Q1 2025 loanDepot Inc Earnings Call
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Speaker Change: Good afternoon and welcome to Loandepot's first quarter 2025 earnings call.
Speaker Change: All participants aren't on listen only mode. After the speakers remarks, we'll conduct a question-and-answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conflict call is being recorded. You'll need to press star followed by the number one on your telephone keypad.
Speaker Change: I would now like to turn the call over to Gerhard Erdelji in your Vice President Investor in relation. Let's go ahead.
Thank you and good afternoon everyone.
Speaker Change: Thank you for joining our first quarter of 2025 earnings call. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements regarding the companies operating in financial performance in future periods.
Speaker Change: These statements are based on the company's current expectations and available information. Actual results for future periods may differ materially from these forward-looking statements due to risks or other factors that are described in the risk factors section of our filings
Speaker Change: Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into analyzing and benchmarking the performance and value of our business and facilitating company-to-company-offerning performance comparisons.
Speaker Change: A webcast and transcript of this call will be posted on a website after the conclusion of this call.
Frank Martell: On today's call, we have Loandepot's Founder and Executive Chairman Anthony Shay, President and Chief Executive Officer Frank Martell, and Chief Financial Officer David Hayes.
Frank Martell: They will provide an overview of our quarter as well as our financial and operational results and outlook.
Frank Martell: We are also joined by Chief Investment Officer Jeff DerGurahian and LDI Mortgage President Jeff Walsh to help answer your questions after our prepare remarks. And with that, I'll turn things over to Frank to get us started, right?
Frank Martell: Thank you, Gerhard. I appreciate everyone joining us on the call today.
Frank Martell: As we announce in early March, I plan to step down from my role as CEO and member of the board at our annual meeting of stockholders onto the fourth.
Frank Martell: For the next month, I will remain active in my role and fully support our founder, Anthony Shea, and his transition back to day-to-day leadership of the company and as he ultimately becomes our interim CEO .
Frank Martell: Since this is my last earnings call with the company, I would like to share a few heartfelt messages starting with the fact that I'm very proud to have been part of Loandepot and look forward with confidence.
to the company's future success.
Frank Martell: As a team, we address the realities of the market while investing in our critical systems, products, and processes that will allow Loandepot to take advantage of our market differentiators.
Frank Martell: In this and upcoming cycles, as well as allow us to continue to deliver a best-in-class customer experience which is the core to Loandepot's service-based DNA.
Frank Martell: with higher volume margins and ongoing cost discipline which drove significantly improved results which David Hayes will collaborate more in detail later in the call.
Frank Martell: As I close, in the spirit of expressing my gratitude, I'd like to thank our investor community and all those who participated in our quarterly polls.
Frank Martell: I appreciate your engagement support and the time you spent evaluating Loandepot.
with that, Anthony DeForgers.
Anthony Shea: Thank you, Frank, and hello, everyone. On behalf of the board and team Loandepot, I want to express our gratitude for your leadership over the past three years.
Speaker Change: Frank, you are a man of honor and a servant leader. You care for Team Loandepot and the customers we serve as evident.
Speaker Change: Now to look forward. First of all, it's great to be back with all of you. We respect the work of the investor community and to echo Frank's comment. Recognize your important role in the marketplace.
Speaker Change: As we move ahead in the coming days and weeks, the team and I will focus on capitalizing upon the things that make Loandepot great.
Speaker Change: with the expectation being that we expand originations and drive growth.
Speaker Change: By leveraging this unique constellation of assets, plus adding to our arsenal with new and emerging technologies and platform refinements, I believe we are well positioned to gain profitable markets here in scale of business.
Speaker Change: To elaborate a bit further, our multi-channel origination model is special. We have three distinct channels that serve as the foundation of our business.
Speaker Change: Our in-market retail and joint venture channels primarily serve the home purchase market, while our consumer direct channel primarily features refinance and home equity lending services.
Speaker Change: Purchases generally considered to be more stable and consistent part of the mortgage market and forms the foundation of our origination strategy.
Speaker Change: While our direct channel allows us to scale and grow when interest rates drive increased refinance activity, as well as capture home equity volume when customers want to access equity while maintaining their first mortgage interest rate.
Speaker Change: to provide the financing solutions and help our customers successfully navigate one of the most important financial transactions of their lives.
Speaker Change: We believe the partnerships we have within the real estate community are incredibly valuable and one of the ways in which we drive loyalty and repeat business over time.
Speaker Change: Our differentiated joint venture channel forms partnerships primarily with home builders to provide seamless financing for the purchase of their newly built homes. Combine these two channels you have a great footprint in the new and reselled purchase market.
