Q2 2021 Loandepot Inc Earnings Call
Okay.
[music].
Good morning, and welcome everyone to loan depot second quarter Conference call.
All lines have been placed on mute to prevent any background noise. If he would like to ask the question during the call simply press star followed by the number 1 on your telephone keypad. If he would like to withdraw your question press the pound key.
I would now like to turn the call over to Gary Hart or Daily Senior Vice President Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining our call on George Dailey Investor Relations officer on beef.
Flow.
And David will discuss more on the post second quarter results.
We're excited to share of financial result, and the other highlights of the quarter review.
Before we begin I would like to remind everyone that this conference call may include forward looking statements regarding the Companys operating and financial performance and future period.
These statements are based on the company's current expectations and available information.
Actual results for future periods may differ materially from these forward looking statements, which you bid or.
Or other factors that are described and the risk factors section of our filings with the SEC.
A webcast and a transcript of this call will be posted on the company's Investor Relations website at investors Dot loan depot dot com under the events and presentations tab.
On today's call, we have loan depot, founder Chairman and CEO, Anthony share and our Chief Financial Officer, Patrick kind of get to to provide an overview of our quarter of growth of our financial and operational results and outlook and to answer. Your question. We are also joined by our Chief capital market.
Officers get the gearing, our chief Analytics Officer, Jon <unk>, and our Chief revenue Officer, Jeff Walsh.
And with any questions you might have after our prepared remarks, and with that I'll turn things over to Anthony and get Us started Anthony.
Thank you Gerard and good morning, everyone.
Pleased to be with all of you on the call today. Thank you for joining us I look forward to share and my comments on answering your questions.
What was in 2020, arguably the strongest mortgage market and the history.
Fueled by the unique circumstances of the pandemic ended and the second quarter of 2021.
While the other seat headwind.
The opportunity because of loan depot was purpose built for this moment in time.
This is precisely 1 of diversified at scale marketing powerhouse like loan depot will shine.
Our model was designed to capitalize on this changing landscape and we are continuing.
The increased purchase volume aggressively recruit loan officers and launch new joint ventures, and new product offerings like the loan depot Grand Slam on.
While focusing on the operational efficiencies and investing and our technology backbone.
Based on data from the mortgage Bankers Association our model is succeeding.
As evidenced by the growth of our market share over the past year.
It took us 10 years to growth of 2.3% market share and just 1 additional year to get the 3.3%.
Leaving 96, 7% of the market for us to go after and the future.
And the same time period, we also achieved year over year and quarter over quarter increases and customer impressions and contact as a result of our powerful data science and machine learning models that dramatically widen our top of funnel marketing reach.
It's easy to do business and look attractive on interest rates are low volume is high and margins are fat. However, when market shift weaknesses are exposed when interest rates rise originations shrink and margins vanish and thats precisely when we gain market share with our scale brand.
And diversified origination model.
Companies of lack brand technology diversify reach and a suite of service offerings will not be successful and delivering customer or shareholder value.
Looking across the landscape of mortgage providers, we see lower gain on sale margins, resulting from overcapacity and increased competitive pressure, particularly in the wholesale partner channel.
We have noted previously that the industry will consolidate towards proven leaders as market shifts.
We will withstand that pressure and in fact, we can actually apply some pressure to the competitive landscape.
Our purposely diversified origination of model guards against margin compression and any particular channel of.
Forwarding us the competitive advantage to profitably take market share.
Because of our marketing power its massive scale and our ability to fully leverage it would demonstrate a nimbleness and versatility that relatively few can our marketing and machine is 1 of our greatest assets enabled the successfully feed our direct lending loan officers as well as our end market and partner.
The teams.
Our ability to nimbly and successfully and low balance and this way drove an 87% year over year, and 31% quarter over quarter increase and our purchase mortgage transaction volume.
Complementing our customer acquisition and production scale is our brand.
Condition of which increased 9% quarter over quarter, we have deliberately invested and our brand health and it becomes the second most recognized brand and the industry today.
