Item 2. Management’s Discussion and Analysis
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated or the context otherwise requires, references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section to “Better Home & Finance,” the “Company,” “we,”“us,” “our” and other similar terms refer to Better Holdco, Inc. and its subsidiaries prior to the completion (“Closing”) of the transactions contemplated by the Agreement and Plan of Merger, dated as of May 10, 2021, as amended, by and among Aurora Acquisition Corp., Better Holdco, Inc., and Aurora Merger Sub I, Inc. (such transactions, the “Business Combination”), and to Better Home & Finance Holding Company and its consolidated subsidiaries after the Closing.
The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements as of December 31, 2023 and for the years ended December 31, 2023 and 2022, in each case, together with related notes thereto, included in our 2023 Annual Report on Form 10-K, and our condensed consolidated financial statements and related notes as of and for the quarterly period ended June 30, 2024, included elsewhere in this quarterly report on Form 10-Q.
In addition to historical financial information, the following discussion and analysis may contain forward-looking statements within the meaning of federal securities laws that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this quarterly report on Form 10-Q. See “Cautionary Statement Regarding Forward-Looking Statements.” Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. Certain amounts may not foot due to rounding.
Company Overview
We are building a next-generation platform that we believe can revolutionize the world’s largest, oldest and most tangible asset class, the home. Our holistic solution and marketplace model, enabled by our proprietary technology, allows us to take one of our customers’ largest and most complex financial journeys-the process of owning a home-and transform it into a more simple, transparent and ultimately affordable process. Our goal is to do our part in lowering the hurdles to homeownership by offering the lowest prices and the best experience to our customers.
We are a technology-driven organization. We are seeking to disrupt a business model by leveraging our proprietary platform, Tinman, to enhance the automation of the home finance process. Through this process, we aim to reduce the cost to produce a loan and in the future to create a platform with all homeownership products embedded into a highly automated, single flow, allowing us to pass along savings to our customers.
We are focused on improving our platform and plan to continue making investments to build our business and prepare for future growth. We believe that our success will depend on many factors, including our ability to drive customers to our platform, and convert them once they come to us, through both our direct-to-consumer (“D2C”) channel and our partner relationship (“B2B”) channel, achieve leverage on our operational expenses, execute on our strategy to fund more purchase loans and diversify our revenue by expanding and enhancing our offerings. We plan to continue to invest in technology to improve customer experience and further drive down labor costs through automation, making our platform more efficient and scalable.
Our Business Model
We generate revenue through the production and sale of loans and other product offerings through our platform. The revenue and mix of revenue as a percentage of total revenue attributable to our sale of loan production (Gain on loans, net) and Better Plus (Other revenue) and net interest income for the three and six months ended June 30, 2024 and 2023 is as follows:
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Three Months Ended June 30,
2024 2023
(Amounts in thousands, except percentage amounts)
Amounts
Percentages
Amounts
Percentages
Gain on loans, net $ 24,229 75 % $ 26,425 85 %
Other revenue 2,881 9 % 4,711 15 %
Net interest income/(loss) 5,152 17 % (41) — %
Total net revenues
$ 32,262
$ 31,095
Six Months Ended June 30,
2024 2023
(Amounts in thousands, except percentage amounts)
Amounts
Percentages
Amounts
Percentages
Gain on loans, net $ 39,881 73 % $ 39,187 79 %
Other revenue 5,698 10 % 9,655 19 %
Net interest income 8,934 15 % 880 2 %
Total net revenues
$ 54,513
$ 49,722
Home Finance Mortgage Model—Gain on loans, net
We produce a wide selection of mortgage loans and leverage our platform to quickly sell these loans and related mortgage servicing rights (“MSRs”) to our loan purchaser network. We source our customers through two channels: our D2C channel and our B2B channel. Through our D2C channel, we generate gain on loans, net by selling loans and MSRs to our loan purchaser network, recognizing D2C revenue per loan. Through our B2B channel, we generate revenue from integrated relationships and advertising relationships. Through our advertising relationships, we generate gain on loans, net the same way we do in our D2C channel, by selling loans to our loan purchaser network. Through our integrated relationships, we generate a fixed fee per loan originated, which we recognize as revenue upon the funding of the loan by the partner. We may also purchase certain of the loans from our integrated relationship partner, which we may subsequently sell to our loan purchaser network at our discretion. For loans subsequently sold to our loan purchaser network, the partner receives a portion of the sale proceeds. Although we aim to expand our B2B relationships, as of June 30, 2024, this channel was primarily comprised of our integrated relationship with Ally Bank (which is our only current integrated relationship).
Better Plus Model—Other revenue
Better Plus revenue consists of revenue from non-mortgage product offerings including real estate services (Better Real Estate) and insurance services, which includes title insurance (Better Cover).
Through Better Real Estate services, we offer settlement services during the mortgage transaction, which include wire services, document preparation, and other mortgage settlement services. As part of Better Real Estate we offer real estate services through our national network of real estate agents, primarily third-party partner real estate agents. Our technology matches prospective buyers with local agents, who help them identify houses, see houses, and navigate the purchase process. In the partner agent model, we refer customers to a network of external agents that assist them with searching for a home for which we receive a cooperative brokerage fee.
Through Better Cover we offer customers access to a range of homeowners insurance policy options through our digital marketplace of third-party insurance partners. We act as an agent to insurance carriers and receive an agency fee from the insurance carriers for policies sold and renewed. We also offer title insurance primarily as an agent and work with third-party providers that fulfill and underwrite the title insurance policies.
International Lending Revenue—Other revenue
International lending revenue consists of revenue from our international lending activities, primarily in the U.K., which has expanded via acquisitions in prior years. International lending activities primarily include broker fees earned via our digital mortgage broker in the U.K.
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Key Business Metrics
In addition to the measures presented in our condensed consolidated financial statements, we use the following key business metrics to help us evaluate our business, identify trends affecting our business, formulate plans and make strategic decisions. Our key business metrics enable us to monitor our ability to manage our business compared to the broader mortgage origination market, as well as monitor relative performance across key purchase and refinance verticals.
