Real Matters, Inc. · TSX:REAL
Real Matters — Investor Day (November 2020)
56 slides from Real Matters's investor day presentation, Nov 23, 2020
Slide 1: Investor Day
Investor Day November 23, 2020 All currencies are in $USD unless otherwise stated 1
Slide 2: Cautionary Note Regarding Forward-Looking Information
Cautionary Note Regarding Forward-Looking Information This presentation contains “forward-looking information” within the meaning of applicable Canadian securities laws. Words such as “aim”, “could”, “forecast”, “target”, “may”, “might”, “will”, “would”, “expect”, “anticipate”, “estimate”, “intend”,
Slide 3: Opening Remarks
Opening Remarks Jason Smith Executive Chairman 3
Slide 4: Key Investment Highlights
Key Investment Highlights • Significant runway for growth in core organic business • Strong market tailwind and multiyear opportunity to accelerate share growth • Continued margin expansion opportunities driven by scale • Data monetization opportunity will expand and diversify our long-term growth p
Slide 5: Strong Financial Performance in F2020
Strong Financial Fiscal 2020 Performance in F2020 (in millions of US$) 35.6% +58.8% YoY Net Revenue1 Growth 44.6% $162.1 +149.3% $72.2 YoY Adj. EBITDA1 Growth Net Revenue1 and Adjusted EBITDA and 1 Net Revenue1 Margin Adjusted EBITDA Margin 1 5 1. Net Revenue and Adjusted EBITDA are non-GAAP measure
Slide 6: Delivering on our Targets
Delivering on our Targets F2016 Actual F2021 Target F2020 Actual set at IPO Consolidated Net Revenue1 Margins 27.5% 35-40% 35.6% Achieved Consolidated Adj. EBITDA1 Margins 18.8% 25-30% 44.6% Surpassed U.S. Appraisal Market Share 4.8% 15-20% 11.7% ── U.S. Title Market Share 0.2% 1-3% 2.4% Achieved 6
Slide 7: Our Commitment to Shareholders
Our Commitment to Shareholders Our Core Principles • Create long-term value • Attract and retain strategic clients • Consistently outperform competitors • Grow market share 7
Slide 8: Building a Strong Growth Company for the Long Term
Building a Strong Growth Company for the Long Term Deployment of Data Strategy and 1st Tier 1 1st Canadian 1st U.S. Real Matters Lender in U.S. Title Appraisal Appraisal 1st Tier 2 Lender 1st Tier 1 Lender Entry founded Transaction Transaction in U.S. Appraisal in U.S. Appraisal into Title IPO 2004
Slide 9: 5 YR Strategic Roadmap
5 YR Strategic Roadmap Brian Lang Chief Executive Officer 9
Slide 10: Real Matters: 5YR Strategic Roadmap
Real Matters: 5YR Strategic Roadmap Build Expand Diversify Leadership Position in U.S. Appraisal Market Share in U.S. Title Through Property Data Monetization • Leverage performance • Leveraging existing U.S. • Unique data assets track record to drive Appraisal client relationships increased market
Slide 11: U.S. Housing Market: One of the Largest Asset Classes in the World
U.S. Housing Market: One of the Largest Asset Classes in the World U.S. Mortgage Originations ($B) $4,500 12.0% $4,000 10.0% $3,500 $3,000 8.0% Purchase market has historically $2,500 grown in line with GDP 6.0% $2,000 $1,500 4.0% Refinance market driven in large part by interest rates $1,000 2.0% $
Slide 12: Significant Refinance Growth Cycle: Next 2-3 Years
Significant Refinance Growth Cycle: Next 2-3 Years Number of Refinance Candidates Under Different 30YR 20.0 Fixed Rate Scenarios (in millions) 18.5 16.8 14.7 12.2 Record historical low interest rates 10.7 9.3 7.7 6.4 U.S. homeowners have record levels of 5.4 4.6 3.8 equity in their homes 3.0 2.6 2.4
Slide 13: Conservative View on Total Addressable Market
Conservative View on Total Addressable Market Refinance volumes predicted to surge over next 2-3 years U.S. Lender Spend U.S. Lender Spend Origination Appraisal ($B) Refinance Title ($B) $7.0 $10.0 $6.0 $8.0 $5.0 $4.0 $4B $6.0 $3.0 $4.0 $2.0 $1.0 $2.0 $2B $- $- F2020 F2021E F2022E F2023E F2024E F202
Slide 14: U.S. Appraisal New 5 Year Targets
U.S. Appraisal How our Platform Scales Increasing Returns Per Unit (illustrative) New 5 Year Targets $540 $540 Objectives & Target Operating Model KPI F20 Actual F25 Targets $389 Purchase Market Share 4.6% 7-9% $411 lower transaction costs from Refinance Market Share 9.3% 17-19% network effect Net R
Slide 15: U.S. Title New 5 Year Targets
U.S. Title How our Platform Scales Increasing Returns Per Unit (illustrative) New 5 Year Targets $925 $925 Objectives & Target Operating Model $341 $324 KPI F20 Actual F2025 Target lower transaction costs from network effect Refinance Market Share 2.1% 6-8% Net Revenue1 Margin 63.1% 60-65% $601 Adj.
