Q4 2020 Replay Acquisition Corp Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Finance from America fourth quarter 2020 earnings Conference call.

I would now like to turn the conference over to Michael <unk> Senior Vice President of Finance and Finance of America.

Please go ahead Michael.

Thank you and good afternoon, everyone and welcome to finance of Americas fourth quarter earnings call with me today are Patty Cook, Chief Executive Officer, and Graham Fleming President.

As a quick reminder, this call is being recorded and you can find the earnings release on our Investor Relations website at Www Dot Finance of America Dot com.

During the call we may refer to our unaudited financials and non-GAAP measures.

Which are reconciled to GAAP results to the extent available without unreasonable effort and our 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 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 todays 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 finance of America's form S. Four.

We recently filed with the United States Securities and Exchange Commission.

We are not undertaking any commitment to update these statements if conditions change please.

Please note these are interim period financial and are unaudited.

Now I would like to turn the call over to finance and Americas, Chief Executive Officer, Patty Cook County.

Thanks, Michael and good afternoon, everyone.

Today, I will share from fourth quarter, and full year highlights and our president and Cram Fleming will provide additional details on our financial results capital structure and outlook.

As it relates to our pending merger with replay acquisition Corp, which trades on the day Checker RPE L. A we remain on target to close in early April and we are quite excited to transition to a public company and to the checkout and.

All right.

The fourth quarter and to an exceptionally strong 2020 for the industry and for finance for America.

Well, we capitalized on outsized refinancing volume driving record originations. We also benefited from strong performance across our diverse set of businesses.

One of the key differentiating factors for us is our broadly diversified platform.

It generates sustainable growth across economic cycles, and capitalizes on market tailwind for us they present themselves.

Our lending businesses include mortgages were first mortgages and commercial loans.

<unk> and across distributed retail third party brokers and digital direct to consumer channel.

In addition to the lending segment, we have a fee for service business named and center and a portfolio management business that includes our broker dealer and registered investment advisor.

This diversification allows for broad reach and customer choice and.

Generate more consistent volume margin and revenue and earnings over time.

Much of our success reflected the ongoing dedication and resilience of our team members as well as the continued trust and partnership of our clients.

And as we near the important milestone of becoming a public company, we are more eager than ever to continue to generate strong for corn.

Finance for America continued to deliver on all fronts.

And strong fourth quarter results drove record full year performance.

It exceeded the high end of our prior guidance range and further demonstrated the power of our platform.

And with the rest of 2020 mortgage was the main driver for results.

And its related volumes and margin came in higher than we originally anticipated.

Furthermore, our other segments also performed exceptionally well.

Starting with hardwood first business baby boomers are increasingly looking to finance their aging in place and.

And we remain well positioned to provide capital to these borrowers that are looking to utilize this significant value accumulated and their homes without being forced to sell and move.

Our 2020 funded volume increased slightly compared to 2019 level.

Revenue and earnings were up meaningfully on a year over year basis, reflecting higher margin for the.

Product.

Looking ahead, we continue to launch new products and extend our reverse originations reach and.

As an example, we will be rolling out our new work for mortgage product and short order, which provides a unique retirement mortgage solution and <unk>.

And the attributes of a traditional mortgage with the flexibility of a reverse mortgage.

We expect that this new loan product will ramp up to be a meaningful contributor to earnings in the coming years.

On the on the commercial side, where we provide loans to residential real estate investors. Our business continues to benefit from broader tailwind, including the aging housing stock and millennium bias for newer construction or remodeled property.

He and his resumed and accelerated and the second half of the year and the segment returned to profitability and the fourth quarter.

Following the pause and origination and the second quarter related to the Covid pandemic.

Finally, low interest rates drove record origination volumes and record margin for our mortgage business and 2020.

Homeowners capitalized on the environment driving outsized refinancing activity.

And while mortgage rates remain low on a historical basis, various macro trends, including growing household formation will ultimately drive for return to a purchase market.

Importantly, as recently as the first quarter of 2019 purchases accounted for 75% of our origination volume reinforcing the strength and breadth of our multi channel distribution platform.

In addition to our lending segments are our lender services and portfolio management.

Lender services provides an array of services, including title and appraisal management that generate a recurring stream of fee revenue we.

We continue to add new business line for lender services and generated record topline growth in 2020.

Portfolio management allows us to create new products and distribute them successfully to investors, thereby completing the lending cycle.

Fortunately, our registered investment advisor and completed a key strategic initiative in the fourth quarter the for.

Nation of its first M S ARPA and.

In addition, we completed 10 securitization last year with a number of additional securitization already scheduled to close and the fed.

First for months of this year.

We expect contributions from these non mortgage segments and continued right both organically and through strategic acquisition.

Thereby providing a unique growth engine and some more.

Mortgage market shifts to drive cycle resistant for.

Supporting and continually improving our broad product and distribution capabilities is our unique technology stack.

Our infrastructure remain key to delivering best in class customer.

Experience for.

What's the ability to launch new products quickly enables efficient onboarding of new businesses and people and support complex capital markets activity.

Well 2020 with an exceptionally strong year, we are even more excited about the future.

