Ocwen Financial Corp. :OCN-US: Earnings Analysis: Q4, 2016 By the Numbers : February 27, 2017

Ocwen Financial Corp. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Ocwen Financial Corp. – NewStar Financial, Inc., Nationstar Mortgage Holdings Inc., PennyMac Financial Services, Inc. Class A and Ellington Financial LLC (NEWS-US, NSM-US, PFSI-US and EFC-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 323.90 million, Net Earnings of USD -10.44 million.
  • Gross margins widened from 75.52% to 90.56% compared to the same period last year, operating (EBITDA) margins now -5.71% from -29.27%.
  • Year-on-year change in operating cash flow of 100.38% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as 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):

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 323.9 374.2 363.57 331.58 369.13
Revenue Growth (%YOY) -12.25 -10.14 -22.74 -25.07 -26
Earnings (mil) -10.44 9.39 -87.38 -111.33 -224.24
Earnings Growth (%YOY) 95.34 114.04 -997.29 -424.06 62.52
Net Margin (%) -3.22 2.51 -24.03 -33.58 -60.75
EPS -0.08 0.08 -0.71 -0.9 -1.79
Return on Equity (%) -6.34 5.71 -50.23 -55.91 -92.71
Return on Assets (%) -0.55 0.5 -4.69 -6.01 -11.64

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Market Share Versus Profits

Revenues History
Earnings History

OCN-US‘s change in revenue this period compared to the same period last year of -12.25% 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 OCN-US is holding onto its market share. Also, for comparison purposes, revenues changed by -13.44% and earnings by -211.21% 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 was influenced by year-on-year improvement in gross margins from 75.52% to 90.56% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -29.27% to -5.71% compared to the same period last year. For comparison, gross margins were 83.20% and EBITDA margins were -5.67% in the last reporting period.

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

OCN-US‘s change in operating cash flow of 100.38% 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 earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -33.80% to -5.71% and (2) one-time items. The company’s pretax margins are now -3.15% compared to -35.02% for the same period last year.

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

Ocwen Financial Corp. is a financial services holding company, which through its subsidiaries engages in the servicing and origination of mortgage loans. It operates through the following segments: Servicing, Lending, and Corporate Items and Other. The Servicing segment engages in residential servicing business, which offers residential and commercial mortgage loan servicing, special servicing and asset management services. The Lending segment involves in the originating and purchasing conventional and government-insured residential forward and reverse mortgage loans mainly through correspondent lending arrangements, broker relationships and directly with mortgage customers. The Corporate Items and Other segment include revenues and expenses that are not directly related to other reportable segment. The company was founded in February 1988 and is headquartered in West Palm Beach, FL.

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