Key measures that we use in assessing our business include the following ($ in millions, except percentage data or as otherwise noted):
Key Business Metric
Three Months Ended June 30, 2024 Three Months Ended June 30, 2023 Six Months Ended June 30, 2024 Six Months Ended June 30, 2023
Home Finance
Funded Loan Volume
$ 962 $ 912 $ 1,623 $ 1,758
Refinance Loan Volume
$ 77 $ 61 $ 159 $ 131
Purchase Loan Volume
$ 794 $ 842 $ 1,323 $ 1,617
HELOC Loan Volume $ 90 $ 9 $ 142 $ 11
D2C Loan Volume
$ 670 $ 522 $ 1,030 $ 1,009
B2B Loan Volume
$ 292 $ 390 $ 594 $ 749
Total Loans (number of loans, not millions)
2,995 2,516 4,986 4,882
Average Loan Amount ($ value, not millions)
$ 321,178 $ 362,424 $ 325,544 $ 360,179
Gain on Sale Margin
2.52 % 2.90 % 2.46 % 2.23 %
Total Market Share
0.2 % 0.2 % 0.2 % 0.2 %
Better Plus
Better Real Estate Transaction Volume
$ 105 $ 191 $ 161 $ 352
Insurance Coverage Written
$ 1,164 $ 1,270 $ 2,232 $ 2,732
Home Finance
Funded Loan Volume represents the aggregate dollar amount of all loans funded in a given period based on the principal amount of the loan at funding. Our Funded Loan Volume of $962 million in the three months ended June 30, 2024 increased by approximately 5% from $912 million in the three months ended June 30, 2023. Our Funded Loan Volume decreased by approximately 8% period-over-period to $1,623 million in the six months ended June 30, 2024 from $1,758 in the six months ended June 30, 2023. Beginning in the third quarter of 2023, we also include HELOC and closed-end second lien loans in our Funded Loan Volume. For the three months ended June 30, 2024, purchase and refinance loans comprised $872 million and HELOC and closed-end second lien loans comprised $90 million of Funded Loan Volume. For the six months ended June 30, 2024 purchase and refinance loans comprised $1,482 million while HELOC and closed-end second lien loans comprised $142 million of Funded Loan Volume.
Refinance Loan Volume represents the aggregate dollar amount of refinance loans funded in a given period based on the principal amount of the loan at refinancing date. Our Refinance Loan Volume of $77 million in the three months ended June 30, 2024 increased by approximately 26% from $61 million in the three months ended June 30, 2023. Our Refinance Loan Volume increased by approximately 21% year-over-year to $159 million in the six months ended June 30, 2024 from $131 million in the six months ended June 30, 2023.
Purchase Loan Volume represents the aggregate dollar amount of purchase loans funded in a given period based on the principal amount of the loan at purchase date. Our Purchase Loan Volume decreased by approximately 6% year-over-year to $794 million in the three months ended June 30, 2024 from $842 million in the three months ended June 30, 2023. Our Purchase Loan Volume decreased by approximately 18% year-over-year to $1,323 million in the six months ended June 30, 2024 from $1,617 million in the six months ended June 30, 2023.
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HELOC Loan Volume represents the aggregate dollar amount of HELOC and closed-end second lien loans funded in a given period based on the principal amount of the loan at funding. The HELOC product was launched during the first half of 2023, and the closed-end second lien product was launched towards the end of 2023, with volume becoming material in the first half of 2024. Our HELOC Loan Volume increased to $90 million in the three months ended June 30, 2024 from $9 million in the three months ended June 30, 2023. Our HELOC Loan Volume increased to $142 million in the six months ended June 30, 2024 from $11 million in the six months ended June 30, 2023.
D2C Loan Volume represents the aggregate dollar amount of loans funded in a given period based on the principal amount of the loan at funding that have been generated from direct interactions with customers using all marketing channels other than our B2B partner relationships. Our D2C Loan Volume of $670 million in the three months ended June 30, 2024 increased by approximately 28% from $522 million in the three months ended June 30, 2023. Our D2C Loan Volume of $1,030 million in the six months ended June 30, 2024 increased by approximately 2% year-over-year from $1,009 million in the six months ended June 30, 2023.
B2B Loan Volume represents the aggregate dollar amount of loans funded in a given period based on the principal amount of the loan at funding that have been generated through one of our B2B partner relationships. Our B2B Loan Volume of $292 million in the three months ended June 30, 2024 decreased by approximately 25% from $390 million in the three months ended June 30, 2023. Our B2B Loan Volume of $594 million in the six months ended June 30, 2024 decreased by approximately 21% year-over-year from $749 million in the six months ended June 30, 2023.
Total Loans represents the total number of loans funded in a given period, including purchase loans, refinance loans, HELOC loans and closed-end second lien loans. Our Total Loans of 2,995 in the three months ended June 30, 2024 increased by approximately 19% from 2,516 in the three months ended June 30, 2023. Our Total Loans of 4,986 in the six months ended June 30, 2024 increased by approximately 2% year-over-year from 4,882 in the six months ended June 30, 2023.
Purchase and refinance loans comprised 2,134 of the Total Loans in the three months ended June 30, 2024, while HELOC and closed-end second lien loans comprised 861. Purchase and refinance loans comprised 3,691 of the Total Loans in the six months ended June 30, 2024, while HELOC and closed-end second lien loans comprised 1,295.
Average days loans held for sale, excluding Company-funded LHFS and Company-funded HELOC, for the three months ended June 30, 2024 and 2023, were approximately 20 and 23, respectively. Average days loans held for sale, excluding Company-funded LHFS and Company-funded HELOC, for the six months ended June 30, 2024 and 2023, were approximately 22 and 23, respectively. This is defined as the average days between funding and sale for loans funded during each period. As of each such reporting date, we had an immaterial amount of loans either 90 days past due or non-performing, as we generally aim to sell loans shortly after production.
Average Loan Amount represents Funded Loan Volume divided by Total Loans in a period. Our Average Loan Amount decreased by approximately 11% to $321,178 in the three months ended June 30, 2024 from $362,424 in the three months ended June 30, 2023 and decreased approximately 10% year-over-year to $325,544 during the six months ended June 30, 2024 from $360,179 in the six months ended June 30, 2023. In general, HELOC and closed-end second lien loans have lower average loan amounts than purchase or refinance loans, and therefore Average Loan Amount has decreased as a result of HELOC and closed-end second lien growth.
Gain on Sale Margin represents gain on loans, net, as presented on our condensed consolidated statements of operations and comprehensive income (loss), divided by Funded Loan Volume. Gain on Sale Margin decreased by approximately 38 basis points to 2.52% during the three months ended June 30, 2024 from 2.90% for the three months ended June 30, 2023. We saw a decrease in our Gain on Sale Margin for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, as a result of a positive mark-to-market impact on the loans that we have repurchased, as part of our loan repurchase obligations, and held during the second quarter of 2023 that was not present in the second quarter of 2024. Offsetting this was a benefit in the second quarter of 2024 resulting from a positive mark-to-market impact on our IRLCs. Gain on Sale Margin increased by approximately 23 basis points to 2.46% for the six months ended June 30, 2024 from 2.23% for the six months ended June 30, 2023 as a result of increased recovery on our loan repurchase reserve which positively impacted our gain on loans, net, as well as improved pricing on our loans.