Slide 16: Data Opportunity Significantly Expands our Total Addressable Market
Data Opportunity Significantly Expands our Total Addressable Market U.S. U.S. Title U.S. Title $81B Appraisal1 Refinance1 Purchase Data Total Addressable Market $4B $2B $5B $70B $11B Cumulative TAM $4B $6B $11B $81B $6B Addressable market expected to surge to $9-15B for next 2-3 years 16 Source: Man
Slide 17: Unique Opportunity to Leverage Data Assets and Capabilities
Unique Opportunity to Leverage Data Assets and Capabilities to Drive Growth in New Markets Building on our Data Capabilities Data analytics Leveraging property data to drive better Real Matters Network performance for mortgage lenders Operating Management System Leveraging property insights to add P
Slide 18: Network Management
Network Management Steve Lockington Executive Vice President 18
Slide 19: Our Core Competency: Network Management
Our Core Competency: Network Management Increased Market Share High-Performing Field Professionals Better Performance • Real-time data and analytics • Faster turnaround time • Local network-based ecosystems • Lower defect rate • Competition through transparency • Consistent performance • Better outl
Slide 20: 5YR Program Roadmap
5YR Program Roadmap NEAR TERM MEDIUM TERM LONG TERM • Alignment of best practices • Deeper understanding of • Region design aligned to across network programs network performance maximize network competition • Continued Tier 1 evolution • Efficiency / scale of • Field professional data operations co
Slide 21: Market Share Expansion
Market Share Expansion Loren Cooke Executive Vice President 21
Slide 22: U.S. Appraisal Client Segmentation
U.S. Appraisal Client Segmentation Focusing on Origination Top 100 Originators Represented >80% of U.S. Appraisal Spend in 2020 U.S. Appraisal Origination Lender Spend 5YR Normalized Market ($B)1 2020 U.S. Lender Appraisal Spend 30-35% $4.0 25-30% 20-25% 15-20% $0.6 Tier 1 Tier 2 Tier 3 Tier 4 Large
Slide 23: U.S. Appraisal Market Share Objectives
U.S. Appraisal Market Share Objectives U.S. Purchase Market Units (millions) 4.6-6.9 4.0-6.0 4.3-6.4 3.5-5.3 3.8-5.7 F2020 4.1 3.9 4.6% F2025 PURCHASE 7-9% F2019 F2020 F2021E F2022E F2023E F2024E F2025E PURCHASE U.S. Refinance Market Units (millions) 4.4-6.5 3.0-4.5 2.7-4.1 F2020 9.3% 1.5-2.3 1.6-2.
