loanDepot, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. loanDepot originates, finances, sells and services residential mortgage loans and provides title, escrow and settlement services. Its Class A shares began trading on the NYSE on February 11, 2021. Prior-period consolidated results reflect the predecessor business following a reorganization; 2021 EPS covers only the post-IPO period.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total net revenue | $1.316 billion | $486.1 million |
| Income before taxes | $446.1 million | $89.0 million |
| Net income | $427.9 million | $89.0 million |
| Net income attributable to loanDepot, Inc. | $44.9 million | None reported; 2020 earnings were attributable to noncontrolling interests |
| GAAP EPS | $0.36 basic and diluted | Not presented |
| Adjusted net income / Adjusted EBITDA | $319.4 million / $457.9 million | $78.6 million / $126.2 million |
| Cash from operating activities | $(1.878) billion | $166.2 million provided |
| Cash and cash equivalents | $630.5 million | $284.2 million at December 31, 2020 |
| Warehouse and other lines of credit | $8.309 billion | $6.577 billion at December 31, 2020 |
| Debt obligations, net | $1.305 billion | $712.5 million at December 31, 2020 |
| Total assets / total liabilities | $13.298 billion / $11.524 billion | $10.893 billion / $9.237 billion at December 31, 2020 |
Revenue increased 170.7% year over year, while total expenses rose 119.0%. Originations reached $41.5 billion, up 173.3%; refinance originations were $33.6 billion and purchase originations $7.9 billion. The reported gain-on-sale margin was 2.71%, down from 3.50%; the pull-through-weighted margin was 3.35%, up from 2.99%. Adjusted measures are non-GAAP and are not substitutes for GAAP results or cash flow.
Operating cash use largely reflected the scale-up in loan originations and the timing of loan sales and repurchases. Financing activities provided $2.154 billion, including warehouse borrowings and debt issuance; investing activities used $13.3 million. Cash and restricted cash together were $751.8 million at quarter-end. The company reported $10.3 billion of warehouse facility capacity, of which $8.3 billion was drawn and approximately $2.0 billion remained available.
Material changes and drivers
- Mortgage production and loan sales expanded sharply amid low mortgage rates. Servicing-retained loan sales increased to $37.4 billion from $8.8 billion, and the servicing portfolio grew to $129.7 billion from $42.4 billion a year earlier.
- Gain on origination and sale of loans more than doubled to $1.021 billion. Growth in volume and capitalized servicing rights contributed, while higher rates also produced fair-value losses on loans held for sale and interest-rate lock commitments. Hedge gains partly offset these effects.
- Servicing fee income rose to $82.6 million from $36.6 million. Change in fair value of servicing rights shifted to a $69.3 million gain from a $100.3 million loss, reflecting valuation assumptions and interest-rate changes.
- Personnel expense increased 151.3% to $603.7 million, including higher commissions and staffing; headcount was 11,037, up 59.2% year over year. Marketing expense rose 91.3% to $109.6 million.
- In March, the company issued $600 million of 6.125% senior notes due 2028, increasing net senior-note debt. The IPO and reorganization also created a $203.9 million deferred tax liability and a tax receivable agreement liability estimated at $8.6 million.
Outlook, risks and unusual items
The filing provides no formal quantified earnings or origination guidance. Management said low rates had supported refinancing demand and margins, but noted that rising rates could reduce refinance volumes and production results while benefiting servicing-rights values. The company described liquidity as strong and reported compliance with applicable warehouse, selling and servicing covenants at March 31, 2021. Its outlook remains exposed to mortgage-market conditions, loan-sale demand, funding availability, margin calls and facility renewals.
- Interest-rate and valuation risk: Loans held for sale, rate locks, derivatives and servicing rights are fair-valued; results can be volatile as rates and prepayment assumptions change. Servicing-rights fair value was $1.772 billion, with material sensitivity to discount rates and prepayments.
- Forbearance and servicing advances: Approximately 1.4% of the servicing portfolio, or $1.9 billion of unpaid principal, was in active forbearance at quarter-end, down from 2.4% at year-end. The company may need to advance principal and interest for borrowers in forbearance.
- Funding and concentration: Warehouse facilities are mostly short-term and subject to renewal; 23% and 9% of warehouse lines were payable to two lenders. Three investors accounted for 47%, 33% and 13% of loan sales, respectively.
- Repurchase, legal and regulatory exposure: The company had $843.0 million of loans eligible for repurchase and a $30.1 million reserve for sold-loan losses. It disclosed two putative TCPA class actions and an employment-related demand; possible losses were not estimable with reasonable certainty. Management did not expect pending matters to have a material adverse effect, but unfavorable outcomes could do so.
- Distributions and subsequent events: The company paid $166.6 million in dividends and distributions during the quarter. After quarter-end it declared a $200 million special dividend, payable May 18, 2021, and issued $500 million of additional securitization notes in April.
Important facts for investors to verify
- How sustainable are the unusually high origination volumes and margins if mortgage rates rise further or refinancing demand declines?
- How much of reported earnings reflects recurring operating performance versus fair-value changes in servicing rights, derivatives and loans held for sale?
- Can operating cash flow normalize while loan production, repurchases, servicing advances and margin-call requirements remain substantial?
- What are the renewal terms and availability of uncommitted warehouse funding, and how will the $200 million special dividend affect liquidity and covenant headroom?
- How will the public-company tax structure, 85% tax receivable agreement payments, continuing LLC member interests and equity compensation affect future earnings attributable to Class A shareholders?