2023
ANNUAL REPORT
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 top 100 mortgage lenders in the U.S. and some
of the largest banks and insurance companies in Canada. We are a leading independent provider of residential
real estate appraisals to the mortgage market and a leading independent provider of title services in the U.S.
Headquartered in Markham (ON), Real Matters has principal offices in Buffalo (NY) and Middletown (RI). Real
Matters is listed on the Toronto Stock Exchange under the symbol REAL.
Performance Highlights
in thousands of US$ except per share amounts or where otherwise stated
Fiscal 2023
Fiscal 2022
Fiscal 2021
Fiscal 2020
Fiscal 2019
Financial
Consolidated
Revenues
Net Revenue(A)
Net Revenue(A) margin
Net (loss) income
Adjusted EBITDA(A)
Adjusted EBITDA(A) margin
U.S. Appraisal
Revenues
Net Revenue(A)
Net Revenue(A) margin
Adjusted EBITDA(A)
Adjusted EBITDA(A) margin
U.S. Title
Revenues
Net Revenue(A)
Net Revenue(A) margin
Adjusted EBITDA(A)
Adjusted EBITDA(A) margin
Canada
Revenues
Net Revenue(A)
Net Revenue(A) margin
Adjusted EBITDA(A)
Adjusted EBITDA(A) margin
Cash
Cash flow from operating activities
Long-term debt
Common shares issued and outstanding
Stock options issued and outstanding
Warrants issued, outstanding and exercisable
Operating Metrics
U.S. Appraisal purchase market share
U.S. Appraisal refinance market share
U.S. Title refinance market share
Trading Statistics (C$ except volume)
High
Low
Close
$163,914
$339,642
$43,015
26.2%
$(6,196)
$(2,359)
-5.5%
$85,439
25.2%
$(9,265)
$7,379
8.6%
$120,846
$250,916
$33,117
27.4%
$14,178
42.8%
$9,526
$3,867
40.6%
$(8,338)
-215.6%
$33,542
$6,031
18.0%
$4,249
70.5%
$42,341
$(2,564)
–
72,944
3,581
–
4.1%
10.4%
0.5%
$7.10
$3.80
$6.20
$55,510
22.1%
$26,997
48.6%
$36,542
$23,049
63.1%
$(8,084)
-35.1%
$52,184
$6,880
13.2%
$4,483
65.2%
$46,142
$17,567
–
72,696
4,426
–
4.1%
12.1%
1.2%
$10.52
$4.18
$4.75
$504,107
$164,292
32.6%
$33,080
$59,201
36.0%
$322,109
$69,263
21.5%
$39,797
57.5%
$129,538
$88,239
68.1%
$31,784
36.0%
$52,460
$6,790
12.9%
$4,777
70.4%
$60,213
$25,021
–
79,048
4,578
96
4.4%
9.9%
1.8%
$27.61
$9.86
$10.04
$455,945
$162,117
35.6%
$42,798
$72,242
44.6%
$282,101
$67,224
23.8%
$39,851
59.3%
$142,397
$89,845
63.1%
$44,291
49.3%
$31,447
$5,048
16.1%
$3,111
61.6%
$129,156
$74,689
–
85,359
5,111
191
4.6%
9.3%
2.1%
$33.01
$7.74
$25.95
520,372
$322,537
$102,075
31.6%
$10,094
$28,977
28.4%
$212,717
$50,130
23.6%
$26,024
51.9%
$82,649
$46,838
56.7%
$13,696
29.2%
$27,171
$5,107
18.8%
$2,651
51.9%
$71,680
$25,643
–
84,946
6,060
874
NA
NA
NA
$12.02
$2.95
$11.04
158,404
Average Volume
128,466
559,487
543,366
(A) Non-GAAP Measures
Net Revenue and Adjusted EBITDA do not have a standardized meaning prescribed by International Financial Reporting Standards and are therefore unlikely to be
comparable to similar measures presented by other issuers. These non-GAAP measures are more fully defined on page 23 of this Annual Report.
1
Fiscal 2023 in Review
20%
6%
Revenues
$163.9M
14%
9%
23%
Net Revenue(A)
$43.0M
Adjusted EBITDA(A)1
$(2.4)M
74%
77%
77%
U.S. Appraisal
U.S. Title
Canada
Progress to Fiscal 2025 Targets
Purchase
market share2
Refinance
market share
Net Revenue(A)
margin
Adjusted EBITDA(A)
margin
F23
F25 Target
F23
F25 Target
F23
F25 Target
F23
F25 Target
U.S. Appraisal
4.1%
7-9%
10.4%
17-19%
27.4%
26-28%
42.8%
65-70%
U.S. Title
Canada
NA
NA
NA
NA
0.5%
6-8%
40.6%
60-65%
Nmf3
50-55%
NA
NA
18.0%
19-20%
70.5%
65-70%
(A) Non-GAAP Measures
Net Revenue and Adjusted EBITDA do not have a standardized meaning prescribed by International Financial Reporting Standards and are therefore unlikely to be
comparable to similar measures presented by other issuers. These non-GAAP measures are more fully defined on page 23 of this Annual Report.
1 Adjusted EBITDA(A) includes negative Adjusted EBITDA(A) of $8.3 for U.S. Title, and $12.4 million of corporate expenses which is expressed net of stock-based
compensation totalling $1.4 million.
2 Market share expressed as a percentage of TAM as described on page 9 of this Annual Report.
3 Not meaningful figure as U.S. Title Adjusted EBITDA(A) was negative in Fiscal 2023.
2
Key Performance Indicators - U.S. Appraisal
U.S. Appraisal Segment Revenues &
Net Revenue(A) Margin vs Addressable
Mortgage Market Origination Volumes*
U.S. Appraisal Segment Adjusted EBITDA(A) &
Adjusted EBITDA(A) Margin vs Addressable
Mortgage Market Origination Volumes*
$282.1M
$322.1M
$250.9M
23.8%
21.5%
$120.8M
22.1%
27.4%
$212.7M
23.6%
Volumes
8,000
6,000
4,000
2,000
0
$39.9M $39.8M
$26.0M
51.9%
$27.0M
59.3%
57.5%
48.6%
$14.2M
42.8%
Volumes
8,000
6,000
4,000
2,000
0
F19
F20
F21
F22
F23
F19
F20
F21
F22
F23
Revenues
Estimated Addressable Market Volumes
Adjusted EBITDA(A)
Estimated Addressable Market Volumes
Key Performance Indicators - U.S. Title
U.S. Title Segment Revenues &
Net Revenue(A) Margins vs
Mortgage Market Origination Refinance Volumes*
U.S. Title Segment Adjusted EBITDA(A)
& Adjusted EBITDA(A) Margins vs
Mortgage Market Origination Refinance Volumes*
$142.4M
$129.5M
$82.6M
56.7%
63.1%
68.1%
$36.5M
63.1%
$9.5M
40.6%
F19
F20
F21
F22
F23
Volumes
8,000
6,000
4,000
2,000
0
$44.3M
$31.8M
49.3%
36.0%
$13.7M
29.2%
$(8.1)M
$(8.3)M
(35.1)%
(215.6)%
F19
F20
F21
F22
F23
Volumes
8,000
6,000
4,000
2,000
0
Revenues
Estimated Refinance Market Volumes
Adjusted EBITDA(A)
Estimated Refinance Market Volumes
(A) Non-GAAP Measures
Net Revenue and Adjusted EBITDA do not have a standardized meaning prescribed by International Financial Reporting Standards and are therefore unlikely to be
comparable to similar measures presented by other issuers. These non-GAAP measures are more fully defined on page 23 of this Annual Report.
* Management estimate, in thousands of units. We derive our estimate using a variety of sources, including HMDA data, publicly reported financial results of U.S.
mortgage originators, forecasts from the Mortgage Bankers Association, Fannie Mae and Freddie Mac, and our own internal volumes.
3
To our shareholders,
In fiscal 2023, Real Matters focused on preparing for scale by optimizing our
network, our platform and our team, and making the business more efficient
at scale. Despite significant market headwinds, we made further inroads with
our clients by expanding our channel penetration across all segments and
deepening our relationships to build franchise value for the long term. We have
kept our commitment to shareholders by focusing on what we can control and
running our business with a long-term view.
The U.S. mortgage market is cyclical and our business was built to weather its peaks, and
valleys. By historical standards, fiscal 2023 was one of the most challenging markets we
have faced as a company, and as an industry. Inflation, rapidly rising interest rates, a
sustained increase in home price appreciation, low housing inventory and continuing
economic uncertainty drove mortgage market volumes down to levels not seen in this
industry in almost three decades, and certainly not in our time as a public company.
Despite the challenging market environment, we posted positive net income and positive
consolidated Adjusted EBITDA(A) in the last six months of the fiscal year. We managed our cost
base and improved our operational efficiency to better align with the lower market
than 41%
environment, reducing our consolidated operating expenses by more
year-over-year. We are now operating with the lowest cost structure we’ve had since going
public; a prime example of what our platform is capable of delivering.
We ended fiscal 2023 with 4.1% U.S. Appraisal purchase market share and U.S. Appraisal
refinance market share of 10.4%. We believe that our Tier 1 lenders, who account for the
majority of our revenues, were disproportionately impacted by the decline in the U.S.
mortgage origination market in fiscal 2023. We increased our market share with our Tier 1
clients, on average, by 10% in fiscal 2023. The Tier 1s are large lenders – both bank and
non-bank – who value performance, and they continue to represent a significant opportunity
for market share growth for Real Matters.
(A) Non-GAAP Measures
Net Revenue and Adjusted EBITDA do not have a standardized meaning prescribed by International Financial Reporting Standards and are therefore unlikely to be
comparable to similar measures presented by other issuers. These non-GAAP measures are more fully defined on page 2 3 of this Annual Report.
4
We went live in a second channel with our Tier 1 lender in U.S. Title at the end of the fourth
quarter and ended fiscal 2023 with overall market share of 0.5% in U.S. Title. Our team
continues to advance the pipeline with an optimistic view of adding new lenders and
increasing our market share. Given the efficiency of our operations, we remain well positioned
for a variety of volume scenarios over the medium and long term.
In fiscal 2023, we launched 20 new customers and 13 new channels across all business
units. We continued to rank at the top of lender scorecards and our performance continues
to reinforce our relationship with lenders who view us as a trusted partner.
We believe in the long-term earnings potential of our business, and we remain focused on
our fiscal 2025 objectives.
Our team did an incredible job in fiscal 2023, managing costs, delivering performance that
has kept us at the top of lender scorecards, deploying new technology and innovating in
a way that reinforces our competitive advantage, and they remained relentless in our
pursuit of new business. We are also grateful for the extraordinary contribution of the field
professionals on our network who continue to go above and beyond for our clients.
We remain thankful to our Board of Directors and shareholders for their ongoing support
and confidence in our business.
The U.S. mortgage market is cyclical and our business was built to weather its peaks, and
valleys. By historical standards, fiscal 2023 was one of the most challenging markets we
have faced as a company, and as an industry. Inflation, rapidly rising interest rates, a
sustained increase in home price appreciation, low housing inventory and continuing
economic uncertainty drove mortgage market volumes down to levels not seen in this
industry in almost three decades, and certainly not in our time as a public company.
Despite the challenging market environment, we posted positive net income and positive
consolidated Adjusted EBITDA(A) in the last six months of the fiscal year. We managed our cost
base and improved our operational efficiency to better align with the lower market
environment, reducing our consolidated operating expenses by more
than 41%
year-over-year. We are now operating with the lowest cost structure we’ve had since going
public; a prime example of what our platform is capable of delivering.
We ended fiscal 2023 with 4.1% U.S. Appraisal purchase market share and U.S. Appraisal
refinance market share of 10.4%. We believe that our Tier 1 lenders, who account for the
majority of our revenues, were disproportionately impacted by the decline in the U.S.
mortgage origination market in fiscal 2023. We increased our market share with our Tier 1
clients, on average, by 10% in fiscal 2023. The Tier 1s are large lenders – both bank and
non-bank – who value performance, and they continue to represent a significant opportunity
for market share growth for Real Matters.
We went live in a second channel with our Tier 1 lender in U.S. Title at the end of the fourth
quarter and ended fiscal 2023 with overall market share of 0.5% in U.S. Title. Our team
continues to advance the pipeline with an optimistic view of adding new lenders and
increasing our market share. Given the efficiency of our operations, we remain well positioned
for a variety of volume scenarios over the medium and long term.
In fiscal 2023, we launched 20 new customers and 13 new channels across all business
units. We continued to rank at the top of lender scorecards and our performance continues
to reinforce our relationship with lenders who view us as a trusted partner.
We have a strong balance sheet, our operations are optimized, and we
are well-positioned to scale up when market conditions improve. We
have a greater share of our clients’ business in more channels and across
more products than ever. The progress we have made should provide
a tailwind for our results when the market turns.
We believe in the long-term earnings potential of our business, and we remain focused on
our fiscal 2025 objectives.
Our team did an incredible job in fiscal 2023, managing costs, delivering performance that
has kept us at the top of lender scorecards, deploying new technology and innovating in
a way that reinforces our competitive advantage, and they remained relentless in our
pursuit of new business. We are also grateful for the extraordinary contribution of the field
professionals on our network who continue to go above and beyond for our clients.
We remain thankful to our Board of Directors and shareholders for their ongoing support
and confidence in our business.
Brian Lang
Chief Executive Officer
5
(cid:894)(cid:100)(cid:346)(cid:349)(cid:400)(cid:3)(cid:393)(cid:258)(cid:336)(cid:286)(cid:3)(cid:346)(cid:258)(cid:400)(cid:3)(cid:271)(cid:286)(cid:286)(cid:374)(cid:3)(cid:367)(cid:286)(cid:296)(cid:410)(cid:3)(cid:271)(cid:367)(cid:258)(cid:374)(cid:364)(cid:3)(cid:349)(cid:374)(cid:410)(cid:286)(cid:374)(cid:410)(cid:349)(cid:381)(cid:374)(cid:258)(cid:367)(cid:367)(cid:455)(cid:856)(cid:895)
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical 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 16, 2023 and should be read
in conjunction with our consolidated financial statements (“financial statements”), including notes thereto, for the years
ended September 30, 2023 and 2022. All amounts 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 about the Company, including the Company’s Annual Information Form for the year ended
September 30, 2022, can be found on SEDAR+ under the Company’s profile at www.sedarplus.ca.
We prepare our financial statements in accordance with IFRS, however, we consider certain Non-GAAP financial measures
(as hereinafter defined) useful in the assessment of our financial performance. All Non-GAAP measures are identified in this
MD&A by superscript (A). Please refer to the “Non-GAAP Measures” section of this MD&A for additional details regarding our
use of Non-GAAP measures, including, but not limited to, the definitions of Net Revenue(A) and Adjusted EBITDA(A).
OVERVIEW
Real Matters provides residential real estate appraisal and title services to mortgage lenders in the United States of America
(“U.S.”) and residential real estate appraisal and insurance inspection services in Canada. Our technology-based platform
creates a competitive marketplace where independent field professionals, including appraisers, property inspectors,
notaries, abstractors and other closing agents, compete for volumes provided by our clients based on their service level,
quality of work and professionalism (the “platform”). Our proprietary technology, which we believe is unique in our industry,
combined with our network management capabilities, drives greater efficiency by reducing manual processes through
robust quality control mechanisms, logistics management capabilities, capacity planning tools and end-to-end transaction
management for our clients. We leverage our technology and field professional partnerships with the goal of delivering first-
time quality, faster turnaround times and better performance than our competitors.
Headquartered in Markham, Ontario, Real Matters’ principal offices include Buffalo, New York and Middletown, Rhode
Island. 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.
Our services
Appraisal services
We are one of North America’s largest independent providers of residential real estate appraisal services. A residential
appraisal is a survey of a home prepared by a qualified appraiser providing their expert opinion on the market value of a
residential property.
We leverage our technology-based platform and apply network management capabilities, which are designed to focus on
quality at the front-end of the process, to supply residential real estate appraisal services. Our platform is an open network
where appraiser performance is tracked and managed in real-time. We believe that our national and regionally managed
network has the capacity to scale and deliver better performance than our competitors. We provide the breadth of
expertise and local knowledge required to find the most qualified appraiser for every mortgage transaction through robust
credentials management and scorecarding.
Title services
In April 2016, we entered the U.S. Title business through the acquisition of Linear Title & Closing Ltd. Our U.S. Title business
leverages our technology-based platform and network management capabilities to deliver a scalable solution that drives
better performance for our clients and a superior consumer experience. The closing process is critical to a consumer’s
overall experience as it represents an important point of contact in a mortgage transaction. Our focus is to provide the best
consumer experience by working with experienced abstractors, notaries and attorneys.
We are an approved title agent with the largest title insurance underwriters in the U.S. We offer and/or coordinate various
title services for refinance, purchase, home equity, default, short sale and real estate owned (“REO”) transactions to
financial institutions in all 50 states and the District of Columbia, and each state has differing rules and regulations for title
agents. As an independent title agent, we provide services required to close a mortgage transaction, including title search,
curative, closing and escrow services and title policy issuance. We act on behalf of title insurance underwriters and retain
the agent’s portion of the premium paid for the title policy, which is typically 70-90% of the title insurance premium. The
remaining portion of the premium is remitted to the underwriter as compensation for bearing the risk of loss in the event a
claim is made under the insurance policy. Premium splits can vary by geographic region, and in some states, premiums are
fixed by regulation.
In addition, we also provide hosted software solutions to our lenders relating to title servicing.
7
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Insurance inspection services
In Canada, we also supply residential and commercial property insurance inspection services. The purpose of an inspection
is to establish the replacement cost of a property in the event of a major catastrophe such as a fire or a flood. The
inspection is used as an insurance underwriting tool to properly match the risk with the appropriate insurance premium and
to verify the accuracy of the information collected at the time of the policy application.
Our clients
Our clients include top 100 mortgage lenders in the U.S., the majority of the big five banks in Canada and some of North
America’s largest insurance carriers.
In the U.S., Tier 1 lenders (as defined in the “Glossary” section of this MD&A) typically allocate market share to their service
providers based on performance, and our performance often results in us obtaining an outsized allocation of transaction
volumes from these lenders compared to our competitors.
Our U.S. Appraisal segment (as hereinafter defined) provides services to the largest lenders in the U.S., including all six Tier 1
mortgage lenders. We provide appraisal services to mortgage lenders across the following channels: purchase origination,
refinance origination, home equity, default and REO. Purchase and refinance mortgage origination revenues accounted
for 75% of fiscal 2023 revenues in our U.S. Appraisal segment (2022 – 88%).
Our U.S. Title segment (as hereinafter defined) currently services one Tier 1 lender and other top 100 lenders. Our strategy is
to increase market share in this segment by onboarding more Tier 1, Tier 2 and Tier 3 lenders, many of whom are already
clients in the U.S. Appraisal segment.
In Canada, we provide residential mortgage appraisal services to the majority of the big five Canadian banks and
residential and commercial property insurance inspection services to some of North America’s largest insurance carriers.
Markets we service and their trends
Residential mortgage origination volumes in North America are a key driver of our financial performance. The U.S. mortgage
market is one of the largest asset classes in the world and it is highly regulated.
Refinance activity is highly sensitive to changes in interest rates. From the onset of COVID-19 through the first half of fiscal
2022, the mortgage origination market experienced a significant increase in refinance activity due to low interest rates and
other contributing factors. Starting in the first half of fiscal 2022 and continuing through fiscal 2023, the U.S. Federal Reserve
raised the Federal Funds rate multiple times to mitigate inflationary pressures. Rapidly rising mortgage rates, high inflation,
reduced affordability, and broader macroeconomic concerns drove significant declines in mortgage origination volume
during this period. For fiscal 2023, we estimated that total mortgage origination volumes decreased nearly 53% from fiscal
2022, which presents a tougher market comparison year-over-year.
8
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
The table below outlines the estimated number of U.S. mortgage origination loans for purchase and refinance transactions
on a calendar year basis from 1999 to the present.
U.S. Mortgage Origination Volumes by Calendar Year
(excludes default, REO and home equity loans)
Purchase
Refinance
Avg 30yr mortgage rate
s
n
o
i
l
l
i
m
n
i
s
n
a
o
l
f
o
r
e
b
m
u
N
22.5
20.0
17.5
15.0
12.5
10.0
7.5
5.0
2.5
0.0
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
Source: Home Mortgage Disclosure Act. data ("HMDA") for calendar 1999 through 2022 and management estimate for calendar 2023
Note
(1) We derive our estimate using a variety of sources, including HMDA data, publicly reported financial results of U.S. mortgage originators, forecasts from the
Mortgage Bankers Association, Fannie Mae and Freddie Mac, and our own internal volumes.
Our addressable market
We estimate that there were approximately 3.3 million mortgage origination transactions (purchase and refinance) in the
U.S. in fiscal 2023.
The total addressable market (“TAM”) for our U.S. Appraisal segment excludes appraisal waivers from GSEs and appraisals
provided by Veterans Affairs, the majority of which impacts refinance origination volumes. We estimate that in fiscal 2023
there were approximately 2.7 million addressable mortgage origination transactions (purchase and refinance) requiring
appraisals in the U.S. U.S. Appraisal market share for origination transactions is generally allocated by lenders on a
centralized, combined volume basis.
