Doma Holdings, Inc.

If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Beatrice Bartolome, Head of Investor Relations at DOMA. Please go ahead.

Thank you, Operator. Good afternoon, everybody, and thank you for joining DOMA's first quarter 2022 earnings conference call. Earlier today, DOMA issued a press release announcing its first quarter results, which is also available at investor.doma.com. Leading today's discussion will be DOMA's founder and chief executive officer, Max Simcoff, and acting financial officer, Mike Smith. Following management's prepared remarks, we will open up the call to questions. Before we begin, I would like to remind you that our discussion will contain predictions, expectations, forward-looking statements, and other information about our business and that is based on management's current expectations as of the date of the presentation. Forward-looking statements include, but are not limited to, DOMA's expectations or predictions of financial and business performance and conditions in competitive and industry outlook. Forward-looking statements are subject to risk, uncertainties, and other factors that could cause our actual results to differ materially from historical results and or from our forecast, including those set forth in DOMA's Form 8-K filed today. For more information, please refer to the risks, uncertainties, and other factors discussed in DOMA's most recently filed annual report on Form 10-K and other SEC filings. All cautionary statements that we make during this call are applicable to any forward-looking statements we make, wherever they may appear. You should carefully consider the risks, uncertainties, and other factors discussed in DOMA's SEC filings. Do not place undue reliance on forward-looking statements if DOMA is under no obligation and expressly disclaims any responsibility for updating, altering, or otherwise revising any forward-looking statements, whether as a result of new information, future events, or otherwise except as required by law. Additionally, during this conference call, we will also refer to non-GAAP financial measures, including retained premiums and fees, adjusted gross profit, and the other measures described in our earnings relief. Our GAAP results and description of our non-GAAP financial measures with a full reconciliation to GAAP can be found in the first quarter 2022 earnings relief, which has been furnished to the SEC and is available on our investor website. And with that, I'll turn the call over to Max Simcoff, CEO of DOMA.

