FOA - NYSE

Good day, everyone, and welcome to the Finance of America Third Quarter 2025 Earnings Call. At this time, I would like to hand the call over to Mr. Michael Fant. Please go ahead, sir.

Thank you, and good afternoon, everyone, and welcome to Finance of America's Third 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. 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 amended annual report on Form 10-K for the year ended December 31, 2024, 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. 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 in our earnings press release on the Investor Relations page of our website. Now I'll turn the call over to our Chief Executive Officer, Graham Fleming. Graham?

Thank you, Michael, and good afternoon, everyone. The third quarter of 2025 marked a period of strategic execution and strong performance for Finance of America. In a dynamic market environment, we remain focused on operational excellence, proactive balance sheet management and long-term growth. Year-to-date, we have reported GAAP net income of $131 million or $5.78 per basic share, reflecting the benefit of lower interest rates and tighter spreads, partially offset by softer home price appreciation projections in the third quarter. On an adjusted basis, we generated adjusted net income of $33 million for the quarter or $1.33 per share, representing a significant sequential improvement and more than double the level from a year ago. The increase was driven by improving revenues across our business with increased margins on HomeSafe and HECM products, stronger origination fee income and higher capital markets revenue as a result of the over $3 billion of notes issued in our securitizations backed by our proprietary loans during the quarter. Compared to the first 9 months of 2024, we have seen funded volumes increase by over 28% and adjusted net income grow by more than 5x from $9 million in 2024 to $60 million in the first 9 months of 2025. This translates to $2.33 of adjusted earnings per share, a major step toward our full year guidance. Turning to adjusted EBITDA. The company generated $114 million for the first 9 months of 2025, a 171% improvement compared to the same period a year ago. During the quarter, we completed a series of transactions to enhance liquidity and balance sheet flexibility. We repaid $85 million of higher cost working capital facilities and entered into an agreement to repurchase the entirety of Blackstone's equity stake in FOA. We also closed our largest proprietary securitization in company history in September, a nearly $2 billion issuance. As of September 30, these actions left the company with $110 million in cash and cash equivalents compared to $46 million as of June 30. This increase in cash provides FOA with enough liquidity to satisfy the $53 million corporate bond payments due later this month. In addition to our strong results, in October, we announced a strategic partnership with Better.com, expanding our product offerings and enhancing our technology backbone to better serve our demographic, which Kristen will touch on in more detail. Over the last several years, we've continued to invest in digital innovation, AI and data analytics, strengthening the foundation of our business. While still very early in the adoption of AI technology, we fully expect these investments to improve the customer experience, enhance the ROI on our marketing spend and increase the productivity of the organization, driving improved operating leverage. Kristen will share more on the progress we've made in these areas and the impact across our platform. Kristen?

Thanks, Graham, and good afternoon, everyone. The third quarter represented a disciplined period of execution across Finance of America. We delivered solid origination performance, advanced our technology transformation and continued to strengthen the core fundamentals that position FOA for sustainable, profitable growth into 2026 and beyond. Origination performance remained robust with funded volume reaching $603 million and submission volume reaching $887 million for the quarter compared to $764 million in the same period last year. By the end of October, for the year 2025, we funded $1.97 billion in reverse mortgages, surpassing our entire 2024 production of $1.92 billion, and October submissions totaled $336 million, the highest month in 3 years. Beyond headline volume, the team continues to make substantial progress in transforming the business model. We're embedding AI, digital automation and advanced data analytics across our wholesale and retail channels, driving measurable gains in efficiency and conversion. We're already seeing tangible results from our digital-first strategy. Over 20% of customers who engaged with our new digital prequalification completed the process without loan officer intervention. The tool, which includes a soft credit pull, delivers a 3-minute prequalification experience, setting a new benchmark for speed and customer engagement in the reverse mortgage industry. This will translate into greater efficiency per loan officer, and we saw this in October's numbers as our loan officers were able to service 25% more opportunities and generated a 32% increase in monthly submission volume over the year-to-date averages. Our continued investment in and attention to the top of the funnel is driving stronger digital engagement and setting the foundation for efficient volume growth in 2026. Unique web leads increased 16% quarter-over-quarter. Customer e-mail retention increased 36% from the time of the AAG platform acquisition and leads generated through e-mail nurture from our database increased 206% quarter-over-quarter. In the coming months, we're enhancing this digital ecosystem further with SMS engagement tools for sales teams, AI-powered call agents to provide 24/7 borrower support and AI-powered wholesale tools to improve our partner experience. These initiatives are expected to increase conversion at critical funnel points, expanding our operating leverage and the scalability of our model. We are also continuing to advance our diversification strategy through a strategic partnership with Better.com that broadens our impact into the total addressable market. These traditional home equity products enable us to serve approximately 30% more of the potential borrowers already engaging with our brand who need higher loan-to-value solutions than our current reverse suite provides. At FOA, we're not just adapting to the future of home equity, we're defining it. Our investments in digital automation, data infrastructure and AI are structurally enhancing unit economics, driving margin expansion and strengthening our long-term earnings power. As home equity continues to move from the most underused retirement asset to a mainstream solution for the modern retiree, FOA is positioned at the center of this transformation, committed to unlocking opportunities for millions of Americans to realize the full potential of their retirement. With that, I'll turn it over to Matt to review the financials. Matt?

