Finance Of America Companies - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 was mixed: funded volume rose to $534 million (+20% YoY; +4% QoQ), but GAAP total revenues were negative ($-105.6 million) and GAAP net loss from continuing operations was $142.6 million; non-GAAP adjusted net income was $5 million and adjusted EBITDA was $18 million.
• Management emphasized that fair value headwinds and rate volatility compressed Q4 originations margins, while full-year revenue margin expanded to 10.7% from 9.2% in 2023, underpinning the Company’s return to profitability for the year.
• Guidance catalysts: Q1 2025 origination volume $525–$550 million (implying 25–30% YoY growth vs Q1 2024), full-year 2025 origination volume $2.4–$2.7 billion, and reaffirmed full-year adjusted EPS of $2.60–$3.00; management expects Q1 2025 results “similar to Q3 2024” given strong margins and cost discipline.
• Strategic tailwinds: largest non-agency proprietary securitization executed in Feb 2025, expanded HomeSafe Second (reverse second-lien) product footprint, and a modernized, AI-enabled data/reporting stack and brand transition to ramp volumes through 2025.

What Went Well and What Went Wrong

What Went Well

• Reverse mortgage production momentum: Q4 funded volume $534 million, outpacing prior guidance, and full-year funded volume up 19% YoY to ~$1.918 billion; Retirement Solutions segment full-year adjusted net income improved to $38 million on higher margins and lower expenses.
• Margin/efficiency improvements: Full-year originations revenue margin expanded to 10.7% from 9.2% (+16%), and ~$48 million cost reduction driven by automation and operational streamlining; “continued operational improvements” drove adjusted EBITDA to $60 million for FY 2024.
• Strategic initiatives and capital markets execution: Management completed a corporate bond exchange (~98% participation), reverse stock split, increased warehouse capacity, and executed the largest proprietary securitization in Feb 2025; “positioned well for continued profitability and growth in 2025”.

Quoted management remarks:

• “2024 was a year of significant momentum… driving the company’s return to profitability.”
• “We overhauled our data and reporting infrastructure using AI-driven tools, enabling us to capitalize on trends that drive performance.”
• “For the first quarter of 2025, we expect origination volume to be between $525 million to $550 million… and we reaffirmed our full year adjusted net income projection in the range of $2.60 to $3 per share.”

What Went Wrong

• GAAP volatility from fair value marks: Q4 total revenues were negative ($-105.6 million) as fair value changes from market inputs/model assumptions swung to a $-173.1 million loss; net fair value changes on loans/obligations were $-169.1 million in Q4.
• Rate-driven margin pressure in Q4: management held consumer rates to preserve senior proceeds amid rate volatility, which lowered Q4 revenue margins vs Q3; margins expected to normalize in 2025.
• Higher total expenses QoQ: Q4 total expenses and other rose to $96 million (+17% QoQ), reflecting higher loan production and marketing costs; however, full-year expenses tracked lower YoY.

Transcript

Operator (participant)

Thank you. I would now like to turn the call over to Michael Fant. Please go ahead.

Michael Fant (SVP)

Thank you, and good afternoon, everyone, and welcome to Finance of America's fourth quarter and full year 2024 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 and presentation on our Investor Relations website at ir.financeofamerica.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 and presentation 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, 2023, filed with the SEC on March 15, 2024. 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, today we will be discussing interim period financials for our continuing operations, which are. Now, I would like to turn the call over to Finance of America's Chief Executive Officer, Graham Fleming. Graham.

Graham Fleming (CEO)

Thank you, Michael. Good afternoon, everyone, and thank you for joining us today. To begin, I would like to highlight the successful year we had in 2024. I will then turn things over to Kristen to share updates on the business, followed by a review of our financials from Matt. 2024 was a year of significant momentum for Finance of America. Throughout the year, we accomplished numerous strategic objectives that strengthened our balance sheet and enhanced the business, driving the company's return to profitability. Despite market uncertainty in 2024, we focused on what we could control to improve the fundamentals of the business. We integrated our retail platform, finalized our corporate bond exchange, completed our reverse stock split, rationalized corporate overhead, and increased our funding facilities. We believe these actions have positioned us well to execute our 2025 strategic objectives.