The TAM for our U.S. Title segment is not impacted by waivers or Veterans Affairs volumes. We estimate that there were 0.6
million refinance transactions in fiscal 2023. Our U.S. Title segment currently targets refinance transactions as this volume is
generally centralized by the mortgage lenders (i.e. the allocation of volume is driven by the lender). While we have the
capability, and we do occasionally provide title services for purchase transactions, most volume for U.S. Title purchase
transactions is not allocated by the lender.
In addition to mortgage origination transactions, we also service home equity, default and REO transactions. However, due
to the lack of market data available, we are unable to estimate the market size for these transactions.
Due to the lack of market data available, we are unable to estimate the market size for the Canadian segment.
9
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
The graph below outlines the estimated size of the TAM for purchase and refinance mortgage origination in the U.S. for fiscal
2019 through fiscal 2023 and our estimate of the TAM spend for these services.
Estimated Total Addressable Market spend by fiscal year
(expressed in billions of dollars)
Management estimate
$9.1
$5.3
$1.7
$2.1
2020
$4.9
$1.9
$0.9
$2.1
2019
$10.9
$6.4
$1.9
$2.6
2021
$6.0
$2.6
$1.0
$2.4
2022
$2.3
$0.6
$0.3
$1.4
2023
Appraisal Purchase
Appraisal Refinance
Title Refinance
Seasonality and other trends
Residential mortgage origination volumes in North America are influenced by cyclical trends and seasonality. Cyclical
trends include changes in interest rates, refinancing rates, the capacity of lenders to underwrite mortgages, house prices,
housing inventory, demand for housing, the availability of funds for mortgage loans, credit requirements, regulatory
changes, household indebtedness, employment levels and the general health of the North American economy.
Transaction-based revenues for appraisal services in our U.S. Appraisal and Canadian segments are also impacted by the
seasonal nature of the residential mortgage industry, which typically see home buyers purchase more homes in our third
and fourth fiscal quarters, representing the three months ending June 30 and September 30, respectively.
Our market share is impacted by the size of the addressable residential mortgage origination market but also by our clients’
relative share of the addressable market. Gains or losses in our clients’ share of the addressable market influence our overall
market share. As discussed above, the prevalence of appraisal waivers provided by the GSEs and the volume of appraisals
provided by Veterans Affairs can also impact the size of the TAM for our U.S. Appraisal segment.
Long-term focus
We take a long-term view to manage and measure the success of our business strategies since we cannot control the
addressable mortgage origination market or the factors that influence it. Accordingly, our principal focus is on growing
market share in the residential mortgage origination market over the long-term. Market share growth is achieved by
onboarding new customers and increasing market share with our existing clients. The mortgage market is subject to the
influence of many factors, such as broader economic conditions, changes to interest rates, changes in our clients’ share of
the market and regulatory changes; each of which is not within our control. As we scale transaction volumes, we expect to
expand Net Revenue(A) and Adjusted EBITDA(A) margins.
Fiscal 2025 targets
At the end of fiscal 2020, we set targets through the end of fiscal 2025 for market share, Net Revenue(A) margins, Adjusted
EBITDA(A) margins, corporate expenses and for conversion of Adjusted EBITDA(A) to Free Cash Flow(A) between fiscal 2021
through the end of 2025. Given that we are unable to control the cyclical and seasonal trends that impact the residential
mortgage market or our clients’ share of the overall market, we did not set revenue targets.
The fiscal 2025 targets are presented for the purpose of assisting investors, security analysts and others in understanding our
current objectives, strategic priorities, and expectations for the future. Readers are cautioned that our fiscal 2025 targets
may not be appropriate for other purposes.
10
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Key assumptions:
Our fiscal 2025 targets are contingent on, amongst other things:
•
no change in our clients’ respective share of the market from 2020 levels;
• a TAM for U.S. Appraisal of $4.0 billion and a TAM for U.S. Title of $2.0 billion;
• Veteran Affairs volumes for purchase and refinance activity remain largely unchanged from fiscal 2020 levels
through fiscal 2025 (approximately 9% for purchase market volumes and approximately 15% for refinance
market volumes);
• waivers for purchase and refinance activity return to levels seen in fiscal 2019 by fiscal 2025 (approximately 2%
for purchase market volumes and approximately 10% for refinance market volumes);
• continued expansion of market share in our U.S. Appraisal segment, including, by fiscal 2025, a market share of
between 30% to 55% with each of our Tier 1 clients; and
the successful launch of several Tier 1 clients by our U.S. Title segment through fiscal 2025.
•
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 impact the achievement of our fiscal 2025 targets, including the size of the
U.S. mortgage market in fiscal 2025.
Fiscal 2025 Targets
Purchase
market
share
Refinance
market
share
Net
Revenue(A)
margin
Adjusted
EBITDA(A)
margin
U.S. Appraisal
7-9%(1)
17-19%(1)
26-28%
65-70%
U.S. Title
Canada
-
6-8%(1)
60-65%
50-55%
-
-
19-20%
65-70%
Note
(1) Market share expressed as a percentage of TAM as described above in this MD&A.
The target for our Corporate segment is to contain corporate expenses, excluding stock-based compensation expense, to
7% of Net Revenue(A) by the end of fiscal 2025.
Our target is to convert 70-75% of Adjusted EBITDA(A) to Free Cash Flow(A) between fiscal 2021 through the end of fiscal 2025,
which is contingent on a normalized market. In fiscal 2022 and 2023, we did not achieve our conversion target of 70-75%,
due in large part to the sharp decline in mortgage origination volumes and the corresponding impact to Adjusted EBITDA(A),
which was most notable in our U.S. Title segment.
We believe we have a significant amount of addressable market beyond our fiscal 2025 objectives. The U.S. mortgage
market is one of the largest asset classes in the world and we service large, blue-chip clients in the U.S. and Canada.
Getting to first transaction with large mortgage lenders can be a lengthy process; however, once we launch a client, our
strategy is to leverage our platform to outperform our competition and grow market share. This helps us solidify and expand
the relationships we have with our clients over the long term. Our business is built for scale; higher transaction volumes
typically allow us to expand Net Revenue(A) and Adjusted EBITDA(A) margins. We have a strong balance sheet and strong
Free Cash Flow(A) generating profile in a normalized market that is expected to support our long-term business objectives.
Important factors affecting our results from operations
Our business is subject to a variety of risks and uncertainties, and the targets outlined above contain forward-looking
information. 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.
11
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical 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 three months and years
ended September 30, 2023 and 2022.
Review of Operations - For the three months and year ended September 30, 2023
This section provides detailed information and analysis about the Company’s performance for the three months and year
ended September 30, 2023.
Please also refer to the tables in the “Foreign Currency Exchange Rates” section of this MD&A for additional details
regarding the impact foreign currency exchange (“FX”) had on our consolidated operating results for the three months and
year ended September 30, 2023.
Consolidated
Three months ended September 30
%
2023
2022
Change
Change
2023
Year ended September 30
%
Change
Change
2022
Revenues
Transaction costs
Operating expenses
Amortization
Net income (loss)
Non-GAAP measures
Net Revenue(A)
Net Revenue(A) margin
Adjusted EBITDA(A)
Adjusted EBITDA(A) margin
$
$
$
$
$
$
$
42,189 $
31,023 $
10,860 $
873 $
1,622 $
58,200 $
43,833 $
15,784 $
1,088 $
(9,968) $
(16,011)
(12,810)
(4,924)
(215)
11,590
11,166 $
26.5%
594 $
5.3%
14,367 $
24.7%
(1,112) $
-7.7%
(3,201)
1.8%
1,706
13.0%
-28% $
-29% $
-31% $
-20% $
116% $
-22% $
7%
153% $
169%
163,914 $
120,899 $
46,751 $
3,877 $
(6,196) $
339,642 $
254,203 $
79,595 $
4,530 $
(9,265) $
(175,728)
(133,304)
(32,844)
(653)
3,069
-52%
-52%
-41%
-14%
33%
43,015 $
26.2%
(2,359) $
-5.5%
85,439 $
25.2%
7,379 $
8.6%
(42,424)
1.0%
(9,738)
-14.1%
-50%
4%
-132%
-164%
12
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Consolidated operating results
Revenues and
Transactions
Costs
Operating
expenses
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↓
The decrease in revenues and transaction
costs were primarily due to lower addressable
mortgage origination volumes across all three
segments which was partially offset by higher
home equity volumes serviced in our U.S.
Appraisal segment.
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↓
The decrease in revenues and transaction
costs were primarily due to lower addressable
mortgage origination volumes across all three
segments which was partially offset by higher
home equity volumes serviced in our U.S.
Appraisal segment.
↓ Operating expenses decreased by 31%
↓ Operating expenses decreased by 41%
primarily due to:
primarily due to:
• A decrease of $4.1 million in salaries and
benefits associated with a significant
reduction of headcount.
• A $0.6 million decrease in office and
computer expenses from lower
Information Technology (“IT”) expenses,
U.S. Title segment variable bank and
courier expenses and lower FX.
• A decrease of $27.7 million in salaries
and benefits associated with a significant
reduction of headcount.
• A $3.5 million decrease in office and
computer expenses from lower IT
expenses, U.S Title segment variable
bank and courier expenses and lower FX.
• A decrease of $0.7 million in professional
fees due to a reduction in consulting
services.
Amortization
↓ Amortization expense was 20% lower mainly
due to a reduction of right-of-use assets
related to our leased office space combined
with fully amortized computer equipment
and leasehold improvements.
↓ Amortization expense was 14% lower due to
a reduction of right-of-use assets related to
our leased office space combined with fully
amortized computer equipment and
leasehold improvements.
Net income
(loss)
↑
In addition to the Adjusted EBITDA(A)
discussion below, the increase in net income
was mainly due to:
•
no recognition of impairment charge in
Q4 2023 (Q4 2022 - $17.3 million);
higher interest income;
higher income tax recovery.
•
•
↑
In addition to the Adjusted EBITDA(A)
discussion below, net loss was lower mainly
due to:
•
no recognition of impairment charge in
2023 (2022 - $17.3 million);
• gain on fair value of a total return swap
entered into in fiscal 2023;
higher interest income;
•
• partially offset by higher FX loss as the
result of changes in the FX rate between
the Canadian and U.S. dollar.
Net Revenue(A)
Net Revenue(A)
margin
↓ We experienced a Net Revenue (A) reduction
of 22% primarily due to lower addressable
mortgage origination volumes across all three
segments which was partially offset by higher
home equity volumes serviced in our U.S.
Appraisal segment and improved Net
Revenue(A) margins.
↓ We experienced a Net Revenue (A) reduction
of 50% primarily due to lower addressable
mortgage origination volumes across all three
segments which was partially offset by higher
home equity volumes serviced in our U.S.
Appraisal segment and improved Net
Revenue(A) margins.
↑ Consolidated Net Revenue(A) margins
↑ Consolidated Net Revenue(A) margins
increased by 180 basis points as we
leveraged our field professional network in a
lower market environment and serviced
more standard properties due in part to the
decline in GSE waivers.
increased by 100 basis points as we
leveraged our field professional network in a
lower market environment and serviced
more standard properties due in part to the
decline in GSE waivers.
Adjusted
EBITDA(A) and
Adjusted
EBITDA(A)
margins
↑ We recorded higher Adjusted EBITDA(A) and
Adjusted EBITDA(A) margins due to the
decrease in operating expenses and Net
Revenue(A) margins improvement explained
above which was partially offset by the
reduction in revenues.
↓ We recognized lower Adjusted EBITDA(A) and
Adjusted EBITDA(A) margins due to the
decrease in revenues explained above
which was partially offset by the reduction in
operating expenses and Net Revenue(A)
margins improvement in fiscal 2023.
13
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
The tables that follow compare our consolidated Revenues, Adjusted EBITDA(A) and Net Income or Loss to estimated
mortgage market origination volumes.
Consolidated Revenues relative to
mortgage market origination volumes*
* Management estimate, volumes expressed in thousands of units
Volumes
15,000
$504.1M
$455.9M
$322.5M
$339.6M
10,000
Consolidated Adjusted EBITDA(A)
relative to mortgage market
origination volumes*
* Management estimate, volumes expressed in thousands of units
$72.2M
$59.2M
$29.0M
$163.9M
5,000
F19 F20 F21 F22 F23
Year
-
F19 F20 F21 F22 F23
Year
$7.4M
($2.4M)
Volumes
15,000
10,000
5,000
-
Revenue
Estimated market volumes
Adjusted EBITDA(A)
Estimated market volumes
Consolidated Net Income or Loss
relative to mortgage market origination
volumes*
* Management estimate, volumes expressed in thousands of units
$42.8M
$33.1M
$10.1M
Volumes
15,000
10,000
($9.3M)
($6.2M)
5,000
F19 F20 F21 F22 F23
Year
-
Net Income (Loss)
Estimated market volumes
14
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Business Segment Analysis - Review of Operations - For the three months and year ended September
30, 2023
We conduct our business in the U.S. and Canada through three reportable segments: (i) U.S. appraisal (“U.S. Appraisal”); (ii)
U.S. title (“U.S. Title”); and (iii) Canada or Canadian. Expenses attributable to corporate activities are recorded in our
Corporate segment.
U.S. Appraisal
Revenues
Purchase originations
Refinance originations
Home equity
Other
Transaction costs
Operating expenses
Amortization
Non-GAAP measures
Net Revenue(A)
Net Revenue(A) margin
Adjusted EBITDA(A)
Adjusted EBITDA(A) margin
$
$
$
$
$
$
$
Three months ended September 30
%
2023
2022
Change
Change
2023
Year ended September 30
%
Change
Change
2022
14,433 $
7,657
8,316
754
31,160 $
22,601 $
4,624 $
112 $
21,496 $
14,483
7,201
728
43,908 $
32,763 $
6,575 $
184 $
(7,063)
(6,826)
1,115
26
(12,748)
(10,162)
(1,951)
(72)
8,559 $
27.5%
3,935 $
46.0%
11,145 $
25.4%
4,570 $
41.0%
(2,586)
2.1%
(635)
5.0%
-33% $
-47%
16%
4%
-29% $
-31% $
-30% $
-39% $
-23% $
8%
-14% $
12%
57,947 $
32,629
27,226
3,044
120,846 $
98,203 $
122,835
26,702
3,176
250,916 $
(40,256)
(90,206)
524
(132)
(130,070)
87,729 $
18,939 $
550 $
195,406 $
28,513 $
928 $
(107,677)
(9,574)
(378)
33,117 $
27.4%
14,178 $
42.8%
55,510 $
22.1%
26,997 $
48.6%
(22,393)
5.3%
(12,819)
-5.8%
-41%
-73%
2%
-4%
-52%
-55%
-34%
-41%
-40%
24%
-48%
-12%
Market share
(expressed in whole units)
Estimated market volumes
Non-addressable market volumes
Estimated addressable market volumes
Real Matters volumes
Real Matters estimated market share
Purchase mortgage
origination
Year ended September 30
2023
2022
Refinance mortgage
origination
Year ended September 30
2022
2023
2,683,886
(456,529)
2,227,357
90,263
4.1%
4,268,656
(685,764)
3,582,892
146,092
4.1%
611,624
(114,982)
496,642
51,427
10.4%
2,738,730
(1,207,649)
1,531,081
185,666
12.1%
Home equity, default and REO transactions are not included in our market share calculation above as we are unable to
accurately estimate the market size for these transactions because public market data is not readily available. In fiscal
2023, these types of transactions represented 25% of our U.S. Appraisal revenues (2022 - 12%).
Our market share is impacted by the size of the addressable residential mortgage origination market but also by our clients’
relative share of the addressable market.
Our respective market shares will shift in line with the mix of business of our client base – some of whom have historically
been more weighted toward refinance which experienced a steeper decline in fiscal 2023. Notwithstanding that Tier 1
lenders continue to represent a significant opportunity for market share growth for Real Matters, we believe that they were
disproportionately impacted by the decline in the U.S. mortgage origination market in fiscal 2023.
15
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
U.S. Appraisal operating results
Revenues
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↓
Revenues from purchase and refinance
mortgage originations declined principally
due to lower addressable mortgage
origination volume.
Home equity revenues increased by 16% and
accounted for 27% of the segment’s
revenues (Q4 2022 – 16%) mainly due to new
clients and market share gains.
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↓
Revenues from purchase and refinance
mortgage originations declined principally
due to lower addressable mortgage
origination volumes. Year-over-year, we
estimate that addressable mortgage
origination volumes for purchase and
refinance activity declined 38% and 67%,
respectively, which compares to a 41%
decline in our purchase originations revenues
and 73% decline in our refinance originations
revenues.
Transaction
costs
↓
↓
Transaction costs declined due in large part
to lower addressable mortgage origination
volumes, as outlined in the revenue
discussion above. Leveraging our field
professional network in a lower market
environment and servicing more standard
properties also contributed to the decline in
transaction costs.
Home equity revenues increased by 2% and
accounted for 23% of the segment’s
revenues (2022 – 11%) mainly due to new
clients and market share gains.
Transaction costs declined due in large part
to lower addressable mortgage origination
volumes, as outlined in the revenue
discussion above. Leveraging our field
professional network in a lower market
environment and servicing more standard
properties also contributed to the decline in
transaction costs.
Operating
expenses
↓ Operating expenses decreased by 30%
↓ Operating expenses decreased by 34% on
primarily on lower salaries and benefits costs
of $1.6 million and lower IT expenses of $0.1
million.
an $8.4 million decline in salaries and benefits
costs. Lower marketing, bank charges, IT
expenses and professional fees accounted
for the balance of the decline.
Amortization
↓ Amortization expense decreased due to a
↓ Amortization expense decreased due to a
Net Revenue(A)
Net Revenue(A)
margin
Adjusted
EBITDA(A)
reduction of right-of-use assets related to our
leased office space combined with fully
amortized computer equipment and
leasehold improvements.
reduction of right-of-use assets related to our
leased office space combined with fully
amortized computer equipment and
leasehold improvements.
↓ Net Revenue(A) declined by 23% mainly due
to lower addressable mortgage origination
volumes partially offset by higher home
equity volumes and improved Net Revenue(A)
margins.
↓ Net Revenue(A) declined by 40% mainly due
to lower addressable mortgage origination
volumes partially offset by higher home
equity volumes and improved Net Revenue(A)
margins.
↑ Net Revenue(A) margins expanded by 210
↑ Net Revenue(A) margins increased by 530
basis points in our U.S. Appraisal segment as
we leveraged our field professional network
in a lower market environment, which was
partially offset by an increase in lower margin
home equity volumes.
basis points in our U.S. Appraisal segment as
we leveraged our field professional network
in a lower market environment and serviced
more standard properties, due in part to the
decline in GSE waivers.
↓ Adjusted EBITDA(A) contracted on lower Net
Revenue(A), owing, in large part, to lower
addressable mortgage origination market
volumes partially offset by higher home
equity volumes, a reduction in operating
expenses and Net Revenue(A) margins
expansion as described above.
↓ Adjusted EBITDA(A) contracted on lower Net
Revenue(A), owing, in large part, to lower
addressable mortgage origination market
volumes partially offset by a reduction in
operating expenses, higher home equity
volumes and Net Revenue(A) margins
expansion as described above.
16
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
U.S. Appraisal operating results
Adjusted
EBITDA(A)
margins
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↑
Adjusted EBITDA(A) margins increased due to
higher home equity volumes, lower operating
expenses, and improved Net Revenue(A)
margins partially offset by a reduction in
revenues associated with lower addressable
mortgage origination market volumes.
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↓
Adjusted EBITDA(A) margins contracted on
lower Net Revenue(A), owing, in large part, to
lower addressable mortgage origination
market volumes partially offset by a
reduction in operating expenses, higher
home equity volumes and Net Revenue(A)
margins expansion as described above.
The tables that follow compare our U.S. Appraisal segment: (i) Revenues and Net Revenue(A) margins; and (ii) Adjusted
EBITDA(A) and Adjusted EBITDA(A) margins, against addressable mortgage market origination volumes.
U.S. Appraisal Segment Adjusted
EBITDA(A) & Adjusted EBITDA(A)
margin vs addressable mortgage
market origination volumes*
* Management estimate, volumes expressed in thousands of units
U.S. Appraisal Segment Revenues &
Net Revenue(A) margin vs addressable
mortgage market origination volumes*
* Management estimate, volumes expressed in thousands of units
$322.1M
$282.1M
$250.9M
Volumes
8,000
6,000
Volumes
8,000
6,000
4,000
2,000
-
$39.9M
$39.8M
$212.7M
23.6%
21.5%
23.8%
$120.8M
22.1%
4,000
$26.0M
$27.0M
2,000
51.9%
27.4%
59.3%
57.5%
$14.2M
48.6%
42.8%
F19 F20 F21 F22 F23
Year
-
F19 F20 F21 F22 F23
Year
Revenue
Estimated addressable market volumes
Adjusted EBITDA(A)
Estimated addressable market volumes
Our U.S. Appraisal segment is our more mature business in the U.S. Increased transaction volumes on our platform from net
market share gains and higher market volumes resulted in annual Net Revenue(A) and Adjusted EBITDA(A) margin expansion
through fiscal 2020. Despite the year-over-year increase in transaction volumes in fiscal 2021, our Net Revenue(A) and
Adjusted EBITDA(A) margins contracted because we serviced a higher proportion of high-value and complex properties,
due in part to an increase in GSE waivers. The use of GSE waivers has declined substantially since fiscal 2021, reverting to
historical standards. We expanded Net Revenue(A) margins in the second half of fiscal 2022 and into fiscal 2023, despite a
substantial decline in transaction volumes, as we leveraged our field professional network in a lower market environment
and serviced more standard properties, due in part to the decline in GSE waivers.
