Good morning, everyone. I'm Kelsey Duffey, Senior Vice President of Investor Relations at Walker & Dunlop, and I'd like to welcome you to Walker & Dunlop's first quarter 2022 earnings conference call and webcast. Hosting the call today is Willy Walker, Walker & Dunlop's Chairman and CEO. He is joined by Steve Theobald, Chief Financial Officer. Today's webcast is being recorded and a replay will be available via webcast on the Investor Relations section of our website. [Operator Instructions] This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willy and Steve will touch on during the call. Please also note that we will reference the non-GAAP financial metric, adjusted EBITDA, and adjusted diluted earnings per share during the course of this call. Please refer to the appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics. Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations and actual results may differ materially. Walker & Dunlop is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, and we expressly disclaim any obligation to do so. More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC. I will now turn the call over to Willy.

Thank you, Kelsey, and good morning, everyone. We had a strong start to 2022. With our people, brand and technology, continuing to differentiate Walker and Dunlop in the marketplace and contributing to strong growth across the enterprise. We saw growth in almost every business line and key financial metric due to the investments we have made and the performance of our fantastic team. The markets rapid transition to pervasive inflation and higher rates, has required our bankers and brokers to think proactively and innovate for our clients, which they did in spectacular form throughout Q1. In times of market volatility, Walker & Dunlop has a long standing track record, from the depths of the great financial crisis to the lockdown of the pandemic, of executing on behalf of our clients and growing dramatically. We held our first all-company meeting in over 2 years in Denver at the end of March. Over 1,000 Walker & Dunlop employees gathered to hear speakers, participate in trainings and celebrate our collective success. I told the team in my closing remarks that we have created something very special at Walker & Dunlop. I equated it to catching lightning in a bottle. And I have no doubt that everyone left Denver are feeling like they are part of an amazing team. Beyond highlighting the people and technology of Walker & Dunlop at our Denver meeting, we also previewed our new brand campaign titled "Community Starts Here". For as long as I've been CEO of Walker & Dunlop, we have talked about the what of Walker & Dunlop, what we do, how we do it and what it can do for our clients, investors and employees. But we haven't focused on the why, why we do what we do and why does it make a difference? In…

Thank you, Willy, and good morning, everyone. As Willy just described, we started 2022 with a solid first quarter in which we were able to leverage the breadth of our platform to meet our clients' needs within uncertain market conditions while generating strong financial results and creating momentum for future growth. First quarter diluted EPS was up 18% year-over-year to $2.12, while the strength of the cash-generating components of revenues continued to drive growth in adjusted EBITDA, which was up 3% to $63 million. Growth in adjusted EBITDA was offset by the year-over-year increase in expenses related to the 3 significant acquisitions we made during the last 12 months. We are currently working to integrate these acquisitions and are extremely excited about the benefits and synergies we will begin to see in our financial results once these companies are fully integrated and getting scale. Revenue contribution in the first quarter from these acquisitions was $24.7 million, and we expect this number to grow over the course of the year due in part to the seasonal nature of Alliant's revenue, but also as we achieve our planned synergies. Adjusted earnings per share for the quarter was $1.09 in Q1 of 2022 compared to $1.35 in the prior year quarter. Through the acquisition of GeoPhy, we revalued our previous 50% interest in Apprise, our appraisal joint venture based on the $117 million value of the business. This resulted in the recognition of $40 million of revenue in the quarter, which flows through to net income and earnings per share, but is excluded from our adjusted EBITDA and adjusted earnings per share due to its noncash nature. Q1 personnel expense as a percentage of revenues was 45%, up from 43% in the first quarter of 2021. Personnel expenses have naturally increased as we…

