Better Home & Finance Holding Company

Thank you for standing by. My name is Pam and I will be your conference operator today. At this time, I would like to welcome everyone to the Better Home and Finance Holding Company first quarter 2024 results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Hannah Kosler, the Vice President of Corporate Finance and Investor Relations at Better. You may begin.

Welcome to Better Home and Finance Holding Company's first quarter 2024 earnings conference call. My name is Hana Khosla, and I am the Vice President of Corporate Finance and Investor Relations at Better. Joining me on today's call are Vishal Garg, Founder and Chief Executive Officer of Better, and Kevin Ryan, Chief Financial Officer of Better. Certain statements we make today may constitute forward-looking statements within the meaning of federal securities laws that are based on current expectations and assumptions. These expectations and assumptions are subject to risks, uncertainties, and other factors as discussed further in our SEC filing that could cause our actual results to differ materially from our historical results. We assume no responsibility to update forward-looking statements other than as required by law. During today's discussion, management will discuss certain non-GAAP financial measures which we believe are relevant in assessing the company's financial performance. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. These non-GAAP financial measures are reconciled to GAAP financial measures in today's earnings release, which is available on the investor relations section of Better's website and when filed in our quarterly report on Form 10-Q filed with the SEC. I will now turn the call over to Vishal.

Thank you, Hannah, and welcome to our first quarter 2024 earnings call. We appreciate everyone joining us today. I'd like to start by highlighting some of our key achievements during the quarter. As noted in our last earnings call, growth is our main focus, having emerged from a very challenging macro environment over the last couple of years, where the focus was on scaling back and significantly reducing expenses. I'm pleased to say that we are growing again while continuing to maximize our operating efficiency. This April, we more than doubled our monthly origination volume compared to our low point in November 2023. In the first quarter, we lean into certain growth expenses to drive increased market share, balance with continued efficiency improvements and disciplined cost management to target reaching profitability in the medium term. In short, we've delivered on growth in the first quarter while many other companies in the mortgage space were flat or down sequentially. Compared with the fourth quarter of 2023, funded loan volume rose by 25% and revenues rose by 26% in the first quarter of 2024. While still being a low-cost provider, we have been testing strategies to improve revenue for loans. This combined with additional income generated from prudently invested cash and investments helped contribute to our revenue growth. Further, the growth in the first quarter of 2024 was combined with continued strict management of expenses. with total expenses increasing 7% compared to a revenue increase of 26% sequentially versus Q4 2023. This also represented a 30% reduction in total expenses year over year and an even larger reduction compared to when we began downsizing in 2021. As discussed on our Q4 2023 earnings call, I'd like to remind everyone of our strategic priorities for 2024. Our first priority is thoughtfully leaning into growth, against which we showed early progress this quarter, increasing our funded volume and revenue since Q4 last year. Our second priority is improving operational efficiency, which we also demonstrated in the first quarter. While we leaned into certain growth expenses to produce higher volumes, we grew our revenue faster than our expenses, demonstrating operating leverage quarter over quarter sequentially. Our third priority is growing our B2B channel, enabling us to further leverage our industry-leading technology. We remain excited about the ongoing conversations we are having with potential partners. Now to provide an update on each priority from the first quarter. Starting with our first priority of leaning into growth, as I mentioned, over the past two years, we have been intensely focused on significantly reducing expenses and maximizing operating efficiency during the highly challenging macro environment. We are now seeing an opportunity to thoughtfully lean into growth to make sure we are well positioned when consumer demand returns in order to capture increased market share across our three main mortgage products, purchase, refinance, and home equity lines of credit. Looking at volume growth for each product compared sequentially with the fourth quarter of 2023, purchase loan volume increased 12%, refinance loan volume increased 232%, and HELOC loan volume increased by 54%. In purchase, we are seeing strong early results of the benefit of having experienced loan officers nurturing homebuyers through their journey. In refi, we are leaning into cash-out refi through improved sales and operational excellence, as well as consumer education around the suite of products available and helping them weigh their options against their financing goals. In our second lean product, we are seeing strong momentum given home values have appreciated while rates for primary mortgages have remained high. and customers are looking to access their home equity without resetting their first lien mortgage. We've been pleased with the strong reception to our one-day HELOC product and the still early launch of the Better Home Equity Loan, which is the latest addition to our suite of digital products. This product enables qualified homeowners to access up to 90% of their home equity as cash at a fixed interest rate in 30 states today. Eligible customers can borrow against primary, secondary, and investment properties with 10, 15, 20, or 30-year loan terms available. Throughout