Real Matters Inc

TSX:REAL

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Real Matters First Quarter 2020 Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Lyne Fisher, Vice President of Investor Relations. Thank you. Please go ahead.

[Lyne Beauregard Fisher, Vice President of IR & Marketing]

Thank you, operator, and good morning, everyone. Welcome to Real Matters Financial Results Conference Call for the First Quarter ended December 31, 2019. With me today are Real Matters' Chief Executive Officer, Jason Smith; and Chief Financial Officer, Bill Herman. This morning, before market opened, we issued a news release announcing our Q1 results for the 3 months ended December 31, 2019. The release, accompanying slide presentation as well as the financial statements and MD&A are posted on the Investor Relations section of our website at realmatters.com. During the call, we may make certain forward-looking statements, which reflect the current expectations of management with respect to our business and the industry in which we operate. These forward-looking statements are based on management's experience and perception of historical trends, current conditions and expected future developments and other factors that we believe to be appropriate and reasonable in the circumstances. The forward-looking statements reflect management's beliefs on information currently available to management and should not be read as a guarantee of the occurrence or timing of any future results, performance or results. Forward-looking information is subject to risks, uncertainties and other factors that are difficult to predict and that cause -- could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. A comprehensive discussion of the factors which could cause results or events to differ from current expectations can be found in the Risk Factors section of the company's annual information form for the year ended September 30, 2019, which is available on SEDAR and on our website. As a reminder, we refer to non-GAAP measures in our slide presentations, including net revenue, net revenue margins, adjusted EBITDA and adjusted EBITDA margin. Non-GAAP measures are described in our MD&A for the 3 months ended December 31, 2019, where you will also find reconciliations to the nearest IFRS measures. With that, I'll turn the call over to Jason.

[Jason Smith, Founder, CEO & Director]

Thank you, Lyne. Good morning, everyone, and thank you for joining us on the call. I will kick things off today by discussing some of the highlights of our first quarter. Bill will then take a deeper dive into our segment financials, and I'll wrap up the call with some brief remarks prior to taking any questions you may have. Turning to Slide 3. We were very pleased with our performance in Q1 as our financial results continue to demonstrate how the platform scales at higher volumes and translates to adjusted EBITDA. While we've historically seen Q1 to be a lower volume quarter in U.S. Appraisal due to the seasonality of the purchase market, this year the sustained strength in the U.S. refinance origination market provided a healthy backdrop for our growth. And we realized solid market share gains in both our U.S. Appraisal and Title segments. We reported consolidated revenues of $103.8 million and adjusted EBITDA of $14.5 million in the first quarter of fiscal 2020. On a year-over-year basis, first quarter revenues increased 71.4%, and adjusted EBITDA was up by more than eightfold. We estimate that U.S. market volume was up 25.4% in the first quarter relative to the first quarter of fiscal 2019. Our estimate of the market change includes growth in the U.S. mortgage origination market of 35%, which was offset by a combined decline in estimated home equity and default volumes of approximately 14%. The increase in total origination volumes of 35% comprises estimated purchase volumes that were up 5% and an increase in estimated refinance volumes of 105%. We also estimate that average loan sizes for purchase and refinance activity increased about 16% and 49%, respectively, on a comparative basis. We posted another solid quarter in our U.S. Appraisal segment with market-adjusted volume growth of 16.1% year-over-year. For origination only volume, market-adjusted growth was 30.2%. We continue to rank at the top of lender scorecards in our U.S. Appraisal segment, which drove the market share gains with our Tier 1 lenders and some of our larger Tier 2 lenders in the main origination channel year-over-year, and in many cases, these gains exceeded our own expectations. U.S. Appraisal net revenue was up 71.2% and adjusted EBITDA was up 159.1% on a year-over-year basis. In addition to the share wins in the main origination channel, we entered into 2 new channels with our Tier 1 lenders that's deepening our relationships with these lenders. In our U.S. Title segment, Q1 revenues rose 91.9% year-over-year, and we recorded market-adjusted volume growth of 156.1%. We calculate market-adjusted volume growth based on our estimate of the total market, however, our U.S. Title segment almost exclusively services refinance activity. We estimate that U.S. refinance market volumes were up 105% year-over-year, which means that more than half of our growth in volumes from mortgage originations this quarter came from our market share gains and new client additions. The significant increase in adjusted EBITDA and adjusted EBITDA margins in our U.S. Title segment reflects the scale of our business from higher volumes. Our U.S. Title segment accounted for nearly half of our consolidated adjusted EBITDA in the first quarter. And as we continue to grow in Title, we expect to see this new balance of adjusted EBITDA mix on a more consistent basis. In the quarter, we went live with 4 new clients, and the sales pipeline continues to be strong. The heightened level of refi activity has certainly highlighted the need for lenders to add vendors, but it's also a tough time to launch. We are encouraged by how our conversations are progressing, and we remain confident in our prospects. We will continue to update you as we go live with new clients. In our Canadian segment, first quarter revenues were up 28.4% year-over-year, and adjusted EBITDA increased to $0.7 million from $0.5 million in Q1 2019, driven by higher appraisal volumes from increasing market share with certain Canadian clients and a stronger mortgage origination market in Canada. The Canadian mortgage market has shown some early signs of resilience. And with interest rates in Canada expected to remain stable, we don't expect any major market shifts in fiscal 2020. With that, I'll hand it over to Bill. Bill?