Thank you, Bia. Good afternoon, everyone, and thank you for joining us to review our first quarter 2022 results. Before we get started, I would like to formally welcome Mike Smith as our Interim Chief Financial Officer. As communicated in April, Noman Ahmed will be stepping down as CFO effective May 15th for personal reasons, and we are thrilled to have someone of Mike's caliber and pedigree ready to step into this interim role. Mike joined us in August of last year as our Chief Accounting Officer, having previously served in that same role for several other public companies. Mike also spent time as Interim CFO of Bank of California when they went through a CFO transition in 2019. During today's call, in keeping with previous calls, I'm going to focus on three main themes. First, we have continued to take share in the U.S. title and escrow market, led by our machine intelligence-driven DOMA intelligence platform, which offers a better, faster, more affordable mortgage closing experience for lenders and their customers completing refinance transactions. And we've done so against the backdrop of a dramatic shift in the U.S. mortgage market, one where mortgage interest rates rose in Q1 at the fastest pace in 28 years, all while housing inventory remained at extraordinarily low levels. Second, we believe this shift in the market is likely the beginning, not the end, of a trend toward lower overall mortgage volumes amid more challenging circumstances for buying and selling homes. Based on this conviction, we have decided to reprioritize the deployment of our capital towards a narrower list of primarily home purchase-focused strategic initiatives. Finally, to ensure that we execute with high conviction on solutions for the purchase market, we have meaningfully reduced our expense base for the part of our business that has previously focused more on refinance. What's more, we raised a significant amount of cash when we took the company public, and we will look to preserve it and only invest in core areas of the business that will give us sustainable long-term differentiation. Put simply, we are fully aware that a significant shift in our industry has increased the importance of delivering value for the home purchase market. And we are fortunate to have the balance sheet strength to be able to continue making long-term strategic investments to change the way that homes are bought and sold. We will deliver that value in a way that more conservatively deploys investment dollars, allowing us to ensure we remain on the same previously communicated timeline to profitability. We're confident that on the way we've rebalanced our focus will enable us to emerge stronger and more steadfast on the other side of these challenging market conditions. I'll now provide some more color on each of these three main themes, and after that, I'll turn the call over to Mike, who will go through the details of our Q1 financial results and discuss a revised guidance for FY22. Let's start by reviewing how the mortgage market and our business performed in the first quarter of 2022. In the first quarter, the mortgage market rapidly readjusted with refinance transactions down industry-wide by 63% year-over-year per the Mortgage Bankers Association. Additionally, purchase activity, as measured by the MBA's weekly application survey, has been much lower than expected for this time of year, with weekly mortgage applications to purchase a home recently declining as much as 17% year-over-year, suggesting a much greater slowdown in the purchase market than anticipated. Based on the recent trend in rates, it's likely that we will see a continued negative impact on the overall mortgage market. In January, the average monthly 30-year fixed rate per the Freddie Mac weekly primary mortgage market survey was 3.45%. During the quarter, rates rose quickly, reaching a daily high of 4.95% on March 28th and most recently hitting 5.64% on May 6th as per Mortgage News Daily. This rapid increase in mortgage rates has been greater and faster than any industry forecast had predicted. factoring in rapidly rising inflation levels, high home price appreciation, and historically tight housing inventory, the strains on housing affordability are increasingly concerning. According to Black Knight, if rates were to rise just 50 basis points more or home prices were to rise just 5% more, home affordability would be the lowest on record. We think the market should be bracing for an extended period of unfavorable conditions. Now, turning to our business performance in Q1, While the total mortgage market declined 42% year over year, our total market share, which is still very small, grew by 40% year over year, from 1% in 1Q21 to 1.4% in 1Q22. Against the industry's 63% decline in refinance, our refinance closed orders, which includes performance from both our local and enterprise channels, were down 20% year over year. Our outperformance in refinance versus the industry was driven by market share gains with our 1Q22 share of U.S. refi market now at 2.5% versus 1.1% in 1Q21. Driving this growth in market share is a strong adoption of our DOMA intelligence technology by our referral partners in our enterprise channel, where our closed orders grew 38% year over year. In Q1, we added 11 new lender referral partners who represent both bank and non-bank originators and saw some new state expansion with select partners. While we fully expect our market share gains and refinances to continue over the next several years, the refinance market in general is projected to be down 60% to 70% in 2022. Since few can be immune to that type of decline, we expect our refinance order volumes to continue to experience year-over-year declines for the remainder of this year. Our closed orders and home purchase, which today are sourced solely through our local channel and where the majority of those volumes are not yet on the DOMA intelligence platform, were down 13% year over year, driven by lower close rates from orders opened in Q4 in a few purchase markets in the western U.S. This temporary decline in close rates was a result of some turnover of sales and escrow officers in select markets as we transformed those branches from traditional modes of customer acquisition and fulfillment of title and escrow to a more digitally-led acquisition and a model of tech-enabled fulfillment, coupled with the natural lag in new sales hires hitting full productivity. As we embarked on this transformational effort to migrate our local purchase transactions onto our DOMA Intelligence platform, we knew it would entail making some necessary changes within our local branches, and so these impacts were generally expected and do not affect our goal of getting substantially all of our purchase volume onto DOMA Intelligence by the end of next year. As a reminder, our market share in purchase is less than 1% as of 1Q. Despite the challenges and headwinds the current mortgage market presents, we expect to grow our purchase market share steadily over the next few years as we further shift our focus of investments towards purchase and aggressively deploy our DOMA intelligence technology to this part of the market. We've seen this play out successfully before with refinance transactions in our enterprise channel. That said, while it is still early in the year and things could always change for the better, we believe that the challenges that the mortgage market experienced in Q1 will continue through at least the remainder of 2022, which brings me to the second key theme of today's call. We are refocusing resources from other areas of the company to a narrower set of strategic initiatives that will ensure we rise to solve the biggest pain points in a purchase-focused market while also keeping the company on our previously communicated timeline to achieve adjusted EBITDA profitability in 2023. We remain confident in our overall strategy to disrupt traditional title and escrow, particularly because in a rising interest rate environment where the market shifts dramatically to purchase mortgage originations, every dollar counts. This means that all parties along the residential real estate value chain, from lenders to real estate professionals to consumers, become significantly more sensitive to having a better, faster, and more affordable title and closing experience, which is, of course, our core value proposition. The current market environment confirms that we have been focused on the right areas in terms of the long-term investments that we started to make last year on home purchase and that we are accelerating this year. As we disclosed during our previous earnings call in February, we started moving purchase volume in our local channel to the DOMA Intelligence platform near the end of last year. We continue to make steady progress on this migration and are focused on optimizing for the best possible closing experience for the homeowner. In addition to our efforts in our local channel, we have also shifted resources to accelerate development of a broader set of solutions which provide us with more entry points into order acquisition for the purchase market beyond the real estate agent, who has historically been our primary target. Refocusing our resources on a narrower set of priorities means we've also had to reexamine our expense base, which brings me to the third theme of today's call. We've recently made significant reductions to our cost structure across every part of the company in service of enabling us to execute more nimbly and preserving our healthy cash position. In order to align our cost structure with reduced refinance volume and our investment in moving purchase transactions onto the DOMA intelligence platform, last week we took an action to significantly lower our expense base by reducing our workforce by 15%. This reduction in force primarily impacted our fulfillment organization. Of the 310 total impacted associates, 259 were associates within our fulfillment organization, representing an overall 28% reduction to that group. We expect that this reduction will result in a charge of $4 million in the second quarter and will generate annualized cost savings of $30 million. This will help protect our cash runway and ensure that DOMA stays financially nimble. Additionally, with regard to our previously stated plans to expand into adjacent markets such as home warranty and appraisal, we both restructured and significantly streamlined our capital deployment for these two areas and have started to explore partnerships as a means to de-risk our speed to market. While we believe we've taken the right actions to respond to an extraordinary market movement over the past 90 days, we will continue to match our cost structure and our pace of investment to areas that we believe will drive the most long-term value for shareholders. We will do this the way we have since we started the company nearly six years ago, investing confidently in areas of the business that we know will help transform an industry that is long overdue for change while prudently navigating cyclical or seasonal market dynamics inherent in this industry. In closing, I want to emphasize that the very challenges we're facing on the macro front are one of the strongest and most compelling reasons DOMA exists. For far too long, companies in the title and escrow industry, not to mention the broader U.S. mortgage market, have put off making investments in modern-day technology to make the closing process simpler and more affordable because it would be difficult for them to invest preemptively ahead of and through the ups and downs of the mortgage market. We believe that DOMA is better equipped than anyone else in our industry to handle these challenges due to our technology-first approach with DOMA Intelligence and the superior value customers and referral partners derive from our product. It is during challenging times that the best companies stay firmly committed to the areas of investment that will define their story, and ours is a story of driving change through technology. And perhaps it goes without saying, but this story wouldn't be possible without the incredibly hard work and dedication of our team, working tirelessly to deliver a transformed experience of buying or selling a home in an instant. I want to close by thanking this team for remaining committed to executing our plan to realize our vision. I'll now turn it over to Mike Smith to walk in more detail through our financial results and provide an update to our 2022 fiscal year guidance.