Doma's q3 2022 results show significant progress toward profitability; expects to achieve positive adjusted ebitda earlier in 2023 than previously communicated, despite challenging market conditions
San francisco--(business wire)--doma holdings, inc. (nyse: doma) ("doma" or the "company"), a leading force for disruptive change in the real estate industry, today reported quarterly financial results and key operating data for the three and nine months ended september 30, 2022(2). doma’s results, while impacted by this year's extraordinarily challenging housing market conditions, demonstrate the company's ability to adapt the business and drive value for all parties involved in a real estate transaction under even the most challenging of cycles. doma is now committed to accelerating its path to profitability and achieving positive adjusted ebitda earlier in 2023 than previously communicated. "we know how important reaching adjusted ebitda profitability is, especially as we're facing a set of circumstances that seem to be pointing the housing market toward recession," said max simkoff, ceo of doma. "we believe we are the only company in our space with the proven technology and distribution opportunities to meaningfully drive transactions for homeowners that are better, faster, and cheaper. it is more important now than it ever has been to continue to deliver on our mission and to do so at scale, which is why we are committed to achieving adjusted ebitda profitability sooner than the late 2023 timeline which we had previously communicated." doma's financial performance in the third quarter was challenged by the cumulative effect of four consecutive 75 basis point rate hikes this year, high inflation, broken global supply chains, and broader geopolitical concerns which have all contributed to the near doubling of 30-year fixed mortgage rates versus this time last year. despite these strong market headwinds, doma's ability to adapt to even the most difficult external conditions is highlighted by its third quarter $13 million adjusted ebitda improvement compared to q2, driven by significant expense reductions in q2 and q3. these expense reductions are expected to continue to contribute to an upward trajectory in adjusted ebitda in q4, but the company also anticipates strong market headwinds to continue to challenge its ability to generate retained premiums and fees. as a result, doma is revising its adjusted ebitda guidance for the full year 2022, expecting to fall between negative $135 million and negative $140 million, versus the negative $100 million to negative $120 million previously communicated. this revised 2022 guidance will not impact doma's commitment to become adjusted ebitda positive in 2023 and the company is squarely focused on the most scalable and cost effective distribution of its technology solutions to customers in line with how the market continues to evolve. "given our laser focus on profitability, we will continue to prioritize investments in areas that we believe will drive the most long-term value for all our stakeholders, while ensuring those investments have a focus on profitability and cash generation, over growth," said mike smith, chief financial officer at doma. "while we are updating our adjusted ebitda guidance for 2022, we remain committed to adjustments and investment in the business that are not only scalable and will keep us on our path to profitability but that best serve the needs of customers in this difficult housing market." (1) reconciliations of retained premiums and fees, adjusted gross profit, and the other financial measures used in this press release that are not calculated in accordance with generally accepted accounting principles in the united states (“gaap”) to the nearest measures prepared in accordance with gaap have been provided in this press release in the accompanying tables. an explanation of these measures is also included below under the heading “non-gaap financial measures.” (2) doma completed its business combination with capitol investment corp. v ("capitol") on july 28, 2021. the financial results and key operating data included in this third quarter release include operating results of doma prior to completion of the business combination and operating results of the combined company subsequent to completion of the business combination. 