Total Market Share represents Funded Loan Volume in a period divided by total value of loans funded in the industry for the same period, as presented by FNMA. Our Total Market Share of 0.2% during the three months ended June 30, 2024 remained substantially the same as 0.2% in the three months ended June 30, 2023. Our Total Market Share of
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0.2% for the six months ended June 30, 2024 remained substantially the same year-over-year from 0.2% for the six months ended June 30, 2023. While we are leaning into growth and have seen an increase in our Total Loans and Funded Loan Volume for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, the total value of loans funded in the industry has also increased and the mortgage market remains competitive among lenders, given the interest rate environment, resulting in relatively flat market share on a percentage basis. We continue to focus on originating the most profitable business available to us and seek to avoid growing through highly unprofitable channels.
Better Plus
Better Real Estate Transaction Volume represents the aggregate dollar amount of real estate volume transacted in a given period across both in-house agents and third-party network agents.
Insurance Coverage Written represents the aggregate dollar amount of insurance liability coverage provided to customers on behalf of insurance carrier partners across all insurance products on the Company’s marketplace, specifically title and homeowners insurance offered through Better Settlement Services and Better Cover. This includes the value of the loan for lender’s title insurance and dwelling coverage for homeowners insurance. Insurance Coverage Written amounts for Better Cover have been updated for all periods presented to include both new policies and policy renewals, which in prior periods included only new policies.
Description of Certain Components of Our Financial Data
Components of Revenue
Our sources of revenue include gain on loans, net,, other revenue, and net interest income.
Home Finance (Gain on Loans, Net)
Gain on loans, net, includes revenue generated from our mortgage production process. The components of Gain on loans, net, are as follows:
i. Gain on sale of loans, net–This represents the premium we receive in excess of the loan principal amount and certain fees charged by loan purchasers upon sale of loans into the secondary market. Gain on sale of loans, net includes unrealized changes in the fair value of mortgage loans held for sale (“LHFS”), which are recognized on a loan-by-loan basis as part of current period earnings until the loan is sold on the secondary market. The fair value of LHFS is measured based on observable market data. This also includes activity for loans originated on behalf of the integrated partnership that are subsequently purchased by us as well the portion of the sale proceeds to be received by the integrated partner. The portion of the sale proceeds that is to be allocated to the integrated partner is accrued as a reduction of gain on sale of loans, net when the loan is initially purchased by us from the integrated relationship partner.
Gain on sale of loans, net also includes the changes in fair value of IRLCs and forward sale commitments. IRLCs include the fair value upon issuance with subsequent changes in the fair value recorded in each reporting period until the loan is sold on the secondary market. Fair value of forward commitments hedging IRLCs and LHFS are measured based on quoted prices for similar assets.
ii. Integrated Partnership Fees–Includes fees that we receive for originating loans on behalf of an integrated partner, which are recognized as revenue upon the integrated partner’s funding of the loan.
iii. Provision for Loan Repurchase Reserve–In connection with our sale of loans on the secondary market, we make customary representations and warranties to the relevant loan purchasers about various characteristics of each loan, such as the origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local laws. In the event of a breach of its representations and warranties, we may be required to repurchase the loan with the identified defects. The provision for loan repurchase reserve, represents the charge for these potential losses.
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Better Plus, International Lending Revenue, and Other (Other Revenue)
We generate other revenue through our Better Plus offerings, which includes Better Real Estate (real estate services), Better Cover (insurance), and international lending revenue.
For Better Real Estate, we generate revenues from fees related to real estate agent services, mainly cooperative brokerage fees from our network of third-party real estate agents, to assist our customers in the purchase or sale of a home. For settlement services, we generate revenues from fees on services, such as policy preparation, title search, wire, and other services, required to close a loan, which were provided by third parties through our platform. We recognized revenues from fees on settlement services upon the completion of the performance obligation, which was when the loan transaction closes.
For Better Cover, we generate revenues from agent fees on homeowners insurance policies obtained by our customers through our marketplace of third-party insurance carriers. For title insurance, we generate revenues from agent fees on title policies written by third parties and sold to our customers in loan transactions. We recognize revenues from agent fees on title policies upon the completion of the performance obligation, which is when the loan transaction closes. As an agent, we do not control the ability to direct the fulfillment of the service, are not primarily responsible for fulfilling the performance of the service, and do not assume the risk in a claim against the policy.
Our performance obligations for settlement services and title insurance are typically completed 40 to 60 days after the commencement of the loan origination process and are recognized in revenue upon the closing of the loan transaction.
For international lending revenue, we generate revenue primarily from broker fees earned via our digital mortgage broker in the U.K.
Net Interest Income
Net interest income includes interest income from LHFS, including HELOCs, calculated based on the note rate of the respective loan, interest income from short-term investments, and interest income on loans held for investment. Interest expense includes interest expense on warehouse lines of credit, interest expense on customer deposits, as well as interest expense on convertible note, a senior subordinated convertible note in the aggregate principal amount of $528.6 million issued to SB Northstar LP (the “Convertible Note”).
Components of Our Expenses
Our expenses consist of compensation and benefits, general and administrative, technology expenses, marketing and advertising expenses, loan origination expenses, depreciation and amortization, and other expenses.
Compensation and Benefits Expenses
Compensation and benefits expenses includes salaries, wages, and incentive pay as well as stock compensation, employee health benefits, 401(k) plan benefits, and social security and unemployment taxes. Stock-based compensation includes expenses associated with restricted stock unit grants, performance stock unit grants, and stock option grants under our stock plans. We recognize compensation expense for the stock-based payments based on the fair value of the awards on the grant date. The expense is recorded on a straight-line basis over the requisite service period.
General and Administrative Expenses
General and administrative expenses include rent and occupancy expenses, travel and entertainment expenses, insurance expenses, and external legal, tax and accounting services. General and administrative expenses are expensed as incurred.
Technology Expenses
Technology expenses consist of expenses related to vendors engaged in product management, design, development and testing of our websites and products. Technology and product development expenses are generally expensed as incurred.
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Marketing and Advertising Expenses
Marketing and advertising expenses consist of customer acquisition expenses, brand costs, and paid marketing. For customer acquisition expenses, we primarily generate loan origination leads through third-party financial service websites for which we incur “pay-per-click” expenses. A majority of our marketing expenses are incurred from leads that we purchase from these third-party financial service websites. Marketing expenses are generally expensed as incurred.
Loan Origination Expenses
Loan origination expenses consist primarily of origination expenses, appraisal fees, processing expenses, underwriting, closing fees, and servicing costs. These expenses are expensed as incurred.
Other Expenses
Other expenses relate to other non-mortgage homeownership activities, including settlement service expenses, lead generation expenses, expenses incurred in relation to our international lending activities, and gains and losses from the warrant and equity related liabilities. Settlement service expenses consist of fees for transactional services performed by third-party providers for borrowers while lead generation expenses consist of fees for services related to real estate agents. Other expenses are expensed as incurred.
