Real Matters Inc

TSX:REAL

Earnings Call Transcript 2018-Q2

[Operator]

Good morning. My name is Kim, and I will be your conference operator today. At this time, I would like to welcome everyone to Real Matters Second Quarter 2018 Conference Call. [Operator Instructions]Lyne Fisher, Vice President, Investor Relations, you may begin your conference.

[Lyne Beauregard Fisher]

Thank you, operator, and good morning, everyone. Welcome to Real Matters Financial Results Conference Call for the Second Quarter of 2018. 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 Q2 2018 results for the period ending March 31, 2018. The release, accompanying slide presentation as well as the financial statements and MD&A are posted in the Investor Relations section of our website at realmatters.com. During the call, we may make certain forward-looking statements that relate to our current expectations and views of future events, including, but not limited to, future market share and future results. We base these forward-looking statements on our current expectations and projections about future events and financial trends that we believe might affect our financial condition, results of operation, business strategy, and financial needs. A comprehensive discussion of the risks that impact Real Matters can be found in the company's annual information form dated December 27, 2017, which is available on SEDAR and on our website. Actual results may differ materially from those indicated or underlying forward-looking statements as a result of various factors, including those described under the heading Important Factors Affecting Results from Operations, outlined in the Strategy and Outlook section of the company's MD&A for the 3- and 6-month periods ending March 31, 2018 and 2017. As a reminder, we refer to non-GAAP measures and key performance indicators in our slide presentation, including market share, net revenue, net revenue margins, adjusted EBITDA, adjusted EBITDA margins, adjusted net income and adjusted net income per share. Non-GAAP measures are described in our MD&A, where you'll also see reconciliations to the nearest IFRS measures. With that, I'll turn the call over to Jason.

[Jason Smith, Founder, President, CEO & Director]