Thanks to our popular homing of everything campaign, our organic website traffic has increased 200% over the past quarter and addition to our national broadcast campaigns. Our partnership with Major League baseball served over 406 million impressions and the second quarter.
We just passed the all star break and with the League Championship series approach and later this year, we expect to substantially grow our brand recognition without significant additional cost.
Disruption in the market today is all about better serving the home buyer or seller with easy to navigate bundle of real estate services that simplify a complex and stressful of transaction.
While others have of process from the real estate side, we use the power and scale of our industry, leading top of the funnel digital marketing power with our strategic and purpose of all sister companies and other loan depot assets to create a bundled service for our customers that most of our competitors simply cannot touch.
To that and we recently announced the launch of the loan depot Grand Slam powered by middle of home.
As most of you know a constellation of important company set underneath the loan depot umbrella, we provide real estate services through mill of home and mortgage services through home Depot. And addition, we also provide title escrow and closing services through our act and <unk> companies.
And insurance services through mellow insurance the strategy has been executed for many years with strategic acquisitions and organic build.
The loan depot Grand Slam bundled each of these items all of which are necessary for closing into 1 easy package, the delight and simplified the customer's journey of homeownership and to increase revenue for us and each transaction.
This will ultimately provide greater return on and leverage of our marketing spend.
Constant interaction with our competitors with our customers throughout their entire homeownership experience via multiple touch points and complete the flywheel effect and increases our top of funnel velocity.
Today and on depot is more than a mortgage company where.
4 of digital Commerce company committed to serving our customers throughout the homeownership journey.
We are uniquely positioned to provide exceptional value and the reason the return to us long after the initial home financing transaction is complete.
The loan people Grand Slam represents a significant step towards our vision to become the most stressed the homeowner fulfillment company and the world.
There is and the energy and enthusiasm and loan depot, we're growing and remaining very true to our public statements about our intentions.
Abilities and the ways in which we can do and will deliver for our customers.
While we are proud of our progress much of our energy is derived from the fact that we are just getting started we are always looking for new opportunities to grow and further accelerate our long term strategy.
I am excited about what the future holds for our customers our team and ultimately our shareholders.
With that I'll turn things over to our CFO path Flanagan, who will take you through our financial results in more detail Pat.
Thanks, Anthony and good morning, everyone, we're coming up on a 6 month Mark since our IPO in February and on both excited and proud of what we've achieved during the short period of time as the public company and thanks to the continuous hard work and commitment of team loan depot.
This quarter, we reported total revenue of $780 million diluted earnings per share of <unk>.
And adjusted diluted earnings per share of <unk> 18.
Reflecting lower loan origination volumes and gain on sale margins, which is reflective of the overall industry reality.
And the second quarter and loan origination volume was $34.5 billion of decrease of 17% from the first quarter of 2021, our retail and partner strategy has delivered $10.4 billion of purchase loan originations and $24.1 billion of the refinance loan originations during that period.
Our retail channel accounted for 81% of our loan originations and our partner channel accounted for 19% of our non originations the consistent contributions across both channels signify the strong customer and mortgage broker relationships. We have built over time as well as the effectiveness of our innovative <unk> technology platform.
To underwrite process and fund mortgage loans originated both in house and with our partners, while delivering an exceptional customer experience.
Our rate lock volume of $42.1 billion for the second quarter resulted in quarterly total revenue of $780 million, which represented a decrease of 41% from the first quarter. The decrease in revenue as the result of the broader trend and mortgage in the mortgage industry, leading to lower industry loan origination volumes and gain on.
On sale margins are.
Our total expenses for the second quarter of 2021 decreased by 14% from the first quarter of 2021, primarily due to lower variable expenses on loan origination volume and IPO related expenses incurred and the first quarter.
We also implemented cost cutting initiatives the results of which we expect to be primarily realized and the second half of 2020, 1 our technology driven processes allow us to adjust our expenses to changing market conditions or as demonstrated by our increase and purchase loan originations during the quarter adjusted our pipeline.