Slide 24: U.S. Appraisal: Extending our Leadership Position
U.S. Appraisal Extending our Leadership Position Existing Client Market Share Growth Continued runway for growth with Tier 1 lenders Performance and scale will drive allocations – ability to outperform in high volume environment expected to be a key competitive advantage for us Channel expansion New
Slide 25: U.S. Title Client Segmentation
U.S. Title Client Segmentation Focusing on Refinance Top 100 Originators Represented >80% of Refinance U.S. Title Spend in 2020 U.S. Title Origination Lender Spend 2020 Refinance U.S. Title Lender Spend 5YR Normalized Market ($B)1 30-32% 28-30% $5.0 22-25% 3% $2.0 15-18% Tier 1 Tier 2 Tier 3 Tier 4
Slide 26: U.S. Title Market Share Objective
U.S. Title U.S. Mortgage Market Units U.S. Refinance Market Units Market Share Objective (millions) 6.7-10.0 6.4-9.6 4.0-6.0 F2020 5.7 2.2-3.3 2.2-3.3 2.1% F2025 REFINANCE 6-8% 2.1 REFINANCE F2019 F2020 F2021E F2022E F2023E F2024E F2025E 26 Source: Management estimates
Slide 27: U.S. Title: Land and Expand the Client Base
U.S. Title Land and Expand the Client Base Tier 1 Lenders Represent 50% of our F2025 Objective Objective can be achieved with no more than 35% share with any one Tier 1 lender Targeting 25+ other Top 100 lenders Market Conditions Providing Catalyst for Accelerated Adoption Unique market conditions h
Slide 28: U.S. Purchase Title Market: 4-5 Million Transactions/YR
U.S. Purchase Title Market: 4-5 Million Transactions/YR Lender U.S. Title Spend “…really bullish on purchase market as a result “About 2 in 5 (39%) Americans — Purchase of more [housing] inventory, improving job a whopping 99.3 million of them Purchase market, relatively low interest rates and a — p
Slide 29: Purchase Market Dynamics are Shifting
Purchase Market Dynamics are Shifting – Lenders are Engaging with Consumers Earlier in the Buying Process “Customers, in the new category “…73% of home buyers are thinking “…as we integrate these services mode, expect control, delight and financing first..” more closely over time, we believe simplic
Slide 30: U.S. Title: Purchase Channel Expansion in 2022+
U.S. Title: Purchase Channel Expansion in 2022+ Accelerate adoption of Top 100 lenders in centralized refinance 2020 Partnership discussions 2021 Deploy lenders on new centralized purchase platform 2022 2023 2024 An exceptional closing experience is critical when a consumer purchases a home 65%+ 80%
Slide 31: U.S. Appraisal Operations
U.S. Appraisal Operations Andrew Bough Executive Vice President 31
Slide 32: Maintaining our Performance Advantage
Maintaining our The Solidifi Difference Performance Advantage 97% How we win share 97% Consumer Satisfaction Rating Performance Solidifi outperforms competitors in several Scale aspects of the appraisal experience, Outlier Management including satisfaction. 32 Source: Solidifi Consumer Mortgage Surv
Slide 33: Increasing Engagement with our Network
Increasing Engagement with our Network 33 33
Slide 34: Network Optimization Will Continue to Drive Profitability Through F2025
U.S. Appraisal Network Optimization Will Continue to Drive Profitability Through F2025 • Investment in technology in F2021-2023 expected to yield a 20% reduction in cost to serve by F2025 • Maximizing volume to top performers drives local market competition and sustainable performance Operational ex
Slide 35: U.S. Title Operations
U.S. Title Operations Kim Montgomery Executive Vice President 35
Slide 36: Investing in our Platform to Drive Better Performance
Investing in our Platform to Drive Better Performance SEARCH TITLE CLEARANCE CLOSING ESCROW Network Management Technology Solutions Network Management Technology Solutions Abstractors Closing Agents Leverage technology to accelerate Improved field search process and increase automation professional
Slide 37: Title and Close Network Optimization – Solidifi eClose Connect
Title and Close Network Optimization – Solidifi eClose Connect Designed for flexibility, while providing an exceptional consumer closing experience 37
Slide 38: Celebrating Extraordinary
CELEBRATING EXTRAORDINARY
Slide 39: 2020 Consumer Mortgage Survey
2020 Consumer Mortgage Survey 39
Slide 40: Data Strategy
Data Strategy Brian Lang Chief Executive Officer 40
Slide 41: Our Data Assets by the Numbers
Our Data Assets by the Numbers Unique Interior Properties 35K 415K 1.5M Inspected Per month Less than 1 year old Less than 5 years old Unique Comparable 150K 1.8M 7.5M Per month Less than 1 year old Less than 5 years old Properties 41
Slide 42: Data Collection
