2018 Annual Report
Summary Financial Information
(US$ millions)
FY 2018
FY 2017
FY 2016
FY 2018
FY 2017
FY 2016
Revenues
$281.5
$303.0
$248.5
Net Revenue1
$82.8
$92.3
$68.3
Net Loss
$(4.0)
$(23.8)
$(6.1)
Adjusted EBITDA1
$5.8
$9.4
$12.8
Adjusted Net Income1
$6.7
$2.8
$6.0
Fiscal 2018 Segmented Results
(US$ millions)
66%
Revenues
$281.5
23%
11%
47%
30%
Net Revenue1
$82.8
47%
6%
Adjusted EBITDA1
$5.8
57%
13%
U.S. Appraisal
U.S. Title
Canada
About Real Matters
Real Matters is a leading network management services provider for the mortgage lending and insurance industries. Real
Matters’ platform combines its proprietary technology and network management capabilities with tens of thousands of
independent qualified field professionals to create an efficient marketplace for the provision of mortgage lending and
insurance industry services. Our clients include approximately 60 of the top 100 mortgage lenders in the U.S. and some
of the largest insurance companies in North America. We are a leading independent provider of residential real estate
appraisals to the mortgage market and a leading independent provider of title and mortgage closing services in the U.S.
Established in 2004, Real Matters has offices in Buffalo (NY), Denver (CO), Middletown (RI), and Markham (ON). Real
Matters is listed on the Toronto Stock Exchange under the symbol REAL. For more information, visit www.realmatters.com.
1. Net Revenue, Adjusted EBITDA and Adjusted Net Income are Non-GAAP measures. See page 20 of this Annual Report.
This Annual Report should be read in conjunction with the “Cautionary Note Regarding Forward-Looking Information” set forth on page 42 of this Annual Report.
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(cid:100)(cid:349)(cid:286)(cid:396)(cid:3)(cid:1005)(cid:3)(cid:367)(cid:286)(cid:374)(cid:282)(cid:286)(cid:396)(cid:400)(cid:856)(cid:3)(cid:116)(cid:286)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:367)(cid:349)(cid:448)(cid:286)(cid:3)(cid:349)(cid:374)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:381)(cid:396)(cid:349)(cid:336)(cid:349)(cid:374)(cid:258)(cid:415)(cid:381)(cid:374)(cid:3)(cid:272)(cid:346)(cid:258)(cid:374)(cid:374)(cid:286)(cid:367)(cid:3)(cid:449)(cid:349)(cid:410)(cid:346)(cid:3)(cid:296)(cid:381)(cid:437)(cid:396)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:400)(cid:286)(cid:3)(cid:100)(cid:349)(cid:286)(cid:396)(cid:3)(cid:1005)(cid:3)(cid:367)(cid:286)(cid:374)(cid:282)(cid:286)(cid:396)(cid:400)(cid:853)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:302)(cid:332)(cid:346)(cid:3)(cid:349)(cid:400)(cid:3)(cid:381)(cid:374)(cid:3)(cid:410)(cid:396)(cid:258)(cid:272)(cid:364)(cid:3)(cid:410)(cid:381)(cid:3)
(cid:271)(cid:286)(cid:3)(cid:367)(cid:349)(cid:448)(cid:286)(cid:3)(cid:349)(cid:374)(cid:3)(cid:286)(cid:258)(cid:396)(cid:367)(cid:455)(cid:3)(cid:1006)(cid:1004)(cid:1005)(cid:1013)(cid:856)(cid:3)(cid:116)(cid:286)(cid:3)(cid:271)(cid:286)(cid:367)(cid:349)(cid:286)(cid:448)(cid:286)(cid:3)(cid:410)(cid:346)(cid:258)(cid:410)(cid:3)(cid:272)(cid:367)(cid:349)(cid:286)(cid:374)(cid:410)(cid:400)(cid:3)(cid:449)(cid:258)(cid:374)(cid:410)(cid:3)(cid:296)(cid:286)(cid:449)(cid:286)(cid:396)(cid:3)(cid:448)(cid:286)(cid:374)(cid:282)(cid:381)(cid:396)(cid:400)(cid:3)(cid:381)(cid:299)(cid:286)(cid:396)(cid:349)(cid:374)(cid:336)(cid:3)(cid:373)(cid:381)(cid:396)(cid:286)(cid:3)(cid:400)(cid:286)(cid:396)(cid:448)(cid:349)(cid:272)(cid:286)(cid:400)(cid:3)(cid:449)(cid:349)(cid:410)(cid:346)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:272)(cid:258)(cid:393)(cid:258)(cid:271)(cid:349)(cid:367)(cid:349)(cid:410)(cid:455)(cid:3)(cid:410)(cid:381)(cid:3)
(cid:381)(cid:393)(cid:286)(cid:396)(cid:258)(cid:410)(cid:286)(cid:3)(cid:374)(cid:258)(cid:415)(cid:381)(cid:374)(cid:449)(cid:349)(cid:282)(cid:286)(cid:856)(cid:3)(cid:4)(cid:374)(cid:282)(cid:853)(cid:3)(cid:449)(cid:286)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:258)(cid:410)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:410)(cid:381)(cid:393)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:448)(cid:286)(cid:374)(cid:282)(cid:381)(cid:396)(cid:3)(cid:393)(cid:286)(cid:396)(cid:296)(cid:381)(cid:396)(cid:373)(cid:258)(cid:374)(cid:272)(cid:286)(cid:3)(cid:396)(cid:258)(cid:374)(cid:364)(cid:349)(cid:374)(cid:336)(cid:400)(cid:853)(cid:3)(cid:449)(cid:346)(cid:349)(cid:272)(cid:346)(cid:3)(cid:282)(cid:396)(cid:349)(cid:448)(cid:286)(cid:3)(cid:258)(cid:367)(cid:367)(cid:381)(cid:272)(cid:258)(cid:415)(cid:381)(cid:374)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:374)(cid:286)(cid:449)(cid:3)
(cid:381)(cid:393)(cid:393)(cid:381)(cid:396)(cid:410)(cid:437)(cid:374)(cid:349)(cid:415)(cid:286)(cid:400)(cid:856)(cid:3)(cid:75)(cid:437)(cid:396)(cid:3)(cid:393)(cid:396)(cid:349)(cid:374)(cid:272)(cid:349)(cid:393)(cid:258)(cid:367)(cid:3)(cid:381)(cid:271)(cid:361)(cid:286)(cid:272)(cid:415)(cid:448)(cid:286)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:4)(cid:393)(cid:393)(cid:396)(cid:258)(cid:349)(cid:400)(cid:258)(cid:367)(cid:3)(cid:349)(cid:400)(cid:3)(cid:410)(cid:381)(cid:3)(cid:349)(cid:374)(cid:272)(cid:396)(cid:286)(cid:258)(cid:400)(cid:286)(cid:3)(cid:373)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:400)(cid:346)(cid:258)(cid:396)(cid:286)(cid:3)(cid:410)(cid:381)(cid:3)(cid:1005)(cid:1009)(cid:882)(cid:1006)(cid:1004)(cid:1081)(cid:3)(cid:271)(cid:455)(cid:3)(cid:302)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)(cid:1006)(cid:1004)(cid:1006)(cid:1005)(cid:856)
(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:4)(cid:393)(cid:393)(cid:396)(cid:258)(cid:349)(cid:400)(cid:258)(cid:367)(cid:855)(cid:3)(cid:100)(cid:258)(cid:396)(cid:336)(cid:286)(cid:415)(cid:374)(cid:336)(cid:3)(cid:1005)(cid:1009)(cid:882)(cid:1006)(cid:1004)(cid:1081)(cid:3)(cid:68)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:94)(cid:346)(cid:258)(cid:396)(cid:286)
7.7%
9.0%
15-20%
5.9%
F2016
F2017
F2018
F2021
(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:4)(cid:393)(cid:393)(cid:396)(cid:258)(cid:349)(cid:400)(cid:258)(cid:367)(cid:3)(cid:100)(cid:396)(cid:258)(cid:374)(cid:400)(cid:258)(cid:272)(cid:415)(cid:381)(cid:374)(cid:3)(cid:115)(cid:381)(cid:367)(cid:437)(cid:373)(cid:286)
(cid:1005)(cid:856)(cid:3)(cid:69)(cid:286)(cid:410)(cid:3)(cid:90)(cid:286)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:4)(cid:282)(cid:361)(cid:437)(cid:400)(cid:410)(cid:286)(cid:282)(cid:3)(cid:28)(cid:17)(cid:47)(cid:100)(cid:24)(cid:4)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:69)(cid:381)(cid:374)(cid:882)(cid:39)(cid:4)(cid:4)(cid:87)(cid:3)(cid:373)(cid:286)(cid:258)(cid:400)(cid:437)(cid:396)(cid:286)(cid:400)(cid:856)(cid:3)(cid:94)(cid:286)(cid:286)(cid:3)(cid:393)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1004)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:349)(cid:400)(cid:3)(cid:4)(cid:374)(cid:374)(cid:437)(cid:258)(cid:367)(cid:3)(cid:90)(cid:286)(cid:393)(cid:381)(cid:396)(cid:410)(cid:856)
11
(cid:116)(cid:286)(cid:3)(cid:286)(cid:374)(cid:282)(cid:286)(cid:282)(cid:3)(cid:302)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)(cid:1006)(cid:1004)(cid:1005)(cid:1012)(cid:3)(cid:449)(cid:349)(cid:410)(cid:346)(cid:3)(cid:1004)(cid:856)(cid:1010)(cid:1081)(cid:3)(cid:373)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:400)(cid:346)(cid:258)(cid:396)(cid:286)(cid:3)(cid:349)(cid:374)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:100)(cid:349)(cid:410)(cid:367)(cid:286)(cid:3)(cid:400)(cid:286)(cid:336)(cid:373)(cid:286)(cid:374)(cid:410)(cid:853)(cid:3)(cid:282)(cid:381)(cid:449)(cid:374)(cid:3)(cid:296)(cid:396)(cid:381)(cid:373)(cid:3)(cid:1004)(cid:856)(cid:1011)(cid:1081)(cid:3)(cid:349)(cid:374)(cid:3)(cid:302)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)(cid:1006)(cid:1004)(cid:1005)(cid:1011)(cid:856)(cid:3)(cid:39)(cid:349)(cid:448)(cid:286)(cid:374)(cid:3)
(cid:410)(cid:346)(cid:258)(cid:410)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:271)(cid:437)(cid:400)(cid:349)(cid:374)(cid:286)(cid:400)(cid:400)(cid:3)(cid:393)(cid:396)(cid:349)(cid:374)(cid:272)(cid:349)(cid:393)(cid:258)(cid:367)(cid:367)(cid:455)(cid:3)(cid:400)(cid:286)(cid:396)(cid:448)(cid:349)(cid:272)(cid:286)(cid:400)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:373)(cid:381)(cid:396)(cid:410)(cid:336)(cid:258)(cid:336)(cid:286)(cid:3)(cid:396)(cid:286)(cid:302)(cid:374)(cid:258)(cid:374)(cid:272)(cid:286)(cid:3)(cid:400)(cid:286)(cid:336)(cid:373)(cid:286)(cid:374)(cid:410)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:373)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:410)(cid:381)(cid:282)(cid:258)(cid:455)(cid:853)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:400)(cid:346)(cid:258)(cid:396)(cid:393)(cid:3)(cid:282)(cid:286)(cid:272)(cid:367)(cid:349)(cid:374)(cid:286)(cid:3)
(cid:349)(cid:374)(cid:3)(cid:396)(cid:258)(cid:410)(cid:286)(cid:3)(cid:396)(cid:286)(cid:302)(cid:374)(cid:258)(cid:374)(cid:272)(cid:286)(cid:3)(cid:410)(cid:396)(cid:258)(cid:374)(cid:400)(cid:258)(cid:272)(cid:415)(cid:381)(cid:374)(cid:3)(cid:448)(cid:381)(cid:367)(cid:437)(cid:373)(cid:286)(cid:400)(cid:3)(cid:381)(cid:448)(cid:286)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:367)(cid:258)(cid:400)(cid:410)(cid:3)(cid:455)(cid:286)(cid:258)(cid:396)(cid:3)(cid:373)(cid:258)(cid:282)(cid:286)(cid:3)(cid:349)(cid:410)(cid:3)(cid:258)(cid:3)(cid:448)(cid:286)(cid:396)(cid:455)(cid:3)(cid:272)(cid:346)(cid:258)(cid:367)(cid:367)(cid:286)(cid:374)(cid:336)(cid:349)(cid:374)(cid:336)(cid:3)(cid:455)(cid:286)(cid:258)(cid:396)(cid:3)(cid:410)(cid:381)(cid:3)(cid:336)(cid:396)(cid:381)(cid:449)(cid:856)(cid:3)(cid:116)(cid:286)(cid:3)(cid:396)(cid:286)(cid:393)(cid:381)(cid:396)(cid:410)(cid:286)(cid:282)(cid:3)(cid:258)
(cid:373)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:258)(cid:282)(cid:361)(cid:437)(cid:400)(cid:410)(cid:286)(cid:282)(cid:3)(cid:396)(cid:286)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)(cid:3)(cid:282)(cid:286)(cid:272)(cid:367)(cid:349)(cid:374)(cid:286)(cid:3)(cid:381)(cid:296)(cid:3)(cid:1005)(cid:1009)(cid:1081)(cid:3)(cid:349)(cid:374)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:100)(cid:349)(cid:410)(cid:367)(cid:286)(cid:3)(cid:400)(cid:286)(cid:336)(cid:373)(cid:286)(cid:374)(cid:410)(cid:3)(cid:349)(cid:374)(cid:3)(cid:302)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)(cid:1006)(cid:1004)(cid:1005)(cid:1012)(cid:856)
(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:100)(cid:349)(cid:410)(cid:367)(cid:286)(cid:855)(cid:3)(cid:100)(cid:258)(cid:396)(cid:336)(cid:286)(cid:415)(cid:374)(cid:336)(cid:3)(cid:1005)(cid:882)(cid:1007)(cid:1081)(cid:3)(cid:68)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:94)(cid:346)(cid:258)(cid:396)(cid:286)
0.6%
0.7%
0.6%
1-3%
F2016
F2017
F2018
F2021
(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:100)(cid:349)(cid:410)(cid:367)(cid:286)(cid:3)(cid:100)(cid:396)(cid:258)(cid:374)(cid:400)(cid:258)(cid:272)(cid:415)(cid:381)(cid:374)(cid:3)(cid:115)(cid:381)(cid:367)(cid:437)(cid:373)(cid:286)
(cid:4)(cid:367)(cid:410)(cid:346)(cid:381)(cid:437)(cid:336)(cid:346)(cid:3)(cid:449)(cid:286)(cid:859)(cid:396)(cid:286)(cid:3)(cid:400)(cid:415)(cid:367)(cid:367)(cid:3)(cid:349)(cid:374)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:286)(cid:258)(cid:396)(cid:367)(cid:455)(cid:3)(cid:400)(cid:410)(cid:258)(cid:336)(cid:286)(cid:400)(cid:3)(cid:381)(cid:296)(cid:3)(cid:271)(cid:396)(cid:349)(cid:374)(cid:336)(cid:349)(cid:374)(cid:336)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:374)(cid:286)(cid:410)(cid:449)(cid:381)(cid:396)(cid:364)(cid:3)(cid:373)(cid:258)(cid:374)(cid:258)(cid:336)(cid:286)(cid:373)(cid:286)(cid:374)(cid:410)(cid:3)(cid:272)(cid:258)(cid:393)(cid:258)(cid:271)(cid:349)(cid:367)(cid:349)(cid:415)(cid:286)(cid:400)(cid:3)(cid:410)(cid:381)(cid:3)(cid:410)(cid:346)(cid:349)(cid:400)(cid:3)(cid:271)(cid:437)(cid:400)(cid:349)(cid:374)(cid:286)(cid:400)(cid:400)(cid:853)(cid:3)(cid:449)(cid:286)(cid:3)
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2
(cid:90)(cid:286)(cid:258)(cid:367)(cid:3)(cid:68)(cid:258)(cid:425)(cid:286)(cid:396)(cid:400)(cid:3)(cid:346)(cid:258)(cid:400)(cid:3)(cid:258)(cid:3)(cid:400)(cid:349)(cid:336)(cid:374)(cid:349)(cid:302)(cid:272)(cid:258)(cid:374)(cid:410)(cid:3)(cid:272)(cid:381)(cid:396)(cid:286)(cid:3)(cid:272)(cid:381)(cid:373)(cid:393)(cid:286)(cid:410)(cid:286)(cid:374)(cid:272)(cid:455)(cid:3)(cid:349)(cid:374)(cid:3)(cid:374)(cid:286)(cid:410)(cid:449)(cid:381)(cid:396)(cid:364)(cid:3)(cid:373)(cid:258)(cid:374)(cid:258)(cid:336)(cid:286)(cid:373)(cid:286)(cid:374)(cid:410)(cid:3)(cid:449)(cid:346)(cid:349)(cid:272)(cid:346)(cid:3)(cid:449)(cid:286)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:367)(cid:286)(cid:448)(cid:286)(cid:396)(cid:258)(cid:336)(cid:349)(cid:374)(cid:336)(cid:3)(cid:449)(cid:349)(cid:410)(cid:346)(cid:3)(cid:410)(cid:381)(cid:393)(cid:3)(cid:1005)(cid:1004)(cid:1004)(cid:3)
(cid:367)(cid:286)(cid:374)(cid:282)(cid:286)(cid:396)(cid:400)(cid:3)(cid:410)(cid:381)(cid:3)(cid:336)(cid:396)(cid:381)(cid:449)(cid:3)(cid:373)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:400)(cid:346)(cid:258)(cid:396)(cid:286)(cid:3)(cid:349)(cid:374)(cid:3)(cid:258)(cid:3)(cid:367)(cid:258)(cid:396)(cid:336)(cid:286)(cid:3)(cid:258)(cid:282)(cid:282)(cid:396)(cid:286)(cid:400)(cid:400)(cid:258)(cid:271)(cid:367)(cid:286)(cid:3)(cid:373)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:856)(cid:3)(cid:116)(cid:286)(cid:3)(cid:271)(cid:286)(cid:367)(cid:349)(cid:286)(cid:448)(cid:286)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:393)(cid:367)(cid:258)(cid:414)(cid:381)(cid:396)(cid:373)(cid:3)(cid:393)(cid:396)(cid:381)(cid:448)(cid:349)(cid:282)(cid:286)(cid:400)(cid:3)(cid:400)(cid:349)(cid:336)(cid:374)(cid:349)(cid:302)(cid:272)(cid:258)(cid:374)(cid:410)(cid:3)
(cid:381)(cid:393)(cid:286)(cid:396)(cid:258)(cid:415)(cid:374)(cid:336)(cid:3)(cid:367)(cid:286)(cid:448)(cid:286)(cid:396)(cid:258)(cid:336)(cid:286)(cid:3)(cid:410)(cid:381)(cid:3)(cid:282)(cid:396)(cid:349)(cid:448)(cid:286)(cid:3)(cid:349)(cid:373)(cid:393)(cid:396)(cid:381)(cid:448)(cid:286)(cid:282)(cid:3)(cid:393)(cid:396)(cid:381)(cid:302)(cid:410)(cid:258)(cid:271)(cid:349)(cid:367)(cid:349)(cid:410)(cid:455)(cid:3)(cid:449)(cid:349)(cid:410)(cid:346)(cid:3)(cid:400)(cid:272)(cid:258)(cid:367)(cid:286)(cid:856)
(cid:116)(cid:286)(cid:3)(cid:271)(cid:286)(cid:367)(cid:349)(cid:286)(cid:448)(cid:286)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:272)(cid:381)(cid:373)(cid:271)(cid:349)(cid:374)(cid:258)(cid:415)(cid:381)(cid:374)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:400)(cid:286)(cid:3)(cid:410)(cid:346)(cid:349)(cid:374)(cid:336)(cid:400)(cid:3)(cid:449)(cid:349)(cid:367)(cid:367)(cid:3)(cid:336)(cid:286)(cid:374)(cid:286)(cid:396)(cid:258)(cid:410)(cid:286)(cid:3)(cid:349)(cid:374)(cid:272)(cid:396)(cid:286)(cid:258)(cid:400)(cid:349)(cid:374)(cid:336)(cid:3)(cid:400)(cid:346)(cid:258)(cid:396)(cid:286)(cid:346)(cid:381)(cid:367)(cid:282)(cid:286)(cid:396)(cid:3)(cid:448)(cid:258)(cid:367)(cid:437)(cid:286)(cid:3)(cid:381)(cid:448)(cid:286)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:367)(cid:381)(cid:374)(cid:336)(cid:3)(cid:410)(cid:286)(cid:396)(cid:373)(cid:856)(cid:3)(cid:116)(cid:286)(cid:3)
(cid:449)(cid:349)(cid:367)(cid:367)(cid:3)(cid:374)(cid:381)(cid:410)(cid:3)(cid:271)(cid:286)(cid:3)(cid:282)(cid:349)(cid:400)(cid:410)(cid:396)(cid:258)(cid:272)(cid:410)(cid:286)(cid:282)(cid:3)(cid:271)(cid:455)(cid:3)(cid:400)(cid:346)(cid:381)(cid:396)(cid:410)(cid:882)(cid:410)(cid:286)(cid:396)(cid:373)(cid:3)(cid:373)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:373)(cid:381)(cid:448)(cid:286)(cid:373)(cid:286)(cid:374)(cid:410)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:449)(cid:349)(cid:367)(cid:367)(cid:3)(cid:272)(cid:381)(cid:374)(cid:415)(cid:374)(cid:437)(cid:286)(cid:3)(cid:410)(cid:381)(cid:3)(cid:282)(cid:381)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:396)(cid:349)(cid:336)(cid:346)(cid:410)(cid:3)(cid:410)(cid:346)(cid:349)(cid:374)(cid:336)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:367)(cid:381)(cid:374)(cid:336)(cid:3)(cid:396)(cid:437)(cid:374)(cid:856)
(cid:116)(cid:286)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:336)(cid:396)(cid:258)(cid:410)(cid:286)(cid:296)(cid:437)(cid:367)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:410)(cid:396)(cid:437)(cid:400)(cid:410)(cid:3)(cid:381)(cid:296)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:272)(cid:367)(cid:349)(cid:286)(cid:374)(cid:410)(cid:400)(cid:853)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:367)(cid:381)(cid:455)(cid:258)(cid:367)(cid:410)(cid:455)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:393)(cid:396)(cid:381)(cid:296)(cid:286)(cid:400)(cid:400)(cid:349)(cid:381)(cid:374)(cid:258)(cid:367)(cid:349)(cid:400)(cid:373)(cid:3)(cid:381)(cid:296)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:302)(cid:286)(cid:367)(cid:282)(cid:3)(cid:393)(cid:396)(cid:381)(cid:296)(cid:286)(cid:400)(cid:400)(cid:349)(cid:381)(cid:374)(cid:258)(cid:367)(cid:400)(cid:853)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)
(cid:272)(cid:381)(cid:373)(cid:373)(cid:349)(cid:410)(cid:373)(cid:286)(cid:374)(cid:410)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:282)(cid:286)(cid:282)(cid:349)(cid:272)(cid:258)(cid:415)(cid:381)(cid:374)(cid:3)(cid:381)(cid:296)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:286)(cid:373)(cid:393)(cid:367)(cid:381)(cid:455)(cid:286)(cid:286)(cid:400)(cid:856)(cid:3)(cid:47)(cid:3)(cid:449)(cid:381)(cid:437)(cid:367)(cid:282)(cid:3)(cid:367)(cid:349)(cid:364)(cid:286)(cid:3)(cid:410)(cid:381)(cid:3)(cid:410)(cid:346)(cid:258)(cid:374)(cid:364)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:17)(cid:381)(cid:258)(cid:396)(cid:282)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:349)(cid:396)(cid:3)(cid:272)(cid:381)(cid:374)(cid:415)(cid:374)(cid:437)(cid:286)(cid:282)(cid:3)(cid:400)(cid:286)(cid:396)(cid:448)(cid:349)(cid:272)(cid:286)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)
(cid:286)(cid:374)(cid:272)(cid:381)(cid:437)(cid:396)(cid:258)(cid:336)(cid:286)(cid:373)(cid:286)(cid:374)(cid:410)(cid:853)(cid:3)(cid:258)(cid:400)(cid:3)(cid:449)(cid:286)(cid:367)(cid:367)(cid:3)(cid:258)(cid:400)(cid:3)(cid:381)(cid:437)(cid:396)(cid:3)(cid:400)(cid:346)(cid:258)(cid:396)(cid:286)(cid:346)(cid:381)(cid:367)(cid:282)(cid:286)(cid:396)(cid:400)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:349)(cid:396)(cid:3)(cid:381)(cid:374)(cid:336)(cid:381)(cid:349)(cid:374)(cid:336)(cid:3)(cid:400)(cid:437)(cid:393)(cid:393)(cid:381)(cid:396)(cid:410)(cid:856)(cid:3)
(cid:68)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:94)(cid:346)(cid:258)(cid:396)(cid:286)(cid:3)(cid:116)(cid:349)(cid:367)(cid:367)(cid:3)(cid:24)(cid:396)(cid:349)(cid:448)(cid:286)(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)(cid:1006)(cid:1004)(cid:1006)(cid:1005)(cid:3)(cid:75)(cid:271)(cid:361)(cid:286)(cid:272)(cid:415)(cid:448)(cid:286)(cid:400)(cid:3)
15-20%
1-3%
(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:4)(cid:393)(cid:393)(cid:396)(cid:258)(cid:349)(cid:400)(cid:258)(cid:367)(cid:3)(cid:68)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:94)(cid:346)(cid:258)(cid:396)(cid:286)
(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:100)(cid:349)(cid:410)(cid:367)(cid:286)(cid:3)(cid:68)(cid:258)(cid:396)(cid:364)(cid:286)(cid:410)(cid:3)(cid:94)(cid:346)(cid:258)(cid:396)(cid:286)
(cid:69)(cid:286)(cid:410)(cid:3)(cid:90)(cid:286)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)1(cid:3)(cid:68)(cid:258)(cid:396)(cid:336)(cid:349)(cid:374)(cid:400)
(cid:4)(cid:282)(cid:361)(cid:437)(cid:400)(cid:410)(cid:286)(cid:282)(cid:3)(cid:28)(cid:17)(cid:47)(cid:100)(cid:24)(cid:4)(cid:1055)(cid:3)(cid:68)(cid:258)(cid:396)(cid:336)(cid:349)(cid:374)(cid:400)
(cid:1005)(cid:856)(cid:3)(cid:69)(cid:286)(cid:410)(cid:3)(cid:90)(cid:286)(cid:448)(cid:286)(cid:374)(cid:437)(cid:286)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:4)(cid:282)(cid:361)(cid:437)(cid:400)(cid:410)(cid:286)(cid:282)(cid:3)(cid:28)(cid:17)(cid:47)(cid:100)(cid:24)(cid:4)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:69)(cid:381)(cid:374)(cid:882)(cid:39)(cid:4)(cid:4)(cid:87)(cid:3)(cid:373)(cid:286)(cid:258)(cid:400)(cid:437)(cid:396)(cid:286)(cid:400)(cid:856)(cid:3)(cid:94)(cid:286)(cid:286)(cid:3)(cid:393)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1004) (cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:349)(cid:400)(cid:3)(cid:4)(cid:374)(cid:374)(cid:437)(cid:258)(cid:367)(cid:3)(cid:90)(cid:286)(cid:393)(cid:381)(cid:396)(cid:410)(cid:856)
35-40%
25-30%
(cid:58)(cid:258)(cid:400)(cid:381)(cid:374)(cid:3)(cid:94)(cid:373)(cid:349)(cid:410)(cid:346)
Founder, President and CEO
(cid:90)(cid:286)(cid:258)(cid:367)(cid:3)(cid:68)(cid:258)(cid:425)(cid:286)(cid:396)(cid:400)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)
3
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
The following Management Discussion and Analysis (“MD&A”) was prepared as of November 27, 2018 and should be read in
conjunction with our consolidated financial statements (“financial statements”), including notes thereto, for the years ended
September 30, 2018 and 2017. All amounts included in this MD&A are reported in thousands of U.S. dollars, unless otherwise stated,
and have been prepared in accordance with International Financial Reporting Standards (“IFRS” or “GAAP”). Throughout this MD&A,
Real Matters Inc. and its subsidiaries are referred to as “Real Matters,” “the Company,” “we,” “our,” or “us”. Additional information
relating to the Company, including the Company’s Annual Information Form for the year ended September 30, 2017, can be found on
SEDAR under the Company’s profile at www.sedar.com.
Corporate Overview
We are a leading network management services provider for the mortgage lending and insurance industries. Our “platform” combines
our proprietary technology and network management capabilities with tens of thousands of independent qualified field professionals
to create an efficient marketplace for the provision of mortgage lending and insurance services. Our platform facilitates competition
between these field professionals, such as residential real estate appraisers, to deliver performance-driven services, which delivers
superior quality, transparency and efficiency to our clients. We built our platform to create a long-term competitive advantage relative
to traditional service providers, who we believe have high-touch, labour intensive and costly operations. We believe that our platform
provides for a highly scalable business model that enables us to deliver services faster, with fewer errors, touch points and at a lower
cost than our competitors.
In the United States of America (“U.S.”), our clients include more than 60 of the top 100 mortgage lenders, including all Tier 1 mortgage
lenders, as defined in the “Glossary” section of this MD&A. We provide approximately one in 11 residential mortgage appraisals in the
U.S. and we estimate we had an approximately 9.0% share of the market for fiscal 2018. We are also a national independent provider
of title and closing services and we estimate we had approximately 0.6% market share in fiscal 2018.
In Canada, our clients include a majority of the largest Canadian chartered banks as well as some of North America’s largest insurance
companies. We provide residential mortgage appraisals to three of the big five banks and we had approximately 18% market share at
the end of fiscal 2018. We provide residential and commercial property insurance inspections to 10 of the top 15 insurance carriers in
Canada and we had approximately 12% market share at the end of fiscal 2018.
Most of our services are subject to multi-year or evergreen Master Service Agreements (“MSAs”). These agreements do not have
minimum unit volume guarantees. Instead, we rely on our ability to outperform our competitors to increase our market share of
transaction volumes with our clients.
