FOA - NYSE

Thank you for standing by, and welcome to the Finance of America Second Quarter 2025 Earnings Call. [Operator Instructions] 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 Second 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 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 America's annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 14, 2025, and amended by Amendment No. 1 to our annual report on Form 10-K/A filed with the SEC on May 20, 2025. 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 second quarter of 2025 marked another period of steady progress at Finance of America. Our performance reflects consistent execution, building momentum and ongoing validation of our long-term strategy. We funded $602 million in volume, exceeding the top end of our guidance range and representing a 35% increase from the second quarter of 2024 and a 7% increase from the prior quarter. This marks our fifth consecutive quarter of volume growth, a testament to our ability to meet the needs of our customers regardless of market conditions. We delivered GAAP net income of $80 million or $3.16 basic earnings per share. We reported $14 million of adjusted net income or $0.55 in adjusted earnings per share and $30 million of adjusted EBITDA. We continue to deliver consistent improvement with ANI up 8% sequentially compared to the first quarter. For additional context, the second quarter of 2024 was the first quarter following our organizational transformation in which we broke even on an adjusted net income. Since then, we have seen positive and improving performance each quarter. Year-to-date, ANI totals $27 million compared to a loss of $7 million in the first half of last year, reflecting the impact of our completed transformation. This performance brings our first half adjusted EPS to $1.07 per share, a strong result given the evolving macro backdrop. We also recently achieved a major milestone in the capital markets. In July, we completed our first ever $1 billion-plus HomeSafe securitization. This transaction not only validates our ability to scale, but also highlights the strength of investor demand for our assets. Looking ahead, our mission remains clear: drive greater awareness and education around the power of accessing home equity through retirement, which we believe will lead to a broader adoption of our industry-leading reverse mortgage solutions. Two strategic priorities are central to that. First, expanding scalable digital tools to improve borrower engagement; and second, enhancing the customer experience we offer to drive long-term channel growth. Ultimately, we remain deeply confident in the long- term opportunity for reverse mortgages. As more homeowners look to housing wealth to support retirement, we believe Finance of America will continue to lead the market in meeting that demand. And now I'll turn it over to Kristen for an update on our operations. Kristen?

Thank you, Graham. Q2 was a focused high execution quarter. We remained disciplined in advancing our strategic initiatives, keeping the customer and our partners at the center of our efforts. As Graham mentioned, Q2 originations topped $600 million. Compared to the first quarter, submissions also rose nearly 11% overall, and our HomeSafe Second submissions grew by almost 23%. Wholesale continues to be a cornerstone of our success with nearly 55% volume growth in Q2 this year relative to Q2 of 2024. We also increased our HMBS issuance market share in June to over 29%, our highest monthly share since January of 2024. Our Q2 average market share of 28% reflects a 4% improvement over the average of the prior 3 quarters. These trends reinforce confidence in our growth trajectory. Turning to our retail platform. As of June 30, we fully transitioned to our new A Better Way with FOA campaign, concluding our long-standing partnership with Tom Selleck. Early indicators are promising. In just 90 days, TV leads signal growing appeal among younger demographics and in markets with higher home values. At the same time, our digital acquisition strategy is gaining traction with a 10% increase in leads from digital channels. We're also making major strides in technology. In June, we launched the industry's first digital prequalification experience, paving the way for scalable, borrower-friendly engagement, especially around second-lien home equity loans. AI is playing a pivotal role here, accelerating development, boosting operational efficiency and improving analytics and document management. Looking ahead to Q3, we're expanding this digital platform to a wider audience. By combining seamless online access with expert loan officer support, we're enhancing both scale and service. We will also be introducing our new AI-powered virtual call agent to improve off-hour engagement and elevate customer experience by the end of the year. Customers want speed and simplicity, and our digital experience is being designed to deliver both. According to HMDA, subordinate-lien loans for senior borrowers grew 20% year-over-year, reaching $49 billion in volume. Finance of America is meeting this demand through our HomeSafe Second product, while a significant opportunity remains ahead as we continue to expand its reach through digital integration. Overall, Q2 marked continued progress toward our long-term vision to become the most trusted brand for homeowners entering the next chapter of life. We're building a smarter, scalable and service-led retirement solutions platform, and we're confident these investments will drive sustainable growth through 2025 and beyond. Before I wrap, I want to recognize the incredible impact of Finance of America Cares, our employee-funded nonprofit, celebrating 8 years of service. To date, Cares has granted over $3.2 million to our local communities and employees in crisis, donated 12,000 hours of service and positively impacted more than 2 million lives. This speaks volumes about our culture, and we're just getting started. Thank you to every team member who contributes. With that, I'll turn it over to Matt to walk through the financials. Matt?