Opposition to load balance of our operational capabilities.
Our growing servicing portfolio perfectly complements our origination strategy ensures that we can serve our customers through the entire mortgage journey.
The unpaid principal balance of our servicing portfolio grew to a record level of $138.8 billion as of June 32021, compared to $129.7 billion and the first quarter the.
This growth grew this growth was inclusive of the sale of $14.4 billion of unpaid principal balance completed during the quarter.
The change in fair value of our mortgage servicing rights was not fully offset by our hedging instruments as longer term and interest rates fell and experienced a higher level of volatility on.
Also the low interest rate environment is continuing to result, and high levels of amortization expense from higher prepayment rates. Fortunately, we were able to retain many of these customers as our organic refinance consumer direct recapture rate increased to 75% as compared to 72% for the first quarter of 2000.
'twenty, 1 highlighting the strength of our customer relationships. We are very proud of our progress because of this growth was against the backdrop of growing our servicing portfolio in house and relying relatively less on third party sub servicing partners.
We reported adjusted EBITDA of $109.3 million and net income of $26.3 million of compared to $458.1 million and 427.9 million from the first quarter of 2021 of the quarter over quarter decrease was primarily driven by the decline and gain on sale.
Arjun and rate lock volume importantly, adjusted EBITDA exhibited the smaller decline the net income, reflecting the strength of our core business.
As we look ahead to the third quarter and building on our growth strategies that we laid out and assuming no material changes and interest rates and competitive landscape. The company expects rate lock volume of between 44 billion and 54 billion, reflecting the recent decrease and interest rates are strong.
Long July production volume and the addition of loan officers and joint venture partners. We also expect loan origination volume between $30 billion from 36 billion and we expect third quarter gain on sale margin of between 245, and 295 basis points origination volume.
Now, let me turn it back over to Anthony for some closing comments.
Thank you Pat before we turn to questions I, just wanted to take a moment and see.
Say that I'm proud of the team and our results this quarter at the <unk>.
As I am of all loan depot has accomplished and as confident as I am about what loan depot and our affiliate companies will deliver we will never be a company that is satisfied.
Our 1 day rest on our laurels.
And we remain focused on our strategy of offering even more adjacent non mortgage real estate related services that will serve our customers through every stage of the homeownership journey.
Providing our customers with a robust choices and and expansive set of products and services through our proprietary technology.
<unk> data and analytical capabilities and exceptional service, how we will continue to win.
Loan depot is uniquely suited to re imagine the home buying and selling experience. Thanks to its top of the funnel marketing and customer acquisition power.
The diversified loan origination strategy proprietary technology and ancillary services.
Our assets and capabilities of some of the most sophisticated and diverse and the industry today.
We continue to use our collective wisdom relentless thrive and ending curiosity about what is possible to delight customers and employees diversify our offerings and subsequently our revenue stream and deliver shareholder value.
During our initial public offering earlier this year. We told you we will continue to focus our long term vision by growing our brand investing and our technology and aggressively recruiting loan officers as we continue to grow our market share.
Our results this quarter demonstrate our commitment to those principles and you'll see us continuing to deliver on those promises and the quarter in years to come.
Now with that we're ready to turn it back to the operator for Q&A operator.
At this time I would like to remind everyone in order to ask the question.
Press Star and then the number 1 on your telephone keypad.
For just a moment to compile the Q&A roster.
Your first question comes from the line of Doug Harter from Credit Suisse. Your line is open.
Thanks.
First of all thank thanks from the guidance.
Just hoping you could talk a little bit.
And more about gain on sale margins per growth.
And kind of per hour for the second quarter into July.
Sure. Thanks, Doug. This is this is Pat so as.
As we stated in the range of guidance that we provided between $2.45, and 295, we have seen.
Recovery and <unk>.
In June and July for.
Caused by a combination of factors, including expanding our product offerings and.
And we're confident in that range that we quoted and and we've seen significant recovery and.
