UWM : First Quarter 2024 1Q 2024 Earnings Transcript

TRANSCRIPT

05 - 09 - 2024

UWM Holdings Corporation

1Q 2024 Earnings Call

TOTAL PAGES: 13

UWM Holdings Corporation

1Q 2024 Earnings Call

CORPORATE SPEAKERS:

Mat Ishbia

UWM Holdings Corporation; Chairman & Chief Executive Officer

Andrew Hubacker

UWM Holdings Corporation; Chief Financial Officer

Blake Kolo

UWM Holdings Corporation; Chief Business Officer & Head of Investor Relations

PARTICIPANTS:

Kyle Joseph

Jefferies; Analyst

Eric Hagen

BTIG; Analyst

Douglas Harter

UBS; Analyst

Bose George

KBW; Analyst

Bradley Capuzzi

Piper Sandler; Analyst

PRESENTATION:

Operator^ Good morning. (Operator Instructions) At this time, I would like to welcome everyone to the UWM Holdings Corporation First Quarter 2024 Earnings Conference Call. (Operator Instructions)

Blake Kolo, you may 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 2024 UWM Holdings Corporation's earnings call.

Before we start, I would like to remind everyone that this conference call includes forward- looking statements.

UWM Holdings Corporation

1Q 2024 Earnings Call

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 Holdings Corporation and United Wholesale Mortgage.

Mat Ishbia^ Thanks, Blake. And thank you everyone, for joining us today.

I'm really excited about this earnings call. A lot of great things to talk about.

We're extremely busy here at UWM. We're hiring hundreds of new team members, preparing for the future and the opportunity. And there's a great buzz around our campus that I wish all of you guys could feel.

On our last call I said we expected 2024 to be a better year for the housing and mortgage industry, and the first quarter supports what I expected.

We are in the weeds of our business and have done a nice job executing on our game plan. With that said, I want to touch on a couple of main themes before getting into the quarterly numbers.

First, the broker channel is the best place for a consumer to get a loan and is the best place for a loan officer to work.

Knowing this, it's great to see how much the broker channel is growing in both share and people over the last few years. More and more loan officers, consumers and real estate agents are seeing what we have already known for a long time, that the mortgage broker is the best place to get a mortgage. Consumers and real estate agents are seeing it as well. It's very exciting.

Second, and I want everyone to remember what I'm about to say next, it's something that I've been saying for years since becoming public.

When rates are high, the brokers in UWM will always dominate, and that is exactly what has happened over the last 2.5 years or so.

UWM Holdings Corporation

1Q 2024 Earnings Call

Now I'm telling you this, when rates go down, every mortgage company in America including UWM, will look great.

But remember, we are different because UWM was built to perform in both purchase and refi markets, and that's something I'm very proud of.

Overall, it's been a tremendous start to the year, and we're excited about the momentum in our business.

Now let's jump into the first quarter.

We closed $27.6 billion in production for the quarter at the higher end of our guidance, with over $22 billion of this coming from purchase.

I'd like to point out that we grew 13% from the fourth quarter, and more impressively, 24% compared to last year's first quarter.

I don't think there's a lot of lenders that can say they've grown that much year-over-year.

We've been guiding to 75 to 100 basis points for a long time, and I bumped it to 80 to 105 for the first quarter.

We exceeded that guidance with a gain margin of 108 basis points. It was a very profitable quarter with $180.5 million in net income, and that includes a $15 million write-down on fair value.

As these results demonstrate, we continue to deliver on our expectations by remaining focused on being the best mortgage lender in the country. That means continuing to invest in our people, in our technology, in our service no matter what others in the industry are doing.

We know what we are good at and we know what we're great at. We don't try to be all things to all people and we win because of it.

As you will hear from Andrew shortly, our financial business position is very strong, and we fully intend to keep rewarding our shareholders with a great dividend, as I've been saying quarter in and quarter out.

UWM Holdings Corporation

1Q 2024 Earnings Call

We remain confident that the volumes and margin will remain strong in 2024, as we've been saying for the last couple of quarters, and we are uniquely positioned to capitalize on the next refi boom, whether it comes next month, six months or in 12 months.

We are prepared.

I'll now turn things over to Andrew, our CFO.

Andrew Hubacker^ Thank you, Mat. 2024 is off to a great start, even during the quarter that is traditionally slower from a seasonal standpoint.

