Walker & Dunlop(US:WD)2022-05-05 11:02PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited Q1 2022 consolidated financial statements, detailing revenue and net income growth, and asset changes Condensed Consolidated Balance Sheet Highlights (As of March 31, 2022 vs. December 31, 2021) | Account | March 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | 4,339,631 | 5,205,989 | (16.6%) | | Loans held for sale, at fair value | 703,629 | 1,811,586 | (61.2%) | | Goodwill | 908,744 | 698,635 | 30.1% | | Total Liabilities | 2,702,460 | 3,627,782 | (25.5%) | | Warehouse notes payable | 924,280 | 1,941,572 | (52.4%) | | Total Equity | 1,637,171 | 1,578,207 | 3.7% | Condensed Consolidated Statement of Income Highlights (For the three months ended March 31) | Account | 2022 ($ thousands) | 2021 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | 319,444 | 224,288 | 42.4% | | Loan origination and debt brokerage fees, net | 82,310 | 75,879 | 8.5% | | Property sales broker fees | 23,398 | 9,042 | 158.8% | | Other revenues | 81,749 | 8,782 | 830.9% | | Total Expenses | 229,454 | 151,118 | 51.8% | | Personnel | 144,181 | 96,215 | 49.9% | | Walker & Dunlop Net Income | 71,209 | 58,052 | 22.7% | | Diluted EPS | $2.12 | $1.79 | 18.4% | Condensed Consolidated Statement of Cash Flows Highlights (For the three months ended March 31) | Cash Flow Activity | 2022 ($ thousands) | 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 971,928 | 1,315,692 | | Net cash used in investing activities | (44,440) | 81,179 | | Net cash used in financing activities | (1,096,656) | (1,423,259) | | Net (decrease) in cash | (169,168) | (26,388) | - In Q1 2022, the company transitioned to three new operating segments: Capital Markets (CM), Servicing & Asset Management (SAM), and Corporate, reflecting management's evaluation post-growth and acquisitions112 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses Q1 2022 financial performance, market conditions, segment changes, liquidity, and capital resources Total Transaction Volume (For the three months ended March 31) | Volume Type | 2022 ($ thousands) | 2021 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Debt Financing Volume | 9,135,017 | 7,826,869 | 16.7% | | Property Sales Volume | 3,531,690 | 1,395,760 | 153.0% | | Total Transaction Volume | 12,666,707 | 9,222,629 | 37.3% | - The company acquired GeoPhy on February 28, 2022, to accelerate growth in its small balance lending and appraisal platforms130 - The Federal Reserve's increase in its target Federal Funds Rate has led to higher long-term mortgage interest rates, impacting the company's lending basis172 - The Board approved a new $75.0 million stock repurchase program and declared a $0.60 per share Q1 2022 dividend, a 20% increase YoY109110262 Business and Segments Describes the company's commercial real estate services and its Q1 2022 reorganization into three new operating segments - The Capital Markets segment offers commercial real estate finance products, including Agency lending, debt brokerage, property sales, and appraisal services134 - The Servicing & Asset Management segment focuses on loan servicing, managing third-party capital, and providing housing market research143 - The Corporate segment includes treasury operations, corporate debt management, strategic investments, and various support functions133 Consolidated Results of Operations Details Q1 2022 consolidated financial performance, including 42% revenue growth, 52% expense increase, and 23% net income rise Consolidated Financial Results (For the three months ended March 31) | Account | 2022 ($ thousands) | 2021 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | 319,444 | 224,288 | 42% | | Property sales broker fees | 23,398 | 9,042 | 159% | | Other revenues | 81,749 | 8,782 | 831% | | Total Expenses | 229,454 | 151,118 | 52% | | Personnel | 144,181 | 96,215 | 50% | | Income from operations | 89,990 | 73,170 | 23% | | Walker & Dunlop net income | 71,209 | 58,052 | 23% | - The significant increase in 'Other revenues' was primarily due to a $39.6 million one-time gain from the revaluation of the Apprise investment189190 Adjusted EBITDA Reconciliation (For the three months ended March 31) | Account | 2022 ($ thousands) | 2021 ($ thousands) | | :--- | :--- | :--- | | Walker & Dunlop Net Income | 71,209 | 58,052 | | Adjustments | (8,573) | 2,615 | | Adjusted EBITDA | 62,636 | 60,667 | Segment Results Presents Q1 2022 operational results by segment, showing Capital Markets decline, Servicing & Asset Management growth, and reduced Corporate loss Income from Operations by Segment (For the three months ended March 31) | Segment | 2022 ($ thousands) | 2021 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Capital Markets | 59,407 | 70,733 | (16.0%) | | Servicing & Asset Management | 40,876 | 34,743 | 17.6% | | Corporate | (10,293) | (32,306) | (68.1%) | | Total Income from Operations | 89,990 | 73,170 | 23.0% | - Capital Markets' debt financing volume increased to $9.0 billion, but MSR income rate on Agency volume declined from 1.83% to 1.56%215224 - Servicing & Asset Management's total managed portfolio grew to $132.9 billion from $111.7 billion YoY, with AUM increasing to $16.7 billion due to the Alliant acquisition236 - The Corporate segment's revenue was positively impacted by a $39.6 million gain from remeasuring its Apprise equity investment to fair value upon acquisition252 Liquidity and Capital Resources Details the company's strong liquidity and capital position, exceeding regulatory requirements, and outlines key cash uses and debt structure - The company satisfied its Fannie Mae net worth requirement with $704.8 million against a required $261.2 million as of March 31, 2022261 - A new stock repurchase program was approved in February 2022, authorizing up to $75.0 million in common stock repurchases, with no shares repurchased in Q1 2022264 - The company's at-risk servicing portfolio was $50.2 billion, with defaulted loans at 0.16% and maximum potential loss exposure of $10.2 billion275 Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses exposure to interest rate and market value risks, detailing the impact of rate changes on earnings, expenses, and MSR fair value Annualized Impact of a 100 Basis Point Interest Rate Increase (as of March 31, 2022) | Item | Impact ($ thousands) | | :--- | :--- | | Increase in escrow earnings | 24,807 | | Increase in net warehouse interest expense | (8,929) | | Increase in interest expense on corporate debt | (4,728) | - The fair value of MSRs is sensitive to discount rate changes; a 100-basis point increase would decrease fair value by approximately $39.1 million as of March 31, 2022292 - The company is managing the transition from LIBOR to SOFR, having already transitioned its Term Loan and several warehouse facilities to SOFR-based rates294 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls - The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of the period end296 - No material changes in internal control over financial reporting occurred during the quarter297 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, none of which are considered material or expected to have an adverse effect - In the ordinary course of business, the company may be party to various claims and litigation, none of which management believes is material299 Item 1A. Risk Factors No material changes have occurred regarding the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - No material changes have occurred regarding the Risk Factors disclosed in the company's 2021 Form 10-K300 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details Q1 2022 equity security transactions, including shares purchased for tax withholding and shares issued as earnout consideration - The company purchased 195,431 shares at an average price of $138.28 per share to satisfy grantee tax withholding obligations301 - As of March 31, 2022, the company had $75.0 million of authorized capacity remaining under its stock repurchase program301 Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including agreements, corporate documents, and required CEO/CFO certifications