Filed
by Replay Acquisition Corp.
pursuant
to Rule 425 under the Securities Act of 1933
and
deemed filed pursuant to Rule 14a-12
under
the Securities Exchange Act of 1934
Subject
Company:
Replay Acquisition Corp. (SEC File No.: 001-38859)
Date:
December 1, 2020
The
following is a transcript of a conference call relating to Finance of America Equity Capital LLC’s Third Quarter 2020 Earnings
conducted on December 1, 2020.
Finance
of America 3Q20 Earnings Conference Call Script
Conference
Call Introduction
Operator
Good
afternoon, ladies and gentlemen, and welcome to the Finance of America Third Quarter 2020 Earnings Conference Call. I would now
like to turn the conference over to Michael Fant, Senior Vice President of Finance at Finance of America.
Please
go ahead, Michael.
Forward-Looking
Statements
Michael
Fant, Finance & Investor Relations
Thank
you and good afternoon everyone, and welcome to Finance of America’s third quarter earnings call. With me today is Patti
Cook, Chief Executive Officer, and Graham Fleming, President. As a quick reminder, this call is being recorded and you can find
the Earnings Release on our investor relations website at www.financeofamerica.com. During the call we may refer to our
unaudited financials and non-GAAP measures, which are reconciled to GAAP results, to the extent available without unreasonable
efforts, in our earnings release. Also, I would like to remind everyone that comments on this conference call may be forward-looking
statements 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 news 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 that are described in Finance of America’s
Form S-4 recently filed with the U.S. Securities and Exchange Commission. We are not undertaking any commitment to update these
statements if conditions change. Please note these are interim period financials and are unaudited.
Participating
in the call today are Chief Executive Officer Patti Cook and President Graham Fleming. Now I would like to turn the call over
to Finance of America’s Chief Executive Officer Patti Cook. Patti?
Section
I
Patti
Cook, CEO
Thanks
Michael and good afternoon everyone. I wanted to start by thanking all of Finance of America’s team members and partners
for their commitment and hard work over the years, and particularly during the pandemic. I would also like to thank all of our
clients for their continued trust and loyalty, and we look forward to building relationships with the investment community and
creating shareholder value as we transition to a public company. While we are proud of our accomplishments to date, we are even
more excited as we look to the future.
Before
I dive into our business segments, I thought it might be helpful to provide a brief, high level overview of our business and our
key differentiating factors.
Finance
of America is a highly differentiated, diversified lending platform, with exceptional capabilities to develop loan products,
while at the same time manufacturing assets that align with prevailing investor demand. Our platform was purpose built to
create a business that could better withstand the cyclicality of most consumer lending businesses. The central tenet that
drives what we do is to engage in businesses that complement one another but are driven by different tailwinds allowing us to
grow earnings in a wide variety of economic conditions. Over the last four years we have maintained strong earnings growth,
as new businesses came on line. This is in contrast to most other lenders during this period. So, while we continue to take
advantage of the favorable rate environment within our forward mortgage segment, we see continued growth in our other lending
segments and our non-lending segments. These non-mortgage segments will provide the benefits of diversification and powerful
tailwinds as the mortgage market shifts and over time we expect the contribution from these channels to grow meaningfully.
This growth will come both organically and through strategic acquisitions.
Low
interest rates are the driving force in the mortgage market today while various demographic trends support future lending opportunities.
In mortgage it is the increase in household formation that will drive a return to a purchase market. In reverse it is the aging
baby boomers who have not saved enough for retirement but want to age in place and have fifty percent of their wealth tied up
in their home. Our commercial segment is well positioned to help real estate investors meet the demand of millenials by providing
the money they need to rehab the homes millenials will want to rent or buy.
Importantly,
our business model is built with technology that enables all that we do. It is key to delivering a best in class customer experience.
It gives us the flexibility to launch new products quickly. It enables us to onboard new businesses and people efficiently and
to support sophisticated capital markets activity. A key aspect of a lender’s platform is the customer point of sale. Needless
to say, today’s borrowers demand a process that is quick and easy. Similarly, our sales team demands a set of tools that
make their job easy. Our technology coupled with our high-touch mortgage advisor approach produces customer satisfaction and loyalty.
