Q3 2024 Altisource Portfolio Solutions SA Earnings Call
Operator: Good day, and thank you for standing by.
Good day, and thank you for standing by and welcome to the Ultra source portfolio solutions third quarter 2024 earnings call.
Operator: Welcome to the Altisource Portfolio Solutions Start Quarter, 2024 earnings 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.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Operator: To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again.
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Operator: Please be advised that today's conference is being recorded.
Speaker Change: Please be advised that today's conference is being recorded.
Operator: I would now like to hand the conference over to your first speaker today, Michelle Esterman, Chief Financial Officer. Please go ahead.
Speaker Change: Now I'd like to hand, the conference over to your first speaker today, Michelle estrogen Chief Financial Officer. Please go ahead.
Michelle Esterman: Thank you, operator. We first want to remind you that the earnings release, Form 10-Q, in quarterly slides are available on our website at www.altisource.com. These provide additional information investors may find useful.
Michelle Estrogen: 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 dotcom.
Michelle Estrogen: These provide additional information investors may find useful.
Michelle Esterman: Our remarks today include forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ. Financial projections and scenarios are expressly qualified as forward-looking statements, and, as with other forward-looking statements, should not be unduly relied upon.
Michelle Estrogen: Our remarks today include forward looking statements, which involve a number of risks and uncertainties that could cause actual results to differ finnair.
Michelle Estrogen: <unk> financial projections and scenarios are expressly qualified as forward looking statements and as with other forward looking statements should not be unduly relied upon.
Michelle Esterman: In addition to the usual uncertainty associated with forward-looking statements, the continuing impacts of government and service or responses to the COVID-19 pandemic, governmental fiscal policies, and current economic conditions 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 out-of-the-source.
Michelle Esterman: Please review the forward-looking statements sections in the company's earnings release and quarterly slides, as well as the risk factors contained in their 2023 Form 10-K, describing some factors that may lead to different results.
Michelle Esterman: We undertake no obligation to update statements, financial scenarios, and projections previously provided or provided herein as a result of a change in circumstances, new information, or future events.
Michelle Esterman: During this call, we will present both GAP and non-GAP 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.
Michelle Esterman: Joining me for today's call is Bill Shepra, our chairman and chief executive officer.
William Shepro: I'll now turn the call over to Bill. Thanks, Michelle, and good morning. I'll begin on slide four. We had another solid quarter, demonstrating our resilience in a challenging market. We grew service revenue both sequentially and year over year, despite a 15% decline in average serious delinquency rates, a 7% decline in foreclosure initiations, and a 14% decline in foreclosure sales through August this year, compared to the same period last year. For the quarter, we generated $38.2 million in service revenue, a $4 million or 11.8% increase over the same period last year. This growth primarily reflects sales wins and represents our strongest quarterly service revenue performance in 12 quarters.
Speaker Change: And a 14% decline in foreclosure sales through August this year compared to the same period last year.
Speaker Change: For the quarter, we generated $38 $2 million in service revenue of $4 million or 11, 8% increase over the same period last year.
Speaker Change: This growth primarily reflects sales wins and represents our strongest quarterly service revenue performance in 12 quarters.
William Shepro: Compared to last quarter, service revenue grew by $1.3 million or 3.5%. Primarily from ramping sales. We generated $3.6 million of adjusted EBITF for the quarter, a $2.8 million improvement over the third quarter 2023, and an $800,000 decline compared to last quarter. The adjusted EBITF results compared to last year benefited from higher service revenue, lower corporate costs, and margin expansion in the origination segment. Partially offset by approximately $1.2 million of higher SG&A costs in the service earn real estate segment from legacy indemnity claims and bad debt expense. Adjusted EBITF results compared to the second quarter were impacted by approximately $800,000 of higher SG&A costs in the service earn real estate segment from legacy indemnity claims and bad debt expense.
Speaker Change: <unk> to last quarter service revenue grew by $1 3 million or three 5% primarily from ramping sales wins.
Speaker Change: We generated $3 $6 million of adjusted EBITDA for the quarter, a $2 $8 million improvement over the third quarter, 2023, and an $800000 decline compared to last quarter.
Speaker Change: The adjusted EBITDA results compared to last year benefited from higher service revenue lower corporate costs and margin expansion in the origination segment.
