Q2 2022 UWM Holdings Corp Earnings Call

August 9, 2022

Thank you for your patience. Please stay on the line for the next available operator.

Thank you for your patience. Please stay on the line for the next available operator. you

Thank you for your patience. Please stay on the line for the next available operator.

Thank you for your patience.

please stay on the line for the next available operator.

Thank you for your patience. Please stay on the line for the next available operator.

and press the pound key.

We talk about our actual liquidity and a lot of our earnings. Andrew and his team have done a great job of putting together, and even Tim, before Tim unfortunately had passed, put together ways so that we have access to more liquidity, whether it's partnerships with SFS, whether it's MSR capital lines. One thing people don't recognize, and I don't get any credit for around here, is that our MSR lines are not encumbered at all. All my other companies that we're competing with are leveraged up on their MSRs. We have not one penny leveraged on our MSRs. And so we're at a line on that, and we have access. And once again, even without all that stuff, our cash flow is significant and it's really not a factor, but cash is king, and we're gonna continue to make sure we have access to liquidity, we have plenty of liquidity on our balance sheet, and at the same time, we use our liquidity in prudent ways to provide returns for our partners. Got it, appreciate you guys, thanks. Your next question is from the line of James Bussetti with Morgan Stanley . Yeah, thanks a lot. Just a couple of quick follow-up questions for me. What's your sense of remaining excess capacity in the overall mortgage market? And I guess your strategy's pretty clear how you wanna take advantage of the current situation, but as you think about how this plays out and the duration of how long you wanna be aggressive on gain-on-sale margins, et cetera, how should we be thinking about those things? Yeah, so obviously it's a good point that the market's definitely interesting, and we're seeing a lot of our competitors laying people off, struggling.

losing money, but beyond that, just losing volume in market share at substantial amounts. Part of that is because their business model is tied to refi, part of that is because they're retail branching models, part of it is because they're retail market and what they're doing and their margins have to be so big to compete and that their cost to originate is too high to actually be profitable. That's one of the big benefits that we have right now on the technology side, and we talk about it a lot, is that our operations and our cost to originate is lower than most, so we can be more aggressive in the game on strategy like we're talking about.

do mortgage for a living, as this is not their only thing, of course they're going to, it's a contracting market if you don't have a differentiation and a strategy to win long term and short term, to be clear. And so that's happening in some of those, and so those people are consolidating, laying people off, and we just feel like we're really in a great position. You know, I couldn't have predicted this position a year ago because I didn't think rates would go up this fast and so this has really put us in kind of, what do they call it, the catbird seat, I don't really know what that means, but it's town school.

We're in the catbird seat where we feel good. And these other places, although they're reducing staff, it's going to happen again. I've been here 19 years. This is not my first time through this rotation and these cycles in 23, 24, 25, sometime rates are going to drop. And those places that are not going to be able to handle the new volume. They're not investing in technology. They're laying off people.

how are they going to sustain it? And that's when we're going to make three, four billion dollars plus in one of those years coming up. And that's what's going to happen. This is the cycle. And so we feel really good about where we're at in the position we're in going forward.

Makes sense. And then from a – you mentioned the technology investment you've been making. How are you feeling about, like, where you're at on the investment requirements? Is there areas where you need to increase investment, or is it more likely to sustain investment, or do you ever reach a point, or when do you reach a point when you can start to bring that down a bit? Your China aurora.

Yeah, so that's a great question. And so we feel really good about our technology investment. Our Bolt technology has been picking up, and I think I announced it. It's almost been a year, I think. But it's not quite a year, but it's been fantastic. And that makes it so our clients have a better, easier experience. It makes it so my underwriters can do more volume per underwriter. So that will lower our costs as well. And so our investments are continuing in technology. I think any time in business you stop investing in technology, talk to the industry, and communicate with the fly beating. OK, thanks, John . OK. We've been talking about that. Adhered to the 10% growth, right? Exactly. OK, great. Any answer to the COVIDeveryoneYes, I would say yes. Try it anytime. It'll be great. Every question would outcome us. And so are my friends who retired from it. The greatest Holidays indeed. Thank you. Thanks, John . Thanks, John . Bye. Questions? Yes, John . OK, thank you.

