loanDepot LDI Q1 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Tuesday, May 6, 2025 at 5 p.m. ET

CALL PARTICIPANTS

Executive Chairman — Anthony Shea

President and Chief Executive Officer — Frank Martell

Chief Financial Officer — David Hayes

SUMMARY

loanDepot, Inc. (NYSE:LDI) reported a 15% increase in pull-through weighted rate lock volume to $5.4 billion and a 20% increase in adjusted revenue to $278 million, both driven by growth initiatives and a higher gain on sale margin. The company is undergoing a CEO transition, with Frank Martell set to step down and Anthony Shea returning as interim CEO in June, as part of an outlined plan for leadership continuity and strategic positioning. Guidance for the second quarter projects further volume growth, with pull-through weighted lock volume expected between $5.5 billion and $8 billion and a pull-through weighted gain on sale margin between 300 and 350 basis points. The servicing business now manages $117 billion of unpaid principal balance, providing a recurring revenue stream and opportunities for cross-selling products like home equity loans. Management emphasized continued cost discipline, increasing cash reserves to $371 million by quarter-end, and highlighted a focus on leveraging its multichannel origination strategy and technology platform to capture profitable market share.

Frank Martell explicitly stated his intent to step down as CEO at the June annual meeting, confirming a defined leadership transition timeline.

Guidance for origination volume was set at $5 billion to $7.5 billion for the upcoming quarter, indicating management's expectations for further sequential improvement.

The company reported a reduction in non-volume-related expenses by $7 million, attributed mainly to lower general and administrative as well as cyber-related costs.

Management described a "dynamic" approach to hedging the servicing portfolio to manage earnings and liquidity amid changing interest rate environments.

David Hayes noted that the recent increase in government lending contributed to an increase in "unit share market gain" from 45 to 87 basis points.

Need a quote from one of our analysts? Email pr@fool.com

TAKEAWAYS

Adjusted Net Loss: Adjusted net loss of $25 million in the first quarter, an improvement from $38 million in the same period of 2024, primarily due to higher lock volume and gain on sale margin, despite increased expenses.

Pull-Through Weighted Rate Lock Volume: $5.4 billion in pull-through weighted rate lock volume, up 15% from $4.7 billion in Q1 2024, within prior guidance.

Pull-Through Weighted Gain on Sale Margin: Pull-through weighted gain on sale margin of 355 basis points for Q1 2025, exceeding guidance of 320-340 basis points and above last year's 274 basis points, driven by home equity products and a greater government loan share.

Adjusted Total Revenue: Adjusted total revenue of $278 million in the first quarter of 2025, up from $231 million in the same period of 2024, attributed to increased adjusted revenue despite lower servicing income from MSR bulk sales.

Loan Origination Volume: Loan origination volume of $5.2 billion for the first quarter, a 14% increase over the prior year's $4.6 billion, consistent with prior guidance.

Servicing Fee Income: $104 million, a decrease from $124 million in Q1 2024, reflecting lower servicing revenue from bulk sales of servicing rights in 2024.

Total Expenses: Increased by $12 million, or 4%, largely due to higher volume-related commission, origination, and marketing costs.

Non-Volume-Related Expenses: Decreased by $7 million over the same period, mostly from reduced general and administrative and cyber-related spending.

Cash Balance: Ended the first quarter with $371 million in cash, supporting management’s view of balance sheet strength.

Servicing Portfolio: $117 billion unpaid principal balance, continuing to provide recurring revenue and cross-selling opportunities.

Q2 2025 Guidance — Pull-Through Weighted Rate Lock Volume: $5.5 billion to $8 billion for Q2 2025, indicating expected sequential growth.

Q2 2025 Guidance — Loan Origination Volume: $5 billion to $7.5 billion in Q2 2025 guidance.

Q2 2025 Guidance — Pull-Through Weighted Gain on Sale Margin: 300-350 basis points for Q2 2025, reflecting seasonal activity and potential rate volatility.

Unit Share Market Gain: Increased from 45 to 87 basis points over the past year ended in the first quarter of 2025, attributed to a rise in government lending mix.

INDUSTRY GLOSSARY

Pull-Through Weighted Rate Lock Volume: Total loan amounts for which borrowers have locked interest rates, adjusted for expected funding rate.

