Q4 2023 Doma Holdings Inc Earnings Call

March 12, 2024

Okay.

Hello, and welcome to the Domo fourth quarter and full year 2023 earnings conference call.

At this time all participants.

Yes.

Yeah.

Oh.

[laughter].

At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone.

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It is now my pleasure to introduce <unk>, Chief strategy Officer, and interim head of Investor Relations David Horn.

Thank you operator, good afternoon, everyone and thank you for joining delmas fourth quarter and full year 2023 earnings conference call.

Earlier today <unk> issued a press release announcing its fourth quarter and full year results, which is also available at investor Belmond Dot com.

Leading today's discussion will be <unk>, founder and Chief Executive Officer, Max Sim costs.

<unk>, 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 financial and business performance market conditions competitive position and industry outlook.

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 <unk>. Most recently filed annual report on Form 10-K, and subsequent filings with the SEC.

For more information please refer to the risks uncertainties and other factors discussed in <unk>. Most recently filed annual report on Form 10-K, and other SEC filings.

All cautionary statements that we make during this call are applicable to any forward looking statements. We may pardon me, we make wherever they appear.

You should carefully consider the risks and uncertainties and other factors discussed in <unk> SEC filings do not place undue reliance on forward looking statements as noma is under no obligation and expressly disclaims any responsibility for updating altering or otherwise revising 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 premium and fees adjusted gross profit adjusted EBITDA and the and the other measures described in our earnings release, our GAAP results and a description of our non-GAAP measures with a full reconciliation to GAAP.

Can be found in the fourth quarter and full year 2023 earnings release, which has been filed with the SEC and is available on our investor website and with that alternative turn the call over to Maxim cost CEO of Domo.

Thank you Dave Good afternoon, everyone and thank you for joining our fourth quarter and full year 2023 earnings call.

2023 was a transformational year for domo as we continue to navigate challenging market conditions, we successfully executed significant cost reduction actions.

Our noncore local agency operations <unk>.

And streamlined our business to focus on our core strengths and support our valuable customers.

And our strategy to better address the ever growing market demand for more affordable and tech driven title insurance offerings, including the launch of an innovative new product pilot.

<unk> title.

This transformation was made possible by the incredible team that we have built here at Dover.

I want to start by thanking each of you for your hard work and contribution to get us where we are today.

Turning to our fourth quarter results.

We will discuss four key themes on the call today first I will provide an update on our path to reaching adjusted EBITDA profitability second I'll provide an update on the implementation of our narrowed strategy for the business, including more detail on the launch of our upfront title pilot.

And the early encouraging successes we have enjoyed.

Third I wanted to take a few minutes to talk about the continued strength of our core underwriter platform, which demonstrated another quarter of strong performance despite difficult market conditions.

Fourth I.

I will discuss how the recent groundswell in public and political support for more affordable housing solutions, specifically driven by a need for more innovative title insurance options as exhibited in last week state of the Union address is something we believe we are uniquely positioned to address and wave that could deliver upside to our long term success.

Regarding our first thing we successfully executed significant cost reduction actions in 2023, while still enhancing the customer service levels that our underwriter in our enterprise Division.

We struck a fine balance between reducing costs, while still funding investments to support our future growth opportunities, particularly as it relates to our new strategy.

While we fell just shy of our ambitious goal of reaching adjusted EBITDA profitability in Q4, primarily due to the continued degradation of the interest rate environment. We are encouraged by the significant improvement we made in our adjusted EBITDA in P&L.

Our adjusted EBITDA loss for continuing operations with $3 million in Q4, an improvement from our adjusted EBITDA loss for continuing operations of $5 million in Q3 of this year.

As a more Stark reminder, we've come a long way from our fourth quarter 'twenty to EBIT loss for continuing operations of $11 million.

And we're proud of the progress we've made despite narrowly missing our target this quarter.

Looking ahead and as we have previously discussed Q1 is typically a seasonal low point for the housing market, which combined with continued macroeconomic uncertainty presents risks to achieving adjusted EBITDA profitability in the first quarter and first half of the year.

But overall, we are encouraged by the significant improvement in our cost structure, which enabled us to get within striking distance of our goal.

Now that we have significantly reduced our cost structure, our efforts and our focus going forward on growing our revenue and expanding our margins through realization of operational improvements.

We believe the implementation of our new strategy will be key to achieving these goals and we are extremely encouraged by the external support we're getting from our customers as we navigate through change.

This brings me to the second key theme of our earnings call and update on our upfront title pilot program, which we launched in the first quarter of this year.