Speaker Change: Partially offset by approximately $1 $2 million of higher SG&A costs and the servicer in real estate segment from legacy Indemnity claims and bad debt expense.
Speaker Change: Adjusted EBITDA results compared to the second quarter were impacted by approximately $800000 of higher SG&A costs and the servicer in real estate segment from legacy Indemnity claims and bad debt expense, partially offset by margin expansion in the origination segment.
William Shepro: Partially offset by margin expansion in the origination segment. Adjusted EBITF in each period was also impacted by a change in revenue mix from fewer homes sold in our higher margin hubs of business and growth in our lower margin field services and recently launched renovation businesses. We anticipate the margins in the renovation business will improve as it scales. We ended the quarter with cash and cash equivalence of $28.3 million.
Speaker Change: Adjusted EBITDA in each period was also impacted by a change in revenue mix from fewer homes sold in our higher margin <unk> business and growth in our lower margin field services and recently launched renovation businesses.
Speaker Change: We anticipate the margins and the renovation business will improve as it scales.
Speaker Change: We ended the quarter with cash and cash equivalents of $28 $3 million.
William Shepro: Slide 5 provides additional information on our total company financial performance. The year-to-day trends are positive. Service revenue is $7.5 million higher than last year, and adjusted EBITF is $13.8 million higher than last year. Adjusted EBITF margins improved to 11.3% compared to negative 1.1% for the same period in 2023. The improvement in service revenue compared to last year was primarily driven by sales wins and price increases for certain services. The adjusted EBITF improvement and adjusted EBITF margin expansion compared to last year was primarily driven by higher service revenue business segment margin expansion and lower corporate costs, partially offset by $1.8 million of higher SG&A expenses and service revenue mix that I just discussed.
Speaker Change: Slide five provides additional information on our total company financial performance. The year to date trends are positive service revenue was $7 $5 million higher than last year, and adjusted EBITDA was $13 $8 million higher than last year.
Speaker Change: Adjusted EBITDA margins improved to 11, 3% compared to negative one 1% for the same period in 2023.
William Shepro: Looking to the fourth quarter in full year, we anticipate strong service revenue and adjusted EBITF growth over 2023 as we ramped sales wins on our more efficient and lower cost space. Despite the anticipated strong improvement compared to last year, we are forecasting that we are going to achieve close to the low end of our guidance.
William Shepro: This is primarily driven by three factors. One, our guidance assumed a modest increase in foreclosure starts and sales compared to 2023, while actual starts and sales have been lower year to date, negatively impacting our higher margin hub zoo trustee and title businesses. Two, although we are rapidly growing our renovation business, our guidance assumed an earlier launch and ramp of this business. Three, legacy indemnity claims and bad debt expense were higher through the third quarter than we anticipated. Subbated.
William Shepro: Slide 6 provides highlights for our Servicer and Real Estate segment. For the quarter, we grew service revenue by 4.7% sequentially and 13% over last year. Despite the service revenue growth, adjusted even of 9.9 million dollars was roughly flat to last year and 10.6% lower than the second quarter of this year. This reflects the higher SGA expenses and change revenue mix, including from the rapid growth and are recently launched renovation business that I discussed earlier. Since the delayed April launch of the renovation business, we received over 70 referrals at an average renovation cost of close to $100,000 per property.
Speaker Change: Billion dollars was roughly flat to last year and $10, 6% lower than the second quarter of this year.
Speaker Change: This reflects the higher SG&A expenses and change in revenue mix, including from the rapid growth in our recently launched renovation business that I discussed earlier.
Speaker Change: Since the late April launch of the renovation business. We received over 70 referrals at an average renovation cost of close to $100000 per property.
William Shepro: Based upon September's service revenue, the renovation business is now one of our larger business lines just six months after product launch. We anticipate service revenue and earnings from this business will ramp as the year progresses. We are also onboarding another renovation customer and anticipate receiving our first referrals from this customer in the first quarter. We believe the renovation business should be a very strong contributor to outsource the service revenue and EBITDA in the months and years to come.
Based upon September surface revenue. The renovation business is now one of our larger business lines, just six months after product launch.
Speaker Change: We anticipate service revenue and earnings from this business will ramp as the year progresses.
Speaker Change: We are also onboarding another renovation customer and anticipate receiving our first referrals from this customer in the first quarter.