Thank you, Lyne, and good morning, everyone, and thank you for joining us on the call. I'll kick things off today by discussing some of the key highlights of our second quarter performance. And will then hand it off to Bill for a deeper dive into the numbers. We delivered solid financial and operational results in the second quarter hitting key operational milestones in both the appraisal and title and closing businesses. As we outlined in the press release this morning, our U.S. appraisal revenues were up 15% on a market-adjusted basis, driven by strong market share gains. In addition, U.S. appraisal net revenue margins expanded significantly during the quarter because of a network effect of our platform, which resulted in consolidated net revenue margin increasing to 31% from 29% in the prior-year period. From an organic growth perspective, we were awarded further market share increases with Tier 1 lenders during the second quarter, which will translate into additional revenue starting in the third quarter, and we expanded into the home equity channel with 2 Tier 1 lenders broadening the scope of our business with compliance.Last, but not least on the appraisal business, we were successful in winning a new Tier 1 lender RFP for appraisals in the core mortgage origination channel, and we moved into the plant with this plan during the quarter. We expect this will translate into revenue starting in September. With the addition of this new business, we will be live in the core mortgage origination channel for appraisals with 5 of the 6 Tier 1 lenders and in a home equity valuation segment with the sixth. In line with what we signaled during our last quarterly conference call, last week, we announced that we are in deployment to deliver title and closing services in the centralized refinance mortgage origination market with a Tier 1 lender, well ahead of expectations. This important milestone will help us increase the conversion rate of our top 100 lender pipeline and accelerate the adoption of our platform in a centralized refinance mortgage origination channel. This client represents a goldilocks opportunity for us, as they will be referenceable with other Tier 1 and Tier 2 lenders and their concentrated regional footprint allows us to progressively build out our network and lockstep with growth. From an operations perspective, we quoted our existing title business to our network management platform and went live with a certified closing network platform on schedule on March 29. Our focus now rests squarely on increasing our share of a centralized refinance mortgage origination market with Tier 1 and Tier 2 lenders. We began to shift resources to grow this segment during the second quarter and away from Tier 3 and Tier 4 lenders and noncore title revenues. Accordingly, our second quarter title and closing revenues were impacted by a decline in noncore revenues. As we've discussed on prior calls, we will be rationalizing noncore revenues into the growth of our centralized refinance title business. Our decision to narrow our focus in this business aligns perfectly with the company's strategy and our firm commitment to creating long-term value. Just as we've done in the past, we will say no to certain opportunities such that we can say yes to the right ones. We are now better positioned than ever to grow revenues and market share over the long term in the $13 billion market for title and closing services. We believe we can achieve our 2021 title and closing objectives by focusing solely on the centralized refinance mortgage origination market with 3 Tier 1 lenders, each with market share that is comparable to what we have obtained in appraisals as well as a handful of Tier 2 clients. Our resources are teed up, and we are very excited about the future of this business. Overall, we delivered solid financial performance in the second quarter. Not only did our appraisal business showed solid financial results, but we also achieved a number of milestones that bolster our confidence in our 2021 objectives. As we look to the second half of 2018, we expect our solid organic growth to significantly outperform the market, which is expected to be relatively flat year-over-year. 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 Slide 4 for a look at some of the financial highlights. Revenues for the quarter increased to $66.1 million from $64.5 million in 2017. On a unit basis, we estimate that the U.S. mortgage origination market was down 6%, which includes a 2% increase in the purchase market and a 14% decline in refinance when compared to the prior-year quarter. On a market-adjusted basis, our consolidated revenues increased 7%. We reported total U.S. segment revenues of $59.3 million, up from $57.6 million in the second quarter of 2017. Our appraisal revenues were $45.9 million, which grew organically by 15%, due to higher appraisal volumes from new clients and market share gains with existing clients after taking into account the estimated market decline. Title and closing and other revenues declined to $13.4 million from $15.7 million in the second quarter of 2017. We estimate that the refinance mortgage origination market declined 14% compared to the second quarter of 2017, which significantly impacted our title and closing revenues due to their high correlation to changes in refinance market activity. As Jason mentioned earlier, our title and closing revenues were also impacted by lower noncore revenue streams during that period. On a market-adjusted basis, we estimate our title and closing revenues were down 12%. Taking a look at the Canadian segment. Revenues were $6.8 million compared to $6.9 million in the prior-year period as lower appraisal revenues were offset by the positive impact of FX. We reported net revenue of $20.5 million, up 8% from $18.9 million in 2017 and largely driven by very significant improvement on the appraisal side of the business with no meaningful change in that revenue margins from title and closing services. As you know, our transaction costs in the appraisal service line principally consist of appraisal fees. And as we scale our appraisal business with increased volume on the platform, we leveraged our appraiser partnerships through capabilities like logistics management to reduce our transaction costs and bring greater profitability to our field agents. And so if you compare our second quarter consolidated net revenue margins with the prior-year period, taking into account the change in revenue mix and relative historical net revenue margins between the 2 revenue streams, you will clearly see how significant the improvement was on the appraisal side of our business. Working our way down the income statement. Consolidated operating expenses were relatively flat in the second quarter of fiscal 2018 compared to the same quarter last year, despite the increase in revenues. Lower operating expenses in our U.S. segment were the result of reduced headcount from lower refinance volumes, a shift to a network management model in title and closing, and the integration of certain operations. These reductions to operating expenses were partially offset by an increase in corporate segment costs, attributable to higher stock-based compensation expense, public company costs as well as higher staffing levels to support investment in our platform. What's worth noting on operating expenses is that we effectively handled more appraisal volume in the second quarter with lower operating costs. Adjusted EBITDA increased to $0.3 million from a loss of $1.8 million in the second quarter of 2017 as a result of higher revenues -- net revenue and flat operating expenses. As we continue to ramp market share with our lenders, we expect to see increasing operating leverage in our business with the objective of achieving adjusted EBITDA margins of 25% to 30% by fiscal 2021. With that, I'll turn it back over to Jason. Jason?

[Jason Smith, Founder, President, CEO & Director]

Thanks, Bill. And so to recap, our business performed very well in the second quarter. Market share gains and appraisals drove market adjusted U.S. appraisal revenue growth of 15%. Our net revenue margins expanded to 31%. We were successful in winning a new Tier 1 lender RFP for appraisals in the main origination channel and we moved into deployment with this client during the quarter. We were awarded additional appraisal market share with Tier 1 lenders. We expanded into a home equity channel with 2 Tier 1 lenders. We completed the transition of title and closing to our technology platform and launched our closing network. And subsequent to quarter-end, we announced the deployment of a Tier 1 lender for centralized refinance mortgage origination title and closing services. We have made significant inroads in both appraisal and title and closing, and we are well on our way to achieving our 2021 objectives. With that, operator, we'd like to open up for questions now.

[Operator]

[Operator Instructions] Your first question comes from Daniel Chan from TD Securities.

