Finance Of America Companies (FOA) Q1 2025 Earnings Call May 06, 2025 05:00 PM ET Speaker0 Thank you for standing by. My name is Celine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Finance of America First Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. Thank you. I would now like to turn the call over to Michael Font, S ...

© 2025 Finance of America Companies 2 3 "A Better Way with FOA" Launch Campaign Our goal is to bring home equity for retirement mainstream. By placing our offering among other home equity solutions, reverse mortgages will join the product consideration set alongside more common financing options. We believe that by elevating our brand and offering a customer-centric experience that builds confidence, we will break the adoption barrier and dramatically increase the number of customers we serve. 3 4 1Moderniz ...

– $0.52 in adjusted earnings per share or $13 million of adjusted net income for the quarter – (2) (2) – Adjusted EBITDA for the quarter of $29 million – (2) Plano, Texas (May 6, 2025): Finance of America Companies Inc. ("Finance of America" or the "Company") (NYSE: FOA), a leading provider of home equity-based financing solutions for a modern retirement, reported financial results for the quarter ended March 31, 2025. First Quarter 2025 Highlights (1) The financial information presented in the highlights i ...

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Financial Data and Key Metrics Changes - In 2024, the company recognized GAAP net income of $40 million, adjusted net income of $14 million, and adjusted EBITDA of $60 million, reflecting a $200 million increase in GAAP net income and nearly $100 million increase in adjusted net income from 2023 to 2024 [12][25][36] - The company funded more than $1.93 billion in loans, a 19% increase in volume year-over-year, with expectations for 2025 origination volumes to be between $2.4 billion to $2.7 billion, representing a 26% to 42% increase from 2024 [11][23] Business Line Data and Key Metrics Changes - The reverse loan volumes grew by 19%, with a 73% increase in non-agency reverse volume year-over-year and nearly 400% year-over-year growth in the HomeSafe Second product [27][28][19] - The revenue margin on originations increased from 9.2% in 2023 to 10.7% in 2024, reflecting a 16% increase driven by a shift towards higher-margin proprietary products [28][29] Market Data and Key Metrics Changes - The demand for loans among homeowners aged 55 and above represented over 31% of all second lien originations in 2023, with seniors accounting for roughly $50 million in second lien originations annually [19][20] - HomeSafe Second originations accounted for only one-tenth of 1% of the total lending to this demographic, indicating a significant market opportunity [20] Company Strategy and Development Direction - The company aims to make home equity a mainstream component of retirement planning, focusing on expanding its reach and driving value for customers and stakeholders [13][34] - Strategic initiatives include integrating the retail platform, enhancing operational efficiency, and launching a new advertising campaign to optimize marketing efforts [10][15][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term value of the business, citing favorable demographic trends and a growing retiree population with substantial home equity exceeding $14 trillion [36] - The company anticipates continued growth and profitability in 2025, supported by disciplined cost management and strategic initiatives [34][31] Other Important Information - The company completed the largest securitization from non-agency proprietary products in its history in February 2025, enhancing liquidity and supporting growth [33] - New leadership hires were made to drive transformation, including a Chief Information Officer and a Chief Customer Officer [18] Q&A Session Summary Question: Margin pressure due to rising rates - Management acknowledged that there was some headwind in Q4 due to rising rates, but they expect improvements in Q1 as rates stabilize [41][43] Question: Guidance on origination volumes - Management reaffirmed guidance, indicating expectations for a ramp in origination volumes throughout the year, particularly with the HomeSafe Second product [46][48] Question: Update on HECM 2.0 - Management provided an update on HECM 2.0, noting progress but no effective date yet for implementation [56]