17
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
U.S. Title
Revenues
Centralized title services
Diversified title services
Home equity title services
Transaction costs
Operating expenses
Amortization
Non-GAAP measures
Net Revenue(A)
Net Revenue(A) margin
Adjusted EBITDA(A)
Adjusted EBITDA(A) margin
$
$
$
$
$
$
$
Three months ended September 30
%
2023
2022
Change
Change
2023
Year ended September 30
%
Change
Change
2022
1,351 $
206
776
2,333 $
1,282 $
2,632 $
672 $
2,333 $
303
1,330
3,966 $
2,217 $
4,679 $
800 $
(982)
(97)
(554)
(1,633)
(935)
(2,047)
(128)
-42% $
-32%
-42%
-41% $
-42% $
-44% $
-16% $
5,160 $
891
3,475
9,526 $
5,659 $
12,205 $
2,979 $
30,036 $
1,523
4,983
36,542 $
13,493 $
31,133 $
3,141 $
(24,876)
(632)
(1,508)
(27,016)
(7,834)
(18,928)
(162)
-83%
-42%
-30%
-74%
-58%
-61%
-5%
1,051 $
45.0%
(1,581) $
-150.4%
1,749 $
44.1%
(2,930) $
-167.5%
(698)
0.9%
1,349
17.1%
-40% $
2%
46% $
10%
3,867 $
40.6%
(8,338) $
-215.6%
23,049 $
63.1%
(8,084) $
-35.1%
(19,182)
-22.5%
(254)
-180.5%
-83%
-36%
-3%
-514%
Market share - refinance mortgage origination
(expressed in whole units)
Estimated market volumes
Real Matters volumes
Real Matters estimated market share
Year ended September 30
2022
2023
611,624
3,312
0.5%
2,738,730
31,537
1.2%
Home equity, default and REO transactions are not included in our market share calculation above as we are unable to
estimate the market size for these transactions because public market data is not readily available. In fiscal 2023, these
types of transactions represented 36% of our U.S. Title revenues (2022 - 14%).
The decline in market share during the fiscal year was due to changes in our client portfolio, which is in line with our strategy
to focus on long-term franchise clients.
U.S. Title operating results
Revenues
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↓
The revenue decline was due primarily to
lower refinance mortgage origination market
volumes, changes in our client portfolio and
lower revenues from home equity volumes
serviced.
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↓
The revenue decline was due primarily to
lower refinance mortgage origination market
volumes, changes in our client portfolio and
lower revenues from home equity volumes
serviced.
Transaction
costs
↓
Transaction costs declined due in large part
to lower addressable refinance mortgage
origination volumes serviced as outlined in
the revenue discussion above, partially offset
by a lower proportion of incoming order
volumes that closed.
↓
We estimate the refinance mortgage
origination market declined 78% year-over-
year, which compares to a decrease of 83%
in our centralized title revenues.
Transaction costs declined due in large part
to lower addressable refinance mortgage
origination volumes serviced as outlined in
the revenue discussion above, partially offset
by a higher proportion of lower margin home
equity volumes serviced and a lower
proportion of incoming order volumes that
closed.
18
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
U.S. Title operating results
Operating
expenses
Amortization
Net Revenue(A)
Net Revenue(A)
margin
↓
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↓ Operating expenses declined by 44% due to
lower salaries and benefits costs of $1.9
million and a reduction in courier, office and
bank charges of $0.1 million as a result of
lower volumes serviced.
Amortization expense decreased due to a
reduction of right-of-use assets related to our
leased office space combined with fully
amortized computer equipment and
leasehold improvements.
Net Revenue(A) declined by 40% due to lower
volumes serviced, as outlined in the revenue
discussion above.
U.S. Title segment Net Revenue(A) margins
increased by 90 basis points mostly due to a
higher proportion of incoming order volumes
that closed, which was partially offset by
lower volumes serviced.
↑
↓
Adjusted
EBITDA(A) and
Adjusted
EBITDA(A)
margins
↑
Adjusted EBITDA(A) and Adjusted EBITDA(A)
margins improved due to a significant
reduction in operating expenses and Net
Revenue(A) margins improvement, as outlined
above, partially offset by lower transaction
volumes.
↓
↓
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↓ Operating expenses declined by 61% mainly
due to lower salaries and benefits costs of
$16.4 million and a reduction in courier, office
and bank charges of $2.3 million as a result of
lower volumes serviced.
Amortization expense decreased due to a
reduction of right-of-use assets related to our
leased office space combined with fully
amortized computer equipment and
leasehold improvements.
Net Revenue(A) declined by 83% due to lower
volumes serviced, as outlined in the revenue
discussion above.
U.S. Title segment Net Revenue(A) margins
declined substantially due to a higher
proportion of lower margin home equity
volumes serviced, a lower proportion of
incoming order volumes that closed and
lower volumes serviced, as outlined in the
revenue discussion above.
Adjusted EBITDA(A) and Adjusted EBITDA(A)
margins declined due to lower Net
Revenue(A) and Net Revenue(A) margins, as
outlined above, owing in large part to lower
refinance mortgage origination market
volumes, which was partially offset by a
significant reduction in operating expenses.
↓
↓
The tables that follow compare our U.S. Title segment: (i) Revenues and Net Revenue(A) margins; and (ii) Adjusted EBITDA(A)
and Adjusted EBITDA(A) margins, against addressable mortgage market origination volumes.
U.S. Title Segment Revenues & Net
Revenue(A) margins vs mortgage
market origination refinance volumes*
* Management estimate, volumes expressed in thousands of units
Volumes
8,000
6,000
4,000
2,000
$142.4M
$129.5M
$82.6M
56.7%
63.1%
68.1%
$36.5M
63.1%
$9.5M
40.6%
F19 F20 F21 F22 F23
Year
Revenue
Estimated refinance market volumes
U.S. Title Segment Adjusted EBITDA(A)
& Adjusted EBITDA(A) margins vs
mortgage market origination
refinance volumes*
* Management estimate, volumes expressed in thousands of units
* Management estimate, volumes expressed in thousands of units
$44.3M
$31.8M
$13.7M
49.3%
36.0%
29.2%
Volumes
8,000
6,000
4,000
(35.1)%
(215.6)%
2,000
-
F19 F20 F21 F22 F23
Year
($8.1M)
($8.3M)
-
Adjusted EBITDA(A)
Estimated refinance market volumes
Currently, our U.S. Title segment predominately services refinance mortgage origination volumes which are highly sensitive
to interest rates. Increased transaction volumes on our platform from higher market volumes and market share gains
resulted in annual Net Revenue(A) and Adjusted EBITDA(A) margin expansion through fiscal 2020. After experiencing a surge
19
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
due to low interest rates, refinance market volumes began to decline in the second half of fiscal 2021 in line with increases
in U.S. mortgage interest rates. Our Net Revenue(A) and Adjusted EBITDA(A) margins contracted in fiscal 2022 and 2023 in line
with the substantial decline in transaction volumes on our platform, and we focused on operational efficiencies and
significantly reduced our U.S. Title operating expenses.
Canada
Three months ended September 30
%
2023
2022
Change
Change
2023
Year ended September 30
%
Change
Change
2022
Revenues
Transaction costs
Operating expenses
Amortization
Non-GAAP measures
Net Revenue(A)
Net Revenue(A) margin
Adjusted EBITDA(A)
Adjusted EBITDA(A) margin
$
$
$
$
$
$
Canada operating results
8,696 $
7,140 $
422 $
- $
1,556 $
17.9%
1,134 $
72.9%
10,326 $
8,853 $
515 $
- $
(1,630)
(1,713)
(93)
-
-16% $
-19% $
-18% $
0% $
33,542 $
27,511 $
1,782 $
- $
52,184 $
45,304 $
2,397 $
- $
(18,642)
(17,793)
(615)
-
1,473 $
14.3%
958 $
65.0%
83
3.6%
176
7.9%
6% $
25%
18% $
12%
6,031 $
18.0%
4,249 $
70.5%
6,880 $
13.2%
4,483 $
65.2%
(849)
4.8%
(234)
5.3%
-36%
-39%
-26%
0%
-12%
36%
-5%
8%
Revenues
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↓
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↓
Revenues declined due to lower market
volumes for appraisal services and FX,
partially offset by net market share gains for
appraisal services with new and existing
clients and modestly higher insurance
inspection revenues.
Transaction costs declined due in large part
to lower market volumes for appraisal
services, as outlined in the revenue discussion
above, as well as FX. Leveraging our field
professional network in a lower market
environment also contributed to the decline
in transaction costs.
↓
Revenues declined due to lower market
volumes for appraisal services, modestly
lower insurance inspection revenues and FX,
partially offset by net market share gains for
appraisal services with new and existing
clients.
Transaction costs declined due in large part
to lower market volumes for appraisal
services, as outlined in the revenue discussion
above, as well as FX. Leveraging our field
professional network in a lower market
environment also contributed to the decline
in transaction costs.
Transaction
costs
↓
Operating
expenses
↓ Canadian segment operating expenses
↓ Canadian segment operating expenses
declined by 18% mainly due to lower salaries
and benefits costs.
declined by 26% mainly due to lower salaries
and benefits costs.
Net Revenue(A)
Net Revenue(A)
margin
Adjusted
EBITDA(A)
↑ Net Revenue(A) in our Canadian segment
increased by 6% due to net market share
gains and improved Net Revenue(A) margins,
partially offset by lower market volumes for
appraisal services.
↓ Net Revenue(A) in our Canadian segment
declined by 12% due to lower market
volumes for appraisal services and FX,
partially offset by net market share gains for
appraisal services and improved Net
Revenue(A) margins.
↑ Net Revenue(A) margins in our Canadian
↑ Net Revenue(A) margins in our Canadian
segment increased by 360 basis points as we
leveraged our field professional network in a
lower market environment, partially offset by
lower Net Revenue(A) margins from insurance
inspection services supplied.
segment increased by 480 basis points as we
leveraged our field professional network in a
lower market environment and realized
higher Net Revenue(A) margins from insurance
inspection services supplied.
↑ Adjusted EBITDA(A) improved due to a
significant reduction in operating expenses
and an improvement in Net Revenue(A)
margins, as outlined above, partially offset by
lower transaction volumes.
↓ Adjusted EBITDA(A) was lower due to lower
market volumes for appraisal services,
partially offset by a significant reduction in
operating expenses and an improvement in
Net Revenue(A) margins.
20
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Canada operating results
Adjusted
EBITDA(A)
margins
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↑ Adjusted EBITDA(A) margins improved to 72.9%
due to a reduction in operating expenses
and an improvement in Net Revenue(A)
margins, as outlined above, partially offset by
lower transaction volumes.
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↑ Adjusted EBITDA(A) margins improved to 70.5%
due to a significant reduction in operating
expenses and an improvement in Net
Revenue(A) margins, as outlined above,
partially offset by lower transaction volumes.
Corporate and other items
Three months ended September 30
%
2023
2022
Change
Change
2023
Year ended September 30
%
Change
Change
2022
$
$
Operating expenses
Amortization
Loss on disposal of
property and equipment $
Other non-operating costs $
$
Restructuring expenses
$
Impairment of goodwill
$
Interest expense
$
Interest income
Net foreign exchange
(gain) loss
Gain on fair value
of derivatives
Gain on fair value
of warrants
Income tax recovery
$
$
$
$
3,182 $
89 $
4,015 $
104 $
(833)
(15)
-21% $
-14% $
13,825 $
348 $
17,552 $
461 $
(3,727)
(113)
-21%
-25%
24 $
- $
14 $
- $
75 $
(339) $
367 $
- $
969 $
17,296 $
56 $
(71) $
(343)
-
(955)
(17,296)
19
(268)
(1,797) $
(5,040) $
3,243
(60) $
- $
(60)
- $
(106) $
- $
(6,114) $
-
6,008
-94% $
0% $
-99% $
-100% $
34% $
378% $
-64% $
0% $
0% $
-98% $
- $
- $
1,703 $
- $
283 $
(825) $
603 $
66 $
1,542 $
17,296 $
264 $
(134) $
(603)
(66)
161
(17,296)
19
(691)
-100%
-100%
10%
-100%
7%
516%
1,186 $
(5,725) $
6,911
-121%
(815) $
- $
(815)
0%
- $
(2,949) $
(249) $
(3,084) $
249
135
-100%
-4%
Corporate operating results
Operating
expenses
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↓ Corporate operating expenses declined $0.8
million due to lower salaries and benefits
costs of $0.5 million, reflecting lower
Corporate segment headcount and stock-
based compensation expenses and lower FX.
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↓ Corporate operating expenses declined $3.7
million primarily due to lower salaries and
benefits costs of $2.5 million, reflecting lower
Corporate segment headcount and stock-
based compensation expense, and lower
data center costs, computer expenses and
FX. In fiscal 2023, salary and benefit costs
include $0.3 million of severance expense
compared to $nil in fiscal 2022.
Amortization
↓ Amortization expense declined modestly.
↓ Amortization expense decreased due to a
↓
Loss on
disposal of
property and
equipment
The loss on disposal of property and
equipment incurred in Q4 2023 reflects the
disposal of a right-of-use asset. In Q4 2022,
the disposal of leasehold improvements
attributable to a subleased office space
contributed to the loss.
Other non-
operating costs
-
N/A.
21
reduction of right-of-use assets related to our
leased office space combined with fully
amortized computer equipment and
leasehold improvements.
↓ Gains and losses on disposal of property and
equipment incurred in fiscal 2023 due to the
disposal of right-of-use assets and furniture
and fixtures fully offset each other. The loss
incurred in fiscal 2022 was due to an
adjustment to a leased property related to
the remeasurement of a lease liability.
↓ Other non-operating costs incurred in fiscal
2022 represented professional fees for
advisory services.
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Corporate operating results
Restructuring
expenses
Impairment of
goodwill
↓
Interest
expense and
Interest Income
↑
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↓
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↑
Restructuring expenses incurred represent
severance costs attributable to changes in
our organizational structure which were
substantially lower in Q4 2023 than the
comparative quarter in fiscal 2022.
In the fourth quarter of fiscal 2022 we
recognized an impairment charge for
goodwill attributable to our U.S. Title segment
due to the continued decline in economic
and market conditions for mortgage
origination refinance activity.
The increase in interest expense and income
is mostly related to the current higher interest
rates environment and the interest incurred
on our total return swap.
↓
↑
Restructuring expenses incurred in fiscal 2023
represent severance costs attributable to
changes in our organizational structure and
due to the timing of the restructuring; those
expenses were 10% higher in fiscal 2023.
In the fourth quarter of fiscal 2022 we
recognized an impairment charge for
goodwill attributable to our U.S. Title segment
due to the continued decline in economic
and market conditions for mortgage
origination refinance activity.
The increase in interest expense and income
is mostly related to the current higher interest
rates environment and the interest incurred
on our total return swap.
Net foreign
exchange
(gain) loss
Gain on fair
value of
derivatives
Gain on fair
value of
warrants
Income tax
recovery
↓ Net foreign exchange gains or losses
↓ Net foreign exchange gains or losses
represent non-cash gains or losses on long-
term financing arrangements between our
Canadian and U.S. entities within the
consolidated group of companies. The
resulting current and comparative quarter
gains were the result of changes in the FX
rate between the Canadian and U.S. dollar.
↑
-
In Q1 2023, the Company entered into a total
return swap to manage our cash flow
exposure arising from changes in our share
price attributable to cash-settled RSUs. The
fair value of the swap fluctuates on an
inverse relationship to our share price.
N/A.
↓ We recorded income before income tax
recoveries of $1.5 million for Q4 2023. Income
tax calculated at the statutory income tax
rate, including foreign income subject to tax
at a different statutory tax rate, resulted in an
income tax expense of $0.4 million. Income
tax recoveries related to non-deductible
expenses, including RSUs, and non-taxable
income totaled $0.5 million.
↑
represent non-cash gains or losses on long-
term financing arrangements between our
Canadian and U.S. entities within the
consolidated group of companies. The
resulting fiscal year losses and comparative
fiscal year gains were the result of changes in
the FX rate between the Canadian and U.S.
dollar.
In Q1 2023, the Company entered into a total
return swap to manage our cash flow
exposure arising from changes in our share
price attributable to cash-settled RSUs. The
fair value of the swap fluctuates on an
inverse relationship to our share price.
↓ All outstanding warrants were fully exercised
in the second quarter of fiscal 2022, resulting
in no gain or loss being recognized in fiscal
2023. Our share price declined in the period
prior to the exercise of all remaining
outstanding warrants in fiscal 2022, resulting in
a decrease to our warrant liability accrual
and the recognition of a corresponding gain
on the fair value of warrants.
↓ We recorded a loss before income tax
recoveries of $9.1 million for fiscal 2023.
Income tax calculated at the statutory
income tax rate, including foreign income
subject to tax at a different statutory tax rate,
resulted in an income tax recovery of $2.4
million. Income tax recoveries related to non-
deductible expenses, including RSUs, and
non-taxable income totaled $0.7 million.
22
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical 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
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”, “Adjusted Net Income or Loss”,
“Free Cash Flow” and “Free Cash Flow Conversion”.
(A)
Adjusted EBITDA
All references to ‘‘Adjusted EBITDA’’ in this MD&A are to net income or loss before stock-based compensation expense,
amortization, gain or loss on disposal of property and equipment, other non-operating costs, restructuring expenses,
impairment of goodwill, interest expense, interest income, net foreign exchange gain or loss, gain or loss on fair value of
derivatives, gain or loss on fair value of warrants 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 equity-
settled stock-based compensation expense, amortization, gain or loss on disposal of property and equipment, impairment
of goodwill, unrealized net foreign exchange gain or loss, unrealized gain or loss on the fair value of derivatives, gain or loss
on the fair value of warrants and deferred income taxes) or non-operating (in the case of cash-settled stock-based
compensation expense, other non-operating costs, restructuring expenses, realized net foreign exchange gain or loss,
realized gain or loss on the fair value of derivatives, interest expense, interest income and current income taxes). Adjusted
EBITDA is a useful financial and operating metric for the Company, and our board of directors, and represents a measure of
our operating performance to value our Company relative to our peers. The reasons for excluding each item are as follows:
Stock-based compensation expense: These costs
for equity-settled stock-based
compensation awards and non-operating expenses for cash-settled stock-based compensation awards. These amounts
are recorded to operating expenses and represent a different class of expense than those included in Adjusted EBITDA.
represent non-cash expenses
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.
Gain or loss on disposal of property and equipment: As a non-cash item, the disposal of property and equipment is not
indicative of our operating profitability and therefore represents a different class of expense than those included in Adjusted
EBITDA.
Other non-operating costs: Other non-operating costs represent non-operating items and include professional fees for
advisory services not attributable to the operation of the business. These costs are not indicative of continuing operations
and therefore represent a different class of expense than those included in Adjusted EBITDA.
Restructuring expenses: Restructuring expenses represent costs attributable to employee severance resulting from changes
in our management and organizational structure. These costs are not indicative of continuing operations and therefore
represent a different class of expense than those included in Adjusted EBITDA.
Impairment of goodwill: As a non-cash item, the impairment of goodwill 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 reflect our treasury and financing activities and
represents a different class of income or expense than those included in Adjusted EBITDA.
Gain or loss on fair value of derivatives: As a non-cash item, gains or losses resulting from the fair value of derivatives are not
indicative of our operating profitability. Gains or losses from the fair value of derivatives reflect our treasury activities and
represents a different class of income or expense than those included in Adjusted EBITDA.
Gain or loss 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 represents a different class of income or expense than those included in Adjusted EBITDA.
23
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Income taxes: Income taxes are a function of tax laws and rates and are affected by matters that are separate from our
daily operations. Income taxes are not indicative of our operating profitability and represents 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 three months and years ended September 30, 2023 and 2022. The
reconciling items between net income or loss and Adjusted EBITDA for the three months and years ended September 30,
2023 and 2022 were as follows:
Net income (loss)
Stock-based compensation expense
Amortization
Loss on disposal of property and equipment
Other non-operating costs
Restructuring expenses
Impairment of goodwill
Interest expense
Interest income
Net foreign exchange (gain) loss
Gain on fair value of derivatives
Gain on fair value of warrants
Income tax recovery
Adjusted EBITDA
Management calculates Adjusted EBITDA as follows:
Revenues
Less: Transaction costs
Less: Operating expenses
Add: Stock-based compensation expense
Adjusted EBITDA
Adjusted EBITDA by reportable segment was as follows:
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
$
$
1,622 $
288
873
24
-
14
-
75
(339)
(1,797)
(60)
-
(106)
594 $
(9,968) $
305
1,088
367
-
969
17,296
56
(71)
(5,040)
-
-
(6,114)
(1,112) $
(6,196) $
1,377
3,877
-
-
1,703
-
283
(825)
1,186
(815)
-
(2,949)
(2,359) $
(9,265)
1,535
4,530
603
66
1,542
17,296
264
(134)
(5,725)
-
(249)
(3,084)
7,379
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
$
$
42,189 $
31,023
10,860
288
594 $
58,200 $
43,833
15,784
305
(1,112) $
163,914 $
120,899
46,751
1,377
(2,359) $
339,642
254,203
79,595
1,535
7,379
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
U.S. Appraisal
U.S. Title
Canada
Corporate (excluding stock-based compensation expense)
Consolidated Adjusted EBITDA
$
$
3,935 $
(1,581)
1,134
(2,894)
594 $
4,570 $
(2,930)
958
(3,710)
(1,112) $
14,178 $
(8,338)
4,249
(12,448)
(2,359) $
26,997
(8,084)
4,483
(16,017)
7,379
Adjusted EBITDA margin (expressed as Adjusted EBITDA divided by Net Revenue) by reportable segment and consolidated
was as follows:
U.S. Appraisal
U.S. Title
Canada
Consolidated Adjusted EBITDA margin (including Corporate, but
excluding stock-based compensation expense)
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
46.0%
-150.4%
72.9%
41.0%
-167.5%
65.0%
42.8%
-215.6%
70.5%
48.6%
-35.1%
65.2%
5.3%
-7.7%
-5.5%
8.6%
24
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Net Revenue
All references to “Net Revenue” in this MD&A are to Adjusted EBITDA plus operating expenses less stock-based
compensation expense. Net Revenue is an additional measure of our operating profitability and therefore excludes certain
items detailed below. Net Revenue represents the difference between revenues and transaction costs. Transaction costs
represent expenses directly attributable to a revenue transaction and include: appraisal costs, various processing fees,
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 serves to measure our Company relative to our peers.
