Q2 2023 Finance Of America Companies Inc Earnings Call

Q&A session.

If you would like to ask a question. During this time simply press the star followed by the number one your telephone keypad. If you would like to withdraw your question again press the star and the number one thank you.

Michael Slant Senior Vice President of Finance you May begin your conference.

Yeah.

Thank you and good afternoon, everyone and welcome to finance of America's Second quarter 2023 earnings call with me today are Greg <unk>, Chief Executive Officer, and Johan Garrett Chief Financial Officer.

As a reminder, this call is being recorded.

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 at Www Dot Finance of America Dot com.

Also I would like to remind everyone that comments on this conference call regarding the company's expected operating and financial performance for future periods may be forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

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 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 2022.

Filed with the SEC on March 16, 2023.

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. These are interim period financials and are unaudited.

Now I would like to turn the call over to finance of Americas, Chief Executive Officer, Graham Flemming Graham.

Yeah. Thank you Michael Good afternoon, everyone and thank you for joining us on our second quarter 2023 earnings call.

And that's of America continues to lead the way and helping provide older Americans with more choices and flexibility when it comes to meeting the evolving needs of today's modern retirees.

More importantly, finance of America is now at an exciting inflection point over the last several months, we executed a series of strategic actions.

The sale of our title insurance business the sale of the majority stake of the remaining lender services business and most importantly, the initial steps in the integration of the AIG platform.

The completion of these transactions marks an important and pivotal step in the execution of our long term growth strategy designed to help Americans achieve their retirement goals with the use of home equity.

Our business is now fully transformed into a leading modern retirement solutions platform.

We believe it is well positioned for long term success.

Integrate DAA G platform.

We continued to manage our business with discipline and focus on our long term strategic priorities. This.

Include streamlining our operations to reduce expenses and investing in business lines with the greatest longterm growth potential.

Corporate expenses continued to trend downward and we expect to see additional savings in the second half of the year as we rely on our corporate infrastructure in light of recent activity.

As of June 30th where approximately 80% of the way towards savings target of $80 million to $100 million annually and.

And expect to secure an additional $20 million an annualized savings by the end of the year.

The combined finance of America, and AVG brands now have a commanding market share lead and reverse mortgages with a nearly 40% share of the hacker market year to date measured by H M. B S issuance.

Our acquisition of the AIG platform.

Sophisticated marketing engine that has the ability to further raise product awareness and increase the addressable market.

Despite a difficult economic environment in the mid of complex integration, we're starting to see positive traction in our pipeline and operational processes.

During the second quarter Finance of America assistant over 2300 customers and finding ways to thrive in retirement through the use of a reverse mortgage compared to the first quarter. This resulted in 95% increase in the number of funded loans.

This quarter, we find that $447 million, a new P. B at 25% increase from the prior quarter as we began the integration of the AIG platform into our business.

Prior to our acquisition of the AIG platform a G was the leading originator of Peckham loans and the reverse industry or.

Heck I'm volume in Q2 doubled compared to Q1, and we believe a substantial opportunity exists to sell a proprietary jumbo reverse loans through the AIG platform as well.

We've done significant work to successfully integrate DAA G teams and operations into our existing infrastructure and we are already seeing the results.

Today, the teams unified morale is high and more energized for the opportunity and long term potential in front of us.

Since the start of the <unk> integration, we have onboard it over 400 employees to bolster our retail channel and support our corporate segment continuing.

Continuing to streamline overhead costs.

Many of these resources were temporary as we work through the transitional phase.

Additionally, we onboard nearly 150 vendors into our ecosystem <unk>.

Majority of which are marketing vendors engaged to expand and strengthen our advertising and educational reach.

Finally, we are working tirelessly to identify and consolidate redundant bender engagements and overlapping loan origination systems in an effort to optimize costs and alleviate the reporting and leadership challenges that come from working out of multiple systems.

<unk> brands direct to consumer retail channel reaches more than 10 million consumers annually via targeted marketing and advertising.

Once fully integrated <unk>.

Brand and reach will enable us to better serve the growing needs of retirees across the nation.

We're encouraged by the continued strength in submission volumes in the quarter opt.

Optimistic about the rest of 2023.

Finance of America's reverse legacy wholesale channel, which has been a market leader for over 10 years has seen growth in its pipelines since the end of March and it currently stands at its highest level since late 2022.

Pipeline growth and increase in submission volume is a positive sign that should drive funded volume growth in the coming months.

We know we have a substantial opportunity to address the retirement gap in America, which we believe we are well positioned to help solve if.

If we can continue to increase awareness of our products and solutions grow our customer base and innovate new financial solutions centered around the home.

Our goal is to help our existing customers as they harnessed the power of their home and the different ways. It can be used to help obtain a better outcome later in life.

This is consistent with macroeconomic trends, we've seen for the last few quarters.

U S retirement savings gap is approaching four trillion senior.

Senior homeowners have amassed more than 12 trillion in home equity value. According to the latest data from normally.

This is our market opportunity at its core helping older homeowners use their homes as a superpower to achieve their financial goals and.

In summary, I'm proud of Howard team navigated challenges this quarter, while making huge strides in a complex integration, we continue to prudently manage our operations in rightsize our expenses.

Investing in our core business segments, where we're seeing prominent signs of growth with that I will pass the call to go on to discuss the financials.

Thank you Graham and good afternoon, everyone I.

I will provide a brief overview of our financial results before I diving to the specifics on the quarter.

Turning to the operating results accompany recognized a net loss of $221 million.91 per fully diluted share.

