ladies and gentlemen good afternoon and welcome to loan depot's year-end and fourth quarter 2024 earnings 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 that time simply press the star key followed by the number one on your telephone keypad if you would like to withdraw your question press star one a second time i would now like to turn the call over to Gerhard Erdely, Senior Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining our year-end and fourth quarter 2024 earnings call. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements regarding the company's operating and financial performance in future periods. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to guidance to our pull-through-weighted rate lock volume, origination volume, pull-through-weighted gain on sale margin, and expense trends. These statements are based on the company's current expectations and available information. Actual results for future periods may differ materially from these forward-looking statements due to risks or other factors that are described in the risk factors section of our filings with to SEC. Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into analyzing and benchmarking the performance and value of our business and facilitating company-to-company operating performance comparisons. For more details on these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP measures, please refer to today's earnings release, which is available on our website at investors.loandepot.com. A webcast and a transcript of this call will be posted on our website after the conclusion of this call. On today's call, we have Loan Depot President and Chief Executive Officer Frank Martell and Chief Financial Officer Dave Hayes to provide an overview of our quarter as well as our financial and operational results, outlook, and to answer your questions. We are also joined by Chief Investment Officer Jeff DeGurion and LDI Mortgage President Jeff Walsh to help address any questions you might have after our prepared remarks. And with that, I'll turn things over to Frank to get us started. Frank.

Thank you, Gerhard. I appreciate everybody taking the time to join us on this call today. 2024 was a year of significant progress for Loan Depot, particularly with the completion of our Vision 2025 Strategic Program. Vision 2025 was born from the fires of one of the most significant contractions in the housing and mortgage markets in recent memory. As you may recall, total market origination fell nearly 50 percent from 2021 to 2022, led by refinance volumes falling almost 75 percent. The mortgage market continued to remain depressed in 2023 and 2024, with volumes approaching generational lows. The strategic imperatives of Vision 2025 served as our roadmap for successfully navigating this historic downturn. While a portion of Vision 2025 was focused on fundamentally resetting our cost structure and organization to better align with a much smaller market, the strategy also addressed important investments in people, process, product, and technology. I expect that these investments will enable Loan Depot to emerge from the market downturn, a more efficient and durable company. The company's return to profitability during the third quarter marked the successful completion of Vision 2025. With the announcement of a new three-year plan, Project Northstar, it is the logical time for me to make way for a new leader. We recently announced the details of the transition, which confirmed that I will step down as CEO and board member effective with our annual meeting of stockholders on June 4th. After the annual meeting, I will continue to support Loan Depot as an advisor to the board. During my remaining time with Loan Depot, I look forward to working tirelessly to support our founder and board chair, Anthony Shea, who has agreed to return to the company as Executive Chairman of Mortgage Originations, leading our origination, servicing, operations, and related activities. The successful completion of Vision 2025 was a critical step in the company's evolution. I'd like to express my deepest appreciation for Team Loan Depot for all their hard work and effort over the past several years executing the plan. We have a truly exceptional team that approaches every single day with the goal of making the dream of homeownership a reality for our customers. As we look forward, we believe that we are positioned to accelerate revenue growth and continue our progress towards sustainable profitability as we pivot toward the next chapter in Loan Depot's story. The housing and mortgage markets remain challenged, no doubt, but they are substantial in size and hold many opportunities for Loan Depot to grow and to realize its strategic objectives. When the market inevitably recovers, I believe the companies well-positioned to become the lender of choice for the American homeowner to buy, manage, and optimize their home ownership journey. In closing, I want to thank every member of Team Loan Depot, our critical business partners, and our board of directors for their support, without which we could not have achieved the substantial critical progress the company's made over the past three years. With that, I will now turn the call over to Dave, who will take us through our financial results in more detail.