2022 full year outlook (3): non-gaap financial measures doma revises adjusted ebitda guidance to between negative $135 million and negative $140 million doma intends to be adjusted ebitda positive sooner than late 2023 doma revises adjusted ebitda guidance to between negative $135 million and negative $140 million doma intends to be adjusted ebitda positive sooner than late 2023 non-gaap financial measures some of the financial information and data contained in this press release, such as retained premiums and fees, adjusted gross profit and adjusted ebitda, have not been prepared in accordance with united states generally accepted accounting principles ("gaap"). retained premiums and fees is defined as revenue less premiums retained by third-party agents. adjusted gross profit is defined as gross profit (loss), adjusted to exclude the impact of depreciation and amortization. adjusted ebitda is defined as net income (loss) before interest, income taxes, depreciation and amortization, and further adjusted to exclude the impact of stock-based compensation, severance costs, goodwill impairment and the change in fair value of warrant and sponsor covered shares liabilities. doma believes that the use of retained premiums and fees, adjusted gross profit and adjusted ebitda provides additional tools to assess operational performance and trends in, and in comparing doma's financial measures with, other similar companies, many of which present similar non-gaap financial measures to investors. doma’s non-gaap financial measures may be different from non-gaap financial measures used by other companies. the presentation of non-gaap financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial measures determined in accordance with gaap. because of the limitations of non-gaap financial measures, you should consider the non-gaap financial measures presented herein in conjunction with doma’s financial statements and the related notes thereto. please refer to the non-gaap reconciliations in this press release for a reconciliation of these non-gaap financial measures to the most comparable financial measure prepared in accordance with gaap. conference call information doma will host a conference call at 5:00 pm eastern time on tuesday, november 10, to present its third quarter 2022 financial results. dial-in details: to access the call by phone, please go to this link (https://register.vevent.com/register/biae0c54666f4949a589c0e4263d178c4b), and you will be provided with dial-in details. to avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time. the live webcast of the call will be accessible on the company’s website at investor.doma.com. approximately two hours after conclusion of the live event, an archived webcast of the conference call will be accessible from the investor relations section of the company’s website for twelve months. about doma holdings, inc. doma is a real estate technology company that is disrupting a century-old industry by building an instant and frictionless home closing experience for buyers and sellers. doma uses proprietary machine intelligence technology and deep human expertise to create a vastly more simple and affordable experience for everyone involved in a residential real estate transaction, including current and prospective homeowners, mortgage lenders, title agents, and real estate professionals. with doma, what used to take days can now be done in minutes, replacing an arcane and cumbersome process with a digital experience designed for today’s world. to learn more visit doma.com. (3) with respect to our guidance on adjusted ebitda, the company is not able to provide a quantitative reconciliation without unreasonable efforts to the most directly comparable gaap financial measure, which would be net loss, due to the high variability, complexity and low visibility with respect to certain items such as income taxes and changes in the fair value of warrant and sponsor covered shares liabilities. we expect the variability of these items to have a potentially unpredictable and potentially significant impact on future gaap financial results, and, as such, we also believe that any reconciliations provided would imply a degree of precision that would be confusing