WALTER INVESTMENT MANAGEMENT CORP 
By TAMPA, Fla., March 18, 2013 /PRNewswire/ -- Walter Investment Management Corp. (NYSE: WAC) ("Walter Investment" or the "Company") today announced highlights and results for the quarter and full year ended December 31, 2012.
-- The GAAP net loss for the year ended December 31, 2012 was $22.1
million, or $0.73 per diluted share, compared to a net loss of $66.4
million or $2.41 per diluted share for 2011. The GAAP net loss for the
fourth quarter was $34.1 million, or $0.98 per diluted share, compared
to a net loss of $3.9 million, or $0.14 per diluted share in the fourth
quarter of 2011. 2012 results were impacted by a charge of $48.6
million, reflecting the loss on the early extinguishment of the
Company's debt.
-- Pro-Forma Adjusted EBITDA for the year was $241.7 million, slightly
above the high end of the range of previously provided guidance of $225
to $240 million. This compares to 2011 Pro Forma Adjusted EBITDA of
$211.0 million, reflecting 15% year-over-year growth, strong earnings
from incentives and performance based fees, and growth in the EBITDA
contributions from the ARM and Loans and Residuals segments, as well as
a solid contribution from the Reverse Mortgage business acquired near
the end of the year.
-- Adjusted EBITDA for the fourth quarter was $64.1 million, reflecting
increased cash flows from the residual trusts and a solid contribution
by the Reverse Mortgage business. This compares to Pro-Forma Adjusted
EBITDA of $55.0 million in the fourth quarter of 2011.
-- Core earnings for the full year doubled to $83.1 million after taxes, or
$2.73 per diluted share, as compared to $41.5 million after taxes, or
$1.50 per diluted share, for the full year 2011. Core earnings for the
fourth quarter was $22.5 million after taxes, or $0.64 per diluted
share, compared to $16.1 million, or $0.56 per diluted share, in the
fourth quarter of last year.
Recent Developments
-- On December 31, 2012, the Company signed a definitive agreement to
acquire Security One Lending ("S1L"), a leading retail and wholesale
reverse loan originator based in San Diego, California. The assets
acquired and liabilities assumed in conjunction with this transaction
have been included in the Company's consolidated balance sheets as of
December 31, 2012.
-- On January 3, 2013, the Company signed a definitive agreement to acquire
approximately $93 billion in unpaid principal balance ("UPB") of Fannie
Mae backed residential servicing assets ("MSRs") and other intangibles,
including related advance receivables of approximately $1 billion, from
Bank of America ("BofA"). In addition, the Company signed a definitive
agreement to acquire a servicing platform from MetLife Bank.
-- On January 31, 2013, the Company closed an $825 million incremental
first lien term loan facility, which was upsized from its original $475
million launch based on significant demand and the company's
expectations for its ability to utilize that financing to fund growth
opportunities.
-- On January 31, 2013, the Company completed the previously announced
acquisitions of the originations and capital markets platforms, as well
as the purchases of approximately $44 billion in UPB of Fannie Mae MSRs
and other intangibles from Residential Capital, LLC ("ResCap") and $84
billion in UPB of Fannie Mae MSRs and other intangibles from BofA.
Pro-forma for all of the announced acquisitions, the Company's serviced
portfolio is estimated at a UPB of $245 billion.
-- On March 1, 2013, the Company completed the acquisition of the
correspondent lending and wholesale broker business from Ally Bank,
enhancing the channel capabilities of the Originations platform. The
Company also completed the previously announced acquisition of the
MetLife Bank servicing platform on this date.
This press release and the accompanying reconciliations include non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP, please see the reconciliations as well as "Use of Non-GAAP Measures" at the end of this press release.
"We are extremely pleased with the growth and strategic development of our business, as well as our operational accomplishments, in 2012," said Mark J. O'Brien, Walter Investment's Chairman and CEO. "Our solid execution against our plans is especially evident in the targeted acquisitions of significant Fannie Mae MSRs from ResCap and BofA, our successful efforts in extending our capabilities in the forward market into the reverse sector with the acquisitions of RMS and S1L, and with the very tactical acquisition of the ResCap originations and capital markets platforms, which will diversify our revenue streams and extend the duration of our servicing portfolio through HARP retention and recapture efforts. We expect each of these acquisitions to contribute to the profitable and sustainable long-term growth of our business and will leverage and enhance the capabilities of our fee-for-service, value-added business model."
"With the closing of the ResCap and BofA purchases, Walter Investment will service a portfolio of nearly 2 million loans with a UPB of roughly $245 billion, concentrated in product backed by our strategic partner, Fannie Mae", continued O'Brien. "The 185% growth in our servicing book as compared to 2011 demonstrates not only our ability to capitalize on the near term opportunities currently available to specialty servicers, but also to do so in a thoughtful and deliberate nature consistent with our strategy and long-term vision for the Company."
Market Commentary and Outlook
In addition to results for the fourth quarter and the full year, the Company also provided additional information on its business development activities and outlook for 2013.
-- The Company's pipeline of business development opportunities continues
to include a mix of subservicing, MSR acquisition and servicing platform
opportunities and totals in excess of $300 billion in UPB. Included in
this pipeline are portfolios for which we are in exclusive negotiations
with a UPB in excess of $40 billion. Changes in the pipeline reflect
the conversion of approximately $20 billion of UPB from the exclusive
pipeline in the last 75 days. Walter Investment continues to expect to
convert a high percentage of the transactions in the exclusive pipeline
in the near term. There can be no guarantee, however, that any of the
opportunities in our pipeline will result in purchases or contracts
added by the Company.