Our platform was purpose built to create a differentiated consumer lending business with multiple product lines that complement one another but are driven by different tailwind.

Lenders services and portfolio management and further enhance the company's earnings profile.

And we outlined earlier, we continue to make progress and further broadening and diversifying the platform.

Launching our soon to be released reverse mortgage product and attracting investment to our MSR from.

And it's no coincidence coincidence that all of these development sit outside of our mortgage business further took for supplying our platform.

It is this differentiation to diversification that we believe will provide sustainable growth across economic cycles.

So with that I will now turn the call moving to Graeme to discuss our financials in more detail.

Thanks, Patty as mentioned earlier, we generated very strong results for the fourth quarter of 2020 more.

And typically funded origination volume rose, 7% on a sequential quarter basis to a record $9 8 billion with total revenues of $539 million versus $605 million and the prior quarter.

<unk> grew in line with the increase from funded volume during the quarter.

Following through we reported pretax net income of $153 million and adjusted EBITDA of $174 million for the fourth quarter of 2020.

For the full year total funded volume increased 17% to a record $32 6 billion.

Compared to $19 2 billion and 2019.

And in turn total revenues hit another record and 2020 and doubled to 1.8 billion from 894.002 million 19.

Pre tax net income of $500 million was up more than six X for 78 million generated and the prior year and.

Adjusted EBITDA was up nearly five <unk> to 597 million well above the high end of our prior guidance range of $565 million.

Turning to our segments and starting with the mortgage business. We generated record funded volumes of $8 8 billion and $7 9 billion of net rate lock volume during the fourth quarter.

Total revenue of $367 million for the quarter was down on a sequential basis, largely a function of softer net rate lock volume and a modestly lower gain on sale margin consistent with industry trends and seasonal expectations.

Pretax net income was down on a sequential basis following the record levels and the third quarter.

Full year, 2020 funded volume grew 88% and net.

Net rate lock volume increased 83 per cent compared to the prior year driving revenues up 145 per cent on a year over year basis to $1 3 billion per.

Pre tax net income totaled 460 million for 'twenty, and 'twenty up considerably versus 2019 levels.

Our reverse origination segment originates home equity conversion mortgages and proprietary non agency reverse mortgages, driving net origination gains and origination fees.

Reverse funded volumes were up 4% quarter over quarter to $654 million.

Related net origination gains and origination fees drove segment revenue to 55 million and pretax income to 33 million for the fourth quarter of 2020.

<unk> 12 per cent and 38%, respectively compared to prior quarter levels.

For the year with funded volumes, increasing 9% versus 2019 levels to $2 7 billion pretax net income was up 65 per cent due to improved margins and the segment.

On the commercial side funded volume more than tripled on a sequential basis.

307 million and the fourth quarter.

While the segment returned to profitability for the period.

For the year funded volumes revenue and earnings were down compared to 2019 levels refresh, reflecting the temporary suspension of loan originations and the second quarter as a result of COVID-19 related market uncertainty.

Originations resumed in June and accelerated through the back half of the year.

Turning to portfolio management through our integrated platform, we selectively retain and manage assets on our balance sheet.

And churn generates attractive returns and uncorrelated recurring fees and earnings.

For the fourth quarter of 2020 assets under management reached $16 9 billion up 2% on a sequential quarter basis, and 12% year over year.

Segment revenue, including gain on sale of loans fair value gains and interest income servicing income fees for underwriting advisory and valuation services and other ancillary fees declined 10% on a linked quarter basis due to fluctuations and fair value adjustments during the quarter.

Yeah.

While we recorded and the net loss on a pretax basis.

This was materially impacted by fair value adjustments brought on by COVID-19 effects to the financial markets and late first quarter 2020.

For the year. These fair value adjustments negatively impacted the segment by $50 million and 2020. The team completed 10, securitizations raising $3 3 billion in aggregate, including too and the fourth quarter reinforcing the efficacy of our model.

Finally lender services delivered the segment's strongest results to date and 'twenty two 'twenty for.

Full year pretax net income increased 300% over 2000 $19 million to $20 million driven in part by new business initiatives, including the continued growth of third party clients as well as increased adoption by F O eight companies.

Accordingly, our lender services segment generates revenues that are additive to loan origination fees and our customer base continues to grow and shift in favor of third party clients.

Turning to our balance sheet and capital management, we maintain ample liquidity with $233 million of cash and cash equivalents as well as $5 billion of advance and warehouse facilities as of December 31, 'twenty 'twenty and.

November 2020, we raised 350 million by issuing senior unsecured notes due in 2025.

We maintain plenty of capacity to continue to invest and the business organically or by capitalizing on strategic M&A opportunities.

Further diversify our platform and enhanced growth prospects with that I will now turn it back to Patti.

Thank you Graham.

And there is no question that our broadly diversified platform provides us the ability to generate growth across a multitude of economic cycles.

Our diversification and enables a broad reach and generates more consistent volume margin and revenue and earnings over time.

We remain excited about the future and we look forward to continuing to build relationships with the investment community and update everyone on our progress as we transition to a public company and build shareholder value.

Thank you for your time and have a great evening.

This concludes today's presentation. Thank you for your participation and you may now disconnect your lines at this time.