Radian : Real Estate Segment Investor Day Transcript

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Radian Group Inc Real Estate Segment Investor Day (Virtual)

EVENT DATE/TIME: JUNE 10, 2021 / 3:00PM GMT

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JUNE 10, 2021 / 3:00PM GMT, Radian Group Inc Real Estate Segment Investor Day (Virtual)

CORPORATE PARTICIPANTS

Brien Joseph McMahon Radian Group Inc. - Senior EVP, Chief Franchise Officer & Co-Head of Real Estate Eric R. Ray Radian Group Inc. - Senior EVP, Chief Digital Officer & Co-Head of Real Estate

J. Franklin Hall Radian Group Inc. - Senior EVP & CFO

John W. Damian Radian Group Inc. - SVP of Corporate Development & IR Richard Gerald Thornberry Radian Group Inc. - CEO & Director

PRESENTATION

John W. Damian Radian Group Inc. - SVP of Corporate Development & IR

Good morning, everyone. I'm John Damian, Senior Vice President of Investor Relations and Corporate Development for Radian. Welcome to Radian's Virtual Real Estate Segment Investor Day to share more information with you about these businesses. And we hope that you find the time spent with us today to be productive, and we are delighted that you could join us.

Just a few housekeeping items before we dive into the presentation. Due to the current environment, all of our speakers are remote. I would ask that you please excuse any sound quality or technical issues that may arise during the call. Presentation materials will be displayed on screen throughout the presentation. Audience members will be muted during the call and will have the opportunity to submit questions at any time through the course of the presentation by sending an e-mail to RDN2021investor [e-mail]. We ask that submitted questions include your name and organizational affiliation. Questions will be aggregated and answered during the Q&A session after the formal presentation concludes. A replay will be available on our website at www.radian.com, along with a copy of the presentation and other materials shared today.

Today's presentation includes certain non-GAAP measures, which will be discussed during today's call, including adjusted gross profit. Adjusted pretax operating income or loss before allocated corporate operating expenses and adjusted pretax operating margin before allocated corporate operating expenses. A reconciliation of these measures to GAAP may be found on Slide 56 of today's presentation, which will also be available on the Investors section of our website.

Before we begin, I would also like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially.

These risks, please review the cautionary statements regarding forward-looking statements included on Slide 2 of today's presentation, and the risk factors included in our 2020 Form 10-K and subsequent reports filed with the SEC. These are also available on our website.

This morning, you will hear from Rick Thornberry, Radian's Chief Executive Officer; Brian McMahon, Chief Franchise Officer and Co-Head of Real Estate; Eric Ray, Chief Digital Officer and Co-Head of Real Estate; and Frank Hall, Chief Financial Officer. Again, we'd like to thank you for your attendance today.

And now I would like to turn the presentation over to Rick.

Richard Gerald Thornberry Radian Group Inc. - CEO & Director

Thank you, John, and thank you all for joining us for our virtual Real Estate Investor Day. Brien, Eric, Frank and I are very excited to provide you with an update regarding our real estate. Let's get started.

As you are aware, Radian is a diversified mortgage and real estate business with 2 strategic business units: mortgage and real estate. Everyone is very familiar with our mortgage business. But for those of you who don't know us well, at Radian, our mortgage insurance products, help borrowers ready to own a home to achieve their dream of affordable, sustainable homeownership. We are proud of our mission and our success in holding it for nearly 45 years. Today, we are here to discuss our real estate segment, which is a natural extension of our core mortgage insurance business and also supports our mission of homeownership.

This business has over 380 customers and generated $102 million of revenues and $39 million of adjusted gross profit in 2020. Our real

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JUNE 10, 2021 / 3:00PM GMT, Radian Group Inc Real Estate Segment Investor Day (Virtual)

estate segment has access to a broad established network of Radian's customers and relationships, including over 275,000 real estate agents, 1,300 mortgage lenders working with our mortgage insurance business and more than 65 mortgage real estate investor relationships, including both GOCs.

Radian is a well-established provider of mortgage and real estate products and services. We have a history of being a valued and trusted industry partner with relationships spanning 6 decades. As I mentioned, we are relied upon by more than 1,300 financial institutions and thousands of real estate professionals. And we are a company that leverages data and technology with a track record of both innovation and reliability as well as delivering outstanding customer service.

Today, we believe the opportunity across the residential real estate market is both attractive and significant for Radian. Although the real estate market is one of the largest markets in the world, it is largely served by legacy players that are stuck in the past, struggling to reinvest their business models due to issues, disparate technologies and myopic business perspectives.

