Altisource Portfolio Solutions S.A. Q1 2023 Earnings Call
Speaker 2: Good day and thank you for standing by. Welcome to the Altisource first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone.
Speaker 2: financial officer. Michelle, the floor is yours.
Speaker 3: Thank you, operator. We first want to remind you that the earnings release, Form 10Q, and quarterly slides are available on our website at www.altisource.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.
Speaker 3: In addition to the usual uncertainty associated with forward-looking statements, the continuing impacts of government and service are responses to the COVID pandemic, together with the current economic environment, make it extremely difficult to predict the future state of the economy and the industries in which we operate, as well as the potential impact on NELSI source.
Speaker 3: Please review the forward-looking statements section in the company's earnings release and quarterly slides, as well as the risk factors contained in our 2022 form 10K, which describes factors that may lead to different results. We undertake no obligation to update statements, financial scenarios and projections previously provided.
Speaker 3: or provide a hearing as a result of a change in circumstances, new information, or future events. During this call, we will present both GAP 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 GAP to non- GAAP measures is included in the appendix to the quarterly slides.
Speaker 3: Joining me for today's call is Bill Shepro, our chairman and chief executive officer. I'll now turn the call over to Bill.
Speaker 4: Thanks, Michelle, and good morning. We will begin with slide 4. We are off to a strong start in 2023 as we execute on our plan to recover from the impact of the COVID-19 pandemic.
Speaker 4: Our first quarter financial performance was better than plan with $1.5 million of adjusted EBITDA and gross profit margins of 23%.
Speaker 4: representing a $5.6 million improvement in adjusted EBITDA and an 800 basis point improvement in gross profit margins over the first quarter of 2022.
Speaker 4: These results were primarily driven by revenue growth in our pre-foreclosure solutions in our servicer and real estate segment from the ongoing recovery of the default market.
Speaker 4: Companywide cost saving measures we took in 2022 and early 2023 and $1.3 million in other income related to an India Tax Refund.
Speaker 4: Our counter cyclical servicer and real estate segment generated both sequential and year-over-year revenue and adjusted EBITDA growth as we continue to benefit from the restart of the default market, product mix, and cost savings initiatives.
Speaker 4: In both of our segments, we maintained a robust sales pipeline and wanted onboarded significant new business.
Speaker 4: In February 2023, we also strengthened our balance sheet by raising equity, extending the maturity date of our term loan and revolver, and reducing the principal balance of the term loan.
Speaker 4: In February 2023, we also strengthened our balance sheet by raising equity, extending the maturity date of our term loan and revolver, and reducing the principal balance of the term loan. We ended the quarter with $43 million in cash.
Speaker 4: Turning to slide 5 in our servicer and real estate segment.
Speaker 4: In the first quarter, we grew service revenue by 10% to $29.8 million and adjusted EBITDA by 63% to $11.1 million compared to the first quarter of last year. We also improved our adjusted EBITDA margins to 37% from 25% over the same period.
Speaker 4: Our revenue growth reflects the ongoing recovery of the default market, which initially benefits our pre-foreclosure solutions. Adjusted EBITDA and margin improvements reflect scale and cost reduction measures.
Speaker 4: Partially offset by revenue mix with higher revenue growth in our lower margin field services business.
Speaker 4: Moving to slide six in our service earned real estate sales pipeline and wins. As you can see from our strong weighted average sales pipeline and wins, we are not waiting for the default market to recover to drive growth, and I continue to be excited about our progress.
Speaker 4: During the quarter, we won new business that we estimate will generate $14.4 million in annualized revenue on a stabilized basis.
Speaker 4: We are in the early stage of launching our biggest win from the quarter, which is providing construction risk mitigation services for one of the largest lenders in the U.S.
Speaker 4: We began generating revenue from this win in February and anticipate monthly revenue and referrals to grow as the year progresses. During the quarter, we also began receiving foreclosure auction referrals from an expanded relationship with a mid-sized bank customer and grew our Equator Asset Management Technologies customer base.
Speaker 4: For 2023, we anticipate our counter cyclical service and real estate segment to grow revenue and adjusted EBITDA with higher margins compared to 2022. This reflects sales wins, a continuing recovery of the default market, and scale.
Speaker 4: Turning to the macroeconomic environment in slide 7. There are several indicators that consumers are becoming increasingly financially stressed, which could be precursors to a rise in mortgage don't-equity rates.
Speaker 4: Inflation, which reached a 40-year high in June 2022, has eroded the American consumer's purchasing power. To fight inflation, the Fed rapidly raised the Fed funds rate, driving interest rate on mortgages to almost double from the pandemic lows.
Speaker 4: This has reduced home affordability to historical lows and is beginning to drive down home values.
Speaker 4: At the same time, average personal savings rates, which were 26% in March of 2021, have declined to 4.6% in February 2023.
Speaker 4: Against this backdrop, Fitch Ratings reports that 60-plus-day auto-delinquencies were 5.93% in January of 2023 near the record high of 5.96% in October 1996.
Speaker 4: Auto delinquencies are often considered a bellwether to a deteriorating economy.
Speaker 4: On the student loan front, borrowers are slated to resume federal student loan payments in a few months.
Speaker 4: Outstanding credit card debt hit a record high in December 2022 and continued to climb at a robust pace in January . Credit card delinquency rates rose sharply throughout 2022, and two large credit card lenders recently reported rising credit card delinquency rates in February compared to January .
Speaker 4: environment, we perform well with 17% revenue growth compared to the fourth quarter.
Speaker 4: This represents our first quarter of sequential revenue growth in our origination segment in eight quarters and reflects the progress we are making in onboarding customer wins from our newer Lenders One products.
Speaker 4: Adjusted EBITDA was flat to the fourth quarter, reflecting first quarter revenue growth offset by the fourth quarter 2022 benefit from the bonus accrual reversal.
Speaker 4: Our origination segments year over year revenue decline was better than the market-wide decline in origination volume for the same period. As you can see on the bottom left of this slide, this reflects significantly better than market performance from the Lenders 1 business as we gain traction with our solutions that are designed to help our members save money. Our performance was partially upset.
Speaker 4: by our other origination businesses which were largely in line with the market.
Speaker 4: Slide 9 provides a summary of our origination segment sales pipeline and wins. We closed $21.6 million in estimated sales wins in 2022 and an additional $3.4 million during the first quarter. We closed $21.6 million in estimated sales wins in 2022 and an additional $3.4 million
Speaker 4: From these wins, we recognize the approximately $2.3 million in revenue in the first quarter or $9.4 million of revenue on an annualized basis.
Speaker 4: Given our momentum, we anticipate sequential revenue growth in the second quarter.
Speaker 4: For the full year, we anticipate the origination segment to generate year-over-year revenue and adjusted EBITDA growth based upon the progress of our late 2021 and early 2022 product launches, converting sales wins to revenue, and increasing the growth in the long-term
Speaker 4: and 2022 and early 2023 cost reductions.
In corporate as a whole I think we talked about in the prepared remarks, largely expecting corporate cost to be flat, maybe down a little bit compared to last year, excluding interest expense and the onetime costs associated with amending our debt.
Got it.
Got it. Thank you taking my questions offline. Thank you Greg.
Thank you Raj.
Thank you I would now like to turn it back over to Bill <unk> for closing remarks.
Thank you operator, and thank you for listening to the call. We appreciate your support.
Have a good day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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