Quarterly report pursuant to Section 13 or 15(d)

Acquisition of RoundPoint Mortgage Servicing LLC

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Acquisition of RoundPoint Mortgage Servicing LLC
 9 Months Ended
Sep. 30, 2023
Business Combination and Asset Acquisition [Abstract]  
Acquisition of RoundPoint Mortgage Servicing LLC Acquisition of RoundPoint Mortgage Servicing LLC
Effective September 30, 2023, the Company acquired RoundPoint from Freedom after the completion of customary closing conditions and receiving the required regulatory and GSE approvals. The provisional purchase price recognized was $44.7 million, with $23.6 million paid upon closing and $21.1 million recognized as a payable to Freedom within the other liabilities line item on the Company’s condensed consolidated balance sheets. The Company has performed a provisional allocation of the total consideration of $44.7 million to RoundPoint’s assets and liabilities, as set forth below. The final amount and allocation of total consideration may differ from the amounts included herein to reflect new information, assets acquired and liabilities assumed and the fair value of intangible assets that existed as of the acquisition date. The estimate of fair value of assets and liabilities required the use of significant assumptions and estimates. Significant estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and discount rates. These estimates were based on assumptions that management believes to be reasonable as well as a third party-prepared valuation analysis; however, actual results may differ from these estimates. No measurement period adjustments were made during the three months ended September 30, 2023.
September 30, 2023
(in thousands) Acquisition Date Amounts Recognized Subsequent Measurement Period Adjustments Acquisition Date Amounts Recognized, as adjusted
Total Consideration $ 44,732  $ —  $ 44,732 
Assets
Cash and cash equivalents $ 50,366  $ —  $ 50,366 
Intangible assets 786  —  786 
Other assets 29,148  —  29,148 
Total Assets Acquired $ 80,300  $ —  $ 80,300 
Liabilities
Accrued expenses $ 4,483  $ —  $ 4,483 
Other liabilities 58,739  —  58,739 
Total Liabilities Assumed $ 63,222  $ —  $ 63,222 
Net Assets $ 17,078  $ —  $ 17,078 
Goodwill $ 27,654  $ —  $ 27,654 

As a result of the RoundPoint acquisition, the Company identified intangible assets in the form of mortgage servicing and origination state licenses, insurance state licenses, GSE servicing approvals and trade names. The Company recorded the intangible assets at fair value at the acquisition date and amortizes the value of finite-lived intangibles into expense over the expected useful life. Trade names, with a total acquisition date fair value of $0.2 million, will be amortized straight-line over a finite life of six months based on the Company’s determination of the time to change a trade name. The Company determined the licenses and approvals, with a total acquisition date fair value of $0.6 million, have indefinite useful lives and will be periodically evaluated for impairment given there are no legal, regulatory, contractual, competitive, or economic factors that would limit their useful lives.
The total goodwill of $27.7 million was calculated as the excess of the consideration transferred over the net assets acquired and primarily includes the existence of an assembled workforce, synergies and benefits expected to result from combining operations with RoundPoint and adding in-house servicing. The full amount of goodwill for tax purposes of $29.0 million is expected to be deductible. The Company will assess the goodwill annually during the fourth quarter and in interim periods whenever events or circumstances make it more likely than not that an impairment may have occurred.
Acquisition-related costs are expensed in the period incurred and included within the other operating expenses line item in the Company’s condensed consolidated statements of comprehensive loss. During the three and nine months ended September 30, 2023, the Company recognized $1.1 million and $1.2 million, respectively, of acquisition-related costs. During both the three and nine months ended September 30, 2022, the Company recognized $0.8 million of acquisition-related costs.
As discussed above, the acquisition of RoundPoint closed effective September 30, 2023. Accordingly, RoundPoint’s consolidated balance sheet is included within the Company’s consolidated balance sheet as of September 30, 2023; however, RoundPoint’s results of operations are not included within the Company’s results of operations for the periods presented. Beginning October 1, 2023, RoundPoint’s results of operations will be consolidated with the Company’s in accordance with U.S. GAAP. The following table presents unaudited pro forma combined revenues and income before income taxes for the three and nine months ended September 30, 2023 prepared as if the RoundPoint acquisition had been consummated on January 1, 2022.
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2023 2022 2023 2022
Revenue (1)
$ 585,641  $ 435,563  $ 1,044,039  $ 979,098 
Income before income taxes $ 339,009  $ 271,426  $ 357,636  $ 540,740 
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(1)The Company’s revenue is defined as the sum of the total interest income and total other income line items on the condensed consolidated statements of comprehensive loss.

The above unaudited supplemental pro forma financial information has not been adjusted for transactions that are now considered inter-company as a result of the acquisition, the conforming of accounting policies, nor the divestiture of RoundPoint’s retail origination business and RPX servicing exchange platform, as required by the stock purchase agreement. The unaudited supplemental pro forma financial information also does not include any anticipated synergies or other anticipated benefits of the RoundPoint acquisition and, accordingly, the unaudited supplemental pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated on January 1, 2022.