WALTER INVESTMENT MANAGEMENT CORP FORT WASHINGTON, Pa., Nov. 9, 2017 /PRNewswire/ -- Walter Investment Management Corp. (NYSE: WAC.BC) today announced a GAAP net loss for the quarter ended September 30, 2017 of $124.1 million, or $3.38 per share, as compared to a GAAP net loss of $213.3 million, or $5.90 per share for the quarter ended September 30, 2016. The current quarter net loss included non-cash fair value charges of $70.5 million due to changes in valuation inputs and other assumptions. Adjusted Loss was $31.5 million and Adjusted EBITDA ("AEBITDA") was $44.7 million in the current quarter as compared to Adjusted Loss of $22.2 million and AEBITDA of $93.8 million in the prior year quarter.
Anthony Renzi, Chief Executive Officer and President of Walter, said, "During the quarter, we remained focused on strengthening our core businesses of originating and servicing Fannie, Freddie and Ginnie Mae loans under the Ditech Financial brand and servicing reverse loans, while pursuing opportunities to maximize results in our legacy businesses. We are working to increase productivity and efficiency across the Company. As part of these efforts, we have made meaningful progress consolidating our core business footprint, including making tough decisions to close locations. Our strong and dedicated team is committed to continuously improving the client experience and our first priority is always listening, learning and caring for our customers. Looking ahead, we plan to build on our commitment of enabling the dream of homeownership for our customers and caring for them throughout their homeownership journey. We are confident that our 'front to back' process will continue to create great customer experiences and repeat transactions, and help us be better positioned to deliver consistent profitability in the future."
Mr. Renzi continued, "Our operating performance is improving in many areas, and we are continuing our financial restructuring efforts. As previously announced, we completed an important step in our financial restructuring when we launched the solicitation of certain of our creditors on November 6, 2017. We expect our business operations to continue as normal during the execution phase of our financial restructuring, and we expect to emerge from this process as a stronger company that is better positioned to serve our customers."
Third Quarter 2017 Financial and Operating Overview
Total revenue for the third quarter of 2017 was $176.6 million, a decrease of $120.7 million as compared to the prior year quarter, primarily due to decreases of $49.0 million in net gains on sales of loans, $46.6 million in net servicing revenue and fees, $16.8 million in net fair value gains on reverse loans and related HMBS obligations and $7.8 million in insurance revenue. The decrease in net gains on sales of loans resulted from an overall lower volume of locked loans and a shift in mix from the higher margin consumer channel to the lower margin correspondent and wholesale channels. The decrease in net servicing revenue and fees was primarily driven by a $53.5 million decline in servicing fees due to the reduction in our MSR portfolio driven by MSR sales in 2016 and 2017 and continued runoff of the servicing portfolio. This decrease was offset by a $13.1 million improvement in fair value changes and increased level of sub-servicing. The fair value reduction due to changes in valuation inputs and other assumptions was $15.7 million higher in the prior year quarter and the realization of expected cash flow charge was lower by $28.8 million in the current year quarter due in part to the MSR sales mentioned above. The decrease in net fair value gains on reverse loans and related HMBS obligations was primarily due to increased net non-cash fair value losses resulting from valuation model assumption adjustments for buyout loans and changes in market pricing during the third quarter of 2017 as well as a decrease in cash generated by the origination, purchase and securitization of HECMs resulting from overall lower origination volumes due to our exit from the reverse mortgage originations business, partially offset by a shift in mix from lower margin new originations to higher margin tails. The decrease in insurance revenue was due to the sale of the principal insurance agency and substantially all of the insurance agency business during the first quarter of 2017.
Total expenses for the third quarter of 2017 were $303.1 million, a decrease of $162.6 million as compared to the prior year quarter, driven by $97.7 million in goodwill impairment recorded during the third quarter of 2016 and a decrease of $41.7 million in salaries and benefits resulting primarily from a lower average headcount driven by site closures and various organizational changes to the scale and proficiency of the leadership team and support functions, and our decision to exit the reverse mortgage originations business as well as decreases related to a change in the commissions structure, and decreases in bonus accruals, severance, overtime and stock compensation expense related to increased forfeitures and fewer grants during 2017.
Results for the Company's segments are presented below.
Servicing
Ditech serviced 1.7 million accounts with a UPB of $199.6 billion as of September 30, 2017. During the quarter ended September 30, 2017, Ditech experienced a net disappearance rate of 14.86%, a decrease of 2.82% as compared to the prior year quarter.
The Servicing segment reported $69.3 million of pre-tax loss for the third quarter of 2017 as compared to a pre-tax loss of $161.6 million in the prior year quarter. During the third quarter of 2017, the segment generated revenue of $90.5 million, a $58.4 million decrease as compared to the prior year quarter, primarily due to a decrease of $46.7 million in net servicing revenue and fees. The decrease in net servicing revenue and fees primarily resulted from a $53.6 million decline in servicing fees due to the reduction in our MSR portfolio driven by MSR sales in 2016 and 2017 and continued runoff of the portfolio. This decrease was offset by $13.1 million improvement in fair value changes and increased level of sub-servicing. The fair value reduction due to changes in valuation inputs and other assumptions was $15.7 million higher in the prior year quarter and the realization of expected cash flow charge was lower by $28.8 million in the current year quarter due in part to the MSR sales mentioned above.
Total expenses in the Servicing segment for the third quarter of 2017 were $159.3 million, a decrease of $150.4 million as compared to the prior year quarter. This decrease was driven by $91.0 million in goodwill impairment recorded during the third quarter of 2016. In addition, there were decreases of $24.5 million in salaries and benefits resulting primarily from a lower average headcount driven by site closures, organizational changes and a shift from full-time employees to outsourced services, $8.6 million in legal fees, $8.5 million in contractor and other costs related to the implementation of MSP and business and outsourcing initiatives that occurred in 2016, $8.4 million in expense allocations, $5.1 million in compensating interest due to the reduction in our MSR portfolio, and $9.5 million in other cost savings, offset in part by increases of $6.0 million in advance loss provision and $4.7 million in charges associated with default servicing. Current quarter expenses included $11.8 million of interest expense and $8.5 million of depreciation and amortization.
The Servicing segment reported an Adjusted Loss of $13.1 million and AEBITDA of $30.7 million for the third quarter of 2017. Adjusted Loss improved $15.6 million as compared to the prior year quarter primarily due to lower amortization of servicing rights in addition to lower expenses partially offset by lower revenue as discussed above. AEBITDA decreased $17.7 million as compared to the prior year quarter primarily due to lower adjusted servicing fees, insurance revenue and intersegment retention revenue, offset in part by lower adjusted general and administrative expense and salaries and benefits.