We estimated that the total annual market spend for our services was approximately $13 billion in 2018, representing the estimated
annual spend on residential mortgage appraisal services in the U.S. and Canada, title and closing services in the U.S. and insurance
inspection services in Canada.
Headquartered in Markham, Ontario, Real Matters principal offices include Buffalo, New York, Middletown, Rhode Island and Denver,
Colorado. We service the U.S. and Canadian residential mortgage industries through our Solidifi brand, and the Canadian property and
casualty insurance industry through our iv3 brand.
Seasonality and Trends
Residential mortgage origination volumes in North America are a key driver of our financial performance. Our transaction-based
revenues are impacted by the seasonal nature of the residential mortgage industry, which typically sees home buyers purchasing more
homes in our third and fourth fiscal quarters, representing the three months ending June 30 and September 30, respectively.
Residential mortgage origination volumes are also impacted by other factors such as interest rates, refinancing rates, house prices,
housing stock supply and demand, the availability of funds for mortgage loans, credit requirements, regulatory changes, household
indebtedness, employment levels and the general health of the North American economy. Our market share is impacted by the size
of the residential mortgage originations market but also our clients’ relative share of the market. Gains or losses in mortgage
origination market share by our client’s impacts our overall market share.
Strategy and Outlook
Our mission is to be a leading network management services company, globally. Our platform creates a competitive marketplace for
outsourced services that are essential to the underwriting process. Our strategy is to leverage our platform to consistently outperform
our competitors, build on our performance to grow market share with our clients and to attract and retain long-term clients.
5
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
We believe that our strategy will strengthen our competitive position, and generate increased revenues, Net Revenue(A) (see “Non-
GAAP Measures” section of this MD&A) and profitability. This strategy is supported by our continuing focus on a scalable software
development discipline, a commitment to client service and operational excellence in order to create long-term value for our clients
and shareholders.
We take a long-term view to manage and measure the success of our ongoing business strategies. In this regard, our principal focus is
on market share growth. We seek to achieve market share increases irrespective of market conditions for residential mortgage
originations. Market share growth is achieved by onboarding new customers and increasing market share within our existing clients.
The mortgage market is subject to the influence of many factors, such as broader economic conditions, fluctuating interest rates, and
our clients’ share of the market, which are not within our control. Similarly, achieving the Net Revenue(A) target, which is outlined
below, is highly correlated to the volume of purchase versus refinance related mortgage activity. In particular, the volume of mortgage
refinance activity is a principal driver of or U.S. Title (each as hereinafter defined) segment revenues, which garner significantly higher
Net Revenue(A) margins than our Appraisal segment. As such, the mix of mortgage activity can influence the achievement of our target
consolidated Net Revenue(A) margins.
We continue to believe that we have significant growth opportunities by September 30, 2021 (“fiscal 2021”) to:
•
•
•
•
increase our U.S. residential mortgage appraisal market share to 15% - 20%;
increase our U.S. title and closing market share to 1% - 3%;
achieve target Net Revenue(A) margins of 35% - 40%, as a percentage of revenue; and
achieve target Adjusted EBITDA(A) margins of 25% - 30%, as a percentage of Net Revenue(A).
We further believe that our business scales when we service higher volumes. Accordingly, we expect that if the volumes we service
were to double in the future from fiscal 2018 levels, we could achieve the following targets:
U.S. Appraisal segment
• Net Revenue(A) margins of 27%, as a percentage of revenue; and
•
Adjusted EBITDA(A) margins of 60%, a as percentage of Net Revenue(A).
U.S. Title and Closing segment
• Net Revenue(A) margins of 65%, as a percentage of revenue; and
•
Adjusted EBITDA(A) margins of 30%, as a percentage of Net Revenue(A).
Canadian segment
• Net Revenue(A) margins of 20%, as a percentage of revenue; and
•
Adjusted EBITDA(A) margins of 50%, as a percentage of Net Revenue(A).
We believe that these long-term objectives are supported by our continued growth in our share of the residential mortgage appraisal
market and strategies to disrupt the title and closing market. In addition, we will continue to be thoughtful in our pursuit of acquisition
opportunities.
Our market share expectations are impacted by the size of the residential mortgage originations market. In addition, gains or losses
in our clients’ relative share of the mortgage origination market impacts our market share achievements. Accordingly, a significant
change in the size of the market or our clients’ relative share of the market could result in an over or under achievement of our fiscal
2021 objectives.
For the reasons described below, we have decided to withdraw our prior outlook that our revenues will increase by a compound
annual growth rate (“CAGR”) of 20-25% from fiscal 2016. In order to provide a reasonable revenue growth outlook we need to be able
to accurately forecast the volume of transactions comprising the residential mortgage originations market, since market volumes is a
significant driver of our future revenue growth. We believe that our original estimate of the market size and volumes was reasonable
at the time it was made; however, we estimate that the size of the market has underperformed our original estimate through fiscal
6
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
2018 and the source of our original estimate is not aligned with our most recent estimates of market size or serviceable volumes.
Accordingly, we have subsequently concluded that in combination with recent market volatility and the market’s underperformance,
there is no sufficiently precise or accurate forecast of the size and volumes comprising the residential mortgage origination market.
For these reasons, we have determined that the basis of our original estimate is no longer reasonable. In addition, we believe our
original estimate of market size and volumes is not supported by recent third-party data, including publicly disclosed financial reports
of our competitors, information provided to us by our customers, our own volumes and other industry information sources. Further,
our revenue growth strategy contemplated an accelerated time to first transaction with Tier 3 and Tier 4 clients in our U.S. Title
segment through the leveraging of existing MSA’s with the clients we service in our U.S. Appraisal segment. Increased competition for
constrained market volumes have slowed the conversion of these smaller clients to title revenues, which has also impacted our outlook
for CAGR revenue growth. However, we continue to pursue these opportunities which remain core to our growth strategy.
Near-Term Outlook
2019
We expect first quarter consolidated revenues and Net Revenue(A) will decline compared to the fourth quarter of fiscal 2018, reflecting
our expectations for seasonality and continued mortgage market weakness, net of market share gains and new client additions. We
anticipate consolidated Net Revenue(A) margins will improve compared to the fourth quarter of fiscal 2018 due to revenue mix and
our continued focus on expanding Net Revenue(A) margins.
Important Factors Affecting Results from Operations
Many factors, including those that are not within our control, may have a significant impact on our financial performance. Since the
majority of our revenues are generated in the U.S., the discussion outlined below pertains to factors impacting the near-term outlook
for the U.S. market. As discussed in the “Strategy and Outlook” section above, our objectives and strategies have been set out with a
longer-term view of performance, which includes consideration of the near-term factors expected to impact our operating results as
outlined below.
Residential Mortgage Originations
Our business is dependent on the strength of the mortgage lending industry, specifically the volume of U.S. residential mortgage
originations for purchase and refinance transactions, which is impacted by many factors, including but not limited to the supply of
housing stock and housing prices. A constrained supply of housing stock would result in a lower volume of transactions and lower
revenues, all else equal. Escalating housing prices can limit the affordability of home ownership, restrict the volume of transactions in
the market and result in lower revenues, all else equal.
Economic Conditions
General economic conditions in the U.S., including the outlook for major leading indicators such as interest rates, Real Gross Domestic
Product (“GDP”) and unemployment levels, have historically impacted home ownership levels and the level of residential mortgage
originations. A rising interest rate environment could result in a lower volume of transactions and lead to lower revenues, while a
stronger U.S. economic environment can increase residential mortgage volumes, for both purchase and refinance originations, and
result in higher revenues. Lower unemployment levels could lead to higher transaction volumes and result in higher revenues, all else
equal.
Regulation
Changes in regulation can impact the supply of mortgage funding. All else equal, a greater supply of mortgage funding can have a
positive impact on our revenues. Conversely, a tighter supply of mortgage funding can lead to lower residential mortgage originations
and result in us recording lower revenues. Currently, we do not anticipate a tightening of available mortgage funding. The U.S.
government may consider a review of certain regulations that, in combination with others, govern residential mortgage originations.
While less restrictive regulation could impact our revenues, we do not believe the repeal or easing of certain components of a
particular piece of regulation would have a significant impact on our financial performance.
We expect that, all else equal, anticipated market share growth with current and future clients in our U.S. Appraisal segment will help
mitigate the impact of any weakness in the mortgage lending market on our operating performance.
Our business is subject to a variety of risks and uncertainties. Please refer to the “Cautionary Note Regarding Forward-Looking
Information” contained in this MD&A for a description of the risks that impact our business and that could cause our financial results
to vary.
7
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Financial Performance
The following is a discussion of our consolidated financial condition and results of operations for the years ended September 30, 2018
and 2017.
Review of Operations - For the year ended September 30, 2018
We conduct our business in the U.S. and Canada. Please refer to the tables in the “Foreign Currency Exchange (“FX”) Rates” section of
this MD&A for additional details regarding the impact FX had on our comparative operating results for fiscal 2018.
Segmented Reporting
In the fourth quarter of fiscal 2018, our President and Chief Executive Officer (“CEO”), began making resource allocation decisions and
assessing the performance of our U.S. operations by separately analyzing U.S. appraisal (“U.S. Appraisal”) services and U.S. title and
closing (“U.S. Title”) services. Accordingly, our previously reported U.S. segment has been reclassified into two reportable segments,
namely U.S. Appraisal and U.S. Title. In addition, title search revenues bundled together with home equity loan transactions, and
previously reported as U.S. Appraisal revenues, have been reclassified as U.S. Title revenues, since these title searches are now being
satisfied by our U.S. Title operations.
The Company now has three reportable segments: (i) U.S. Appraisal; (ii) U.S. Title; and (iii) Canada. Accordingly, all comparative prior
year, and current year quarterly financial information presented for the periods ended through June 30, 2018 have been reclassified
to conform with these changes in segment reporting.
Revenues
Total
U.S. Appraisal
U.S. Title
Canada
Market adjusted growth (decline)
(expressed in whole units)
Volumes, actual prior year(1)
Estimated market impact(2)
Volumes, actual prior year net of the estimated market impact
Volumes, actual current year(1)
Volumes, growth (decline) year over year
Market adjusted growth (decline)
Note
(1)
2018
Year ended September 30
Change
2017
$
281,451
$
302,976
$
(21,525)
$
$
$
186,464
65,220
29,767
$
$
$
186,380
84,862
31,734
$
$
$
84
(19,642)
(1,967)
Year ended September 30, 2018
U.S. Appraisal
U.S. Title
480,722
-12.6%
420,111
489,194
69,083
16.4%
42,721
-12.9%
37,217
31,624
(5,593)
-15.0%
U.S. Appraisal volumes exclude volumes attributable to flood services. U.S. Title volumes exclude home equity title search volumes.
(2) Management utilizes a variety of information sources to estimate the market impact, including certain client’s and non-client’s quarterly or annual reports, reports
issued by certain competitors, other publically available industry information, including reports published by the Mortgage Bankers Association, Fannie Mae and
Freddie Mac, and our own internal volumes.
8
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Market share growth (decline)
Market share, prior year(1)
Market adjusted growth (decline)
Market share, current year
Note
(1)
Prior year market share results have been restated to conform with the current year presentation.
Year ended September 30, 2018
U.S. Appraisal
U.S. Title
7.7%
16.4%
9.0%
0.7%
-15.0%
0.6%
Year ended
Consolidated revenues declined 7.1% to $281.5 million in fiscal 2018. Lower U.S. Title revenues were due to lower estimated market
volumes for refinance mortgage activity and lower diversified service revenues. U.S. Appraisal revenues were flat comparatively and
revenues in our Canadian segment declined 6.2% on lower market activity. In addition, we recorded revenues of $2.2 million in our
U.S. Title segment from the consolidation of joint ventures previously accounted for as equity accounted investees in fiscal 2018.
U.S. Appraisal
U.S. Appraisal revenues were flat compared to fiscal 2017, totaling $186.5 million in fiscal 2018 compared to $186.4 million in fiscal
2017. We realized significant revenue growth from the clients we service excluding the impact of our estimated market impact
between fiscal 2018 and 2017. For fiscal 2018, the average price per unit declined modestly, reflecting the mix and geography of
volumes we serviced.
In fiscal 2018, we estimate our U.S. Appraisal revenues grew 16.4% over fiscal 2017 on a market adjusted basis and that our market
share increased to 9.0% from 7.7% in fiscal 2017. On a market adjusted basis, we estimate we serviced 69.1 thousand more units in
fiscal 2018 than we did in fiscal 2017, and we estimate mortgage origination volumes declined 12.6% compared to fiscal 2017 due in
large part to lower refinance volumes.
U.S. Title
U.S. Title revenues declined 23.1% to $65.2 million due to lower refinance volumes and lower revenues from project based work
(“diversified”). Our U.S. Title segment principally services refinance mortgage origination volumes and the volumes we serviced in
fiscal 2018 declined 5.6 thousand units or 15.0% from fiscal 2017 levels on a market adjusted basis. Pricing in this segment was
modestly higher on a comparative basis. We also realized a decline in diversified revenues of $4.9 million due to lower third-party
search work. Lower third-party search work was partially offset by higher revenues from capital markets activity. Contributions to U.S.
Title revenues of $2.2 million from the consolidation of joint ventures previously accounted for as equity accounted investees partially
offset these declines.
Canada
Revenues in Canada declined 6.2% to $29.8 million in fiscal 2018 due to a weaker Canadian housing market. However, a stronger
Canadian dollar and higher insurance inspection revenues contributed $0.7 and $0.4 million, respectively, to fiscal 2018 revenues.
Canadian revenues from appraisal and insurance inspection services were $25.8 million and $4.0 million, respectively, in fiscal 2018
compared to $28.1 million and $3.6 million in fiscal 2017.
Please refer to the “Strategy and Outlook” section of this MD&A for additional discussion on economic trends affecting revenues, our
strategy and our operations.
9
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Transaction costs
Transaction costs include expenses directly attributable to a revenue transaction, including appraisal costs, various processing fees,
including credit card fees, connectivity fees, insurance inspection costs, closing agent costs, external abstractor costs and external
quality review costs.
Total
U.S. Appraisal
U.S. Title
Canada
2018
Year ended September 30
Change
2017
$
198,683
$
210,682
$
(11,999)
$
$
$
148,087
26,110
24,486
$
$
$
152,897
31,222
26,563
$
$
$
(4,810)
(5,112)
(2,077)
Year ended
On a consolidated basis, transaction costs declined 5.7% to $198.7 million in fiscal 2018 due in large part to lower estimated market
volumes. We incurred lower transaction costs to service U.S. Appraisal revenues due to efficiencies achieved by our field professionals
in the conduct of their daily activities and we incurred lower transaction costs in our U.S. Title segment due to lower market volumes
and diversified revenues. Canadian segment transaction costs also declined compared to the prior year on lower market volumes
partially offset by FX. The integration of prior acquisitions also contributed to the increase in transaction costs in our U.S. Title segment
due to the consolidation of previously equity accounted investees and the transition of certain U.S. Title services to a network managed
business model.
In fiscal 2018, consolidated Net Revenue(A) margins declined 110 basis points compared to fiscal 2017 due to the mix of revenues. In
particular, lower-margin U.S. Appraisal revenues were flat compared to fiscal 2017, while higher-margin U.S. Title revenues declined
by $19.6 million. Consolidated Net Revenue(A) margins were also impacted by lower Net Revenue(A) margins earned in our U.S. Title
segment which experienced a 320 basis point decline over fiscal 2017, while U.S. Appraisal Net Revenue(A) margins improved 260 basis
points over fiscal 2017. Transaction costs also increased due to the integration of prior acquisitions and the transition of certain U.S.
Title services to a network managed versus traditional business model. Finally, we delivered Net Revenue(A) margin improvement in
our Canadian segment due to the mix of revenues and lower transaction costs attributable to the volumes we serviced.
U.S. Appraisal
Transaction costs in our U.S. Appraisal segment declined $4.8 million in fiscal 2018 compared to fiscal 2017 due to lower estimated
market activity from lower refinance volumes, net of market share gains and new client additions. Net Revenue(A) margins increased
260 basis points to 20.6% in fiscal 2018 compared to the 18.0% we achieved in fiscal 2017. This improvement was the result of
competition within our network and certain initiatives, including the bundling of orders, which increased the productivity of the
independent field professional’s daily activities.
As we continue to build market share with our clients, we expect to continue leveraging our platform to lower transaction costs as a
percentage of revenues over the long-term.
U.S. Title
Our U.S. Title segment recognized a $5.1 million decline in transaction costs due to lower market volumes and lower diversified
revenues. Net Revenue(A) margins declined 320 basis points due to lower margins on diversified revenues, revenue mix and lower
Net Revenue(A) margins earned on refinance volumes serviced.
Canada
Transaction costs in our Canadian segment declined $2.1 million in fiscal 2018 compared to fiscal 2017 due to lower appraisal revenues.
Lower transaction costs relative to revenues improved Net Revenue(A) margins by 140 basis points compared to fiscal 2017 due to
modestly higher-margin insurance inspection revenues and lower transaction costs to service appraisal revenues.
10
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Operating expenses
Total
U.S. Appraisal
U.S. Title
Canada
Corporate
2018
Year ended September 30
Change
2017
$
78,680
$
86,411
$
(7,731)
$
$
$
$
26,715
32,937
2,720
16,308
$
$
$
$
27,745
39,977
2,886
15,803
$
$
$
$
(1,030)
(7,040)
(166)
505
Year ended
Consolidated operating expenses declined $7.7 million to $78.7 million in fiscal 2018 compared to fiscal 2017 due primarily to lower
operating expenses in our U.S. Title segment, which was largely influenced by lower market volumes and our integration of certain
operations. Operating expenses in our U.S. Appraisal segment declined for similar reasons while operating expenses in our Corporate
segment increased by $0.5 million. Excluding the decline in stock-based compensation expense of $1.8 million in fiscal 2018, Corporate
segment operating expenses increased $2.3 million from fiscal 2017 as a result of higher investments made to launch our title and
closing platform this year, coupled with higher insurance, professional fees and investor relations costs, which were directly
attributable to being a public company.
U.S. Appraisal
Operating expenses in our U.S. Appraisal segment declined $1.0 million to $26.7 million in fiscal 2018. Lower professional fees incurred
in connection with the defense and settlement of a collective action lawsuit and lower bad debt expense each contributed $0.4 million
to the decline. Modestly lower payroll and related costs of $0.1 million were due to lower market volumes and the integration of
certain operations.
U.S. Title
Operating expenses in our U.S. Title segment declined $7.0 million to $32.9 million in fiscal 2018. Lower payroll and related costs
accounted for $5.4 million of the decline due to lower market volumes and the integration of certain operations. Lower market
volumes contributed to a decline in courier charges of $0.5 million and we incurred lower bad debt expense of $0.6 million due to
stronger collections. The balance of the decline was due to lower computer costs, largely due to the decline in employees, and lower
bank fees resulting from lower volumes serviced.
Canada
The decline in Canadian segment operating expenses was not significant.
Corporate
Operating expenses in our Corporate segment increased $0.5 million to $16.3 million in fiscal 2018. Excluding the decline in stock-
based compensation expense of $1.8 million, operating expenses in our Corporate segment increased $2.3 million compared to fiscal
2017 due to a $0.9 million increase in developer costs to support the launch of our title and closing platform in fiscal 2018, a $0.7
million increase in payroll and related expenses for other corporate employees and a $0.4 million increase in insurance, professional
fees and investor relations costs, in the aggregate, which were directly attributable to being a public company.
Looking forward, we expect to leverage our platform to lower operating expenses as a percentage of Net Revenue(A).
Amortization
Total
U.S. Appraisal
U.S. Title
Canada
Corporate
2018
Year ended September 30
Change
2017
$
19,790
$
21,241
$
(1,451)
3,445
$
$
16,031
$
-
$
314
4,581
$
$
15,958
$
-
$
702
(1,136)
73
$
$
$
-
$
(388)
11
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Year ended
Amortization declined $1.5 million to $19.8 million in fiscal 2018. Lower intangible asset amortization in our U.S. Appraisal segment
was due to fully amortized intangibles attributable to an acquisition we completed in 2015, partially offset by higher amortization
attributable to our Denver facility. Lower amortization expense in our Corporate segment was due to fully amortized investments in
our platform.
Acquisition and initial public offering (“IPO”) (recovery) costs
2018
Year ended September 30
Change
2017
Total
$
(7)
$
1,609
$
(1,616)
Year ended
We incurred IPO costs for third-party professional services and a recovery due to the settlement of certain amounts owing to the
sellers of Linear Title & Closing Ltd. (“Linear”) in fiscal 2017. Costs and recoveries attributable to acquisitions were insignificant in the
current year.
Integration expenses
2018
Year ended September 30
Change
2017
Total
$
863
$
-
$
863
Year ended
Integration expenses represent employee severance costs incurred to rationalize and integrate certain operations into our network
management business model.
Impairment of assets
2018
Year ended September 30
Change
2017
Total
$
-
$
5,096
$
(5,096)
Year ended
We incurred an impairment charge of $5.1 million in the second quarter of fiscal 2017 relating to two equity accounted investees
recorded in our U.S. Title segment that we determined were impaired.
Interest expense
2018
Year ended September 30
Change
2017
Total
$
410
$
889
$
(479)
Year ended
Interest expense declined $0.5 million to $0.4 million in fiscal 2018. This decline reflects the partial use of proceeds raised in connection
with our IPO to repay amounts drawn on our long-term debt facilities in full and lower interest expense attributable to accretion of
contingent amounts owing to the sellers of Linear.
12
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Interest income
Total
2018
Year ended September 30
Change
2017
$
(698)
$
(139)
$
(559)
Year ended
Interest income increased $0.6 million to $0.7 million in fiscal 2018. The increase reflects higher returns earned on the unutilized
portion of proceeds raised in connection with our IPO and higher principal amounts invested.
Net foreign exchange (gain) loss
2018
Year ended September 30
Change
2017
Total
$
(4,971)
$
3,390
$
(8,361)
Year ended
Net foreign currency exchange gains in fiscal 2018 represent non-cash gains on long-term financing arrangements between a Canadian
and U.S. entity within the consolidated group of companies and gains recognized on the revaluation of U.S. denominated short-term
investments recorded as cash equivalents. The net foreign exchange loss in fiscal 2017 represents non-cash losses on long-term
financing arrangements. Gains or losses result from changes in the foreign currency exchange rate between the Canadian and U.S.
dollar.
(Gain) loss on fair value of warrants
2018
Year ended September 30
Change
2017
Total
$
(7,386)
$
5,011
$
(12,397)
Year ended
We recognized gains in fiscal 2018 due to the decline in our share price. We also recognized gains in fiscal 2018 due to the exercise of
certain warrants occurring at a lower price than the fair value attributable to each warrant at the end of each quarter. The loss in fiscal
2017 was the result of net share price appreciation in that year.
Re-measurement (gain) loss on previously held equity method investment
2018
Year ended September 30
Change
2017
Total
$
(499)
$
976
$
(1,475)
Year ended
We amended an operating agreement with one of our joint venture partners in the first quarter of fiscal 2018 which resulted in us
obtaining control over the joint venture. In connection with this amendment, we re-measured our original investment in this investee
at the change of control date and recognized a non-cash gain of $0.5 million on re-measurement.
In the third quarter of 2017, we amended an operating agreement with one of our joint venture partners. The amendment resulted
in us obtaining control over the joint venture. In connection with this amendment, we re-measured our original investment in this
investee at the change of control date and recorded a non-cash loss of $1.0 million.
13
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Net income from equity accounted investees
2018
Year ended September 30
Change
2017
Total
$
-
$
(18)
$
18
Net income or loss from equity accounted investees represents our pro rata share of the investee’s post-acquisition earnings computed
using the consolidation method.
Year ended
Effective in the first quarter of fiscal 2018, all of our joint ventures were controlled subsidiaries. Accordingly, we discontinued the use
of equity method accounting and recognized no income from equity accounted investees in fiscal 2018.
Net income tax expense (recovery)
2018
Year ended September 30
Change
2017
Total
$
601
$
(8,403)
$
9,004
Year ended
We recorded a net loss of $3.4 million before income tax expense in fiscal 2018 versus a net loss of $32.2 million in fiscal 2017. Income
tax recoveries calculated at the statutory income tax rate were $0.9 million in fiscal 2018, while income tax recoveries attributable to
foreign earnings subject to tax at a different statutory tax rate totaled $0.3 million. The change to the U.S. statutory income tax rate,
stemming from U.S. tax reform enacted in December 2017, resulted in an income tax expense of $4.7 million in fiscal 2018. The
expense attributable to U.S. tax reform was partially offset by income tax recoveries noted above, and income tax recoveries
attributable to non-deductible expenses and non-taxable income totaling $2.7 million. Non-deductible expenses and non-taxable
income represent accounting gains on the fair value of warrant liabilities, net foreign exchange gains on long-term financing
arrangements between a Canadian and U.S. entity and the revaluation of U.S. denominated short-term investments, a re-
measurement gain on a previously held equity method investment and stock-based compensation expenses that are not deductible
or included for tax. State and other tax expense or recoveries and adjustments from prior periods represented a net recovery of $0.2
million in fiscal 2018.
14
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Review of Operations - For the three months ended September 30, 2018
Please refer to the tables in the “Foreign Currency Exchange Rates” section of this MD&A for additional details regarding the impact
FX had on our comparative operating results for the three months ended September 30, 2018.
Segmented Reporting
Please refer to the “Review of Operations – For the year ended September 30, 2018” section of this MD&A for additional details
pertaining to our segmented reporting and the presentation of comparative period amounts.
Revenues
Total
U.S. Appraisal
U.S. Title
Canada
Market adjusted growth (decline)
(expressed in whole units)
Volumes, actual prior period(1)
Estimated market impact(2)
Volumes, actual prior year net of the estimated market impact
Volumes, actual current period(1)
Volumes, growth (decline) period over period
Market adjusted growth (decline)
Note
(1)
Three months ended September 30
Change
2017
2018
$
67,989
$
82,892
$
(14,903)
$
$
$
46,366
14,505
7,118
$
$
$
53,700
20,533
8,659
$
$
$
(7,334)
(6,028)
(1,541)
Three months ended September 30, 2018
U.S. Title
U.S. Appraisal
134,111
-15.0%
113,994
124,064
10,070
8.8%
9,361
-15.0%
7,957
6,344
(1,613)
-20.3%
U.S. Appraisal volumes exclude volumes attributable to flood services. U.S. Title volumes exclude home equity title search volumes.
(2) Management utilizes a variety of information sources to estimate the market impact, including certain client’s and non-client’s quarterly or annual reports, reports
issued by certain competitors, other publically available industry information, including reports published by the Mortgage Bankers Association, Fannie Mae and
Freddie Mac, and our own internal volumes.
Market share growth (decline)
Market share, prior year(1)
Market adjusted growth (decline)
Market share, current year
Note
(1)
Prior year market share results have been restated to conform with the current year presentation.
Three months ended September 30, 2018
U.S. Title
U.S. Appraisal
7.9%
8.8%
8.6%
0.5%
-20.3%
0.4%
Three months
Consolidated revenues declined 18.0% to $68.0 million in the fourth quarter of fiscal 2018. U.S. Appraisal revenues declined on lower
volumes and lower pricing, each contributing similarly to the comparative decline in fourth quarter revenues this year compared to
fourth quarter revenues in fiscal 2017. However, on a market adjusted basis, we estimate we serviced 8.8% more U.S. Appraisal market
volumes than we serviced in the same quarter in fiscal 2017. U.S. Title revenues declined on lower refinance volumes serviced, due to
lower estimated market volumes and lower diversified revenues. Canadian segment revenues declined due to lower estimated market
volumes.
15
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
U.S. Appraisal
U.S. Appraisal revenues declined $7.3 million in the fourth quarter of fiscal 2018 compared to the same quarter in fiscal 2017. However,
we posted market adjusted growth of 8.8% over the same period in fiscal 2017 and we exited the fourth quarter of fiscal 2018 with an
estimated 8.6% market share versus 7.9% in the fourth quarter of fiscal 2017. The estimated market volumes we serviced in the fourth
quarter of fiscal 2018 increased 10.1 thousand units on a market adjusted basis. We estimate the market declined 15.0% due in part
to lower refinance activity. The decline in fourth quarter revenues was a combination of lower volumes, representing $3.9 million of
the decrease, with the balance attributable to lower pricing due to mix and geography of the volumes we serviced.
U.S. Title
U.S. Title revenues declined 29.4% to $14.5 million in the fourth quarter of fiscal 2018 due to lower refinance volumes. We exited the
fourth quarter of fiscal 2018 with an estimated 0.4% share of the mortgage originations market versus 0.5% in the same quarter of
fiscal 2017. Our U.S. Title segment principally services refinance mortgage activity, which declined more precipitously than mortgage
activity for purchase transactions. We also realized a decline in diversified revenues of $2.4 million due to lower third-party search
work. Lower third-party search work was partially offset by higher revenues from capital markets volumes serviced in the fourth
quarter of fiscal 2018 compared to fiscal 2017.
Contributions to U.S. Title revenues of $0.1 million from the consolidation of joint ventures previously accounted for as equity
accounted investees partially offset the declines outlined above.
Canada
Revenues in Canada declined 17.8% or $1.5 million in the fourth quarter of fiscal 2018. A weaker Canadian dollar decreased Canadian
segment revenues by 3.6% or $0.3 million and higher appraisal volumes from increasing market share with certain Canadian clients
was offset by a weaker comparative Canadian mortgage originations market. Canadian revenues from appraisal and insurance
inspection services were $6.1 million and $1.0 million, respectively, in the fourth quarter of fiscal 2018 compared to $7.7 million and
$1.0 million in the fourth quarter of fiscal 2017.
Transaction costs
Total
U.S. Appraisal
U.S. Title
Canada
Three months ended September 30
Change
2018
2017
$
48,426
$
58,863
$
(10,437)
$
$
$
36,839
5,697
5,890
$
$
$
43,261
8,340
7,262
$
$
$
(6,422)
(2,643)
(1,372)
Three months
On a consolidated basis, transaction costs declined 17.7% to $48.4 million in the fourth quarter of fiscal 2018 due in large part to lower
estimated market volumes. We incurred lower transaction costs to service lower U.S. Appraisal and U.S. Title revenues due to lower
comparative market volumes. Canadian segment transaction costs also declined when compared to the fourth quarter of fiscal 2017
due to lower market volumes and FX.
