Walker & Dunlop, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Started Q1 with low carryover business due to interest rate volatility, but Q1 total transaction volume was $7 billion, up 10% y-o-y, and revenue grew 4%. GAAP EPS was $0.08 due to personnel costs, debt offering fees, and loan loss reserve additions.
• 88% of Q1 volume was in multifamily assets; Fannie Mae originations were up 67%, and investment sales volume was up 58%. Construction starts in multifamily plummeted, leading to an undersupplied market in 2026-2027, and single-family housing unaffordability boosted multifamily demand.
• Added a senior banker to NY Capital Markets, entered hospitality investment sales, opened a London office, and hired for data center space. Debt brokerage volume was down in Q1 due to timing but focused on growth.
• Refinanced corporate debt in March, writing off deferred issuance costs, adding liquidity and a $50 million working capital line. Board approved a quarterly dividend of $0.67 per share.

Segment Performance

• Capital Markets: Total revenues grew 25% to $103 million. Zelman, the research and investment banking business, saw revenues jump 129% to $11 million. Total transaction volume increased 10% to $7 billion, driving origination fees, MSR income, and property sales broker fees. Fannie Mae lending volume was up 67%, and total agency volumes rose 30%, leading to a $7 million or 33% year-over-year increase in non-cash MSR revenues. Segment net income totaled $2 million, a $9 million improvement from Q1 2024, and adjusted EBITDA grew by $6 million or 31%.
• Servicing and Asset Management (SAM): Total segment revenues declined 7% from Q1 2024. While servicing fees increased 3% off a $136 billion portfolio, investment management fees dropped $4 million (28%) due to lower capital raising and realizations, and placement fees/other interest income decreased $6 million (17%) due to the 100-basis point decline in the Fed funds rate.

Guidance

• Reiterated annual guidance established in February, expecting significant increase in financing and sales activity. Goal for each banker/broker to originate an average of at least $200 million of transaction volume in 2025. Zelman aims to generate $40 million to $50 million of revenue. WDAE aims to raise $600 million in tax credit syndications (50% growth over 2024). WDIP aims to deploy $1 billion in capital in 2025. Confident in achieving guidance due to market fundamentals and pipeline strength.

Risks

• Market volatility due to policy announcements and interest rate changes, keeping clients in wait-and-see mode. Potential challenges from tariffs and monetary policy changes impacting transaction volumes.

Question and Answer

Q: In today’s current market, could you give further insight on investors, conservative assumptions, and Fannie Mae/Freddie Mac behavior?

A: Willy mentioned that Q2 pipeline is holding, larger transactions are on pause but owners are likely considering entering the market; Fannie and Freddie are engaged and working to win deals.

Q: Talk about non-interest expenses and the ratio of operating expenses to revenues.

A: Willy stated it's volume-focused, aiming to get producer production to $200 million per banker/broker to lower the ratio from 60% to 48%-50% as volumes increase