Finance of America panies (FOA) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted net income for Q2 was $57 million or $0.30 per share, down from $107 million or $0.56 per share in the previous quarter, reflecting a significant decline in mortgage revenue [14][15] - The company reported a net loss of $15 million for Q2, compared to net income of $124 million in Q1 and $146 million in Q2 2020 [15] - Adjusted EBITDA for Q2 was $87 million, down $67 million or 44% compared to Q1, primarily due to a $102 million decrease in mortgage revenue [15] Business Line Data and Key Metrics Changes - Mortgage originations volume decreased by 21% to $6.7 billion from $8.4 billion in the prior quarter, leading to a 32% decrease in segment revenue [16] - The reverse mortgage segment achieved record funded volumes of $1 billion, up 32% quarter-over-quarter, generating segment revenue of $95 million, an increase of 38% [17] - Commercial funded volumes increased by 17% sequentially to $400 million, resulting in a 64% revenue increase from Q1 [18] Market Data and Key Metrics Changes - The company experienced a shift from refinance to purchase volume, with purchase funded volumes growing from $2.7 billion to $3.5 billion quarter-over-quarter [12] - The reverse mortgage market is supported by a growing senior population, which is increasing at 3% annually, presenting substantial growth opportunities [26] Company Strategy and Development Direction - The company is focused on diversifying its business model, which includes mortgage, reverse, commercial, and home improvement loans, to mitigate the effects of a cyclical mortgage market [7][11] - The management emphasized the importance of innovation and capitalizing on market opportunities to drive profitable growth [22][25] Management Comments on Operating Environment and Future Outlook - Management expects continued pressure in the mortgage segment for the remainder of the year, with adjusted EBITDA for 2021 now estimated to be down 25% to 30% compared to 2020 [26] - The company remains optimistic about growth opportunities in the reverse and commercial segments, citing favorable market dynamics [29][30] Other Important Information - The company completed its business combination and began trading on the NYSE on April 5, 2021, and is integrating its home improvement business along with the acquisition of Parkside Lending [6][11] - Non-recurring costs related to the business combination impacted the financial results, totaling $43 million for the quarter [21] Q&A Session Summary Question: Near term growth outlook for commercial and reverse originations - Management expressed excitement about growth opportunities in both channels, citing sustainable opportunities despite the difficulty in forecasting [28][29] Question: Outlook for revenue margins in commercial and reverse segments - Management indicated that good margins are expected to hold in both channels, although variability exists [30][31] Question: Change in EBITDA guidance and its drivers - Management confirmed the revised guidance of a 25% to 30% reduction in adjusted EBITDA, driven by tighter margins and unexpected dynamics in the second quarter [33][34] Question: Variable compensation structure and long-term expense management - Variable compensation is tied to volume, and management is focused on right-sizing expenses in response to changing market conditions [35][36] Question: Stock buyback considerations - Management is evaluating capital management strategies, including potential stock buybacks, while focusing on investments that reduce earnings cyclicality [40][41] Question: Importance of tangible book value and EPS guidance - Management emphasized the significance of tangible book value in assessing company value but did not provide specific EPS guidance [44][47]