We reported positive net income for the quarter and remain profitable operationally before considering the change in fair value of MSRs and on an adjusted EBITDA basis.

We were pleased with our first quarter operational performance as we continue to invest and prepare for the next market cycle.

We've discussed before our plans to opportunistically sell MSRs as a means of generating cash flows to support our ongoing operational, capital and financing cash needs.

This continued in the first quarter. Our first quarter sales were accomplished at what we believe to be favorable prices and have allowed us to significantly derisk our MSR portfolio and delever our balance sheet while also supporting our ability to originate substantial new loan volume.

As of the end of the quarter, our capital and leverage ratios remain within expected ranges in the current environment and generally consistent with or improved from the end of last year.

Furthermore, our liquidity and access to liquidity including cash and accessible borrowing capacity, increased by over $600 million from the end of 2023, bringing our total available liquidity to just under $2.9 billion.

We believe that we continue to be well positioned operationally and financially for different market cycles.

Okay.

UWM Holdings Corporation

1Q 2024 Earnings Call

I will now turn things back over to our Chairman, President and CEO, Mat Ishbia, for closing remarks.

Mat Ishbia^ Thanks, Andrew.

I'll close with a few points before the Q&A.

I said on our last call that I believe that 2024 will be a better overall year for housing and the mortgage industry than in 2023. Everything you're seeing now confirms that, definitely at UWM.

But as I always say, regardless of the market, we remain the best mortgage lender in America.

Our focus will remain on providing elite service, technology, pricing and partnership to our mortgage broker partners. Lastly, I'm very excited for next week.

We welcome about 5,000 of the mortgage industry professionals to our campus here in Pontiac, Michigan for UWM LIVE!, which has become the biggest annual mortgage event in America.

I know many of you on this call have joined us in the past and I look forward to seeing many of you here again next week.

Now looking forward to the second quarter, we expect production to be between $28 billion and $35 billion.

And consistent with what I said before about margins, things continue to show signs of improvement.

In the second quarter, we expect our gain margin will be between 85 and 110 basis points.

As always, I really want to thank our team members, our clients and our shareholders.

We've got a great team here at UWM. We're really proud of what we're doing and we're excited to continue to dominate together.

Now let's turn it over to Q&A.

UWM Holdings Corporation

1Q 2024 Earnings Call

Operator^ (Operator Instructions) Your first question comes from Kyle Joseph with Jefferies.

Kyle Joseph^ Congrats on a great quarter. Mat, I just want to get your perspective. You guys have been seeing some good growth in non-agency volume. Is that primarily on the jumbo side? Or what are the drivers there?

Mat Ishbia^ Yes. Kyle, I appreciate the question. Yes, a lot of it has been on the jumbo side.

Our brokers are really trying to be out there and compete for jumbo loans from a perspective with the banks and the credit unions out there that obviously do a great job with that stuff. That's the one spot that brokers have traditionally struggled with, and we're doing a much better job with that and they're doing some great things.

So a big part of that is doing jumbo loans. And then those jumbo loans have non-jumbo friends that -- and referrals that come our brokers' way.

So it's been a focus and we do a little bit of other non-agency but most of it has been in the jumbo space.

Kyle Joseph^ Got it. Yes. And then just moving over to servicing. I think we talked in the past about kind of a $300 billion range. But is that mostly just a function of the market and where you're seeing opportunities, like you said, to derisk and get attractive pricing and you guys don't really have a target there and it's going to be more market driven? Is that fair to assume?

Mat Ishbia^ Yes. We're always opportunistic, looking at the opportunities out there on MSRs. We're one of the few out there, originating a lot of business. So a lot of MSR buyers are coming to us and looking for volume, and we're the ones providing it because of the amount of originations we do on a quarterly basis.

So we look at it opportunistically. We can hold the rest of the year, we can sell some more. We have all different things that we look at. It just depends on what the market conditions are.

Operator^ Your next question comes from the line of Eric Hagen with BTIG.

UWM Holdings Corporation

1Q 2024 Earnings Call

Eric Hagen^ Just looking at the guidance for the margin in the second quarter, just trying to square up how you saw the margin just in April relative to that guidance, just given what we saw in mortgage rates? That's just to benchmark how we think about the full quarter. And then when we look further out, I mean how stable do you see that margin under -- even if rates were to maybe tick up from here and certainly if they were to go lower, I mean how do you see that? The stability of that margin from here?

Mat Ishbia^ Yes. Thanks for the question.

