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ONITY GROUP INC. (ONIT)·Q2 2025 Earnings Summary

Executive Summary

  • Mixed quarter: company-reported diluted EPS was $2.40 on net income attributable to common of $20.5M and GAAP ROE of 17%, while S&P Global “Primary EPS” actual registered at $1.74 vs $1.88 consensus, and revenue was $246.6M vs $252.9M consensus (both misses). Management delivered adjusted pre-tax income (PTI) of $16M and adjusted ROE of 14% amid elevated rate volatility and higher MSR runoff. (S&P Global estimates marked with asterisks below)
  • Drivers: April rate volatility reduced originations revenue/margins by >$4M; MSR runoff increased (≈$8M YoY) and reverse asset fair value marks weighed on results; MSR hedge effectiveness minimized fair value volatility.
  • Guidance: FY25 adjusted ROE guidance maintained at 16–18%; management reiterated potential release of some or all of the ~$180M U.S. DTA valuation allowance by year-end 2025; hedge coverage target refined to 80–100% post-April.
  • Operating highlights: originations funded volume rose 35% YoY to $9.4B (outpacing ~23% industry growth), book value per share increased to $60 (+$2.94 YoY), average servicing UPB reached $307B; liquidity stood at $218M.
  • Potential stock catalysts: possible DTA valuation allowance release; continued subservicing client wins; recognized servicing quality (Fitch upgrades) and efficiency/recapture initiatives that could support returns through rate cycles.

What Went Well and What Went Wrong

What Went Well

  • Record execution in a volatile quarter: “We reported another strong quarter with sustained profitability and steady growth… a balanced and diversified business… built to perform through market cycles.” — CEO Glen Messina.
  • Outperformance in growth engines: Originations funded volume +35% YoY to $9.4B vs ~23% industry; average servicing UPB $307B; recapture rate ~1.5x industry; book value per share increased to $60.
  • Risk management and platform strength: “Our MSR hedge strategy continues to perform well and as intended,” with coverage reset to 80–100% after April; servicing recognized with broad ratings upgrades (Fitch).

What Went Wrong

  • Revenue/EPS shortfalls vs S&P: Revenue of $246.6M missed $252.9M consensus; S&P “Primary EPS” actual $1.74 missed $1.88 consensus*. Company-reported diluted EPS was $2.40 (GAAP) illustrating definitional differences vs S&P “Primary EPS.” (S&P Global estimates marked below)
  • Margin pressure and runoff: April rate volatility cut originations revenue/margins by >$4M; MSR runoff higher YoY by ~+$8M; reverse valuation marks weighed on servicing profitability.
  • Sequential softness in adjusted PTI: Adjusted PTI fell to $16M from $25M in Q1 (and $32M in Q2’24), reflecting the headwinds above.

Financial Results

Consolidated KPIs vs prior year/quarter

MetricQ2 2024Q1 2025Q2 2025
Total Revenue ($M)246.4 249.8 246.6
Net Income Attributable to Common ($M)10.5 21.1 20.5
Diluted EPS (GAAP)$1.33 $2.50 $2.40
Adjusted Pre‑Tax Income ($M)32 25 16
GAAP ROE (%)10% 19% 17%
Adjusted ROE (%)29% 22% 14%

Revenue composition

Revenue Line ($M)Q2 2024Q1 2025Q2 2025
Servicing & Subservicing Fees210.8 203.3 211.3
Gain on Reverse Loans HFI & HMBS, net8.5 23.8 11.9
Gain on Loans HFS, net16.5 11.8 10.4
Other Revenue, net10.6 10.9 13.0
Total Revenue246.4 249.8 246.6
MSR Valuation Adjustments, net(32.7) (38.9) (27.3)

Operating expenses and other P&L items (selected)

Metric ($M)Q2 2024Q1 2025Q2 2025
Total Operating Expenses104.0 119.9 109.5
Professional Services10.7 22.6 8.4
Interest Income22.5 26.2 32.1
Interest Expense(73.1) (67.0) (75.6)
Pledged MSR Liability Expense(46.1) (41.9) (43.0)
Income Before Income Taxes13.5 9.1 22.8

Q2 2025 vs S&P Global consensus (headline)

MetricActualConsensusSurprise
Revenue ($M)246.6 252.9*-6.3
EPS (S&P “Primary EPS”)1.74*1.877*-0.137
Notes: Company-reported diluted EPS was $2.40 (GAAP). S&P “Primary EPS” reflects S&P methodology and may differ from GAAP diluted EPS definitions.
Values marked with * retrieved from S&P Global.

Selected KPIs

KPIQ1 2025Q2 2025
Originations Funded Volume ($B)$7.0 $9.4
Originations YoY Growth+53% vs +8% industry +35% vs +23% industry
Avg Servicing UPB ($B)$305 $307
Avg Owned Servicing UPB ($B)—$153 (+16% YoY)
Book Value/Share$58 $60
Liquidity ($M)$239 $218
Refi Recapture1.6x industry; funded recapture +2.7x YoY 1.5x industry; funded recapture +2.4x YoY