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Results of Operations
The following table sets forth certain consolidated financial data for each of the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands, except per share amounts)
2024 2023 2024 2023
Revenues:
Gain on loans, net $ 24,229 $ 26,425 $ 39,881 $ 39,187
Other revenue 2,881 4,711 5,698 9,655
Net interest income
Interest income 9,397 7,574 18,033 13,964
Interest expense (4,245) (7,615) (9,099) (13,084)
Net interest income/(loss) 5,152 (41) 8,934 880
Total net revenues
32,262 31,095 54,513 49,722
Expenses:
Compensation and benefits 35,254 33,996 73,327 72,108
General and administrative 15,155 12,708 29,202 29,472
Technology 6,582 11,163 12,040 25,609
Marketing and advertising 8,531 3,101 13,085 10,861
Loan origination expense 791 3,396 3,368 8,598
Depreciation and amortization 7,990 10,822 17,064 22,299
Other expenses/(Income) (879) (537) (1,062) 10,527
Total expenses
73,424 74,649 147,024 179,474
Loss before income tax expense
(41,162) (43,554) (92,511) (129,752)
Income tax expense/(benefit)
203 456 346 1,880
Net loss
$ (41,365) $ (44,010) $ (92,857) $ (131,632)
Earnings (loss) per share attributable to common stockholders (Basic)
$ (0.05) $ (0.15) $ (0.12) $ (0.44)
Earnings (loss) per share attributable to common stockholders (Diluted)
$ (0.05) $ (0.15) $ (0.12) $ (0.44)
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Three and Six Months Ended June 30, 2024 as Compared to Three and Six Months Ended June 30, 2023
Revenues
The components of our revenues for the period were:
Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands)
2024 2023 2024 2023
Revenues:
Gain on loans, net 24,229 26,425 39,881 39,187
Other revenue 2,881 4,711 5,698 9,655
Net interest income
Interest income 9,397 7,574 18,033 13,964
Interest expense (4,245) (7,615) (9,099) (13,084)
Net interest income 5,152 (41) 8,934 — 880
Total net revenues
$ 32,262 $ 31,095 $ 54,513 $ 49,722
Gain on loans, net
The components of our gain on loans, net for the period were:
Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands)
2024 2023 2024 2023
Gain on sale of loans, net $ 18,374 $ 20,697 $ 28,195 $ 33,221
Integrated partnership fees 2,476 2,917 4,744 5,278
Loan repurchase recovery (reserve) 3,379 2,811 6,942 688
Total gain on loans, net $ 24,229 $ 26,425 $ 39,881 $ 39,187
Gain on sale of loans, net decreased $2.3 million or 11% to $18.4 million for the three months ended June 30, 2024 compared to $20.7 million for the three months ended June 30, 2023. The decrease was largely driven by a positive mark-to-market impact on loans that we have repurchased, as part of our loan repurchase obligations, and held during the three months ended June 30, 2023, which were not present during the three months ended June 30, 2024. Offsetting this was a benefit during the three months ended June 30, 2024 resulting from a positive mark-to-market impact on our IRLCs.
Gain on sale of loans, net decreased $5.0 million or 15% to $28.2 million for the six months ended June 30, 2024 compared to $33.2 million for the six months ended June 30, 2023. The decrease was largely driven by a positive mark-to-market impact on loans that we have repurchased, as part of our loan repurchase obligations, and held during the six months ended June 30, 2023, which were not present during the six months ended June 30, 2024. Offsetting this was a benefit due to the increase in HELOC volume and a positive mark-to-market impact on our IRLCs during the six months ended June 30, 2024.
Integrated partnership fees decreased $0.4 million, or 15% to a gain of $2.5 million for the three months ended June 30, 2024, compared to gain of $2.9 million for the three months ended June 30, 2023. The decrease in integrated partnership fees was primarily driven by the reduction in B2B Loan Volume.
Integrated partnership fees decreased $0.5 million, or 10% to a gain of $4.7 million for the six months ended June 30, 2024, compared to gain of $5.3 million for the six months ended June 30, 2023. The decrease in integrated partnership fees was primarily driven by the reduction in B2B Loan Volume.
Loan repurchase reserve decreased $0.6 million or 20%, to a recovery of $3.4 million for the three months ended June 30, 2024, compared to a recovery of $2.8 million for the three months ended June 30, 2023. The loan repurchase reserve has decreased as our estimate for potential loss exposure has declined as we no longer have exposure to the historical periods when we had a significantly higher funded loan volume. The reduction in potential loss exposure results in a reduction in the loan repurchase reserve liability, which is recognized as a recovery within gain on loans, net.
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Loan repurchase reserve increased $6.3 million or 909%, to a recovery of $6.9 million for the six months ended June 30, 2024, compared to a recovery of $0.7 million for the six months ended June 30, 2023. The loan repurchase reserve has decreased as our estimate for potential loss exposure has declined as we no longer have exposure to the historical periods when we had a significantly higher funded loan volume. The reduction in potential loss exposure results in a reduction in the loan repurchase reserve liability, which is recognized as a recovery within gain on loans, net.
Other Revenue
The components of other revenue for the period were:
Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands) 2024 2023 2024 2023
International lending revenue $ 1,219 $ 680 $ 2,327 $ 1,668
Insurance Services 537 1,196 1,176 1,825
Real estate services 653 2,997 1,000 5,867
Other revenue 472 (162) 1,195 295
Total other revenue $ 2,881 $ 4,711 $ 5,698 $ 9,655
International lending revenue increased $0.5 million, or 79% to $1.2 million for the three months ended June 30, 2024 compared to $0.7 million for the three months ended June 30, 2023. The increase in international lending revenue was primarily driven by increased operations in the U.K. brokerage businesses.
International lending revenue increased $0.7 million, or 40% to $2.3 million for the six months ended June 30, 2024 compared to $1.7 million for the six months ended June 30, 2023. The increase in international lending revenue was primarily driven by increased operations in the U.K. brokerage businesses.
Insurance services revenue decreased $0.7 million, or 55% to $0.5 million for the three months ended June 30, 2024 compared to $1.2 million for the three months ended June 30, 2023. The decrease in insurance services revenue was primarily driven by a decrease in Insurance Coverage Written due to fewer insurance transactions.
Insurance services decreased $0.6 million, or 36% to $1.2 million for the six months ended June 30, 2024 compared to $1.8 million for the six months ended June 30, 2023. The decrease in insurance services revenue was primarily driven by a decrease in Insurance Coverage Written due to fewer insurance transactions.
Real estate services decreased $2.3 million, or 78% to $0.7 million for the three months ended June 30, 2024 compared to $3.0 million for the three months ended June 30, 2023. The decrease in real estate services revenue was primarily driven by a reduction in volume of real estate transactions as well earning lower revenue per transaction for the three months ended June 30, 2024 as we no longer employed any in-house real estate agents and all activity was through our network of third party real estate agents, which results in lower revenue per transaction.
