Nationstar Reports First Quarter 2014 Financial Results & Strategic Acquisition

  Nationstar Reports First Quarter 2014 Financial Results & Strategic
  Acquisition

  *GAAP EPS of $0.27
  *Pro forma EPS of $0.53, including impact of ($0.08) in net MSR
    mark-to-market
  *Servicing: Operating profitability increased to 7 basis points; 11 basis
    points target for '14
  *Solutionstar: 22% revenue growth to $78mm; 21% pretax income growth to
    $35mm
  *Originations: Returned to profitability
  *Agreement to acquire Real Estate Digital, LLC; building out integrated
    marketplace

Business Wire

LEWISVILLE, Texas -- May 8, 2014

Nationstar Mortgage Holdings Inc. (NYSE: NSM) (“Nationstar”), a leading
residential mortgage services company, today reported financial results for
its first quarter ended March 31, 2014.

For the first quarter 2014, Nationstar reported net income of $24 million, or
$0.27 per share, compared to a loss of $51 million, or ($0.56) per share in
the fourth quarter 2013.

Pro forma EPS for the first quarter was $0.53, excluding $39 million in
one-time expenses. Pro forma EPS for the first quarter was up in comparison to
a pro forma EPS loss of ($0.23) in the fourth quarter. Pro forma EPS includes
the net MSR mark-to-market impact of ($0.08).

Adjusted EBITDA (“AEBITDA”) for operating segments was $170 million, or $1.89
per share, for the current quarter versus $25 million, or $0.28 per share, in
the fourth quarter 2013. In the current quarter AEBITDA margin was 36%.

“Nationstar delivered improved performance across all of our business lines in
the first quarter,” said Jay Bray, Chief Executive Officer. “After substantial
growth in 2013, our 2014 focus is simple - continue to provide real solutions
to homeowners and improve operating profitability and cash flow generation for
our shareholders. In addition, we are executing on critical initiatives to
drive long-term sustainability and growth. This includes our strategic
acquisition of Real Estate Digital ("RED"), a fee-based real estate services
company that provides online marketing, data, transaction management and
digital media solutions. The acquisition accelerates our plan to offer a fully
integrated digital marketplace that provides end-to-end services for every
aspect of a real estate transaction. We welcome the RED employees to the
Nationstar family.”

Chief Financial Officer David Hisey said, “Our servicing segment continues to
increase profitability by generating 7 basis points of operating profitability
in the first quarter and is on track towards our 2014 goal of 11 basis points.
Reflecting momentum in our fee-based real estate services business,
Solutionstar profitability grew at an impressive rate, with revenue increasing
22% and pretax income advancing 21%. In originations, we returned to operating
profitability and reduced expenses by 37%. We expect to generate significant
investable cash over the course of the year that can be deployed into high
return opportunities.”

Reflecting external market conditions, Nationstar is providing updated 2014
guidance for AEBITDA per share of $12.00 - $12.75 and GAAP EPS of $4.00 -
$5.00.

First Quarter Business Highlights

Servicing

Servicing fee income, before MSR fair value adjustments, increased 6% to $329
million when compared to the sequential quarter in absolute terms. The
increase reflects the higher average unpaid principle balance (“UPB”) balance,
reduction in delinquencies, and continued growth in Solutionstar revenues.

Nationstar’s servicing portfolio, as measured by UPB, ended the first quarter
at $384 billion, nearly unchanged as compared to fourth quarter 2013 ending
UPB of $391 billion. The average portfolio UPB for the first quarter 2014 was
$388 billion, up slightly from the fourth quarter average of $383 billion.

Nationstar’s 60-plus day delinquency rate decreased to 11.1% of UPB, down from
11.9% in the fourth quarter. Nationstar’s servicing portfolio CPR decreased to
11.9%, down from 14.8% in the fourth quarter.

The pipeline of bulk and flow MSR acquisition opportunities totals in excess
of $300 billion in aggregate UPB. Nationstar’s existing flow servicing
agreements are expected to produce approximately $20 billion of UPB in annual
volume.

