Q3 2022 Altisource Portfolio Solutions SA Earnings Call

November 3, 2022

Thank you for standing by.

Welcome to the Aki source third quarter 2022 earnings conference call.

At this time, all participants on a listen only mode.

The speaker's presentation, there will be a.

Question answer session.

All good questions session, you will need to Crestar one one on your telephone.

Hum automated messages advising you don't know.

Right.

Please be advised that today's conference is being recorded.

And I would now like to hand, the conference over to you.

Speaker Michelle estimate.

Financial Officer go ahead Michelle.

Huh.

Thank you operator, we first want to remind you that the earnings release Form 10-Q, and quarterly slides are available on our website at www Dot L. P 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 to the usual uncertainty associated with forward looking statements. The continuing COVID-19 pandemic and current economic environment makes it extremely difficult to predict the future state of the economy and its potential impact on LP first please.

Please review the forward looking statements section in the company's earning release and quarterly slides as well as the risk factors contained in our 2021 Form 10-K, 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 there and as a result of changing circumstances, new information or future events.

During this call we will present, both GAAP and non-GAAP financial measures in our earnings release and quarterly slides you will find additional disclosures regarding the non-GAAP measures.

Reconciliation of GAAP to non-GAAP measure is included in the appendix to the quarterly slides.

Joining me for today's call is Bill chaparral, our chairman and Chief Executive Officer, I'll now turn the call over to Bill.

Thanks, Michele good morning, and thank you for joining today's call will begin with slide four.

I am encouraged by our third quarter results and performance during the quarter, we focused on improving segment margins growing sales wins and reducing across our service to our real estate segment continues to benefit from the restart of a default business and operational efficiencies with 45% year over year adjusted EBITDA growth on <unk>.

Percent service revenue growth.

Our origination segments year over year revenue decline was modestly better than the market wide decline in origination volume.

The difficult origination market and our revenue decline, we reduced our origination segment adjusted EBITDA loss compared to the second quarter and had strong sales wins that we estimate represent 10 million of annualized revenue on a stabilized basis.

And corporate costs declined by $5 $9 million or 25% over the third quarter of 2021 from the sale of a pointless business cost savings initiatives and the assignment of our sales and marketing employees to the business segments.

We ended the quarter with $63 8 million in cash in the third quarter, our cash burn declined by $2 7 million or 28% compared to the second quarter. We believe our cash burn will further decline in the fourth quarter and continue to anticipate ending the year with between 60 and $65 million of cash.

With the estimate fluctuating up or down based on working capital and other factors.

Our estimate includes the anticipated fourth quarter refund of approximately $5 million and U S taxes, and receipt of $3 $5 million in escrow funds from the pointless sale, assuming no indemnification claims.

Turning to slide five and our servicer in real estate segment.

Compared to the third quarter of 2021, we grew service revenue and adjusted EBITDA and improved our gross profit and adjusted EBITDA margins.

Our revenue growth reflects the beginning of the recovery of the default market. Following the September 2021 restart up foreclosures on pre pandemic delinquencies ended December 31st exploration of most of the remaining pandemic related borrower relief measures.

Adjusted EBITDA and margin improvements reflect our greater scale products mix and cost savings initiatives.

While the performance of our default business is improving we believe that we are only in the first phase of a multi phase recovery for our default related revenue.

In addition to sales and marketing wins, which I will cover shortly alpha sources default business revenue growth is primarily driven by three market factors.

First the number of foreclosure starts.

Second the timing from foreclosure starts to foreclosure auctions and REO sales.

Third the percentage of foreclosure starts that ultimately convert to foreclosure auctions.

Beginning with foreclosure starts on slide six.

For the first nine months of 2020 to foreclosure starts were 386% higher than the same period in 2021.

This is primarily driving the growth of our <unk>.

Before closure solutions, including title valuation trustee and field services.

Despite the 2022 increase in foreclosure starts they are still 45% below the same period in 2019.

We believe this is due to the timing for Servicers to initiate foreclosures on delinquent loans post exploration of the moratoriums and represents a significant opportunity for revenue growth as the market returns to pre pandemic foreclosure start levels.

The second market factor driving alpha sources default related revenue growth is the timing from foreclosure start to foreclosure auction and our REO sale.

We estimate that in today's environment. It typically takes on average two years to convert foreclosure starts to foreclosure sales and another six months to market and sell the Oreo.

Due to this timing, we anticipate that our later stage foreclosure auction and REO asset management services.