[William P. M. Herman, Executive VP & CFO]

Thank you, Jason, and good morning, everyone. Turning to Slides 4 and 5 for a closer look at our financial results. Consolidated revenues were up 71.4% in the first quarter of fiscal 2020 compared to the same quarter last year due to significant revenue growth in both our U.S. Appraisal and U.S. Title segments. Revenues in our U.S. Appraisal segment were up 70.2%, while revenues in our U.S. Title segment increased 91.9% and Canadian segment revenues rose 28.4%, each expressed on a comparative basis. In our U.S. Appraisal segment, we serviced higher origination volumes from market share gains, new client additions and higher comparative market volumes. Our average revenue per unit increased in the first quarter as we serviced a greater proportion of higher-priced origination volumes and a lower proportion of lower-priced home equity and default volumes. Transaction costs in our U.S. Appraisal segment increased 69.9% year-over-year compared to the 70.2% increase in revenues for the same period. As a result, net revenue was up 71.2% to $15.5 million, and net revenue margins increased 20 basis points to 23.0% in the first quarter of fiscal 2020, up from the 22.8% we posted in the first quarter of fiscal 2019. Sequentially, we reported a 10 basis point reduction in U.S. Appraisal net revenue margin coming off of our fourth quarter and fiscal 2019, as we added more appraisers to our network to service higher-than-expected volumes this quarter and in anticipation of volume growth in future quarters. We believe we are still on track to achieve net revenue margins of 27% on a doubling of volumes from fiscal 2018 levels. Operating expenses in our U.S. Appraisal segment increased 17.8% to $6.7 million, up from $5.6 million in the first quarter of fiscal 2019 due to higher payroll and related costs from higher volume serviced. The increase in payroll costs partially offset the increase in net revenue, which together contributed to the 159.1% improvement in adjusted EBITDA year-over-year. In addition, adjusted EBITDA margins in our U.S. Appraisal segment increased to 57.2% in the first quarter of fiscal 2020, up from the 37.8% we posted in the same quarter last year. As Jason mentioned, first quarter revenues were up 91.9% year-over-year in our U.S. Title segment, while transaction costs increased 63.7%, leading to net revenue margin expansion of 610 basis points. Over half of the year-over-year improvement to net revenue margins was due to the proportion of higher margin mortgage origination volumes serviced versus lower margin home equity volumes. In addition, transaction costs attributable to mortgage origination orders are typically incurred 45 days in advance of recognizing revenue. Accordingly, there is a lag between when we record transaction costs and when we recognize revenue. As expected, new refinance orders in the month of December, for example, were lower than October and November due to the holidays and rising interest rates. As such, net revenue margins improved as the number of orders we completed and recognized revenues for were proportionately higher than the new orders received in the quarter. Early signs in January indicate that interest rates have declined by about 300 basis points from the December peak, which may lead to higher refinance order volumes than December levels, in turn, putting downward pressure on net revenue margins in our U.S. Title segment. Finally, this segment's net revenue margins also benefited from an increase in the supply of higher-margin capital markets services relative to lower margin search services. U.S. Title segment revenues attributable to reported volumes for this segment, meaning revenues generated from our mortgage origination clients, increased to $18.7 million