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Doma Holdings, Inc. (DOMA)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 revenue was $76.24M, down 6% sequentially from Q2 ($88.85M) and down 22% year over year; adjusted EBITDA improved to $(5.28)M from $(13.71)M in Q2, driven by cost reductions and exiting local retail operations .
  • Adjusted gross profit was $6.02M and the adjusted gross profit-to-RP&F ratio rose to 39% vs 29% in Q2, aided by lower claims activity; RP&F declined to $15.43M from $30.69M in Q2 .
  • Management launched “Upfront Title,” targeting up to ~80% reduction in homeowner title costs and a shift toward higher-margin software licensing revenue, with a pilot expected to go live by early Q1 2024 subject to final terms .
  • CFO said they are within “striking distance” of adjusted EBITDA profitability in Q4, but continued housing market degradation presents risk to achieving full-quarter profitability into Q1 2024 .
  • S&P Global consensus estimates were unavailable due to a mapping issue; estimate comparisons could not be validated via S&P Global data.

What Went Well and What Went Wrong

What Went Well

  • Adjusted EBITDA improved by $7M QoQ to $(5.28)M, reflecting workforce reductions and operating expense controls; management believes cost-cutting measures are largely behind them .
  • Adjusted gross profit as a percentage of RP&F increased to 39% from 29% in Q2, supported by lower provision for claims and efficiency gains in underwriting operations .
  • Strategic progress: launched Upfront Title to integrate instant underwriting at loan decisioning, targeting lower rates for consumers and higher-margin licensing revenue; pilot with a major mortgage software platform is targeted to go live early Q1 2024 .

What Went Wrong

  • Top-line pressure: revenue fell 6% QoQ to $76.24M and RP&F fell 7% QoQ, partly due to the sale of local retail operations and persistent macro headwinds from elevated mortgage rates .
  • Net loss remained substantial at $(25.63)M, albeit improving vs Q2; continuing operations net loss was $(22.24)M .
  • Outlook risk: CFO cautioned that housing market degradation could prevent achieving adjusted EBITDA profitability in Q4 2023 and may persist into Q1 2024 .

Financial Results

MetricQ3 2022Q2 2023Q3 2023
Revenue ($USD Millions)$97.92 $88.85 $76.24
Net Loss ($USD Millions)$(84.11) $(35.88) $(25.63)
Net Loss per Share (basic/diluted) ($USD)$(6.43) $(2.69) $(1.91)
Net Loss from Continuing Ops per Share (basic/diluted) ($USD)N/AN/A$(1.66)
Adjusted EBITDA ($USD Millions)$(22.44) $(13.71) $(5.28)
Adjusted Gross Profit ($USD Millions)$6.34 $8.82 $6.02
Retained Premiums & Fees ($USD Millions)$22.04 $30.69 $15.43
Adjusted Gross Profit / RP&F (%)29% 29% 39%

Notes:

  • Discontinued local retail operations were segregated beginning Q3 2023; results reflect continuing operations where stated .

Segment revenue breakdown:

Revenue Component ($USD Millions)Q3 2022Q2 2023Q3 2023
Net premiums written$94.49 $78.96 $73.74
Escrow, other title-related fees & other$2.67 $8.29 $0.84
Investment, dividend & other income$0.75 $1.60 $1.66
Total Revenues$97.92 $88.85 $76.24

Selected cost/KPI items:

KPI / Cost ($USD Millions)Q3 2022Q2 2023Q3 2023
Premiums retained by agents$75.87 $58.16 $60.82
Provision for claims$4.17 $5.78 $3.34
Direct labor$7.66 $9.93 $3.29
Customer acquisition costs$4.80 $3.75 $1.48
Other indirect costs$23.97 $18.78 $9.82

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA profitabilityQ4 2023“Focused on reaching adjusted EBITDA profitability in 2023” (Q2 CFO) “Within striking distance of adjusted EBITDA positive in Q4, but risk from housing market may prevent full-quarter profitability into Q1 2024” Maintained target with caution due to macro risk
Upfront Title product launchLate 2023 / Early Q1 2024Strategy shift to licensing announced in Q2 Pilot with a major mortgage software platform; aiming to go live by early Q1 2024, subject to final commercial terms New product/timeline announced