Consolidated Net Revenue(A) margins declined 20 basis points between the fourth quarter of fiscal 2018 and the same quarter in fiscal
2017. In the fourth quarter of fiscal 2018, we earned higher Net Revenue(A) margins across each of our reporting segments, but the
mix of revenues resulted in modestly lower Net Revenue(A) margins when expressed on a consolidated basis. In particular, the relative
decline in lower-margin U.S. Appraisal revenues, was not as pronounced as the decline in higher comparative margin U.S. Title
revenues.
U.S. Appraisal
Transaction costs in our U.S. Appraisal segment declined $6.4 million in the fourth quarter of fiscal 2018 due to lower estimated market
activity for residential mortgage originations, net of market share gains and new client additions. Net Revenue(A) margins increased
110 basis points to 20.5% in the fourth quarter of fiscal 2018 compared to 19.4% achieved in the fourth quarter of fiscal 2017. This
improvement was the result of competition within our network and certain initiatives, including the bundling of orders, which
increased the productivity of the independent field professional’s daily activities.
16
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
U.S. Title
Our U.S. Title segment recognized a $2.6 million decline in transaction costs due to lower market volumes and lower diversified
revenues. Net Revenue(A) margins increased by 130 basis points due to higher margins on diversified revenues and revenue mix, which
was partially offset by lower Net Revenue(A) margins earned on refinance volumes serviced.
Canada
Transaction costs in our Canadian segment declined $1.4 million in the fourth quarter of fiscal 2018 due to lower appraisal revenues.
Lower transaction costs relative to revenues increased Net Revenue(A) margins by 120 basis points compared to the fourth quarter of
fiscal 2017 due to modestly higher-margin insurance inspection revenues and lower transaction costs to service appraisal revenues.
Operating expenses
Total
U.S. Appraisal
U.S. Title
Canada
Corporate
Three months ended September 30
Change
2017
2018
$
17,760
$
21,482
$
(3,722)
$
$
$
$
6,457
6,929
651
3,723
$
$
$
$
7,131
9,800
789
3,762
$
$
$
$
(674)
(2,871)
(138)
(39)
Three months
Consolidated operating expenses declined $3.7 million in the fourth quarter of fiscal 2018 compared to the same quarter in fiscal 2017
due primarily to lower operating expenses in our U.S. Title segment, which was largely influenced by lower payroll and related
expenses of $1.7 million and lower bad debt expense of $0.8 million. Operating expenses in our U.S. Appraisal segment decreased
$0.7 million compared to the fourth quarter of fiscal 2017 due to lower payroll and related costs and lower professional fees. Canadian
and Corporate segment operating expenses were flat compared to the same quarter in fiscal 2017.
U.S. Appraisal
Operating expenses in our U.S. Appraisal segment declined $0.7 million to $6.5 million in the fourth quarter of fiscal 2018. Lower
professional fees incurred in connection with the defense and settlement of a collective action lawsuit contributed $0.2 million to the
comparative decline between quarters. Lower payroll and related costs of $0.2 million also contributed to the decrease due to lower
market volumes and the integration of certain operations carried out in fiscal 2018. This segment also benefited from lower
onboarding costs totaling $0.2 million, as certain costs required to onboard field professionals in the fourth quarter of 2017 were not
incurred in the fourth quarter of fiscal 2018.
U.S. Title
Operating expenses in our U.S. Title segment declined $2.9 million to $6.9 million. Lower payroll and related costs accounted for $1.7
million of the comparative quarterly decline due to lower market volumes and the integration of certain operations carried out in
fiscal 2018. Lower market volumes contributed to a decline in courier charges of $0.1 million and we incurred lower bad debt expense
in the fourth quarter of fiscal 2018 of $0.8 million due to stronger collections.
Canada and Corporate
The declines in Canadian and Corporate segment operating expenses were not significant.
17
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Amortization
Total
U.S. Appraisal
U.S. Title
Canada
Corporate
Three months ended September 30
Change
2017
2018
$
4,478
$
5,348
$
(870)
424
$
$
3,994
$
-
$
60
1,184
$
$
4,027
$
-
$
137
$
(760)
$
(33)
$
-
$
(77)
Three months
Amortization declined $0.9 million to $4.5 million in the fourth quarter of fiscal 2018. Lower intangible asset amortization in our U.S.
Appraisal segment was due to fully amortized intangibles attributable to an acquisition we completed in 2015, partially offset by higher
amortization attributable to our Denver facility. Lower amortization expense in our Corporate segment was due to fully amortized
investments in our platform.
Acquisition and IPO recovery
Three months ended September 30
Change
2017
2018
Total
$
-
$
(1,151)
$
1,151
Three months
In the fourth quarter of fiscal 2017, we recognized a recovery of $1.2 million due to the settlement of certain amounts owing to the
sellers of Linear, partially offset by additional IPO costs.
Integration expenses
Three months ended September 30
Change
2017
2018
Total
$
72
$
-
$
72
Three months
Integration expenses represent employee severance costs incurred to rationalize and integrate certain operations into our network
management business model.
Interest expense
Three months ended September 30
Change
2017
2018
Total
$
52
$
160
$
(108)
Three months
Interest expense declined $0.1 million in the fourth quarter of fiscal 2018. This decline reflects lower interest expense due to lower
finance lease obligations.
Interest income
Three months ended September 30
Change
2017
2018
Total
$
(227)
$
(116)
$
(111)
Three months
Interest income increased $0.1 million in the fourth quarter of fiscal 2018, due to higher returns earned from an increase in interest
rates and principal amounts invested.
18
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Net foreign exchange loss
Three months ended September 30
Change
2017
2018
Total
$
2,380
$
3,076
$
(696)
Three months
Net foreign currency exchange losses in the fourth quarter of fiscal 2018 and fiscal 2017 represent non-cash losses on long-term
financing arrangements between a Canadian and U.S. entity within the consolidated group of companies and losses recognized on the
revaluation of U.S. denominated short-term investments recorded as cash equivalents. Gains or losses result from changes in the FX
rate between the Canadian and U.S. dollar.
Gain on fair value of warrants
Three months ended September 30
Change
2017
2018
Total
$
(1,344)
$
(281)
$
(1,063)
Three months
We recognized gains in the fourth quarter of fiscal 2018 and fiscal 2017 due to declines in our share price. We also recognized gains in
the fourth quarter of fiscal 2017 due to the exercise of certain warrants occurring at a lower price than the fair value attributable to
each warrant at the end the preceding quarter.
Net income from equity accounted investees
Three months ended September 30
Change
2017
2018
Total
$
-
$
(104)
$
104
Three months
Effective in the first quarter of fiscal 2018, all of our joint ventures were controlled subsidiaries. Accordingly, we discontinued the use
of equity method accounting and recognized no income from equity accounted investees in the fourth quarter of fiscal 2018.
Net income tax recovery
Three months ended September 30
Change
2017
2018
Total
$
(1,064)
$
(563)
$
(501)
Three months
We recorded a net loss of $3.6 million before income tax recoveries in the fourth quarter of fiscal 2018. Income tax calculated at the
statutory income tax rate resulted in an income tax recovery of $1.0 million and an income tax recovery attributable to foreign earnings
subject to tax at a different statutory tax rate totaled $0.1 million in the fourth quarter of fiscal 2018. Non-deductible expenses and
net non-taxable losses contributed to income tax recoveries in the fourth quarter of fiscal 2017, partially offset by state tax expense,
each being less than $0.1 million.
19
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Non-GAAP measures
We prepare our financial statements in accordance with IFRS. However, we consider certain non-GAAP financial measures as useful
additional information to assess our financial performance. These measures, which we believe are widely used by investors, securities
analysts and other interested parties to evaluate our performance, do not have a standardized meaning prescribed by GAAP and
therefore may not be comparable to similarly titled measures presented by other 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”.
(A)
Adjusted EBITDA
All references to ‘‘Adjusted EBITDA’’ in this MD&A are to net income or loss before stock-based compensation expense, amortization,
acquisition and IPO recovery or costs, integration expenses, impairment of assets, interest expense, interest income, net foreign
exchange gains or losses, gains or losses on fair value of warrants, re-measurement gains or losses on previously held equity method
investments, net income or loss from equity accounted investees and income tax expense or recovery. Adjusted EBITDA is a measure
of our operating profitability and therefore excludes certain items that are viewed by us as either non-cash (in the case of stock-based
compensation expense, amortization, impairment of assets, unrealized net foreign exchange gain or loss, gain or loss on fair value of
warrants, re-measurement gains or losses on previously held equity method investments, net income or loss from equity accounted
investees and deferred income taxes) or non-operating (in the case of acquisition and IPO recovery or costs, integration expenses,
realized net foreign exchange gain or loss, interest expense, interest income and current income taxes). Adjusted EBITDA is a useful
financial and operating metric for the Company, our board of directors and the Company’s lender, and it represents a measure of the
Company’s operating performance relative to its peers and the Company’s compliance with its long-term debt facility covenants. The
underlying reasons for excluding each item are as follows:
Stock-based compensation expense: These costs represent non-cash expenses for equity settled awards recognized in connection with
our IPO or ongoing stock-based compensation awards. These non-cash amounts are recorded to operating expenses and represent a
different class of expense than those included in Adjusted EBITDA.
Amortization: As a non-cash item, amortization is not indicative of our operating profitability and therefore represents a different class
of expense than those included in Adjusted EBITDA.
Acquisition and IPO recovery or costs: These recoveries or costs represent non-operating items and include transaction related
recoveries or costs specific to acquisitions and costs incurred in connection with our IPO. These recoveries or costs are not indicative
of continuing operations and therefore represent a different class of recovery or expense than those included in Adjusted EBITDA.
Integration expenses: These expenses represent non-operating costs, primarily comprising employee severance. These expenses are
not indicative of continuing operations and therefore represent a different class of expense than those included in Adjusted EBITDA.
Impairment of assets: As a non-cash item, impairment of assets is not indicative of our operating profitability and therefore represents
a different class of expense than those included in Adjusted EBITDA.
Interest expense and income: Interest expense or income reflects our debt and equity mix, interest rates, investment strategy and
borrowing position from time-to-time. Accordingly, interest expense or income reflects our treasury and financing activities and
therefore represents a different class of expense or income than those included in Adjusted EBITDA.
Net foreign exchange gain or loss: As non-cash items, unrealized net foreign exchange gains or losses are not indicative of our operating
profitability. Realized net foreign exchange gains or losses reflects our treasury and financing activities and represent a different class
of income or expense than those included in Adjusted EBITDA.
Gains or losses on fair value of warrants: As a non-cash item, gains or losses resulting from the fair value of warrants is not indicative
of our operating profitability. Gains or losses from the fair value of warrants reflects our treasury and financing activities and represent
a different class of income or expense than those included in Adjusted EBITDA.
Re-measurement gain or loss on previously held equity method investment: As a non-cash item, the re-measurement gain or loss on a
previously held equity method investment is not indicative of our operating profitability and therefore represents a different class of
income or expense than those included in Adjusted EBITDA.
20
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Net income or loss from equity accounted investee: Net income or loss from an equity accounted investee is deducted from or added
to Adjusted EBITDA, and as a non-cash item is not indicative of our operating profitability.
Income taxes: Income taxes are a function of tax laws and rates and are affected by matters which are separate from our daily
operations. Income taxes are not indicative of our operating profitability and represent a different class of expense or recovery than
those included in Adjusted EBITDA.
The reconciling items between Adjusted EBITDA and net income or loss are detailed in the consolidated statements of operations and
comprehensive income or loss for the years ended September 30, 2018 and 2017. The reconciling items between net income or loss
and Adjusted EBITDA for the years ended September 30, 2018 and 2017 were as follows:
Net loss
Stock-based compensation expense
Amortization
Acquisition and IPO (recovery) costs
Integration expenses
Impairment of assets
Interest expense
Interest income
Net foreign exchange loss (gain)
(Gain) loss on fair value of warrants
Re-measurement (gain) loss on previously held
equity method investment
Net income from equity accounted investees
Income tax (recovery) expense
Adjusted EBITDA
Management typically calculates Adjusted EBITDA as follows:
Three months ended September 30
2017
2018
Year ended September 30
2017
2018
$
(2,544)
339
4,478
-
72
-
52
(227)
2,380
(1,344)
$
(3,822)
369
5,348
(1,151)
-
-
160
(116)
3,076
(281)
$
(4,015)
1,705
19,790
(7)
863
-
410
(698)
(4,971)
(7,386)
$
(23,769)
3,497
21,241
1,609
-
5,096
889
(139)
3,390
5,011
-
-
(1,064)
2,142
$
-
(104)
(563)
2,916
$
(499)
-
601
5,793
$
976
(18)
(8,403)
9,380
$
Three months ended September 30
2017
2018
Year ended September 30
2017
2018
Revenues
Less: Transaction costs
Less: Operating expenses
Add: Stock-based compensation expense
Adjusted EBITDA
Principle changes in Adjusted EBITDA
Three months
$
$
$
$
67,989
48,426
17,760
339
2,142
82,892
58,863
21,482
369
2,916
281,451
198,683
78,680
1,705
5,793
302,976
210,682
86,411
3,497
9,380
$
$
$
$
• Revenues declined or were flat across all three segments due to lower estimated market volumes. Our U.S. Appraisal
segment also realized lower pricing attributable to product mix and geography, while our U.S. Title segment serviced lower
diversified revenues in the fourth quarter of fiscal 2018;
• Lower revenues translated to lower Net Revenues, which was partially offset by expanding Net Revenue margins across
each of our reporting segments; and
• Reductions to operating expenses yielded increases to Adjusted EBITDA margins in each segment. We increased Adjusted
EBITDA margins by 50 basis points in our U.S. Appraisal segment, and we realized a 170 basis point and 350 basis point
increase in our U.S. Title and Canadian segments, respectively. However, with corporate costs remaining flat compared to
the fourth quarter of fiscal 2017, Adjusted EBITDA margins calculated on a consolidated basis declined 70 basis points
between quarters due to lower Net Revenues.
Year ended
• The decline in revenue for fiscal 2018 was principally attributable to lower revenues in our U.S. Title segment due to lower
estimated market volumes and lower diversified revenues;
21
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
• Lower consolidated revenues translated to lower Net Revenues, partially offset by increasing Net Revenue margins in our
U.S. Appraisal and Canadian segments of 260 and 140 basis points, respectively. Our U.S. Title segment recognized lower
Net Revenue margins in fiscal 2018 of 320 basis points due to lower Net Revenue margins on diversified revenues, revenue
mix and lower Net Revenue margins on refinance volumes serviced; and
• Reductions to operating expenses across every segment yielded improvements to Adjusted EBIDTA margins in our U.S.
Appraisal segment and our Canadian segment. Adjusted EBITDA margins increased from 17.1% to 30.4% in our U.S.
Appraisal segment and increased to 48.5% from 44.2% in our Canadian segment. Adjusted EBITDA margins in our U.S. Title
segment declined to 15.8% from 25.5% due in large part to the decline in comparative market volumes. With the increase
in corporate costs from higher developer costs to support the launch of our title and closing platform this year and higher
costs attributable to being a public company, consolidated Adjusted EBITDA margins declined 320 basis points from 10.2%
achieved in fiscal 2017.
Net Revenue
The reconciling items between net income or loss and Net Revenue are detailed in the consolidated statements of operations and
comprehensive income or loss. The reconciling items between net income or loss and Net Revenue for the three months ended
September 30, 2018 and 2017 and fiscal years ended September 30, 2018 and 2017 were as follows:
Net loss
Operating expenses
Amortization
Acquisition and IPO (recovery) costs
Integration expenses
Impairment of assets
Interest expense
Interest income
Net foreign exchange loss (gain)
(Gain) loss on fair value of warrants
Re-measurement (gain) loss on previously held
equity method investment
Net income from equity accounted investees
Income tax (recovery) expense
Net Revenue
Management typically calculates Net Revenue as follows:
Revenues
Less: Transaction costs
Net Revenue
Three months ended September 30
2017
2018
Year ended September 30
2017
2018
$
(2,544)
17,760
4,478
-
72
-
52
(227)
2,380
(1,344)
$
(3,822)
21,482
5,348
(1,151)
-
-
160
(116)
3,076
(281)
$
(4,015)
78,680
19,790
(7)
863
-
410
(698)
(4,971)
(7,386)
$
(23,769)
86,411
21,241
1,609
-
5,096
889
(139)
3,390
5,011
-
-
(1,064)
19,563
$
-
(104)
(563)
24,029
$
(499)
-
601
82,768
$
976
(18)
(8,403)
92,294
$
Three months ended September 30
2017
2018
Year ended September 30
2017
2018
$
$
$
$
$
$
$
$
82,892
58,863
24,029
281,451
198,683
82,768
302,976
210,682
92,294
67,989
48,426
19,563
All references to “Net Revenue” in this MD&A are to Adjusted EBITDA (as defined above) plus operating expenses less stock-based
compensation expense. Net Revenue is an additional measure of our operating profitability and therefore excludes certain items
detailed above. Net Revenue comprises revenues less transaction costs, where transaction costs comprise expenses directly
attributable to a specific revenue transaction including: appraisal costs, various processing fees, including credit card fees, connectivity
fees, insurance inspection costs, closing agent costs, external abstractor costs and external quality review costs. Net Revenue is a
useful financial and operating metric for us and our board of directors to assess our operating performance and the value of our
Company relative to our peers.
Principle changes in Net Revenue
Three months
• Revenues declined across all three segments due to lower estimated market volumes. Our U.S. Appraisal segment also
realized lower revenues compared to the fourth quarter of fiscal 2017 due to lower pricing attributable to product mix and
geography, while our U.S. Title segment also recognized lower diversified revenues in the fourth quarter of fiscal 2018
compared to the fourth quarter of fiscal 2017;
22
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
• Lower revenues translated to lower Net Revenues, which was partially offset by expanding Net Revenue margins across
each of our reporting segments;
• Net Revenue margins in our U.S. Appraisal segment increased 110 basis points to 20.5% in the fourth quarter of fiscal 2018
compared to 19.4% achieved in the same quarter in fiscal 2017. This improvement was the result of competition within our
network of field professionals and certain initiatives, including the bundling of orders, which increased the productivity of
the independent field professional’s daily activities on our network;
• Net Revenue margins in our U.S. Title segment increased by 130 basis points compared to the same quarter in fiscal 2017
due to higher margins on diversified revenues and revenue mix, which was partially offset by lower Net Revenue margins
earned on refinance volumes serviced;
• Net Revenue margins in our Canadian segment increased by 120 basis points in the fourth quarter of 2018 compared to the
same quarter in fiscal 2017 due to modestly higher margin insurance inspection revenues and lower transaction costs to
service lower appraisal revenues; and
• On a consolidated basis, Net Revenue margins in the fourth quarter of fiscal 2018 declined by 20 basis points compared to
the fourth quarter of fiscal 2017. In the fourth quarter of fiscal 2018, we earned higher Net Revenue margins across each of
our reporting segments, but the mix of revenues resulted in modestly lower Net Revenue margins when expressed on a
consolidated basis. More specifically, the relative decline in lower margin U.S. Appraisal revenues, was not as pronounced
as the decline in higher-margin U.S. Title revenues.
Year ended
• Our revenue decline for fiscal 2018 as compared to fiscal 2017 was principally attributable to lower revenues in our U.S.
Title segment due to lower estimated market volumes and lower diversified revenues; and
• Lower consolidated revenues in fiscal 2018 translated to lower Net Revenues, which was partially offset by increasing Net
Revenue margins in our U.S. Appraisal and Canadian segments of 260 and 140 basis points, respectively, as compared to
fiscal 2017. As compared to fiscal 2017, our U.S. Title segment recognized lower Net Revenue margins in fiscal 2018 of 320
basis points due to lower margins on diversified revenues, due to revenue mix and lower Net Revenue margins on refinance
volumes serviced.
Adjusted Net Income or Loss
All references to “Adjusted Net Income or Loss” in this MD&A are to net income or loss before stock-based compensation expense,
amortization of intangibles, acquisition and IPO recovery or costs, integration expenses, impairment of assets, net foreign exchange
gains or losses, gains or losses on fair value of warrants and re-measurement gains or losses on a previously held equity method
investment, net of the related tax effects. In addition, U.S. tax reform resulted in a significant reduction to the carrying amount of our
deferred income tax assets, which were previously recorded at a higher U.S. corporate tax rate and which resulted in a one-time
charge to deferred tax expense recorded in our consolidated statement of operations and comprehensive loss in the three month
period ended December 31, 2017. Adjusted Net Income or Loss is a term that does not have a standardized meaning prescribed by
IFRS and is unlikely to be comparable to similar measures used by other entities. Adjusted Net Income or Loss is a measure of our
operating profitability and, by definition, excludes certain items detailed above. These items are viewed by us as either non-cash (in
the case of stock-based compensation expense, amortization of intangibles, impairment of assets, unrealized net foreign exchange
gain or loss, gain or loss on fair value of warrants and re-measurement gains or losses on a previously held equity method investment)
or non-operating (in the case of acquisition and IPO recovery or costs, integration expenses, realized net foreign exchange gains or
losses and the impact of the statutory corporate income tax rate change due to U.S. tax reform). Adjusted Net Income or Loss is a
useful financial and operating metric for us and our board of directors as it represents net income from operations, which excludes
treasury, capital, acquisition and related costs and non-operating costs.
23
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
The reconciling items between net income or loss and Adjusted Net Income or Loss for the three months ended September 30, 2018
and 2017 and fiscal years ended September 30, 2018 and 2017 were as follows:
Net loss
Stock-based compensation expense
Amortization of intangibles
Acquisition and IPO (recovery) costs
Integration expenses
Impairment of assets
Net foreign exchange loss (gain)
(Gain) loss on fair value of warrants
Re-measurement (gain) loss on previously held
equity method investment
Related tax effects
Impact of the statutory income tax rate change
(U.S. tax reform)
Adjusted Net Income
Three months ended September 30
2017
2018
Year ended September 30
2017
2018
$
(2,544)
339
4,123
-
72
-
2,380
(1,344)
$
(3,822)
369
4,918
(1,151)
-
-
3,076
(281)
$
(4,015)
1,705
18,236
(7)
863
-
(4,971)
(7,386)
$
(23,769)
3,497
19,649
1,609
-
5,096
3,390
5,011
-
(1,458)
-
(2,392)
(499)
(1,909)
976
(12,696)
$
-
1,568
$
-
717
$
4,707
6,724
$
-
2,763
Adjusted EBITDA, Net Revenue and Adjusted Net Income or Loss should not be considered, in isolation, indicators of financial
performance, or as an alternative to, or a substitute for, net income or other financial statement data presented in our financial
statements.
Dividends
The Company’s current policy is not to pay dividends.
Selected Annual Information
Revenues
Net loss
Net loss per weighted average share, basic
Net loss per weighted average share, diluted
Total assets
Total long-term liabilities
2018
Year ended September 30
2017
2016
$
$
$
$
$
$
281,451
(4,015)
(0.05)
(0.05)
198,863
4,312
$
$
$
$
$
$
302,976
(23,769)
(0.30)
(0.30)
226,563
13,474
$
$
$
$
$
$
248,547
(6,079)
(0.09)
(0.09)
190,864
36,678
Revenues
2018-2017
Please see the “Review of Operations – For the year ended September 30, 2018” section of this MD&A for a detailed discussion of the
changes in revenues between fiscal 2018 and fiscal 2017.
2017-2016
Consolidated revenues increased 21.9% to $303.0 million in part based on contributions from acquisitions of $40.0 million and organic
growth of $14.1 million, after adjusting for the estimated market impact. The impact of FX totaling $0.3 million was nominal.
Our acquisition of Linear increased fiscal 2017 revenues by $37.8 million compared to fiscal 2016. We also acquired a small
complementary business in fiscal 2016 that contributed additional revenues of $1.1 million in fiscal 2017, and we recorded revenues
of $1.1 million from the consolidation of a joint venture previously accounted for as an equity accounted investee.
We generated consolidated organic revenue growth in fiscal 2017 due to higher transaction volumes gained through additional market
share with our existing clients and higher transaction volumes from new clients in both our U.S. Appraisal and U.S. Title segments.
U.S. Appraisal
U.S. Appraisal segment revenues increased 11.9% to $186.4 million in fiscal 2017. Revenues increased due to organic growth in
appraisal volumes from market share gains with existing clients and new client volumes.
24
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
U.S. Title
U.S. Title segment revenues increased 64.3% to $84.9 million in fiscal 2017with acquisitions accounting for $40.0 million of the increase
in revenues. Excluding acquisitions, U.S. Title segment revenues declined $6.9 million compared to fiscal 2016 due to lower estimated
market volumes.
Canada
Revenues in Canada increased 4.8% to $31.7 million in fiscal 2017. We managed higher appraisal volumes as a result of increased
market share with FX contributing 1.0% to the increase in fiscal 2017 revenues.
Net loss
2018-2017
Please see the “Review of Operations – For the year ended September 30, 2018” section of this MD&A for a detailed discussion of the
components comprising the change in net loss between fiscal 2018 and fiscal 2017.
2017-2016
Our net loss was significantly higher in fiscal 2017 compared to fiscal 2016. Factors contributing to this change included higher
amortization expense from higher intangible asset amortization due to acquisitions completed in fiscal 2016 and an asset impairment
charge recognized on two investments in equity accounted investees. Higher net foreign currency exchange losses also contributed to
a higher net loss in fiscal 2017 as a result of non-cash losses on long-term financing arrangements between a Canadian and U.S. entity
within the consolidated group of companies arising from a strengthening Canadian dollar relative to the U.S. dollar. Other factors that
contributed to the higher net loss in fiscal 2017 included lower Adjusted EBITDA(A) due to our investment in new client deployments
to support growth from market share gains and a non-cash loss recorded from the re-measurement of our original investment in a
joint venture resulting from an amendment to an operating agreement that resulted in us obtaining control of such joint venture.
These higher losses were partially offset by higher income tax recoveries attributable to higher recorded losses before income tax in
fiscal 2017.
Total Assets
2018-2017
Total assets declined $27.7 million or 12.2% between September 30, 2018 and September 30, 2017 due primarily to the decline in the
normal course amortization of intangible assets of $18.2 million. Trade and other receivables declined $8.0 million on lower revenues
which were largely impacted by lower estimated market volumes and stronger collections in our U.S. Title segment. The remainder of
the decline reflected lower cash and cash equivalent balances of $3.6 million and lower property and equipment balances of $1.1
million, which were partially offset by higher deferred tax assets amounts of $2.1 million and goodwill of $1.6 million. Lower cash and
cash equivalents was the result of us generating $10.4 million in cash from operations, of which $10.0 million of this amount was used
to satisfy the second earn-out payment paid to the sellers of Linear in April 2018. We invested $3.3 million in the purchase of our
shares under a normal course issuer bid that commenced in June 2018 and proceeds from the exercise of options and warrants were
offset by foreign currency translation and investments in property and equipment. The decline in property and equipment reflects
normal course amortization net of a negligible amount capitalized to property and equipment on acquisition. The increase in deferred
tax assets represents timing differences between accounting and tax for intangible assets and higher tax losses carried forward,
partially offset by lower deferred tax asset amounts attributable to the second earn-out payment made to the sellers of Linear. Finally,
the increase in goodwill was attributable to our interests acquired in joint ventures.
2017-2016
Total assets increased $35.7 million or 18.7% between September 30, 2017 and September 30, 2016. Cash and cash equivalents
increased $44.9 million, due to excess proceeds from the Company’s IPO of $51.4 million, partially offset by a $5.1 million use of cash
due to our election to pay appraisal vendors faster. Deferred tax assets increased $12.1 million between September 30, 2017 and
September 30, 2016. This increase was the result of a change in accounting and tax values for intangible assets due to the amortization
of intangible assets more quickly for accounting than tax. The increase in deferred tax assets attributable to intangible assets was
partially offset by a decline in deferred tax assets due to a change in non-deductible accounting reserves. Intangible assets declined
$19.6 million between September 30, 2017 and September 30, 2016 due to normal course amortization. The remainder of the change
in total assets was due to lower investments in equity accounted investees of $7.7 million, due in part to an impairment charge
recorded in fiscal 2017, higher goodwill resulting from an amendment to a joint venture agreement and the purchase of the remaining
interest in a joint venture in fiscal 2017, and higher trade and other receivables due to net organic growth from new clients and market
share increases with existing clients.
25
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Total Long-Term Liabilities
2018-2017
Total long-term liabilities declined $9.2 million or 68.0% between September 30, 2018 and September 30, 2017. Warrant liabilities
declined $9.0 million due in large part to the decline in our share price, coupled with the exercise of certain warrants in the current
year. The balance of the change reflects normal course payments for finance lease obligations.
We expect to satisfy our total long-term liabilities as they come due based on our expectations of future operating performance.
2017-2016
Total long-term liabilities declined $23.2 million or 63.3% between September 30, 2017 and September 30, 2016. Long-term debt
declined $14.4 million between September 30, 2017 and September 30, 2016 due to the full repayment of amounts outstanding from
a portion of the proceeds raised from our IPO. Other liabilities declined $9.5 million between September 30, 2017 and September 30,
2016 due to the reclassification of contingent amounts payable to the sellers of Linear from other liabilities to accrued charges since
the amount payable would be satisfied within a year.
