Q3 2020 Replay Acquisition Corp Earnings Call
And ladies and gentlemen, and welcome to the Finance of America third quarter 2020 earnings Conference call I would now like to turn the conference over to Michael Fat Senior Vice President of Finance and Finance of America. Please go ahead and Michael.
Thank you and good afternoon, everyone and welcome to find its the Americas third quarter earnings call with.
With me today is Patty Cook, Chief Executive Officer, and Graham Flemming President.
Other quick reminder, this call is being recorded and you can find the earnings release on our Investor Relations website at Www Dot try and that's with America Dot com.
During the call, we may refer to our and audited financials and non-GAAP measures, which are reconciled to GAAP results to the extent available without unreasonable effort and earnings release.
Also I would like to remind everyone that comments on this conference call may be forward looking statements regarding the company's expected operating and financial performance for future periods. These.
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 and today's news 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 that are described and find its of America's form S. Four week, and we filed with the United States Securities and Exchange Commission.
We are not undertaking any commitment to update these statements if conditions change.
Please note these are interim period financials and our unaudited.
Participating and the call today are Chief Executive Officer, Patty Cook and President Graham Flemming.
Now I would like to turn the call over to find its America's Chief Executive Officer Patty Cook.
Hi.
Thanks, Michael and good afternoon, everyone.
I wanted to just start like thanking all the finance and Americas team members and partners for their commitment and hard work over the years.
Are we talking the pandemic.
I would also like to thank all of our clients for their continued trust and loyalty.
And we look for ways to building relationships with the and that makes me and creating shareholder value as we transition to a public company.
Well, we are proud of our accomplishments to date, we've read and we're excited as we look for the future.
Before I dive into the business segments like what it might be helpful to provide a brief high level overview of our business and our key differentiating factor.
I am from America is a highly differentiated diversified lending platform with exceptional capabilities and the backup long product well at the same time manufacturing assets and align with prevailing investor demand.
Our platform was purpose built to create a business [laughter] better with standard cyclicality and most consumer why think this that's it.
The central Tenet and drives what we do is to engage and businesses that complement one another but are driven by different tailwinds.
Allowing us to grow learning and a wide variety of economic condition.
Over the last for years, we have maintained strong earnings growth and new business and came online.
In contrast to most other lender during this period.
For a while we continue to take advantage of the favorable rate environment within our forward mortgage segment, we see continued growth and our other lending segment and our non lending.
These non mortgage segments will provide the benefits of diversification and powerful tailwind and the mortgage market share.
And over time, we expect that contribution from these channel should grow meeting like.
Growth will come from both organically and true strategic acquisition.
Well interest rate for the driving force and the mortgage market today, well various demographic trends supporting future blending opportunity.
And mortgage and the increase in household formation that will drive a return to a purchase market.
And were very it and see aging baby Boomer, who have not paid enough for retirement I want to age and weight and.
50% and they're well tied up in their home.
Our commercial segment is well positioned for <unk> real estate and bastard meet the demands and millennial like providing the money they need to rehab to home millennial will want to rent for bye.
Importantly, our business model is dealt with technology and enable all that we do it.
It is key to delivering best in class customer buried.
Yes, [laughter] like the ability to launch new products quickly it.
And enables us to onboard new business and people efficiently and to support instigated capital markets activity.
And she is back to the lender platform is the customer weighted sale.
Needless to say today bar with me and the process and quick and easy.
Similarly, our sales team commands and set of tools and make their job easier and.
And technology, coupled with our high touch mortgage advice from approach produces customer satisfaction and loyalty.
This is reflected in our 90 plus net promoter score.
Now turning to our business segments, let's start with our lending business and.
Multi product line up includes mortgage and reverse mortgages and loans to residential real estate investor.
These products are distributed through multiple channel, including distributed retail third party brokers and digital direct to consumer.
These combine to give a range reach and allow us to connect with our customers wherever they choose.
In 2020, we have experienced record mortgage origination volume and record margin.
We are at historic lows and mortgage REIT.
And given the fed current posture unemployment and inflation, we are likely to remain here for some time.
This has created a map and incentive for homeowners to refinance their mortgage and.
And that.
Research by credit Suisse estimate, 75% to 80% of all 30 year GE and see mortgage it had at least a 50 basis point incentive to refinance.
Similar to others across our industry origination volume that remain strong through the third quarter and into the fourth quarter based on the increased refinancing activity.
We have maintained our excellent turn time, while walking funding and to liberate you referenced the volume every quarter. It gets here with.
