UWM Holdings Corp Q4 FY2024 Earnings Call

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation Fourth Quarter and Full Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Thank you. Blake Kolo, you may begin the conference.

Good morning. This is Blake Kolo, Chief Business Officer and Head of Investor Relations. Thank you for joining us, and welcome to the fourth quarter and full year 2024 UWM Holdings Corporation's earnings call. Before we start, I would like to remind everyone that this conference call includes forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued this morning. Our commentary today will also include non-GAAP financial measures. For information on our non-GAAP metrics and the reconciliations between the GAAP and non-GAAP metrics for the reported results, please refer to the earnings release issued earlier today, as well as our filings with the SEC. I will now turn the call over to Mathew Ishbia, Chairman and CEO of UWM Holdings Corporation, United Wholesale Mortgage.

Thanks, Blake. And thank you everyone for joining us today. You know, 2024 was another fantastic year. I think you saw the headlines of one of the toughest mortgage years in a while. Obviously, the last three years have been tough. We grew 29% year over year, about $139 billion. Our gain on sale was up 20%, 110 basis points. And the broker channel, which is the biggest indicator, all these we have been talking about, grew quite a bit as well. I think the third quarter metric was 27.4%, which is far higher than we have seen in 15 years. All of the things that we talk about continued to happen. We continue to dominate the purchase market, leverage our competitive advantages and talent to technology and world-class service, like I said, help the broker channel grow its highest share industry in years. So exciting to see. We retained our title as the largest mortgage company in the US. Now I think in 2024, it was the third consecutive year as the number one mortgage company in America. The fourth consecutive year, the largest purchase lender in America. And now I think it's the tenth consecutive year as the number one wholesale lender. So we are very proud of what we are doing here at UWM. 2024 was an amazing year, and we are super excited about 2025. As I have spoken in the past few quarters, we continue to invest in cutting-edge technology, including AI, investing in our people. We are in the best position to capitalize on any change in the current market dynamics. There are about $2.5 trillion and growing in mortgage rates over 6%. And so it won't take much for a shift in rates for those loans to be in the money. No matter what happens in the market, we are focused on what we can control. Making sure we are more prepared than our competition. You have all heard me say this before, I will say it again. The only thing about UWM is that our business is strong enough that we can simultaneously win big now while also preparing for the future. Whether it be interest rates dropping, consumer trend changing, new technology, or even regulatory changes. In 2024, it was the lowest home sales year since 1995, and UWM had our best purchase year of all time. Over $96 billion of production. We actually think that might be the highest of all time for any direct lender in history. But either way, we had an amazing 2024. Like I said, $139.4 billion in overall production, a 29% increase. We also tripled our refinance business in 2024 compared to 2023 despite the interest rate environment, which we will talk about a little bit later. Delivering about $330 million of net income, $329.4 to be exact, and our gain margin is 110 basis points, which is up from 92 basis points last year. Turning to the fourth quarter, we had an amazing quarter across the board, $38.7 billion in production, well within our guidance. It's also worth pointing out in that quarter, we did over $17 billion in the month of October. There was a five-week minor rate drop in August and September. With that little thing, we almost doubled our business. If you do a quick run rate, anything in $51, $52, $53 billion with a small rate drop. What happens if a bigger rate drop happens? We are gonna find out, but we are prepared here to double our business plus, which is exciting. Gain margin was 105 basis points, well within the guidance for the quarter. We did $40.6 million of net income. So once again, great year, great quarter, firing on all cylinders at UWM. We are ready for whatever the market gives us, and whatever market does. We are ready to dominate here. So I'm gonna turn over our CFO, Andrew Hubacker. He'll give you some more information.

Thank you, Matt. Matt covered many aspects of our Q4 and full-year financial performance; I will just focus on a few additional highlights. We remain profitable operationally in 2024 with $460 million in adjusted EBITDA. For Q4, our adjusted EBITDA was $118.2 million. These operational results were largely consistent with the prior year even as we invested significantly in people, processes, and technology to prepare the company for continued growth. We've invested in growing our operations, underwriting, and technology teams to support increased production volume, and we believe we have greater operational capacity than we did in 2021, when our origination volume exceeded $226 billion. Said differently, we believe that we can currently handle more than $100 billion of additional origination volume without increasing our fixed expenses. Despite our significant short and long-term investments, we earned $29 million on a GAAP basis and $460 million on an operational basis in 2024. We also maintained our liquidity and capital and leverage ratios within targeted ranges in the current environment. At the end of the year, we had approximately $2.1 billion of total equity, just over $500 million of cash, approximately $2.5 billion of total accessible liquidity, in an MSR portfolio with a fair value of approximately $4 billion. We talked about this throughout the year, but in so many ways, 2024 was a year of investing. Our operational capabilities to prepare the company and the wholesale channel for what we see as significant market opportunities. We've also focused on being prepared for these opportunities from a capital and liquidity perspective. And we believe that we remain well-positioned operationally and financially for any market cycle. I will now turn things back over to our Chairman, President, and CEO, Mathew Ishbia for closing remarks.