Fully benefit from the early 2022 higher foreclosure starts until late 2023 or early 2024.

Turning to slide seven in the third market factor the conversion rate of foreclosure inventory to foreclosure sales.

For the first nine months of 2020 to foreclosure sales were 45% higher than the same period in 2021, but significantly lower than the 386% growth in foreclosure starts.

We believe foreclosure sales haven't grown at the same rate as foreclosure starts for two reasons.

First following the 2022 restarted the default market a greater percentage of loans in foreclosure or from 2022 foreclosure starts and the weighted average age of foreclosures Havent had sufficient time to reach historical norms.

Second over the past couple of years, we believe distressed homeowners have been able to sell their home or modify our refinance their loan before the foreclosure sale due to strong home price appreciation from the historically low interest rate environment.

Recently interest rates have more than doubled to approximately 7%.

<unk> affordability to levels not seen since October 1985.

Because affordability is directly correlated to home values, we share the view of many industry experts that home values are going to decline, leaving distressed homeowners with fewer options.

As newer foreclosure season, and rising interest rates become priced into home values. We believe foreclosure sale conversion rates should return to 2019 levels or higher.

We anticipate this will drive further growth for our solutions that support foreclosure auctions, and REO asset management, including valuation title field services, and our higher margin brokerage and auction business.

In addition to the three market factors I, just discussed should delinquency rates rise above pre pandemic levels, which is looking more likely in this economic environment. We would expect foreclosure starts and sales to exceed 2019 pre pandemic levels and support further growth for our servicer in real estate segment.

We estimate for every 1% increase in 30 day delinquency rates the addressable market for our default services would increase by about $700 million.

While it's difficult to predict the manner and timing of the recovery of the default market slide illustrates what we believe alpha sources run rate revenue and adjusted EBITDA could be after the default market returns to the pre pandemic environment.

Slide 16 summarizes the assumptions we used in arriving at the run rate scenario.

To isolate the impact from the default market returning to normal we held revenue from the origination segment for the last 12 months constant and applied 2019 origination adjusted EBIT margins to this revenue.

Under this scenario, we estimate generating $42 million of adjusted EBITDA on $253 million of service revenue.

Of course, if delinquency rates rise above pre pandemic levels, we would anticipate our revenue and earnings would be higher.

In addition to growth from the recovery of the default market. We are focused on growing our servicer and real estate segment sales pipeline and are making good progress.

During the third quarter, we won and are in various stages of Onboarding, new business with an estimated $4 million of annualized revenue on a stabilized basis. In addition, the mid point of our average weighted sales pipeline is currently $36 million on an annualized and stabilized basis.

Turning to slide nine and our origination segment.

The origination market continues to face challenges with the latest MBA report estimating that third quarter origination volume declined by 29% compared to the second quarter.

And full year origination volume is forecasted to decline by 49% compared to last year.

Compared to the second quarter, our origination segment's revenue decline outperformed the market.

This reflects significantly better than market performance from the lenders one business as we gained traction with our solutions that are designed to help members save money.

Was partially offset by performance that was largely in line with the market for most of our other origination businesses.

With the decline in origination volume and margins originators have turned their attention to reducing costs and are increasingly looking to purchase lenders one solutions that help them do so.

As you can see on the left hand side of the slide during the quarter. We won an estimated annualized $10 million in new business on a stabilized basis and ended the quarter with an annualized average weighted sales pipeline of $23 million at the midpoint.

Importantly, we are making progress translating these sales wins to revenue.

As you can see on this slide we have won an estimated $20 million in new business on a stabilized basis in 2022.

And have recognized $1 3 million of revenue related to these wins.

As we onboard and scale. These wins, we believe there is significant additional revenue to be realized.

While focusing on sales growth. We are also addressing our cost structure to improve the financial results of the origination businesses most impacted by lower origination volumes.

As a result, we reduced the origination segments, adjusted EBIT loss by $600000 or 25% compared to the second quarter. Despite the decline in service revenue as we benefit from our cost reduction initiatives.

We believe with revenue growth and cost discipline earnings from origination segment should continue to improve.

Finally, we continue to maintain cost discipline in our corporate segment with costs down by $5 $9 million or 25% over the third quarter of 2021 from the sale of the pointless business cost savings initiatives.

Assignment of sales and marketing employees to the business segments.

We are encouraged with our third quarter results and believe we are well positioned for continued adjusted EBIT excuse me for continued adjusted EBITDA improvement.