[Daniel Chan, Research Analyst]

Congratulations on the Tier 1 wins. Just wondering if you could give us an update on that sixth and final Tier 1 in the appraisal management business? What's the status of their RFP?

[Jason Smith, Founder, President, CEO & Director]

Look, we are highly engaged now with the all 6 lenders across multiple channels and we continue to look for opportunities to expand further. I wouldn't put a specific timeline on the sixth per se.

[Daniel Chan, Research Analyst]

Okay. I'm not sure if you mentioned, but -- in the prepared remarks, but did you say when the Tier 1 on the title and closing platform is expected to start generating revenue?

[Jason Smith, Founder, President, CEO & Director]

Next quarter.

[Daniel Chan, Research Analyst]

Next quarter. Okay. And then, finally, on the title and closing business. You just said you're rationalizing some of the businesses there. Just wondering if you can help us quantify how much of the title and closing business you're thinking of rationalizing? How fast you're going to rationalize that? And how long will that take?

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

Dan, this is Bill. I'll take that. I think the way to think about this, is this way, is that title revenues will likely go down before they're going to go up is the way we're thinking about it. So I think if you think about that as it relates to the rationalization, I think, that will be a good proxy for how you think through the balance of this year for sure.

[Daniel Chan, Research Analyst]

And how big do you think it will be? It has a percentage of your annual title and closing revenue?

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

Dan, I think, we don't pull out or specifically identify what those components are. I think that we think a bit holistically, as title revenue, in particular. So I'm not prepared to give you a particular amount.

[Operator]

Your next question comes from Steven Li from Raymond James.

[Steven Li, Senior Vice President]

Jason, the bucket share increases you've been awarded at the -- your Tier 1 lenders. Any of those Tier 1 -- the market shares actually reaching above that historical 30%, 35%?

[Jason Smith, Founder, President, CEO & Director]

So I think we signaled that particular at our first launch Tier 1, we were at 40% and continued to be thoughtful about how we expand in the multiple channels and grow share with that lender. The other ones are simply just too new. I think they -- having launched the last part of '16 really -- you get that quarter-over-quarter growth step. It's happening right -- what I am saying is it's happening right in line with how we expect and think of the business leading up to 2021, Dan -- sorry, Steven.

[Steven Li, Senior Vice President]

Okay. Good. That's helpful. And then, Bill, I guess -- let me try a different way at this rationalization for the noncore title and closing. When I look back at my notes for title and closing, for 2018, there was an expectation of pretty good organic growth from pipeline and sales to existing appraisal clients. And then, your comment that the title and closing revenue is going to decline before it picks up. So does that mean that rationalization more than offsets all those organic growth that you were expecting to have?

[Jason Smith, Founder, President, CEO & Director]

Well, I'll take the first part of that question, I'll hand it over to Bill for the second part. So if you recall, we weren't expecting to launch a Tier 1 bank until the back half of 2019, and as we saw this great opportunity to advance with big Tier 2 lenders and Tier 1 just as we got out in the market last year, as we started to harden the business and as the platform came to sight, we made a shift to focus solely on that business to make sure that we have the resources lined up. We have the organizational focus so that we could grow share. And it's important because, if we look out to 2021, and that's our long focus, we can hit all of our objectives there with just 3 Tier 1 lenders of similar market share objectives that we have in appraisal, 6 or 7 Tier 2 lenders were there in that entire 2021 number. So the price is big. But we have to shift our focus and rebalance our resources to accomplish that objective. So as that started to came into focus, we began the rationalization in the quarter. Bill, is there anything you want to add to that?

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

Yes, so -- just thinking about the noncore RFPs. I mean, it really is -- it's a sizable piece of our business. We simply can't deny that. It is absolutely difficult to forecast. It is project-based revenue. It is lumpy. It is certainly not core to our growth strategy as Jason just outlined. And as a consequence, you're going to see that some of that lumpiness find its way through the back half of the year. So the thing about the back half the year, probably flat to down on title would be the way to think about title. As we again focus on what's remaining to hitting those long-term goals, which is to focus on Tier 1 and Tier 2 lender rollouts.

[Steven Li, Senior Vice President]

But you would expect title to -- in 2019 to start picking up again?

[Jason Smith, Founder, President, CEO & Director]

Absolutely.

[Operator]

Your next question comes from Thanos Moschopoulos.