For the year, we funded more than $1.9 billion in loans to help our customers, a 19% increase in volume year over year. Carrying this momentum into 2025, we expect full-year origination volume to be in the range of $2.4 billion-$2.7 billion, a 26%-42% increase from 2024. Turning to the income statement, in 2024, the company recognized positive results for GAAP net income of $40 million, adjusted net income of $14 million, and adjusted EBITDA of $60 million, reflecting continued operational improvements. These improvements are best represented by the $200 million increase in GAAP net income and the nearly $100 million increase in adjusted net income from 2023 to 2024. Please note our performance, which is a testament to the hard work and dedication of our team.

Finance of America is making home equity a mainstream component of retirement planning, and we remain confident in our strategic direction and the long-term value of the business. For additional information, please refer to the presentation on our Investor Relations website outlining our total addressable market and investment opportunity. As we wrap up 2024, I want to thank our incredible team for their dedication and hard work. Because of their efforts, Finance of America is well positioned for an exciting year ahead. In 2025, we look forward to building on our momentum, expanding our reach, and driving even greater value for our customers and stakeholders. Now, I'll turn it over to Kristen for an update on our operations.

Kristen Sieffert (President)

Thank you, Graham, and good afternoon, everyone. 2024 marked a significant period of strategic alignment for the business. We successfully unified the company under a single brand and fortified our foundation and culture to support the growth we have planned for the forthcoming years. Despite the challenges that acquisitions can often present, I'm exceptionally proud of how our team has collaborated to establish a robust footing for this next chapter. Key milestones included the complete integration of the retail platform, which enhanced our efficiency and profitability. We expanded our second lien reverse mortgage to additional states and made the product available to our wholesale partners in one of the industry's leading technology platforms. We also overhauled our data and reporting infrastructure using AI-driven tools, enabling us to capitalize on trends that drive performance.

These milestones, combined with successful execution of our remaining operational initiatives, positioned us to close 2024 with our largest production month since 2022. Looking ahead, we anticipate continued growth as we further optimize the fundamentals within each channel and focus on areas with significant upside opportunities. This year, we also added new leadership hires to drive our continued transformation. Joining our Finance of America Reverse team are Brian Koneeny as Chief Information Officer and Karime Benaissa as Chief Customer Officer. We believe their leadership will be pivotal in enhancing the customer journey and enabling us to more meaningfully tap into the $14 trillion senior home equity market. While we experienced significant momentum in our HomeSafe Second product in 2024, with 77% growth between the first and second half of the year, the market opportunity is staggering relative to our current penetration.

The demand for loans among homeowners aged 55 and above remains a significant portion of the broader home equity market, representing over 31% of all second lien originations in 2023, based on data made available on the FFIEC HMDA platform. Applying that share to the $167 billion in second lien originations reported by Inside Mortgage Finance for the first nine months of 2024, seniors would represent roughly $50 billion in second lien originations annually. However, within this massive market, HomeSafe Second originations accounted for only one-tenth of 1% of the total lending to this demographic. This highlights the enormous opportunity ahead. By capturing even a small fraction of this market through our digital transformation, expanded partnerships with traditional lenders, and modernized advertising campaign and brand platform launching in Q2 this year, we believe we can drive substantial growth in home equity for retirement adoption.

Despite operating in a challenging mortgage environment, our team delivered exceptional performance in 2024. With strong demographic tailwinds and a growing emphasis on home equity solutions, we will continue to drive innovation and expand our offerings to capture a growing market. We are optimistic about what we can achieve in the years ahead with our talented team, strategic vision, and operational strength to continue driving success and value creation. Now, I'll turn it over to Matt to discuss our financials. Matt.

Matthew Engel (CFO)

Thank you, Kristen. Finance of America finished 2024 on a strong note, Q4 funding volume of $534 million, surpassing our previously provided guidance. For the full year, we funded $1.93 billion in volume, a 19% year-over-year increase, reflecting our strategic growth initiatives and discipline execution. This translated to net income of $40 million, adjusted net income of $14 million, adjusted EBITDA of $60 million, and adjusted EPS of $0.60 for our fiscal year 2024. For the fourth quarter, the company reported a net loss of $143 million, or $595 per share. However, our adjusted net income of $5 million, or $0.21 per share, reflects our continued strong performance for 2024.

Year-over-year, we achieved a $206 million increase in GAAP net income and a nearly $100 million increase in adjusted net income, a 178% improvement in adjusted EBITDA, and a 116% rise in adjusted EPS compared to the full year of 2023. This marks a significant improvement from last year when we were still integrating our retail platform and navigating margin compression due to broader market conditions. Additionally, our corporate cost structure has continued to improve, building on the nearly $90 million in annualized expense reductions we achieved last year. These structural changes have positioned us for stronger financial performance moving forward. Our profitability improvements were driven by three key factors. First, reverse loan volumes grew by 19%, driven by several strategic initiatives. We remain the largest issuer of HMBS in 2024 while also expanding our non-agency reverse offerings, resulting in a 73% increase in non-agency reverse volume year-over-year.