As we discussed on our last couple of quarterly earnings calls our go forward business strategy.

Centered around providing solutions to the growing market chorus for more affordable and tech enabled title insurance and technology solutions housing.

Housing affordability remains a critical issue for many Americans by.

By licensing our patented instant underwriting technology upstream directly to the largest mortgage market participants in the country and while continuing to serve independent agents through our underwriting channel. We are confident that we can meet market demands and ultimately bring down cost for homeowners who are in critical need of release.

The unfortunate reality is that most homes for sale in 2023, we're not affordable for a typical U S household.

According to an analysis by Redfin, just 15, 5% of homes for sale in 2023, where affordable for the typical U S household the lowest share on record.

According to the National Association of Realtors data the National median price for an existing single family home jumped three 5% from a year prior.

They cite that home prices continued to surge in the fourth quarter of 2023 in the majority of major U S. Metros in some markets even posted double digit gains.

While interest rates have begun to call they still remain elevated which combined with low supply of created affordability challenges for many families.

We applaud the industry participants, who are exploring new and innovative options to help with closing costs, especially for low income first time homebuyers.

It is clear to us that Americans desperately need relief, we believe that our narrowed strategy positions us well to address this critical issue by offering a much lower cost and more streamlined solution for homeowners.

Through the launch of our groundbreaking pilot product upfront title, which we discussed on our Q3 call. We believe we will have a strong competitive advantage to deliver a far better faster and more affordable sweep title solutions to American homeowners.

As a reminder, our upfront title insurance product will enable us to provide an instant title underwriting decision as well as rate and coverage quoting all within or in communication with the core platforms used to determine eligibility for loan underwriting itself.

Specifically we.

We have designed the product to integrate seamlessly with number one mortgage software systems utilized by large lenders to process borrower demand and issue prequalification decisions for mortgages and number two the core automated underwriting systems utilized by the government sponsored enterprises.

By offering our new upfront titled product to mortgage software platforms as well as the Gse's directly.

We will enable the lender customers of these platforms to obtain instant titles certainty at the point of deciding whether or not to underwrite the loan as well as to provide their homeowner customers are priced generally far below current industry standard rates for title insurance.

Additionally, overtime its configuration of our technology will help us shift more of our revenue toward higher margin software licensing revenue.

On our Q3 call, we announced an initial partnership with one of the largest mortgage technology platforms in the country to launch our upfront title pilot program.

We are delighted to announce today that earlier in Q1 'twenty for an early stage configuration of this pilot program successfully launched ahead of schedule.

We are already seeing encouraging early results and they are helping to validate that the future could bring a transformational new configuration, which can deliver both meaningful savings and benefits to consumers and lenders alike.

We believe that based on these early results that we are on track and if we are successful demonstrating pilot program success in the first half of this year, we would be in a position to expand our partnership in the second half of the year, both on a geographic basis and also by offering a more enhanced upfront hydro products configuration to additional lenders and mortgage technology platforms.

While we are very encouraged by the early results. We do not expect revenue from this pilot program to be material in the first half of the year.

We are thrilled to be partnering both with one of the largest mortgage technology platforms in the country and a major national lender customer to launch this innovative product and believe that the value proposition that we offer to this initial lender will be just as strong with other lender customers.

And our technology platform partner has built an impressive customer base. So we're excited about our ability to expand within this partners platform given their scale and market presence.

For the upfront title product Domas underwriting division will provide a title insurance policy, while the escrow and closing services may be performed either internally or provided by external partners, which we believe will enable us to scale our product efficiency.

Our intent is to accelerate our go to market strategy and work over the next few quarters to expand our reach so that we can deliver meaningful cost savings to homeowners.

Part of our go forward strategy and in parallel with the distribution of our technology on a license basis, our title insurance underwriting business and our independent agent customers remain a critical importance.

And we will continue to be a core part of our business.

This brings me to the third key theme of our earnings call, which is to provide an update.

On our core underwriting platform and its strong performance despite continued difficult market conditions.

Our fourth quarter underwriting division retained premiums and fees in adjusted gross profit increased 7% and 22% respectively compared to the third quarter <unk>.

During the fourth quarter. The underwriter performance was aided by the strength in the homebuilder portion of the business and positive improvement in gross profit, resulting from favorable reserve development and.

And we also expect to see continued positive momentum in our underwriting business benefiting from lower costs driven by our most recent cost reduction actions.

We continue to want significant tech initiatives in our underwriting division, which have been instrumental to our success. For example, we launched numerous Apis with major title production systems in areas like CPL policy jackets entitled production.