Speaker Change: We believe the renovation business should be a very strong contributor to our <unk> service revenue and EBITDA in the months and years to come.
William Shepro: Slide 7 provides a summary of our servicer and real estate sales wins and pipeline. For the quarter, we won new business that we estimate will generate 1.7 million in annual revenue once fully ramped. We also generated $5.2 million of service revenue in the quarter, or $20.8 million of service revenue on an annualized basis from 2023 and 2024 sales wins. We ended the quarter with the servicer and real estate segment weighted average sales pipeline of $23.2 million of annual revenue on a stabilized basis, most of which we forecast will contribute over the next couple of years.
Speaker Change: Slide seven provides a summary of our servicer and real estate sales wins and pipeline.
Speaker Change: For the quarter, we won new business that we estimate will generate $1 7 million in annual revenue once fully ramped.
Speaker Change: We also generated $5 $2 million of service revenue in the quarter were $28 million of service revenue on an annualized basis from 2023 and 2024 sales wins.
Speaker Change: We ended the quarter with the servicer in real estate segment weighted average sales pipeline of $23 $2 million of annual revenue on a stabilized basis.
Speaker Change: Most of which we forecast will contribute over the next couple of years.
William Shepro: The increase in the sales pipeline compared to last quarter primarily reflects the addition of earlier stage opportunities. We are pleased with the financial performance of the servicer and real estate segment given the enemic default market.
Speaker Change: The increase in the sales pipeline compared to last quarter, primarily reflects the addition of earlier stage opportunities.
Speaker Change: We are pleased with the financial performance of the servicer in real estate segment, given the anemic default market.
William Shepro: Slide 8 and 9 provide historical series delinquency rates and residential foreclosure initiations and sales, which are lower than 2019 pre-pandemic levels and last year. The average series delinquency rate through August of this year is 1.2%, which is 15% lower than same periods in 2019 and 2023, negatively impacting foreclosure starts and sales. Foreclosure starts and sales are 34% and 54% lower than the same period in 2019, and 7% in 14% lower than the same period in 2023. Should the market normalize or delinquency rates rise, we anticipate that our default related solutions would experience strong growth.
William Shepro: Moving to our origination segment and slide 10. We continue to make progress improving the performance of this segment. Compared to a third quarter of last year, adjusted EBITDA improved by $1.4 million and $500,000 of service revenue growth, primarily from cost savings and efficiency. It's kind of hand-to-hand combat from a sales perspective. We're a really strong performer. We're doing well on the scorecards, and we think that's going to help us grab share with the existing clients and win new business. But there's just not a ton of new business out there to grab right now.
Speaker Change: Third quarter of 2023, and roughly flat to the second quarter of this year.
Speaker Change: The lower corporate adjusted EBITDA loss compared to last year reflects our cost savings and efficiency initiatives.
Speaker Change: Moving to slide 13, I am pleased with our third quarter and year to date performance. Despite the decline in serious delinquency rates foreclosure starts and foreclosure sales over the same period.
Speaker Change: Service revenue for the first nine months of this year is $7 $5 million or 7% higher than the same period last year and adjusted EBITDA is $13 $8 million higher.
Speaker Change: With the recent launch and ongoing ramp of our innovation business and sales wins, we are diversifying our revenue streams and customer base and positioning the company for further growth.
Speaker Change: I will now open up the call for questions.
Speaker Change: Operator.
Speaker Change: Thank you at this time, we will conduct a question and answer session.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Raj Sharma of B Riley. Your line is now open.
Raj Sharma: Hi, Good morning, Thank you for taking my questions.
Speaker Change: Good continued progress.
Speaker Change: The number is.
Raj Sharma: I wanted to understand you had talked a lot about the pre foreclosure work and those loss mitigation work. The earlier part of the foreclosure process that you guys would do more of that work is that when.
Speaker Change: When you say that the reservations business is included in the pre foreclosure work and what percentage of total revenues is that now as opposed to.
Speaker Change: Last year, and then I have a follow on question.
Raj Sharma: Hey, good morning Raj.
Raj Sharma: So I think what we are.
Speaker Change: Time once you receive a referral to submit your bid for the work to get them approved and then start to work and then once we start to work our paid interim payments as we go and so we're pretty excited about the business its ramped quite nicely Michelle correct me, if I'm wrong, but I think we did about $1 million and $5 in revenue in the third.