you will lose because it's not like there's going to be less technology in five years or ten years than there is today. So we're constantly investing in technology, coming up with new things, helping our brokers grow new business, whether we come out with Boost. And I got new things coming next month. We're always thinking what's the next thing to continue to dominate because although most people look at our company and say, gosh, those guys are really successful, the number one wholesale lender, number one purchase lender, number two overall lender, they're really successful. There's so much upside in where we're going and so much opportunity that we're just getting started. So I'm not slowing down on the technology.

Yes, thank you. Tim was a wonderful man. I know he liked you, liked talking with you, and he'll be missed by all of us. For sure. Just a question, how in the world did you beat your own guidance on gain on sale in the second quarter, you know, 99% versus your 75 to 90? What was the key factor in achieving that result?

Yeah, you know, once again, I control the margins. So we set them every single day. And when there's opportunity like game on where we can lower margins, strategically we do that. And then there's opportunity when you can pick up, and sometimes that's product mix and different things. But, you know, the market, and I'm not saying it in an obnoxious or arrogant way, the market has to react to us. We are the biggest player in the game in wholesale and in retail, even though we're smaller than one other player out there in the overall market, everyone has to react to UWM. And so, we are the biggest player in the overall market.

I'm sure you've heard other places say the margins have normalized and they feel good, until we decided not to let them be normalized at UWM. So we control that, we feel good about it. So we were able to, I always tell you, and you've heard me talk about it Steve, 75 to 90 is kind of the low end of a year in wholesale. I could even make an argument that I would take out the game on quarter or game on half of the year because it's just a long-term investment. But even with that, we'll still be in that 75 to 90 range.

for the year and we were able to have 99 in the first quarter and second quarter as you probably saw. Yep, and so game on primarily a third quarter, but you made it clear that you might extend a little bit just depending on the success. If we look out to 2023, you think 75 to 90 is where we should be modeling when we look out sort of post game on.

Yes, so I would actually say 75 to 90 is what I would always tell you in the wholesale channel, at least now, obviously as technology worlds lever, that that's on the low end. 75 to 90, I don't see it going below 75. So if you're modeling that, that's, that would assume a very competitive year again. Now, there's, I'll put the one caveat if I continue game on further in that could adjust it slightly. But 75 to 90 is the low end year in wholesale is how I look at it right now.

and it obviously can evolve. And so could it be higher than that? Yes. But 75 to 90 feels like a good number to be on the low end side. Our lowest in history, I think, was in the low 80s. And that was, I don't know what year it was, but I would say 2018-ish. But that's in those type of years. So if the market softens or is a tougher market, yes, if it's a little bit more sunshine out there, there could be more upside in that.

We're very profitable at 75 to 90 as we've demonstrated already. That's great color and congrats on a really good quarter and a tough market. Thanks.

Thank you.

Your next question is from the line of Kevin Barkow with Piper Sandler.

Thank you. I just want to follow up on the guide for the third quarter on a regenations. It would imply you know a slight decline at the top end.

And you seem very excited about.

the progress you made on game on.

Are you are you I mean, the guidance seems are pretty low given.

how excited you are with the progress that you've made so far. Do you feel like you have the capability to exceed the 23 to 28 billion that you laid out there just given you know didn't

how well Game On has been going.

Yeah, so when I'm saying how well Game On is going, I mostly focus on LO conversion, because me getting more market share feels good, and I can high five you guys, and you'd be proud of me, but the real strategy is long-term growth of the channel. And so, when I'm talking about, that's why I mentioned the bm mortgagebroker.com, the top of the funnel of the hits, like seeing that many people hit it, seeing the loan officers, see the action in the loan officers converting to wholesale, talking to my brokers and hearing how many people are calling them from the retail channel. It's been unbelievable.

