Better Home & Finance Holding Company
03/19/2025 | Press release | Distributed by Public on 03/19/2025 06:58
Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
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 and for the years ended December 31, 2024 and 2023, in each case, together with related notes thereto, included elsewhere in this Annual Report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements 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 Annual Report. 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 years ended December 31, 2024 and 2023 is as follows:
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Year Ended Ended December 31,
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2024
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2023
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(Amounts in thousands, except percentage amounts)
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Amounts
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Percentages
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Amounts
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Percentages
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| Gain on loans, net | $ | 78,098 | 72 | % | $ | 58,796 | 81 | % | |||||||||||||||
| Other revenue | 12,888 | 12 | % | 16,109 | 22 | % | |||||||||||||||||
| Net interest income/(loss) | 17,502 | 16 | % | (2,565) | (4) | % | |||||||||||||||||
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Total net revenues
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$ | 108,488 | $ | 72,340 | |||||||||||||||||||
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 December 31, 2024, this channel was primarily comprised of our integrated relationship with Ally Bank, which we are currently winding down.
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. During the fourth quarter of 2024, management enacted a plan to sell several entities in the U.K., which management expects to complete the sales within one year, as such the revenue from our international lending activities is winding down.
Factors Affecting Our Performance
Fluctuations in Interest Rates
Changes in interest rates influence mortgage loan refinancing volumes and our mortgage loan home purchase volumes, balance sheet and results of operations. In a decreasing interest rate environment, mortgage loan refinance volumes typically increase. Conversely, in an increasing interest rate environment, mortgage loan refinancing volumes and home purchase volumes typically decline, with mortgage loan refinancing volumes being particularly sensitive to increasing interest rates as customers are no longer incentivized to refinance their current mortgage loans at lower interest rates. However, increasing interest rates are also indicative of overall economic growth and inflation that could generate demand for more cash-out refinancings, purchase mortgage loan transactions and home equity loans, which may partially offset the decline in rate and term refinancings resulting from a rising interest rate environment.
In addition, the majority of our assets are subject to interest rate risk, including (i) loans held for sale ("LHFS"), which consist of mortgage loans and home equity line of credit and closed-end second lien loans held on our consolidated balance sheet for a short period of time after origination until we are able to sell them; (ii) interest rate lock commitments ("IRLCs"); (iii) MSRs, which may be held on our consolidated balance sheet for a period of time after origination until we are able to sell them; and (iv) forward sales contracts that we enter into to manage interest rate risk created by IRLCs and uncommitted LHFS. As interest rates increase, (i) our LHFS and IRLCs generally decrease in value, (ii) the corresponding hedging arrangements that hedge against interest rate risk typically increase in value and (iii) the value of our MSRs (to the extent retained) tend to increase due to a decline in mortgage loan prepayments. Conversely, as interest rates decline, (i) our LHFS and IRLCs generally increase in value, (ii) our hedging arrangements decrease in value and (iii) the value of our MSRs tend to decrease due to borrowers refinancing their mortgage loans. In order to mitigate direct exposure to interest rate risk between the time at which a borrower locks a loan and the sale of the loan into our purchaser network, we enter into IRLCs and other hedging agreements.
Beginning in April 2021, the United States began experiencing a significant rise in interest rates, which increased for a variety of reasons, including inflation, increases to the federal funds rate and other monetary policy tightening, market capacity constraints and other factors, which continued in 2023 and 2024, resulting in a decrease in overall funding activities in the mortgage market generally. As interest rates rise, the population of customers who can save money by refinancing, because their existing mortgage rate is higher than current mortgage rates, declines. In addition, higher prevailing market rates both reduce the propensity of new home buyers to enter the market and reduce those willing to sell their homes or take existing equity out of their homes through a cash-out refinance. This creates a supply-demand imbalance where mortgage lenders are competing for fewer customers, and become increasingly price competitive to win business, thereby accepting lower potential Gain on Sale Margin. This competition manifests in industry-wide gain on sale compression and decreased industry origination volume in higher rate environments.
We expect that our results will continue to fluctuate based on a variety of factors, including interest rates, and that as we continue to seek to increase our business and our Funded Loan Volume, we may continue to incur net losses in the future.
Market and Economic Environment
The consumer lending market and the associated loan origination volumes for mortgage loans are influenced by general economic conditions, including the interest rate environment, unemployment rates, home price appreciation and consumer confidence. Purchase loan origination volumes are generally affected by a broad range of economic factors, including interest rate fluctuations, the overall strength of the economy, unemployment rates and home prices, as well as seasonality, as home sales typically rise in the second and third quarters.
Mortgage loan refinancing volumes are primarily driven by fluctuations in mortgage loan interest rates. While borrower demand for consumer credit has typically remained strong in most economic environments, potential borrowers could defer seeking financing during periods with elevated or unstable interest rates or poor economic conditions. As a result, our revenues can vary significantly from quarter to quarter, and recent increases to interest rates and inflationary macroeconomic conditions significantly affect our financial performance.
Constrained Home Supply Ultimately Drives Further Construction and Purchase Volume
The supply of homes available for purchase and the market prices for homes on offer are significant drivers of purchase mortgage volume. We believe that constrained home supply contributes to constrained new home sales and purchase mortgage volume. Concurrently, constrained home supply, including as a result of elevated interest rates, and substantial demand has led to higher home prices, which in turn slows both growth of new home sales and purchase mortgage volume. In the longer term, however, we believe that such imbalances of supply and demand could drive greater home building to bring additional home supply into the market and create additional purchase mortgage volume going forward.