-- Based on continued strong overall market conditions, contributions
expected from the transactions completed by the Company last year and in
the first quarter of 2013, and the robust pipeline for potential new
business, the Company anticipates 2013 Adjusted EBITDA in a range of
$650 million to $725 million.
Because we do not predict special items that might occur in the future, and our outlook is developed at a level of detail different than that used to prepare GAAP financial measures, we are not providing a reconciliation to GAAP of our forward-looking financial measures for the year ending December 31, 2013.
Fourth Quarter 2012 Financial and Operating Highlights
The Company's results for all periods presented include the results of Walter Investment, while the results of Reverse Mortgage Solutions ("RMS") have been included for the period subsequent to its acquisition.
The Company's GAAP net loss for the fourth quarter was $34.1 million or $0.98 per diluted share, as compared to a net loss of $3.9 million, or $0.14 per diluted share, in the fourth quarter of 2011. Results for the quarter reflect a charge of $48.6 million related to the loss incurred by the Company on the early extinguishment of its debt.
Core earnings after taxes for the fourth quarter was $22.5 million, or $0.64 per diluted share, compared to $16.1 million, or $0.56 per diluted share, in the fourth quarter of 2011. Total accounts serviced were approximately one million with a UPB of $90.1 billion as of December 31, 2012. These amounts do not reflect the acquisitions from ResCap and Bank of America in the first quarter of 2013.
Total revenue for the fourth quarter was $176.4 million, as compared to $155.9 million in the year-ago period. This year-over-year increase in revenue reflects a $21.5 million increase in servicing revenue and a $2.5 million net increase in other revenues, primarily from the addition of RMS, partially offset by a $3.5 million decline in interest income as compared to the prior year.
Total expense increased from $161.3 million in the fourth quarter of 2011 to $188.7 million in the fourth quarter of 2012. The year-over-year increase reflects the additional operating and overhead costs, including salaries and benefits and general and administrative expenses, of RMS. Increased expenses also reflected higher legal and due diligence costs associated with increased corporate and business development activities.
Walter Investment ended the quarter with liquidity of $566.8 million, including cash of $442.1 million and availability under our revolver of $124.7 million. Walter expects to utilize this available cash in the first half of 2013 to fund the purchases and acquisitions noted previously. Payments of $10.4 million were made to reduce outstanding Company indebtedness during the fourth quarter of 2012.
Segments
The results of the Company's segments are presented in the narrative below. As a result of the acquisition of RMS a new "Reverse Mortgage" segment has been added.
Servicing
The Servicing segment generated revenue of $102.5 million in the fourth quarter, which included $71.8 million of servicing fees, $19.5 million of incentive and performance-based fees, and $10.8 million of ancillary and other fees. Expense for the Servicing segment was $90.0 million, which included $20.7 million of depreciation and amortization costs. The segment generated core earnings before income taxes of $31.3 million for the quarter ended December 31, 2012. This compares to core earnings before income taxes of $27.7 million in the fourth quarter of 2011.
Asset Receivables Management ("ARM") and Insurance
The ARM segment generated revenue of $11.3 million and incurred expense of $8.0 million in the quarter ended December 31, 2012. Core earnings before income taxes was $5.4 million. This compares to revenue of $7.1 million, expense of $6.5 million, and core earnings before income taxes of $2.8 million in the fourth quarter of 2011. The year over year increase in core earnings was primarily a result of increased revenues from higher gross collections and a high recovery rate in the fourth quarter of 2012.
Walter Investment's Insurance segment generated revenue of $19.2 million, offset by expenses of $10.4 million for the fourth quarter. Insurance segment core earnings before income taxes was $10.6 million for the quarter ended December 31, 2012. This compares to revenue of $20.6 million, expense of $12.2 million, and core earnings before income taxes of $10.6 million in the fourth quarter of 2011.
Loans and Residuals
The Loans and Residuals segment, which includes the legacy Walter Investment owned portfolio, generated interest income of $36.7 million for the fourth quarter of 2012, slightly below interest income generated in the fourth quarter of 2011 as a result of anticipated portfolio run-off. Total expense for the segment was $38.6 million, including $25.9 million of interest expense on securitized debt. The Loans and Residuals segment generated pre-tax core earnings of $1.5 million for the fourth quarter of 2012, compared to pre-tax core earnings of $5.1 million for the fourth quarter of 2011. Pre-tax core earnings declined as compared to the prior year period primarily as a result of lower net interest income and an increase to provision for losses of $2.6 million.
Performance of the Walter Investment legacy portfolio included delinquencies of 6.88% at December 31, 2012, 128 bps higher as compared to those at December 31, 2011, while REO inventory levels declined slightly as compared to the prior year period.
Reverse Mortgage
The Reverse Mortgage segment generated revenue of $7.0 million for the months of November and December, which included $5.1 million in servicing fees and $1.9 million of net other revenue. Total expenses were $11.2 million, offset by a $7.3 million other gain from the net impact of HECM loans and GNMA Trust liability fair value adjustments. Segment core earnings before income taxes was $6.9 million in the fourth quarter. The Reverse Mortgage segment contributed Adjusted EBITDA of $7.7 million for the last two months of 2012. Segment core earnings and Adjusted EBITDA for the Reverse Mortgage segment reflect the exclusion of fair value adjustments made in accordance with GAAP and adds as "cash gain" the excess of proceeds received in GNMA financing transactions above the purchase price or cost for the related loans originated or acquired.