With approximately 65% third quarter volume coming from refinancing.
Net historically in fact as recently as the first quarter 2019, 75 per kind of more volume came from purchases.
And it shows that our distribution platform is built to excel and either scenario.
In addition, because of this record volume and the industry and limitations and capacity.
Lenders revenue March and have widened significantly during 2020.
Net a reverse business and tailwinds other though that are not a function of low rate.
Rather there is a structural unmet need and sector.
Nearly 10000 people and the U.S. well turn 65 every day for the net 10 years.
Approximately 80% and its population has over 50% of their wealth tied up in home equity, which represents roughly seven trillion total addressable market.
Most of these individuals have not saved and that's the continued upon their lifestyle post retirement and most of them also want to age and play.
Tapping into their home equity be a reverse mortgage could be a very elegant solution.
Yes today, only 181 per said Oh, its population has the reverse mortgage.
We have already launched a very successful proprietary or product targeted for the population and.
Well net standard FHLB back for for mortgage product and we have plans for second proprietary products.
Most importantly, this sector represents an opportunity for us to do something great for our borrower.
Help them for all the problem and achieved there and he had to go.
We and finance of America have a real competitive advantage and the sector and we have already demonstrated our ability to innovate.
We remain focused on performance and helping the customer for less and all that.
And can volume dropped substantially year over year and that third quarter reinforcing our ability to pivot to products that are best suited to meet consumer needs.
This combined with higher net origination game produced revenue growth of 29% year over year with only 14% growth and funded volume.
On the commercial side, our business is benefiting from a couple of tailwind and.
Including the H. and housing stock and millennial bias for newer construction or remodeled property.
Our nation's housing stock and we have not been modern look.
To accommodate the demand for new and how.
The average age for a home and the U.S. and 37 years.
It was but an up tick in demand from newly formed household who may not be able to buy a home today, but nevertheless, we have a strong desire to be in a single family home. This.
[laughter] sentiment has accelerated from.
Turning and increase in small scale real estate and best are looking for financing to bite and rehab home and.
The goal of these investors is to either sell or rent those newly refurbished property.
Oh, so and it's important to note and afterwards and spending originations and the second quarter. During the third quarter, we are ramping the business back up with the reintroduction of our product.
The good news is pipeline for continuing to GAAP growth, reflecting accelerating market demand.
In addition to our lending segment, we had two non lending segment.
One it's a collection of fee for service businesses, there for by a recurring stream of revenue Cold and center.
This business allows us to capture incremental revenue true the lending credit that and to enhance and customer experience, while increasing our revenue per unit two.
Two examples of these services include title and appraisal management.
With over 1003rd Party E Bay's clients and center provides a great and growing for a month correlated growth.
The other non lending segment is our portfolio management that.
This business includes the broker dealer and asset manager and a registered and bet Goodbye.
This segment allows us to create new products and distribute them exactly to investors.
Since June of 2017, we completed 21 securitization for $6.8 billion.
Growing demand from non bank capital investment vehicle, such as insurance companies and retirement plan searching for yield is driving spreads tighter.
As a result, there remain significant investor demand for high quality and the actual losses.
We believe that our third quarter and year to date results further demonstrate the power of our diversified platform, which allows us to capitalize on an outsized opportunity when presented.
Looking ahead, we believe our platform will continue to benefit from continued low interest rates and mortgage mortgage segment and the continued tailwinds from our other sector.
We are committed to the continued growth of our diversified platform and pursue cycle resistant.
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So with that I will now turn the call for to our President Graham Flemming to discuss the financials in more detail.
Ram Thanks Patty.
As mentioned earlier, we generated very strong results for the third quarter, including total.
Total revenues of 605 million or 30% on a sequential quarter basis, and 1.25 billion year to date, representing an increase of 95 per cent compared to the prior year.
Total funded origination volume of 9.2 billion.
10% from 8.4 billion and the prior quarter and 22.9 billion year to date, representing a 68% growth rate over the prior year.
Pre tax net income of 242 million up 65 per cent compared to the per quarter and 347 million year to date is an increase of more than five times the prior year.
Adjusted EBITDA of 235 million, representing a 54% growth rate on a sequential quarter basis, and and adjusted EBITDA margin of 39%.
Now I would like to walk through a few key highlights across our five business segments.
Starting with a Ford origination segment gross and the origination and sale of mortgage loans into the secondary market drove revenue up 33% on a sequential quarter basis to 444 million for the third quarter of Twentytwenty.