The reconciling items between net income or loss and Net Revenue for the three months and years ended September 30,
2023 and 2022 are detailed in the consolidated statements of operations and comprehensive income or loss and were as
follows:
Net income (loss)
Operating expenses
Amortization
Loss on disposal of property and equipment
Other non-operating costs
Restructuring expenses
Impairment of goodwill
Interest expense
Interest income
Net foreign exchange (gain) loss
Gain on fair value of derivatives
Gain on fair value of warrants
Income tax recovery
Net Revenue
Management calculates Net Revenue as follows:
Revenues
Less: Transaction costs
Net Revenue
Net Revenue by reportable segment was as follows:
U.S. Appraisal
U.S. Title
Canada
Consolidated Net Revenue
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
$
$
1,622 $
10,860
873
24
-
14
-
75
(339)
(1,797)
(60)
-
(106)
11,166 $
(9,968) $
15,784
1,088
367
-
969
17,296
56
(71)
(5,040)
-
-
(6,114)
14,367 $
(6,196) $
46,751
3,877
-
-
1,703
-
283
(825)
1,186
(815)
-
(2,949)
43,015 $
(9,265)
79,595
4,530
603
66
1,542
17,296
264
(134)
(5,725)
-
(249)
(3,084)
85,439
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
$
$
42,189 $
31,023
11,166 $
58,200 $
43,833
14,367 $
163,914 $
120,899
43,015 $
339,642
254,203
85,439
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
$
$
8,559 $
1,051
1,556
11,166 $
11,145 $
1,749
1,473
14,367 $
33,117 $
3,867
6,031
43,015 $
55,510
23,049
6,880
85,439
Net Revenue margin (expressed as Net Revenue divided by Revenues) by reportable segment and consolidated was as
follows:
U.S. Appraisal
U.S. Title
Canada
Consolidated Net Revenue margin
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
27.5%
45.0%
17.9%
26.5%
25.4%
44.1%
14.3%
24.7%
27.4%
40.6%
18.0%
26.2%
22.1%
63.1%
13.2%
25.2%
25
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
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, other non-operating costs, restructuring expenses, impairment of goodwill, net foreign
exchange gain or loss, gain or loss on fair value of derivatives and gain or loss on fair value of warrants, each net of the
related tax effects, as applicable. 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 equity-settled stock-based compensation expense, amortization of intangibles,
impairment of goodwill, unrealized net foreign exchange gain or loss, unrealized gain or loss on fair value of derivatives and
gain or loss on fair value of warrants) or non-operating (in the case of cash-settled stock-based compensation expense,
other non-operating costs, restructuring expenses, realized net foreign exchange gain or loss and realized gain or loss on fair
value of derivatives). Adjusted Net Income or Loss is a useful financial and operating metric for the Company, and our
board of directors, as it represents net income or loss from operations which excludes treasury and capital costs, acquisition
and related costs, non-operating costs, restructuring expenses and impairment of goodwill.
The reconciling items between net income or loss and Adjusted Net Income or Loss for the three months and years ended
September 30, 2023 and 2022 were as follows:
Net income (loss)
Stock-based compensation expense
Amortization of intangibles
Other non-operating costs
Restructuring expenses
Impairment of goodwill
Net foreign exchange (gain) loss
Gain on fair value of derivatives
Gain on fair value of warrants
Related tax effects
Adjusted Net Income (Loss)
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
$
$
1,622 $
288
385
-
14
-
(1,797)
(60)
-
388
840 $
(9,968) $
305
351
-
969
17,296
(5,040)
-
-
(3,868)
45 $
(6,196) $
1,377
1,485
-
1,703
-
1,186
(815)
-
(929)
(2,189) $
(9,265)
1,535
1,389
66
1,542
17,296
(5,725)
-
(249)
(4,088)
2,501
Free Cash Flow and Free Cash Flow Conversion
All references to “Free Cash Flow” in this MD&A are to cash generated from operating activities, adjusted for changes in
non-cash working capital items, intangible asset additions, property and equipment additions, income taxes paid, current
income tax expense, other non-operating costs, restructuring expenses, interest expense net of interest paid and net foreign
currency exchange gain or loss net of unrealized foreign currency exchange gain or loss on internal financing
arrangements. Free Cash Flow 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. Free Cash Flow is a measure of our ability to generate cash from
operating activities and represents a proxy for cash to cover costs, including but not limited to, interest expense, current
income taxes, intangible asset additions and property and equipment additions, and by definition, excludes certain items
detailed above. Excluded items are viewed by the Company as non-cash (in the case of net foreign currency exchange
gain or loss net of unrealized foreign exchange gain or loss on internal financing arrangements), or non-operating (in the
case of other non-operating costs and restructuring expenses). The Company exclude changes in non-cash working capital
items from the calculation of Free Cash Flow, as changes in non-cash working capital items are often temporary in nature
and reflect the timing of cash receipts for trade and other receivables or payments made on account of trade payables or
accrued liabilities. We further exclude differences attributable to the timing of cash tax and interest payments and have
reduced Free Cash Flow by the expense recognized for each as recorded in our consolidated statements of operations
and comprehensive income or loss. Free Cash Flow is a useful financial and operating metric for the Company, and our
board of directors, as it represents a proxy for our ability to generate cash that we can use for other purposes, including but
not limited to, the purchase of shares under a Normal Course Issuer Bid (“NCIB”) and future acquisitions or investment.
All references to “Free Cash Flow Conversion” in this MD&A are to Free Cash Flow divided by Adjusted EBITDA. Free Cash
Flow Conversion is a useful financial and operating metric for the Company, and our board of directors, as it represents a
proxy for our ability to convert Adjusted EBITDA to Free Cash Flow.
26
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Cash (utilized in) generated from operating activities
Less: changes in non-cash working capital items
Less: intangible asset additions
Less: property and equipment additions
Add: income taxes (recovered) paid
Less: current income tax expense (recovery)
Add: other non-operating costs
Add: restructuring expenses
Add: net foreign currency exchange gain or loss net of
unrealized foreign exchange gain or loss on internal
financing arrangements
Free Cash Flow
Management calculates Free Cash Flow as follows:
Adjusted EBITDA
Less: interest expense
Add: interest income
Less: current income tax expense (recovery)
Less: intangible asset additions
Less: property and equipment additions
Free Cash Flow
Free Cash Flow Conversion is calculated as follows:
Free Cash Flow
Divided by: Adjusted EBITDA
Free Cash Flow Conversion
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
$
(29) $
(3,459)
173
28
(2,411)
344
-
14
(4,813) $
(2,400)
106
-
358
(282)
-
969
(2,564) $
636
496
534
(420)
494
-
1,703
17,567
16,847
160
1,015
4,721
1,761
66
1,542
$
(175)
313 $
(11)
(921) $
100
(3,341) $
200
4,313
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
$
$
594 $
75
339
344
173
28
313 $
(1,112) $
56
71
(282)
106
-
(921) $
(2,359) $
283
825
494
496
534
(3,341) $
7,379
264
134
1,761
160
1,015
4,313
Three months ended September 30
2023
2022
Year ended September 30
2022
2023
$
$
313 $
594 $
52.7%
(921) $
(1,112) $
82.8%
(3,341) $
(2,359) $
141.6%
4,313
7,379
58.4%
Adjusted EBITDA, Net Revenue, Adjusted Net Income or Loss, Free Cash Flow and Free Cash Flow Conversion should not be
considered, in isolation, indicators of our financial performance, or as an alternative to, or a substitute for, net income or
loss, cash from operating activities or other information presented in our financial statements.
SELECTED ANNUAL INFORMATION
Revenues
Net (loss) income
Net (loss) income per weighted average share, basic
Net (loss) income per weighted average share, diluted
Total assets
Total long-term liabilities
2023
163,914 $
(6,196) $
(0.08) $
(0.08) $
128,738 $
2,941 $
$
$
$
$
$
$
Year ended September 30
2021
2022
339,642 $
(9,265) $
(0.12) $
(0.12) $
137,004 $
4,312 $
504,107
33,080
0.40
0.39
194,340
6,979
Revenues
2023-2022
Please see the “Review of Operations – For the three months and year ended September 30, 2023” section of this MD&A for
a detailed discussion regarding the change in revenues between fiscal 2023 and fiscal 2022.
2022-2021
Consolidated revenues declined due to lower revenues across all three segments. Revenues in our U.S. Appraisal segment
declined due to lower addressable mortgage origination volumes, partially offset by net market share gains with existing
clients, new client additions and higher home equity and default volumes serviced. The revenue decline in our U.S. Title
segment was due primarily to lower refinance mortgage origination market volumes, changes in our client portfolio, the
27
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
rationalization of our diversified title business to align with our long-term market share objectives and lower home equity
revenues. Excluding the impact of FX, Canadian segment revenues increased modestly on higher insurance inspection
revenues while appraisal services were flat as net market share gains were offset by lower market volumes.
Net (loss) income
2023-2022
Please see the “Review of Operations – For the three months and year ended September 30, 2023” section of this MD&A for
a detailed discussion of the components comprising the change in net income between fiscal 2023 and fiscal 2022.
2022-2021
We recorded a net loss in fiscal 2022 versus net income in fiscal 2021. Factors contributing to the decline included the
recognition of a goodwill impairment charge, lower Adjusted EBITDA(A) generated by all three operating segments and
higher restructuring expenses. These declines were partially offset by higher net foreign exchange gains between periods
due to changes in the FX rate between the Canadian and U.S. dollar. A large deferred income tax recovery attributable to
the decline in our financial performance and the goodwill impairment charge also partially offset the declines noted
above.
Total Assets
2023-2022
Total assets declined $8.3 million between fiscal 2022 and fiscal 2023. Lower cash and cash equivalents of $3.8 million, lower
trade and other receivables of $4.5 million, lower income tax recoverable of $0.9 million, lower intangibles of $1.0 million,
lower property and equipment of $3.1 million, was partially offset by higher other assets of $0.8 million and higher deferred
tax assets of $3.5 million. Please refer to the “Financial Condition, Liquidity and Capital Resources” section of this MD&A for a
detailed discussion of the components comprising the change in cash and cash equivalents and trade and other
receivables. The decline in intangibles was the result of normal course amortization. Lower property and equipment
balances were due to the disposal of a right-of-use asset and normal course amortization, partially offset by new equipment
additions. The decrease in income taxes recoverable reflects income tax refunds collected during the year. Other assets
represent the fair value of our total return swap. The increase in deferred tax assets is largely attributable to loss
carryforwards in our U.S. and Canadian operating entities.
2022-2021
Total assets declined $57.3 million between fiscal 2022 and fiscal 2021. Lower cash and cash equivalents of $14.1 million,
lower trade and other receivables of $26.2 million, lower intangibles of $1.2 million, lower goodwill of $17.3 million and lower
property and equipment of $4.1 million, was partially offset by higher income taxes recoverable of $0.9 million and higher
deferred tax assets of $4.7 million. The decrease in cash and cash equivalents was due in large part to the purchase of
common shares and related costs under our NCIB totaling $28.7 million. Income taxes paid of $4.7 million, investments made
in property and equipment of $1.0 million, primarily for end-of-life computer equipment, and the net repayment of lease
liabilities of $1.5 million also contributed to the decline in cash and cash equivalents. These outflows of cash and cash
equivalents were partially offset by a non-cash working capital recovery of $16.8 million, due primarily to the timing of
payment from two significant clients in our U.S. Appraisal segment at the end of fiscal 2021, and $7.4 million of Adjusted
EBITDA(A) recognized in fiscal 2022. The decline in intangibles was the result of normal course amortization, while lower
goodwill reflected an impairment charge attributable to our U.S. Title segment due to the continued decline in economic
and market conditions for mortgage origination refinance activity. Lower property and equipment balances were due to
the disposal of a right-of-use asset for a Denver property lease, including the disposal of leasehold improvements
attributable to that lease, and normal course amortization, partially offset by new equipment additions due primarily to the
replacement of end-of-life computer equipment. The increase in income taxes recoverable reflected income taxes paid
that were higher than the current year provision for income taxes payable, partially offset by amounts payable in respect of
dividend withholding tax attributable to the transfer of cash between the U.S. and Canada to support the purchase of
common shares and related costs under our NCIB. The increase in deferred tax assets was largely attributable to loss
carryforwards in our U.S. and Canadian operating entities.
Total Long-Term Liabilities
2023-2022
Total long-term liabilities declined $1.4 million due primarily to lower long-term lease liabilities of $1.9 million, mainly
representing normal course lease payments and lease amendments, partially offset by an increase in other liabilities of $0.5
million associated with the future payment of cash-settled RSUs.
We expect to satisfy our total long-term liabilities as they come due based on our expectations of future operating
performance and our current cash and cash equivalents balance.
28
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
2022-2021
Total long-term liabilities declined $2.7 million due primarily to lower long-term lease liabilities of $2.0 million, representing
normal course lease payments and a reduction to lease liabilities attributable to the reassessment of the Denver property
lease. The decline in warrant liabilities of $0.7 million reflected the exercise of all remaining warrants in fiscal 2022.
SUMMARY OF QUARTERLY RESULTS
The following table sets out selected financial information as reported for each of the eight most recent quarters, the latest
of which ended September 30, 2023. This information has been prepared on the same basis as the Company's audited
consolidated financial statements, and all necessary adjustments have been included in the amounts stated below to
present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements
of the Company and the related notes to those statements.
2023
2022
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Revenues
U.S. Appraisal
U.S. Title
Canada
Total revenues
Net income (loss)
Net income (loss) - attributable to
common shareholders
Net income (loss) per weighted
average share, basic
Net income (loss) per weighted
average share, diluted
$
$
$
31,160 $
2,333
8,696
42,189 $
1,622 $
33,430 $
2,609
9,911
45,950 $
(619) $
27,996 $
2,223
7,391
37,610 $
(2,580) $
28,260 $
2,361
7,544
38,165 $
(4,619) $
43,908 $
3,966
10,326
58,200 $
(9,968) $
57,299 $
5,606
15,799
78,704 $
(1,424) $
70,374 $
79,335
16,195
10,775
12,227
13,832
94,981 $ 107,757
2,636
(509) $
$
1,622 $
(619) $
(2,580) $
(4,596) $
(9,960) $
(1,437) $
(545) $
2,670
$
0.02 $
(0.01) $
(0.04) $
(0.06) $
(0.14) $
(0.02) $
(0.01) $
0.03
$
0.02 $
(0.01) $
(0.04) $
(0.06) $
(0.14) $
(0.02) $
(0.01) $
0.03
Seasonality
Residential mortgage origination volumes in North America are influenced by cyclical trends and seasonality. Cyclical
trends include changes in interest rates, refinancing rates, the capacity of lenders to underwrite mortgages, house prices,
housing inventory, demand for housing, the availability of funds for mortgage loans, credit requirements, regulatory
changes, household indebtedness, employment levels and the general health of the North American economy.
Transaction-based revenues for appraisal services in our U.S. Appraisal and Canadian segments are also impacted by the
seasonal nature of the residential mortgage industry, which typically see home buyers purchase more homes in our third
and fourth fiscal quarters, representing the three months ending June 30 and September 30, respectively.
Net income (loss)
Net income or loss generally follows the rise and fall in revenues. However, net income or loss is also impacted by changes in
stock-based compensation expense, amortization, gains or losses on disposal of property and equipment, other non-
operating costs, restructuring expenses, impairment of goodwill, interest expense, interest income, net foreign exchange
gains or losses, net gains or losses on fair value of derivatives and gains or losses on fair value of warrants. Net income tax
expense or recovery also impacts net income or loss.
We recorded a net loss in the first quarter of fiscal 2023 which compares to net income in the first quarter of fiscal 2022.
Lower Adjusted EBITDA(A) contributions recognized across each of our segments was the primary contributor to the loss,
owing in large part to lower addressable mortgage origination volumes. In addition, we recorded restructuring expenses of
$1.3 million in the first quarter of fiscal 2023, representing severance costs attributable to changes in our management and
organizational structure, compared to $nil in the same quarter last year. In the first quarter of fiscal 2023, we recognized
higher foreign currency exchange losses of $0.5 million as a result of changes in the Canadian dollar relative to the U.S.
dollar. The aforementioned contributed to the higher net loss in the first quarter of fiscal 2023 compared to the same quarter
last year, which was partially offset by lower cash and deferred income tax expenses of $3.5 million. Lower cash and
deferred income tax expenses reflect the decline in our financial performance which was due in large part to the
comparative decline in mortgage market origination volumes.
29
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
We recorded a larger net loss in the second quarter of fiscal 2023 compared to the same quarter last fiscal year. Lower
Adjusted EBITDA(A) contributions recognized across each of our segments was the primary contributor to the higher current
quarter loss, owing in large part to lower addressable mortgage origination volumes. In addition, we recorded restructuring
expenses of $0.3 million in the second quarter of fiscal 2023, representing severance costs attributable to changes in our
management and organizational structure, compared to $nil in the same quarter last year. The aforementioned
contributed to the higher net loss in the second quarter of fiscal 2023 compared to the same quarter last year, which was
partially offset by lower foreign currency exchange losses of $1.2 million, due to changes in the Canadian dollar relative to
the U.S. dollar, lower losses of $0.2 million recognized in the comparative quarter on the disposal of property and
equipment, due to an adjustment to a leased property related to the remeasurement of a lease liability, and a higher gain
recognized on the fair value of derivatives from a total return swap used to manage our cash flow exposure arising from
changes in our share price attributable to cash-settled RSUs. Higher net income tax recoveries of $0.2 million reflect the
decline in our financial performance, which was due in large part to the comparative decline in mortgage market
origination volumes.
Net loss in the third quarter of fiscal 2023 was lower than the net loss recorded in the third quarter of fiscal 2022. A higher
consolidated Adjusted EBITDA(A) contribution was the primary contributor to the lower loss in the third quarter of fiscal 2023.
Although revenues were lower across each of our segments owing in large part to lower addressable mortgage origination
volumes, we recorded substantially lower operating expenses from lower salary and benefit costs and other operating
expenses. In addition, we recognized a higher gain on the fair value of derivatives from our total return swap and incurred
lower income tax expense. The aforementioned contributed to the lower net loss in the third quarter of fiscal 2023
compared to the same quarter last year, which was partially offset by higher foreign currency exchange losses due to
changes in the Canadian dollar relative to the U.S. dollar.
Please see the “Review of Operations – For the three months and year ended September 30, 2023” section of this MD&A for
a detailed discussion of the components comprising the change in net income between the fourth quarter of fiscal 2023
and the fourth quarter of fiscal 2022.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Select Consolidated Statement of Financial Position (“Balance Sheet”) Information
Trade and other receivables
Intangibles
Goodwill
Working capital position
- (current assets less current liabilities)
2023
15,295 $
4,004 $
43,181 $
As at September 30
Change
2022
19,831 $
4,992 $
43,181 $
(4,536)
(988)
-
47,097 $
52,047 $
(4,950)
$
$
$
$
Trade and other receivables
The decline in trade and other receivables was due in large part to lower mortgage origination market activity for our U.S.
and Canadian operations.
Intangibles
The decline in intangibles was due to normal course amortization recorded in our U.S. segments, partially offset by
capitalized software development costs incurred to enhance our software platforms.
Working capital position
Our consolidated working capital position declined on a comparative basis to $47.1 million. The Company has no
outstanding debt. Total current assets declined $8.4 million while total current liabilities declined $3.5 million. The decline in
total current assets was due to lower trade and other receivables of $4.5 million, lower cash and cash equivalents of $3.8
million and lower income taxes recoverable of $0.9 million, partially offset by higher prepaid expenses of $0.9 million. The
decline in trade and other receivables was due in large part to lower mortgage origination market activity. The decline in
total current liabilities was due to a decrease in trade payables and accrued charges owing to the decline in volumes
serviced and the timing of certain payments.
Please refer to the “Cash Flows” section below for a detailed discussion of the components comprising the change in cash
and cash equivalents.