Thank you, Kristen, and good afternoon, everyone. Q2 was another strong quarter marked by continued growth and financial discipline. Our funded volume totaled $602 million, up 7% from the $561 million in Q1 of '25 and 35% above the $447 million in the second quarter of last year. This marks our fifth consecutive quarter of volume growth. We continue to see meaningful improvement in our GAAP results this quarter. For Q2, the company reported GAAP net income of $80 million or approximately $3.16 per basic share compared to a loss of $5 million in the same period last year. These results were driven by steady production momentum and enhanced operating leverage. Fair value marks also remained positive, supported by tighter deal spreads, declining index rates and stable home price assumptions. Adjusted net income came in at $14 million, $1.1 million or 8% higher than the first quarter of $12.9 million with adjusted EBITDA of $30 million for the quarter, reflecting strength in both top line performance and margin discipline. Our adjusted EPS for Q2 was $0.55, bringing first half of 2025 adjusted EPS to $1.07. Based on our current trajectory, we remain on track to deliver within our full year guidance range of $2.60 to $3 a share in adjusted EPS with continued operating leverage positioning us for a higher run rate exiting the year. Revenue, excluding fair value changes from market inputs or model assumptions totaled $84.8 million in Q2, up 6% quarter-over-quarter from $79.9 million in Q1 and up 22% year-over-year from $69.4 million. This sequential and annual improvement reflects the commitment to our growing originations platform. On the expense side, we remain disciplined. Our cost structure continues to align with our current scale, and we are realizing improved operating leverage as we grow. Compared to the prior quarter, total expenses were higher by approximately $2.7 million. While variable expenses, including variable compensation, loan production and portfolio expense and marketing increased in line with higher volume and strategic marketing investments. This was somewhat offset by continued reductions in our fixed cost base. Compared to Q2 of last year, fixed expenses were lower by $4 million with significant decreases in professional fees and technology-related expenses. These 2 categories underscore recent efforts by the team to negotiate continued reductions and vendor-related spend. Turning to the balance sheet, we ended the quarter with $275 million in tangible net worth, up from $187 million in Q1, driven by our retained earnings. Book equity totaled $473 million at quarter end. On the capital markets front, we securitized over $800 million in proprietary loans during the second quarter. In July, we built on that momentum by closing a $1.2 billion transaction, our largest to date and the first in company history to exceed the $1 billion mark. This milestone not only reinforces the strength of investor demand for diverse assets, but also positions us well to execute on our broader capital plan. We reaffirm our full year guidance of $2.4 billion to $2.7 billion in originations and $2.60 to $3 in adjusted EPS. For the third quarter, we expect funded volume in the range of $600 million to $630 million. With that, let me hand it back to Graham for closing remarks.

Thank you, Matt. Before we open the call for questions, as announced yesterday, we have paid off our higher cost working capital facility and entered into an agreement with Blackstone to acquire the remaining equity stake in Finance of America. This marks a natural evolution in our journey, and I want to take a moment to thank our long-time partners at Blackstone for their support over the last 10 years. Their belief in our team and our vision played a meaningful role in shaping the company we are today. Looking forward, we are excited for the further support of long-time investors and bondholders through a new convertible debt facility. We are well positioned to aggressively pursue our next chapter of growth. As we mark this turning point in our ownership, it's an appropriate moment to step back and reflect on how far we have come. Just 1 year ago, we were exiting a period of transformation. Since then, we've delivered 5 consecutive quarters of volume growth, regained profitability, launched a national brand campaign and stabilized our balance sheet. More importantly, we're helping more people understand that there is a better way, a better way to age, a better way to manage financial uncertainty and a better way to tap into the value they built through homeownership. There is a better way with FOA. And with that, we'll open the call for questions.

[Operator Instructions] And your first question comes from the line of Doug Harter with UBS.

I wanted to get clarity on your reiterated guidance. And does that factor in paying off the working capital line and the impact of the buyback?

So not specifically, Doug, I think we were on track to kind of meet that target even without that. But to get that in context, you hit on 2 important points, which I think should help us obviously meet that target as well, right? So the first impact on the payoff of the higher cost working capital lines. In gross numbers, we retired $85 million of working capital line at 15% rate of interest. And we replaced it with $40 million of exchangeable notes that bear 0% interest and a $20 million working capital line at 10%. So we're going to see about a $10 million annualized reduction in our interest expense just from that transaction. Then the timing on the share count, we've got a window between 105 and 120 days out, which puts that somewhere around the end of November, right? So you'd expect to see that reduced share count partially in our Q4 numbers, but more important as we project into 2026.

Great. Appreciate that, Matt. And then can you just talk about how you're thinking about kind of the sources and uses to pay off the working capital line and then to fund the buyback later this year?

Yes, absolutely. So the convertible deal closed yesterday, and the working capital was paid off yesterday. So that's done. We have a series of transactions between now and the end of the year that will fund not just the repurchase of the equity, but also the amortizing payment to the bondholders that's due at the end of November.

Great. Appreciate that. If I could just get one more, like how are you thinking about the long term? What is the right capital structure for the business? What's the right leverage level to kind of making good progress on your transition here?

I mean it's a fair question, Doug. I think first things first for us is to think about how to retire the debt we have on hand, right? So remember, a year ago, we exchanged that $350 million of debt for $200 million, which $50 million being paid back this November. With this latest support agreement and amendment, we'll pay back $60 million of that by November of '26 and the remaining $90 million in November of '27. So that's kind of our first order of business in the capital structure thinking. The remaining $150 million convertible note, I think eventually will convert to equity. So I think once we get a line of sight to just getting past those milestones, we'll have some additional thoughts as to the capital structure going forward.

There is no further question at this time. I will now turn the call over to Graham Fleming for closing remarks.

Thank you, everybody, for joining the call. Another great quarter for Finance of America, and we look forward to updating you on our Q3 numbers later this year. So thank you very much.