Better Home & Finance Holding Company

Thank you for standing by. My name is Jeannie 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's second quarter 2024 results conference call. 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 Hana Khosla, Vice President, Corporate Finance and Investor Relations. You may begin.

Welcome to Better Home and Finance Holding Company's second 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 Dashal Garg, Founder and Chief Executive Officer at Better, and Kevin Ryan, Chief Financial Officer at Better. In addition to this conference call, please direct your attention to our second quarter earnings release, which is available on our Investor Relations website. Also available on our website is an investor presentation. 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 and investor presentation. both of which are 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. Amounts described as of and for the quarter ended June 30, 2024 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our quarterly report on Form 10-Q with the SEC. More information as of and for the quarter ended June 30th, 2024 will be provided upon filing our quarterly report on Form 10-Q with the SEC. I will now turn the call over to Vishal.

Thank you, Hannah, and welcome to our second quarter 2024 earnings call. We appreciate everyone joining us today and for your continued support as we drive towards our mission to make homeownership better, faster, and cheaper for our customers by building a technology platform that revolutionizes the experience of becoming and being a homeowner. We continue to make great progress towards our vision in which every customer can seamlessly buy, sell, refinance, insure, and improve their home digitally online instantly. I'd like to start by highlighting some of our key achievements during the quarter. We continue to lean into growth to drive increased volume, balanced with ongoing efficiency improvements and disciplined cost management to target reaching profitability in the medium term. In short, even in a market that remains challenged with historically low housing affordability and persistently high mortgage rates, we continue to deliver on the roadmap we set out at the start of the year, which included top-line growth and continued expense management. Compared with the first quarter of 2024, funded loan volume increased by 45% and revenue rose by approximately 41% in the second quarter. We continue executing on strategies to increase conversion through additional products and services, as well as improve sales efficiency to drive higher pull-through on the approximately 60,000 monthly customers who begin their mortgage applications with us. We also continue to increase revenue per loan while still being a low-cost provider and continue to optimize the revenue generated on prudently invested cash and investments. Specifically, we have increased the volume of self-funded loans we choose to hold on our balance sheet that generate income between loan funding and sales to secondary investors. Volume growth was primarily driven by growth in purchase loans as well as home equity products, including HELOCs and closed and second lien loans. These products remain attractive to our customers in an environment with persistently higher rates and higher cost of living because they enable borrowers to tap into the equity they have in their homes, which totals over $30 trillion in the United States today. Our second quarter growth was combined with continued expense discipline with a focus on maximizing operating efficiency, resulting in quarterly total expenses remaining approximately flat quarter over quarter, even with the top-line growth we showed. As discussed on our first quarter earnings call, I'd like to remind everyone of our strategic priorities for 2024. Our first priority is thoughtfully leading into growth, against which we showed continued progress this quarter. Since we announced our intention to begin leaning back into growth in the fourth quarter of last year, we have increased our funded loan volume by 83% and revenue by approximately 78%. We continue to embrace the opportunity to grow our loan officer footprint, add additional marketing channels and new products and services to ensure we are well positioned as consumer demand returns to capture increased market share across our three main mortgage products, purchase, refinance, and home equity products. Looking at growth for each product, compared sequentially with the first quarter of 2024, purchase loan volume increased by 50%. HELOC volume, including home equity lines of credit and closed and second lien loans, increased 76%, and refinance loan volume decreased 5%, with high rates continuing to negatively impact rate term refinances and customers with existing low mortgage rates opting for home equity products instead of cash-out refinances. In purchase, we continue to see strong early results from the benefit of having experienced loan officers nurturing homebuyers through their journey. In our home equity products, we see strong momentum given home values continue to appreciate while rates have remained high and customers are looking to manage their monthly cash flow by tapping into the equity sitting in their homes without resetting the rates on their first lien mortgages. With a one-day HELOC, they can go online 24-7 and within a few hours have certainty on how much money they can save each month. In the