Continued Growth and Acceptance of Digital Loan Solutions
Our ability to attract new customers depends, in large part, on our ability to provide a seamless and superior customer experience, maintain competitive pricing and meet and exceed the expectations of our customers. Consumers are increasingly willing to execute large and complex purchases through digital platforms. Over the last few years, we have witnessed increased consumer desire to transact online in larger spend categories, including furniture, travel, and auto. We believe this trend will also impact consumer preferences in loans, particularly as homeownership rates among Millennials and Generation Z rise. Our platform provides a seamless, convenient customer experience that provides us with a significant competitive advantage over legacy platforms.
We also believe legacy financial institutions, real estate brokers, insurance companies, title companies and others in the homeownership ecosystem are increasingly looking for third-party technology solutions that will allow them to compete with digital-native companies and provide their customers with a better experience less expensively than they can build themselves. As a result, we expect the demand for loan technology solutions will continue to grow and support our ecosystem growth across B2B partners, market participants and loan purchaser networks.
Expanding our Technological Innovation
Our proprietary technology is built to optimize our customers' experiences, increase speed, decrease loan manufacturing cost, and enhance loan production quality. Through our investment in proprietary technology, we are automating and streamlining tasks within the origination process for our consumers, employees and partners. Our customized user interfaces replace paper applications and human interaction, allowing our customers and partners to
quickly and efficiently identify, price, apply for and execute mortgage loans. We expect to continue to invest in developing technology, tools and features that further automate the loan manufacturing process, reducing our manufacturing and customer acquisition costs and improving our customer experience.
Expanding Homeownership Product Offerings
We expect to continue to add new types of Home Finance mortgage loans and integrated Better Plus marketplace offerings to our platform over time, providing our customers with a one-stop shop for all of their homeownership needs. We have invested significantly and expect to continue to invest in our proprietary technology, which is designed to allow us to seamlessly add new offerings, partners and marketplace participants without incurring significant additional marketing and advertising and product development cost.
Ability to Acquire New Customers and Scale Customer Acquisitions
Our ability to attract new customers and scale customer acquisitions depends, in large part, on our ability to continue to provide seamless and superior customer experiences and competitive pricing. We seek to reach new customers efficiently and at scale across demographics and to provide a high-touch personalized experience across digital interactions throughout the customer lifecycle.
To the extent that our traditional approach to customer acquisitions is not successful in achieving the levels of growth that we seek, including in particular in an environment of rising interest rates or constrained housing capacity, or that we do not remain near the top of lead aggregator sites, we may be required to devote additional financial resources and personnel to our sales and marketing efforts, which would increase the cost base for our services.
Key Business Metrics
In addition to the measures presented in our 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):
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Key Business Metric
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Year Ended December 31, 2024
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Year Ended December 31, 2023
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Home Finance
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Funded Loan Volume
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$ | 3,594 | $ | 3,015 | ||||||||||
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Refinance Loan Volume
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$ | 463 | $ | 203 | ||||||||||
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Purchase Loan Volume
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$ | 2,652 | $ | 2,745 | ||||||||||
| HELOC Volume | $ | 479 | $ | 67 | ||||||||||
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D2C Loan Volume
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$ | 2,562 | $ | 1,649 | ||||||||||
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B2B Loan Volume
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$ | 1,032 | $ | 1,366 | ||||||||||
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Total Loans (number of loans, not millions)
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11,755 | 8,569 | ||||||||||||
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Average Loan Amount ($ value, not millions)
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$ | 305,757 | $ | 351,877 | ||||||||||
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Gain on Sale Margin
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2.17 | % | 1.95 | % | ||||||||||
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Total Market Share
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0.2 | % | 0.2 | % | ||||||||||
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Better Plus
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Better Real Estate Transaction Volume
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$ | 367 | $ | 503 | ||||||||||
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Insurance Coverage Written
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$ | 4,321 | $ | 4,956 | ||||||||||
Home Finance
Funded Loan Volumerepresents 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 $3,594 million for the year ended December 31, 2024 increased by approximately 19% from $3,015 million for the year ended December 31, 2023. Beginning in 2023, we also include HELOC and closed-end second lien loans in our Funded Loan Volume. For the year ended December 31,
2024, purchase and refinance loans comprised $3,115 million and HELOC and closed-end second lien loans comprised $479 million of Funded Loan Volume.
Refinance Loan Volumerepresents 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 $463 million for the year ended December 31, 2024 increased by approximately 128% from $203 million for the year ended December 31, 2023.
Purchase Loan Volumerepresents 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 of $2,652 million for the year ended December 31, 2024 decreased by approximately 3% from $2,745 million for the year ended December 31, 2023.
HELOC Loan Volumerepresents 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 $479 million for the year ended December 31, 2024 from $67 million for the year ended December 31, 2023.
D2C Loan Volumerepresents 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 $2,562 million for the year ended December 31, 2024 increased by approximately 55% from $1,649 million for the year ended December 31, 2023.
B2B Loan Volumerepresents 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 $1,032 million for the year ended December 31, 2024 decreased by approximately 24% from $1,366 million for the year ended December 31, 2023.
Total Loansrepresents 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 11,755 for the year ended December 31, 2024 increased by approximately 37% from 8,569 for the year ended December 31, 2023.
Purchase and refinance loans comprised 7,795 of the Total Loans the year ended December 31, 2024 and HELOC and closed-end second lien loans comprised 3,960 of the Total Loans the year ended December 31, 2024.