to compete and have low cost and give amazing product and price to the consumers. And so to answer your question and thinking through

all those things and like how we think about it going forward, I feel like we're in a great position. Do I think 23 to 28 billion? Yeah, I think that's the right range. Could we beat it? Yes. Could we miss it? Yes. But I try to give guidance that I think we're going to hit. And that's what we've tried to do before. Obviously, we exceed guidance sometimes, but I think in the last quarter, we were right in the middle of it. And so, the market, you also got to realize there's inventory shortages out there in the market. And also, the markets, a lot of people are guiding even further down percentage-wise because we think we're going to be...

along with the market share growth of UWM and the stickiness of those clients will tell the tale of the success of Game On. And I'll be happy to share more of that data in the November call and then also in the February call as well, because I think that the numbers will be very, very positively received by you guys, but most importantly, my shareholders.

Okay, great. And then with the pricing initiatives, are you also seeing further expense synergies or at least a decline in operating expenses over the next couple quarters and maybe going into 23 to generate more operating leverage as this plays out?

Are you saying, am I seeing a decline? I'm sorry, you broke up at the beginning of that. I'm sorry, are you seeing expenses also come down as you implement operating efficiencies within the overall business.

Yes, yes, we do see that. I mean, the efficiencies of both is a big one I will talk about, and we'll roll out some more stuff soon. How do we create efficiencies by technology? Investments in technology will help us win. And as we can do things, such as, you know, make it so that our people can do more, and at the same time, have technology to help us with loan quality so we have less buyback risk, we have less service related issues. All of these things tie into it with technology. And so yes, I am seeing costs and expenses go down.

And you'll see that as well in the numbers in the third quarter. But, you know, it's not focused on letting people go. It's focused on how do we make people more efficient and handle the volume and make sure the service and loan quality, all those things are the highest levels.

Is there any way you can quantify how much the operating expense is going to decline here in third or fourth quarter?

You know, there's a lot, I can't quantify it right now for numbers, you'll see it in the third quarter, but this is what I'll say, is we focus on making sure that we're not bloated, right? And so, where everyone else has to do things by laying people off, that's not how we have to do things. We have to focus on how do I do that by making us more efficient? So with the volume numbers that we were just talking about, in my staff appropriately handling volume, we have to be overstaffed by design, which is why I'm not laying people off. Also, I'm prepared for the 23, 24, and 25 time when no one else will be.

ready for that.

And on top of that, one last thing, not only the loan officers coming over, the one piece that I maybe have not reiterated enough is the loan officers in the broker channel right now, John Smith in the broker channel, he is winning a loan against the retail loan officer at guaranteed rate or at movement or loan, like all these good, those are good companies, I'm not saying any of them negatively, he's winning those loans. And so the loan officers in my channel are actually getting a bigger percentage of market share right now, not even counting the loan officers, not even counting UWS market share. And so.

It's just winning all around. And so I got to be prepared for that, and I am prepared for it. OK. Thank you for taking my follow-up questions.

Your next question is from the line of Jay McCandless with the Bush.

Hey, good morning. Thanks for taking my questions.

Matt, I think you made a great point that it may be cheaper to cut margins right now and grow the business that way than it is to do an acquisition. But at the same time, your warehouse borrowings are going up. You've got an aggressive Fed that wants to keep hiking rates.

at some point it seems like you're going to have to slow it down a little bit. I mean, can you maybe talk about what you're thinking from that perspective and when is enough enough, I guess?

Hey, you know, I'm not following what you're asking. You were saying slow it down a little bit. And slow down the ability to... Yeah, I mean, your cost of funding is going up. The size of your warehouse borrowings are going up. I understand that you're generating more mortgages, but your costs...

maybe your personnel costs aren't moving up, your funding cost is moving up pretty quickly.

I understand the strategy, I understand where you're trying to go with this, but is it going to get too expensive at some point? Is it too punitive to keep this amount of borrowing up in order to drive this kind of market share?