This is reflected in our 90-plus net promoter score.
Now
turning to our business segments, let’s start with our lending business. Our multiproduct lineup includes mortgages, reverse
mortgages, and loans to residential real estate investors. These products are distributed through multiple channels including
distributed retail, third-party brokers and digital direct to consumer. These combine to give us great reach and allow us to connect
with our customers however they choose.
In
2020, we have experienced record mortgage origination volumes and record margins. We are at historic lows in mortgage rates and
given the Fed’s current posture on employment and inflation, we are likely to remain here for some time. This has created
a massive incentive for homeowners to refinance their mortgages. In fact, research by Credit Suisse estimates 75-80% of all 30-year
GSE mortgages have at least a 50 basis point incentive to refinance. Similar to others across the industry, our origination volumes
have remained strong through the third quarter and into the fourth quarter based on increased refinancing activity. We have maintained
our excellent turn times while locking, funding, and delivering new records of volume every quarter this year, with approximately
65% of third quarter volume coming from refinancing. Yet, historically, in fact as recently as the first quarter 2019, 75% of
our volume came from purchases. This shows that our distribution platform is built to excel in either scenario. In addition, because
of this record volume and the industry’s limitations in capacity, lenders’ revenue margins have widened significantly
during 2020.
Next,
our reverse business has tailwinds of its own that are not a function of low rates. Rather, there is a structural unmet need
in this sector. Nearly 10,000 people in the U.S. will turn 65 every day for the next 10 years. Approximately 80% of this
population has over 50% of their wealth tied up in home equity, which represents a roughly $7 trillion total addressable
market. Most of these individuals have not saved enough to continue to fund their lifestyles postretirement, and most of them
also want to age in place. Tapping into their home equity via a reverse mortgage could be a very elegant solution. Yet,
today, only one-eighth of 1% of this population has a reverse mortgage. We have already launched a very successful
proprietary reverse product targeted to this population to supplement the standard FHA-backed reverse mortgage product, and
have plans for a second proprietary product. Most importantly, this sector represents an opportunity for us to do something
great for our borrowers: help them solve a problem and achieve their financial goals. We at Finance of America have a real
competitive advantage in this sector, as we have already demonstrated our ability to innovate. We remain focused on
performance and helping the customer first, last, and always. HECM volumes were up substantially year-over-year in the third
quarter reinforcing our ability to pivot to products that are best suited to meet consumer needs. This combined with higher
net origination gains produced revenue growth of 29% year-over-year with only 14% growth in funded volume.
On
the commercial side, our business is benefiting from a couple of tailwinds including the aging housing stock and
millennials’ bias for newer construction or remodeled properties. Our nation’s housing stock simply has not been
modernized to accommodate this demand for newer housing. The average age for a home in the U.S. is 37 years. There has been
an uptick in demand from newly-formed households, who may not be able to buy a home today, but, nevertheless, have a strong
desire to be in a single-family home. This sentiment has accelerated, spurring an increase in small-scale real estate
investors looking for financing to buy and rehab homes. The goal of these investors is to either sell or rent those newly
refurbished properties. Also it is important to note that after suspending originations in the second quarter, during the
third quarter, we are ramping the business back up with the reintroduction of our products. The good news is pipelines are
continuing to grow reflecting accelerating market demand.
In
addition to our lending segments, we have two non-lending segments. One is a collection of fee-for-service businesses that provide
a recurring stream of revenue called Incenter. This business allows us to capture incremental revenue through the lending process
and to enhance the customer experience while increasing our revenue per unit. Two examples of these services include title and
appraisal management. With over one-thousand third-party fee-based clients, Incenter provides a great and growing source of uncorrelated
revenue.
The
other non-lending segment is our Portfolio Management business. This business includes a broker dealer, an asset manager, and
a registered investment advisor. This segment allows us to create new products and distribute them successfully to investors.
Since June of 2017, we completed 21 securitizations for $6.8 billion. Growing demand from non-bank, capital investment vehicles,
such as insurance companies and retirement plans searching for yield is driving spreads tighter. As a result, there remains significant
investor demand for high-quality financial assets.