And July and I think debt.
It's also representative of our multiple channels.
Both partnerships and retail, allowing us the flexibility to offer different products at.
At higher margins.
Great and then can you just.
Talk about.
And how youre seeing consumer response to the slower rates.
And kind of thoughts as to whether we're starting to sort of refi burnout at the level of rates.
Kind of putting on.
And the Capex of where we are today.
Hi, Doug its Anthony So I think Theres a couple of questions there.
First with with interest rate.
The reducing of debt over the last.
A month or so we have seen an increase and refinanced demand.
But more importantly, the company has shifted some of our marketing.
Towards non rate and term refinance so those.
Consumers that are less interest rate sensitive.
Such as cash out for debt consolidation and the home improvement and of course.
Purchase lending.
So there is a substantial amount of interest level from our customers.
We are talking to more customers than ever and our 11 year of 11, and a half year history.
We are seeing more and do need being developed by our brand and our marketing team than our 11 and a half year history. So theres plenty at the top of the funnel.
So this is a expense.
Well as a margin environment as the industry continues to sort out capacity and how the neutralized capacity and ultimately and margins will return.
The margins that Youre seeing today is very temporary it always happens during the time of change.
And but we're very bullish on the top of the funnel the customer demands are still very very active.
Great. Thank you Anthony.
And of course.
Your next question comes from the line of Brian <unk> from Jefferies. Your line is open.
Hi, Good morning, guys. Thanks for taking my question. The first 1 is on the guidance.
And you are guiding us on gain on sale for <unk> and I'm curious the can you touch on the competitive trends youre seeing and the and the retail channel of that kind of caused us to key dynamics and then is the <unk>.
And your guide mixed shift.
Each of that Fak is a function of an improvement and margins versus mix shift across channels. Thank you.
Yes, and what we're seeing and the in my this is Jeff Walsh, what we're seeing and the in market reach out until channel is.
And the ability to kind of have to hold on to margins and as we watch the kind of the composition of our pipeline shifts.
The purchase we see.
No.
31% increase and purchase volume Q over Q and 87% year over year.
Because of the nature of that transaction.
On the purchase side.
On the margins are higher and.
We're positioned I think well to take advantage of of both.
<unk> and refi markets and whatever the market gives us the diversification allows us to take advantage of of either but we're definitely seeing the dynamic of the margin on the on the retail side.
Hey, Brian its Anthony let me just add on to Jeff's comments and.
Provide some contacts so this is the the.
The start.
The trend change.
And the industry is trying to sort out where margins should rest on a go forward basis on what I'm seeing today is.
Is the first of of its kind of that is the through different models and distribution.
<unk> are decoupled.
You have 1 channel that is different from others.
I've seen that before.
And it would be interest and to see.
How is the Jos.
1 channel versus another.
But it's not sustainable for margins to be decoupled.
When when the industry of selling the same exact product now keep in mind that 90 plus percent of.
The fundings that were still seeing true the mortgage industry today is fueled by FHA VA Fannie and Freddie. So it is the same product with different margin profiles that has been decoupled.
All of this is new.
The post financial crisis, and the fact that countrywide vacate of 22% market share when it fell.
On the land grab here and the race for.
For substantial category, leading lenders to mass market share.
And some some behavior that's interesting, but the decouple of margin is not sustainable so we're watching that pretty carefully.
Got it. Thank you and then a quick follow up specifically on the expense side.
Your expense cuts.
And are you going to see the bulk of the come into play I know you noted for the back half of this year, but what about 2022 and within that where any kind of seeing yourself getting from the pretax income as a percentage of volume basis for next year and.
The normalized environment.
Yeah.
Yes, Brian so.
You would expect to see the the.
The expense savings and.
And the back half of this year is going to be primarily and personnel expense and it's largely driven by changes and variable comp components.
And and as we mentioned during the IPO process as we.
Continue to rollout additional technologies, particularly on our fulfillment groups that allows us to reduce the variable cost.