[William James Cocks, Associate]

This is Bill stepping in for Thanos. Could you provide a little more color on the Tier 1 appraisal win? Was this a customer you've been working with for some time and would you expect the ramp to be similar to other Tier 1s? Or is there any reason that believe it might be faster or slower?

[Jason Smith, Founder, President, CEO & Director]

Yes, I'd be pleased to Bill. So these are really long sales cycles. Each bank has -- balancing different priorities and focuses. And so this is one that we have done business with this bank. In fact, we had a Master Services Agreements, which really positioned us well, but we had to go through a robust RFI and RFP process, multiple presentations, et cetera. And we were successful winning it. So working in the deployment process now, which really starts to focus on where are we launching, understanding capacity and growth, and we'd expect this lender to ramp similar to other Tier 1s. In that, you start off with a little bit in the first quarter. They come back, they do all their on-site audits and make sure that compliance hits first. And that in the second quarter, you get another market share expansion based on our performance. And we continue to, of course, be very strong in our performance relative to competitors in the market, which is what's been continuing to drive our market share expansion quarter-over-quarter.

[William James Cocks, Associate]

Okay, great. And about the purchase pilot for title and closing, any updates there?

[Jason Smith, Founder, President, CEO & Director]

Yes. It's going really well. We are engaging with 2 additional lenders now. We are continuing to take the feedback, evolve the product road map and really focus the business. So stay tuned, we'll update more on that business throughout the rest of the year.

[William James Cocks, Associate]

All right. Sounds good. How about your view of market forecast for Freddie, Fannie and MBA over the next few quarters? Any reason to believe they're too optimistic or pessimistic or do they appear relatively [indiscernible] in your opinion?

[Jason Smith, Founder, President, CEO & Director]

No, I think we've given up trying to forecast the mortgage market. It was certainly an issue in Q2, as we were waiting for spring to, in fact, do that, to spring. And we certainly saw sluggishness in the back half of the quarter, but -- of Q2. But we see that growth in Q3, Q4. They're always our stronger quarters than Q1 and Q2. And so we expect directionally it's right, but in terms of the crystal ball in, in calling the market, we have no comment. We'll wait and see.

[William James Cocks, Associate]

Fair enough, fair enough. All right. One last one from me, I guess, any updates on M&A? Are you still looking at opportunities or is the focus really on building out the organic side of the business?

[Jason Smith, Founder, President, CEO & Director]

Yes, we're really focused on the organic side of the business. I think we have a very strong license footprint for title. We've got a fantastic customer base. I think we've been very disciplined with our technology resources and leveraging our core appraisal platform given us the win. And so we are laser focused on executing on the title business such that we have these customers. I think, the other thing I'd add is, is another market development that occurred with one of the competitors in this traditional title agent space bought another one of the competitors. In fact, one Tier 1 lender has 70% volume concentration with the traditional provider. And so that's further tailwinds on this business where the lenders and looking for diversification, where they're looking for strong execution, where they can have a great experience for their borrowers. And we think that plays well with our asset. So we're focusing on that. We're seasoning this. And as I stated earlier, that's what really drives our 2021. We can do it just by focusing on this. So...

[Operator]

Your next question comes from Richard Tse from National Bank Financial.

[Steven Walt, Associate]

It's actually Steven in for Rich. Congrats on starting deployment with the Tier 1 lender for your title and close business. Can you comment on the inbound interest for that business? And how it's changed since the announcement?

[Jason Smith, Founder, President, CEO & Director]

Look, I think, we've been, as I signaled in the previous quarter, the pipeline is strong. So we are engaged with all the large banks with the large Tier 2s. And we're moving that pipeline forward. Certainly, what I love about this particular Tier 1 is, it's on the smaller side, is that it actually has a very focused regional footprint. And so it actually looks like a really large Tier 2, which is perfect for us. Because if you recall, being able to scale and build out our network is also -- for execution is an important factor. So this -- certainly that goldilocks customer where we can do that, and yet, they also referenced up to the Tier 1s and down to the Tier 2s. So I think that's going to be very powerful as we go live and we execute. But we'll continue to move those discussions forward with all the banks.

[Steven Walt, Associate]

Great. This might be one for Bill. We noticed salaries and benefits decline quarter-over-quarter. It's a bit lower than we expected. Was that primarily due to lower volumes at the title and closing business? How should we think about that going forward?

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

Yes, a combination. That's certainly one piece of the equation. The other component would be, if you notice our income statement, we took some iteration charges through this quarter. So really aligning where the work effort is done in our business, and that also contributed to the year-over-year or the period-over-period change.

