Doma Holdings, Inc.

Good day, and thank you for standing by. Welcome to the DOMA 2023 second quarter conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded, and I would now like to hand the conference over to your speaker today, Carly Herzog, Head of Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for joining DOMA's second quarter 2023 earnings conference call. Earlier today, DOMA issued a press release announcing its second quarter results, which is also available at investor.doma.com. Leading today's discussion will be Doma's founder and chief executive officer, Max Simcoe, and chief 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 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, market conditions, competitive position, and industry outlook. Forward-looking statements are subject to risks, 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 most recently filed annual report on Form 10-K and subsequent filings with the SEC. 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 appear. You should carefully consider the risks and uncertainties and other factors discussed in DOMA's FDC filing. Do not place undue reliance on forward-looking statements, as 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 accepted as required by law. Additionally, during this conference call, We'll also refer to non-GAAP financial measures, including retained premium and fees, adjusted gross profit, adjusted EBITDA, and the other measures described in our earnings release. Our GAAP results and a description of our non-GAAP measures with a full reconciliation to GAAP can be found in the second quarter 2023 earnings release, which has been furnished to the SEC and is available on our investor website. And with that, I'll turn the call over to Maxim Koch, CEO of Doma.

Thank you, Carly. Good afternoon, everyone, and thank you for joining our second quarter call. Over the last several quarters, we have discussed our progress towards solidifying a more scalable and mission-driven go-forward strategy, and today we are unveiling several core components of that strategy. Going forward, DOMA will focus on licensing our proven and patented instant underwriting technology directly to the largest mortgage market participants in the country, while our underwriter will continue to serve traditional channels through our independent agents. Our initial focus will center on activating our direct technology licensure model via several of the largest mortgage originators and secondary mortgage purchasers so that they can utilize our patented underwriting technologies platform to instantly and safely ensure clear title for their customers earlier in the mortgage origination process, while also reducing a significant amount of title insurance and closing fees paid by consumers on these transactions. Importantly, we are now in discussions with a number of these parties regarding a commercial framework so that we can bring this model to life at a crucial time when housing affordability is at record lows. Our goals in implementing our new strategy in this way are to not only drive some of the largest single reductions in mortgage-related fees to end consumers that our industry has ever seen, but also to enable DOMA to capture a much larger part of the overall market for mortgage transactions with a much better solution and at a much faster speed than our previous go-to-market focus. This initial endeavor is just one of several we intend to pursue and is subject to final contractual agreement and any required regulatory approvals. As part of our go-forward strategy and in parallel with the distribution of our technology on a license basis, our title insurance underwriting business and our independent agents remain of critical importance and will continue to be a core part not only of our go-forward business, but also in offering title insurance to cover consumers across transactions where our directly licensed technology has helped prioritize work. We believe that there will always be a significant need for traditional title insurance across a significant number of transactions, and that many of these transactions can also benefit from our technology being used to identify where key risks need to be more closely examined as part of a traditional underwriting process. Well, the last 18 months have proved to be incredibly challenging to DOMA as we navigated through a rapidly declining mortgage market and skyrocketing interest rates. The reconfiguration of our business model to best drive our vision gives us newfound confidence that our proven technology is now best positioned to drive the massive impact that we've always known we can achieve. We'll discuss three key themes on this call today. First, I will provide an update on our path to reaching adjusted EBITDA profitability this year and the steps we are diligently taking to achieve that goal during a continued period of both high mortgage rates and low mortgage volume and as we begin implementing our new strategy. Second, I will provide more details around our new go-forward strategy for the business and how our considerable technology advantage will ensure we fulfill our mission while benefiting all stakeholders in the mortgage transaction. Third, I will outline the much leaner, more streamlined company structure we've recently implemented, which includes the divestiture of our local retail title divisions and which we believe better positions us to achieve success with our new strategy. I will then turn the call over to our CFO, Mike Smith, who will discuss our financial results in more detail. Regarding our first theme, we remain highly focused on our goal of reaching adjusted EBITDA profitability by the end of this year, and we continue to make steady progress towards that goal. Our adjusted EBITDA loss was $14 million in Q2 compared to a loss of $22 million in Q1 of this year, and we expect to see a further significant improvement in our adjusted EBITDA loss from Q2 to Q3 of this year. We continue to realize substantial cost savings from our prior workforce actions implemented at the end of 2022 with expected annualized compensation cost savings of $85 to $90 million. We also anticipate further annualized compensation cost savings of $10 to $12 million related to additional workforce reduction actions recently implemented as part of moving to our new strategy, resulting in a leaner and more focused organization. The sale of our local operations is expected to directly result in an adjusted EBITDA benefit of approximately $2 million in Q3 when compared to Q2. And lastly, we expect additional savings as we continue to further streamline expenses, inclusive of occupancy costs, software licensing, and other operating expenses. As we transition to offering our technology on a licensed basis, we believe there is a massive growth opportunity ahead of us. So while we remain cautiously optimistic that achieving adjusted EBITDA profitability by year end is achievable, and we are still working tirelessly to get there, the continually challenging macro environment and transformation underway at the company could push the timeline modestly, but ultimately this transformation will better position us to achieve sustainable profitability. This brings me to the second key theme of our earnings call, our new strategy. When we started the company nearly seven years ago, our vision