Real estate services decreased $4.9 million, or 83% to $1.0 million for the six months ended June 30, 2024 compared to $5.9 million for the six months ended June 30, 2023. The decrease in real estate services was primarily driven by a reduction in volume of real estate transactions as well earning lower revenue per transaction for the six months ended June 30, 2023 as we no longer employed any in-house real estate agents and all activity was through our network of third party real estate agents, which results in lower revenue per transaction.
Other revenue increased by $0.6 million, or 391% to $0.5 million for the three months ended June 30, 2024 compared to a loss of $0.2 million for the three months ended June 30, 2023. The increase in other revenue was primarily driven by mortgage and non-mortgage loan servicing activities in the U.S. and U.K.
Other revenue increased by $0.9 million, or 305% to $1.2 million for the six months ended June 30, 2024 compared to $0.3 million for the six months ended June 30, 2023. The increase in other revenue was primarily driven by mortgage and non-mortgage loan servicing activities in the U.S. and U.K.
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Net Interest Income
The components of our net interest income for the period were:
Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands) 2024 2023 2024 2023
Mortgage interest income $ 4,468 $ 4,803 $ 7,432 $ 8,728
Interest Income from Investments 4,929 2,771 10,601 5,236
Warehouse interest expense (2,577) (4,007) (4,766) (6,786)
Other interest expense (1,668) (3,608) (4,333) (6,298)
Total net interest income $ 5,152 $ (41) $ 8,934 $ 880
Mortgage interest income decreased $0.3 million, or 7% to $4.5 million for the three months ended June 30, 2024 compared from $4.8 million of the three months ended June 30, 2023. Although the number of loans funded increased for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, the increase was primarily at the end of the quarter generating less interest income due to timing.
Mortgage interest income decreased $1.3 million, or 15% to $7.4 million for the six months ended June 30, 2024 compared from $8.7 million of the six months ended June 30, 2023. Although the number of loans funded increased for the three months ended June 30, 2024 compared to the six months ended June 30, 2023, the increase was primarily at the end of the quarter generating less interest income due to timing.
Interest income from investments increased $2.2 million, or 78% to $4.9 million for the three months ended June 30, 2024 compared to $2.8 million for the three months ended June 30, 2023. The increase in interest income from investments was primarily driven by increased investments in securities with maturities ranging from 90 days to 1 year, driven by our cash management strategies and increased available liquidity resulting from the capital raised in August 2023 through the closing of the Business Combination.
Interest income from investments increased $5.4 million, or 102% to $10.6 million for the six months ended June 30, 2024 compared to $5.2 million for the six months ended June 30, 2023. The increase in interest income from investment was primarily driven by increased investments in securities with maturities ranging from 90 days to 1 year, driven by our cash management strategies and increased available liquidity resulting from the capital raised in August 2023 through the closing of the Business Combination.
Warehouse interest expense decreased $1.4 million, or 36% to $2.6 million for the three months ended June 30, 2024 compared to $4.0 million for the three months ended June 30, 2023. The decrease in warehouse interest expense was primarily driven by carrying a lower average warehouse balance over the three months ended June 30, 2024 compared to three months ended June 30, 2023. We ramped up significantly our HELOC loan product in the second quarter of 2024, which are funded from the Company’s cash balance and not our warehouse lines of credit.
Warehouse interest expense decreased $2.0 million, or 30% to $4.8 million for the six months ended June 30, 2024 compared to $6.8 million for the six months ended June 30, 2023. The decrease in warehouse interest expense was primarily driven by carrying a lower average warehouse balance over the six months ended June 30, 2024 compared to six months ended June 30, 2023. We ramped up significantly our HELOC loan product in the second quarter of 2024, which are funded from the Company’s cash balance and not our warehouse lines of credit.
Other interest expense decreased $1.9 million, or 54% to $1.7 million for the three months ended June 30, 2024 compared to $3.6 million for the three months ended June 30, 2023. Other interest expense for the three months ended June 30, 2024 is related to interest expense on the Convertible Note, which is at a lower interest rate, while interest expense for the three months ended June 30, 2023 is related to interest expense on our corporate line of credit, which was at a higher interest rate and was subsequently paid off in full in August 2023.
Other interest expense decreased $2.0 million, or 31% to $4.3 million for the six months ended June 30, 2024 compared to $6.3 million for the six months ended June 30, 2023. Other interest expense for the six months ended June 30, 2024 is related to interest expense on the Convertible Note, which is at a lower interest rate, while interest expense for the
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six months ended June 30, 2023 is related to interest expense on our corporate line of credit, which was at a higher interest rate and was subsequently paid off in full in August 2023.
Expenses
The components of our expenses for the period were:
Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands)
2024 2023 2024 2023
Compensation and benefits 35,254 33,996 73,327 72,108
General and administrative 15,155 12,708 29,202 29,472
Technology 6,582 11,163 12,040 25,609
Marketing and advertising 8,531 3,101 13,085 10,861
Loan origination expense 791 3,396 3,368 8,598
Depreciation and amortization 7,990 10,822 17,064 22,299
Other expenses/(Income) (879) (537) (1,062) 10,527
Total operating expenses
$ 73,424 $ 74,649 $ 147,024 $ 179,474
Compensation and benefits expenses were $35.3 million for the three months ended June 30, 2024, an increase of $1.3 million or 4% as compared with $34.0 million for the three months ended June 30, 2023. We reduced our headcount between the two periods, which lead to a decrease in compensation and benefits that was offset by an increase in stock based compensation. The increase in stock based compensation during the three months ended June 30, 2024 was due to awards that have met the liquidity event criteria with the Closing of the Business Combination in August 2023 as well as service based conditions during the three months ended June 30, 2024.
Compensation and benefits expenses were $73.3 million for the six months ended June 30, 2024, an increase of $1.2 million or 2% as compared with $72.1 million for the six months ended June 30, 2023. We reduced our headcount between the two periods, which lead to a decrease in compensation and benefits that was offset by an increase in stock based compensation. The increase in stock based compensation during the six months ended June 30, 2024 was due to awards that have met the liquidity event criteria with the Closing of the Business Combination in August 2023 as well as service based conditions during the six months ended June 30, 2023.
General and administrative expenses were $15.2 million for the three months ended June 30, 2024, an increase of $2.4 million or 19% as compared with $12.7 million in the three months ended June 30, 2023. The increase in general and administrative expenses was driven primarily by increases in insurance expenses due to the Closing of the Business Combination as insurance premiums for public companies are significantly higher than those of private companies. The increase in general and administrative expenses was partially offset by reductions in our rent and occupancy expenses as we have decreased our real estate footprint in the prior year.