from $6.1 million in the first quarter of fiscal 2019. However, our average revenue per unit declined due to geographic mix. Diversified revenues increased modestly due to higher capital markets activity, partially offset by lower commercial and search revenues. Operating expenses in this segment increased to $10 million from $7.7 million in the first quarter of fiscal 2019, and adjusted EBITDA increased to $8.4 million from the $1.0 million we posted in the same quarter last year. Similar to the fourth quarter, the scalability of our platform was on display in the first quarter of fiscal 2020 and delivered a significant improvement to adjusted EBITDA year-over-year. In fact, our first quarter adjusted EBITDA margin in our U.S. Title segment were the highest we've achieved to date. In Canada, revenues increased 28.4% to $7.7 million, while net revenue margins contracted by 120 basis points, the result of adding appraisers to our network to service higher volumes. Canadian segment operating expenses were $0.6 million in the first quarter, down from 5.6 -- down 5.6% from the first quarter of fiscal 2019. And adjusted EBITDA margins increased to 55% from 42.9% in the same quarter last year. Putting this all together, first quarter consolidated net revenue increased 87.1% to $35.3 million, up from the $18.8 million reported in the first quarter of fiscal 2019, on strong contributions from both our U.S. Appraisal and U.S. Title segment, as previously noted. And consolidated net revenue margins increased to 34% in the first quarter of fiscal 2020, up from 31.1% in the first quarter of fiscal 2019, due principally to the contributions by our U.S. Title business. As a result of our solid operating performance, consolidated adjusted EBITDA rose to $14.5 million in the first quarter of fiscal 2020, up from $1.7 million in the same quarter last year. And consolidated adjusted EBITDA margins increased to 41.2% in the first quarter of fiscal 2020 versus 9.1% mark we posted in the first quarter of fiscal 2019. One final remark about adjusted EBITDA before I provide a few highlights on our balance sheet. In the first quarter of fiscal 2020, we adopted IFRS 16 leases and recognized a $0.4 million benefit to adjusted EBITDA as a result of adopting the standard. However, we did not adjust adjusted EBITDA reported in the comparative prior year quarter. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $80.9 million, up $9.2 million from September 30, 2019. We continue to purchase shares under our normal course issuer bid, purchasing approximately 0.6 million shares at a cost of about $5.9 million in the first quarter of fiscal 2020. With that, I'll turn it back over to Jason. Jason?

[Jason Smith, Founder, CEO & Director]

Thanks, Bill. We were very pleased with how the business performed in the first quarter, making it an excellent start to the year. There's no question we benefited from a year-over-year tailwind in the U.S. refinance market. But more importantly, we continue to make great progress with market share in Appraisal and Title, and we leveraged our platform to drive scale in both of these segments, which delivered significant year-over-year growth in adjusted EBITDA. As always, we continue to watch moves in the 10-year treasury yield, which is a leading indicator of mortgage market volumes over the short term. We remain focused, however, on driving market share through operational performance and scale to build value over the long run. The strength and performance of our network once again allowed us to outperform in Q1. And so I'd like to thank our team and the field professionals on our network for helping us deliver exceptional results this quarter, especially during the holidays. With that, operator, we'd like to open it up for questions now.

