Q2 2021 Altisource Portfolio Solutions SA Earnings Call
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Ladies and.
Thank you for standing by and welcome to the <unk> second quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star 1 on your telephone.
Be it.
Today's conference is being recorded if you require any further assistance. Please press star zero and I would now like turn the conference over to your Speaker today, Michelle Estamin Chief Financial Officer. Thank you. Please go ahead.
Thank you operator, we first want to remind you that the earnings release form.
And thank you and quarterly slides are available on our website at Www Dot L. T source dot com.
These provide additional information investors may find useful.
Our remarks today include forward looking statements, which involve a number of risks and uncertainties that could cause actual results to differ.
In addition.
From tend to the usual uncertainty associated with forward looking statements.
COVID-19 pandemic makes it extremely difficult to predict the future state of the economy and its potential impact on all day source.
Please review the forward looking statements section and the Companys earnings release, and quarterly slides as well as the risk factors contained.
Additional 2020 form 10-K, and second quarter 2021.10-Q, which describe factors that may lead to different results.
We undertake no obligation to update these statements financial scenarios and projections previously provided or provided here and as a result of a change in circumstances, new information or future events.
And our during this call we will present, both GAAP and non-GAAP financial measures and our earnings release and quarterly slides you will find additional disclosures regarding the non-GAAP measures.
Reconciliation of GAAP to non-GAAP measures is included in the appendix to the quarterly slides.
Joining me for today's call is Bill Shepherd, our chairman.
He's executive Officer, I will now turn the call over to Bill.
Thanks, Michele good morning, and thank you for joining today's call.
This morning, I will discuss the progress, we're making and our core origination and default businesses and provide an update on our investment and point and west.
While the last year and a half presented a challenging.
The operating environment for Alpha source and.
We're excited about the future for our origination and default businesses.
Beginning with our origination business and slide 3 I'm pleased with our second quarter performance and more importantly, with our long term prospects.
And this business generated $14.5 million and revenue and the second quarter.
And it's running 16% growth compared to the same period in 2020 outpacing the estimated at 13% growth and the overall origination market.
More importantly, we believe our attractive origination business model should support rapid growth slides.
Slides 4 through 6 highlight our business model and growth opportunities.
Representing with slide 4.
And also sources the manager of the 241 member lenders 1 mortgage cooperative as.
As the manager we offer a suite of solutions designed to help the members improve their profitability and compete against larger and better capitalized mortgage companies.
We also provide the members with data.
Market intelligence to drive better business decisions and improve profitability.
We estimate that the lenders 1 members collectively originated approximately 15% of residential mortgages and 2020.
This is roughly the same volume of the top 3 lenders combined.
We believe the lenders 1 members are also well positioned.
And the gain market share and a rising interest rate environment as their typical branch office model is more purchase as opposed to refi oriented.
As an example of the value we bring to the lenders 1 members and the second quarter 1 of the nation's largest retailers selected lenders 1 over other mortgage lenders.
2 established store and store branch locations as part of a pilot program. If the program is successful we anticipate the national rollout will drive attractive mortgage leads to the lenders 1 members enhanced customer loyalty for the retailer and generate attractive revenue and earnings for Alta source.
Slide 5 illustrates.
<unk> business model as the manager of the lenders 1 cooperative our objective is to leverage the collective buying power of the members to improve their profitability and generate revenue for alpha sourced primarily through 4 revenue streams.
First we negotiate better pricing from the members with preferred capital market providers and vendors and <unk>.
Delineate and enhanced capital market execution and vendor savings.
Second, we resell certain products, including flood certifications eat closings and verifications at attractive pricing to the members generating margins for us as the manager.
Third we established programs, where we potentially earn performance based equity.
Participant and certain providers that offer products to the members at attractive pricing.
Finally, we are direct provider of solutions, including title insurance and escrow valuation loans fulfillment and vendor oversight technology.
Slide 6 assets worth the growth strategy for our origination business. We believe there is a compounding growth.
Attunity by adding more lenders 1 members launching new solutions, increasing the capture rate of existing solutions and evolving to a higher margin reseller of direct provider for certain solutions.
The growth opportunity is fueled by the network effect of the lenders 1 cooperative we're more members provide greater.