About Walter Investment Management Corp.
Walter Investment Management Corp. is an asset manager, mortgage servicer and originator focused on finding solutions for consumers and credit owners. Based in Tampa, Fla., the Company has over 4,200 employees and services a diverse loan portfolio. For more information about Walter Investment Management Corp., please visit the Company's website at www.walterinvestment.com. The information on our website is not a part of this release.
Conference Call Webcast
Members of the Company's leadership team will discuss Walter Investment's fourth quarter and full year results and other general business matters during a conference call and live webcast to be held on Tuesday, March 19, 2013, at 10 a.m. Eastern Time. To listen to the event live or in an archive, which will be available for at least 30 days, visit the Company's website at www.walterinvestment.com.
Disclaimer and Cautionary Note Regarding Forward-Looking Statements
This document contains forward-looking statements, including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements concerning Walter Investment's plans, beliefs, objectives, expectations and intentions and other statements that are not historical or current facts. Forward-looking statements are based on Walter Investment's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. In addition, these statements are based on a number of assumptions that are subject to change. Accordingly, actual results may be materially higher or lower than those projected. The inclusion of such projections herein should not be regarded as a representation by Walter Investment that the projections will prove to be correct. This document speaks only as of this date. Walter Investment disclaims any duty to update the information herein except as otherwise required by law.
Factors that could cause Walter Investment's results to differ materially from current expectations or affect the Company's ability to achieve anticipated core earnings and EBITDA include, but are not limited to:
-- Regulatory changes and changes in delinquency and default rates that
could adversely affect the costs of our businesses such that they are
higher than expected;
-- Prepayment speeds, delinquency and default rates of the portfolios we
service;
-- Our inability to achieve anticipated incentive fees, which are subject
to certain factors beyond the Company's control and which are difficult
to estimate with any degree of certainty in advance;
-- The achievement of anticipated volumes and margins from the origination
of both forward and reverse mortgages, which can be affected by multiple
factors, many of which are beyond our control;
-- Assumptions with regard to the HARP eligible population of the
portfolios we service, customer take up rates, our recapture rates, the
origination margins for HARP refinancing and anticipated changes to the
HARP program which may increase competition;
-- Assumptions with regard to contributions from originations are also
subject to the integration of the ResCap origination and capital markets
platforms, and the organizational structure, capital requirements and
performance of the business after the acquisition;
-- The closing of the Security One Lending acquisition, and other business
and asset acquisitions on schedule, and the addition of new business in
2013;
-- The timely and efficient transfer of assets acquired to the Company's
platforms and the efficient integration of the acquired businesses,
including achievement of synergies related thereto;
-- The accuracy of our expectations regarding the value of, and
contributions from, acquired MSRs, related intangibles and other assets,
including the accuracy of our assumptions as to the performance of the
assets we acquire, which are subject to and affected by many factors,
some of which are beyond our control, and could differ materially from
our estimates;
-- Errors in our financial models or changes in assumptions could result in
our estimates and expectations being materially inaccurate which may
adversely affect our earnings;
-- The effects of competition on our existing and potential future
business;
-- Our ability to service our existing or future indebtedness;
-- Other factors that may affect the Company's earnings or costs; and
-- Other factors relating to our business in general as detailed in Walter
Investment's 2012 Annual Report on Form 10-K and other periodic reports
filed with the U.S. Securities and Exchange Commission.
Walter Investment Management Corp.
Segment Revenues and Operating Income
For the Three Months Ended December 31, 2012
($ in thousands)
Servicing Asset Receivables Management Insurance Loans and Reverse Mortgage Other Eliminations Total Consolidated
Residuals
---------
REVENUES
Servicing revenue and fees $102,040 $11,292 $ - $ - $5,134 $ - $(5,052) $113,414
Interest income on loans - - - 36,654 - - - 36,654
Insurance revenue - - 19,149 - - - - 19,149
Other revenues 492 49 82 5 1,858 4,722 (48) 7,160
--- --- --- --- ----- ----- --- -----
Total revenues 102,532 11,341 19,231 36,659 6,992 4,722 (5,100) 176,377
EXPENSES
Interest expense 1,074 - - 25,853 1,217 17,180 - 45,324
Depreciation and amortization 20,749 1,873 1,351 - 1,942 84 - 25,999
Provision for loan losses - - - 5,230 - - - 5,230
Other expenses, net 68,174 6,150 9,052 7,541 7,991 18,324 (5,100) 112,132
------ ----- ----- ----- ----- ------ ------ -------
Total expenses 89,997 8,023 10,403 38,624 11,150 35,588 (5,100) 188,685
OTHER GAINS (LOSSES)
Net fair value gains (losses) (273) - - (421) 7,279 (759) - 5,826
Losses on extinguishments - - - - - (48,579) - (48,579)
Total other gains (losses) (273) - - (421) 7,279 (49,338) - (42,753)
---- --- --- ---- ----- ------- --- -------
Income (loss) before income taxes 12,262 3,318 8,828 (2,386) 3,121 (80,204) - (55,061)
------ ----- ----- ------ ----- ------- --- -------
Core Earnings
Step-up depreciation and amortization 16,036 1,873 1,351 - 1,101 84 - 20,445
Losses on extinguishment of debt - - - - - 48,579 - 48,579
Share-based compensation expense 1,940 196 431 - 153 256 - 2,976
Transaction and integration costs 854 - - - - 8,356 - 9,210
Non-cash fair value adjustments - - - - 2,554 - - 2,554
Non-cash interest expense 235 - 28 3,932 - - - 4,195
Net impact of Non-Residual Trusts - - - - - 3,334 - 3,334
Other - - - - - 116 - 116
---
Total adjustments 19,065 2,069 1,810 3,932 3,808 60,725 - 91,409
------ ----- ----- ----- ----- ------ --- ------
Core earnings (loss) before 31,327 5,387 10,638 1,546 6,929 (19,479) - 36,348
income taxes
Adjusted EBITDA
Interest expense on debt 3 - - - - 17,160 - 17,163
Depreciation and amortization 4,713 - - - 841 - - 5,554
Non-cash interest income (489) - (81) (2,800) (119) - - (3,489)
Provision for loan losses - - - 5,230 - - - 5,230
Residual Trusts cash flows - - - 3,237 - - - 3,237
Pro forma synergies - - - - - - - -
Other 490 15 44 (1,052) 22 512 - 31
Total adjustments 4,717 15 (37) 4,615 744 17,672 - 27,726
----- --- --- ----- --- ------ --- ------
Adjusted EBITDA $36,044 $5,402 $10,601 $6,161 $7,673 $(1,807) $ - $64,074
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Walter Investment Management Corp.