[Operator]

[Operator Instructions] Our first question comes from the line of Daniel Chan of TD Securities.

[Daniel Chan, Research Analyst]

You mentioned that the mix helped with your revenue growth as well as your margins. How are you looking at -- are you considering mix as you look throughout the rest of the year?

[William P. M. Herman, Executive VP & CFO]

Dan, it's Bill. I think we had a bit of a phenomenon here in Q1. There was a lot of things that came together. And I presume you're referring specifically to our U.S. Title margins, which on a compare basis, obviously, were up significantly and also on a sequential basis. Thinking comparatively, I think Title margins this quarter were up due to mix as it relates to mortgage origination volume service versus home equity. It's a higher margin service offering for us. So that obviously contributed on a compare basis. When we think sequentially and comparatively, we really had a couple of things play through here. One, the -- really the flow-through of volume and how orders both came in and how we're able to complete orders and recognize that revenue. We had a higher proportion of completed orders in this quarter versus the order volume flow. And as a consequence, we saw more revenues come through than typical and cost as well. And diversified also contributed in the quarter as well. It actually did more higher margin search -- sorry, higher margin capital markets volume than it did search. So when we put that all together, I think -- when we think about how this quarter shapes up against another, I think this quarter was a bit of a standout quarter. We don't expect to repeat performance necessarily. Could it happen again? Absolutely, it could, but we're not expecting that as we think forward into the balance of the year.

[Daniel Chan, Research Analyst]

Okay. That's helpful. And then your cash balance continues to build nicely. You've been using the NCIB to support the stock. Any thoughts on how -- on capital use and how you expect to use the NCIB given the run-up in the stock price?

[William P. M. Herman, Executive VP & CFO]

Sure. So look, at the end of the day, we're always going to be thoughtful about our cash position. We're very thoughtful about and opportunistic as it relates to our thinking around the NCIB. We're not going to be out buying in the market unnecessarily. I think that would be -- how I would put that, Dan, is that we're not just going to be, at all cost, buying NCIB shares for the sake of buying NCIB shares. So again, we're going to be thoughtful with that. We always want to maintain a strong balance sheet. That's fundamental to what we've been saying and we'll continue to say. I think it's important for our clients. We're going to continue to have that view. So absent an acquisition, we're just going to be thoughtful about cash on the go-forward.

[Operator]

Our next question comes from the line of Thanos Moschopoulos of BMO Capital Markets.

[Thanos Moschopoulos, VP & Analyst]

Jason, the MBA forecasts are currently calling for a large drop in refi volumes in the second half of the year. And clearly, we haven't had a record of forecasting. So just curious to get your thoughts in terms of how you think refi activity across the industry might shape up if rates remain the same vicinity of where they are now?

[Jason Smith, Founder, CEO & Director]

Yes, it's a great question. I mean I think the -- there's a lot going on in the forward-looking numbers from MBA, Fannie and Freddie, and they often disagree with one another. And underlying it, though, to your question, I think, if rates were to stay where they are right now, that would drive a significantly higher refinance market than those 3 -- any of those 3 are calling for.

[Thanos Moschopoulos, VP & Analyst]

So in other words, those 3 must be assuming a significant increase in rates relative to where we are now?

[Jason Smith, Founder, CEO & Director]

That's correct. That's correct.

[Thanos Moschopoulos, VP & Analyst]

Okay. Maybe secondly, can you give us an operational update on the Title business in terms of how much optimization or thought there is to be done in that business? It's just a question of scaling it now as new business comes in. And then from a product perspective, anything you'd call out.