Servicing pretax income was $40 million in the current quarter. Excluding $18
million in one-time transaction expenses related to the sale of advances to
New Residential and the $11 million net MSR mark-to-market loss, servicing
pretax operating income was $69 million. Servicing pretax operating income was
up 11% compared to the fourth quarter. Servicing pretax operating margin was
20% for the quarter, and pretax operating income as a percentage of UPB was
seven basis points.

Servicing AEBITDA decreased slightly in the current quarter to $144 million
compared to $146 million in the fourth quarter 2013. Servicing AEBITDA margin
was 42% in the current quarter.

Solutionstar Update

Solutionstar’s real estate services business sold nearly 3,600 properties in
Q1’14, and expects to sell approximately 20,000 properties in 2014. The number
of properties under management is increasing as a result of the successful
closing of the private-label portfolio acquisitions from Bank of America in
late 2013.

Solutionstar generated over $78 million in revenue in the first quarter 2014,
up from $64 million in the prior quarter. In the first quarter, Solutionstar
produced $35 million in pretax income, up from $29 million in the fourth
quarter. Solutionstar achieved a 45% pretax margin in the first quarter.

Originations

Nationstar funded $4.7 billion in the first quarter and right-sized its
operations based on expected future volumes. These actions resulted in a $151
million improvement in originations pretax income and a more streamlined and
productive operation.

At quarter end, the total application pipeline was $3.5 billion and the locked
pipeline was $2.7 billion. Nationstar’s recapture rate increased 200 basis
points to 51% in the first quarter of 2014, providing solutions to our
customers while creating long-term servicing assets.

We remain focused on the core consumer direct channel, which presents a
significant opportunity and partially insulates volatility in volume compared
to the broader market. In the first quarter, Nationstar’s origination volume
decreased by 13% from the fourth quarter 2013, outperforming bank peers and
industry forecasts, which on average decreased by 28%. Volume from the
consumer-direct channel, including recapture and Greenlight, was $3.3 billion,
and correspondent volume was $1.4 billion.

Origination revenue was $131 million, up from $45 million in the fourth
quarter 2013. Originations generated $8 million of pretax income in the
quarter, an increase of $151 million compared to the pretax loss of $143
million in the fourth quarter. In the first quarter, the originations segment
incurred $16 million of expenses related to right-sizing the operations.

Real Estate Digital Acquisition

In May, Solutionstar entered into a definitive agreement to acquire
substantially all of the assets of Real Estate Digital and its affiliate for
$18 million in cash. RED, based in Aliso Viejo, California with 120 employees,
is a fee-based real estate services company that provides online marketing,
data, transaction management and digital media solutions. The acquisition
price represents a 0.7x multiple on RED’s estimated full year 2014 revenue.
The acquisition is expected to close in the second quarter of 2014 at which
time Solutionstar will assume RED’s management team and employees.

In online marketing, RED has created more than 25,000 real estate websites and
provides technology services to over 300,000 agents, or approximately 30% of
the market. In data services, RED has license to 98% of all Multiple Listing
Service (“MLS”) listings. In transaction management, RED licenses end-to-end
software to 125,000 real estate agents. RED is also a lead aggregator and
provides search engine optimization services.

RED will enable Solutionstar to diversify its revenue streams, gain access to
a significant third-party customer base, and drive traffic to our websites.
The acquisition enables Solutionstar to cross-sell services to RED’s existing
third-party clients, while enhancing Nationstar’s purchase origination and
servicing opportunities when properties are listed for sale. Over time, this
acquisition should enable Nationstar to replace third-party vendors with
enhanced RED-developed technology, resulting in both significant cost savings
as well as new revenue opportunities. For additional information, please visit
RED’s website at www.realestatedigital.com.

Helping Homeowners

Nationstar remains committed to providing mortgage solutions to our more than
2.3 million homeowners. In the first quarter, we helped nearly 23,000
customers avoid foreclosure, including approximately 15,500 loan modifications
that lower payments. This also includes providing collateral workouts and
other repayment plans to approximately 7,500 homeowners.

We also helped 26,000 homeowners secure mortgages. The total includes
approximately 9,200 homeowners whose mortgages were refinanced through the
Home Affordable Refinance Program (“HARP”), which allows us to refinance a
borrower with a very high loan-to-value ratio or a homeowner with negative
equity in their house.