Gain on Sale Margin: The percent difference between the loan origination amount and the sales proceeds when loans are sold to investors, adjusted for pull-through probability.

MSR (Mortgage Servicing Right) Bulk Sale: Selling a portfolio of rights to service mortgage loans, typically in a single transaction, impacting servicing income and cash balance.

Unit Share Market Gain: Change in the firm's percentage of overall loan units originated within the market, representing competitive traction.

Full Conference Call Transcript

On today's call, we have loanDepot, Inc.'s Executive Chairman, Anthony Shea, President and Chief Executive Officer, Frank Martell, and Chief Financial Officer, David Hayes. They will provide an overview of our quarter as well as our financial and operational results and outlook. We are also joined by Chief Investment Officer, Jeff DerGurahian, and LDI Mortgage President, Jeff Walsh, to help answer your questions after our prepared remarks. And with that, I'll turn things over to Frank to get us started. Frank?

Frank Martell: Thank you, Gerhard. I appreciate everyone joining us on the call today. As we announced in early March, I plan to step down from my role as CEO and member of the board at our annual meeting of stockholders in June. For the next month, I will remain active in my role and fully support our founder, Anthony Shea, in his transition back to day-to-day leadership of the company as he ultimately becomes our interim CEO. Since this is my last earnings call with the company, I would like to share a few heartfelt messages starting with the fact that I'm very proud to have been part of loanDepot, Inc. and look forward with confidence to the company's future success.

I would also like to sincerely thank team loanDepot for their dedication and support over the past three years. As a team, we addressed the realities of the market, while investing in our critical systems, products, and processes that will allow loanDepot, Inc. to take advantage of our market differentiators in this and upcoming cycles. As well as allow us to continue to deliver a best-in-class customer experience which is core to loanDepot, Inc.'s service-based DNA.

Before I turn the call over to Anthony, I'm pleased to share that Q1 was a quarter of positive momentum for the company, with higher revenue, higher volume, margins, and ongoing cost discipline, which drove significantly improved results, which David Hayes will elaborate more in detail later in the call. As I close, in the spirit of expressing my gratitude, I'd like to thank our investor community and all those who participated in our quarterly calls. I appreciate your engagement, support, and the time you spent evaluating loanDepot, Inc. With that, Anthony, the floor is yours.

Anthony Shea: Thank you, Frank, and hello, everyone. On behalf of the board and team loanDepot, I want to express our gratitude for your leadership over the past three years. Frank, you are a man of honor and a servant leader. You care for our team loanDepot and the customers we serve is evident. Now to look forward, first of all, it's great to be back. With all of you. We respect the work of the investor community. And to echo Frank's comment, recognize your important role in the marketplace. As we move ahead in the coming days and weeks, the team and I will focus on capitalizing upon the things that make loanDepot, Inc. great.

With the expectation being that we expand originations and drive growth. I believe our multichannel sales model, proprietary Mellitech stack, wide product array, powerful brand muscle in our servicing business, are foundational areas in which loanDepot, Inc. can win. By leveraging this unique constellation of assets, plus adding to our arsenal with new emerging technologies and platform refinements, I believe we are well-positioned to gain profitable market share and scale our business. To elaborate a bit further, our multichannel origination model is special. We have three distinct channels that serve as the foundation of our business. Our end market retail and joint venture channels primarily serve the home purchase market.

While our consumer direct channel primarily features refinance and home equity lending services. Purchase is generally considered to be a more stable and consistent part of the mortgage market and forms the foundation of our origination strategy. While our direct channel allows us to scale and grow with interest rates drive increased refinance activity. As well as capture home equity volume when customers want to access equity while maintaining their first mortgage interest rate. Our end market retail loan officers are distributed throughout the country working closely with real estate agents in their market. Provide the financing solutions and help our customers successfully navigate one of the most important financial transactions of their lives.

We believe the partnerships we have within the real estate community are incredibly valuable. And one of the ways in which we drive loyalty and repeat business over time. Our differentiated joint venture channel forms partnerships primarily with homebuilders. To provide seamless financing, for the purchase of their newly built homes. Combined, these two channels give us a great footprint in the new and resale purchase market. Our consumer direct loan officers, many are licensed in multiple states, benefit from our nationally recognized brand, marketing prowess, scale, and proprietary technology to quickly convert potential mortgage leads into borrowers.