Thank you, Kristen, and good afternoon, everyone. The third quarter reflected strategic execution and strong performance for Finance of America, highlighting both the consistent progress of our operating performance and our ability to take advantage of opportunities as they arise. On a GAAP basis, the company reported a net loss of $29 million for the quarter as lower interest rates and tighter spreads were more than offset by softer home price appreciation projections impacting the noncash fair value of our residuals. Year-to-date, the company is still significantly positive, reporting $131 million of pretax income for the first 9 months of 2025. Adjusted net income for the quarter totaled $33 million or $1.33 per share, a 125% increase from the prior quarter and more than double the level from the same period last year. This improvement was driven by higher origination margins and increased capital markets activity. For the first 9 months of 2025, we have funded approximately $1.8 billion in originations compared with $1.4 billion during the same period last year, an increase of 28% year-over-year. Adjusted net income totaled $60 million or $2.33 per share, up meaningfully from $9 million or $0.38 per share in the same period of 2024. This improvement reflects stronger margins, increased capital markets activity and continued expense discipline across our platform. Excluding fair value changes from market and model assumptions, Q3 revenues totaled $103 million, bringing year-to-date total revenue to $263 million, an increase of 22% year-over-year from $215 million in the first 9 months of 2024. During the quarter, we strengthened our liquidity through the issuance of $40 million of 0% convertible notes as well as the monetization of residual assets, completing over $3 billion in securitizations, including a nearly $2 billion securitization in September, the largest in the company's history. Additionally, we paid down $125 million of working capital and other financing facilities with $60 million remaining to be redrawn for future use. Despite these paydowns, cash levels increased from $46 million as of June 30 to $110 million as of September 30, allowing us to set aside funds for the scheduled $53 million corporate debt paydown later this month. As announced in August, we entered into an agreement to repurchase all existing shares owned by Blackstone. In accordance with GAAP accounting rules, this agreement is seen as an obligation and therefore, accounted for as a liability and a reduction to equity as of the date of the announcement. Our September 30 balance sheet reflects this liability and reduction to equity. Turning to guidance. We are reaffirming our full year 2025 adjusted EPS target of $2.60 to $3 and anticipate tracking toward the low end of our previously stated volume range of $2.4 billion to $2.7 billion. Looking ahead to 2026, we expect volume growth of 20% to 25% year-over-year, supporting a 2026 adjusted earnings per share guidance of $4.25 to $4.75 per share, which is up from $2.60 to $3 in 2025. With that, I'll turn it back to Graham for closing remarks.

