Nationstar Mortgage Holdings — which owns and operates the real estate marketplace Xome — reported adjusted earnings of $28 million for the first quarter of 2016 (Q1), offset by a net loss of $132 million.
Still, Nationstar CEO Jay Bray said the company made “significant progress” with Xome, which he believes will lead to continued profitability. “Operationally, we are off to a great start,” he said.
“Despite the noise, we remain confident in our ability to execute.”
Overall numbers
Nationstar made about $264 million in revenue during Q1 2016. Of that, $101 million came from Xome, which cost the company $90 million to operate.
That means Xome netted Nationstar $11 million in Q1 — a significant bump from the $6 million Xome contributed to Nationstar’s bottom line in Q4 2015.
However, a loss of about $161 million due to changes in fair value of Nationstar shares contributed to the company’s total quarterly loss.
Xome’s contributions
Xome operations serve three out of the top five financial institutions, said Bray in the earnings call. “We sold 4,165 properties during the quarter, and we are confident that we have the property disposition pipeline fixed and expect marked improvement,” he said.
Bray said that title continued to be the largest driver of Xome’s services. “From a title margin perspective, our optimization efforts are starting to pay dividends, and we expect continued improvement over time.”
Bray also said that Xome is making significant improvements to the Xome technology. Xome is negotiating potential white-labeled products, which Bray said he expected to drive additional revenue to the company.
“Xome is off to a great start in Q2, and we expect that to continue in the summer months,” he said.
In the question-and-answer period, Bray said that after fixing the pipeline businesses and improving the title operations, he expected Xome to be profitable moving forward.
And what about plans to replace the former CEO, Kal Raman, who left last fall?
“The leadership — I wanted these guys to work directly for me for the last four months, just to make sure we get the operation where it needs to be, but we are looking for a leader to continue to advance that vision,” said Bray.
“We’ve started to get a lot of traction with large financial institutions who will use us on a white-label basis, the Xome platform and the Xome search functionality,” he added, noting that some software-as-a-service (SaaS) agreements were in the works, one with a company that he called a “hallmark institution.”
“The SaaS agreements basically have two components,” explained Robert Stiles, Nationstar’s chief financial officer. “One is providing the website, hosting component, things of that nature, which is an annual fee that’s fairly high-margin. On top of that, we have the ability to drive additional service through the Realtor panel and assisting them with services. That’s really where there could be an additional opportunity for Xome.”
“Xome is a $500 million revenue business that’s going to make $100-plus million, which is pretty darn attractive. It is a very attractive business, and I think at some point we will look for strategic alternatives, but candidly, I want to take the next few months to get this thing humming like I know it can.”
Does Bray still think Xome is worth a billion dollars? “Absolutely,” said Bray. He noted that the company has made $8 million in April 2016, with about an 18-percent margin.
Quality of servicing
“We posted solid first-quarter earnings led by servicing, which delivered five basis points in profitability,” said Bray in a statement. “In addition, for the second year in a row, our servicing operations achieved Fannie Mae’s highest level of performance recognition — the Five STAR designation.”
Where’s Mr. Cooper?
Although Bray spent time talking about the company’s customer-service initiatives — decreasing complaints and increasing satisfaction — no mention was made of Mr. Cooper, the consumer-friendly rebranding initiative that Nationstar confirmed in its Q4 2015 earnings call.
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