Digital title insurance, escrow and closing provider Doma is laying off another 250 workers as it races to adapt technology the company pioneered for mortgage refinancings and apply it to purchase loans taken out by homebuyers.
Doma’s stated goal is to “completely reimagine the residential real estate closing process” using its machine learning platform, Doma Intelligence, and other technology it has developed to automate the title and escrow processes.
But after raising less than anticipated when it went public last year in a merger with a special purpose acquisition company (SPAC), Doma has faced more headwinds this year, as rising mortgage rates have dramatically curtailed its clients’ mortgage refinancing business.
Doma announced in May that it was laying off 310 employees, or 15 percent of its workforce, after declining demand for its services drove a double-digit drop in revenue and a $50 million first-quarter loss.
Now Doma says it’s in the process of shedding another 13 percent of its workforce, after posting a $58.7 million second quarter net loss, as revenue fell 5 percent from a year ago, to $123.7 million.
Combined, the layoffs of 561 workers are expected to generate annual cost savings of $70 million a year, which will allow Doma to continue working to grow its market share as it adapts to the new environment, CEO Max Simkoff said on an Aug. 9 call with investment analysts.
“We now have a full year as a public company under our belt, and I am proud of how we’ve adapted to and managed our business through a set of macroeconomic and housing industry headwinds in the first half of 2022 that are unlike anything in the last 20 to 30 years,” Simkoff said. “In rare times like these, it’s important to separate the cyclical from the structural.”
Simkoff said Doma continues to make progress adapting its technology to enable “instant underwriting” of title insurance for purchase loans.
“Our plan, as we have previously communicated, is to migrate substantially all of our purchase volume onto our Doma Intelligence technology by the end of next year, and we remain highly confident that we are on track with that timeline,” Simkoff said.
After piloting instant title underwriting for purchase loans at “a couple of locations in California,” Doma has now expanded the program into Arizona and Florida, and plans to add two more states by the end of the year, he said.
“You can think of it as a lot of the same steps as a refinance transaction, where we’ve already successfully deployed our technology and seen improved unit economics,” Simkoff said. “There’s a bit more effort involved in a number of those steps because you have a couple of more parties involved in the transaction. You’ve got a real estate agent. You have both a buyer and seller versus a refinance transaction where you just have a borrower and a lender. So thematically speaking, it’s really just applying a similar configuration of our technology to a lot of the same steps in a transaction that carries higher revenue.”
In addition to underwriting title insurance for third-party agents, Doma also acquires orders directly, through enterprise partners (large national lenders with centralized operations) and through its own local agents working out of 111 branch offices in 10 states who partner with Realtors, attorneys and loan originators to provide title and escrow services.
During the second quarter, Simkoff said, Doma “identified several potential enterprise partners who are now working with us on a version of Doma Intelligence for purchase that can be offered directly to their customers as part of their purchase workflow. We will be moving towards rolling out an initial version of this product with a small group of these enterprise partners later this year, and believe this initiative may unlock an additional new distribution channel for Doma for purchase.”
Closed orders for title insurance and escrow services
Although purchase orders made up 38 percent of Doma’s direct residential order volume during the second quarter, closed orders for title insurance and escrow services were down 31 percent from the first quarter and 40 percent from a year ago, to 18,799.
Doma saw closed orders peak during last year’s refinancing boom, when it closed 37,042 orders during the fourth quarter of 2021 alone.
Retained premiums and fees
While Doma brought in close to $124 million in revenue for the quarter, that includes a portion of third-party agent title premiums that Doma does not retain. The company prefers to focus on retained title premiums and escrow fees that contribute to profitability, said Mike Smith, who officially took over as Doma’s chief financial officer on July 19.
Doma’s retained premiums and fees peaked at $71 million during the third quarter of 2021. While retained premiums and fees were down 24 percent from a year ago during the second quarter, to $49.1 million, that represented a more modest 5 percent decline from the previous quarter.
Given the “significant shift in the market this year,” Simkoff said, “we believe it is more important and insightful to understand quarter-over-quarter trends versus year-over-year trends.”
The year-over-year decline in retained premiums and fees was driven by a 48 percent decline in refinance closed orders, and a 32 percent decline in purchase closed orders, he noted. But while refinance closed orders were down 47 percent quarter-over-quarter, purchase closed orders were up 16 percent, as the spring homebuying season kicked into gear in April, May and June.
Purchase transactions “are roughly three times more profitable than a refi transaction,” Smith said. “You’ll see that line us up here in the third and fourth quarter and then on path for the next year.”
Doma’s growing quarterly net losses
Since incorporating in 2016, Doma had racked up $192.2 million in net losses through Dec. 31, 2021. After accruing another $108.7 million in net losses during the first half of 2022, the company’s cumulative net loss now exceeds $300 million.
For the full year, Doma said it expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) will fall between negative $100 million and $120 million.
Simkoff said the steps Doma has taken to cut costs and boost its ability to provide title insurance and escrow services on purchase mortgages give the company’s executives confidence they’ll achieve positive adjusted earnings by the end of next year, “if not sooner.”
A number of companies in the residential real estate industry have laid off workers this year, particularly mortgage lenders and companies that provide services to them, as rising mortgage rates and affordability constraints put a damper on home sales and mortgage refinancing.
“As we continue to navigate a very dynamic market environment that has the potential to continue deteriorating in the near term, we are committed to take additional actions as needed in order to remain on our stock stated timeline of profitability,” Simkoff said. “While there are many companies in the mortgage technology space that went public over the last 12 to 24 months, we think that what sets us apart is that the fundamentals and the positive unit economics of our business have already been tested and that we have defined our path to near-term profitability.”
Simkoff’s message seemed to placate Doma investors, with the company’s share price rebounding from near an all-time low of 69 cents just before the Aug. 9 second quarter earnings announcement, to over $1 this week. In the last year, shares in Doma have traded for as much as $9.10 and as little as 68.9 cents.
On Aug. 4, Doman announced its intention to complete a reverse stock split at the company’s next annual stockholder meeting, after receiving notice from the New York Stock Exchange that the company faced delisting because the average closing price of the company’s shares had dipped below $1 over 30 consecutive trading days. Although shares in Doma closed above $1 on Aug. 15 and Aug. 16, they’ve since retreated below the threshold required to continue trading on the New York Stock Exchange.