Mr. Cooper Group Inc.

good day and thank you for standing by welcome to the mr cooper mr cooper group's fourth quarter 2023 earnings call at this time all participants are in the listen only mode after the speaker's presentation there will be a question answer session to ask a question during session you need to press star 1 1 on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star 1 1 again please be advised that today's conference is being recorded I want to hand the conference over to our first speaker today. Please go ahead.

Good morning, and welcome to Mr. Cooper Group's fourth quarter earnings call. My name is Ken Posner, and I'm SVP of Strategic Planning and Investor Relations. With me today are Jay Bray, Chairman and CEO, Chris Marshall, Vice Chairman, Mike Weinbach, President, and Kirk Johnson, Executive Vice President and CFO. As a reminder, this call is being recorded. You can find the slides on our investor relations webpage at investors.mrcoopergroup.com. During the call, we may refer to non-GAAP measures, which are reconciled to GAAP results in the appendix to the slide deck. Also, we may make forward-looking statements, which you should understand could be affected by risk factors that we've identified in our 10-K and other SEC filings. We are not undertaking any commitment to update these statements if conditions change. And with that, I'll now turn the call over to Jay.

Thanks, Ken, and good morning, everyone, and welcome to our call. Typically, we start by reviewing the quarterly highlights, but I assume you saw our pre-release. So instead, I'll make some brief comments on full-year results, talking about our $1 trillion target, and then share some thoughts on where we're going from here. Turning to slide three, let's talk about 2023. For the full year, ROTC was 12.5%, which was back within our target range. Pre-tax operating earnings totaled $660 million, thanks largely to servicing, while originations made a smaller contribution given where we are in the cycle. Tangible book value end of the year at $63.67, up 12%. The servicing portfolio grew 14% to $992 billion a year end, which we believe establishes us as the industry's number one servicer. As we commented last quarter, we expect to achieve our $1 trillion target during the first quarter, once pending transactions have completed boarding. Contributing to portfolio growth during the year, we acquired HomePoint and its $83 billion portfolio in a transaction which was accretive to tangible book value and which was essentially self-funded through the assumption of $500 million in senior notes. Additionally, the acquisitions of Rushmore Servicing and Roosevelt Management added another $32 billion and brought us best-in-class special servicing capabilities in the infrastructure to launch our first MSR fund. A key theme for 2023 was operating leverage. We grew the portfolio at a double-digit pace during the year, while at the same time cutting costs company-wide by 8%. These results showcase our highly efficient digital platform the benefits of incremental scale, and our agile management of originations capacity. Finally, stock repurchase totaled $276 million for the year and an average price of $49.53. And given the current stock price, we're obviously quite pleased. With that, let's skip ahead to slide five and spend a moment on our $1 trillion target, because this milestone represents the culmination of a multi-year journey. one that's taken us from very humble beginnings to our current position as industry leader. We're extremely proud of our track record. Very few companies can boast of 30% growth compounded over 15 years. We did this by relentlessly focusing on our platform, investing in the right technology, and building a people-first culture. If you go back to the WMIH merger in 2018, which is when we became a fully independent public company, Our first priority was deleveraging, which we accomplished by refinancing our senior notes and extending our liquidity runway. At the same time, we were rolling out Project Titan, which was a series of technology investments designed to ready our platform for the next leg of growth. These investments paid huge dividends during the pandemic when we helped over 500,000 customers enter and exit forbearance plans. while at the same time driving lower unit costs in servicing. In fact, since 2018, we've cut servicing costs by 30%, leaving us now 38% below industry peers based on the most recent Mortgage Bankers Association benchmark study. Our investments also pay big dividends when we sold our cloud-native servicing technology to Sajent. which allowed us to focus our IT resources on the customer experience and the latest developments in generative AI. We told you we would monetize them, and while we still have work to do with the auction exchange, we generated $528 million in gains in 2021 by selling title, valuation, and field services with extremely opportune timing. We've distinguished ourselves with industry-leading customer retention. which is currently near 80%, are almost four times the industry average. And as you recall, during the refi boom of 2020, we generated in excess of $1 billion in profits from originations. The WMIH merger brought us $1 billion in deferred tax assets. At the time, there was skepticism about their value. Today, we have realized 63% of that balance in the form of incremental cash flow which has helped us exceed expectations in terms of both growth and stock repurchase. So where are we going from here? We're now seeing some of the best growth opportunities in the company's history, and we will continue to grow our servicing portfolio as we have for the past 15 years. But our strategic focus is now squarely on return on equity, which shouldn't surprise you since we've been commenting on ROTC on every quarterly call. If you'll turn to slide six, let me share some updated guidance with you. From 2019 to 2021, the entire mortgage industry enjoyed outsized returns, thanks to the massive refinance wave that generated what will probably turn out to be once-in-a-lifetime margins. During 2022, we passed through an inflection point as the market struggled with the sharpest mortgage rate increases in recent memory. which impacted originations immediately, while it took servicing a few quarters to ramp up. During 2023, we crossed back into our target range of 12 to 20%. And today, as we look out over the next few years, we would expect to drive these returns to a higher level. Specifically, we're forecasting ROTC to steadily increase, reaching the mid to upper teens by the end of 2025, which is a level that we believe we can sustain thereafter. Now, bear in mind, as is always the case, we face some headwinds. The market expects somewhat lower rates in 2024, which could create some margin pressure for servicing in terms of higher amortization expense and lower levels of interest income, although these would likely be offset by a pickup in originations. But the story for Mr. Cooper isn't about interest rates. The real story is the strategic initiatives we're working on that will lift ROTCE to a sustained higher level. Let me highlight four broad categories. First, we're making terrific progress with servicing costs. For example, by driving lower call volumes with better digital solutions for our customers. Plus, we think there's enormous potential from rolling out the latest generation of AI. I'd remind you that Mr. Cooper is already a leader in AI with our mortgage-centric Pyro technology, which we developed in partnership with Google in 2021, in which today we're using internally and marketing to third parties. In 2024, you should expect further positive operating leverage and servicing and across the company. Second, we believe there's enormous opportunity for ROTC accretion in our asset light strategies. including subservicing and our MSR fund since they don't take up any of our liquidity. Third, we're reengineering our DTC platform to drive higher volumes and wider margins in all environments. And finally, the strength of our balance sheet and risk management gives us confidence we can hit these higher returns even in the face of market volatility or less favorable macro conditions. In summary, let me share our vision for where the company is going over the next few years. We envision Mr. Cooper as playing a leadership role in the mortgage industry with a platform that's scalable and offers best-in-class efficiency. For our customers, we'll offer an experience that is frictionless and personalized, and as a result, will retain our customers for life. For our stakeholders, Mr. Cooper will work tirelessly to retain their trust. And for our investors, we're optimistic that the company's stock price will over time receive a premium multiple reflecting the outlook for return on equity, our track record, and the quality of our balance sheet. Obviously, we do not control valuation. That's up to you. But we will work diligently to compound tangible book value at a double-digit pace, which for us is an exciting prospect. And now I'll turn the call over to Chris to take you through more details on our operational performance.