What we know is that market participants, including real estate agents, lenders and mortgage and real estate investors and consumers, are frustrated by antiquated processes, unmet promises and a lack of quality-integrated digital solutions. As such, we believe the real estate market is ripe for disruption by new entrants that are more agile and creative in delivering innovative digital business models that address the challenges market participants face.

It is safe to say the enormous changes in our personal lives over the past year during the pandemic have made us increasingly comfortable with digital solutions like Amazon, DoorDash and Instacart, resulting in the broad and accelerated disruption of more traditional brick-and-mortar retail MOBs. Whether it is a closing -- whether it is closing of mortgage or real estate transaction or shopping for a home, we believe market especially the emerging millennial generation, expect to be able to digitally transact with trust, transparency, speed, ease and convenience, while continuing to leverage the personal touch of a trusted real estate agent.

We believe it is not a matter of, only a question of when the future of real estate transactions will be driven by companies delivering digital solutions that leverage big data and analytics powered by advanced technology. Across our real estate businesses, as many of you have heard me say, we've been investing, building a position to play a major role in the digital transformation of this market. We believe we are ready to capitalize on the opportunity by driving better ways of doing business across the real estate ecosystem.

Today, we are pleased to introduce you to homegenius by Radian. For those of you who have followed us over the past several years, this is the new name for our real estate segment. Most importantly, we're excited about the future of this business, and we are looking forward to sharing more about our plans. Homegenius is an emerging integrated suite of digital products and services, serving real estate agents, lenders, mortgage and real estate investors and consumers searched to close during the home buying and selling process.

We believe homegenius is competitively advantaged through access to vast operating data through our Red Bell real estate brokerage subsidiary, proprietary real estate analytics and groundbreaking technology and our leading customer service. To put it simply, homegenius is designed to bring institutional grade analytics to you anywhere anytime. We also cannot undervalue the benefit homegenius gets from being part of the One Radian family. Our homegenius scene has a combination of highly relevant in a experiences and backgrounds combined with deep relationships that position us to drive this business forward.

We are poised and ready to play a disruptive role across the real estate market ecosystem, given our existing momentum, including the strength of our products and services, the trust of our network business partners and our experienced team. We believe homegenius is well positioned for long-term growth with the potential for both significant value creation and financial contribution.

For 2021, we believe the homegenius -- we believe that homegenius will generate approximately $150 million of revenues, representing nearly a 50% year-over-year increase. For 2025, we believe homegenius will produce revenue of $650 million to $1 billion. Frank will walk through our financial projections and key metrics we will use to track our progress towards the end of this presentation.

Given the virtual environment and our inability for you to see and touch what we do in person, we wanted to bring you closer to it, sit back and enjoy highlights of the technology and products and services that power homegenius and I will join.

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JUNE 10, 2021 / 3:00PM GMT, Radian Group Inc Real Estate Segment Investor Day (Virtual)

(presentation)

Richard Gerald Thornberry Radian Group Inc. - CEO & Director

I hope that gives you homegenius and why we are so excited about the future of this business. As I mentioned, homegenious by Radian is a new name for our real estate sector.

Let's review today's agenda. First, I will provide an overview of the key homegenious investment highlights. Next, I will walk through some of the market trends and pain points participants are experiencing, then Brien and I will provide a deeper dive in the homegenious and our competitive positioning. After that, Eric will give an overview of our homegenious suite of products and services today and in the future, including some demonstrations to give you a first-hand look at the technology. Finally, as I mentioned, Frank will discuss our financial projections and the key metrics that track our progress. Following the presentation, we look forward to answering your questions on our homegenious business.

Let's review our investment highlights and why we believe this is a value opportunity -- a high-value opportunity and a bit for Radian. We have strong, long-standing and trusted relationships with lenders and mortgage and real estate investors and expansive connectivity with a large network of real estate agents. We have access to extensive real estate data through our Red Bow subsidiary and utilize proprietary analytics, leveraging AI and machine learning models that put us in a unique position.

We have in our building highly innovative digital solutions to address many of the real estate market pain points, which we will discuss through the course of today. The opportunity is very significant across large addressable markets within a growing real estate industry that is right for disruption. Given the significant size of the real estate markets, even the small market share penetration has the potential to yield significant business volumes and create value for shareholders.

We believe, as Frank will walk through, we have an accelerating growth trajectory with a clear path to value creation and financial contribution. As I've said many times before, given the investment in technology, and people required to build these businesses, we believe value creation comes before meaningful financial contribution. That's why you see other fintech, proptech, insurtech companies being valued and measured off of revenues and adjusted gross profit metrics versus current profitability or EPS metrics.