General and administrative expenses were $29.2 million for the six months ended June 30, 2024, a decrease of $0.3 million or 1% as compared with $29.5 million in the six months ended June 30, 2023. The decrease in general and administrative expenses was driven primarily by decreases in rent and occupancy expenses, as we have taken measures to reduce our real estate footprint, as well as some reductions in professional services. The reductions in professional services are driven by a reduction in legal expenses as we were incurring higher legal expenses leading up to the Closing of the Business Combination for the six months ended June 30, 2023 in comparison to the six months ended June 30, 2024. The decreases in general and administrative expenses were offset by increases in insurance expenses due to the Closing of the Business Combination as insurance premiums for public companies are significantly higher than those of private companies.
Technology expenses were $6.6 million for the three months ended June 30, 2024, a decrease of $4.6 million or 41% as compared with $11.2 million in the three months ended June 30, 2023. The decrease in technology expenses were driven primarily by a reduction in costs associated with software vendors. This was driven by the reduced headcount, due to which we required fewer software licenses, replacement of certain vendors with more cost efficient alternatives, as well as the termination of non-critical vendors.
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Technology expenses were $12.0 million for the six months ended June 30, 2024, a decrease of $13.6 million or 53% as compared with $25.6 million in the six months ended June 30, 2023. The decrease in technology expenses were driven primarily by a reduction in costs associated with software vendors. This was driven by the reduced headcount, due to which we required fewer software licenses, replacement of certain vendors with more cost efficient alternatives, as well as the termination of non-critical vendors.
Marketing and advertising expenses were $8.5 million for the three months ended June 30, 2024, an increase of $5.4 million or 175% as compared with $3.1 million in the three months ended June 30, 2023. The increase is due to a focus on growth to drive volume which started at the end of the first quarter in 2024. Marketing and advertising is composed of performance advertising and pilot marketing, which performance advertising scales with volume through existing channels while pilot marketing is market spend to test new channels along with testing brand marketing, which generally costs more upfront.
Marketing and advertising expenses were $13.1 million for the six months ended June 30, 2024, an increase of $2.2 million or 20% as compared with $10.9 million in the six months ended June 30, 2023. The increase is due to a focus on growth to drive volume which started at the end of the first quarter in 2024. Marketing and advertising is composed of performance advertising and pilot marketing, which performance advertising scales with volume through existing channels while pilot marketing is market spend to test new channels along with testing brand marketing, which generally costs more upfront.
Loan origination expenses were $0.8 million for the three months ended June 30, 2024, and decrease of $2.6 million or 77%, as compared with $3.4 million in the three months ended June 30, 2023. The decrease in loan origination expenses driven by a reduction in costs associated with loan origination vendors, as well as a decrease in non-HELOC origination volume, and a reduction in our reserve for potential TRID defects.
Loan origination expenses were $3.4 million for the six months ended June 30, 2024, and decrease of $5.2 million or 61%, as compared with $8.6 million in the six months ended June 30, 2023. The decrease in loan origination expenses was driven by a reduction in costs associated with loan origination vendors.
Other expenses was a gain of $0.9 million for the three months ended June 30, 2024, an increase of $0.3 million or 64%, as compared with a gain of $0.5 million in the three months ended June 30, 2023. The change in other expenses was primarily driven by reductions on liability classified warrants and equity related liabilities as a result of the reduced trading price of our Common Stock, which were recorded as gains during the three months ended June 30, 2023, while during the three months ended June 30, 2024 our liability classified warrants and equity related liabilities remained relatively flat.
Other expenses was a gain of $1.1 million for the six months ended June 30, 2024, a decrease of $11.6 million or 110%, as compared with $10.5 million in the six months ended June 30, 2023. The reduction in other expenses was primarily driven by a reduction in restructuring expenses, as for the six months ended June 30, 2023 we incurred real estate restructuring losses, gain on lease settlement, and impairments of property and equipment related to restructuring initiatives which we did not have during the six months ended June 30, 2024. The reduction in other expenses was also driven by reductions on liability classified warrants and equity related liabilities as a result of the reduced trading price of our Common Stock, which were recorded as gains during the six months ended June 30, 2023, while during the three months ended June 30, 2024 we recorded small gains on our liability classified warrants and equity related liabilities as our stock price stabilized.
Non-GAAP Financial Measures
We report Adjusted Net Loss and Adjusted EBITDA, which are financial measures not prepared in accordance with generally accepted accounting principles (“non-GAAP”) that we use to supplement our financial results presented in accordance with GAAP. These non-GAAP financial measures should not be considered in isolation and are not intended to be a substitute for any GAAP financial measures. These non-GAAP measures provide supplemental information that we believe helps investors better understand our business, our business model, and how we analyze our performance.
Non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning and are not prepared under any comprehensive set of accounting rules or principles. Accordingly, other companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.
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We include reconciliations of Adjusted Net Loss and Adjusted EBITDA to GAAP Net Income (Loss), their most closely comparable GAAP measure. We encourage investors and others to review our condensed consolidated financial statements and notes thereto in their entirety included elsewhere in this quarterly report on Form 10-Q, not to rely on any single financial measure, and to consider Adjusted Net Loss and Adjusted EBITDA only in conjunction with their respective most closely comparable GAAP financial measure.
We believe these non-GAAP financial measures are useful to investors for supplemental period-to-period comparisons of our business and understanding and evaluating our operating results for the following reasons:
• We use Adjusted Net Loss to assess our overall performance, without regard to items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations;
• Adjusted EBITDA is widely used by investors and securities analysts to measure a company's operating performance without regard to items such as stock-based compensation expense, depreciation and amortization expense, interest and amortization on non-funding debt, income tax expense, and costs that are unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations, all of which can vary substantially from company to company depending upon their financing and capital structures;
• We use Adjusted Net Loss and Adjusted EBITDA in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance; and
• Adjusted Net Loss and Adjusted EBITDA provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of our core operating results, and also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.
Further, although we use these non-GAAP measures to assess the financial performance of our business, these measures have limitations as analytical tools, and they should not be considered in isolation or as substitutes for analysis of our financial results as reported under GAAP. Some of these limitations are, or may in the future be, as follows:
• Although depreciation and amortization expense is a non-cash charge, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• Adjusted Net Loss and Adjusted EBITDA exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
• Adjusted EBITDA does not reflect (i) interest expense, or the cash requirements necessary to service interest or principal payments on our Convertible Note, which reduces cash available to us; or (ii) tax accruals or tax payments that represent a reduction in cash available to us; and
• The expenses and other items that we exclude in our calculations of Adjusted Net Loss and Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from similarly titled non-GAAP measures when they report their operating results, and we may, in the future, exclude other significant, unusual or non-recurring expenses or other items from these financial measures.
