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Rithm Capital Corp. (RITM)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered strong non-GAAP results: Earnings Available for Distribution (EAD) of $275.3M ($0.52 per diluted share), marking the 22nd consecutive quarter of EAD covering the dividend; GAAP diluted EPS was $0.07 as MSR mark-to-market drove GAAP volatility .
  • Against S&P Global consensus, EAD/“Primary EPS” beat ($0.52 vs $0.467), while revenue missed as MSR fair value swings reduced reported revenue; management emphasized hedge offsets and staying “close to home” to limit book value volatility* .
  • Business momentum across platforms: largest-ever MSR debt issuance ($878M), two non-QM securitizations ($634M UPB), Newrez pretax income ex-MSR marks $270.1M with servicing UPB at $845B; Sculptor AUM ≈$35B with $1.4B gross inflows .
  • Potential catalysts: management is actively pursuing capital actions (e.g., externalization/C‑corp, partial IPO of Newrez) to unlock value; book value quarter-to-date ~$12.60 and robust M&A/fundraising pipelines support narrative of value realization in 2025 .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP profitability held up: EAD $275.3M ($0.52 per diluted share) and dividend coverage for the 22nd straight quarter; CEO targets 15–20% annual returns on equity for the business .
  • Strategic financing and securitization: completed $878M secured MSR financing (largest-ever MSR debt issuance) and two non-QM securitizations totaling $634M; sponsored a $230M SPAC (RAC) to expand fee streams .
  • Operating platforms execution: Newrez pretax income ex-MSR marks $270.1M (19% ROE) and servicing UPB reached $845B; Sculptor grew to ≈$35B AUM and held $870M additional commitments for Real Estate Fund V, plus a €420M CLO; management: “Performance matters first, and we will never sacrifice performance” .

What Went Wrong

  • GAAP volatility: diluted EPS fell to $0.07 (from $0.50 in Q4) as MSR fair value swung −$541.9M QoQ; “servicing revenue, net” declined sharply versus Q4, demonstrating sensitivity to valuation inputs .
  • Revenue compression QoQ: total revenue dropped to $768.4M (from $2,096.3M in Q4) driven by MSR fair value changes; asset management revenues also lower QoQ ($87.7M vs $258.9M) .
  • Margin pressure in origination: management cited increased competition and margin compression, electing not to “chase market share”; origination funded volume was $11.8B (+9% YoY but down vs Q4), consistent with disciplined pricing focus .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Total Revenues ($USD Thousands)$619,514 $2,096,297 $768,379
GAAP Diluted EPS ($)$0.20 $0.50 $0.07
EAD per Diluted Share ($)$0.54 $0.60 $0.52
Book Value per Common Share ($)$12.31 $12.56 $12.39

Estimates Comparison (S&P Global):

MetricConsensus (Q1 2025)Actual (Q1 2025)Surprise
Primary EPS ($)0.46713*0.52*Beat*
Revenue ($USD)1,217,647,830*693,282,000*Miss*

Values with asterisks retrieved from S&P Global; S&P may classify “actual” differently than company-reported totals.*

Segment Income (Loss) Before Income Taxes ($USD Thousands):

SegmentQ4 2024Q1 2025
Origination & Servicing$484,715 $90,022
Investment Portfolio$(9,013) $17,959
Residential Transitional Lending$3,454 $15,920
Asset Management$53,363 $(19,751)
Corporate Category$(39,922) $(47,370)
Total$492,597 $56,780

Operating KPIs:

KPIQ3 2024Q4 2024Q1 2025
Newrez Pretax Income ex MSR marks ($M)$245.9 $280.2 $270.1
Newrez Servicing UPB ($B)$755 $844 $845
Third-Party Servicing UPB ($B)$233 $254 $254
Origination Funded Volume ($B)$15.9 $17.3 $11.8
Genesis Pretax Income ex marks ($M)$35.1 $3.5 $22.4
Sculptor AUM ($B)~$34 ~$34 ~$35

Drivers and context:

  • Q1 revenue compression vs Q4 was largely due to MSR fair value swing (−$541.9M) vs +$563.5M in Q4, impacting “servicing revenue, net” .
  • Management noted hedge offsets with mortgages/treasuries/swap receivers; net MSR valuation/hedge impact ~$185M in the period .
  • EAD remained resilient given exclusion of volatile fair value and deferred taxes, per reconciliation .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Common Dividend per Share ($)Q1 2025$0.25 $0.25 Maintained
Book Value (Mgmt Commentary)Q2 2025 QTDN/A~$12.60 Informal update
Return Profile (Mgmt Commentary)Ongoing15–20% annual ROE target (narrative)Reiterated Maintained
Capital Actions to Unlock Value2025Exploring optionsActively pursuing by year-end 2025 Raised focus

Note: No formal quantitative revenue/margin/tax guidance ranges provided in Q1 materials; management focused on dividend policy, book value trajectory, and capital structure actions .