Originations
Ditech generated total pull-through adjusted locked volume of $3.3 billion for the third quarter of 2017, a decrease of $2.5 billion as compared to the prior year quarter. Funded loans in the current quarter totaled $3.7 billion, a decrease of $1.6 billion from the prior year quarter. The combined direct margin in the current quarter was 105 bps, consisting of a weighted average of 221 bps direct margin in the consumer lending channel and 35 bps direct margin in the correspondent and wholesale channels. The decrease in combined direct margin of 4 bps from the prior year quarter was primarily due to a higher direct expense margin, partially offset by higher gain on sale of loans and fee income margins. The direct expense margin increase was driven by higher compensation in the consumer channel due to incentive plan changes and fixed headcount costs, higher advertising expenses due to a shift in strategy towards digital leads and higher interest expense due to higher average interest rates on our warehouse financing facilities. These were partially offset by lower intersegment expense as a result of lower overall retention volume due to our smaller MSR portfolio. The gain on sale of loans margin increased in part due to higher margins in the consumer channel during the third quarter of 2017. The Originations business delivered a recapture rate of 17% in the current quarter.
The Originations segment reported $19.9 million of pre-tax income for the third quarter of 2017, a decrease of $31.8 million from the prior year quarter. During the third quarter of 2017, this segment generated revenue of $81.3 million, a decrease of $52.2 million from the prior year quarter. Net gains on sales of loans decreased $50.3 million as compared to the prior year quarter, primarily due to an overall lower volume of locked loans combined with a shift in mix from the higher margin consumer channel to the lower margin correspondent and wholesale channels.
Total expenses for the Originations segment for the third quarter of 2017 were $61.4 million, a decrease of $20.4 million compared to the prior year quarter, driven by a $7.1 million decrease in intersegment retention expense primarily as a result of lower overall retention volume due to our smaller MSR portfolio and a $6.2 million decrease in salaries in benefits driven by reduced commissions and incentives due to lower originations volume and lower severance, bonuses and overtime. Current quarter expenses included $7.8 million of interest expense and $0.6 million of depreciation and amortization.
The Originations segment reported Adjusted Earnings of $19.8 million and AEBITDA of $18.1 million for the third quarter of 2017, a decrease of $35.7 million and $39.8 million, respectively, as compared to the prior year quarter, due primarily to lower net gains on sales of loans, partially offset by decreases in intersegment retention expense and salaries and benefits.
Reverse Mortgage
The Reverse Mortgage segment serviced 109,153 accounts with a UPB of $19.8 billion at September 30, 2017. During the current quarter, the business securitized $90.6 million of HECM loans.
The Reverse Mortgage segment reported $24.9 million of pre-tax loss for the third quarter of 2017 as compared to pre-tax loss of $23.0 million in the prior year quarter. During the third quarter of 2017, this segment generated revenue of $9.1 million, a decrease of $17.9 million from the prior year quarter. Net interest income on reverse loans and HMBS related obligations increased $4.4 million for the third quarter of 2017 as compared to the same period of 2016, primarily as a result of a decrease in HMBS related obligations due to an increase in buyouts, partially offset by an increase in nonperforming reverse loans, which generally have lower interest rates than performing loans. Cash generated by the origination, purchase and securitization of HECMs decreased $2.4 million for the third quarter of 2017 as compared to the same period of 2016 primarily due to our exit from the reverse mortgage originations business, partially offset by a shift in mix from lower margin new originations to higher margin tails. Net non-cash fair value losses increased by $18.8 million for the third quarter of 2017 as compared to the same period of 2016 due primarily to valuation model assumption adjustments related to buyout loans and changes in market pricing in the third quarter of 2017. Current quarter revenues also included $6.5 million in net servicing revenue and fees and $0.8 million of other revenues.
Total expenses for the Reverse Mortgage segment for the third quarter of 2017 were $34.0 million, a decrease of $16.1 million from the prior year quarter. The decrease in total expenses was driven by $6.7 million in intangible assets impairment charges recorded during the third quarter of 2016, a $6.2 million decrease in salaries and benefits due primarily to lower compensation and benefits, bonuses, commissions and overtime as a result of lower origination volume and lower average headcount resulting from our decision to exit the reverse mortgage originations business, and a $5.5 million decrease in general and administrative expenses due primarily to lower advertising costs due to our exit from the reverse mortgage originations business in 2017, lower contractor fees and lower corporate allocations. Current quarter expenses included $6.4 million of interest expense and $0.6 million of depreciation and amortization.
The Reverse Mortgage segment reported an Adjusted Loss of $5.1 million and AEBITDA of $(4.1) million for the third quarter of 2017, an improvement of $8.2 million and $6.9 million, respectively, as compared to the prior year quarter, primarily due to decreases in general and administrative expenses and salaries and benefits.
Other Non-Reportable Segment
The Other Non-Reportable segment reported $49.3 million of pre-tax loss for the third quarter of 2017, an increase in loss of $24.1 million as compared to the prior year quarter resulting primarily from expenses related to our debt restructuring initiative. Other net fair value gains were $4.3 million for the third quarter of 2017 as compared to other net fair value losses of $2.7 million in the prior year quarter, driven by improved default rate assumptions partially offset by a 32 bps increase in the discount rate of mortgage loans related to Non-Residual Trusts during the third quarter of 2017.
The Other non-reportable segment had an Adjusted Loss of $33.1 million and AEBITDA of $(0.1) million for the third quarter of 2017 as compared to an Adjusted Loss of $35.7 million and AEBITDA of $(1.7) million in the prior year quarter.
Company Restructuring
As previously disclosed in our Current Report on Form 8-K dated November 6, 2017, we commenced the solicitation of votes to obtain acceptances for a prepackaged plan of reorganization under chapter 11 of Title 11 of the United States Code, which provides for the restructuring of our indebtedness consisting of our 2013 Term Loan, Senior Notes and Convertible Notes, as well as our outstanding common stock. As of November 6, 2017, the holders of more than 85% of the Senior Notes and more than 95% of the 2013 Term Loans are party to restructuring support agreements which require them to vote to approve the prepackaged plan of reorganization. We intend to commence a prepackaged chapter 11 case to implement the restructuring following the conclusion of the solicitation and on or before November 30, 2017. We intend to complete the reorganization process on an expedited basis, contemplated to be not later than January 31, 2018. Our operating entities, including Ditech and RMS, are not expected to file for chapter 11 and expect to continue their operations in the ordinary course throughout the consummation of the restructuring, although no assurance can be given that this will be the case.