Average days loans held for sale for the years ended December 31, 2024 and 2023, were approximately 21 and 22 days, 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 Better Home & Finance generally aims to sell loans shortly after production.
Average Loan Amountrepresents Funded Loan Volume divided by Total Loans in a period. Our Average Loan Amount decreased by approximately 13% to $305,757 for the year ended December 31, 2024 from $351,877 for the year ended December 31, 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 the growth of HELOC and closed-end second lien growth as a percentage of our fundings.
Gain on Sale Marginrepresents gain on loans, net, as presented on our consolidated statements of operations and comprehensive loss, divided by Funded Loan Volume. Gain on Sale Margin increased by approximately 11% year-over-year to 2.17% for the year ended December 31, 2024 from 1.95% for the year ended December 31, 2023. We saw an increase in our Gain on Sale Margin for the year ended December 31, 2024 compared to the year ended December 31, 2024, as a result of improved pricing on loans funded.
Total Market Sharerepresents 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% for the year ended December 31, 2024 remained substantially the same as0.2% for the year ended December 31, 2023. 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 Volumerepresents 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 Writtenrepresents 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 purchase/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.
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 recognize 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. During the fourth quarter of 2024, management enacted a plan to sell several entities in the U.K. which are being actively marketed, as such the revenue from our international lending activities is winding down.
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, through our U.K. banking operations. Interest expense includes interest expense on warehouse lines of credit, interest expense on customer deposits, through our U.K. banking operations, as well as interest expense on the convertible note, a senior subordinated convertible note in the aggregate principal amount of $528.6 million issued to SB Northstar LP, a related party (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. Compensation and benefits excludes amounts capitalized for internal developed software.
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.
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.
Results of Operations
The following table sets forth certain consolidated financial data for each of the periods indicated:
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Year Ended December 31,
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(Amounts in thousands, except per share amounts)
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2024 | 2023 | |||||||||
| Revenues: | |||||||||||
| Gain on loans, net | $ | 78,098 | $ | 58,796 | |||||||
| Other revenue | 12,888 | 16,109 | |||||||||
| Net interest income | |||||||||||
| Interest income | 38,990 | 29,031 | |||||||||
| Interest expense | (21,488) | (31,596) | |||||||||
| Net interest income/(loss) | 17,502 | (2,565) | |||||||||
| Total net revenues | 108,488 | 72,340 | |||||||||
| Expenses: | |||||||||||
| Compensation and benefits | 141,089 | 181,735 | |||||||||
| General and administrative | 52,230 | 60,150 | |||||||||
| Technology | 26,110 | 39,431 | |||||||||
| Marketing and advertising | 33,984 | 19,523 | |||||||||
| Loan origination expense | 9,864 | 9,476 | |||||||||
| Depreciation and amortization | 33,227 | 42,891 | |||||||||
| Other expenses/(Income) | 17,424 | 253,556 | |||||||||
| Total Expenses | 313,928 | 606,762 | |||||||||
| Loss before income tax (benefit)/expense | (205,440) | (534,422) | |||||||||
| Income tax expense (benefit) | 850 | 1,998 | |||||||||
| Net loss | $ | (206,290) | $ | (536,420) | |||||||
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Earnings (loss) per share attributable to common stockholders (Basic)
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$ | (13.65) | $ | (58.09) | |||||||
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Earnings (loss) per share attributable to common stockholders (Diluted)
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$ | (13.65) | $ | (58.09) | |||||||
Year Ended December 31, 2024 as Compared to Year Ended December 31, 2023
Revenues
The components of our revenues for the period were:
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Year Ended December 31,
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(Amounts in thousands)
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2024 | 2023 | |||||||||
| Revenues: | |||||||||||
| Gain on loans, net | $ | 78,098 | $ | 58,796 | |||||||
| Other revenue | 12,888 | 16,109 | |||||||||
| Net interest income | |||||||||||
| Interest income | 38,990 | 29,031 | |||||||||
| Interest expense | (21,488) | (31,596) | |||||||||
| Net interest income/(loss) | 17,502 | (2,565) | |||||||||
| Total net revenues | 108,488 | 72,340 | |||||||||
Gain on loans, net
The components of our gain on loans, net for the period were:
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Year Ended December 31,
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| (Amounts in thousands) | 2024 | 2023 | |||||||||
| Gain on sale of loans, net | $ | 59,242 | $ | 46,678 | |||||||
| Integrated partnership fees | 8,933 | 10,295 | |||||||||
| Loan repurchase reserve recovery/(provision) | 9,923 | 1,823 | |||||||||
| Total gain on loans, net | $ | 78,098 | $ | 58,796 | |||||||
Gain on sale of loans, net increased $12.6 million or 27% to $59,242 for the year ended December 31, 2024 compared to $46,678 for the year ended December 31, 2023. The increase was largely driven by increases in revenue related to HELOC loan volume which increased to $479 million for the year ended December 31, 2024 from $67 million for the year ended December 31, 2023.
Integrated partnership fees decreased $1.4 million, or 13% to $8.9 million for the year ended December 31, 2024, compared to $10.3 million for the year ended December 31, 2023. The decrease in integrated partnership fees was primarily driven by the reduction in B2B Loan Volume. Our integrated relationship is in the process of winding down due to a shift in strategic direction for the integrated partner.
Loan repurchase reserve recovery increased $8.1 million or 444%, to $9.9 million for the year ended December 31, 2024, compared to a recovery of $1.8 million for the year ended December 31, 2023. This recovery is a component of the loan repurchase reserve liability, which decreased because of the reduction in our estimate of loss exposure during the periods when we had a significantly higher funded loan volume. The reduction in the loan repurchase reserve liability is recognized as a recovery within gain on loans, net.
