Better Home & Finance Holding Co. Q4 FY2023 earnings call

• Listed on NASDAQ in Q3 2023 with approximately $554 million in cash, restricted cash, and short-term investments.
• Reduced total expenses by ~71% YOY and over $1.1 billion since 2021, with declines in mortgage platform, marketing, technology, and G&A expenses (partially offset by going public costs).
• Expanded B2B mortgage as a service channel with new partners like Infosys and Beyond.com.
• Company founded in 2015 to transform homeownership via technology, with over $100 billion in loan origination volume digitally, purchase loans making up 91% of 2023 volume.
• 2024 strategic priorities: lean into growth as mortgage market strengthens, improve operational efficiency, add new B2B partners.
• Better Duo program: Duo Agent Enrollment scaled from 12 producing agents in Q4 2023 to 48 in Q1 2024.
• New operating model: hiring commission-based loan officers, improved conversion, service, and alignment of production output with costs.

In the fourth quarter of 2023, Better Home & Finance generated funded loan volume of $527 million, with revenue approximately $9 million and an adjusted EBITDA loss of $26 million. The direct-to-consumer channel accounted for 49% of the volume and the B2B channel for 51%. Purchase loans made up 91% of the volume, with 5% being refinance loans and the remainder HELOC lock volume. Excluding HELOC, 83% of direct-to-consumer loans were one day mortgage loans. For the full year 2023, funded loan volume was $3 billion, revenue was approximately $77 million, and the adjusted EBITDA loss was approximately $163 million. Direct-to-consumer contributed 55% of the volume and B2B contributed 45%. Total expenses in 2023 declined by approximately 71% year-over-year.

• Expect funded loan volume to increase in 2024; Q1 2024 funded loan volume expected to be ~$600 million to $650 million, a quarter-over-quarter increase of 14%-23%.
• Total expenses to be flat in 2024 compared to 2023.
• Evaluate potential reverse stock split to address Class A common stock trading below $1.

Q: Just wanted to start on the operating model changes that you elaborated on and some of this you already addressed in your prepared remarks. But just, if you can expand upon what drove that pivot and also help us understand really how this differs from the existing model where you're more so leaning on, I guess, what you guys tend to refer as customer service reps that are not on a commission-based model? Are you still intending to lean into those fixed cost customer service reps? What are the hiring plans for the commission-based loan officer account going forward?

A: Vishal Garg provided context on the pivot, noting low conversion rates from applications to funding, and explained the shift to commission-based loan officers for purchase transactions due to longer gestation periods in purchase vs. short in refinance. Kevin Ryan added they'll hire commission-based loan officers with lower fixed costs and higher incentives, pace dictated by market results.

Q: I wanted to see if you could, given the recent NAR settlement, what do you see as the impact of the housing market in the mortgage origination industry? And how is better positioning itself from the fallout of the settlement? I know you mentioned that, things called Better Duo, you're saying, where you're doing dual licensing for some real estate agents. So if you could just talk a little bit about that NAR settlement?

A: Kevin Ryan said it's early to tell, but supportive of consumer-focused initiatives. Better Duo is helpful as buy-side agents becoming loan officers generate more revenue and add value, fitting with purchase business growth.

Q: I want to ask you, I understand that some of Better's competitive advantage comes from its ability to be a low cost provider. Does management do you guys see any opportunities to improve pricing and revenue per fund over time?

A: Kevin Ryan said they've been raising prices, seen limited impact on conversion, and with seasoned loan officers and offerings like Duo, expect slightly higher pricing and more revenue per unit while remaining low cost to consumer.

Q: I wanted to ask a question on the B2B partners. It's kind of intriguing aspect of the business and now adding Beyond.com. Can you talk about the economics on those partnerships? And on a relative basis to DBC, how do you expect it to grow in 2024?

A: Kevin Ryan said B2B partnerships have zero customer acquisition costs, partnering with Beyond.com drives discounts to consumers and pays bounties, while Infosys partnerships are fee-based. Over 50% of Q4 revenue was from B2B, and they see B2B as a way to diversify revenue.

Q: You guys talked about investment in Tinmen on the press release and your prepared remarks. I was curious if you could shed any light, any insight on kind of new products, maybe some new things you have launched there and where you think the capabilities of Tinman can ultimately go?

A: Vishal Garg said Tinman has expanded one day mortgage products, including One Day HELOC, VA and FHA loans. It's using supervised learning and working on generative AI to further automate processes, aiming for broader market coverage and faster processing.