Financial Performance - Net income from continuing operations for 2024 was $40 million, translating to $1.78 basic earnings per share[4]. - Adjusted net income for the year was $14 million, or $0.60 adjusted earnings per share, reflecting a $97 million improvement compared to 2023[4]. - Adjusted EBITDA for 2024 was $60 million, marking a significant recovery in profitability[4]. - Total revenue for 2024 increased by 44% compared to 2023, driven by higher funded volumes and improved margins[13]. - Total expenses decreased from $209 million in 2023 to $195 million in 2024, reflecting operational efficiencies[13]. - The Retirement Solutions segment achieved pre-tax income of $11 million and adjusted net income of $38 million for the year[10]. - The Portfolio Management segment recognized pre-tax income of $84 million, benefiting from positive fair value adjustments and increased yield on residual interests[12]. - For the year ended December 31, 2024, the company reported a pre-tax income of $11 million for Retirement Solutions, $84 million for Portfolio Management, and a loss of $52 million for Corporate & Other, totaling a pre-tax income of $43 million[29]. - The adjusted net income for the year 2024 was $38 million for Retirement Solutions, $42 million for Portfolio Management, and a loss of $66 million for Corporate & Other, resulting in a total adjusted net income of $14 million[29]. Quarterly Performance - Total revenues for Q4'24 were $(105.623) million, compared to $290.073 million in Q3'24 and $338.171 million in 2023, indicating a significant decline[18]. - Net income (loss) from continuing operations for Q4'24 was $(142.629) million, compared to $203.748 million in Q3'24 and $40.418 million in 2023[18]. - Basic earnings (loss) per share from continuing operations for Q4'24 was $(5.95), down from $8.48 in Q3'24 and $1.78 in 2023[20]. - Adjusted EBITDA for Q4'24 was $18 million, down from $32 million in Q3'24 and $(17) million in Q4'23[21]. - The company reported a net loss attributable to controlling interest of $(59.088) million in Q4'24, compared to a profit of $84.203 million in Q3'24[21]. - Total expenses for Q4'24 were $87.056 million, an increase from $80.308 million in Q3'24[18]. - For the three months ended December 31, 2024, adjusted net income for Retirement Solutions was $8 million, Portfolio Management was $13 million, and Corporate & Other reported a loss of $15 million, resulting in a total adjusted net income of $5 million[26]. - The adjusted earnings per share for the same period were $0.31 for Retirement Solutions, $0.52 for Portfolio Management, and $(0.61) for Corporate & Other, leading to an overall adjusted earnings per share of $0.21[26]. - The weighted average share count for the three months ended December 31, 2024, was 24,429,615 shares[26]. Capital and Equity - Total equity rose from $272 million in 2023 to $316 million in 2024, an increase of 16%[8]. - Tangible net worth improved by 421%, from $19 million at the end of 2023 to $99 million at the end of 2024[8]. - The weighted average shares outstanding for Q4'24 were 9,930,520, slightly up from 9,924,671 in Q3'24[20]. Operational Insights - Reverse mortgage funded volume increased by 19% year-over-year, with $534 million produced in Q4, exceeding guidance[4]. - The company emphasizes its focus on expanding its customer base and enhancing its digital capabilities to improve loan origination quality[36]. - The company is subject to various risks, including changes in interest rates and compliance with extensive regulations, which could impact future performance[36]. Non-GAAP Measures - The company has revised its definitions of adjusted net income (loss), adjusted EBITDA, and adjusted earnings (loss) per share to include all non-cash equity-based compensation starting from Q3 2024[43]. - Adjusted net income (loss) is utilized by management to assess the underlying key drivers and operational performance of the continuing operations of the business[46]. - Adjusted EBITDA provides visibility to the underlying operating performance by excluding certain items that management does not believe are representative of core earnings[50]. - Adjusted earnings (loss) per share is calculated as adjusted net income (loss) divided by the weighted average shares outstanding, including various classes of stock[52]. - The company emphasizes that non-GAAP financial measures should not be considered as alternatives to net income (loss) or other performance measures determined in accordance with U.S. GAAP[41]. - Management believes that the presentation of non-GAAP measures enhances investors' understanding of certain aspects of financial performance[40]. - Adjusted EBITDA includes adjustments for income taxes, changes in fair value of loans and securities, and certain non-recurring costs[48]. - The company cautions users of its financial statements not to place undue reliance on non-GAAP financial measures due to their limitations[42]. - Adjusted net income (loss) may include other adjustments based on facts and circumstances to provide a supplemental means of evaluating operating performance[47]. - The company’s management evaluates performance through non-GAAP measures to maintain and grow the business[39]. Future Outlook - The company plans to host a conference call on March 11, 2025, to discuss the results for the fourth quarter and full year ended December 31, 2024[32].

Industry Overview - The Zacks Mortgage & Related Services industry is facing challenges due to mortgage rate volatility and macroeconomic factors, leading to a tightening purchase market and declining refinancing volumes [1][5] - The industry consists of providers of mortgage-related loans, refinancing, and loan-servicing, with non-banks gaining market share as banks retreat due to higher compliance and capital requirements [3] Current Trends - High mortgage rates have kept homebuyers sidelined, with the 30-year fixed rate remaining between 6% and 7% for over two years, affecting mortgage demand and origination [4] - Mortgage rates are expected to remain elevated due to strong U.S. economic fundamentals, leading to a negative trend in mortgage originations and refinancing activities [5] - The competitive landscape is intensifying, with forecasts indicating an increase in U.S. single-family mortgage debt outstanding, driven by house price appreciation, but tighter margins may challenge profitability for many originators [6] Servicing Segment Insights - The servicing segment is expected to provide support as companies face declines in gain-on-sale margins and lower loan origination volumes, with slow prepayment speeds creating tailwinds for mortgage service rights (MSR) [7] - The U.S. single-family mortgage debt outstanding is projected to reach $14.7 trillion by the end of 2025, presenting significant growth opportunities in servicing portfolios [7] Industry Performance - The Zacks Mortgage & Related Services industry currently holds a Zacks Industry Rank of 141, placing it in the bottom 43% of over 249 Zacks industries, indicating bleak near-term prospects [8][9] - The industry has underperformed the broader Zacks Finance sector and the S&P 500, gaining 13.8% over the past year compared to 28.8% and 25.2% for the sector and index, respectively [11] Valuation Metrics - The industry trades at a price-to-book (P/B) ratio of 4.77X, compared to the S&P 500's 8.89X, with historical trading ranges showing a high of 11.62X and a low of 1.18X over the past five years [13] - The Zacks Finance sector's trailing 12-month P/B ratio is 4.16X, indicating that the mortgage and related services industry is trading at a premium compared to its broader sector [15] Company Highlights - **PennyMac Financial Services, Inc. (PFSI)**: Focuses on mortgage origination and servicing, with a projected earnings estimate of $14.02 per share for 2025, reflecting a 21.7% increase year-over-year [19] - **Lending Tree, Inc. (TREE)**: Operates an online marketplace and is diversifying its offerings, with a 2025 earnings estimate of $3.37 per share, indicating a 26.4% rise from the previous year [24] - **Finance of America Companies (FOA)**: A diversified consumer lending platform with a focus on mortgages and innovative products, projecting a 256% increase in earnings to $2.67 per share for 2025 [28]