Other Revenue
The components of other revenue for the period were:
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Year Ended December 31,
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| (Amounts in thousands) | 2024 | 2023 | |||||||||
| International lending revenue | $ | 3,999 | $ | 3,410 | |||||||
| Insurance Services | 3,466 | 3,026 | |||||||||
| Real estate services | 2,470 | 7,396 | |||||||||
| Other revenue | $ | 2,953 | $ | 2,277 | |||||||
| Total other revenue | $ | 12,888 | $ | 16,109 | |||||||
International lending revenue increased $0.6 million, or 17% to $4.0 million for the year ended December 31, 2024 compared to $3.4 million for the year ended December 31, 2023. The increase in international lending revenue was primarily driven by increased operations in the U.K. brokerage businesses.
Insurance services increased $0.4 million, or 15% to $3.5 million for the year ended December 31, 2024 compared to $3.0 million for the year ended December 31, 2023. The minimal increase in insurance services revenue was driven by increases in revenue per policy due to increases in policy values, increased title insurance premiums due to an increase in originations, and a small amount of growth in U.K. insurance products.
Real estate services decreased $4.9 million, or 67% to $2.5 million for the year ended December 31, 2024 compared to $7.4 million for the year ended December 31, 2023. The decrease in real estate services was primarily driven by a reduction in Better Real Estate Transaction Volume as well as earning lower revenue per transaction for the year ended December 31, 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.
Other revenue increased by $0.7 million, or 30% to $3.0 million for the year ended December 31, 2024 compared to $2.3 million for the year ended December 31, 2023. The change in other revenue was driven by changes in mortgage and non-mortgage loan servicing activities in the U.S. and U.K. as well as other miscellaneous income.
Net Interest Income
The components of our net interest income for the period were:
|
Year Ended December 31,
|
|||||||||||
| (Amounts in thousands) | 2024 | 2023 | |||||||||
| Mortgage interest income | $ | 19,839 | $ | 15,317 | |||||||
| Interest Income from Investments | 19,151 | 13,714 | |||||||||
| Warehouse interest expense | (13,766) | (11,680) | |||||||||
| Other interest expense | $ | (7,722) | $ | (19,916) | |||||||
| Total net interest income/(loss) | $ | 17,502 | $ | (2,565) | |||||||
Mortgage interest income increased $4.5 million, or 30% to $19.8 million for the year ended December 31, 2024 compared from $15.3 million of the year ended December 31, 2023. The increase in Mortgage interest income was driven by increased Funded Loan Volume and Total Loans originated.
Interest income from investments increased $5.4 million, or 40% to $19.2 million for the year ended December 31, 2024 compared to $13.7 million for the year ended December 31, 2023. The increase in interest income from investment was primarily driven by increased investments in 2024 in securities with maturities less than 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 increased $2.1 million, or 18% to $13.8 million for the year ended December 31, 2024 compared to $11.7 million for the year ended December 31, 2023. The increase in warehouse interest expense was primarily driven by carrying a higher average warehouse balance over the year ended December 31, 2024 compared to year ended December 31, 2023. The increase for the year was driven by higher funded loan volume.
Other interest expense decreased $12.2 million, or 61% to $7.7 million for the year ended December 31, 2024 compared to $19.9 million for the year ended December 31, 2023. Other interest expense for the year ended December 31, 2024 is related to interest expense on the Convertible Note, which is at a lower interest rate of 1% in kind interest. Interest expense for the year ended December 31, 2023 is related to interest expense on our corporate line of credit, which was at a higher interest rate, with one tranche incurring a fixed rate of 8.5% and a second tranche incurring at the 30-day term SOFR plus 9.5%, and was subsequently paid off in full in August 2023.
Expenses
The components of our expenses for the period were:
|
Year Ended December 31,
|
|||||||||||
| (Amounts in thousands) | 2024 | 2023 | |||||||||
| Compensation and benefits | 141,089 | 181,735 | |||||||||
| General and administrative | 52,230 | 60,150 | |||||||||
| Technology | 26,110 | 39,431 | |||||||||
| Marketing and advertising | 33,984 | 19,523 | |||||||||
| Loan origination expense | 9,864 | 9,476 | |||||||||
| Depreciation and amortization | 33,227 | 42,891 | |||||||||
| Other expenses/(Income) | 17,424 | 253,556 | |||||||||
|
Total operating expenses
|
$ | 313,928 | $ | 606,762 | |||||||
Compensation and benefits expenses were $141.1 million for the year ended December 31, 2024, a decrease of $40.6 million or 22% as compared with $181.7 million for the year ended December 31, 2023. We reduced our headcount between the two periods, which lead to a decrease in compensation and benefits. Further, we had a significantly higher
stock based compensation expense during year ended December 31, 2023 of $54.2 million compared to $26.8 million during the year ended December 31, 2024, which was primarily due to awards that had met the liquidity event criteria with the Closing of the Business Combination in August 2023 as well as service based conditions during that period.
General and administrative expenses were $52.2 million for the year ended December 31, 2024, a decrease of $8.0 million or 13% as compared with $60.2 million in the year ended December 31, 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 decreases in professional services as we were incurring higher legal and professional expenses leading up to the Closing of the Business Combination for the year ended December 31, 2023 in comparison to the year ended December 31, 2024. This decrease was offset by increased operating expenses associated with maintaining public company infrastructure for the year ended December 31, 2024.