Thank you, Steve. Before I dive into our outlook, I'd like to briefly outline 2 major management changes at Walker & Dunlop that will take effect on June 1. As many investors know, Steve Theobald has been an exceptional Chief Financial Officer. When Steve joined Walker & Dunlop in 2013, we were a much smaller company in need of the management skills and leadership that Steve possesses in spades. And due to Walker & Dunlop's dramatic growth, I have asked Steve to become Chief Operating Officer. In his new role, Steve will drive integration of all our product lines and businesses and also identify and realize cost savings and efficiencies throughout the company. This is an exciting move for Steve, and I'm extremely pleased to have someone with Steve's knowledge and leadership in this new role. And while stepping into Steve's role and track record as CFO of Walker & Dunlop is no small feat, I am confident that Greg Florkowski is ideally suited and prepared to do just that. Greg joined Walker & Dunlop from KPMG in 2010. And after serving as Steve's #2 on our accounting and finance team, Greg has done a simply masterful job running business development for the past 3 years, including the successful acquisitions of AKS, TapCap, Zelman, Alliant and GeoPhy. With Steve and Greg in their new roles, I am confident we now have the operational and financial management in place to drive Walker & Dunlop to our 2025 goal and beyond. The underlying objective of the Drive to '25 is to grow annual revenues to $2 billion by 2025. We with revenue growth of 16% in 2021 and 42% in the first quarter of 2022, we are well ahead of pace on achieving that ambitious goal. Another goal in the Drive to…

[Operator Instructions] Our first question is coming from Jade Rahmani of KBW.

I was wondering if you could talk about the outlook for transaction volumes. What are you hearing from investors? Clearly, rent growth has been extremely strong in the multifamily space in particular with new lease rents up above 20%, especially strong in many markets. In addition, construction costs remain an overhang as inflation is extremely high. So replacement costs are rising, yet multifamily has been probably the darling of the commercial real estate asset class over the last decade, and many sectors exhibit record low cap rates. So could you please just triangulate those variables and talk to the tone of investors that you're seeing?

I had a Walker webcast yesterday with Ivy Zelman, Aaron Appel and Chris Mickelson, where we went into quite some detail on sort of, if you will, multiple aspects of that question, Jade. I think what I would summarize from that discussion is that there's clearly a concern about the single-family housing market, with prices being as high as they are and some price adjustment being needed in the single-family market. That gap between the affordability of rental versus the affordability of single family. As we said previously, keeps a lot of people in rental housing. And as you accurately described, rent growth is unprecedented right now. And so the dynamics of lagging supply, and we're seeing very little new supply because of the slowdown during the pandemic, and you rightfully underscore the fact that with cost inflation across the board as far as building materials and then also the difficulty in getting labor to help build new supply that there is a supply-demand imbalance, which should allow for rents in multifamily properties to continue to grow above trend. And so as Steve said in his comments, Jade, from a credit standpoint, we feel extremely good about the market. And from an overall volume standpoint, I mentioned in my part of the script that our Q2 pipeline right now is 35% above what we did in Q1. So we are seeing a significant amount of activity both on the debt financing side as well as on the investment sales side and feel very, very good about our market position.

Regarding the overall company's earnings picture, this quarter personnel expense grew, I believe, around 50% year-on-year. Notable growth in the platform. You mentioned all of the acquisitions. You mentioned the increased capabilities in affordable housing. Were there any onetime expense items to note, perhaps they weren't charges, but any earnouts, any unusual payments or should we think about the personnel expense relative to commission-based revenue ratio to be consistent with what we saw in the first quarter. Just wondering if there's any unusual items in that $140 million personal expense number.

Yes, Jade, this is Steve. I’ll try to unpack that a little bit. So a couple of thoughts. One, so historically, Q1, as you know, is lighter from a transaction volume perspective. And so typically, on the commission side, we still have a lot of our origination team working through their splits, and they’re not really at the high end of their commission rates until second or third quarter in some cases. And that’s particularly during the investment sales side. Given the strength of the volumes in Q1, we had a, I’d say, a much higher percentage of our origination team get to their max splits earlier in the year. So I think that’s really a function of just the overall volume that we’re not generating on a quarter-to-quarter basis as you’re seeing a higher commissions rate in Q1 than we would have seen historically. So that’s part of it. Two, the company bonus accrual, just given the $2.12 of earnings, we typically accrue based on the underlying performance of the company relative to budget. And because of the results, the accrual is a little higher than it would have been otherwise. And then I think just looking at beyond personnel expense, there were some onetime other expenses in there associated with the transactions between carryover from the Alliant transaction as well as the GeoPhy transaction in Q1, we had higher professional fee expenses than we otherwise would have expected going forward.