In our servicer and real estate business, we should benefit from the market tailwind.

Strong sales pipeline and efficiency initiatives and our origination business. We believe we are building an exciting and innovative business that we anticipate will benefit from sales wins and cost savings initiatives. The.

The improving performance of our segments combined with cost discipline incorporate should help us return to a growth company and create substantial value for our stakeholders I will now open up the call for questions.

<unk>.

Thank you.

We will conduct a question and answer questions as a reminder to ask a question.

One one on your telephone.

Lamont.

Stombaugh coupon.

Awesome.

My first question. Our first question comes from the line of Mike Grondahl.

So these.

Your line is now open.

Hey, guys good morning.

Couple of questions.

Last one bill when you were talking about the foreclosure sales conversion rate.

Did you say, what the level of rate today and what is.

During kind of pre pandemic normal levels.

Could you, let us know those sure yes, Michelle can you refer to the slide share slide seven that's out.

And maybe you can provide some commentary right at what it was and what it is sure. So if you look at the graph on the left hand side of slide seven.

Green line reflects the percentage.

Closure foreclosure sales as a percentage of beginning foreclosure inventory by quarter.

You can see is back in 2018 2019 period.

The percentage was about 14% 15%.

<unk>.

And you can see today, you know you heard about 7% 6% to 7%.

Got it.

C J.

Definition of that foreclosure sales as a percent of inventory.

Inventory, okay, yeah, so hard in the beginning inventory the number of homes that are in foreclosure at the beginning of the quarter versus the number of sales during the quarter.

Got it so you are running at a volume.

The levels of.

This is the total market.

Got total market okay.

And then.

Bill.

In the press release, it talks about server servicer in real estate having.

Of annual revenue of $30 to $40 million in originations.

Sort of 21% to $23 million and I think you mentioned you got one $3 million of debt on the origination side.

How long does it take to.

This annual revenue.

<unk>.

So that's a great question, Mike and something we're very focused on is converting the wins to revenue so on the servicer side.

Don't hold me to exact numbers, we had about $20 million worth of wins this year, but I've only generated about $1 $5 million of revenue from those wins this year.

And I can tell you we're very actively Onboarding and then a lot of these wins are in lenders. One we're very actively on boarding these customers I think we have seven or eight client onboarding.

In the month of October alone and so as we onboard those customers and then ramp those products across those customers loan officers, we would expect to over time go from the $1 5 million run rate Eric to the $20 million.

On the origination side and then on the servicer side.

Jim thing.

One some deals.

I think that the dollar amount of the Windsor smaller than on the origination side, but it takes time from when you win a transaction to when you onboard the clients. So for example, a month or two ago. We just on boarded a household name bank in our field services business.

So it will take time before that client fully ramps to the revenue we expect.

Fair Fair.

Nick.

Theres been a press release or two about lenders one.

I think getting in a couple of Walmart.

I don't know can you just describe that opportunity is.

How that affects ultra source.

Sure. So we've been having a dialogue with Walmart for a couple of probably a couple of years now and discussing ways in which we can potentially provide.

Education to Walmart's customers helped make the stores a little bit stickier in terms of customer retention and.

As an opportunity to provide our lenders one members to drive more loans to the top of their funnel.

Particularly in this environment, we're very tough origination environment and so we've created a relationship where we're leasing space from Walmart that we in turn essentially sublease.

Two members of lenders one and over time, it's we're in a pilot program now, but over time, we will be making money.

For providing all the services related to the lease and putting in place the sublease between us and our members and so we have opened three stores. So far we feel really good about it. Our members are very excited they like the idea of being able to provide.

Loans to that.

That demographic and to grow that component of their business and so we're we're cautiously optimistic that this could turn into a meaningful program for our members of lenders one and over time generate attractive income for outsource.

Got it and then just lastly.

In the beginning of your comments you talked about two years.

Foreclosure start.

Become sales and then maybe six months marketing an actual sale.

And then did I hear you right that you are hoping that the inflection in service revenue was sort of second half 'twenty three first half 'twenty four.

Is that sort of current thinking.

Yes, so for all those foreclosure starts that have increased think about the first half of this year at least compared to 2021.

We're starting to generate the early.

Pre foreclosure services on those foreclosure starts as those foreclosures worked through the foreclosure process over roughly a couple of years. Some states that may be as short as six or nine months. Other states. It could take a couple of years to complete the foreclosure process, but for those loans that get all the way to the end and then convert to Oreo. It then.

