Ellington Financial LLC :EFC-US: Earnings Analysis: Q2, 2017 By the Numbers : September 26, 2017

Ellington Financial LLC reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Ellington Financial LLC – Walter Investment Management Corp., Hannon Armstrong Sustainable Infrastructure Capital, Inc., PennyMac Financial Services, Inc. Class A, Ladder Capital Corp. Class A, Walker & Dunlop, Inc. and America First Multifamily Investors, L.P. (WAC-US, HASI-US, PFSI-US, LADR-US, WD-US and ATAX-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 16.78 million, Net Earnings of USD 5.06 million.
  • Gross margins widened from 69.56% to 69.88% compared to the same period last year, operating (EBITDA) margins now 9.36% from 42.45%.
  • Year-on-year change in operating cash flow of -136.19% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 16.78 22.02 22.46 -3.99 18.04
Revenue Growth (%YOY) -6.96 126.15 -8.83 -110.65 -32.68
Earnings (mil) 5.06 15.28 1.69 0.52 4.99
Earnings Growth (%YOY) 1.58 165.85 -4.94 -86.76 -62.33
Net Margin (%) 30.18 69.39 7.53 N/A 27.64
EPS 0.16 0.47 0.05 0.02 0.15
Return on Equity (%) 0.78 2.35 0.26 0.08 0.73
Return on Assets (%) 0.71 2.29 0.27 0.08 0.71

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Market Share Versus Profits

Revenues History
Earnings History

EFC-US’s change in revenue this period compared to the same period last year of -6.96% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that EFC-US is holding onto its market share. Also, for comparison purposes, revenues changed by -23.77% and earnings by -66.85% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 69.56% to 69.88%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

EFC-US’s change in operating cash flow of -136.19% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

The company’s operating (EBIT) margins contracted from 42.45% to 9.36%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 27.73% to 32.42%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Ellington Financial LLC engages in the provision of investment services. It manages mortgage-backed assets, securities, loans and real estate debts. The company was founded on July 9, 2007 and is headquartered in Old Greenwich, CT.

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