Finance Of America Companies Inc. (FOA) Q4 2025 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Colby and I'll be your conference operator today. At this time, I'd like to welcome you to the Finance of America Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I will now turn the call over to Michael Fant, Senior Vice President of Finance. You may begin.

Thank you, and good afternoon, everyone, and welcome to Finance of America's Fourth Quarter and Full Year 2025 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 related presentation on our Investor Relations website at ir.financeofamericacompanies.com. 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 amended annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on May 20, 2025. 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 unaudited. 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 in our earnings press release on the Investor Relations page of our website. Now I'll turn the call over to our Chief Executive Officer, Graham Fleming. Graham?

Thank you, Michael, and good afternoon, everyone. As we look back at 2025, it was a year of continued strong execution for Finance of America as we delivered improving operating performance and took deliberate steps to strengthen the balance sheet and improve alignment, all while operating in a dynamic market environment. For the full year, we reported GAAP net income of $110 million or $5.04 per share, representing a 175% improvement compared to the prior year. On an adjusted basis, which we believe is representative of our recurring earnings power, we generated full year adjusted net income of $74 million or $3.04 per share, up $60 million from 2024, representing a 429% increase and above our stated guidance range. Lastly, the company recognized adjusted EBITDA of $143 million, a 138% increase versus 2024. These results reflect the progress we've made improving earnings quality and capitalizing on operating leverage as the platform scales. Because the securitization activity can shift between quarters, we continue to view the second half of 2025 average earnings as the best indicator of recent normalized run rate earnings power. For the second half of the year, the company recognized $47 million in adjusted net income or $2.05 in adjusted EPS, an annualized run rate of $4.10 per share. From a production standpoint, we funded $2.4 billion of originations in 2025, representing a 24% increase from $1.9 billion in 2024. Fourth quarter volume totaled $619 million. And importantly, this growth was achieved alongside structural enhancements to our technology and operational processes, which should allow us to continue to see positive momentum in 2026. During the fourth quarter, we continued our momentum with additional capital actions designed to strengthen the business, solidify the balance sheet and support durable growth. In November, we announced an agreement to acquire the reverse mortgage servicing portfolio and related assets from PHH Mortgage, a subsidiary of Onity Group. This transaction, which we expect to close in the second quarter, will expand our servicing platform, add experienced origination talent and pave the way for a long-term relationship with Onity that accelerates our mission to make responsible home equity access available to more homeowners aged 55 and older. Also in December, we announced a $50 million equity investment supporting our continued growth initiatives. Stepping back, we believe home equity is increasingly becoming an important component of broader family financial planning. For many seniors, it represents not only retirement security, but also flexibility to support evolving family needs across generations. The investments we've made in our platform, product suite and capital structure position us to serve that opportunity with discipline, consistency and scale. Overall, 2025 marked an important step forward for Finance of America, not only in what we earned, but in how repeatable and durable those earnings have become. And with that, I'll turn it over to Kristen to discuss the operational drivers behind this performance and positive early signals in '26. Kristen?

Thanks, Graham, and good afternoon, everyone. The fourth quarter marked an inflection point for the platform. 2025 was a year of disciplined investment, modernizing our technology stack, embedding AI across the customer journey and strengthening marketing precision. As we enter 2026, those investments are translating into measurable operating momentum. For the full year, we funded $2.4 billion of originations, a 24% increase compared to 2024. Fourth quarter funded volume totaled $619 million, closing the year with strong sequential performance. In a rate-sensitive environment, this growth reflects improved funnel productivity and the durability of our category leadership. As the reverse mortgage market leader, marking the largest marketing investments in the space, we are uniquely positioned to see demand trends develop in real time. In January, inquiry volume increased more than 75% year-over-year, while speed to answer calls improved by over 60%. These improvements drove opportunities approximately 30% above baseline while reducing cost per opportunity by 12% compared to the second half of 2025, demonstrating early operating leverage within our acquisition engine. A key structural differentiator is the rollout of Joy, our AI-powered customer ambassador. Joy is delivering more than 5x the conversion performance of our prior third-party call center while materially improving responsiveness across peak and off hours. This is not simply a productivity improvement, it represents a permanent shift in our acquisition model, lowering variable costs while increasing scalability and conversion efficiency. Our digital acquisition engine is also accelerating performance. So far in Q1, prequalification engagement has doubled compared to Q4 of 2025. Among customers choosing the digital path, we saw a 47% increase in speed to application, a 36% improvement in speed to submission and a 77% increase in submission rate. We expect these gains to shorten cycle times, improve pull-through and lower our cost to produce. We're also seeing external signals that reflect an increase in consumer interest in reverse mortgages. Google Trends data shows reverse mortgage-related search activity trending approximately 40% higher year-over-year at seasonal peaks, significantly outpacing prior year trends. Given our scale and brand leadership, increased category search activity positions us well to capture incremental demand. Underpinning this progress are our people and culture. We're a team willing to challenge legacy approaches, embrace innovation and hold ourselves to a higher standard of execution. Our team is and will remain a critical driver of our performance. As we look to the year ahead, we have clear visibility into the drivers of performance, stronger cross-functional alignment and a structurally more efficient platform. The work completed in 2025 has improved funnel productivity, reduced customer acquisition friction, expanded operating leverage and has positioned us for a breakthrough year. As volumes grow, we expect these dynamics to translate into sustained earnings expansion and margin improvement. With that, I'll turn it over to Matt to walk through the financials.

