Real Matters Overview
March 2018
Jason Smith Chief Executive Officer
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
Jason Smith Chief Executive Officer
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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
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
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
tens of thousands of independent Field Agents, such as residential real estate appraisers
insurance industries
three of the Big Five Banks in Canada
and client relationships to grow title and closing market share
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
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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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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)
$77 $28 $12
$355
Appraiser Fee
Cost to Serve Contribution Margin
Best Performing Appraiser
Case Study: Prince William County, Virginia1 $472
Lender Fee
Real Matters
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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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%
complex sales cycle
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
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spend on residential mortgage appraisals
competitors based on its ability to outperform
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
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
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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Title Search Closing Network Management Escrow Funding
Key Opportunities for Improvement
that require the borrower to re-sign
prevent missed or re-scheduled closing appointments
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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Acquire Platform Growth Strategies
Acquired Linear Title & Closing in April 2016
Growth Strategies
2019
Title and closing identified as strategic growth opportunity
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
2017 Launch beta version Launch Tier 2 mortgage lender
Launch Tier 1 mortgage lender
Next Generation Closing Roll-Out Strategy1 1 2
Continue to grow existing Linear business
Launch Next Generation Closing
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appraisal market and title and closing market
represent ~90% of market
centralized refinance title today
Total Addressable Market3 Appraisal Market1 Title & Closing Market2
$3B $13B
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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$13B3 annual U.S. market spend – current market share of approximately 0.3%4
$3.2B1 annual U.S. market spend – current market share of approximately 6.5%2
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%
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%
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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Consolidated Market Adjusted Revenue Growth of 19%
(28% in appraisal, 4% in title and closing)
Appraisal
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Purchase Originations (billions) Rate Refinance Originations (billions)
Source: July MBA, Fannie Mae and Freddie Mac
Title and Closing
+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)
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
$66.4 $71.8 (7%) Canada Appraisal and Ancillary $6.5 $6.2 5% Other 0.9 0.9
$7.4 $7.1 4%
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to its high correlation to refinance related volumes.
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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accounted for as equity investees.
closing service line and transition of certain title and closing service offerings to a network management model.
company costs – remainder of the opex increase driven by investment to support our growth.
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
5,316 5,198 Interest expense 156 254 Interest income (106)
(642) (3,741) (Gain) loss on fair value of warrants (767) 4,505 Re-measurement gain on previously held equity method investment (499)
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
Management typically calculates Adjusted EBITDA as follows:
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2017 2016 Net loss (5,389) $ (2,285) $ Stock-based compensation expense 284
(7) 421 Integration expenses 50
5,316 5,198 Interest expense 156 254 Interest income (106)
(642) (3,741) (Gain) loss on fair value of warrants (767) 4,505 Re-measurement gain on previously held equity method investment (499)
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
2,391 $ 5,495 $ Three months ended December 31
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2017 2016 Net loss (5,389) $ (2,285) $ Stock-based compensation expense 284
(7) 421 Integration expenses 50
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)
(1,371) (1,818) Impact of the statutory income tax rate change (U.S. tax reform) 4,707
1,256 $ 1,896 $ Weighted average number of shares
92,084 82,760 Adjusted Net Income per weighted average share, diluted 0.01 $ 0.02 $ Three months ended December 31