[Steven Walt, Associate]

Great. Last one from me. The net revenue margin was strong, notwithstanding the lower mix of title and close revenue. And you mentioned that was primarily driven by the network effect. How should we think about that scaling through the back half of the year with title and close potentially ramping up and maybe through 2019?

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

Yes. So certainly, for the balance of the back half of the year, I think, we're still thinking we're going to deliver some pretty strong net revenue margins in the back half of the year even on lower title, ultimately, revenues as the component of the total revenues that we report. So I think -- when I think about appraisal, in particular, it's just going to continue to be doing exactly what it's been doing. We're going to continue to outperform in the market and the margins are going to be delivered on that basis. From a title perspective, probably no change would be my view. And it's just going to continue to build to get us to our 2021 position of our net revenue margin objectives. So I guess, the shortest continuation in the back half of the year at or about similar margins on a consolidated basis. And then, we're going to continue to see that ramp as we think forward to the 2021.

[Operator]

Your next question comes from Robert Young from Canaccord.

[Robert Young, Director]

I wanted to talk about the CAGR of 20% to 25% in that 2021 model. And so the market adjusted growth you've referenced here, 15%, a little below that, and you've given a couple of reasons, the rationalization in T&C. But it would nominal -- it would take out the effect of the market. And so I was wondering if you could talk about 15% in relative terms to that CAGR expectation for the 2021 model? And what are the put and take there, where do you think that's going to go in the near term?

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

So, Robert, it's Bill. Just -- are you referencing -- just to be clear, you're referencing the appraisal side of the house -- because we certainly delivered 15% organic growth in the quarter on the appraisal side. And on a year-to-date basis, it's more like a 21% number. And we expect that number from an appraisal perspective to continue through not only the back half of this year, but well into and through to 2021. As it relates to the title side of the house, obviously, we delivered negative organic growth in this particular period, 5% negative thus far to date. And really, the expectation is that we're going to continue on the path through to 2021 with the title stream delivering on its promise to deliver those objectives as we squarely focus on the centralized rate refi with Tier 1s and 2s, and we deliver on that promise ultimately.

[Robert Young, Director]

Okay. So it would be that -- the title and close growth would be the difference, I guess, would explain that difference?

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

Absolutely. And it will be just a little more weighted to the back end of -- it will just come a little bit later than linear as it were for 2018 through to 2021.

[Robert Young, Director]

Okay. And then, on the appraisal side. You said that the Tier 1 customers had reassessed market share allocations. We can talk about that process, how often that happens? You didn't talk about that last quarter but had the positive results on the scorecard, and so -- is it something that happens every quarter, every month, every year? Maybe, give us some sense of a timing on that?

[Jason Smith, Founder, President, CEO & Director]

Yes, there is definitely -- it's not a perfect science, Rob. It's -- there are reasons why lenders would delay it for a quarter and move it into a following month, other priorities that they have going on, their own internal focuses and issues. And so, but generally, we are going through the process with the larger lenders that we review our performance for a quarter, on-site audits, and then there is an award or an expansion of market share. And we have continued to expand market share and that's been across Tier 1 and Tier 2. So I would just say it's exactly as we're thinking about it leading up and through to 2021.

[Robert Young, Director]

Okay. And then, about the home equity component of appraisal. Is there any way to quantify that? And in a case that the sixth Tier 1 that isn't deploying on the core appraisal that it is on home equity, I think, I heard -- and maybe, if you can talk about why that customer is choosing to go that path and [indiscernible].

[Jason Smith, Founder, President, CEO & Director]

Sure, Rob. It's actually historical. So it was -- there are fewer appraisals on the home equity channel than there are in the purchase and refi channel. So as a group, it's a much smaller overall market. And so this -- that particular vendor we had for quite some time and we're at a 100% of their home equity business and have been for some time. So there wasn't so much of a development there. We are in 2 other segments with that lender as well. And, of course, we're engaging with all of these lenders around title. So I -- we just continue to look at this as a basket of services that leverage our platform, where those market entry points are, where is the lender in the decision-making process. And as you can imagine, we are prioritizing title. And if we can get in there and get the focus of the enterprise on the title business and grow that versus say, a smaller servicing channel or default channel, we are working through that process as well. But -- so I don't think there is anything specific there that they decided -- we decided to do that channel versus the other. It was actually just a historical and where we had entered that customer's penetration.

