Q3 2021 Doma Holdings Inc Earnings Call

November 10, 2021

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2021 earnings Conference call.

This time, all participants are in a listen only mode. After the Speakers' presentation, there would be a question and answer session.

To ask a question during the session you will need to press Star then one on your telephone.

Please be advised that today's conference is being recorded if you would.

Any further assistance. Please press Star then zero.

I'd now like to turn the conference over to your Speaker for today, Chris Maloney Investor Relations of Doma you may begin.

Okay.

Yeah.

Thank you operator, and good afternoon, everybody and thank you for joining Delmas third quarter 2021 earnings conference call earlier today <unk> issued a press release announcing its third quarter results, which is also available at.

Investor Dot Dot dot com.

Leading today's discussion will be done the founder and Chief Executive officer accident cost.

Chief Financial Officer Gnomon Amit.

Following managements prepared remarks, we will open up the call to your questions.

Before we begin I would like to remind you that our discussion will contain predictions expectations forward looking statements and other information about our business that is based on management's current expectations as of the date of the presentation forward. Looking statements include but are not limited to <unk> expectations or predictions of a natural and business performance and conditions.

In competitive and industry outlook forward looking statements are subject to risks uncertainties and other factors that could cause our actual results to differ materially from historical results or from our forecast, including those set forth in doma form 8-K filed today.

For more information please refer to the risks uncertainties and other factors discussed in <unk> SEC filings all.

Cautionary statements that we make during this call are applicable to any forward looking statements, we make wherever they appear you should.

Sir please consider the risks and uncertainties and other factors discussed in <unk> SEC filings.

Undue reliance on forward looking statements is doma is under no obligation and expressly disclaims any responsibility for updating altering or otherwise providing any forward looking statements whether as a result of new information future events or otherwise except as required by law.

Additionally, during the conference call. We will also refer to non-GAAP financial measures, including retained premiums and fees adjusted gross profit and other measures described in our earnings release, our GAAP results and descriptions of our non-GAAP financial measures with a full reconciliation to GAAP can be found in the third quarter 2021 earnings release, which has been furnished to the.

SEC and is available on our website.

I'll turn the call over to Maxim cost CEO of Doma.

Thanks, Chris and good afternoon, everybody. Thank you for joining us today for <unk> third quarter earnings call. I spent my opening remarks on our first call as a public company. This past August talking about <unk> growth and how it is primarily driven through the application of cutting edge machine learning technology to remove giant chunks of friction frustration and expense.

From the historically tedious process of closing residential purchase or refinance transaction.

And I am going to start today's call with the same focus on that same theme as demonstrated by three key drivers in Q3 number one our accelerating growth in Q3 was driven by our technology.

Number two our outperformance is showing no signs of slowing down and number three we are now focused on applying our proven technology to more of the market, particularly in the purchase market.

As we look to further extend our market share gains in 2022.

Now, let's examine each of these points a bit further.

First against the backdrop of a declining mortgage market in particular for refinancings Delmas closed order volume grew 39% year over year with Delmas enterprise segment growing at almost 400% year over year.

As a reminder, <unk> enterprise segment is where all of our proprietary Doma intelligence platform and differentiated operations are fully deployed today, and therefore, where the transformational benefits of our technology are most evident.

In Q3, our tech driven differentiation benefited from continued investment in our product specifically, we rolled out important new functionality to our doma docs capabilities that deepens its algorithms to tackle the more complex closing disclosure scenarios for context like.

The creation of closing disclosures involve the manual and error prone work of collaborations with lenders and typically represent roughly 20% of the entire closing process Doma.

Doma Docs uses machine intelligence to replace this manual process of delivering closing documents with a fully automated solution driving better outcomes for our largest clients. As one example, we were able to drive a 32% increase in transaction processing efficiency for a top five national lender, we serve thanks to the reduction in turnaround time and.

Annual final touches that a set of new computer vision capabilities Doma docs delivered in Q3.

We also made further progress in building out new capabilities for our Doma connect integration layer, which allows our largest clients to automate order creation and management.

These new capabilities improved order flow across key middleware platforms used by our largest mortgage originators and making those connections more seamless and fostering further expansion of wallet share the new doma connect capabilities delivered data elements via an external endpoint to one of our largest strategic accounts that will enable them to automate a manual review process and drive <unk>.

Foster transaction processing.

Doma was their first partner to deliver this deep level of integration, which had been an outstanding request made up their traditional title and escrow partners for over two years.

These new technology capabilities of Doma Docs Doma connect building on the strong core foundation of our differentiated domain intelligence platform proved that our technology is a key driver of our growth.

To dive a bit deeper now in the second key takeaway from Q3, our outperformance versus the market shows no signs of slowing down.

In a quarter, where overall market refinancing activity contracted by over 40% year over year. According to the mortgage Bankers Association, our enterprise channel, which is almost entirely refinance driven turned in 386% year over year closed order growth due to both the addition of several new enterprise customers as well as the expansion of wallet share with a number of our <unk>.

Existing enterprise customers.

We also showed solid growth in closed local purchase orders versus double digit market contraction and purchase according to the MBA.

And despite the likelihood that overall volumes for the mortgage market at large are expected to be significantly down in the near term we remain bullish on <unk> expected outperformance going forward. This dynamic invest be seen by virtue of the strong growth in our open order volumes, which grew 41% year over year in the third quarter also representing our <unk>.

Third consecutive quarter of sequential growth.

