Walker & Dunlop, Inc. (WD)·Q4 2024 Earnings Summary

Executive Summary

• Q4 delivered a clean acceleration: total revenues rose to $341.5M (+24% y/y) on $13.4B total transaction volume (+45% y/y), with diluted EPS of $1.32 (+42% y/y). Drivers were a 56% surge in debt financing volume (Fannie +91%, Freddie +19%) and stronger property sales (+20%). Adjusted EBITDA was $94.6M (+8% y/y), while adjusted core EPS was $1.34 (-6% y/y) as higher personnel/other OpEx and lower investment management/investment banking revenues offset volume strength .
• Management issued 2025 guidance: diluted EPS growth “high single digits to double digits;” adjusted EBITDA and adjusted core EPS “flat to up high-single digits,” noting revenue mix will tilt toward Capital Markets as interest earnings normalize; Q1 seasonality should slow from Q4’s pace .
• Capital allocation turning more shareholder-friendly: quarterly dividend raised to $0.67 for Q1’25 (+3% q/q; seventh consecutive annual increase) and a new $75M repurchase authorization effective Feb 2025 .
• Credit cleanup continued: five GSE loan repurchases/indemnifications in 2024 (UPB $87.3M) led to a $4.5M provision and $8.5M repurchase-related costs in Q4; defaulted loans fell to 6 (0.07% of at‑risk portfolio) from 7 in Q3. A goodwill impairment of $33M was offset by a $49M benefit from contingent consideration revaluation, limiting net P&L impact .
• Potential stock reaction catalysts: accelerating volumes (especially Fannie-driven MSR mix), a more confident 2025 EPS outlook, dividend hike/buyback authorization, and visible credit containment; near-term watch-outs include lower 2025 interest earnings and lingering repurchase-related expenses .

What Went Well and What Went Wrong

• What Went Well

  • Volumes and mix: $13.4B total transaction volume (+45% y/y), with Fannie Mae originations up 91% and Freddie up 19%, lifting MSR income (+62% y/y) and setting W&D as 2024’s largest Fannie lender (sixth straight year) and fourth-largest Freddie partner .
  • Investment sales resilience: Property sales volume grew 20% y/y to $3.45B, with teams “holding deals together” amid rate volatility; management highlighted this as a setup for 2025 .
  • Strategic expansion: Hospitality investment sales launched in Oct’24 and, post-quarter, W&D added a London-based EMEA capital markets team—broadening future pipeline and global capital access .
  • CEO tone (quote): “$13.4 billion of total transaction volume, up 45% year over year… $1.32 of diluted earnings per share, our highest quarterly EPS since the Great Tightening began” .

• What Went Wrong

  • Credit clean-up costs: Q4 included a $4.5M provision tied to five repurchased/indemnified loans and $8.5M of related costs (repairs/maintenance), with defaulted at‑risk loans at $41.7M UPB (six loans) .
  • Goodwill/fees: A $33M goodwill impairment (GeoPhy) and negative investment management fees (-$3.1M) weighed on results, though a contingent consideration fair-value benefit mitigated net impact .
  • Core profitability optics: Adjusted core EPS fell 6% y/y to $1.34 due to higher personnel/other OpEx and weaker investment management/investment banking revenues despite stronger origination/MSR/property sales revenues .

Financial Results

• Headline P&L vs prior quarters and prior year

• Segment revenues (sequential trend)

• Production and fee KPIs

• Credit metrics (period-end)

• Drivers and notable items (qualitative)
  • Stronger Fannie mix and higher Agency MSR rate lifted MSR income; Capital Markets revenues rose 40% y/y; property sales fees +40% y/y .
  • SAM revenues benefited from servicing growth and a $26.5M gain on an Affordable portfolio sale (one asset closed in Q4), offset by a $13M LIHTC realization true-up; repurchase-related expenses hit other OpEx .
  • Q4 included $33M goodwill impairment (GeoPhy) and a net ~$49M fair-value benefit on contingent consideration; net benefit to income from operations of ~$2M across four discrete items in Q4 per CFO .

Guidance Changes

Management also guided that Q1 typically slows from Q4 and that 2025 interest earnings (corporate/escrow) should decline as short rates normalize, shifting growth toward origination/MSR and EPS outpacing adjusted metrics .

