Walker & Dunlop(WD) - 2025 Q1 - Quarterly Results

First Quarter 2025 Financial Highlights Q1 2025 Performance Overview In the first quarter of 2025, Walker & Dunlop saw a 10% year-over-year increase in total transaction volume to $7.0 billion and a 4% rise in total revenues to $237.4 million, though a significant 77% decline in net income to $2.8 million and diluted EPS to $0.08 was driven by an 8% increase in total expenses, primarily due to higher personnel costs, a corporate debt write-off, and increased credit loss provisions, yet the company maintains its 2025 outlook citing improving transaction volumes and durable profit streams reflected in less severe declines in adjusted core net income and adjusted EBITDA Q1 2025 Key Financial Metrics (YoY) | Metric | Q1 2025 | % Change YoY | | :--- | :--- | :--- | | Total Transaction Volume | $7.0 billion | 10% ▲ | | Total Revenues | $237.4 million | 4% ▲ | | Net Income | $2.8 million | 77% ▼ | | Diluted EPS | $0.08 | 77% ▼ | | Adjusted EBITDA | $65.0 million | 12% ▼ | | Adjusted core EPS | $0.85 | 29% ▼ | | Servicing Portfolio | $135.6 billion | 3% ▲ | - The Board of Directors declared a quarterly dividend of $0.67 per share for the second quarter of 2025[1][3] - Management attributes the significant drop in GAAP net income to increased severance expense, fees from a corporate debt issuance, and credit losses, while noting that adjusted figures were down materially less[2] - The company expressed optimism for the remainder of 2025, anticipating that pent-up demand will drive higher transaction volumes, supported by initial deregulatory changes at HUD and the GSEs[2] Consolidated Operating and Financial Results Consolidated First Quarter 2025 Operating Results The company's consolidated operating results for Q1 2025 show a 10% increase in total transaction volume, driven by strong growth in Fannie Mae, HUD, and property sales volumes, which offset a decline in brokered debt financing, while the managed portfolio grew by 3% to $154.2 billion, key profitability metrics declined with net income falling 77% due to rising expenses, and credit metrics showed an increase in the at-risk portfolio and defaulted loans, leading to a $3.7 million provision for credit losses Transaction Volumes Total transaction volume for Q1 2025 increased by 10% year-over-year to $7.0 billion, primarily fueled by a 67% surge in Fannie Mae volumes, a 948% increase in Ginnie Mae-HUD volumes, and a 58% rise in property sales volume, partially offset by a 23% decrease in brokered debt financing and a 17% drop in Freddie Mac volumes Q1 2025 Transaction Volumes (in thousands) | Category | Q1 2025 | Q1 2024 | % Variance | | :--- | :--- | :--- | :--- | | Fannie Mae | $1,511,794 | $903,368 | 67% | | Freddie Mac | $808,247 | $974,926 | (17)% | | Ginnie Mae - HUD | $148,158 | $14,140 | 948% | | Brokered | $2,552,943 | $3,319,074 | (23)% | | Property sales volume | $1,839,290 | $1,167,151 | 58% | | Total transaction volume | $7,035,932 | $6,394,459 | 10% | - The 58% increase in property sales volume outperformed the broader market's 36% increase, indicating strengthening investment conviction in the multifamily sector[7] - The decline in brokered debt financing was attributed to market volatility causing investors to be selective on transaction timing, though the supply of capital from various providers remains strong[7] Managed Portfolio & Key Performance Metrics As of March 31, 2025, the total managed portfolio grew 3% year-over-year to $154.2 billion, with the servicing portfolio increasing by 3% to $135.6 billion and assets under management (AUM) rising 6% to $18.5 billion, despite this growth, key performance metrics deteriorated significantly as net income and diluted EPS both fell 77%, and the operating margin compressed from 6% to 2%, primarily due to personnel expenses rising to 51% of total revenues from 49% a year ago Managed Portfolio as of March 31, 2025 (in thousands) | Category | Q1 2025 | Q1 2024 | % Variance | | :--- | :--- | :--- | :--- | | Total Servicing Portfolio | $135,648,716 | $131,963,765 | 3% | | Assets under management | $18,518,413 | $17,465,398 | 6% | | Total Managed Portfolio | $154,167,129 | $149,429,163 | 3% | Q1 2025 Key Performance Metrics (YoY) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Walker & Dunlop net income | $2,754 thousand | $11,866 thousand | | Diluted EPS | $0.08 | $0.35 | | Operating margin | 2% | 6% | | Return on equity | 1% | 3% | | Personnel expenses (% of revenue) | 51% | 49% | - The fair value of mortgage servicing rights (MSRs) remained stable at $1.4 billion as of March 31, 2025, the same as the prior year[12] Key Credit Metrics The at-risk servicing portfolio grew 8% year-over-year to $64.5 billion, primarily due to new Fannie Mae loans, while defaulted loans increased 72% to $108.5 million (0.17% of the at-risk portfolio) from $63.3 million (0.11%) a year ago, leading the company to record a $3.7 million provision for credit losses in Q1 2025 mainly related to newly defaulted loans and the growth of the at-risk portfolio, and during 2024, the company received repurchase requests for five GSE loans, with two still outstanding with an aggregate balance of $46.1 million as of March 31, 2025 Key Credit Metrics as of March 31 (in thousands) | Metric | 2025 | 2024 | % Variance | | :--- | :--- | :--- | :--- | | At-risk servicing portfolio | $64,450,319 | $59,498,851 | 8% | | Defaulted loans | $108,530 | $63,264 | 72% | | Defaulted loans (% of at-risk) | 0.17% | 0.11% | - | - As of March 31, 2025, there were eight at-risk loans in default, compared to six loans a year prior, with associated collateral-based reserves of $7.5 million[19] - A provision for credit losses of $3.7 million was recorded in Q1 2025, primarily due to new defaults and an increase in the at-risk servicing portfolio[19] Financial Results by Segment Segment performance varied in Q1 2025, with the Capital Markets segment seeing a 25% revenue increase and turning a prior-year loss into a $2.4 million net income driven by higher origination and property sales fees, conversely, the Servicing & Asset Management segment's net income fell 56% to $19.1 million due to decreased investment management and placement fees, and the Corporate segment reported a wider net loss of $18.7 million, up from $24.7 million in the prior year, due to increased operating expenses - Interest expense on corporate debt and income tax expense are determined at a consolidated level and then allocated to each segment[21] - Consolidated interest expense on corporate debt decreased 12% YoY due to lower short-term interest rates, however, a $4.2 million write-off of unamortized debt issuance costs was recorded in other operating expenses due to a debt refinancing[22] Capital Markets The Capital Markets segment reported a significant turnaround, with total revenues increasing 25% YoY to $102.6 million, leading to a net income of $2.4 million compared to a net loss of $6.7 million in Q1 2024, driven by a 33% increase in MSR income and a 53% rise in property sales broker fees, reflecting higher Fannie Mae/HUD volumes and strong property sales, despite personnel expenses rising 9% due to higher commissions and $2.4 million in severance costs for underperforming producers Capital Markets Financial Results (in thousands) | Metric | Q1 2025 | Q1 2024 | % Variance | | :--- | :--- | :--- | :--- | | Total revenues | $102,570 | $81,897 | 25% | | Total expenses | $98,029 | $90,227 | 9% | | Walker & Dunlop net income (loss) | $2,360 | $(6,700) | (135)% | - A shift in debt financing mix towards more profitable Fannie Mae and HUD executions led to higher origination fee rates (0.90% vs 0.84%) and MSR rates (0.55% vs 0.40%)[25] - Other revenues increased 66%, primarily due to higher investment banking revenues from several M&A transactions that closed during the quarter[25] - The company expects to recognize around $5 million of severance and related expenses in the first half of 2025, with $2.4 million already recorded in Q1[26] Servicing & Asset Management The Servicing & Asset Management segment experienced a decline in profitability, with total revenues down 7% YoY to $131.9 million and net income falling 56% to $19.1 million, as servicing fees grew 3% due to a larger portfolio, this was more than offset by a 28% drop in investment management fees and a 17% decrease in placement fees and other interest income attributed to lower short-term interest rates, while expenses rose 8% driven by a $3.7 million provision for credit losses and higher personnel costs Servicing & Asset Management Financial Results (in thousands) | Metric | Q1 2025 | Q1 2024 | % Variance | | :--- | :--- | :--- | :--- | | Total revenues | $131,903 | $141,235 | (7)% | | Total expenses | $95,155 | $87,964 | 8% | | Walker & Dunlop net income | $19,126 | $43,283 | (56)% | - Investment management fees decreased due to a reduction in accruals from LIHTC fund asset dispositions and lower realization revenues from private credit strategies[30] - The provision for credit losses increased significantly to $3.7 million from $0.5 million in Q1 2024, primarily due to an update to the historical loss factor and new defaults[27][33] Corporate The Corporate segment, which includes support functions, reported a net loss of $18.7 million for Q1 2025, a 24% improvement from the $24.7 million loss in Q1 2024, despite an 8% increase in total expenses, with the improvement in net loss due to a larger income tax benefit, and total expenses rising to $38.9 million driven by an 8% increase in both personnel costs (due to higher headcount) and other operating expenses (due to increased professional fees and a debt-related write-off) Corporate Segment Financial Results (in thousands) | Metric | Q1 2025 | Q1 2024 | % Variance | | :--- | :--- | :--- | :--- | | Total revenues | $2,894 | $4,927 | (41)% | | Total expenses | $38,939 | $36,189 | 8% | | Walker & Dunlop net loss | $(18,732) | $(24,717) | (24)% | - Personnel expense increased 8% due to higher salaries, benefits, and stock compensation from increased average headcount[34] - Other operating expenses rose 8%, primarily due to increased professional fees and the write-off of unamortized issuance costs related to the partial paydown of the term loan[34] Capital Management and Shareholder Returns Capital Management and Shareholder Returns In Q1 2025, Walker & Dunlop focused on optimizing its capital structure and returning value to shareholders by declaring a Q2 dividend of $0.67 per share, completing a $400 million senior unsecured notes offering due 2033 at 6.625% and using the proceeds to pay down its senior secured term loan to $450 million, extending the maturity to 2032, which resulted in a $4.2 million write-off of deferred issuance costs, and authorizing a new $75 million share repurchase program, under which no shares have yet been