Rithm Capital Corp.

Hello and welcome to the Rhythm Capital first quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to hand the call to Emma Bola, Associate General Counsel. Please go ahead.

Thank you and good morning, everyone. I would like to thank you for joining us today for Rhythm Capital's first quarter 2024 earnings call. Joining me today are Michael Nirenberg, Chairman, CEO, and President of Rhythm Capital, Nick Santoro, Chief Financial Officer of Rhythm Capital, and Barron Silverstein, President of NURES. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rhythm Capital website, www.rhythmcap.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael.

Thanks, Emma. Good morning, everyone, and thanks for joining us. You know, as you look at our business, another very solid quarter for Rhythm and, quite frankly, all of our operating companies. All of our business lines performed extremely well. With the recent backup in rates, the market should provide us with great opportunities to deploy capital and generate and continue to generate outsized returns. Regarding risk, we are much closer to home from a duration perspective. With FedSpeak, early in the quarter and, quite frankly, late last year, targeting lower rates, throughout the first quarter, we hedged most of our MSR risk or MSR positions. What this should do for the company is continue to create stability in earnings as well as book value on a go-forward basis. As everyone knows, we set out on a mission to grow our alternatives business. To be clear, this is not just in size, but more importantly, excellent risk-adjusted returns for our shareholders and LPs. Sculptor, during the quarter, continued to deliver strong results across the platform. What we are seeing in terms of risk-reward in credit markets are some of the most attractive levels we have seen in years outside of financial crisis levels. The multi-strat fund continues to generate strong returns while maintaining conservative risk posturing. The real estate group, which focuses on non-traditional niche asset classes, continues to generate excellent returns. Their track record, you know, when you look at the numbers, is unparalleled relative to others in the marketplace. In the first quarter, we announced the launch of Sculptor Loan Financing Partners, the firm's first captive CLO equity investment platform. This was anchored by a commitment from Rhythm. In the quarter, we priced two CLOs, one in Europe and one in the U.S. As you think about all these comments, we're super excited where we are with the business and the prospects for the future. At New Res, our mortgage company, Barron and the team did a great job during the quarter. We had excellent results both in the servicing segment as well as in the origination segment. We look forward to closing the SLS transaction, which we announced late in the fourth quarter, which will add significant third-party business to the platform. Our Genesis business, which is our transition loan business, had its best origination quarter ever. Not only are volumes up as banks retreat, the addition of new clients to the platform has never been higher. I think we originated loans to 66 different counterparties during the quarter. Also, we completed a $500 million rated securitization in the quarter, lowering our cost of funds by approximately 150 basis points, as well as we achieved higher advance rates. All of these are very exciting things for our business, and we look forward to updating you along the way. I'll now turn to the supplement, which has been posted online. On page three, when you look at where we are today, just one thing I want to highlight on this page. Aside from the sheer scale of our business, the balance sheet at Rhythm today is higher as a result of the hedges that we put on during the quarter against our MSR business. When you look at life to date, $5.3 billion of dividends paid, $7.1 billion of equity, and our total economic return since inception is 184%. Sculptor, on the right side of the page, $32 billion of AUM. During the quarter, GATT net income, $262 million, or $0.54 per diluted share. Our earnings available for distribution, $233 million, or $0.48 per diluted share. Our common dividend at $0.25. Cash and liquidity at the end of Q1 was $2 billion, and the total economic return for Q1 is 4.5%. As you flip to page five and you look at where we, when this company was first started, You know, just a quick snapshot and going back in history. Company started in 2013 at Fortress to take advantage of dislocations in the MSR market as banks were selling MSRs to Basel III capital constraints. So we started the business with a billion of equity. Today we're at 7.1 billion. What started out as strictly an owner of excess MSRs today is a full scale asset manager with capabilities in credit, real estate, obviously all kinds of lending businesses and as well as in the mortgage space. As we go forward, we look forward, as we go forward, you know, we will look to increase our scale in our alts business. We will look to add insurance over time. As we think about our offerings, we'd like to tap the retail markets and we'll continue to tap the institutional markets. So a lot of exciting things hopefully ahead for Rhythm and