Conference Call Webcast and Investor Presentation

Chief Executive Officer, Jay Bray, and Chief Financial Officer, David Hisey,
will host a conference call for investors and analysts to discuss Nationstar’s
first quarter 2014 results and other general business matters at 9:00 a.m. ET
on Thursday, May 8, 2014. To listen to the event live or in an archive which
will be available for 14 days, visit Nationstar’s website at
http://investors.nationstarholdings.com. The conference call will also be
accessible by dialing 800-706-7741, or 617-614-3471 internationally. Please
use the participant passcode 84475753 to access the live conference call. An
investor presentation will also be available at
http://investors.nationstarholdings.com.

Non-GAAP Financial Measures

This disclaimer applies to every usage of “Pro Forma Earnings per Share,” or
“Pro Forma EPS,” “Adjusted EBITDA” or “AEBITDA,” “Servicing Fee Income before
MSR fair value adjustments,” "Servicing Operating Profitability," and “Pretax
Operating Income” in this release. Pro forma EPS excludes certain one-time
expenses, including advance sale and transaction expenses. Adjusted EBITDA is
a key performance metric used by management in evaluating the performance of
our segments. Adjusted EBITDA represents our Operating Segments’ income
(loss), and excludes income and expenses that relate to the financing of our
senior notes, depreciable (or amortizable) asset base of the business, income
taxes, and exit costs from our restructuring and certain non-cash items.
Adjusted EBITDA also excludes results from our legacy asset portfolio and
certain securitization trusts that were consolidated upon adoption of the
accounting guidance eliminating the concept of a qualifying special purpose
entity. Pretax Operating Income excludes certain one-time expenses, including
advance sale and transaction expenses. Pretax operating income is a metric
that is used by management to exclude certain non-recurring items. Servicing
fee income before MSR fair value adjustments is a metric that is used by
management in an attempt to provide a better sense of the servicing fee income
prior to any changes in the fair value of servicing assets. Servicing
Operating Profitability is a key performance metric used by management in
evaluating the performance of our business. Servicing Operating Profitability
is calculated as pretax income excluding the net negative change in MSR
mark-to-market adjustments plus one-time expenses related to the write-off of
deferred advance financing facilities fees related to the NRZ advance sale.
Servicing fee income before MSR fair value adjustments excludes fair value
adjustment due to valuation inputs or assumptions for mortgage servicing
rights, excess spread financing, and mortgage servicing rights financing
liability, and the fair value adjustment due to other changes in fair value
for mortgage servicing rights, excess spread financing, and mortgage servicing
rights financing liability.

About Nationstar Mortgage Holdings Inc.

Based in Lewisville, Texas, Nationstar offers servicing, origination, and real
estate services to financial institutions and consumers, Nationstar is one of
the largest servicers in the United States and operates an integrated loan
origination business that mitigates servicing portfolio run-off and improves
credit performance for loan investors. Our Solutionstar business unit offers
asset management, settlement, valuation and processing services. Additional
corporate information is available at www.nationstarholdings.com.

Forward Looking Statements

Any statements in this release that are not historical or current facts are
forward-looking statements, These forward-looking statements include, but are
not limited to, statements regarding: estimates of our servicing segment’s
growth and profitability; estimates of our origination’s segment’s
profitability; the anticipated benefits of the RED acquisition; estimates of
fiscal year 2014 guidance for AEBITDA per share and GAAP EPS; revenue and
pretax income; profitability through our fee-services business; and
expectations regarding cash flow. Forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results performance, or achievements to be materially different from any
future results, performances or achievements expressed or implied by the
forward-statements. Certain of these risks and uncertainties are described in
the “Risk Factors” section of our most recent annual and quarterly reports and
other required reports as filed with the SEC which are available at the SEC’s
website at http://www.sec.gov. Certain amounts included in this release are
presented strictly for illustrative purposes, and such amounts should not be
viewed as a representation regarding management’s expectations or actual
results. Management’s expectations and actual results could differ materially
from statements made for illustrative purposes. Nationstar undertakes no
obligation to publicly update or revise any forward-looking statements or any
other information contained herein, and the statements made in this press
release are current as of the date of this release only.