[Jason Smith, Founder, CEO & Director]

Sure. Well, in terms of operational, Thanos, as we build out these networks, it's important to build them out in a balanced fashion. So we can't build too much capacity in advance of the volume. We've stayed quite agile. We've stayed responsive to the strong volumes. This is one of our core strengths. I mean we've been at this for many years now as a network manager. And so I think as we look forward, if we were to have a rise in rates and the slowdown, for us, that would just swap out a launch of new lenders, which find it very difficult. And we're being thoughtful about that and making sure that we would have capacity to support those good franchise lenders to drive the business for many years to come. In terms of on the product side, it's quite focused on operational. We're working on our -- evolving our mobile capabilities, continuing to evolve them; the consumer experience; and really around those getting better all the time at logistics and network optimization so we can drive better outcomes for both our Appraisal and our Title clients, which results in greater market share, which just keeps the operating leverage continuing through the balance sheet. So quite focused, or through the income statement, quite disciplined to that end.

[Thanos Moschopoulos, VP & Analyst]

Great. And finally, how should we think about corporate OpEx through the balance of the year?

[William P. M. Herman, Executive VP & CFO]

Yes. I mean Thanos, I think we've always taken a position that we don't expect corporate OpEx to run away from us. We've always been in that 3% to 5% range, and always thinking GDP, CPI is always sort of the view. I think when you think about this year, what you're going to note in Q2 and Q3 is obviously we've taken a different position as it relates to how we compensate certain executives in the company. In that, you're going to have a bit of an uptick as the short-term incentive plan will find its way into our Q2 and Q3 numbers that we ultimately took a full accrual of in Q4. So you're going to have a slight uptick in corporate OpEx in Q2 and Q3 relative to the compared period and then actually see a bit of a benefit come through in the last quarter, where, as I said, we took a full accrual of our STIP payment to the Q4 results in 2019, which will not -- we'll not be taking -- we'll be taking evenly over the course of 2020. So nothing meaningful to note there.

[Operator]

Our next question comes from the line of Paul Steep of Scotia Capital.

[Paul Steep, Analyst]

Jason, could you talk a little bit about, in Appraisal, where you're standing in terms of new wins and the ramps of possibly other Tier 1s? Or how much more share there is to take there? And then maybe we'll do the same thing on Title.

[Jason Smith, Founder, CEO & Director]

Sure. On Appraisal, our last reported market share was around 10%, where we laid out a target by 2021 to get to 15% to 20% market share. We can do that without adding additional clients and without actually the big banks regaining share relative to nonbanks, and we've seen that happen for the last 3 quarters. So that's definitely a positive momentum. We are top ranked in all of our scorecards within our major lenders. We are -- have not been capped at a maximum market share with any one customer. So it's this continual execution will allow us to drive that share higher. So I think beyond 2021, we never viewed those market share targets as a terminal or maximum penetration. We're going to continue to innovate, drive execution and driven by a vision to be the platform for the industry. On Title, it's going really well. Half of our centralized Title gains in the quarter came from organic activity, not market share wins, net new client launches, notwithstanding the market strength. And so we're really pleased about that. We launched 4 new top 100 lenders in Title in the quarter, and that's a really hard thing to do when the market is so busy. The lenders -- you got to remember a year ago with almost a multi-decade low level of refinance activity and so these numbers are up big on a year-over-year basis, they're off of a multi-decade low. So there wasn't a lot of underwriting capacity within the lenders. So they're quite busy and it's difficult to get the attention. They're certainly feeling the pain. And our pipelines continue to be robust. So we're -- a little bit of a slowdown would actually help us drive some launches, which would be great for the longer term. But we continue to pick away at it, and we have ample growth in front of us to drive our objectives.

[Paul Steep, Analyst]

Okay. Last one for me. If we think about it, you don't break out your R&D investment, but should we be thinking given the significant build in cash and, as Bill said, the thoughtfulness with which you're approaching the buyback, should we think that you're going to potentially materially increase R&D spend in the next 2 years to actually think about new products, new opportunities? How are you thinking about deploying capital towards further driving the next product?