Today, we will help to frame the potential value creation and financial contribution from homegenius. It's important to highlight that our people and team make the difference. As I mentioned, our team has highly diversified set of relevant experiences, with a track record of successfully leveraging and deploying innovative digital products and services, which is essential to building a successful business of this kind.

Let's review a few market trends, including the pain points and challenges for market participants that we are addressing with homegenious. As I've mentioned, real estate market creates an opportunity to accelerate growth. Total home transactions are on the rise with expected home sales in 2021 of 7.5 million properties. The number of licensed real estate agents at 1.4 million is robust, and I believe it's safe to say that it is only growing due to the continuing need for the personal touch and expertise provided by real estate agents. All prices are on an upward trend, with average home prices in 2021 projected to be $320,000. And perhaps most important, the demand for homeownership is increasing from the next-generation of homebuyers.

For example, as you can see on this chart, approximately 4 million millennials will reach age 29 to 30 each year for the next several years, which is the average age this generation enters the home buying market. And Gen X and baby boomer generations still represent a big share of the home purchase market. Net-net, there is a large, accurate real estate market with strong tailwinds that we believe is waiting for the ease and power of homegenious.

In terms of the homebuyer experience, 90% of homebuyers say the process is structural many points. 33% of buyers age 22 to 30 report understanding the process to be the most difficult stuff. Finding a credible and trustworthy real estate agent is the most important factor when hiring a real estate agent and the importance increases among younger generations.

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JUNE 10, 2021 / 3:00PM GMT, Radian Group Inc Real Estate Segment Investor Day (Virtual)

Research shows that buyers typically search for 8 weeks and look at a median of 9 homes. And for more than 50% of potential homebuyers, the most difficult stuff is finding the right property. A client for a mortgage requires buyers to provide multiple sources of documentation, some of which may be difficult to access.

And my personal favorite, the title and closing process, consumers are unaware they have a choice for title insurance and that they make the same dollars if they shop or out of compare options. Closing a loan takes 45 days or longer, and on average, costs 3% to 6% of the home's purchase price.

97% of homebuyers choose the Internet to search for homes. However, 90% of homebuyers still use a real estate agent to help them navigate through the home buying process. Over 50% of buyers help from a real estate agent to find a home, which is why real estate agents remain at the center of the transaction and process.

The #1 problem facing real estate agents and brokerage is keeping up with technology. They are challenged by an overwhelming number of choices and technology options with fragmented solutions and antiquated technology. Agents and brokers use 10 or more individual solutions, and we are not aware of any confident full-service option for transactions across the home buying journey. This requires to manage their relationships in a highly fragmented and frustrating way.

Given these pain points, they continue to demand new and better technological solutions to operate their business. According to a recent NAR survey, the top 3 technology real estate agents would like their broker to provide are predictive analytics, customer relationship management platforms and transaction management software. It is worth noting that we are focused on addressing the predictive analytics and the transaction management requirements. Net-net real estate agents are frustrated, resulting in strong demand for better solutions.

Lenders also continue to be challenged in the current environment. In this case, by the cost to produce a loan and the time to close a transaction. In fact, loan production costs have increased 57% over the last decade. This is despite continuing investment in technological solutions. Investments have not meaningfully accelerate the time to close and the need to manage a complex ecosystem of stakeholders for closing the transaction.

As we all know, the mortgage loading process in many respects is still outdated and can be highly frustrating. From the homegenius perspective, 2 other important issues and challenges to note are that lenders are struggling to develop relationships with local real estate agents in a purchase market, and lenders are concerned about getting disintermediated from their customers by real estate agents referring business away from them.

Today, a bank or credit union may have a customer relationship but lose that opportunity to get a new loan or retain an existing mortgage relationship as a real estate agent or other influencers direct that consumer to another lender. So let's talk about why we believe homegenius will drive the needed transformation to address many of these challenges.

Homegenius is focused on delivering market participants. for smarter real estate solutions. Our emerging suite of homegenius products is highly sophisticated, gradiently simple and totally trustable. We are building them to be integrated to deliver personalized solutions that empower lenders, real estate agents and brokers, mortgage and real estate investors and consumers that transact more effectively with greater transparency.

Our products are being powered by big data and proprietary analytics and technology, including AI and machine learning. We plan to take key market participants from search to close with intelligence, transparency, speed and simplicity. We are focused on improving the homegenius buying and selling experience while saving consumers time and money, positioning the real estate investors to identify and pursue new opportunities with greater confidence and transparency, enabling real estate agents to be the smartest person in maximizing their productivity and giving mortgage lenders the tools to retain and attract new customers by bringing them closer to the real estate transaction.

To accomplish this, we are building homegenius by leveraging our established network and building upon existing real estate products

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