Finally, moving to the third key takeaway to extend our proven technology and operating model to more of the market as soon as possible. We are accelerating the pace of key growth investments inclusive of increasing our focus on migrating our local channel transactions to the Doma intelligence platform as well as beginning to capture a larger addressable market opportunity.

Adjacent markets with respect to the migration of local channel transactions to the Doma intelligence platform. We are confident that this will enable local realtors and local lenders to see more of the same value proposition that we've been delivering to our enterprise partners with a faster better and more affordable closing experience.

We started this effort by moving local refinance transactions to the platform. This year and are on track to begin moving purchase transactions through the platform later this quarter.

This will be a heavy lift for the team over the next several quarters, but the longer run benefits are expected to be exponential.

Additionally, our ability to invest some of the proceeds we raised earlier this year in building out solutions for the two key adjacent market opportunities of appraisal and home warranty will help ensure that we can maintain our record of outperformance not only through next year, but well beyond that as we execute on our long term vision of creating an instantaneous digital and delightful closing process for our lender in real estate.

Partners, and especially for our shared homeowner customers.

As our team has recently started to put together our investment plan for 2022, we are focused on utilizing a significant amount of the proceeds raised by going public to expand the use and coverage of our Doma intelligence platform throughout the year ahead and to ensure our continued outperformance versus the overall title and escrow market. Additionally, we continue to develop our approach to enter.

Markets, such as the $8 billion appraisal market and the $3 billion on warranty market.

As we finalize our 2022 plan, we will look to ensure that our scope and pace of investment next year and beyond will set them up to capture a greater share of the residential real estate value chain and innovate in adjacent markets that are is manually intensive as the traditional title and escrow market.

Going public and raising the associated proceeds for these investments established our place as a growth business, enabling us to more rapidly more of our local business expanded to new markets more quickly and launched new product functionality that extend the advantages of our Doma intelligence platform, we intend to take full advantage of this favorable positioning.

Heading into the fourth quarter. We also remain focused on recruiting and hiring world class talent not only as the company grows and evolves, but in many cases ahead of our plan growth. We are at the beginning of a multiyear journey to expand and grow our customer acquisition and fulfillment functions and we believe we will be best served by aggressively recruiting and onboarding uniquely talented individuals' to dry.

A rapidly innovate on customer acquisition and fulfillment functions, including many from outside the traditional real estate industry.

In Q3 alone we were able to add a number of critical new hires with diverse backgrounds from some of the leading tech companies on the planet such as Amazon, Apple Facebook, Netflix Logmein and Splunk among others.

In parallel our recruiting team added resources to ensure that we can continue to hire key talent across the company as we head into another year of growth.

As we deepen our talent bench, we are confident that the appeal of working to bring the real estate industry into the future will help us attract the best talent in the market, our core vision and mission to make the homeownership process incident, delightful and more affordable resonates strongly with anyone that has been through a closing experience.

Due to the strength in our sales pipeline. The continued focus on technology and talent investment and our accelerated pace of 41% growth in open orders. During Q3, we are confident that we will finish the year at or above the high end of our previously stated full year growth outlook, despite a softening mortgage market.

Before concluding my prepared remarks, I want to personally thank each and every one of our doma associates across the country for their hard work positivity and passion for client service Doma has built not only on financial strength and flexibility, but also on an unwavering client Centricity EBIT is earning US enduring trust, we would have none of those attributes without our talented associates.

Who show up to work and prove their grit selflessness and determination each and every day, we thank all of our shareholders for your continued support and we look forward to updating you on our progress in the months ahead with that I'll pass it over to gnomon, who can provide more color on our third quarter results and our financial outlook for the remainder of the year.

No Oman.

Thanks, Max and good afternoon, everyone.

As Max just discussed we delivered strong third quarter results in a contracting market driven by increasing market acceptance of our differentiated offering.

Based on this ongoing momentum.

Well as our visibility into year end, we are confident we will finish at or above the high end of the expected ranges for full year growth in profits.

Come back to that I'm looking at a few moments.

First we generated revenue on a GAAP basis of $162 6 million up 34% from the third quarter of 2020.

As we have stated previously GAAP revenue includes a portion of third party agent premiums the doma just non routine.

Please greater focus on numerous routine prepayment fees or Rps, which excludes premiums retained by third party agents.

Believe this is a much better representation of underlying top line performance.

With this in mind, we grew our RPM $71 million.

A 31% increase versus the same period the prior year.

Our growth in the third quarter was primarily driven by a 386% year over year increase in closed orders in our Doma Enterprise channel.

The continued strength in this channel was the result of significant wallet share expansion among existing clients as well as for new plant additions a testament to the impact of machine intelligence technology is having in the market.

Closed orders on local channel were softer, but still significantly outperforming overall, 31% market contraction part of the MBA.

This outperformance was driven principally by 9% University, a closed order growth and purchase transactions for them up at a time and the overall purchase market fell 12% year over year.

Keep in mind that in the local channel we remain in the earlier stages of incorporating the full capabilities of our intelligence platform and as such are more limited in our ability to drive outsized growth.

It follows that these strong results are a real testament to the team's execution.

Looking at our profitability trends for the third quarter, our main focus as adjusted gross profit was.

Which grew to $30 3 million, a 10% increase compared to the same period in 2020.

Adjusted gross profit as a percentage of Rps was 43% in the third quarter of 2021 compared to 51% in the third quarter of 2020.

This change in adjusted gross profit as a percentage of Rps was driven by two main factors.

