Finance Of America Companies Inc. (NYSE:FOA) Q1 2024 Earnings Call Transcript May 6, 2024
Finance Of America Companies Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello. Thank you for standing by. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Finance of America First Quarter 2024 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to Michael Fant, Senior Vice President, Finance. You may begin.
Michael Fant: Thank you and good afternoon, everyone, and welcome to Finance of America’s first quarter 2024 earnings call. With me today are Graham Fleming, Chief Executive Officer; Kristen Sieffert, President; and Matt Engel, Chief Financial Officer. As a reminder, this call is being recorded, and you can find the earnings release on our Investor Relations website at www.financeofamerica.com. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures discussed on today’s call to the extent available without unreasonable efforts in our earnings press release on the Investor Relations page of our website. Also, I would like to remind everyone that comments on this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the company’s expected operating and financial performance for future periods.
These statements are based on the company’s current expectations and are subject to the safe harbor statement for forward-looking statements that you will find in today’s earnings release. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks or other factors, including those that are described in the Risk Factors section of Finance of America’s annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024. The risk factors may be amended and updated in our subsequent filings with the SEC. We are not undertaking any commitment to update these statements if conditions change. Please note that today, we are discussing interim period financials, which are unaudited.
Now I would like to turn the call over to Finance of America’s Chief Executive Officer, Graham Fleming. Graham?
Graham Fleming: Thank you, Michael. Good afternoon, everyone, and thank you for joining us on our first quarter 2024 earnings call. Finance of America continues to deliver against its strategic plan. We believe the business is well positioned to return to sustained profitability and continues to be the leading provider of home equity-based financing solutions for modern retirement with the potential to reach tens of millions of customers nationwide. To that end, we announced earlier today our plans to consolidate our existing wholesale and retail branding, Finance of America Reverse and AAG, under the single brand name of Finance of America. We believe that a unified brand will help elevate the company’s product offerings, which is crucial to our broader efforts to modernize how customers perceive and engage with the brand.
Looking at the numbers. On a continuing operations basis, we recorded GAAP net loss of $16 million or $0.06 per basic share in the first quarter. These results were driven primarily by an improvement in operating performance compared to recent quarters as margin improved and remained strong through the quarter. On an adjusted basis, in the first quarter, we recognized a net loss of $7 million or $0.03 per fully diluted share. This is a 65% improvement from the net loss of $20 million or $0.09 per fully diluted share in the fourth quarter. These numbers point to an overall increase in operating profitability resulting from both higher revenue and lower costs. In fact, on an adjusted EBITDA basis, the company improved from a loss of $18 million in the fourth quarter to less than $1 million of loss in the first quarter of 2024.
During the quarter, reverse volumes were down only 3% to the prior quarter as previously guided. However, improved margins led to a $5 million increase in revenue in our originations platform. Our net balance sheet markup due to outside factors was minimal for the quarter as spread tightening and home price appreciation improvements offset an increase in interest rates. Looking forward, as we come into the spring and summer months and begin to leverage our operational initiatives, we aim to generate an approximate 10% increase in origination volumes for the second quarter to between $465 million and $500 million. Let me now turn things over to Kristen for an update on our operations. Kristen?
Kristen Sieffert: Thanks, Graham, and good afternoon, everyone. We’re pleased to share that much of our previously communicated work to streamline our operations is now behind us and the integration of AAG’s platform is complete. In early Q1, we finalized the transition onto one loan origination system, the last step in the full integration process. Completing this integration paves the way for the next pillar of our strategic plan, which is to modernize our go-to-market strategy. The team is energized by the opportunity to broaden our customer base moving forward. The first step is to create a unified brand to optimize and maximize our resources and reach. This entails sunsetting both the AAG and FAR brands and unifying under a single brand name of Finance of America.
Subject to regulatory considerations, this change is expected to take effect in early Q3. In parallel, we have efforts underway to modernize our digital capabilities and integrate these modern experiences throughout the entire customer journey. We know that mainstream consumers have come to expect a frictionless and intuitive experience, which we intend to deliver through these efforts. Our team also continues to optimize our core business with a heightened focus on expanding our reach through our wholesale channel. We are seeing growing interest from larger traditional mortgage lenders and servicers, specifically around our HomeSafe second lien product. In March, we expanded the reach of this product through a leading broker-facing platform and approved the product to be offered through our principal agent channel, giving partners more flexibility in how they bring the product to market.
Following the launch and the most recent loan origination system, we’ve seen interest in the product grow to over 6% of our overall submission volume. HomeSafe Second is a great example of our commitment to innovating to attract new kinds of borrowers and serve those who already have a low-rate primary mortgage but want the convenience of a flexible second lien with no monthly mortgage payments required. There is much dialogue about homeowners being locked into their current home due to rising rates and limited inventory. Those homeowners, many of whom have been turned — for a traditional HELOC because of concerns surrounding the ability to make additional debt service payments, have few options to tap their equity. We are optimistic we can continue to increase volume of this product as interest rates remain higher for longer.
Our product suite is of growing interest to our customer base, and we’re excited about our increasing pipeline volumes. When you consider the number of seniors who are financially unprepared for retirement while simultaneously holding a record amount of home equity, it’s clear that our home equity-based products can be a solution for many older homeowners. Now I’ll turn it over to Matt to discuss our financials.
Matt Engel: Thank you, Kristen. Good afternoon, everyone. Within our continuing operations for the first quarter, we recognized GAAP net loss of $16 million or $0.06 per basic share. On an adjusted basis, the company recognized a net loss of $7 million for the quarter or $0.03 per fully diluted share, a 65% improvement over the fourth quarter and outperforming every quarter in 2023. The key driver was the strong top line revenues within our Retirement Solutions business of $46 million for the quarter. As expected, funded volumes were modestly down from the fourth quarter as we completed the LOS consolidation. However, revenue margins for the segment equated to 10.8% or a 17% increase over the fourth quarter. This is due to spread tightening across our suite of products, leading to improved margins.
Expenses decreased from the prior quarter as the company continues to align our infrastructure to our current business model. Turning to the balance sheet. Our unrestricted cash balance was $48 million at the end of the first quarter, comparable to December as additional working capital financing was used to cover operating cash needs. We completed 2 proprietary securitizations during the quarter, but increased production of our HomeSafe product suite kept our loan balances available for securitization at roughly the same as the end of December. Our residuals at the end of the first quarter were valued at $250 million as tightening spreads and increases to home price appreciation assumptions mostly offset the increase in market rates in the quarter, validating our continued confidence in the long-term value of these assets.
For additional information, last month, we published a presentation on our Investor Relations website that addresses the value of these residuals and how we think about our portfolio. Finally, I want to touch briefly on our balance sheet and more specifically, the high-yield debt, which matures in November 2025. We are moving proactively to review our options and holding productive conversations with the necessary parties to identify an optimal path forward. While it is premature to discuss specifics, we are encouraged by the early conversations. With that, let me hand it back to Graham for closing remarks.
Graham Fleming: Yes. Thank you, Matt. Throughout the first quarter, Finance of American continued to execute against its strategic priorities and remain on track to return to sustained profitability. As the leading provider of home equity-based financing solutions for a modern retirement, we are well positioned to benefit from home price appreciation and a growing senior homeowner population. And with that, we’ll open the call for any questions.
See also 25 Richest Billionaires in Construction and Engineering Industry and 15 Best-Selling Rum Brands in the World.
To continue reading the Q&A session, please click here.