30
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Cash Flows
Cash flows (utilized in) generated from:
Operating activities
Investing activities
Financing activities
Effect of foreign currency translation
on cash and cash equivalents
Net cash outflow
$
$
Three months ended September 30
Change
2022
2023
2023
Year ended September 30
Change
2022
(29) $
(174)
201
(192)
(194) $
(4,813) $
(39)
(1,955)
(92)
(6,899) $
4,784 $
(135)
2,156
(100)
6,705 $
(2,564) $
(799)
(445)
17,567 $
(1,080)
(30,424)
(20,131)
281
29,979
7
(3,801) $
(134)
(14,071) $
141
10,270
Changes in cash flows (utilized in) generated from:
Operating
activities
Three months ended September 30, 2023 vs. Three
months ended September 30, 2022
↑ Cash generated from operating activities
increased $4.8 million due in part to a $1.7
million increase in Adjusted EBITDA(A) as
outlined in the “Review of Operations - For
the three months and year ended
September 30, 2023” section of this MD&A. In
addition, income taxes recovered totaled
$2.4 million versus income taxes paid of $0.4
million in the comparable period.
Investing
activities
↓ Cash utilized in investing activities increased
modestly by $0.1 million mainly due to higher
additions of intangible assets.
Financing
activities
↑ Cash utilized in financing activities was lower
on a comparative basis by $2.2 million mainly
due to a decline in common shares
purchased under our NCIB and an increase
in proceeds received from the exercise of
stock options.
Contractual Obligations
Year ended September 30, 2023 vs. Year ended
September 30, 2022
↓ Cash generated from operating activities
declined $20.1 million due in part to a $9.7
million decline in Adjusted EBITDA(A) as
outlined in the “Review of Operations - For
the three months and year ended
September 30, 2023” section of this MD&A.
Non-cash working capital declined $16.2
million, which was due in large part to the
timing of payments combined with lower
comparative mortgage origination market
activity leading to lower trade and other
receivables balances. In fiscal 2022, we paid
income taxes of $4.7 million versus a recovery
in fiscal 2023 of $0.4 million.
↓ Cash utilized in investing activities decreased
to $0.8 million compared to $1.1 million
mainly due to lower expenditures on the
acquisition of property and equipment,
partially offset by higher additions of
intangible assets.
↑ Cash utilized in financing activities was lower
on a comparative basis by $30.0 million
mainly due to a decline in common shares
purchased under our NCIB and a decline in
RSUs purchased and held in trust.
Payments due
Less than 1
Total
year
1-3 years
4-5 years After 5 years
September 30, 2023
Leases
Trade payables and accrued charges
Other liabilities
Total contractual obligations
$
$
4,444 $
1,825 $
12,549
508
12,549
-
17,501 $
14,374 $
1,884 $
-
508
2,392 $
682 $
-
-
682 $
53
-
-
53
The Company expects that cash and cash equivalents and future operating cash flows will be sufficient to fund ongoing
business requirements, including working capital and other contractual obligations.
31
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Total return swap
In December 2022, the Company entered into a total return swap to manage our cash flow exposure arising from changes
in our share price attributable to cash-settled RSUs. Details of the total return swap as at September 30, 2023 are as follows:
Total return swap
Date entered
Notional amount C$
(expressed in millions)
Share price
C$
Number of
units
(expressed in
millions)
Effective date
Expiration date
December 2022
$2.4
$4.21
0.6
December 2022
December 2025
DISCLOSURE OF OUTSTANDING SHARE DATA
Number of shares issued and outstanding (in thousands)
September 30, 2023
November 16, 2023
Common shares
Restricted shares
Preferred shares
Total contributed equity
72,944
(101)
-
72,843
72,944
(101)
-
72,843
Normal course issuer bid (“NCIB”)
Effective June 13, 2022, we received approval from the Toronto Stock Exchange (“TSX”) to renew our NCIB for a one-year
period which expired on June 12, 2023. Under the renewed NCIB, we were approved to purchase up to 6 million common
shares. Daily purchases made on the TSX, or through alternative Canadian trading systems, were limited to a maximum of
99,319 common shares.
We were permitted to purchase a block of common shares once a week which could 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 have been cancelled.
For the year ended September 30, 2023, 0.003 million (2022 – 6.5 million) common shares were purchased and cancelled at
an aggregate cost of $0.01 million (2022 - $28.7 million).
As of November 16, 2023, no additional common shares were purchased and cancelled or settled since September 30,
2023.
Stock options
At September 30, 2023, stock options issued and outstanding totaled 3.6 million (September 30, 2022 – 4.4 million) and 3.2
million (September 30, 2022 – 3.8 million) were exercisable for common shares of the Company.
RSUs
At September 30, 2023, RSUs issued and outstanding totaled 0.8 million (September 30, 2022 – 0.2 million) and 0.2 million
(September 30, 2022 – 0.07 million) were vested but unsettled.
Dividends
The Company’s current policy is to not pay dividends.
32
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical 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 financial results with our peers. Reporting our 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 and
represents the daily average rate published by the Bank of Canada.
Consolidated
Balance
Sheet
Fiscal 2023
Consolidated
Statement of Operations and
Comprehensive Income or
Consolidat-
ed Balance
loss
Sheet
Fiscal 2022
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
$
$
$
$
0.7383 $
0.7389 $
0.7553 $
0.7396 $
0.7364 $
0.7398 $
0.7445 $
0.7456 $
0.7364 $
0.7381 $
0.7402 $
0.7415 $
0.7888 $
0.8003 $
0.7760 $
0.7296 $
0.7936 $
0.7897 $
0.7834 $
0.7656 $
0.7936
0.7917
0.7889
0.7829
FX Impact on Consolidated Results
The following tables have been prepared to assist readers in assessing the FX impact on select operating results for the three
months and year ended September 30, 2023.
Consolidated Statement of Operations
Revenues
Transaction costs
Operating expenses
Net (loss) income
Net Revenue(A)
Adjusted EBITDA(A)
Adjusted Net Income(A)
Three months ended September 30
2022
2023
2023
(as reported)
(as reported)
(FX impact)
2023
(current
period
amounts
applying
prior period
FX rate)
$
$
$
$
$
$
$
58,200 $
43,833 $
15,784 $
(9,968) $
14,367 $
(1,112) $
45 $
42,189 $
31,023 $
10,860 $
1,622 $
11,166 $
594 $
840 $
(238) $
(196) $
(82) $
(72) $
(42) $
34 $
17 $
42,427
31,219
10,942
1,694
11,208
560
823
Note: (A) – Please refer to the “Non-GAAP measures” section of this MD&A
33
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Consolidated Statement of Operations
Revenues
Transaction costs
Operating expenses
Net loss
Net Revenue(A)
Adjusted EBITDA(A)
Adjusted Net Income (Loss)(A)
Year ended September 30
2022
2023
2023
(as reported)
(as reported)
(FX impact)
2023
(current year
amounts
applying
prior year FX
rate)
$
$
$
$
$
$
$
339,642 $
254,203 $
79,595 $
(9,265) $
85,439 $
7,379 $
2,501 $
163,914 $
120,899 $
46,751 $
(6,196) $
43,015 $
(2,359) $
(2,189) $
(1,873) $
(1,536) $
(872) $
607 $
(337) $
458 $
487 $
165,787
122,435
47,623
(6,803)
43,352
(2,817)
(2,676)
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 amount 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 derivatives and financial instruments, lease terms, estimation of
incremental borrowing rates to determine the carrying amount of right-of-use assets and lease liabilities and the likelihood
of realizing deferred income tax assets. Estimates and judgments are based on our 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 liability’s fair value. Due to the inherent complexity, judgment and uncertainty in estimating fair value, actual
amounts could differ significantly from these estimates.
Areas requiring the most significant estimate and judgment are outlined below.
Revenue recognition
The satisfaction of performance obligations requires us to make judgments when control of the underlying good or service
transfers to the customer. Determining when a performance obligation is satisfied affects the timing of revenue recognition.
We consider indicators of the transfer of control, including when the customer is obligated to pay and whether the transfer
of significant risks and rewards has occurred, which represents the time when the customer has acquired the ability to direct
and use the good or service and obtained substantially all of the benefits.
We use judgment in our assessment of whether we are acting as an agent or principal to a transaction. When we are not
primarily responsible for fulfilling the obligation to provide a specified good or service and do not have discretion to
establish price, we are acting as an agent to the transaction. We are acting as a principal when we control the
deliverables prior to delivery to the customer and establish pricing.
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 an
entities’ net assets 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
expected. Goodwill is not tested for impairment when the assets and liabilities that 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
34
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
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 CGUs 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 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 rate applied to the cash flow projections are derived from the weighted average cost of capital of comparable
publicly traded companies. To determine fair value, for the purpose of estimating fair value less cost to sell, we apply various
trading multiples of comparable public companies and merger and acquisition transactions for like or similar businesses to
our last twelve months performance, and expected performance in the subsequent year, for our U.S. Appraisal segment.
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
recorded to goodwill. The purchase price allocation involves judgment to identify the intangible assets acquired and
establish fair value estimates for the assets acquired and liabilities assumed, including pre-acquisition contingencies and
contingent consideration. Changes in any assumption or estimate used to identify the intangible assets acquired, or to
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 intangible assets in connection with the initial
purchase price allocation of an acquired entity, and our continuing evaluation of the recoverability of goodwill and
intangible assets. These estimates are based on several 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 intangible assets
acquired. 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.
Leases
Lease terms represent the contractual non-cancellable period for a lease, plus all periods covered by an option to renew or
terminate the lease if we are reasonably certain to exercise, or not exercise this option, respectively. We apply judgment in
our assessment of all factors that create an economic incentive to exercise extension options, or to not exercise termination
options, available in our lease arrangements. We review our initial assessment if a significant event or change in
circumstances occurs that affects our initial assessment and is within our control.
To determine the carrying amount of right-of-use assets, lease liabilities and net investment in sublease, we estimate the
incremental borrowing rate specific to each leased asset or portfolio of leased assets if the interest rate implicit in the lease
is not readily determinable. We determine the incremental borrowing rate attributable to each leased asset, or portfolio of
leased assets, by assessing our creditworthiness, the security, term and value of the underlying leased asset and the
economic environment in which the leased asset operates. The incremental borrowing rate is subject to change mainly due
to macroeconomic changes.
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 purposes 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
35
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
liabilities are measured applying tax rates expected to be in effect when the temporary differences reverse, applying tax
rates that have been enacted or 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 to 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 impact
deferred income tax assets and deferred income tax expense or recovery.
The recognition of deferred tax assets attributable to unutilized loss carryforwards is supported by our historical and
expected future ability to generate income subject to tax and our ability to 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. Unutilized loss carryforwards in the U.S. arising after December 31, 2017 can
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 that we determine 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, $8.4 million at September 30, 2023. Accordingly, due to our historical ability to generate
income subject to tax, our expectations to generate income subject to the tax in the future and available tax planning
measures, 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 to the Black-Scholes-Merton option pricing model used to value stock-based compensation,
estimates of property and equipment’s useful life, assessing provisions, estimating the likelihood of collection to determine
our allowance for doubtful accounts, the fair value of derivatives and 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
Classification of Liabilities as Current or Non-Current
In January 2020, the IASB issued “Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)” which
provided a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in
place at the reporting date. The amendment clarified that the classification of liabilities as current or non-current should be
based on rights that are in existence at the end of the reporting period. Only rights to defer settlement by at least twelve
months, which are in place at the end of the reporting period affect the classification of a liability. Classification is
unaffected by an entities’ expectation to exercise its right to defer settlement of a liability.
In October 2022, the IASB issued “Non-current liabilities with covenants (amendments to IAS 1)” which clarified that only
covenants that an entity is required to comply with as of the reporting date affect the classification of a liability as current or
non-current. Entities are required to disclose that non-current liabilities with covenants could become repayable within
twelve months from the reporting date.
These amendments are to be applied retrospectively and are effective for annual reporting periods beginning on or after
January 1, 2024. We expect to apply these amendments to the classification of liabilities on October 1, 2024, and adopting
this amendment is not expected to have a significant impact on our financial statements.
Narrow-scope amendments to IAS 1 and IAS 8
In February 2021, the IASB amended IAS 1 – “Presentation of Financial Statements” which requires companies to disclose
information attributable to material accounting policies rather than focusing on significant accounting policies. The
amendment clarifies that accounting policy information is material, if its absence inhibits a financial statements user’s ability
to understand other material information in the financial statements.
Additionally, the IASB amended IAS 8 – “Accounting Policies, Changes in Accounting Estimates and Errors” to improve
accounting policy disclosures and assist entities in distinguishing between changes in accounting policies, which are
generally applied retrospectively to both historical, current and future transactions, and estimates, which are applied
prospectively to future transactions.
36
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
These amendments are effective for annual reporting periods beginning on or after January 1, 2023 and earlier application
is permitted. We expect to apply the amendments on October 1, 2023, and adopting these amendments is not expected
to have a significant impact on our financial statements.
Clarifying amendment to account for deferred tax on leases and decommissioning obligations
In May 2021, the IASB amended IAS 12 – “Income Taxes” to clarify that the initial recognition exemption does not apply to
leases and decommissioning obligations. As a result, companies are required to recognize deferred tax on such
transactions.
The amendment is effective for annual reporting periods beginning on or after January 1, 2023 and earlier application is
permitted. We expect to apply the amendment on October 1, 2023, and adopting this amendment is not expected to
have a significant impact on our financial statements.
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, trade and other
receivables and when and as applicable, total return swaps. In all instances, our risk management objective, whether of
credit, liquidity, market, equity 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. We
typically select financial institutions that we have a relationship with and those deemed by us to be of sufficient size, liquidity
and stability. We review our exposure to credit risk from time-to-time or as conditions indicate that our exposure to credit risk
has or is subject to change. Our maximum exposure to credit risk is equal to the fair value of cash and cash equivalents
recorded on our consolidated statements of financial position as at September 30, 2023, $42.3 million (September 30, 2022 -
$46.1 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
In the normal course of business, our trade and other receivables balance is subject to credit risk. 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, 2023, $15.3 million (September 30, 2022 - $19.8 million). We regularly perform credit checks or may accept
payment or security in advance to limit our exposure to credit risk. Our client base is sufficiently diverse, consisting of banks
and mortgage lending institutions that are generally of sufficient size and capitalization, to mitigate a portion of any credit
risk exposure we may be subject to. 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 based on an expected
credit loss (“ECL”) model which considers expected losses that result from all possible default events over the expected life
of our trade and other receivable balances and include factors such as past events, current conditions and forecasts of
future economic conditions. 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 determined 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. We have
elected to measure loss allowances for trade and other receivables at an amount equal to estimated lifetime ECLs using a
provision matrix based on historical credit loss experience adjusted for estimated changes in credit risk and forecasts of
future economic conditions.
Trade and other receivables are generally due within 15 to 45 days from the invoice date. Accordingly, all amounts
outstanding beyond these periods are past due. Based on historical collections, the majority of receivables collected have
not been 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, 2023 were not considered significant.
37
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Total return swaps
Our maximum exposure to credit risk, when and as applicable, is equal to the estimated fair value of total return swaps
recorded to other assets on our consolidated statements of financial position. We hold no collateral or other credit
enhancements as security over these agreements. We deem the agreements’ credit quality to be high due to our
assessment of the counterparty to this agreement and no amounts are either past due or impaired.
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 the settlement of trade payables and lease liabilities. Certain management are responsible
to ensure that we have sufficient short, medium and long-term liquidity to address these liabilities as they become due. We
manage liquidity risk on a continuous basis by monitoring actual and forecasted cash flows and monitoring our available
liquidity.
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, equity 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 are
not a party to any FX agreements. Accordingly, we are exposed to currency risk in 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 use of 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 are subject to
interest rate risk on investments we make in cash equivalent, short-term investments.
We are exposed to equity price risk related to certain share-based compensation plans that are accounted for as liabilities.
We have entered into a total return swap agreement with terms to match the vesting period of the corresponding awards
to reduce this exposure.
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, and when applicable, contingent consideration, are calculated using available
market information and commonly accepted valuation methods, 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 counterparties 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.
The total return swap is recorded at its estimated fair value based on quotes received from the financial institution that is the
counterparty to the agreement. We verify the reasonableness of the quotes by comparing them to share price movement
adjusted for interest using a market rate of interest specific to the terms of the underlying contract. There was one total
return swap outstanding on September 30, 2023. Accordingly, the risk of having a material impact on the determination of
fair value using different assumptions and or estimation methods is expected to be unlikely.
Financial assets and liabilities recorded at fair value, as and where applicable, are recorded to our consolidated
statements of financial position.
38
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
CONTINGENCIES
From time to time, we are involved in legal proceedings, claims and litigation in the ordinary course of business with
customers, former employees and other parties. Although it is not possible to determine the outcome of such matters,
based on all currently available information, we believe that our liabilities, if any, arising from such matters will not have a
material adverse effect on our consolidated financial position or results of operations and have been adequately provided
for in the consolidated financial statements.
In the ordinary course of business, we are subject to tax audits from various government agencies relating to income and
commodity taxes. As a result, from time to time, the tax authorities may disagree with the positions and conclusions we
made in our tax filings, which could lead to assessments and reassessments. These assessments and reassessments may
have a material adverse effect on our consolidated financial position or results of operations.
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 Chief Executive Officer
(“CEO”) and Executive Vice-President and Chief Financial Officer (“CFO”), to allow for timely decisions in respect of these
requirements.
As at September 30, 2023, 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, 2023.
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.
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, 2023, 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, 2023.
There have been no changes during the year ended September 30, 2023 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 “aim”, “could”, “forecast”, “target”, “may”, “might”, “will”, “would”, “expect”, “anticipate”, “estimate”, “intend”, “plan”,
“seek”, “believe”, “predict” and “likely”, 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 the Company’s
management with respect to the Company’s business and the industry in which it operates 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
39
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
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:
• our business prospects, goals and long-term strategy targets;
• our expectations regarding certain of our future results and information, including, among others, Net Revenue(A) and
Adjusted EBITDA(A) margins for each of our segments, market share targets for our U.S. Appraisal and U.S. Title
segments, corporate expenses (excluding stock-based compensation expense), conversion of Adjusted EBITDA(A) to
Free Cash Flow(A) and the total addressable market;
• the key factors that have a significant impact on our financial performance;
• anticipated economic conditions, including the market activity for purchase, refinance, home equity, REO and
default transactions;
• the scalability of the 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 expectations regarding
appraisal waivers provided by the GSE’s and Veteran Affairs volumes;
• the factors influencing the allocation of transaction volumes to us; 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, Adjusted EBITDA(A) margins, corporate
expenses (excluding stock-based compensation expense) and conversion of Adjusted EBITDA(A) to Free Cash Flow(A) are
considered forward-looking information. See the “Overview’’ section of this MD&A for additional information regarding our
strategies 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, each of which are discussed in further detail in the “Risk Factors” section of our Annual Information Form for
the year ended September 30, 2022, which is filed on SEDAR+ at www.sedarplus.ca:
Strategic Risks
• changes in economic conditions resulting in fluctuations in demand for our services;
• failing to grow market share in our U.S. Title business to anticipated levels;
• failing to grow market share in our U.S. Appraisal business to anticipated levels;
• risks associated with targeting large mortgage lenders, including longer sales cycles, pricing pressures,
implementation complexities and concentration risk;
• significant demands being placed on our management and infrastructure;
• maintaining our competitive position in a competitive business environment;
• damage to our reputation causing a loss of existing clients and/or difficulty attracting new clients;
• inability to successfully identify, consummate or integrate future acquisitions;
Operational Risks
• failing to adequately protect our technology Infrastructure;
• issues with the platform;
• failing to retain key employees or hire highly skilled personnel;
• failing to maintain field professional engagement;
• the occurrence of catastrophic events which are beyond our control;
Legal and Compliance Risks
• regulatory risks applicable to us;
• risks associated with legal and regulatory proceedings and claims;
• risks associated with the potential reclassification of exempt employees and field professionals;
• failing to adequately protect our intellectual property;
• potential losses arising from field professional work product liability;
• potential infringement of our services on the proprietary rights of others;
• difficulty for shareholders to enforce judgments obtained against us;
40
Real Matters Inc. – MD&A for the years ended September 30, 2023 and 2022
(tabular and graphical amounts are expressed in thousands of U.S. dollars and thousands of shares, excluding per share amounts, unless otherwise stated)
Financial and Reporting Risks
• the potential for significant fluctuations in the market price of our shares;
• potential inability to raise additional capital in the future when needed, either on acceptable terms or at all;
• failing to maintain effective internal controls, including the inherent limitations in all control systems;
• potential tax law changes or adverse tax examinations;
• inaccurate accounting estimates and judgments;
• potential dilution to existing shareholders as a result of future share issuances;
• ineffectiveness of our financial and operational risk management efforts;
• our dependence on our subsidiaries for cash flows; and
• changing accounting pronouncements and other financial reporting standards.
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 by 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.
Glossary
Tier 1 means the top five U.S. banks by asset size as at June 30, 2022, 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 calendar 2022).
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 calendar 2022), 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 calendar 2022), 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.
41
Independent Auditor’s Report
To the Shareholders and the Board of Directors of Real Matters Inc.
Opinion
We have audited the consolidated financial statements of Real Matters Inc. (the "Company"), which comprise
the consolidated statements of financial position as at September 30, 2023 and 2022, and the consolidated
statements of operations and comprehensive loss, equity and cash flows for the years then ended, and notes
to the consolidated financial statements, including a summary of significant accounting policies (collectively
referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of the Company as at September 30, 2023 and 2022, and its financial performance and its cash flows
for the years then ended in accordance with International Financial Reporting Standards ("IFRS").
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian
GAAS"). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Financial Statements section of our report. We are independent of the Company in accordance
with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we
have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matter
A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the
financial statements for the year ended September 30, 2023. This matter was addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on this matter.