Our second lien product, HomeSafe Second, scaled significantly, achieving nearly 400% year-over-year growth, demonstrating strong demand from homeowners seeking to tap into home equity while preserving their low-rate first lien mortgages. Additionally, we successfully integrated our retail platform to streamline the loan origination and funding process. Second, an expansion of revenue margins within our originations platform. During 2023, business recognized a revenue margin of 9.2% on $1.6 billion of production. During 2024, this margin grew to 10.7% on $1.9 billion of production, representing a 16% increase in margin. This improvement was driven by several factors, including an additional quarter of production from the onboarded retail platform, which contributed $125 million more in volume compared to 2023. Additionally, product mix shifted toward our proprietary non-agency product suite, contributing to higher margins.

These factors, combined with improved execution of proprietary products, contributed to the overall revenue margin expansion, which we expect to continue in 2025. Third, we achieved significant cost efficiencies and reductions through disciplined expense management, resulting in a $48 million reduction in our cost base. This can be attributed to technology-driven process automation, which streamlined loan processing and eliminated operational inefficiencies. Lower corporate overhead achieved through workforce optimization, real estate consolidations, and administrative expense reductions, as well as improved funding efficiency, as our expanded warehouse lending capacity and strategic financing initiative helped lower our funding costs and enhance our liquidity. Other net value gains remained positive despite the 10-year treasury yield increasing by nearly 75 basis points for the year. This was driven by tighter spreads, increased home price appreciation expectations, and slower prepayments.

Looking ahead, our improved financial foundation and disciplined cost management efforts have set the stage for continued profitability and growth in 2025. For the first quarter of 2025, we expect origination volume to be between $525 million-$550 million, a 25%-30% increase from the first quarter of 2024. For the first quarter, this volume has been coupled with strong revenue margins in our originations platform, which should lead to results similar to the third quarter of 2024. Additionally, we reaffirm our full-year adjusted net income projection in the range of $2.60-$3 per share, supported by our focus on cost discipline and capital efficiency. In February 2025, we successfully completed the largest securitization of non-agency proprietary product in the company's history. This transaction included a mix of new and seasoned collateral, demonstrating our ability to execute complex capital markets transactions at scale.

This milestone reinforces our position as a leader in the non-agency reverse mortgage market while enhancing liquidity and supporting continued growth. As we continue to build on our momentum, our focus remains on delivering profitable growth, optimizing our capital structure, and driving long-term shareholder value. With our strategic initiatives in place, we are well positioned to capitalize on the market opportunities and sustain our trajectory in 2025 and beyond. With that, let me hand it back to Graham for closing remarks. Yes, thank you, Matt. 2024 was a year of significant transformation for our business, making us notably stronger and more resilient compared to 2023. We achieved substantial progress across multiple key areas, positioning us well for 2025. Operationally, we expanded our product offerings, launched targeted marketing campaigns, and strengthened our brand presence. Financially, our discipline management and strategic initiatives have led to substantial improvements in our financial health.

The demographic trends in the U.S. further reinforce our confidence in the long-term value proposition of our business. With a growing retiree population and substantial home equity among older homeowners now exceeding $14 trillion, we are well positioned to capitalize on favorable market conditions. We are confident in our ability to continue delivering value by empowering our growing customer base to leverage home equity for a better retirement. With that, we'll open the call up for some questions.

Operator (participant)

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Stephen Laws with Raymond James. Please go ahead.

Stephen Laws (Managing Director)

Hi, good afternoon. I kind of want to get a little color. I think you guys hit a couple of these points through the prepared remarks. As I think about the net origination gain number that runs through revenue, Matt, and you mentioned Q1 may look more like Q3 of last year, was there some pressure on margins just given the rates moving higher? It created somewhat of a headwind as we moved through Q4. Is that trend something we're seeing reversing in Q1? Can you maybe talk a little bit about the net gain on originations line?