And and.
Primarily the fulfillment side of the house reductions and.
And over time spending as we work through the.
The pipeline and backlog and we are more appropriately staffed.
With our with the mix between salespeople and processing people.
And I think Youll see the continued rollout of the technology into the next year and we continue to focus on driving efficiencies out of the business, but we haven't provided any specific.
Guidance towards that and 2022, yet, but we're very focused on cost and efficiencies and reducing the volatility around the expenses when we have changes and the interest rate cycles.
Thanks very much.
Your next question comes from the line of Manu <unk> from UBS.
Your line is open.
Good morning, guys amongst the Brock Vandervliet this margin.
How is everyone.
We're good at and I knew how are you.
And not that all of that.
I just had the quick question on the market share we.
Acknowledging the pressure on volumes that we saw with some of your market share and purchase.
And all of it over the last quarter and.
Any thoughts on whether the banks, who are gaining share or whether that's on some other factors and the industry.
Okay.
Yeah.
Many of those.
And it's Anthony so we've grown our volume of.
Compare the last year 6 months the.
The this year year to day 6 months, we've grown our volume alone depot by 110%.
And we've grown on the average of 46% for the first 10 years of our of our history and have grown our market share substantially and the last 6 to 12 months a lot of that is the fact that we continue to be very disciplined on of diversified origination channel arguably the most diversified and contemporary time.
And we have and market loan officers directly on the loan officers joint venture partners and mortgage broker partners.
And in addition to that we've been very disciplined on.
<unk> and consistently building our brand and our brand recognition that ultimately helps us drive down customer acquisition cost.
So.
The banks are conceding the market share to non banks and I think the non bank community Youre going to see consolidation continues to happen.
The the massive capacity build up of non bank lenders started in 2009.
But I believe and the last 9 months it has shifted into a market that's going to consolidate and we certainly are confident that we're going to be a beneficiary of the market that is consolidating while we continue to look for organic builds and all of our channels and as well as continued to be very aggressive.
On the lookout for any acquisition opportunities.
Okay.
Sounds good thank you for that color.
And the entity and there are many.
People on officer comment last quarter.
Which is that no 1 who would be willing to sell you the dollar bills and Mackie.
And so I guess my course of business.
Any color on how long this excess capacity in the.
The industry can persist the gist.
And we're talking quarters year on you talked to you.
The year down the road.
It depends on where the 10 year.
And while rest so we certainly got some of that back and as a result of the.
Mortgage volume increased because of lower lower volumes, but we've had we've had some challenges on the purchase market because of the lack of inventory so.
We.
We like the fact that there is pressure.
So of selling dollar bills for 90 cents is a good thing for companies that have the proper strategy.
We don't like giving away earnings certainly that is something that no..1 likes however of the value that we create and amassing market share is substantial so.
As we provide guidance, which by the way on against it but my team very much wants to provide guidance to all of you.
Margin is a reflection of how competitive we want to be and I know my competitors think exactly the same way and that is it is a tool that we can use the temporarily put additional pressure.
On some of the lenders that cannot withstand that sort of pressure and ultimately the total addressable market is massive.
The barrier to entry is significant and we are on our way to amass more market share over a long term strategy. So this is very very temporary this was a 9 inning game and we are and the bottom of the first inning and there's a long long ways to go.
Got you I appreciate the color and I do I will say that I appreciate the guidance as well alright. Thanks.
Thanks for the time this morning guys.
Youre welcome.
Okay.
Your next question comes from the line of Kevin Barker from Piper Sandler Your line is open.
Good morning, Thanks for taking my questions.
And regards to the gain on sales guidance I just wanted to clarify that is on pull through weighted gain on sale margin rate not the state of $3.28 gain on sale margin could you clarify on it but.
And Kevin and nobody is on on.
On the non origination on pull through of weighted law.
So you Havent gone from $2.28 up to the $2.45 to 295 range.
Correct.
Okay, and then the retail gain on sale margins went down 75 basis points quarter over quarter on funded volume.