Summary of Quarterly Results
2018
Revenues
U.S. Appraisal
U.S. Title
Canada
Total revenues
Net (loss) income
Net (loss) income - attributable to
common shareholders
Net (loss) income per weighted
average share, basic
Net (loss) income per weighted
average share, diluted
2017
Revenues
U.S. Appraisal
U.S. Title
Canada
Total revenues
Net loss
Net loss - attributable to
common shareholders
Net loss per weighted
average share, basic
Net loss per weighted
average share, diluted
Q4
Q3
Q2
Q1
Total
$
$
$
$
$
46,366
14,505
7,118
67,989
(2,544)
50,129
14,995
8,399
73,523
941
42,936
16,327
6,806
66,069
2,977
47,033
19,393
7,444
73,870
(5,389)
186,464
65,220
29,767
281,451
(4,015)
$
$
$
$
$
$
$
$
$
$
$
(2,615)
$
758
$
2,826
$
(5,540)
$
(4,571)
$
(0.03)
$
0.01
$
0.03
$
(0.06)
$
(0.05)
$
(0.03)
$
0.01
$
0.03
$
(0.06)
$
(0.05)
Q4
Q3
Q2
Q1
Total
$
$
$
$
$
48,359
19,305
9,008
76,672
(8,754)
38,444
19,149
6,925
64,518
(8,908)
45,877
25,875
7,142
78,894
(2,285)
186,380
84,862
31,734
302,976
(23,769)
$
$
$
$
$
$
$
$
$
$
53,700
20,533
8,659
82,892
(3,822)
$
(3,886)
$
(8,813)
$
(8,980)
$
(2,335)
$
(24,014)
$
(0.04)
$
(0.11)
$
(0.12)
$
(0.03)
$
(0.30)
$
(0.04)
$
(0.11)
$
(0.12)
$
(0.03)
$
(0.30)
26
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Revenues
U.S. Appraisal Segment
2018
2017
Q4
46,366
53,700
$
$
Q3
50,129
48,359
$
$
Q2
42,936
38,444
$
$
Q1
47,033
45,877
$
$
Total
186,464
186,380
$
$
Change (2018-2017)
$
(7,334)
$
1,770
$
4,492
$
1,156
$
84
2018-2017
U.S. Appraisal
Our U.S. Appraisal segment delivered modest organic growth in each of the first three quarters of fiscal 2018 despite the estimated
market decline when compared to the same periods in fiscal 2017 and lower market volumes serviced by the clients we serve. Revenue
growth is the result of market share gains with existing clients and new client additions.
In the fourth quarter of fiscal 2018, U.S. Appraisal segment revenues declined. However, we posted a market share improvement over
the same period in fiscal 2017 after adjusting for the estimated market impact for such period. The volumes we serviced in the fourth
quarter of fiscal 2018 declined compared to the same quarter in fiscal 2017 and estimated mortgage origination volumes also declined
over the same period due to lower overall market activity. The decline in fourth quarter revenues was due to a combination of lower
volumes and lower pricing from the volumes we serviced due to service mix, geography and the supply of volumes from our clients.
U.S. Title Segment
2018
2017
Q4
14,505
20,533
$
$
Q3
14,995
19,305
$
$
Q2
16,327
19,149
$
$
Q1
19,393
25,875
$
$
Total
65,220
84,862
$
$
Change (2018-2017)
$
(6,028)
$
(4,310)
$
(2,822)
$
(6,482)
$
(19,642)
2018-2017
U.S. Title
U.S. Title segment revenues declined in the first quarter of fiscal 2018 compared to the first quarter of fiscal 2017 due to lower
estimated residential mortgage origination market volumes, and more specifically, lower refinance related activity. Lower refinance
volumes reflect the difference in interest rate environments between periods, which saw first quarter fiscal 2017 interest rates reach
historical lows due to various economic and political factors, which in turn fueled higher refinance activity in that period. U.S. Title
revenues in the first quarter of fiscal 2018 also included lower-margin revenues due to service mix and we recorded contributions to
revenues from the consolidation of joint ventures previously accounted for as equity accounted investees.
U.S. Title revenues declined in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017 due to lower market
volumes. The decline in U.S. Title revenues in the second quarter of fiscal 2018 was also attributable to the rationalization of certain
service offerings to permit greater focus on long-term growth opportunities. The consolidation of joint ventures previously accounted
for as equity accounted investees partially offset the declines in U.S. Title revenues between the second quarters of fiscal 2018 and
2017.
U.S. Title segment revenues declined in the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017 due in part to
lower refinance volumes. The decline in U.S. Title revenues was also attributable to lower diversified revenues. The consolidation of
joint ventures previously accounted for as equity accounted investees partially offset the declines in U.S. Title revenues between the
third quarter of fiscal 2018 and 2017.
U.S. Title revenues declined in the fourth quarter due to lower refinance volumes and lower diversified revenues serviced, which
resulted in us exiting the fourth quarter of fiscal 2018 with a lower share of the estimated refinance market compared to the same
period in fiscal 2017 after adjusting for the estimated market impact for such period. The decline in our market share of the U.S. title
market was primarily due to refinance volumes we serviced declining faster than the overall estimated market decline, which was
27
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
partially offset by higher pricing. We also realized a decline in diversified revenues from lower third-party search work, partially offset
by higher revenues from capital markets revenues in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017.
Canadian Segment – expressed in thousands of Canadian dollars (“C$”)
2018
2017
Q4
9,313
10,905
$
$
Q3
10,825
12,091
$
$
Q2
8,606
9,161
$
$
Q1
9,465
9,527
$
$
Total
38,209
41,684
$
$
Change (2018-2017)
$
(1,592)
$
(1,266)
$
(555)
$
(62)
$
(3,475)
2018-2017
Revenues in Canada declined in each quarter of fiscal 2018 compared to the same quarters in fiscal 2017. We serviced higher appraisal
volumes as a result of increased market share with certain Canadian clients; however, this growth was offset by a weaker comparative
Canadian market.
Net (loss) income
2018
2017
Q4
(2,544)
(3,822)
$
$
Q3
941
(8,754)
$
$
Q2
2,977
(8,908)
$
$
Q1
(5,389)
(2,285)
$
$
Total
(4,015)
(23,769)
$
$
Change (2018-2017)
$
1,278
$
9,695
$
11,885
$
(3,104)
$
19,754
Net loss or income generally follows the rise and fall in revenues due to the seasonal nature of our business. However, net income or
loss is also impacted by changes in stock-based compensation expense, amortization, acquisition and IPO recoveries or costs,
integration expenses, impairment of assets, interest expense, interest income, net foreign exchange gains or losses, gains or losses on
fair value of warrants and re-measurement gains or losses on a previously held equity method investment, which are not tied to the
seasonal nature of our business and fluctuate with other non-operating variables. Net income tax expense or recovery and net income
or loss from equity accounted investees also impacts net income or loss.
2018-2017
Our net loss in the first quarter of fiscal 2018 was higher than the net loss we recognized in the first quarter of fiscal 2017. U.S. tax
reform lowered our statutory corporate income tax rate and this change had the most pronounced impact on the increase in net losses
between the first quarter of fiscal 2018 and the first quarter of fiscal 2017. U.S. tax reform resulted in a significant reduction to the
carrying amount of our deferred tax assets, which we previously recorded at a higher U.S. corporate tax rate, and resulted in a one-
time charge to deferred tax expense recorded in our consolidated statements of operations and comprehensive loss. Lower Adjusted
EBITDA(A), due to lower residential mortgage origination volumes, particularly for residential mortgage refinance activity, and lower
net foreign currency exchange gains due to less period-to-period change between the Canadian and U.S. dollar also contributed to
higher net losses in the current versus prior year quarter. These contributions to higher net losses were partially offset by higher gains
on the fair value of warrants and a re-measurement gain on a previously held equity method investment. Higher gains on the fair value
of warrants was due to a decline in our share price since the fourth quarter of fiscal 2017, and we also recognized gains on certain
warrants exercised during the first quarter of 2018 as a result of their exercise occurring at a lower price than the fair value attributable
to each warrant at the end of fiscal 2017. The re-measurement gain recorded in the first quarter of fiscal 2018 was due to an
amendment to an operating agreement with one of our joint venture partners and resulted in us obtaining control over the joint
venture. In connection with this amendment we re-measured our original investment in this investee at the change of control date
and recognized a non-cash gain on re-measurement.
We recognized net income in the second quarter of fiscal 2018 compared to a net loss in the same quarter of fiscal 2017. Adjusted
EBITDA(A) was higher in the second quarter of fiscal 2018 due to higher consolidated revenues and lower transaction costs and
operating expenses. Strong U.S. Appraisal revenue growth was partially offset by lower U.S. Title revenues due to lower market
volumes and the rationalization of certain U.S. Title service offerings. The decline in U.S. Title revenues resulted in a similar decline in
transaction costs and operating expenses. Higher net income in the second quarter of fiscal 2018 compared to the second quarter of
fiscal 2017 was also due to lower acquisition and IPO costs, lower expenses attributable to the impairment of assets, higher net foreign
28
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
currency exchange gains and higher gains on the fair value of warrants, partially offset by lower income tax recoveries. In the second
quarter of fiscal 2017, we incurred IPO costs for third-party professional services and we recognized an impairment charge related to
two equity accounted investees recorded in our U.S. operations that we determined were impaired. There were no equivalent
expenses recognized in the second quarter of fiscal 2018. Higher net foreign currency gains in the second quarter of fiscal 2018
represented non-cash gains on long-term financing arrangements between a Canadian and U.S. entity within the consolidated group
of companies and gains recognized on the revaluation of U.S. denominated short-term investments. Higher net foreign currency
exchange gains were due to higher period-to-period changes between the Canadian and U.S. dollar. Higher gains on the fair value of
warrants were due to a decline in our share price which compared to a modest increase in the comparative period. Each of these
changes impacted the decline in income tax recoveries between periods.
We recognized net income in the third quarter of fiscal 2018 compared to a net loss in the comparative quarter of fiscal 2017. Higher
net foreign currency exchange gains, representing non-cash gains on long-term financing arrangements between a Canadian and U.S.
entity within the consolidated group of companies and gains recognized on the revaluation of U.S. denominated short-term
investments recorded as cash equivalents, had the largest contribution to the improvement in net income between periods. Gains on
warrant liabilities also contributed to the increase in net income between quarters, which reflects the decline in our share price in the
third quarter of fiscal 2018 versus the same quarter in fiscal 2017. In the third quarter of fiscal 2018, net income also benefited from
no IPO costs when compared to the same quarter in fiscal 2017. These improvements to net income were partially offset by lower
Adjusted EBITDA(A) due to a significant decline in Net Revenue(A) generated by our U.S. segments. Lower Net Revenue(A) was
attributable to a higher composition of lower-margin U.S. Appraisal service revenues, revenue mix and lower Net Revenue(A) margins
from our U.S. Title segment and capacity building in our U.S. Appraisal segment in anticipation of higher spring market volumes that
came in lighter than expected. In contrast, operating expenses declined on lower payroll and related costs in our U.S. Title segment
due to lower volumes, our continuing shift to a network managed business model for U.S. Title services, the integration of certain
operations and lower legal and office costs. Higher Net Revenue(A) and lower operating expenses in our Canadian segment from mix
of revenues and lower transaction costs to service lower appraisal revenues improved Adjusted EBITDA(A) comparatively. Finally, higher
income before income tax expense or recovery in the third quarter of fiscal 2018 resulted in an increase to income tax expense on a
comparative basis.
We recognized a lower net loss in the fourth quarter of fiscal 2018 compared to the same period in fiscal 2017. Lower amortization
expense, lower losses on net foreign currency exchange and higher income tax recoveries, were partially offset by lower acquisition
and IPO recoveries and lower Adjusted EBITDA(A). The decline in amortization expense reflected lower intangible asset amortization in
our U.S. Appraisal segment due to fully amortized intangibles attributable to an acquisition we completed in 2015, partially offset by
higher amortization attributable to our Denver facility. Lower amortization expense in our Corporate segment was due to fully
amortized investments in our technology platform. Net foreign currency exchange losses were lower due to movements in the foreign
currency exchange rate between the Canadian and U.S. dollar which impacts non-cash losses on long-term financing arrangements
between a Canadian and U.S. entity within the consolidated group of companies and losses recognized on the revaluation of U.S.
denominated short-term investments recorded as cash equivalents. Higher income tax recoveries in the fourth quarter of fiscal 2018
were due to higher comparative quarter tax recoveries for non-deductible expenses and non-taxable income, partially offset by lower
losses before tax in the current year quarter and a lower tax rate in the U.S. In the fourth quarter of fiscal 2017, we recognized a
recovery due to the settlement of certain amounts owing to the sellers of Linear, partially offset by additional IPO costs. No such
recovery or cost was recognized in the current year quarter. Finally, we recognized lower Adjusted EBITDA(A) from declining or flat
revenues across all three segments due to lower estimated market volumes. Our U.S. Appraisal segment also realized lower pricing
attributable to product mix and geography, while our U.S. Title segment recognized lower diversified revenues in the current year
quarter as well. Lower revenues translated into lower Net Revenues(A), which were partially offset by expanding Net Revenue(A)
margins across each of our reporting segments. Reductions to operating expenses were realized across every segment and yielded
improvements to Adjusted EBITDA(A) margins in each segment. With corporate costs remaining flat with the prior year quarter,
Adjusted EBITDA(A) margins calculated on a consolidated basis declined between quarters due to lower Net Revenues(A).
Net (loss) income per weighted average share, basic and diluted
2018-2017
Details of the change in net income or loss by quarter are detailed above. Our weighted average share count was impacted by the
successful completion of our IPO in the third quarter of fiscal 2017, stock option grants and forfeitures, and the exercise of certain
warrants which had a modest impact on net loss per share amounts. In the third and fourth quarters of fiscal 2018, shares purchased
under the Company’s normal course issuer bid also impacted the weighted average share count, basic and diluted.
29
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Financial Condition
Select Consolidated Statement of Financial Position (“Balance Sheet”) Information
Trade and other receivables
Intangibles
Goodwill
Working capital position
-(current assets less current liabilities)
Trade and other receivables
Intangibles
Goodwill
Working capital position
-(current assets less current liabilities)
U.S.
Canada
Corporate
Total
As at September 30, 2018
$
$
$
22,279
18,635
60,477
$
1,792
$
-
$
-
$
-
$
-
$
-
$
$
$
24,071
18,635
60,477
$
33,445
$
1,974
$
45,467
$
80,886
U.S.
Canada
Corporate
Total
As at September 30, 2017
$
$
$
30,667
36,837
58,890
$
1,433
$
-
$
-
$
-
$
$
-
34
$
$
$
32,100
36,871
58,890
$
32,667
$
158
$
48,557
$
81,382
Trade and other receivables – September 30, 2018 versus September 30, 2017
Change - Consolidated
Change - U.S.
Change - Canada
Change - Corporate
(8,029)
$
(8,388)
$
359
$
$
-
Lower U.S. trade and other receivables were due to lower revenues from a decline in estimated mortgage origination volumes and
lower diversified services. In addition, we improved collections since September 30, 2017, which lowered our trade and other
receivables balance outstanding as of September 30, 2018. The increase in Canadian trade and other receivables was due to the timing
of payment from a primary client we service in Canada.
Intangibles – September 30, 2018 versus September 30, 2017
Change - Consolidated
Change - U.S.
Change - Canada
Change - Corporate
The decline in intangibles was due to normal course amortization recorded in our U.S. and Corporate operations.
Goodwill – September 30, 2018 versus September 30, 2017
Change - Consolidated
Change - U.S.
Change - Canada
Change - Corporate
(18,236)
$
$
(18,202)
$
-
$
(34)
1,587
$
$
1,587
$
-
$
-
In the first quarter of fiscal 2018, we amended an operating agreement with a joint venture partner and obtained control of the joint
venture on October 1, 2017. We discontinued the use of equity method accounting as a result of this amendment and recognized
goodwill of $1.0 million on the application of business combinations guidance. In addition, we purchased the remaining ownership
interest in another joint venture which resulted in us recognizing $0.6 million of goodwill.
30
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Working capital position – September 30, 2018 versus September 30, 2017
Change - Consolidated
Change - U.S.
Change - Canada
Change - Corporate
$
$
$
$
(496)
778
1,816
(3,090)
Our consolidated working capital position declined by $0.5 million as of September 30, 2018 compared to the same date last year. The
decline in our working capital position reflects lower trade and other receivables of $8.0 million and a lower cash and cash equivalents
position of $3.6 million. Lower cash and cash equivalents was due to us generating $10.4 million in cash from operations, of which,
we applied $10.0 million to satisfy the second earn-out payment paid to the sellers of Linear in April 2018. We invested $3.3 million in
the purchase of our shares under a normal course issuer bid that commenced in June 2018 and proceeds from the exercise of options
and warrants were offset by foreign currency translation and investments in property and equipment. The earn-out payment to the
sellers of Linear reduced accrued charges by $10.0 million and the $0.8 million decline in trade payables and remaining $0.4 million
decline in accrued charges was due to lower estimated market volumes and lower diversified services supplied.
The working capital position in our U.S. operations improved by $0.8 million as of September 30, 2018 compared to the same date
last year, for many of the same reasons outlined in the consolidated discussion. Accrued charges declined $10.4 million due to the
earn-out payment and to a lesser extent lower estimated market volumes and diversified services supplied. Trade and other
receivables declined $8.4 million due to lower revenues and stronger collections, as outlined above. The balance of the change was
due to a lower cash and cash equivalent balance of $1.6 million, due to timing, and a lower trade payables balance of $0.6 million due
to lower estimated market volumes and lower diversified services supplied.
The working capital position in our Canadian operations improved $1.8 million as of September 30, 2018 compared to the same date
last year, which was offset by a $3.1 million decline in our Corporate segment. In total, lower cash and cash equivalents balances of
$2.0 million were due to share purchases made under the normal course issuer bid. Higher trade and other receivables balances of
$0.4 million partially offset the decline in cash and cash equivalents due to the timing of payment from a primary client we service in
Canada. The balance of the decline for our Canadian operations and Corporate was due to lower trade payables balances, reflecting
lower market activity in the fourth quarter of fiscal 2018 as compared to the fourth quarter of fiscal 2017.
Disclosure of outstanding share capital
Common shares
Preferred shares
Total contributed equity
Common shares
Preferred shares
Total contributed equity
September 30, 2018
$
Shares
88,228
-
88,228
261,553
-
261,553
November 27, 2018
$
Shares
87,817
-
87,817
260,292
-
260,292
Normal course issuer bid (“NCIB”)
Effective June 11, 2018, we received approval of a NCIB to purchase up to 4,000 of our common shares over a twelve month period
expiring on June 10, 2019. Daily purchases on the Toronto Stock Exchange, or through alternative Canadian trading systems, are limited
to a maximum of 41.436 shares. Once a week, we are permitted to purchase a block of our common shares which can exceed the daily
purchase limit subject to certain conditions, including a limitation that the block cannot be owned by an insider. All shares purchased
pursuant to the NCIB will be cancelled.
For the year ended September 30, 2018, 758 common shares were purchased and cancelled at an aggregate cost of $3.3 million.
As of November 27, 2018, 456 additional common shares were purchased and cancelled or settled.
31
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Warrants
We previously issued a number of purchase warrants which expire either two or five years following the date of our IPO. At September
30, 2018, warrants issued, outstanding and exercisable for common shares of the Company totaled 1,536.
Stock options
At September 30, 2018, stock options outstanding totaled 5,983 of which 3,984 are exercisable for common shares of the Company.
Liquidity and Capital Resources
Contractual obligations
Operating leases
Capital leases
Total contractual obligations
Payments due
Less than 1
year
Total
1-3 years
4-5 years
After 5 years
September 30, 2018
$
$
$
$
$
8,140
188
8,328
1,937
178
2,115
2,666
10
2,676
1,972
-
1,972
$
$
$
$
$
1,565
-
1,565
Long-term debt
Summarized details of our long-term debt facilities at September 30, 2018 are as follows:
Senior term facilities
2016 facility
2015 facility
Available
lending Facility drawn
Available
capacity(1)
$
$
27,000
20,000
$
-
$
-
$
$
19,500
10,000
Revolving credit facility - expressed in C$
Revolving credit facility
Note
(1) Available capacity is subject to senior funded debt to EBITDA, fixed charge coverage ratios and unfunded capital expenditures in respect of our senior term facilities,
$
-
$
$
15,000
15,000
and good quality receivables in respect of our revolving credit facility.
Senior funded debt to EBITDA and fixed charge coverage ratios (as defined and calculated in accordance with the agreement)
Senior funded debt to EBITDA
Senior funded debt to EBITDA - maximum
Fixed charge ratio
Fixed charge ratio - minimum
2018
0.04
2.50
10.19
1.20
September 30
2017
0.06
3.00
18.03
1.20
On September 30, 2018, there were no advances under the senior term facilities or revolving credit facility. Available capacity under
the revolving facility was C$15.0 million and $29.5 million was available under the senior term facilities on September 30, 2018. Our
senior funded debt to EBITDA ratio (as defined and calculated in accordance with the agreement) was 0.04 times.
At September 30, 2018, we were not in default of our covenants under the long-term debt facilities.
32
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Long-term debt facilities – September 30, 2018
On March 31, 2016, in connection with the acquisition of Linear, we entered into our first amendment to a second amended and
restated term sheet amplification agreement with Bank of Montreal and Bank of Montreal, Chicago Branch (the “agreement”). The
agreement made available a C$15.0 million revolving credit facility and two term loans of $20.0 million and $27.0 million, each. The
revolving credit facility (the “revolver”) is available for working capital and general operating requirements and the term loans were
used in conjunction with certain business acquisitions.
Repayments on the revolver are interest only until the date of maturity, April 30, 2020. Total advances under the revolver cannot
exceed 75% of our trade receivables, excluding trade receivables that are past due by 60 days or greater, and up to 120 days or greater
in certain circumstances, subject to certain adjustments (“good quality receivables”). The revolver can be drawn in either Canadian or
U.S. funds, subject to Canadian prime or U.S. base rates of interest, bankers’ acceptances or letters of credit. The senior term facilities
are available for certain completed or permitted acquisitions and general working capital and general corporate purposes. The term
loans amortize at a rate of 2% quarterly, 8% annually, over a five-year period with the remaining unamortized balance due at maturity,
being May 1, 2020 and April 1, 2021, respectively. The term loans can consist of: (i) Canadian or U.S. prime rate advances, subject to
interest at the Canadian prime or U.S. base lending rate, respectively, plus the applicable credit spread, (ii) a LIBOR loan, bearing
interest at LIBOR plus the applicable credit spread, or (iii) Canadian bankers’ acceptances (“BAs”), bearing interest at BAs plus the
applicable credit spread. The term loans are subject to mandatory prepayment conditions, including: 50% of the excess annual cash
flow if the senior funded debt to EBITDA ratio is greater than 3.0:1.0 (currently 2.5:1.0); 100% of the proceeds from equity or debt
securities issued by the Company, including any sale or disposition of assets that is not in the ordinary course and that aren’t reinvested
within 180 days; and, proceeds from insurance claims not otherwise reinvested within 180 days from receipt.
Applicable spreads vary based on senior funded debt to EBITDA levels ranging from under 1.0 times to over 3.0 times. Canadian and
U.S. prime/base rate advances are subject to an applicable spread between 25 and 175 basis points. BAs and LIBOR loans are subject
to an applicable spread between 150 and 300 basis points and we incur a standby fee of between 40 and 60 basis points on unused
drawings.
Included in the long-term debt facility is a treasury risk management facility of up to C$0.5 million to facilitate hedges of foreign
currency exchange risk between the Canadian and U.S. dollar that occurs in the normal course of business. This facility may be used
to facilitate the use of foreign currency exchange contracts for up to one year and we bear fees determined by the lenders’ treasury
department on a per transaction basis. In addition, the long-term debt facility provides us with a corporate credit card facility of up to
C$0.8 million to assist with the management of corporate expenses.
The long-term debt facility is secured by a general security agreement, which provides the lender with a first, fixed and floating charge
over all assets, including intellectual property, an unlimited guarantee and postponement of claim by all wholly owned subsidiaries,
and certain other securities.
Risks and restrictions
Our revolving and senior term facilities are subject to interest rate fluctuations with bank prime, BAs or LIBOR. All drawings, if any, are
subject to interest rate risk. Since we currently have no amounts drawn on our revolving or senior term facilities, a rise or fall in the
variable interest rate does not impact interest expense.
We are obligated under the terms of our long-term debt facilities to repay all remaining amounts outstanding, if any, at maturity. A
failure to comply with the terms of the long-term debt facilities could result in an event of default which, if not cured or waived, could
accelerate repayment of the underlying indebtedness. If repayment of the facility were to be accelerated, when amounts are
outstanding, there can be no assurance that our assets would be sufficient to repay these facilities in full.
33
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Cash flows
Cash flows generated from (utilized in):
Operating activities
Investing activities
Financing activities
2018
Year ended September 30
Change
2017
$
$
$
10,372
(13)
(12,114)
$
$
$
(8,523)
(1,228)
51,227
$
$
$
18,895
1,215
(63,341)
Year ended
Operating activities
Cash generated from operating activities was $10.4 million in fiscal 2018, representing an increase of $18.9 million over fiscal 2017.
Non-cash working capital items increased cash generated from operating activities by $14.1 million compared to fiscal 2017. The
improvement in non-cash working capital was due to improved trade and other receivables balances and lower uses of cash for trade
payables and accrued charges, partially offset by the effect of foreign currency translation adjustments and other non-cash changes
resulting from changes in the FX rate. Lower acquisition and IPO costs in fiscal 2018 and higher gains from foreign currency exchange
due to changes in the relationship between the Canadian and U.S. dollar also contributed to the increase in cash generated from
operating activities as compared to fiscal 2017. These sources of cash were partially offset by lower Adjusted EBITDA(A) of $3.6 million,
details of which are outlined in the “Review of Operations – For the year ended September 30, 2018” section of this MD&A, and higher
income taxes paid due to the timing of payment.
Investing activities
Cash utilized in investing activities declined $1.2 million in fiscal 2018 compared to fiscal 2017. The primary reason for the decline was
due to lower investments in property and equipment of $1.4 million. Investments to build out our Denver facility in fiscal 2017 were
not repeated in fiscal 2018. The balance of the change was due to lower dividends received from equity accounted investees, since all
joint venture arrangements were accounted for as controlled subsidiaries in fiscal 2018, partially offset by lower investments in equity
accounted investees.
Financing activities
Cash generated from financing activities declined $63.3 million in fiscal 2018 versus fiscal 2017. In fiscal 2018, cash utilized in financing
activities totaled $12.1 million versus $51.2 million of cash generated from financing activities in fiscal 2017. In fiscal 2017, we
completed our IPO raising net proceeds of $87.8 million. In fiscal 2017, we used a portion of these proceeds to repay our long-term
debt facilities in satisfaction of the mandatory repayment requirements, being $15.7 million, and paid $20.0 million representing the
year-one earn-out payable to the sellers of Linear, which left us with a net cash inflow of $52.1 million. The balance of the change was
the result of other insignificant changes. In contrast, in fiscal 2018 we paid the year-two earn-out payment of $10.0 million to the
sellers of Linear, purchased our shares under the normal course issuer bid for $3.2 million and received proceeds from the exercise of
stock options totaling $2.1 million. The balance of activity in fiscal 2018 was insignificant.
34
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Foreign Currency Exchange Rates
Although our functional currency is the Canadian dollar, we have elected to report our financial results in U.S. dollars to improve the
comparability of our results with our peers. Reporting our financial results in U.S. dollars also reduces the impact foreign currency
exchange fluctuations have on our reported amounts because our complement of assets and operations are larger in the U.S. than
they are in Canada.
Our consolidated financial position and operating results have been translated to U.S. dollars applying FX rates outlined in the table
below. FX rates are expressed as the amount of U.S. dollars required to purchase one Canadian dollar. Through March 31, 2017, FX
rates represent noon rates according to the Bank of Canada. Subsequent to March 31, 2017, FX rates represent the daily average rate
published once each business day by the Bank of Canada.
Fiscal 2018
Fiscal 2017
Consolidated
Balance Sheet
Consolidated
Statement of Operations and
Comprehensive Income or loss
Consolidated
Balance Sheet
Consolidated
Statement of Operations and
Comprehensive Income or loss
Current
Average
Cumulative
Average
Current
Average
Cumulative
Average
December 31
March 31
June 30
September 30
$
$
$
$
0.7971
0.7756
0.7594
0.7725
$
$
$
$
0.7865
0.7906
0.7745
0.7652
$
$
$
$
0.7865
0.7885
0.7838
0.7791
$
$
$
$
0.7448
0.7506
0.7706
0.8013
$
$
$
$
0.7496
0.7559
0.7436
0.7984
$
$
$
$
0.7496
0.7528
0.7497
0.7613
FX Impact on Consolidated Results
The following tables have been prepared to assist readers in assessing the FX impact on selected results for the three months and year
ended September 30, 2018.
September 30,
2017
September 30,
2018
September 30,
2018
Three months ended
September 30,
2018
(as reported)
(as reported)
(FX impact)
(current period
amounts applying
prior period FX
rate)
$
$
$
$
82,892
58,863
21,482
(3,822)
$
$
$
$
67,989
48,426
17,760
(2,544)
$
$
$
$
(308)
(251)
(205)
(60)
$
$
$
$
68,297
48,677
17,965
(2,484)
$
24,029
$
19,563
$
(57)
$
19,620
$
2,916
$
2,142
$
128
$
2,014
$
717
$
1,568
$
100
$
1,468
Consolidated Statement of Operations
Revenues
Transaction costs
Operating expenses
Net loss
Net Revenue
(A)
Adjusted EBITDA
(A)
Adjusted Net Income
Note: (A) – Please refer to the “Non-GAAP measures” section of this MD&A
(A)
35
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
September 30,
2017
September 30,
2018
September 30,
2018
(as reported)
(as reported)
(FX impact)
Year ended
September 30,
2018
(current year
amounts
applying prior
year FX rate)
$
$
$
$
302,976
210,682
86,411
(23,769)
$
$
$
$
281,451
198,683
78,680
(4,015)
$
$
$
$
679
559
434
(119)
$
$
$
$
280,772
198,124
78,246
(3,896)
$
$
92,294
9,380
$
$
82,768
5,793
$
$
120
(275)
$
$
82,648
6,068
$
2,763
$
6,724
$
(256)
$
6,980
Consolidated Statements of Operations
Revenues
Transaction costs
Operating expenses
Net loss
Net Revenue(A)
Adjusted EBITDA(A)
Adjusted Net Income(A)
Note: (A) – Please refer to the “Non-GAAP measures” section of this MD&A
Critical Accounting Estimates
General
We use information from our financial statements, prepared in accordance with IFRS and expressed in U.S. dollars, to prepare our
MD&A. Our financial statements include estimates and judgments that affect the reported amounts of our assets, liabilities, revenues,
expenses and, where and as applicable, disclosures of contingent assets and liabilities. On a periodic basis we evaluate our estimates,
including those that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Areas that
are subject to judgment and estimate include revenue recognition, impairment of goodwill and non-financial assets, the determination
of fair values in connection with business combinations, the determination of fair value for warrants and financial instruments and the
likelihood of realizing deferred income tax assets. Our estimates and judgments are based on historical experience, our observation
of trends, and information, valuations and other assumptions that we believe are reasonable when making an estimate of an asset or
liabilities fair value. Due to the inherent complexity, judgment and uncertainty in estimating fair value, actual amounts could differ
significantly from our estimates.