Core Viewpoint - Momentum investing focuses on "buying high and selling higher" rather than the traditional "buying low and selling high" approach, aiming for quicker profits [1] Group 1: Momentum Investing Characteristics - Momentum investing can be risky as stocks may lose momentum if their valuations exceed future growth potential, leading to potential losses for investors [2] - A safer strategy involves investing in bargain stocks that exhibit recent price momentum, which can be identified using tools like the Zacks Momentum Style Score [3] Group 2: Finance of America Companies Inc. (FOA) Analysis - FOA has shown significant recent price momentum with a four-week price change of 54.2%, indicating growing investor interest [4] - Over the past 12 weeks, FOA's stock has gained 184.1%, demonstrating its ability to deliver positive returns over a longer timeframe [5] - FOA has a Momentum Score of B, suggesting it is an opportune time to invest in the stock to capitalize on its momentum [6] Group 3: Earnings Estimates and Valuation - FOA has received a Zacks Rank 1 (Strong Buy) due to upward revisions in earnings estimates, which typically attract more investors and drive prices higher [7] - The stock is currently trading at a Price-to-Sales ratio of 0.39, indicating it is undervalued, as investors pay only 39 cents for each dollar of sales [7] Group 4: Additional Investment Opportunities - Besides FOA, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, suggesting further investment opportunities [8] - Investors can explore over 45 Zacks Premium Screens tailored to different investing styles to identify potential winning stocks [9]

Core Viewpoint - Finance of America Companies Inc. (FOA) shows a significant improvement in earnings outlook, making it an attractive investment option as analysts continue to raise earnings estimates for the company [1][3]. Estimate Revisions - The rising trend in estimate revisions reflects growing analyst optimism regarding the company's earnings prospects, which is expected to positively impact its stock price [2]. - For the current quarter, the earnings estimate is projected at $0.45 per share, indicating a year-over-year increase of +150%. The Zacks Consensus Estimate has risen by 28.57% due to one upward revision and no negative revisions in the last 30 days [4]. - For the full year, the earnings estimate stands at $0.75 per share, representing a change of +118.75% from the previous year. The consensus estimate has surged by 581.82% following one upward revision and no negative revisions [5]. Zacks Rank - The positive estimate revisions have led Finance of America Companies to achieve a Zacks Rank 1 (Strong Buy), indicating strong agreement among analysts on the upward revisions [6]. - Stocks with a Zacks Rank 1 (Strong Buy) and 2 (Buy) have historically outperformed the S&P 500, suggesting a favorable investment environment for FOA [6]. Stock Performance - Finance of America Companies shares have increased by 14.6% over the past four weeks, indicating investor confidence in the company's earnings growth prospects [7].

Core Viewpoint - Finance of America Companies Inc. (FOA) has been upgraded to a Zacks Rank 1 (Strong Buy) due to an upward trend in earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system emphasizes the correlation between changes in earnings estimates and stock price movements, particularly influenced by institutional investors who adjust their valuations based on these estimates [4][6]. - For Finance of America Companies, the rising earnings estimates indicate an improvement in the company's underlying business, which is expected to positively affect its stock price [5][11]. Earnings Estimate Revisions - For the fiscal year ending December 2024, Finance of America Companies is projected to earn $0.75 per share, reflecting a 118.8% increase from the previous year [8]. - Over the past three months, the Zacks Consensus Estimate for Finance of America Companies has surged by 581.8%, indicating strong upward revisions by analysts [8]. Zacks Rank System - The Zacks Rank system categorizes stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - The upgrade of Finance of America Companies to Zacks Rank 1 places it in the top 5% of Zacks-covered stocks, suggesting a strong potential for near-term price appreciation [11].