average number of shares

  • utstanding (thousands), diluted

92,084 82,760 Adjusted Net Income per weighted average share, diluted 0.01 $ 0.02 $ Three months ended December 31