Segment Revenues and Operating Income
For the Year Ended December 31, 2012
($ in thousands)
Servicing Asset Receivables Management Insurance Loans and Reverse Mortgage Other Eliminations Total Consolidated
Residuals
---------
REVENUES
Servicing revenue and fees $395,913 $38,876 $ - $ - $5,134 $ - $(20,953) $418,970
Interest income on loans - - - 154,351 - - - 154,351
Insurance revenue - - 73,249 - - - - 73,249
Other revenues 2,773 49 659 5 1,858 15,123 (48) 20,419
----- --- --- --- ----- ------ --- ------
Total revenues 398,686 38,925 73,908 154,356 6,992 15,123 (21,001) 666,989
EXPENSES
Interest expense 4,882 - - 96,337 1,217 77,235 - 179,671
Depreciation and amortization 84,474 7,774 5,377 - 1,942 161 - 99,728
Provision for loan losses - - - 13,352 - - - 13,352
Other expenses, net 262,515 22,623 35,175 28,623 7,991 39,684 (21,001) 375,610
------- ------ ------ ------ ----- ------ ------- -------
Total expenses 351,871 30,397 40,552 138,312 11,150 117,080 (21,001) 668,361
OTHER GAINS (LOSSES)
Net fair value gains (losses) (1,056) - - (116) 7,279 8,393 - 14,500
Losses on extinguishments - - - - - (48,579) - (48,579)
Total other gains (losses) (1,056) - - (116) 7,279 (40,186) - (34,079)
------ --- --- ---- ----- ------- --- -------
Income (loss) before income taxes 45,759 8,528 33,356 15,928 3,121 (142,143) - (35,451)
------ ----- ------ ------ ----- -------- --- -------
Core Earnings
Step-up depreciation and amortization 65,768 7,774 5,377 - 1,101 161 - 80,181
Losses on extinguishment of debt - - - - - 48,579 - 48,579
Share-based compensation expense 10,171 868 2,167 - 153 847 - 14,206
Transaction and integration costs 2,722 - - - - 13,060 - 15,782
Non-cash fair value adjustments - - - - 2,554 - - 2,554
Non-cash interest expense 919 - 214 4,943 - - - 6,076
Net impact of Non-Residual Trusts - - - - - 945 - 945
Other - - - - - 1,269 - 1,269
--- --- --- --- --- ----- -----
Total adjustments 79,580 8,642 7,758 4,943 3,808 64,861 - 169,592
------ ----- ----- ----- ----- ------ --- -------
Core earnings (loss) before income taxes 125,339 17,170 41,114 20,871 6,929 (77,282) - 134,141
Pro-Forma Adjusted EBITDA
Interest expense on debt 129 - - - - 77,216 - 77,345
Depreciation and amortization 18,706 - - - 841 - - 19,547
Non-cash interest income (2,725) - (655) (14,501) (119) - - (18,000)
Provision for loan losses - - - 13,352 - - - 13,352
Residual Trusts cash flows - - - 9,342 - - - 9,342
Pro forma synergies 2,651 - - - - 1,118 - 3,769
Other 1,489 39 77 (221) 22 819 - 2,225
Total adjustments 20,250 39 (578) 7,972 744 79,153 - 107,580
------ --- ---- ----- --- ------ --- -------
Pro-Forma Adjusted EBITDA $145,589 $17,209 $40,536 $28,843 $7,673 $1,871 $ - $241,721
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Walter Investment Management Corp.
