Better Home & Finance Holding Company (BETR) Earnings Call Transcript & Summary

Thank you. Ladies and gentlemen, thank you for standing by. My name is Kelsey and I'll be your conference operator today. At this time, I would like to welcome you to the Better Home and Finance Holding Company second quarter 2026 results. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I would now like to turn the conference over to Tarek Afifi, Corporate Finance and Investor Relations Manager. Tarek, please go ahead.

Welcome to Better Home and Finance Holdings Company's second quarter 2026 earnings conference call. My name is Tarek Afifi. I'm Better's corporate finance team. Joining me on today's call are Daniel Lewis, interim chief executive officer of Better, and Levine Advani, chief financial officer of Better. In addition to this conference call, please direct your attention to our second quarter earnings release, which is available on our investor relations website. Also available on our website is an investor presentation. Certain statements we make today may constitute forward-looking statements within the meaning of federal securities laws that are based on current expectations and assumptions. These expectations and assumptions are subject to risks, uncertainties, and other factors as discussed further in our SEC filings that can cause our actual results to differ materially from our historical results. We assume no responsibility to update forward-looking statements other than as required by law. During today's discussion, management will discuss certain non-GAAP financial measures, which we believe are relevant in assessing the company's financial performance. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. These non-GAAP financial measures are reconciled to GAAP financial measures in today's earnings release and investor presentation, both of which are available on the investor relations section of Better's website. and when filed in our quarterly report on Form 10Q with the SEC. More information as of and for the period ended June 30th, 2026 will be provided upon filing our quarterly report on form 10 Q with the SEC. I will now turn the call over to Daniel.