[Operator]

Your next question comes from David Ridley-Lane from Bank of America.

[David Emerson Ridley-Lane]

Did you see the full benefit of the integration exercise in the quarter? Is there a bit more benefit that will show up in the following quarter?

[Jason Smith, Founder, President, CEO & Director]

Yes. I think the short answer to it is we'll see a little bit come through again in -- further, come through in Q3. Some of those integration efforts were done sort of mid-quarter-ish. So as a consequence, we should see some of that spill over to Q3, and obviously, on to Q4.

[David Emerson Ridley-Lane]

Okay. And then, on the -- I'll go back to these plans, to rationalize the noncore, title and closing revenue. Was all of it out in the current quarter or was there still a chunk of noncore title and closing revenue in the current quarter?

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

There is still a chunk of noncore. So it's not a -- we have to be thoughtful about these revenues. It's not going to be lop it off at the knees kind of approach. This is about shepherding these and stewarding these assets and these revenues forward and rationalizing any of the growth. That's the manner in which we are going to be thoughtful about it. Knowing full well that we need to focus on our Tier 1, Tier 2, centralized rate refinance focus. And so we're expecting more of a gradual decline as that growth starts to present itself.

[David Emerson Ridley-Lane]

Okay. And then, would it be sort of 12 months? I'm just trying to get a sense of the timeline.

[Jason Smith, Founder, President, CEO & Director]

I don't think we -- just through the dynamics, of course, we have customers that were supporting that are, of course, important to us. And so I would tell you that the way that we think about this rationalization is actually to first serve -- meet our commitments and first serve our new opportunities in centralized refi that can hail over 2021 goals. And we want to make sure that, that's the big rock that gets the attention. And of course, that affects both the lack of focus on growth on noncore and on the eventual decline, how we see that purely -- and it's also very lumpy project-based revenue. So it's really hard to see how that might express itself. But we're going to continue to do those right things for the short -- in the short run so that we can hit the long-term objectives.

[David Emerson Ridley-Lane]

Okay. And a last one from me. Was there anything onetime in the net revenue margin this quarter or should we expect further improvements in the next quarter from some of the actions you took during the second quarter?

[Jason Smith, Founder, President, CEO & Director]

I think the way we're thinking about net revenue margins is really more the same. So we obviously delivered at 31%. So we're looking to be in and around that for the back half of the year. And then, of course, we'll continue that progression upwards through to 2021. It's the way I think about it.

[Operator]

[Operator Instructions] Your next question comes from Gavin Fairweather from Cormark.

[Gavin Fairweather, Analyst of Institutional Equity Research]

Just on the title and closing side, with the Tier 1 that you mentioned will be going live next quarter. Is your plan to get that up and running, make sure everything is working smoothly before bringing on other major clients? Or do you think that you could actively move forward with other Tier 1s at the same time?

[Jason Smith, Founder, President, CEO & Director]

Yes, I think the sales cycle is such that we are engaged with Tier 1s and Tier 2s. We'll definitely make sure that we've got everything humming on the first launch client. We'll be thoughtful about footprints and where we have scale and assets and be thoughtful among which clients, we can move forward more rapidly to take advantage of that capability. We're building out additional regional geographic market, so that we can eventually hit the big, big, big national lenders. So I think it will depend on the client. But generally, we are live in launching this business. And the other core refi business inside our existing business is running along this platform now. So it's not like we're testing a new platform or testing a new business operations. It's working. It's going great. So we're going to be mindful looking for gaps, but we're feeling good about how we'll execute on this business, and we'll be looking to bring further Tier 2 and Tier 1 lenders onto the customer pipeline as we progress through the launch.

[Gavin Fairweather, Analyst of Institutional Equity Research]

Okay. That's great. The rest of my questions have been asked. Thank you.

[Operator]

Your next question comes from Anshu Deora from Raymond James.

[Anshu Deora, Associate]

So one question I have is about your compensation for your employees. Is variable compensation based on market adjusted growth rate or is it based on as-reported revenues or is it more based on the bottom line?

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

So we actually don't have any variable compensation in our organization, full stop. So it's based on neither.

[Operator]

There are no further questions at this time. I'll turn the call back over to Jason Smith.

[Jason Smith, Founder, President, CEO & Director]

Well, thank you, and that wraps things up for today. Thank you for joining our call. Have a great day.

[Operator]

This concludes today's conference call. You may now disconnect.