Thank you, Matt. As we close the third quarter, I want to take a moment to reflect on the progress we've made. In just over a year since our transformation, we have achieved consistent profitability and expanded our leadership in reverse lending while delevering and strengthening our balance sheet. As Kristen mentioned, we're seeing strong momentum at the top of the funnel with record lead generation, higher digital engagement and continued efficiency gains, all of which give us confidence to achieve a 60% year-over-year increase in 2026 adjusted EPS guidance. These accomplishments demonstrate our progress in building a stronger, more efficient and more diversified Finance of America. Our continued investment in modernization, digital innovation and AI is enhancing productivity, expanding operating leverage and positioning us to scale efficiently as demand for home equity solutions grows. We believe we are well positioned to deliver sustained volume growth of roughly 20% annually over the coming years as we build the most trusted and technologically advanced platform for retirement-focused home equity solutions in America. We are confident in our direction, encouraged by our results and excited about the opportunities ahead. As we look to 2026, we remain committed to driving sustainable growth, enhancing shareholder value and helping more Americans discover there is a better way with FOA. And with that, we'll open the call for questions.

[Operator Instructions] We'll take the first question today from Doug Harter, UBS.

Just on the buyback, I guess, has that been completed yet? Or what is the updated time frame on that completion?

It has not been completed yet, Doug. It's really -- we're on track to complete it. Most likely that will begin later this month and into December perhaps.

And can you remind me the cash total of that, just as we think about kind of this, the uses of your current cash position?

It's about $80 million.

Okay. And then how do you think about what is the right level of cash to hold? Like how much of that capacity do you have to redraw do you think you need to do in the coming months?

So if you kind of piece it together, Doug, I think we ended the quarter with $110 million. We indicated we had paid down during the quarter $125 million of working capital facilities, right, which was $85 million of the kind of corporate general facilities and then other kind of warehouse debt. So of that $125 million, $60 million of it is available really to be redrawn as necessary. So you can really kind of add that to the $110 million we had on hand at the end of September to give you the kind of the adjusted cash capacity we have heading into the fourth quarter.

Got it. And then I guess, how should we -- obviously, a strong securitization quarter, which I imagine was a big part of the cash generation. How should we think about your cadence in the coming months, quarters of securitization? And just any update on how that market is functioning right now?

Yes. I think generally, our cadence has been to do kind of one large securitization every quarter. We did accelerate. We probably accelerated, pulled one that we had planned for Q4 into Q3. But that said, we do have a smaller securitization we expect to complete this month and it remains to be seen exactly what that timing looks like. But I do think the Q3 activity was larger than what you'd normally expect to see on a go-forward basis. The market has been performing very well. Spreads have been tight. Demand has been good. One thing we've seen, especially as we started doing some larger deals. Remember, we did a $1 billion deal in July, which at the time was our largest deal ever, followed that up with a $2 billion deal in September, doubled that. Both were very well received. And that when you start talking bigger numbers, you just get a different class of investor, multiple new investors coming in. So we saw a very good reception for our bonds in those deals.

The next question is from Leon Cooperman from Omega Advisors.

There are lots of different measures of earnings. How much cash do you generate in a typical year? In other words, how much cash would you generate in a 12-month period on average?

So Leon, I'll answer that one. So in any given year, when you look at our PTI, it may -- because we create residuals in MSR, I would say within 24 to 36 months after our P&L, that number all turns green. So if we post $100 million or $120 million of PTI for this year, you would expect over the course of 3 years that, that would all become cash?

Okay. But I want to take the $100 million divide by 3, it's a typical year.

Well, we do have currently on our balance sheet, we still have roughly $300 million of residuals and retained securities, right, that over the coming years, we'll continue to monetize those residuals, and they'll continue to turn to cash. And then our new residuals -- we'll create new residuals and new MSR on a go-forward basis.

So basically, how many shares is the new capitalization going to be?

So total what we have today about 24 million shares outstanding, right? 8 million of that will be repurchased in the Blackstone transaction, which leaves you with about 16 million. And then the convertible notes, both the $150 million we have from the prior convertible notes and the $40 million notes we just added would add about 7 million plus our stock options get you back to about 24 million. So you'll see our total fully diluted share count go from what today is about 31 million, down to about 24 million on an adjusted basis going forward.

So are you suggesting that you generate about $4 a share in cash earnings?

Yes, at $100 million in PTI, that would be correct.

And everyone, at this time, there are no further questions. I'll hand the conference back to Graham Fleming for any additional or closing remarks.

Yes. Thank you, everybody, for joining. We appreciate your participation, and we look forward to updating the full year numbers in March of next year. So thank you very much, everybody.