loanDepot heads into its third-quarter report with an awkward split between its operations and its stock. Last quarter, management sounded more confident than at any point in the past year, pointing to a home equity product that lifted margins, narrowed losses and raised the margin outlook. Since then the shares have lost about 31% while the S&P 500 barely moved. The report before Monday's open needs to show whether the improvement in the business is real enough to matter while questions about the balance sheet remain open.
The Street expects earnings of about $0.03 a share. That compares with a $0.02 loss a year ago and an $0.11 loss last quarter. The 250% growth figure overstates things, since it mostly reflects a move from a small loss to a small profit, but crossing into the black would still mark a real change for a lender that has reported losses throughout this stretch. Revenue was $337.3 million last quarter, up from $323.3 million a year earlier. On an adjusted basis, management reported $308 million and an adjusted net loss that narrowed to $29 million. To reach a positive per-share result, the company has to roughly close that $29 million gap in one quarter. Its guidance indicates where it thinks the money will come from.
The key figure is the pull-through weighted gain-on-sale margin. Management raised its third-quarter target to 360 to 390 basis points, the highest range of the year, after posting 345 basis points in the second quarter, up from 271 in the first. The increase is driven by the 5x5 HELOC product built with Figure, which helped push unit volume up 25% sequentially and origination income up 60%. A margin at or above the middle of the range would support the view that the HELOC shift is changing the earnings mix rather than delivering a one-time gain. A result near the bottom, or below it, would raise doubts about the strongest part of last quarter's story.
Volume is the harder figure to read. Management cut its guidance to $5.25 billion to $7.25 billion in lock volume and $6.25 billion to $8.25 billion in originations. Part of the reduction is mechanical, because HELOCs are smaller loans and do not register as locks. Investors should therefore look at unit counts, purchase share and loan officer productivity rather than dollar volume alone. Two other measures matter as well. Purchase share jumped 33% last quarter and the loan officer count is up 18% from a year ago, so continued share gains would show those hires are paying off. The recapture rate slipped about five points as higher rates hurt refinancing, and further declines would weaken the servicing portfolio's value as a source of new loans.
The balance sheet is likely what the stock is reacting to. Cash fell from $459 million a year ago to $229 million at the end of the second quarter. Management has also repeatedly said it is still weighing options with advisers on upcoming debt maturities, without settling on a plan. Several steps announced last quarter should start to show up now: the $10 billion servicing rights sale expected to settle later in the year, $12 million in annualized cost savings, and senior note buybacks at 86% to 90% of par. Progress on settling the sale and a clear plan for the maturities could matter more to the shares than the earnings figure.
Market positioning suggests caution has eased somewhat. Sentiment is still bearish but much less so than before the last report. The stock trades at $0.68, about half its 200-day average and in the lower part of a post-earnings range of $0.49 to $1.15. In the prior quarter, it held between $0.93 and $1.50. Recent selling has priced in substantial risk around refinancing the debt. A first profit, combined with margins inside the raised range, would support management's case that its momentum is building. If that comes without a credible plan for the debt and steadier cash levels, operating gains may again be overshadowed by funding concerns.