Which seemed like a heavier dropped and we see from other retail originators are ones that are focused mostly on the retail channel.
Was there anything in particular that occurred this quarter that may have caused the additional.
Additional wave was there something with hedging or pull through with debt.
And the impact of it now.
I think I think more of what that was reflective of the.
And the difference between funded loan volume different carried over from the prior quarter and to locks and the current quarter, So and the press release, when we show of the poultry weighted gain on sale margin per.
At $2.60 for the I'm not sure did we get the channel breakout, but there was less there was less variability when you look at it on blocks that occurred during the quarter. So I think I think it's.
That was largely the timing differences.
That show it to be artificially low.
Okay.
Okay. If you were the right size the gain on sale margin guidance on.
On the pull through.
The basis, what would that look like relative to the $2.64.
Okay.
So we'll circle back and.
And get back and that I don't have and I don't have that handy, but I can say that the trend.
And now as we've overcome the majority of the pipeline and backlog.
The level of block C and.
Or should be representative of the.
And could be should be reflective of what the funded volume result, and.
And so youre going to see the the difference between.
The poultry weighted and lock and on sales and funded gain on sale become tighter.
Okay, and then on the cost cutting initiatives is there any way you could size up.
Whether it's on an absolute basis or as a percentage of your total origination volume that we should expect.
With total operating expenses.
But we're continuing to grow.
And add head count and add loan officers, so I would expect the overall.
Dollars of expenses and the quarter to increase but the cost to acquire and the <unk>.
Cost of manufacturer allowance.
And it will be representative of the operating leverage we're creating true technology and change of workflow.
Okay. Thank you for taking my questions.
Your next question comes from the line of travelers Cranston from JMP Securities.
Your line is open.
Alright, thanks, and good morning.
Alright, you guys, you guys mentioned focusing more going forward on.
The non.
Term refinancing opportunities and more so on the cash outside.
I was wondering if you could maybe provide some color around kind of how much of the refi volume and <unk>.
And what you've seen in terms of sort of true.
<unk> and <unk>.
Success and growing the crusher of business and how much of the growth opportunity do you think the reserve price.
Yes.
We're looking that up right now Trevor.
Not sure if we have that quite handy.
But if not and Thats certainly go back to you.
Yes, we don't have all of the details for you Trevor but 56% of volume of this quarter was cash out on purchase. So we can certainly get get you. Some of those details offline and I think we couple of those cash out and purchased together as there are less interest rate sensitive portions of the.
The business.
Got it okay the ratios.
Yes that makes sense.
Okay I appreciate the growth thank you.
Your next question comes from the line of Stephen Sheldon from William Blair. Your line is open.
Alright, thanks for taking my questions.
It sounds like Youre, continuing to see strong the lead volume. So I wanted to ask I guess, how much of that is being driven through raw and beat both organic channels versus relying on third party leads are you getting enough lead volume organically, where youre not needing to rely on third party sources, especially with some of the and the increasing brand awareness that you've noted or have you.
Opened up more on the third party side to kind of supplement the.
The strong lead volume that you're generating organically.
This is John Lee I'll cover that Thats, a great question. So.
We're seeing very strong organic lead volume growth.
As our top of funnel reach is really impacting our ability to to the market digitally and through other direct response channels and we've actually seen our organic lead performance outperform the first half of 2020, it's up 60% versus last year same period.
We're also seeing a very large increase and.
The website visitors and its up 200% quarter over quarter, so organic marketing and really our brand marketing is having an impact on the top of the funnel and most importantly, though it's having a big impact at the purchase strength at the.
At the transaction level as well so our brand awareness is converting into more transactions for the company.
And I just wanted to answered and I just wanted to add on to that and I think the question was how much of it is organic how much of the third party and the way that we measure of that is.
We look at the return on investment of our marketing dollars on all of those channels and what happens with third party.