No explicit numerical guidance for revenue, margins, OpEx, OI&E, or tax rate was provided in Q3 materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2023 and Q2 2023)Current Period (Q3 2023)Trend
Technology/licensing strategyFinalizing go-forward strategy centered on licensing Instant Underwriting to large originators/secondary market purchasers; exiting non-core Local Adds “Upfront Title” to move instant underwriting closer to loan decisioning, targeting lower consumer costs and licensing revenue mix shift Advancing execution; productization
Cost reductions and profitability pathCost actions from 2H22; goal of adjusted EBITDA profitability by year-end; anticipated sequential EBITDA improvement into Q2→Q3 Adjusted EBITDA improved QoQ; cost-cutting largely complete; “striking distance” of Q4 EBITDA positive but macro risk remains Improving but macro-sensitive
Macro/housing marketElevated mortgage rates pressuring purchase/refi volumes; seasonality tailwinds modest Housing market degradation flagged as key risk to achieving Q4 EBITDA positive Persistent headwind
Business mix/discontinued opsAggressive branch closures; divest Local business Local branches classified as discontinued operations starting Q3 Portfolio reshaped; cleaner continuing ops
Claims/provisionProvision for claims impacted margins historically Margin improvement tied to lower claims activity and provision Favorable in Q3

Management Commentary

  • CEO: “We are launching an innovative new product, Upfront Title…allowing lenders to significantly reduce key areas of cost and operational activity…provide their homeowner customers a price meaningfully below current industry standard rates for title insurance…help Doma shift more of our revenue toward higher-margin software licensing revenue.”
  • CEO on pilot: “We anticipate being able to go live with the program by early Q1 2024, subject to agreement and documentation of final commercial terms.”
  • CFO: “We were pleased to see a $2 million and $7 million sequential improvement in our net loss and adjusted EBITDA loss, respectively…there is still risk to us achieving full quarter adjusted EBITDA profitability in Q4, and this risk will likely persist into the first quarter of 2024.”
  • Transcript highlight: Adjusted gross profit rose “due to lower provision for claims as a result of lower claims activity,” and adjusted EBITDA improved primarily from workforce reductions and spend discipline .

Q&A Highlights

  • Profitability timing and macro risk: Management reiterated that while cost actions position DOMA near adjusted EBITDA breakeven for Q4, the continued degradation in the housing market is the principal risk to achieving full-quarter profitability .
  • Product rollout and commercialization: Team discussed onboarding the mortgage software partner and finalizing commercial terms ahead of the Upfront Title pilot go-live targeted for early Q1 2024 .
  • Margin drivers: Management highlighted lower claims activity improving adjusted gross profit margins in Q3 .

Estimates Context

  • S&P Global consensus data for Q3 2023 EPS and revenue was unavailable due to a CIQ mapping issue for DOMA; we could not retrieve validated S&P Global estimates, so estimate comparisons are not provided via S&P [tool error on GetEstimates].
  • Some third-party sources reported non-S&P consensus comparisons (e.g., EPS vs estimates), but per guidance we anchor on S&P Global; thus, we note consensus was unavailable and refrain from using non-S&P figures .

Key Takeaways for Investors

  • Sequential profitability momentum: Adjusted EBITDA improved to $(5.28)M; cost reductions appear largely complete, and margins benefited from lower claims activity .
  • Revenue headwinds: GAAP revenue fell 6% QoQ and 22% YoY, with RP&F down 7% QoQ; the exit of local retail operations and macro housing pressures weighed on volumes .
  • Strategic pivot to software/licensing: Upfront Title positions DOMA for higher-margin revenue and potential price leadership in title insurance; early Q1 2024 pilot is a near-term catalyst if commercial terms are finalized .
  • Risk flag: Management’s caution on housing market degradation suggests near-term volatility in achieving EBITDA breakeven; monitor mortgage rate trajectory and housing activity .
  • Non-GAAP framework: Adjusted metrics (RP&F, adjusted gross profit, adjusted EBITDA) drive internal performance tracking; investors should consider reconciliations and claim provision dynamics .
  • Discontinued operations: Starting Q3, local retail is reported as discontinued, improving focus on continuing operations but impacting comparability vs prior periods .
  • Trading lens: Stock likely reacts to evidence of Upfront Title commercialization, continued margin progress, and any updates narrowing/confirming the path to EBITDA breakeven amid macro uncertainty .