Segment highlights

  • Servicing adjusted PTI: $31M in Q2; forward servicing revenue higher sequentially and YoY; reverse servicing declined on negative valuation adjustments of reverse buyout loans.
  • Originations: slightly lower YoY adjusted PTI; April volatility alone reduced originations profitability by >$4M; recapture outpaced closest peers.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted ROEFY202516%–18% 16%–18% Maintained
Hedge Coverage TargetOngoing 202590%–110% target (Q1 commentary) 80%–100% after April review Lowered target range
Servicing Book GrowthFY2025Growth to exceed 10% YoY (Q1) Maintaining prior guidance posture Maintained
Efficiency RatioFY2025Stable while prudently adding costs (Q1) Maintaining prior guidance posture Maintained
U.S. DTA Valuation AllowanceBy YE2025Some/all of ~$180M could be released Some/all could be released Reiterated

Earnings Call Themes & Trends

TopicQ4 2024 (prior)Q1 2025Q2 2025Trend
Rate volatility & macroSet up strong 2025; raised adj. ROE guide to 16–18% Expect dynamic 2025; MBA/FNMA +17% volume outlook; recession risk noted; maintaining guide Volatility persisted (April spike); MBA/FNMA lowered YoY orig. growth to ~14%; guide reaffirmed Neutral to cautious
MSR hedgingNet gain in 2024 net of hedge Consistent hedge target 90–110% Strong effectiveness; target updated to 80–100% post-April Operationally improving; refined
AI/automation & techDigital expansion emphasized ~89% digital inquiries; ~60k hours saved/mo via RPA; awards 190+ processes automated; ~57k hours saved/mo YTD; 88% inquiries resolved digitally; AI strategy scaled Strengthening
Recapture & products2024 recapture +2.5x; subservicing agreements extended Recapture at/better than peers; closed-end seconds ramp; EquityIQ reverse launched Recapture > peers; product upgrades in pipeline; CD funded volume +2.4x YoY Improving
Subservicing/M&AMAV/Rithm agreements extended Rocket–Cooper M&A could shift client preferences; 46B new subservicing UPB in 2024 Expect subservicing additions next 4 quarters; servicing M&A vs bulk MSR trade-off discussed Opportunity expanding
Legal/regulatory—Legacy litigation settlement in principle; convenience fee matters ongoing; HUD matter resolved —De-risking legacy

Management Commentary

  • “Despite market challenges, we continue to achieve results in Servicing and Originations… We remain committed to delivering strong shareholder returns… balanced and diversified business is built to perform through market cycles.” — CEO Glen Messina.
  • “Adjusted pretax income of $16M and annualized adjusted ROE of 14% reflect a $4M unfavorable impact of market volatility on originations… and increased MSR runoff from higher prepayments and reverse asset fair value changes.” — CEO Glen Messina.
  • “Our MSR hedge strategy continues to perform well… we adjusted our hedge target to 80% to 100% following the April market volatility.” — CFO Sean O’Neil.
  • “Servicing… delivered $31M adjusted pretax income… Reverse servicing pretax income declined… driven by negative valuation adjustments on reverse buyout loans.” — CFO Sean O’Neil.

Q&A Highlights

  • Expenses: Professional services declined sequentially; fluctuations can reflect legal/financing work; no unusual items flagged in Q2.
  • DTA valuation allowance: Timing and magnitude depend on analytics of DTA components and sustained profitability; counterparties typically view release as capital accretive; many federal NOLs are indefinite; some state NOLs expire FIFO.
  • Servicing M&A vs bulk MSR: Future activity depends on supply/demand and bulk MSR market pricing; participants weigh M&A for scale vs bulk purchases.
  • Subservicing market dynamics: Continued client additions anticipated over next four quarters; Rocket–Cooper and broader ownership changes have some institutions exploring alternatives.

Estimates Context

  • Q2 2025: S&P Global recorded Revenue actual $246.6M vs $252.9M consensus (miss), and “Primary EPS” actual $1.74 vs $1.88 consensus (miss). Company-reported diluted EPS was $2.40 GAAP, which differs from S&P’s “Primary EPS” methodology. (S&P Global values marked with *)
  • Near-term: Q3 2025 consensus stands at EPS $1.91* and revenue $248.2M*; Q4 2025 consensus at EPS $2.495* and revenue $256.2M*. Values retrieved from S&P Global. Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Headline miss vs S&P on both revenue and EPS contrasts with solid GAAP diluted EPS ($2.40) and maintained FY25 adjusted ROE guidance, underscoring methodology differences and management confidence.
  • Core profitability remains service-led; originations are improving on volume/recapture but remain sensitive to intra-quarter rate spikes (notably April).
  • Risk controls are working: MSR hedge reduced valuation volatility; coverage range refined to 80–100% after stress—supporting earnings stability through volatile periods.
  • Structural growth levers intact: servicing scale, recapture analytics, and product expansion (closed-end seconds, proprietary reverse) widen addressable market and can monetize refinancing waves when rates decline.
  • Potential upside catalyst: partial/full release of ~$180M U.S. DTA valuation allowance by YE25 (not in adjusted ROE guidance), which would increase equity and improve leverage ratios if realized.
  • Watchlist: origination margin sensitivity to rate volatility, reverse asset valuation marks, and elevated prepayment-driven MSR runoff; monitor subservicing wins and any servicing M&A vs bulk MSR pricing.
  • Bottom line: maintain focus on FY25 ROE delivery and servicing-led cash earnings; near-term estimate revisions may modestly temper originations margin assumptions, but strategic execution and hedge discipline support medium-term returns. 
S&P Global disclaimer: Values marked with * were retrieved from S&P Global and may reflect S&P methodology (e.g., “Primary EPS”) that differs from company-reported GAAP diluted EPS.