Thanks, Frank, and good afternoon, everyone. In the interest of time, I'll focus my comments on the quarterly results. We reported an adjusted net loss of $47 million in the fourth quarter compared to an adjusted net loss of $27 million in the fourth quarter of 2023 due primarily to higher volume-related expenses offset somewhat by higher adjusted revenues. As you might know, the accounting for loan origination is subject to timing with much of the revenue recognized at the time of interest rate lock, and much of the expense recognized at the time of the origination. A meaningful increase or decrease in volume from quarter to quarter, such as we saw from the third to fourth quarter, can have a noticeable impact on our financial results. During the fourth quarter, pull-through weighted rate lock volume was $5.6 billion, which represented a 27 percent increase from the prior year's volume of $4.4 billion and reflected the impact of our investment in recruiting and developing our loan officers rate lock volume came in within guidance we issued last quarter of 5.5 billion dollars to 7.5 billion dollars and contributed to adjusted total revenue of 267 million dollars compared to 251 million dollars in the fourth quarter of 2023 our pull through weighted gain on sale margin for the fourth quarter came in at 334 basis points above our guidance of 285 to 305 basis points, and compared to 296 basis points in the prior year. Our higher gain-on-sale margin primarily benefited from wider overall margins across our product set and a channel mix shift away from JV toward our retail and direct channels. Our loan origination volume was $7.2 billion for the quarter, an increase of 34% from the prior year's volumes of 5.4 billion dollars. The increase reflected the pickup and lock activity during the third quarter stemming from a temporary decrease in market rates. This increased lock volume was concentrated in September and therefore resulted in closings during the fourth quarter. This was also within the guidance we issued last quarter of between six billion dollars and eight billion dollars. Servicing fee income decreased from 132 million in the fourth quarter of 2023 to $108 million in the fourth quarter of 2024 and is in line with this decrease in the size of the portfolio resulting from the second quarter bulk sales. We hedge our servicing portfolio, so we do not record the full impact of the changes in fair value and the results of our operations. We believe the strategy protects against volatility in our earnings and liquidity. Our strategy for hedging the servicing portfolio is dynamic, and we adjust our hedge positions in reaction to changing industry environments. Our total expenses for the fourth quarter of 2024 increased by $39 million, or 13% from the prior year. The primary drivers of the increase were higher volume-related commission, direct origination, and marketing expenses. Looking ahead to the first quarter, we expect pull-through weighted lock volume of between $4.8 billion and $5.8 billion and origination volume of between $4.5 billion in $5.5 billion. Volume guidance reflects the seasonal decrease in purchase activity. We expect our first quarter pull-through weighted gain on sale margin to be between 320 and 340 basis points. Our total expenses are expected to decline in the first quarter, primarily driven by lower volume-related expenses and also lower G&A expenses. Our cost reset focus on creating positive operating leverage and balance sheet management activities have significantly reduced our risk profile and charted a path towards profitability while allowing us to maintain a strong liquidity position. We ended the quarter with $422 million in cash. We grew revenue, expanded margins, reduced our corporate debt, and made important investments in productivity initiatives that benefited both the quarter and the year. Importantly, during the third quarter, we demonstrated our significant operational progress by achieving profitability during a period of modest market improvement. And we believe we are well positioned to capture the benefits when the market eventually recovers. Our investments in products and operating leverage will provide the foundation for additional momentum in 2025 and beyond. With that, we're ready to turn it back over to the operator for Q&A. Operator?

Thank you. And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star 1 if you would like to join the queue. And your first question comes from the line of Doug Harder with UBS. Your line is open.

Thanks. Can you talk about how you're viewing your current cash liquidity situation and, you know, kind of as part of that, what you would expect for servicing balances over the course of 25?

Yeah. Hey, Doug. It's David Hayes. As you guys know, we've talked about this over past quarters that we have maintained heightened levels of liquidity considering the challenging mortgage market and we expect to maintain um heightened levels of liquidity over that period we think we're running at excess liquidity levels and so um we've talked um before about maintaining uh you know at least a five percent around a five percent of assets of liquidity as sort of a target in this challenging market and i think that's something we'll aim to do over the course of 2025. got it and i guess just on the msr outlook you know kind of how how you think um that'll that'll play out do you expect more sales or kind of regular way kind of flow agreements yeah no i think our view is we're going to try to maintain and build the servicing asset we view that as a a very strategic asset for the company but obviously and periodic times over the course of the last few years we've had to sell that from time to time to meet some liquidity needs but for now we're going to continue to try to invest and grow that asset great thank you and your next question comes from the line of derek summers with jeffries your line is open hi good afternoon um could you speak to what the drivers of uh the sequential increase in the gna expense and uh servicing expense uh were yeah um the biggest is that gna was a bit of um um kind of subsidized last quarter we had a big insurance recovery related to in the third quarter related to the cyber event. We took a large reserve in the second quarter and got the insurance recovery in the third quarter. So that was kind of understating expenses. So it's kind of a return to normalization in the fourth quarter. And then generally just in expense profile, we talked about investing in LOs and operations and carrying excess capacity. So that's also impacted a little bit of the fourth quarter. You know, that's largely the explanation for the sequential change on that front. From a servicing perspective, I think it's just the normal seasonality of the portfolio. We have seen a little bit of a tick up in our delinquency rate, which is attracting a little more expenses from a servicing perspective. But they're still, you know, well below historical norms. They're kind of coming off a historical norm perspective. So, no concerns from that perspective on our end.