Segment Revenues and Operating Income
For the Three Months Ended December 31, 2011
($ in thousands)
Servicing Asset Insurance Loans and Other Eliminations Total
Receivables Consolidated
Management Residuals
---------- ---------
REVENUES
Servicing revenue and fees $92,386 $7,149 $ - $ - $ - $(7,617) $91,918
Interest income on loans - - - 40,171 - - 40,171
Insurance revenue - - 20,065 - - (321) 19,744
Other revenues 1,111 - 490 - 2,466 - 4,067
----- --- --- --- ----- --- -----
Total revenues 93,497 7,149 20,555 40,171 2,466 (7,938) 155,900
EXPENSES
Interest expense 1,659 - - 24,240 20,958 - 46,857
Depreciation and amortization 23,001 2,051 1,609 - 15 - 26,676
Provision for loan losses - - - 2,651 - - 2,651
Other expenses, net 60,305 4,497 10,585 8,552 9,157 (7,938) 85,158
------ ----- ------ ----- ----- ------ ------
Total expenses 84,965 6,548 12,194 35,443 30,130 (7,938) 161,342
OTHER GAINS (LOSSES)
Net fair value gains (losses) (298) - - 1,305 (655) - 352
Gain on extinguishments - - - - - - -
Other - - - - 1,758 - 1,758
Total other gains (losses) (298) - - 1,305 1,103 - 2,110
---- --- --- ----- ----- --- -----
Income (loss) before income taxes 8,234 601 8,361 6,033 (26,561) - (3,332)
----- --- ----- ----- ------- --- ------
Core Earnings
Step-up depreciation and amortization 17,524 2,051 1,608 - 15 - 21,198
Transaction and integration costs - - - - 4,340 - 4,340
Net impact of Non-Residual Trusts - - - - 3,170 - 3,170
Share-based compensation expense 1,636 124 406 - 117 - 2,283
Non-cash interest expense 298 - 179 687 - - 1,164
Other - - - (1,646) (1,304) - (2,950)
--- --- --- ------ ------ --- ------
Total adjustments 19,458 2,175 2,193 (959) 6,338 - 29,205
------ ----- ----- ---- ----- --- ------
Core earnings (loss) before 27,692 2,776 10,554 5,074 (20,223) - 25,873
income taxes
Pro-Forma Adjusted EBITDA
Interest expense on debt 88 - - - 20,957 - 21,045
Non-cash interest income (977) - (488) (3,262) - - (4,727)
Pro forma synergies 2,185 - 149 - 1,330 - 3,664
Pro forma monetized assets - - - - - - -
Depreciation and amortization 5,477 - 1 - - - 5,478
Residual Trusts cash flows - - - (264) - - (264)
Provision for loan losses - - - 2,651 - - 2,651
Other 666 21 87 462 5 - 1,241
Total adjustments 7,439 21 (251) (413) 22,292 - 29,088
----- --- ---- ---- ------ --- ------
Pro-Forma Adjusted EBITDA $35,131 $2,797 $10,303 $4,661 $2,069 $ - $54,961
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Walter Investment Management Corp.
Segment Revenues and Operating Income
For the Year Ended December 31, 2011
($ in thousands)
Servicing Asset Insurance Loans and Other Eliminations Total
Receivables Residuals Consolidated
Management
----------
REVENUES
Servicing revenue and fees $197,265 $14,275 $ - $ - $ - $(25,363) $186,177
Interest income on loans - - - 164,794 - - 164,794
Insurance revenue - - 43,752 - - (2,101) 41,651
Other revenues 2,993 - 1,245 - 5,614 - 9,852
----- --- ----- --- ----- --- -----
Total revenues 200,258 14,275 44,997 164,794 5,614 (27,464) 402,474
EXPENSES
Interest expense 3,096 - - 91,075 42,075 - 136,246
Depreciation and amortization 46,438 3,906 2,706 - 28 - 53,078
Provision for loan losses - - - 6,016 - - 6,016
Other expenses, net 135,994 8,995 29,990 37,223 29,668 (27,464) 214,406
------- ----- ------ ------ ------ ------- -------
Total expenses 185,528 12,901 32,696 134,314 71,771 (27,464) 409,746
OTHER GAINS (LOSSES)
Net fair value gains (losses) (607) - - 965 (1,410) - (1,052)
Gain on extinguishments - - - 95 - - 95
Other - - - - 2,096 - 2,096
Total other gains (losses) (607) - - 1,060 686 - 1,139
---- --- --- ----- --- --- -----
Income (loss) before income taxes 14,123 1,374 12,301 31,540 (65,471) - (6,133)
------ ----- ------ ------ ------- --- ------
Core Earnings
Step-up depreciation and amortization 35,729 3,906 2,674 - 15 - 42,324
Transaction and integration costs - - - - 19,179 - 19,179
Net impact of Non-Residual Trusts - - - - 6,855 - 6,855
Share-based compensation expense 3,427 192 1,183 - 195 - 4,997
Non-cash interest expense 607 - 513 1,901 - - 3,021
Other - - - (1,646) (1,624) - (3,270)
--- --- --- ------ ------ --- ------
Total adjustments 39,763 4,098 4,370 255 24,620 - 73,106
------ ----- ----- --- ------ --- ------
Core earnings (loss) before income taxes 53,886 5,472 16,671 31,795 (40,851) - 66,973
Pro-Forma Adjusted EBITDA
Interest expense on debt 185 - - - 42,075 - 42,260
Non-cash interest income (2,339) - (1,241) (13,725) - - (17,305)
Pro forma synergies 8,862 - 596 - 7,370 16,828
Pro forma monetized assets - - - (13,305) - (13,305)
Depreciation and amortization 10,709 - 32 - 13 - 10,754
Residual Trusts cash flows - - - 9,108 - - 9,108
Provision for loan losses - - - 6,016 - - 6,016
Other 872 43 295 1,872 (918) - 2,164
Total adjustments 18,289 43 (318) (10,034) 48,540 - 56,520