repurchased - A dividend of $0.67 per share for Q2 2025 was declared, payable on May 29, 2025[36] - The company issued $400 million of 6.625% senior unsecured notes due 2033 and concurrently paid down its senior secured term loan to $450 million, extending its maturity to 2032[37] - A new 12-month, $75.0 million share repurchase program was authorized in February 2025, with no repurchases made as of March 31, 2025[39] Standard Disclosures Non-GAAP Financial Measures The company utilizes non-GAAP financial measures such as adjusted EBITDA, adjusted core net income, and adjusted core EPS to supplement its GAAP-based financial statements, as management believes these measures provide investors with a better understanding of operating performance, allow for more meaningful period-to-period comparisons, and help identify underlying business trends, though these measures are not intended as a substitute for GAAP and may not be comparable to similarly titled measures of other companies - The company uses adjusted EBITDA, adjusted core net income, and adjusted core EPS to evaluate operating performance, for comparison with forecasts, and for benchmarking against competitors[42][45] - Adjustments to derive these non-GAAP measures typically exclude items like amortization and depreciation, provision for credit losses, MSR income, and certain non-recurring charges like goodwill impairment or write-offs from debt refinancing[44] Forward-Looking Statements This section contains standard cautionary language regarding forward-looking statements, which are based on current expectations and projections about future events, these statements are not guarantees of future results and are subject to numerous risks and uncertainties, and the company disclaims any obligation to update these statements and directs readers to its SEC filings, such as the Annual Report on Form 10-K, for a more detailed discussion of risk factors - Forward-looking statements reflect current views and are subject to known and unknown risks that may cause actual results to differ significantly[46][47] - Key risk factors include general economic and real estate market conditions, changes in interest rates, regulatory changes to GSEs or HUD, and changes in federal fiscal and monetary policies[48] Financial Statements and Supplemental Data Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements present the company's financial position and results of operations, with the balance sheet as of March 31, 2025, showing total assets of $4.51 billion and total equity of $1.74 billion, and the income statement for Q1 2025 detailing revenues of $237.4 million and net income of $2.8 million, a significant decrease from $11.9 million in Q1 2024, primarily due to higher operating expenses Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total assets | $4,511,878 | $4,381,993 | | Total liabilities | $2,767,789 | $2,622,130 | | Total equity | $1,744,089 | $1,759,863 | Condensed Consolidated Income Statement Highlights (in thousands) | Account | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenues | $237,367 | $228,059 | | Total expenses | $232,123 | $214,380 | | Walker & Dunlop net income | $2,754 | $11,866 | Supplemental Operating and Credit Data This section provides detailed quarterly trends, showing Q1 2025 total transaction volume of $7.0 billion was up from Q1 2024's $6.4 billion but down from Q4 2024's $13.4 billion, indicating seasonal patterns, while the total servicing portfolio continued its steady growth, reaching $135.6 billion, and key credit metrics show the at-risk portfolio grew to $64.5 billion, with defaulted loans at $108.5 million, an increase both year-over-year and quarter-over-quarter Quarterly Transaction Volume Trend (in thousands) | Volume Type | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Total Debt Financing Volume | $5,196,642 | $9,996,208 | $5,227,308 | | Property Sales Volume | $1,839,290 | $3,450,614 | $1,167,151 | | Total Transaction Volume | $7,035,932 | $13,446,822 | $6,394,459 | Quarterly Key Credit Metrics Trend (in thousands) | Metric | Mar 31, 2025 | Dec 31, 2024 | Mar 31, 2024 | | :--- | :--- | :--- | :--- | | At-risk servicing portfolio | $64,450,319 | $63,365,672 | $59,498,851 | | Defaulted loans | $108,530 | $41,737 | $63,264 | Reconciliation of GAAP to Non-GAAP Measures This section provides detailed reconciliations of GAAP measures to the company's non-GAAP metrics, for Q1 2025, Walker & Dunlop's net income of $2.8 million is reconciled to an Adjusted EBITDA of $65.0 million by adjusting for items such as income tax, interest, amortization, MSR income, and a $4.2 million write-off of debt issuance costs, similarly, net income is reconciled to an Adjusted Core Net Income of $29.2 million, resulting in an Adjusted Core EPS of $0.85, which management believes better reflects core operating performance Q1 2025 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Item | Amount | | :--- | :--- | | Walker & Dunlop Net Income | $2,754 | | Income tax expense | $2,519 | | Interest expense on corporate debt | $15,514 | | Amortization and depreciation | $57,621 | | Provision for credit losses | $3,712 | | MSR income | $(27,811) | | Other adjustments | $10,657 | | Adjusted EBITDA | $64,966 | Q1 2025 Reconciliation of Diluted EPS to Adjusted Core EPS | Metric | Amount | | :--- | :--- | | Diluted EPS | $0.08 | | Adjustments (per share) | $0.77 | | Adjusted Core EPS | $0.85 |