Our next question comes from Steven Delaney of JMP.

Well, first, congratulations to Steve and Greg on their promotions. Look forward to working with both of you in your new roles. And also, the good news about May 19, I like the way you've laid out the 3 segments, but we obviously need to go to school on that a little more. So thank you for that opportunity. Willy, if we can, every conversation financial conversation starts with interest rates these days. And if we got the 10-year up 150 year-to-date, resi mortgages up $200 million. Can you just talk a little bit about where Fannie and Freddie are pricing their permanent loans today, maybe compare that to year-end and then also -- let's leave it there for now, and then I'll come back with a follow-up on that. If you could -- just kind of give us a sense of that the cost of credit at the agencies today?

I would say this, we were, I guess, pleased with our Q1 volumes. But I will also say that there was a lot of work to generate those volumes in Q1. And as you can see from the numbers I put forth, Fannie and Freddie only used 20% of their annual allocation in the first quarter. And so they've got a tremendous amount of capital going into the rest of the year. The other thing to keep in mind as it relates to the rest of the year, Steve, is that there is new AMI data that's coming out soon that will be used to calculate affordability. And because of the step-up in average median income across the country, a lot of Fannie and Freddie lending for the rest of the year will be scored distinctly from how it's been scored up until now. I believe that's imminent. And so I do believe that their need to focus on affordability versus market rate will change somewhat as we move into Q2, Q3, Q4. And then the final thing I would just say is, as much as both of them at times have felt like they're completely out of the market and we've been quite frustrated about that. As they always do, they come back in and win business and get to the volumes that they need to get to. And so I would reiterate that we fully expect both Fannie and Freddie to use every dollar of capital that they are allowed to use in the multifamily space for 2022. I would also say Freddie Mac appointing a new head of multifamily, just day before yesterday is a huge move, a huge move because since Debbie Jenkins left Freddie Mac, that platform has not had the leadership it has needed, and we're very, very pleased to see not only a new leader of multifamily, but someone who comes from within Freddie Mac taking that role. And then the final thing I would say, Steve, is as I said previously, while the CMBS markets have banged around and it's been very, very difficult. 2021, the theme of 2021 was debt funds and securitized debt. Markets where they had limited volatility, rates were low and that securitized world was a big competitor to the agencies. 2022 is totally different. As you well know, VIX is up. The forward curve is ridiculously steep, and it's very, very difficult to price securitized debt unless you are Fannie Mae or Freddie Mac. And so Fannie and Freddie, as they always do, will remain a consistent source of capital throughout market cycles and throughout volatility. And so we feel quite good about the role that Fannie and Freddie will play in the coming quarters given that market dynamic.

You're heavily transaction-based and you've built your amazing brokerage business and investment sales to accommodate that. You mentioned the $288 billion of private equity. But every transaction is going to require that an owner of a property get a price that reflects a cap rate he wants as opposed to what the investor wants. And there obviously has to be a negotiation there. Do you think that as cap rates as interest rates drive cap rates necessarily higher, that there will be a slowdown in property sales, specifically multifamily property sales. And if that scenario develops could Walker & Dunlop step in with a new kind of expanded Bridge product. And I guess I'm thinking about something that I think we'd call like a mini perm loan that allows that property owner just to extend his whole period.

So the first thing I would say is that there are both male and female property owners who will be selling properties. So it would be.

I apologize.