Thanks, Andrew. I'll close with two points before the Q&A. 2024 was a banner year. From a production perspective, as you can see, we did a great income as well. Really, cash is our third year over where we dominate in a down mortgage market. What you can't see in the numbers in 2024 is a huge year of technology artificial intelligence. We invest in AI in three major categories: knowledge, efficiency, and growth. And we are winning on all fronts. You'll see some of those things start to result in 2025, 2026 in our financials and our production. The broker channel continues to show incredible momentum. In the third quarter of 2024, the four core numbers aren't out yet, but for the broker channel share of all direct fund was 27.4%. Up seven percentage points from the third quarter of 2022. So in two years, we grew 7% and almost doubled from where it was in the third quarter of 2020. It's amazing to see; can we do it again? Do we have a guess? Can we double it in the next four years again? I don't know. But I know we're working hard toward it. The broker channel is gaining momentum just like we said it would since we went public years ago. Additionally, by our calculations, over 16,000 loan officers joined the broker channel, with over half of them actually leaving from the retail channel to join the broker. This momentum is continuing, and we’re excited to see how it continues to grow going forward. With all these great things with technology and brokerage, you'll always come to our people at UWM. The care factor and the culture we've created at UWM is what differentiates us. Additionally, we welcome 25,000 clients on our campus for training each year, which helps spread the culture of the broker channel. Our team loves coming to work every day, and our training program, both internally and for our clients, remains world-class so our people can continue to grow and flourish here at UWM. In 2025, our priorities remain the same: build the best technology and provide the best service to the broker channel; take incredible care of our team members and clients by treating them like family; win every single day by dominating our purchase and staying prepared for a shift in rates; and continue to reward our shareholders. I'm very proud of what we did in 2024, and I'm excited about 2025. Now looking at the guidance in Q1, we expect to do $28 to $35 billion. As you know, the first quarter is always the lowest production quarter, and we expect that to carry on this year as well. Last year, we did $27.6 billion. That’s below our low end of the guidance this year. We also expect gain margin to be between 90 and 115 basis points for the first quarter. So we're expecting a great first quarter, but even more importantly, an amazing 2025 here at UWM. So now I'm gonna turn over to questions. Thanks for your time today.

At this time, I would like to remind everyone in order to ask a question, press star one on your telephone keypad. If at any time you would like to remove yourself from the queue, press star one a second time. We'll pause momentarily to assemble our roster. We will now begin the Q&A session. Our first question comes from the line of Terry Ma with Barclays. Please go ahead.

Hey, thank you. Good morning. Maybe just first starting with operating expenses. It was quite a bit higher than what we were expecting this quarter. I'm just curious if there is anything one-time in there and what we should expect for a runway going forward.

No. It's a one-time investment. But we're gonna do it every month. What we're doing is investing in our business to dominate. So the expenses are not even a thought on my mind. We're prepared, as Andrew said, a hundred billion more, but maybe to do more than that. We can literally double our business. Preparation is key. As you saw with the little refi boom in October, we've almost doubled our business. Nobody else can do that. And so we're prepared for that, not only from the refi momentum is strong right now. We're ready to dominate. Our business model is not to nickel and dime every expense. Our business model is to win. These are investments, not expenses. In the big scheme of things, these little investments will pay huge dividends, just like we've always done. We probably don't need to hire many more people. We're gonna be more flatlined is how we think about it from a perspective of replacing attrition. So it's not like our expenses will go up more; but these were investments. 2024 was an investing year and a technology-building year, and 2025 is a dominant year. That's what we're going for.

Got it. Okay. And maybe just on refinance, you mentioned you kind of tripled it in 2024. Maybe just talk about all the initiatives you're doing around that, and the outlook for share and refinance going forward. Thank you.

