loanDepot announces second quarter 2022 financial results

Vision 2025 Plan launched to simplify business model and accelerate cost reduction, providing pathway for run-rate profitability by year-end 2022 and long-term value creation

• Revenue of $308.6 million, and diluted loss per share of $0.66, driven principally by lower origination volumes and profit margins, partially offset by higher servicing revenues.
• Expenses decreased by $45.6 million, or 8%, on pace to achieve targeted annualized expense savings of $375 million to $400 million during second half of 2022.
• Recorded $46.7 million in charges for impairment of goodwill, real estate and other intangible assets, as well as $6.0 million of severance, professional fees and other expenses related to Vision 2025.
• Strong balance sheet with unrestricted cash and equivalents totaling $954.9 million at June 30, 2022.
• Servicing portfolio grew to $155.2 billion, growing in-house servicing from 67% to 88% of UPB.
• Company makes strategic decision to exit wholesale business.

FOOTHILL RANCH, Calif., Aug. 9, 2022 /PRNewswire/ -- loanDepot, Inc. (NYSE: LDI), (together with its subsidiaries, "loanDepot" or the "Company"), a leading consumer lending and real estate services provider, today announced results for the second quarter ended June 30, 2022. 

"Our second quarter results reflect the extremely challenging market environment that continues in our industry, which led to ongoing declines in our mortgage volumes and profit margins," said loanDepot President and Chief Executive Officer Frank Martell. "During the quarter we took aggressive actions that are part of our recently announced Vision 2025 plan, designed to address current and anticipated market conditions, achieve run-rate profitability exiting 2022 and position the company for long-term value creation. This plan was launched on the foundation of a strong balance sheet and ample liquidity.

"Importantly, Vision 2025 addresses today's challenges and future opportunities. Its four primary pillars are: 1) increasing focus on purchase transactions while serving increasingly diverse communities across the country, 2) executing previously announced growth-generating initiatives, 3) centralizing management of loan originations and loan fulfillment to enhance quality and effectiveness, and 4) aggressively right-sizing our cost structure.

"We have already made significant progress by consolidating management spans to create operating efficiencies and reducing headcount from approximately 11,300 at year-end 2021 to approximately 8,500 at the end of June, 2022, to approximately 7,400 at the beginning of August 2022. We are accelerating our execution of the plan and expect to end the third quarter of 2022 with headcount below our previously stated year-end goal of 6,500. In addition we are exiting our wholesale channel consistent with our strategy of becoming a more purpose-driven organization with direct customer engagement throughout the entire lending process. Our exit from wholesale will also enable us to direct resources to other origination channels, reduce operational complexities and increase margins.

"As we move into the second half of the year, we are confident in the growing momentum of our Vision 2025 plan and we look forward to sharing our progress in the coming months and beyond."

Second Quarter Highlights:

Financial Summary

Operational Results

• Pull through weighted lock volume of $12.4 billion for the three months ended June 30, 2022 resulted in quarterly total revenue of $308.6 million, a decrease of $194.7 million, or 39%, from the first quarter of 2022.
• Loan origination volume for the second quarter of 2022 was $16.0 billion, a decrease of $5.6 billion or 26% from the first quarter of 2022.
• Purchase volume increased to 59% of total originations.
• Market share decreased to 2.4%[1] due to the intense competitive pressure from decreasing origination volume.
• Gain on origination and sales of loans, net as well as gain on sale margin decreased from the first quarter of 2022 due primarily to lower pull through weighted lock volume and lower profit margins as a result of higher interest rates. The decrease was also due in part to an increase in provision for repurchases from $13.2 million in the first quarter of 2022 to $82.4 million in the second quarter of 2022. The increase was driven by increased market rates which have reduced the fair value of loans subject to repurchase that were originated in prior periods at lower interest rates.
• Cash-out refinance and purchase volume increased to 95% of total production during the second quarter of 2022 compared to 83% of total production during the first quarter of 2022 and 59% of total production during the second quarter of 2021, reflecting our strategy of reducing the volatility of our revenue by focusing on less interest rate sensitive mortgage products.
• For the twelve months ended June 30, 2022, our preliminary organic refinance consumer direct recapture rate[2] remained strong at 72%. 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 second quarter of 2022 of $223.8 million as compared to net loss of $91.3 million in the prior quarter. Net loss increased quarter over quarter primarily due to the decrease in rate lock volume and gain on sale margin, partially offset by a decrease in total expenses.
• Adjusted LBITDA for the second quarter of 2022 was $191.5 million as compared to adjusted LBITDA of $74.4 million for the first 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 third quarter of 2022 is

• Origination volume of between $5.5 billion and $10.5 billion.
• Pull-through weighted rate lock volume of between $5.5 billion and $10.5 billion.
• Pull-through weighted gain on sale margin of between 175 basis points and 225 basis points.

Vision 2025

Our previously announced 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 are:

1. Increasing our focus on purchase transactions while serving increasingly diverse communities across the country, in line with shifting home buyer demographics and with an increased focus on addressing persistent gaps in equitable housing through initiatives that expand access to credit while advancing the goal of growing our share of lending for purchase transactions and maintaining responsible management of credit risk;
2. Executing previously announced growth-generating initiatives, including our unique, all-digital home equity line of credit (HELOC), which we intend to launch by fourth quarter 2022, and through continued investments in in-house servicing;
3. Centralizing management of loan originations and loan fulfillment to enhance quality and effectiveness with a streamlined organizational structure better positioned for today's market. This involves:
   •   All mortgage origination functions will be led by LDI Mortgage President Jeff Walsh;
   •   All digital lending and mortgage-adjacent products and services will be led by LDI Digital Products and Services President Zeenat Sidi;
   •   All loan fulfillment and servicing functions will be led by LDI Managing Director of Operations and Servicing Dan Binowitz;
4. Aggressively rightsizing our cost structure through a program expected to generate approximately $375 - $400 million of annualized savings and expected run rate profitability exiting 2022, through headcount reduction, attrition, business process optimization, reduced marketing and third-party spending, and real estate consolidation.

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 mortgage 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 increase in the provision for repurchases was primarily allocated to the Retail Channel, negatively impacting the channel's gain on sale margin for the second quarter.  The increase in the Partner Channel gain on sale margin for the quarter was primarily due to a mix shift in favor of joint venture volume.

Servicing

The increase in unpaid principal balance of our servicing portfolio was driven primarily by portfolio growth offset somewhat by sales of $3.8 billion of unpaid principal balance during the quarter.

As of June 30, 2022, approximately 0.4%, or $587.8 million, of our servicing portfolio was in active forbearance. This represents an aggregate decrease from 0.6%, or $898.5 million as of March 31, 2022.

Balance Sheet Highlights

The increase in cash and cash equivalents from March 31, 2022 included draws on our MSR secured borrowing facilities, loans sold in excess of loans originated during the quarter, and the proceeds from MSR sales. A decrease in loans held for sale at June 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 $9.9 billion at June 30, 2022 from $10.9 billion at March 31, 2022. The decrease of $1.0 billion was primarily due to our decision to reduce our borrowing capacity, reflecting lower volume expectations. Available borrowing capacity was $5.5 billion at June 30, 2022.

Consolidated Statements of Operations

 Consolidated Balance Sheets

Loan Origination and Sales Data

Second 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 September 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 certain historical 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, 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, 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 the nation's second largest retail mortgage lender, 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

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¹ Total market originations based on data as of July 18,2022, from the Mortgage Bankers Association
² 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.