Good afternoon, everyone, and thank you for joining us. This week the board announced the leadership change and asked me to serve as interim chief executive officer. Better is not new to me. I've been working alongside management for the past three months after Vassal invited me to work directly with the business. I've attended virtually every management meeting in that time and contributed to many of the strategic initiatives we'll be discussing today. I've been a significant shareholder for some time, and I have worked closely with our founder, Vishal Garg, over the past year. My initial mandate was straightforward, help strengthen execution and improve operational efficiency, delivering the company's strategic priorities. That work expanded into enterprise partnerships, development, and the day-to-day operations of the business. Along the way, I developed a deep understanding of the business, its leadership team, and the opportunities and challenges in front of us. I spent the last 30 years as an investor, board member, founder, and operator at highly regulated financials. I want to address our forward outlook at the beginning of this call. Our third quarter guidance reflects the muted refinancing environment and the uncertain timing of several partnership launches. In Q3, we expect loan volume of $1.375 billion to $1.525 billion, total net revenues of $4.5 billion, and a total net revenue of $1.5 billion. $49 million to $52 million, and an adjusted EBITDA loss of $18 million to $15 million. Regarding our previously guided goal of reaching adjusted EBITDA break-even by September, we now expect to fall short. I remain optimistic about betters opportunity, but our objective is to establish credibility through execution. I do not want to anchor adjusted EBITDA break-even expectations to a specific month because achieving it depends on transaction volumes, revenue mix, and the timing of our cost reductions. Our cost reductions are expected to continue to flow through the P&L over the remainder of the year. At the same time, the timing of partnership launches and other revenue initiatives will naturally influence quarterly results. Sustainable profitability is a clear priority, and we will strengthen our financial position without sacrificing the opportunity in front of us. We now expect our annual cost savings to exceed $45 million, well above our original target of $25 million. That represents meaningful progress, but is not where we intend to stop. Better has always been innovated, defined by our founder's spirit and creativity. creativity. But as is often the case, an organization moving into an enterprise strategy needs focus as complexity slows execution. Going forward, we will concentrate on fewer priorities and execute them exceptionally well. No group is more excited about that focus than our AI engineering team. I'm pleased to say that July was our most productive month for engineering in some time, largely because of clear prioritization. Sustainable profitability and long-term growth are not competing priorities. When capital is allocated with discipline and execution is consistent, they reinforce one another. What gives me the greatest confidence is the team. Better has exceptional people who are energized by the opportunity ahead. Across the company, I see leaders who are eager to build, move fast and execute at a higher standard. Just as importantly, we will not depend on a refinancing cycle or wait for interest rates to fall. We already have a compelling HELOC product. What we need is thoughtful distribution and continued improvement in customer acquisition costs, not additional demand or a different macro environment. We are building operating leverage in businesses where demand already exists. Our growth will come from better execution, not from waiting for the market to improve. We know our enterprise results can improve significantly. Our partnership support infrastructure still requires work, which reflects our direct-to-consumer heritage. The expansion from direct-to-consumer to an enterprise model is not a simple evolution. So why are the board and I enthusiastic about Better's future? The demand for Tin Man and Betsy is no longer in question. It is coming from enterprise customers, independent mortgage brokers, and our own loan officers. Independent mortgage brokers have expressed interest in our Tin Man solution, built specifically for the wholesale channel, and we are now preparing for launch. We have demonstrated product market fit in one of the largest financial markets in the world, spanning firstly mortgages, home equity lending, and an enterprise mortgage infrastructure. That brings me to our operating priorities. Our first priority is distribution. We will focus on enterprise partners whose businesses naturally align with Tin Man and our API-driven operating model. We will win by manufacturing mortgages efficiently, not by outspending competitors on customer acquisition. That includes consumer platforms like Credit Karma and Coinbase, our Neo operation, as well as wholesale brokers and other enterprise partners whose customers can move seamlessly onto the Tin Man platform. We are not simply interested in partnership announcements. Our objective is to build an organization that consistently implements, supports, and grows them. Since my appointment, we have spoken with each of our enterprise partners and those that are still in the pipeline. We talked about the exciting future ahead and those conversations reinforced my conviction about this opportunity. We are excited about a few select verticals, and today I will highlight the wholesale channel. There's real interest from independent mortgage brokers who are already waiting for Tin Man. We intend to serve them, but only when we can deliver a best-in-class loan officer experience, faster funding, lower cost, and better customer outcomes. We are interested in winning for the long term. Our second priority is product. We will continue investing aggressively in HELOC. Our offering combines sophisticated underwriting with a differentiated experience for both borrowers and loan officers. The wholesale market's interest has exceeded our expectations, and we intend to pursue the opportunity aggressively but thoughtfully. HELOC is still largely a direct to consumer product. Over time, we expect it to become an important enterprise product as well. Our third priority is Tin Man. Tin Man is an AI native modular end to end solution supporting the mortgage process from lead to fund. It is not a wrapper on someone else's technology. It is the manufacturing system itself. Further automation reduces expense, but it also enables a faster closing experience for customers. Our near-term objectives are simple. Give loan officers the best experience and continue driving automation throughout the platform. Let me explain why we expect to win here. D2C and NEO are our innovation platform and our feedback loop on the loan officer experience. Every day, our loan officers tell us what works, what does not, and what needs to improve. That feedback loop is how Tin Man becomes an AI platform built by loan officers rather than just for them, and ultimately a platform that enterprise customers and independent brokers can adopt with confidence. Because our AI strategy is fundamental to Better's long-term success, I have asked our board member, Prabhu Narasimhan, to continue serving as a strategic advisor on enterprise artificial intelligence. As the founder and CEO of Brahma AI, I would like to thank you for your time and your Prabhu brings deep experience helping enterprises deploy AI at scale. Finally, we will continue simplifying operations. Our NEO and Better Mortgage operations are being combined, creating efficiencies while improving execution. A more focused company means clear priorities, aligning engineering resources, disciplined capital allocation, and an operating model built around execution. Let me turn to how we intend to communicate with you, our shareholders. Today, I am signaling confidence in Better's future, but our objective is to establish credibility through execution. We will report on our prospects, our progress against stated objectives, and our cost structure, including the impact of stock-based compensation. At my request, I will receive the minimum salary permitted by law and no cash bonus. My compensation will consist of performance-based equity with the final terms to be determined by the board and disclosed in our public filings. That is the structure I requested because I believe in better future and I want my incentives aligned with those of our shareholders. The board's incentives are also aligned with yours. They have elected to receive their compensation in equity rather than cash. The board and I are aligned on my interim designation. The interim designation provides complete flexibility for the board as it considers the company's long-term leadership, while allowing us to devote our full attention to executing the plan in front of us. My confidence is not built on hope, but on the information and experience I have gained over the past several months. It comes from employees railing around a clear plan and shared sense of purpose. comes from the opportunities I see to grow this business. And it comes from my belief that Better has the people, technology, and foundation to execute if we remain disciplined and focused. We will build partnerships we can support properly and put our engineers on the work that matters most. Better exists to solve deeply human problems. Helping someone buy a first home, giving a growing family more space, enabling a retiree to lower monthly payments, or allowing a business owner to invest by unlocking home equity. The strongest impression I formed at Better was not about the technology. It was about the people who do that work. Finally, I want to thank Vishal Garg. Better would not exist without his vision, and the technology we are discussing today is the product of years of investment and innovation under his leadership. I appreciate his partnership through this transition.