Yeah, so a couple things. No, it's not too punitive, but our borrowing costs and warehouse costs are not going up. They're actually going down. You know, remember that they match the note rate. So the interest rates at five and a half, they're still interest. If you look at my financials, they're interest income versus interest credit or interest cost. So, you know, we're actually, we have a gain there. So I think maybe you're misinterpreting what you're asking or you're misunderstanding what's going on, but

We feel really good about that. And so, no, it's not punitive, because once again, I'm not playing the third quarter game. I'm not playing the fourth quarter game. I'm playing the 23, 24, 25 game, and we feel really good about it. Of course, first half of the year was very profitable. We're paying a dividend. I mean, for my shareholders, they got to be ecstatic. You know, we're paying a, I think, I don't know what the stock is anymore, but it's, you know, let's call it a 10% dividend, which is fantastic. Our company's profitable. We're gaining market share. We have strategy to win in 23, 24, 25.

Anyone who really understands our business sees there's a multi-billion dollar profitable year in 23 24 25 what do we make three billion or two billion or four billion whatever the number is and based on the multiples my stock price is everyone feels really good there's great growth potential across the board so no I'm not worried about it at all I think that you know but maybe I misunderstood what you're saying because our warehouse costs and those things are going down as a spread but at the same time compared to the note rate

We're making money because it's all relative to the note rate on the loan.

Okay, great. Thanks for my question.

Thank you.

Your next question is from a line of Kyle Joseph with Jeffries.

Hey, good morning. Thanks for taking my questions. Just going back to your long term targets of 33% for roughly a third for the broker channel, you know, how much do you see an initiative like game on accelerating that obviously it's subject to market conditions. And then second part of that question, you also talked about potentially even going to 40%. You know, what's the balance of broker conversion versus increased productivity in that 40%?

Yeah, great question. So third, I'm sorry, you have one thing.

Okay, 33% was why I've kind of targeted for a while. I had to get to 33% by 2025, 26. I think I said that since my road show, when we went public, and that's still the focus. I think game on accelerates that. This market accelerates it. If you remember from my road show, and when we went public, I talked about, when rates go up, is when loan officers, I feel like what keeps you up at night, Matt? When rates go down, that's the only thing that will slow our growth of the broker channel and slow the success of what we're about to build right here in this channel. So big part of this is the LO conversion, as you reference.

But also, it's a good point on the brokers, our current brokers doing more. We have partners, the partnership we do and the things we do to help our current brokers winning grow is what I live for. That's what we do all day. And it's something I can't talk about this because people don't really understand it or feel the love and passion we have for the current broker channel. But hundreds of loan options out here every week to get training, success track, getting better, finding ways to improve, finding ways to talk to real estate agents and grow their business. The broker channel has so much growth. Much growth it's like.

It's like a six foot 11, 15 year old that's athletic and Joe Biden, you know he's gonna be NBA star, he's got all of this upside, that's the broker channel. We have all the upside, we feel good about it. So I'm gonna help them grow, we're gonna help convert monoption and retail cause they they listen, I wanna grow on it being the broker channel. I know they've gotten things going on over there, UWM's got their back. And so we feel excellent about that opportunity. So what percentage is which, it's hard to say, what's gonna make up the 33 years, the 40%?

I think a lot of it's going to be LO loan officers conversions. That's really what I can move the needle on. But every day that I'm here, every minute that I'm here, we're focused on helping our current brokers grow and succeed and excel and wow that next realtor and wow that consumer and get a better Google review. That's what we do. That's what UWM does. That's where that NPS, Net Promoters, where I talked about earlier, has such a big thing because if we do an amazing job, then it makes the broker look like they did an amazing job, which they did. And when they do that, they get more referrals. And that's how this thing is going to grow.

33% by 25, 26, I stand by that number, I feel confident in that number, and how do we get more loan officers over so I can get over to maybe to 40%? I mean, we're competing for two out of 10 loans right now, and we're the number two overall mortgage company. Imagine when I compete for three out of 10, or four out of 10 loans, we will be the dominant force in the wholesale channel and the overall mortgage market, and so will the brokers.

Very helpful. Thanks for answering my question.

Your next question is from the line of Mark from DeVries.

Yeah, hi. How sticky in your experience have share games been from price initiatives like game on as opposed to maybe just layering on some more of the services that you provide to help your burgers kind of stand up and grow their businesses?