Which was driven primarily by negative fair value adjustments to our portfolio.

His interest rates and spreads were impacted by the fallout from the bank collapses late in Q1.

On a continuing basis the company recognized and adjusted net loss of $26 million or 12 Saint per fully diluted share.

As Greg mentioned, although we have begun to see an increase in funding volumes.

These were outpaced in the quarter by the additional operational infrastructure and further investments we made in the acquired AIG platform.

And retirement solutions, we found that $447 million in U P. B.

25% increase over the first quarter.

We expect to continue to seek quarter over quarter growth in this business as we fully integrate AIG in front of the increase in submission volume we are already seeing in our pipeline.

Revenue margins increased as the shift towards the <unk>.

Retail channel.

Two higher margin business.

For the quarter, we saw a revenue margins increased from 7.3% in Q1, 292% in Q2.

Does this increase is net of roughly 1.6% drop in <unk> revenue margin.

Order of a quarter.

Bind with the increased volume total revenue grew roughly 58% from the prior quarter.

This was however, offset by expenses attributable to the Onboarded infrastructure of the platform.

Platform.

Expenses increased by 65% quarter over quarter from $35 million to $59 million.

This increase includes transitory costs that were needed to ensure a smooth transition in Q2.

And we expect to see those costs decline starting in Q3.

In addition, we invested in the head count and marketing to expand volumes and expect to see this volume growth in Q3 and beyond as we found the higher pipeline.

Our team is focused on creating an efficient and sustainable business model that can operate in all macro environment.

We look forward to providing progress updates on this transformation in future periods.

Speaking of transformations will continue to make strides toward a more streamlined corporate infrastructure. However.

However, this is a time intensive initiative as we work to complete the ongoing efforts.

With the wind down of our discontinued operations.

<unk> sale transactions completed in the quarter.

And the sale of the title insurance business that closed on July 3rd.

Now in a position to further reduce the infrastructure to match our current operations.

Moving to the balance sheet total assets declined 1% to $26 $5 billion is the combined fair value of our portfolio of assets declined quarter over quarter due to a rising interest rates and the widening of credit spreads.

Dash balances totaled 56 million as of June 30th down from March 31st please.

Please note that this balanced does not yet include the proceeds from the sale of titled Insurance business is this transaction was completed during the first week of July .

In conclusion, it was a difficult quarter financially for the company, but we are starting to see key performance indicators training in a positive direction and we are optimistic for the remainder of 2023.

Let me know and back to Greg for closing remarks.

Yeah. Thank you John .

We remain focused on executing our strategy as we said we would and took actions we believe will best position our business for the long term.

Looking ahead to the remainder of 2023, we do not expect to achieve our previous full year guidance of nine to 12 cents adjusted earnings per share.

That said, we believe the earnings potential of the company is 40 to 50 cents for sure once the <unk> acquisition is fully integrated in the market stabilizes.

Who are marketing powerhouse in product innovation, we are confident that we can grow our customer base.

Customers needs wherever they are in life.

Serve them with Taylor retirement solutions and with that we'll open the call for questions.

At this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad.

<unk> paused for a moment to compile the roster.

Your first question comes from Steven loss. Please.

And Jones your line is open.

Thank you.

Afternoon, Graham and you'll <unk>.

Uhm.

Couple of follow up questions on some of your comments I guess first can.

Can you give us an outlook on volume up sequentially, maybe had a little below what I was looking for <unk> can you talk about what July volumes look like and you know maybe what she think quarterly run rate is going to be as we look at the back half of the year.

Thanks, David So we would.

Based on what we see currently in our pipeline with submissions.

We'd expect Q3 to be something in the 505 and a quarter range and if we continue on this growth trajectory would expect you for.

To look like something in the $600 million range.

So that's why I just put a final point on that even if you look at that very your nation volume and the earnings release. The 447, I think I think about $50 million of that is home improvement the rest is reverse right.

Okay.

Yeah, so the numbers I'm speaking with or just the reverse reverse volumes.

Just reverse on on those numbers, okay, great Uhm to touch on expenses I I, just want to make sure I'm trying like the right numbers Graham I think you mentioned, maybe 20 million more expense reductions does that compare to the 59 million number that that Johan mentioned and that's what we should look at going to you know from basically 16 40.

The 59 was for the retirement solutions only in the 20th of claimants token is the entire corporate infrastructure for the overall company Steven before allocations right and so some of that gets allocated to the retirement solution. Some of it gets allocated to portfolio management and then.

A big chunk of it is unallocated in the states behind in the corporate segment.

Okay.

20 million can be cinergy interest from here and over what time frame do you expect that.

Between now and the end of the year, we expect to generate those savings that if you look at that if you just.

Hit a chalk line today and you hit a chalk line at the end of the year and you look at the Delta.

On an annualized basis that delta should be $20 million.

Right and one last question do you have a quarter to date update on fair value marks and the cash balance that you referenced.

Does not include the the title sale or the remainder of the lender services <unk>.

It's a little bit early we we are in the market pricing and so that will dictate where spreads are so it's a little bit early to give us an indication at this point.

Thanks, a lot I appreciate it.

Alright.

Okay. If you would like to ask a question. Please press star and the number one and your telephone keypad.

There are no further questions at this time.

I tried cough.

You can call back over to ground planning.

Thank you I'd like to thank everybody for joining a call and we'll update everybody at the end of Q3 on our next door. His call. Thank you very much.

This concludes today's conference call you can now disconnect.

[music].