<unk> another six months to sell the Oreo and so some of our highest margin businesses take place at the very end of that process. So we won't benefit from the substantial increase.

Foreclosure starts in our in our highest margin businesses until late 2023.

There, we're seeing some benefit modest benefit now yes.

Yes.

Okay, Hey, thanks, guys.

Thanks, Mike.

Thank you will.

One more question.

Before I cover the last question. Please remember teamed with Lockheed.

Question just across Star one one.

Good luck.

Our next question comes from the line of Raj Sharma with B Riley.

Right.

Welcome.

Hi, Good morning, Thank you for taking my question.

My first sort of inquiry is on the cost savings I know that there have been plenty of cost savings in different levels and I just wanted to understand when we look at 2019 cost levels and I know that there have been changes since.

Since then.

Apples to apples, how should we look at the cost structure and the amount of savings from the 2019 level now.

Now.

I think Raj maybe just.

Reframe the question a little bit I think what Youre seeing now is we're very focused on improving the margins.

At our business unit level.

To be at the same or better than 2019, not necessarily across every service, we provide but across most of them.

And so <unk>.

And we're also focused on keeping the corporate costs, which are significantly lower than where they were in 2019.

Don't want to say flat, but relatively flat, which is an <unk>.

High inflation environment.

We think as it is a pretty good outcome and we've already we substantially reduced the corporate costs over the last couple of years in the business unit.

We've done a lot of work around cost savings, but we still have some more work to do in the fourth quarter. So I think youll see in our servicer and real estate business, we're continuing.

And to work to improve our business unit margins and our EBITDA, even if revenue were to be of course, a lot depends on revenue mix, but all things being equal and on the origination side. We made some significant changes in the third quarter, but it was late in the third quarter. So we didn't get the full benefit in the fourth quarter, so while the fourth quarter.

There is normally a seasonally slower period for us we think revenue will be.

Roughly flat, maybe slightly down, but we think earnings will be adjusted EBIT will be better as we benefit from a full quarter of expense savings in our origination segment in the fourth quarter and as we make some changes in our service our real estate segment that will get partial benefit from in the fourth quarter.

Got it so on slide eight when you showed 17% on the run rate scenario adjusted EBITDA margin that is a would you say a significant improvement from 2019 levels or.

Yeah, and rod lift it.

Slide 16, you can see a comparison to 2019.

Right.

Okay.

That's helpful.

That's very helpful. Thank you and then.

My other question was on the run rate scenario on this slide on slide eight.

So when do you expect to achieve the run rate scenario by the services segment is that mid 'twenty three.

Is that what I heard.

Yes.

I think what we're what we said on the call is it's very difficult to predict and I think when you spend some time going through that.

That slide with all the assumptions on slide 16.

Get a sense as to how we're thinking about it Raj it's hard to predict but certainly as we get to the tail end of 2023, we would think we're going to start to be running at a more normal rate.

We've used that you could do you could take a look we tried to be a bit.

Middle of the fairway in terms of how we approach. This process in terms of revenue per per delinquent loan in terms of our margins based on some of those improvements I just talked about you could see compared to 2019, we think our servicer and real estate margins will get better than where they were we are very we assumed the origination business.

Is flat to our trailing 12 months and operating at 2019 margins. So I think we're being we really tried to isolate the performance of the default business.

I think theres an opportunity there is a little bit of sales baked in here getting back to sort of 2019 levels, but there is an opportunity for sales to drive.

More growth than we have included in here both on the origination and the servicer side and of course, if there were to be a recession.

And then these numbers would look different as well stronger right.

So on this run rate scenario, youre, not really including the late stage Oreo sales on hubs.

The higher margin business that you said that would probably kick in.

Likely in 'twenty four.

We are including what we would look like on a more normalized basis, we're making assumptions around.

Ocwen portfolio coming down over a couple of years. So we're assuming we're providing the work on a smaller portfolio to be conservative in how we approach the exercise, but we are this is what we believe we would look like potentially on a run rate basis.

Sort of once we hit normal.

Right. Okay. Thank you and then lastly on the origination side I see the run rate scenario is flat origination revenues.

How does that and then your.

Your sales pipeline did you say when when did you say you'd be able to sort of.

Fulfill.

Convert the entire sales pipeline into sales or a part of it.

Is the timeline that you did you mentioned.

Sure.