Financial Tables


NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars and shares in thousands, except per share data)


                                           Three months ended
                                            March 31, 2014  December 31, 2013
Revenues                                    (unaudited)
Servicing fee income                        $  240,164       $   281,624
Other fee income                              101,547         113,137    
Total fee income                               341,711           394,761
Gain on mortgage loans held for sale          127,936         25,659     
Total revenues                                 469,647           420,420
                                                             
Total expenses and impairments                 321,133           398,002
                                                             
Other income (expense)
Interest income                                43,943            51,273
Interest expense                               (156,600  )       (160,306   )
Gain (loss) on interest rate swaps and        2,821           675        
caps
Total other income (expense)                   (109,836  )       (108,358   )
                                                             
Income before taxes                            38,678            (85,940    )
Income tax expense                            (15,001   )      35,033     
Net income                                    23,677          (50,907    )
                                                             
Less: Net loss attributable to                (359      )      —          
noncontrolling interests
Net income attributable to Nationstar         24,036          (50,907    )
Inc.
                                                             
Earnings per share:
Basic earnings per share                    $  0.27         $   (0.57      )
Diluted earnings per share                  $  0.27         $   (0.56      )
Weighted average shares:
Basic                                          89,342            89,475
Dilutive effect of stock awards               733             1,166      
Diluted                                       90,075          90,641     
Dividends declared per share                  —               —          


NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)


                                           March 31, 2014  December 31, 2013
Assets                                      (unaudited)
Cash and cash equivalents                   $  404,073       $    441,902
Restricted cash                                471,635            592,747
Accounts receivable                            4,057,477          5,636,482
Mortgage loans held for sale                   1,741,126          2,603,380
Mortgage loans held for investment,
subject to nonrecourse debt - Legacy           204,392            211,050
Assets, net
Reverse mortgage interests                     1,620,879          1,434,506
Mortgage servicing rights                      2,590,780          2,503,162
Property and equipment, net                    119,306            119,185
Derivative financial instruments               95,773             123,878
Other assets                                  327,122           360,397
Total assets                                $  11,632,563    $    14,026,689
                                                             
Liabilities and equity
Notes payable                               $  4,591,998     $    6,984,351
Unsecured senior notes                         2,444,020          2,444,062
Payables and accrued liabilities               1,189,430          1,308,450
Derivative financial instruments               6,377              8,526
Mortgage servicing liabilities                 82,210             82,521
Nonrecourse debt - Legacy Assets               86,529             89,107
Excess spread financing (at fair value)        978,183            986,410
Participating interest financing               1,202,252          1,103,490
Mortgage servicing rights financing           39,737            29,874
liabilities
Total liabilities                           $  10,620,736    $    13,036,791
                                                             
Total equity                                  1,011,827         989,898
Total liabilities and equity                $  11,632,563    $    14,026,689


SERVICING FEE INCOME BEFORE FAIR VALUE ADJUSTMENTS RECONCILIATION
(dollars in thousands)


                                           Three months ended
                                            March 31, 2014  December 31, 2013
                                                             
Servicing fee income before all FV          $  235,202       $   236,341
adjustments
Changes in fair value of MSR financing
liability:
FV adjustments due to valuation inputs or      4,407             —
assumptions
FV adjustments due to other changes in        6,381           —         
fair value (amortization)
Net change in FV of MSR financing              10,788            236,341
liability
                                                             
Servicing fee income before ancillary          245,990           236,341
servicing fee and MSR FV adjustments
Ancillary servicing fee income                83,338          75,190    
Total servicing fee income before MSR       $  329,328       $   311,531
fair value adjustments
                                                             
Changes in fair value of MSRs:
FV adjustments due to valuation inputs or      (20,645  )        93,660
assumptions
FV adjustments due to other changes in        (57,704  )       (72,676   )
fair value (amortization)
Net change in fair value of MSRs               (78,349  )        20,984
                                                             
Changes in fair value of excess spread
financing:
FV adjustments due to valuation inputs or      5,103             (44,455   )
assumptions
FV adjustments due to other changes in        (1,734   )       4,351     
fair value (amortization)
Net changes in fair value of excess            3,369             (40,104   )
spread financing:
                                                             