Not at all, not at all. I just wanted to point that out. And then the second thing that I would say on that, Steve, is this. As you’ve seen, our investment sales team grow from $9.4 billion of transaction volume in 2020 to ‘19 – sorry, $6.4 million in 2020 to 19.4% in 2021. We have built, I believe, the very best team in the country. And we’ve done it by going and finding the very, very best brokers in every market and Chris Mickelson has done a fantastic job of leading that effort. So if we see a slowdown in investment sales, I do not think it impacts Walker & Dunlop to the degree that it will impact some of our larger competitors. We have a more focused team. We have a much smaller team and we have a much larger market presence for the size of our team. So that would be point one as it relates to any slowdown we see. The second thing I would say is in your comment, I think you’re saying that owners of properties aren’t going to be able to get the type of return for selling their property that they would like to get. I would only say to you that owners of multifamily properties have had an incredible run and have realized amazing appreciation in their properties. And so as a result, if they are sellers today, they will get a price that is a very, very good price. That then leads into cap rates. And quite honestly, right now, Steve, we are watching and seeing that there is so much capital in the system that right now, there are cash buyers who are buying at extremely low cap rates because they’re a; not reliant upon the debt markets; and b; they have a lot of capital to deploy. And so back to that $288 billion number that I said on private equity firms or the $7.8 billion that the Blackstone BREIT raised in Q1, there is a massive amount of equity capital out there. What we are clearly seeing is that when people are acquiring properties, they’re not going to high leverage levels because the cost of debt has gone up so significantly. And quite honestly, that’s not a bad thing given the amount of equity capital out there. So we’re doing plenty of deals that are 40%, 50% LTV on the acquisition. And then the final piece as it relates to new products and services to meet the market. I think you – I know for a fact, you’ve watched us for a long enough period of time, Steve. If there is an opportunity for us to create a product that meets a market demand, we will do it.

Our next question comes from Henry Coffey of Wedbush Securities.

Henry, we can’t hear you yet.

Henry, you might need to unmute yourself now.

There you go.

This is Jay McCanless on for Henry. So first question I have, I know you guys had a very good discussion on the webcast yesterday about single-family. But if you look at multifamily starts, we're at the highest level we've seen since the '80s. In one hand, I think that could be good for your transaction volumes. But then on the other hand, what does that do to rental rates and rental growth. So I would love to get your take on the amount of supply that's going to be coming to market, and hopefully, you guys will be brokering loans on all of it, but it's a lot of product for the market to absorb.

I think that number right now is about, what, 520,000 units that are under development right now, which is up from a historic run rate of about 375 million to 400 million. So while elevated, I think the other point to that is it's not delivering tomorrow. And so we're very focused on 2022 on moving through this year and seeing rent growth offset this transition as it relates to interest rates. And when that new supply arrives in 2023 and 2024, it's going to be a dramatically hopefully different economic landscape. We will hopefully gotten through this raising period. And as I think we saw yesterday with the rally in the markets when Chairman Powell came out and said, we're doing 50 basis points today, and we're taking 75 basis points at the next meeting off the table. One of the things that, at least in my career, when we -- the thing that I don't like is when we get completely surprised by something, the great financial crisis was a big surprise to everybody. The pandemic was a big surprise to everybody. And as I highlighted in my comments, Walker & Dunlop managed through those 2 crises exceedingly well, exceedingly well. But the issue with it is that the market knows what's happening here. The Fed is being as transparent as it possibly can be. And as a result of that, while this transition period is painful in the sense that people are sitting there saying, "Oh, yesterday, my cost of debt was going to be $425 and today, it's $475 to go do a fixed rate loan, looping back to Steve's question as it relates to where is pricing on a 10-year fixed rate loan today. It's about $475 with the agencies, obviously, depending on sponsor, depending on leverage level, et cetera, et cetera. But we've got to work with our clients through this transition period. But that new supply that is there right now, I think there are 2 things. One, it will be delivered in '23 and '24. And then the second thing to it is getting it delivered, given where costs are right now and given where labor supply is right now, is going to be somewhat challenging. It is not going to be a normal delivery cycle to get those units delivered.

And so Steve, congrats from all of us on your promotion, but wanted to pick at the onetime nature of some of these expenses this quarter. Just thinking about what a run rate SG&A, understanding that you've got a variable brokerage component there, but just how much of, I guess, a core SG&A should we expect going forward with the addition of the new businesses?

Yes. I'm super excited about the opportunity here. And in terms of your question, look, I think the onetime expenses, I would say, are kind of in the $5 million to $10 million range for Q1 if that's helpful.

And then my next question, so we've recently seen Fannie Mae expand their underwriting box on affordable assets, including manufactured housing and realizing that they are going to start allowing homes to be part of the underwriting transaction in addition to the land. Have you guys been seeing similar moves in other housing types by the GSEs? And if so, what could be the positive or negative effects for WD going forward?

