FOA - NYSE

Thank you for standing by. My name is Celine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Finance of America First Quarter 2025 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. [Operator Instructions]. Thank you. I would now like to turn the call over to Michael Fant, Senior Vice President of Finance. Please go ahead.

Thank you, and good afternoon, everyone, and welcome to Finance of America's first quarter 2025 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 and additional materials on our Investor Relations website at ir.financeofamericacompanies.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 to the extent available without unreasonable efforts discussed on today's call 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 Americas' Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 14, 2025. As such, 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 today we will be discussing interim period financials for our continuing operations, which are unaudited. Now, I would like to turn the call over to Finance of America's Chief Executive Officer, Graham Fleming. Graham?

Thank you, Michael. Good afternoon, everyone, and thank you for joining us today. The first quarter marked another important step forward in our strategy to raise awareness about the importance of home equity for homeowners 55 and up and position reverse mortgages as a preferred tool to unlock housing wealth. We continue to lead with innovation, scale, and customer trust. As a result, we delivered $561 million in funded volume during the first quarter, exceeding our guidance range of $525 million to $550 million. That marks our fourth consecutive quarter of volume growth and a 32% improvement over the first quarter of 2024. During the quarter, we benefited from a modestly lower rate environment with a 10-year treasury falling roughly 35 basis points, which was partially offset by widening spreads. On the whole, this resulted in a broadly positive fair value environment, creating a tailwind for our performance. From a financial performance perspective, we generated $80 million in GAAP net income or $3.17 basic earnings per share. On an adjusted basis, the company earned $13 million in adjusted net income or $0.52 per share, an improvement of $20 million from the first quarter of 2024. We remain on track to meet our full year guidance of $2.4 billion to $2.7 billion in funded volume and $2.60 to $3 in adjusted earnings per share. Beyond the numbers, Q1 marked a strategic turning point in how we engage with borrowers and reshape industry perception. With the recent launch of our new A Better Way with FOA campaign, we are redefining how reverse mortgages are understood, moving the product from the margins into the mainstream as a flexible, forward-looking financial planning tool for homeowners 55 and up. Finance of America is setting the standard for how our industry communicates the role of reverse mortgages and Kristen will speak more about the new campaign. We believe this strategic repositioning strengthens our brand and supports long-term growth. Finally, we continue to see the advantages of our product suite flexibility by offering a broader range of solutions and the ability to introduce new products to address emerging needs, we are able to better serve our customers. This approach allows our customers to access the most suitable products to support their individual needs and circumstances. And with that, I'll turn it over to Kristen.

Thanks, Graham, and good afternoon, everyone. The first quarter marked a pivotal moment in actualizing our operational and brand strategy. As part of our commitment to elevating customer engagement, we recently launched our new messaging campaign A Better Way with FOA. This campaign marks a shift away from traditional celebrity endorsement towards storytelling that reflects real life goals and aspirations of today's homeowners. Our goal was to create ads that highlight relatable use cases that dismantle stereotypes and show reverse mortgages as a smart tool for responsible financial planning, whether it's funding a renovation, covering unexpected expenses, or simply enabling peace of mind. We're embedding this message across every customer and marketing touchpoint and we expect the full transition will be complete by the end of June. To give you a closer look at the campaign in action, we posted a few examples of our creative materials on our Investor Relations website. We believe this new platform will enable us to attract and convert a new, broader audience, one, that is experienced and comfortable with leveraging home equity to responsibly achieve their financial goals and that has a higher intent to transact, a modest 5% improvement in our lead to opportunity metric would support the growth in retail production that we've modeled for the year, with additional upside as we continue to focus on optimizing the customer journey. While the campaign has only been in market at a small scale for less than one month, we're already seeing this play out in our early direct mail results, which has shown a 16% improvement in our upper funnel inquiry to lead conversion. As we gain insights into the new types of customers engaging with our brand, we will utilize this data to inform our growth strategy and drive product innovation. Given the various economic uncertainties impacting our customers, including stock market volatility, risk of recession and further inflation, we're confident that our current solutions can assist many Americans in achieving the stability they seek. Furthermore, we're well-positioned to introduce new solutions to address additional needs. In addition to launching the new brand platform, we've continued to focus on the fundamentals across the business and have seen notable improvements across key operational metrics in Q1. Quarter-over-quarter, we doubled the percentage of retail loans funded within the first 30 days from submission, we increased the initial 30-day sales conversion rates by 40% and we reduced our cost per opportunity by 12% over the same period. Our continued focus on operational excellence is strengthening the business and laying the groundwork for future growth investment. Before I hand it over to Matt, I'd like to congratulate Jon Scarpati on his recent promotion to Chief Production Officer of our operating subsidiary, Finance of America Reverse. Jon has been the head of our industry-leading wholesale division for over a decade. In this new role, Jon will oversee our sales and production strategy, heading both the wholesale and retail channels. We believe this leadership will be key to helping us unlock the massive growth potential we know is available within our category. With momentum on the brand and operations front, I'll turn it over to Matt to discuss our financial performance. Matt?