So that so the normal default market run rate just assumes the originations equaled to the trailing 12 months, obviously, we have much greater ambitions than that and if you look at the information we provided on this call with the $20 million of sales wins. This year, so far only generating roughly a million and half dollars of income we think theres a big opera.

<unk> for us to get from that one five hopefully close to.

That $20 million, a lot depends on origination volumes and in the market etcetera, but in any event that that we're finding is taking longer than we have originally anticipated. If you go back to earlier in the year. So we're learning a lot more about how long it takes to onboard new customers on our newer products.

But I think as it sort of general I'd like to believe.

Within a year of winning the deal we could certainly have the client onboarding and generating revenue and of course, it will vary product product capital then it takes some time after that before it stabilizes at the run rate maybe another six months.

Great. Thank you. Thank you for asking the questions I'll take it thanks Ross.

Great.

Thank you operator.

The last question last opportunity.

Quick question. Please press star one.

The telecom now.

Okay.

Questions.

I would like to turn call back to blur soccer for closing remarks, great.

Great. Thank you operator.

Thanks to those attending the call. We believe we have a very exciting.

Opportunity in front of us with tailwind in the default side of our business and.

Good progress and are.

Growing sales on the origination side of our business on a more moderate cost base to work, we're looking forward to the market moving more in our favor as well thanks for period of time.

Thank you our monthly propulsion local those compounds.

You may now disconnect.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Good color on <unk> performance Marl welcome to the <unk> third quarter 2022 earnings Conference call.

At this time, all participants are in listen only mode.

Ecosystem fulsome overview, a question answer session.

I'll quick questions. When you were wanting to Crestar, one one telephone you're welcome animals.

E Commerce.

Today's conference.

I would now like to turn the conference.

Michelle.

So I'll answer.

Sure.

Thank you operator.

First want to remind you that the earnings release Form 10-Q, and quarterly slides are available on our website at www Dot <unk> 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 to the usual uncertainty associated with forward looking statements.

When COVID-19, pandemic and current economic environment makes it extremely difficult to predict the future state of the economy.

Central impact analysis.

Please review the forward looking statements section in the company's earnings release, and quarterly slide as well as the risk factors contained in our 2021 Form 10-K, which describe factors that may lead to different results. We undertake no obligation to update these statements financial scenarios and projections previously provided will provide.

It is there and as a result of changing circumstances, new information or future events.

During this call we will present, both GAAP and non-GAAP financial measures in our earnings release and quarterly slides you will find additional disclosures regarding the non-GAAP measures a reconciliation of GAAP to non-GAAP measures is included in the appendix to the quarterly slides.

Joining me for today's call is still chaparral, our chairman and Chief Executive Officer, I'll now turn the call over to Tom.

Thanks, Michele good morning, and thank you for joining today's call will begin with slide four <unk>.

Encouraged by our third quarter results and performance during the quarter, we focused on improving segment margins growing sales wins, and reducing costs or service or in real estate segment continues to benefit from the restart of a default business and operational efficiencies with 45% year over year adjusted EBIT growth on 2014.

Percent service revenue growth.

Our origination segments year over year revenue decline was modestly better than the market wide decline in origination volume.

Despite the difficult origination market and our revenue decline, we reduced our origination segment adjusted EBITDA loss compared to the second quarter and had strong sales wins that we estimate represent 10 million of annualized revenue on a stabilized basis.

In corporate our cost declined by $5 9 million or 25% over the third quarter of 2021 from the sale of the pointless business cost savings initiatives and the assignment of our sales and marketing employees to the business segments.

We ended the quarter with $63 $8 million in cash in the third quarter, our cash burn declined by $2 7 million or 28% compared to the second quarter.

We believe our cash burn will further decline in the fourth quarter and continue to anticipate ending the year with between 60 and $65 million of cash with the estimate fluctuating up or down based on working capital and other factors.

Our estimate includes the anticipated fourth quarter refund of approximately $5 million and U S taxes, and receipt of $3 5 million in escrow funds from the pointless sale, assuming no indemnification claims.

Turning to slide five in our servicer in real estate segment.

Compared to the third quarter of 2021, we grew service revenue and adjusted EBITDA and improved our gross profit and adjusted EBITDA margins.

Our revenue growth reflects the beginning of the recovery of the default market.

Following the September 2021, restart up foreclosures on pre pandemic delinquencies ended December 31 exploration of most of the remaining pandemic related borrower relief measures.