[Jason Smith, Founder, CEO & Director]

Great question. So I would say with respect to the Appraisal and the Title businesses that we're very happy with the level of spend. We've been quite disciplined around it. It is one platform approach that drives the business model. So I think it's steady there, and I don't see the investment coming off, but I see us staying on that. As we start to look beyond our 2021 objectives, and we're starting to come around the corner here, and we start looking at the other areas of growth that we've talked about, I think that's where our views on utilizing our capital will become sharper. And I expect we'll talk more about that later in the year, where do we see us going beyond refi title, how do we see that purchase market and how are we being thoughtful of unlocking the property information and the interactions we have within our space. And some of that will -- can have a combination of organic and acquisition activity, and we'll be more fulsome about that later in the year.

[Operator]

Our next question comes from the line of Gavin Fairweather of Cormark.

[Gavin Fairweather, Analyst of Institutional Equity Research]

So I'd imagine you're in a thick of planning for the spring market here, and when I think about the environment, it seems like it could be kind of a perfect storm for these larger Tier 1s. So you've got the Tier 1s clearly gaining share, the U.S. 10-year is falling off, and then spring market is always just busy. So maybe you could just shed some light on kind of your conversations with the lenders and how they're thinking about it. And then separately, your view on how much additional volume your network can absorb.

[Jason Smith, Founder, CEO & Director]

Great. So I would say that the real sort of bottleneck in the volume is largely on the lender side. It's their ability to hire up underwriters, hire up and be able to scale before it even hits our door. And they have a few tools to do that. The first is the spread with which they set mortgage rates. And so we saw some of that play out in the fall last year, Gavin, i.e., as the rates -- the 10-year rates start to go up, they walk their spread back down such that they were not increasing mortgage rates, and that was how they could smooth out their pipelines of volume and continue to deal with some of the backlog of the capacity constraints. So I would say that what we're hearing is lenders are continuing to build the capacity, that they're not viewing this as a short-term trend or activity, that there's continued strength in the market and they're building capacity. And so to the extent that they do that and we would benefit to the extent we're driving continued market share gains with them, which, of course, is what we've been doing.

[Gavin Fairweather, Analyst of Institutional Equity Research]

Okay. And then on the HELOC and default side, you talked about a 14% year-over-year decline. Just wondering sequentially, you're starting to see that market find a trough? Or is the overall volume levels continuing to go down sequentially as well?

[William P. M. Herman, Executive VP & CFO]

Yes, I think, Gavin, I think what we're seeing is when we look at -- when we dissect that 14% into its 2 components, it's 30% of an estimate as it relates to the decline in default volumes, and home equity was more of a 5% decline. So I think that we're -- our view is that we probably are nearing the trough of what is the bottom for home equity. Default, I'm not as certain on, but I would certainly say that I think that we're near the trough as it relates to home equity activity.

[Gavin Fairweather, Analyst of Institutional Equity Research]

Got it. And then just last one before I pass the line. Can you just, Jason, maybe shed light on the profile of those 4 new kind of top 100 lenders in Title? Are they more kind of regional players? Or are they some larger kind of Tier 2s in the mix there?

[Jason Smith, Founder, CEO & Director]

Yes, I'd say the majority are on the smaller side and the larger regulated banks, it's tough to launch. There's more to the launch from their side. There's more players involved. So -- where we are able to engage in a very busy market as lenders that might have less regulation around them. So -- but doesn't -- the margins on this side of the business is significant. So the smaller lenders make a bigger impact on our Title business than they do on the Appraisal side. So certainly, starting off with low market share with them. And as you saw, this is the same sort of group of lenders that we've been launching and running with today, and they provide the foundation for lots of market share growth.

[Operator]

[Operator Instructions] Our next question comes from the line of Robert Young of Canaccord Genuity.

[Robert Young, Director]

I was hoping that you could talk a little bit about the lag of activity in refi and in purchase, for that matter, on a strong interest rate market. I think maybe investors might be looking for the benefit of your experience, understanding how an extended period of decline in the interest rate and then potentially when it starts to nudge up, how does the market react in the quarter after that and the quarter after that? Is there a lagging factor as people sort of jump into the market to try and take advantage of the lowest rate? Like how does that work? And how does it interact with your business?