In connection with the restructuring, the Company, Ditech and RMS entered into a commitment letter with certain lenders regarding the terms of the DIP warehouse facilities, which, if approved by the Bankruptcy Court, will provide us with up to $1.9 billion in available warehouse financing. Proceeds of the new warehouse facilities are intended to refinance RMS's and Ditech's existing warehouse and servicer advance facilities and to fund Ditech's and RMS' continued business operations. Walter will guarantee Ditech's and RMS' obligations under the DIP Warehouse Facilities.
About Walter Investment Management Corp.
Walter Investment Management Corp. is an independent originator and servicer of mortgage loans and servicer of reverse mortgage loans. Based in Fort Washington, Pennsylvania, we have approximately 4,100 employees and service a diverse loan portfolio. For more information about Walter Investment Management Corp., please visit our website at www.walterinvestment.com. The information on our website is not a part of this release.
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 "Non-GAAP Financial Measures" at the end of this press release.
The terms "Walter Investment", "Walter", the "Company", "we", "us", and "our" as used throughout this release refer to Walter Investment Management Corp. and its consolidated subsidiaries. We use certain acronyms and terms throughout this release that are defined in the Glossary of Terms in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K/A for the year ended December 31, 2016, in our Quarterly Report on Form 10-Q/A for the quarterly period ended March 31, 2017, and in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, and in our other filings with the SEC.
Disclaimer and Cautionary Note Regarding Forward-Looking Statements
Certain statements in this press release constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as "believes," "anticipates," "expects," "intends," "plans," "projects," "estimates," "assumes," "may," "should," "will," "seeks," "targets," or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, and our actual results, performance or achievements could differ materially from future results, performance or achievements expressed in these forward-looking statements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance, nor should any conclusions be drawn or assumptions be made as to any potential outcome of any strategic review we conduct. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described below and in more detail under the caption "Risk Factors" of our Annual Report on Form 10-K/A for the year ended December 31, 2016, our Quarterly Report on Form 10-Q/A for the quarterly period ended March 31, 2017, and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, and in our other filings with the SEC.
In particular (but not by way of limitation), the following important factors, risks and uncertainties could affect our future results, performance and achievements and could cause actual results, performance and achievements to differ materially from those expressed in the forward-looking statements:
-- risks and uncertainties relating to our proposed financial
restructuring, including: our ability to comply with the terms of the
RSAs, including completing various stages of the restructuring within
the dates specified by the RSAs; our ability to obtain requisite support
for the restructuring from various stakeholders; our ability to maintain
the listing of our common stock on the New York Stock Exchange; our
ability to successfully execute the transactions contemplated by the
RSAs, including implementation of the Prepackaged Plan, without
substantial disruption to the business of, or a Chapter 11 bankruptcy
filing by, one or more of our primary operating or other subsidiaries;
the effects of disruption from the proposed restructuring making it more
difficult to maintain business, financing and operational relationships
with GSEs, regulators, government agencies, employees and major
customers; and our ability to continue as a going concern;
-- risks and uncertainties relating to, or arising in connection with, the
restatement of financial statements included in the amendments to our
Annual Report on Form 10-K for the year ended December 31, 2016 and our
Quarterly Reports on Form 10-Q for the quarterly periods ended June 30,
2016, September 30, 2016 and March 31, 2017, including: reactions from
our creditors, stockholders, or business partners; and the impact and
result of any litigation or regulatory inquiries or investigations
related to the findings of our assessment or the restatement;
-- our ability to operate our business in compliance with existing and
future laws, rules, regulations and contractual commitments affecting
our business, including those relating to the origination and servicing
of residential loans, default servicing and foreclosure practices, the
management of third-party assets and the insurance industry, and changes
to, and/or more stringent enforcement of, such laws, rules, regulations
and contracts;
-- scrutiny of our industry by, and potential enforcement actions by,
federal and state authorities;
-- the substantial resources (including senior management time and
attention) we devote to, and the significant compliance costs we incur
in connection with, regulatory compliance and regulatory examinations
and inquiries, and any consumer redress, fines, penalties or similar
payments we make in connection with resolving such matters;
-- uncertainties relating to interest curtailment obligations and any
related financial and litigation exposure (including exposure relating
to false claims);
-- potential costs and uncertainties, including the effect on future
revenues, associated with and arising from litigation, regulatory
investigations and other legal proceedings, and uncertainties relating
to the reaction of our key counterparties to the announcement of any
such matters;
-- our dependence on U.S. GSEs and agencies (especially Fannie Mae, Freddie
Mac and Ginnie Mae) and their residential loan programs and our ability
to maintain relationships with, and remain qualified to participate in
programs sponsored by, such entities, our ability to satisfy various
existing or future GSE, agency and other capital, net worth, liquidity
and other financial requirements applicable to our business, and our
ability to remain qualified as a GSE and agency approved seller,
servicer or component servicer, including the ability to continue to
comply with the GSEs' and agencies' respective residential loan selling
and servicing guides;
-- uncertainties relating to the status and future role of GSEs and
agencies, and the effects of any changes to the origination and/or
servicing requirements of the GSEs, agencies or various regulatory
authorities or the servicing compensation structure for mortgage
servicers pursuant to programs of GSEs, agencies or various regulatory
authorities;
-- our ability to maintain our loan servicing, loan origination or
collection agency licenses, or any other licenses necessary to operate
our businesses, or changes to, or our ability to comply with, our
licensing requirements;
-- our ability to comply with the terms of the stipulated orders resolving
allegations arising from an FTC and CFPB investigation of Ditech
Financial and a CFPB investigation of RMS;
-- operational risks inherent in the mortgage servicing and mortgage
