Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Finance of America Companies Inc (FOA, Financial) achieved its fourth consecutive quarter of improved results.
- The company recorded a positive adjusted EBITDA of $9 million, marking the first positive quarter since 2022.
- Revenues grew by 33% year-over-year, while expenses decreased by 26%.
- The company completed a one-for-ten reverse stock split, bringing it back into compliance with NYSE listing standards.
- FOA secured new warehouse facilities with lending partners, enhancing financial flexibility and reducing loan production costs.
Negative Points
- Finance of America Companies Inc (FOA) reported a GAAP net loss of $5 million for the quarter.
- The adjusted net loss was $1 million, indicating ongoing financial challenges.
- The company’s origination volumes, while improved, still fell slightly under the provided guidance range for the quarter.
- There is uncertainty regarding the exact cash flow benefits from the new HMBS 2.0 program.
- Despite cost reduction initiatives, the company still faces legacy contracts that may impact future expenses.
Q & A Highlights
Q: Can you expand on the potential cash flow benefits from the new HMBS 2.0 program?
A: While it's early to define exact net cash proceeds, the draft proposal indicates a significant portion of our buyouts would be eligible for the new program with advance rates above current warehouse lines. We will quantify these numbers more closely in the coming quarters. - Graham Fleming, CEO
Q: Can you comment on the third quarter origination outlook and the impact of recent rate movements?
A: The pipeline remains strong, and we expect to see increased borrower qualifications due to lower rates. This is reflected in our Q3 origination volume guidance. Margins may see slight expansion, but market volatility could affect spreads. - Graham Fleming, CEO and Kristen Sieffert, President
Q: Can you verify the volume outlook for July and the third quarter?
A: July production is on pace to meet our Q3 guidance of $475 million to $500 million. - Matthew Engel, CFO
Q: How will the cash balance trend through the rest of the year, and what drove the slight increase in non-funding interest expense?
A: New lending partnerships have reduced haircuts on proprietary loan production, minimizing cash burn. The increase in non-funding interest expense is due to higher working capital needs. - Graham Fleming, CEO
Q: Are there more expense reduction opportunities, or is the heavy lifting behind you?
A: Most major reductions are complete, but there are still opportunities to optimize contracts and reduce costs. We also expect lower cost per funded loan as production increases. - Graham Fleming, CEO and Kristen Sieffert, President
Q: What are the early results of the strategic shift in your retail division?
A: The shift to focus on our most efficient channels is yielding positive results, with increased conversion rates and improved customer experience. - Kristen Sieffert, President
Q: How has the acquisition of AAG assets impacted your financials?
A: Since the acquisition, we've seen significant operational improvements, with origination volumes up 5% from Q1 and higher margins in our retail and broker channels. - Matthew Engel, CFO
Q: Can you elaborate on the impact of the reverse stock split and exchange offer support agreement?
A: The reverse stock split brought us back into compliance with NYSE standards. The exchange offer support agreement will improve our capital structure and financial flexibility. - Graham Fleming, CEO
Q: What are your expectations for the HMBS 2.0 program's impact on the reverse mortgage industry?
A: The program is expected to provide significant benefits by allowing securitization of buyouts into Ginnie Mae-backed pools, reducing capital requirements and positively impacting earnings and liquidity. - Matthew Engel, CFO
Q: How do you see market interest rate movements affecting your business?
A: Declining rates could increase tangible net worth and originations, as lower rates improve loan-to-value ratios, allowing more borrowers to qualify. This would also reduce origination costs per funded loan. - Graham Fleming, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