Continued investment in our fulfillment capabilities and staff in advance of the anticipated growth in our enterprise channel and the migration of our local channel volume to the centralized film intelligence platform.

And second.

This shift towards refinances, as our enterprise business significantly outperformed the industry.

Given our strong open order momentum in Q3, we expect these trends to continue in the near term.

Turning to adjusted EBITDA.

We continue to invest significantly across several areas.

With our long term plan, namely customer acquisition, R&D recruiting and other indirect costs related to the migration of our local business to Domo intelligence.

Bind with the impact of necessary investments made as part of becoming a public company. Our adjusted EBITDA This quarter decreased by $19 5 million year over year.

With respect to the capital management side of the business, we continue to operate a capital light infrastructure.

Listing Neil you have software development related to the dome intelligence platform, which resulted in a $10 $7 million investment in software in the third quarter of 2021.

Finally in terms of our plans for the rest of the year and beyond we continue to see strong momentum in our business with open orders in Q3, 41% year over year, the faster opening order growth we've experienced all year.

Our recent performance and momentum allows us the confidence to invest more aggressively in our product rollout, particularly as it relates to the accelerated migration of our local purchase business to the dome intelligence platform, which we remain on track to start by year end.

We believe the acceleration of these investments is worth any short term trade off in margins that will likely be required to get us to a larger scale faster.

Now to recap the key takeaways, we open the call it.

Our accelerating growth in Q3 was driven by our machine intelligence technology.

To this outperformance is showing no signs of slowing down and.

And three we're now focused on extending our proven technology to more of the market in particular, the home purchase market.

So with these key points in mind I'll conclude with the outlook for the remainder of the year.

Given our strong business momentum in Q3.

And now expect to end the year at or above the high end of our previously communicated ranges for retained premium and fees and adjusted gross profit.

With that we'll now open the call to questions.

Operator.

Thank you.

Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

Withdraw your question press the pound key.

Again, Thats star one to ask a question. Please standby, while we compile the Q&A roster.

Yeah.

Our first question comes from the line of Nick Joseph with Citi.

Your line is open.

Great. Thanks for taking the questions just a couple.

Can you talk about enterprise adoption, we know your vessels.

Success getting kind of.

And the door, where are you in terms of enterprise adoption in terms of the volume of mortgages versus what is kind of running through Belmont.

And then can you also remind us a little bit how.

What does it take to drive adoption for local within local transactions. Thanks.

Sure Great to hear your voice snack this is Max speaking.

In terms of enterprise adoption I'll speak in the aggregate and then maybe give a couple of specifics I think.

Simply put enterprise channel as you know is nearly all refinanced.

And given the significant growth in closed orders.

Across the entire company, but specifically the growth in closed orders as we referenced for the enterprise channel.

It's safe to say that between net new customers, we added in the quarter.

<unk> got implemented and rolled out.

And existing large enterprise relationships, we have where we significantly expanded wallet share the adoption was.

Strong across the board.

And just as a reminder, the enterprise channel of course is where we also have fullest use of Doma intelligence platform. So all of that volume goes through our industry, leading technology, including all of our machine intelligence capabilities and our Doma operating model.

And local business, where you asked about purchase transactions.

Just as a reminder.

We communicated earlier this year that we expect to start processing purchase transactions through the Doma intelligence platform by the end of this year. We are on track to do that later this quarter and as we use the dome intelligence platform across more of the transactions.

In our local markets Division, we would expect to see certainly more benefit and more adoption in that part of the business as well and the last thing I'll mention as we mentioned earlier this year that in aggregate we were planning on having the majority of our direct order volume inclusive of both enterprise and local going through the Doma intelligence platform by the end of this year and we are.

We're also on track to do that as well.

Great and maybe just a follow up on appraisal and home warranty I mean are you able to give any kind of timeline of how we should think about when that could potentially start contributing.

To the P&L, even from an investment standpoint, or when early kind of signs of revenue could show up thanks.

Sure.

We do expect to continue investing in the home warranty and appraisal areas that was.

Certainly one of the reasons for us going public and we intend to use proceeds to invest in those areas as well as other market adjacencies and opportunities that may present themselves, we aren't going to provide any specific timeline, yet, but I can confirm that we are actively building infrastructure to soon compete in those markets.

Great. Thanks for taking the questions.

Thank you.

Our next question comes from the line of Matt <unk> with JMP. Your line is open.

Hey, Thanks, good afternoon.

Hey, Matt.

And maybe I'll start with a follow up on on the enterprise partnership channel and specifically around pipeline could you help us understand kind of.

Kind of what the status is of ongoing discussions for new partners that maybe arent announced yet and then kind of for the partners who do have already can you help us understand you know like some of the more.

Mature ones kind of what sort of ballpark wallet share does doma half and longer term, what sort of wallet share do you target or think that doma could achieve.

Down the road.

Sure.

Without getting into too many specifics about any one customer individually.

We feel like we've got a very strong pipeline with a number of mature sales cycles with top 25 mortgage originators, we continue to onboard new clients each month and we've also added a number of key team members to our Doma enterprise sales team, which we think will not only help us execute on the new customer pipeline, but further unlock.

Additional volume from some of those existing large strategic clients that you mentioned.

On the topic.

What our wallet share is with existing enterprise clients.

We don't announce specific wallet share numbers for key clients individually, but I will say two things one is that when you look at our overall wallet share or market share rather.

I mean, just kind of the bookends of end of last year, it was less than 1% of the entire market certainly.