We
believe that, our third quarter and year to date results further demonstrate the power of our diversified platform which allows
us to capitalize on an outsized opportunity when presented. Looking ahead, we believe our platform will continue to benefit from
continued low interest rates in our mortgage segment and the continued tailwinds of our other sectors. We are committed to the
continued growth of our diversified platform in pusuit of cycle resistant earnings growth.
So
with that, I will now turn the call over to our President, Graham Fleming, to discuss the financials in more detail.
Section
II
Graham
Fleming, President
Thanks
Patti. As mentioned earlier, we generated very strong results for the third quarter including:
|
·
|
Total
revenues of $605 million, up 30% on a sequential quarter basis, and $1.25 billon year
to date representing an increase of 95% compared to the prior year;
|
|
·
|
Total
funded origination volume of $9.2 billion, up 10% from $8.4 billion in the prior quarter,
and $22.9 billion year to date representing a 68% growth rate over the prior year;
|
|
·
|
Pre-tax
net income of $242 million, up 65% compared to the prior quarter, and $347 million year
to date is an increase of more than five times the prior year;
|
|
·
|
Adjusted
EBITDA of $235 million, representing a 54% growth rate on a sequential quarter basis;
and
|
|
·
|
An
Adjusted EBITDA margin of 39%.
|
Now,
I would like to walk through a few key highlights across our five business segments. Starting with our Forward Originations segment,
growth in the origination and sale of mortgage loans into the secondary market drove revenue up 33% on a sequential-quarter basis
to $444 million for the third quarter of 2020. Following through, pre-tax income for the segment was up 74% versus the second
quarter of 2020, while year-to-date earnings were up more than 18x.
As
Patti mentioned earlier, our Reverse Originations segment originates home equity conversion mortgages which are insured by the
Federal Housing Administration, referred to as “HECMs”, and our proprietary reverse mortgages, referred to as “non-agency
reverse mortgages.” Reverse funded volumes declined 19% on a sequential-quarter basis to $626 million; however, year to
date volumes of just over $2 billion are 14% higher than the prior year. Related net origination gains and origination fees drove
segment revenue to $49 million and pre-tax income to $24 million for the third quarter of 2020. Year to date, segment revenues
totaled $139 million and pre-tax income totaled $74 million compared to the prior year’s levels of $108 million and $52
million, respectively.
The
Commercial Originations segment provides business purpose lending solutions for residential real estate investors in two principal
ways: short-term loans to provide rehab and construction of investment properties meant to be sold or rented upon completion,
and investor rental loans collateralized by either a single asset or portfolio of properties. Funded volumes in the Commercial
segment reaccelerated from a standing start (after a three month COVID-related deferment of lending operations) to $90 million
for the third quarter of 2020. Related net origination gains and origination fees earned on origination of loans increased segment
revenue to $5 million compared to essentially nil for the prior-quarter.
The
Portfolio Management segment consists of Broker-Dealer and Asset Management type activities. These include product
development, loan securitization, loan sales, risk management, asset management and servicing oversight services to the
enterprise and third-party funds. The Portfolio Management team connects borrowers and investors, thereby completing the
lending lifecycle in a way that allows the Company to innovate and manage risk through better price and product discovery.
Our financial strength enables us to selectively retain and manage assets on our balance sheet to generate attractive returns
and uncorrelated recurring earnings. For the third quarter of 2020, assets under management reached $16.6 billion, up 3% on a
sequential-quarter basis and 14% year-over-year. As a result, segment revenue, including gain on sale of loans, fair value
gains, interest income, servicing income, fees for underwriting, advisory and valuation services and other ancillary fees,
grew 8% compared to the second quarter, with pre-tax income also increasing 6%.
On
a quarter-over-quarter basis, our revenue growth outpaced the increase in Assets Under Management. Year-to-date growth includes
us overcoming marks from the first quarter that negatively impacted results. This impact notwithstanding, our team was still able
to complete two securitizations in the first quarter, four in the second quarter and two more in the third quarter. All were completed
in the midst of the pandemic reinforcing the power of our platform and the strength of our investor base. Including the two securitizations
in the third quarter in 2020 we closed on eight transactions that raised $2.4 billion in aggregate through September.