[Jason Smith, Founder, CEO & Director]

Sure. Well, it is not unusual for a homeowner in the U.S. to, first of all, refinance their mortgage multiple times, i.e., if I've got a 50 basis point in the money advantage and it makes financial sense for me to refinance that mortgage and then do it again a year ago. I'm walking it down. Some individuals, though, sort of wait and try to time the bottom of a rate cycle. And then they'll actually wait until -- or they sort of waited too long and then they'll wait for those rates to move back up and then they'll catch and refinance then. So you can actually see a tail of activity after a rate move-up cycle occurs, which I think is what your question. And that plays over on the home purchase side, too. And certainly, when rates move up, you don't see an immediate stop and flow of business. And then also, when we talk about the larger lenders and they're in this sort of capacity constrained market, they have tools, i.e. their spreads to keep those pipelines long and so you can actually get a nice run afterwards. For us, of course, then we also are recognizing the revenue later in terms around the closing on our Title business and so you can see that sort of further benefit beyond when you might see a rate cycle start to increase.

[Robert Young, Director]

All right. And one of the data points that you shared in your deck was around the average loan size actually going up. And is there anything to pull out of that as far as that lag? Do the bigger mortgages go first, and then there's a longer tail smaller? I mean presumably, your transaction-driven business, you don't care how big the mortgage is and that could be positive for you. How does that work?

[Jason Smith, Founder, CEO & Director]

You're absolutely right. And it's one of the challenges of looking at the dollar-originated reporting coming out of, say, an MBA, Fannie or Freddie, is it doesn't necessarily reflect true change in volumes underneath because a jumbo mortgage that a large bank might be more likely to originate has the greatest financial benefit with a smaller rate change than a smaller mortgage does in order to cover the net for an appraisal and a title policy and the other costs associated with underwriting it. So you tend to see the more -- the larger loans go first. And then you can see the smaller mortgages be worked through. It's also when you think about the loan origination departments within these lenders. It's greater financial sense for them to be focusing on larger loans in terms of their reward relative to smaller loans. So they tend to work down that way in terms of the pipe. And there's certainly a backlog here within the industry.

[Robert Young, Director]

All right. And then I think Black Knight and some others do some analysis around the level of homeowners that are in the money on a potential for refi at a given 30-year rate, and they still highlight a very, very large population of homeowners that are in the money. And so are there any factors that you could help investors understand, like is it banks that have been unwilling to qualify these investors? Like, why is there such a large number of people that are still sitting out there that are eligible for a rate refi or maybe cash refi and don't do it?

[Jason Smith, Founder, CEO & Director]

Yes. Right. It can be qualification rates, it can be plans on a move in the past when they didn't do it, it can be that there wasn't enough capacity within the lenders to do it and they got stuck and not unable to refinance. So there's a number of host factors there. But again, that total universe of mortgage holders continues to increase as you see rate changes go down. So back -- before 2016, you certainly saw some larger refi waves. And then as rates moved up after Trump was elected, you saw lower mortgage origination volume. So all of that cohort of mortgage is strongly incented to refinance their loans. And then you've got the other dynamic that there is this very large home equity line of credit, home equity take-out market where this record levels of home equity could be tapped for homeowners for spending sending their kids to college or university to do a renovation on the home. And those -- it's actually, in many cases, more financially greater financial incentive for a homeowner to refinance the whole mortgage they're going to get, to get better tax deductibility off of that. The long-term rate can be more attractive than the short-term rate. And then they'll throw a cash-out on top of that. There's actually -- I saw a report this morning with 45% of the mortgages that are being refinanced or have a cash-out component even at these high levels. So some of that not enough housing stock in the purchase market, maybe we'll renovate our house and refi the whole thing, even if the rate was the same. So certainly, the reports that I see as well is there's lots of refinance potential candidates still yet to come.

