Better delivers $340M loss in Q3, plans to keep trimming expenses

Company had $584M in cash at the end of September

Better Home & Finance Holding, the parent of digital lender, delivered a massive loss in the third quarter of 2023, its first earnings report since it became public in late August. Executives at the company told analysts that more cost-cutting initiatives are needed in a shrinking market to reach profitability.  

Better reported a GAAP net loss of $340 million in the third quarter of 2023, an increase of 50% from negative $227 million in the same period of 2022, according to its 8-K filing with the Securities and Exchange Commission (SEC) on Tuesday. Meanwhile, adjusted EBITDA loss improved almost 50% year over year to $54 million in Q3 2023. 

The company said the Q3 2023 loss includes approximately “$243 million on non-cash adjustments resulting from balance sheet movements associated with the de-SPAC closing.” Better debuted on the Nasdaq in late August after merging with special purpose acquisition company (SPAC) Aurora Acquisition Corp.

The company has no plan or need to raise additional capital in the near term since the SPAC transaction brought in $565 million, it said. Better had $584 million in cash and short-term investments and $424 million in total warehouse capacity as of Sept. 30, 2023. 

“Securing additional capital during the third quarter gives us the confidence to continue investing in our technology and innovative products, such as digital HELOC and One-Day Mortgage,” Vishal Garg, CEO and founder of Better, said in a statement. 

Garg added: “While we have been seeing others in the mortgage market pull back, we believe these investments position us strongly when some of these macroeconomic adversities lessen.”   

Better’s volumes dropped from $57 billion in 2021 to $11 billion in 2022 when rates increased and refis dried up. And, with mortgage rates reaching 8% in the third quarter, the company’s volumes fell even further to $731 million, from $900 million in Q2 2023 and $1.1 billion in Q3 2022.

The gain-on-sale margin was 1.94% in the third quarter of 2023 and 2.21% in the nine months of 2023, compared to 2.34% in the first half of 2023. Ultimately, revenues declined to only $16 million in Q3 2023 from $19 million in Q3 2022. 

Better has imposed an aggressive cost-cutting plan to its operations, including thousands of job cuts. Total expenses declined 45% year over year to $108 million in the third quarter of 2023 from $196 million in the same period of 2022. 

In a down market, Better said it’s maintaining a disciplined execution. The company removed $1 billion in annualized expenses in the nine months ending September 2023 compared to the total in the same period of 2022. 

Better estimates that if it captures 1% of the incremental refi volume in 2024 and 2025 at the current gain-on-sale margin, it would represent an additional revenue of $103 million over the next two years. 

And how can Better get more businesses when the market turns, following an aggressive workforce reduction? Garg told analysts it will scale up through automation. “We believe we are much more productive now than before,” Garg said.  

For example, the company claims it takes eight hours on average to provide borrowers with a commitment letter since the One Day Mortgage program was launched in the first quarter of 2023.

Looking ahead, Better expects a funded loan volume of $500 million in the fourth quarter of 2023, lower than the previous quarter. Adjusted EBITDA will improve compared to the third quarter, but executives still expect a loss. 

“We believe our cash position provides us with liquidity to continue executing against our vision and corporate objectives,” Kevin Ryan, president and CFO, said in a statement. 

“We expect the market to remain challenging in the fourth quarter, as well as a historically seasonally slow period. For that reason, we remain focused on prudent investments in our core opportunities and continued expense management.”

Regarding the path to profitability, executives told analysts during the conference call that it won’t take much of a turn in the market for Better to get to that place. However, with 8% interest rates, it’s tough for the company to be profitable. So, Better will keep taking out costs. 

Better’s stock was down about 8%, trading at $0.42 around 11 AM EST on Tuesday. 

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