Areas requiring the most significant estimate and judgment are outlined below.
Revenue recognition
Transactions that contain separately identifiable components must be recognized at the fair value of consideration received or
receivable to reflect the substance of the transaction. We are required to make judgments about the fair value of each component,
including its allocation to each separately identified component, by considering the following: our overall pricing objectives, the market
in which the transaction occurs, the uniqueness of each component, the work performed, the size of the transaction and any historical
sales and contract prices.
Accordingly, we apply judgment in our assessment of whether we are acting as an agent or principal to a transaction. When we don’t
have exposure to significant risks and rewards associated with the sale of goods or the rendering of services, we are acting as an agent
in the transaction. We act as a principal in the transaction when we have exposure to the significant risks and rewards associated with
the sale of goods or the rendering of services. We consider these factors, amongst others, in our assessment.
Goodwill
Goodwill is not amortized and is tested annually for impairment or more frequently if an event or circumstance occurs that more likely
than not reduces the fair value of a cash generating unit (“CGU”), or group of CGUs, below its carrying amount. Examples of such
events or circumstances include: a significant adverse change in the technological, market, economic or legal environment in which
an entity operates; changes in market interest rates or other market rates of return on investments that are likely to affect the discount
rate used in calculating an assets value in use; the carrying amount of the net assets of the entity is more than its market capitalization;
evidence of physical damage to the asset or obsolescence is present; significant changes to an asset’s expected use; or, performance
expectations for the asset are worse than were expected. Goodwill is not tested for impairment when the assets and liabilities that
36
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
make up the CGU unit have not changed significantly since the most recent fair value determination, the most recent fair value
determination results in an amount that exceeded the carrying amount by a substantial margin, and based on an analysis of events
that have occurred and circumstances that have changed since the most recent fair value determination, the likelihood that a current
fair value determination would be less than the current carrying amount of the CGU is remote. The amount of goodwill assigned to
each CGU and methodology employed to make such assignments has been applied on a consistent basis. For the purpose of testing
goodwill for impairment, our CGU’s align with our operating segments since this is consistent with the level at which goodwill is
monitored.
The carrying value of a CGU or group of CGUs is compared to its recoverable amount, where the recoverable amount is the higher of
fair value less cost to sell and its value in use. The value in use for a CGU or group of CGUs is determined by discounting three-year
cash flow projections from financial forecasts prepared by management. Projections reflect past experience and future expectations
of operating performance and we apply perpetuity growth rates to cash flows in the terminal year. None of the perpetuity growth
rates exceed the long-term historical growth rates for the markets in which we operate. The discount rates applied to the cash flow
projections are derived from the weighted average cost of capital of comparable publicly traded companies.
We monitor both economic and financial conditions and we re-perform our goodwill test for impairment as conditions dictate.
Business combinations
Applying the acquisition method to business combinations requires us to measure each identifiable asset and liability at fair value. The
excess, if any, of the fair value of consideration over the fair value of the net identifiable assets acquired is recognized as goodwill. The
purchase price allocation involves judgment with respect to the identification of intangible assets acquired and our fair value estimates
for the assets acquired and liabilities assumed, including pre-acquisition contingencies and contingent consideration. Changes in any
of the assumptions or estimates used to identify intangible assets acquired, determine the fair value of acquired assets and liabilities
assumed, including pre-acquisition contingencies or contingent consideration, could affect the amounts assigned to assets, liabilities
and goodwill in the purchase price allocation.
We make estimates, assumptions and judgments when valuing goodwill and other intangible assets in connection with the initial
purchase price allocation of an acquired entity, and our continuing evaluation of the recoverability of goodwill and other intangible
assets. These estimates are based on a number of factors, including historical experience, market conditions, information gained on
our review of the target entities’ operations and information obtained from management of the acquired companies. Critical estimates
in valuing certain intangible assets include, but are not limited to, historical and projected attrition rates, discount rates, anticipated
revenue growth from acquired customers, acquired technology and the expected use of the acquired assets. These factors are also
considered in determining the useful life of acquired intangible assets. The amounts and useful lives assigned to identified intangible
assets also impacts the amount and timing of future amortization expense.
Unanticipated events and circumstances may affect the accuracy or validity of such assumptions, estimates and our actual results.
Warrants
We use the Black-Scholes-Merton option pricing model to estimate the fair value of warrant liabilities, which requires the use of
several input variables. These input variables are subject to estimate and changes in these inputs can materially impact the estimated
fair value of warrant liabilities. The fair value reported may not represent the transaction value if these warrants were exchanged at a
future date.
Income taxes
Deferred income tax is recognized applying the liability method, which recognizes the temporary differences between the carrying
amounts of assets and liabilities for financial reporting and their equivalent tax amounts. Deferred income tax is not recognized on
the initial recording of assets or liabilities for financial reporting purposes that is not a business combination and that affects neither
accounting income nor taxable income or loss. Deferred income tax assets and liabilities are measured applying tax rates expected to
be in effect when the temporary differences reverse, calculated using tax rates that have been enacted or that are substantively
enacted at the reporting date.
Significant changes to enacted tax rates or laws, or estimates of timing differences and their reversal, could result in a material adverse
or positive impact on our financial condition and operating performance. In addition, changes in regulation or insufficient taxable
income could impact our ability to utilize tax loss carryforwards, which could have a significant impact on deferred income tax assets
and deferred income tax expense or recovery.
37
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
The recognition of deferred tax assets attributable to unutilized loss carryforwards is supported by our historical and expected ability
to generate income subject to tax and implement tax planning measures along with other substantive evidence. However, should we
be unable to continue generating income subject to tax, deferred tax assets attributable to unutilized loss carryforwards may not be
available to us prior to their expiry in Canada. We have historically used, and will continue to use, every effort to limit the use of
discretionary tax deductions to maximize our use of loss carryforwards in Canada prior to their expiry. As a result of U.S. tax reform,
unutilized loss carryforwards arising after December 31, 2017 may now be carried forward indefinitely; however, the deduction of
unutilized loss carryforwards in a given tax year is limited to 80% of an entity’s taxable earnings in that year. Should we not be able to
realize our deferred tax assets attributable to loss carryforwards, we would record deferred income tax expense in the period when
we determined the likelihood of realizing these losses was less likely than not. Our maximum exposure is equal to the carrying amount
of the deferred tax asset attributable to loss carryforwards, $8.6 million at September 30, 2018. Accordingly, due to our historical
ability to generate income subject to tax and based on our expectations for the future and available tax strategies, we view the risk of
not realizing these deferred tax assets as low.
Other
Other estimates include, but are not limited to, the following: identification of CGUs, impairment assessments for non-financial assets,
inputs employed in the Black-Scholes-Merton option pricing model to value stock-based compensation, estimating the useful lives of
property and equipment, assessing provisions, estimating the likelihood of collection to determine our allowance for doubtful
accounts, the fair value of financial instruments, control assessment of subsidiaries, contingencies related to litigation and contingent
acquisition payables, claims and assessments and various economic assumptions used in the development of fair value estimates,
including but not limited to, interest and inflation rates and a variety of option pricing model estimates.
New Accounting Policies Adopted or Requiring Adoption
Revenue from Contracts with Customers
In May 2014, the International Accounting Standards Board (“IASB”) issued IFRS 15 “Revenue from Contracts with Customers” (“IFRS
15”), which replaces IAS 18 “Revenue”, IAS 11 “Construction Contracts” and IFRIC 13 “Customer Loyalty Programmes”, as well as
various other interpretations applicable to revenue. IFRS 15 outlines a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers, except for contracts that are within the scope of the standards on leases, insurance
contracts, and financial instruments. The core principle of IFRS 15 requires an entity to recognize revenue in accordance with the
transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to
in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition: identify the
contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the
transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance
obligation. IFRS 15 also contains enhanced disclosure requirements. This new standard is effective for annual periods beginning on or
after January 1, 2018 and will be applied using either a full retrospective approach for all periods presented in the period of adoption
or a modified retrospective approach. Early adoption is permitted. We will apply a modified retrospective approach on transition using
the following practical expedients:
(cid:120)
(cid:120)
On transition, completed contracts that begin and end within the same annual reporting period and those completed before
October 1, 2017 will not be restated.
Costs of obtaining a contract that would be amortized within one year or less will be immediately expensed.
The adoption of IFRS 15 will not have a material impact on the accounting policies, revenue recognition and presentation of our
revenue.
Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 “Financial Instruments” (“IFRS 9”). IFRS 9 issued in November 2009 introduced
new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to
include classification and measurement requirements for financial liabilities and de-recognition. In November 2013, follow on
amendments included new requirements for general hedge accounting. The final revision to IFRS 9 was issued in July 2014, which
included impairment requirements for financial assets and limited amendments to the classification and measurement requirements
for certain simple debt instruments. The new standard established a single classification and measurement approach for financial
assets that reflects the business model in which they are managed and their cash flow characteristics. It also provides guidance on an
entity’s own credit risk relating to financial liabilities. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 and
early adoption is permitted. Based on an analysis of our financial assets and financial liabilities, we will continue measuring them on
38
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
the same basis. Our detailed analysis has also concluded that the application of the expected credit loss model will result in a nominal
impact to the recognition of credit losses for trade receivables. Since we do not apply hedge accounting currently, the new
requirements for general hedge accounting are not applicable.
Disclosure Initiative
In January 2016, the IASB issued Disclosure Initiative Amendments to IAS 7 “Statement of Cash Flows” (“IAS 7”). These amendments
require entities to provide additional disclosures to enable financial statement users to evaluate changes in liabilities arising from
financing activities, including changes arising from cash flows and non-cash changes. These amendments are effective for annual
periods beginning on or after January 1, 2017, with earlier application permitted. We implemented the amendments to IAS 7 for the
year ended September 30, 2018 and have provided the necessary disclosures.
Leases
In January 2016, the IASB issued IFRS 16 – “Leases” (“IFRS 16”), which replaces IAS 17 - Leases (“IAS 17”) and any related
interpretations. IFRS 16 provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases,
unless the lease term is 12 months or less or the underlying value of the asset is low. IFRS 16 substantially carries forward the lessor
accounting in IAS 17 with the distinction between operating leases and finance leases being retained. IFRS 16 can be applied using
either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach for annual
periods beginning on or after January 1, 2019. Early adoption of IFRS 16 is permitted if IFRS 15 has also been adopted. We intend to
adopt the standard using the modified retrospective approach but currently have no intention of early adopting the standard. As at
September 30, 2018, we have operating lease commitments of $8.1 million. A preliminary assessment indicates that these
arrangements will meet the definition of a lease under IFRS 16 and we expect to recognize new assets and liabilities in respect of these
operating leases, which principally relate to office space, upon the adoption of IFRS 16. The new requirement to recognize a right-of-
use asset and a related lease liability is expected to impact the amounts recognized in our financial statements, but we are still
conducting a detailed assessment to determine the resulting impact. In addition, the nature and timing of expenses related to these
leases will change as IFRS 16 replaces straight-line operating lease expense with a depreciation charge for right-of-use assets and
interest expense on lease liabilities. For finance leases where we are a lessee and have already recognized an asset and a related
finance lease liability for the lease arrangement, we do not anticipate the application of IFRS 16 will have a significant impact on the
amounts recognized in our financial statements.
Income Taxes
In January 2016, the IASB issued “Recognition of Deferred Tax Assets for Unrealized Losses”, an amendment to IAS 12 – “Income
Taxes” (“IAS 12”). The amendments address accounting for deferred tax assets for unrealized losses on debt instruments measured at
fair value. The amendments are effective for annual periods beginning on or after January 1, 2017, with earlier application permitted.
The implementation of these amendments did not impact our financial statements.
Share-Based Payment
In June 2016, the IASB issued amendments to IFRS 2 – “Share-based Payment” which clarifies how to account for the effects of vesting
and non-vesting conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net
settlement feature, and modifications to the terms and conditions that change the classification of the transactions. These
amendments are effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The
implementation of these amendments is not expected to impact our financial statements.
Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRS Interpretation Committee 23 – “Uncertainty over Income Tax Treatments”. The interpretation
clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments.
The interpretation requires an entity to determine whether uncertain tax positions are assessed separately or together with one or
more uncertain tax positions, and in making such assessment, an entity is required to assume that the taxation authority will examine
amounts it has a right to examine and has full knowledge of all information when making its examination. An entity must also consider
the probability that the taxation authority will accept an uncertain tax treatment used, or proposed to be used, by the entity in its
income tax filings and reassess any judgments and estimates made if the facts and circumstances change or new information becomes
available. The effective date of the interpretation is for annual periods beginning on or after January 1, 2019 applied retrospectively
or using a modified retrospective application without restatement of comparatives. Earlier application is permitted. The adoption of
the interpretation is not expected to have a significant impact on our financial statements.
39
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Financial Instruments
Credit risk
Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to
discharge its obligation. Our exposure to credit risk is limited principally to cash and cash equivalents and trade and other receivables.
In all instances, our risk management objective, whether of credit, liquidity, market or otherwise, is to mitigate our risk exposures to
a level consistent with our risk tolerance.
Cash and cash equivalents
Certain management are responsible for determining which financial institutions we bank and hold deposits with. Management
typically selects financial institutions that it has a relationship with and those deemed by management to be of sufficient size, liquidity
and stability. Management reviews its exposure to credit risk from time-to-time or as conditions indicate that its exposure to credit
risk has or is subject to change. Our maximum exposure to credit risk is the fair value of cash and cash equivalents recorded on our
consolidated statements of financial position as at September 30, 2018, $68.0 million (September 30, 2017 – $71.6 million). We hold
no collateral or other credit enhancements as security over our cash or cash equivalent balances. We deem the credit quality of our
cash and cash equivalent balances to be high and no amounts are impaired.
Trade and other receivables
We are subject to credit risk on our trade and other receivables in the normal course of business. Our maximum exposure to credit
risk is the fair value of trade and other receivables recorded on our consolidated statements of financial position as at September 30,
2018, $24.1 million (September 30, 2017 - $32.1 million). We may perform credit checks or accept payment or security in advance to
limit our exposure to credit risk. Our client base is sufficiently diverse, and consists of banks and mortgage lending institutions that
are generally of sufficient size and capitalization, to mitigate a portion of any exposure we have to credit risk. We have also assigned
various employees to carry out collection efforts in a manner consistent with our trade receivable and credit and collections policies.
These policies establish procedures to manage, monitor, control, investigate, record and improve trade receivable credit and
collection. We also have policies and procedures which establish estimates for doubtful account allowances. These calculations are
generally based on historical collection. We conduct specific account balance reviews, where practical, and consideration is given to
the credit quality of the client, payment history and other factors specific to the client, including bankruptcy or insolvency.
Trade and other receivables deemed by management to be at risk of collection are provided for through an allowance account. When
trade or other receivables are considered uncollectable, they are written-off against this account. Subsequent recoveries of amounts
previously written-off are credited against the allowance account and subsequently recorded to operating expenses in our
consolidated statements of operations and comprehensive income or loss. Management typically assesses aggregate trade and other
receivables impairment applying our historical rate of collection giving consideration to broader economic conditions.
Trade and other receivables are generally due within 15 to 45 days from the invoice date. Accordingly, all amounts outstanding beyond
this period are past due. Based on historical collections, we have been successful in collecting amounts that are not outstanding for
greater than 90 days. We assess the credit quality of trade and other receivables that are neither past due nor impaired as high. Our
maximum exposure to credit risk is equivalent to our net carrying amount. Trade and other receivables considered impaired at
September 30, 2018 were not considered significant.
Liquidity risk
Liquidity risk is the risk that we will encounter difficulty in meeting our obligations to settle our financial liabilities. Our exposure to
liquidity risk is due primarily to any reliance we may have on long-term debt financing. Certain management are responsible to ensure
that we have sufficient short, medium and long-term liquidity. When amounts are drawn on our long-term credit facilities, we manage
liquidity risk on a continuous basis by monitoring actual and forecasted cash flows and monitoring our available liquidity. Management
regularly monitors the financial terms and conditions outlined in our lending facilities and reports our compliance quarterly to the
audit committee and its lender. We actively manage our liquidity and we are in regular contact with our lender.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk is comprised of currency, interest rate and other price risk.
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in FX rates.
Our exposure to currency risk is attributable to the exchange of U.S. monies to the Canadian dollar or vice versa. We may enter into
FX agreements to mitigate our exposure to currency risk; however, as of the date of this MD&A, we have no FX agreements outstanding
40
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
that require settlement. Accordingly, we are exposed to currency risk on U.S. dollars charged to our U.S. operations in the form of
management fees, royalties and interest on long-term financings. To mitigate this risk, management uses discretion, and actively
reviews its exposure to and need for FX agreements.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Interest rate risk arises from our interest bearing financial assets and liabilities. We have certain financial assets and
liabilities which are exposed to interest rate risk, the most notable of which are our long-term debt facilities when drawn. All long-
term debt facilities are also subject to interest rate risk on maturity or renegotiation.
An increase or decrease in the variable interest rate results in a corresponding increase or decrease to interest expense on principal
amounts drawn under our long-term credit facilities. We are also subject to interest rate risk on any investments we make in cash
equivalent, short-term investments.
Risk management objectives
Our risk management objective is to mitigate risk exposures to a level consistent with our risk tolerance. Derivative financial
instruments are evaluated against the exposures they are expected to mitigate and the selection of a derivative financial instrument
may not increase our net exposure to risk. Derivative financial instruments may expose us to other types of risk, which may include,
but is not limited to, credit risk. The exposure to other types of risk is evaluated against the selected derivative financial instrument
and is subject to a cost versus benefit review and analysis. We do not use derivative financial instruments for speculative or trading
purposes and the value of the derivative financial instrument cannot exceed the risk exposure of the underlying asset, liability or cash
flow it is expected to mitigate.
Fair value methods and assumptions
The fair values of financial instruments, warrants and contingent consideration are calculated using available market information,
commonly accepted valuation methods and third-party valuation specialists, where required, or expectations of achievement, in the
case of contingent consideration discounted at a market rate of interest. Considerable judgment is required to develop these
estimates. Accordingly, fair value estimates are not necessarily indicative of the amounts we, or counter-parties to the instruments,
could realize in a current market exchange, or expect to pay, in the case of contingent consideration. The use of different assumptions
and or estimation methods could have a material impact on these fair values.
Financial assets and liabilities recorded at fair value, as and where applicable, are recorded to our consolidated statements of financial
position as accrued charges and warrant liabilities.
Financial Information Controls and Procedures
Disclosure controls and procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that the information we are required to
disclose in reports filed or submitted under Canadian securities laws is recorded, processed, summarized and reported within the
time periods specified under those laws, and include controls and procedures that are designed to ensure that the information is
accumulated and communicated to management, including our President and CEO and Executive Vice-President and Chief Financial
Officer (“CFO”), to allow for timely decisions in respect of these requirements.
As at September 30, 2018, management evaluated, under the supervision of, and with the participation of, the CEO and the CFO, the
effectiveness of our disclosure controls and procedures, as defined in National Instrument 52-109 – Certification of Disclosure in
Issuers’ Annual and Interim Filings (“NI 52-109”).
Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as at September
30, 2018.
Internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in NI 52-
109. Our internal control over financial reporting is a process designed under the supervision of the CEO and CFO, and effected by
the board of directors, management and other personnel of the Company, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However, because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis.
41
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Management evaluated, under the supervision of and with the participation of the CEO and the CFO, the effectiveness of our internal
control over financial reporting as at September 30, 2018, based on the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that evaluation, the CEO and CFO concluded that our internal control over financial reporting was effective as at September
30, 2018.
There have been no changes during the year ended September 30, 2018 in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Cautionary Note Regarding Forward-Looking Information
This MD&A contains “forward-looking information” within the meaning of applicable Canadian securities laws. Words such as “could”,
“forecast”, “target”, “may”, “will”, “would”, “expect”, “anticipate”, “estimate”, “intend”, “plan”, “seek”, “believe”, “likely” and
“predict” and variations of such words and similar expressions are intended to identify such forward-looking information, although
not all forward-looking information contains these identifying words.
The forward-looking information in this MD&A includes statements which reflect the current expectations of management with
respect to our business and the industry in which we operate and is based on management’s experience and perception of historical
trends, current conditions and expected future developments, as well as other factors that management believes appropriate and
reasonable in the circumstances. The forward-looking information reflects management’s beliefs based on information currently
available to management, including information obtained from third party sources, and should not be read as a guarantee of the
occurrence or timing of any future events, performance or results.
The forward-looking information in this MD&A includes, but is not limited to, statements related to:
•
•
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•
our business prospects, goals and long-term strategy targets;
our expectations regarding certain of our future results and information, including, among others, Adjusted EBITDA(A)
margins, revenues, Net Revenue(A), Net Revenue(A) margins and market share in the U.S. residential mortgage appraisal
market and U.S. title and closing market;
the key factors that have a significant impact on our financial performance;
anticipated economic conditions;
the scalability of our platform;
the regulatory environment in which we operate;
our competitive position relative to our competitors;
anticipated industry and market trends, including the seasonality of our business; and;
our intentions with respect to the implementation of new accounting standards.
In addition, our assessment of, and targets for, market share, Net Revenue(A) margins and Adjusted EBITDA(A) margins are considered
forward-looking information. See the “Strategy and Outlook’’ section of this MD&A for additional information concerning our
strategies, assumptions and market outlook in relation to these assessments.
The forward-looking information in this MD&A is subject to risks, uncertainties and other factors that are difficult to predict and that
could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Factors
which could cause results or events to differ from current expectations include, but are not limited to, the following factors, which are
discussed in further detail in the “Risk Factors” section of our Annual Information Form for the year ended September 30, 2017, which
can be found on our SEDAR profile at www.sedar.com:
Strategic risks
•
•
•
•
•
•
•
•
failing to grow market share in the residential mortgage appraisal business to anticipated levels;
failing to grow market share in the U.S. title and closing market to anticipated levels;
changes in economic conditions resulting in fluctuations in demand for our services;
increased dependence on larger industry clients;
risks associated with targeting larger industry clients;
growth placing significant demands on our management and infrastructure;
inability to successfully develop or acquire and sell enhancements and new services;
failing to maintain demand for our services or diversify our revenue base;
42
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
•
•
•
•
•
operating in a competitive business environment;
inability to successfully consummate or integrate acquisitions;
negative publicity resulting in a decline in our client growth;
ineffectiveness of our risk management efforts;
increased costs and demands upon management associated with being a public company;
Operational risks
•
•
•
•
•
•
•
•
•
•
failure to adequately protect our technology infrastructure;
material defects or errors in our technology infrastructure;
system interruptions that impair access to our technology;
the effort, time and expense associated with switching from competitors’ software to our software;
failing to adapt to technological changes;
failing to maintain field professional engagement;
using ‘‘open source’’ software in some of our services and technologies;
losing our corporate culture;
failing to retain or hire additional key personnel;
the occurrence of earthquakes, fires, floods and other natural catastrophic events or interruptions;
Legal and compliance risks
•
•
•
•
•
•
•
•
•
•
•
•
regulatory risks applicable to us;
risks associated with the potential reclassification of exempt employees and field professionals;
field professional work product liability;
current or future litigation;
our confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets;
potential infringement of our services on the proprietary rights of others;
our insurance coverage reserves may not cover future claims;
failing to adequately protect our intellectual property;
potential tax law changes or adverse tax examinations;
our by-laws potentially limiting a shareholder’s ability to obtain a favourable judicial forum for disputes with us;
difficulty for shareholders to enforce judgments against non-resident directors within Canada;
claims for indemnification by our directors or officers;
Financial and reporting risks
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the forward-looking statements contained in this MD&A potentially proving to be incorrect;
inaccurate accounting estimates and judgments;
potential inability to raise additional capital in the future on favourable terms, or at all;
potential deficiencies in our internal controls over financial reporting;
changing accounting standards or interpretations;
restrictive covenants contained in our credit facility;
dependence on our subsidiaries for cash flows;
exchange rate fluctuations;
future offerings of debt and/or equity securities;
future sales of our shares by existing shareholders may reduce the market price of the shares;
dilution and future issuances of our shares;
securities analysts’ research or reports potentially impacting our share price;
future indebtedness and the potential failure to fund future endeavours;
potential increases in our debt servicing costs;
the market price of our shares potentially fluctuating significantly; and
our current policy with respect to dividends.
We caution that the above list of risk factors and uncertainties is not exhaustive and that additional risks and uncertainties may be
discussed in documents filed with the applicable Canadian securities regulatory authorities from time to time. Other risks and
uncertainties not presently known to us or that we presently believe are not material could also cause actual results or events to differ
materially from those expressed in the forward-looking information. Readers are cautioned not to place undue reliance on the
forward-looking information, which reflect our expectations only as of the date of this MD&A. Except as required by law, we do not
undertake to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.
43
Real Matters Inc. – MD&A for the years ended September 30, 2018 and 2017
(tabular amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Glossary
Tier 1 means the top five U.S. banks by asset size as at June 30, 2018, as determined by U.S. Federal Reserve data, and the largest non-
bank mortgage lender in the U.S. according to the Inside Mortgage Finance website: Top 100 Mortgage Lenders (first six months of
2018).
Tier 2 means the top 30 mortgage lenders in the U.S. according to the Inside Mortgage Finance website: Top 100 Mortgage Lenders
(first six months of 2018), excluding Tier 1 mortgage lenders.
Tier 3 means the top 100 mortgage lenders in the U.S. according to the Inside Mortgage Finance website: Top 100 Mortgage Lenders
(first six months of 2018), excluding Tier 1 and Tier 2 mortgage lenders.
Tier 4 means all mortgage lenders in the U.S. not included in Tier 1, Tier 2 or Tier 3.
44
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of
Real Matters Inc.
We have audited the accompanying consolidated financial statements of Real Matters Inc., which comprise the consolidated
statements of financial position as at September 30, 2018 and September 30, 2017 and the consolidated statements of operations
and comprehensive loss, consolidated statements of equity and consolidated statements of cash flows for the years ended September
30, 2018 and September 30, 2017, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Real Matters Inc.
as at September 30, 2018 and September 30, 2017, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Chartered Professional Accountants
Licensed Public Accountants
November 27, 2018
Toronto, Ontario
45
Real Matters Inc.
Consolidated Statements of Financial Position
September 30, 2018 and 2017 (stated in thousands of United States (“U.S.”) dollars)
ASSETS
CURRENT
Cash and cash equivalents
Trade and other receivables (Note 19)
Prepaid expenses
NON-CURRENT
INTANGIBLES (Note 5)
GOODWILL (Note 6)
PROPERTY AND EQUIPMENT (Note 7)
INVESTMENT IN EQUITY ACCOUNTED INVESTEES (Note 4)
OTHER ASSETS
DEFERRED TAX ASSETS (Note 20)
TOTAL ASSETS
LIABILITIES
CURRENT
Trade payables
Accrued charges
Income taxes payable
Deferred revenues
Finance lease obligations (Note 18)
NON-CURRENT
LEASEHOLD INDUCEMENTS
WARRANT LIABILITIES (Note 9)
FINANCE LEASE OBLIGATIONS (Note 18)
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 18)
EQUITY
NON-CONTROLLING INTERESTS
SHAREHOLDERS' EQUITY (Note 10)
Common shares
Contributed surplus
Accumulated deficit
Accumulated other comprehensive (loss) income
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Approved by:
2018
2017
68,045 $
24,071
1,535
93,651
18,635
60,477
3,128
-
208
22,764
105,212
198,863
$
9,585 $
1,805
1,190
12
173
12,765
503
3,799
10
4,312
17,077
71,634
32,100
1,691
105,425
36,871
58,890
4,239
182
311
20,645
121,138
226,563
10,376
12,207
1,046
12
402
24,043
514
12,820
140
13,474
37,517
3,944
3,461
261,553
4,339
(83,043)
(5,007)
177,842
181,786
198,863
$
259,625
3,222
(77,393)
131
185,585
189,046
226,563
$
$
$
$
Blaine Hobson (signed) – Non-Executive Chairman Garry M.Foster (signed) – Audit Committee Chair
The accompanying notes are an integral part of these consolidated financial statements.
46
Real Matters Inc.
Consolidated Statements of Operations and Comprehensive Loss
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars except share and net income or loss per share
amounts)
2018
2017
REVENUES (Note 22)
TRANSACTION COSTS
OPERATING EXPENSES (Note 12)
AMORTIZATION (Notes 5 and 7)
ACQUISITION AND INITIAL PUBLIC OFFERING (RECOVERY) COSTS (Note 12)
INTEGRATION EXPENSES
IMPAIRMENT OF ASSETS (Note 13)
INTEREST EXPENSE (Note 8)
INTEREST INCOME
NET FOREIGN EXCHANGE (GAIN) LOSS
(GAIN) LOSS ON FAIR VALUE OF WARRANTS
RE-MEASUREMENT (GAIN) LOSS ON PREVIOUSLY HELD
EQUITY METHOD INVESTMENT (Note 4)
NET INCOME FROM EQUITY ACCOUNTED INVESTEES
LOSS BEFORE INCOME TAX EXPENSE (RECOVERY)
INCOME TAX EXPENSE (RECOVERY) (Note 20)
Current
Deferred
TOTAL INCOME TAX EXPENSE (RECOVERY)
NET LOSS
OTHER COMPREHENSIVE (LOSS) INCOME
Items that will be reclassified to net income or loss:
Foreign currency translation adjustment
COMPREHENSIVE LOSS
NET LOSS - ATTRIBUTABLE TO COMMON SHAREHOLDERS
NET INCOME - ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
COMPREHENSIVE LOSS - ATTRIBUTABLE TO COMMON
SHAREHOLDERS
COMPREHENSIVE INCOME - ATTRIBUTABLE TO NON-CONTROLLING
INTERESTS
Net loss per weighted average share, basic (Note 11)
Net loss per weighted average share, diluted (Note 11)
Weighted average number of shares outstanding (thousands),
basic (Note 11)
Weighted average number of shares outstanding (thousands),
diluted (Note 11)
$
281,451 $
198,683
78,680
19,790
302,976
210,682
86,411
21,241
1,609
-
5,096
889
(139)
3,390
5,011
976
(18)
(32,172)
1,824
(10,227)
(8,403)
(23,769)
5,929
(17,840)
(24,014)
245
(7)
863
-
410
(698)
(4,971)
(7,386)
(499)
-
(3,414)
2,899
(2,298)
601
(4,015)
(5,138)
(9,153) $
(4,571) $
556 $
(9,709) $
(18,085)
556 $
245
(0.05) $
(0.05) $
(0.30)
(0.30)
88,348
80,280
90,764
85,092
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
47
Real Matters Inc.
