Good afternoon, and welcome to loanDepot's Third Quarter 2023 Earnings Call. [Operator Instructions]. I would like now to turn the call over to Gerhard Erdelji, Senior Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone and thank you for joining loanDepot's third quarter 2023 earnings call. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements regarding the company's operating and financial performance in future periods. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, guidance to our pull-through weighted rate lock volume, origination volume, pull-through weighted gain on sale margin and expense trends. These statements are based on the company's current expectations and available information. Actual results for future periods may differ materially from these forward-looking statements due to risks or other factors that are described in the Risk Factors section of our filings with the SEC. A webcast and a transcript of this call will be posted on the company's Investor Relations website at investor.loandepot.com under the Events & Presentations tab. On today's call, we have loanDepot President and Chief Executive Officer, Frank Martell; and Chief Financial Officer, David Hayes, to provide an overview of our quarter as well as our financial and operational results, outlook and to answer your question. We are also joined by our Chief Investment Officer, Jeff DerGurahian; and LDI Mortgage President, Jeff Walsh, to help address any questions you might have after our prepared remarks. And with that, I'll turn things over to Frank to get us started. Frank?

Thank you, Gerhard, and thank you all for joining us today. I look forward to sharing my perspective on market conditions and our results. loanDepot continues to make significant progress against the imperatives we laid out in our Vision 2025 plan back in July of 2022. As you may recall, Vision 2025 focused on four main areas. First, transforming our origination's business to drive purchase money transactions with an expanded emphasis on purchase-driven lending. Second, investing in profitable growth-generating initiatives and critical business operating platforms and processes to support operating leverage and best-in-class quality and delivery. Third, aggressively right-sizing our cost structure to address current and future projected market conditions. And fourth and finally, optimizing and simplifying our organizational structure. In the third quarter, our revenues were essentially unchanged from the prior quarter as we modestly increased our market share and improved gain on sale margins. Importantly, we benefited from positive contributions from our servicing platform, builder partnerships and home equity lending. The company's core mortgage origination revenues were down 3% for the quarter, modestly outperforming the overall market trend during the same period. Higher mortgage interest rates during the third quarter contributed to the modest decline in our revenue trend. David will discuss this area and other results of operations in a few minutes. While in general, housing stock remains in short supply, new home construction has been a bright spot this year. In this regard, we continue to work closely with our builder partners, and we believe new home construction will be a critical driver for adding much-needed new housing stock in 2024 and beyond. Another bright spot in recent quarters has been our HELOC product, which continues to serve as a powerful financial tool for our customers. Over the past several quarters, our HELOC revenue has grown…

Thanks, Frank, and good afternoon, everyone. During the third quarter, loan origination volume was $6.1 billion, a decrease of 3% from the second quarter of 2023. This was within the guidance we issued last quarter of between $5 billion and $7 billion. Third quarter volume consisted of $4.3 billion in purchase loan originations and $1.8 billion in refinance loan originations, primarily cash-out refinances. Our pull-through weighted rate lock volume of $5.7 billion for the third quarter contributed to the total revenue of $266 million, which represented a 2% decrease from the second quarter. Rate lock volume came in at the lower end of the guidance we issued last quarter of $5.5 billion to $7.5 billion. The decrease in revenue is primarily a result of lower loan origination income from a decrease in rate lock volume offset somewhat by a higher gain on sale margins in servicing revenue. Our pull-through weighted gain on sale margin for the third quarter came in at 293 basis points, above our guidance of 245 basis points to 285 basis points. Our higher gain on sale margin was primarily due to an increase in profit margins on our HELOC product, continued improvement in our repurchase activity, and wider profit margins on our production, offset by a larger proportional contribution from our joint venture channel. As Frank previously mentioned, one of the primary pillars of Vision 2025 is a focus on optimizing our organizational structure and improving the quality of our production. Thanks to the work of the team, we've substantially enhanced our quality, and as a result, there's been a significant decrease in the amount of loans that we've been asked to repurchase. Through these efforts, we have improved our financial results by reducing provisions for loan losses and increased our gain on sale margin. Turning…

[Operator instructions] Your first question comes from the line of John Davis with Raymond James. Your line is open.

Hi, everyone. This is Taylor on for JD. Maybe just to start with how you're thinking about just timing of returning back to profitability. You've obviously made pretty significant cost cuts already and announced an additional cost savings. I understand macro makes it difficult to predict, but just send me a further commentary or update that you could give on your runway to get back to profitability would be great.

Hi, Taylor. It's Frank Martell. I appreciate the question. We're really pleased with the continued reduction in the loss profile. If you look at $35 million, roughly speaking, in the third quarter, accounting for seasonality, I think we're optimistic that we can get to profitability as we get into the spring selling season and into the second and third quarters of next year. I think that's what we're planning on, barring any exogenous downside in the market that we can't see at the moment.

Great. Thank you.

[Operator instructions] There are no further questions. Oh, Kyle Joseph from Jefferies has queued up. Your line is open.

Hey, good afternoon, guys. Thanks for taking my questions. Just kind of want to get your take on the supply and demand dynamics in the industry. Has supply come down enough to, I think you talked about kind of muted originations into '24. Are we getting to an equilibrium, or do we still need some supply to be taken out?

Yeah, hi. This is Jeff Walsh. I think from a capacity standpoint, we are seeing capacity come out of the market, both on the fulfilment side and the origination side. We see originators leaving as well, but the market correction at this point is still greater than the capacity reduction. So, in a kind of rates being higher for longer scenario, we likely need a bit more capacity reduction and we're seeing that as really kind of forming up as an opportunity for us if that happens.

Got you and then just a quick follow-up from me, just refresh us on your capital allocation priorities in terms of buying back debt or balancing that with originating loans and just how you're thinking about that.

Yeah, hi. This is David Hayes. So, we're going to continue to maintain sort of an opportunistic view on that perspective. We're continuing to invest into the company in all sorts of growth initiatives and automation, and we'll continue to do that. And from a debt perspective, we're very focused on maintaining higher levels of liquidity as we progress through the next several quarters into the tougher market and as we address the 2025 notes that are out there, we'll look at the overall debt stack at that time, but I would say that's our near-time priority.

Got it. Makes sense. Thanks for answering my questions.

[Operator instructions] There are no further questions at this time. Frank Martell, I turn the call back over to you.

Thank you, Jean. Hey, look, thanks, everybody, for joining us today and we appreciate the questions as well. On behalf of David Gearhart, Jeff Walsh and Jeff DerGurahian, and the rest of our team, I want to thank everybody and our key stakeholders for their support. We look forward to keeping everybody apprised as we continue to progress against the imperatives that I outlined as part of our vision 2025. We are making significant progress, continue to reduce our operating losses and maintain very significant levels of liquidity, and importantly, position the company for the eventual rebound in the market when that comes. So, again, appreciate your time today and look forward to updating you in the future. Thanks, everybody.

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