So in general, I felt comfortable enough to raise the margin from 85 to 110 range. The way I look at it, my job is to try to give you guidance and be right in the middle of that guidance and try to put ourselves in that position.

So based on where I see margins last quarter and where I see them trend this quarter, I felt it was the right thing to bump that range up.

And as I told you for probably a couple of years, that 75 to 100 is kind of the bottom of the barrel wholesale margins. And now it's up to 85 to 110 range. And I see that continue to sustain.

I see that going up when rates drop further. And so people -- some people think higher for longer, I'm not one of those believers.

But let's just say, it's higher for longer then I would say that this is probably a range that I feel comfortable with for longer, if that's the right way to think of it. And then when rates do go down a little bit more, that's when margins usually will tick up a little bit.

Eric Hagen^ Yes. That's really helpful.

Looking at the strength in the stock, I mean the momentum you seem to have here on the origination side, I mean one thing we've talked about is getting more participation in the stock, right? Raising the float, having an opportunity to support growth with maybe some fresh capital. I mean how should investors maybe start to think about that opportunity, just given the way you guys are trading and the outlook for the rest of the year?

UWM Holdings Corporation

1Q 2024 Earnings Call

Mat Ishbia^ Yes. No. It's a good question. I appreciate it. I guess my take is, we have a great base of investors right now and I know a lot of them would like to be able to add more in right now.

However, float is a concern. So we always look at it. We're opportunistic and look at those opportunities and see if there's something we can do. But we want to look at what our shareholders need and want, and the float is definitely something we talk about and are concerned about and consider all things.

Operator^ Your next question comes from the line of Doug Harter with UBS.

Douglas Harter^ Mat, can you just talk about kind of what you're seeing in the spring selling season, kind of both on the demand side and the supply side in terms of new purchases?

Mat Ishbia^ Yes, absolutely. I don't think it's reported up in the mainstream media, but we've seen a really strong purchase year so far, not just our mortgage company, but just in the market.

I think inventories are up. They don't -- that's not a fun new story because it's positive. So a lot of people nationally doesn't talk about it.

But inventory is up, housing values are strong and there's a lot of first-time homebuyers and people out there in the market. And Fannie Mae, Freddie Mac have done some good things to try to drive more first-time homebuyers and people into homes and opportunity out there. And so I think it's actually a really strong purchase market.

I won't say like extremely strong as in like the best of all time, but it's a strong market, definitely stronger than it was last year and that's why we're seeing volume increases. And I think we were up 24% year-over-year, and that's in the first quarter on overall volume.

And so purchases are strong and I think they'll maintain strong, being strong through the second and third quarter.

Douglas Harter^ Great. And then, Mat, Freddie Mac has talked about possibly getting into second liens. Kind of what are your thoughts around that product? And how large could that opportunity be?

UWM Holdings Corporation

1Q 2024 Earnings Call

Mat Ishbia^ Yes. I mean it's interesting, and Freddie Mac and Fannie Mae both do a good job of trying to innovate and come up with ways to help consumers and grow the mortgage pie in a positive way.

It's a good program potentially. I think it's still months and months out if it came out, and that product is really already served in the market today through home equity lines of credit and other products that are already out there, can Freddie Mac do them better potentially, a little cheaper potentially. Yes. Yes. But it's not material in any way, shape or form.

Operator^ Your next question comes from the line of Bose George with KBW.

Bose George^ Mat, can you give us your thoughts on some of the potential changes that could happen in the title insurance industry? And can you remind us what you guys have done in terms -- to date in terms of reducing title cost from some of your programs?

Mat Ishbia^ Yes. Thanks for the question. You're obviously in the weeds of the business, I understand that. The title insurance business is one of those parts of the industry that are ripe for disruption, right? Charging consumers a lot of money for a product that doesn't require a lot of cost. And so reality is that's going to get disrupted at some point.

We're doing some things to help lower the cost for consumers on title. And it's been extremely successful so far, and we're going to continue to lean in on that. And title insurance companies, which we work great with.

We work with a lot of title companies and lot of them do a lot of great things and we're great to be partners with them. But we're always looking at ways to make things better for consumers and help brokers grow and succeed.

So title insurance isn't going to go anywhere. They're going to be part of the industry and they do great things.

But there is going to be some disruption and some movement because there's a better way to do things for consumers, a lot of people look at it, and we're one of those people that look at it.