Earnings Call Themes & Trends

TopicQ3 2024 (Prev Mentions)Q4 2024 (Prev Mentions)Q1 2025 (Current)Trend
Unlocking value (Newrez listing/C‑corp/externalization)Likely a 2025 event for Newrez; sum-of-parts undervaluation highlighted Capital structure being built toward REIT+C‑corp; 2025 possible “Hopeful for capital action by end of ’25”; actively working multiple paths Intensifying
ABF/private credit growthABF as core competency; direct lending focus Building energy/infrastructure platform; partnerships to scale MSR funds to roll out; teens returns; LP demand Expanding
Newrez operations/AIServicing cost leadership; SLS integration; recapture 55% incl 2nd liens YTD Best quarter since 2021 in originations; ROE 20%; “don’t chase market share” Pretax ex-marks $270M; 19% ROE; resi AI tools; cost of service ~$140; 3.7M homeowners Stable/improving
MSR valuations/hedgingBook value near $12.5; “close to home” risk posture Leveraging hedges; financing buttoned up Net MSR valuation offset ~$185M; curve steepener on; limited duration risk Defensive posture maintained
Fundraising (Sculptor)First close $1.3B for Real Estate Fund V; CLO $400M Performance fees seasonality anticipated; strong multi-strat returns AUM ≈$35B; $870M added to Fund V; tactical credit fund $900M post-Q1 Continued momentum
Macro/election/tariffsDivided government view; deficit risk; rates narrative Energy/infrastructure needs; power constraints Markets volatile; business “close to home”; opportunities in securitization spreads Cautiously opportunistic

Management Commentary

  • “Earnings available for distribution, $0.52 per diluted share… This is the 22nd consecutive quarter where EAD was greater than common dividends paid.”
  • “We completed a $878 million secured financing backed by MSRs, the largest-ever MSR debt issuance…”
  • “Q1 pretax income, excluding mark-to-market, was approximately $270 million… delivering a 19% ROE for the quarter.”
  • “The net number [MSR valuation change] was about $185 million overall. And that’s offset with hedges… we are as close to home as we’ve been in many years.”
  • “I’m hopeful that we’ll have some kind of capital action by the end of ’25 that unlocks a lot of value here… our equity is extremely undervalued.”

Q&A Highlights

  • Capital structure and value unlock: exploring multiple options (externalizing, C‑corp, partial IPO of Newrez) with aim to act by end of 2025; frustration with trading below book; focus on growing FRE and asset management valuation .
  • Book value trajectory and hedging: Q2 QTD book value ~$12.60; steepener bias; minimal duration risk; hedges (mortgages/treasuries/swap receivers) offset MSR volatility .
  • M&A and fundraising: pipeline “extremely active” across mortgage and asset management; LP appetite remains robust despite volatility; expanding credit/ABF/energy/infrastructure vectors .
  • Newrez competitive stance: disciplined pricing, not chasing share; subservicing pipeline active post Cooper–Rocket announcement; operational flexibility and offshore leverage .
  • Securitization markets: wider spreads creating teens IRR opportunities in AAAs with leverage across non-QM/RTL/home improvement loans .

Estimates Context

  • EPS vs consensus: EAD/Primary EPS beat ($0.52 actual vs $0.467 consensus), implying upward pressure on near-term EAD-based estimate paths given continued dividend coverage* .
  • Revenue vs consensus: Miss (actual $693.3M vs $1.218B consensus) as MSR fair value changes drove large negative “servicing revenue, net”; investors should prioritize EAD as the more stable operating performance lens in MSR-heavy quarters* .
  • Target price consensus ~$14.07 and stable; number of estimates: EPS (9), Revenue (6) for Q1 2025*.

Values marked with asterisks retrieved from S&P Global.*

Key Takeaways for Investors

  • Focus on EAD: Strong $0.52 EAD/share with longstanding dividend coverage supports income thesis despite GAAP/MSR volatility .
  • Value unlock is the 2025 narrative: management is signaling concrete capital actions (externalization/C‑corp/Newrez path) to close the valuation gap to book/sum-of-parts .
  • MSR financing leadership: the $878M MSR term financing validates access/innovation; expect MSR funds to migrate assets off balance sheet, freeing capital and adding fee streams .
  • Operating engines healthy: Newrez ROE 19% ex-marks; servicing UPB 845B; Genesis pretax rebounded; Sculptor fundraising and AUM trends positive .
  • Risk posture defensive: “close to home,” steepener positioning and robust hedging to manage rate/valuation swings; book value tracking modestly higher QTD .
  • Trading setup: EAD beat vs consensus but revenue miss due to MSR accounting; near-term stock catalysts likely tied to capital structure announcements, subservicing wins, and fund closes .
  • Watch securitization spreads: wider spreads are creating double-digit IRR opportunities; Rithm is actively allocating to ABF/non-QM/RTL assets .