originations businesses, including our ability to comply with the
various contracts to which we are a party, and reputational risks;
-- risks related to the significant amount of senior management turnover
and employee reductions recently experienced by us;
-- risks related to our substantial levels of indebtedness, including our
ability to comply with covenants contained in our debt agreements or
obtain any necessary waivers or amendments, generate sufficient cash to
service such indebtedness and refinance such indebtedness on favorable
terms, or at all, as well as our ability to incur substantially more
debt;
-- our ability to renew advance financing facilities or warehouse
facilities on favorable terms, or at all, and maintain adequate
borrowing capacity under such facilities;
-- our ability to maintain or grow our residential loan servicing or
subservicing business and our mortgage loan originations business;
-- our ability to achieve our strategic initiatives, particularly our
ability to: increase the mix of our fee-for-service business, including
by entering into new subservicing arrangements; improve servicing
performance; successfully develop our originations capabilities in the
consumer and wholesale lending channels; effectuate a satisfactory debt
restructuring; and execute and realize planned operational improvements
and efficiencies, including those relating to our core and non-core
framework;
-- the success of our business strategy in returning us to sustained
profitability;
-- changes in prepayment rates and delinquency rates on the loans we
service or subservice;
-- the ability of Fannie Mae, Freddie Mac and Ginnie Mae, as well as our
other clients and credit owners, to transfer or otherwise terminate our
servicing or subservicing rights, with or without cause;
-- a downgrade of, or other adverse change relating to, or our ability to
improve, our servicer ratings or credit ratings;
-- our ability to collect reimbursements for servicing advances and earn
and timely receive incentive payments and ancillary fees on our
servicing portfolio;
-- our ability to collect indemnification payments and enforce repurchase
obligations relating to mortgage loans we purchase from our
correspondent clients and our ability to collect in a timely manner
indemnification payments relating to servicing rights we purchase from
prior servicers;
-- local, regional, national and global economic trends and developments in
general, and local, regional and national real estate and residential
mortgage market trends in particular, including the volume and pricing
of home sales and uncertainty regarding the levels of mortgage
originations and prepayments;
-- uncertainty as to the volume of originations activity we can achieve and
the effects of the expiration of HARP, which is scheduled to occur on
December 31, 2018, including uncertainty as to the number of
"in-the-money" accounts we may be able to refinance and uncertainty as
to what type of product or government program will be introduced, if
any, to replace HARP;
-- risks associated with the reverse mortgage business, including changes
to reverse mortgage programs operated by FHA, HUD or Ginnie Mae, our
ability to accurately estimate interest curtailment liabilities, our
ability to fund HECM repurchase obligations, our ability to fund
principal additions on our HECM loans, and our ability to securitize our
HECM tails;
-- our ability to realize all anticipated benefits of past, pending or
potential future acquisitions or joint venture investments;
-- the effects of competition on our existing and potential future
business, including the impact of competitors with greater financial
resources and broader scopes of operation;
-- changes in interest rates and the effectiveness of any hedge we may
employ against such changes;
-- risks and potential costs associated with technology and cybersecurity,
including: the risks of technology failures and of cyber-attacks against
us or our vendors; our ability to adequately respond to actual or
alleged cyber-attacks; and our ability to implement adequate internal
security measures and protect confidential borrower information;
-- risks and potential costs associated with the implementation of new or
more current technology, such as MSP, the use of vendors (including
offshore vendors) or the transfer of our servers or other infrastructure
to new data center facilities;
-- our ability to comply with evolving and complex accounting rules, many
of which involve significant judgment and assumptions;
-- risks related to our deferred tax assets, including the risk of an
"ownership change" under Section 382 of the Code;
-- our ability to regain and maintain compliance with the continued listing
requirements of the NYSE, and risks arising from the potential
suspension of trading of our common stock on, and delisting of our
common stock from, the NYSE;
-- our ability to continue as a going concern;
-- uncertainties regarding impairment charges relating to our goodwill or
other intangible assets;
-- risks associated with one or more material weaknesses identified in our
internal controls over financial reporting, including the timing,
expense and effectiveness of our remediation plans;
-- our ability to implement and maintain effective internal controls over
financial reporting and disclosure controls and procedures;
-- our ability to manage potential conflicts of interest relating to our
relationship with WCO; and
-- risks related to our relationship with Walter Energy and uncertainties
arising from or relating to its bankruptcy filings and liquidation
proceedings, including potential liability for any taxes, interest
and/or penalties owed by the Walter Energy consolidated group for the
full or partial tax years during which certain of our former
subsidiaries were a part of such consolidated group and certain other
tax risks allocated to us in connection with our spin-off from Walter
Energy.
All of the above factors, risks and uncertainties are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors, risks and uncertainties emerge from time to time, and it is not possible for our management to predict all such factors, risks and uncertainties.
Although we believe that the assumptions underlying the forward-looking statements (including those relating to our outlook) contained herein are reasonable, any of the assumptions could be inaccurate, and therefore any of these statements included herein may prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made, except as otherwise required under the federal securities laws. If we were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that we would make additional updates or corrections thereafter except as otherwise required under the federal securities laws.
In addition, this release may contain statements of opinion or belief concerning market conditions and similar matters. In certain instances, those opinions and beliefs could be based upon general observations by members of our management, anecdotal evidence and/or our experience in the conduct of our business, without specific investigation or statistical analyses. Therefore, while such statements reflect our view of the industries and markets in which we are involved, they should not be viewed as reflecting verifiable views and such views may not be shared by all who are involved in those industries or markets.