Matthew Engel (CFO)

I think, Stephen. Yeah, I think it's fair to say rates have been a little volatile. There was a little bit of headwinds in Q4 as rates kind of increased. We've seen a lot of that start to decrease here in the first quarter. We're almost mostly way through the first quarter. We have a pretty good sense of how first quarter is shaping up. We think all in, comparing to the third quarter of last year is probably a fair comparison. The factors you point out, I think, are absolutely correct.

Stephen Laws (Managing Director)

Great. If I think about.

Matthew Engel (CFO)

Yeah.

Graham Fleming (CEO)

Stephen, I was just going to add to that. Right? So when we price our loans to the consumer, right, that initial rate determines the proceeds that the consumer receives. Right? Obviously, given the demographic that we deal with, as we work through the process, we do not change those rates because that would directly impact the cash proceeds that the senior would receive. We kind of hold that rate. Unfortunately, with the volatility in Q4, it did lower revenue margins. I think, as we said on our last call, Q3 was a little higher than what we have seen on an average basis, and Q4 is a little lower. The overall year, they have been kind of consistent in Q1 and Q2 of last year, and we kind of expect similar margins in 2025.

Stephen Laws (Managing Director)

Great. Appreciate that. I wanted to touch on the guidance. You guys reaffirmed guidance, and Graham, you started with kind of providing a range on originations that underpins that guidance, I believe. Matt, if we take your Q1 number, you're really looking at about $2 billion of remaining originations through the last three quarters of this year. Is that going to continue to ramp through the year under your expectations, or do you think it plateaus at some point? Maybe as a supplement to that question, Kristen, I know you've talked about the unified under a single brand. Can you talk about the marketing initiatives and kind of push and advertising that may launch here in the coming months and how you expect that to drive volume over the year?

Matthew Engel (CFO)

There is a lot in there. We may hand it off here to come to our side. I do think that you should expect to see some ramp during the year. First quarter, honestly, was probably expected to be a little bit weaker just because in our retail platform, in particular, we scaled back marketing on the November, December, and holiday periods. We are kind of coming out of the gates a little stronger in Q1. That should continue to grow over the course of the year. Also, Kristen could speak to we are doing a lot to kind of roll out and scale up the HomeSafe Second program, which really we think will have an impact in the second half of this year in particular. I would expect to see some sequential kind of growth throughout the year.

Kristen Sieffert (President)

Yeah. So I'd add to that. Obviously, the HomeSafe Second product, there's huge upside there. With the targeted marketing campaign supporting that product, to Matt's point, we do expect that that continues to ramp mid-year this year. Well beyond that, I think year over year would be the goal. As it relates to the marketing initiative, I think I've mentioned to you before, we've invested quite heavily in consumer research to really understand how to better reach the total addressable market that exists. We've been working for, I would say, probably the last year now on a complete advertising and brand platform transition. That platform transition goes live in Q2 and will be fully migrating away from kind of our legacy advertising campaigns and into the new campaigns in the summer. By June, we'll be fully transitioned over.

Once that happens, we see a tremendous amount of upside because historically, we've just really focused on kind of a DRTV approach. In the more kind of modern approach to marketing, there's a lot of untapped opportunity for us. We see a huge amount of upside there to really optimize the amount of investment that we're making in marketing across the funnel.

Stephen Laws (Managing Director)

Fantastic. Appreciate the comments this afternoon and look forward to an exciting 2025. Thank you.

Operator (participant)

Your next question comes from the line of Doug Harter with UBS. Please go ahead.

William Nasta (Equity Research Associate)

Hi, thanks. This is actually Will Nasta on for Doug today. I was just hoping you could give us an update on HMBS 2.0 and the progress there, given the new administration and the impending changes that are around there. Thanks.

Graham Fleming (CEO)

Yeah, sure. The latest update I have for you on that is Ginnie continued to make progress on the operational side relative to the implementation of HMBS 2.0. They haven't yet communicated an effective date, although based upon our last conversations with them, as soon as they have the appointees in place, they do expect this to move forward. At this point, I don't have an effective date, although I do know that they continue to make progress and work on the program. I think the last piece that is upstanding is just when it will go live. That's the latest update that we have. I'm sorry I don't have more clarity around our rollout date for you.

William Nasta (Equity Research Associate)

Okay. Great. Thank you.

Operator (participant)

That concludes our Q&A session. I will now turn the conference back to Graham Fleming for closing remarks. Please go ahead.

Graham Fleming (CEO)

Yeah. Thank you very much, everybody, for joining us for our Q4 full year 2024 call. I look forward to updating everybody in May on our Q1 progress. Thank you very much.

Operator (participant)

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.