Servicing fee income                           254,347           292,411
Other fee income                              86,802          87,655    
Total servicing fee income                  $  341,149      $   380,066   


PRO FORMA EARNINGS PER SHARE RECONCILIATION
(dollars and shares in thousands, except per share data)


                                           Three months ended
                                            March 31, 2014  December 31, 2013
                                            (unaudited)
Net income attributable to Nationstar       $  24,036        $   (50,907   )
Inc.
Net loss attributable to noncontrolling       (359     )       —         
interests
Net Income                                     23,677            50,907
                                                             
Income taxes                                  15,001          (35,033   )
Income before taxes                            38,678            (85,940   )
Ramp expenses                                  —                 4,140
One-time expenses                             39,252          47,228    
                                                             
Pro forma pretax income                        77,930            (34,572   )
                                                             
Income taxes (using Q1’14 and Q4'13 tax       (30,237  )       14,093    
rate)
Pro forma income                              47,693          (20,479   )
                                                             
Average share count                            90,075            90,641
                                                             
Pro forma EPS                               $  0.53         $   (0.23     )


SERVICING: PRETAX OPERATING INCOME RECONCILIATON
(dollars in thousands)

                                            Three months ended
                                            March 31, 2014   December 31, 2013
                                            (unaudited)
Pretax income                               $  40,085        $   74,990
Ramp expenses                                  —                 4,140
One-time expenses                             17,900          32,640    
Total ramp and one-time expenses               17,900            36,780
                                                             
Change in fair value due to inputs or
assumptions
MSR financing liability                        (4,407   )        —
MSRs                                           20,645            (93,660   )
Excess Spread                                 (5,103   )       44,455    
Net Change in fair value due to inputs or      11,135            (49,205   )
assumptions
                                                             
Servicing pretax operating income           $  69,120       $   62,565    


AEBITDA RECONCILIATION
(dollars and shares in thousands, except per share data)


                                           Three months ended
                                            March 31, 2014  December 31, 2013
                                            (unaudited)
Net income attributable to Nationstar       $  24,036        $   (50,907   )
Inc.
Less: Net loss attributable to                (359     )       —         
noncontrolling interests
Net Income                                     23,677            (50,907   )
Plus:
Net loss from Legacy Portfolio and Other       8,997             18,409
Income tax expense                            15,001          (35,033   )
Net income from Operating Segments          $  47,675        $   (67,531   )
Adjust for:
Interest expense from unsecured senior         50,297            50,503
notes
Depreciation and amortization                  7,555             8,814
Change in fair value of mortgage               78,349            (20,984   )
servicing rights
Amortization/accretion of reverse              338               —
mortgage servicing
MSR financing liability                        (10,788  )        —
Restructuring Costs                            —                 12,078
Share-based compensation                       2,823             2,434
Fair value changes on excess spread            (3,369   )        40,104
financing
Fair value changes in derivatives              (2,556   )        —
Ineffective portion of cash flow hedge        —               (390      )
Adjusted EBITDA                               170,324         25,027    
                                                             
Adjusted EBITDA per share                   $  1.89         $   0.28      
Earnings per share                          $  0.27         $   (0.56     )


SEGMENT INCOME STATEMENT & AEBITDA RECONCILIATION
(dollars in thousands)


                 For quarter ended March 31, 2014
                  Servicing     Origination  Operating     Legacy      Eliminations  Total
                                                                                          (unaudited)
Revenues
Servicing fee     $ 254,347      $ —           $ 254,347      $ 298        $  (14,481 )   $ 240,164
income
Other fee          86,802       14,792      101,594      (47    )     —           101,547  
income
Total fee           341,149        14,792        355,941        251           (14,481 )     341,711
income
Gain on
mortgage loans     (1,695   )    116,200     114,505      (672   )     14,103      127,936  
held for sale
Total revenues      339,454        130,992       470,446        (421   )      (378    )     469,647
Total expenses      205,963        108,320       314,283        6,850         —             321,133
and impairments
Other income
(expense)
Interest income     18,664         21,521        40,185         3,380         378           43,943
Interest            (114,626 )     (36,603 )     (151,229 )     (5,371 )      —             (156,600 )
expense
Loss on
interest rate      2,556        —           2,556        265         —           2,821    
swaps and caps
Total other
income              (93,406  )     (15,082 )     (108,488 )     (1,726 )      378           (109,836 )
(expense)
                                                                                          
