loanDepot announces third quarter 2022 financial results

Decreased net loss by 39% on expense reduction; increased cash balances by 20% to $1.14 billion

• Lower market volumes and the exit of wholesale channel fueled revenue decrease of $34.4 million, or 11%.
• Reduced total expenses by $125.5 million, or 22%, from second quarter primarily driven by right-sizing staffing levels, reduced marketing spend, and lower third-party costs.
• Company expects to achieve Vision 2025 annualized expense savings target of $400 million by year-end 2022.
• Net loss reduced 38.6% to $137.5 million in third quarter from second quarter, driven by expense reductions which more than offset lower revenues.
• Company increased already strong cash balance to $1.14 billion at end of third quarter.
• Substantially completed transition of servicing portfolio to in-house platform, improving customer experience and increasing cross-sell opportunities.
• Roll-out of digital HELOC solution commenced, providing customers fast, easy way to access cash from their home equity.

FOOTHILL RANCH, Calif., Nov. 8, 2022 /PRNewswire/ -- loanDepot, Inc. (NYSE: LDI), (together with its subsidiaries, "loanDepot" or the "Company"), today announced results for the third quarter ended September 30, 2022. 

"loanDepot made significant progress on our previously announced goals for Vision 2025, including right-sizing the company for current and expected market conditions, launching our digital HELOC solution, and significantly enhancing our liquidity position," said President and Chief Executive Officer Frank Martell. "We aggressively reduced our costs, exited the wholesale channel, and narrowed our losses during the third quarter in line with our previously announced targets. We are firmly on pace to meet our expense reduction goal of an annualized $400 million for the second half of 2022, and at the same time, we have substantially increased our cash position. Looking ahead, we have built our expense reduction plan to size the company appropriately for a mortgage market that we believe will total approximately $1.5 trillion in 2023.

"We are excited about the launch of our digital HELOC, which we expect will be a meaningful contributor to revenues in 2023. This unique digital solution has been launched in several markets and provides our customers with an attractive option to access their home equity. With the value of home equity at an all-time high, many homeowners would greatly benefit from an easy and fast way to access cash while preserving their historically low interest rate first mortgage. Our HELOC launch is an important step in advancing our goal of adding more products and services that will benefit our customers, diversify our revenues, and generate profitable growth.

"As we look toward 2023, with a consistent track record of delivering on Vision 2025 strategy, we believe we are well positioned to navigate what is likely a challenging mortgage market. We will continue to focus on driving higher revenues while delivering outstanding quality and service levels, and returning to sustained profitability as we implement Vision 2025 and as the mortgage market resets."

Third Quarter Highlights:

Financial Summary

Vision 2025

Our Vision 2025 plan is designed to address current and anticipated mortgage market conditions and position loanDepot for sustainable long-term value creation. Building on the foundation of our strong balance sheet and liquidity, we have achieved the following since the announcement of Vision 2025:

• In partnership with National HomeCorp., a Georgia-based homebuilder specializing in affordable single-family homes, we formed NHC Mortgage, a new joint venture partnership advancing our goal of purpose-driven lending and providing credit to underserved communities.
• Substantially completed the transition of our servicing portfolio to our in-house platform.
• Recently began the phased national roll out of our digital HELOC.
• Added Joseph Grassi as our Chief Risk Officer and Gregory Smallwood as our Chief Legal Officer enabling the Company to increase the effectiveness of our quality and compliance initiatives.
• Achieved quarterly non-volume related expense reductions of $68.9 million from the second quarter, an annualized impact of $275.5 million.
• Reduced quarterly volume related expenses, consisting of commissions and direct origination expenses, by $56.6 million from the second quarter.
• Incurred expenses related to the Vision 2025 plan during the quarter of $37.2 million, including $20.8 million of lease and other asset impairments, $9.4 million of personnel related expenses, and $7.0 million of professional services fees. Second quarter Vision 2025 expenses totaled $54.6 million.