Technology expenses were $26.1 million for the year ended December 31, 2024, a decrease of $13.3 million or 34% as compared with $39.4 million in the year ended December 31, 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, which occurred in early 2023.
Marketing and advertising expenses were $34.0 million for the year ended December 31, 2024, an increase of $14.5 million or 74% as compared with $19.5 million in the year ended December 31, 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 $9.9 million for the year ended December 31, 2024, and increase of $0.4 million or 4%, as compared with $9.5 million in the year ended December 31, 2023. The small increase in loan origination expenses was driven by increased funded loan volume which was offset by improved technology efficiencies that reduced the reliance on certain loan origination vendors.
Other expenses/(income) was an expense of $17.4 million for the year ended December 31, 2024, a decrease of $236.1 million or 93%, as compared with expenses of $253.6 million in the year ended December 31, 2023. The decrease in other expenses was primarily driven by a loss of $236.6 million on the fair value of the embedded derivative included within the Pre-Closing Bridge Notes which converted to common stock in connection with the Closing of the Business Combination during year ended December 31, 2023.
Other Changes in Financial Condition
The following table sets forth material changes to our summary balance sheet between December 31, 2024 and December 31, 2023:
|
(Amounts in thousands, except share and per share amounts)
|
December 31, 2024 |
December 31, 2023 |
Increase/ (Decrease)
|
||||||||||||||
|
Assets
|
|||||||||||||||||
|
Cash and cash equivalents
|
$ | 211,101 | $ | 503,591 | $ | (292,490) | |||||||||||
| Short-term investments | 53,774 | 25,597 | 28,177 | ||||||||||||||
|
Mortgage loans held for sale, at fair value
|
399,241 | 170,150 | 229,091 | ||||||||||||||
| Loans held for investment | 111,477 | 4,793 | 106,684 | ||||||||||||||
| Right-of-use assets | 1,387 | 19,988 | (18,601) | ||||||||||||||
|
Other combined assets
|
136,077 | 181,435 | (45,358) | ||||||||||||||
|
Total Assets
|
$ | 913,057 | $ | 905,554 | $ | 7,503 | |||||||||||
| Liabilities and Stockholders' (Deficit)/Equity | |||||||||||||||||
|
Liabilities
|
|||||||||||||||||
|
Warehouse lines of credit
|
$ | 244,070 | $ | 126,218 | $ | 117,852 | |||||||||||
| Convertible Note | 519,749 | 514,644 | 5,105 | ||||||||||||||
| Customer Deposits | 134,130 | 11,839 | 122,291 | ||||||||||||||
| Lease liabilities | 4,081 | 31,202 | (27,121) | ||||||||||||||
|
Other combined liabilities
|
69,197 | 99,051 | (29,854) | ||||||||||||||
|
Total Liabilities
|
971,227 | 782,954 | 188,273 | ||||||||||||||
| Stockholders' (Deficit) /Equity | |||||||||||||||||
|
Additional paid-in capital 1
|
1,863,288 | 1,838,499 | 24,789 | ||||||||||||||
|
Accumulated deficit
|
(1,910,366) | (1,704,076) | (206,290) | ||||||||||||||
|
Other combined equity
|
(11,092) | (11,823) | 731 | ||||||||||||||
|
Total Stockholders' Equity (Deficit)
|
(58,170) | 122,600 | (180,770) | ||||||||||||||
|
Total Liabilities, Convertible Preferred Stock, and Stockholders' Equity (Deficit)
|
$ | 913,057 | $ | 905,554 | $ | 7,503 | |||||||||||
1.Periods have been adjusted to reflect the 1-for-50 reverse stock split on August 16, 2024. See Note 1 Organization and Nature of the Business - Reverse Stock Split, for additional information.
Total Cash and cash equivalents decreased $292.5 million or 58%, to $211.1 million as of December 31, 2024 compared to $503.6 million as of December 31, 2023. See the liquidity and capital resources section below for further details on cash flows from operating, investing, and financing activities.
Short-term investments increased $28.2 million, or 110%, to $53.8 million as of December 31, 2024 compared to $25.6 million as of December 31, 2023. The increase in short-term investments was driven by our cash management strategies in deploying excess cash as a result of the Closing of the Business Combination. Short-term investments consist of fixed income securities, typically U.S. and U.K. government treasury securities with maturities ranging from 91 days to one year.
Mortgage loans held for sale, at fair value increased $229.1 million, or 135%, to $399.2 million as of December 31, 2024 compared to $170.2 million as of December 31, 2023. The increase in Mortgage loans held for sale, at fair value was largely driven by a significant increase in HELOC which we have put efforts in growing this product line in 2024. The increase was also driven by increases in refinanced loan volume which have been impacted by the fluctuations in interest rates over 2024.
Loans held for investment increased $106.7 million, or 2226%, to $111.5 million as of December 31, 2024 compared to $4.8 million as of December 31, 2023. The increase in loans held for investment was driven by our growth efforts in the U.K., namely our banking entity. The majority of the Loans Held for Investment portfolio consists of property - buy to let loans, which increased $110.5 million, or 10045%, to $111.6 million as of December 31, 2024 compared to $1.1 million as of December 31, 2023. Loans held for investment are originated with our cash on hand as well as with increases in customer deposits at our U.K. banking entity.