------ --- ---- ------- ------ --- ------
Pro-Forma Adjusted EBITDA $72,175 $5,515 $16,353 $21,761 $7,689 $ - $123,493
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Walter Investment Management Corp. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(in thousands, except per share amounts)
For the Three Months Ended For the Year Ended
December 31, December 31,
------------ ------------
2012 2011 2012 2011
---- ---- ---- ----
REVENUES
Servicing revenue and fees $113,414 $91,918 $418,970 $186,177
Interest income on loans 36,654 40,171 154,351 164,794
Insurance revenue 19,149 19,744 73,249 41,651
Other revenues 7,160 4,067 20,419 9,852
----- ----- ------ -----
Total revenues 176,377 155,900 666,989 402,474
EXPENSES
Salaries and benefits 64,609 50,608 230,107 117,736
Interest expense 45,324 46,857 179,671 136,246
General and administrative 45,652 30,614 136,236 78,597
Depreciation and amortization 25,999 26,676 99,728 53,078
Provision for loan losses 5,230 2,651 13,352 6,016
Other expenses, net 1,871 3,936 9,267 18,073
----- ----- ----- ------
Total expenses 188,685 161,342 668,361 409,746
OTHER GAINS (LOSSES)
Net fair value gains (losses) 5,826 352 14,500 (1,052)
Gains (losses) on extinguishments (48,579) - (48,579) 95
Other - 1,758 - 2,096
--- ----- --- -----
Total other gains (losses) (42,753) 2,110 (34,079) 1,139
Income (loss) before income taxes (55,061) (3,332) (35,451) (6,133)
Income tax expense (benefit) (20,953) 600 (13,317) 60,264
Net income (loss) $(34,108) $(3,932) $(22,134) $(66,397)
OTHER COMPREHENSIVE INCOME (LOSS) BEFORE TAXES
Change in postretirement benefits liability (92) (882) 19 (1,248)
Amortization of realized gain on closed hedges 140 (32) 68 (154)
Unrealized gain (loss) on available-for-sale security in other assets (55) (3) 24 36
--- --- --- ---
Other comprehensive income (loss) before taxes (7) (917) 111 (1,366)
Income tax expense (benefit) for items of other comprehensive income (loss) 8 (749) 34 (531)
--- ---- --- ----
Other comprehensive income (loss) (15) (168) 77 (835)
Comprehensive loss $(34,123) $(4,100) $(22,057) $(67,232)
======== ======= ======== ========
Net loss $(34,108) $(3,932) $(22,134) $(66,397)
Basic earnings (loss) per common and common equivalent share $(0.98) $(0.14) $(0.73) $(2.41)
Diluted earnings (loss) per common and common equivalent share (0.98) (0.14) (0.73) (2.41)
Total dividends declared per common and common equivalent share - - - 0.22
Weighted-average common and common equivalent shares outstanding - basic 34,850 28,609 30,397 27,593
Weighted-average common and common equivalent shares outstanding - diluted 34,850 28,609 30,397 27,593
Walter Investment Management Corp. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
December 31, December 31,
2012 2011
---- ----
ASSETS
Cash and cash equivalents $442,054 $18,739
Restricted cash and cash equivalents 653,338 353,216
Residential loans (includes $6,710,211 and $672,714 at fair value) 8,220,967 2,278,402
Allowance for loan losses (20,435) (13,824)
------- -------
Residential loans, net 8,200,532 2,264,578
Receivables, net (includes $53,975 and $81,782 at fair value) 259,009 229,779
Servicer and protective advances, net 173,047 140,690
Servicing rights, net 225,278 250,329
Goodwill 580,378 470,291
Intangible assets, net 161,926 137,482
Premises and equipment, net 137,785 130,410
Other assets 144,830 118,028
Total assets $10,978,177 $4,113,542
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables and accrued liabilities (includes $24,246 and $21,515 at $260,610 $217,929
fair value)
Servicer payables 587,929 244,302
Servicing advance liabilities 100,164 107,039
Debt 1,146,249 742,626
Mortgage-backed debt (includes $757,286 and $811,245 at fair value) 2,072,728 2,224,754
Liability to GNMA Trusts at fair value 5,874,552 -
Deferred tax liability, net 41,017 43,360
Total liabilities 10,083,249 3,580,010
Stockholders' equity:
Preferred stock, $0.01 par value per share:
Authorized - 10,000,000 shares
Issued and outstanding -0 shares at December
31, - -
2012 and December 31, 2011
Common stock, $0.01 par value per share:
Authorized - 90,000,000 shares
Issued and outstanding -36,687,785 and
27,875,158 367 279
at December 31, 2012 and December 31, 2011,
respectively
Additional paid-in capital 561,963 178,598
Retained earnings 332,105 354,239
Accumulated other comprehensive income 493 416
Total stockholders' equity 894,928 533,532
Total liabilities and stockholders' equity $10,978,177 $4,113,542
=========== ==========
ASSETS OF CONSOLIDATED VARIABLE INTEREST ENTITIES THAT CAN ONLY BE USED TO SETTLE THE OBLIGATIONS OF CONSOLIDATED VARIABLE INTEREST ENTITIES:
December 31, December 31,
2012 2011
---- ----
Restricted cash and cash equivalents $58,253 $59,685