[Robert Young, Director]

All right. Maybe just last question for me. You said that the -- you see some of your customers building capacity. Are they building the capacity in a way that suggests they want to take share in this -- you mean, all the components of the market that you just described are that the regulated deposit taking banks looking at that and building capacity for the future? Or should we think of them as just slow moving and maybe smaller banks will take share against them. How do you think about that dynamic?

[Jason Smith, Founder, CEO & Director]

Yes. Look, I think if you even adjust for loan dollar size, we've seen yet another quarter where the regulated banks, be the big regionals or the big Tier 1s, appear to have taken share of -- greater share than the nonbanks. So I just look at the historical there and say that that's a very good sign in terms of where they're going. And I think there's still some Tier 1 banks on an individual basis that really haven't turned on. They might be at their 20% level of capability in terms of really unlocking their brand and their branch networks and so on and so forth, their customer base in terms of originating and are heating that up.

[Operator]

And our next question comes from the line of Richard Tse of National Bank Financial.

[Richard Tse, MD & Technology Analyst]

You guys have no doubt done incredibly well on the Title side. I'm kind of curious to see, are there any circumstances that your Tier 1s would actually roll out Title without a slowdown like any situation that, that would happen here before?

[Jason Smith, Founder, CEO & Director]

For sure. I would say that we're definitely engaged in it. It's just a -- the longer that we stay in elevated levels of refi activity, the greater their pain is that they need additional vendors and yet they're very large organizations, they can move on it. So I would say that we're engaging broadly with a number of our largest lenders and continue to progress there. We're not sitting at a standstill sitting here today.

[Richard Tse, MD & Technology Analyst]

Okay. And then, obviously, you guys had an incredible sort of operating leverage up from now. I'm kind of curious, if we sort of look out maybe a year or 2 down the road and all things being equal, what sort of the potential upside in that margin? Like, where do you see that kind of peaking or what the upside is as we look down the road when this business really kind of hit scale here?

[William P. M. Herman, Executive VP & CFO]

So I think you've got the latest numbers on what incremental Title and Appraisal revenues actually did grow this particular quarter. Yes. So I'll give you that perspective and then we'll obviously tie it back to where we think we're going on the doubling of volumes and/or for 2021. So this quarter, in particular, just thinking of Appraisal and on a compare basis, so every additional net revenue dollar that came in this quarter against the first quarter of last year, we basically dropped $0.84 to the bottom line. And even if we adjust for IFRS 16 benefit, that's an $0.81 number. So for every $1 of net revenue, $0.84 or $0.81, you're choosing, went to EBITDA. On Title, that number was $0.76. So for every additional net revenue dollar over the compare period of 2019, it was a $0.76 drop to EBITDA. And even after adjusting for IFRS, it's $0.74. Longer term, I mean, we've got -- and we still feel comfortable with, Richard, is we still feel comfortable that we're going to achieve our 2021 targets for, for example, EBITDA at 35% to 40%. And -- sorry, that was net revenue, my apologies. And then 25% to 30% on EBITDA. And then on the doubling of volumes, we're still looking at those segments in Appraisal at the 60% net revenue -- sorry, my apologies, 27% net revenue margins with a 60% EBITDA. And then not dissimilarly on Title, moving up to 65% and having 30% adjusted EBITDA margin. So those are where we're headed in the future.

[Richard Tse, MD & Technology Analyst]

Okay. And notwithstanding your comments earlier about potential things that you may be working on here going into next year with respect to some of the things you talked about, I think you talked about mobile. Those costs would be sort of already baked into those numbers?

[William P. M. Herman, Executive VP & CFO]

Correct.

[Operator]

And there are no further questions at this time. I will turn the call back over to the presenters.

[Jason Smith, Founder, CEO & Director]

Thank you, operator. That wraps things up for today. Thank you for joining our Q1 call. Have a great day.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.