second quarter, we saw continued improvements to our gain-on-sale margin, which increased to 2.43% in the second quarter of 2024, compared to 2.37% for the first quarter of 2024. Drivers of this margin improvement include increased pricing, while still remaining the low-cost provider, and a focus on driving customer retention through improved service, as well as continued efforts to optimize for the best execution across our network of loan purchasers, including the GSEs. In the second quarter, we also saw certain non-recurring benefits to gain on sale revenue that total approximately $9 million, including a one-time positive mark-to-market impact on our lock pipeline and a recovery from a release of our loan repurchase reserve. Our second priority is improving operational efficiency and further variablizing loan production expenses, which we also demonstrated in the second quarter. Over the past 2 and a half years, we have been intensely focused on significantly reducing expenses and maximizing operating efficiency during the highly challenging macro environment. While we lean into certain growth expenses, such as marketing and compensation for larger loan production teams to produce higher volumes, these were offset by lower vendor and corporate compensation expenses compared with the first quarter of 2024. Our marketing and advertising expenses increased 87% from 4.6 million in Q1 2024 to 8.5 million in Q2 2024, and we expect these to further increase in order to support volume growth. Additionally, our loan officer productivity remained above industry average and continued to benefit from the previously discussed shift to a sales compensation structure with lower salaries and higher commissions. We're also testing a variety of applications of AI within Tin Man, both for internal efficiency and consumer-facing benefits. We are seeing early indications from these AI program investments geared towards sales and underwriting productivity, specifically around customer routing, data capture, and initial underwriting review of loan files. We believe these AI investments and our continued investments in core automation, such as our automated initial review system, or AIR, where for certain loan files, Tin Man is capable of completing the entire initial underwriting fully autonomously, will help us drive customer conversion and operational efficiency at scale. When Tin Man autonomously handles certain tasks and interactions, it frees our team up for more complex or nuanced customer interactions. In the second quarter, we also saw certain one-time non-recurring expense benefits, including reductions in certain reserves and a state tax refund. Aggregate one-time benefits amounted to approximately $1 million of contract expenses in the second quarter. To recap, in the second quarter of 2024, our revenue increased by approximately 41% quarter-over-quarter, while total expenses were approximately flat, demonstrating substantial operating leverage in the business. 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 also continue to nurture our existing pipeline and are currently working on multiple B2B pilot programs, One example being an early stage partnership with a large national roofing and basement contractor. While early in the pilot, we are excited about programs like this because they can empower homeowners to protect and invest in their homes and finance these projects through their existing home equity with our one day HELOC products. We believe our partnership pipeline demonstrates strong product market fit for our B2B offerings and demand for our technology from firms with existing brands and relationships with customers. We are, however, in a position at the mid-year mark to see that the most material prospective partnerships from a funded loan volume perspective have multi-year enterprise sales and integration cycles. As a result, we expect most of our growth in 2024 year being driven by the DDC channel. Looking beyond 2024, the medium-term opportunity for better remains very exciting. We are focused on, first, enhancing our go-to markets with growth being our North Star, and second, continuing to invest in automation and AI through the cycle. In terms of go-to-market, our experienced commission-based loan officers are working to drive improved customer conversion in a cost-efficient manner, specifically converting website visitors to funded customers, particularly on the purchase side. We are seeing that industry veteran loan officers who come on our platform are able to drive higher fundings per month while maintaining the same level of service and engagement with their customers because of the end-to-end proprietary technology we have built. We expect to manage costs through a highly variable sales compensation model and continued automation that drives down non-customer-facing costs, as well as reductions to corporate overhead costs. Further, we are testing the addition of more traditional brand advertising to our D2C acquisition channels. This quarter, we became an official partner of the Premier Lacrosse League. To expand the breadth of our customers, we are reaching an awareness of the breader brand. 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 continue to have a large and attractive market opportunity. We are excited to continue our growth direction in the second half of 2024 and excited about the market dynamics we are seeing thus far in Q3. 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?