Doma sold additional pieces of its retail title production business as part of the company’s reorganization as it struggles to become profitable.
Near North Title, a Chicago-area title agency, is the new owner of Doma’s Midwest retail offices. The Texas offices were sold to Capital Title of Texas, a part of the Shaddock Title Cos.
This is Near North’s second significant transaction this year, following the purchase of another Chicago-based agency, O’Connor Title Guaranty. In this deal it picked up locations in Illinois, Indiana, Minnesota and Wisconsin.
Terms of both transactions were not disclosed.
In May, Doma sold 22 Northern and Central California offices to Williston Financial Group in a transaction valued at $24.5 million. That followed a disclosure in its first quarter earnings call that the company was evaluating its organizational structure. Doma has yet to turn a GAAP net profit since it went public in 2021 with big ambitions in title and adjacent businesses.
“These strategic transactions are aligned with our mission-driven go-forward strategy and refined focus on our core underwriting and technology business,” said Max Simkoff, Doma CEO, in a press release. “We believe we have found optimal homes for our Local team members in the branches we have sold.”
Houlihan Lokey was Doma’s financial advisor and Mayer Brown was legal counsel for these transactions.
At the end of June, Doma conducted a one-for-25 reverse stock split that brought its price back up from pre-split levels well below the $1 per share minimum listing price to a close of $7.81 per share on July 19. As it started trading after its special purpose acquisition company merger, Doma closed at $6.84 per share.
The reverse split, however, did not stop the New York Stock Exchange from starting delisting proceedings for Doma’s warrants. In anticipation, the NYSE has halted trading in the warrants, which would have allowed holders to exchange 25 of them for one share of Doma stock at a price of $287.50 per share, according to a Securities and Exchange Commission filing.
Doma will announce its second quarter results on Aug. 8.
In the first quarter, Doma reported a net loss of $42.1 million, an improvement over the fourth quarter loss of $109.4 million and the year ago loss of $50 million.
Despite a 40% year-over-year increase in market share to 1.4% during the first quarter of 2022, Doma Holdings was unable to produce a net profit.
During the first quarter of 2022, Doma recorded a GAAP net loss of $50.026 million, compared to a net loss of $11.8 million a year prior. In addition, the title insurer’s revenue was down 12% year over year from $127.8 million in Q1 2021 to $112.2 million in Q1 2022.
Executives attributed the lower revenue and increased net loss to an overall downturn in the mortgage market.
“In the first quarter, the mortgage market rapidly readjusted with refinance transactions down industry-wide by 63% year over year, per the Mortgage Bankers Association,” Max Simkoff, the CEO of Doma, said during the firm’s first-quarter earnings call with investors on Tuesday. “Based on the recent trend in rates it is likely we will see a continued negative impact on the overall mortgage market. While the market could always change for the better, we believe the challenges the mortgage market faces will continue at least through the rest of 2022.”
In the first quarter of 2022, Doma opened 35,192 title orders and closed 27,347 orders, compared to 41,084 opened orders and 32,650 closed orders during the first quarter of 2021. When separated into purchase and refinance, Doma executives said that purchase orders were down 13%, while refinance orders had dropped by 20%.
Due to the decline in the refinance market, Simkoff said Doma is refocusing its efforts on increasing its purchase volume. Unlike refinance transactions completed with Doma, as of Q1 2022 not all purchase title orders are completed through the Doma Intelligence platform, which is something Simkoff said the company plans to change by the end of next year.
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“We are refocusing resources from other areas of the company to a narrower set of strategic initiatives that will ensure we rise to solve the biggest pain points in a purchase focused market while also keeping the company on our previously communicated timeline to achieve adjusted EBITDA profitability in 2023,” Simkoff said.
Although Simkoff stressed that he was confident that Doma’s technological offerings will be enticing enough to lenders and other consumers for the company to increase purchase transaction volume, the firm announced a 15% work force reduction last week. A total of 310 positions were cut, with 259 coming from the fulfillment department, reducing the department’s workforce by 28%.
“We have recently made significant reductions to our cost structure across every part of the company in service of helping us act more nimbly and to protect our healthy cash flow position,” Simkoff said. “We expect this reduction will result in an annualized cost savings of $30 million.”
When discussing the firm’s previously announced goals of expanding into appraisal and home warranty, executives sounded far more cautious than in the past.
“In this current market, our investments in Doma Intelligence solutions for the home purchase market become even more critical,” said acting CFO Mike Smith. “Nonetheless, given our outlook for the mortgage market overall in 2022, we are prudent in our spend in other parts of the business to preserve our healthy cash position. This has entailed some tough decisions, including rescoping our entry into the appraisal and home warranty adjacent markets to make better use of our partner resources and provide better returns on investment.”
Cautious and conservative also describe Doma’s outlook on the future of the mortgage market.
“I think we have reacted pretty quickly to what we see as a longer-term market down turn,” Simkoff said. “We are certainly prepared to take further action if we see further deterioration, but we feel like the actions we have taken recently, and a more conservative outlook are the right approach today.”
States Title announced $150 million in debt financing to be used towards modern home closing technology. The debt is from HSMC Bermuda.
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