our operating companies on a go-forward basis. If you want activity, if you flip to page six, you know, when you look at what we did on the new red side, Barron's going to talk about the mortgage company in a bit here. The origination platform continues to grow market share. We've had organic growth in the third-party servicing franchise. That's due to both the SLS side as well as just, you know, quite frankly, our excellence in the servicing business. with clients that we know and that we already service loans for. As you think about where the banks are, you know, with the regional banks retreating, the Genesis business, as I pointed out earlier, had a record quarter in origination. You know, they're on target to do, looks like we're on target to do about $3 billion in origination. When we first started the platform, I think we were in and around 2 billion. When you look at the credit markets, during Q1, we issued 775 million of senior unsecured notes We also tendered for 50% of our outstanding issue. So we currently have $275 million of outstanding senior unsecured notes, which are due in 2025. When you look at the Sculptor platform, again, the captive CLO equity investment platform, we seeded that. Obviously, there's third parties. Every time we do a CLO deal, there are third parties that buy the CLO equity. When you look at our investment in Sculptor and in this platform, I think that on a go-forward basis, this is only scratching the surface what we could all do together. When we look at performance, strong risk-adjusted returns at both Rhythm and Sculptor platforms, we lead with performance. With performance, we're going to see more AUM come on our platform. And then when we look at partnerships, we continue to expand our global reach and try to create capital solutions with different LPs and shareholders on a go-forward basis. Sculptor, page seven. Just a couple of highlights here. Again, total AUM, $32 billion. The credit business between credit and real estate is $24 billion. Of that $24 billion, roughly $15 billion you can look at in the CLO business. The company's been outstanding for many years. Over the course of the past, I think the company started something in 1994. 94 when you look at a UM today at 32 billion and you look at the acquisition which closed in November of 23 we're just super excited where where this platform is going to go when you look at the overall returns on page 8 on the sculptor on the platform between credit real estate and multi and the multi strat funds quite frankly I think our returns are second to none and Both the credit markets, the real estate markets, and what we're doing overall, I think we're in a position today to truly execute on some of the best investing environments that we've seen in many, many years. On the new red side on page nine, delivered 23% ROEs. Huge numbers, quite frankly. PTI X mark to market increased by 22% quarter over quarter. The servicing business continues to perform extremely well. From a UPB standpoint, we grew the servicing business 15% year over year. I know at some point when we get into Q&As, there'll be some questions regarding going out and buying bulk packages. We'll address that. But quite frankly, between where we are today and as we get through more slides here, you'll see that between our subservicing business or really our third-party business and own servicing, we have $850 billion-ish of MSR exposure in the house. This is not a race to get bigger. This is a race to generate more earnings. When you look to the right side of the page for the quarter, servicing excluding mark-to-market, $220 million. Our MSR mark-to-market was $195 million. Originations made $42 million. And then obviously with corporate expense, the net number there is $408 million. So great quarter, great job done by the team overall. On Genesis Capital, I pointed out before, record originations, $840 million in commitments, 66 different sponsors. The business continues to perform extremely well. First quarter ROE, something between 13% and 15%. And new clients continue to come to the platform as the banks continue to pull back in the areas that we operate. And then finally, what we'll do is let's get into the segment performance. I'll just take page 13, and then Barron's going to take the mortgage company stuff. On the servicing portfolio, again, $857 billion of total servicing. when you look at our earnings stream and you think about where we are today as a business, you couple that with the Sculptor platform, the alt side, and you think about earnings in the platform, the ability to make investments, whether it be at the Sculptor level or other things that we're going to do over the course of time, I truly believe there is a huge growth opportunity for us. And, again, it's not just an AUM thing. It's just real earnings that we're going to generate for shareholders and LPs. Total owned servicing, $572 billion. Of that, 99% of the portfolios added the money. Gross whack on our total portfolio, I think it's something around $390 right now. The SLS acquisition adds $150 billion of servicing, of which $100 billion of that is third-party servicing. With that, why don't we go to page 15, and I'll turn it over to Barron, and he'll take it from there.