Better Home & Finance Holding Company

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

Welcome to Better Home and Finance Holding Company's third quarter 2024 earnings conference call. My name is Hanna 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. In addition to this conference call, please direct your attention to our third 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 risk, 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 September 30th, 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 September 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 third 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 easier for our customers by building a technology platform that revolutionizes the experience of becoming and being a homeowner. We continue to make good 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, balance with ongoing efficiency improvements, diversification of our distribution channels, and corporate 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 make progress against the roadmap we set out at the start of the year. In the third quarter, funded loan volume increased to $1.035 billion, representing a 42% increase year over year and 8% increase quarter over quarter, beating the guidance of $1 billion in funded loan volume that we provided last quarter. Given a number of significant one-time financial items relating to the closing of the D-SPAC transaction that impacted Q3 2023, in addition to our year-over-year comparisons, we will also highlight the quarter-over-quarter changes from last quarter. Q3 revenue was $29 million compared to $32 million last quarter and $5 million in the third quarter of last year. As a reminder, last quarter revenue also included certain non-recurring benefits related to a positive mark-to-market impact on our lock pipeline that totaled approximately $5.5 million, which should be excluded when comparing quarters sequentially. Excluding this benefit, our revenue increased approximately 8% quarter over quarter. We continue executing on strategies to increase conversion through additional products and services, as well as improve sales efficiency to drive higher customer pull-through. We also continue to increase revenue per loan through pricing and marketing channel optimization, resulting in year-over-year gain on sale margin improvement from 1.58% in Q3 last year to 2.08% in Q3 this year. As discussed on our last 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 continued progress this quarter. Year-over-year funded loan volume growth was driven by increases across all three of our product categories. purchase, refi, and home equity loans, with home equity products and refinance loans being the largest growth drivers this past quarter. Purchase loan volume increased 13%, home equity loan volume increased 493%, and refinance loan volume increased 177% year over year. Even with some of the temporary rate relief we saw in Q3, this quarter closed the 30-year fixed mortgage rates well above 7%. putting continued strain on our customers facing high costs of living and affordability issues. Our home equity products enable them to access the equity in their homes, even if refinancing their existing mortgage in the current rate environment is not economic. We continue to embrace the opportunity to grow our experienced loan officer footprint, add additional marketing and brand advertising channels to our D2C business, as well as launch new products and services, such as the streamlined refinance product for FHA and VA borrowers that we rolled out last week, to ensure we are well-positioned as consumer demand returns to capture increased market share. Our second priority is improving operational efficiency and further variabilizing loan production expenses and maximizing operating efficiency during a highly challenging macro environment. In the third quarter, total expenses increased approximately $9.5 million quarter-on-quarter as we continued leaning into certain growth expenses such as marketing, loan origination expenses, and compensation for larger loan production teams to produce higher volumes, as well as the absence of certain non-recurring expense benefits taken last quarter. Specifically, our third quarter marketing and advertising expenses increased from $9 million in Q2 to $12 million in Q3. We continue to evaluate the return on each incremental dollar of marketing spend and expect this spend to slow as we go into a seasonally slower period in the market and become more efficient in our marketing strategies. These growth expenses were partially offset by lower general and administrative expenses and lower corporate compensation expenses. While our loan production team compensation increased in the third quarter because of increased funds and loan officer hiring, we still believe we are significantly more efficient than the industry average as it relates to production costs. Based on our learnings through industry benchmarking exercises, we believe the average cost to sell and process a mortgage in the United States is nearly $9,000 per loan. Utilizing Tin Man's capabilities, we have been able to automate time and labor-intensive components of the mortgage process and reduce that cost by over 35% of the industry average. We believe our continued investments in technology will significantly drive down our costs further, resulting in improved operating efficiency and superior customer experience. As a follow-up from our discussion last quarter around our investments into AI, we are thrilled to announce the launch of Betsy, the first voice-based AI loan assistant for the U.S. mortgage industry. Betsy is our latest innovation built through Tin Man, the company's proprietary loan origination platform, to enhance the operational efficiency of our loan teams and to improve customer experience by accurately and instantly answering detailed questions and efficiently assisting with outstanding tasks. with a goal of enabling faster service times, enhanced self-service capabilities, improved customer engagement, and greater sales efficiency. Betsy allows loan officers to focus their time on discussing interest rate details with customers and other more complex license activity instead of gathering data or performing basic verification tasks. She leverages AI and large language models to accelerate a customer's entire mortgage journey from pre-approval start to close loan, and is programmed to verbally communicate with customers to answer mortgage application inquiries and to collect and verify outstanding application data. Because Tin Man's centralized and context-rich data environment is organized in a hierarchical, tree-like structure, it can easily be understood by LLMs like Betsy. This contrasts with traditional mortgage industry software, where information is spread across multiple fragmented systems and data sets, such as the point-of-sale system, the CRM system, the loan origination system, the document management system, and the pricing engine. We believe that Betsy will help catalyze our growth over the coming years, and we are only beginning to witness how AI will disrupt the traditional mortgage industry. And our technology is setting the standard in delivering maximum value, savings, and service to American homeowners. We are excited to show you today a demonstration of how Betsy can interact with a customer on a call. And we'll play this clip to help illustrate the power of this technology.