Adjusted EBITDA and margin improvements reflect our greater scale products mix and cost savings initiatives.

While the performance of our default business is improving we believe that we are only in the first phase of a multi phase recovery for our default related revenue.

In addition to sales and marketing wins, which I will cover shortly alpha sources default business revenue growth is primarily driven by three market factors.

First the number of foreclosure starts.

Second the timing from foreclosure starts to foreclosure auctions and REO sales.

Third the percentage of foreclosure starts that ultimately convert to foreclosure auctions.

Beginning with foreclosure starts on slide six.

For the first nine months of 2020 to foreclosure starts were 386% higher than the same period in 2021.

This is primarily driving the growth of our pre.

Before closure solutions, including title valuation trustee and field services.

Despite the 2022 increase in foreclosure starts they are still 45% below the same period in 2019.

The second market factor driving alpha sources default related revenue growth is the timing from foreclosure start to foreclosure auction and REO sale.

We estimate that in today's environment. It typically takes on average two years to convert foreclosure starts to foreclosure sales and another six months to market and sell the Oreo.

Due to this timing, we anticipate that our later stage foreclosure auction and REO asset management services.

Fully benefit from the early 2022 higher foreclosure starts until late 2023 or early 2024.

Turning to slide seven in the third market factor the conversion rate of foreclosure inventory to foreclosure sales.

For the first nine months of 2020 to foreclosure sales were 45% higher than the same period in 2021, but significantly lower than the 386% growth in foreclosure starts.

We believe foreclosure sales haven't grown at the same rate as foreclosure starts for two reasons.

Recently interest rates have more than doubled to approximately 7%.

<unk> affordability to levels not seen since October 1985.

Because affordability is directly correlated to home values, we share the view of many industry experts that home values are going to decline, leaving distressed homeowners with fewer options.

As newer foreclosure season, and rising interest rates become priced into home values. We believe foreclosure sale conversion rates should return to 2019 levels or higher we.

We estimate for every 1% increase in 30 day delinquency rates the addressable market for our default services would increase by about $700 million.

Slide 16 summarizes the assumptions we used in arriving at the run rate scenario.

Under this scenario, we estimate generating $42 million of adjusted EBITDA on $253 million of service revenue.

Of course, if delinquency rates rise above pre pandemic levels, we would anticipate our revenue and earnings would be higher.

In addition to growth from the recovery of the default market. We are focused on growing our servicer and real estate segments sales pipeline and are making good progress.

During the third quarter, we won and are in various stages of Onboarding, new business with an estimated $4 million of annualized revenue on a stabilized basis. In addition, the midpoint of our average weighted sales pipeline is currently $36 million on an annualized and stabilized basis.

Turning to slide nine and our origination segment.

The origination market continues to face challenges with the latest MBA report estimating that third quarter origination volume declined by 29% compared to the second quarter.

And full year origination volume is forecasted to decline by 49% compared to last year.

Compared to the second quarter, our originations segment's revenue decline outperformed the market.

This reflects significantly better than market performance from the lenders one business as we gained traction with our solutions that are designed to help members save money. This.

<unk> was partially offset by performance that was largely in line with the market for most of our other origination businesses.

With a decline in origination volume and margins originators have turned their attention to reducing costs and are increasingly looking to purchase lenders one solutions that help them do so.

Importantly, we are making progress translating these sales wins to revenue.

As you can see on this slide we have won an estimated $20 million in new business on a stabilized basis in 2022.

And have recognized $1 3 million of revenue related to these wins.

As we onboard and scale. These wins, we believe there is significant additional revenue to be realized.

While focusing on sales growth. We are also addressing our cost structure to improve the financial results of the origination businesses most impacted by lower origination volumes.

We believe with revenue growth and cost discipline earnings from origination segments should continue to improve.

Simon of sales and marketing employees to the business segments.

We are encouraged with our third quarter results and believe we are well positioned for continued adjusted EBIT excuse me for continued adjusted EBITDA improvement.

In our servicer and real estate business, we should benefit from the market <unk>.

<unk> sales pipeline and efficiency initiatives and our origination business. We believe we are building an exciting and innovative business that we anticipate will benefit from sales wins and cost savings initiatives. The.

The improving performance of our segments combined with cost discipline and corporate should help us return to a growth company and create substantial value for our stakeholders I will now open up the call for questions.

<unk>.

Thank you.

At this time, we will conduct a question and answer questions. As a reminder to ask a question.