or misleading to investors. forward-looking statements legend this press release includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the united states private securities litigation reform act of 1995. forward-looking statements may be identified by the use of words such as "estimate," "plan," "project," "forecast," "intend," "will," "expect," "anticipate," "believe," "seek," "target" or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. the absence of these words does not mean that a statement is not forward-looking. such statements are based on the beliefs of, as well as assumptions made by information currently available to doma management. these forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of financial and performance metrics, projections of market opportunity, total addressable market ("tam"), market share and competition. these statements are based on various assumptions, whether or not identified in this press release, and on the current expectation of doma’s management and are not predictions of actual performance. these forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. actual events and circumstances are difficult or impossible to predict, will differ from assumptions and are beyond the control of doma. these forward-looking statements are subject to a number of risks and uncertainties, including changes in business, market, financial, political and legal conditions; risks relating to the uncertainty of the projected financial information with respect to doma; future global, regional or local economic, political, market and social conditions, including due to the covid-19 pandemic; the development, effects and enforcement of laws and regulations, including with respect to the title insurance industry; doma’s ability to manage its future growth or to develop or acquire enhancements to its platform; the effects of competition on doma’s future business; the outcome of any potential litigation, government and regulatory proceedings, investigations and inquiries; and those other factors described in part i, item 1a - “risk factors” of our annual report on form 10-k for the year ended december 31, 2021 and any subsequent reports filed by doma from time to time with the u.s. securities and exchange commission (the “sec”). if any of these risks materialize or doma’s assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. there may be additional risks that doma does not presently know or that doma currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. in addition, forward-looking statements reflect doma’s expectations, plans or forecasts of future events and views as of the date of this press release. doma anticipates that subsequent events and developments will cause doma’s assessments to change. however, while doma may elect to update these forward-looking statements at some point in the future, doma specifically disclaims any obligation to do so, except as required by law. these forward-looking statements should not be relied upon as representing doma’s assessment as of any date subsequent to the date of this press release. accordingly, undue reliance should not be placed upon the forward-looking statements. key operating and financial indicators three months ended september 30, nine months ended september 30, 2022 2021 2022 2021 (in thousands, except for open and closed order numbers) key operating data: opened orders 21,509 52,867 81,932 135,442 closed orders 15,302 35,300 61,448 99,386 gaap financial data: revenue (1) $ 107,856 $ 162,582 $ 343,807 $ 420,364 gross profit (2) $ 7,355 $ 28,302 $ 21,632 $ 81,232 net loss (3) $ (84,113 ) $ (34,270 ) $ (192,791 ) $ (69,327 ) non-gaap financial data (4): retained premiums and fees $ 42,715 $ 70,986 $ 143,426 $ 193,249 adjusted gross profit $ 11,606 $ 30,280 $ 32,866 $ 88,937 ratio of adjusted gross profit to retained premiums and fees 27 % 43 % 23 % 46 % adjusted ebitda $ (30,232 ) $ (20,109 ) $ (118,527 ) $ (35,291 ) (1) revenue is comprised of (i) net premiums written, (ii) escrow, other title-related fees and other, and (iii) investment, dividend and other income. (2) gross profit, calculated in accordance with gaap, is calculated as total revenue, minus premiums retained by third-party agents, direct labor expense (including mainly personnel expense for