Income before       40,085         7,590         47,675         (8,997 )      —             38,678
taxes
Interest
expense on          35,620         14,677        50,297         —             —             50,297
corporate notes
MSR valuation       78,349         —             78,349         —             —             78,349
adjustment
Excess spread       (3,369   )     —             (3,369   )     —             —             (3,369   )
adjustment
Amortization of
mortgage            338            —             338            —             —             338
servicing
obligations
MSR financing       (10,788  )     —             (10,788  )     —             —             (10,788  )
liability
Depreciation &      4,588          2,967         7,555          1,237         —             8,792
amortization
Stock-based         1,823          1,000         2,823          (12    )      —             2,811
compensation
Fair value
adjustment for      (2,556   )     —             (2,556   )     (265   )      —             (2,821   )
derivatives
Hedge              —            —           —            —           —           —        
ineffectiveness
ADJUSTED EBITDA   $ 144,090     $ 26,234     $ 170,324     $ (8,037 )   $  —          $ 162,287  
^(1)
                                                                                          
Pretax income       40,085         7,590         47,675         (8,997 )      —             38,678
(loss)
One-time           17,900       15852       33,752       5,500       —           39,252   
expenses
Pro forma
pretax income       57,985         23,442        81,427         (3,497 )      —             77,930
(loss)
                                                                                          
Earnings per                                                                              $ 0.27
share - Diluted
Pro forma EPS                                                                        $ 0.53     
AEBITDA per       $ 1.60        $ 0.29       $ 1.89        $ (0.09  )   $  —          $ 1.80     
share

^(1) Adjusted EBITDA includes $359,000 loss attributable to noncontrolling interests.


SEGMENT AEBITDA AND PRO FORMA PRETAX INCOME RECONCILIATION (continued)
(dollars and shares in thousands, except per share data)


                 For quarter ended December 31, 2013
                  Servicing    Origination   Operating   Legacy       Total
                                                                          
Adjusted EBITDA   $ 145,777     $ (120,750 )   $ 25,027     $ (16,784 )   $ 8,243
                                                                          
Interest
expense on        (35,717   )   (14,786    )   (50,503  )   —             (50,503 )
corporate notes
MSR valuation     20,984        —              20,984       —             20,984
adjustment
Excess spread     (40,104   )   —              (40,104  )   —             (40,104 )
adjustment
Amortization of
mortgage          —             —              —            —             —
servicing
obligations
Depreciation &    (6,008    )   (2,806     )   (8,814   )   (1,115    )   (9,929  )
amortization
Stock-based       (1,738    )   (696       )   (2,434   )   —             (2,434  )
compensation
Fair value
adjustment for    —             —              —            285           285
derivatives
Restructuring     (8,594    )   (3,484     )   (12,078  )   (795      )   (12,873 )
Charge
Hedge             390          —             390         —            390     
ineffectiveness
Pretax income     74,990        (142,521   )   (67,531  )   (18,409   )   (85,940 )
(loss)
Income tax                                                                35,033  
Net income                                                                (50,908 )
(loss)
                                                                          
Pretax income     74,990        (142,521   )   (67,531  )   (18,409   )   (85,940 )
(loss)
Ramp expenses     4,140         —              4,140        —             4,140
One-time          32,640       14,588        47,228      —            47,228  
expenses
Pro forma
pretax income     111,770       (127,933   )   (16,163  )   (18,409   )   (34,572 )
(loss)
                                                                          
Earnings per                                                              $ (0.56 )
share
Pro forma
earnings per                                                          $ (0.23 )
share
AEBITDA per       $ 1.61       $ (1.33    )   $ 0.28      $ (0.19   )   $ 0.09  
share




Contact:

Nationstar Mortgage Holdings Inc.
Marshall Murphy, 469-549-3005
 
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