Right-of-use assets decreased $18.6 million, or 93%, to $1.4 million as of December 31, 2024 compared to $20.0 million as of December 31, 2023, while lease liabilities decreased $27.1 million, or 87%, to $4.1 million as of
December 31, 2024 compared to $31.2 million as of December 31, 2023. The decrease in right-of-use assets and lease liabilities was primarily driven by a lease modification of our corporate headquarters where we reduced the lease term from June 30, 2030 to November 1, 2024 which resulted in a remeasurement and reduction of the right-of-use asset and respective lease liability.
Funds outstanding under our warehouse lines of credit increased $117.9 million, or 93%, to $244 million as of December 31, 2024 compared to $126.2 million as of December 31, 2023. The increase in loans outstanding under our warehouse lines of credit was commensurate with the increase in mortgage loans held for sale at fair value, excluding HELOC as those loans are funded with our operations.
The Convertible Note increased $5.1 million to $519.7 million as of December 31, 2024 compared to $514.6 million as of December 31, 2023. The increase in the Convertible Note was generated by the in kind interest expense on the Convertible Note accrued at fair value as well as accretion of the discount on the Convertible Note. In connection with the Closing of the Business Combination, the Company issued to SB Northstar the Convertible Note, which is a senior subordinated convertible note in the aggregate principal amount of $528.6 million, less the unamortized debt discount.
Customer deposits increased $122.3 million, or 1033%, to $134.1 million, as of December 31, 2024 compared to $11.8 million as of December 31, 2023. The increase is primarily due to growth efforts at our banking entity in the U.K., which customer deposits are used to fund loans held for investment.
Additional paid-in capital increased $24.8 million, or 1%, to $1,863.3 million as of December 31, 2024 compared to $1,838.5 million as of December 31, 2023. The increase in additional paid-in capital was primarily driven by stock-based compensation that was generated over the period.
Accumulated deficit increased $206.3 million, or 12%, to $1,910.4 million as of December 31, 2024 compared to $1,704.1 million as of December 31, 2023. The increase in accumulated deficit was driven by the net loss of $206.3 million incurred for the year ended December 31, 2024 as discussed in our results of operations in the section above.
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.
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 consolidated financial statements and notes thereto in their entirety included elsewhere in this Annual Report, 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.
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 years indicated:
|
Year Ended December 31,
|
|||||||||||
|
(Amounts in thousands)
|
2024 | 2023 | |||||||||
|
Adjusted Net Loss
|
|||||||||||
|
Net (loss) income
|
$ | (206,290) | $ | (536,420) | |||||||
|
Stock-based compensation expense (1)
|
26,753 | 54,160 | |||||||||
|
Change in fair value of warrants and equity related liabilities (2)
|
(924) | 507 | |||||||||
|
Change in fair value of convertible preferred stock warrants (2)
|
- | (266) | |||||||||
|
Change in fair value of bifurcated derivative (3)
|
- | 236,603 | |||||||||
|
Restructuring, impairment, and other expenses (4)
|
17,659 | 17,459 | |||||||||
|
Adjusted Net Loss
|
$ | (162,802) | $ | (227,957) | |||||||
|
Adjusted EBITDA
|
|||||||||||
|
Net (loss) income
|
$ | (206,290) | $ | (536,420) | |||||||
|
Income tax expense / (benefit)
|
850 | 1,998 | |||||||||
|
Depreciation and amortization expense (5)
|
33,227 | 42,891 | |||||||||
|
Stock-based compensation expense (1)
|
26,753 | 54,160 | |||||||||
|
Interest and amortization on non-funding debt (6)
|
7,722 | 19,916 | |||||||||
|
Restructuring, impairment, and other expenses (4)
|
17,659 | 17,459 | |||||||||
|
Change in fair value of warrants and equity related liabilities (2)
|
(924) | 507 | |||||||||
|
Change in fair value of convertible preferred stock warrants (2)
|
- | (266) | |||||||||
|
Change in fair value of bifurcated derivative (3)
|
- | 236,603 | |||||||||
|
Adjusted EBITDA
|
$ | (121,003) | $ | (163,152) | |||||||
__________________
(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 details on the breakout, please refer to Note 5 to our consolidated financial statements included elsewhere in this Annual Report.
(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.
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 December 31, 2024, we had 3 warehouse lines of credit in different amounts and with various maturities, with an aggregate available amount of $425 million.
On August 22, 2023, the Company consummated the Business Combination. Gross proceeds from the Business Combination totaled approximately $568 million, which included funds held in Aurora's trust account of $21.4 million, the purchase for $17.0 million by the Sponsor of 1.7 million shares of Class A Common Stock, and $528.6 million from SB Northstar LP in return for issuance by Better Home & Finance of the Convertible Note.
Warehouse Lines of Credit
Our warehouse lines of credit are primarily in the form of master repurchase agreements and loan participation agreements. Loans financed under these facilities are generally financed at approximately 95% to 98% of the principal
balance of the loan (although certain types of loans are financed at lower percentages of the principal balance of the loan), which requires us to fund the balance from cash generated from our operations. Once closed, the underlying residential loan that is held for sale is pledged as collateral for the borrowing or advance that was made under our warehouse lines of credit. In most cases, the loans will remain in one of the warehouse lines of credit for only a short time, generally less than one month, until the loans are sold. During the time the loans are held for sale, we earn interest income from the borrower on the underlying loan. This income is partially offset by the interest and fees we pay due to borrowings from the warehouse lines of credit.
