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Digital mortgage lender Better boosted loan production 45% in the second quarter and said mortgage lending in the third quarter is expected to exceed $1 billion for the first time in two years.
But investors weren’t convinced about the company’s comeback on Thursday, with shares falling after the company reported a second-quarter net loss of $42 million and said it would execute a 50-for-1 reverse stock split on Aug. 17 Nearly 20%.
Better boosted second-quarter loan production to $962 million, with revenue rising 41% quarter-to-quarter to $31.4 million.
By holding expenses flat at $73 million, Better was able to cut net losses 18% from the first quarter and ended the quarter with $507 million in cash, restricted cash, short-term investments and self-funded loans.
Vishal Garg|Better
Vishal Garg, founder and CEO of Better, said in a statement: “We are very pleased with the growth and continued improvement in profitability we have demonstrated in the second quarter of 2024 amid a continued challenging macro environment and continued high interest rates. satisfy.
“Our investments in purchase and home equity products, where we believe growth is less sensitive to interest rates, have performed quite well. Through investments in artificial intelligence and new commission models, we have also seen early sales and Strong performance in operating efficiency.
Better’s shares fell more than 90% when it went public last year through a merger with a special purpose acquisition company, or SPAC, and initially fell 33% at the open Thursday morning after the earnings were released. Thursday’s low was 32 cents, not far from Better’s all-time low of 30 cents set on May 24.
While Better’s shares rebounded in afternoon trading after the company’s earnings call, closing at 39 cents, they were down 19% from Wednesday’s closing price of 48 cents.
Cut losses better
Source: Better Earnings Report.
As of June 30, Better had accumulated losses of $1.8 billion, and the company cut expenses by laying off thousands of employees.
At its peak in 2021, the company employed 10,400 people, including 6,100 in the United States, 4,200 in India and 100 in the United Kingdom. In the US, there are 150 in India and 150 in the UK
Garg said when announcing first-quarter earnings in May that Better was once again in growth mode, hiring industry veteran Chad Smith to oversee its mortgage operations and moving to a commission-based compensation structure to hire more experienced loan officers.
While Better has managed to flatten expenses, the company has struggled to grow revenue as rising home prices and mortgage rates have forced mortgage lenders to compete for a smaller piece of the pie. If mortgage rates continue to fall from their 2024 peak, many lenders expect business to rebound.
Garg said that while Better has been “significantly reducing expenses and maximizing operating efficiencies amid a very challenging macro environment,” it is also willing to “rely on certain growth expenses such as marketing and compensation for its larger loan production team.” , to produce higher products.” roll”.
Although Better cut supplier compensation expenses, marketing and advertising expenses increased 87% from the first quarter to $8.5 million. “We expect these expenses to increase further to support sales growth,” Garg said.
On Thursday’s earnings call, Chief Financial Officer Kevin Ryan said Better’s investments in artificial intelligence and other technology should allow it to expand loan volume 10 times with “little fixed expense growth.” .
Ryan said the most critical number for the company to return to profitability is revenue, not loan volume.
Kevin Ryan
“What we’re going to try to do in September is have an investor meeting where we actually lay out the math and create specific content. [about Better’s path to profitability]but it will be a combination of volume and sales margin,” Ryan said. Ryan will present the company’s prospects next week at investor meetings scheduled for August 14 and August 15.
Better saw sales margins improve to 2.43% in the second quarter, which Garg attributed to “increasing pricing while remaining a low-cost provider and focusing on customer retention through improved service, as well as efforts to optimize and Achieve optimal levels” of execution within our network of loan buyers. “
Better expects Q3 origination volume to exceed $1 billion
*Q3 2022 to Q2 2024 represents actual loans funded. A better estimate is that mortgage originations will exceed $1 billion in the third quarter of 2024. Source: Better Earnings Report.
Better Corp. financed $58 billion in mortgages during 2021’s refinancing boom, but last year’s loan volume fell as the Fed’s efforts to combat inflation sent mortgage rates soaring to levels not seen in two decades. reduced to just $3 billion.
Better’s refinancing volume fell 96% last year to just $203 million, down from $5.13 billion in 2022.
While much of Better’s refinancing business evaporated, its business with homebuyers also declined significantly. Last year, Better funded $2.74 billion in home purchase loans, down 56% from $6.22 billion in 2022.
Purchase mortgages accounted for 83% of Better’s $962 million in loan output in the second quarter of 2024, followed by HELOCs (9%) and refinances (8%).
Better said it expects total loan originations to exceed $1 billion in the third quarter for the first time since 2022.
Garg said new rules on how real estate agents work with homebuyers that take effect on Aug. 17 should benefit the better, as buyers will be more likely to research online to find agents and mortgages.
“I think it forces consumers to look around for a real estate agent, and then if they’re looking for a real estate agent, they go online,” Garg said. “When they get online, they come to us.”
Garg said research shows most consumers have been reluctant to take out mortgages in the past, so “there could be significant disruption”.
Better also hires real estate agents who work with buyers as W-2 employees and helps them obtain dual licenses that allow them to originate mortgage loans. The program, Better Duo, is being piloted in 27 states and Washington, D.C.
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