We also launched online pay systems, allowing our agents to make their remittances electronically with the click of a button and lastly, we launched our new revamped agent education portal Doma Academy offerings <unk> credits to our agents to satisfy licensing requirements.

We believe our continued rollout of our innovative technology will benefit our independent agent focused title production team by saving them time and expense, while also enabling them to improve their efficiency through a partnership with them on our.

Our independent agent community remains of critical importance to Domo and we are pleased to continue growing our community by Onboarding New agents, we saw meaningful growth in the number of independent agent customers. We service, having added 130, new customer relationships during 2023.

Lastly, we saw positive results from our partnership with <unk>, which is the nation's largest homebuilder with the chronic supply shortage of homes and increasing demand for housing we remain excited to partner with Lin arent in order to continue servicing their title needs.

Before wrapping up I would like to touch on the fourth key theme of our earnings call the public and political support for more affordable housing outcomes being driven specifically through more innovative title insurance solutions has grown significantly even in just the last few weeks.

And we believe we are extremely well positioned to address one specific opportunity that emerged coming out of last week's state of the union address.

As you may have seen in his address last week President Joe Biden announced his plan to lower housing costs for the millions of Americans, who are struggling to afford the American dream of homeownership and he specifically mentioned they focus on reducing title insurance costs.

In a separate announcement immediately ahead of the presence address the federal housing Finance agency announced that they have approved a pilot to waive the requirement for lenders title insurance on certain refinances.

FHFA director Sandra Thomson further clarify that this quote unquote title acceptance pilot will waive the requirement for lenders title insurance or a legal opinion on certain low risk refinance transactions, where there is confidence that the property is free and clear of any prior lien where encumbrance.

The pilot only impacts the requirement for our lenders title policy or and.

And does not impact our borrowers title risk since it only applies to certain refinanced loans, where the borrower has titles of the property already.

We believe that Doma is one of the only players in our space, who has the proven technology and underwriting capabilities to participate in the pilot program announced by FHFA.

Our patented technology, which has been proven out over nearly 85000 loans is able to automate the bulk of the title search and exam process for the majority of conforming refinance transactions, regardless of geography, or a profile or other traditional manual underwriting characteristics that have been used.

Our tech has also proven that we consistently reduce time to close by several days and enable significantly lower fulfillment costs for mortgage originators, all while exhibiting similar claims rates as the traditional idle process.

And because our technology operates using a completely automated front and we can not only provide it as a licensed offering to the <unk> for the majority of refinances that they purchased from lenders. If they should decided this configuration with best support the Fhfa's announced pilot, but also provide a seamless and instant integration with any lender who might choose to participate in this program.

Ma'am.

Further if the external reporting that we've seen is correct in stating that Fannie Mae will be the first to launch. This pilot we have the added benefit of our relationship with Fannie Mae and helping evaluate and execute initiatives to drive more equitable and affordable homeownership outcomes.

It is important to note that we have been dismayed by some of the commentary following last week's announcements that assume that the reported pilot program will both put the American dream of homeownership at risk as well as not benefit low income <unk> minority homeowners.

Specifically FHFA confirmed in their statement last week that the pilot program will not introduce any new risk borrowers.

Additionally, we've seen reports by some industry trade organizations that assumed based on FHFA has language in their announcement last week that the only transactions that qualify for the announced program would be those of wealthy homeowners and implying that these would be non low income and or high credit score borrowers.

Our own data from the past several years.

Has shown that the majority of conforming refinances were completed by individuals who are below 120% of their area median income the definition of lower moderate income utilized by the Gse's.

And again, our technology was used to safely underwrite over 75% of these transactions.

So we have confidence that there are multiple paths for FHFA and the <unk> to ensure that whatever configuration. They decided to implement of the announced pilot it will likely have a significant impact on low and moderate income homeowners, who desperately need relief.

Overall, we're excited by the actions taken by the administration and we share a desire and a sense of urgency to reduce closing cost for borrowers by a wide margin compared to traditional non technology based solutions.

We think that based on what we've heard about the announcements made last week that it is likely over time that the majority of the refinance universe should qualify for our more innovative approach to quantifying and helping the gse's assess and underwrite title risk and we look forward to further exploring this opportunity.

This is a great example of the kinds of innovation it can make a lasting impact on helping to alleviate housing affordability challenges in this country in a safe and appropriate manner.

In closing I'd like to take a moment to celebrate the incredible work that has been done by the entire <unk> team. Our success is a direct result of your efforts and ability to navigate a continually challenging environment. We believe we have a reasonable amount of runway ahead of us. Thanks to all of the cost savings initiatives of 2023, and our targeted go to market plan for 2024.