With that, I'll turn the call over to Levine. Thank you, Daniel, for clearly laying out the priorities ahead. We look forward to supporting you on the execution. On the macro environment, the rate backdrop got more difficult as the quarter progressed, and mortgage application activity has softened industry-wide. We don't expect this to be a short term blip. We're planning for an elevated rate environment to persist over the medium term, and we're adapting accordingly. Despite the macro environment in Q2, bearers loan volume grew 38% year over year to 1.67 billion and total net revenues increased 28% year over year and 15% quarter over quarter to 54.7 million. This quarter, Hillock represented 18% of our loan volume, up from 12% last quarter. That's a direct reflection of how we're responding to this rate backdrop. He locks enable homeowners to access liquidity without giving up a lower rate that they have already locked in. Even though HELOCs carry smaller average loan sizes than first liens, they generate higher average revenue per loan, so they have an outsized impact on revenue. Turning to NIO, in Q2, our NIO business grew 60% in loan volume year over year, and continues to recruit top loan officer teams across the country. Q2 or adjusted EBITDA loss was 14 million. This 14 million loss is a 39% improvement year over year and a 26% improvement quarter over quarter. The adjusted EBITDA benefits from a one-time $6.5 million trade reserve release related to loans originated prior to June 2022. Looking at product trends in Q2, refinance loan volume grew 239% year over year to 549 million. Home equity volume grew 23% year over year to 294 million. And purchase loan volumes grew 3% year over year to 824 million. Byproduct Mix Refinance made up 33% of Q2 loan volume. Home Equity made up 18% of Q2 loan volume. And Purchase made up 49% of Q2 loan volume. By channel, in Q2, 55% of loan volume came from the Tin Man AI platform and 45% from direct-to-consumer. Now turning to third quarter guidance. We expect loan volumes of 1.375 billion to 1.525 billion, of which the midpoint represents 20% growth year over year. We expect total net revenues of 49 million to 52 million, of which the midpoint represents a 22% growth year-over-year. We also expected adjusted a bit of loss in the range of 18 million to 15 million, of which the midpoint represents a 28% improvement year over year. The range is wider than in prior quarters for two reasons. Refinance volume is more rate sensitive at current levels and our revenue mix is actively shifting towards HELOCs. With our HELOC partnerships ramp and season, we expect that product to become a more predictable contributor to give us better visibility into our forecast. Building on Daniel's earlier statement on the September break even target, the cost reduction that we have executed will continue to flow through the P&L over the remainder of the year. But the timing of the HELOC partnership ramps and launches and the pace of the refinance market will determine when we cross over. Rather than re-anchor to a specific month, we will report our progress each quarter and let the results speak for themselves. On the balance sheet, we ended Q2 2026 with approximately 102 million in cash and cash equivalents and 10 million in restricted cash. We believe the balance sheet today is appropriately positioned to support our path towards profitability. In addition, our total warehouse capacity stands at approximately $850 million, a 48% increase from year-end 2025. That capacity reflects both the belief in the platform and the infrastructure required to support future partnership growth. Our warehouse lenders have continued to expand their commitments alongside us, which we see as a strong vote of confidence in the direction we're headed. We continue to pursue the sale of our UK bank subsidiary, Birmingham Bank, to a process led by FT partners. We will provide an update when there is a material development. We'll continue to give you clear visibility into these numbers each quarter and let the results speak for the progress we are making. I'll turn it back to the operator for Q&A.