Speaker Change: Our consumer direct loan officers, many are licensed in multiple states, benefit from our nationally recognized brand, marketing prowess, scale, and proprietary technology to quickly convert potential mortgage leads into borrowers.
Speaker Change: and with both first and second mortgage product, these Loan Officers can help customers access and use the equity to advance their financial goals.
Next is our servicing business.
Speaker Change: With 117 billion of unpaid principal balance, servicing provide the consistent and recurring source of revenue for us.
because we service Loand's in-house.
Speaker Change: We directly interact with our customers, strengthening our brand and awareness, loyalty and providing important self-serve opportunities throughout our customer portal. This improves our recapture rates which deepens our customer relationships and drives profitability by saving marketing expenses.
Speaker Change: Avoiding much of the customer acquisition costs are recaptured loans compared to those of newly originated customers.
Speaker Change: By servicing Loans ourselves, we are also able to cross out other products and services
Speaker Change: such as our home equity lane products. We have seen growing customer adoption for these products along with investor demand, creating additional revenue at attractive margins, introducing these products, demonstrates our commitment to delivering right-fit products to customers at the right time.
Speaker Change: Our proprietary melotext doc is widely acknowledged as a best-in-class platform in the origination space. As we move forward, we will build on our legacy of innovation by adding to our arsenal with new and emerging technologies and platform refinements.
Speaker Change: Innovation is a part of our DNA in how we built this company from the ground up in 2010. I fully expect this to return to our roots in this way.
Speaker Change: Behind the scenes, we will also continue to focus on improving our process level to deliver more positive operating leverage so that we can quickly and efficiently scale the business as the market improves.
Speaker Change: What underpins all of this in my opinion is our brand muscle.
Speaker Change: Perhaps even better described as our brand heart. I hear over and over that people recognize our brand from the investments we made in Major League Baseball and with our presence of Miami at Lone Deepal Park.
Speaker Change: The team and I are proud that our brand lights up on a national scale in this way, but anyone who knows me well will tell you that I believe the most important way that our brand lights up is in the interactions we have each state with our customers.
Speaker Change: Our overall customer satisfaction scores remain incredibly high and we consistently drive home the truism that every customer interaction no matter how big or how small matters.
Speaker Change: Our incredible customers and employees are the true embodiment of our brand. They are what really give our brand this power.
Speaker Change: What I just described may be a bit of old news for some of you listening to this call, especially those of you that have been following Loandepot since the beginning. That said, what I have outlined is an important reminder of who we are.
Speaker Change: Through the groundwork that has been laid over the past several years in our consolation of unique assets, I believe Loandepot's position to win and voice a regain market share in the future.
Speaker Change: I continue to familiarize myself with our day-to-day operations and I am excited to return to the company that I found it.
Speaker Change: Given our positioning, I believe we have a tremendous opportunity to make a positive event eye out on the lives of our customers and for all our stakeholders.
Speaker Change: With that, I will now turn the call over today who will walk us to take us through our financial results in more detail.
Thanks Anthony, and good afternoon everyone.
Speaker Change: We deeply appreciate all that Frank brought to our company and are energized by Anthony's return.
Speaker Change: Under Frank's guidance, the first quarter reflected the benefits of our investment in growth-generating initiatives despite the adverse impact of lower servicing revenues stemming from our 2024
Speaker Change: We reported an adjusted net loss of $25 million in the first quarter, compared to an adjusted net loss of $38 million in the first quarter of 2024. Do primarily do higher lock volume and gain on sale margin offset somewhat by higher expense?
Speaker Change: During the first quarter, Polter weighted rate lock volume was $5.4 billion, which represented a 15% increase from the prior year's volume of $4.7 billion, and reflected the impact of our investment in recruiting and developing our loan officers.
Speaker Change: Pull through weighted lock volume came in within the guidance we issued last quarter of $4.8 billion to $5.8 billion and contributed to adjusted total revenue of $278 million, compared to $231 million in the first quarter of 2024.
Speaker Change: Our increase in adjusted revenue has accelerated and more than overcame the decrease in servicing revenue stemming from our 2024 bulk MSR sales.
Speaker Change: Our poll through way to gain on sale margins for the first quarter came in at 355 basis points above our guidance of 320 to 340 basis points and compared to 274 basis points in the prior year.
Speaker Change: Our higher gain-on-fail margin primarily benefiting from a bigger contribution by our home equity linked products in a higher proportion of government loans compared to the prior year.
Speaker Change: Our Loan Origination Volume was $5.2 billion for the quarter, an increase of 14% from the prior year's volume of $4.6 billion.
Speaker Change: This was also within the guidance we issued last quarter of between $4.5 billion to $5.5 billion.