Yes.

One one on your telephone.

Couple of months.

Yes.

Stombaugh can Paul.

Hum.

Awesome.

Our first question. Our first question comes from the line of Michael Goldenberg.

So the.

Your line is now open.

Hey, guys good morning.

Couple of question.

First one bill when you were talking about the foreclosure sales conversion rate.

Did you say what the level of rate was today.

During kind of pre pandemic normal levels.

Could you, let us know those sure yes, Michelle can you refer Mike to the slide slide seven.

And maybe you can provide some commentary right at what it was and what it is sure. So if you look at the graph on the left hand side of slide seven the Green line reflects the percentage.

Paul closure foreclosure sales as a percentage of beginning foreclosure inventory by quarter.

What you can say is back in.

2018 2019 period.

The percentage was about 14, 15% per quarter.

And you can see today, you heard about 7% 6% to 7%.

Got it.

The just the definition of that foreclosure sales as a percent of.

<unk> inventory, Okay, yes, beginning inventory you had the number of homes that are in foreclosure at the beginning of the quarter versus the number of sales during the quarter.

Got it so you are running at a volume.

Half the level.

Hello, Mark.

Total market okay.

And then.

Bill.

In the press release it talks about server servicer in real estate, having win of annual revenue of $30 million to $40 million in originations.

Sort of $21 million to $23 million and I think you mentioned you got one 3 million of debt on the origination side.

How long does it take.

To get this.

The annual revenue.

These categories.

So that's a great question, Mike and something we're very focused on is converting the wins to revenue so on the servicer side.

Doug you want me to exact numbers, we had about $20 million worth of wins this year, but I've only generated about $1 $5 million of revenue from those wins this year.

And I can tell you we're very actively Onboarding and then a lot of these wins are in lenders. One we're very actively on boarding these customers I think we have seven or eight client onboarding.

In the month of October alone and so as we onboard those customers and then ramp those products across those customers loan officers, we would expect to over time go from the $1 5 million run rate.

To the $20 million.

On the origination side and then on the services side same thing where we've won some deals.

I think the dollar amount of the Windsor smaller than on the origination side, but it takes time from when you win a transaction to when you onboard the clients. So for example, a month or two ago. We just on boarded a household name bank in our field services business.

So it will take time before that client fully ramps to the revenue we expect.

Fair Fair.

Nick.

Theres been a press release or two about lenders one.

I think getting in a couple of Walmart.

I don't know can you just describe that opportunity is.

How that affects <unk>.

Sure. So we've been having a dialogue with Walmart for a couple of probably a couple of years now and discussing ways in which we can potentially provide.

Education to Walmart's customers help make the stores a little bit stickier in terms of customer retention and as.

As an opportunity to provide our lenders one members to drive more loans to the top of their funnel.

Particularly in this environment, we're very tough origination environment and so we've created a relationship where we're leasing space from Walmart that we in turn essentially sublease.

Two members of lenders one and over time, it's we're in a pilot program now, but over time, we will be making money.

For providing all the services related to the lease and putting in place the sublease between us and our members and so we've opened three stores. So far we feel really good about it. Our members are very excited they like the idea of being able to provide.

Loans to that.

Got it and then just lastly.

In the beginning of your comments you talked about two years.

Foreclosure start.

Become sales and then maybe six months marketing an actual sale.

And then did I hear you right you are.

Hoping that the inflection in service revenue was sort of second half 'twenty three first half 'twenty four.

Is that sort of current thinking.

Yes, so for all those foreclosure starts that have increased I think about the first half of this year at least compared to 2021.

We're starting to generate the early.

Takes another six months to sell the Oreo and so some of our highest margin businesses take place at the very end of that process. So we won't benefit from the substantial increase.

<unk>.

Foreclosure starts.

And our highest margin businesses until late 2023.

There, we're seeing some benefit benefit now yes.

Yes.

Okay, Hey, thanks, guys.

Thanks, Mike.

Thank you will.

One more question.

The last question, please remember to ask.

Question just across Star one one.

You may begin ma'am.

Our next question comes from the line of Raj Sharma with B Riley.

Welcome.

Hi, Good morning, Thank you for taking my question.

First sort of inquiry is on the cost savings I know that there have been plenty of cost savings in different levels and I just wanted to understand.

When we look at 2019 cost levels and I know that there has been changes since.

Since then.

Apples, how should we look at the cost structure and the amount of savings from the 2019 level now.

Now.