Consolidated Statements of Cash Flows
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars)
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING
OPERATING
Net loss
Items not affecting cash
Stock-based compensation (Note 16)
Amortization of intangibles
Amortization of property and equipment
Impairment of assets
Leasehold inducements
Interest expense
(Gain) loss on fair value of warrants
Re-measurement (gain) loss on previously held
equity method investment
Income tax expense (recovery)
Net income from equity accounted investees
Changes in non-cash working capital items (Note 14)
Interest paid
Income taxes paid
Cash generated from (utilized in) operating activities
INVESTING
Acquisitions, net of cash acquired (Note 4)
Investment in equity accounted investees
Dividends received from equity accounted investees
Purchase of property and equipment (Note 7)
Cash utilized in investing activities
FINANCING
Repayment of long-term debt
Proceeds from finance lease obligations
Repayment of finance lease obligations
Payment of contingent consideration recorded
at acquisition date (Note 19)
Proceeds from lease incentives
Common shares issued, net of issue costs (Note 10)
Proceeds from the exercise of warrants
Proceeds from the exercise of stock options, net of issue costs
Repurchase of common shares and related costs (Note 10)
Dividends paid to non-controlling interests
Cash (utilized in) generated from financing activities
Effect of foreign currency translation on cash and cash equivalents
NET CASH (OUTFLOW) INFLOW
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash and cash equivalents are comprised of:
Cash
Cash equivalents
Property and equipment acquired under finance lease
2018
2017
$
(4,015) $
(23,769)
1,705
18,236
1,554
-
(2)
410
(7,386)
(499)
601
-
2,607
(127)
(2,712)
10,372
410
-
-
(423)
(13)
-
34
(392)
(10,000)
-
-
213
2,050
(3,265)
(754)
(12,114)
(1,834)
(3,589)
71,634
68,045 $
26,840 $
41,205
68,045 $
34 $
3,497
19,649
1,592
5,096
148
889
5,011
976
(8,403)
(18)
(11,516)
(421)
(1,254)
(8,523)
428
(101)
252
(1,807)
(1,228)
(16,354)
144
(598)
(20,000)
230
87,741
251
179
-
(366)
51,227
3,471
44,947
26,687
71,634
30,984
40,650
71,634
145
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
48
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l
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
1. Nature of Operations
Real Matters Inc. (“Real Matters” or the “Company”) is a leading technology and network management company providing appraisal,
title and closing and other ancillary services through its Solidifi and iv3 brands to the mortgage lending and insurance industries in the
U.S. and Canada.
Real Matters’ head office and Canadian operations are located at 50 Minthorn Boulevard, Markham, Ontario and its principal U.S.
subsidiaries operate in Buffalo, New York, Middletown, Rhode Island and Denver, Colorado.
2. Basis of Presentation and Significant Accounting Policies
Statement of compliance
The consolidated financial statements (“financial statements”) have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The financial statements were authorized for issue by the board of directors on November 27, 2018.
Basis of presentation
The financial statements are presented in thousands of U.S. dollars and have been prepared applying the historical cost method,
except for certain financial instruments which are measured at fair value. Historical cost reflects the fair value of consideration
exchanged for the asset at the date it was acquired.
The significant accounting policies and methodologies outlined below have been applied consistently and for all periods presented in
these financial statements.
Basis of consolidation
These financial statements include the accounts of the Company and subsidiaries controlled by the Company. The Company is deemed
to control a subsidiary when it is exposed to, or has the right to, variable returns from its involvement with an investee and it has the
ability to direct the activities of the investee that significantly affects the investee’s returns through its power over the subsidiary.
Where the Company’s interest in a subsidiary is less than one hundred percent, the Company recognizes a non-controlling interest in
the investee. All intercompany transactions, balances, revenues and expenses are eliminated on consolidation.
Subsequent to acquisition, the carrying amount of non-controlling interests is the amount recognized initially, plus the non-controlling
interests’ share of changes in the capital of the company in addition to changes in ownership interests. Total comprehensive income
or loss is attributed to non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
The financial statements of controlled entities are included in these financial statements from the date control is effective until control
ceases to exist.
Functional and presentation currency
The Company’s functional currency is the Canadian dollar. Accordingly, its financial position, results of operations, cash flows and
equity are consolidated in Canadian dollars.
The Company translates its U.S. subsidiaries’ assets and liabilities to Canadian dollars from their functional currency of U.S. dollars
using the exchange rate in effect at the date the statement of financial position is presented. Revenues and expenses are translated
to Canadian dollars at the average monthly exchange rate in effect during the year. The resulting translation adjustments are included
in other comprehensive income or loss.
The Company has elected to report its financial results in U.S. dollars. Accordingly, the Company’s consolidated statements of financial
position are translated from Canadian to U.S. dollars at the foreign currency exchange rate in effect at the date the statement of
financial position is presented. Certain transactions affecting shareholders’ equity are translated at their historical foreign currency
exchange rates. The statements of operations and comprehensive income or loss and statements of cash flows are translated to U.S.
50
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
dollars applying the average foreign currency exchange rate in effect during the reporting period and the resulting translation
adjustments are included in other comprehensive income or loss. Reporting the Company’s financial results in U.S. dollars reduces the
impact of foreign currency fluctuations in its reported amounts because the Company’s operations are larger in the U.S than they are
in Canada. The Company remains a legally domiciled Canadian entity and its functional currency is the Canadian dollar. Translating the
Company’s U.S. financial position, results of operations and cash flows into Canadian dollars, the Company’s functional currency, and
re-translating these amounts to U.S. dollars, the Company’s reporting currency, has no translation impact on the Company’s financial
statements. Accordingly, U.S. results retain their original values when expressed in the Company’s reporting currency.
Monetary assets and liabilities denominated in foreign currencies, including certain long-term financing arrangements between
Canadian and U.S. entities within the consolidated group of companies that are not considered part of the net investment in a foreign
operation and that are different from the functional currency are translated to the Company’s functional currency applying the foreign
exchange rate in effect at the date the statement of financial position is presented. Realized and unrealized foreign currency
differences are recognized in the consolidated statement of operations and comprehensive income or loss.
Exchange differences on monetary assets and liabilities receivable or payable to a foreign operation for which settlement is neither
planned nor likely to occur, and therefore form part of the net investment in a foreign operation, are recognized initially in other
comprehensive income or loss and presented within equity. The cumulative amount of the resulting exchange differences recorded in
other comprehensive income or loss, are reclassified from equity to the consolidated statements of operations and comprehensive
income or loss on settlement.
Cash and cash equivalents
Cash and cash equivalents include short-term investments in highly liquid marketable securities, having a term to maturity of three
months or less.
Included in cash is $2,007 (2017 - $2,295) set aside by the Company to demonstrate that it has sufficient liquidity to carry on business
and retain its California county title license.
The Company’s residential and commercial real estate title and closing services requires it to hold cash in escrow accounts that it does
not have title to. Accordingly, cash held in escrow, escrow receivables and escrow liabilities, are not recorded as assets or liabilities on
the Company’s consolidated statements of financial position. All cash held in escrow is deposited in non-interest bearing bank
accounts.
Intangibles
Intangible assets with finite useful lives are carried at cost less accumulated amortization and accumulated impairment losses, if any.
Intangibles are tested for impairment when a triggering event occurs. Amortization is recognized on a straight-line basis over the
estimated useful life of the intangible asset and recorded to the consolidated statements of operations and comprehensive income or
loss. The estimated useful life and amortization method are reviewed at least annually, with any change in estimate recognized
prospectively. Estimated useful lives for intangibles having finite lives are as follows:
Internally generated intangible assets
Customer relationships
Brand names
Technology
License
2.5 years
3 years
3 years
3 years
10 years
51
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Internally generated intangible assets are capitalized if, and only if, all of the following have been demonstrated:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
The technical feasibility of completing the intangible asset is expected to make it available for use or sale;
The Company intends to complete and use or sell the intangible asset;
The Company has the ability to use or sell the intangible asset;
How the Company expects the intangible asset will generate probable future economic benefits;
Adequate technical, financial and other resources to complete the development and to use or sell the intangible asset exists;
and
The Company has the ability to reliably measure the expenditures attributable to its development.
The amount recognized as an internally generated intangible asset represents the sum of expenditures incurred from the date when
the intangible asset first meets the recognition criteria listed above to the date the asset is available for use. Where no internally
generated intangible asset is recognized, development expenditures are recognized in the consolidated statements of operations and
comprehensive income or loss in the period in which the cost is incurred.
When the asset is available for use, the cost model is applied which requires the asset to be carried at cost less accumulated
amortization and accumulated impairment losses, if any. During the period of development, the asset is tested for impairment at least
annually.
Internally generated intangible assets consist of computer software costs associated with the internal development and enhancement
of the Company’s platforms. Costs associated with the maintenance of the Company’s platforms are expensed as incurred.
Goodwill
Goodwill represents the excess of consideration over the fair value of the net identifiable assets acquired in a business combination.
Goodwill is recorded at cost less accumulated impairment losses, if any. Goodwill is not amortized. Goodwill is allocated to each of
the Company’s cash-generating units (“CGU or “CGUs”) or group of CGUs that benefit from the acquisition, irrespective of whether
other assets or liabilities acquired are assigned to those units. For the purpose of goodwill impairment testing the Company’s CGUs
correspond to its operating segments consistent with the level at which goodwill is monitored.
Goodwill is tested annually for impairment, or more frequently when there is an indication that goodwill may be impaired. If the
recoverable amount, representing the higher of its fair value less cost to sell and its value in use, of the CGU is less than its carrying
amount, any resulting impairment loss is first allocated to goodwill and subsequently to other assets on a pro rata basis for the CGU.
Any goodwill impairment loss is recorded to the consolidated statements of operations and comprehensive income or loss in the
period of impairment. Previously recognized impairment losses for goodwill are not reversed in subsequent periods.
On the disposal of a CGU or group of CGUs, the portion of goodwill attributable to the CGU is included in the determination of profit
or loss recorded on the consolidated statements of operations and comprehensive income or loss.
Goodwill is tested for impairment annually as at June 30. In the current year, the Company re-performed the test of impairment in
conjunction with the change in its reporting segments (Note 22).
Property and equipment
Property and equipment is stated at cost less accumulated amortization and accumulated impairment losses, if any. The initial cost
includes the purchase price and any expenditures directly attributable to ready the asset for use. Purchased software that is integral
to the function of certain equipment is capitalized. When components of property and equipment have different useful lives, those
components are accounted for as separate items of property and equipment and amortized separately.
Gains and losses on the disposal of property and equipment are determined as the difference between the proceeds received, if any,
on the disposal of the asset and its carrying amounts. Any resulting gain or loss is recognized in the consolidated statements of
operations and comprehensive income or loss.
52
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Amortization is recognized using the straight-line method for each component of property and equipment. Capitalized finance lease
assets are amortized over their expected useful lives on the same basis as owned assets. However, when there is no reasonable
certainty that ownership will transfer at the end of the lease term, capitalized finance lease assets are amortized over the lesser of the
lease term and their estimated useful lives. The Company reviews the amortization methods, useful lives and residual values at each
reporting date. The expected useful lives of property and equipment are set forth below:
Computer equipment
Furniture and fixtures
Leasehold improvements
3 - 5 years
5 years
Lesser of the remaining term of the lease and expected useful life
Investment in equity accounted investees
Investments where the Company has joint control or the ability to exercise significant influence, where significant influence is the
power to participate in the financial and operating policy decisions of the investee that is not control or joint control over those
policies, are accounted for using the equity method of accounting.
A joint venture is an arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the
arrangement. Joint control is the contractual sharing of control in an arrangement, which only exists when decisions about the relevant
activities require the unanimous consent of the parties sharing control. To determine whether significant influence or joint control is
present, considerations similar to those necessary to determine control over subsidiaries are reviewed.
The equity method of accounting requires the Company to record its initial investment at cost. At the time of initial recognition, if the
cost of the associate or joint venture is lower than the proportionate share of the investment’s underlying fair value, the Company
records a gain on the difference between the cost and the underlying fair value of the investment to the statements of operations and
comprehensive income or loss. If the cost of the associate or joint venture is greater than the Company’s proportionate share of the
underlying fair value, goodwill relating to the associate or joint venture is included in the carrying amount of the investment.
The carrying value of the Company’s initial investment is adjusted to include its pro rata share of the investee’s post-acquisition
earnings, which is included in the Company’s determination of net income or loss. Investments are reviewed at each reporting period
to determine whether there is any objective evidence of impairment. If evidence of impairment exists, the Company compares the
carrying amount of the investment to its recoverable amount.
Should the Company lose joint control of a joint venture, the Company re-measures its remaining investment at fair value. Any
resulting difference between the carrying amount of its investment in the joint venture and the fair value of the retained investment,
including any proceeds from disposal, is recognized in the consolidated statements of operations and comprehensive income or loss.
The financial statements of the equity accounted investee are prepared for the same reporting period as the Company. When
necessary, adjustments are made to bring the accounting policies in line with those of the Company.
Leases and leasehold inducements
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. Assets held under finance leases are initially recognized as assets of the Company at fair value or, if lower, at the present
value of the future minimum lease payments. The corresponding liability is included in the consolidated statements of financial
position as a finance lease obligation. Leases for which the risks and rewards are retained by the lessor are considered operating
leases. Operating lease payments are recognized as an expense and charged to the consolidated statements of operations and
comprehensive income or loss on a straight-line basis over the lease term.
Leasehold inducements represent rent-free periods, rent escalations and lease incentives which are amortized on a straight-line basis
over the respective lease terms to rent expense.
53
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Income taxes
Income tax expense or recovery is comprised of current and deferred income tax which is recognized in the consolidated statements
of operations and comprehensive income or loss, except for income taxes attributable to a business combination or equity transaction.
Current income tax represents the expected amounts payable or receivable derived from taxable income or loss generated by the
Company in the period. Current income tax is calculated by applying enacted or substantively enacted tax rates, at the reporting date,
to taxable income or loss. Current income taxes may include prior period adjustments to income taxes payable or receivable.
Deferred income tax is recognized applying the liability method, which recognizes the temporary differences between the carrying
amounts of assets and liabilities for financial reporting and their equivalent tax amounts. Deferred income tax is not recognized on
the initial recording of assets or liabilities for financial reporting purposes that is not a business combination and that impacts neither
accounting income nor taxable income or loss. Deferred income tax assets and liabilities are measured applying tax rates expected to
be in effect when the temporary differences reverse, using tax rates that have been enacted or substantively enacted at the reporting
date.
Deferred income tax assets are recognized when it is probable that future taxable income will be available to realize the benefit of the
deferred tax asset. Deferred income tax liabilities are not recognized on temporary differences that arise from goodwill that is not
deductible for tax purposes. Deferred tax assets are reviewed at each reporting date and are reduced to the extent it is no longer
probable that the related tax benefit will be realized and only recovered when the probability of future taxable income improves.
Deferred income tax assets and liabilities are offset when the entity has a legally enforceable right to set off current tax assets against
current tax liabilities and the deferred tax assets and the liabilities relate to income taxes levied by the same taxation authority on the
same taxable entity or different taxable entities which intend to either settle current income tax liabilities on a net basis or realize the
assets and settle liabilities simultaneously in a future period.
Warrant liabilities
At the time of issuance, warrants are classified as a financial liability or equity instrument in accordance with the substance of the
contractual arrangement. Warrants that obligate the Company to deliver a variable number of shares whose value equals a fixed
amount or an amount based on changes in an underlying variable, is not an equity instrument, and is therefore classified as a financial
liability. Subsequent changes to the conversion option that fixes the number of shares and price of shares issuable, are not considered
by the Company when the contractual terms of the warrant do not change and there has been no change in the circumstances of the
Company. Warrants classified as liabilities in the consolidated statements of financial position are re-measured at their estimated fair
value at each reporting date. Any change to the fair value of the warrants is recognized in the consolidated statements of operations
and comprehensive income or loss.
Revenues
The Company recognizes revenue when all of the following criteria have been met:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Significant risks and rewards of ownership have transferred to the buyer;
The Company does not retain continuing managerial involvement in or effective control over the goods or services sold;
The amount can be reliably measured;
It is probable that the economic benefits associated with the transaction will flow to the Company;
The stage of completion for the transaction can be reliably measured; and
Transaction costs incurred, or to be incurred, can be reliably measured.
The Company measures revenue at the fair value of consideration received or receivable, taking into account any contractually defined
terms for volume discounts, rebates or refunds. The Company records payments received in advance of satisfying the revenue
recognition criteria as deferred revenues until all criteria are satisfied.
When the Company sells multiple services to the same customer it assesses whether each delivered element should be recorded as a
separate transaction. In certain circumstances, it is necessary to apply the recognition criteria to the separately identifiable
54
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
components of a single transaction in order to reflect the substance of the transaction. Conversely, the recognition criteria are applied
to two or more transactions together when they are linked in such a way that the commercial effect cannot be understood without
reference to the series of transactions taken as a whole.
The Company also assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent.
The Company records revenue on a gross basis, as a principal to the transaction, unless otherwise indicated below.
Residential Mortgage Appraisals
The Company provides residential mortgage appraisals through its technology-based platform (the “Platform”) and network of
independent qualified field professionals. Revenue is derived from platform transaction fees earned from mortgage lenders on
residential appraisal products such as complete home appraisals, a broker price opinion, property condition reports and desktop
appraisals. The Company records revenue in conjunction with the delivery of appraisal reports to its clients.
Insurance Inspection
The Company provides insurance inspections to property and casualty insurers through its Platform. The Company records revenue in
conjunction with the delivery of insurance inspection reports to its clients.
Title and Closing
The Company provides title and closing services to residential and commercial clients which include title search procedures for title
insurance policies, escrow and other closing services. Title and closing revenues, which are recorded net of amounts remitted to third
party insurance underwriters, are recorded at the time a home sale transaction or refinancing closes. Recording services are recognized
at the time the documents are submitted to the county for recording.
Search Services
The Company provides current owner, tax and commercial title search and property reports to other title insurance companies or
property investment companies. Search revenues are recorded at the time the report is delivered to the client.
Software Services
The Company provides three hosted software solutions. Contracts for these services are generally term based ranging from one to
three years. Set up and implementation fees typically do not meet the criteria as a separate transaction. Accordingly, revenues are
deferred and recognized on a straight-line basis over the longer of the term of the contract or the estimated customer life. On-going
service fees are recognized as revenue over the service period. Any usage-based fees and minimum transaction fees are recognized
monthly over the term of the arrangement.
Transaction costs
Transaction costs comprise expenses that are directly attributable to a specific revenue transaction including: appraisal costs, various
processing fees, including credit card fees, connectivity fees, insurance inspection costs, title and closing field professional costs,
external abstractor costs and external quality review costs.
Business combinations
Business combinations are accounted for applying the acquisition method of accounting, where the fair value of consideration is
allocated to the fair value of assets acquired and liabilities assumed at the date of acquisition. If the fair value of the net assets acquired
is in excess of the aggregate consideration transferred, the Company re-assesses if it has correctly identified all of the assets acquired
and liabilities assumed and reviews the procedures used to measure the amounts recognized at the date of acquisition. Following its
reassessment, if the Company concludes that the fair value of net assets acquired exceeds the aggregate consideration transferred,
the Company will record a gain to the consolidated statements of operations and comprehensive income or loss.
The excess of consideration over the fair value of the identifiable net assets acquired is recorded as goodwill and allocated to the
Company’s CGUs. For each business combination that includes a non-controlling interest, the Company, at its election, measures the
non-controlling interest’s investment in the acquiree at fair value or at the proportionate share of the acquiree’s net identifiable assets
acquired.
55
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Any contingent consideration is recognized at fair value on the acquisition date. All contingent consideration (except that which is
classified as equity) is measured at fair value with changes in fair value recorded to the statements of operations and comprehensive
income or loss. Contingent consideration classified to equity is not re-measured and settlement is accounted for within equity.
The fair value measurement and recognition of net assets acquired may require adjustment when information is absent and fair value
allocations are presented on an estimated or preliminary basis. Adjustments to estimated or preliminary amounts, reflecting new
information obtained about facts and circumstances that existed at the date of acquisition and occurring not later than one year from
the date of acquisition, are recorded in the period the adjustment is determined.
Transaction costs incurred in connection with a business combination, other than costs associated with the issuance of debt or equity
securities, are expensed in the statements of operations and comprehensive income or loss.
Provisions
Provisions are recognized when it is probable that the Company is required to settle an obligation (legal or constructive), as a result
of a past event, and the obligation can be reliably estimated. The provision represents the Company’s best estimate of the amounts
required to settle the obligation at the end of the reporting period. When a provision is determined applying a measure of cash flows
estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the impact of the time
value of money is material). When some or all of the amounts required to settle a provision are expected to be recoverable from a
third party, a receivable is recognized when it is virtually certain that reimbursement is receivable and the expected reimbursement
can be reliably measured.
Financial instruments
Financial assets and financial liabilities, including derivatives, are recognized in the consolidated statements of financial position when
the Company becomes party to the contractual provisions of a financial instrument or non-financial derivative contract.
The Company classifies financial instruments, or its component parts, on initial recognition as a financial liability, a financial asset or
an equity instrument in accordance with the substance of the contractual arrangement. A financial instrument is any contract that
gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity. All financial instruments are
measured at fair value on initial recognition and subsequently measured at either fair value or amortized cost using the effective
interest method, depending upon their classification. Financial instruments are classified as one of the following: (i) held-to-maturity,
(ii) loans and receivables, (iii) fair value through profit or loss (“FVTPL”), (iv) available-for-sale, or (v) other financial liabilities. The
Company’s financial assets and financial liabilities are classified and measured as follows:
Asset/liability
Classification
Measurement
Cash and cash equivalents
Trade and other receivables
Trade payables
Accrued charges
Accrued charges (contingent consideration)
Long-term debt
Finance lease obligations
Other liabilities (contingent consideration)
Warrant liabilities
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Fair value through profit and loss
Other financial liabilities
Other financial liabilities
Fair value through profit and loss
Fair value through profit and loss
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Amortized cost
Amortized cost
Fair value
Fair value
The Company offsets financial assets and liabilities and presents them net in the consolidated statements of financial position when
the Company has a legal right to offset and intends to settle on a net basis or realize the asset and liability simultaneously.
56
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent
to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment,
excluding trade and other receivables. Gains and losses are recognized in the consolidated statements of operations and
comprehensive income or loss in the period that the asset is derecognized or impaired.
Other financial liabilities
Other financial liabilities are initially recorded at fair value and subsequently measured at amortized cost, using the effective interest
method. Gains and losses are recognized in the consolidated statements of operations and comprehensive income or loss in the period
that the liability is derecognized.
FVTPL
FVTPL financial assets or financial liabilities are measured at fair value at each reporting date, with changes in fair value recognized in
the consolidated statements of operations and comprehensive income or loss. Derivatives are classified as FVTPL unless they are
designated as effective hedging instruments.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, other than financial
assets and financial liabilities classified as FVTPL, are added to or deducted from the fair value of financial assets or financial liabilities,
as appropriate. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified as FVTPL are
expensed in the statements of operations and comprehensive income or loss.
Costs of issuing debt and equity
The cost of issuing debt is included as part of long-term debt and is accounted for at amortized cost using the effective interest method.
When long-term debt amounts are nil, but amounts are still available to be drawn, costs of issuing debt are reclassified to other assets
in the consolidated statements of financial position. The cost of issuing equity is reflected as a direct charge to common shares.
Derivative financial instruments
The Company may enter into foreign currency exchange agreements from time-to-time as part of its strategy to manage foreign
currency exposure. The Company does not hold or issue derivative financial instruments for trading purposes. Derivatives, including
derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contract, are measured
at their estimated fair value. Gains or losses on financial instruments measured at their estimated fair values are recognized in the
statements of operations and comprehensive income or loss in the periods in which they arise, with the exception of gains and losses
on certain financial instruments that are part of a designated hedging relationship.
Fair value
Fair value represents the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Company classifies its fair value measurements using a fair value hierarchy
that reflects the significance of inputs used in making such measurements. IFRS establishes a fair value hierarchy based on the level
of independent, objective evidence applied to measure fair value. A financial instrument’s categorization within the fair value
hierarchy is based on the lowest level of input that is significant to the fair value measurement. An entity is required to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs
are applied to measure fair value:
(cid:120)
(cid:120)
(cid:120)
Level 1 – quoted prices in active markets for identical assets or liabilities
Level 2 – observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted market
prices in markets that are not active, or model derived valuations or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the asset or liability
Level 3 – unobservable inputs that are supported by little or no market activity
57
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Impairment
Financial assets
A financial asset, other than those classified as FVTPL, is assessed at each reporting date for indicators of impairment. A financial asset
is deemed to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future
cash flows of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest
rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are
assessed collectively in groups that share similar credit risks and all impairment losses are recognized immediately in the consolidated
statements of operations and comprehensive income or loss.
Impairments of financial assets recognized in a prior period are re-assessed at the end of each reporting period to determine if
indicators of impairment have reversed or no longer exist. An impairment loss is reversed if the estimated recoverable amount exceeds
the asset or asset groups carrying amount. The reversal of an impairment loss may not exceed the carrying amount of the asset or
asset group had no impairment loss been recognized. Reversals of impairment losses are recognized immediately in the consolidated
statements of operations and comprehensive income or loss.
Non-financial assets
The carrying value of property and equipment and intangibles are reviewed at each reporting period to determine if indicators of
impairment are present. If any such indication exists, the asset’s recoverable amount is estimated.
For the purpose of impairment testing, the recoverable amount is determined for an individual asset or are grouped together into
CGUs, representing the smallest group of assets that generates independent cash inflows. If the carrying amount of the asset or CGU
exceeds its recoverable amount, an impairment loss is recognized in the consolidated statements of operations and comprehensive
income or loss as a reduction in the carrying amount of the asset to its recoverable amount. The recoverable amount of an asset or
CGU is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset or CGU.
Impairments of non-financial assets recognized in a prior period are re-assessed at the end of each reporting period to determine if
indicators of impairment have reversed or no longer exist. An impairment loss is reversed if the estimated recoverable amount exceeds
the asset or CGU’s carrying amount. The reversal of an impairment loss may not exceed the carrying amount, net of amortization, of
the asset or CGU had no impairment loss been recognized.
Stock-based payments
The Company grants equity-settled stock options under its stock-based compensation plan. The fair value of stock options at the grant
date is estimated using the Black-Scholes-Merton option pricing model and is subject to the satisfaction of certain vesting conditions.
Uncertain vesting conditions do not result in compensation expense being recognized until they are satisfied or deemed to be probable
of satisfaction. Compensation expense is recorded to the consolidated statements of operations and comprehensive income or loss
over the vesting period based on the estimated number of options expected to vest with a corresponding increase in shareholders’
equity. Management’s estimate of the number of awards expected to vest occurs at the time of grant and at each reporting date up
to the vesting date. The estimated forfeiture rate is adjusted for actual forfeitures in the period.
Net income or loss per share
Basic net income or loss per share is calculated by dividing net income or loss attributable to common shareholders of the Company
by the weighted average number of common shares outstanding during the reporting period. Diluted net income or loss per share is
calculated by dividing the net income or loss attributable to common shareholders of the Company by the weighted average number
of shares outstanding adjusted for all potentially dilutive equity instruments, comprising stock options and warrants.
58
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Operating segments
An operating segment is a component of the Company that engages in business activities. An operating segment may earn revenues
and incur expenses, including revenues and expenses incurred by virtue of activities with any of the Company’s other operations. An
operating segment has discrete financial information available which is regularly reviewed by the Company’s Chief Operating Decision
Maker (“CODM”) to assess performance or make resource allocation decisions.
Significant judgments, estimates and assumptions
The preparation of these financial statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses.
Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed at least annually or more
frequently as required. Revisions to accounting estimates are recognized in the period of revision, which may impact future reporting
periods. Areas that are subject to judgment and estimate include revenue recognition, the identification of CGUs, impairment of
goodwill and non-financial assets, the determination of fair values in connection with business combinations, internally generated
intangible assets, the determination of fair value for warrants and financial instruments, stock-based payments, the useful lives of
property and equipment and intangible assets, the likelihood of realizing deferred income tax assets, provisions and contingencies.
Critical accounting judgments and estimates
Management believes the following accounting policies are subject to the most critical judgments and estimates and could have the
most significant impact on the amounts recognized in these financial statements.
Revenue recognition
(a)
Transactions which contain separately identifiable components must be recognized at the fair value of consideration received or
receivable to reflect the substance of the transaction. The Company is required to make judgments about the fair value of each
component, including its allocation to each separately identified component, by considering the following: its overall pricing
objectives, the market in which the transaction occurs, the uniqueness of each component, the work performed, the size of the
transaction and any historical sales and contract prices.
The Company uses judgment in its assessment of whether it is acting as an agent or principal in a transaction. When the Company
does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services it is acting
as an agent in the transaction. The Company is acting as a principal when it has exposure to the significant risks and rewards associated
with the sale of goods or the rendering of services. The Company considers these factors, amongst others, in its assessment.
Identification of CGUs
(b)
The Company has allocated its tangible assets, intangible assets and goodwill to the smallest identifiable group of assets that generate
cash inflows and that are largely independent of the cash inflows from other assets. The determination of CGUs or groups of CGUs for
the purpose of annual impairment testing requires judgment.
Impairment of goodwill and non-financial assets
(c)
Goodwill is tested for impairment annually or more frequently if there is an indication of impairment. The carrying value of property
and equipment and intangible assets is reviewed each reporting period to determine whether indications of impairment exist. The
recoverable amounts attributed to CGUs reflect the higher of fair value less costs to sell or value in use. The Company’s determination
of a CGU’s recoverable amount, which could include an estimate of fair value less costs to sell, uses market information to estimate
the amount the Company could obtain from disposing of the asset in an arm’s length transaction, less the estimated cost of disposal.
