Good afternoon, and welcome to loanDepot's Third Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]. I would now like to turn today's call over to Gerhard Erdelji. Senior Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining our third quarter 2024 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. Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into analyzing and benchmarking performance and value of our business and facilitating company-to-company operating performance comparisons. For more details on these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP measures, please refer to today's earnings release, which is available on our website at investors.loandepot.com. A webcast and a transcript of this call will be posted on our website after the conclusion of this call. On today's call, we have loanDepot President and Chief Executive Officer, Frank Martell; and Chief Financial Officer, Dave Hayes, to provide an overview of our quarter as well as our financial and operational results outlook and to answer your questions. We are also joined by Chief Investment Officer, Jeff DerGurahian; and LDI Mortgage President, Jeff Walsh, to help address any questions you might have after our prepared remarks. With that, I'll turn things over to Frank to get us started. Frank?

Thank you, Gerhard. I appreciate everyone taking the time to join us on the call today. LoanDepot returned to profitability in the third quarter through the successful implementation of our Vision 2025 strategic program. Our results were driven by higher origination volumes, margin expansion and the benefit of our process improvement and cost productivity programs. As our shareholders know well, we announced Vision 2025 in July of 2022 in response to one of the most abrupt and significant contractions in housing and mortgage volumes in a generation. Over the past three years, Vision 2025 has been our battle plan to both deal with the realities of a significantly smaller market and positioned the company for long-term success. Achieving Vision 2025 was truly a team effort as we navigated turbulent market conditions over the past three years. Before I talk about our new strategic plan, it's worth noting some of the key accomplishments of our Vision 2025 plan, which had four strategic pillars. Pillar 1 focused on transforming the company's origination business and driving purchase transactions with an expanded emphasis on purpose-driven lending and first-time homebuyers. Over the past three years, we've added new products to address affordability issues, grew our VA lending operation, expanded our business footprint with homebuilders and enhance our mellohome offerings. Pillar 2 centered on investing in profitable growth generating initiatives and launching innovative new solutions that form the foundation of a life cycle relationship with first-time homebuyers and owners. In this area, we launched a portfolio of home equity products, including a home equity line of credit and a stand-alone second mortgage loan. We also introduced our next-generation mellowNow digital underwriting engine and brought our servicing business in-house. Pillar 3 centered on reducing complexity and simplifying our organizational structure with an emphasis on client engagement, quality,…

Thanks, Frank, and good afternoon, everyone. We are pleased that the successful completion of the strategic objectives of Vision 2025 has delivered the company's first profitable quarter since the beginning of the market downturn in the first quarter of 2022. The third quarter served as validation of our strategy as we saw a modest improvement in the mortgage market, which, when coupled with the company's positive operating leverage, fueled our return to profitability. Now as we embark on Project North Star, we transitioned to a company posture that focuses on consistent profitability and shareholder returns by growing stable revenue sources and investing in processes that will result in positive operating leverage. We reported adjusted net income of $7 million in the third quarter compared to an adjusted net loss of $29 million in the third quarter of 2023 due primarily to higher adjusted revenues from higher volume and gain on sale margins. During the third quarter, pull-through weighted rate lock volume was $6.7 billion, which represented a 19% increase from the prior year's volume of $5.8 billion, and reflected the impact of lower rates for a portion of the quarter. Rate block volume came in on the high end of the guidance we issued last quarter of $5 billion to $7 billion and contributed to adjusted total revenue of $320 million compared to $261 million in the third quarter of 2023. Our multichannel strategy has proven successful in the third quarter by delivering higher year-over-year volume of purchase originations in a supply-constrained market, and a meaningful increase in refinance originations, particularly during the period in the third quarter where long-term interest rates fell. Our pull-through weighted gain on sale margin for the third quarter came in at 329 basis points above our guidance of 280 to 300 basis points and…

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

Hey guys. Thanks for taking question. This is Taylor on for JD. Maybe just to start with non-volume-related expenses and kind of hearing your expectations going forward. So you obviously had the benefit from the cyber insurance recovery this quarter. But excluding that, how should we think about the non-volume expense base going forward? Just any additional plans to hire any additional investments? I just want to make sure we have our expectations properly set.

Yes. This is David Hayes. I think from that perspective, clearly, our volume-related expenses will fluctuate as originations fluctuate. We typically characterize those volume-related expenses as commissions and DOE, but I think you should also think about marketing expense, which is highly tied to volumes, especially in the direct channel. We've continued to be very productive, focused on productivity initiatives on the non-volume related expenses, so we'd expect those to work some down over the course of remainder of this year and into next year. But we are investing in revenue-generating initiatives, specifically staffing around our loan officers and our ops team members as well. So we're sort of building capacity up as we expect the eventual recovery of the mortgage market. The other thing to consider as we go on a go-forward basis, we do see inflationary costs from vendor spend. We saw some of that come into effect in the '23 to '24 from some of our key vendors, and we would expect similar levels of activity going into '25. Those are yet to be determined though.

