loanDepot, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. loanDepot originates, finances, sells and services residential mortgage loans and provides title, escrow and settlement services. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total net revenues | $271.8m | $308.6m | $479.7m | $811.9m |
| Net loss | $(49.8)m | $(223.8)m | $(141.5)m | $(315.1)m |
| Net loss attributable to loanDepot, Inc. | $(23.4)m | $(100.9)m | $(66.4)m | $(135.7)m |
| Basic and diluted loss per share | $(0.13) | $(0.66) | $(0.38) | $(0.93) |
- Revenue drivers: Q2 gain on origination and sale of loans was $154.3m, origination income $18.3m, servicing fee income $117.7m and net interest income $2.9m. For the six months, these were $262.5m, $30.3m, $236.7m and $4.0m, respectively.
- Margins and volume: Q2 gain-on-sale margin was 2.75%, versus 1.16% a year earlier; six-month margin was 2.61%, versus 1.62%. Q2 originations fell 60.8% year over year to $6.27bn; six-month originations fell to $11.22bn from $37.55bn.
- Expenses: Q2 total expenses were $330.1m, down 41.1%; six-month expenses were $644.6m, down 44.8%. Cost reductions included lower personnel, marketing and direct origination expenses. Q2 personnel expense fell 46.8%, and headcount was 4,683 versus 8,540 a year earlier.
- Cash flow: Six-month operating cash flow was $(132.1)m, investing cash flow was $88.1m and financing cash flow was $(156.2)m. Cash and restricted cash declined $200.1m to $780.4m; unrestricted cash was $719.1m at June 30.
- Balance sheet and debt: Total assets were $6.20bn, total liabilities $5.41bn and equity $797.3m. Warehouse and other lines of credit totaled $2.05bn; debt obligations, net, were $2.24bn, including approximately $1.00bn of senior notes. Total debt obligations plus warehouse lines were about $4.29bn.
- Liquidity: Management reported $1.7bn of additional availability under warehouse and other lines, against $3.85bn of total facility capacity. The company said cash and available liquidity were expected to support operations and loan funding for the next 12 months.
Material changes versus comparable periods
- Q2 net revenue declined 11.9% year over year; six-month net revenue declined 40.9%, reflecting sharply lower origination volumes and reduced net interest income. Six-month gain on loan origination and sale declined 48.5%.
- Despite lower revenue, the net loss narrowed in both periods, mainly because expenses fell substantially. The prior-year periods included $40.7m of goodwill impairment; none was recorded in 2023.
- Average mortgage rates and funding costs increased. Q2 warehouse borrowing cost averaged 6.99%, versus 2.60% a year earlier; six-month average was 6.81%, versus 2.27%.
- Servicing expense declined as the company completed the transition of its servicing portfolio to its in-house platform. The servicing portfolio was $142.5bn at June 30, down from $155.2bn a year earlier.
- Six-month Adjusted EBITDA (LBITDA), a non-GAAP measure, was $(22.8)m versus $(265.9)m. Q2 was $6.5m versus $(191.5)m. These measures are not substitutes for GAAP results or cash flow.
Outlook, commentary and risks
- Management expected mortgage origination volumes for 2023 to decline versus 2022, citing higher rates, and said it would continue aligning costs with expected volumes. No specific revenue, earnings or margin guidance was provided.
- The Vision 2025 plan emphasizes purchase lending, growth initiatives, centralized originations and fulfillment, and cost reductions. During Q2, the company continued leadership streamlining and consolidated its digital platform into existing product channels.
- Warehouse and debt covenant amendments were obtained following losses; the company reported compliance with financial covenants at June 30. Multiple warehouse facilities and certain secured facilities mature in 2023–2024, making renewals and continued access to financing important.
- Key exposures include mortgage rates, loan-sale demand, prepayment and servicing-rights valuations, repurchase and representation-and-warranty claims, and dependence on warehouse lenders and secondary-market investors. Four investors represented 81% of six-month loan sales. Two lenders each represented 19% and 11% of warehouse lines.
- The regular quarterly dividend remained suspended. Selling and servicing capital and liquidity requirements were met at June 30.
- Legal matters include an employment lawsuit seeking damages over $75m, which the company contests, and a securities class action for which the parties reached an agreement in principle; preliminary court approval was pending. Management said it did not believe pending legal matters would materially affect the company, but adverse outcomes could do so.
Important facts for investors to verify
- Whether operating cash burn, ongoing losses and available warehouse capacity remain consistent with management’s 12-month liquidity assessment.
- Renewal, covenant and maturity terms for warehouse, MSR and other secured facilities, including facilities maturing in 2023 and 2024.
- Origination volumes, gain-on-sale margins and funding costs as interest rates and mortgage-market conditions change.
- Fair-value assumptions and sensitivity of the $2.0bn servicing-rights asset to discount rates, servicing costs and prepayment speeds.
- Developments in the employment litigation and court approval and final terms of the securities-class-action settlement.