Walter Investment Management Corp. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(Unaudited)
(in thousands, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016
---- ---- ---- ----
REVENUES
Net servicing revenue and fees $65,029 $111,629 $269,537 $37,803
Net gains on sales of loans 73,013 122,014 217,914 306,667
Net fair value gains on reverse loans and related HMBS obligations 1,810 18,627 24,384 61,485
Interest income on loans 9,802 11,332 31,271 35,352
Insurance revenue 2,236 10,000 9,826 31,644
Other revenues 24,754 23,728 77,784 78,623
------ ------ ------ ------
Total revenues 176,644 297,330 630,716 551,574
EXPENSES
General and administrative 137,614 151,792 386,785 417,174
Salaries and benefits 91,544 133,199 300,572 399,519
Interest expense 61,671 65,302 182,965 193,950
Depreciation and amortization 9,741 16,580 30,715 45,543
Goodwill and intangible assets impairment - 97,716 - 313,128
Other expenses, net 2,576 1,206 8,413 5,609
----- ----- ----- -----
Total expenses 303,146 465,795 909,450 1,374,923
OTHER GAINS (LOSSES)
Gain on sale of business - - 67,734 -
Other net fair value gains (losses) 3,783 (3,302) 761 (6,265)
Net gains (losses) on extinguishment of debt (959) 13,734 (1,668) 14,662
Other - (150) - (1,706)
--- ---- --- ------
Total other gains 2,824 10,282 66,827 6,691
Loss before income taxes (123,678) (158,183) (211,907) (816,658)
Income tax expense 455 55,084 2,027 59,274
--- ------ ----- ------
Net loss $(124,133) $(213,267) $(213,934) $(875,932)
========= ========= ========= =========
Comprehensive loss $(124,035) $(213,281) $(213,858) $(875,905)
========= ========= ========= =========
Net loss $(124,133) $(213,267) $(213,934) $(875,932)
Basic and diluted loss per common and common equivalent share $(3.38) $(5.90) $(5.85) $(24.45)
Weighted-average common and common equivalent shares outstanding 36,714 36,144 36,555 35,828
- basic and diluted
Walter Investment Management Corp. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
September 30, December 31,
2017 2016
---- ----
(unaudited)
ASSETS
Cash and cash equivalents $276,802 $224,598
Restricted cash and cash equivalents 359,420 204,463
Residential loans at amortized cost, net (includes $6,371 and $5,167 in allowance for loan 742,904 665,209
losses at September 30, 2017 and December 31, 2016, respectively)
Residential loans at fair value 11,377,492 12,416,542
Receivables, net (includes $7,498 and $15,033 at fair value at September 30, 2017 and December 31, 2016, respectively) 151,398 267,962
Servicer and protective advances, net (includes $156,561 and $146,781 in allowance for 850,867 1,195,380
uncollectible advances at September 30, 2017 and December 31, 2016, respectively)
Servicing rights, net (includes $808,830 and $949,593 at fair value at September 30, 2017 869,981 1,029,719
and December 31, 2016, respectively)
Goodwill 47,747 47,747
Intangible assets, net 9,213 11,347
Premises and equipment, net 58,210 82,628
Assets held for sale - 71,085
Other assets (includes $36,215 and $87,937 at fair value at September 30, 2017 and December 31, 2016, respectively) 235,601 242,290
------- -------
Total assets $14,979,635 $16,458,970
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Payables and accrued liabilities (includes $2,783 and $11,804 at fair value at September $721,191 $759,011
30, 2017 and December 31, 2016, respectively)
Servicer payables 346,753 146,332
Servicing advance liabilities 509,363 783,229
Warehouse borrowings 1,178,320 1,203,355
Servicing rights related liabilities at fair value 1,565 1,902
Corporate debt 2,022,639 2,129,000
Mortgage-backed debt (includes $436,921 and $514,025 at fair value at September 30, 832,897 943,956
2017 and December 31, 2016, respectively)
HMBS related obligations at fair value 9,598,234 10,509,449
Deferred tax liabilities, net 4,907 4,774
Liabilities held for sale - 2,402
--- -----
Total liabilities 15,215,869 16,483,410
---------- ----------
Stockholders' deficit:
Preferred stock, $0.01 par value per share:
Authorized - 10,000,000 shares
Issued and outstanding - 0 shares at September 30, 2017 and December 31, 2016 - -
Common stock, $0.01 par value per share:
Authorized - 90,000,000 shares
Issued and outstanding - 37,373,551 and 36,391,129 shares at September 30, 2017 366 364
and December 31, 2016, respectively
Additional paid-in capital 598,129 596,067
Accumulated deficit (835,738) (621,804)
Accumulated other comprehensive income 1,009 933
----- ---
Total stockholders' deficit (236,234) (24,440)
Total liabilities and stockholders' deficit $14,979,635 $16,458,970
=========== ===========
Non-GAAP Financial Measures
We manage our company in three reportable segments: Servicing, Originations and Reverse Mortgage. We evaluate the performance of our business segments through the following measures: income (loss) before income taxes, Adjusted Earnings (Loss), and Adjusted EBITDA. Management considers Adjusted Earnings (Loss) and Adjusted EBITDA, both non-GAAP financial measures, to be important in the evaluation of our business segments and of the company as a whole, as well as for allocating capital resources to our segments. Adjusted Earnings (Loss) and Adjusted EBITDA are supplemental metrics utilized by management to assess the underlying key drivers and operational performance of the continuing operations of the business. In addition, analysts, investors, and creditors may use these measures when analyzing our operating performance. Adjusted Earnings (Loss) and Adjusted EBITDA are not presentations made in accordance with GAAP and our use of these measures and terms may vary from other companies in our industry.
Adjusted Earnings (Loss) is defined as income (loss) before income taxes, plus changes in fair value due to changes in valuation inputs and other assumptions; goodwill and intangible assets impairment, if any; a portion of the provision for curtailment expense, net of expected third-party recoveries, if applicable; share-based compensation expense or benefit; non-cash interest expense; exit costs; estimated settlements and costs for certain legal and regulatory matters; fair value to cash adjustments for reverse loans; and select other cash and non-cash adjustments primarily including severance, gain or loss on extinguishment of corporate debt, the net impact of the Non-Residual Trusts, transaction and integration costs, and certain non-recurring costs, as applicable. Adjusted Earnings (Loss) excludes unrealized changes in fair value of MSR that are based on projections of expected future cash flows and prepayments. Adjusted Earnings (Loss) includes both cash and non-cash gains from mortgage loan origination activities. Non-cash gains are net of non-cash charges or reserves provided. Adjusted Earnings (Loss) includes cash generated from reverse mortgage origination activities for the period in which we were originating reverse mortgages. Adjusted Earnings (Loss) may from time to time also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors with a supplemental means of evaluating our operating performance.
We revised our method of calculating Adjusted Earnings (Loss) beginning with the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2016 to eliminate adjustments for the step-up depreciation and amortization, which represents depreciation and amortization costs related to the increased basis in assets (including servicing rights and subservicing contracts) acquired within business combination transactions. Prior period amounts have been adjusted to reflect this revision.
Adjusted EBITDA eliminates the effects of financing, income taxes and depreciation and amortization. Adjusted EBITDA is defined as income (loss) before income taxes, plus amortization of servicing rights and other fair value adjustments; interest expense on corporate debt; depreciation and amortization; goodwill and intangible assets impairment, if any; a portion of the provision for curtailment expense, net of expected third-party recoveries, if applicable; share-based compensation expense or benefit; exit costs; estimated settlements and costs for certain legal and regulatory matters; fair value to cash adjustments for reverse loans; select other cash and non-cash adjustments primarily the net provision for the repurchase of loans sold, non-cash interest income, severance, gain or loss on extinguishment of corporate debt, interest income on unrestricted cash and cash equivalents, the net impact of the Non-Residual Trusts, the provision for loan losses, Residual Trust cash flows, transaction and integration costs, servicing fee economics, and certain non-recurring costs, as applicable. Adjusted EBITDA includes both cash and non-cash gains from mortgage loan origination activities. Adjusted EBITDA excludes the impact of fair value option accounting on certain assets and liabilities and includes cash generated from reverse mortgage origination activities for the period in which we were originating reverse mortgages. Adjusted EBITDA may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a supplemental means of evaluating our operating performance.