I would also like to thank our investors and analysts for your continued support.

It's obvious to us the consumers need better options to help relieve the housing affordability challenges. They face we are passionate about not only removing the friction and frustration from an antiquated process, but also for providing lower cost title solutions for all especially to those who need it most I'll now turn over the time to Mike Smith.

Our CFO Mike.

Thank you Max and good afternoon, everyone today, I'll be providing an overview of <unk> fourth quarter financial results. Please refer to our earnings release issued earlier today for full details of the quarter and full year 2023, unless otherwise specified all of the comparisons cited in my remarks, our sequential comparisons to the third quarter of 2023.

The latest MBA mortgage finance forecast is projecting that the 30 year fixed mortgage rate will remain above 6% for the duration of 2024.

As we stated in the past these elevated rates will likely continue to put pressure on refinance and purchase order volumes industry wide for the foreseeable future.

As we discussed on our prior couple of earnings calls, we exited all of our local retail operations nationwide in 2023, we.

We have completed all of the related transition periods, which have resulted in substantial savings and reductions of legacy local costs.

As a result of the sale the local branches.

And their associated operations are classified and reported as discontinued operations in our financial results.

My remaining comments are focused on our continuing operations.

Overall, our primary measure of unit economics is adjusted gross profit, which was $8 million in the fourth quarter of 2023, and which compares to $6 million in the third quarter of 2023.

Adjusted gross profit as a percentage of our P&L increased to 47% from the fourth quarter compared to 39% in the third quarter of 2023, and overall increase of eight percentage points due to increased our P&L and lower provision for claims as a result of lower claim emergence and favorable changes in reserving assumptions.

Adjusted EBITDA, our main profitability measure was negative $3 million compared to negative $5 million in <unk> of 2023, an improvement of more than $2 million.

This improvement was primarily the result of our previously discussed increase in our P&L lower provision for claims and a workforce reduction actions and company wide efforts to reduce overall spin.

Moving onto our topline performance in the fourth quarter, we recorded revenue on a GAAP basis of $85 million, which compares to $76 million in Q3 of 2023, an increase of 11% primarily due to the continued strength seen in the homebuilder market.

As a reminder.

GAAP revenue includes the portion of agent premiums that Domo does not retain so we focus on delmas retained premiums and fees or RPM is an important metric, which excludes the premium retained by third party agents.

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

With this in mind RPF was $17 million in the fourth quarter up 7% compared to the third quarter of 2023, driven by strong homebuilder orders and stable independent agent results.

Underwriting RPF within our third party agent channel increased 12% in the fourth quarter compared to the third quarter, primarily from the continued strength in the homebuilding market I just mentioned.

As we noted on our prior earnings call, we are focusing on the performance of the underwriter during.

And we also expect to see continued positive momentum in our underwriting business benefiting from lower cost driven by our most recent cost reduction actions.

As Max mentioned, we look forward to executing on our new strategy growing our revenues expanding our margins and we remain highly focused on becoming adjusted EBITDA profitable on a sustainable basis.

I'll now pass the call back to Max for closing remarks, before we open the call to questions Max.

Thanks, Mike Thanks, everyone for joining us on our call today, we remain focused on our critical mission of making the home buying process better faster and more affordable overall 2023 was a transformational year for doma throughout the year, we made progress in positioning the business for the long term, we significantly reduced our expenses narrowed our strategy and launched an innovative new product pilot.

While our efforts have largely been on narrowing our strategy and adjusting our cost structure to align with the current macroeconomic environment. We believe that these efforts are largely complete and will provide us with a sustainable cost base as we push forward and work towards resuming growth in our business operator, we're ready for questions.

Thank you.

A reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again one moment. Please for our first question.

Okay.

And our first question comes from the line of Matt <unk> with citizens JMP.

Hey, Thanks, good afternoon.

Hey, Matt.

No.

You talked a bit about.

The upfront title in the pilot program I know you can't be too specific on each one but just about 30000 foot view can you provide us any sort of color on how those might be structured from a like a commercial.

Aspect as we think about kind of the longer term, how how those might.

Kind of the economics might have nor too to Denmark sure happy to so the best way to think about it Matt is that what we've really developed over the last six or seven years at this point.

As a a considerable technology platform benefit whereby we can immediately decision using our algorithms title risk on any qualifying titled transaction.

And.

When you think about the way the networks that are at a high level in terms of unit economics, we've already paid the R&D cost to develop that technology and.