As of December 31, 2024 and 2023, we had the following outstanding warehouse lines of credit:
| (Amounts in thousands) |
Maturity
|
Facility Size
|
Amount
Outstanding
December 31, 2024
|
Amount
Outstanding
December 31, 2023
|
|||||||||||||||||||
|
Funding Facility 1 (1)
|
September 30, 2025 | 100,000 | 60,747 | 61,709 | |||||||||||||||||||
|
Funding Facility 2 (2)
|
March 6, 2025 | 150,000 | 74,472 | 40,088 | |||||||||||||||||||
|
Funding Facility 3 (3)
|
August 1, 2025 | 175,000 | 108,851 | 24,421 | |||||||||||||||||||
| Total warehouse lines of credit | $ | 425,000 | $ | 244,070 | $ | 126,218 | |||||||||||||||||
__________________
(1)Interest charged under the facility is at the 30-day term SOFR plus 2.125%. Cash collateral deposit of $15.0 million is maintained and included in restricted cash.
(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. Subsequent to December 31, 2024, the Company extended the maturity to March 6, 2026.
(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 December 31, 2024.
The amount of financing advanced on each individual loan under our warehouse lines of credit, as determined by agreed-upon advance rates, may be less than the stated advance rate depending, in part, on the market value of the loans securing the financings. Each of our warehouse lines of credit allows the bank providing the funds to evaluate the market value of the loans that are serving as collateral for the borrowings or advances being made and to satisfy certain covenants, including providing information and documentation relating to the underlying loans. If the bank determines that the value of the collateral has decreased or if other conditions are not satisfied, the bank can require us to provide additional collateral or reduce the amount outstanding with respect to those loans (e.g., initiate a margin call). Our inability or unwillingness to satisfy the request could result in the termination of the facilities and possible default under our other warehouse lines of credit. In addition, a large unanticipated margin call could have a material adverse effect on our liquidity.
Our warehouse lines of credit also generally require us to comply with certain operating and financial covenants, and the availability of funds under these facilities is subject to, among other conditions, our continued compliance with these covenants. These financial covenants include, but are not limited to, maintaining (1) a certain minimum tangible net worth and adjusted tangible net worth, (2) minimum liquidity, and (3) a maximum ratio of total liabilities or total debt to adjusted tangible net worth. A breach of these covenants can result in an event of default under these facilities and as such allows the lenders to pursue certain remedies. In addition, each of these facilities includes cross default or cross acceleration provisions that could result in all facilities terminating if an event of default or acceleration of maturity occurs under any facility. As of the date hereof, we are in full compliance with all financial covenants under our warehouse lines of credit. We believe that the covenants required under the warehouse lines of credit currently provide us with sufficient flexibility to operate our business and obtain the financing necessary for that purpose.
Issuance of Convertible Note
In August 2023 in connection with the Closing of the Business Combination, we issued to SB Northstar LP the Convertible Note pursuant to an Indenture, dated as of August 22, 2023 (the "Indenture"), in the aggregate principal amount of $528.6 million. The Convertible Note bears 1% interest per annum and matures on August 22, 2028, unless earlier converted or redeemed. Per the Indenture, we may elect to pay all or any portion of interest in kind by issuing to the holder of such note an additional note or in cash. The Convertible Note is convertible, at the option of SB Northstar LP, into shares of the Company's Class A Common Stock, with an initial conversion rate per $1,000 principal amount of Convertible Note equal to (a) $1,000 divided by (b) a dollar amount equal to 115% of the First Anniversary VWAP (as defined in the Indenture), subject to adjustments as described therein. The Indenture provides that the First Anniversary VWAP may be no less than $8.00 and no greater than $12.00, subject to adjustments as described therein. The Convertible Note may be redeemed at the option of the Company at a redemption price of 115% of par plus accrued interest in cash, at
any time on or before the 30th trading day prior to the maturity date of the Convertible Note if the last reported sale price of the Class A Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days during the 30 trading day period ending on, and including, the trading day immediately preceding the date of notice of optional redemption.
The Convertible Note permits the Company to designate up to $150 million of indebtedness that is senior to the Convertible Note, in addition to certain other customary exceptions. In addition, the Indenture requires that if a domestic subsidiary of the Company guarantees other senior indebtedness of the Company, such subsidiary would also be required to guarantee the Convertible Note, subject to certain exceptions for non-profit subsidiaries and regulated mortgage origination subsidiaries.
Nasdaq Compliance Requirements
On August 16, 2024, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation, effecting the 1-for-50 reverse stock split of the Company's common stock (the "Reverse Stock Split") for the primary purpose of increasing the per share trading price of the Company's Class A common stock to enable us to regain compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market (the "Nasdaq"). Our Class A common stock began trading on a split-adjusted basis on the Nasdaq upon the market open on Monday, August 19, 2024.
Effective August 16, 2024, as a result of the Reverse Stock Split, every 50 shares of the our issued and outstanding common stock was converted into one issued and outstanding share of Class A common stock, Class B common stock and Class C common stock, as applicable, without any change to the par value per share, the voting rights of the common stock, any stockholder's percentage interest in the Company's equity or any other aspect of the common stock.
As previously reported, on October 12, 2023, the Company was notified by the Listing Qualifications Staff (the "Staff") of Nasdaq that the Company's common stock failed to maintain a minimum bid price of $1.00 over the previous 30 consecutive business days as required by the Listing Rules of Nasdaq. 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.
On September 3, 2024, the Company received a letter from Nasdaq notifying us that the Staff has determined that for the last 10 consecutive business days, from August 19, 2024, to August 30, 2024, the closing bid price of the our common stock has been at $1.00 per share or greater, and accordingly, we have regained compliance with Listing Rule 5550(a)(2) and the matter is now closed.