Because of these limitations, Adjusted Net Loss and Adjusted EBITDA should be considered along with other financial performance measures presented in accordance with GAAP, and not as an alternative or substitute for our financial results prepared and presented in accordance with GAAP.
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Adjusted Net Loss and Adjusted EBITDA
We calculate Adjusted Net Loss as net income (loss) adjusted for the impact of stock-based compensation expense, change in the fair value of warrants and equity related liabilities, change in fair value of convertible preferred stock warrants, change in fair value of bifurcated derivative, and restructuring, impairment, and other expenses.
We calculate Adjusted EBITDA as net income (loss) adjusted for the impact of stock-based compensation expense, change in the fair value of warrants and equity related liabilities, change in fair value of convertible preferred stock warrants, change in the fair value of bifurcated derivative, and restructuring, impairment, and other expenses, as well as interest and amortization on non-funding debt (which includes interest on the Convertible Note), depreciation and amortization expense, and income tax expense.
The following table presents a reconciliation of net income (loss) to Adjusted Net Loss and Adjusted EBITDA for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands)
2024 2023 2024 2023
Adjusted Net Loss
Net income (loss)
$ (41,365) $ (44,010) $ (92,857) $ (131,632)
Stock-based compensation expense (1)
7,959 4,054 16,325 8,462
Change in fair value of warrants and equity related liabilities (2)
102 — (721) —
Change in fair value of convertible preferred stock warrants (2)
— 287 — (266)
Change in fair value of bifurcated derivative (3)
— (2,951) — (1,064)
Restructuring, impairment, and other expenses (4)
184 1,687 905 10,829
Adjusted Net Loss
$ (33,120) $ (40,933) $ (76,348) $ (113,671)
Adjusted EBITDA
Net income (loss)
$ (41,365) $ (44,010) $ (92,857) $ (131,632)
Income tax expense / (benefit)
203 456 346 1,880
Depreciation and amortization expense (5)
7,990 10,822 17,064 22,299
Stock-based compensation expense (1)
7,959 4,054 16,325 8,462
Interest and amortization on non-funding debt (6)
1,668 3,608 4,332 6,298
Restructuring, impairment, and other expenses (4)
184 1,687 905 10,829
Change in fair value of warrants and equity related liabilities (2)
102 — (721) —
Change in fair value of convertible preferred stock warrants (2)
— 287 — (266)
Change in fair value of bifurcated derivative (3)
— (2,951) — (1,064)
Adjusted EBITDA
$ (23,259) $ — $ (26,047) $ (54,606) $ (83,194)
__________________
(1) Stock-based compensation represents the non-cash grant date fair value of stock-based instruments utilized to incentivize employees and consultants recognized over the applicable vesting period. This expense is a non-cash expense. We exclude this expense from our internal operating plans and measurement of financial performance (although we consider the dilutive impact to our stockholders when awarding stock-based compensation and value such awards accordingly).
(2) Change in fair value of warrants and equity related liabilities which comprise the Public Warrants and Private Warrants as well as the Sponsor Locked-Up Shares, represents the change in fair value of liability-classified warrants as presented in our Consolidated Statements of Operations and Comprehensive Loss. Change in fair value of convertible preferred stock warrants represents change in fair value of liability-classified warrants as related to our convertible preferred stock before the completion of the Business Combination. These charges are non-cash charge.
(3) Change in fair value of bifurcated derivative represents the change in fair value of embedded features within the Pre-Closing Bridge Notes that require bifurcation and are a separate unit of accounting. The bifurcated derivative is marked to market at each reporting date. This expense is a non-cash expense, and we believe that it does not correlate to the performance of our business during the periods presented.
(4) Restructuring, impairment, and other expenses are primarily comprised of employee one-time termination benefits, real estate restructuring losses, and impairment of property and equipment. For further details, please refer to Note 4 to our condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.
(5) Depreciation and amortization represents the loss in value of fixed and intangible assets through depreciation and amortization, respectively. These expenses are non-cash expenses, and we believe that they do not correlate to the performance of our business during the periods presented.
(6) Interest and amortization on non-funding debt represents interest and amortization on a corporate line of credit as well as the Convertible Note, both of which are included within net interest income in our Consolidated Statements of Operations and Comprehensive Loss.
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Liquidity and Capital Resources
In our normal course of business, excluding HELOCs, we fund substantially all of our Funded Loan Volume on a short-term basis primarily through our warehouse lines of credit. Our borrowings are repaid with the proceeds we receive from the sale of our loans to our loan purchaser network, which includes government-sponsored enterprises (“GSEs”). As of June 30, 2024, we had three warehouse lines of credit in different amounts and with various maturities, with an aggregate available amount of $425.0 million.
Warehouse Lines of Credit
As of June 30, 2024 and December 31, 2023, we had the following outstanding warehouse lines of credit:
(Amounts in thousands)
Maturity
Facility Size
Amount
Outstanding
June 30, 2024
Amount
Outstanding
December 31, 2023
Funding Facility 1 (1)
July 31, 2024 100,000 69,228 61,709
Funding Facility 2 (2)
December 6, 2024 150,000 122,988 40,088
Funding Facility 3 (3)
August 2, 2024 175,000 55,138 24,421
Total warehouse lines of credit
$ 425,000 $ 247,354 $ 126,218
__________________
(1) Interest charged under the facility is at the 30-day term SOFR plus 2.125%. Cash collateral deposit of $15 million is maintained and included in restricted cash. Subsequent to June 30, 2024, the Company extended the maturity to August 31, 2024.
(2) Interest charged under the facility is at the 30-day term SOFR plus 2.10% - 2.25% . Cash collateral deposit of $3.8 million is maintained and included in restricted cash.
(3) Interest charged under the facility is at the 30-day term SOFR plus 1.75% - 3.75%. There is no cash collateral deposit maintained as of June 30, 2024. Subsequent to June 30, 2024 the Company extended the maturity to August 3, 2025.
Nasdaq Compliance Requirements
On April 9, 2024, we received formal notice that Nasdaq granted our request for an additional 180-day period, or until October 7, 2024, (the “Extension Notice”) to evidence compliance with the $1.00 per share requirement for continued inclusion on The Nasdaq Capital Market pursuant to the Bid Price Rule. If at any time before October 7, 2024, the bid price of our Class A common stock closes at $1.00 per share or more for a minimum of ten consecutive business days, Nasdaq will provide us with written confirmation of compliance with the Bid Price Rule.
If we fail to regain compliance with the Bid Price Rule during the additional compliance period, then Nasdaq will notify us of its determination to delist the Class A common stock, at which point we would have an opportunity to appeal the delisting determination to a Nasdaq Hearings Panel (the “Panel”). A timely request for a hearing will stay any suspension or delisting action pending the issuance of the Panel’s decision. The Extension Notice has no effect at this time on the listing of our Class A common stock, which will continue to trade on The Nasdaq Capital Market under the symbol “BETR.”
