loanDepot, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. loanDepot originates, sells and services residential mortgages and provides related title, escrow and settlement services. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenues | $265.7 million | $274.2 million | $745.4 million | $1,086.1 million |
| Net loss | $34.3 million | $137.5 million | $175.7 million | $452.6 million |
| Net loss attributable to loanDepot, Inc. | $16.6 million | $60.1 million | $83.0 million | $195.8 million |
| Loss per share, basic and diluted | $0.09 | $0.37 | $0.48 | $1.29 |
| Adjusted EBITDA (LBITDA), non-GAAP | $18.5 million | $(114.1) million | $(4.3) million | $(380.0) million |
- Q3 revenue declined 3.1%; the nine-month decline was 31.4%. Q3 net loss narrowed by $103.2 million, while the nine-month net loss narrowed by $276.9 million.
- Q3 loan originations were $6.1 billion, down 38.2%; nine-month originations were $17.3 billion, down 63.5%. The gain-on-sale margin improved to 2.74% in Q3 from 1.80%, and to 2.66% for nine months from 1.66%.
- Q3 net interest income was $2.6 million, down 73.3%; nine-month net interest income was $6.7 million, down 85.4%. Management attributed the deterioration principally to higher funding costs relative to loan yields.
- Servicing fee income increased 4.6% in Q3 to $118.8 million and 4.0% over nine months to $355.5 million. The servicing portfolio was $144.0 billion in unpaid principal balance at September 30, up from $141.2 billion at year-end 2022.
- Nine-month operating cash flow was $31.2 million versus $4.4 billion in 2022; investing activities provided $159.0 million and financing activities used $338.7 million. Cash and cash equivalents were $717.2 million at quarter-end, down 17.0% from year-end; restricted cash was $114.8 million.
- Total assets were $6.08 billion and total equity was $768.9 million. Debt obligations, net, were $2.21 billion; warehouse and other lines of credit added $1.90 billion of borrowings. These are separate balance-sheet categories.
- Management reported $1.8 billion of additional warehouse and other line availability against $3.85 billion of total facility capacity, of which $1.25 billion was committed. Management said available liquidity was expected to be sufficient for current operations and originations for the next 12 months.
Changes, outlook and management commentary
- Expense reductions substantially mitigated lower mortgage revenue: total expenses fell 29.9% in Q3 and 40.7% for nine months. Personnel expense declined 35.4% and 48.9%, respectively; headcount was down 26% year over year to 4,532 employees.
- Management linked lower origination volumes to elevated interest rates and described continuing its Vision 2025 cost and operating changes. It completed the servicing-platform transition in-house in early 2023 and continued streamlining leadership and integrating its digital platform.
- No company-specific earnings or origination guidance is provided. Management cited an MBA forecast, published October 15, 2023, expecting 2023 U.S. residential mortgage originations to decline 29% to $1.6 trillion and rise 19% in 2024 to $1.9 trillion.
- Regular quarterly dividends have been suspended since March 31, 2022, with no resumption indicated. In November 2023, after quarter-end, one warehouse facility was not renewed; the filing also reports subsequent extensions of certain facilities and maturities. These developments merit review alongside the stated liquidity outlook.
- Interest-rate, prepayment, credit and funding risks are prominent. Four investors accounted for 81% of loan sales during the first nine months (36%, 28%, 12% and 5%). Warehouse funding costs rose sharply year over year; the reported weighted-average rate was 6.97% for the first nine months of 2023 versus 2.64% in 2022.
Contingencies and unusual items
- A former senior employee’s California employment lawsuit seeks damages exceeding $75 million. The company disputes the allegations and is defending the case; discovery was ongoing, and management noted substantial defense costs and potential management distraction.
- A securities class action settlement reached in principle in June 2023 remained pending court approval. Related shareholder derivative actions were stayed or pending; the company said it did not believe a loss was probable or reasonably estimable for the derivative matter.
- The loan-loss obligation for sold loans was $43.7 million at September 30, 2023, down from $68.9 million a year earlier. The filing states actual resolution costs for legal proceedings could differ from estimates and an unfavorable outcome could adversely affect results.
- Q3 repurchases of senior notes generated a $1.7 million gain on extinguishment. The company reported compliance with its financial and regulatory capital and liquidity requirements at September 30, 2023; it also noted upcoming seller-servicer rule changes.
Important facts for investors to verify
- Whether warehouse capacity remains available and affordable after the November 2023 nonrenewal, and the status of facility renewals, extensions, maturities and covenant amendments.
- Whether operating cash generation and unrestricted cash can support mortgage funding, debt service and servicing obligations if origination volumes remain weak.
- How sustainable the improved gain-on-sale margins and expense reductions are, given falling loan volumes and higher funding costs.
- Potential exposure from the employment litigation, securities settlement and loan repurchase representations and warranties, including any subsequent developments.
- The sensitivity of servicing-rights valuations and earnings to interest rates, prepayment assumptions and hedging outcomes; servicing rights are Level 3 fair-value measurements.
- Interpret non-GAAP adjusted results alongside GAAP losses: adjusted EBITDA (LBITDA) was positive in Q3 but remained negative for the first nine months.