I think Raj, maybe just reframe the question a little bit I think what Youre seeing now is we're very focused on improving the margins.

At our business unit level.

To be at the same or better than 2019, not necessarily across every service, we provide but across most of them.

And so.

And we're also focused on keeping the corporate costs, which are significantly lower than where they were in 2019.

I don't want to say flat, but relatively flat which is.

High inflation environment.

Is it is a pretty good outcome and we've already we substantially reduced the corporate costs over the last couple of years in the business unit.

We've done a lot of work around cost savings, but we still have some more work to do in the fourth quarter. So I think youll see in our servicer and real estate business, we're continuing.

To work to improve our business unit margins and our EBITDA, even if revenue were to be a flat of course, a lot depends on revenue mix, but all things being equal.

And on the origination side, we made some significant changes in the third quarter, but it was late in the third quarter. So we didn't get the full benefit in the fourth quarter. So while the fourth quarter is normally a seasonally slower period for us we think revenue will be.

Okay, roughly flat, maybe slightly down, but we think earnings will be adjusted EBIT will be better as we benefit from a full quarter of expense savings in our origination segment in the fourth quarter and as we make some changes in our service our real estate segment and that will get partial benefit from in the fourth quarter.

Yeah. So so on slide eight when you showed 17% on a run rate sorry.

Adjusted EBITDA margin that is a would you say a significant improvement from 2019 levels or.

Yeah, and Rod look at Slide 16, you can see a comparison to 2019.

Right.

Okay.

That's helpful.

That's very helpful. Thank you and then.

My other question was on the run rate scenario on this slide on slide eight.

So when do you expect to achieve the run rate scenario by the services segment is that mid 'twenty three.

Is that what I heard.

So I think what we're what we said on the call is it's very difficult to predict and I think when you spend some time going through that.

That slide with all the assumptions on slide 16.

You'll get a sense as to how we're thinking about it Raj, it's hard to predict but certainly as we get to.

The tail end of 2023, we would think we're going to start to be running at a more normal rate.

<unk>.

We've used that you could you could take a look we tried to be.

We'll get better than where they were we are very we assume the origination business.

<unk> is flat to our trailing 12 months and operating at 2019 margins. So I think we're being we really tried to isolate the performance of the default business. I think there is an opportunity there is a little bit of sales baked in here getting back to sort of 2019 levels, but there is an opportunity for sales to drive.

More growth than we have included in here both on the origination and the servicer side and of course, if there were to be a recession.

Then these numbers would look different as well stronger right and so all of this run rate scenario.

Not really including late stage Oreo sales on hubs and the <unk>.

Higher margin business that you said that will probably kick in.

Likely in 'twenty four.

No we are including what we would look like on a more normalized basis, we're making assumptions around.

Ocwen portfolio coming down over a couple of years. So we're assuming we're providing the work on a smaller portfolio.

Conservative in how we approach the exercise, but we are this is what we believe we would look like potentially on a run rate basis.

Sort of once we hit normal.

Right. Okay. Thank you and then lastly on the origination side I see the run rate scenario has flat origination revenues.

How does that and then your.

Our sales pipeline did you say when when did you say you'd be able to sort of.

Fulfill our convert the entire sales pitch pipeline into sales.

Part of what is what is the timeline that you did you mentioned.

Sure.

So the normal default market run rate just assumes the originations equaled to the trailing 12 months, obviously, we have much greater ambitions than that and if you look at the information we provided on this call with the $20 million of sales wins. This year, so far only generating roughly $1 million and $5 of income, we think theres a big opportunity.

<unk> for us to get from that $1 five hopefully close to.

But I think as a sort of general I'd like to believe.

Within a year of winning the deal we could certainly have the client onboard it and generating revenue and of course it will vary product cockpit oil then it takes some time after that before it stabilizes at the run rate.

Maybe another six months.

Great. Thank you. Thank you for asking the questions I'll take it thanks Ross.

Great.

Thank you.

The last question Ross opportunity.

Ask a question please press star one.

No.

Okay.

Questions.

I'd like to turn the call over to blur soccer for closing remarks.

Great. Thank you operator, and thanks to those attending the call. We believe we have a very exciting opportunity in front of us with <unk> in the default side of our business and.

Good progress.

<unk> sales on the origination side of our business on a more moderate cost base to work, we're looking forward to the market moving more in our favor as well thanks for period of time.

<unk> proportional to those compounds.

<unk> demand.

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