We've been growing significantly this year, but we still have plenty of room to take share and that includes from existing accounts and I think what's probably most important is just frame, where we think we can end up in terms of wallet share with some of these large enterprise customers, we think that over time, it's entirely reasonable.

For us to command north of 50% wallet share with strategic enterprise customers. We we see the use of our solution is becoming more and more.

On the necessity for them driving differentiated outcomes in terms of a better faster and more affordable mortgage closing experience and and so we feel like it's entirely reasonable to be able to get north of that 50% number in that channel.

Okay, Great and then a follow up if I could on on your comments in Oman is around kind.

Kind of accelerating some investment to capture share you've got momentum and so forth and just want to understand the comment was made about investment to capture share in basically the tradeoff is maybe some margin in the near term can you help us understand how that might differ.

For guidance, but just ballpark wise or.

Qualitatively versus kind of the original plan and then and then lag time kind of as you make those investments kind of what do you view as kind of you make an investment today.

How much time before you see results from that.

Yeah, Hey, Matt.

Good to catch up again.

So with respect to the comments around investments locally risk raised.

A significant amount of funds by virtue of going public with the idea that we can invest those funds to drive faster growth and acceleration of our product platform.

And so we intend to do that now.

We are in the process of.

Building out a plant as I mentioned last time we.

Spoke and we will be sharing that plan at our next call.

But to provide you some qualitative guidance again, we want to accelerate investments in customer acquisition that you would expect we want to accelerate investments in our product and development developing both our product as well as migrating the purchase volume onto our dome intelligence platform. So we intend to accelerate those investments.

That means is in the short term there are trade offs, because one very simply we do hire.

Times three to four to five months in advance of growth.

And so there's a short term impact, but I think nothing in our long term plan changes, we're doing exactly what we had outlined we would be doing with the funds raised.

And so I think.

The comments are just in line with that.

Earlier.

The commentary around.

Capturing greater share than what we had outlined previously.

Great well. Thank you for the answers congrats on a nice quarter and best of luck.

Thanks.

Thank you.

Our next question comes from the line of Jason <unk> with Oppenheimer. Your line is open.

Hi, Thanks, two questions here can you give us a sense of what kind of progress you've made either sequentially since the beginning of the year even year over year.

Wallet share expansion among existing enterprise accounts and then second.

Any risk that as refinance slows youre not able to offset it with purchase.

And just kind of talk about that transition bank.

Sure happy to Jason This is Matt so on the on a year over year sequential gains in wallet share.

Without getting into again specific.

Client numbers I would just say that it's safe to assume that in a quarter, where overall refinance volume.

Volume across the industry contracted by north of 40%.

And we grew our enterprise channel, which is substantively all refi by nearly 400%.

Debt.

We've seen both significant new customer ads and significant expansions of wallet share consistently throughout the year.

Kind of across the board so.

And I really think that thats kind of important in answering the second part of your question, which is while we remain very confident we will be able to move purchase volume to the platform.

And as demonstrated by the targeted investments we made in sales and marketing this past quarter to drive more purchase volume into the business in general is normal I mentioned earlier, we saw 9% growth in.

Purchase transactions at a time when even the purchase market contracted year over year.

We also still are quite confident that with our differentiated solution. We can continue significantly outperforming the market and taking share.

The refinance side.

Despite the fact that the mortgage refinance market is expected to contract and if you remember this is all really factored into our.

Original plan and projections, we use the backdrop of the mortgage bankers Association.

Forecast for what they thought would happen with the refinance market, which I think at the time that we.

We communicated our original plan earlier.

This year, they were certainly expecting refinance volume to I think to start contracting sooner, but it actually did and then happened to a significant degree where 75% of refinance volume.

Fell away in inside of I think the next 24 to 36 months. So all of that was already factored into the plan and I think as you've seen in the last quarter. We are demonstrating that we can significantly outperform the market regardless of what the macro backdrop is.

Thank you.

Okay.

Thank you.

Our next question comes from the line of Tom White with D. A Davidson your line is open.

Great. Thanks, guys for taking my question and nice quarter.

I guess I wanted to just circle back on the comments around or in the press release, but accelerated.

Kind of investing in an accelerated migration of film intelligence to local I guess what.

What does that mean exactly is that just sort of like put.

Putting kind of more heads and engineers on the on the project.

Sounds like Youre, saying Youre still on track for.

Kind of rolling it out at the same time, you've been talking about so if you put in kind of more investment towards it does it mean that the rollout may kind of happened faster over the over the course of next year.

And I'm curious how that might impact.

Kind of the financial model, if that's if that's correct and then I have one quick follow up.

Yeah, Hey, Tom This is Omar so.

What I would again say is blue chip specifics of our plan again next quarter, but here's what I can share right now.

When we say accelerated investment, especially around purchased it is accelerating.

The path for purchase volume onto dual intelligence and that requires.

Significant upfront sort of costs again longer term, it's a wash and again consistent with our plan. So there is there's a tradeoff in the short term because of that acceleration.

And that acceleration again goes to our thesis around going public which was to drive.

Significantly higher growth than what we had outlined in the original plan.

So we are looking forward to deploying the capital in that area on top of that I think that as we think about market adjacencies and not just home warranty and appraisal.

And we think about what else we can build out in terms of product, we intend to use our funds to invest in that specifically next year.

So again, we will share more specifics of the next call, but those are sort of the broad strokes around that investment.

Okay, Great and then just one follow up you guys launched a couple of interesting innovations it sounds like with the docs and connect can you maybe update us on how youre thinking about your kind of the legacy competitors in this space.