Got it. And just in terms of the volume guidance for 1Q, kind of what kind of backdrop are you embedding in that guidance, and, you know, how does that compare to third-party estimates?

Yeah, so we're obviously setting our guidance off our expectations of sort of our LO counts and a lot of the investments we've made into the business. So we are expecting locks to come down sequentially, kind of in line with normal seasonality in the business. That being said, I think if you look at some of the third-party estimates, they're showing a more significant decline sequentially. And so, we are hopeful that we can pick up some share gain in that period.

Okay. Thank you for taking my questions.

And as a reminder, it is star one if you would like to join the queue. And your next question comes from the line of John Davis with Raymond James. Your line is open.

Hey, guys. Taylor on for JD. Maybe just to start on your hiring expense plans. In 25, with the expected rebound in mortgage originations, just how should we think about the operating leverage of the business going into next year, assuming the increase in mortgage originations does in fact play out?

Yeah. Like I said, we've been investing strategically over the course of the third and fourth quarter into our kind of revenue-generating expense side or LOs in our operations team. And if we lay that against, let's say, the NDA or the mortgage growth expectations in some of the third party, we would naturally expect the operating leverage to increase. We find LO productivity to get more productive as refinanced markets start to materialize so we should see better pull through on a revenue to profitability perspective in that regard and then just generally speaking it's expense perspective that's where the hiring will be for the course of 2025 we're not expecting any significant back office or gna expenses in fact modest reductions on that front okay got it thank you um and then just one more um on project North Star, just obviously early days here, but just curious if you've, you know, if there's any updates with any of the initiatives, you know, whether that be traction and expanding geographies,

JVs, cost saves, or anything else. Thanks.

Yeah, I'll handle that. Look, I think Project North Star, as you know, was unveiled last quarter, so it's in formative stages, but we're already investing in the technology platforms that will enable a lot of our operating efficiency and reduced cycle times and improved customer experience. So, a number of those are in flight, and we expect those to be progressively more impactful as we get into this year and certainly next year. So, I think that's all in good order. I think we've also announced two new JVs. and maybe Jeff can talk a little bit about those because we expect those to come online over the course of next year as well. But Jeff, why don't you?

Yeah, this is Jeff Walsh.

We're actively onboarding now our partnership with Smith Douglas and with Onyx Homes. And we fully anticipate having those onboarded in 2025 fully and fully ramped in 2026. And also looking for additional opportunities in that space aggressively. Got it.

And as a reminder, it is star one if you would like to ask a question. And with no further questions at this time, Mr. Frank Martell, I will turn the call back over to you.

Thanks, Abby. Look, on behalf of Dave Gerhardt, Jeff Walsh, and Jeff DeGurion, and the rest of our team, I want to thank everybody for joining us again today. I'm proud of the dedication, resiliency, and accomplishments of Team Lone Depot. The completion of Vision 2025 represents a significant and hard-fought victory for the company. And Project Northstar, I believe, lays the foundation for a brighter future as the mortgage market comes back, and it certainly will come back. It's a big market. Home means everything, and it's central to the American dream. I believe the company is really well-positioned to meet the needs of a changing demographic. Homeowners and home buyers for our unique products, and Team Loan Depot's direct engagement with our customers. So thanks again to everybody for joining the call. I appreciate your support, and the call will conclude out.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.