Walker & Dunlop, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Year-End Performance: Ended 2024 with $13.4 billion in total transaction volume (up 45% year-over-year), diluted earnings per share of $1.32 (up 42% from Q4 2023), Q4 adjusted EBITDA of $95 million (up 8% year-over-year), and adjusted core EPS of $1.34 (down 6% from last year). Full year: diluted EPS was $3.19 (flat from 2023), adjusted core EPS was $4.97 (up 6%), and adjusted EBITDA was a record $329 million (up 9% from 2023).
• GSE Partnerships: Finished the year as Fannie Mae's largest DUS partner (6 consecutive years) and fourth largest Optigo lending partner for Freddie Mac in 2024. GSEs play a crucial role in multifamily financing.
• Property Sales: Closed $3.5 billion in Q4 property sales (up 20% year-over-year) and $9.8 billion full year (up 11% year-over-year).
• Technology-Enabled Businesses: Apprise revenues up 43% year-over-year, small balance lending up 20% year-over-year.
• Credit Initiatives: Implemented new process controls and technology to address loan buybacks from GSEs, and established a special asset management group to work on repurchased loans.

Segment Performance

• Capital Markets: Transaction volumes grew 45% year-over-year. Segment revenue surged 40% to $181 million, expenses grew 23%. Operating margins improved, net income increased 131% to $40 million, and adjusted EBITDA grew to $4 million (up from a loss of $2 million in the year-ago fourth quarter).
• Servicing & Asset Management (SAM): Quarterly revenues totaled $157 million, up 13% year-over-year. The servicing portfolio ended the year at $135 billion, with servicing fees in the quarter at $83 million (up 4% year-over-year). Placement fees and other interest income were $40 million (down 1% year-over-year). Net income for the SAM segment was up 7% to $37 million, and adjusted EBITDA increased 12% to $124 million.
• Apprise: More than doubled quarterly revenues from $2.4 million in Q1 to $4.9 million in Q4. Total 2024 revenues were $13.3 million, up 43% year-over-year.
• Small Balance Lending: Total revenues grew 20% in 2024 and ended the year as the #4 small balance GSE lender.

Guidance

• 2025 guidance: Diluted earnings per share is expected to grow in the high single digits to double digits. Adjusted EBITDA and adjusted core EPS are expected to be flat to up in the high single digits. Transaction volumes are expected to grow in 2025, but the first quarter is likely to slow compared to the fourth quarter.

Risks

• Credit Risks: Loan buybacks from GSEs and associated provision-related expenses; however, steps have been taken to address these issues.
• Market Uncertainties: Macroeconomic factors such as stubborn inflation, the long-term path of interest rates, and changes in the presidential administration.
• Competitive Landscape: Competition from large private equity and credit firms, and challenges in capital deployment for these firms.

Question and Answer

Q: Do you see opportunities to more formally align with an alternative asset manager and their insurance subsidiaries perhaps through joint venture or partnerships to help drive their asset needs and increase fee revenue for W&D?

A: Willy Walker states there are partnerships with firms already, and while they feel confident in scaling asset management alone, partnership is always a potential.

Q: The low-income housing tax credit syndication business, W&D Affordable Housing, can you give an update on the outlook for that overall business away from the WDAP exit?

A: Willy Walker mentions management changes at the end of Q3, positive reaction to changes, and importance of low-income housing tax credit budget allocation for the business's growth.

Q: On the Fannie business, was it 1 or 2 mega deals in there? Or are you just seeing Fannie being broadly more aggressive in its pricing relative to Freddie Mac?

A: Willy Walker states it was standard deal flow, not a single large transaction, and both agencies came back into the market in the back half of the year.

Q: With all you've done in the last couple of years in terms of capabilities and bringing teams in, would you say that as you sit today, the business -- the W&D business model is now essentially complete?

A: Willy Walker responds that the firm is never satisfied, not complete, and remains focused on competing and outperforming.

Q: Is extend and pretend done? And any updates to your thoughts on the GSEs coming out?

A: Willy Walker discusses borrowers' situations with floating rate debt and refinancing challenges; on GSEs, mentions privatization is on the radar but tied to tax bill timing.

Q: You guys are expanding into hospitality. Maybe give us a thumbnail of how you're thinking about that market.

A: Willy Walker explains expansion into hospitality to provide one-stop shopping, hired a fantastic team, and sees opportunity in the market despite urban challenges.