And it's very high margin transactional revenue to us each time, it's used at this point because it's really just effectively run time costs for processing the algorithm on each transaction.

And what that enables us to do.

The case of upfront title and what it might enable us to do and any applicable configuration. If we were to participate in a pilot program with the Gse's.

This basically means that.

We can afford to either.

Charge, a significantly lower price for a title insurance policy.

Which to be clear, that's what's already been rolled out in our upfront title partnership that we mentioned our pilot that we launched.

We've filed rates in several states are publicly available you will find them and you'd see that our rates for that product are.

Significantly below the lowest rates that have historically been charged.

And then in the case of broader efforts.

What we'd really like to do is move more towards licensing our decisioning itself.

Which again, we've already made the fixed investment cost and so then on a transactional basis, we can recognize more and more revenue is high margin software revenue and do so while we're enabling the cost of this product to come way down to the end consumer while still providing the same safe and secure benefits of guaranteeing the final risk for lenders and again if applicable.

The GSE.

Does that makes sense, okay, yes, absolutely that's very helpful. And then I guess as you like on that software point, which makes a lot of sense kind of like SaaS.

Model do you view that as being ultimately kind of just a subscription basis got a license to just use the product or do you visit it being still a like a per transaction or per.

Per property sort of charge, obviously will be negotiated with each customer I think we're open minded at this point.

Because it's still early days and frankly, we think that with the technology advantage, we have and it's not being the only provider one of the only providers who can deliver this much of a cost savings benefit.

American homeowners, who desperately need relief.

I think there is something to be said for.

We want to make sure we have the right high margin software approach that can accomplish the goals for our end customers and consumers, but still enable flexibility where it is needed for whether its lender partners or mortgage technology system partners or even the <unk> to be able to see this is.

More of a <unk>.

Variable offering that they can offer.

To confer a benefit when people actually closed loans, because frankly I think that's the way a lot of the kind of industry mentality is set up is.

People don't love paying for stopping the mortgage world.

If a loan doesn't close and again, that's where I think we're uniquely positioned because our cost of goods sold effectively on the <unk> itself is very very small.

And so variable pricing structures make sense that better align our success with the end customer.

And the lender and the Gse's, we're open to those models as well.

Okay that makes sense and then just one other one if I could just kind of a higher level question. Your view of kind of where we are in an industry like we've been living in.

Kind of elevated.

Mortgage interest rate world for a while now kind of what's your assessment of.

Kind of a level that we should be looking at whether it's 30 year or however, you look at it that you feel theres going to be some reasonably size of opportunity a lot whether it be kind of people that are.

Locked into.

Mortgage with a seven handle on it and would look to refi or whether it be people back.

Our sitting in three 5% mortgages and can't swallow seven but might move something in between.

Yes. Good question look every time, I try and predict where the mortgage market is headed.

As a general industry prediction I've been dead wrong.

So with that being the disclaimer I would say that what.

What I do know and again.

Again, I was really encouraged that FHFA and the White house focus on this last week.

People scratch their heads these days Nath, who in their right mind would be doing a refinance and a seven ish percent interest rate.

And the reality is even in <unk> percent interest rate environment, there's plenty of people doing refis and the short answer is they are mostly people who are being forced to refi.

Unfortunately, you have.

Constant.

In life, which is death in divorce both of those events effectively forced to refinance transaction.

But.

More importantly, what we've seen from our data as we've mentioned is overwhelmingly the people that are doing these rate and term refinance at these rates conforming refis.

Our people at or below 120% of area median income, which is kind of a long winded way of saying that these people cant afford certain other things in their life and they are being forced to refi.

And so for those people every dollar helps and cost savings and to bring it full circle to your original question around like what does that mean for where we're at in terms of volumes.

What we really love about our new strategy as it kind of doesn't matter right do I think that things are going to get better from here, Yes, I don't think theyre going to get worse from an industry perspective overall volume.

Regardless of when they get better we feel like our new strategy has us really really well positioned to be capturing large amounts of share from the people that are participating in the market right now and who really really need cost relief and who an extra couple of hundred dollars.

Potentially hundreds even thousands of dollars cost savings makes a big difference in the money in their pocket that they can use for other important life decisions.

Perfect that makes a lot of sense I appreciate the color and congrats on all the progress you guys have made this year. Thanks, Matt.

Yeah.

Thank you.

Once again to ask a question. Please press star one on your telephone.

Yes.

One moment please.

And our next question comes from the line of Mike Ward with Citi.

<unk>.

Yes.

Hey, guys. Thank you good afternoon.