Data Collection Fireplace Roof Landscaping Heating and A/C 42
Slide 43: Enhancing the Home Ownership Journey
Enhancing the Home Ownership Journey “We assumed every house in Southern “I knew my furnace was going to need California had air conditioning. That to be replaced sooner than later when first summer after we bought our I bought my house 3 years ago. Time home sure would have been flies.” unpleasant
Slide 44: Use Case Example
Use Case Example Heating and Air Conditioning Data • Unique because condition is validated • Replacement cycle is known • Cannot be found in other databases Multiple Strategies B2B B2B2C B2C Buyer Carrier/Lennox HVAC providers Homeowner Potential subscription Business based $/lead $/closed lead Mode
Slide 45: Home Based Spending – Market Sizing
Home Based Spending – Market Sizing Purchase Driven Services Repairs and Improvement Ongoing Services Listing Driven Services Insurance Room renovations Insurance renewal Repair/staging Internet/cable/security Heating and cooling Heating and cooling Cleaning/landscaping Move and storage services Win
Slide 46: Establish a Beachhead Through Acquisition
Establish a Beachhead Search Through Acquisition 2021 2022 Market & Business Model • Large, growing market • Diversified from mortgage cycle Acquire/Integrate • Leverages our assets • Ability to expand TAM 2023 2024 Target Profile • Revenue of $50M+ Monetize • Growing @ 20%+ • Adjusted EBITDA1 margi
Slide 47: Financial Overview
Financial Overview Bill Herman Chief Financial Officer 47
Slide 48: Refining our Market Share Calculation
Refining our Market Share Calculation U.S. Appraisal (‘000 units) 2020 (‘000 units) 2020 Purchase Market Volumes 4,544 Refinance Market Volumes 5,694 Waivers and Waivers and (13%) (46%) Veterans Affairs Impact Veterans Affairs Impact Addressable Purchase Market Volumes 3,941 Addressable Refinance Ma
Slide 49: Refining our Market Share Calculation
Excludes home equity, default volumes and Refining our Market Share Calculation non-addressable volumes U.S. Title (‘000 units) 2020 Refinance Market Volumes 5,694 Transitioning to refinance only Waivers and Veterans Affairs Impact NA calculation for U.S. Title market Addressable Refinance Market Vo
Slide 50: U.S. Appraisal: Path to F2025
U.S. Appraisal: Path to F2025 Targeting Purchase Market Share of 7-9% & Refinance Market Share of 17-19% U.S. Appraisal Net Revenue1 U.S. Appraisal Adjusted EBITDA1 in millions of US$ in millions of US$ $100.0 23.8% $90.0 F2025 25.0% F2025 20.6% 59.3% 70.0% $80.0 26-28% 20.0% $80.0 65-70% 60.0% $70.
Slide 51: U.S. Title: Path to F2025
U.S. Title: Path to F2025 Targeting Refinance Market Share of 6-8% U.S. Title Net Revenue1 U.S. Title Adjusted EBITDA1 in millions of US$ in millions of US$ $90.0 60.0% 63.1% 49.3% 60.0% F2025 $80.0 F2025 50.0% $150.0 60.0% 60-65% $70.0 50-55% $130.0 40.0% 50.0% $60.0 $110.0 $89.8 40.0% $50.0 $44.3
Slide 52: Corporate Operating Expenses
18% $25.0 9% $20.0 F2025 2 7% $14.6 $15.0 $15.0 Corporate Operating Expenses $10.0 Increasing Operating Leverage $5.0 $- F2018 F2020 Corporate Operating Expenses % of Net Revenue 1 (in millions of US$) 52 1. Net Revenue is a non-GAAP measure. See slide 2. 2. Net of stock-based compensation
Slide 53: Strong Free Cash Flow Conversion
$110 100% 87% 90% $90 80% $72.2 F2025 Strong Free Cash 70% $70 70-75% 60% 48% Flow Conversion1 $50 50% 40% Cash taxes will reduce Free Cash $30 30% Flow conversion1 through F2025 $10 $5.8 20% 10% -$10 F2018 F2020 0% Adjusted EBITDA 1 Free Cash Flow Conversion 1 53 1. Free Cash Flow, Free Cash Flow c
Slide 54: Capital Structure and Liquidity
Capital Structure and Liquidity Target Capital Structure • Maintain strong balance sheet Strong liquidity position • Target leverage ratio of no more than 1-1.5X • Long-term Free Cash Flow1 conversion of 70%+ post data acquisition • $129M of cash on balance sheet • Evaluate U.S. cross listing • $40M
Slide 55: Balancing Growth and Profitability to Create Lasting Value
Median Revenue 70% Growth Rightmove Balancing Growth 60% Scout24 MSCI Moody's Real Matters F2020 Adj. EBITDA Margin (%) and Profitability to Black Knight Verisk 50% Computer Modelling Group Create Lasting Value IHS Markit Descartes 40% SS&C Intuit Fidelity National Info Serv Fair Isaac Equifax RE/MA
Slide 56: Key Investment Highlights
Key Investment Highlights • Significant runway for growth in core organic business • Strong market tailwind and multiyear opportunity to accelerate share growth • Continued margin expansion opportunities driven by scale • Data monetization opportunity will expand and diversify our long-term growth p