was to utilize cutting edge machine learning and predictive analytics to replace the time consuming, expensive, and highly manual underwriting process utilized by large traditional title insurers. We have now proven that our technology works as we have instantly underwritten title insurance for over 86,000 loans, partnering with some of the largest lenders in the country. We have helped our lender partners in turn reduce mortgage closing timelines by over 15% and deliver upwards of 20% cost savings on title and settlement fees to consumers. Just as important as the lightning fast benefits that our solution provides to lenders is the fact that our observed claims and loss performance on instantly underwritten transactions have come in at a similar level as the traditional manual underwriting methods that it replaces. In other words, we've proven that we can offer an instant affordable alternative to manually underwritten title insurance for mortgage transactions with no additional risk. Over the last five years, while we've demonstrated the value and safety of our technology, we have also learned that some methods of distributing this technology are much more effective than others. While we've driven success in our enterprise channel by selling directly to large lenders who could utilize our instant underwritten title insurance product in their refinance transactions, We also experienced challenges in executing the scale of change management necessary for our technology to get expediently rolled out across the local retail office footprint we acquired from Lennar in early 2019. At the same time, we've heard a growing chorus of demand from the secondary mortgage market to price and predict title risk more efficiently, to enable faster speed of execution and mortgage origination, and to significantly lower fees for consumers at a time where housing affordability is near crisis levels. With our new strategy, we will harness the learnings we've gained in our distribution efforts to now offer our technology on a licensed basis directly to key players in the mortgage ecosystem. In addition to supercharging our distribution, we believe that the unit economics for this business model will be significantly better than our previous model. As both the software company focused on the widespread distribution of our unique technology and a fiercely competitive underwriter with a vast network of independent agents, we believe that we've never been more strongly positioned to deliver on our core mission of making homeownership more affordable. As we march forward on that mission, our initial focus will be activating our licensing model for several of the largest originators and secondary buyers in the mortgage market. Among this group, there are a few specific institutions who have been longtime partners and collaborators with us since the company was founded, and as such, have been key contributors in our development of this new model. Those partners are working collaboratively with us to finalize the best way to jointly deliver Domo's technology to their customers so that we may together deliver solutions that protect lenders from title risk while providing significant additional cost savings to borrowers at a time when they need it the most. We are discussing commercial terms with several of these collaborators, and any final arrangements are subject to final contractual agreement and any required regulatory approvals. With these significant mortgage industry players across both the primary and secondary mortgage market, we share a desire and a sense of urgency to reduce closing costs for borrowers by a wide margin compared to traditional non-technology based solutions. We believe that bringing these solutions to life is a testament to our incredible technology and product organization, which has been working tirelessly over the past year to prepare DOMA's instant underwriting technology to be directly licensed and integrated with the core platforms and technology frameworks utilized both by the largest secondary mortgage participants and their customers so that we not only enable a single point of distribution to nearly all of the nation's largest lenders, but also to ensure that title risk decisioning can happen right up front when lenders are deciding whether to underwrite the loan versus traditionally toward the end of the loan closing process. This brings me to the third key theme of our earnings call. As our go-forward strategy will require us to focus on developing and supporting an externally available software platform, as well as driving the success of our underwriting business via our innovative technology solutions, we have transitioned our organizational structure to be much leaner with a more people-light footprint. Part of this organizational change is because our narrower focus means that our local division is no longer core to our go-forward strategy. We stated in our last earnings call that our local leadership team had finalized and was implementing a plan to ensure that the local division accelerates the company's path to profitability. As you may have seen in recent announcements, we have executed against the strategic plan via the sale of our local business through multiple transactions. We have now sold all of our local operations to several suitors for total gross price in excess of $35 million prior to legal, advisor, and other fees, with a substantial portion linked to performance and retention-based earnouts. The majority of the proceeds received were used to pay down existing debt. These executed transactions resulted in the transfer of approximately 300 employees and 60 local branches and operations to new leadership and organizations. I am confident that we have found optimal new homes for our local business and former colleagues and that the business will thrive under their new leadership. We will continue to facilitate a smooth transition for our employers, employees, and customers. I want to thank our local team for their hard work. I am incredibly grateful for your contributions over the years. Post the divestiture of our local division, as well as the launch of our new technology business, we expect to provide information for our two business divisions going forward. underwriting and enterprise technology our underwriting division will include all revenue and expenses generated by the business of underwriting title insurance for independent agents our enterprise technology division will include all revenue and expenses resulting from the continuation of our existing enterprise distribution activities while we continue to grow and develop as well as results from our expanded efforts to license our technology via innovative distribution channels In closing, we believe our strength and focus on deploying our instant underwriting technology on a broader scale through both licensing our software and working with our independent agent community will enable us to meaningfully grow the business and deliver an enormous impact on the housing affordability crisis. Looking ahead, we are focused on generating sustainable and profitable growth and building enterprise value for our stakeholders. We look forward to updating you on our progress throughout the year. I will now pass the call over to our CFO, Mike Smith, to provide you with further details on our recent financial performance. Mike?