Operational Results

• Pull through weighted lock volume of $8.8 billion for the three months ended September 30, 2022, resulted in quarterly total revenue of $274.2 million, a decrease of $34.4 million, or 11%, from the second quarter of 2022 due to higher interest rates reducing borrower demand.
• Loan origination volume for the third quarter of 2022 was $9.8 billion, a decrease of $6.1 billion or 38% from the second quarter of 2022.
• Gain on origination and sales of loans, net increased from the second quarter of 2022 due primarily to a reduction in loan loss provision somewhat offset by lower pull through weighted lock volume.
• Purchase volume increased to 70% of total loans during the third quarter, up from 59% of total loans during the second quarter of 2022 and 34% of total loans during the third quarter of 2021, reflecting our progress in executing a purpose-driven lending strategy of assisting our customers in buying a home.
• For the twelve months ended September 30, 2022, our preliminary organic refinance consumer direct recapture rate¹ remained strong at 71%. This highlights the efficacy of our marketing efforts, the strength of our customer relationships, and the value of our servicing portfolio for additional revenue opportunities.
• Net loss for the third quarter of 2022 of $137.5 million as compared to net loss of $223.8 million in the second quarter of 2022. Net loss decreased quarter over quarter primarily due to a decrease in total expenses offset somewhat by lower revenues due to lower rate lock volume.
• Adjusted LBITDA for the third quarter of 2022 was $114.1 million as compared to adjusted LBITDA of $191.5 million for the second quarter of 2022. Adjusted (LBITDA) EBITDA excludes the impact of fair value changes of our mortgage servicing rights, net of hedging results, impairment charges, and other operating expenses.

Our outlook for the fourth quarter of 2022 is

• Origination volume of between $4 billion and $7 billion.
• Pull-through weighted rate lock volume of between $3 billion and $6 billion.
• Pull-through weighted gain on sale margin of between 210 basis points and 270 basis points.

Strategic Channel Overview

Our purpose driven origination strategy ensures we can serve customers in the way they want to be served, with the right mortgage professional, with the right product, at the right price, and at the right time. Complementing our origination strategy is our servicing portfolio, which ensures we can serve the customer through their entire homeownership journey.

Retail Channel

Partner Channel

Our Partner Channel originates loans through our network of approved mortgage brokers, as well as a series of exclusive joint ventures with some of the nation's largest homebuilders and depositories, who market our broad spectrum of products utilizing our innovative mello® technology platform to efficiently underwrite, process and fund mortgage loans, while delivering an exceptional customer experience.

The decrease in volume in our Partner Channel since the second quarter of 2022 primarily reflects our decision to exit the wholesale origination business. The decrease in the Partner Channel's gain on sale margin also reflects our exit of the wholesale origination business as new fallout adjusted interest rate locks from that business decreased significantly during the quarter.

Servicing

The decrease in unpaid principal balance of our servicing portfolio was driven primarily by sales of $18.6 billion of unpaid principal balance during the quarter.

As of September 30, 2022, approximately 0.2%, or $319.5 million, of our servicing portfolio was in active forbearance. This represents an aggregate decrease from 0.4%, or $587.8 million as of June 30, 2022.

Balance Sheet Highlights

The increase in cash and cash equivalents from June 30, 2022, included the proceeds from MSR sales and loans sold in excess of loans originated during the quarter. A decrease in loans held for sale at September 30, 2022, resulted in a corresponding decrease in the balance on our warehouse lines of credit.  Total funding capacity with our lending partners decreased to $5.7 billion at September 30, 2022 from $9.9 billion at June 30, 2022. The decrease of $4.2 billion was primarily due to our decision to reduce our borrowing capacity, reflecting lower volume expectations. Available borrowing capacity was $3.1 billion at September 30, 2022.

Consolidated Statements of Operations

Consolidated Balance Sheets

Loan Origination and Sales Data

Third Quarter Earnings Call

Management will host a conference call and live webcast today at 5:00 p.m. ET on loanDepot's Investor Relations website, investors.loandepot.com, to discuss its earnings results.

The conference call can also be accessed by dialing (888) 440-6385 using conference ID number 2021948. Please call five minutes in advance to ensure that you are connected prior to the call. A replay of the webcast and transcript will also be made available on the Investor Relations website following the conclusion of the event, or can be accessed by dialing (800) 770-2030 following the conclusion of the event through December 8, 2022.

For more information about loanDepot, please visit the company's Investor Relations website:  investors.loandepot.com.