Revenue Recognition – Refer to Notes 2 and 21 to the financial statements
Key Audit Matter Description
The Company generates most of its revenue by providing residential mortgage appraisals through its
technology-based platform, title services, and search services to the mortgage lending industries in the United
States of America. The Company also generates revenue by providing residential mortgage appraisals through
its technology-based platform to the mortgage lending industries in Canada. Revenue is recognized at the
point in time when the performance obligation associated with the order is satisfied. For residential mortgage
appraisals, the Company recognizes revenue when the appraisal report is delivered to the client. Title revenues
are recorded when a transaction closes or when the documents are submitted to the county for recording.
Search revenues are recorded when the report is delivered to the client.
Revenue from residential mortgage appraisals, title services, and search services is a key audit matter due to
the significant audit effort required in performing audit procedures related to Company’s revenue recognition
due to the volume of data as well as the various sources of evidence required to support each transaction.
How the Key Audit Matter was Addressed in the Audit
Our audit procedures related to the occurrence and accuracy of revenue included the following, among
others:
• Evaluated the effectiveness of controls relating to revenue; and
• On a sample basis, evaluated revenue by tracing samples to pricing agreements, customer approval of
pricing adjustments, reconciliations to cash receipts, evidence of delivery of finalized appraisal reports
or signed title documents, and when applicable independent searches.
42
Other Information
Management is responsible for the other information. The other information comprises:
• Management's Discussion and Analysis
• The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the financial statements does not cover the other information and we do not and will not
express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our
responsibility is to read the other information identified above and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the
work we have performed on this other information, we conclude that there is a material misstatement of this
other information, we are required to report that fact in this auditor’s report. We have nothing to report in this
regard.
The Annual Report is expected to be made available to us after the date of the auditor's report. If, based on
the work we will perform on this other information, we conclude that there is a material misstatement of this
other information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance
with IFRS, and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
43
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that were
of most significance in the audit of the consolidated financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Stephen Dominic Di
Giacomo.
Chartered Professional Accountants
Licensed Public Accountants
November 16, 2023
44
Real Matters Inc.
Consolidated Statements of Financial Position
September 30, 2023 and 2022 (stated in thousands of United States (“U.S.”) dollars)
ASSETS
CURRENT
Cash and cash equivalents
Trade and other receivables (Note 18)
Income taxes recoverable
Prepaid expenses
NON-CURRENT
INTANGIBLES (Note 4)
GOODWILL (Note 5)
PROPERTY AND EQUIPMENT (Note 6)
OTHER ASSETS (Note 18)
DEFERRED TAX ASSETS (Note 19)
TOTAL ASSETS
LIABILITIES
CURRENT
Trade payables
Accrued charges
Lease liabilities (Note 7)
NON-CURRENT
OTHER LIABILITIES (Note 15)
LEASE LIABILITIES (Note 7)
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 17)
EQUITY
NON-CONTROLLING INTERESTS
SHAREHOLDERS' EQUITY (Note 9)
Common shares
Restricted shares (Notes 9 and 15)
Contributed surplus
Accumulated deficit
Accumulated other comprehensive loss
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Signed on behalf of the Board of Directors:
2023
2022
42,341 $
15,295
181
3,499
61,316
4,004
43,181
3,816
813
15,608
67,422
128,738 $
9,354 $
3,195
1,670
14,219
508
2,433
2,941
17,160
46,142
19,831
1,126
2,634
69,733
4,992
43,181
6,964
-
12,134
67,271
137,004
11,869
4,269
1,548
17,686
-
4,312
4,312
21,998
-
115
228,448
(311)
14,154
(120,952)
(9,761)
111,578
111,578
128,738 $
227,285
(311)
13,647
(114,777)
(10,953)
114,891
115,006
137,004
$
$
$
$
Jason Smith (signed) – Executive Chairman Garry M. Foster (signed) – Audit Committee Chair
The accompanying notes are an integral part of these consolidated financial statements.
Real Matters Inc. – September 30, 2023 - 45
Real Matters Inc.
Consolidated Statements of Operations and Comprehensive Loss
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars except outstanding share
and net income or loss per share amounts)
REVENUES (Note 21)
TRANSACTION COSTS
OPERATING EXPENSES (Note 11)
AMORTIZATION
LOSS ON DISPOSAL OF PROPERTY AND EQUIPMENT
OTHER NON-OPERATING COSTS
RESTRUCTURING EXPENSES (Note 12)
IMPAIRMENT OF GOODWILL (Note 5)
INTEREST EXPENSE (Note 8)
INTEREST INCOME
NET FOREIGN EXCHANGE LOSS (GAIN)
GAIN ON FAIR VALUE OF DERIVATIVES (Note 18)
GAIN ON FAIR VALUE OF WARRANTS (Note 14)
LOSS BEFORE INCOME TAX RECOVERY
INCOME TAX (RECOVERY) EXPENSE (Note 19)
Current
Deferred
TOTAL INCOME TAX RECOVERY
NET LOSS
OTHER COMPREHENSIVE INCOME (LOSS)
Items that will be reclassified to net income or loss:
Foreign currency translation adjustment
COMPREHENSIVE LOSS
NET LOSS - ATTRIBUTABLE TO COMMON
SHAREHOLDERS
NET (LOSS) INCOME - ATTRIBUTABLE TO NON-CONTROLLING
INTERESTS
COMPREHENSIVE LOSS - ATTRIBUTABLE TO COMMON
SHAREHOLDERS
COMPREHENSIVE (LOSS) INCOME - ATTRIBUTABLE TO
NON-CONTROLLING INTERESTS
Net loss per weighted average share, basic and
diluted (Note 10)
Weighted average number of shares outstanding (thousands),
basic and diluted (Note 10)
$
$
$
$
$
$
$
2023
2022
163,914 $
120,899
46,751
3,877
-
-
1,703
-
283
(825)
1,186
(815)
-
(9,145)
494
(3,443)
(2,949)
(6,196)
339,642
254,203
79,595
4,530
603
66
1,542
17,296
264
(134)
(5,725)
-
(249)
(12,349)
1,761
(4,845)
(3,084)
(9,265)
1,192
(5,004) $
(5,998)
(15,263)
(6,173) $
(9,272)
(23) $
7
(4,981) $
(15,270)
(23) $
7
(0.08) $
(0.12)
72,763
76,514
The accompanying notes are an integral part of these consolidated financial statements.
Real Matters Inc. – September 30, 2023 - 46
Real Matters Inc.
Consolidated Statements of Cash Flows
For the years ended September 30, 2023 and 2022 (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 15)
Amortization of intangibles (Note 4)
Amortization of property and equipment (Note 6)
Loss on disposal of property and equipment
Impairment of goodwill (Note 5)
Interest expense (Note 8)
Gain on fair value of derivatives (Note 18)
Gain on fair value of warrants (Note 14)
Income tax recovery
Unrealized foreign exchange loss (gain) on internal financing
arrangements
Changes in non-cash working capital items (Note 13)
Interest paid
Income taxes recovered (paid)
Cash (utilized in) generated from operating activities
INVESTING
Intangible asset additions (Note 4)
Property and equipment additions (Note 6)
Payments received from sublease
Cash utilized in investing activities
FINANCING
Proceeds from lease liabilities (Note 14)
Repayment of lease liabilities (Note 14)
Proceeds from the exercise of stock options
Restricted shares purchased and held in
trust (Notes 9 and 15)
Purchase of common shares and related costs (Note 9)
Dividends paid to non-controlling interests
Cash utilized in financing activities
Effect of foreign currency translation on cash and cash
equivalents
NET CASH OUTFLOW
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
2023
2022
$
(6,196) $
(9,265)
1,377
1,485
2,392
-
-
283
(815)
-
(2,949)
1,086
636
(283)
420
(2,564)
(496)
(534)
231
(799)
392
(1,545)
858
-
(11)
(139)
(445)
7
(3,801)
46,142
42,341 $
1,535
1,389
3,141
603
17,296
264
-
(249)
(3,084)
(5,925)
16,847
(264)
(4,721)
17,567
(160)
(1,015)
95
(1,080)
285
(1,735)
283
(516)
(28,741)
-
(30,424)
(134)
(14,071)
60,213
46,142
10,118 $
32,223
42,341 $
22,326
23,816
46,142
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Real Matters Inc. – September 30, 2023 - 47
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Real Matters Inc. – September 30, 2023 - 48
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (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 and title services through its Solidifi brand to the mortgage lending industry in the
U.S. and appraisal and insurance inspection services to the mortgage lending and insurance industries in
Canada through its Solidifi and iv3 brands, respectively.
Real Matters’ head office and Canadian operations are located at 50 Minthorn Boulevard, Markham, Ontario
and its U.S. subsidiaries operate at the Company’s principal offices in Buffalo, New York and Middletown, Rhode
Island.
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 16, 2023.
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 an asset on the date it was acquired or owed for a
liability on the date it was assumed.
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.
The carrying amount of non-controlling interests is the amount recognized initially, plus the non-controlling
interests’ share of subsequent changes in the capital of the company and changes in ownership interests, if
any. 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 the date control ceases.
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.
Real Matters Inc. – September 30, 2023 - 49
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
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 from the Company’s U.S. subsidiaries 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 and the statements of cash flows are translated at their historical foreign currency
exchange rates or at the foreign currency exchange in effect at the time of the transaction, respectively. The
consolidated statements of operations and comprehensive income or loss and consolidated statements of
cash flows, excluding certain transactions, are translated to U.S. 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 foreign currency fluctuations have on 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 Company’s
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 with a foreign operation, for
which settlement is neither planned nor likely to occur and therefore forms 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 to other comprehensive income or loss,
are reclassified from equity to the consolidated statements of operations and comprehensive income or loss on
settlement.
Summary of significant accounting policies
Cash and cash equivalents
Cash and cash equivalents include short-term investments in highly liquid marketable securities, which have a
term to maturity of three months or less.
Included in cash is $2,067 (2022 - $2,028) set aside by the Company to demonstrate that it has sufficient liquidity
to support a county title license for the conduct of business in the state of California. Additionally, included in
cash is $1,806 (September 30, 2022 - $nil) set aside by the Company to demonstrate that it has sufficient liquidity
to support the settlement of its total return swap arrangement.
The Company’s residential real estate title services requires it to hold cash in escrow accounts that it does not
own. Accordingly, cash held in escrow, including 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.
Real Matters Inc. – September 30, 2023 - 50
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
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
Licenses
2.5 years
3 years
3 years
3 years
10 years
Internally generated intangible assets represents computer software development costs associated with the
development and enhancement of the Company’s platforms and other supporting infrastructure. Costs
associated with the maintenance of the Company’s platforms are expensed as incurred.
Internally generated intangible assets are capitalized if, and only if, all of the following have been
demonstrated:
•
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;
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 from the
date when the intangible asset first meets the recognition criteria listed above to the date the asset is available
for use. During the period of development, the asset is tested for impairment at least annually. Where no
internally generated intangible asset is recognized, 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.
Goodwill
Goodwill represents the difference between consideration and 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 and 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 represent its
operating segments which is consistent with the level 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 of the CGU, representing the higher of its fair value less cost to sell
(“FVLCS”) and its value in use, is less than its carrying amount, any resulting impairment loss is first allocated to
goodwill and subsequently to other assets of the CGU on a pro rata basis. Any goodwill impairment loss is
Real Matters Inc. – September 30, 2023 - 51
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
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.
Upon 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 to the consolidated statements of operations and comprehensive
income or loss.
Goodwill is tested for impairment annually on June 30th.
Property and equipment
Property and equipment are recorded 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
individual items of property and equipment and amortized separately.
Gains and losses on the disposal of property and equipment represents the difference between the proceeds
received, if any, on disposal of the asset and its carrying amount. Any resulting gain or loss is recognized in the
consolidated statements of operations and comprehensive income or loss.
Amortization is recognized using the straight-line method for each component of property and equipment. 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 3 - 5 years
Furniture and fixtures 5 years
Leasehold improvements Lesser of the remaining term of the lease and expected useful life
Right-of-use assets Lesser of the lease term and the useful life of the underlying asset
Leases
At the inception of a contract, the Company assesses whether a contract is, or contains, a lease based on
whether the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration and recognizes a right-of-use asset and lease liability, as applicable.
Right-of-use assets are measured at cost, less accumulated amortization and accumulated impairment losses,
if any, and are adjusted for any re-measurement of lease liabilities. The cost of a right-of-use asset reflects the
amount recognized on the initial measurement of the lease obligation plus any lease payments made on or
before the commencement date of the lease, including any initial direct costs and related restoration costs.
Right-of-use assets are amortized on a straight-line basis over the shorter of the lease term and the useful life of
the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset
includes the exercise of a purchase option, the related right-of-use asset is amortized over the useful life of the
underlying asset. Amortization of the right-of-use asset begins at the commencement date of the lease.
Lease liabilities include the net present value of fixed payments (including in-substance fixed payments),
variable lease payments that are based on an index, rate or subject to a fair market value renewal, amounts
expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase
option if the lessee is reasonably expected to exercise that option, and payments for penalties attributable to
terminating the lease if the lessee is reasonably expected to terminate the lease prior to the end of the lease
term. When a contract contains both lease and non-lease components, the Company allocates the
consideration in the contract to the relative stand-alone price of the lease component and the aggregate
stand-alone price of the non-lease component. Relative stand-alone prices are determined by maximizing the
Real Matters Inc. – September 30, 2023 - 52
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
use of observable supplier prices for a similar asset and/or service. The lease liability is expressed net of lease
incentives receivable and lease payments are discounted using the interest rate implicit in the lease or, if the
implicit rate cannot be determined, the lessee’s incremental borrowing rate.
The period over which lease payments are discounted is equal to the lease term, which includes renewal
options that the Company is reasonably expected to exercise. Payments associated with short-term leases,
representing leases with a term of 12 months or less, and leases for low-value assets, are recognized as an
expense on a straight-line basis to operating expenses in the consolidated statements of operations and
comprehensive income or loss. Variable lease payments that are not dependent on an index or rate, or are
subject to a fair market value renewal, are expensed as incurred and recognized to operating expenses in the
consolidated statements of operations and comprehensive income or loss.
Each lease payment included in the lease liability is apportioned between the repayment of the liability and
the cost to finance. The finance cost is recorded to interest expense in the consolidated statements of
operations and comprehensive income or loss over the lease term to produce a constant periodic rate of
interest on the remaining balance of the obligation. The carrying amount of lease liabilities is re-measured when
there is a change in future lease payments arising from a change in an index or specified rate, if there is a
modification to the lease term, if there is a change in the estimated amount payable under a residual value
guarantee or if the Company changes its assessment of whether it will exercise a termination, extension or
purchase option.
Lease payments related to the principal portion of lease liabilities are classified as cash flows from financing
activities while lease payments related to the interest portion are classified as cash flows from operating
activities, within interest paid.
Subleases
When the Company subleases a leased asset to a third-party lessee, the Company becomes an intermediate
lessor. As an intermediate lessor, the Company is required to assess the sublease classification by reference to
the right-of-use asset arising from the head lease, rather than by reference to the underlying asset. In this
assessment, the Company considers several factors including if the term of the sublease covers a major portion
of the term of the head lease.
On the date the Company makes the leased asset available for use to the lessee, the Company classifies the
lease as either an operating or finance lease. A lease is a finance lease if it transfers substantially all the risks and
rewards of the leased asset to the lessee. Interest income derived from a finance lease is recognized on a
systematic basis to produce a constant periodic rate of return on the net investment in the leased asset.
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 as a result of taxable income or
loss generated by the Company in the period applying enacted or substantively enacted tax rates, at the
reporting date. 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 amount of assets and liabilities for financial reporting purposes and their equivalent tax
bases. 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
Real Matters Inc. – September 30, 2023 - 53
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
or loss. Deferred income tax assets and liabilities are measured applying tax rates that have been enacted or
substantively enacted at the reporting date and are expected to be in effect when the temporary differences
reverse.
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 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. The related tax
benefit is subsequently increased only when the probability of future taxable income is present. Deferred
income tax liabilities are not recognized on temporary differences that arise from goodwill that is not
deductible for tax purposes.
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 liabilities relate to income taxes
levied by the same taxation authority on the same taxable entity or different taxable entities when there is an
intention to either settle current income tax liabilities on a net basis or realize the tax assets and settle tax
liabilities simultaneously in a future period.
Revenues
The Company evaluates whether the contracts it enters meet the definition of a contract with a customer at
contract inception and recognizes revenue when control of the goods or services has been transferred.
Revenue is measured based on the consideration the Company expects to be entitled to in exchange for
transferring goods or services to a customer. When applicable, the Company excludes amounts collected on
behalf of third-parties from revenue when it does not control the goods or services before they are transferred
to a customer, since it is acting as an agent rather than a principal to the transaction. The Company has
determined that no significant financing component exists between the date a promised good or service is
transferred to a customer and the date the customer pays for that good or service, when the period is one year
or less.
The Company records revenue at a point in time, 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 transaction fees earned from
mortgage lenders on residential appraisal products such as complete home appraisals, a broker price opinion,
property condition reports, property evaluation reports and desktop appraisals. The Company recognizes
revenue when the appraisal report is delivered to its client.
Title Services
The Company provides title services to residential clients which include title search procedures for title
insurance policies, curative, escrow and other closing services. Title revenues, which are recorded exclusive of
amounts remitted to third-party insurance underwriters and certain work performed by attorneys in attorney
work share states, are recorded when a transaction closes. Recording services are recognized as revenue
when the documents are submitted to the county for recording.
Insurance Inspection
The Company provides insurance inspection services to property and casualty insurers through the Platform.
The Company records revenue when the insurance inspection report is delivered to the client.
Real Matters Inc. – September 30, 2023 - 54
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Software Services
The Company provides three hosted software solutions. Contracts for these services are generally term-based
ranging from one to three years. On-going service fee revenues are recognized as services are provided. Any
usage-based fees and minimum transaction fees are recognized monthly as services are provided over the
term of the arrangement.
Contract Costs
Incremental costs to obtain customer contracts include commissions that are incurred in connection with
obtaining the contract. As a practical expedient, the Company recognizes the incremental costs to obtain a
contract as an immediate expense if the amortization period of the asset is one year or less.
The Company manages and reviews its operations by geographical location and service type. For detailed
information about the Company’s reportable segments and disaggregated revenue, see Note 21.
Transaction costs
Transaction costs represent 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 and external abstractor and 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.
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
consolidated 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 consolidated statements of operations and
comprehensive income or loss as incurred.
Real Matters Inc. – September 30, 2023 - 55
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
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 and embedded derivatives in certain contracts,
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.
Classification and Measurement
The Company classifies and measures financial assets based on their contractual cash flow characteristics and
the Company’s business model for the financial asset. A financial asset is classified and measured at: amortized
cost; fair value through other comprehensive income (‘‘FVOCI’’); or fair value through profit and loss (‘‘FVPL’’).
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated
as FVPL:
•
•
it is held within a business whose objective is to hold assets to collect contractual cash flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
All financial assets not classified and measured at amortized cost or FVOCI are classified and measured at
FVPL, which includes all derivative financial assets. On initial recognition, a financial asset that meets the
measurement requirements of amortized cost or FVOCI may be irrevocably designated as FVPL if doing so
eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial assets classified and measured at amortized cost are subsequently measured applying the effective
interest method, less any impairment losses. Interest income, foreign exchange gains and losses and
impairment losses, are recognized in the consolidated statements of operations and comprehensive income or
loss. Financial assets are derecognized when the contractual rights to receive cash flows and benefits from the
financial asset expire, or if the Company transfers control or substantially all the risks and rewards of ownership
to another party. Any resulting gain or loss on derecognition is recorded to the consolidated statements of
operations and comprehensive income or loss in the period of derecognition.
Financial assets classified and measured at FVPL are subsequently measured at fair value at each reporting
date. Net gains and losses, including any interest or dividend income, are recorded to the consolidated
statements of operations and comprehensive income or loss.
Real Matters Inc. – September 30, 2023 - 56
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Financial liabilities are classified and measured as either amortized cost or FVPL. Derivatives embedded in
contracts where the host is a financial asset within the scope of the standard are not separated, and the hybrid
financial instrument is assessed for classification as a whole. Financial liabilities are derecognized when
obligations under the contract expire, are discharged or cancelled. The difference between the carrying
amount of the financial liability derecognized and the consideration paid or payable is recorded to the
consolidated statements of operations and comprehensive income or loss in the period of derecognition.
Below is a summary showing the measurement categories of the Company’s financial assets and liabilities.
Financial assets and liabilities
Cash and cash equivalents
Trade and other receivables
Other assets - total return swap
Trade payables
Accrued charges
Measurement Category
Amortized cost
Amortized cost
FVPL
Amortized cost
Amortized cost
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 FVPL, 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 FVPL are expensed to the consolidated
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 applying
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 has entered into a total return swap to manage the Company’s cash flow exposure arising from
changes in its share price attributable to cash-settled restricted share units (“RSUs”) and has elected not to
apply hedge accounting to this derivative financial instrument. 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 where the host contract is not a financial
asset, are measured at their estimated fair values. Gains or losses on financial instruments measured at their
estimated fair values are recorded to the consolidated 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. Financial assets or financial liabilities are categorized within the fair value
hierarchy 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.
