Stephen Laws: Great. Appreciate the comments this afternoon. Thank you.
Operator: Our next question comes from the line of Doug Harter with UBS. Your line is open.
Cory Johnson: Hi. This is Cory Johnson on for Doug Harter. I just wanted to see, could you talk me through, is there any way to perhaps limit the mark-to-market volatility of the balance sheet and/or reduce the balance sheet intensity of the business?
Graham Fleming: Unfortunately, right, these are GAAP – right, these are GAAP issues, and these are all mandated in accordance with GAAP. So there’s no ideas right at the top of my head, other than marking everything to zero, which obviously GAAP won’t allow us to do. It is based on some – close to almost a $10 billion UPB balance. So relatively speaking, it is basis points. But Matt, anything to add?
Matthew Engel: No, I think if you always look at – I think the question we sometimes get is around hedging and whether you put big hedges in place. There’s upsides and downsides of that from a liquidity standpoint when the rates should go against you. So something we look at from time to time. We’ve hedged some in the past. We’ll consider doing some in the future. But right now, given we are in the rate cycle, we’ll pay with some of this volatility and it’s moving kind of back in our favor.
Cory Johnson: Great. Thank you. And I want to see, is the path to operating profitability going to be through increased revenue? Or is it – or is there further expense reductions that could take place?
Graham Fleming: Yes, there’s a little more on the expense side, right, that we’re going to tackle in Q2, primarily revenue margins have improved. We don’t expect them to be much higher than they were in December. So the path to profitability now has increased volume, which we also expect to see increased volume as we’re through this loan origination consolidation. We’re currently anticipating A&I profitability kind of over towards the end of Q2 over the summer, right? So we do have a path to return to A&I profitability.
Cory Johnson: Great. Thanks. And just last question for me. Can you maybe talk to me a little bit about the outlook for reverse origination volumes in the current rate environment?
Kristen Sieffert: Yes. I would say that right now, it’s probably less about the current rate environment and just about getting the kind of operating platform and the technology integration completed. We’ve got the levers to pull to drive the growth. We just need to do so from a stable foundation, which is what we’ve been mainly focused on over the last two quarters. And so the plan is to incrementally begin growing the production volume through the course of this year and well into the future. And obviously, when rates come down, it makes it easier. But with where rates are today, we still believe in the growth model that we have.
Cory Johnson: Great. Thank you. Appreciate the answer.
Operator: Next question comes from the line of Lee Cooperman with Omega Family Office. Your line is open.
Lee Cooperman: Thank you. I have four questions, and maybe one you already responded to. What are the expectations for recurring operating earnings? Somebody mentioned on the call, the volatility the $0.40 to $0.50 that you mentioned, was that recurring operating earnings this year or your objectives down the road? That’s question one.
Matthew Engel: So Lee, the $0.40 to $0.50 will be based on $300 million a month of originations. We’re currently averaging somewhere around $140 million to $150 million. So we’re going to need to grow into that. We would expect to be on a path for that towards the end of this year. I don’t think we’re going to achieve $0.40 to $0.50.
Lee Cooperman: So what is your expectation for operating earnings this year? Do you have one? Are you willing to share?
Matthew Engel: We haven’t provided that specific guidance. I would say that our submissions and our pipelines are growing. We’re optimistic that the volume will grow over the course of the year. We haven’t given out specific…
Lee Cooperman: It’s an open mic, it’s an open platform. Do you want to make a statement? Or you’d rather not?
Matthew Engel: I’d rather not at this point, Lee.
Lee Cooperman: Second, how do you rate your capital adequacy to conduct a business that you want to conduct the way you want to conduct it. Do you have adequate capital?
Graham Fleming: We do have adequate capital. We are constantly kind of addressing our needs as we see fit with warehouse lines, timing our securitization lines of credit and so forth. So we believe we’re properly capitalized for our growth in 2024.
Lee Cooperman: I don’t follow with that closely the way I own a lot of shares. There was an enormous increase in the share count from $88 million to $229 million fully diluted basically, what is the actual share count currently, fully diluted? Is it the $229.3 million? If you look at Page 7 of your press release.
Matthew Engel: That’s the fully diluted share count, yes, Lee.
Lee Cooperman: What account is for the $200 million and I’d say, about $150 million to $140 million increased shares.
Matthew Engel: There wasn’t a – I don’t think there was a $140 million share increase…
Lee Cooperman: Well, it says here on Page 7 of your release, the basic weighted average shares outstanding was 88.4 and the dilution – the diluted shares are 229.3. And a year ago, it was 87.7. So it’s pretty big…
Graham Fleming: Yes, Lee. No, so that actually has to do with the method by which we run the if converted or fully diluted EPS calc. And so because it is not dilutive, right? Or just anti-dilutive on the fully-diluted view when you add in all shares for that GAAP requires us to just use the basic share count instead. So that’s why you can see the basic and diluted per share number is the same in each of those periods. It’s just Q4 of this year, where the diluted EPS is dilutive compared to basic.