One thing I was curious about and I know you've spoken about this but just wondering if theres any kind of timing.

Timeline or.

In terms of the Biden administrations.

Targeted.

Sort of aid for home buying and refinancing but.

Is there any kind of.

The timeline on that or is there any other sort of views you can share.

I guess not totally sure what stage.

The proposals are until.

Sure.

Yeah, Mike I think.

We can really only comment on an announcement that was made last week, which is public.

And I would say that that announcement certainly implies that that timeline is.

More immediate and far away right.

I think in the grander scheme of things that the President United States Ken.

His full weight and forced behind in an election year.

Without getting into too much political commentary on the state of the World Legislative change is a hard thing to do in an election year.

Even this one.

But administrative changes something that the white house, and certainly FHFA have full control over and they made it quite clear last week, but this is an administrative change not a legislative one.

Typically speaking when administrative changes get announced with that much specificity.

They tend to show up relatively soon thereafter, and they show up in a significant way.

Not in a window dressing kind of way so, but that's all just based on kind of general principle about about something going so far as to be announced in the actual state of the union address specifically.

And then having a kind of a specific administrative action behind it beyond that.

I think we're going to wait to see what what gets publicly announced by the parties involved when they are ready to share more.

Okay.

Got it Super helpful and then maybe.

On the pilot program with a software company.

Curious how consumer interest has trended in that regard.

Yes, I mean look what's interesting is.

It's more I mean, here's the thing most consumers.

We will not do a home call it a home transactions of any kind purchase or refinance.

Times in their life.

Two either.

Need or want to get sophisticated about title insurance cost, but just kind of like.

Generally accepted fact, and so they generally are they're going to rely on the decision effectively by the referral channel either the lender or a real estate agent for a refinance or a purchase respectively to drive their decision.

And so in that regard, it's the lenders that.

<unk>.

Our.

In one big case, that's participating what's a one very large lender that's participating the upfront pilot and then certainly other lenders, who we've talked to about utilizing the upfront final product.

They all have had a pretty unanimous reaction, especially given the backdrop, we just talked about around housing affordability, which is.

They are quite excited to be able to select and pass on to their end consumer customers something that will save them hundreds potentially even thousands of dollars, while not introducing any new meaningful title risk beyond kind of traditional alternatives.

It's kind of a no brainer ourself right like they get something thats better faster cheaper they pass the benefit onto the consumer.

And both the consumer and the lender wins, so I would just say that like <unk>.

Even though it's early days, it's really the it's the lenders and again in the case of our pilot or our very large mortgage tech platform partner, who is quite excited because they themselves are in the business of signing up lender customers being able to offer them more valuable features.

Keep their their.

Their end customers stickier.

Got it and then maybe just maybe one more on and maybe maybe this is sort of a silly question, but.

Are there international.

Are there opportunities internationally for you to sort of apply a similar.

Business model too.

I guess to the extent that title insurance exists similarly outside of the United States and regions like Europe I think.

Theres less federal.

Backstopping of residential mortgages, and I think that means that.

Theres, maybe theres more volume or more turnover.

But.

Maybe that's a silly question, if it's not sort of a similarly structured market.

No no its not a silly question look I think there might be interesting opportunities abroad, particularly the further we get into just licensing our technology for Decisioning itself.

Where it could be utilized in lieu of a title insurance policy that said.

Honestly the market opportunity is so big here in the U S that we're going to focus on that for the foreseeable future I mentioned in the call.

We just can't emphasize enough how based on our unique knowledge, having run our own technology with our own lender customers over the years.

Which we've now shared earlier in the call. We know that the majority of conforming refinances can utilize our technology for an instant underwrite decision and so when you kind of take that as your as your 50000 foot view like our Tech works for the majority of conforming refinances.

We think there is plenty big of a universe here in United States to go after before we start considering an expansion internationally.

Got it.

Great. Thank you guys.

Thank you one moment please for our next question.

And our next question comes from the line of Bose, George with K B W.

Yes, thanks, Thanks for letting me on.

Just wanted to clarify what kind of loan refinances with the supply. There. Initially I was trying to what is a low risk refinance and then in your commentary was that eventually this would apply to most recently so just trying to figure out what's low risk now how does that sort of the trajectory to covering most of the market eventually yes.

Yes sure. Thanks for the question, but let me let me just be careful of delineate between two things.

I really can't speculate as to what FHFA meant in their statement when they said low risk.

You'd have to ask them directly what I do know is that we've seen using our technology with conforming refinance transactions and so these are I mean think of this as the bread and butter refinance it makes up most of the refinance market.