Operating power and support new product launches greater buying power and new products improved member profitability and stronger member profitability increases product adoption and attracts more members.
As part of our growth strategy. This quarter, we are launching a beta version of our lenders 1 loan automation technology.
<unk>, which we refer to as Lola Lola has an internally developed technology solution designed to make it easier for lenders 1 members to order and receive our solutions through a single point of entry and automate loan manufacturing processes to improve members' operational efficiency.
We're excited about the opportunity for origination.
Nation business and believe we are just getting started with our origination businesses unique distribution engine mission critical solutions and strong growth prospects. We believe this business will be a significant catalyst to create value for shareholders.
Notably there are several companies that we believe have similar business models, which.
And recently executed capital market transactions at attractive valuations.
On slide 7 we include a comparison of 3 of these companies to our origination business. As you can see technology enabled solutions based companies with a strong network effect and growth are valued very highly by the market.
With the attractive market comps and the progress we are making with the origination business, we are evaluating ways to enhance shareholder value.
These options may include a potential divesture joint venture third party investment in or other strategic transaction as well as retaining and investing and the business.
There can be no assurance that this.
Exploration will result in any transaction or other actions by us and we don't intend to provide updates unless and until we determine that further disclosure is appropriate or required.
Turning to slide 8 and our default business the default market and our business have been severe severely impacted by the pandemic.
However, we recently gained additional clarity on the timing of the recovery of the default market.
The federal government extended its foreclosure and eviction moratoriums by 1 month through July 2021, and indicated that this will be the last extension.
The CFPB also finalized its rules on temporary loss of <unk>.
<unk> measures, which essentially prohibits foreclosure initiations until January 1.2022.
Other than a few exceptions, including those loans that were 120 days or more delinquent prior to the pandemic.
Based on this clarity we believe this business will grow in 2022 and.
Capitalized during 2023.
As shown on slide 9 we estimate that our default business revenue could grow and a stabilized basis to between 230 and $352 million.
At the low and we assume a return to the historically low delinquency rates immediately prior to the pandemic at the high and.
And we assume delinquency rates are at the higher second quarter 2021 levels.
Turning to slide 10, we are pleased that we recently signed an agreement with Ocwen, which extended the terms of certain of our services agreements from August 2025 to August 2030, and expanded the scope of.
Solutions to include among others the opportunity for us to provide first and second chance foreclosure auctions on FHA loans and field services on Ocwen government loans.
During the quarter Ocwen transitioned more than 1900 efforts and FHA first chance foreclosure auction inventory to us and increased.
Our percentage of field service referrals on its government loans.
We believe this agreement along with Ocwen to anticipated servicing portfolio growth provide alpha source with a significant opportunity to grow.
Leveraging the capabilities, we have and the default business. We are re energizing our solutions for the single <unk>.
Until market. This is an attractive business that complements our countercyclical default business as you can see on slide 11, the single family Investor market is more than 7 times larger than the Oreo sale market with an estimated $1 million investment homes sold per year compared to 140000 and foreclosures that.
Family.
Rio and 2019.
We have experienced in this market having provided these services to front yard residential for many years.
While large investors have entered the space and the last decade mom and pop investors still make up the lion's share of this market.
To meet the needs of small and mid sized.
<unk> real estate investors, we developed a signature buyer and our signature seller program that provide a full suite of solutions to support the acquisition and management and sale of homes.
We are encouraged by the early progress of these programs.
Turning to point to list <unk>, and AI driven customer journey.
Any management SaaS platform that connects the dots between customer experience and business outcomes, helping companies to improve retention and reduce costs.
And 2019, <unk> created point to list as a separate legal entity and contributed the pointless business to it.
Pointless has been making great progress.
Yes. During 2021 pointless won several large contracts with household names and has increased its annual recurring revenue by more than 3 times since the end of 2020.
As pointless continues to grow it plans to look to raise third party growth capital and what we believe could be and attractive valuation.
It should also provide greater visibility into the value of our investment and point and list.
We believe we are positioning <unk> as a more diversified company and should return to growth and 2022.
While the last year and a half has been difficult we're excited about our prospects and our origination and default businesses.
I will now.
Call for questions operator.
Yeah.
At this time, if you'd like to ask a question.