Residential loans (includes $646,498 and $672,714 at fair value) 2,142,418 2,266,965
Allowance for loan losses (20,138) (13,604)
------- -------
Residential loans, net 2,122,280 2,253,361
Receivables, net (includes $53,975 and $81,782 at fair value) 53,975 81,782
Servicer and protective advances, net 77,082 59,921
Other assets 62,683 63,498
Total assets $2,374,273 $2,518,247
LIABILITIES OF CONSOLIDATED VARIABLE INTEREST ENTITIES FOR WHICH CREDITORS OR BENEFICIAL INTEREST HOLDERS DO NOT HAVE RECOURSE TO THE COMPANY:
Payables and accrued liabilities $9,007 $10,163
Servicing advance liabilities 64,552 48,736
Mortgage-backed debt (includes $757,286 and $811,245 at fair value) 2,072,728 2,224,754
Total liabilities $2,146,287 $2,283,653
Reconciliation of GAAP Income Before Income Taxes to
Non-GAAP Core Earnings and Pro-Forma Adjusted EBITDA
For the Quarter and Full Year Ended December 31, 2012
(in millions except per share amounts)
Core Earnings
-------------
For the Three Months Ended For the Year Ended
December 31, 2012 December 31, 2012
----------------- -----------------
Loss before income taxes $(55.1) $(35.5)
Add back:
Step-up depreciation and amortization 20.4 80.1
Losses on extinguishment of debt 48.6 48.6
Share-based compensation expense 3.0 14.2
Transaction and integration costs 9.2 15.8
Non-cash fair value adjustments 2.6 2.6
Non-cash interest expense 4.2 6.1
Net impact of Non-Residual Trusts 3.3 0.9
Other 0.1 1.3
--- ---
Pre-tax core earnings $36.3 $134.1
After Tax core earnings (38% tax rate) $22.5 $83.1
===== =====
Diluted shares outstanding 34.9 30.4
Core EPS $0.64 $2.73
----- -----
Pro-Forma Adjusted EBITDA
-------------------------
For the Three Months Ended For the Year Ended
December 31, 2012 December 31, 2012
----------------- -----------------
Loss before income taxes $(55.1) $(35.5)
Add:
Deprecation and amortization 26.0 99.7
Interest expense on debt 17.2 77.3
---- ----
EBITDA (11.9) 141.5
Add:
Losses on extinguishment of debt 48.6 48.6
Non-cash share-based compensation expense 3.0 14.2
Provision for loan losses 5.2 13.4
Transaction and integration-related costs 9.2 15.8
Residual Trusts cash flows 3.2 9.3
Pro forma synergies - 3.8
Non-cash interest expense 4.2 6.1
Non-cash fair value adjustment 2.6 2.6
Net impact of Non-Residual Trusts 3.3 0.9
Other 0.2 3.5
--- ---
Sub-total 79.5 118.2
Less:
Non-cash interest income (3.5) (18.0)
Other - -
--- ---
Sub-total (3.5) (18.0)
Pro-Forma Adjusted EBITDA $64.1 $241.7
===== ======
Reconciliation of GAAP Income Before Income Taxes to
Non-GAAP Core Earnings and Pro-Forma Adjusted EBITDA
For the Quarter and Full Year Ended December 31, 2011
(in millions except per share amounts)
Core Earnings
-------------
For the three For the year
months ended 12/31/2011 ended 12/31/2011
----------------------- ----------------
Loss before income taxes $(3.3) $(6.1)
Add back:
Step-up depreciation & amortization 21.2 42.3
Transaction & integration related costs 4.3 19.2
Net impact of Non-Residual Trusts 3.2 6.9
Share-based compensation expense 2.3 5.0
Non-cash interest expense 1.2 3.0
Other (3.0) (3.3)
Pre-tax core earnings 25.9 67.0
---- ----
After tax core earnings (38% tax rate) $16.1 $41.5
----- -----
Shares outstanding 28.6 27.6
---- ----
Core EPS $0.56 $1.50
----- -----
Pro-Forma Adjusted EBITDA
-------------------------
For the three For the year Full Year 2011 Combined
months ended ended 12/31/2011
12/31/2011
----------
Loss before income taxes $(3.3) $(6.1) $(6.1)
Add back:
Depreciation and amortization 26.7 53.1 63.9
Interest expense on debt 21.0 42.2 58.9
---- ---- ----
EBITDA 44.4 89.2 116.7
Add back:
Transaction and integration costs 4.3 19.2 19.2
Pro forma synergies 3.7 16.8 16.8
Residual Trusts cash flows (0.3) 9.1 9.1
Net impact of Non-Residual Trusts 3.2 6.9 (5.5)
Provision for loan losses 2.7 6.0 5.9
Non-cash share-based compensation expense 2.3 5.0 33.9
Non-cash interest expense 1.2 3.0 4.4
Green Tree 1H income before income taxes - - 45.2
--- --- ----
Sub-total 17.1 66.0 129.0
Less:
Non-cash interest income (4.7) (17.3) (21.0)
Pro forma monetized assets - (13.3) (13.3)
Other (1.8) (1.1) (0.4)
---- ---- ----
Sub-total (6.5) (31.7) (34.7)
---- ----- -----
Pro-Forma Adjusted EBITDA $55.0 $123.5 $211.0
----- ------ ------
Use of Non-GAAP Measures
Generally Accepted Accounting Principles ("GAAP") is the term used to refer to the standard framework of guidelines for financial accounting. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions and in the preparation of financial statements. In addition to reporting financial results in accordance with GAAP, the Company has provided non-GAAP financial measures, which it believes are useful to help investors better understand its financial performance, competitive position and prospects for the future.