Thank you, Kristen, and good afternoon, everyone. The fourth quarter was the latest example of solid execution at Finance of America with full year results highlighting consistent operating progress and our ability to execute effectively as opportunities arise. For the full year, Finance of America reported GAAP net income of $110 million or $5.04 per basic share. These results reflect the impact of interest rate and credit spread movements, partially offset by changes in model assumptions on the fair value of our residual assets, which, as we've discussed previously, are noncash in nature. On an adjusted basis, for the full year, we generated adjusted net income of $74 million or $3.04 per share, representing a 429% increase compared to 2024. We also generated adjusted EBITDA of $143 million, a 138% increase year-over-year. These results reflect our ability to realize the platform's operating leverage and continued improvement in earnings quality as the platform has scaled. Total revenue increased 26% year-over-year to $497 million in 2025 and compared to $394 million in 2024. This $103 million increase in revenue directly translated into improved profitability as fixed expenses remained largely consistent year-over-year. Excluding noncash fair value changes to our balance sheet, revenue increased approximately $83 million year-over-year. After tax, that equates to roughly $61 million of incremental earnings, which closely aligns with the $60 million year-over-year increase in adjusted net income. This demonstrates the operating leverage embedded in the platform as volume scales. Turning to our fourth quarter. We reported a GAAP net loss of $21 million or $1.30 per basic share. While our Q4 results were impacted by fair value movements, so far in 2026, interest rates have moved lower and spreads have tightened. At current levels, we would expect our first quarter fair value adjustments to more than offset the fourth quarter impact. On an adjusted basis for the fourth quarter, we generated adjusted net income of $14 million or $0.69 per share, representing a 180% increase compared to the fourth quarter of 2024. Adjusted EBITDA for the quarter totaled $28 million, up 56% year-over-year, reflecting continued operating momentum and improved earnings consistency as the platform has scaled. Despite the volatility in GAAP, adjusted earnings have remained resilient, reflecting the strength of the core economics and the consistency of cash generation across the platform. As mentioned earlier, the company recognized adjusted earnings per share of $3.04 for the full year 2025, which was above our stated guidance range. As Graham noted earlier, because securitization timing can shift between quarters, we view the second half of 2025 combined as a reasonable reference point for the underlying earnings power of the company. For the second half of 2025, the company reported adjusted net income of $47 million or adjusted earnings per share of $2.05. This would approximate $4.10 per share on an annualized basis. Looking ahead to 2026, we continue to expect volume growth of 15% to 25% year-over-year for a range of $2.8 billion to $3.1 billion, supporting our previously communicated 2026 adjusted earnings per share guidance of $4.25 to $4.75 per share. For the full year, the company's cash and cash equivalents increased by $42 million. During 2025, Finance of America generated over $150 million in cash flows through our core origination and capital markets activities. This reflects stronger performance driven by higher funded volumes, improved operating leverage and meaningful bottom line expansion. In addition to the $150 million generated from our core operations, we raised an additional $40 million in the form of a 0% coupon convertible note and a $50 million preferred equity investment. From these sources of cash, we paid down $117 million of corporate debt and working capital facilities, paid $40 million of interest on our nonfunding financing and used $40 million to acquire the first half of Blackstone's equity position. Please see our earnings supplement on our Investor Relations website for further detail. In February, we completed the second half of the Blackstone purchase, fully exiting that legacy ownership position. Looking forward to 2026, we anticipate that cash flows from our core origination and asset level capital markets financing activities will be sufficient to fund both the acquisition of PHH as well as the paydown of the $150 million of senior secured notes. Once the senior secured notes have been paid off, we'll be left with only $40 million of convertible notes and $150 million of exchangeable corporate bonds, both of which have the ability to convert to equity. Lastly, given the company's strong performance and investments made by our strategic partners, Finance of America ended 2025 with a tangible equity position 117% greater than December 2024. With that, I'll turn it back to Graham for closing remarks.

Thank you, Matt. As we reflect on 2025, the takeaway is straightforward. The fundamentals of our business are working. Our operating platform is performing consistently. Margins remain disciplined and execution continues to improve. Finance of America's earnings power is becoming more visible and durable. As the business scales, adjusted results increasingly reflect the underlying economics of the platform and are less influenced by timing-related volatility. We enter 2026 expecting to grow volume by 15% to 25%, generate cash flow from originations and capital markets similar to 2025 of $150 million and use these proceeds to pay down debt and delever our balance sheet. Over the coming years, we expect Finance of America to be free of all corporate debt, leaving a company better capitalized, more resilient and well positioned to expand our reach. We believe demographic trends continue to support long-term demand for responsible home equity solutions. The progress we've made across our platform, products and capital structure enables us to meet those evolving needs with discipline and consistency. As we continue building a more scalable technology-enabled platform, we remain confident that there is a better way with FOA for our customers, our partners and our shareholders. And with that, we'll open the call for any questions.