Real Matters Inc. – September 30, 2023 - 57
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
The following three levels of inputs are applied to measure fair value:
•
•
•
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
Impairment
Financial assets
The impairment of financial assets is based on an expected credit loss (“ECL”) model. The ECL model applies to
financial assets measured at amortized cost and requires the Company to consider factors that include past
events, current conditions and forecasts of future economic conditions.
Loss allowances are measured on either of the following bases:
• 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the
•
reporting date; and
lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a
financial instrument.
The Company elects to measure loss allowances for trade and other receivables at an amount equal to
lifetime ECLs applied at each reporting date. The Company determines ECLs on trade and other receivables
using a provision matrix based on historical credit loss experience to estimate lifetime ECLs adjusted for
estimated changes to credit risks and forecasts of future economic conditions.
Impairment losses are recorded to operating expenses in the consolidated statement of operations and
comprehensive income or loss with the carrying amount of the financial asset or group of financial assets
reduced through the use of impairment allowance accounts. When an impairment loss has decreased in a
subsequent period, and such decrease can be related objectively to conditions and changes in factors
occurring after the impairment was initially recognized, the previously recognized impairment loss is
immediately reversed in the consolidated statements of operations and comprehensive income or loss. The
reversal of an impairment loss may not exceed the amortized cost had no impairment loss been recognized.
Non-financial assets
The carrying value of property and equipment and intangibles are reviewed at each reporting period to
determine if indicators of impairment exist. If any such indicators exist, 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 FVLCS 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
Real Matters Inc. – September 30, 2023 - 58
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
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. Stock-based
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 stock options expected to vest with a
corresponding increase to 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 they occur.
Restricted share units
RSUs issued by the Company that are substantially settled in the Company’s common shares are accounted for
as equity-settled awards.
The fair value of an equity-settled RSU is measured at the grant date price of the Company’s common shares
and compensation expense is recorded to the consolidated statements of operations and comprehensive
income or loss over the vesting period with a corresponding increase to shareholders’ equity.
RSUs issued by the Company that are substantially settled in cash are accounted for as liabilities.
The Company uses the Black-Scholes-Merton pricing model to estimate the fair value of cash-settled RSUs.
Compensation expense or recovery represents the change in the estimated fair value of the cash-settled RSUs
at each reporting period multiplied by the percentage of the service period satisfied at the reporting date.
Compensation expense or recovery
is recorded to the consolidated statement of operations and
comprehensive income or loss as operating expenses.
Management estimates the forfeiture rate for RSUs at the time of grant and at each reporting date up to the
vesting date. The estimated forfeiture rate is adjusted to actual forfeitures in the period they occur.
The Company established a trust to hold common shares purchased in the open market for certain Canadian
participants until each RSU vests and the award is settled. The Company is the sponsor of the trust and has
assigned a trustee to carry out the trusts’ custodial duties. The trust is considered a structured entity which is
consolidated in the Company’s financial statements. The cost of common shares purchased in the open
market are recorded at book value to restricted shares in the consolidated statements of equity with any
resulting premium or deficit recorded to accumulated deficit until the common shares are issued to settle the
RSU obligation.
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 equity-settled RSUs.
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
Real Matters Inc. – September 30, 2023 - 59
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
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 the
accompanying 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 financial instruments,
stock-based payments, including RSUs, the useful lives of property and equipment and intangible assets, lease
terms, estimated incremental borrowing rates used to determine the carrying amount of right-of-use assets and
lease liabilities, 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.
Revenues – satisfaction of performance obligations
(a)
The satisfaction of performance obligations requires management to make judgments when control of the
underlying good or service transfers to the customer. Determining when a performance obligation is satisfied
affects the timing of revenue recognition. Management considers indicators of the transfer of control, including
when the customer is obligated to pay and whether the transfer of significant risks and rewards has occurred,
which represents the time when the customer has acquired the ability to direct and use the good or service
and obtained substantively all of the benefits.
Revenues – agent versus principal
(b)
The Company uses judgment in its assessment of whether it is acting as an agent or principal to a transaction.
When the Company is not primarily responsible for fulfilling the obligation to provide a specified good or service
and does not have discretion to establish price, it is acting as an agent to the transaction. The Company is
acting as a principal when it controls the deliverables prior to delivery to the customer and establishes pricing.
Identification of CGUs
(c)
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 cash inflows derived 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
(d)
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 impairment indicators exist. The recoverable amount attributable to a CGU or non-financial
asset is the higher of FVLCS or value in use. The Company’s determination of a CGU or non-financial assets
recoverable amount applying FVLCS, uses market information to estimate the amount the Company could
obtain from disposing of the CGU or non-financial 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
non-financial 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 non-financial asset. Estimated cash flows are
Real Matters Inc. – September 30, 2023 - 60
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
based on management’s assumptions and business plans which are supported by internal strategies, plans and
external information.
The estimated recoverable amount for a CGU or non-financial asset requires the use of significant estimates,
including assembling appropriate market information, disposal costs, future cash flows, growth rates, and
terminal and discount rates.
Business combinations
(e)
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
recorded to goodwill. The purchase price allocation involves judgment to identify the intangible assets
acquired, establish fair value estimates for the assets acquired and liabilities assumed, including pre-acquisition
contingencies and contingent consideration. Changes in any assumption or estimate used to identify the
intangible assets acquired, or to 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, and the continuing evaluation of
the recoverability of goodwill and intangible assets on an ongoing basis. These estimates are based on a
number of factors, including historical experience, market conditions, information gained on review of the
target entities’ operation and information obtained from the 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
intangible assets acquired. 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.
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 input variables 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 of stock-based compensation at the date of
exercise.
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 to determine the asset’s useful life
and to identify an asset’s major components.
Real Matters Inc. – September 30, 2023 - 61
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Leases
(h)
Lease terms represent the contractual non-cancellable period for a lease, plus all periods covered by an
option to renew or terminate the lease if the Company is reasonably certain to exercise, or not exercise this
option respectively. Management applies judgment in assessing all factors that create an economic incentive
to exercise extension options, or to not exercise termination options, available in its lease arrangements.
Management reviews its initial assessment if a significant event or change in circumstances occurs which
affects its initial assessment and is within the control of the Company.
To determine the carrying amount of right-of-use assets, lease liabilities and net investment in sublease, the
Company estimates the incremental borrowing rate specific to each leased asset or portfolio of leased assets if
the interest rate implicit in the lease is not readily determinable. Management determines the incremental
borrowing rate attributable to each leased asset, or portfolio of leased assets, by assessing the Company’s
creditworthiness, the security, term and value of the underlying leased asset and the economic environment in
which the leased asset operates. The incremental borrowing rate is subject to change mainly due to
macroeconomic changes.
Valuation of deferred income tax assets
(i)
The Company assesses its ability to generate taxable income in future periods from its internal 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 future taxable income, to determine the existence of a deferred tax
asset, depends on many factors, including the Company’s ability to generate income subject to tax in future
periods and implement tax planning measures, including other substantive evidence. The occurrence or non-
occurrence of certain future events may lead to significant changes in the measurement of deferred tax
assets.
Provisions
(j)
Due to the 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
(k)
Other areas where the Company employs judgment and estimates 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
Classification of Liabilities as Current or Non-Current
In January 2020, the IASB issued “Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)”
which provided a more general approach to the classification of liabilities under IAS 1 based on the
contractual arrangements in place at the reporting date. The amendment clarified that the classification of
liabilities as current or non-current should be based on rights that are in existence at the end of the reporting
period. Only rights to defer settlement by at least 12 months, which are in place at the end of the reporting
period, affect the classification of a liability. Classification is unaffected by an entities’ expectation to exercise
its right to defer settlement of a liability.
In October 2022, the IASB issued “Non-current liabilities with covenants (amendments to IAS 1)” which clarified
that only covenants that an entity is required to comply with as of the reporting date affect the classification of
a liability as current or non-current. Entities are required to disclose that non-current liabilities with covenants
could become repayable within 12 months from the reporting date.
Real Matters Inc. – September 30, 2023 - 62
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
These amendments are to be applied retrospectively and are effective for annual reporting periods beginning
on or after January 1, 2024. The Company expects to apply these amendments to the classification of liabilities
on October 1, 2024, and adopting this amendment is not expected to have a significant impact on the
Company’s financial statements.
Narrow-scope amendments to IAS 1 and IAS 8
In February 2021, the IASB amended IAS 1 – “Presentation of Financial Statements” which requires companies to
disclose information attributable to material accounting policies rather than focusing on significant accounting
policies. The amendment clarified that accounting policy information is material if its absence inhibits a
financial statement user’s ability to understand other material information in the financial statements.
Additionally, the IASB amended IAS 8 – “Accounting Policies, Changes in Accounting Estimates and Errors” to
improve accounting policy disclosures and assist entities in distinguishing between changes in accounting
policies, which are generally applied retrospectively to both historical, current and future transactions, and
estimates, which are applied prospectively to future transactions.
These amendments are effective for annual reporting periods beginning on or after January 1, 2023 and earlier
application is permitted. The Company expects to apply the amendments on October 1, 2023, and adopting
these amendments are not expected to have a significant impact on the Company’s financial statements.
Clarifying amendment to account for deferred tax on leases and decommissioning obligations
In May 2021, the IASB amended IAS 12 – “Income Taxes” to clarify that the initial recognition exemption does
not apply to leases and decommissioning obligations. As a result, companies are required to recognize
deferred tax on such transactions.
The amendment is effective for annual reporting periods beginning on or after January 1, 2023 and earlier
application is permitted. The Company expects to apply the amendment on October 1, 2023, and adopting
this amendment is not expected to have a significant impact on the Company’s financial statements.
4. Intangibles
Cost
Balance, beginning of year
Additions
Foreign currency
translation adjustment
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Foreign currency
translation adjustment
Balance, end of year
$
$
$
$
Internally
generated
intangible
assets
Customer
relation-
ships
8,163 $
496
55,723 $
-
111
8,770 $
80
55,803 $
8,015 $
101
55,723 $
-
110
8,226 $
80
55,803 $
2023
Brand
name
Technology
Licenses
Total
2,297 $
-
-
2,297 $
2,297 $
-
-
2,297 $
5,720 $
-
-
5,720 $
13,840 $
-
-
13,840 $
5,720 $
-
8,996 $
1,384
-
5,720 $
-
10,380 $
85,743
496
191
86,430
80,751
1,485
190
82,426
Net carrying value, end of year $
544 $
- $
- $
- $
3,460 $
4,004
Real Matters Inc. – September 30, 2023 - 63
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Cost
Balance, beginning of year
Additions
Foreign currency
translation adjustment
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Foreign currency
translation adjustment
Balance, end of year
$
$
$
$
Internally
generated
intangible
assets
Customer
relation-
ships
8,618 $
160
56,163 $
-
(615)
8,163 $
(440)
55,723 $
8,618 $
5
56,163 $
-
(608)
8,015 $
(440)
55,723 $
2022
Brand
name
Technology
Licenses
Total
2,297 $
-
-
2,297 $
2,297 $
-
-
2,297 $
5,720 $
-
-
5,720 $
5,720 $
-
-
5,720 $
13,840 $
-
-
13,840 $
86,638
160
(1,055)
85,743
7,612 $
1,384
80,410
1,389
-
8,996 $
(1,048)
80,751
Net carrying value, end of year $
148 $
- $
- $
- $
4,844 $
4,992
5. Goodwill
Cost
Balance, beginning of year
Balance, end of year
Accumulated impairment
Balance, beginning of year
Balance, end of year
Net carrying value, end of year
Cost
Balance, beginning of year
Balance, end of year
Accumulated impairment
Balance, beginning of year
Impairment
Balance, end of year
Net carrying value, end of year
U.S.
Appraisal
U.S.
Title
2023
Total
43,181 $
43,181 $
17,296 $
17,296 $
60,477
60,477
- $
- $
17,296 $
17,296 $
17,296
17,296
43,181 $
- $
43,181
U.S.
Appraisal
U.S.
Title
2022
Total
43,181 $
43,181 $
17,296 $
17,296 $
60,477
60,477
- $
-
- $
- $
17,296
17,296 $
-
17,296
17,296
43,181 $
- $
43,181
$
$
$
$
$
$
$
$
$
$
Real Matters Inc. – September 30, 2023 - 64
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Impairment testing - 2023
U.S. Appraisal
The Company determined the recoverable amount based on a FVLCS calculation for its U.S. Appraisal CGU. To
determine FVLCS for the U.S. Appraisal CGU group, the Company applied market valuation multiples derived
from merger and acquisition transactions for like or similar businesses, including the Company’s historical
acquisition data, to its last 12-month results of revenues less transaction costs and operating expenses.
Management believes that any reasonably possible change in the key assumptions would not cause the
carrying amount to exceed its recoverable amount.
Impairment testing - 2022
U.S. Title
Due to a continued decline in economic and market conditions for mortgage origination refinance activity,
and the resulting impact on operating results of the U.S. Title CGU group, the Company determined that
triggering events, that indicate goodwill may be impaired, existed as of September 30, 2022. The Company re-
performed its goodwill test for impairment at September 30, 2022 and concluded that impairment existed.
The Company determined the recoverable amount of its U.S. Title CGU based on FVLCS and the value in use
approach. To determine FVLCS for the U.S. Title CGU group, the Company applied market valuation multiples
derived from merger and acquisition transactions for like or similar businesses, including the Company’s
historical acquisition multiples, to revenues less transactions costs. To determine the value in use of the U.S. Title
CGU group, the Company used a discounted cash flow methodology. The key assumptions used in the
valuation of the U.S. Title CGU group included estimated revenues, net revenue margins, long-term growth
rates, market size and discount rate. Based on the results of this analysis, the Company recorded an impairment
charge of $17,296 against the carrying value of goodwill at September 30, 2022. The net carrying amount of
goodwill allocated to the U.S. Title CGU, net of impairment charges is $nil.
Measuring the fair value of the U.S. Title CGU included the use of significant unobservable inputs, which are
Level 3 inputs in the fair value hierarchy.
Real Matters Inc. – September 30, 2023 - 65
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
6. Property and Equipment
Computer
equip-
ment
Furniture
and fixtures
Leasehold
improve-
ments
Right-of-use
assets
(office
space)
$
$
$
$
5,184 $
142
(30)
15
5,311 $
3,713 $
938
(30)
14
4,635 $
1,724 $
-
(213)
4
1,515 $
1,514 $
110
(199)
3
1,428 $
2,742 $
-
(199)
13
2,556 $
1,997 $
239
(199)
12
2,049 $
8,164 $
392
(3,166)
16
5,406 $
3,626 $
1,105
(1,882)
11
2,860 $
2023
Total
17,814
534
(3,608)
48
14,788
10,850
2,392
(2,310)
40
10,972
Cost
Balance, beginning of year
Additions
Disposals1
Foreign currency translation adjustment
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Disposals1
Foreign currency translation adjustment
Balance, end of year
Net carrying value, end of year
Note
(1)
Disposals include cost of $971 and accumulated amortization of $397 for the derecognition of the right-of-use assets (office space) related to
surrendering a portion of the premises upon extending a lease. Disposals include cost of $1,502 and accumulated amortization of $792 for the derecognition of
the right-of-use assets (office space) related to the head lease of a net investment in sublease. See Note 7.
2,546 $
507 $
676 $
87 $
3,816
$
Computer
equip-
ment
Furniture
and fixtures
Leasehold
improve-
ments
Right-of-use
assets
(office
space)
Right-of-use
assets
(computer
equip-
ment)
Cost
Balance, beginning of year
Additions
Disposals1
Foreign currency
translation adjustment
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Disposals1
Foreign currency
translation adjustment
Balance, end of year
$
$
$
$
4,713 $
690
(134)
(85)
5,184 $
2,764 $
1,160
(134)
(77)
3,713 $
2,099 $
-
(358)
(17)
1,724 $
1,718 $
170
(358)
(16)
1,514 $
3,542 $
38
(772)
(66)
2,742 $
2,148 $
320
(405)
(66)
1,997 $
10,447 $
287
(2,484)
(86)
8,164 $
3,089 $
1,486
(891)
(58)
3,626 $
2022
Total
20,853
1,015
(3,800)
(254)
17,814
9,766
3,141
(1,840)
(217)
10,850
6,964
52 $
-
(52)
-
- $
47 $
5
(52)
-
- $
- $
Net carrying value, end of year $
Note
(1)
head lease of a net investment in sublease. See Note 7.
1,471 $
210 $
745 $
4,538 $
Disposals include cost of $2,282 and accumulated amortization of $689 for the derecognition of the right-of-use assets (office space) related to the
Real Matters Inc. – September 30, 2023 - 66
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
7. Leases
The Company enters into lease agreements primarily for office space. As at September 30, 2023, the net book
value of right-of-use assets totaled $2,546 (September 30, 2022 – $4,538). Refer to Note 6 for the continuity of
cost and accumulated amortization for right-of-use assets.
The following table presents lease liabilities of the Company:
Office space
Total lease liabilities
Less: current portion
2023
4,103 $
4,103 $
1,670
2,433 $
2022
5,860
5,860
1,548
4,312
$
$
$
At September 30, 2022, $1,588 of lease liabilities were related to an extension option that was deemed
reasonably certain to be exercised. Effective May 26, 2023, the Company entered into an amended
agreement to extend the term of the associated lease but surrender a portion of the premises. The decrease in
the scope of the lease resulted in a net reduction to the lease liability of $362 and a gain on disposal of the
right-of-use asset of $35.
Future undiscounted contractual lease payments required in each of the next five years ending September 30
and thereafter are as follows:
2024
2025
2026
2027
2028
Thereafter
$
$
1,816
1,107
777
343
339
53
4,435
The undiscounted contractual lease payments included in the table above do not include expected sublease
payments of $643 and $355 for the years ending September 30, 2024 and 2025, respectively.
The following amounts attributable to leases have been recognized in the consolidated statements of
operations and comprehensive loss and consolidated statements of cash flows:
Rent expense attributable to short-term and low-value leases
Amortization of right-of-use assets
Interest on lease liabilities
Total cash outflow for lease liabilities
$
$
$
$
2023
97 $
1,105
202 $
1,545 $
2022
79
1,491
262
1,735
Effective June 30, 2023, the Company entered into an agreement to sublease office space to a third-party. The
sublease expires on January 30, 2026 which coincides with the termination date of the associated head lease.
The derecognition of the right-of-use asset associated with the head lease resulted in a loss on disposal of $21
for the year ended September 30, 2023.
Effective March 15, 2022, the Company entered into an agreement to sublease office space to a third-party.
The sublease expires on September 30, 2024 which coincides with the expected early termination date of the
associated head lease. The expected exercise of the head lease’s early termination option resulted in a
reduction to the lease liability of $1,593 and a loss on disposal of the right-of-use asset of $236 for the year
ended September 30, 2022.
Real Matters Inc. – September 30, 2023 - 67
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
8. Interest Expense
Interest expense is comprised of the following:
Lease liabilities
Total return swap
Other
9. Shareholders’ Equity
2023
2022
$
$
202 $
77
4
283 $
262
-
2
264
The authorized share capital of the Company consists of an unlimited number of common and preferred
shares. At September 30, 2023 and 2022, no preferred shares were issued.
Normal course issuer bid
Effective June 13, 2022, the Company received approval from the Toronto Stock Exchange (“TSX”) to renew its
normal course issuer bid (“NCIB”) for a one-year period which expired on June 12, 2023. Under the renewed
NCIB, the Company was approved to purchase up to 6,000 common shares. Daily purchases made on the TSX,
or through alternative Canadian trading systems, were limited to a maximum of 99.319 common shares. The
Company was permitted to purchase a block of common shares once a week which could exceed the daily
purchase limit subject to certain restrictions, including a limitation that the block could not be owned by an
insider. All shares purchased were cancelled.
For the year ended September 30, 2023, 3 common shares (2022 – 6,526) were purchased and cancelled at a
total cost of $11 (2022 - $28,741).
Details of the Company’s common shares are as follows:
Balance, beginning of year
Common shares issued on the exercise of stock options (Note 15)
Purchase of common shares
Balance, end of year
Balance, beginning of year
Common shares issued on the exercise of stock options (Note 15)
Common shares issued on the exercise of warrants
Purchase of common shares
Balance, end of year
Real Matters Inc. – September 30, 2023 - 68
2023
Number of
shares
Amount
72,696 $
251
(3)
72,944 $
227,285
1,172
(9)
228,448
2022
Number of
shares
Amount
79,048 $
97
77
(6,526)
72,696 $
246,377
377
407
(19,876)
227,285
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Details of the Company’s restricted shares are as follows:
Balance, beginning of year
Restricted shares purchased and held in trust
Balance, end of year
10. Net Loss per Weighted Average Share
2023
2022
Number of
Number of
shares
Amount
shares
Amount
(101) $
-
(101) $
(311)
-
(311)
- $
(101)
(101) $
-
(311)
(311)
The following table outlines the components used to calculate 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 and diluted
Net loss per weighted average share, basic and diluted
2023
2022
(6,196) $
(6,173) $
72,763
(9,265)
(9,272)
76,514
(0.08) $
(0.12)
$
$
$
At September 30, 2023, 3,758 (2022 - 4,507) stock options and RSUs were excluded from the dilutive weighted
average number of shares because their effect would have been anti-dilutive.
11. Operating Expenses
Operating expenses:
Salaries and benefits
Sales and marketing
Travel and entertainment
Office and computer
Professional fees
Other
2023
2022
$
$
35,041 $
558
549
7,077
2,036
1,490
46,751 $
62,779
708
440
10,560
2,715
2,393
79,595
For the year ended September 30, 2023, the Company recognized an expense of $212 (2022 - $1,232) to
salaries and benefits for contributions made in connection with defined contribution plans.