Their ability to respond kind of technology wise like I don't know if you think about it like in terms of how far ahead, you are or anything like that but any color there would be helpful.

Sure.

And great to hear your voice Tom So this is Max.

I think.

Our unique patented technology, our differentiated approach has demonstrated.

That really no. Other company has brought things like property based predictive underwriting for this industry and the way that we have.

We've seen some.

We've seen some noise about quicker automated title.

Technology that some of the other players in the space have attempted but really none of them offer the coverage or instant underwriting capabilities that we offer with our title product and then with respect to the broader machine intelligence technologies that we've applied across that's growing closing which include as you mentioned and Doma connect.

And Doma Docs, we just we feel like we're pretty far out in front of the space here. We don't know of any title companies that are using technology similar to ours and even.

Kind of more generalized experts and machine intelligence like Google offer solutions that are kind of generally focused and don't perform as well as our very specific capabilities focused on the mortgage process.

So we really believe that our differentiation here arises from the wealth of over 20 years of data that we possess.

The really really strong.

Team that we've built really a world class group of Phds and machine learning experts, who bring diverse backgrounds to solving problems and represent a unique competitive advantage and we haven't seen anything close to it across any of the competitive landscape.

Great. Thanks, so much for the color I appreciate it.

Absolutely.

Thank you.

I'm showing no further questions in the queue ladies.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

Yeah.

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Yes.

Thanks.

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Yes.

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Ladies and gentlemen, thank you for standing back and welcome to the third quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode. After the Speakers' presentation, there would be a question and answer session.

To ask a question. During this session you will need to press Star then one on your telephone please be advised that today's conference is being recorded.

If you require any further assistance. Please press star then zero.

I would now like to turn the conference over to your speaker for today, Chris Maloney Investor Relations Adult Ma'am you may begin.

Thank you operator, and good afternoon, everybody and thank you for joining Belmond <unk> third quarter 2021 earnings conference call earlier today <unk> issued a press release announcing its third quarter results.

Also available at Investor Domagk Dot com.

Leading today's discussion will be done the founder and Chief Executive Officer, Maxim cost and Chief Financial Officer I'm on Amit.

Following managements prepared remarks, we will open up the call for questions.

And competitive industry outlook forward looking statements are subject to risks uncertainties and other factors that could cause our actual results to differ materially from historical results and ore from our forecast, including those set forth in gentlemen form 8-K filed today.

For more information please refer to the risks uncertainties and other factors discussed in <unk> SEC filings all cautionary statements that we make during this call are applicable to any forward looking statements, we make wherever they appear.

You should carefully consider the risks and uncertainties and other factors discussed in Devon and SEC filings.

Not place undue reliance on forward looking statements is doma is under no obligation and expressly disclaims any responsibility for updating altering or otherwise providing any forward looking statements whether as a result of new information future events or otherwise except as required by law.

Additionally, during this conference call. We will also refer to non-GAAP financial measures, including retained premiums and fees adjusted gross profit and other measures described in our earnings release, our GAAP results and descriptions of our non-GAAP financial measures with a full reconciliation to GAAP can be found in the third quarter 2021 earnings release, which has been furnished.

To the SEC and is available on our website and with that I'll turn the call over to Maxim cost CEO of Doma.

From the historically tedious process of closing our residential purchase or refinance transaction.

And I'm going to start today's call with the same focus on that same theme as demonstrated by three key drivers in Q3.

Number one our accelerating growth in Q3 was driven by our technology.

Two our outperformance is showing no signs of slowing down and number three we are now focused on applying our proven technology to more of the market, particularly the purchase market as.

As we look to further extend our market share gains in 2022.

Now, let's examine each of these points a bit further.

First against the backdrop of a declining mortgage market in particular for refinancings Domas closed order volume grew 39% year over year with Delmas enterprise segment growing at almost 400% year over year.

In closing disclosures involved Emmanuel and error prone work oxy collaborations with lenders and typically represent roughly 20% of the entire closing process.

Annual final touches that a set of new computer vision capabilities and Doma docs delivered in Q3.

We also made further progress in building out new capabilities for our Doma connect integration layer, which allows our largest clients to automate order creation and management.

These new capabilities improved order flow across key middleware platforms used by our largest mortgage originators to making those connections more seamless and fostering further expansion of wallet share the new doma connect capabilities deliver data elements via an external endpoint to one of our largest strategic accounts that will enable them to automate a manual review process and drive <unk>.

Foster transaction processing.

Domo as their first partner to deliver this deep level of integration, which had been an outstanding requests made up their traditional title and escrow partners for over two years.

These new technology capabilities of Doma Docs Doma connect building on a strong core foundation of our differentiated domain intelligence platform prove that our technology is a key driver of our growth.

To dive a bit deeper now in the second key takeaway from Q3, our outperformance versus the market shows no signs of slowing down.

<unk> enterprise customers.

We also showed solid growth in closed local purchase orders versus double digit market contraction and purchase according to the MBA.

And despite the likelihood that overall volumes for the mortgage market at large are expected to be significantly down in the near term we remain bullish on them as expected outperformance going forward.

This dynamic invest be seen by virtue of the strong growth in our open order volumes, which grew 41% year over year in the third quarter also representing our third consecutive quarter of sequential growth.

Jason markets.

With respect to the migration of local channel transactions to the Doma intelligence platform. We are confident that this will enable local realtors and local lenders to see more of the same value proposition that we've been delivering to our enterprise partners with a faster better and more affordable closing experience.

