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A massive influx of cash from a SPAC merger and $1 billion in layoff-driven annual cost cuts have put Better Home & Finance Holding Company on a footing to continue navigating a challenging market, company executives said in reporting third quarter earnings Tuesday.
Better — the parent company of Better Mortgage, Better Real Estate, Better Cover, Better Settlement Services, Better Attorney Match and Better Inspect — reported a $340 million Q3 net loss, as revenue declined 13 percent from a year ago to $16.4 million.
But the New York-based mortgage lender and real estate services provider was able to trim Q3 expenses by 45 percent from a year ago, to $108.1 million. The higher net loss — up 50 percent from a year ago — was driven largely by $243 million in non-cash balance sheet adjustments associated with the Aug. 24 closing of the special purpose acquisition company (SPAC) merger that took the company public.
Kevin Ryan
Having secured $565 million in fresh capital through its SPAC merger, Better ended the third quarter with approximately $584 million of cash and cash equivalents, restricted cash and short-term investments, “which provides us with strong runway to navigate a challenging market and invest in building a generational company,” Better President and CFO Kevin Ryan said in a statement.
“We cannot overstate the importance of closing our 2.5 year-long SPAC journey and recapitalizing the company during the quarter at a time when 30-year mortgage rates were quickly approaching 8 percent,” Ryan said. “We believe our cash position provides us with liquidity to continue executing against our vision and corporate objectives.”
Company executives said they expect Q4 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to improve from negative $54.4 million in Q3, but that a Q4 loss is expected.
Investors took the massive Q3 net loss in stride, with shares in Better down 2 percent in afternoon trading after earnings were released from Monday’s close of 46 cents. Shares in Better had previously touched a 52-week low of 34 cents on Oct. 13.
Better informed investors in October that the company faces delisting from the Nasdaq stock exchange after shares in the company fell below the required minimum bid price of $1 per share. Better can regain compliance with the minimum bid price requirement if the stock closes above $1 for 10 consecutive business days on or before April 4, 2024.
2023 mortgage originations projected to fall 74%
Source: Better investor reports.
After originating $58 billion in mortgages in 2021, Better saw mortgage production plunge by 80 percent last year, to $11.4 billion, when soaring interest rates all but wiped out its profitable refinancing business.
Having funded $731 million in mortgages in Q3 — a 36 percent decline from the same quarter a year ago — Better’s 2023 mortgage production through Sept. 30 stands at $2.5 billion. Better expects to originate $500 million in mortgages in the final three months of the year, which would bring 2023 loan funding to $3 billion — a 74 percent decline from 2022.
On a call with investment analysts, Ryan said Better “dramatically” decreased spending on marketing knowing that it would reduce the company’s mortgage production volume, market share and revenue, in order to focus “only on the most profitable business in this tough market environment.”
While purchase loans accounted for 90 percent of loans funded during Q3, Better executives note that forecasts by economists at Fannie Mae and the Mortgage Bankers Association project refinancings will nearly double by 2025, if mortgage rates come down as expected. Better executives project the company can boost revenue by $103 million over the next two years if it can capture 1 percent of the expected growth in refinance volume in 2024 and 2025.
Better’s B2B (business-to-business) channel, which accounted for 47 percent of loan production, is also poised to grow, the company said.
Better has had a strategic partnership with Ally Bank since 2019 in which Better sells, processes, underwrites and closes the bank’s digital mortgages, while Ally markets, advertises, prices and funds the loans.
Last week Better said it plans to power mortgages for more lenders in partnership with Infosys, a Bengaluru, India-based digital services and consulting firm that helps mortgage lenders and servicers deploy automation and AI to digitize their processes.
Vishal Garg
“Similar to the first half of 2023, in the third quarter of 2023 we continued to navigate through a very challenging market environment with consumers experiencing the highest mortgage rates seen in the past 20 years,” Better CEO Vishal Garg said in a statement. “Securing additional capital during the third quarter gives us confidence to continue investing in our technology and innovative products, such as digital HELOC and One-Day Mortgage. While we have been seeing others in the mortgage market pull back, we believe these investments position us strongly when some of these macroeconomic adversities lessen.”
Garg unveiled Better’s “One Day Mortgage” product in January at Inman Connect New York, saying Better’s Tinman Marketplace gives the company an edge over other lenders by linking underwriting to mortgage investor requirements and bids.
Better’s digital home equity line of credit (HELOC) product, which launched in Q1, has provided funding to 326 borrowers through Sept. 30. Better says it’s now offering 45 HELOC locks per week, and plans to increase the program’s marketing budget.
“We expect the market to remain challenging in the fourth quarter, as well as a historically seasonally slow period,” Ryan said. “For that reason, we remain focused on prudent investments in our core opportunities and continued expense management.”
Better’s 2023 YTD expenses down 74%
Source: Better investor reports.
Better has trimmed more than $1 billion in annual operating expenses this year, with expenses for the first nine months of the year down by 74 percent, to $292 million. It’s done so in part by shedding nearly 10,000 employees. Ryan said the company’s global payroll has shrunk from 10,500 full time employees in the fourth quarter of 2021 to 760 as of Sept. 30.
In addition to Better Mortgage, which launched in 2016, Better seeks to provide end-to-end real estate services through subsidiaries Better Real Estate, which matches borrowers with real estate agents; Better Settlement Services, which provides title insurance; Better Cover, which provides home, auto and life insurance; and Better Inspect, which provides home inspections.
Better, which previously offered insurance policies from other providers, announced this month that it will also offer its own digital insurance product in partnership with insurance technology provider Sure and underwriter Toggle, a Farmers Insurance company.
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