Adjusted Earnings (Loss) and Adjusted EBITDA should not be considered as alternatives to (i) net income (loss) or any other performance measures determined in accordance with GAAP or (ii) operating cash flows determined in accordance with GAAP. Adjusted Earnings (Loss) and Adjusted EBITDA have important limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. Some of the limitations of these metrics are:
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect cash
expenditures for long-term assets and other items that have been and
will be incurred, future requirements for capital expenditures or
contractual commitments;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect changes in,
or cash requirements for, our working capital needs;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect certain tax
payments that represent reductions in cash available to us;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect any cash
requirements for the assets being depreciated and amortized that may
have to be replaced in the future;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect non-cash
compensation that is and will remain a key element of our overall
long-term incentive compensation package;
-- Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect the change
in fair value due to changes in valuation inputs and other assumptions;
-- Adjusted EBITDA does not reflect the change in fair value resulting from
the realization of expected cash flows; and
-- Adjusted EBITDA does not reflect the significant interest expense or the
cash requirements necessary to service interest or principal payments on
our servicing rights related liabilities and corporate debt, although it
does reflect interest expense associated with our servicing advance
liabilities, master repurchase agreements, mortgage-backed debt, and
HMBS related obligations.
Because of these limitations, Adjusted Earnings (Loss) and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted Earnings (Loss) and Adjusted EBITDA only as supplements. Users of our financial statements are cautioned not to place undue reliance on Adjusted Earnings (Loss) and Adjusted EBITDA.
Walter Investment Management Corp.
Segment Results of Operations and Non-GAAP Financial Measures
For the Three Months Ended September 30, 2017
(in thousands)
Servicing Originations Reverse Mortgage Other Eliminations Total
Consolidated
--------- ------------ ---------------- ----- ------------ ------------
REVENUES
Net servicing revenue and fees $60,793 $ - $6,452 $ - $(2,216) $65,029
Net gains (losses) on sales of loans (571) 73,025 - - 559 73,013
Net fair value gains on reverse loans and - - 1,810 - - 1,810
related HMBS obligations
Interest income on loans 9,790 12 - - - 9,802
Insurance revenue 2,236 - - - - 2,236
Other revenues 18,260 8,231 821 181 (2,739) 24,754
------ ----- --- --- ------
Total revenues 90,508 81,268 9,083 181 (4,396) 176,644
------ ------ ----- --- ------ -------
EXPENSES
Interest expense 11,769 7,831 6,431 35,640 - 61,671
Depreciation and amortization 8,477 645 619 - - 9,741
Other expenses, net 139,048 52,924 26,933 17,225 (4,396) 231,734
------- ------ ------ ------ ------
Total expenses 159,294 61,400 33,983 52,865 (4,396) 303,146
------- ------ ------ ------ ------ -------
OTHER GAINS (LOSSES)
Gain on sale of business - - - - - -
Other net fair value gains (losses) (556) - - 4,339 - 3,783
Net loss on extinguishment of debt - - - (959) - (959)
--- --- --- ---- --- ----
Total other income (losses) (556) - - 3,380 - 2,824
---- --- --- ----- --- -----
Income (loss) before income taxes (69,342) 19,868 (24,900) (49,304) - (123,678)
Adjustments to income (loss) before income
taxes
Changes in fair value due to changes in valuation inputs and other assumptions 51,011 - - - - 51,011
Fair value to cash adjustment for reverse loans - - 19,480 - - 19,480
Transaction and integration costs 524 - - 15,569 - 16,093
Exit costs 418 110 112 28 - 668
Non-cash interest expense 710 - - 2,812 - 3,522
Share-based compensation expense 480 174 139 - - 793
Other 3,090 (394) 97 (2,178) - 615
Total adjustments 56,233 (110) 19,828 16,231 - 92,182
------ ---- ------ ------ --- ------
Adjusted Earnings (Loss) (13,109) 19,758 (5,072) (33,073) - (31,496)
EBITDA adjustments
Amortization of servicing rights and other fair value adjustments 35,911 - 366 - - 36,277
Interest expense on debt - - - 32,828 - 32,828
Depreciation and amortization 8,477 645 619 - - 9,741
Other (549) (2,287) 33 136 - (2,667)
---- ------ --- --- --- ------
Total adjustments 43,839 (1,642) 1,018 32,964 - 76,179
Adjusted EBITDA $30,730 $18,116 $(4,054) $(109) $ - $44,683
======= ======= ======= ===== === === =======
Walter Investment Management Corp.