The
Lender Services segment provides ancillary business services, title agency and title insurance services, mortgage servicing
rights valuation and MSR brokerage, along with appraisal management services to customers in the residential mortgage,
student lending, and commercial lending industries. Revenue for the quarter totaled $53 million compared to $44 million in
the second quarter of 2020, while pre-tax income rose to $8 million from $5 million. The sequential-quarter growth was mostly
a function of strong title agency and underwriting revenue and seasonal growth in student loan fulfillment
services.
Finally,
we continue to capitalize on the favorable operating environment in the mortgage business including gain on sale margins that
have widened in 2020 and a lower-for-longer interest rate backdrop. Through the first three quarters of this year, we have already
more than quadrupled our pre-tax income and Adjusted EBITDA year-over-year.
Turning
to our balance sheet, we maintain ample liquidity with $205 million of cash and cash equivalents, as well as $2.9 billion of advance
and warehouse facilities as of September 30, 2020. We employ a capital-light model that has historically allowed roughly 80-plus
percent of our income generation to be available for reinvestment in the form of acquisitions and development of new products.
This gives us significant flexibility to seize opportunities in the marketplace and deploy capital where we see the potential
for attractive returns.
Looking
ahead, we are excited to provide an update to our outlook we provided earlier this year for the remainder of 2020. Based on
year-to-date results and trends through the first two months of the fourth quarter, we are raising our outlook and now expect
2020 pre-tax net income to range from $435 million to $495 million, from $393 million and adjusted EBITDA to range from $535
million to $565 million from $478 million.
As
we look toward our future, we are excited about our new initiatives we believe will carry us into a successful 2021 and beyond.
With
that, I will turn it back to Patti.
Closing
Remarks
Patti
Cook, CEO
Thank
you everyone for your time and interest. Finance of America companies provides an opportunity to invest in a differentiated consumer
finance business, with multiple product lines and distribution channels that we believe will provide continued sustainable growth.
We are very excited about the future, and we look forward to continuing to discuss our progress with you on future calls and meetings.
Have a great evening.
Important
Information About the Proposed Business Combination and Where to Find It
In
connection with the proposed business combination, a registration statement on Form S-4 (the “Form S-4”) has been
filed by Finance of America Companies Inc., a newly-formed holding company (“New Pubco”), with the U.S. Securities
and Exchange Commission (“SEC”) that includes a preliminary proxy statement of Replay Acquisition that also constitutes
a preliminary prospectus of New Pubco. Replay Acquisition, Finance of America and New Pubco urge investors, stockholders and other
interested persons to read the Form S-4, including the preliminary proxy statement/prospectus and amendments thereto and, when
available, the definitive proxy statement/prospectus and documents incorporated by reference therein, as well as other documents
filed with the SEC in connection with the proposed business combination, as these materials will contain important information
about Finance of America, Replay Acquisition, and the proposed business combination. Such persons can also read Replay Acquisition’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for a description of the security holdings of Replay Acquisition’s
officers and directors and their respective interests as security holders in the consummation of the proposed business combination.
When available, the definitive proxy statement/prospectus will be mailed to Replay Acquisition’s stockholders as of a record
date to be established for voting on the proposed business combination. Shareholders will also be able to obtain copies of such
documents, without charge, once available, at the SEC’s website at www.sec.gov, or by directing a request to: Replay Acquisition
Corp., 767 Fifth Avenue, 46th Floor, New York, New York 10153, or info@replayacquisition.com. These documents, once available,
can also be obtained, without charge, at the SEC’s web site (http://www.sec.gov).
Participants
in the Solicitation
Replay
Acquisition, Finance of America, New Pubco and their respective directors, executive officers and other members of their management
and employees, under SEC rules, may be deemed to be participants in the solicitation of proxies of Replay Acquisition’s
shareholders in connection with the proposed business combination. Investors and security holders may obtain more detailed information
regarding the names, affiliations and interests of Replay Acquisition’s directors and executive officers in Replay Acquisition’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 25, 2020. Information
regarding the persons who may, under SEC rules, be deemed participants in the solicitation of proxies of Replay Acquisition’s
shareholders in connection with the proposed business combination is set forth in the proxy statement/prospectus for the proposed
business combination. Information concerning the interests of Replay Acquisition’s and Finance of America’s participants
in the solicitation, which may, in some cases, be different than those of Replay Acquisition’s and Finance of America’s
equity holders generally, is set forth in the proxy statement/prospectus relating to the proposed business combination.