The lead performance as we see an increase in conversion because of brand recognition. So as we develop brand and add to the top of the funnel of greater marketing spend we're seeing the flywheel effect, where organically, we're producing more leads because of the brand awareness and.
We're seeing higher conversion through our lead partners because of of brand awareness and my last comment that I want to make is understanding that.
A digital company that is creating velocity and commerce at the top of the funnel as we add adjacent products and services, we have and embedded cost of marketing and our ability to increase revenue by adding adjacent products and services.
The same core customer base, which is a homeowner or homebuyer.
Laos us to further increase our marketing leverage and further get paid back on the marketing spend. This is the important point of differentiation between loan depot and many of our legacy mortgage competitors is that they do not have these assets at the top of the business model.
Got it that's really helpful.
Just wanted to ask about the Grand Slam package, just some more detail there on the rollout the timeline for it to be available.
And would be kind of a gradual by geography or more of a national rollout and if it becomes highly utilized by consumers.
How should how should investors think about the potential financial implications.
So this is this is the this is the future. So we've been hard at work on adding adjacent products and services and add any of these assets for many many years.
So.
The products available on October 1.
We have 4000 of the top performance real estate agents throughout the country that is participating through middle of home, which is our sister company. Our title is going to be available Jeff correct me of overall about 40 states.
As we roll that out.
As well as rolling out mellow insurance and the providing of free home warranty for our homebuyers. What's important here is that as we create at the top of the funnel lead flow and many customers are coming to us. They do not yet have of real estate professional they are looking to buy a home.
We're looking to get pre qualified and this gives us a substantial opportunity to utilize our brand and allow that customer of the come through us for us to and SGA.
Transfer or introduction to a mill of home participating and real estate agent.
And as a result of the bundle service, which has a guaranteed low price component to the consumer they will never pay more by utilizing the loan depot Grand Slam and as they do we Ashley will provide a $7000 cash rebate back to the consumer so not only do they.
Save money.
And have that $7000 to fuel some of their moving costs or.
Some of the cost to improve the property, but they have of bundled service and on a single branded approach that encompasses all of those adjacent products and services together.
Great. Thank you.
Your next question comes from the line of James Fawcett from GAAP Stanley. Your line is open.
Hey, good morning.
My question May be accused of little bit on given what's going on and the market et cetera, but if we take a step back.
And the market is still quite good.
Youre, obviously, making adjustments to.
To the realities of kind of the current economics, but to your point, Anthony and there'll be some point of normalization, where things will kind of settle back into <unk>.
Probably something thats more sustainable economically and you are still making a fair amount of money and generating good cash.
So how should we think about like where the uses of that cash of this.
And if something makes sense to look at returns to shareholders or is this the right time to be reinvesting or should you be kind of building.
The war chest of funds and the event the rash.
Rationalization of normalization takes longer than expected just trying to think through kind of the different ways that you can take advantage of of.
The current environment, even if it is.
And under some pressure.
Right now.
Hi, James Thanks.
The good question.
And we think about cash.
Capital planning and proper levels of levels of liquidity to run our business. Obviously constantly we have internal metrics that we measure against and and on the other hand, we are always looking at the right way for us to return and create value for our shareholders. So we.
We can invest in growing our origination franchise, which we will and continuously do.
And then it becomes a question of capital allocation.
We want to invest and growing the servicing assets as well as we've said before we are actively looking and the M&A market.
Both the in the mortgage side and the non mortgage side.
And we will use.
And we've also stated our intention to be on a constant dividend payer on a quarterly basis, but outside of that if we look.
And we have excess capital we can use any kind of the combination of factors return.
Our tools to return value to the shareholders as evidenced by our special dividend earlier and the year.
And so we'll continue and evaluate all of that but the focus is on.
Growing shareholder value.
And I appreciate that and and.
Anthony obviously, <unk> been matched and Ms industry, much longer and deeper than probably anybody on this call and or at least most people on this call can you.
Is there a was there a time, where you can draw some parallels from your experience and kind of what was the the things that you did with your company is 1 of the loan depot or previous ones and.