BetterTIS III, we have been the low-cost provider to consumers, but we are seeing opportunities to increase our revenue per loan while still remaining highly cost-competitive. In the first quarter, we saw pricing improvements, with gain-on-sale margin increasing to 2.37% in the first quarter of 2024 compared to 2.03% for the full year of 2023. Drivers of this margin improvement include increased pricing while still remaining the low-cost provider, efforts to limit the use of sales concessions, and a focus on driving consumer retention through improved service versus discounting, as well as continued efforts to optimize for the best execution across our network of loan purchasers, including the GSEs. We are also continuously evaluating our loan repurchase reserve and saw revenue benefits through realizing recoveries in the first quarter of 2024. Moving to our second priority of operational efficiency and variabilizing loan production expenses, As mentioned last quarter, we've adopted a new operating model and compensation structure for our sales teams with lower bases and higher commissions to better align costs with volumes and drive conversion outcomes, and also enable us to recruit seasoned loan officers and empower them via our tech platform in a way we were never able to do before. We continue to showcase that we can hire experienced loan officers to prepare for purchase season. We have seen positive early results of this shift on loan officer productivity, with our loan officers closing significantly more loans per month on average than a peer set of large independent consumer direct lenders, based on a third party benchmarking study Better participated in. From this study, we learned that in 2023, Better's loan officers closed an average 17.7 purchase loans per month, while the peer set average was in the mid single digits. We believe the future lies in Uberizing the loan officer, giving them leads generated by Better on our proprietary tech platform and customer interface, and having them be more productive. Additionally, we have continued leaning into marketing efforts, as discussed on our fourth quarter call. Our marketing and advertising expenses increased 27% from $3.6 million in Q4 2023 to $4.6 million in Q1 2024, and we expect these to further increase as the year goes on. These customer acquisition initiatives are highly programmatic and done in a controlled manner, predominantly through digital marketing on existing and new channels. We can immediately evaluate return on acquisition spend and modulate up or down based on performance. We are still early in our expansion into a handful of new marketing channels, but are seeing positive early results that we expect to scale as the year progresses. We are also excited to announce a leadership update for our mortgage business. Chad Smith joined us last week as President and Chief Operating Officer of Better Mortgage Corporation. Chad brings a wealth of experience to Better and has a proven track record of building sales and operations teams into high-growth mortgage industry-leading platforms. He joins us with over 25 years of mortgage experience under his belt, working with companies like Caliber Home Loans, Discover, Loan Depot, and LendingTree. Most recently, Chad served as CEO of Mission Home Loans. With Chad's valuable experience and deep expertise, I feel confident he will help drive our growth and contribute meaningfully to the success of Better. Chad will be responsible for helping us set our long-term strategy and scale our marketing sales and operations teams, as well as help drive performance and accountability for delivering results that align with our strategic vision. Finishing with our third priority of growing our B2B mortgage as a service distribution channel, we continue to see demand for our technology and origination capabilities from new partners with strong brands who are looking to offer mortgages to their customers in a cost-efficient way. We believe the conversations we are having as part of our continued pipeline demonstrate a strong product market fit for our B2B offerings and demand for our technology. Looking beyond 2024, the medium-term opportunity for better remains very exciting. We are focused on, first, enhancing our go-to-market with growth being our North Star, and second, continuing to invest in automation through the cycle. In terms of go-to-market, we expect our experienced loan officers to drive improved customer conversion in a cost-efficient manner, specifically converting website visitors to funded customers, particularly on the purchase side. We expect to manage costs through a highly variable sales compensation model and continued automation that drives down non-customer-facing costs. Further, we expect the expansion underway across our D2C acquisition channels, in addition to the B2B partnership pipeline, to expand the breadth of customers we are reaching. We continue to invest in Tin Man, our proprietary technology platform, to improve the customer experience and further drive down labor costs, making our platform more efficient and scalable and enabling us to provide our customers with lower rates, higher approvals, and certainty earlier in the mortgage process. Tin Man powers our highly differentiated competitive advantage and drives our better, faster, and cheaper customer experience. In summary, we have a large and attractive market opportunity, a track record of knowing how to scale for growth when the macro environment permits and how to reduce expenses when it doesn't, a business model that is balance sheet and credit risk light, a competitive advantage powered by our technology and industry-leading products, a medium-term plan for growth and profitability, and a healthy cash position. We are excited to be leaning back into growth in the first quarter of 2024 and excited about the market green shoots we are seeing thus far in Q2. With that, let me now turn it over to Kevin Ryan, our Chief Financial Officer, who will discuss the quarterly performance and our financial strategy. Kevin?