You will need to press star 1 on your telephone.
A question press, the pound or hash key.
Please stand by while we compile the Q&A roster.
And up.
Your first question comes from the line of Mike I'm, not going to all with Northland Securities.
Hey, Bill and Michelle whole ball as well.
Hey, Bill when you were saying.
High level comment.
About lenders 1.
And where you've been saying that you are looking at all options for lenders, 1 and I couldn't quite tell my head was a little bit stuck on pointless because at that point.
And where those comments in reference to lenders 1 point Ali.
And some.
So we made comments so first of all good morning, Mike Nice to talk to you.
We made comments both about lenders, 1 and pointless so with respect to lenders 1 we're talking about our whole origination business, where we believe we can create significant shareholder value given the price the progress, we're making and.
Opportunities, we have in front of us and when we look at the market and compare ourselves to some of the other firms that have recently executed capital market transactions. We believe that it makes sense for us to explore ways to improve shareholder value for us and so we listed a variety of options and my prepared.
Remarks that we are considering or evaluating.
Got it and.
Net.
Pains to the origination businesses that the rate weighted adds about it.
That's correct okay.
Great and on.
And Mike on point and list.
Pointless is also making a really.
Good progress its revenue has grown 3 times from the end of the year, we're not disclosing the actual revenue amount for competitive reasons, but it's making very significant progress and it to at some point plans to look to raise growth capital.
To continue and to help accelerate pointless growth.
Got it do you think that's 2021 or is it more likely 2022.
How do you handicap that.
So I would say, Mike with respect to the origination business, where we're working with the board to explore ways. We can increase shareholder value. It is hard to you know anytime you go through.
Growth.
Analysis and process, it's a very difficult to handicap when it is going to happen, but we like to think we'd have more clarity by the end of this year certainly.
Got it and on point and when.
Yes plainly.
It's still it's still to be determined we're making really good progress and.
It would be hard for me to tell whether something will happen this year or sometime next year, but I think it's you know within the next.
6 to 12 months.
Got it okay.
And then just on the default business.
1 <unk>.
And the CFPB kind of moratorium is listed.
And at year, and how long does it take to kind of see that ramp up.
So Mike I think in process foreclosures are sorry.
Let me, let me take a step back.
Servicers will be able to start new foreclosures for any loan that has a 120.
Its delinquent.
Beginning on January 1 of 2022.
And thats when Servicers will be able to start with any loans that are 120 days or more delinquent as of that date.
Separately.
There is an exception to.
And the Cfpb's rules and so.
NT day, Moratoriums and and August Servicers will also be able to start foreclosures. This august on loans that were more than a 120 days delinquent prior to March of 2020, when the pandemic began so incrementally we'll start to see a ramp up and August September October.
And it's really look we've never been through a pandemic like this before so it's under here, how servicers will ramp up foreclosures based on the pre pandemic delinquencies and the same applies though and January servicers will begin to ramp up there.
And therefore closures for loans that are delinquent at that point in time.
Got it and we're working on the assumption.
Sorry.
Net.
I would just going to say last question.
Any rough guess.
What percent of.
Delinquencies will qualify for the August start is that 10.
20% of.
Foreclosures.
How big of the pool is that yes.
And Mike don't hold me to this but when I look at <unk> and industry Statistics, I think Theres a couple hundred maybe 2 to 4 or 500000 industry wide.
Foreclosures that may fall.
And that category.
But I'm going from from memory here, but I think that's the that's the ballpark number.
Got it Okay, hey, thanks a lot.
Mike.
Again, if you wish to ask a question. Please press Star then the number of line.
All into that our next question comes from the line of Raj Sharma with B Riley.
Hi, Hi, good morning.
And shell.
My question.
Bill to you was just to follow on to the last.
Speakers.
And the lenders.
1.
And so youre, saying that are possibilities it could be and external investment are you thinking it could be a spin off or it could be.
<unk>.
A joint venture.
You are not.
Contemplating selling the business.
And is entirely you were contemplating a.
A joint venture or an investment by a third party.
And what we said I'll just we said it could include a potential divesture joint venture third party investment and our other strategic transaction as well as rating as well as retaining and investing and the <unk>.