And with both first and second mortgage products, these loan officers can help customers access and use the equity to advance their financial goals. Next is our servicing business. With $117 billion of unpaid principal balance, servicing provides a consistent and recurring source of revenue for us. Because we service loans in-house, we directly interact with our customers, strengthening our brand and awareness, loyalty, and providing important self-serve opportunities throughout our customer portal. This improves our recapture rates, which deepens our and drives profitability by saving marketing expenses. Avoiding much of the customer acquisition cost on our recalculum compared to those of newly originated customers.

By servicing loans ourselves, we are also able to cross-sell other products and services to our existing customers. Such as our home equity link products, We have seen growing customer adoption for these products along with investor demand creating additional revenue at attractive margins. Introducing these products demonstrates our commitment to delivering right-fit products to customers at the right time. Our proprietary Mellotek stock is widely acknowledged as a best-in-class platform in the origination space. As we move forward, we will build on our legacy of innovation by adding to our arsenal with new and emerging technologies and platform refinements. Innovation is a part of our DNA in how we build the company from the ground up in 2010.

I fully expect this to return to our roots in this way. Behind the scenes, we will also continue to focus on improving our process flow. To deliver more positive operating leverage so that we can quickly efficiently scale the business as the market improves. What underpins all of this in my opinion, is our brand muscle. Perhaps even better described as our brand heart. I hear over and over that people recognize our brand from the investments we made in Major League Baseball. And with our presence in Miami, at loanDepot Park. The team and I are proud that our brand lights up on a national scale in this way. But anyone who knows me well will tell you.

That I believe the most important way our brand lights up is in the interactions we have each day with our customers. Our overall customer satisfaction scores remain incredibly high. And we consistently drive home the truism that every customer interaction no matter how big or how small, matters. Our incredible customers and employees are the true embodiment of our brand They are what really give our brand its power. What I just described may be a bit of old news some of you listening to this call, especially those of you that have been following on deep since the beginning. That said, what I have outlined is an important reminder of who we are.

Through the groundwork that has been laid over the past several years, in our constellation of unique assets, I believe loanDepot, Inc. is positioned to win and poised to regain market share in the future. I continue to familiarize myself with our day-to-day operations and I am excited to return to the company that I founded. Given our positioning, I believe we have a tremendous opportunity to make a positive impact on the lives of our customers and for all our stakeholders. With that, I will now turn the call over to Dave who will walk us and take us through our financial results in more detail.

David Hayes: Thanks, Anthony, and good afternoon, everyone. We deeply appreciate all that Frank brought to our company and are energized by Anthony's return. Under Frank's guidance, the first quarter reflected the benefits of our investment in growth-generating initiatives despite the adverse impact of lower servicing revenues stemming from our 2024 MSR bulk sales. We reported an adjusted net loss of $25 million in the first quarter, compared to an adjusted net loss of $38 million in the first quarter of 2024, due primarily to higher lock volume and gain on sale margin offset somewhat by higher expense.

During the first quarter, pull-through weighted rate lock volume was $5.4 billion which represented a 15% increase from the prior year's volume of $4.7 billion and reflected the impact of our investment in recruiting and developing our loan officers. Pull-through weighted lock volume came in within the guidance we issued last quarter of $4.8 billion to $5.8 billion and contributed to adjusted total revenue of $278 million compared to $231 million in the first quarter of 2024. Our increase in adjusted revenue has accelerated and more than overcame the decrease in servicing revenue stemming from our 2024 bulk MSR sales.

Our pull-through weighted gain on sale margin for the first quarter came in at 355 basis points, above our guidance of 320 to 340 basis points and compared to 274 basis points in the prior year. Our higher gain on sale margin primarily benefited from a bigger contribution by our home equity linked products and a higher proportion of government loans compared to the prior year. Our loan origination volume was $5.2 billion for the quarter, an increase of 14% from the prior year's volume of $4.6 billion. This was also within the guidance we issued last quarter of between $4.5 billion, $5.5 billion. The previously mentioned increase in government lending has also contributed to our unit share market gain.