[Operator Instructions] Your first question comes from the line of Ethan Brown with Omega.

Nice job on the quarter. I have a question just trying to clarify what you said about the balance sheet and uses of cash. I heard you can fund the PHH acquisition and pay down some senior secured notes. When you consider all the free cash that you've got coming in and you consider the share repurchase program that you've got, are you going to be able to extend the share repurchases beyond just what you bought from Blackstone? Or is that going to be a 2026 strategy for capital allocation? Or should we expect share repurchases to be larger in 2027 and going forward?

I think really, we don't have any announced share repurchase activities beyond the Blackstone repurchase, which we noted we did the first half of that in the fourth quarter, we completed that purchase in February of 2026. So that's now behind us. With that in mind, looking at the free cash flow from this year, really our focus is looking at retiring that $150 million of corporate debt. And once that has been extinguished, then I think we're in the world where we're talking about potentially doing further share repurchases into 2027. But for 2026, right now, our goal would be on paying off the $150 million of corporate debt, which, again, would be a little early. I think our latest amendments to the facility only require us to pay off $60 million by this November, and we can extend $90 million. But we have drawn up plans. We'd like to see if we can retire that full $150 million during 2026.

Just a follow-up. When would you see the $90 million -- the full $150 million or the $90 million in 2027 being paid down? And when would the gates be wide open to more aggressive share repurchases?

Yes. So again, there's a lot of long here with a lot of activity to do, but our goal would be to pay off that $60 million and the $90 million in 2026. And so the gates will be open for further share repurchase activity going into 2027.

The outside date for that payment, Ethan, will be November '27. But our expectation is we'll pay the $150 million in November '26.

Your next question comes from the line of Leon Cooperman with Omega Family Office.

Yes, I think you've answered the question through Ethan. I got a question on Bloomberg from a friend of mine. Can you ask the following question this way. Do you have enough cash generation to pay off the first lien this year in its entirety? The answer is yes. So if so, how much cash do you think you will leave you with? And do you think you'll be in a position to buy back stock this year? And you're saying you don't think about stock back this year?

Yes, I think it sounds like pretty much the question that Ethan asked as well. So again, I think the -- our goal for this year is to pay off the entire $150 million. $60 million, we've agreed to pay down this year for sure. $90 million we could extend. But based upon our plans for the year, we think we can retire the entire $150 million this year. And then next year, we would have all free cash flow to do other things with, including repurchasing shares if that was an option.

All right. And in terms of -- you have so many different measures of earnings. I've asked this before, what is the measure that you run the company by that's most important to you?

So we look at the adjusted EPS [ ANI, ] which was $3.04. If you recall, we gave guidance repeated guidance of between $2.60 and $3 for last year, and we finished the year at $3.04. So just over the high end of the range. This year's guidance is $4.25 to $4.75. And we're -- as we started the year here and we look at the early funnel metrics, we're confident, right, that we'll be in that range again in 2026.

So your stock is less than 4x earnings? What makes -- why do you want to wait to 2027 and buyback?

It's a good question, Lee. I think as we think about alternatives of cash, buying back shares and extinguishing debt, there's certainly arguments on both sides of that equation. I think different stakeholders have different points of view. I think certainly removing the corporate debt overhang is beneficial, helps with the rating agency's overall perception of the company, which benefits equity holders in the long term. But at these prices, I think the share repurchase options are also kind of attractive. So I mean, we'll definitely weigh both of those. But I think at this point in time, I think our focus is on retiring the corporate debt, but that could change either way as the year unfolds.

Your next question comes from the line of Eric Hagen with BTIG.

This is [indiscernible] on for Eric. Can you discuss the current warehouse financing conditions for both new originations and MSRs? And more specifically, given the consolidation we've seen in the space over the past few years, do you believe that dynamic has actually improved funding terms and availability for the remaining players in the space?

Yes. I maybe can't speak to the other players in the space. But from our own experience, I'd say that warehouse financing is ample. We have increased some of our facilities. We've added some new financing partners. Credit has been pretty readily available in the space. We've talked about in previous calls, we're pursuing financing on our mortgage servicing right asset, our HMBS asset. That's going pretty well. So I think that overall, we view credit positively in the space. As I mentioned earlier, we've seen spreads generally tighten across the spectrum. So we're seeing some benefit there as well. I would suspect others are seeing similar things, but I have no firsthand knowledge of what our competitors are seeing.

Yes. We're generally seeing is we're renewing our facilities over the course of the year that we're gaining improved terms, either higher advance rates or lower spreads. So yes, we have no concerns about -- we have ample warehouse liquidity, and we continue to increase where we can and add new participants as necessary.

And with no further questions in queue, I'd like to turn the conference back over to Graham Fleming for closing remarks.

I want to thank everybody for joining the call today. We look forward to updating you on our progress in May with our Q1 results, and have a great afternoon, everybody. Thank you.

This concludes today's conference call. You may now disconnect.