And so it could be so we're looking to basically increase shareholder value Raj and when we take a look at some of these other companies and we included their names on this on 1 of our slides Michelle to remember what slide number that was.
Yes, yes and Kevin.
Kevin and Kevin I think on slide 7 there's a company called farmers business network and SM.
So that's exactly what we do with the lenders 1 members from members of the farming community basically helps farmers sell their crops for more money and reduce the cost to produce crops. While we do the same thing for the for the mortgage industry. We have a platform to help mortgage lenders sell their loans for more money and reduce.
Centrally to manufacturer alone that company.
Our valued a year or 2 ago I think it was 1.7 to $1.8 billion.
It's unclear how much revenue there is some press releases out there that looks like it was less than 200 million and revenue at the time they raised the capital and so when you look at those.
Types of comps out there for businesses that are very similar different industry, but very similar to what we're doing leveraging technology.
Great and distribution network and a suite of solutions to support that distribution network and those companies are very highly valued and so we want to explore ways to increase shareholder value.
Value and.
And which could take any of those forms that I just described.
Yes.
Right Okay.
Thank you and that and then your comment that you and default business could grow to 230 million cheeky and $62 million.
I think it's 1 of the slides is that just the field services.
And so youre talking about youre, not including the marketplace of the professional services and that number.
Bidding.
Yeah go ahead, Michelle and.
It includes all of the default, which would include how digital marketplace field services title and valuation.
But not the professional services that's.
And he and services plus and marketplace.
Graduate include field services marketplace foreclosure trustee.
And our valuation default valuation and default title, but just to be clear that that numbers based on sort of our customer base today, including Ocwen.
Gender and or Z on the on the marketplace side and our other customers.
That number does not make an assumption around new sales, that's basically and then Michelle correct me if I'm wrong, but my recollection is the way we established that was based on our existing customer base. If we went back to pre pandemic delinquency levels are aware.
And Quincy levels were.
Tablets, the goalposts between pre pandemic delinquency levels, and where delinquency levels were and the second quarter of.
Of this year.
Alright.
Got it got it and so there is good opportunity to grow from there with new customers.
Right.
On the full closures and what CFPB allows you to do starting today, So a peak and then make.
You are saying that the number of pre pandemic greater than 120 days all around.
200 to 400000.
Roughly.
That's my recollection, right and which rich so how does that how.
Does that compare to your current volume that you're processing.
Well that's industry wide.
And not just our customers that's industry wide. So it's very hard to predict Raj just because we don't know how servicers are going to restart.
Either pending foreclosures or start new foreclosures for those pre pandemic delinquent loans.
And so it's to be seen we certainly expect that there will be an uptick and.
Dissipate there'll be an uptick.
<unk> this quarter, but it's hard to tell and then of course it takes time to work through the system, if it's a new foreclosure.
And if it's a pending foreclosure depending on where it was and the process. When the foreclosure was put on moratorium that will determine when.
And those those loans go into foreclosure sale and ultimately Oreo.
Got it and then okay.
1 other question on Ocwen.
And Youll 1900.
So loans.
How do we think of the approximate sort of revenue you get on those loans that youre going to service.
Sure. So when you so a certain percentage of those loans. So those are first chance for foreclosure auctions on.
And FHA portfolio, and so a certain percentage of those loans will reinstate before they get to foreclosure sale and then what remains typically you see more than 50% sell at the first chance auction and then typically 50% or more sell at the second share of what remains sell at the second chance auction.
And what we're seeing now I think.
We've had we had the referrals are delivered to US a few weeks ago. I think we've probably already had 5 or 10 have actually gone to foreclosure auction and so far.
Probably generating just under 50000 of revenue, but you.
Typically earn and.
Anywhere from I think it's 3% if it's a marketing only state.
The typical auction fee.
Loud and it fits and Oreo if its a.
State, where we <unk> auction, you can earn and 5% of the proceeds from the Pfizer fees.
Right.
And thank you I'll take quick questions off line.
Great. Thanks Raj.
Okay.
Hum.
Yes.
I show no further questions at this time I would now like to turn the call the conference back to Bill.
Great. Thanks, operator, thanks for joining the call and we appreciate your continued interest and help them source. Thank you.
Okay.
Thank you for participating you may disconnect at this time.
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