Yeah. Well, share and refinance will be interesting to see, but the general outlook is that we are prepared, back to my earlier statement on the same topic, to double our business. You saw we tripled the refinance share, but we're still doing more purchase business, which is phenomenal. I think it was the largest purchase year in history by any lender. It was a slow year from a purchase sales perspective in the market. We think 2025 would be a better year. There's more houses for sale. And then on the refinance side, you're talking about like three trillion dollars that just need about a quarter lower rate than we are right now. We are not far off. The tenure's at 4.30, I think. I always tell you 3.75 is where the money's at, but if it gets down closer to four, we're gonna start seeing some of this, and we are prepared. We're excited about the refinance opportunity. We're gonna continue to dominate on purchase, and we're excited for what's gonna happen in 2025. We really think it's gonna be a great year.

Our next question comes from the line of Eric Hagen with BTIG. Please go ahead.

Hey, thanks. Good morning. Good to hear from you guys. You have been really active with various incentives offering other ways for successful brokers to pass along savings to borrowers. How do you measure the success of these initiatives? How do you benchmark success at different levels for interest rates or mortgage rates?

Thanks, Eric. Appreciate the question. There are multiple ways to measure success. The key thing here is I bumped our margin for the first time from 85 to 110 to 90 to 115. This is the first time we've been at 75 to 100 in the trough after years of that. I believe the opportunity is coming. It doesn’t mean we'll be on the high end of these ranges; I think we will be consistent in delivering what I say we will do. But there are measurements on retention of those brokers and loan officers and what percentage of their business they use UWM for, how do we get them in the door, how we get them bought into our products and services from training? We have success tracks. This week alone in the middle of February in Michigan, we have over 900 clients that flew to Pontiac, Michigan. I know Eric, you've been here before. It's beautiful, but it's freezing out here. But people still flew out here because they're getting trained. Those are some ways to measure those investments. I’m investing in giving brokers the price they need, which drives them to understand what we do, which helps them grow their business, which then drives UWM. A small example is in October, we doubled overnight. It's a $52 to $54 billion run rate with really no refinance. It’s all about preparation so that they can dominate and then we can dominate.

Great stuff. Appreciate that. I notice looking at the volume and margin guidance you gave for the first quarter, how much of that drop quarter over quarter would you attribute to seasonality versus an actual falloff in demand at these rates? Is there a baseline minimum volume of originations you might expect right now even if rates were to go higher than they are today?

Yeah. Great question, Eric. Appreciate your thoughts on it. We guided to $28 to $35 billion. Last year, I think we did $27.6 in the first quarter. I think these numbers are actually really good. If you see what everyone else guides you, being able to guide to that range is significant. I don't know the last time that’s been done beyond 2020 and 2021. Given the last ten years, find anyone that's done $30 billion in the first quarter besides in 2020 and 2021. The first quarter is always the worst; therefore, we expect the second and third quarters to pick up. We view this quarter as the low quarter.

Yep. Great stuff. Thank you guys so much.

Appreciate you.

Our next question comes from the line of Derek Summers with Jefferies. Please go ahead.

Hey. Good morning, everyone. To follow up on the guidance question related to volume: in the first half of the year, we saw purchase mix at around 80%; in the second half, call it around 60%. What are your expert expectations for that mix heading into 2025?

A lot of it's dependent on interest rates. The way I look at it in our focus is how do we do a hundred billion of purchases? If rates go up to seven and a half, we'll do twenty billion to refinance, thirty billion to refinance. Understanding the market and tenure is crucial. We can do a hundred and thirty to a hundred and forty billion this year or two hundred and sixty billion this year, depending on the rates. That's how comfortable we are. We're prepared to make those moves and double originations.

Got it. Thank you. Helpful commentary there. And just how what’s your current approach to managing servicing UBB levels relative to origination trends?

We monitor it very closely. We understand the servicing asset very well. We're one of the only ones out there originating at such a high level that our assets go up. We continuously make it, and by retaining all this, we can also sell excess if it makes sense. It's a balancing act, but we feel good about where we're at right now.

Got it. Thank you for taking my questions.

Thank you.

Our next question will come from the line of Bose George with KBW. Please go ahead.

Hey. Good morning. Following up on that question on the MSR. Given that you issued debt, you obviously have a lot of cash on your balance sheet, and you've paid down the warehouse line. Does that change how you might approach MSR sales or are those two kind of independent decisions?

Everything's tied into it. But nothing drives the equation besides the conversations, the data, and understanding the marketplace. It depends on the situation. We have a risk committee that meets to make these decisions. Our MSR asset grows as we originate, so we look at all aspects of it and make those decisions, but we feel confident about decisions we make.

Makes sense. Thanks. And then, going back to Andrew's comment on a hundred billion you could originate without increasing fixed expenses. How do you think about fixed versus variable in that scenario?