Forward-Looking
Statements
This
press release includes “forward-looking statements” within the meaning of the “safe harbor” provisions
of the United States Private Securities Litigation Reform Act of 1995. Replay Acquisition’s and Finance of America’s
actual results may differ from their expectations, estimates, and projections and, consequently, you should not rely on these
forward-looking statements as predictions of future events. Words such as “expect,” “estimate,” “project,”
“budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,”
“will,” “could,” “should,” “believes,” “predicts,” “potential,”
“continue,” and similar expressions (or the negative versions of such words or expressions) are intended to identify
such forward-looking statements. These forward-looking statements include, without limitation, Replay Acquisition’s and
Finance of America’s expectations with respect to future performance and anticipated financial impacts of the proposed business
combination, the satisfaction or waiver of the closing conditions to the proposed business combination, and the timing of the
completion of the proposed business combination.
These
forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ
materially, and potentially adversely, from those expressed or implied in the forward-looking statements. Most of these
factors are outside Replay Acquisition’s and Finance of America’s control and are difficult to predict. Factors
that may cause such differences include, but are not limited to: (1) the occurrence of any event, change, or other
circumstances that could give rise to the termination of the definitive transaction agreement (the “Agreement”);
(2) the outcome of any legal proceedings that may be instituted against Replay Acquisition, New Pubco and/or Finance of
America following the announcement of the Agreement and the transactions contemplated therein; (3) the inability to complete
the proposed business combination, including due to failure to obtain approval of the shareholders of Replay Acquisition,
certain regulatory approvals, or satisfy other conditions to closing in the Agreement; (4) the occurrence of any event,
change, or other circumstance that could give rise to the termination of the Agreement or could otherwise cause the
transaction to fail to close; (5) the impact of COVID-19 on Finance of America’s business and/or the ability of the
parties to complete the proposed business combination; (6) the inability to obtain or maintain the listing of New
Pubco’s shares of common stock on the New York Stock Exchange following the proposed business combination; (7) the risk
that the proposed business combination disrupts current plans and operations as a result of the announcement and consummation
of the proposed business combination; (8) the ability to recognize the anticipated benefits of the proposed business
combination, which may be affected by, among other things, competition, the ability of Finance of America to grow and manage
growth profitably, and retain its key employees; (9) costs related to the proposed business combination; (10) changes in
applicable laws or regulations; and (11) the possibility that Finance of America, Replay Acquisition or New Pubco may be
adversely affected by other economic, business, and/or competitive factors. The foregoing list of factors is not exclusive.
Additional information concerning certain of these and other risk factors is contained in Replay Acquisition’s most
recent filings with the SEC and in the Form S-4, including the preliminary proxy statement/prospectus filed in connection
with the proposed business combination and, when available, the definitive proxy statement/prospectus. All subsequent written
and oral forward-looking statements concerning Replay Acquisition, Finance of America or New Pubco, the transactions
described herein or other matters and attributable to Replay Acquisition, Finance of America, New Pubco or any person acting
on their behalf are expressly qualified in their entirety by the cautionary statements above. Readers are cautioned not to
place undue reliance upon any forward-looking statements, which speak only as of the date made. Each of Replay Acquisition,
Finance of America and New Pubco expressly disclaims any obligations or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any change in their expectations with respect thereto
or any change in events, conditions, or circumstances on which any statement is based, except as required by law.
No
Offer or Solicitation
This
press release is not a proxy statement or solicitation of a proxy, consent, or authorization with respect to any securities or
in respect of the proposed business combination and shall not constitute an offer to sell or a solicitation of an offer to buy
the securities of Replay Acquisition, New Pubco or Finance of America, nor shall there be any sale of any such securities in any
state or jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under
the securities laws of such state or jurisdiction. No offer of securities shall be made except by means of a prospectus meeting
the requirements of Section 10 of the Securities Act of 1933, as amended, or exemptions therefrom.
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