Walker & Dunlop, Inc

Good day and welcome to the third quarter 2023 Walker and Dunlop Incorporated earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kelsey Duffy, Senior Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Melinda. Good morning, everyone. Thank you for joining Walker and Dunlop's third quarter 2023 earnings call. I have with me this morning our Chairman and CEO, Willie Walker, and our CFO, Greg Glorkowski. This call is being webcast live on our website, and a recording will be available later today. Both our earnings press release and website provide details on accessing the archived webcast. This morning, we posted our earnings release and presentation to the investor relations section of our website, www.WalkerDunlop.com. These slides serve as a reference point for some of what Willie and Greg will touch on during the call. Please note during the call that we will reference the non-GAAP financial metrics adjusted EBITDA and adjusted core EPS. Please refer to the appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics. Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations and actual results may differ materially. Walker and Dunlop is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, and we expressly disclaim any obligation to do so. More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC. I will now turn the call over to Willie.

Thank you, Kelsey, and good morning, everyone. I'd like to start this call as I have several Walker webcasts. highlighting the trauma and concern that many of our Jewish colleagues and clients have experienced since the Hamas terrorist attacks on Israel. These are exceptionally challenging times with great concern for the state of Israel, its people, and the Palestinians caught in the war on Hamas. We continue to support our colleagues and clients in any and all ways we can. As well, there is no place in a free society for discrimination or anti-Semitic behavior, and we must be vigilant in stopping it out anywhere it arises. When I joined Walker & Dunlop in 2003, I looked at the consistent revenues generated by the company's $4 billion loan servicing portfolio and said to myself, more of that. And for the past 20 years, we have added $125 billion of servicing and $17 billion of assets under management to generate large sums of recurring revenue flow that allow us to continue investing in our people, brand and technology throughout cycles. Part and parcel of building scaled servicing and asset management businesses was to ensure our credit risk in those portfolios was minimal due to the conservative underwriting and taking credit risk solely on multifamily properties. And that strategy has worked, resulting in negligible credit defaults, allowing us to fully benefit from our servicing and asset management cash flows. We do not control the macro environment that has increased rates dramatically and turned the commercial real estate market on its head. We do, however, control building a sustainable business for all cycles and managing through those cycles. As investors in W&D know, we benchmark our growth and success against the bold, highly ambitious five-year strategic plans we develop and pursue. While our financial performance over the past two years of the drive to 25 has not met our own high expectations, We remain committed to that strategy. If you benchmark our business model and financial performance against our peers, as slide three shows, our revenues this quarter and year to date have fallen more significantly than our peers due to the relative scale of our capital markets businesses. As transaction volumes recover, so will W&D's revenues. But as you can also see on this slide, These six direct competitors have watched year-to-date adjusted earnings and adjusted EBITDA fall by an average of 53% and 49%, respectively, while W&D's adjusted core earnings are off only 26% and EBITDA only 9%. This is super important, for it underscores the strength and margin of our recurring revenue businesses and the cost-cutting measures we have implemented this year. As this slide shows, WND's revenues fell 15% in Q3. Our financing and sales pipelines were robust entering the quarter, and we were optimistic the transaction volumes were recovering off dramatically lower volumes in Q1 and Q2. Yet as the 10-year Treasury rose precipitously, our pipeline of acquisitions and refinancing deteriorated, bringing total transaction volumes down 49% from Q3 of 2022 to $8.6 billion. slightly higher than our Q2 volume, resulting in total revenues of $269 million. Diluted earnings per share declined 54% to 64 cents per share, yet adjusted core EPS, which strips out non-cash mortgage servicing rights, and adjusted EBITDA were down 21% and 1%, respectively. Notably, adjusted EBITDA has continued to grow throughout this year from $68 million in Q1 to to $71 million in Q2 to $74 million in Q3. This is the company we built to provide us with durable recurring revenue streams with limited credit exposure to allow us to continue investing in our people, brand, and technology throughout cycles. The multifamily acquisitions market picked up slightly in the third quarter, and our team closed $2.5 billion of property sales, down 50% year over year, but up 67% from the second quarter, significantly outperforming the overall U.S. multifamily property sales market, which grew only 7% quarter over quarter. Fannie Mae and Freddie Mac have deployed only $74 billion, or 50%, of their $150 billion annual multifamily lending caps through three quarters of the year. They are well behind, but they aren't losing deal flow to other capital sources, There simply hasn't been demand for their capital in such a dislocated market. Regardless of the path of rates over the next 12 months, it is our expectation that the wait-and-see attitude of most owners in 2023 transitions into a I-must-move market in 2024, given the amount of dry powder that needs to be deployed and the volume of loans that will need to be refinanced or sold. Multifamily loan maturities, which totaled only $75 billion in 2023, increased 73% to $129 billion next year. Those loans must be refinanced or properties sold regardless of what happens to interest rates. W&D is the largest GSE lender, third largest multifamily lender, and sixth largest provider of capital to commercial real estate industry in the United States. We are focused on and must capitalize on our brand and scale as financing and sales volumes return over the coming years. Debt brokerage volume declined 52% year-over-year to $3.1 billion in Q3, in line with our Q2 volumes. The non-multifamily acquisitions and financing markets have been very challenged in 2023, yet our team is finding capital and solutions for our clients reflected in 21%, or over $1 billion of our Q3 debt financing volume being on office, retail, hospitality, and industrial assets. As a reminder, Walker & Dunlop takes no credit risk on any of our non-multifamily financing activity. We continue to see market share growth in our technology-enabled businesses of small-balance lending and appraisals. Our market share with Fannie Mae in small-balance lending has grown from 7% last year to over 10% in 2023. And the same with Freddie Mac, up from 10% last year to 14% in 2023. And it's not just top-line growth. We are delivering deals to Freddie Mac 12% more efficiently than the competition with a 100% approval rate year-to-date. And we are seeing similar achievements in our appraisal business, generating appraisals more efficiently than the competition, on growing market share from 6% in Q3 of 2022 to 11% in Q3 of 2023. It is our long-term strategy to take the technology investments in small balance lending and appraisals and apply them to our scaled large loan and property sales businesses. Our asset management and servicing businesses add a tremendous amount of financial strength to our company. We are in the process of raising two new funds through Walker & Dunlop Investment Partners and have significant institutional commitments for two separate accounts, one focused on first trust lending and the other preferred equity. What we are seeing in this challenging fundraising environment is that investors value Walker & Deloff's access to deal flow and banker-broker distribution network. As deals get harder and traditional sources of capital move in and out of the market, having capital Walker & Deloff controls is becoming increasingly valuable and strategic. While these deals we are completing today are technically challenging, and in many instances, they are critical to our client success and deepen our long-term business partnerships. I will now turn the call over to Greg to talk through our financials in more details. Greg?