Segment Results of Operations and Non-GAAP Financial Measures
For the Three Months Ended September 30, 2016
(in thousands)
Servicing Originations Reverse Mortgage Other Eliminations Total
Consolidated
--------- ------------ ---------------- ----- ------------ ------------
REVENUES
Net servicing revenue and fees $107,473 $ - $7,155 $ - $(2,999) $111,629
Net gains (losses) on sales of loans (2,271) 123,285 - - 1,000 122,014
Net fair value gains on reverse loans and - - 18,627 - - 18,627
related HMBS obligations
Interest income on loans 11,320 12 - - - 11,332
Insurance revenue 10,000 - - - - 10,000
Other revenues 22,351 10,143 1,241 (194) (9,813) 23,728
------ ------ ----- ---- ------
Total revenues 148,873 133,440 27,023 (194) (11,812) 297,330
------- ------- ------ ---- ------- -------
EXPENSES
Interest expense 16,657 8,718 2,941 36,986 - 65,302
Depreciation and amortization 12,322 2,341 1,917 - - 16,580
Goodwill and intangible assets impairment 90,981 - 6,735 - - 97,716
Other expenses, net 189,700 70,709 38,453 (853) (11,812) 286,197
Total expenses 309,660 81,768 50,046 36,133 (11,812) 465,795
------- ------ ------ ------ ------- -------
OTHER GAINS (LOSSES)
Other net fair value losses (644) - - (2,658) - (3,302)
Net gain on extinguishment of debt - - - 13,734 - 13,734
Other (150) - - - - (150)
Total other income (losses) (794) - - 11,076 - 10,282
---- --- --- ------ --- ------
Income (loss) before income taxes (161,581) 51,672 (23,023) (25,251) - (158,183)
Adjustments to income (loss) before income
taxes
Changes in fair value due to changes in valuation inputs and other assumptions 26,672 - - - - 26,672
Fair value to cash adjustment for reverse loans - - 690 - - 690
Transaction and integration costs 2,013 - - 880 - 2,893
Exit costs 1,396 (16) 160 1,102 - 2,642
Non-cash interest expense 829 - - 2,835 - 3,664
Share-based compensation expense 1,178 357 157 259 - 1,951
Goodwill and intangible assets impairment 90,981 - 6,735 - - 97,716
Other 9,829 3,488 1,961 (15,546) - (268)
Total adjustments 132,898 3,829 9,703 (10,470) - 135,960
------- ----- ----- ------- --- -------
Adjusted Earnings (Loss) (1) (28,683) 55,501 (13,320) (35,721) - (22,223)
EBITDA Adjustments
Amortization of servicing rights and other fair value adjustments 65,505 - 432 - - 65,937
Interest expense on debt 1,518 - - 34,152 - 35,670
Depreciation and amortization 12,322 2,341 1,917 - - 16,580
Other (2,215) 119 32 (146) - (2,210)
------ --- --- ---- --- ------
Total adjustments 77,130 2,460 2,381 34,006 - 115,977
------ ----- ----- ------ --- -------
Adjusted EBITDA $48,447 $57,961 $(10,939) $(1,715) $ - $93,754
======= ======= ======== ======= === === =======
(1) We revised our method of calculating Adjusted Earnings (Loss) beginning with the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 to eliminate adjustments for step-up depreciation and amortization, which represents depreciation and amortization costs related to the increased basis in assets (including servicing rights and subservicing contracts) acquired
within business combination transactions. Prior period amounts have been adjusted to reflect this revision.
Walter Investment Management Corp.
Segment Results of Operations and Non-GAAP Financial Measures
For the Nine Months Ended September 30, 2017
(in thousands)
Servicing Originations Reverse Mortgage Other Eliminations Total
Consolidated
--------- ------------ ---------------- ----- ------------ ------------
REVENUES
Net servicing revenue and fees $255,982 $ - $21,043 $ - $(7,488) $269,537
Net gains (losses) on sales of loans (1,888) 217,639 - - 2,163 217,914
Net fair value gains on reverse loans and - - 24,384 - - 24,384
related HMBS obligations
Interest income on loans 31,235 36 - - - 31,271
Insurance revenue 9,826 - - - - 9,826
Other revenues 60,559 24,921 1,558 891 (10,145) 77,784
------ ------ ----- --- -------
Total revenues 355,714 242,596 46,985 891 (15,470) 630,716
------- ------- ------ --- ------- -------
EXPENSES
Interest expense 38,162 25,830 13,110 105,863 - 182,965
Depreciation and amortization 25,861 2,316 2,538 - - 30,715
Other expenses, net 437,003 163,740 78,036 32,461 (15,470) 695,770
------- ------- ------ ------ -------
Total expenses 501,026 191,886 93,684 138,324 (15,470) 909,450
------- ------- ------ ------- ------- -------
OTHER GAINS (LOSSES)
Gain on sale of business 67,734 - - - - 67,734
Other net fair value gains (losses) (1,874) - - 2,635 - 761
Net loss on extinguishment of debt (709) - - (959) - (1,668)
---- --- --- ---- ---
Total other gains 65,151 - - 1,676 - 66,827
------ --- --- ----- --- ------
Income (loss) before income taxes (80,161) 50,710 (46,699) (135,757) - (211,907)
Adjustments to income (loss) before income taxes
Gain on sale of business (67,734) - - - - (67,734)
Changes in fair value due to changes in 91,425 - - - - 91,425
valuation inputs and other assumptions
Fair value to cash adjustment for reverse loans - - 34,858 - - 34,858
Transaction and integration costs 4,855 - - 25,532 - 30,387
Exit costs 6,102 985 1,404 146 - 8,637
Non-cash interest expense 2,245 - - 8,225 - 10,470
Share-based compensation expense 901 124 343 771 - 2,139
Other 6,133 333 271 2,690 - 9,427
Total adjustments 43,927 1,442 36,876 37,364 - 119,609
------ ----- ------ ------ --- -------
Adjusted Earnings (Loss) (36,234) 52,152 (9,823) (98,393) - (92,298)
EBITDA Adjustments
Amortization of servicing rights and other 118,028 - 1,148 - - 119,176
fair value adjustments
Interest expense on debt - - - 97,638 - 97,638
Depreciation and amortization 25,861 2,316 2,538 - - 30,715
Other (625) (5,448) 88 28 - (5,957)
---- ------ --- --- --- ------
Total adjustments 143,264 (3,132) 3,774 97,666 - 241,572
------- ------ ----- ------ --- -------
Adjusted EBITDA $107,030 $49,020 $(6,049) $(727) $ - $149,274
======== ======= ======= ===== === === ========
Walter Investment Management Corp.