We started this effort by moving local refinance transactions to the platform. This year and are on track to begin moving purchase transactions through the platform later this quarter.

This will be a heavy lift for the team over the next several quarters, but the longer run benefits are expected to be exponential.

Additionally, our ability to invest some of the proceeds we raised earlier this year in building out solutions for the two key adjacent market opportunities of appraisal and home warranty will help assure that we can maintain our record of outperformance not only through next year, but well beyond that as we execute on our long term vision of creating an instantaneous digital and delightful closing process for our lender and real estate.

Partners, and especially for our shared homeowner customers.

Jason markets, such as the $8 billion of appraisal market and the $3 billion on warranty market.

As we finalize our 2022 plan, we will look to ensure that our scope and pace of investment next year and beyond will set doma off to capture a greater share of the residential real estate value chain and innovate in adjacent markets that are is manually intensive as the traditional title and escrow market.

Going public and raising the associated proceeds for these investments established our place as a growth business, enabling us to more rapidly more of our local business expanded to new markets more quickly and launch new product functionality that extend the advantages of our domain intelligence platform, we intend to take full advantage of this favorable positioning.

Heading into the fourth quarter. We also remain focused on recruiting and hiring world class talent not only as the company grows and evolves, but in many cases ahead of our planned growth. We were at the beginning of a multiyear journey to expand and grow our customer acquisition and fulfillment functions and we believe we will be best served by aggressively recruiting and onboarding uniquely talented individuals to dry.

A rapidly innovate on customer acquisition and fulfillment functions, including many from outside the traditional real estate industry.

In parallel our recruiting team added resources to ensure that we can continue to hire key talent across the company as we had into another year of growth.

As we deepen our talent bench, we are confident that the appeal of working to bring the real estate industry into the future will help us attract the best talent in the market, our core vision and mission to make the homeownership process instinct delightful and more affordable resonates strongly with anyone that has been through a closing experience.

Before concluding my prepared remarks, I want to personally thank each and every one of our doma associates across the country for their hard work positivity and passion for client service domain as build not only on financial strength and flexibility, but also on an unwavering client centricity that is earning US enduring trust, we would have none of those attributes without our talented associates.

CH, who show up to work and prove their grit selflessness and determination each and every day, we thank all of our shareholders for your continued support and we look forward to updating you on our progress in the months ahead.

With that I'll pass it over to gnomon, who can provide more color on our third quarter results and the financial outlook for the remainder of the year.

Oman.

Thanks, Max and good afternoon, everyone.

As Matt discussed we delivered strong third quarter results in a contracting market driven by increasing market acceptance of our differentiated offering.

Based on this ongoing momentum as well as our visibility into yearend. We are confident we will finish at or above the high end of the expected ranges for full year growth in profits I'll.

I'll come back to that I am looking at a few moments.

But first we generated revenue on a GAAP basis of $162 6 million up 34% from the third quarter of 2020.

As we have stated previously GAAP revenue includes the portion of third party agent premiums that doma just non routine.

Please greater focus on numerous routine premium and fees or Rps, which excludes premiums retained by third party agents.

We believe this is a much better representation of underlying top line performance.

With this in mind, we grew our rps to $71 million.

A 31% increase versus the same period the prior year.

Our growth in the third quarter was primarily driven by a 386% year over year increase in closed orders and Arkoma enterprise channel.

The continued strength in this channel was the result of significant wallet share expansion among existing clients as well as for new client additions a testament to the impact of machine intelligence technology is having in the market.

Closed orders as our local channel were softer, but still significantly outperforming overall, 31% market contraction part of the MBA.

This outperformance was driven principally by 9% year over year closed order growth and purchase transactions for them up at a time when the overall purchase market fell 12% year over year.

Keep in mind that in the local channel we remain in the earlier stages of incorporating the full capabilities of our film intelligence platform and as such are more limited in our ability to drive outsized growth.

It follows that these strong results are a real testament to the team's execution.

Looking at our profitability trends for the third quarter, our main focus as adjusted gross profit was.

Which grew to $33 million, a 10% increase compared to the same period in 2020.

Adjusted gross profit as a percentage of Rps was 43% in the third quarter of 2021 compared to 51% in the third quarter of 2020.

This change in adjusted gross profit as a percentage of Rps was driven by two main factors.

Continued investment in our fulfillment capabilities and staff in advance of the anticipated growth in our enterprise channel and the migration of our local channel volume to centralize some intelligence platform.

And second.

This shift towards refinances, as our enterprise business significantly outperformed the industry.

Given our strong open order momentum in Q3, we expect these trends to continue in the near term.

Turning to adjusted EBITDA.

We continue to invest significantly across several areas.

With the long term plan, namely customer acquisition, R&D recruiting and other indirect costs related to the migration of our local business to Domo intelligence.

Bind with the impact of necessary investments made as part of becoming a public company. Our adjusted EBITDA This quarter decreased by $19 $5 million year over year.

With respect to the capital management side of the business. We continue to operate a capital light infrastructure, consisting mainly of software development related to the dome intelligence platform, which resulted in a $10 $7 million investment in software and in the third quarter of 2021.

Finally in terms of our plans for the rest of the year and beyond we continue to see strong momentum in our business with open orders in Q3, 41% year over year the faster the open order growth we've experienced all year.

Our recent performance and momentum allows the confidence to invest more aggressively in our product rollout, particularly as it relates to the accelerated migration of our local purchase business to the film intelligence platform, which we remain on track to start by year end.