certain employees involved in the direct fulfillment of policies) and direct non-labor expense (including mainly title examination expense, provision for claims, and depreciation and amortization). in our consolidated income statements, depreciation and amortization is recorded under the “other operating expenses” caption. (3) net loss is made up of the components of revenue and expenses. (4) retained premiums and fees, adjusted gross profit and adjusted ebitda are non-gaap financial measures. non-gaap financial measures retained premiums and fees the following table reconciles our retained premiums and fees to our gross profit, the most closely comparable gaap financial measure, for the periods indicated: three months ended september 30, nine months ended september 30, 2022 2021 2022 2021 (in thousands) (in thousands) revenue $ 107,856 $ 162,582 $ 343,807 $ 420,364 minus: premiums retained by third-party agents 65,141 91,596 200,381 227,115 retained premiums and fees $ 42,715 $ 70,986 $ 143,426 $ 193,249 minus: direct labor 20,220 23,948 71,908 62,829 provision for claims 4,665 6,685 15,586 16,741 depreciation and amortization 4,251 1,978 11,234 7,705 other direct costs (1) 6,224 10,073 23,066 24,742 gross profit $ 7,355 $ 28,302 $ 21,632 $ 81,232 __________________ includes title examination expense, office supplies, and premium and other taxes. adjusted gross profit the following table reconciles our adjusted gross profit to our gross profit, the most closely comparable gaap financial measure, for the periods indicated: three months ended september 30, nine months ended september 30, 2022 2021 2022 2021 (in thousands) (in thousands) gross profit $ 7,355 $ 28,302 $ 21,632 $ 81,232 adjusted for: depreciation and amortization 4,251 1,978 11,234 7,705 adjusted gross profit $ 11,606 $ 30,280 $ 32,866 $ 88,937 adjusted ebitda the following table reconciles our adjusted ebitda to our net loss, the most closely comparable gaap financial measure, for the periods indicated: three months ended september 30, nine months ended september 30, 2022 2021 2022 2021 (in thousands) (in thousands) net loss (gaap) $ (84,113 ) $ (34,270 ) $ (192,791 ) $ (69,327 ) adjusted for: depreciation and amortization 4,251 1,978 11,234 7,705 interest expense 4,584 4,531 13,280 12,341 income taxes 425 170 746 506 ebitda $ (74,853 ) $ (27,591 ) $ (167,531 ) $ (48,775 ) adjusted for: stock-based compensation 7,746 3,004 27,394 9,006 severance costs 4,567 — 8,395 — goodwill impairment 33,746 — 33,746 — change in fair value of warrant and sponsor covered shares liabilities (1,438 ) 4,478 (20,531 ) 4,478 adjusted ebitda $ (30,232 ) $ (20,109 ) $ (118,527 ) $ (35,291 ) the following table reconciles our adjusted gross profit to our adjusted ebitda, for the periods indicated: three months ended september 30, nine months ended september 30, 2022 2021 2022 2021 (in thousands) (in thousands) adjusted gross profit $ 11,606 $ 30,280 $ 32,866 $ 88,937 minus: customer acquisition costs 10,824 14,870 41,602 36,956 other indirect costs (1) 31,014 35,519 109,791 87,272 adjusted ebitda $ (30,232 ) $ (20,109 ) $ (118,527 ) $ (35,291 ) __________________ includes corporate support, research and development, and other operating costs. doma holdings, inc. consolidated statements of operations three months ended september 30, nine months ended september 30, (in thousands, except share and per share information) 2022 2021 2022 2021 revenues: net premiums written (1) $ 94,488 $ 141,491 $ 299,080 $ 358,754 escrow, other title-related fees and other 12,627 20,452 43,106 59,092 investment, dividend and other income 741 639 1,621 2,518 total revenues $ 107,856 $ 162,582 $ 343,807 $ 420,364 expenses: premiums retained by third-party agents (2) $ 65,141 $ 91,596 $ 200,381 $ 227,115 title examination expense 3,709 5,289 14,836 15,643 provision for claims 4,665 6,685 15,586 16,741 personnel costs 60,481 62,410 211,507 159,829 other operating expenses 20,656 21,693 67,047 53,038 goodwill impairment 33,746 — 33,746 — total operating expenses $ 188,398 $ 187,673 $ 543,103 $ 472,366 loss from operations $ (80,542 ) $ (25,091 ) $ (199,296 ) $ (52,002 ) other (expense) income: change in fair value of warrant and sponsor covered shares liabilities 1,438 (4,478 ) 20,531 (4,478 ) interest expense (4,584 ) (4,531 ) (13,280 ) (12,341 ) loss before income taxes $ (83,688 ) $ (34,100 ) $ (192,045 ) $ (68,821 ) income tax expense (425 ) (170 ) (746 ) (506 ) net loss $ (84,113 ) $ (34,270 ) $ (192,791 ) $ (69,327 ) earnings per share: net loss per share attributable to stockholders - basic and diluted $ (0.26 ) $ (0.14 ) $ (0.59 ) $ (0.54 ) weighted average shares outstanding common stock - basic and diluted 326,820,954 245,003,754 325,207,884 128,105,954 __________________ (1) net premiums written includes revenues from a related party of $34.8 million and $30.3 million during the three months ended september 30, 2022 and 2021, respectively. net premiums written includes revenues from a related party of $96.1 million and $81.9 million during the nine months ended september 30, 2022 and 2021, respectively. (2) premiums retained by third-party agents includes expenses associated with a related party of $27.9 million and $24.8 million during the three months ended september 30, 2022 and 2021, respectively. premiums retained by third-party agents includes expenses associated with a related party of $77.5 million and $66.6 million during the nine months ended september 30, 2022 and 2021, respectively. doma holdings, inc. consolidated balance sheets (in thousands, except share information) september 30, 2022 december 31, 2021 assets cash and cash equivalents $ 186,400 $ 379,702 restricted cash 2,965 4,126 investments: fixed maturities held-to-maturity debt securities, at amortized cost (net of allowance for credit losses of $433 at september 30, 2022 and $0 at december 31, 2021) 46,132 67,164 available-for-sale debt securities, at fair value (amortized cost $48,399 at september 30, 2022 and $0 at december 31, 2021) 47,584 — mortgage loans 302 2,022 other long-term investments 325 325 total investments $ 94,343 $ 69,511 receivables (net of allowance for credit losses of $1,428 at september 30, 2022 and $1,082 at december 31, 2021) 10,469 15,498 prepaid expenses, deposits and other assets 11,558 15,692 lease right-of-use assets 27,636 — fixed assets (net of accumulated depreciation of $29,650 at september 30, 2022 and $19,543 at december 31, 2021) 63,558 45,953 title plants 14,533 13,952 goodwill 77,741 111,487 total assets $ 489,203 $ 655,921 liabilities and stockholders’ equity accounts payable $ 3,441 $ 6,930 accrued expenses and other liabilities 34,955 54,149 lease liabilities 29,089 — senior secured credit agreement, net of debt issuance costs and original issue discount 151,383 141,769 liability for loss and loss adjustment expenses 83,791 80,267 warrant liabilities 1,040 16,467 sponsor covered shares liability 312 5,415 total liabilities $ 304,011 $ 304,997 stockholders’ equity: common stock, 0.0001 par value; 2,000,000,000 shares authorized at september 30, 2022; 327,872,190 and 323,347,806 shares issued and outstanding as of september 30, 2022 and december 31, 2021, respectively 33 33 additional paid-in capital 571,167 543,070 accumulated deficit (385,369 ) (192,179 ) accumulated other comprehensive income (639 ) — total stockholders’ equity $ 185,192 $ 350,924 total liabilities and stockholders’ equity $ 489,203 $ 655,921 quarterly results of operations and other data the following tables set forth our selected unaudited quarterly consolidated statements of operations data for each of the quarters indicated. the information for each quarter has been prepared on a basis consistent with our audited consolidated financial statements, and reflect, in the opinion of management, all adjustments, which consist only of a normal, recurring nature that are necessary for a fair statement of the financial information contained in those financial statements. our historical results are not necessarily indicative of the results that may be expected in the future. the following quarterly financial data should be read in conjunction with our consolidated financial statements. consolidated statements of operations three months ended (in thousands) september 30, 2020 december 31, 2020 march 31, 2021 june 30, 2021 september 30, 2021 december 31, 2021 march 31, 2022 june 30, 2022 september 30, 2022 revenues: net premiums written $ 103,587 $ 98,870 $ 107,992 $ 109,271 $ 141,491 $ 116,598 $ 95,666 $ 108,926 $ 94,488 escrow, other title-related fees and other 16,742 