Non-GAAP Financial Measures

To provide investors with information in addition to our results as determined by GAAP, we disclose certain non-GAAP measures to assist investors in evaluating our financial results. We believe these non-GAAP measures provide useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. They facilitate company-to-company operating performance comparisons by backing out potential differences caused by variations in hedging strategies, changes in valuations, capital structures (affecting interest expense on non-funding debt), taxation, the age and book depreciation of facilities (affecting relative depreciation expense), the amortization of intangibles, and other cost or benefit items which may vary for different companies for reasons unrelated to operating performance. These non-GAAP measures include our Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA). We exclude from each of these non-GAAP financial measures the change in fair value of MSRs and related hedging gains and losses as they add volatility and are not indicative of the Company's operating performance or results of operation. We also exclude stock compensation expense, which is a non-cash expense, management fees, IPO expenses, gains or losses on extinguishment of debt and disposal of fixed assets, non-cash goodwill impairment, and other impairment charges to intangible assets and operating lease right-of-use assets as management does not consider these costs to be indicative of our performance or results of operations. Adjusted EBITDA (LBITDA) includes interest expense on funding facilities, which are recorded as a component of "net interest income (expense)", as these expenses are a direct operating expense driven by loan origination volume. By contrast, interest expense on our non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA (LBITDA). Adjustments for income taxes are made to reflect historical results of operations on the basis that it was taxed as a corporation under the Internal Revenue Code, and therefore subject to U.S. federal, state and local income taxes. These non-GAAP measures have limitations as analytical tools, and should not be considered in isolation or as a substitute for revenue, net income, or any other operating performance measure calculated in accordance with GAAP, and may not be comparable to a similarly titled measure reported by other companies. Some of these limitations are:

• they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;
• Adjusted EBITDA (LBITDA) does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted Total Revenue, Adjusted Net Income (Loss), and Adjusted EBITDA (LBITDA) do not reflect any cash requirement for such replacements or improvements; and
• they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows.

Because of these limitations, Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA) are not intended as alternatives to total revenue, net income (loss), net income (loss) attributable to the Company, or Diluted Earnings (Loss) Per Share or as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA) along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. See below for a reconciliation of these non-GAAP measures to their most comparable U.S. GAAP measures.

Forward-Looking Statements

This press release may contain "forward-looking statements," which reflect loanDepot's current views with respect to, among other things, its business strategies, including the Vision 2025 plan, our digital HELOC product, financial condition and liquidity, competitive position, industry and regulatory environment, potential growth opportunities, the effects of competition, operations and financial performance. You can identify these statements by the use of words such as "outlook," "potential," "continue," "may," "seek," "approximately," "predict," "believe," "expect," "plan," "intend," "estimate," "project," or "anticipate" and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as "will," "should," "would" and "could." These forward-looking statements are based on current available operating, financial, economic and other information, and are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including the risks in the "Risk Factors" section of loanDepot, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2021 and Quarterly Reports on Form 10-Q , which are difficult to predict. Therefore, current plans, anticipated actions, financial results, as well as the anticipated development of the industry, may differ materially from what is expressed or forecasted in any forward-looking statement. loanDepot does not undertake any obligation to publicly update or revise any forward-looking statement to reflect future events or circumstances, except as required by applicable law.

About loanDepot

loanDepot (NYSE: LDI) is a digital commerce company committed to serving its customers throughout the home ownership journey. Since its launch in 2010, loanDepot has revolutionized the mortgage industry with a digital-first approach that makes it easier, faster and less stressful to purchase or refinance a home. Today, as one of the nation's largest non-bank retail mortgage lenders, loanDepot enables customers to achieve the American dream of homeownership through a broad suite of lending and real estate services that simplify one of life's most complex transactions. With headquarters in Southern California and offices nationwide, loanDepot is committed to serving the communities in which its team lives and works through a variety of local, regional and national philanthropic efforts.

Investor Relations Contact:
Gerhard Erdelji
Senior Vice President, Investor Relations
(949) 822-4074
[email protected]

Media Contact:
Rebecca Anderson
Senior Vice President, Communications & Public Relations
(949) 822-4024
[email protected]

LDI-IR

¹ We define organic refinance consumer direct recapture rate as the total unpaid principal balance ("UPB") of loans in our servicing portfolio that are paid in full for purposes of refinancing the loan on the same property, with the Company acting as lender on both the existing and new loan, divided by the UPB of all loans in our servicing portfolio that paid in full for the purpose of refinancing the loan on the same property. The recapture rate is finalized following the publication date of this release when external data becomes available.

SOURCE loanDepot, Inc.