Not really. We are prepared to handle variable expenses, but relative to our operation, it’s not a concern. We're all about our operational positions, and we are ready to take advantage of the business. While making significant investments, we’re still profitable. The gain on sale margin will increase, and we think it’s a big difference in a positive way.

Okay. Makes sense. Thanks a lot.

Thank you.

Our next question comes from the line of Brad Capuzzi with Piper Sandler. Please go ahead.

Hi. Thanks for taking my question. Just wanted to talk about any updates on the dynamics within the broker channel. Obviously, some of your peers have been talking it up. UWM has a very strong hold on the channel, but was wondering if pricing has been rational and if you're seeing any increased competition.

The broker channel is winning and growing. It’s almost doubled in four years. I said it when we went public, and everyone said they would focus on wholesale. No one thought it would grow this much, and it has. We have not seen any increase in pricing competition. Our margins are up 20% year over year, and we did almost 3% more business year over year. Everyone wants to enter the wholesale channel, but they can't compete. The brokers are winning because they are cheaper, faster, and easier, and with the new administration, it's only going to help brokers even more.

Could you just talk about the rate derivative hedges you put on this year? Do you expect these hedges to continue in 2025, and do you guys have any additional targets on a hedge ratio?

Those weren't really hedges. We wanted to make sure we had some security during market volatility. We pulled those off in December, and we do not have that in place now. However, we can put them back on tomorrow if needed. It’s not part of our equation for 2025.

Thanks for taking my questions.

Thank you.

Our next question comes from the line of Douglas Harter with UBS. Please go ahead.

Thanks. Hoping you could talk a little bit about your outlook for leverage. Net funding debt went up, and how you think about the level of equity needed to run this efficient business.

Net worth is obviously important. We make income. We continue to grow and pay a great dividend to all our shareholders. Building up capital is important. Liquidity is the most important, and we have that. We'll continue to have it as we earn income. We feel very strong about where we are for this year and future years.

Alright. Thank you, Matt.

Next question will come from the line of Jeff Adelson with Morgan Stanley. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. Matt, last quarter you commented on some of the new changes with the new administration. We're seeing a lot of news flow with different changes at various agencies like the CFPB. Can you give us an update on your latest views here? What do you see coming out on the regulatory political front and how that flows to UWM and the broader mortgage industry?

I think it's all very positive. President Trump has done a lot of what he said he would do. The new FHFA director is coming from the industry, which is a huge success for us. The new CFPB Director will have a different focus than before, which is a massive win for our industry. I'm extremely bullish on these changes for the next three to four years. The only question that remains is how they will impact interest rates. If they’re positive, we could see a big bull run. If not, our expenses will lower and opportunities may change. However, I believe the new administration will improve the market.

And just the float strategy from here—can you give us an update on the thinking for the rest of the year? Would you look to achieve some of that via acquisitions or other methods?

We’re looking at everything to make things better, including increasing flow. The stock price is low, and it's hard to sell or do anything at this price, but we’re going to do better. Yes, we will have more float and have plans around that. We also look at acquisitions, as people want to join our team. UWM wins in any case. Anyone that invests in UWM will see a massive return from dividends and our growth. We believe the industry will be better in the next four years.

Once again, for any questions, press star one. Our next question will come from the line of MacKel Gohmerman with Citizens. Please go ahead.

Hey. Good morning. Thanks for taking my question. Just to follow up on an earlier theme, hypothetically, if this bond rally continues down into the four percent range and even down to the sweet spot you mentioned earlier at 3.75, how do you see the interplay between the origination side of your business and the servicing side, specifically how that would affect servicing earnings and valuations?

Great question. In a scenario where the tenure drops to four or 3.75, borrowers are going to refinance and make homes more affordable for purchases—this is a great thing. However, there will be a timing issue. If that rate drop happens at a certain time, there could be a huge write-down of MSRs, and you might not see a huge write-up of originations until the next quarter. You understand it is what it is, but we see this as a massive opportunity because volumes and margins will go up.

Great. Thanks, Matt. Best of luck going forward.

Hey. Thanks a lot. Appreciate it.

And that will wrap up the Q&A portion. I would like to turn the call back over to Mathew Ishbia for closing comments.

Well, thank you for joining. Hopefully, you found this informative. We look forward to talking to you next quarter. A lot of good things are happening. We're very excited about what's happening at UWM, and we appreciate the support and partnership with all of you. Have a fantastic day.

This concludes today's conference call. You may now disconnect.