Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Consolidated revenues increased 17% sequentially to $49.5 million due to growth in all three segments.
- Positive consolidated adjusted EBITDA of $1.7 million in Q3, driven by strong operating leverage in U.S. Appraisal and Canadian segments.
- U.S. Appraisal mortgage origination revenues were up 15% quarter over quarter due to seasonal purchase transactions.
- Canadian revenues were up 30% quarter over quarter, with near-record net revenue margins of 19%.
- Strong balance sheet with no debt and cash of $41.4 million as of June 30th, 2024.
Negative Points
- U.S. mortgage market conditions remain well below pre-pandemic norms, impacting overall volumes.
- U.S. Title segment posted an adjusted EBITDA loss of $1.9 million, compared to a loss of $1.7 million in the previous quarter.
- Net revenue margins in the U.S. Title segment decreased to 43.6% from 45.2% due to a change in revenue mix.
- Consolidated operating expenses increased 11% year over year to $11.9 million in the third quarter.
- Cash position decreased in the third quarter due to the timing of collections, with a significant client payment received just after quarter-end.
Q & A Highlights
Q: Can you discuss the market share gains in the appraisal segment and whether these gains will continue into Q4?
A: (Brian Lang, CEO) We had strong market share wins with four of our top customers. Some of these gains were realized within Q3, and we expect to see the benefits continue into Q4 and beyond.
Q: How many Tier 1 clients do you need to achieve your target model for the title segment?
A: (Brian Lang, CEO) We based our target model on having a handful of top Tier 1 clients, similar to our appraisal business. We expect to onboard more Tier 1 clients over time to meet our targets.
Q: Can you provide an update on the centralization of title orders within banks?
A: (Brian Lang, CEO) There is a focus on centralizing purchase title orders, especially for underserved communities. We are involved in a pilot program aimed at centralizing these orders, which aligns with our long-term strategy.
Q: What is the current capacity in your appraisal and title systems?
A: (Rodrigo Pinto, CFO) We have 30-40% capacity in our appraisal system and three to four times the current volume capacity in our title system.
Q: Why didn't you include corporate costs in the EBITDA numbers of your target operating model?
A: (Brian Lang, CEO) The target operating model focuses on the main drivers of long-term EBITDA, which are U.S. Appraisal and U.S. Title. Corporate costs would be incremental if calculating consolidated adjusted EBITDA.
Q: How do you see the waiver dynamic evolving in the next mortgage cycle?
A: (Brian Lang, CEO) The waiver rates last cycle increased due to overwhelming volume. If the market builds slowly, waiver increments might be minimal. However, a significant market spike could lead to higher waiver rates.
Q: How will HELOC-driven revenue be affected as interest rates come down?
A: (Rodrigo Pinto, CFO) HELOC volumes are more influenced by home equity rather than interest rates. House price appreciation will impact volumes more than interest rate changes.
Q: Are Tier 1 customers in the appraisal segment becoming more aggressive in the current market?
A: (Brian Lang, CEO) Tier 1 customers had a strong Q3, showing progress in reclaiming market share. We hope this trend continues in the upcoming quarters.
Q: Can you comment on the competitive environment, particularly with non-bank lenders like United Wholesale?
A: (Brian Lang, CEO) Non-bank lenders have gained market share due to price sensitivity in the current market. We expect Tier 1 banks to regain some of this share over the next few quarters.
Q: What are your strategic initiatives to leverage AI and cloud technologies?
A: (Brian Lang, CEO) We have moved our U.S. Appraisal and Title businesses to the cloud, enabling us to leverage AI capabilities from providers like Google and Microsoft. This will enhance our operations and data strategies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