We believe the acceleration of these investments is worth any short term tradeoff in margins that will likely be required to get us to a larger scale faster.

Now to recap the key takeaways, we open the call with.

Our accelerating growth in Q3 was driven by our machine intelligence technology.

To this outperformance is showing no signs of slowing down and.

And three we're now focused on extending our proven technology to more of the market in particular, the home purchase market.

So with these key points in mind I'll conclude with the outlook for the remainder of the year.

Given our strong business momentum in Q3.

And now expect to end the year at or above the high end of our previously communicated ranges for retained premium and fees and adjusted gross profit.

With that we'll now open the call to questions.

Operator.

Thank you.

Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

Withdraw your question press the pound key.

Again, Thats star one to ask a question. Please standby, while we compile the Q&A roster.

Yeah.

Our first question comes from the line of Nick Jones with Citi.

Your line is open.

Great. Thanks for taking my questions just a couple.

Can you talk about enterprise adoption, we know you've had some success success getting kind of.

And the door, where are you in terms of enterprise adoption in terms of the volume of mortgages versus what's kind of running through doma.

And then can you also remind us a little bit how.

What does it take to drive adoption for local within local transactions. Thanks.

Sure Great to hear your voice snack this is Max speaking.

Look in terms of enterprise adoption I'll speak in the aggregate and then maybe give a couple of specifics I think.

Simply put enterprise channel as you know is nearly all refinanced.

Given the significant growth in closed orders.

Across the entire company, but specifically the growth in closed orders as we referenced for the enterprise channel.

And I think it's safe to say that between net new customers. We added in the quarter, who got implemented and rolled out and existing large enterprise relationships, we have where we significantly expanded wallet share the adoption was strong across the board.

And just as a reminder, the enterprise channel of course is where we also have fullest use of dominant intelligence platform. So all of that volume goes through our industry, leading technology, including all of our machine intelligence capabilities and our Doma operating model.

The local business.

You asked about purchase transactions.

As a reminder.

We communicated earlier this year that we expect to start processing purchase transactions through the Doma intelligence platform by the end of this year. We are on track to do that later this quarter and as we use the gentleman intelligence platform across more of the transactions.

In our local markets Division, we would expect to see certainly more benefit and more adoption in that part of the business as well and the last thing I'll mention is.

We mentioned earlier this year that in aggregate, we were planning on having the majority of our direct order volume inclusive of both enterprise and local going through the dominant intelligence platform by the end of this year and we are also on track to do that as well.

Great and maybe just a follow up on appraisal on home warranty I mean are you able to give any kind of timeline of how we should think about when that could potentially start contributing.

To the P&L, even from an investment standpoint, or when early kind of size of revenue could show up.

Sure.

We do expect to continue investing in the home warranty and appraisal areas that was.

Certainly one of the reasons for us going public and we intend to use proceeds to invest in those areas as well as other market adjacencies and the opportunities that may present themselves.

We aren't willing to provide any specific timelines, yet, but I can confirm that we are actively building infrastructure to soon compete in those markets.

Great. Thanks for taking the questions.

Thank you.

Our next question comes from the line of Matt <unk> with JMP. Your line is open.

Okay. Thanks, good afternoon.

Hey, Matt.

Maybe I'll start with a follow up on on the enterprise partnership channel and specifically around pipeline could you help us understand kind of.

Kind of what the statuses of ongoing discussions for new partners that maybe arent announced yet and then kind of.

For the partners, who do have already can you help us understand like some of the more.

Mature ones and what sort of ballpark wallet share does delta house and longer term, what sort of wallet share do you target or things that doma could achieve.

Down the road.

Sure.

Without getting into too many specifics about any one customer individually.

We feel like we've got a very strong pipeline with a number of mature sales cycles with top 25 mortgage originators, we continue to onboard new clients each month and we have also.

Added a number of key team members to our Doma enterprise sales team, which we think will not only help us execute on the new customer pipeline, but further unlock additional volume from some of those existing large strategic clients that you mentioned.

On the topic.

What our wallet share is with existing enterprise clients.

We don't announce specific wallet share numbers for key clients individually, but I will say two things one is that when you look at our overall wallet share or market share rather.

I mean, just kind of through the bookends of end of last year, it was less than 1% of the entire market certainly.

We've been growing significantly this year, but we still have plenty of room to <unk>.

Sure and that includes from existing accounts and I think what's probably most important is just frame, where we think we can end up in terms of wallet share with some of these large enterprise customers. We think that over time, it's entirely reasonable for us to command north of 50% wallet share with strategic enterprise customers.

We see the use of our solution is becoming more and more.

Have a necessity for them driving differentiated outcomes in terms of a better faster and more affordable mortgage closing experience and and so we feel like it's entirely reasonable to be able to get north of that 50% number in that channel.

Okay, Great and then a follow up if I could on on your comments in Oman is around kind.

Kind of accelerating some investment.

Capture share you've got momentum and so forth and just want to understand the comment was made about investment to capture share in basically the trade off is maybe some margin in the near term can you help us understand how that might differ.

And for guidance, but just ballpark wise or.

Qualitatively versus kind of the original plan and then lag time kind of view as you make those investments kind of what do you view as kind of that you make an investment today, how much time before you see results from that.

Hey, Matt.

Good to catch up again.

So with respect to the comments around investments locally risk raised.

A significant amount of funds by virtue of going public with the idea that we can invest those funds to drive faster growth and acceleration of our product platform.