Thank you, Kristen, and good afternoon, everyone. The first quarter of 2025 was strong across several key metrics. We delivered $561 million in funded volume, up 5% from fourth quarter of 2024, and 32% from the first quarter of 2024. As Graham mentioned, this was the fourth consecutive quarter of volume growth for the company. We also saw meaningful improvement in our GAAP results. For the first quarter, the company recorded GAAP net income of $80 million, or $3.17 per basic share, compared to a GAAP net loss of $16 million or $0.58 per basic share in the first quarter of 2024. These results were aided by positive fair value adjustments during the quarter. While spreads widened slightly, overall valuations remained positive given declining base rates and stable home price appreciation assumptions. Adjusted net income for the first quarter came in at $13 million or $0.52 per share. This result was in line with our stated expectations, performing similar to the third quarter of 2024. Compared to the first quarter of 2024, when we reported an adjusted net loss of $7 million, the company saw a $20 million improvement year-over-year. This turnaround reflects three key elements of strong operational performance: higher volumes, a fully integrated business, and disciplined expense management. Quarter-over-quarter, adjusted net income improved by $8 million, increasing from $5 million in fourth quarter of 2024. This performance reflects our ability to grow volume efficiently while maintaining margin discipline, even in a dynamic rate environment. Adjusted EBITDA totaled $29 million. This represents an $11 million improvement from $18 million in fourth quarter of 2024 and a $29 million increase from breakeven in the first quarter of 2024. Building on that, product level margins improved quarter-over-quarter as expected. However, total Retirement Solutions revenue margin was flat sequentially driven by a shift in channel mix. Our wholesale channel exceeded volume expectations, helping us beat our overall guidance. However, since wholesale carries lower margins, channel mix offset the product level improvement and our overall revenue margin was flat. Turning to our cost structure. We saw further improvements both sequentially and year-over-year as a result of our disciplined approach to vendor spend. Compared to first quarter of 2024, general and administrative expenses declined by $4.3 million, representing a 25% year-over-year reduction. A key contributor to this was a 35% decrease in communication and data processing expenses, which reflects our ongoing efforts to right size our vendor relationships and optimize our technology infrastructure. These savings highlight the efficiency gains we continue to unlock through proactive cost management. Speaking of efficiency, across the platform, operational productivity continues to trend favorably. We originated higher volumes with a more streamlined team, leading to an increase in loans per employee of 33% across our origination platform compared to the first quarter of 2024. We expect to continue to see this trend upward due to the scalability of our model and the benefit of our ongoing digital transformation. Our liquidity remains adequate and we remain healthy -- maintain healthy financing capacity to support our continued growth projections. We are reaffirming our full year guidance for both volume and earnings. $2.4 billion to $2.7 billion in origination volume and $2.60 to $3 in adjusted EPS. In addition to the second quarter, we expect to see funded volume in the range of $575 million to $600 million. With that, let me hand it back to Graham for closing remarks.

Thank you, Matt. We are happy with our progress in Q1 and confident in our ability to continue to execute going forward. Our message is resonating, our platform is delivering, and our strategy is taking hold. Older homeowners are increasingly aware of the value sitting around them their home equity. When investment portfolios are under pressure, the relative stability of housing creates a compelling case for tapping into home equity. As the largest originator of reverse mortgages in the country, we believe, we are well-positioned to meet the moment. There is a better way with FOA. And with that, we'll open the call for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Doug Harter with UBS. Please go ahead.

Thanks. This is actually Will Nasta on for Doug today. I know you gave guidance for 2Q volumes, but I was just hoping you could talk for a minute about how the rate volatility, particularly in April, impacted volumes and kind of what you're -- what you've been seeing in the market so far this quarter.

I'll take the second part of that question. April was actually our best submission and funded volume month in the last two years, so very strong volume in April. I don't know, Matt, if you want to take the rate environment and volatility though.

I mean, I think certainly rates continue to bounce around a little bit. So we're kind of taking it day by day, but we haven't seen any significant movement yet either way in terms of the rate impacting our volume at this point.

Okay. All right. That makes sense. Thanks. And then just one more, could you just talk about what your outlook for expenses are? Obviously, they've come down a decent amount over the last year plus. I'm just curious how you're thinking about your expense base going forward.

So kind of reiterate what we said in prior quarters, that our fixed cost base is relatively fixed, right? As production increases, we expect there'll be some variable expenses increase along with that, but the fixed base is relatively fixed. That said, on the fixed side, now, we continue to see we were much bigger business a couple years ago. We consider to see opportunities, what we call sharpen the pencil. As contracts renew and we can renew for a lower e-count, lower number of licenses, we see some downward pressure on some of those expenses. But relatively speaking, our fixed corporate infrastructure is going to be fixed and we'll only have the variable expenses on increased production. We do feel like our platform can handle significantly more production without putting a lot of pressure on that fixed cost base.

That concludes our question-and-answer session. I will now turn the conference back over to Graham Fleming for closing remarks. Please go ahead.

I want to thank everybody for joining our Q1 call. And we look forward to updating you on our progress in Q2 in August. So thank you very much, everybody.