The Company estimates value in use by discounting estimated future cash flows for the CGU or asset to its present value using a pre-
tax discount rate reflecting a current market assessment of the time value of money and certain risks specific to the CGU or asset.
Estimated cash flows are based on management’s assumptions and business plans which are supported by internal strategies, plans
and external information.
The estimate of the recoverable amount for an asset or CGU requires significant estimates such as future cash flows, growth, and
terminal and discount rates.
59
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Business combinations
(d)
Applying the acquisition method to business combinations requires an entity to measure each identifiable asset and liability at fair
value. The excess, if any, of the fair value of consideration over the fair value of the net identifiable assets acquired is recognized as
goodwill. The purchase price allocation involves judgment with respect to the identification of intangible assets acquired and estimates
of fair value for assets acquired and liabilities assumed, including pre-acquisition contingencies and contingent consideration. Changes
in any of the assumptions or estimates used to identify intangible assets acquired, determine the fair value of acquired assets and
liabilities assumed, including pre-acquisition contingencies or contingent consideration, could affect the amounts assigned to assets,
liabilities and goodwill in the purchase price allocation.
The Company makes estimates, assumptions, and judgments when valuing goodwill and other intangible assets in connection with
the initial purchase price allocation of an acquired entity, in addition to evaluating the recoverability of goodwill and other intangible
assets on an ongoing basis. These estimates are based on a number of factors, including historical experience, market conditions, and
information obtained from the management of acquired companies. Critical estimates in valuing certain intangible assets include, but
are not limited to, historical and projected attrition rates, discount rates, anticipated revenue growth from acquired customers,
acquired technology, and the expected use of the acquired assets. These factors are also considered in determining the useful life of
acquired intangible assets. The amounts and useful lives assigned to identified intangible assets also impacts the amount and timing
of future amortization expense.
Unanticipated events and circumstances may affect the accuracy or validity of such assumptions, estimates or actual results.
Fair value of warrant liabilities
(e)
The Company uses the Black-Scholes-Merton option pricing model to estimate the fair value of warrant liabilities, which requires the
use of several input variables. The inputs to the model are subject to estimate and changes in these inputs can materially impact the
estimated fair value of warrant liabilities. The fair value reported may not represent the transaction value if these warrants were
exchanged at any point in time.
Stock-based payments
(f)
The Company uses the Black-Scholes-Merton option pricing model to estimate the fair value of stock-based compensation which
requires the use of several input variables. These inputs are subject to estimate and changes in these inputs can materially affect the
estimated fair value of stock-based compensation. The fair value reported may not represent the transaction value if these options
were exercised at any point in time.
Amortization of property and equipment and intangible assets
(g)
Judgment is applied to determine an asset’s useful life, and where applicable, estimated residual value, used in the computation of
amortization. Accordingly, an asset’s actual useful life and estimated residual value may differ significantly from these estimates.
Where an item of property and equipment can be subdivided into its major components, and these components are assessed as having
different useful lives, the components are accounted for as separate items of property and equipment. The application of this policy
requires judgment in the determination of each significant identifiable component.
Valuation of deferred income tax assets
(h)
The Company assesses its ability to generate taxable income in future periods from its internal budgets and forecasts. Taxable income
is adjusted to reflect certain non-taxable income and expense or the use of unused credits and tax losses. The Company’s estimate of
taxable income generated in the future, for the purposes of determining the existence of a deferred tax asset, depends on many
factors, including the Company’s ability to generate income subject to tax and implement tax planning measures, along with other
substantive evidence. The occurrence or non-occurrence of certain future events may lead to significant changes in the measurement
of deferred tax assets.
60
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Provisions
(i)
Due to the uncertain nature of provisions, there is a degree of uncertainty inherent in their measurement. Management uses its best
efforts to estimate and provide for potential losses. Assumptions applied reflect the most probable set of economic conditions and
planned courses of action by the Company.
Other
(j)
Other areas where the Company employs judgment and estimate include, the determination of its allowance for doubtful accounts,
financial instruments, its control assessment of subsidiaries and contingencies related to litigation, claims and assessments.
3. Recent Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”), which replaces IAS 18 “Revenue”, IAS 11
“Construction Contracts” and IFRIC 13 “Customer Loyalty Programmes”, as well as various other interpretations applicable to revenue.
IFRS 15 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers,
except for contracts that are within the scope of the standards on leases, insurance contracts, and financial instruments. The core
principle of IFRS 15 requires an entity to recognize revenue in accordance with the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.
Specifically, the Standard introduces a 5-step approach to revenue recognition: identify the contract(s) with a customer; identify the
performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations
in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. IFRS 15 also contains enhanced
disclosure requirements. This new standard is effective for annual periods beginning on or after January 1, 2018 and will be applied
using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach.
Early adoption is permitted. The Company will apply a modified retrospective approach on transition using the following practical
expedients:
(cid:120)
(cid:120)
On transition, completed contracts that begin and end within the same annual reporting period and those completed before
October 1, 2017 will not be restated.
Costs of obtaining a contract that would be amortized within one year or less will be immediately expensed.
The adoption of IFRS 15 will not have a material impact on the accounting policies, revenue recognition and presentation of the
Company’s revenue.
Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 “Financial Instruments” (“IFRS 9”). IFRS 9, issued in November 2009, introduced
new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to
include classification and measurement requirements for financial liabilities and de-recognition. In November 2013, follow on
amendments included new requirements for general hedge accounting. The final revision to IFRS 9 was issued in July 2014, which
included impairment requirements for financial assets and limited amendments to the classification and measurement requirements
for certain simple debt instruments. The new standard established a single classification and measurement approach for financial
assets that reflects the business model in which they are managed and their cash flow characteristics. It also provides guidance on an
entity’s own credit risk relating to financial liabilities. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 and
early adoption is permitted. Based on an analysis of the Company’s financial assets and financial liabilities, it will continue measuring
them on the same basis. The Company’s detailed analysis also concluded that the application of the expected credit loss model will
result in a nominal impact to the recognition of credit losses for trade receivables. Since the Company currently does not apply hedge
accounting, the new requirements for general hedge accounting are not applicable.
61
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Disclosure Initiative
In January 2016, the IASB issued Disclosure Initiative Amendments to IAS 7 “Statement of Cash Flows” (“IAS 7”). These amendments
require entities to provide additional disclosures to enable financial statement users to evaluate changes in liabilities arising from
financing activities, including changes arising from cash flows and non-cash changes. These amendments were effective for annual
periods beginning on or after January 1, 2017, with earlier application permitted. The Company implemented the amendments to IAS
7 and has provided the necessary disclosures in Note 15.
Leases
In January 2016, the IASB issued IFRS 16 – “Leases” (“IFRS 16”), which replaces IAS 17 - Leases (“IAS 17”) and any related
interpretations. IFRS 16 provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases,
unless the lease term is 12 months or less or the underlying value of the asset is low. IFRS 16 substantially carries forward the lessor
accounting in IAS 17 with the distinction between operating leases and finance leases being retained. IFRS 16 can be applied using
either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach for annual
periods beginning on or after January 1, 2019. Early adoption of IFRS 16 is permitted if IFRS 15 has also been adopted. The Company
intends to adopt the standard using the modified retrospective approach but currently has no intention of early adopting the standard.
As at September 30, 2018, the Company has operating lease commitments of $8,140. A preliminary assessment indicates that these
arrangements will meet the definition of a lease under IFRS 16 and the Company expects to recognize new assets and liabilities in
respect of these operating leases, which principally relate to office space, upon the adoption of IFRS 16. The new requirement to
recognize a right-of-use asset and a related lease liability is expected to impact the amounts recognized in the Company’s financial
statements but the Company is still conducting a detailed assessment to determine the resulting impact. In addition, the nature and
timing of expenses related to these leases will change as IFRS 16 replaces straight-line operating lease expense with a depreciation
charge for right-of-use assets and interest expense on lease liabilities. For finance leases where the Company is a lessee and has
already recognized an asset and a related finance lease liability for the lease arrangement, the Company does not anticipate the
application of IFRS 16 will have a significant impact on the amounts recognized in its financial statements.
Income Taxes
In January 2016, the IASB issued “Recognition of Deferred Tax Assets for Unrealized Losses”, an amendment to IAS 12 – “Income
Taxes” (“IAS 12”). The amendments address accounting for deferred tax assets for unrealized losses on debt instruments measured at
fair value. The amendments are effective for annual periods beginning on or after January 1, 2017, with earlier application permitted.
The implementation of these amendments did not impact the Company’s financial statements.
Share-Based Payment
In June 2016, the IASB issued amendments to IFRS 2 – “Share-based Payment” which clarifies how to account for the effects of vesting
and non-vesting conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net
settlement feature, and modifications to the terms and conditions that change the classification of transactions. These amendments
are effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The implementation of these
amendments is not expected to impact the Company’s financial statements.
Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRS Interpretation Committee 23 – “Uncertainty over Income Tax Treatments”. The interpretation
clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments.
The interpretation requires an entity to determine whether uncertain tax positions are assessed separately or together with one or
more uncertain tax positions, and in making such assessment, an entity is required to assume that the taxation authority will examine
amounts it has a right to examine and has full knowledge of all information when making its examination. An entity must also consider
the probability that the taxation authority will accept an uncertain tax treatment used, or proposed to be used, by the entity in its
income tax filings and reassess any judgments and estimates made if the facts and circumstances change or new information becomes
available. The effective date of the interpretation is for annual periods beginning on or after January 1, 2019 applied retrospectively
or using a modified retrospective application without restatement of comparatives. Earlier application is permitted. The adoption of
the interpretation is not expected to have a significant impact on the Company’s financial statements.
62
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
4. Acquisitions
Acquisition of equity accounted investees
Linear Holdings, LLC (“Holdings”)
Effective October 1, 2017, the Company amended the operating agreement with its Holdings joint venture partner, which resulted in
the Company obtaining control over the joint venture. Accordingly, Holdings became a controlled subsidiary of the Company which
required the Company to discontinue the use of equity method accounting and re-measure its previously held fifty percent ownership
interest at its estimated fair value. The Company recorded a non-cash gain in the consolidated statements of operations and
comprehensive loss upon obtaining control.
The acquisition of Holdings qualified as a business and was accounted for using the acquisition method of accounting. Accordingly, the
results of Holdings have been consolidated in the financial statements of the Company from October 1, 2017. Financial results before
October 1, 2017 were recorded to net income or loss from equity accounted investees in the consolidated statements of operations
and comprehensive loss.
The fair value of non-controlling interests, the carrying amount of the Company’s previously held equity method investment, the re-
measurement gain recorded and the fair value allocation to the net assets acquired were as follows:
Fair value of fifty percent ownership interest (non-controlling interest)
Carrying amount of previously held equity method investment
Re-measurement gain on previously held equity method investment
Net assets acquired
Cash
Trade and other receivables
Goodwill (Note 6)
Trade payables
Total net assets acquired
$
$
$
$
2018
681
182
499
1,362
366
29
1,000
(33)
1,362
Goodwill was originally allocated to the Company’s previously reported U.S. segment and subsequently re-allocated to the Company’s
U.S. Appraisal and U.S. Title and Closing segments (Note 22) and is not deductible for tax purposes. Goodwill arising from this
acquisition was largely attributable to the revenue streams generated from the relationship between the Company and its joint
venture partner.
Performance Lender Solutions, LLC (“Performance”)
Effective November 1, 2017, the Company purchased the remaining fifty percent interest in Performance for nominal consideration.
Accordingly, the Company re-measured its previously held fifty percent ownership interest at its estimated fair value upon obtaining
control. No gain or loss was recognized in the consolidated statements of operations and comprehensive loss since the carrying
amount of this investment already reflected its then current fair value.
The acquisition of Performance qualified as a business and was accounted for using the acquisition method of accounting. Accordingly,
the results of Performance have been consolidated in the financial statements of the Company from November 1, 2017. Financial
results before November 1, 2017 were recorded to net income or loss from equity accounted investees in the consolidated statements
of operations and comprehensive loss.
63
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Consideration, the carrying amount of the Company’s previously held equity method investment and the fair value allocation to the
net assets acquired were as follows:
Cash
Carrying amount of previously held equity method investment
Net assets acquired
Cash
Prepaid expenses
Goodwill (Note 6)
Property and equipment (Note 7)
Trade payables
Total net assets acquired
$
$
$
$
2018
-
-
-
44
22
587
40
(693)
-
Keylink National Title, LLC (“Keylink”)
Effective April 1, 2017, the Company purchased the remaining forty-nine percent interest in Keylink. Accordingly, the Company re-
measured its previously held fifty-one percent ownership interest at its estimated fair value upon obtaining control. No gain or loss
was recognized in the statements of operations and comprehensive loss since the carrying amount of this investment already reflected
its then current fair value due to a previously recorded impairment charge (Note 13).
The acquisition of Keylink qualified as a business and was accounted for using the acquisition method of accounting. Accordingly, the
results of Keylink have been consolidated in the financial statements of the Company from April 1, 2017. Financial results before April
1, 2017 were recorded to net income or loss from equity accounted investees in the statements of operations and comprehensive
loss.
Cash consideration paid, the carrying amount of the Company’s previously held equity method investment and the fair value allocation
to the net assets acquired were as follows:
Consideration
Cash
Carrying amount of previously held equity method investment
Net assets acquired
Cash
Prepaid expenses
Goodwill (Note 6)
Trade payables
Accrued charges
Total net assets acquired
2017
50
50
100
69
4
62
(3)
(32)
100
$
$
$
$
Goodwill was originally allocated to the Company’s previously reported U.S. segment and subsequently reallocated to the Company’s
U.S. Appraisal and U.S. Title and Closing segments and is deductible for tax purposes.
64
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Linear Title & Settlement Services, LLC (“LTSS”)
Effective April 1, 2017, the Company amended the operating agreement with its LTSS joint venture partner which resulted in the
Company obtaining control over the joint venture. Accordingly, LTSS became a controlled subsidiary of the Company which required
the Company to discontinue the use of equity method accounting and re-measure its previously held forty-nine percent ownership
interest at its estimated fair value. The Company recorded a non-cash loss in the statements of operations and comprehensive loss
upon obtaining control.
The acquisition of LTSS qualified as a business and was accounted for using the acquisition method of accounting. Accordingly, the
results of LTSS have been consolidated in the financial statements of the Company from April 1, 2017. Financial results before April 1,
2017 were recorded to net income or loss from equity accounted investees in the statements of operations and comprehensive loss.
The fair value of non-controlling interests, the carrying amount of the Company’s previously held equity method investment, the re-
measurement loss recorded, and the fair value allocation to the net assets acquired were as follows:
Fair value of fifty-one percent ownership interest (non-controlling interests)
Carrying amount of previously held equity method investment
Re-measurement loss on previously held equity method investment
Net assets acquired
Cash
Trade and other receivables
Prepaid expenses
Goodwill (Note 6)
Property and equipment (Note 7)
Trade payables
Accrued charges
Total net assets acquired
$
$
$
$
2017
1,496
2,414
(976)
2,934
409
468
6
2,185
29
(103)
(60)
2,934
Goodwill was originally allocated to the Company’s previously reported U.S. segment and subsequently reallocated to the Company’s
U.S. Appraisal and U.S. Title and Closing segments and is not deductible for tax purposes. Goodwill arising from this acquisition was
largely attributable to the revenue streams generated from the relationship between the Company and its joint venture partner.
Acquisition costs
Acquisition costs are included in acquisition and initial public offering (“IPO”) (recovery) costs. For the year ended September 30, 2018,
no acquisition costs were incurred (September 30, 2017 - $nil). For the year ended September 30, 2017, the Company recorded a
recovery of $1,344 to acquisition costs. The recovery was due to the reversal of a contingent liability for additional tax owing by the
sellers of Linear Title & Closing Ltd. (“Linear”) partially offset by adjustments to receivable amounts for net working capital.
65
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
5. Intangibles
Cost
Balance, beginning of year
Foreign currency
translation adjustment
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Foreign currency
translation adjustment
Balance, end of year
Net carrying value, end of year
Cost
Balance, beginning of year
Foreign currency
translation adjustment
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Foreign currency
translation adjustment
Balance, end of year
Net carrying value, end of year
2018
Internally
generated
intangible
assets
Customer
relation-
ships
Brand name
Technology
Licenses
Total
$
8,798
$
56,294 $
2,297 $
5,720
$
13,840
$
86,949
(316)
8,482
8,764
34
(316)
8,482
$
$
$
(229)
56,065 $
-
2,297 $
-
5,720
34,482 $
14,471
1,438 $
622
(229)
48,724
$
-
2,060
$
3,318
1,725
-
5,043
-
13,840
2,076
1,384
-
3,460
$
$
$
(545)
86,404
50,078
18,236
(545)
67,769
$
$
$
-
$
7,341 $
237 $
677
$
10,380
$
18,635
$
$
$
$
Internally
generated
intangible
assets
Customer
relation-
ships
Brand name
Technology
Licenses
Total
2017
$
8,371 $
55,984 $
2,297 $
5,720
$
13,840
$
86,212
427
8,798 $
310
56,294 $
-
2,297 $
-
5,720
7,959 $
380
19,032 $
15,140
718 $
720
425
8,764 $
310
34,482 $
-
1,438 $
1,411
1,907
-
3,318
-
13,840
574
1,502
-
2,076
$
$
$
737
86,949
29,694
19,649
735
50,078
$
$
$
34 $
21,812 $
859 $
2,402
$
11,764
$
36,871
$
$
$
$
66
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
6. Goodwill
Cost
Balance, beginning of year(1)
Acquisitions (Note 4)
Balance, end of year
Accumulated impairment
Balance, beginning of year(1)
Balance, end of year
Net carrying value, end of year
Cost
Balance, beginning of year(1)
Acquisitions(1) (Note 4)
Balance, end of year(1)
Accumulated impairment
Balance, beginning of year(1)
Balance, end of year(1)
Net carrying value, end of year(1)
Note
(1)
U.S.
Appraisal
U.S.
Title and
Closing
2018
Total
42,048 $
1,133
43,181 $
16,842 $
454
17,296 $
58,890
1,587
60,477
- $
- $
- $
- $
-
-
43,181 $
17,296 $
60,477
U.S.
Title and
Closing
2017
Total
16,199 $
643
16,842 $
56,643
2,247
58,890
U.S.
Appraisal
$40,444 $
1,604
42,048 $
- $
- $
- $
- $
-
-
42,048 $
16,842 $
58,890
$
$
$
$
$
$
$
$
$
$
Goodwill has been reallocated from the Company’s previously reported U.S. segment to the Company’s two reportable U.S. Appraisal and U.S. Title and Closing
segments on a relative fair value basis reflecting changes to the Company’s segments as outlined in Note 22.
Impairment testing
The value in use for each CGU group is determined by discounting three-year cash flow projections from financial forecasts prepared
by senior management. Projections reflect past experience and future expectations of operating performance. The Company applied
perpetuity growth rates to these cash flows in the terminal year. None of the perpetuity growth rates exceed the long-term historical
growth rates for the markets in which the Company operates. The discount rates applied to the cash flow projections are derived from
the weighted average cost of capital of comparable publicly traded Companies.
The following table outlines the key assumptions used to estimate the recoverable amounts of the Company’s CGU groups where
goodwill has been allocated:
Key assumptions used
Pre-tax discount rate
Perpetuity growth rate
2018
U.S.
Title and
Closing
20.6%
2.3%
U.S.
Appraisal
21.3%
2.4%
2017
U.S.
Title and
Closing
21.3%
2.4%
U.S.
Appraisal
20.6%
2.3%
67
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Management believes that any reasonably possible change in the key assumptions would not cause the carrying amount of each CGU
group to exceed its recoverable amount.
7. Property and Equipment
Cost
Balance, beginning of year
Additions
Additions, acquisitions (Note 4)
Foreign currency translation adjustment
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Foreign currency translation adjustment
Balance, end of year
Net carrying value, end of year
Cost
Balance, beginning of year
Additions
Additions, acquisitions (Note 4)
Disposals
Other movements and transfers
Foreign currency translation adjustment
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Disposals
Other movements and transfers
Foreign currency translation adjustment
Balance, end of year
Net carrying value, end of year
Computer
equipment
Furniture and
fixtures
Leasehold
improve-
ments
3,024 $
413
-
(21)
3,416 $
1,771 $
868
(15)
2,624 $
1,802 $
8
40
(8)
1,842 $
755 $
369
(2)
1,122 $
3,116 $
2
-
(35)
3,083 $
1,177 $
317
(27)
1,467 $
2018
Total
7,942
423
40
(64)
8,341
3,703
1,554
(44)
5,213
792 $
720 $
1,616 $
3,128
Computer
equipment
Furniture and
fixtures
Leasehold
improve-
ments
2,384 $
541
3
(54)
123
27
3,024 $
808 $
911
(54)
88
18
1,771 $
1,456 $
431
26
-
(123)
12
1,802 $
429 $
367
-
(44)
3
755 $
2,235 $
835
-
-
-
46
3,116 $
806 $
314
-
20
37
1,177 $
2017
Total
6,075
1,807
29
(54)
-
85
7,942
2,043
1,592
(54)
64
58
3,703
1,253 $
1,047 $
1,939 $
4,239
$
$
$
$
$
$
$
$
$
$
At September 30, 2018, assets under finance leases totaled $110 (2017 - $202). There were no impairment write-downs or any
reversals of previous write-downs in the years presented.
68
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
8. Long-Term Debt
Senior term facilities (the “senior facilities”)
In February 2016, the Company entered into an agreement for a committed term loan of $27,000 (the “2016 facility”). The 2016 facility
is subject to principal amortization of eight percent per annum, payable quarterly, and a balloon payment of 60 percent due at
maturity. The 2016 facility matures on April 1, 2021 and bears interest ranging from Prime + 0.25% to 1.75% or LIBOR + 1.50% to
3.00%. At September 30, 2018, the Company had drawn $nil (2017 - $nil) on the 2016 facility.
In May 2015, the Company through its subsidiary, Solidifi U.S. Inc., entered into an agreement for a committed term loan of $20,000
(the “2015 facility”). The 2015 facility is subject to principal amortization of eight percent per annum, payable quarterly, and a balloon
payment of 60 percent due at maturity. The 2015 facility matures on May 1, 2020 and bears interest ranging from Prime +0.25% to
1.75% or LIBOR +1.50% to 3.00%. At September 30, 2018, the Company had drawn $nil (2017 - $nil) on the 2015 facility.
Revolving credit facility
The Company has available a demand revolving credit facility (the “revolving credit facility”) totaling 15,000 Canadian dollars (“C$”).
The revolving credit facility bears interest ranging from Prime +0.25% to 1.75% or LIBOR +1.50% to 3.00%. At September 30, 2018, the
Company had drawn $nil (2017 - $nil) on the revolving credit facility. Availability under the revolving credit facility is subject to good
quality receivables as defined in the agreement.
Security and debt covenants
All facilities are secured by a general security agreement, which provides the lender with a first, fixed and floating charge over all
assets, including intellectual property, an unlimited guarantee and postponement of claim by all wholly owned subsidiaries, and
certain other securities.
The Company is subject to certain covenants and was in compliance with all such covenants related to these facilities, including
financial covenants regarding debt and fixed charge coverage ratios and capital expenditure restrictions, as of September 30, 2018.
Interest expense is comprised of the following:
Senior and revolving credit facilities
Amortization of deferred financing costs
Accretion
Finance leases
Other
9. Warrant Liabilities
2018
2017
$
$
89 $
96
187
38
-
410 $
343
104
363
66
13
889
Company issued special warrants were automatically converted into common share purchase warrants on completion of the
Company’s IPO (together with other satisfied events). All outstanding common share purchase warrants are exercisable and expire
either two or five years following the date of the Company’s IPO. Warrant liabilities convert into common shares of the Company
when exercised and the associated non-cash liability is reclassified to common shares upon exercise. The non-cash liability attributable
to warrants that expire unexercised are recorded as a gain in the consolidated statements of operations and comprehensive income
or loss. There is no circumstance which requires the Company to pay cash upon exercise or expiry of the warrants.
During the year ended September 30, 2018, 196 warrants were exercised, resulting in the issuance of 196 common shares. These
warrants had a fair value of $1,263 at the date of exercise, determined using the Black-Scholes-Merton option pricing model, and this
amount was transferred from warrant liabilities to common shares. The Company also recorded a $152 gain to the consolidated
69
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
statement of operations and comprehensive loss representing the difference between the fair value of certain warrants recorded at
the most recent reporting date and the fair value of these warrants on the date of exercise.
At September 30, 2018, there were 1,536 (September 30, 2017 – 1,732) warrants outstanding. All warrants have an exercise price of
C$1.38 (September 30, 2017 – C$1.38) representing a total liability of $3,799 at September 30, 2018 (September 30, 2017 - $12,820).
Warrant liabilities are measured at fair value using the Black-Scholes-Merton option pricing model applying the following assumptions:
volatility of 39.2% (2017 – 13.7%), a risk-free interest rate of 2.04% (2017 – 1.14%), a dividend yield of nil% (2017 - nil%) and expected
life of 14 months (2017 - 26 months).
10. Shareholders’ Equity
The authorized share capital of the Company consists of an unlimited number of common shares and an unlimited number of preferred
shares. At September 30, 2018 and 2017, no preferred shares were issued.
Normal course issuer bid
Effective June 11, 2018, the Company received approval for a normal course issuer bid to purchase up to 4,000 common shares for a
one year period expiring on June 10, 2019. Daily purchases on the Toronto Stock Exchange, or made through alternative Canadian
trading systems, are limited to a maximum of 41.436 shares. Once a week, the Company is permitted to purchase a block of common
shares which can exceed the daily purchase limit subject to certain restrictions, including a limitation that the block cannot be owned
by an insider. All shares purchased will be cancelled.
For the year ended September 30, 2018, 758 common shares (2017 – nil) were purchased and cancelled at a total cost of $3,265 (2017
- $nil). As of November 27, 2018, 456 additional common shares were purchased and cancelled or settled.
IPO
On May 11, 2017, the Company completed an IPO of common shares. In connection with the IPO, the Company issued 9,620 common
shares from treasury for cash proceeds of $93,756. The Company incurred share issuance costs of $6,000 and the related tax effect
thereon was $1,566.
Commitment
In connection with the completion of a private placement in April 2016, the Company committed to issue an additional 750 common
shares for no consideration if it did not complete its IPO before the end of calendar year 2016. In January 2017, the Company issued
an additional 750 common shares.
Details of the Company’s common shares are as follows:
Balance, beginning of year
Common shares issued on exercise of stock options, during the year (Note 16)
Common shares issued on exercise of warrants, during the year (Note 9)
Purchase of common shares, during the year
Balance, end of year
70
Number of
shares
87,532 $
1,258
196
(758)
88,228 $
2018
Amount
259,625
2,638
1,476
(2,186)
261,553
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Balance, beginning of year
Common shares issued, net of issue costs and income taxes, during the year
Common shares issued on exercise of stock options, during the year
Common shares issued on exercise of warrants, during the year
Balance, end of year
11. Net Loss per Weighted Average Share
Number of
shares
75,128 $
10,370
1,407
627
87,532 $
2017
Amount
164,629
89,330
454
5,212
259,625
The following table outlines the components used in the calculation of basic and diluted net loss per share attributable to common
shareholders:
Net loss
Net loss attributable to common shareholders
Weighted average number of shares, basic
Dilutive effect of stock options and warrants
Weighted average number of shares, diluted
Net loss per weighted average share, basic
Net loss per weighted average share, diluted
2018
(4,015) $
(4,571) $
88,348
2,416
90,764
(0.05) $
(0.05) $
2017
(23,769)
(24,014)
80,280
4,812
85,092
(0.30)
(0.30)
$
$
$
$
12. Operating Expenses and Acquisition and Initial Public Offering (Recovery) Costs
Operating expenses:
Salaries and benefits
Sales and marketing
Travel and entertainment
Office and computer
Professional fees
Other
Acquisition and initial public offering (recovery) costs:
Acquisition recovery
Initial public offering costs
2018
2017
59,042 $
995
2,513
11,069
3,141
1,920
78,680 $
64,739
951
2,221
12,532
2,753
3,215
86,411
2018
2017
(7) $
-
(7) $
(1,344)
2,953
1,609
$
$
$
$
For the year ended September 30, 2018, the Company recognized an expense of $584 (2017 - $622) to salaries and benefits, which
represents contributions made in connection with defined contribution plans.
71
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
13. Impairment of Assets
In April 2017, the Company and two of its joint venture partners had discussions to end their joint venture arrangements. These
discussions represented an indication of impairment under IAS 36, Impairment of Assets. Accordingly, the Company assessed the
recoverable amount of these equity accounted investments, each recorded in the Company’s U.S. Title & Closing segment, and
determined both to be impaired. The Company recorded an impairment charge of $5,096 to the consolidated statements of operations
and comprehensive loss for the year ending September 30, 2017. The charge was calculated by comparing the carrying value of each
investment to its fair value less cost of disposal. The Company estimated fair value based on information available, including the
amount it could obtain from the disposal of these investments in arm’s length transactions, Level 2 in the fair value hierarchy. The
resulting carrying value of these investments was $50 subsequent to the impairment charge.
14. Changes in Non-Cash Working Capital Items
The following table outlines changes in non-cash working capital items:
Trade and other receivables
Prepaid expenses
Trade payables
Accrued charges
Deferred revenues
Effect of foreign currency translation adjustments and
other non-cash changes
2018
8,058 $
177
(1,515)
(402)
-
2017
(2,420)
(335)
(7,364)
(3,960)
(7)
(3,711)
2,607 $
2,570
(11,516)
$
$
15. Changes in Liabilities Arising From Financing Activities
Cash flows
Non-cash changes
September 30, 2018
Opening
balance -
October 1,
2017
542
514
12,820
Proceeds
34
-
213
Re-
payments
(392)
-
-
Change in fair
value
-
-
(7,386)
Foreign
exchange
(1)
(9)
(585)
Other non-
cash changes
- $
(2) $
(1,263) $
Ending
balance -
September
30, 2018
183
503
3,799
9,813
-
(10,000)
-
-
187 $
-
Finance lease obligations
Leasehold inducements
Warrant liabilities
Contingent consideration
- accrued charges
$
$
$
$
72
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
16. Stock-Based Compensation
Long-term incentive plan (“LTIP”)
The purpose of the LTIP is to attract and retain the best available personnel for positions of substantial responsibility, to provide
additional incentive to employees, directors and consultants and to align compensation with Company and stock price performance.