Speaker Change: The previously mentioned increase in government lending has also contributed to our unit share of market increasing from 145 basis points to 187 basis points over the past year.
Speaker Change: Sourcing fee income decreased from $124 million in the first quarter of 2024 to $104 million in the first quarter of 2025 and primarily reflects the impact of our 2024 bulk sales.
Speaker Change: We had our servicing portfolio, so we do not record the full impact of the changes in fair value in the results of our operations.
Speaker Change: We believe this strategy helps protect against volatility in our earnings and liquidity.
Speaker Change: Our total expenses for the first quarter of 2025 increased by $12 million or 4% from the prior year quarter.
Speaker Change: The primary drivers of the increase were higher volume related commission, direct origination, and marketing expenses.
Speaker Change: Our non-volume-related expenses decreased $7 million of the same period, primarily through lower GNA, reflecting our ongoing cost management discipline and lower cyber-related costs.
Speaker Change: Looking ahead to the second quarter, we expect pull-through weighted lock volume of between $5.5 billion and $8 billion and origination volume of between $5 billion and $7.5 billion.
Speaker Change: We expect our second quarter pull through way to gain on sale margin to be between 300 and 350 basis point.
Speaker Change: Our guidance reflects the seasonal increase in purchase activity, potentially offset by recent market volatility in high rates.
Speaker Change: Our total expenses are expected to increase in the second quarter, primarily driven by higher volume related expenses.
Speaker Change: The first quarter reflected the benefits of our investment in growth generating initiatives.
Speaker Change: Our home equity link product and investment in recruiting productive loan officers and all of our channels supported strong margin and volume increases which resulted in growing majestic revenue.
Anthony Shea: As I work even more closely with Anthony going forward, we remain laser focused on our commitment to profitability and continue to work with discipline to grow revenue and manage costs while maintaining ample cash in a strong balance sheet.
We ended the quarter with $371 million in cash.
Anthony Shea: We believe our multi-channel strategy, high quality in-house servicing, scalable origination capabilities, and operating leverage uniquely positions us to profitably grow volume and market share when the market eventually recovers.
Anthony Shea: as evidence viability to capture additional volume during the third quarter of 2024 when rates temporarily used.
Anthony Shea: We believe a more sustained decrease in rates will materially improve our bottom line and our ongoing investments in growth-generating initiatives will provide the foundation for additional momentum during 2025 and beyond.
Anthony Shea: With that, we're turning it back to the operator for Q&A, operator.
Speaker Change: Thank you. As a reminder to ask the question, please press star, followed by the number one on your telephone keypad. To withdraw any questions, press star one again. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from Doug Harter from UBS. Please go ahead, your line is open.
Hi, this is actually a Cory Johnson on for Doug.
Speaker Change: You had like a wider gain on sale margin this quarter and mentioned how home equity link products.
Speaker Change: How did you increase that gain on sale? Can you maybe just talk a little bit about what the outlook is for home equity business? What is that market looking like now? Is it more of them?
Yeah, hi, Cory. It's Anthony Shea.
Speaker Change: So, the second mortgage product really is a proper hedge to the interest rate environment.
Speaker Change: So, as rates stay somewhat elevated, we continue to scale this business.
Speaker Change: by increasing our marketing and looking at cross-ill opportunities both in terms of our first mortgage marketing leads and our servicing portfolio.
if we had a reality.
Speaker Change: You will see first mortgage cash out, dominate more so than the home equity market.
Speaker Change: There's a very strong demand as a result of it with record home equity on the country.
very low loan to value.
Speaker Change: and many of the consumers protecting their two, three, and four percent interest rates. This is the best way for them to leverage their cash flow. And, again, as rates decrease,
Speaker Change: which is more so of when and not if, will be in a great opportunity with a cash-out refinance.
Thanks. Thank you.
Operator: There are no further questions at this time. Anthony Hsieh, I turn the call back over to you.
Anthony Hsieh: Thank you. On behalf of Frank, Dave, Gerhard, Jeff Walsh, Jeff DerGurahian, the rest of our team. I want to thank you for joining us today.
Speaker Change: I look forward to sharing our progress again next quarter. I rejoin the company in an active management role with a goal of leveraging our unique assets that compromise.
Speaker Change: Compressional Depot, our diversified channel strategy, which is the industry's only SGA model of this type, nationally recognized brand and top of funnel customer acquisition experience.
Speaker Change: I, along with our leadership team, and committed to House Capture, Grow, Protect, and invest in those assets to continue on deeply positioned as a leader in home mortgage.
So thanks again everybody, and I appreciate your support.
This concludes today's conference call. You may now disconnect next.