And we've used it.

And pretty much average.

Okay.

There are small lender centralized lenders distributed retail lenders.

Across the board, we can safely say that most conforming refinance transactions in the universe of overall mortgage transactions.

Get an instant underwrite decision from our technology.

It is our perspective ours domas that that most conforming refinance transactions. If you have the technology like we have you can delineate as low risk and you can move them down a quick path as incident and safe.

And then equally as important your technology is able to delineate the minority of transactions that are not low risk.

They have some kind of issue that it needs to have a further kind of more detailed and more traditional manual title work put against it. So that's how I'd just make sure that we reconcile the kind of the.

Two characterizations of quote unquote low risk.

Okay.

Okay, Great. That's helpful. Thanks, and then actually in terms of the relationship or the potential pilot with Fannie Mae.

Would it be just the technology underwriting or would you I mean would you be taking the title risk or do you provide the technology and then any kind of retain some if there is a residual risk they retain it.

Again I don't.

I don't know that we can get into the specifics of potential commercial arrangements that that may or may not be in play.

What I would say is that we're confident in our technology works to deliver a safe and incident, an incident means truly instant like basically almost in the blink of an eye a decision that can safely.

Provide an assurance that the title for that property can be underwritten, we're not risk sits.

It's a whole another ball of wax and I think theres a lot of different configurations that might make sense.

And I assume that.

If and when Fannie Mae provides more daylight onto how this program works. If in fact, they are the provider as has been reported.

I am sure when they publicly announced that then more will come to life.

Okay, great. Thanks, a lot.

Thank you and thank you for participating this does conclude today's program and you may now disconnect.

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Hello, and welcome to the Domo fourth quarter and full year 2023 earnings conference call at this time.

Okay.

At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the <unk>.

Session, you will need to press star one one on your telephone you will then hear an automated message advising that your hand has been raised to withdraw. Your question. Please press star one one again, please be advised that today's conference is being recorded.

It is now my pleasure to introduce <unk>, Chief strategy Officer, and interim head of Investor Relations David Horn.

Thank you operator, good afternoon, everyone and thank you for joining delmas fourth quarter and full year 2023 earnings conference call.

Earlier today <unk> issued a press release announcing its fourth quarter and full year results, which is also available at investor Belmond Dot com.

Leading today's discussion will be delmas, founder and Chief Executive Officer, Max Sim costs.

To 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 delmas expectations or predictions of financial and business performance market conditions competitive position and industry outlook.

Or 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 Delmas. Most recently filed annual report on Form 10-K, and subsequent filings with the SEC.

More information please refer to the risks uncertainties and other factors discussed in <unk>. Most recently filed annual report on Form 10-K, and other SEC filings.

All cautionary statements that we make during this call are applicable to any forward looking statements. We may pardon me, we make wherever they appear.

You should carefully consider the risks and uncertainties and other factors discussed in <unk> SEC filings do not place undue reliance on forward looking statements as delma is under no obligation and expressly disclaims any responsibility for updating altering or otherwise revising any forward looking statements whether as a result of new informed.

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 Craig Millman fees adjusted gross profit adjusted EBITDA and the and the other measures described in our earnings release, our GAAP results and a description of our non-GAAP measures with a full reconciliation to GAAP.

Thank you Dave Good afternoon, everyone and thank you for joining our fourth quarter and full year 2023 earnings call.

2023 was a transformational year for domo as we continue to navigate challenging market conditions, we successfully executed significant cost reduction actions divested our non core local agency operations and streamlined our business to focus on our core strengths and support our and valuable customers.

We narrowed our strategy to better address the ever growing market demand for more affordable and tech driven title insurance offerings, including the launch of an innovative new product pilot called upfront title.

This transformation was made possible by the incredible team that we have built here at <unk> I want to start by thanking each of you for your hard work and contribution to get us where we are today.

Turning to our fourth quarter results.

And the early encouraging successes we have enjoyed.

Fourth.

I will discuss how the recent groundswell in public and political support for more affordable housing solutions, specifically driven by a need for more innovative title insurance options as exhibited in last week state of the Union address is something we believe we are uniquely positioned to address in ways that could deliver upside to our long term success.

Regarding our first thing we successfully executed significant cost reduction actions in 2023, while still enhancing the customer service levels that our underwriter in our enterprise Division.

We struck a fine balance between reducing costs, while still funding investments to support our future growth opportunities, particularly as it relates to our new strategy.

Our adjusted EBITDA loss for continuing operations with $3 million in Q4, an improvement from our adjusted EBITDA loss for continuing operations of $5 million in Q3 of this year.