Great question. So that's what we have to focus on is what the stickiness factor is, right, and how that continues going forward. And so that will tie to the market share growth and figuring out how our net promoter score is, how our technology is, how will we make it so that the brokers realize that UWM is the best partner for them for the long term. And so that's a big part of this strategy, right? And we've done it before. If you look back in 2018, look at my market share.

I don't know the exact number, but I'll call it 15%ish. And then look at my 2019 number, which I think is more like 30%. I'm not suggesting we're doubling market share this time, because we're so big it's hard to move the needle at this size. However, will it go up? Yes. And it stayed sticky. You know, so the way we think about it is, you know, we have a great grocery store, people are coming into our grocery store because we have a special and an opportunity, and then they see, wow, this is the best store around, I love the service, I love everything about it. I'm going to keep coming here. And that's what we have to do with UWM with our technology.

with my account executives, with my operations team, with my partnership, with our training, with our initiatives to help brokers grow, with them watching our videos. We track everything to make sure that they're getting the advantage and the benefit of this. And as we talk about how are we gonna continue to grow our markets here, one is new LOs converting from retail to wholesale. There's four, 500,000 in retail right now. Let's convert them. Two is let's grow my current LOs value, like help them get more real stages, more consumers, help them get more business.

help them succeed and grow. And then the third piece is the LOs that are right now doing business with how do I get a bigger percentage of their market share and let them stick with UWM, their wallet share. And so all three of those things are the plays we're playing and we focus on each of them every single day. And so I think that's really the key. The stickiness is the right question that you ask because that's really what we're focusing on to make sure that they become not just third quarter clients of UWM but lifelong clients of UWM. And I think that with the technology and service and opportunities we offer, that's what's gonna happen.

Okay, that's helpful. And then what is the competitive response been to Game On? Are you seeing competitors try to match on price to limit those share gains? Or are they struggling to do that because it's just...

their cost to produce is too high.

Yeah, they're all trying to, but you hit it right. The cost of Bruce is just too high. At some point, I'm talking and they're reacting to me, right? I'm making this decision. And they all have to react to what UWM did. It's not like I called everyone and said, guess what? On June 22, we're going to do this. Be prepared. We did it on June 22. Our costs originate because of our technology is lower than everybody else in the wholesale channel and the retail channel, to be clear. And so it's kind of puts them on their heels a little bit. And so they all lowered the rates.

which helps all brokers once again, right, all part of the strategy, but none of them can get to the levels that we're at right now, because quite honestly their cost originates just too high, their technology has not been developed at the same pace as ours and at the level that ours is, and quite honestly they just don't have the cash reserves, the strategy and they're reacting rather than being proactive. And then the same thing, shareholder support. Our shareholders understand, not only am I paying a dividend, which is out of this world 10%, but so they're getting a 10% dividend.

They have a company that they know is going to be worth more from a market share perspective, market cap perspective, over the next two to three years. And so everyone's supportive of this. I got 100% support from the board, my brokers. Everyone loves what we're doing, and so we feel good. I don't know that our competitors can have that on a reactive basis compared to my proactive way.

Got it. Makes sense. Thanks.

Your next question is from the line of Courtney Ballman with Barclays.

Hey everyone, thanks so much for the question. Really quick too for me. First, you know, total non-funding debt to equity leverage looks pretty light, which is great, you know, especially in this environment. But you know, with your bonds trading where they are, how are you guys thinking about the possibility for any sort of opportunistic repurchases and how they fit into capital allocation priorities as a whole?

Yeah, thanks for the question. Yeah, our non-funding debt, we're at a great ratio, great position.

You know in general what I would say is you know

Andrew's doing a great job going through how do we use cash the right way. It's definitely something we look at. We obviously have an authority on the buybacks. We have to worry about the float as we've talked about before. We go through all these different things. How do we focus on it? But we're opportunistic on everything. Opportunistic on acquisitions, opportunistic on debt buyback, opportunistic on game on. We're sitting here trying to win long term and we look at all aspects of the business. And so we're excited about where we stand. We have cash. We have opportunity. We have.

the business structure, the purchase volume, all the things are in our favor. And so I'll just say the short answer is opportunistically, but the long answer is, you know, I can go through this for a long time, all the different things we're thinking about from a cash perspective, all the things we're thinking about, how to prepare ourselves to win long term. And so right now, we're opportunistic, but there's nothing on the agenda as of today.

