UWM Holdings Corporation (NYSE:UWMC) Q1 2023 Earnings Call Transcript

UWM Holdings Corporation (NYSE:UWMC) Q1 2023 Earnings Call Transcript May 10, 2023

UWM Holdings Corporation misses on earnings expectations. Reported EPS is $-0.07 EPS, expectations were $0.03.

Operator: Good morning. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM holdings Corporation First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Blake Kolo, you may now begin your conference.

Blake Kolo: Good morning. This is Blake Kolo, Chief Business Officer and Head of Investor Relations. Thank you for joining us and welcome to the first quarter of 2023 UWM Holdings Corporation’s earnings call. Before we start, I would like to remind everyone that this conference call includes forward looking statements. For more information about factors that may cause actual results to differ materially from forward looking statements. Please refer to the earnings release that we issued this morning. I will now turn the call over to Mat Ishbia, Chairman and CEO of UWM Holding Corporation and United Wholesale Mortgage.

Mat Ishbia: Thanks Blake. A lot of great things to discuss today. I first want to start the call by thanking the 6000 plus broker partners who were able to join us for UWM LIVE last week which was an amazing event. Also think a lot of analysts and investors, we’re able to come out and make it, I enjoy spending time with you and fielding to great questions over the couple of days we had together. UWM LIVE is and amazing event that allows you to see and feel the growth momentum of the broker channel in one room. All those loan officers, broker owners even real estate agents flew out to Pontiac, Michigan on their own dime to get better share ideas for success and try to win together as a team. This is what makes UWM in the brokerage shell different because we can work together as a team.

And are excited about the growth together. Hopefully everyone attends was able to see for themselves. The combination of our culture, the amazing relationships we have, with our broker partners uniquely positions us for growth and success is one of the main ingredients to our secret sauce here at UWM. It’s all about the broker community winning and we’re here to help them grow and succeed. And it’s happening together as a team. Before we get into the quarter, I want to take a few moments to address the current overall mortgage industry and market. Obviously, there’s a lot going on in the industry, and it’s still a tough time for most lenders. This is a time when scale efficiencies, investment and technology and business strategy on purchase are showing the winners separating from the rest, while others are having to adjust their business for the worse.

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UWM is hiring, innovating and preparing for further growth in ‘24, ‘25 and beyond. I’ve never been more confident with our modeling strategy that I am today. Now, let’s get into quarter. We delivered $22.3 billion of overall production, which is the high end of our guidance. More importantly, the $19.2 billion of purchase buying which was a first quarter production purchase record for us. We’ve been very proud of these metrics, particularly in this rate environment and with the gentle declines for most in the industry. Our gain margin was 92 basis points also at the higher end of the guidance and up from 51 basis points in the fourth quarter. We have controlled our business and are very happy with both our margin and volume in Q1. I also quickly want to provide some highlights of the 2022 HMDA data that was released in first quarter This is the government data that trumps some of the self reported industry data for the full 2022 year we were the number one overall mortgage lender in America when looking at purchases and refinances or single-family homes, which is the definition of Residential Lending.

I’m proud of this because the positive impact it had on the consumers who chose to work with mortgage brokers pro this HMDA data on average, consumers saved 94 hours by working with a mortgage broker and number goes up to $10,004 hours for minorities. These facts make me feel great about the positive impact we have on the consumers in America that choose to work with independent mortgage brokers findamortgagebroker.com is becoming a great website where consumers are learning about the benefits of working with a mortgage broker. The data supports the broker channel is the best place for consumer to get loan. And as we all know, the best place for a loan officer to work. And in addition to that, some of the best news is we’re the number one mortgage ridge area in the country once again in the first quarter, helping consumers helping our brokers and we’re continuing to win together as a team.

And we’ll take a deeper dive into the financials. But before I pass, I want to give a couple of comments on the financial performance for the first quarter. As I previously mentioned, 92 basis points of margin and $22.3 billion in production, which were both very good numbers resulting in a favorable operating gain for the quarter. With that said, many of you are now aware the two distinct components of our reported financials, the income from loan production and servicing income and along with the MSR value, the value the MSR portfolio, because rates went down in Q4 to Q1 the write down for MSR book was large, this marked on is driven primarily by rates are outside of our control and non-cash gain loss. We reported a net loss of $139 million.

But at the same time, there’s a fair value marked down of over $337 million. Operationally with higher margins. In great volumes, we actually made money and if you look at it, compared to Q1 of 2022, actually, core wise made more money operating than we did in 2022, which is still a good quote in the industry. Making money profitably right now is a big deal. And UWM is doing it and we’re going to continue to do it going forward, UWN has never been better positioned for the growth and success going forward, I think back to where we were in the first quarter of 2020. And we are so much stronger today in all aspects of our business. With that said, I’m confident we’ll be saying the same thing again and three years from now and how we continue to evaluate, continue to evolve.