Cash Flows
The following table summarizes our cash flows for the periods presented:
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Year Ended December 31,
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(in thousands)
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2024 | 2023 | |||||||||
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Net cash (used in) provided by operating activities
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$ | (379,971) | $ | (159,720) | |||||||
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Net cash (used in) provided by investing activities
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$ | (143,810) | $ | (38,594) | |||||||
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Net cash provided by (used in) financing activities
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$ | 239,131 | $ | 381,402 | |||||||
Year Ended December 31, 2024 as Compared to Year Ended December 31, 2023
Operating Activities
Net cash used by operating activities was $380 million for the year ended December 31, 2024, an increase of $220 million, or 138%, compared to net cash used by operating activities of $160 million for the year ended December 31, 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 current period. Also contributing to cash used by operating activities were net losses over the period.
Investing Activities
Net cash used in investing activities was $144 million for the year ended December 31, 2024, an increase in cash used of $105 million, or 269%, compared to net cash used in investing activities of $39 million for the year ended December 31, 2023. The increase in cash used in investing activities primarily consists of originations of short-term investments and loans held for investment, namely through our U.K. banking entity which the Company has focused on growing during the year ended December 31, 2024. Loans held for investment are funded from our cash on hand as well as growth in customer deposits held by our U.K. banking entity.
Financing Activities
Net cash provided by financing activities was $239 million for the year ended December 31, 2024, an decrease of $142 million, or 37%, compared to net cash provided by financing activities of $381 million for the year ended December 31, 2023. The decrease in cash provided by financing activities was primarily driven by the Closing of the Business Combination during the year ended December 31, 2023, which led to a cash increase of $401 million mainly from the issuance of the Convertible Note, issuance of common stock, and proceeds of the Business Combination, offset by the repayment of the Corporate Line of Credit. During the year ended December 31, 2024, our cash provided by financing activities was mainly driven by an increase in customer deposits, namely through our U.K. banking entity, and as well as borrowings on our warehouse lines of credit in excess of payments on our warehouse lines of credit used to fund loans towards the end of the year.
Material Cash Requirements
Operating lease commitments
While we have many small offices across the country for licensing purposes, we lease significant office space under operating leases with various expiration dates through June 2030 in New York, California, North Carolina, Texas, Michigan, India, and in the U.K. For the years ended December 31, 2024 and 2023, our operating lease costs were $10 million and $12 million, respectively.
In 2021, we began to reduce our real estate footprint in response to our restructuring and headcount reduction initiatives. We have impaired right-of-use assets related to office space that is no longer in use or has been completely abandoned. Leases where we were unable to terminate or amend the lease with the landlord remain on the balance sheet under operating lease liabilities. Although these restructuring initiatives have concluded as of December 31, 2024, we will continue to assess our cost structure and make adjustments were necessary. As of December 31, 2024 and 2023, we had lease liabilities of $4.1 million and $31.2 million, respectively.
Other Cash Requirements
We also have contractual obligations that are short-term, including:
Repurchase and indemnification obligations
In the ordinary course of business, we are exposed to liability under representations and warranties made to purchasers of loans or MSRs. Under certain circumstances, we may be required to repurchase loans, replace the loan with a substitute loan and/or indemnify secondary market purchasers of such loans for losses incurred.
We also may be subject to claims by purchasers for repayment of all or a portion of the premium we receive from such purchaser on the sale of certain loans or MSRs if such loans or MSRs are repaid in their entirety within a specified time period after the sale of the loan.
Interest rate lock commitments and forward sale commitments
We enter into IRLCs to produce loans at specified interest rates and within a specified period of time with potential borrowers who have applied for a loan and meet certain credit and underwriting criteria. IRLCs are binding agreements to lend to a customer at a specified interest rate within a specified period of time as long as there is no violation of conditions established in the contract.
In addition, we enter into forward sales commitment contracts to sell existing LHFS or loans committed but yet to be funded into the secondary market at a specified price on or before a specified date. These contracts are loan sale agreements in which we commit to deliver a mortgage loan of a specified principal amount and quality to a loan purchaser.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as described 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
Discussion and analysis of our financial condition and results of operations are based on our financial statements which have been prepared in accordance with GAAP. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our management evaluates our estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Our significant accounting policies are described in "Note 2. Summary of Significant Accounting Policies" to our consolidated financial statements included elsewhere in this Annual Report.
Recent Accounting Pronouncements
See "Note 2. Summary of Significant Accounting Policies" to our consolidated financial statements included with this Annual Report, for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Annual Report.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company ("EGC"), as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts EGCs from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an EGC can elect to opt out of the extended transition period and comply with the requirements that apply to non-EGCs but any such election to opt out is irrevocable. The Company has not elected to opt out of such extended transition period which means that when a financial accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an EGC, can adopt the new or revised standard at the time private companies adopt the new or revised standard. The Company will be eligible to use this extended transition period under the JOBS Act until the earlier of the date it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the Company's financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of the Company's financials to those of other public companies more difficult.
We will cease to be an EGC on the date that is the earliest of (i) the end of the Company's fiscal year in which its total annual gross revenue exceeds $1.235 billion, (ii) the last day of the Company's fiscal year following March 8, 2026 (the fifth anniversary of the date on which Aurora consummated its initial public offering), (iii) the date on which the Company has issued more than $1.0 billion in non-convertible debt during the preceding three-year period or (iv) the last day of the Company's fiscal year in which the market value of the Company's Class A Common Stock held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second quarter. We expect to cease to be an EGC on the last day of our fiscal year following March 8, 2026, which is the fifth anniversary of the date on which Aurora consummated its initial public offering.