Not a lot on the new product development, if you will, or moving beyond their mission. They're still very focused on affordable and it's one of the reasons why the Alliant deal is in our view an exceedingly valuable deal not only from a financial standpoint, but from a strategic standpoint. I think it was Fannie, who lowered rates yesterday on their small balance lending business by 10 basis points. And so our entry into that space and the team we put together and the focus on technology and the GeoPhy acquisition make us feel extremely good about that. Remember, that's half the multifamily market is small balance lending, half of it, and it's dominated by the banks. And so with our team, with our brand and with our technology focus, we have a lot of runway there. So as I sit around and think about W&D versus the big competitors, and I think about what happens in any type of volatile markets typically to the banks, while they are wildly overcapitalized right now, and I did underscore in my comments that banks are chasing assets to lend on right now, chasing them everywhere. So there's going to continue to be a fierce competitor. But I would say that our focus on that market and the opportunity to grow in that market is exceptional, absolutely exceptional. So just back to the agencies, I wouldn't expect the agencies to sort of go into any new products right now. I think that this change in AMI levels will have a big impact on how competitive they are on market rate, which will, I think allow them to be less concerned, if you will about affordability on every loan they're doing as the AMI numbers roll through. But we'll see once the AMI number come out and it obviously is going to also be focused in a lot of the markets where we've seen huge growth. And so one of the things that happens in those types of markets like a Nashville or an Austin is that you've got great rent growth, your AMI has gone up, but cap rates are staying begrudgingly low. And so it's hard to get to leverage levels that borrowers like, and that's looping back a little bit to Henry's question. But what we're seeing is cash buyers and low leverage buyers dominating the market right now because of the amount of capital sitting on the sidelines.

Last one is a 2-parter for me. The 40% gain in transaction volumes were very impressive this quarter as was the 153% gain in property sales volumes. Could you break out maybe how much of that was organic versus purchased? And then also just kind of -- and I think I know the answer to this one, but assuming that we're setting, moving into a higher rate environment on a more permanent basis, historically has that driven an increase in property sales as set themselves and/or look to, I guess, maybe hedge some of their stock market exposure through hard assets?

So on question 1, that’s all organic because Alliant and GeoPhy didn’t add to transaction volumes in Q1. So all of that, there’s a team here and there that was added in ‘21 that is part of that Q1 total transaction volume growth. But that’s from, I believe, your question, that’s all organic growth. That’s none of that comes from the acquisitions that we’ve done. And then on the second question, as it relates to rising interest rates, investment sales volume, financing volume. I think one of the things that investors have seen at W&D, is that because we have this scale brokerage business that’s using market rate capital and is selling market rate buildings as well as specialty products in seniors and students and a bunch of other specialty products. When markets are moving like they did in 2021, we grow and we play really well. But when markets dislocate, we also, because of our size and scale with the agencies have this countercyclical portion to our business that as other large firms that don’t have that get, if you will, washed out as it relates to revenue and volume growth, we have the ability to sit in that space and continue to put up very, very solid numbers. And so I’d just go back to what I said previously, which is that it’s very difficult to project exactly what’s going to happen from a volume standpoint as we move through this year. I think cap rates stay for investors, but grudgingly low for sellers happily low as it relates to the amount of capital trying to be deployed into the market. And I would just say that rate movements and rate volatility is very difficult for the last week of April and about halfway through last week. But quite honestly, over the last week, we’ve seen things settle down. We’ve been able to price really well. And so I think it’s very important to understand that this market gets its volatility, then it gets to levels and then people start to transact again. And what I don’t think we’re going to see is as rates rise, I do not think we will see a precipitous move up in cap rates just because of the amount of capital looking to invest in this market.

We have no other questions at this time. So I'll turn it back over to Willy for closing remarks.

Great. I would thank everyone for joining us today. Thank you to those who had questions for us. Congratulations to Steve and Greg on their new roles at W&D. It will be a different 2 of us next quarter when Greg is in Steve seat and Steve is in his role as COO. But Steve, thank you for all of 9.5 years of doing earnings calls with me. It's been a huge pleasure and I'm super excited to continue working with you in your new role. And I wish everyone a fantastic day.

Right back at you, Willy. Thanks, everyone.