Got it. Very helpful. And then just on Project North Star. I think I saw that one of the initiatives was to expand geographically and expand partnerships. So I was just curious if you could elaborate a bit more on that and what geographies are you looking to expand into? And on the partnership side, are you mostly focused on expanding current partnerships or adding new ones? Thanks.

Yes. This is Jeff Walsh. Geographically, there's a lot of markets in this country where we have opportunity to fill in with our end market retail team, which we're doing organically. But we're also looking at expansion in our joint venture business with new builders, which we've recently done with Smith Douglas and exploring real estate JVs in the retail channel as well. So focus kind of in the South and Southeast and kind of the opportunistic markets now, but there are plenty of markets for us to expand to across the U.S.

Got it. Thanks, Jeff.

Your next question is from the line of Doug Harter with UBS.

Thanks. Hoping you could just to expand one of your closing comments. You said you would look to have sustainable profitability in '25 on under a range of scenarios. One, just kind of wanted to make sure that I heard that right. And if you could just expand on that comment a little bit.

Sure, Doug. This is Frank Martell. Thanks for joining the call. So look, I think as you look at the third quarter, as David said, the uptick in volume, which primarily benefited our direct channel was modest in volume, but it proved that kind of what revenue it would take to make money in the company and I think as we look forward to '25, the MBA forecast that currently sits that we get to that, and we're -- we feel pretty good about our chances of making money. It is a fluid situation with rates and -- but I think that we believe fundamentally that there's pent-up volume. Certainly, home equity has been an area of a lot of upside for us. And we expect refi to lead the way actually in next year, and that's consistent with the forecast that MBA has put out. So we're hopeful that there's no disruption in the market that would not get forecast off. But if we're making $2 trillion, $3 trillion market, we'll -- we feel pretty good about our chances. And just to kind of swing around to what David said earlier, I think that we feel there's a lot of work been done on the fixed cost of the company and driving automation in the company. So if we do get volume, we expect to try to drive some operating leverage as well. So we're pretty well positioned for a 2, 3 market as we sit right now, and we look forward to that playing out next year.

Got it. And as part of Project North Star, you talked about growing the servicing portfolio. Would that be through more retention of it? And kind of how do you think about the financing of those MSRs/cash consumption of retaining more MSRs?

Doug, this is Jeff DerGurahian. The growth of the portfolio, I think, is going to come as the market opportunity presents itself, to the extent that we can continue on this path that we've been on and add to the portfolio organically. We'll do that. We'll also opportunistically look at opportunities to acquire MSRs is something attractive is there. I think we'll figure that out over the next several quarters where the best place to attack that growth is. And in terms of financing it, the lines that we have to finance that are out there, and we'll lever the assets to the extent that we need the cash to grow the origination business and continue to take profitable share.

Okay. Thank you.

[Operator Instructions]. Your next question is from the line of Derek Sommers with Jeffries.

Good afternoon, everyone. I was just wondering if you could touch on kind of the LO recruiting environment, what kind of traffic you're seeing there?

Yes. Thanks. This is Jeff again. We're -- Jeff Walsh. We're seeing positive traction in organic recruitment of loan originators, both in in-market retail and direct lending. It's still a competitive market, where we see offers, multiple offers made to higher end, high-producing loan originators. So is still competitive, but I think we're doing a really good job in winning a lot of really great people over the last quarter, and we're kind of continuing that strategy moving forward of organic growth.

Got it. Thanks. And then just on the kind of Smith Douglas partnership and maybe the builder JVs as a whole. Any kind of incremental color there would be helpful. Or these partnerships serve through the direct channel, kind of how does the expense base kind of compare to a kind of in-market origination? Or just anything incremental would be helpful.

Yes. Our joint venture business is its own channel. It's run separately. We're really excited about this new venture with Smith Douglas, they are great group over there with a really compelling growth story. And the business model is different than in market retail as they are typically set up as kind of a broker JV model or a banker JV model where we're obviously sharing in the profitability of the entity. But it is a very, very positive business for us because it's predictable. And obviously, new build has been a really bright spot in the market over the last couple of years versus what we're seeing in resale. So we really like that business and would like to do as much of it as we can.

At this time, there are no further questions. I will now hand today's call back over to Frank Martell for any closing remarks.

Thanks, Tamika. Look, on behalf of Dave, Gerhard, Jeff Walsh and Jeff DerGurahian and the rest of our team, I really want to thank everybody for your -- for joining us for the call today. It's exciting times at loanDepot, I'm really proud of the dedication and resiliency and accomplishments of the team here. Completing Vision 2025 represents a very significant accomplishment for the company. And importantly, we look forward with optimism regarding market leadership and taking share in the market as we focus on realizing the potential the full potential of Project North Star in the coming three years. At loanDepot we have a saying, we believe that home means everything, and our growing team of professionals delivers a complete suite of services that we think will fuel the American dream as we go forward. So thanks again, everybody, and I appreciate your time.

This concludes today's call. Thank you for joining. You may now disconnect your lines.