The reaction to that and.
Just looking for any parallels the maybe what you've seen and your experience versus now and and how that's informing you of decision making right now.
James This is certainly.
Non our first rodeo everything here is highly predictable theres been very very little surprise.
My challenge Us as the founder and CEO is to make absolutely certain that this team is poised.
To continue on our strategic journey and.
That we don't get sidetracked by some of this temporary flavors that we're seeing today, which is highly predictable. It will return and this is all temporary.
The primary difference here versus the cycles that I've done and in the past of gone through and the passage of the digital disruption and consumers are changing we have the continued to invest into technology and brands. Those are the differentiators that will not change during this debt.
This year of the disruption that is creating wonderful opportunities for companies that get it they understand how to build a better mouse trap for the future. So we have to remain very focus to our purpose and.
And non and allow the temporary noise of margin.
That is going to derail us and anyway. So.
Nothing James that I've seen during the cycle that is that is really anything different.
I appreciate that thank you.
Your next question comes from the line of Mark Devries from Barclays. Your line is open.
Thank you.
Were there any material differences this quarter and your.
Retail gain on sale margins on the end market business versus direct to consumer.
So on.
And I'll take that.
Yes.
I don't I don't believe Mara.
Mark that we have separated out.
Our revenues by direct lending versus end market, but I will say that these 2 markets of decoupled.
And that is not sustainable they will come closer together as the market continues to adjust through the cycle.
Okay.
Is it safe to say that.
The.
The competitive dynamics from the wholesale channel really had an impact on on.
And on the end market, where you are kind of competing more head to head on and direct to consumer.
And I know you can hear the background here.
No.
Whats what's happening right now is several things, but the wholesale market continues to be very very competitive and thats going to continue fuel pressure for the industry that we like.
But 20% less and 20% of our.
Originations, our partner channel and of that I believe only half of that is our wholesale channel. So as we continue to watch that.
Theres certainly pressures from.
How wholesale as pricing and.
And the type of pressure that we're seeing through customers, saying that they have received current bids or offers from mortgage brokers, but it's still not massively affecting the overall retail margins as of yet and then.
And.
And let me just add where we see.
The competitive nature is more along the lines of purpose than it is on by channel.
And as we mentioned the less rate sensitive customers are cash out refinance and purchase and we saw that the opposite of that happen and <unk>, where most of the pricing pressure came and the rate and term refi side, regardless of what channel is originated and.
And that's 1 of the reasons why we are focusing on.
Broadening the product reach and continuing to repurchase and we think actually having all 4 channels and the ability to toggle to the market as the competitive advantage.
Okay, that's helpful and.
And just wanted to clarify a few comments you made on on Grand Slam did I hear correctly and when do you use the word free on the.
Home warranty.
Net something where the premium is being covered are you referring to maybe the commission.
The Commission free.
Sales of the home warranty has blue, but how is the kind of work.
We are of group and that in and providing that product free of charge to our Grand Slam customers. So it is it is free.
Okay got it and.
So thats effectively part of the.
On the.
On the rebates that you alluded to.
No. That's in addition to the cash rebate. So the way to look at that everyone is the fact that we have and embedded marketing cost as the mortgage lender.
And as the mortgage lender of the return on marketing Formula of works for very well for US if you add entitled revenue clothing revenue real estate services revenue that really juices, our marketing return and it gives us the ability to provide some of those revenue and earnings as the <unk>.
Back to that customer.
Okay, great and so that that could come through both.
The free home warranty policy and addition to rebate.
That's correct.
And interesting.
Okay. Thank you.
Youre welcome.
There are no further questions at this time and Denise <unk> I turn the call back over to you.
Well. Thank you all again for joining us and for your questions. We look forward to continuing to build our relationship with each and every 1 of you over the long term. Thank you again and have a great rest of the day.
This concludes today's conference call you may now disconnect.
And.
And.
And.
Okay.
And then.
Okay.
Good day.
Yes.
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