All right, that's super helpful. Thank you. And just one more if you don't mind. I know you guys don't specifically hedge MSR risk, but, you know, I missed, you know, the buoyancy and rates. Is there any changes to how you're thinking about that moving forward, you know, into 2023?

Yeah, absolutely. So, I mean, it's like you sit in my risk committee with me. We analyze this and develop it and talk about it all the time. When's the time? Do we hedge? What percentage of it do we hedge? How do we analyze it? What's our WAC versus the market? I can go through the details. It's a long, boring conversation, but we spend a lot of time on it. And so we look at it. We make an analysis. What's best for the business? Right now, we feel comfortable with where we're at, but it's discussed and talked to it not only with my principal financial officer, Andrew, but Kaplan-Markis.

growth of the broken channel is that a lot of these retail loan officer defections are really not the higher quality loan officers either from the bank or even the non-bank retail shops, meaning it is really these lower tier retail loan officers from much smaller retail mortgage shops who are converting. Any sort of comments on that?

Yeah, that's what I would say if I was in their seat too. I could show you multiple people that were in the top 100 Scotsman guide that if you want to call it defected, I call it proactively won and went to the broker channel over the last year. And so it happens all the time. Of course some of the top, top guys, have they moved? No, well when you pay $20 million or $5 million retention bonuses to keep them and then raise your margins to try to make up for it, the game is over, is my perspective, Michael. It's over. We're just waiting for our...

and via mortgagebroker.com funnel, and looking at all the aspects of that, and then seeing the loan officers convert. Like, you know, they can say what they want to say about it, whatever they want to say, but last year 6,300 converted, this year almost 6,000 already, and so we're going to have more loan officers convert. I think more is better than less, and the facts cannot be argued that the broker channel is growing. It's just not, it can't be argued. And I also, I know you spent a lot of time in this space, Michael, you know, go talk to them. I mean, I can connect you to a bunch of loan officers that just left.

You can talk to the launch that we're thinking about leaving in the stage. You can get all that information, but I'm trying to give everyone the high-level view, but I'm in the weeds of it every day.

Okay, that's great. Any update on Boost? Does that fully roll out yet? You know, what's the take-up rate with clients thus far?

Yeah, Boost is going well. It's still early, right? We just rolled out. Brokers are trying it. There's three parts of Boost. All aspects are being tried. But just like the way I always explain things with my brokers, it takes time for all these things to evolve. People get comfortable buying leads. A lot of loan officers in the brokerage channel aren't used to buying leads. And so how do they buy leads? Do they have to call the borrower multiple times? Like, there's big companies that are set up to call all the time. And so we've done some things to transfer leads to them. But we feel really good about them having the opportunity in Boost and getting them to be competitive if they want to buy leads.

They want connections to real estate agents. And so it's going really well so far. It's still early, but we feel good about that. And I'll be able to continue to get more updates, just like Bolt. I'll give you constant updates on how Bolt's going. That's almost a year. It's your anniversary.

Same thing with Appraisal Direct and some of these things I rolled out last year, the source, one year later it's like wow, how do we ever survive without it? I'm hoping that Boost will be in that same category over the next one, two, three plus years.

Thanks so much.

Great. Well, thank you. I appreciate it. Is there any more questions or?

Are there no further questions?

Great. Well, thank you all for taking the time to listen to the call. We appreciate the support. You know, Blake is available, Andrew is available, I'm available, of course Matt, Rosalyn too, we're all available to talk. But if you need any questions, follow up. Blake, Kolo, Andrew, myself, we're all available to talk to you. Thanks a lot. We appreciate the support. Have a fantastic day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.

You.

Q2 2022 UWM Holdings Corp Earnings Call

Request a DemoDemo

UWMC

UWM Holdings

Earnings