Earnings Call Themes & Trends

Management Commentary

• Strategy and positioning: “A rebound in transaction activity, coupled with durable revenues from servicing and asset management… resulted in $1.32 of diluted earnings per share… highest quarterly EPS since the Great Tightening began” .
• 2025 outlook framing: “We believe the worst of the Great Tightening is behind us… as the commercial real estate market recovers and transaction volumes rebound, our capital markets business, along with servicing and asset management, will generate strong financial results” .
• Capital Markets execution: “Segment revenue surged 40% to $181 million… net income increased 131% to $40 million… adjusted EBITDA improved to $4 million from a loss” .
• Credit actions: “We made significant changes to our underwriting and quality control processes… created a new special asset management group… to recover as much value as we possibly can” .
• Portfolio decisioning: WDAP exit “was a discrete decision to realize a healthy return… and exit a part of the business that was not part of our long-term plans” .

Q&A Highlights

• Partnerships with alternative managers/insurers: W&D remains open to partnerships but confident scaling asset management organically .
• LIHTC outlook: Management changes and stronger team integration support growth; policy environment could sustain/expand credits .
• Fannie vs Freddie mix: Q4 Fannie surge was broad-based flow; servicing fees compressed amid rate moves; 2025 caps raised to $73B each supports volume; goal to climb Freddie rankings .
• Macro “extend and pretend”: Expect maturities to force action in 2025; abundant equity/debt can work out problem assets; size of refi wave depends on extensions vs calls .
• GSE privatization: Topic is “on the table” politically; 2025 linkage to tax bill could accelerate, otherwise likelihood fades .
• Hospitality push: Many multifamily clients are also hospitality investors; aim to replicate MF sales/financing flywheel in hospitality; asset-class fundamentals mixed by market .

Estimates Context

• We attempted to retrieve S&P Global (Capital IQ) consensus for Q4 2024 (Primary EPS Consensus Mean, Revenue Consensus Mean, Target Price Consensus Mean, Consensus Recommendation), but were unable to access due to system request limits at the time. As a result, we cannot present versus-consensus comparisons in this report. Values would otherwise be anchored to S&P Global consensus. S&P Global consensus data was unavailable at time of analysis (Daily Request Limit Exceeded).

Key Takeaways for Investors

• Volume flywheel is turning: sequential growth in Q2→Q3→Q4 across debt financing and property sales positions W&D for operating leverage as markets normalize; monitor Fannie share/MSR rate tailwind .
• 2025 P&L mix shift: Expect less tailwind from short-rate interest earnings and more from origination/MSR; management guiding EPS growth outpacing adjusted metrics—supportive for valuation re-rating if volumes hold .
• Credit risk contained and trending better: Defaults/UPB down q/q; dedicated special assets team and strengthened controls reduce tail risk; watch residual repurchase-related OpEx in 1H25 .
• Capital returns ramping: Dividend increased and fresh $75M buyback authorization create a backstop; capacity to opportunistically access debt markets remains .
• Strategic adjacency expansion: New hospitality investment sales and EMEA team broaden TAM and cross-sell potential with core MF franchise—medium-term pipeline enhancer .
• Near-term trading setup: Q1 seasonality after a strong Q4 and lower 2025 interest earnings could mute early-year prints; a constructive multi-quarter recovery path remains as volumes rebuild .
• Watch catalysts: GSE caps at $73B each, MBA’s projected CRE financing growth, and any policy moves on GSE structure—each could influence origination cadence/mix and MSR economics .

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Additional Notes and Cross-Checks

• WDAP sale accounting: Press release cites a $26.5M gain and $21.3M of adjusted EBITDA from one asset closed in Q4; CFO described ~$11M of income from operations and ~$21M of adjusted EBITDA, reflecting classification differences (gain vs operating income) and related amortization/costs. Both point to substantial non-core monetization benefit in Q4 .
• Non-GAAP definitions: Adjusted core EPS excludes non-cash MSR income/amortization, provision for credit losses, contingent consideration marks, goodwill impairment, and other adjustments; reconciliations provided in Exhibit 99.1 .