Better Home & Finance Holding Company — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed April 8, 2024. This is an annual report, not a standalone Q4 report. Better provides digital mortgage origination and related homeownership services in the U.S., with recent expansion into the U.K. The business combination with Aurora closed August 22, 2023.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total net revenue | $76.8 million | $378.0 million |
| Operating loss | $291.3 million | $858.9 million |
| Net loss | $536.4 million | $877.1 million |
| Adjusted EBITDA loss (non-GAAP) | $163.2 million | $529.3 million |
| Cash from (used in) operations | $(159.7) million | $938.3 million |
| Cash and cash equivalents at year-end | $503.6 million | $318.0 million |
- Revenue fell 80% year over year, or 49% excluding Better Cash Offer program revenue. The program generated only $0.3 million of revenue in 2023 versus $228.7 million in 2022; its home purchase price largely passed through as both revenue and expense.
- Mortgage platform revenue was $61.3 million, down 39%; other platform revenue was $11.3 million, down 71%. Net interest income was $3.9 million, versus $9.7 million.
- Operating expenses were $368.1 million, down from $1.237 billion. Expenses included $17.5 million of restructuring and impairment costs. Stock-based compensation was $54.1 million.
- Funded Loan Volume was $3.015 billion, down 73%. Refinance volume fell 96% to $203 million and purchase volume fell 56% to $2.745 billion. Total loans funded declined 71% to 8,569.
- Gain on Sale Margin increased to 2.03% from 0.89%; management attributed the improvement to pricing discipline and market volatility. This is not a measure of profitability after production costs.
- Cash used in investing was $38.6 million and financing provided $381.4 million. Year-end short-term investments were $25.6 million and restricted cash was $24.5 million.
- Warehouse borrowings were $126.2 million, with $425 million of stated facility capacity. The company also had a $528.6 million principal amount convertible note, carried at $514.6 million, bearing 1% interest and maturing in August 2028. The former corporate credit line was repaid in 2023.
Material changes and unusual items
- Mortgage industry contraction, elevated interest rates and lower refinancing activity drove sharp declines in volume and revenue. Better reduced its workforce about 92% from its late-2021 peak of approximately 10,400 to approximately 820 at year-end 2023.
- The company wound down its in-house real estate agent business in Q2 2023, shifting toward third-party agent referrals, and launched HELOC lending. It acquired U.K. mortgage lender Goodholm and Birmingham Bank in 2023; year-end customer deposits were $11.8 million.
- The August 2023 business combination generated approximately $568 million of gross proceeds, including the $528.6 million convertible note. Pre-closing bridge notes converted or were exchanged for stock.
- Non-cash fair-value changes materially affected reported results: the bifurcated derivative generated a $236.6 million loss in 2023, compared with a $236.6 million gain in 2022. The 2022 loss also included $272.7 million of bridge-note interest expense.
- The company corrected immaterial errors in previously issued 2022 and 2023 interim financial statements and reclassified early-payoff fees from expense to contra-revenue. It states these corrections were not material to prior periods.
Outlook, risks and contingencies
- Management expects losses may continue amid elevated rates and planned business and technology investment; it provides no specific revenue or earnings guidance. It says liquidity is expected to cover obligations for at least 12 months, subject to continued Nasdaq listing and other assumptions.
- Nasdaq notified the company that its share price did not meet the $1 minimum bid requirement. The Class A stock transferred to the Nasdaq Capital Market on March 13, 2024; the company had applied for an additional compliance period and was considering a reverse split. Delisting could trigger mandatory cash redemption of the convertible note, potentially creating a liquidity shortfall.
- Fannie Mae notified Better in March 2023 that it failed certain financial requirements. Following forbearance arrangements, Better reported it remained compliant, but Fannie Mae is not required to renew relief. Better posted $5 million of cash collateral, subject to quarterly recalculation.
- Three material weaknesses in internal control over financial reporting remained at year-end: control environment/tone at the top, insufficient accounting personnel and expertise, and inadequate review of a third-party valuation. Management concluded disclosure controls were ineffective. The auditor issued an unqualified opinion on the financial statements but did not opine on control effectiveness.
- Potential exposures include an $8.6 million reserve for mortgage disclosure (TRID) refunds and an $8.4 million accrued liability for employee labor claims. A former employee’s litigation has remaining claims in discovery; other claims were dismissed. The SEC concluded its investigation without recommending enforcement action.
- Other key risks include dependence on secondary-market loan purchasers (one purchaser represented 66% of loans sold in 2023), warehouse-line renewals and covenants, interest-rate and hedging volatility, extensive regulation, and reputational and leadership-related risks.
Important facts for investors to verify
- Whether Better secures the additional Nasdaq compliance period and regains the $1 minimum bid price, and the resulting implications for the convertible note.
- Current warehouse-line availability, maturity extensions, covenant compliance and required collateral, including any changes to Fannie Mae requirements.
- Cash burn and operating cash flow trends, excluding the large financing and loan-sale timing effects in reported cash flows.
- Progress toward remediating all three material weaknesses and any further corrections to previously reported financial statements.
- Whether mortgage volume, gain-on-sale economics and Better Plus revenue improve enough to reduce recurring losses without relying on volatile fair-value gains.
- Potential final costs of TRID remediation and pending employment litigation, and whether recorded reserves remain adequate.