Speaker Change: Quarter up from just a couple of hundred thousand in the second quarter.
Speaker Change: Hi.
Speaker Change: And we anticipate that's going to ramp quite nicely going into the fourth quarter and as we mentioned in my prepared remarks, we are just signing up another renovation customer that we think will start sending referrals in the first quarter and Thats a business that we're going to very actively.
Speaker Change: Toddlers.
Going into the end of this year and into next year.
Speaker Change: Got it and then just you mentioned the $1 $8 million higher SG&A.
Speaker Change: Could you.
Speaker Change: Talk about that again and also the legacy indemnity the indemnity claim in the bad debt expense fleets.
Speaker Change: Yes, I think there are three things if we compare it maybe not to last year, but too.
Speaker Change: What we anticipated was going to happen for this year.
Speaker Change: I think the impact from the market.
Speaker Change: And perhaps a little bit of a slower ramp up some of our of our default related services in the quarter cost us about $2 million of EBITDA and Thats, primarily impacting hub zoo, the trustee and the title business.
Speaker Change: On the default side I think the slower ramp of the renovation business compared to our plan I think we started a couple of months later than we expected that probably cost us about a half a million dollars of EBITDA.
Speaker Change: And then the higher SG&A.
Speaker Change: Which is comprised of both professional services and bad debt. That's another about $350000. So in total it probably cost us about $3 million in the quarter compared to what we expected to do so.
Speaker Change: So the bad debt.
Speaker Change: There was one customer in particular, we think its ultimately going to be collectible.
Speaker Change: Small smaller customer.
Speaker Change: One thrown that client youre looking at $3 million a month.
Speaker Change: A revenue on a stabilized basis winter inflows and outflows of roughly the same.
Speaker Change: And so I think it's a tough business to model.
Speaker Change: We get some guidance from from our customer but.
Speaker Change: It's only guidance and it doesn't necessarily turn out the way they expected. So we're very optimistic it's going to be a meaningful contributor next year, but it's hard.
Speaker Change: To estimate exactly where it's going to be at this point from a margin perspective, if you think about construction managers.
Speaker Change: In this space they are making.
Speaker Change: After their corporate costs, which typically they are paid for separately, 10% to 15% type margins, maybe as high as 20 for some of them.
Speaker Change: So we hope will be on the higher end of that site.
Speaker Change: Got it and then just two follow ups do you do you have the capacity.
Speaker Change: I mean 15, a month seems like you do with your already got 75 to 80 referrals, but 15% to 30, you have the capacity to handle that and then.
Speaker Change: Maybe what's your risk if you take a referral.
Speaker Change: <unk> build out what does it cost more what if there's overage.
Speaker Change: Could you kind of address what E. S. P. S risks are in this business.
Speaker Change: Sure. We think we've got a pretty good handle on the risks and are able to mitigate those.
Speaker Change: Mike, but if you think about the risks we submit a bid it's approved.
Speaker Change: And if we underestimate what it's going to cost for the work that was approved.
Speaker Change: We take that risk of overage the flip side, though is if you underestimate the cost because you open up a wall and you found mold Thats a change order and you can submit that to our clients and then you get paid for that change order and so I think we do a very good job on the upfront work understanding the scope and what it's going to cost us to complete the work.
Speaker Change: And to make an attractive margin on that work.
William Shepro: God, thank you for taking the questions again. Thank you.
William Shepro: Thanks, Russia. Thank you.
Operator: I'm showing note for the questions at this time.
William Shepro: I will now turn it back to Bill Shepro for closing our marks. Great. Thanks, operator. Repleased with our third quarter financial performance and believe we're well positioned for 2024 and beyond.
William Shepro: Thanks for joining today.
Operator: Thank you for your participation and today's conference.
Operator: This does conclude the program.
Speaker Change: This does conclude the program you may now disconnect.
Operator: You may now disconnect. .
Speaker Change: [music].
Speaker Change: [music].
Michael Grondahl: Michael Grondahl, William Shepro, Altisource Portfolio Solutions. Michael Grondahl, William Shepro, Altisource Portfolio Solutions. Michael Grondahl, William Shepro, Altisource Portfolio Solutions.
Speaker Change: Thanks.