Walker & Dunlop, Inc. Q2 FY2025 earnings call

• Second quarter total transaction volume was $14 billion, up 65% from Q2 2024, driving 18% revenue growth and diluted earnings per share of $0.99 (up 48% year-over-year). - Commercial real estate transaction activity stabilized, with the multifamily sector well-positioned due to unaffordable single-family housing, record absorption, and set to see rent increases as apartment deliveries tail off. - Capital Markets segment had growth in debt financing and property sales, with GSE volumes increasing and Zelman's revenue growing. - SAM segment had servicing fee growth but was impacted by lower short-term interest rates. - Technology-enabled businesses like small balance lending and appraisals grew, with appraisal revenues up 61% and small balance lending revenue up 99% in Q2. - Expanded affordable housing platform with HUD lending volumes up 55% and completion of the largest fund syndication in that business. - Investments in people, brand, and technology over the years position Walker & Dunlop for market normalization.

The Capital Markets segment saw significant momentum in Q2, with 68% more debt financing volume and 51% more property sales volume than the prior year. Segment revenues grew 46% year-over-year, net income grew 200% to $33 million, and adjusted EBITDA improved 116% to $1.3 million. The investment banking platform Zelman had 9% year-over-year revenue growth. The Servicing & Asset Management (SAM) segment had a servicing portfolio of $137 billion, generating $84 million in servicing fees (up 4% year-over-year), but total SAM revenues declined 5% from Q2 2024 due to a 12% decrease in placement fees tied to the lower Fed funds rate and a 49% drop in investment management fees. There were no new defaults in credit this quarter, but a $1.8 million provision for loan losses was recognized related to updated valuations for previously defaulted loans and growth in the at-risk portfolio.

• In February, annual guidance was provided anticipating GAAP EPS expanding faster than adjusted EBITDA and adjusted core EPS due to lower short-term interest rates reducing placement fees but increased transaction activity driving noncash MSR revenues. - Year-to-date, transaction volumes are up 41%, diluted earnings per share is $1.07 (up 5% over 2024), placement fees are down 14%, and adjusted EBITDA is down 9% from 2024 while adjusted core EPS declined 16%. - Expect the second quarter's momentum to carry into the back half of the year, supported by a healthy third quarter pipeline, liquidity in commercial real estate lending markets, strong demand for assets, and positive market fundamentals. The full-year guidance laid out in February is still committed to, requiring focused execution and continued strength in transaction volumes.

• Market volatility due to factors like trade policy changes and the Trump administration's actions, which could impact the macroeconomic environment. - Short-term interest rate changes that directly affect placement fees and related revenues in the SAM segment. - Fewer affordable asset dispositions due to lower asset values from the Great Tightening, which can impact investment management revenues.

Q: This quarter's growth rates were staggering in transaction volumes. In light of that, can you share at all how the pipeline looks so far for the third quarter and put any ranges perhaps around the kind of growth rates year-on-year that might be reasonable for the second half?

A: Willy stated the Q3 pipeline looks great with sustained velocity in the market. Greg added they're feeling good about the path to achieving and exceeding guideposts like banker/broker volume.

Q: On the Europe initiative, which I think is pretty interesting, can you comment as to what the strategy is? Is it to bring that capital into U.S. deals? Or is it to build an operation to do multifamily or perhaps other asset classes there?

A: Willy mentioned being in London in June and being pleased with the team and market reception. The strategy is to expand Walker & Dunlop globally in Europe, focusing on the European market with investment flows and growing transaction volumes there while having long-term plans for the U.S. market despite foreign direct investment slowdowns.