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Kartik Mehta with North Coast Research. Your line is open, Kartik. Please go ahead.

I'll start off just looking at third quarter guidance. When looking at the third quarter guidance, it kind of assumes lower loan volume and revenue sequentially. Yet the compliance EBITDA performance suggests that you're realizing meaningful benefits from the cost initiatives. I was wondering if you could discuss how much of that improvement is already visible versus how much you can realize over the next 12 months.

Hey Karthik, it's Levine. Thanks for the question. Yes, so in our Q2, if you adjust for the trade, our OPEX was around 75 million and The midpoint of our Q3 guidance has OPEX about 67 million. So say about 8 million of savings from quarter over quarter. We saw a cost cuts later in the quarter. So we couldn't get the impact of majority of them in 2Q, but we see a meaningful impact in our cost cuts in Q3, which is why despite lower volumes and lower revenue in Q3, we should get better EBITDA.

And Daniel, you talked about obviously partnerships, some of them are delayed. I'm wondering if you talk about maybe your pipeline of new partnerships and is it delayed just because it takes time to implement them? And or is it a delay because maybe demand is different today than it was six months ago for those partnerships? Thanks for the question. The the answer is that when you deal with large enterprises, you are subject to their rollouts.

schedule, both in terms of the percentages of leads we would get, the actual launch dates, etc. So it's not a lack of demand at all for Tin Man. In fact, we've made some announcements about our HELOC product coming to market. I think it's our first partnership from the DTC. So the pipeline is very robust. We've spoken to all the partners this week and and we feel that we're in a great position, but in terms of guiding you for Q3, it becomes difficult. So we decided we weren't going to include the impact of any launches in those numbers, but certainly as we ended the second, I guess Q4 this year, that's when I think you'll really start to see some activity. I think so. It's good to hear. Go ahead. I apologize. Go ahead. No, just I think the other thing is, again, leaning into the HELOC side, because right now our enterprise partnerships are very skewed towards the refinancing. So that obviously has the macro headwind. So the ones in the second half of the year, we think are going to start to. more meaningful because they're the right kind of partner and it's the right kind of product, which is our HELOC.

Perfect. Thank you. Good to hear the pipeline is still pretty strong. Your next question comes from the line of Kyle Peterson with Needham. Your line is open, Kyle. Please go ahead.

Great afternoon. Thank you for taking the questions. You know, wanted to dig into the third quarter guide a little bit, but more on the top line base. Just want to see if you guys could help us, you know, maybe bridge in a little more detail in terms of, terms of kind of how we get from, you know, the 2Q level to 3Q. I assume there's a good amount of mix that'll probably be changing there with, you know, less refi, more home equity, but any more color that you guys could give in terms of what to expect on the mix and.

and kind of revenue would be really helpful. Hey Kyle, thanks. Yes, that's a great question. You know, as we said in our first year earnings call, we expect the percentage of HELOC in our total volumes to increase. And we saw that in the second quarter, we went from 12% volumes in the first quarter or HELOCs being 12% of the volumes in the first quarter to being 18% of the volumes in the second quarter. We expect HELOCs to be meaningfully higher in the third quarter. We don't wanna kind of give exact pinpoint guidance for a couple of reasons. One is we've factored in no HELOC partnerships in our three-q guide. It's purely D2C. And the second piece is the macro environment affects the refi business. So that mix is uncertain as well.

Okay, that is helpful. And then as a follow-up, I hear you on not including any of the HELOC contribution with partnerships. So I did want to ask a little bit about what that could look like in the future, specifically with Credit Karma. I guess, how are you guys thinking about how long it would take a partnership like this to get up and running and when that could start to contribute to volumes. Is that in the fourth quarter of this year or is that more of a next year event? Just any directional rough timing.

on the ramp time there would be great. So the answer is multiple partnerships should start to kick in in HELOC in the fourth quarter. So far this quarter, we have done no partner launches and no HELOC launches specifically. So hopefully that gives you a sense of why the bridge on revenue. We are basically still have the refi environment in our largest enterprise segment. and we don't have anything really additional in terms of channel development in the HELOC product.

Got it. Thank you. Your next question comes from the line of Joseph Vafi with Canaccord Genuity. Your line is open, Joseph. Please go ahead.