17,977 18,575 20,065 20,452 20,493 16,113 14,366 12,627 investment, dividend and other income 743 663 1,229 650 639 588 428 452 741 total revenues $ 121,072 $ 117,510 $ 127,796 $ 129,986 $ 162,582 $ 137,679 $ 112,207 $ 123,744 $ 107,856 expenses: premiums retained by third-party agents $ 67,024 $ 64,011 $ 70,338 $ 65,181 $ 91,596 $ 71,330 $ 60,602 $ 74,638 $ 65,141 title examination expense 4,624 4,393 4,853 5,500 5,289 6,495 5,981 5,146 3,709 provision for claims 5,242 5,272 3,249 6,807 6,685 4,594 4,611 6,310 4,665 personnel costs 36,197 38,874 43,464 53,954 62,410 78,306 77,793 73,233 60,481 other operating expenses 10,210 12,149 14,165 17,181 21,693 26,912 22,754 23,637 20,656 goodwill impairment — — — — — — — — 33,746 total operating expenses $ 123,297 $ 124,699 $ 136,069 $ 148,623 $ 187,673 $ 187,637 $ 171,741 $ 182,964 $ 188,398 loss from operations $ (2,225 ) $ (7,189 ) $ (8,273 ) $ (18,637 ) $ (25,091 ) $ (49,958 ) $ (59,534 ) $ (59,220 ) $ (80,542 ) other income (expense): change in fair value of warrant and sponsor covered shares liabilities — — — — (4,478 ) 11,169 13,900 5,193 1,438 interest expense (1,193 ) (1,151 ) (3,360 ) (4,451 ) (4,531 ) (4,519 ) (4,207 ) (4,489 ) (4,584 ) loss before income taxes $ (3,418 ) $ (8,340 ) $ (11,633 ) $ (23,088 ) $ (34,100 ) $ (43,308 ) $ (49,841 ) $ (58,516 ) $ (83,688 ) income tax expense (204 ) (223 ) (125 ) (211 ) (170 ) (421 ) (185 ) (136 ) (425 ) net loss $ (3,622 ) $ (8,563 ) $ (11,758 ) $ (23,299 ) $ (34,270 ) $ (43,729 ) $ (50,026 ) $ (58,652 ) $ (84,113 ) reconciliation of gaap to non-gaap measures the following tables present our reconciliation of gaap measures to non-gaap measures for the historical periods indicated. retained premiums and fees three months ended (in thousands) september 30, 2020 december 31, 2020 march 31, 2021 june 30, 2021 september 30, 2021 december 31, 2021 march 31, 2022 june 30, 2022 september 30, 2022 revenue $ 121,072 $ 117,510 $ 127,796 $ 129,986 $ 162,582 $ 137,679 $ 112,207 $ 123,744 $ 107,856 minus: premiums retained by third-party agents 67,024 64,011 70,338 65,181 91,596 71,330 60,602 74,638 65,141 retained premiums and fees $ 54,048 $ 53,499 $ 57,458 $ 64,805 $ 70,986 $ 66,349 $ 51,605 $ 49,106 $ 42,715 minus: direct labor 14,892 17,050 17,979 20,902 23,948 26,787 27,798 23,890 20,220 provision for claims 5,242 5,272 3,249 6,807 6,685 4,594 4,611 6,310 4,665 depreciation and amortization 1,221 2,579 2,707 3,021 1,978 2,615 3,236 3,747 4,251 other direct costs(1) 6,314 4,186 7,109 7,561 10,073 10,322 8,826 8,016 6,224 gross profit $ 26,379 $ 24,412 $ 26,414 $ 26,514 $ 28,302 $ 22,031 $ 7,134 $ 7,143 $ 7,355 __________________ includes title examination expense, office supplies, and premium and other taxes adjusted gross profit three months ended (in thousands) september 30, 2020 december 31, 2020 march 31, 2021 june 30, 2021 september 30, 2021 december 31, 2021 march, 31, 2022 june 30, 2022 september 30, 2022 gross profit $ 26,379 $ 24,412 $ 26,414 $ 26,514 $ 28,302 $ 22,031 $ 7,134 $ 7,143 $ 7,355 adjusted for: depreciation and amortization 1,221 2,579 2,707 3,021 1,978 2,615 3,236 3,747 4,251 adjusted gross profit $ 27,600 $ 26,991 $ 29,121 $ 29,535 $ 30,280 $ 24,646 $ 10,370 $ 10,890 $ 11,606 adjusted ebitda three months ended (in thousands) september 30, 2020 december 31, 2020 march 31, 2021 june 30, 2021 september 30, 2021 december 31, 2021 march, 31, 2022 june 30, 2022 september 30, 2022 net loss (gaap) $ (3,622 ) $ (8,563 ) $ (11,758 ) $ (23,299 ) $ (34,270 ) $ (43,729 ) $ (50,026 ) $ (58,652 ) $ (84,113 ) adjusted for: depreciation and amortization 1,221 2,579 2,707 3,021 1,978 2,615 3,236 3,747 4,251 interest expense 1,193 1,151 3,360 4,451 4,531 4,519 4,207 4,489 4,584 income taxes 204 223 125 211 170 421 185 136 425 ebitda $ (1,004 ) $ (4,610 ) $ (5,566 ) $ (15,616 ) $ (27,591 ) $ (36,174 ) $ (42,398 ) $ (50,280 ) $ (74,853 ) adjusted for: stock-based compensation 355 1,550 2,289 3,713 3,004 11,040 11,393 8,255 7,746 severance costs — — — — — — — 3,828 4,567 goodwill impairment — — — — — — — — 33,746 change in fair value of warrant and sponsor covered shares liabilities — — — — 4,478 (11,169 ) (13,900 ) (5,193 ) (1,438 ) adjusted ebitda $ (649 ) $ (3,060 ) $ (3,277 ) $ (11,903 ) $ (20,109 ) $ (36,303 ) $ (44,905 ) $ (43,390 ) $ (30,232 )