Segment Results of Operations and Non-GAAP Financial Measures
For the Nine Months Ended September 30, 2016
(in thousands)
Servicing Originations Reverse Mortgage Other Eliminations Total
Consolidated
--------- ------------ ---------------- ----- ------------ ------------
REVENUES
Net servicing revenue and fees $25,954 $ - $21,065 $ - $(9,216) $37,803
Net gains (losses) on sales of loans (7,998) 311,625 - - 3,040 306,667
Net fair value gains on reverse loans and - - 61,485 - - 61,485
related HMBS obligations
Interest income on loans 35,315 37 - - - 35,352
Insurance revenue 31,644 - - - - 31,644
Other revenues 73,516 32,264 4,705 (119) (31,743) 78,623
Total revenues 158,431 343,926 87,255 (119) (37,919) 551,574
------- ------- ------ ---- ------- -------
EXPENSES
Interest expense 53,549 24,729 6,870 108,802 - 193,950
Depreciation and amortization 33,807 6,934 4,792 10 - 45,543
Goodwill and intangible assets impairment 306,393 - 6,735 - - 313,128
Other expenses, net 537,510 198,575 112,774 11,362 (37,919) 822,302
------- ------- ------- ------ -------
Total expenses 931,259 230,238 131,171 120,174 (37,919) 1,374,923
------- ------- ------- ------- ------- ---------
OTHER GAINS (LOSSES)
Other net fair value losses (418) - - (5,847) - (6,265)
Net gain on extinguishment of debt - - - 14,662 - 14,662
Other (682) - (1,024) - - (1,706)
---- --- ------ --- ---
Total other income (losses) (1,100) - (1,024) 8,815 - 6,691
------ --- ------ ----- --- -----
Income (loss) before income taxes (773,928) 113,688 (44,940) (111,478) - (816,658)
Adjustments to income (loss) before income
taxes
Changes in fair value due to changes in valuation inputs and other assumptions 385,826 - - - - 385,826
Fair value to cash adjustment for reverse loans - - (2,507) - - (2,507)
Transaction and integration costs 2,383 - - 3,366 - 5,749
Exit costs 7,403 2,083 567 1,329 - 11,382
Non-cash interest expense 818 - - 8,642 - 9,460
Share-based compensation expense 5,119 590 1,080 867 - 7,656
Goodwill and intangible assets impairment 306,393 - 6,735 - - 313,128
Other 18,028 5,003 4,407 (8,036) - 19,402
Total adjustments 725,970 7,676 10,282 6,168 - 750,096
------- ----- ------ ----- --- -------
Adjusted Earnings (Loss) (1) (47,958) 121,364 (34,658) (105,310) - (66,562)
EBITDA Adjustments
Amortization of servicing rights and other fair value adjustments 199,735 - 1,338 - - 201,073
Interest expense on debt 5,504 - - 100,161 - 105,665
Depreciation and amortization 33,807 6,934 4,792 10 - 45,543
Other (3,317) (3,093) 86 201 - (6,123)
------ ------ --- --- --- ------
Total adjustments 235,729 3,841 6,216 100,372 - 346,158
------- ----- ----- ------- --- -------
Adjusted EBITDA $187,771 $125,205 $(28,442) $(4,938) $ - $279,596
======== ======== ======== ======= === === ========
(1) We revised our method of calculating Adjusted Earnings (Loss) beginning with the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 to eliminate adjustments for step-up depreciation and amortization, which represents depreciation and amortization costs related to the increased basis in assets (including servicing rights and subservicing contracts) acquired within
business combination transactions. Prior period amounts have been adjusted to reflect this revision.
Reconciliation of GAAP Net Loss to
Non-GAAP Adjusted Loss
(in millions, except per share amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016
---- ---- ---- ----
Net loss $(124.1) $(213.3) $(213.9) $(875.9)
Income tax expense 0.5 55.1 2.0 59.3
--- ---- --- ----
Loss before income taxes (123.6) (158.2) (211.9) (816.6)
Adjustments to loss before income taxes
Gain on sale of business - - (67.7) -
Changes in fair value due to changes in valuation inputs 51.0 26.7 91.4 385.8
and other assumptions (1)
Fair value to cash adjustment for reverse loans (2) 19.5 0.7 34.9 (2.5)
Transaction and integration costs (3) 16.1 2.9 30.4 5.7
Exit costs (4) 0.7 2.6 8.6 11.4
Non-cash interest expense 3.5 3.7 10.5 9.5
Share-based compensation expense 0.8 2.0 2.1 7.7
Goodwill and intangible assets impairment - 97.7 - 313.1
Other (5) 0.5 (0.3) 9.4 19.3
Total adjustments 92.1 136.0 119.6 750.0
Adjusted Loss $(31.5) $(22.2) $(92.3) $(66.6)
====== ====== ====== ======
(1) Consists of the change in fair value due to changes in valuation inputs and other assumptions relating to servicing rights and charged-off loans.
(2) Represents the non-cash fair value adjustment to arrive at cash generated from reverse mortgage origination activities.
(3) Transaction and integration costs result primarily from our debt restructuring initiative.
(4) Exit costs include expenses related to the closing of offices and the termination and replacement of certain employees as well as other expenses
to institute efficiencies. Exit costs incurred for the three and nine months ended September 30, 2017 include those relating to our exit from the
consumer retail channel of the Originations segment, our exit from the reverse mortgage originations business, and actions initiated in 2015,
2016 and 2017 in connection with our continued efforts to enhance efficiencies and streamline processes in the organization.
(5) Includes severance, costs associated with transforming the business, the net impact of the Non-Residual Trusts and the gain or loss from extinguishment of corporate debt.
Reconciliation of GAAP Net Loss to
Non-GAAP AEBITDA
(in millions)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016
---- ---- ---- ----
Net loss $(124.1) $(213.3) $(213.9) $(875.9)
Income tax expense 0.5 55.1 2.0 59.3
--- ---- --- ----
Loss before income taxes (123.6) (158.2) (211.9) (816.6)
EBITDA Adjustments
Amortization of servicing rights and other fair value 87.3 92.6 210.6 586.9
adjustments (1)
Interest expense 36.4 39.3 108.1 115.1
Gain on sale of business - - (67.7) -
Depreciation and amortization 9.7 16.6 30.7 45.5
Fair value to cash adjustment for reverse loans (2) 19.5 0.7 34.9 (2.5)
Transaction and integration costs (3) 16.1 2.9 30.4 5.7
Exit costs (4) 0.7 2.6 8.6 11.4
Share-based compensation expense 0.8 2.0 2.1 7.7
Goodwill impairment - 97.7 - 313.1
Other (5) (2.2) (2.4) 3.5 13.3
---- ---- --- ----
Total adjustments 168.3 252.0 361.2 1,096.2
-----
Adjusted EBITDA $44.7 $93.8 $149.3 $279.6
===== ===== ====== ======
(1) Consists of the change in fair value due to changes in valuation inputs and other assumptions relating to servicing rights and charged-off loans as well as the amortization of servicing rights and the realization of expected cash flows relating to servicing rights carried at fair value.
(2) Represents the non-cash fair value adjustment to arrive at cash generated from reverse mortgage origination activities.
(3) Transaction and integration costs result primarily from our debt restructuring initiative.
(4) Exit costs include expenses related to the closing of offices and the termination and replacement of certain employees as well as other expenses to institute efficiencies. Exit costs incurred for the three and nine months ended September 30, 2017 include those relating to our exit from the
consumer retail channel of the Originations segment, our exit from the reverse mortgage originations business, and actions initiated in 2015, 2016 and 2017 in connection with our continued efforts to enhance efficiencies and streamline processes in the organization.
(5) Includes the net provision for the repurchase of loans sold, non-cash interest income, severance, interest income on unrestricted cash and cash equivalents, costs associated with transforming the business, the net impact of the Non-Residual Trusts, the gain or loss from extinguishment of
corporate debt, the provision for loan losses and Residual Trust cash flows.
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SOURCE Walter Investment Management Corp.