12. Restructuring
Restructuring expenses represent severance costs associated with changes in the Company’s management
structure. For the year ended September 30, 2023, $2,649 (2022 - $486) of restructuring expenses have been
paid with the balance of $110 (2022 - $1,056) recorded to accrued charges.
Real Matters Inc. – September 30, 2023 - 69
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
13. Changes in Non-Cash Working Capital Items
The following table outlines changes in non-cash working capital items:
Inflow (outflow)
Trade and other receivables
Prepaid expenses
Trade payables
Accrued charges
Effect of foreign currency translation adjustments and
other non-cash changes
2023
2022
4,994 $
(865)
(2,515)
(1,074)
26,746
(49)
(9,933)
(24)
96
636 $
107
16,847
$
$
14. Changes in Liabilities Arising from Financing Activities
Lease liabilities
$
Cash flows
Non-cash changes
September 30, 2023
Opening
balance -
October 1,
2022
5,860
Proceeds
392
Re-
payments
(1,545)
Change in
fair value
-
Effect of
foreign
currency
translation
5
Other non-
cash
changes
(609) $
Ending
balance -
September
30, 2023
4,103
Cash flows
Non-cash changes
September 30, 2022
Opening
balance -
October 1,
2021
8,043
651
$
$
Proceeds
285
-
Re-
payments
(1,735)
-
Change in
fair value
-
(249)
Effect of
foreign
currency
translation
(27)
5
Other non-
cash
changes
(706) $
(407) $
Ending
balance -
September
30, 2022
5,860
-
Lease liabilities
Warrant liabilities
15. Stock-Based Compensation
Long-term incentive plan (“2017 Equity Plan”)
The purpose of the 2017 Equity Plan 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: RSUs, performance share units (“PSUs”) and stock options. To date, the Company has only issued
stock options and RSUs as long-term incentive plan awards and has not issued any PSUs.
RSUs
The duration of the vesting period and other vesting terms applicable to any RSUs granted under the 2017
Equity Plan are determined by the plan administrator at the time of grant. Upon vesting, holders 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.
Real Matters Inc. – September 30, 2023 - 70
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
In February 2022, the Company established a new equity incentive plan (“2022 Equity Plan”) that may issue RSU
awards. The vesting period and other vesting terms applicable are similar to RSU awards granted under the
2017 Equity Plan. RSUs shall be settled by a cash payment, the delivery of common shares or a combination of
a cash payment and common shares unless otherwise specified by the plan administrator at the time of grant.
In connection with the 2022 Equity Plan, the Company established a trust to hold common shares purchased in
the open market for certain Canadian participants until each RSU vests and the award is settled.
The Company granted the following RSUs during the year ended September 30, 2023:
Grant date
Plan
Group granted to
Vesting date
Weighted
average grant
date fair value,
expressed in
Canadian
dollars ("C$")
Number of
RSUs
granted
December 19,
2022
December 19,
2022
2022 Equity Plan
Executive officers and
certain employees
December 19, 2025
557
C$
4.18
2017 Equity Plan
Directors
December 19, 2022
95
C$
4.10
The following table outlines changes to RSUs:
Outstanding balance, beginning of year
Granted
Settled
Forfeited
Outstanding balance, end of year
Vested, but not settled, end of year
2023
2022
Number of
RSUs
Number of
RSUs
183
652
-
(32)
803
168
-
196
-
(13)
183
69
At September 30, 2023, 101 (2022 - 101) common shares were held in trust to settle future obligations under the
2022 Equity Plan.
The Company recorded RSU expense of $1,009 (2022 - $577), including fair value changes in RSUs classified as
liabilities, to operating expenses in the consolidated statements of operations and comprehensive loss for the
year ended September 30, 2023.
The total carrying amount of liabilities for cash-settled RSUs as at September 30, 2023 was $508 (2022 - $nil) and
are recorded in Other Liabilities.
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 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
Real Matters Inc. – September 30, 2023 - 71
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
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 granted under the 2017 Equity Plan 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 2017 Equity Plan 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.
The Company granted the following stock options during the year ended September 30, 2023:
Grant date
Recipient
Vesting period
Expiry date
Aggregate number of
stock options granted
May 2, 2023
Executive officer
August 1, 2023
Certain employees
Equally on the first,
second and third
anniversary date from
the date of grant
Equally on the first,
second and third
anniversary date from
the date of grant
7th anniversary date
from the date of
grant
7th anniversary date
from the date of
grant
75
8
To estimate the fair value of stock options, the Company used the Black-Scholes-Merton option pricing model
which required 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 stock 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 loss. To calculate the fair value of stock options at the date of grant, the
following weighted average assumptions were applied:
Grant date
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Exercise price
Fair value, per stock option
August 1,
2023
-
55.2%
3.7%
4.5
6.91 C$
3.38 C$
May 2,
2023
-
57.5%
3.0%
4.5
5.47
2.71
C$
C$
Real Matters Inc. – September 30, 2023 - 72
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Outstanding balance, beginning of year
Granted, during the year
Exercised, during the year
Forfeited, during the year
Expired, during the year
Outstanding balance, end of year
2023
Weighted
average
exercise
price
Number of
stock
options
2022
Weighted
average
exercise
price
Number of
stock
options
4,426 C$
8.47
83 C$
5.60
4.61
(251) C$
(675) C$ 11.44
2.21
8.12
(2) C$
3,581 C$
4,578 C$
376 C$
(97) C$
(431) C$
- C$
4,426 C$
8.91
6.29
3.73
12.25
-
8.47
Stock options exercisable, end of year
3,239 C$
8.04
3,799 C$
8.00
The Company recorded stock option expense of $368 (2022 - $958) to operating expenses in the consolidated
statements of operations and comprehensive loss for the year ended September 30, 2023.
The following table summarizes certain information for stock options outstanding as at September 30, 2023:
Exercise price range
3.17
2.40 – C$
C$
4.26
3.18 – C$
C$
5.79
4.27 – C$
C$
6.25
5.80 – C$
C$
6.26 – C$
6.89
C$
6.90 – C$ 11.48
C$
C$ 11.49 – C$ 12.89
C$ 12.90 – C$
13.5
C$ 13.51 – C$ 20.88
Weighted
average
remaining
contractual
life,
expressed
in years
Number of
stock
options
exercisable
1.16
2.17
3.12
1.61
4.13
3.16
3.20
3.61
4.06
2.81
492
427
243
515
300
190
349
483
240
3,239
Number of
stock
options
492
427
330
515
473
197
352
483
312
3,581
16. Related Party Transactions
Compensation of Key Management Personnel
The Company’s key management personnel comprise the board of directors and current and former members
of the executive team. Compensation for key management personnel, recorded to operating expenses and
restructuring expenses, was as follows:
Salaries and benefits
Post-employment benefits1
Stock-based compensation
Note
(1)
$400 was recorded to restructuring expenses. See Note 12.
Real Matters Inc. – September 30, 2023 - 73
2023
2022
$
$
$
2,953 $
725 $
789 $
3,977
570
422
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
17. Commitments and Contingencies
The Company administers escrow accounts for undisbursed funds received for the settlement of certain
residential real estate title transactions. Deposits at Federal Deposit Insurance Corporation (“FDIC”) institutions
are insured up to $250 for each separate escrow owner’s funds. Undisbursed cash deposited in these escrow
accounts totaled $6,726 at September 30, 2023 (2022 - $15,916) which are not assets of the Company and are
not included in the Company’s consolidated statements of financial position. However, the Company remains
contingently liable to disburse these deposits.
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 already accrued will not materially affect the financial statements.
18. Financial Instruments
The following table categorizes the Company’s derivative financial assets and liabilities and presents their
estimated fair values. Financial instruments are recorded as other assets or other liabilities in the Company’s
consolidated statements of financial position.
Financial assets
Derivatives not designated in a hedging relationship:
Non-current - other assets - total return swap
2023
2022
$
813 $
-
Unrealized and realized amounts recorded to net gain or loss on fair value of derivatives in the consolidated
statement of operations and comprehensive loss are as follows:
Total return swap
Unrealized gain
Realized gain
2023
2022
$
$
(815) $
-
(815) $
-
-
-
The following table outlines the hierarchical measurement categories for the fair value of financial assets or
liabilities. At September 30, 2022, there were no financial assets or liabilities measured at fair value on a
recurring basis. At September 30, 2023, financial assets or liabilities had the following estimated fair values
expressed on a gross basis:
Other assets - total return swap
Quoted
prices in
active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
un-
observable
inputs
(Level 3)
$
$
- $
- $
813 $
813 $
- $
- $
2023
Total
813
813
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.
Real Matters Inc. – September 30, 2023 - 74
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
For the year ended September 30, 2023 and 2022, there were no transfers between levels or changes to the
valuation techniques used to estimate fair value.
The estimated fair values of financial instruments are calculated using available market information, and
commonly accepted valuation methods. Considerable judgment is required to interpret market information
used to develop these estimates. Accordingly, these fair value estimates are not necessarily indicative of the
amounts the Company, or counterparties to the instruments, could realize in a current market exchange.
Total return swap
The Company’s total return swap is recorded at estimated fair value based on quotes received from the
financial institution that is counterparty to the agreement. The Company verifies the reasonableness of the
quotes by comparing them to share price movements adjusted for interest using a market rate of interest
specific to the terms of the underlying contract. The use of different assumptions and or estimation methods
could result in differing estimates of fair value, which the Company believes would not be material.
The Company entered into the following total return swap outlined in the table below:
Total return swap
Date entered
Notional
amount
Share price
units
Effective date
Expiration date
Number of
December 2022
C$ 2,345
C$
4.21
557
December 2022
December 2025
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 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, resulting in a financial loss for the Company. The Company’s principal financial assets are cash and
cash equivalents and trade and other receivables. The carrying amounts of financial assets recorded to 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, 2023, one customer represented more than 10% (2022 –
three customers represented more than 10%) of the Company’s total trade and other receivables.
To limit credit risk, the Company monitors its aged receivable balances monthly. In addition, a significant
portion of the Company’s revenue is settled on closing through an escrow account which have 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.
Real Matters Inc. – September 30, 2023 - 75
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
When applicable, the Company is subject to credit risk on total return swap agreements. The Company will
only enter into agreements with highly rated and experienced counterparties who have successfully
demonstrated that they can execute these agreements. The Company’s maximum exposure to credit risk is
equal to the estimated fair value of total return swaps recorded to other assets on the Company’s
consolidated statements of financial position. The Company holds no collateral or other credit enhancements
as security over these agreements. The Company deems the agreements’ credit quality to be high, due to its
assessment of the counterparty and no amounts are either past due or impaired. In all instances, the
Company’s risk management objective is to mitigate its risk exposures to a level consistent with its risk tolerance.
Trade and other receivables
Trade receivables
Settlement receivables
Net investment in sublease
Allowance for doubtful accounts
The following table outlines the change in the allowance for doubtful accounts:
Balance, beginning of year
Impairment (losses) recoveries recognized, during the year
Write-offs, during the year
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
2023
2022
14,187 $
112
1,014
(18)
15,295 $
19,146
156
556
(27)
19,831
2023
2022
(27) $
(158)
167
(18) $
(248)
34
187
(27)
2023
2022
10,667 $
4,430
222
(6)
15,313
18
15,295 $
14,464
4,377
736
281
19,858
27
19,831
$
$
$
$
$
$
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, 2023, the
Company had net assets of $16,487 (2022 – net assets of $1,549) denominated in Canadian dollars. A 10%
change in the exchange rate between the U.S. and Canadian dollar results in a plus or minus $1,649 (2022 -
$155) change in the value of net assets recorded on the Company’s consolidated statements of financial
position. All such changes are recorded to other comprehensive income or loss.
Real Matters Inc. – September 30, 2023 - 76
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Interest rate risk
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. The Company is subject to interest rate risk on investments in cash
equivalent, short-term investments.
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.
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, when and as applicable.
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 make payment on these amounts:
Trade payables
Accrued charges
$
$
9,354 $
3,195 $
9,354 $
3,195 $
- $
- $
- $
- $
Less than 1
Total
year
1-3 years
4-5 years
Payments due
Trade payables
Accrued charges
$
$
11,869 $
4,269 $
11,869 $
4,269 $
- $
- $
- $
- $
Less than 1
Total
year
1-3 years
4-5 years
Payments due
2023
After 5
years
-
-
2022
After 5
years
-
-
19. Income Taxes
The components of income tax expense 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
Total income tax recovery
2023
2022
$
$
1,096 $
(602)
494
(4,206)
763
(3,443)
(2,949) $
1,432
329
1,761
(6,212)
1,367
(4,845)
(3,084)
Real Matters Inc. – September 30, 2023 - 77
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
The following table reconciles income tax expense calculated at the Company’s applicable statutory income
tax rate with the reported amounts:
2023
(9,145) $
2022
(12,349)
$
26.5%
(2,423)
70
161
(741)
13
69
(98)
(2,949) $
$
26.5%
(3,272)
179
1,696
(2,312)
24
134
467
(3,084)
2023
Total
(798)
5,072
16
8,433
(184)
32
800
1,900
337
15,608
Loss before income tax recovery
Statutory income tax rate
Expected income tax recovery at the statutory income tax rate
Foreign income expense subject to tax at a different statutory tax rate
Adjustments for prior periods
Non-deductible expenses and non-taxable income
Minimum tax
State tax, net of federal benefit
Impact of U.S. statutory income tax rate
Movements in deferred tax assets and liabilities are as follows:
Deferred tax (liabilities) assets
Property and equipment
Intangibles
Financing fees
Unutilized tax loss carryforwards
Unrealized foreign exchange gains
Capital loss carryforwards
Lease Liabilities
Interest expense
Other
Balance,
beginning
of year
Recognized
in net loss
Recognized
in equity
Foreign
currency
translation
adjust-
ments
$
$
(1,546) $
7,196
26
4,126
(326)
93
1,363
1,119
83
12,134 $
749 $
(2,131)
(10)
4,281
147
(62)
(564)
781
252
3,443 $
- $
-
-
-
-
-
-
-
-
- $
(1) $
7
-
26
(5)
1
1
-
2
31 $
Real Matters Inc. – September 30, 2023 - 78
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Deferred tax (liabilities) assets
Property and equipment
Intangibles
Financing fees
Unutilized tax loss carryforwards
Unrealized foreign exchange gains
Capital loss carryforwards
Lease liabilities
Interest expense
Other
Balance,
beginning
of year
Recognized
in net loss
Recognized
in equity
Foreign
currency
translation
adjust-
ments
$
$
(2,759) $
6,730
39
1,127
-
-
2,244
-
77
7,458 $
1,209 $
501
(11)
3,140
(350)
100
(874)
1,119
11
4,845 $
- $
-
-
-
-
-
-
-
-
- $
4 $
(35)
(2)
(141)
24
(7)
(7)
-
(5)
(169) $
2022
Total
(1,546)
7,196
26
4,126
(326)
93
1,363
1,119
83
12,134
Deferred income tax assets are recorded for unutilized tax loss carryforwards when the realization of the related
tax benefit through future taxable income is probable. At September 30, 2023, the Company and its subsidiaries
have $7,371 (2022 - $7,151) of non-capital loss carryforwards in Canada expiring in varying amounts between
2038 and 2043. The Company also has $25,040 (2022 - $8,714) of non-capital loss carryforwards in the U.S. which
do not expire. Total deferred tax assets of $8,433 (2022 - $4,126) have been recognized on the full amount of
these loss carryforwards. Management believes 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 any anticipated growth in earnings.
No deferred tax is recognized on the amount of temporary differences arising between the carrying amount of
an investment in subsidiary accounted for in these financial statements and the cost of the investment 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.
20. 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 shareholder returns.
The Company defines capital as equity (currently comprising common share capital), short-term and long-term
indebtedness, as and when applicable, 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 conditions, 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 Company’s annual operating budgets, and any material
transactions that are not in the ordinary course of business, including proposals for acquisitions or other major
capital transactions.
The Company is not subject to any externally-imposed capital requirements.
Real Matters Inc. – September 30, 2023 - 79
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
21. Segmented Reporting
The Company conducts its business through three reportable segments: U.S. Appraisal, U.S. Title 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 CODM is the Chief Executive Officer of the
Company.
The U.S. Appraisal segment provides residential mortgage appraisals for purchase, refinance, home equity and
default transactions through its Solidifi brand.
The U.S. Title segment serves the title market by providing various title services for refinance, purchase, home
equity, short sale and real estate owned (“REO”) transactions to financial institutions through its Solidifi brand. As
an independent title agent, the Company provides services required to close a mortgage transaction,
including title search, curative, closing and escrow services and title policy issuance. Diversified title services
represent software subscription fees earned from other title insurance agencies and mortgage lenders.
The Canadian segment’s primary service offerings include residential mortgage appraisals for purchase,
refinance and home equity transactions 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, compliance, human resources, technical and software development, corporate development and
other administrative support function costs.
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.
The accounting policies for each operating segment are the same as those described in the basis of
presentation and significant accounting policies notes, and applicable policies outlined in the recent
accounting pronouncements note, Notes 2 and 3,
respectively. The Company evaluates segment
performance based on revenues, net of transaction costs.
Real Matters Inc. – September 30, 2023 - 80
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Revenues
U.S. Appraisal
U.S. Title
Canada
Revenues net of transaction costs
U.S. Appraisal
U.S. Title
Canada
Amortization
U.S. Appraisal
U.S. Title
Canada
Corporate
Operating expenses
Loss on disposal of property and equipment
Other non-operating costs
Restructuring expenses
Impairment of goodwill
Interest expense
Interest income
Net foreign exchange loss (gain)
Gain on fair value of derivatives
Gain on fair value of warrants
Loss before income tax recovery
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2023
2022
120,846 $
9,526
33,542
163,914 $
250,916
36,542
52,184
339,642
33,117 $
3,867
6,031
43,015 $
550 $
2,979
-
348
3,877 $
46,751 $
- $
- $
1,703 $
- $
283 $
(825) $
1,186 $
(815) $
- $
(9,145) $
55,510
23,049
6,880
85,439
928
3,141
-
461
4,530
79,595
603
66
1,542
17,296
264
(134)
(5,725)
-
(249)
(12,349)
2023
Total
Geographic segmentation of the Company’s assets is as follows:
U.S.
Canada Corporate
Intangibles
Goodwill
Property and equipment
Intangibles
Goodwill
Property and equipment
$
$
$
$
$
$
3,501 $
43,181 $
3,641 $
- $
- $
- $
503 $
- $
175 $
4,004
43,181
3,816
U.S.
Canada Corporate
2022
Total
4,893 $
43,181 $
6,524 $
- $
- $
- $
99 $
- $
440 $
4,992
43,181
6,964
Real Matters Inc. – September 30, 2023 - 81
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
Revenues by service type
The Company’s revenue is derived from contracts with customers. The disaggregation of revenue by service
type is reconciled to the Company’s segment revenue:
Appraisal
Title - mortgage origination
Title - diversified
Insurance inspection
2023
2022
$
$
151,075 $
8,635
891
3,313
163,914 $
299,824
35,019
1,523
3,276
339,642
For the year ended September 30, 2023, one customer (2022 – two customers) represented more than 10% of
the Company’s revenues, the largest representing 21.9% of total consolidated revenues (2022 – the largest
represented 20.0% of total consolidated revenues and the next largest represented 10.3%). Total revenues
attributable to this customer totaled $35,930 (2022 – the top two customers totaled $102,948) and was recorded
in the Company’s U.S. Appraisal segment (2022 – U.S. Appraisal and U.S. Title segments).
22. 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 2024 and
2028.
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.
Real Matters Inc. – September 30, 2023 - 82
Real Matters Inc.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2023 and 2022 (stated in thousands of U.S. dollars and shares, except per
share amounts, unless otherwise stated)
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.
Real Matters Inc. – September 30, 2023 - 83
Executive Leadership Team
Brian Lang
Chief Executive Officer
Rodrigo Pinto
Executive Vice President
and Chief Financial Officer
Loren Cooke
Executive Vice President
and President of Solidifi
Kim Montgomery
Executive Vice President
Ryan Smith
Executive Vice President
and Chief Technology Officer
Board of Directors
Jason Smith
Chair
Garry M. Foster1,2
Lead Independent Director
Brian Lang
Director
Karen Martin3
Director
Frank V. McMahon3
Director
Lisa Melchior2
Director
Peter Vukanovich4
Director
1. Audit Committee Chair
3. Audit Committee Member
2. Compensation, Nomination and Governance Committee Member
4. Compensation, Nomination and Governance Committee Chair
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
416.994.5930
ir@realmatters.com
Listing
TSX: REAL
Shareholders who wish to contact the Real Matters Board
of Directors directly, can email board@realmatters.com
Transfer Agent
TSX Trust Company
301 - 100 Adelaide St. West
Toronto, Ontario
M5H 4H1
Independent Auditor
Deloitte, LLP
416.361.0930 or 1.866.393.4891 x.205
TMXEInvestorServices@tmx.com
Code of Conduct
The Company’s Code of Conduct can be found at www.realmatters.com/investors/governance, on SEDAR+ , or can be obtained
by writing to:
Corporate Secretary
Real Matters
50 Minthorn Blvd., Suite 401
Markham, Ontario
L3T 7X8
2023 ANNUAL REPORT