We have the capital, liquidity, technology, client relations and infrastructure in place to thrive regardless of cycles. And we are doing that right now. I’m going to turn over to Andrew, our CFO for more details.

Andrew Hubacker: Thanks, Matt 2023 is off to a great start, as we achieved strong mortgage loan production volume and experienced improved gain margin in the first quarter as compared to the last half of 2022. As Matt mentioned, a higher gain margin contributed to improved profitability before considering the impact of the decline in fair value of MSRs. Our expenses moderated in Q1 as we continue to focus on prudent cost management, excluding interest in servicing costs and other non-operational expenses. Total expenses declined nearly $50 million, or 19% compared to the first quarter of 2022, which also contributed to our strong core operational performance in Q1 of 2023. During the first quarter, we continued to execute our plans to strengthen our balance sheet and improve liquidity.

We completed to bulk MSR sales as well as to excess servicing strip sales in Q1 and loans with a total UPB of approximately $98 billion and completed two additional MSR sales subsequent quarter end net cash proceeds approximated $650 million from MSR and excess sales in Q1. In addition, we entered into a line of credit providing up to $500 million borrowing capacity secured by our Ginnie Mae MSRs. This facility along with the MSR facility secured by our Fannie and Freddie MSRs provide up to 2 billion of borrowing capacity, of which only 500 million was drawn as of the end of the quarter. Considering available cash, self-warehouse and remaining available borrowing capacity under our secured and unsecured lines of credit, our total liquidity increased to approximately $2.9 billion as of March 31st, 2023, which is an approximate $800 million increase from the end of last year.

We continue to believe the measures we have taken to enhance our liquidity and strengthen our balance sheet will allow for our continued investments and growing both the wholesale channel and our market share. Okay, I’ll now turn things back over to our chairman and CEO Mat Ishbia be up for some closing remarks.

Mat Ishbia: Thanks a lot, Andrew. And before I get into Q&A, I want to hit on a couple of points before we go. First, we aren’t stopping we will continue to embrace every cycle of the mortgage industry driving forward and winning together with the broker community. We will continue to launch new products relevant products. We’ve rolled out many in the first quarter, whether it’s technology, whether it’s actual products at one time, close new construction, control your price from a technology we’re going to continue to innovate and win. There’s no hidden agenda here. The broker channel is the best place for American consumer to get a mortgage. It’s the fastest easiest cheapest way for numbers get a loan. And we’ll do everything we can to support growing the channel we also appreciate the investor community and for the 10th consecutive quarter, we’re going to announce our $0.10 quarterly dividend.

We want to continue to reward our shareholders, as I’ve said many times in the past, and I’m excited about the prospects of us continue to do that going forward. In addition to that, the second quarter, we expect production to be between 23 billion and 30 billion with our margins in the range of 75 basis points to 100 basis points. UWM is winning, we’re making income. We have great liquidity, our technology and our culture are strong. And I’ve never been so excited about what we’re doing compared to our competitors in the mortgage market. We’re gonna keep winning together. We’re now glad to take your question. I’m going to turn it back to the moderator.

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Q&A Session

Operator: [Operator Instructions]. Your first question comes from the line of Kyle Joseph with Jefferies. Please go ahead.

Operator: Your next question comes from the line of Steve Delaney with JMP securities. Please go ahead.

Operator: Your next question comes from the line of Bose George with KBW. Please go ahead.

Operator: Your next question comes from the line of James Faucette with Morgan Stanley. Please go ahead.

Operator: Your next question comes from the line of Eric Hagen with BTIG. Please go ahead.

Operator: [Operator Instructions]. Your next question comes from the line of Doug Harter with Credit Suisse. Please go ahead.

Operator: Your next question comes from the line of Kevin Barker with Piper Sandler. Please go ahead.

Operator: Your final question comes from the line of Michael K. with Wells Fargo, please go ahead.

Operator: And you have a final follow up question from Bose George. Please go ahead.

Mat Ishbia: Yeah, thank you for the question. And I know that was last question I believe. And so I just want to say thank you to everyone who jumps on these calls. I appreciate your questions. I appreciate your thoughts. We appreciate all of you that came out to UWM LIVE to really understand our culture and our team and the broker community. We’re excessively, exceedingly if that’s a better word, excited about the broker community the broker community is growing and everyone that was at UWM LIVE on a lot of you on this call I see saw. And so hopefully you guys feel that energy and that passion we have and the brokers have. And so we’re going to keep winning together. Q2 is going to be a heck of a quarter and we’re excited to share with you. I’ll be talking to you guys after quarter and you have anything in between, Blake’s available. I’m available Andrew and our team. We appreciate you guys and girls, have a fantastic day.

Operator: This concludes today’s conference call. You may now disconnect your line.