If the Class A common stock is no longer listed on Nasdaq, or another national securities exchange, such delisting would constitute a fundamental change under the indenture for the Convertible Note that would require us to redeem the Convertible Note prior to maturity for an amount in cash equal to the principal amount of the Convertible Note plus accrued and unpaid interest to the redemption date. As of June 30, 2024, we had cash and cash equivalents, together with short-term investments of $378.8 million, compared to $528.6 million principal amount outstanding under the Convertible Note. If we are required to redeem the Convertible Note prior to maturity, we may not have sufficient available cash and cash equivalents or be able to obtain additional liquidity, on acceptable terms or at all, to enable us to redeem or refinance the Convertible Note and continue operating the business.
On June 4, 2024, at the 2024 annual meeting of the Company’s stockholders, the Company’s stockholders approved amendments to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to effect one or more reverse stock splits of our Common Stock (as defined below) at a ratio ranging from any whole number between 1-for-2 and 1-for-100 and in the aggregate not more than 1-for-100, inclusive, as determined by the Company’s board of directors (the “Reverse Stock Split Authorization”).
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On August 1, 2024, pursuant to the Reverse Stock Split Authorization, the Company’s board of directors approved a reverse stock split (the “Reverse Stock Split”) and set a split ratio of 1-for-50 of our Class A common stock, Class B common stock, par value $0.0001 per share (“Class B common stock”), and Class C common stock (together “Common Stock”), provided that the Company’s board of directors reserved the right to modify or abandon the amendment prior to filing with the Secretary of State of the State of Delaware. As of the effective time of the Reverse Stock Split, one post-split share of our Common Stock will be issued in exchange for every 50 pre-split shares of our Common Stock. The Reverse Stock Split is currently scheduled to become effective at 6:00 p.m. New York time on August 16, 2024.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Six Months Ended June 30,
(in thousands)
2024 2023
Net cash (used in) provided by operating activities
$ (263,382) $ (142,023)
Net cash (used in) provided by investing activities
$ (62,974) $ (42,712)
Net cash provided by (used in) financing activities
$ 144,827 $ (25,486)
Six Months Ended June 30, 2024 as Compared to Six Months Ended June 30, 2023
Operating Activities
Net cash used by operating activities was $263 million for the six months ended June 30, 2024, an increase of $121 million, or 85%, compared to net cash used by operating activities of $142 million for the six months ended June 30, 2023. The increase in net cash used by operating activities was primarily due to originations of mortgage loans held for sale in excess of proceeds from sale of mortgage loans held for sale as the Company originated more loans towards the end of the period. Also contributing to the increase in cash used by operating activities were net losses over the period.
Investing Activities
Net cash used in investing activities was $63 million for the six months ended June 30, 2024, an increase of $20 million, or 47%, compared to net cash used in investing activities of $43 million for the six months ended June 30, 2023. The increase in cash used in investing activities primarily consists of purchases of short-term investments in excess of maturities of short-term investments as well as originations of loans held for investment during the second quarter, namely through our U.K. operations.
Financing Activities
Net cash provided by financing activities was $144.8 million for the six months ended June 30, 2024, an increase of $170 million, or 668%, compared to net cash used by financing activities of $25 million for the six months ended June 30, 2023. The increase in cash provided by financing activities was primarily driven by an increase in net borrowings on warehouse lines of credit to fund originations of mortgage loans towards the end of the quarter. We fund our LHFS through borrowings on our warehouse lines of credit and for six months ended June 30, 2024, as our originations of LHFS exceeded proceeds from the sale of LHFS, within operating activities, our borrowings also exceeded repayments on warehouse lines of credit as those borrowings were used to fund originations. The increase in cash provided by financing activities was also driven by an increase in customer deposits, namely through our U.K. operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303 of Regulation S-K that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates as of and during the three and six months ended June 30, 2024, as compared to the critical accounting policies and estimates disclosed in the audited
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consolidated financial statements and related notes thereto as of and for the year ended December 31, 2023, which are included in our 2023 Annual Report on Form 10-K.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that reflect future plans, business strategy, estimates, beliefs and expected performance. These statements constitute forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this quarterly report on Form 10-Q, the words “could,” “should,” “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this quarterly report on Form 10-Q. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Forward-looking statements in this quarterly report on Form 10-Q and the associated risks, uncertainties, assumptions and other important factors may include, but are not limited to:
• Factors relating to our business, operations and financial performance, including:
• Our ability to operate under and maintain or improve our business model;
• The effect of interest rates on our business, results of operations, and financial condition;
• Our ability to expand our customer base, grow market share in our existing markets and enter into new markets;
• Our ability to respond to general economic conditions, particularly elevated interest rates and lower home sales and refinancing activity;
• Our ability to restore our growth and our expectations regarding the development and long-term expansion of our business;
• Our ability to comply with laws and regulations related to the operation of our business, including any changes to such laws and regulations;
• Our ability to achieve and maintain profitability in the future;
• Our ability and requirements to raise additional financing in the future;
• Our estimates regarding expenses, future revenue, capital and additional financing requirements;
• Our ability to maintain, expand and be successful in our strategic relationships with third parties;
• Our ability to remediate existing material weaknesses and implement and maintain an effective system of internal controls over financial reporting;
• Our ability to develop new products, features and functionality that meet market needs and achieve market acceptance;
• Our ability to retain, identify and hire individuals for the roles we seek to fill and staff our operations appropriately;
• The involvement of our CEO in litigation related to prior business activities, our business activities and associated negative media coverage;
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• Our ability to recruit and retain additional directors, members of senior management and other team members, including our ability in general, and our CEO’s ability in particular, to maintain an experienced executive team;
• Our ability to successfully manage our international and banking operations
• Our ability to maintain and improve morale and workplace culture and respond effectively to the effects of negative media coverage; and
• Our ability to maintain, protect, assert and enhance our intellectual property rights.
• Factors relating to our capital structure, governance and the market for our securities, including:
• The existence of multiple classes of our Common Stock, which is comprised of our Class A common stock, our Class B common stock and our Class C common stock, and its impact on the liquidity and value of the Class A common stock;
• The limited experience of our directors and management team in overseeing a public company;
• Our ability to maintain the listing of the Class A common stock and Public Warrants on the Nasdaq Capital Market;
• Our ability to maintain certain lines of credit and obtain future financing on commercially favorable terms to fund loans and otherwise operate our business;
• The liquidity and trading of our Class A common stock and Warrants; and
• Other factors detailed under Part II, Item 1A. “ Risk Factors ”.
The forward-looking statements contained in this quarterly report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those described in these forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and are not required to provide the information otherwise required under this item.