Nationstar Mortgage Holdings Inc. (NSM)

[Enterprising Investor]

Nationstar Reports Fourth Quarter and Full Year 2015 Financial Results

• Q4’15 GAAP EPS of 73 cents, adjusted EPS of 32 cents

• Servicing profitability of 5.1 basis points (bps), up 42% quarter-over-quarter

• $91 billion of servicing assets boarded in 2015, up 56% year-over-year

• On track with boarding $55 billion subservicing contract

• Originations adjusted pretax income of $43 million, 8th consecutive quarter of more than $40 million

• Announced repurchase of up to $250 million in common stock

DALLAS--(BUSINESS WIRE)--Nationstar Mortgage Holdings Inc. (NYSE: NSM) reported adjusted earnings results for the fourth quarter of $34 million, or 32 cents per share, driven principally by sequential improvement in servicing profitability and strong originations earnings. The Company generated GAAP net income in the fourth quarter of $79 million, or 73 cents per share.

Our Servicing segment continued to generate solid cash flows with sequential improvement in profitability to exit the year above our target of five basis points. In addition, our Originations segment had a strong fourth quarter, posting its best annual performance since 2012 and continues to provide a cost effective source of new servicing assets,” said Jay Bray, Chief Executive Officer.

“Looking forward, we remain focused on taking steps that improve customer experience and drive customer retention while delivering greater value for our shareholders. We enter 2016 well positioned from a strategic, operational and capital perspective,” Bray added.

Fourth Quarter and Full Year Business Highlights

Servicing Segment

The Servicing segment achieved $51 million of adjusted pretax income, or 5.1 bps based upon average UPB, for the quarter. Adjusted pretax income improved for the fourth straight quarter as we reduced delinquency rates and implemented technology and process initiatives to drive improved profitability. For the year, amortization was up $100 million, or 2.0 bps, compared to 2014 and was the primary driver of lower servicing earnings year-over-year. Nationstar reiterates its previous long-term profitability target of 5 to 7 bps for the Servicing segment in 2016.

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During 2015, $91 billion of servicing assets were boarded as a result of acquisitions and origination activities, up 56% year-over-year. In addition, we were awarded a $55 billion subservicing contract by a leading financial institution in the fourth quarter for which the boarding remains on track. The servicing portfolio CPR decreased to 13.8% in the quarter, or 11.5% net of recapture. For 2016, before consideration of potential MSR acquisitions, we expect the current servicing portfolio to grow modestly, with limited utilization of capital, given the recent subservicing win, expected origination activity and current CPR rates.

For 2016, our servicing segment is focused on achieving high quality earnings that exceed 5 bps through the delivery of services that exceed the expectations of both customers and regulators.

Originations Segment

The Originations segment generated adjusted pretax income of $43 million in the fourth quarter in line with our expectations. It has now achieved eight consecutive quarters of pretax income above $40 million.

The originations platform continues to replenish the MSR portfolio at attractive rates of return. As expected, adjusted pretax income decreased sequentially principally due to the industry-wide implementation of TRID and general seasonality in the fourth quarter. Nationstar funded $4.0 billion of volume during the quarter with 60% of the volume generated from the consumer direct channel.

Key initiatives for 2016 include increasing customer recapture by focusing on multiple segments within the servicing portfolio, expanding our FHA/VA streamline capabilities and reducing operating expenses.

Xome Segment

Xome delivered $6 million in pretax income in the fourth quarter. Earnings were down sequentially due to an increase in technology and marketing investments, higher title expenses due to TRID delays and increased title orders, and a reduction in property sales attributable to seasonality and pipeline delays that are in the process of being addressed. Third party revenues, which primarily consists of leading financial institutions, increased to 37% of total revenues, as Xome continues to focus on diversifying its revenue streams and client base.

Xome's total revenues increased 43% year-over-year principally due to higher sales price execution on property sales and growth in our title and close business. During the year, Xome invested over $140 million to advance its strategy through the acquisition of three companies, the development and launch of new products and technologies, including Xome.com and mobile apps, establishing an offshore captive and building out corporate infrastructure. We expect similar investments for Xome to be between $25 - $30 million in 2016.

In 2016, Xome will continue to transform the residential real estate transaction experience for consumers and real estate professionals. Key strategies for 2016 include improving core operations, continuing to grow third party clients and making measured investments in new products and technologies that will serve the needs of clients and target customers.

Capital and Liquidity

During the fourth quarter, we repurchased $109 million of multiple tranches of unsecured senior notes due between 2018 and 2022. In December 2015, the Company announced a Board-authorized common stock repurchase program of up to $150 million of common stock. As of the date of this release, approximately $66 million of common stock was repurchased under that initial $150 million program. On February 11, 2016, Nationstar announced a Board-authorized tender offer via a modified Dutch auction to repurchase up to $100 million of common stock. Repurchases under the tender offer will be part of our share repurchase program initiated in December 2015 and increased in connection with the tender offer by $100 million in February 2016. The tender offer is scheduled to expire on March 11, 2016, unless the tender offer is extended or withdrawn.

Information Regarding the Tender Offer

The information above relating to the tender offer is for informational purposes only and is not an offer to buy or the solicitation of an offer to sell any shares of our common stock. The solicitation and offer to buy our common stock is being made only pursuant to the Offer to Purchase, the Letter of Transmittal and the other offer materials that we have filed with the SEC and sent to our shareholders. Shareholders and investors are urged to read our Tender Offer Statement on Schedule TO, the Offer to Purchase, the related Letter of Transmittal and the other offer materials, as well as any amendments or supplements to the Schedule TO that we file with the SEC, because they contain important information, including various terms and conditions of the tender offer.

Conference Call Webcast and Investor Presentation

The Company will host a conference call on February 25, 2016 at 9:00 A.M. Eastern Time. The conference call may be accessed by dialing 855-874-2685, or 720-634-2923 internationally, five minutes prior to the scheduled start of the call. Please use the participant passcode 55944606 to access the conference call.

A simultaneous audio webcast of the conference call will be available on the Shareholder Relations section of http://www.nationstarmtg.com. Please click on the February 25, 2016 Conference Call link to access the call. A replay will be also be available approximately two hours after the conclusion of the conference call by dialing 855-859-2056, or 404-537-3406 internationally. Please use the passcode 55944606 to access the replay. The replay will be accessible through March 10, 2016.

Non-GAAP Financial Measures

This disclaimer applies to every usage of "adjusted pretax income," "adjusted earnings," "adjusted EPS," and "servicing profitability" in this release. Adjusted pretax income is a metric that is used by management to provide a better depiction of the results of servicing operations by excluding changes in fair value of the MSR and non-recurring expenses. Adjusted earnings is a metric used by management to provide an estimate of earnings by excluding mark-to-market ("MTM") adjustments and non-recurring expenses. Adjusted earnings begins with net income and makes adjustments for taxes, the adjustment for fair value of MSRs and non-recurring expenses. Servicing profitability is a metric used by management to estimate earnings from the servicing segment. Servicing profitability begins with adjusted earnings and adjusts for financing structure payments. For additional servicing GAAP reconciliations, please refer to the Appendix section of the Q4'15 and FY'15 Investor Supplement.

About Nationstar

Based in Dallas, Texas, Nationstar provides servicing, origination and transaction based services related principally to single-family residences throughout the United States. Additional corporate information is available on the Stockholders section of www.nationstarmtg.com.

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