Name: ONITY GROUP INC. Q3 2024 Earnings Call
Start: 2025-11-20 09:23:47.921997+00

Executive Summary

Q3 2024 delivered the highest adjusted pre-tax income in three years ($35M) with diluted EPS of $2.65 and ROE of 19%, supported by stronger recapture volume (+52% q/q) and net MSR hedge gains of ~$10M .
Corporate deleveraging advanced via Oaktree/MAV transactions and senior notes refinancing; debt-to-equity improved to 2.9x as of 9/30/24, up from 3.9x in Q4’23, and liquidity increased to $299M .
Preliminary Q3 estimates released on 10/21 indicated net income of ~$21.4M and adjusted pre-tax income of ~$35.3M; full press release on 11/5 confirmed $21M GAAP net income and $35M adjusted pre-tax income .
Near-term catalysts: execution on MAV sale/redemptions and MAM reverse assets acquisition; RBC compliance deadline extended by Ginnie Mae to May 1, 2025, reducing near-term regulatory pressure .

What Went Well and What Went Wrong

Highest quarterly adjusted pre-tax income and ROE in three years, with stronger volumes across originations channels and subservicing additions: “The Onity platform continued to deliver strong results in the third quarter marked by the highest quarterly adjusted pre-tax income and return on equity in the past three years.” — Glen Messina (CEO) .
Deleveraging progress: debt-to-equity improved to 2.9x; MSR and corporate debt reduced by ~$182M YTD; liquidity rose to $299M .
MSR hedge effectiveness: coverage ratio within 90–110% target and hedging gains largely offset MSR fair value losses amid rate declines .

Q3 included negative “expense notables,” notably significant legal and regulatory settlement expenses of $(6)M, dampening GAAP pre-tax results .
Interest expense remains elevated (Q2: $73.1M), reflecting funding costs and leverage associated with servicing/financing structures .
Rithm subservicing agreement termination-rights extension adds counterparty uncertainty, although management indicates non-renewal would not be materially adverse .

Metric	Q1 2024	Q2 2024	Q3 2024
Net Income ($USD Millions)	$30.1	$10.5	$21.0
Diluted EPS ($)	$3.74	$1.33	$2.65
Adjusted Pre-Tax Income ($USD Millions)	$14	$32	$35
Total Revenue ($USD Millions)	$239.1	$246.4	n/a (not disclosed in Q3 release)

KPIs

KPI	Q1 2024	Q2 2024	Q3 2024
Ending Servicing UPB ($USD Billions)	$302	$304	n/a
Ending Subservicing UPB ($USD Billions)	$169	$173	n/a
Total Originations Volume (Funded UPB, $USD Billions)	n/a	$7.0	~$8.5
Consumer Direct Funded Volume ($USD Millions)	n/a	$158	~$240
Book Value per Share ($)	$56	$57	$59.50
Debt-to-Equity (x)	n/a	3.88x	2.9x
Total Liquidity ($USD Millions)	$219	$231	$299

Non-GAAP Adjustments (Q3 context)

Item (Q3)	Amount
MSR Valuation Adjustments due to rates/assumption changes, net	+$4M
Legal & Regulatory Settlement Expenses	$(6)M
Other Expense Notables (incl. LTIP stock price changes, strategic initiatives)	$(2)M
Other Income Statement Notables	$(4)M

Metric	Period	Previous Guidance	Current Guidance	Change
Ginnie Mae Risk-Based Capital Ratio compliance deadline	Effective date	Dec 31, 2024	May 1, 2025	Extended
Corporate outlook (quantitative EPS/revenue guidance)	FY/Q4	Not provided	Not provided	Maintained — no formal guidance

Topic	Previous Mentions (Q1 2024)	Previous Mentions (Q2 2024)	Current Period (Q3 2024)	Trend
Deleveraging & refinancing	Repurchased $47M PHH notes; Moody’s CFR upgrade	Debt-to-equity 3.88x; capital restructuring plan	Notes priced (9.875% due 2029), deleveraging via MAV sale and redemptions; D/E 2.9x	Improving
MSR hedging strategy	Balanced model; hedge context	Hedge costs contributed to GAAP/adjusted delta	Coverage ratio 90–110% target; hedging gains offset MSR FV losses	Effective
Reverse mortgage growth (MAM acquisition)	LOI to acquire MAM reverse assets	Reaffirmed intent; preferred issuance described	Expecting accretive earnings/cash flow; Series B preferred structure	Accretive
Rithm subservicing relationship	Strategic client	Extension of termination rights; management sees limited impact	Extension to Feb 1, 2025; ongoing discussions	Watchlist
Regulatory (Ginnie Mae RBCR)	Working toward compliance	Actions in progress	Compliance deadline waiver to May 1, 2025	Relief short-term

“The execution of our strategy and financial objectives is driving growth in volume across all originations channels, strong subservicing additions, and significant improvement in our debt-to-equity ratio, which is expected to support future income and cash flow.” — Glen Messina, CEO (Q3 press release) .
“This quarter’s results provide the clearest demonstration yet that our articulated strategy and financial objectives are sound, and our execution is strong.” — Glen Messina (Q2 press release) .
“We are pleased to announce the agreement with Oaktree that will enable a meaningful reduction of our highest cost corporate debt and the continuation of our relationship with MAV.” — Glen Messina (capital restructuring update) .

Focus on debt structure and refinancing cadence: management outlined steps to redeem PHH 7.875% 2026 notes and Onity second-lien notes using MAV sale proceeds and new senior notes; reiterated anchor investor participation and improved all-in cost of capital .
Hedge coverage and MSR sensitivity: reiterated target hedge coverage ratio of 90–110%; discussed how rate declines led to FV MSR losses largely offset by hedge gains in Q3 .
Reverse assets acquisition (MAM): clarified preferred stock terms (initial 7.875% dividend, step-ups, redemption mechanics) and accretive expectations for earnings/cash flow post-close .
Rithm relationship: addressed extended termination rights and stated non-renewal would not materially impact financial condition or debt-service capacity .

S&P Global consensus estimates for Q3 2024 (EPS, revenue, EBITDA) were unavailable due to missing company mapping in our SPGI data access. Where comparisons to consensus would typically be provided, they are omitted; readers should note this gap in benchmarking.

Execution on capital restructuring is the principal driver of equity value creation near term; expect further deleveraging as MAV sale and note redemptions complete .
Operating momentum is improving: adjusted pre-tax income reached a three-year high, with stronger origination recapture and effective hedging despite macro rate volatility .
Regulatory risk has moderated with Ginnie Mae’s RBCR compliance extension to May 1, 2025, giving more time to optimize capital without forced actions .
Counterparty dynamics (Rithm) warrant monitoring, but management expects limited impact; continued subservicing breadth supports fee stability .
Watch non-GAAP notables: legal/regulatory settlements and LTIP stock price impacts can swing GAAP results; adjusted pre-tax remains a clearer view of core performance .
Short-term trading: headlines around debt pricing/redemptions and closing of MAM transaction likely drive sentiment; any incremental disclosure on RBC path or Rithm terms could be stock-moving .
Medium-term thesis: capital-light growth via subservicing and reverse servicing, improved funding costs, and disciplined hedging should support ROE and book value per share compounding through the rate cycle .

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