Core earnings (pre-tax and after-tax), core earnings per share and Adjusted EBITDA are financial measures that are not in accordance with GAAP. See the Definitions included in this document for a description of how these items are reported and see the Non-GAAP Reconciliations for a reconciliation of these measures to the most directly comparable GAAP financial measures.
The Company believes that these Non-GAAP Financial Measures can be useful to investors because they provide a means by which investors can evaluate the Company's underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business for a given period.
Use of Core Earnings and Adjusted EBITDA by Management
The Company manages the business based upon the achievement of core earnings, Adjusted EBITDA and similar targets and has designed certain management incentives based upon the achievement of Adjusted EBITDA in order to assess the underlying operational performance of the continuing operations of the business for the year and to have a basis to compare underlying operating results to prior and future periods.
Limitations on the Use of Core Earnings and Adjusted EBITDA
Since core earnings (pre-tax and after-tax) and core earnings per share measure the Company's financial performance excluding depreciation and amortization costs related to acquisitions, transaction and merger integration-related costs, share-based compensation expense, certain other non-cash adjustments, and the net impact of the consolidated Non-Residual Trust VIEs, they may not reflect all amounts associated with our results as determined in accordance with GAAP.
Adjusted EBITDA measures the Company's financial performance excluding depreciation and amortization costs, corporate and MSR facility interest expense, transaction and merger integration-related costs, share-based compensation expense, certain other non-cash adjustments, the net impact of the consolidated Non-Residual Trust VIEs and certain other items as defined by our senior secured credit agreement, including, but not limited to pro-forma synergies, they may not reflect all amounts associated with our results as determined in accordance with GAAP.
Core earnings (pre-tax and after-tax), core earnings per share and Adjusted EBITDA involve differences from segment profit (loss), income (loss) before income taxes, net income (loss), basic earnings (loss) per share and diluted earnings (loss) per share computed in accordance with GAAP. Core earnings (pre-tax and after-tax), Core earnings per share and Adjusted EBITDA should be considered as supplementary to, and not as a substitute for, segment profit (loss), income (loss) before income taxes, net income (loss), basic earnings (loss) per share and diluted earnings (loss) per share computed in accordance with GAAP as a measure of the Company's financial performance.
Any non-GAAP measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP earnings. Further, the non-GAAP measures presented by Walter Investment may be defined or calculated differently from similarly titled measures of other companies.
Definitions
Core Earnings This disclaimer applies to every usage of Core Earnings and related terms such as Pre Tax Core Earnings, Core Earnings After Taxes and Core Earnings Per Share ("EPS") in this document. Core Earnings is a metric that is used by management to exclude certain items in an attempt to provide a better earnings per share metric to evaluate the Company's underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business for a given period. Core Earnings excludes depreciation and amortization costs related to business combination transactions, transaction and merger integration-related costs, share-based compensation expense, certain other non-cash adjustments, and the net impact of the consolidated Non-Residual Trust VIEs. Core Earnings includes both cash and non-cash gains from forward mortgage origination activities. Non-cash gains are net of non-cash charges or reserves provided. Core Earnings excludes the impact of fair value option ("FVO") accounting and includes cash gains for reverse mortgage origination activities. Core Earnings may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a means of evaluating our core operating performance.
Adjusted EBITDA This disclaimer applies to every usage of Adjusted EBITDA and related terms such as Pro-Forma Adjusted EBITDA and Adjusted EBITDA per share in this document. Adjusted EBITDA is a key performance metric used by management in evaluating the performance of our Company and its segments. Adjusted EBITDA is generally presented in accordance with its definition in the Company's senior secured credit agreement, with certain exceptions, and represents income before income taxes, depreciation and amortization, interest expense on corporate debt, transaction and integration related costs, the net effect of the non-residual VIEs and certain other non-cash income and expense items. Adjusted EBITDA includes both cash and non-cash gains from forward mortgage origination activities. Pro-Forma Adjusted EBITDA excludes the impact of fair value option ("FVO") accounting and includes cash gains for reverse mortgage origination activities. Adjusted EBITDA includes an adjustment to reflect pro-forma synergies in 2011 and 2012 and to reflect Green Tree as having been acquired at the beginning of the year for periods prior to the actual acquisition date. Adjusted EBITDA may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a means of evaluating our core operating performance. The definition of Adjusted EBITDA used in this document differs from the definition in the Company's senior secured credit agreement principally in that (i) the credit agreements include a pro forma adjustment to the projected EBITDA of acquisitions that were made less than twelve months ago and (ii) the senior secured credit agreement does not include the non-cash gains from forward mortgage origination activities in Adjusted EBITDA.
2013 Estimated Adjusted EBITDA and other amounts or metrics that relate to future earnings projections are forward-looking and subject to significant business, economic, regulatory and competitive uncertainties, many of which are beyond the control of Walter Investment and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. Nothing in this presentation should be regarded as a representation by any person that this target will be achieved and the Company undertakes no duty to update this target. Please refer to the introductory slides of this presentation, as well as additional disclosures in this Appendix and in our Form 10-K and other filings with the SEC, for important information regarding Forward Looking Statements and the use of Non-GAAP Financial Measures.
SOURCE Walter Investment Management Corp.
