Walter Investment Management Corp. :WAC-US: Earnings Analysis: Q2, 2016 By the Numbers : October 4, 2016

Walter Investment Management Corp. reports financial results for the quarter ended June 30, 2016.


  • Summary numbers: Revenues of USD 482.31 million, Net Earnings of USD -232.40 million.
  • Gross margins widened from 95.60% to 96.44% compared to the same period last year, operating (EBITDA) margins now -29.48% from 12.33%.
  • Change in operating cash flow of 64.24% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

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):

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 523.73 507.52 504.23 463.45 482.31
Revenue Growth (%YOY) 24.39 7.74 -6.34 -16.7 -7.91
Earnings (mil) -38.12 -76.93 -117.14 -172.7 -232.4
Earnings Growth (%YOY) -194.83 -8.65 -166.38 -456.96 -509.67
Net Margin (%) -7.28 -15.16 -23.23 -37.26 -48.18
EPS -1.01 -2.04 -3.16 -4.85 -6.49
Return on Equity (%) -14.77 -31.38 -53.55 -96.17 -179.56
Return on Assets (%) -0.79 -1.61 -2.49 -3.72 -5.18

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, WAC-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if WAC-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 4.07% and earnings by -34.57% compared to the previous period.

Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 12.33% to -29.48%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 95.60% to 96.44%. For comparison, gross margins were 95.89% and EBITDA margins -55.43% in the immediate last period.

Cash Versus Earnings – Sustainable Performance?

WAC-US‘s year-on-year change in operating cash flow of 64.24% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 7.93% to -33.04% and (2) one-time items that contributed to a decrease in pretax margins from -2.86% to -78.70%

EBIT Margin History
PreTax Margin History

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Company Profile

Walter Investment Management Corp operates as a mortgage banking company, which focuses on the servicing and origination of residential loans, including reverse loans. It operates through the following business segments: Servicing, Originations, Reverse Mortgage, and Other. The Servicing segment consists of operations that perform servicing for third-party credit owners of mortgage loans as well as complementary businesses consisting of an insurance agency serving residential loan borrowers and credit owners and a collections agency that performs collections of post charge-off deficiency balances for third parties. The Originations segment originates and purchases mortgage loans through the consumer originations and consumer direct channels. The Reverse Mortgage segment focuses on the origination or purchase, securitization and servicing of reverse loans. The Other segment consists of assets and liabilities of the Non-Residual Trusts, corporate debt, and asset the firm’s management business. The company was founded in 1958 and is headquartered in Tampa, FL.

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