Following through pre tax income for the segment was up 74% versus the second quarter Twentytwenty, while year to date earnings were up more than 18 times.
As part of you mentioned earlier, our reversed origination segment originates home equity conversion mortgages, which are insured by the federal housing administration referred to as Haggens and our proprietary reverse mortgages referred suit referred to as non agency reverse mortgages.
Reverse funded volumes declined 19% on a sequential quarter basis to 626 million. However year to date volumes of just over 2 billion or 14% higher than the prior year.
Related net origination games and origination fees drove segment revenue to 49 million and pre tax income to $24 million for the third quarter of Twentytwenty.
Year to date segment revenues totaled 139 million and pre tax income totaled 74 million compared to the prior year's levels of 108 million and 52 million respectively.
The commercial originations segment provides business purpose lending solutions for residential real estate investors and two principal ways short.
Short term loans to provide rehab and construction of investment properties meant to be sold or rented upon completion and investor rental loans collateralized by either single asset or portfolio properties.
Funded volumes and the commercial segment Reaccelerated from a standing start.
After three months Kobe and related deferment of lending operations to 19 million for the third quarter of 2020.
Related net origination gains and origination fees earned on origination of loans increased segment revenue to 5 million compared to essentially nil for the prior quarter.
The portfolio management segment consist of broker dealer and asset management type activities. These include product development.
Loan securitization loan sales risk management asset management, and servicing oversight services to the enterprise and third party funds.
The portfolio management team Connex borrowers and investors, thereby completing the lending lifecycle in a way that allows the company to innovate and manage risk through better price and product discovery.
Our financial strength enables us to selectively retain and manage assets and our balance sheet to generate attractive returns and on correlated recurring around and earnings.
For the third quarter of 2020 assets under management reached 16.6 billion up 3% on a sequential quarter basis, and 14% year over year.
As a result segment revenue, including gain on sale of loans fair value gains interest income servicing income fees for underwriting and.
I agree valuation services and other ancillary fees grew 8% compared to the second quarter with pretax income also increasing 6%.
On a quarter over quarter basis, our revenue growth outpaced the increase and assets under management.
Year to date growth includes just overcoming marks from the first quarter that negatively impacted results.
This impact notwithstanding our team was able to complete two securitizations and the first quarter for and the second quarter and two more and the third quarter.
All were completed in the midst of depend dammit reinforcing the power of our platform and the strength of our Investor base.
Including the two securitizations and the third quarter and Twentytwenty, we closed on eight transactions that raised 2.4 billion in aggregate through September.
The lender services segment provides and silvery business services title agency and title insurance services mortgage servicing rights valuation and MSR brokerage along with appraisal management services to customers and the residential mortgage student lending and commercial lending industries.
Revenue for the quarter totaled 53 million compared to 44 million and the second quarter Twentytwenty, while pre tax income rose to 8 million from 5 billion.
The sequential quarter growth was mostly a function of strong title agency and underwriting revenue and seasonal growth and the student loan fulfillment services.
Finally, we continue to capitalize on the favorable operating environment and the mortgage business, including gain on sale margins that have widened and 2020 and a lower for longer interest rate backdrop.
Through the first three quarters of this year, we have already more than quadrupled, our pretax income and adjusted EBITDA year over year.
Turning to our balance sheet, we maintain ample liquidity with 205 million of cash and cash equivalents as well as 2.9 billion of advance and warehouse facilities as of September Thirtyth Twentytwenty.
We employ a cap and light model that has historically allowed roughly 80 plus percent other income generation to be available for reinvestment in the form of acquisition and development of new products.
This gives us significant significant flexibility to seize opportunities in the marketplace and deploy capital, where we see the potential for attractive returns.
Looking ahead, we are excited to provide an update to our outlook. We provided earlier this year for the remainder of Twentytwenty.
Based on year to date results and trends through the first two months of the fourth quarter, we are raising our outlook and now expect 2020 pre tax net income to range from 435 million to 495 million from 393 million.
And adjusted EBITDA to range from 535 million to 565 million from 478 million.
As we look toward the future we're excited about and new initiatives, we believe will carry us into successful 2021 and.
And beyond.
And with that I will turn it back to Patty.
Thank you everyone for your time and interest Finance American companies provides an opportunity to invest and a differentiated consumer finance business with multiple product lines and distribution channel that we believe will provide continued sustainable growth we.
We are very excited about the future and we look forward to continuing to GAAP, our progress with you on future calls and meetings. Thanks.
Thanks and have a great.