Increasing from a 45 basis points to 87 basis points over the past year. Servicing fee income decreased from $124 million in the first quarter of 2024 to $104 million in the first quarter of 2025 and primarily reflect the impact of our 2024 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 this strategy helps protect 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 interest rate environments.

Our total expenses for the first quarter of 2025 increased by $12 million or 4% from the prior year quarter. The primary drivers of the increase were higher volume-related commission direct origination, and marketing expenses. Our non-volume related expenses decreased $7 million over the same period primarily through lower G and A reflecting our ongoing cost management discipline and lower cyber-related costs. Looking ahead to the second quarter, we expect pull-through weighted lock volume of between $5.5 billion and $8 billion and origination volume of between $5 billion and $7.5 billion. We expect our second quarter pull-through weighted gain on sale margin to be between 300 to 350 basis points.

Our guidance reflects the seasonal increase in purchase activity potentially offset by recent market volatility and higher rates.

Operator: Our total expenses are expected to increase in the second quarter primarily driven by higher volume-related expenses.

David Hayes: The first quarter reflected the benefits of our investment in growth-generating initiatives. Our home equity linked products, and investment in recruiting productive loan officers in all of our channels supported strong margin and volume increases which resulted in growing adjusted revenue. As I work even more closely with Anthony going forward, we remain laser-focused on our commitment to profitability and continue to work with discipline to grow revenue and manage costs. While maintaining ample cash and a strong balance sheet. We ended the quarter with $371 million in cash. We believe our multichannel strategy, high-quality in-house servicing, scalable origination capabilities, and operating leverage uniquely positions us to profitably grow volume and market share when the market eventually recovers.

As evidenced by our ability to capture additional volume during the third quarter of 2024 when rates temporarily eased. We believe a more sustained decrease in rates will materially improve our bottom line and our ongoing investments in growth-generating initiatives will provide the foundation for additional momentum during 2025 and beyond. With that, we're turning it back to the operator for Q&A. Operator?

Operator: Thank you. To withdraw any questions, press 1 again. Our first question comes from Doug Harter from UBS. Please go ahead. Your line is open.

David Hayes: This is actually Corey Johnson on for Doug. So you had a wider gain on sale margin this quarter, and you mentioned how home equity linked products helped you to increase that gain on sale. Can you maybe just talk a little bit about what the outlook is for the home equity business? Like, what is that market looking like now? Is it more attractive than it was perhaps a few months ago?

Anthony Shea: Hi, Corey. It's Anthony Shea. So the second mortgage product really is a proper hedge to the interest rate environment. So as rates stay somewhat elevated, we continue to scale this business by increasing our marketing and looking at cross-sell opportunities both in terms of our first mortgage, marketing leads, and our servicing portfolio. As rates continue to adjust, and if we hit a rally, you will see first mortgage cash out dominate more so than the home equity market. So in short, we continue to increase our home equity market. There's a very strong demand as a result of it with record home equity out in the country. Very low loan to value.

And many of the consumers protecting their two, three, and 4% interest rates. This is the best way for them to leverage their cash flow. And, again, as rates decrease, which is more so of when and not if, we'll be in a great opportunity with a cash-out refinance.

David Hayes: Great. Thank you.

Operator: As a reminder to ask a question, please press star followed by the number one on your telephone keypad. There are no further questions at this time. Anthony Shea, I turn the call back over to you.

David Hayes: Thank you.

Anthony Shea: On behalf of Frank, Dave, Gerhard, Jeff Walsh, Jeff DerGurahian, and the rest of our team, I want to thank you for joining us today. I look forward to sharing our progress again next quarter. I rejoined the company in an active management role with a goal of leveraging our unique assets that comprise loanDepot, Inc. Our diversified channel strategy which is the industry's only scale model of this type, nationally recognized brand, and top-of-funnel customer acquisition experience. In-house servicing business, and proprietary Mellotech stack allow us to maximize operational leverage providing the foundation for accelerated growth once the market normalizes. I, along with our leadership team, am committed to house capture, grow, protect, and invest in those assets.

To continue loanDepot, Inc.'s position as a leader in home mortgage. So thanks again, everybody, and I appreciate your support.

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

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 894%* — a market-crushing outperformance compared to 163% for the S&P 500.

They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor.

See the stocks »

*Stock Advisor returns as of May 5, 2025

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.