The following types of awards may be issued under the LTIP: restricted share units (“RSUs”), performance share units (“PSUs”) or stock
options. The Company’s current intention is to only issue stock options as long-term incentive awards and has no intention to grant
RSUs or PSUs.
RSUs
The duration of the vesting period and other vesting terms applicable to any RSUs granted under the LTIP will be determined by the
plan administrator at the time of grant. Upon vesting, holders will receive, at the option of the plan administrator, either one common
share from treasury for each vested RSU, the cash equivalent or a combination of a cash payment and common shares.
PSUs
A PSU entitles the holder to receive common shares based on the achievement of performance goals over a period of time as
established by the plan administrator. The performance goals established by the plan administrator may be based on the achievement
of corporate, divisional or individual goals, and may be established relative to performance against an index or comparator group, in
each case, determined by the plan administrator. The plan administrator may modify the performance goals as necessary to align with
them with the Company’s corporate objectives. The performance goals may include a threshold level of performance below which no
payment will be made, levels of performance at which specified payments will be made and a maximum level of performance above
which no additional payment will be made. Upon vesting, holders will receive, at the option of the plan administrator, either common
shares issued from treasury in proportion to the number of vested PSUs held and the level of performance achieved, the cash
equivalent or a combination of a cash payment and common shares.
RSUs and PSUs shall be credited with dividend equivalents in the form of additional RSUs or PSUs, as applicable. Dividend equivalents
shall vest in proportion to the awards to which they relate.
Stock options
Subject to the discretion of the plan administrator, stock options granted under the LTIP vest equally on their first, second and third
anniversary from the date of grant. Each stock option expires on the date that is the earlier of 10 years from the date of grant or such
earlier date as may be set out in the participant’s award agreement.
On August 13, 2018, the Company awarded certain employees an aggregate of 178 stock options. All options granted vest equally on
their first, second and third anniversary dates and expire on the 7th anniversary from the date of grant.
On May 11, 2018, the Company awarded certain executive officers, directors and employees an aggregate of 1,133 stock options.
Options granted to directors, 252, vested immediately, with the balance of options vesting equally on their first, second, and third
anniversary from the date of grant. All options expire on the 7th anniversary from the date of grant.
On February 1, 2018, the Company awarded certain employees an aggregate of 69 stock options. All options granted vest equally on
their first, second, and third anniversary dates and expire on the 10th anniversary from the date of grant.
On December 1, 2017, the Company awarded certain employees an aggregate of 117 stock options. All options granted vest equally
on their first, second, and third anniversary dates and expire on the 10th anniversary from the date of grant.
On August 15, 2017, the Company awarded certain employees an aggregate of 52 stock options. All options granted vest equally on
their first, second, and third anniversary dates and expire on the 10th anniversary from the date of grant.
On May 17, 2017, the Company awarded certain employees an aggregate of 18 stock options. All options granted vest equally on their
first, second and third anniversary dates and expire on the 10th anniversary from the date of grant.
73
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
On May 11, 2017, the Company awarded certain executive officers, directors and employees an aggregate of 1,325 stock options all
having an exercise price equal to the IPO price and expiring 10 years from the date of grant. Options granted to directors, 203, vested
immediately on grant, with the balance of options vesting equally on their first, second and third anniversary from the date of grant.
Legacy Plan
The Company had a legacy stock option plan (the “legacy plan”) for directors, officers, contractors and employees. Stock options
granted under the legacy plan qualified to vest in accordance with the qualification schedule determined by the board of directors or
compensation committee as set out in the stock option certificate. A qualified stock option represented the portion of an option
qualified to vest in accordance with the qualification schedule specified in the stock option certificate and included the portion of
options that would otherwise have qualified to vest within twelve months of a vesting event. Qualified stock options vested and were
exercisable on the occurrence of certain vesting events.
In February 2017, the vesting event for 945 qualified options was modified to allow for these awards to vest immediately. All 945 stock
options were exercised following the modification. As a result of this modification, the Company recognized stock-based compensation
expense of $53.
On November 7, 2016, the Company awarded a certain director 25 stock options. On December 15, 2016, the Company awarded
certain employees and directors 207 stock options. Options granted to directors, 50 in aggregate, vested immediately, while the
balance of the options vest equally on their grant date and their first, second and third anniversary from the date of grant. All options
expire on the 10th anniversary from the date of grant.
The closing of the Company’s IPO was a deemed vesting event under the Company’s legacy plan, such that all qualified stock options
vested and became exercisable. Options which were not qualified options as of the closing date of the IPO continue to time vest in
accordance with the provisions of the qualification schedule issued concurrent with the original grant and once time vested, are
exercisable. Following the IPO, no additional options have been granted under the legacy plan and any outstanding legacy plan options
will be governed by the terms of the Company’s current LTIP.
74
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
To estimate the fair value of its options, the Company used the Black-Scholes-Merton option pricing model which requires the use of
several input variables. These variables include the expected volatility, the risk free interest rate and the estimated length of time
employees will retain their options before exercising them. Changes in these variables can materially impact the estimated fair value
of stock-based compensation and consequently, the related amount recognized to operating expenses in the consolidated statements
of operations and comprehensive income or loss. In calculating the fair value of stock options at the date of grant, the following
weighted average assumptions were used:
-
17.7%
1.6%
6.0
9.05
1.93
-
18.0%
1.7%
6.0
9.59
2.11
-
41.7%
2.1%
4.3
6.11
2.23
-
41.6%
2.2%
4.5
5.22
1.95
$
$
$
$
$
$
$
$
Grant date - December 1, 2017
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Exercise price (expressed in C$)
Fair value, per option (expressed in C$)
Grant date - February 1, 2018
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Exercise price (expressed in C$)
Fair value, per option (expressed in C$)
Grant date - May 11, 2018
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Exercise price (expressed in C$)
Fair value, per option (expressed in C$)
Grant date - August 13, 2018
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Exercise price (expressed in C$)
Fair value, per option (expressed in C$)
75
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
2018
Weighted
average
exercise
price,
expressed in
C$
Number of
stock options
2017
Weighted
average
exercise
price,
expressed in
C$
Number of
stock options
6,130 $
1,497 $
(1,258) $
(386) $
5,983 $
5.40
6.39
2.09
10.40
6.03
6,315 $
1,627 $
(1,483) $
(329) $
6,130 $
2.46
12.50
0.82
4.57
5.40
3,984 $
4.75
4,511 $
3.28
Outstanding balance, beginning of year
Granted, during the year
Exercised, during the year(1)
Forfeited, during the year
Outstanding balance, end of year
Options exercisable, end of year
Note
(1)
During 2017, 495 options, included in the total number of options exercised, were exercised on a cashless basis which resulted in the issuance of 419 common
shares.
The Company recorded stock option expense of $1,705 (2017 - $3,497) to operating expenses in the consolidated statements of
operations and comprehensive income or loss for the year ended September 30, 2018.
The following table summarizes certain information for stock options outstanding as at September 30, 2018:
Exercise price,
expressed in C$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.91
1.23
1.69
1.84
2.21
2.28
2.40
4.60
5.00
5.22
6.11
8.00
8.63
9.05
9.59
10.50
12.80
13.00
Weighted
average
remaining
contractual life,
expressed in
years
Number of stock
options
exercisable
Number of stock
options
105
86
370
621
45
104
1,105
117
186
178
1,123
458
36
97
54
167
6
1,125
5,983
0.19
0.95
1.62
3.46
4.64
2.09
5.96
6.79
7.16
6.87
6.61
7.74
8.87
9.17
9.34
8.19
8.63
8.61
6.19
105
86
370
621
45
104
1,105
117
152
-
252
382
13
1
-
110
4
517
3,984
76
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
17. Related Party Transactions
Compensation of Key Management Personnel
The Company’s key management personnel comprise the board of directors and members of the executive team. Compensation for
key management personnel, recorded to operating expenses, was as follows:
Salaries and benefits
Stock-based compensation
18. Commitments and Contingencies
2018
2017
$
$
3,307 $
1,245 $
2,466
2,586
The Company leases office space and equipment under various operating leases. Payments for the next five years ending September
30 and thereafter are as follows:
2019
2020
2021
2022
2023
Thereafter
$
$
1,937
1,476
1,190
1,110
862
1,565
8,140
The Company has entered into finance leases for computer equipment and furniture and fixtures with maturities and interest rates
ranging from 2019 to 2020 and 2.2% to 12.5%, respectively. Future minimum lease payments required under finance lease obligations
in each of the next five years ending September 30 and thereafter are as follows:
2019
2020
2021
2022
2023
Thereafter
Less: amount representing interest
Less: current portion
$
$
178
10
-
-
-
-
188
5
183
173
10
The Company administers escrow accounts which represent undisbursed funds received for the settlement of certain residential and
commercial real estate title and closing transactions. Deposits at Federal Deposit Insurance Corporation (“FDIC”) institutions are
insured up to $250. Undisbursed cash deposited in these escrow accounts totaled $34,984 at September 30, 2018 (2017 - $57,890)
which are not assets of the Company and, therefore have been excluded from the Company’s consolidated statements of financial
position. However, the Company remains contingently liable for the disbursement of these deposits.
The Company was named as defendant in a putative collective action lawsuit filed on October 17, 2016 (the “Complaint”) on behalf of
certain current and former employees of the Company. The Complaint alleged, amongst other things, that the Company owed certain
employees overtime compensation for work performed. The Company determined that the collective action applied to approximately
30 current and former employees of the Company. The opt-in period for the collective action expired with a total of six former
employees joining.
77
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
The Company reached an agreement with the plaintiffs to settle the lawsuit for an aggregate payment to the plaintiffs of $161. The
settlement was approved by the court on June 28, 2018 and paid by the Company shortly thereafter. The Company recorded $41 in
respect of this matter to the consolidated statements of operations and comprehensive loss for the year ended September 30, 2018
(2017 - $120).
The Company is also subject to certain lawsuits and other claims arising in the ordinary course of business. The outcome of these
matters is subject to resolution. Based on management’s evaluation and analysis of these matters, when determinable, the amount
of any potential loss is accrued. Management believes that any amounts above those accrued will not be material to the financial
statements.
19. Financial Instruments
The following tables outline the hierarchical measurement categories for the fair value of financial assets and liabilities. At September
30, 2018 and 2017, financial assets and liabilities measured on a recurring basis had the following estimated fair values expressed on
a gross basis:
Warrant liabilities
Warrant liabilities
Contingent consideration - accrued charges
Quoted
prices in
active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
- $
- $
(3,799) $
(3,799) $
- $
- $
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
- $
-
- $
(12,820) $
-
(12,820) $
- $
(9,813)
(9,813) $
$
$
$
$
2018
Total
(3,799)
(3,799)
2017
Total
(12,820)
(9,813)
(22,633)
The hierarchal measurement categories for financial assets and liabilities recognized at fair value on a recurring basis are re-assessed
at the end of each reporting period.
For the year ended September 30, 2018, there were no transfers between levels or changes to the valuation techniques. For the year
ended September 30, 2017, the Company transferred warrant liabilities out of level 3 due to a significant previously unobservable
input (Level 3) becoming observable (Level 2) in connection with the Company’s initial public offering.
The fair value of warrant liabilities are calculated using the Black-Scholes-Merton option pricing model which is subject to considerable
judgment and estimate. Accordingly, the fair value estimate is not necessarily indicative of the amount the Company, or a counter-
party to the instrument, could realize in a current market exchange. The use of differing assumptions, and or estimation methods,
could affect fair value.
78
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Contingent consideration represented an earn-out payment due to certain sellers for meeting certain performance conditions which
was subsequently guaranteed through an amending agreement with the sellers. The Company initially recorded contingent
consideration totaling $10,000 at a discount applying a rate of 3.85%. The liability accreted until March 31, 2018 and was recorded to
accrued charges in the Company’s consolidated statements of financial position. The $10,000 earn-out was paid by the Company in
April 2018 in accordance with the terms of the amending agreement.
The following table outlines the change in estimated fair value for recurring Level 3 financial instruments for the year ended September
30, 2018 and 2017, respectively:
Significant unobservable inputs (Level 3)
Balance, beginning of year
Unrealized losses included in the consolidated
statements of operations, during the year
Settlements
Transfers out, during the year
Foreign currency translation adjustment
Balance, end of year
2018
2017
$
(9,813) $
(44,098)
(187)
10,000
-
-
- $
(2,875)
25,486
12,820
(1,146)
(9,813)
$
Estimated fair value
The carrying value of cash and cash equivalents, trade and other receivables, trade payables and accrued charges approximate their
fair values due to the relatively short-term maturities of these instruments.
Financial risk management
In the normal course of business, the Company is exposed to financial risks that have the potential to impact its financial performance,
including credit risk, market risk and liquidity risk. The Company’s primary objective is to protect its operations, cash flows and
ultimately shareholder value. The Company designs and implements risk management strategies but does not typically use derivative
financial instruments to manage these risks.
Credit risk
Credit risk is the risk that the Company’s counterparties will fail to meet their financial obligations to the Company, causing the
Company a financial loss. The Company’s principal financial assets are cash and cash equivalents and trade and other receivables. The
carrying amounts of financial assets on the consolidated statements of financial position represent the Company’s maximum exposure
to credit risk at the date presented. The Company’s credit risk is primarily attributable to its trade receivables which is limited by the
Company’s broad customer base. At September 30, 2018, two customers represented more than 10% (2017 – one customer
represented more than 10%) of the Company’s total trade and other receivables.
To limit credit risk, the Company monitors its aged receivable balances on a continuous basis. In addition, a significant portion of the
Company’s revenue is settled on closing through an escrow account having no credit terms attributable to collection. The Company’s
customers are financial and lending institutions that are typically well funded, which also limits the Company’s exposure to credit risk.
In certain circumstances, the Company may require customer deposits or pre-payments to limit credit risk. While the Company has
risk mitigation processes in place, there can be no certainty that it can eliminate all credit risk. Accordingly, these processes may not
be effective in the future and the potential for credit losses may increase.
79
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Trade and other receivables
Trade receivables
Settlement receivables
Other
Allowance for doubtful accounts
The following table outlines the change in the allowance for doubtful accounts:
Balance, beginning of year
Impairment recoveries (losses) recognized, during the year
Write-offs, during the year
Recoveries, during the year
Foreign currency translation adjustment
Balance, end of year
The aging of trade and other receivables was as follows:
Current
Over 30 days
Over 60 days
Over 90 days
Total gross trade and other receivables
Less: allowance for doubtful accounts
Total trade and other receivables
2018
2017
23,739 $
771
53
(492)
24,071 $
30,789
935
1,153
(777)
32,100
2018
(777) $
85
204
(4)
-
(492) $
2017
(10)
(848)
84
-
(3)
(777)
2018
2017
18,239 $
4,741
267
1,316
24,563
492
24,071 $
23,403
5,110
1,149
3,215
32,877
777
32,100
$
$
$
$
$
$
Foreign currency risk
Foreign currency risk arises due to fluctuations in foreign currency exchange rates. The Company’s objective is to minimize its net
exposure to foreign currency cash flows by holding U.S. dollar cash balances and matching them with U.S. dollar obligations arising
from its U.S. operations and matching Canadian dollar cash balances and obligations to its Canadian operations.
Since the Company has elected to report its financial results in U.S. dollars, the Company is exposed to foreign currency fluctuations
on its reported amounts of Canadian assets and liabilities. As at September 30, 2018, the Company had net assets of $63,181 (2017 –
net assets of $51,687) denominated in Canadian dollars. A 10% change in the exchange rate between the U.S. and Canadian dollar
results in a plus or minus $6,318 (2017 - $5,169) change in the value of net assets recorded on the Company’s statements of financial
position. All such changes are recorded to other comprehensive income or loss.
Interest rate risk
The Company’s drawings on its senior facilities and revolving credit facility are subject to interest rate fluctuations with bank prime or
LIBOR. Accordingly, senior facility and revolving facility drawings, if any, are subject to interest rate risk. Since the Company currently
has no amounts drawn on either facility, a rise or fall in the variable interest rate does not impact interest expense.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations to settle financial liabilities through the
delivery of cash or another financial asset. The Company’s objective is to manage operational uncertainties, including, but not limited
to, unfavourable real estate trends, market share and sales volumes.
80
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
The Company also maintains sufficient levels of working capital to settle its financial liabilities when they are contractually due and
manages its compliance with its debt covenants.
The following tables outline the Company’s remaining contractual maturities for its non-derivative financial liabilities based on the
earliest date the Company is required to pay amounts owing:
Total
9,585 $
1,805 $
188 $
Less than 1
year
9,585 $
1,805 $
178 $
Payments due
2018
1-3 years
4-5 years
After 5 years
- $
- $
10 $
- $
- $
- $
Payments due
-
-
-
2017
Total
10,376 $
12,207 $
580 $
Less than 1
year
10,376 $
12,207 $
410 $
1-3 years
4-5 years
After 5 years
- $
- $
170 $
- $
- $
- $
-
-
-
$
$
$
$
$
$
Trade payables
Accrued charges
Finance lease obligations
Trade payables
Accrued charges
Finance lease obligations
20. Income Taxes
The components of income tax expense or recovery are as follows:
Current income tax expense
Current year
Adjustments for prior periods
Deferred income tax recovery
Origination and reversal of temporary differences
Adjustments for prior periods
2018
2017
$
2,996 $
(97)
2,899
(1,911)
(387)
(2,298)
1,729
95
1,824
(10,146)
(81)
(10,227)
(8,403)
Total income tax expense (recovery)
$
601 $
81
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
The following table reconciles income tax expense or recovery calculated at the Company’s applicable statutory income tax rate with
the reported amounts:
Loss before income tax expense (recovery)
Statutory income tax rate
Expected income tax recovery at the statutory income tax rate
Foreign income subject to tax at a different statutory tax rate
Adjustments for prior periods
Non-deductible expenses and non-taxable income
State tax
Impact of U.S. statutory income tax rate change
Movements in deferred tax assets and liabilities are as follows:
2018
(3,414) $
2017
(32,172)
$
26.5%
(905)
(326)
(484)
(2,621)
230
4,707
$
601 $
Deferred tax (liabilities) assets
Property and equipment
Intangibles
Financing fees
Unutilized tax loss carryforwards
Unrealized foreign exchange gains
Contingent liabilities
Interest expense
Other
Deferred tax (liabilities) assets
Property and equipment
Intangibles
Financing fees
Unutilized tax loss carryforwards
Unrealized foreign exchange gains
Contingent liabilities
Interest expense
Other
Balance,
beginning of
year
Recognized
in net loss
Recognized
in equity
Foreign
currency
translation
adjust-
ments
(4) $
7,257
2,367
6,397
(1,607)
3,974
2,015
246
20,645 $
(34) $
4,278
(662)
2,271
91
(3,974)
336
(8)
2,298 $
- $
-
-
-
-
-
-
-
- $
- $
(27)
(79)
(71)
4
-
-
(6)
(179) $
Balance,
beginning of
year
Recognized
in net loss
Recognized
in equity
Foreign
currency
translation
adjust-
ments
149 $
16,102
17
2,010
(307)
(8,806)
888
174
10,227 $
- $
-
1,622
-
-
-
-
-
1,622 $
- $
35
117
89
(6)
-
-
9
244 $
(153) $
(8,880)
611
4,298
(1,294)
12,780
1,127
63
8,552 $
82
$
$
$
$
26.5%
(8,526)
(3,427)
29
3,342
179
-
(8,403)
2018
Total
(38)
11,508
1,626
8,597
(1,512)
-
2,351
232
22,764
2017
Total
(4)
7,257
2,367
6,397
(1,607)
3,974
2,015
246
20,645
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Deferred income tax assets are recognized for unutilized tax loss carryforwards when the realization of the related tax benefit through
future taxable income is probable. At September 30, 2018, the Company and its subsidiaries have $8,984 (2017 - $6,863) of non-capital
loss carryforwards in Canada expiring in varying amounts between 2031 and 2038. The Company also has $22,486 (2017 - $12,241) of
non-capital loss carryforwards in the U.S. expiring in varying amounts between 2034 and 2038. Total deferred tax assets of $8,597
(2017 - $6,397) were recognized on the full amount of these loss carryforwards. Although the Company has incurred losses in the
current and prior years, deferred tax assets have been recorded because management has assessed that the combination of existing
earnings before amortization and the ability to implement tax planning measures should allow the Company to realize the benefit of
its deferred tax assets before factoring in expected growth in earnings.
No deferred tax is recognized on the amount of temporary differences arising between the carrying amount of an investment in
subsidiary or an interest in a joint arrangement accounted for in these financial statements and the cost of either investments for tax
purposes. The Company is able to control the timing of the reversal of these temporary differences and believes it is probable that
they will not reverse in the foreseeable future.
21. Capital Management
The Company actively manages its debt and equity capital in support of its performance objectives and to ensure sufficient liquidity is
available to support its financial obligations and operating and strategic plans, with a view to maximizing stakeholder returns.
The Company defines capital as equity (currently comprising common share capital), short-term and long-term indebtedness and cash
and cash equivalents. The Company manages its capital structure, commitments and maturities and makes adjustments, where
required, based on general economic conditions, financial markets, operating risks and working capital requirements. To maintain or
adjust its capital structure, the Company may, with approval from its board of directors, as required, issue or repay debt and/or short-
term borrowings, issue share capital or undertake other activities deemed appropriate. The board of directors reviews and approves
the annual operating budgets, and any material transactions that are not part of the ordinary course of business, including proposals
for acquisitions or other major capital transactions.
The Company monitors its capital structure by measuring its key covenants which include a debt-to-earnings ratio and interest
coverage ratio. Key financial covenants contained in existing debt agreements are reviewed by management on a quarterly basis to
monitor compliance.
The Company is not subject to any externally-imposed capital requirements.
83
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
22. Segmented Reporting
In the fourth quarter of fiscal 2018, the CODM, who is the President and Chief Executive Officer of the Company, began making
resource allocation decisions and assessing the performance of the Company’s U.S. operations by separately analyzing U.S. Appraisal
and U.S. Title and Closing services. Accordingly, the Company’s previously reported U.S. segment has been reclassified into two
reportable segments, representing U.S. Appraisal and U.S. Title and Closing. In addition, certain revenues previously reported as U.S.
Appraisal revenues have been reclassified to U.S. Title and Closing revenues, since these revenues are more closely aligned with U.S.
Title and Closing services than U.S Appraisal.
There has been no change to how the CODM reviews the Canadian operations.
The CODM does not evaluate operating segments using discrete asset information and the Company does not specifically allocate
assets to operating segments for internal reporting purposes.
All previously reported segment amounts have been reclassified to conform to the current year presentation having no impact to the
consolidated amounts reported.
Goodwill has been reassigned to the U.S. Appraisal and U.S. Title and Closing segments using a relative value allocation approach
similar to that used when a portion of a CGU is disposed of. Accordingly, previously reported goodwill amounts have been calculated
applying the fair value allocation percentage derived at the date of change.
The Company conducts its business through three reportable segments: U.S. Appraisal, U.S. Title and Closing and Canada. The
Company reports segment information based on internal reports used by the CODM to make operating and resource allocation
decisions and to assess performance.
The U.S. Appraisal segment provides residential mortgage appraisals for purchase, refinance and home equity transactions through
its Solidifi brand.
The U.S. Title and Closing segment serves the title and closing market through residential and commercial real estate title and/or
closing services directly in 46 states, as well as Puerto Rico and in 4 states through agreements with licensed title or escrow providers.
Other title and closing service offerings include abstracting services, capital markets services and providing access to its software
platforms to other title insurance agencies and mortgage lenders for a subscription fee.
The Canadian segment’s primary service offering includes residential mortgage appraisals for purchase, refinance and home equity
transactions which are provided through its Solidifi brand. Additionally, the Company provides insurance inspection services to
property and casualty insurers across Canada through its iv3 brand.
The Company excludes corporate costs in the determination of each operating segment’s performance. Corporate costs include certain
executive and employee costs, legal, finance, internal audit, treasury, investor relations, human resources, technical and software
development and other administrative support function costs.
The accounting policies for each operating segment are the same as those described in the basis of presentation and significant
accounting policies (Note 2). The Company evaluates segment performance based on revenues, net of transaction costs.
84
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Revenues
U.S. Appraisal
U.S. Title and Closing
Canada
Revenues net of transaction costs
U.S. Appraisal
U.S. Title and Closing
Canada
Amortization
U.S. Appraisal
U.S. Title and Closing
Canada
Corporate
Operating expenses
Acquisition and IPO (recovery) costs
Integration expenses
Impairment of assets
Interest expense
Interest income
Net foreign exchange (gain) loss
(Gain) loss on fair value of warrants
Re-measurement (gain) loss on previously held equity method
Net income from equity accounted investees
Loss before income tax expense or recovery
Intangibles
Goodwill
Property and equipment
Intangibles
Goodwill
Property and equipment
2018
2017
186,464 $
65,220
29,767
281,451 $
186,380
84,862
31,734
302,976
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
38,377 $
39,110
5,281
82,768 $
3,445 $
16,031
-
314
19,790 $
78,680 $
(7) $
863 $
- $
410 $
(698) $
(4,971) $
(7,386) $
(499) $
- $
(3,414) $
33,483
53,640
5,171
92,294
4,581
15,958
-
702
21,241
86,411
1,609
-
5,096
889
(139)
3,390
5,011
976
(18)
(32,172)
2018
Total
18,635
60,477
3,128
2017
Total
36,871
58,890
4,239
U.S.
Canada
Corporate
18,635 $
60,477 $
2,679 $
- $
- $
- $
- $
- $
449 $
U.S.
Canada
Corporate
36,837 $
58,890 $
3,693 $
- $
- $
- $
34 $
- $
546 $
$
$
$
$
$
$
85
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2018 and 2017 (stated in thousands of U.S. dollars and shares, except per share amounts, unless
otherwise stated)
Revenues by service type
Appraisal and ancillary
Title and closing
Insurance inspection
2018
2017
$
$
212,229 $
65,220
4,002
281,451 $
214,524
84,862
3,590
302,976
For the year ended September 30, 2018, one customer represented more than 10% of the Company’s revenues which amounted to
$32,065 and was included in the U.S. Appraisal segment (2017 – $31,780).
23. Guarantees
In the normal course of business, the Company enters into agreements that meet the definition of a guarantee. A guarantee requires
the issuer to make a specified payment or payments to reimburse the beneficiary for a loss it incurs if the issuer fails to make a payment
when due.
The Company’s primary guarantees are as follows:
The Company has provided indemnities under lease agreements for the use of various office space. Under the terms of these
agreements the Company agrees to indemnify the counterparties for various items including, but not limited to, all liabilities, loss,
suits and damage arising during, on or after the term of the agreement. The maximum amount of any potential future payment cannot
be reasonably estimated. These indemnities are in place for various periods beyond the original term of the lease and these leases
expire between 2019 and 2027.
Through the Company’s by-laws and stand-alone director indemnification agreements, indemnity has been provided to all directors
and officers of the Company and its subsidiaries for various items including, but not limited to, all costs to settle suits or actions due
to association with the Company and its subsidiaries, subject to certain restrictions. The Company has purchased directors’ and
officers’ liability insurance to mitigate the cost of any potential future suits or actions. The maximum amount of any potential future
payment cannot be reasonably estimated.
In the normal course of business, the Company has entered into agreements that include indemnities in favour of third parties, such
as purchase and sale agreements, confidentiality agreements, engagement letters with advisors and consultants, outsourcing
agreements, leasing contracts, underwriting and agency agreements, information technology agreements and service agreements.
These indemnification agreements may require the Company to compensate counterparties for losses incurred as a result of breaches
in representation and regulations or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as
a consequence of the transaction. The terms of these indemnities are not explicitly defined and the maximum amount of any potential
reimbursement cannot be reasonably estimated.
The nature of these indemnification agreements prevents the Company from making a reasonable estimate of the maximum exposure
due to the difficulty in assessing the amount of liability which stems from the unpredictability of future events and the unlimited
coverage offered to the counterparties. Historically, the Company has not made any significant payments under these or similar
indemnification agreements and therefore no amount has been accrued in the consolidated statements of financial position with
respect to these agreements.
86
Leadership Team
Jason Smith
President and Chief
Executive Officer
William Herman
Executive Vice President
and Chief Financial Officer
Andrew Bough
Executive Vice President,
Valuations
Nathan Chandler
Executive Vice President
Loren Cooke
Executive Vice President
President of Solidifi
Steve Lockington
Executive Vice President
Kim Montgomery
Executive Vice President
Craig Rowsell
Executive Vice President
Ryan Smith
Executive Vice President and
Chief Technology Officer
Kevin Walton
Executive Vice President,
Corporate Development
Board of Directors
Blaine Hobson1
Chairman
Robert Courteau2
Director
Garry M. Foster3
Director
William T. Holland1
Director
Frank V. McMahon4
Director
Lisa Melchior4
Director
Jason Smith
Director
1. Compensation, Nomination and Governance Committee Member
3. Audit Committee Chair
2. Compensation, Nomination and Governance Committee Chair
4. Audit Committee Member
Corporate Information
Headquarters
CANADA
50 Minthorn Blvd., Suite 401
Markham, Ontario
L3T 7X8
1.877.739.2212
U.S.
701 Seneca St., Suite 660
Buffalo, New York
14210
1.866.583.3983
Investor Relations
289.843.3383
ir@realmatters.com
Listing
TSX: REAL
Independent Auditors
Deloitte, LLP
Transfer Agent
TSX Trust Company
301 - 100 Adelaide St. West
Toronto, Ontario
M5H 4H1
416.361.0930 or
1.866.393.4891 x.205
TMXEInvestorServices@tmx.com
Code of Conduct
Copies the Company’s Code of Conduct can be found at www.realmatters.com/investors/governance or can be
obtained by writing to:
Corporate Secretary
Real Matters
50 Minthorn Blvd., Suite 401
Markham, Ontario
L3T 7X8
2018 Annual Report