And so we intend to do that now.

We are in the process of building.

Building out a plan as I mentioned last time.

Spoke and we will be sharing that plan at our next call.

But to provide you some qualitative guidance again, we want to accelerate investments in customer acquisition that you would expect we want to accelerate investments in our product and development developing both our product as well as migrating the purchase volume onto our intelligence platform. So we intend to accelerate those investments.

That means is interesting short term there are trade offs, because one very simply we do hire sometimes three to four to five months in advance of growth.

And so there is a short term impact, but I think nothing in our long term plan changes, we're doing exactly what we had outlined we would be doing with the funds raised.

And so I think that the.

Comments are just in line with that.

Earlier.

Commentary around.

Capturing greater share than what we had outlined previously.

Great well. Thank you for the answers congrats on a nice quarter and best of luck.

Thanks.

Thank you.

Our next question comes from the line of Jason <unk> with Oppenheimer. Your line is open.

Hi, Thanks, two questions here.

Give us a sense of what kind of progress you've made either sequentially since the beginning of the year, even year over year with wallet share expansion among existing enterprise accounts and in second.

Any risk that as refinance slows youre, not able to offset it with <unk> and.

And just kind of talk about that transition.

Sure happy to Jason This is Matt so on the on a year over year sequential gains in wallet share.

Without getting into again specific.

Client numbers I would just say that it's safe to assume that in a quarter, where overall refinance volume.

Volume across the industry contracted by north of 40%.

We grew our enterprise channel, which has subsequently all refi by nearly 400%.

Debt.

We've seen both significant new customer ads and significant expansions of wallet share.

Simply throughout the year.

Across the board.

No.

And I really think that thats kind of important in answering the second part of your question, which is while we remain very confident we will be able to move purchase volume to the platform.

And as demonstrated by the targeted investments we made in sales and marketing this past quarter to drive more purchase volume into the business in general is no Mark mentioned earlier, we saw 9% growth in.

Purchase transactions at a time when even the purchase market contracted year over year.

We also still are quite confident that with our differentiated solution. We can continue significantly outperforming the market and taking share.

In the refinance side.

Despite the fact that the.

The mortgage refinance market is expected to contract and if you remember this is all really factored into our.

Original plan and projections, we use the backdrop of the mortgage bankers Association.

<unk> forecast for what they thought would happen with the refinance market, which I think at the time that we.

<unk> communicated our original plan earlier.

This year they were certainly expecting refinance volume I think to start contracting sooner, but it actually did and then happened to a significant degree where 75% of refinance volume.

Fell away in inside of I think the next 24 months to 36 months. So all of that was already factored into the plan and I think as <unk> seen in the last quarter. We are demonstrating that we can significantly outperform the market regardless of what the macro backdrop is.

Thank you.

Yes.

Thank you.

Our next question comes from the line of Tom White with D. A Davidson your line is open.

Great. Thanks, guys for taking my question and nice quarter.

I guess I wanted to just circle back on the comments around or in the press release that accelerated.

Kind of investing in an accelerated migration of film intelligence to local I guess what.

What does that mean exactly is that just sort of like putting kind of more heads and engineers on the on the project.

Sounds like Youre, saying Youre still on track for.

Kind of rolling it out at the same time, you've been talking about so.

Put in kind of more investment towards it does it mean that the rollout may kind of happened faster over the over the course of next year.

I'm curious how that might impact kind.

The financial model, if that's if that's correct and then I have one quick follow up.

Yeah, Hey, Tom This is Omar so.

What I would again say as lucid specifics of our plan again next quarter, but here's what I can share right now.

When we say accelerated investment, especially around purchase it is accelerating.

The path for purchase volume on to dual intelligence and that requires.

Significant upfront sort of cost again longer term, it's a wash and again consistent with our plan. So there is there is a tradeoff in the short term because of that acceleration.

And that acceleration again goes to our thesis around going public which was to drive.

Significantly higher growth than what we had outlined in the original plan.

So we are looking forward to deploying the capital in that area on top of that I think that as we think about market adjacencies and not just home warranty and appraisal.

And we think about what else we can build out in terms of product, we intend to use our funds to invest in that specifically next year.

So again, we will share more specifics of the next call, but those are sort of the broad strokes around that investment.

Their ability to respond kind of technology wise like I don't know if you think about it like in terms of how far ahead, you are or anything like that but any color there would be helpful.

Sure.

Great to hear your voice Tom So this is Max.

I think our.

Our unique patented technology, our differentiated approach is demonstrated.

That really no other company has brought.

Things like property based predictive underwriting for this industry in a way that we have.

We've seen some.

We've seen some noise about quicker automated title.

Technology that some of the other players in the space have attempted but really none of them offer the coverage or instant underwriting capabilities that we offer with our.

Titled Product, and then with respect to the broader machine intelligence technologies that we've applied across that's growing closing which include as you mentioned.

Connect.

Doma Docs, we just we feel like we're pretty far out in front of the space here. We don't know of any title companies that are using technology similar to ours and even.

The kind of more generalized experts and machine intelligence like Google offer solutions that.

Kind of generally focused and don't perform as well as our very specific capabilities focused on the mortgage process.

So we really believe that our differentiation here arises from the wealth of over 20 years of data that we possess.

Really really strong.

Great. Thanks, so much for the color I appreciate it.

Absolutely.

Thank you.

I'm showing no further questions in the queue.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

Q3 2021 Doma Holdings Inc Earnings Call

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