As a more Stark reminder, we've come a long way from our fourth quarter 'twenty to EBIT loss for continuing operations of $11 million.

And we are proud of the progress we've made despite narrowly missing our target this quarter.

Looking ahead as we have previously discussed Q1 is typically a seasonal low point for the housing market, which combined with continued macroeconomic uncertainty presents risks to achieving adjusted EBITDA profitability in the first quarter and first half of the year.

But overall, we are encouraged by the significant improvement in our cost structure, which enabled us to get within striking distance of our goal.

Now that we have significantly reduced our cost structure, our efforts and our focus going forward are on growing our revenue and expanding our margins through realization of operational improvements.

This brings me to the second key Fem theme of our earnings call and update on our upfront title pilot program, which we launched in the first quarter of this year.

As we discussed in our last couple of quarterly earnings calls our go forward business strategy.

Is centered around providing solutions to the growing market chorus for more affordable and tech enabled title insurance and technology solutions.

Using affordability remains a critical issue for many Americans by licensing our patented instant underwriting technology upstream directly to the largest mortgage market participants in the country and while continuing to serve independent agents through our underwriting channel. We are confident that we can meet market demands and ultimately bring down cost for homeowners who are in critical need of release.

The unfortunate reality is that most homes for sale in 2023, we're not affordable for a typical U S household.

According to an analysis by Redfin, just 15, 5% of homes for sale in 2023, where affordable for the typical U S household the lowest share on record.

The National Association of Realtors data the National median price for an existing single family home jumped three 5% from a year prior.

They cite that home prices continued to surge in the fourth quarter of 2023 in the majority of major U S. Metros in some markets even posted double digit gains.

While interest rates have begun to cool they still remain elevated which combined with low supply of created affordability challenges for many families.

We applaud the industry participants, who are exploring new and innovative options to help a closing costs, especially for low income first time homebuyers.

Specifically.

By offering our new upfront titled product to mortgage software platforms as well as the GSE is directly.

We will enable the lender customers of these platforms to obtain instant title certainty at the point of deciding whether or not to underwrite the loan as well as to provide their homeowner customers are priced generally far below current industry standard rates for title insurance.

Additionally, overtime its configuration of our technology will help us shift more of our revenue toward higher margin software licensing revenue.

On our Q3 call, we announced an initial partnership with one of the largest mortgage technology platforms in the country to launch or upfront title product via a pilot program.

We are delighted to announce today that earlier in Q1 'twenty for an early stage configuration of this pilot program successfully launched ahead of schedule.

We are already seeing encouraging early results and are helping to validate that the future could bring a transformational new configuration, which can deliver both meaningful savings and benefits to consumers and lenders alike.

We believe that based on these early results that we are on track and if we are successful demonstrating pilot program success in the first half of this year, we would be in a position to expand our partnership in the second half of the year, both on a geographic basis and also by offering a more enhanced upfront idled product configuration to additional lenders and mortgage technology platforms.

While we are very encouraged by the early results. We do not expect revenue from this pilot program to be material in the first half of the year.

Allergy platform partner has built an impressive customer base. So we're excited about our ability to expand within this partners platform given their scale and market presence.

For the upfront titled product Domas underwriting Division will provide a title insurance policy, while the escrow and closing services may be performed either internally or provided by external partners, which we believe will enable us to scale our product efficiency.

Our intent is to accelerate our go to market strategy and work over the next few quarters to expand our reach so that we can deliver meaningful cost savings to homeowners as part of our go forward strategy and in parallel with the distribution of our technology on a licensed basis, our title insurance underwriting business and our independent agent customers remain a critical importance and.

And we will continue to be a core part of our business.

This brings me to the third key theme of our earnings call, which is to provide an update.

On our core underwriting platform and its strong performance despite continued difficult market conditions.

Our fourth quarter underwriting division retained premiums and fees in adjusted gross profit increased 7% and 22% respectively compared to the third quarter.

And we also expect to see continued positive momentum in our underwriting business benefiting from lower costs driven by our most recent cost reduction actions.

We continue to want significant tech initiatives in our underwriting division, which have been instrumental to our success. For example, we launched numerous api's with major title production systems in areas like CPL policy Jackups entitled production.

We also launched online pay systems, allowing our agents to make the remittances electronically with the click of a button and lastly, we launched our new revamped agent education portal Doma Academy offering C. E C. L. A credits to our agents to satisfy licensing requirements.

Our independent agent community remains of critical importance to domo.

Q4 2023 Doma Holdings Inc Earnings Call

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