Q4 2024 Altisource Portfolio Solutions SA Earnings Call
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Speaker Change: Good day and thank you for standing by welcome to I'll, just source fourth quarter 2024 earnings conference call.
Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session 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 advisor. Your hand is raised to withdraw your question. Please press star one.
Speaker Change: One one again.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I'd now like to hand, the conference over to your Speaker today, Michelle Estamin Chief Financial Officer. Please go ahead.
Speaker Change: Thank you operator, we first want to remind you that the earnings release and quarterly slides are available on our website at www dot healthy source Dot com. These provide additional information investors may find useful our remarks today include forward looking statements, which involve a number of.
Speaker Change: Risks and uncertainties that could cause actual results to differ. Please review the forward looking statements sections in the company's earnings release and quarterly slides as well as the risk factors contained in our 2023 Form 10-K, and our 'twenty 'twenty four Form 10-K once filed.
Speaker Change: Describe some factors that may lead to different results.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Joining me for today's call is Bill Chaperone, our chairman and Chief Executive Officer.
Now I'll turn the call over to Bill.
Speaker Change: Thanks, Michelle and good morning, I'll begin on slide four we're pleased with our full year and fourth quarter 2020 for performance as we continue to improve our financial results and win new business in the face of serious market headwinds for both business segments, We had strong performance across the board.
Speaker Change: The year, we grew total company service revenue by 10% and adjusted EBITDA by $18 3 million.
Speaker Change: In February 2025, we executed an exchange and maturity extension transaction with our lenders significantly strengthening our balance sheet and reducing interest expense.
Speaker Change: Turning to our financial performance on slide five.
Speaker Change: For 2024, we generated $150 million of service revenue, a 10% increase over 2023. The service revenue increase was driven by growth in both business segments.
Speaker Change: 24, total company adjusted EBITDA of $17 $4 million represents an $18 $3 million improvement over 2023.
The improvement was largely from the business segment service revenue growth and higher adjusted EBITDA margins and from the corporate segments lower adjusted EBIT loss.
Speaker Change: The business segments generated $44 6 million of adjusted EBITDA at 29, 7% adjusted EBITDA margins, representing a $10 $4 million improvement in adjusted EBITDA, and a 462 basis points improvement in adjusted EBITDA margins compared to 2023.
Speaker Change: The corporate segment's adjusted EBITDA loss declined by $7 $9 million or 22% to $27 $2 million primarily from efficiency initiatives.
Speaker Change: We also finished the year strong.
Speaker Change: As you can see on slide six fourth quarter service revenue of $38 4 million Mark the highest level since the third quarter of 2021, and adjusted EBITDA of $4 7 million was the strongest quarter since the third quarter of 2020.
Speaker Change: Compared to the same period in 2023 fourth quarter 2024 service revenue grew by 19%.
Speaker Change: Adjusted EBITDA grew by $4 5 million.
Speaker Change: In February 2025, we completed in the exchange and maturity extension transaction with our lenders significantly strengthening our balance sheet and reducing interest expense.
Speaker Change: Also close to $12 $5 million Super Senior credit facility to fund the transaction costs and for general corporate purposes.
Speaker Change: Slide seven through nine provide additional information on these transactions.
As a result of these transactions, we reduced our debt by over $60 million from 233 million to $172 5 million or.
Speaker Change: Our new debt is comprised of $110 million term loan a $50 million noninterest bearing exit fee, which is reduced on a pro rata basis with the repayment of the term loan and a $12 5 million Super senior credit facility.
Speaker Change: The interest rate on the $110 million term loan and the $12 5 million Super Senior credit facility as sofa, plus 650 basis points or 10, 8% today.
Speaker Change: At today's sofa rate this represents $13 4 million.
Speaker Change: Annual cash interest costs, which is an approximately $18 million per year reduction in cash and pik interest compared to our prior facility.
Speaker Change: $158 $6 million of the new term loan matures on April 32030, and $1 4 million matures on January 15 2029.
Speaker Change: Super Senior credit facility matures on February 19th 2029.
Speaker Change: In connection with the transactions the lenders exchanged $72 9 million of debt for approximately $58 2 million <unk> common shares representing 63, 5% of the pro forma equity of the company.
Speaker Change: To provide for the potential for pre transaction stakeholders to increase their ownership interest in the company as the share price increases alpha source will be issuing warrants to pre transaction shareholders Penny warrant holders and restricted stock unit holders as of the February 14 record date.
Speaker Change: These warrants enable stakeholders to purchase approximately $114 5 million common shares of Alta source and an exercise price of $1 20 per share.
Speaker Change: This equates to 325 shares of <unk> common stock.
Speaker Change: Each share of or right to common stock held.
Speaker Change: 50% of the warrants expire on April three 2029 and required the exercise price to be paid in cash to the company.
Speaker Change: Over 50% of the warrants expire on April 32032, and require a net settlement through the forfeiture of shares to the company for the exercise price.
Speaker Change: We believe the transactions put the company on a much stronger financial footing and should be accretive to pre transaction shareholders in the medium to long term the.
Speaker Change: The transactions also provide us with additional time to execute our turnaround plan.
Speaker Change: Removing the April 2025 refinancing risk.
Speaker Change: Moving out to sources balance sheet and leverage ratios and eliminating a major distraction for alpha sources team shareholders and customers.
Speaker Change: Moving to slide 10, and our countercyclical servicer real estate segment.
For 2024 service revenue of $120 million was 11% higher than 2023.
Speaker Change: From the launch and growth of our renovation business and sales wins, despite a market wide, 6% decline in foreclosure starts and 14% decline in foreclosure sales.
Speaker Change: 2024, adjusted EBITDA of $42 $1 million for the segment was $5 million or 14% higher than 2023.
Speaker Change: Adjusted EBITDA margins improved to 35, 1% from 34, 4%.
Speaker Change: Adjusted EBITDA growth and margin improvement reflect service revenue growth and cost reduction and efficiency initiatives, partially offset by revenue mix.
Speaker Change: Slide 11 provides a summary of our servicer and real estate sales wins and pipeline.
For the year, we won new business that we estimate will generate $25 $8 million in annual service revenue on a stabilized basis over the next couple of years.
Speaker Change: We had significant sales wins in our trustee hubs and granted businesses that should help contribute to 2025% service revenue growth.
Speaker Change: We ended the year with a servicer and real estate segment total weighted average sales pipeline of $29 4 million of annual service revenue on a stabilized basis.
Speaker Change: Of which we anticipate will impact 2026 and beyond.
Speaker Change: Moving to our origination segment on slide 12.
Speaker Change: 2024 service revenue of $34 million was 6% higher than 2023, and adjusted EBITDA improved by $5 4 million to $2 5 million.
Speaker Change: This primarily reflects revenue growth in the lenders one business from customer wins from our newer solutions price increases and market share gains in our <unk> fulfillment business.
Partially offset by revenue declines in our other origination businesses that were impacted to a greater degree by lower purchase origination volumes.
Speaker Change: Adjusted EBITDA improved from revenue growth and stronger margins for certain business units from efficiency initiatives.
Speaker Change: For 2020 for the origination segments gross profit gross profit margins adjusted EBITDA and adjusted EBITDA margins, all improved relative to 2023.
Slide 13 provides a summary of our origination segment sales wins and pipeline.
Speaker Change: During a difficult origination market, our focus on helping our lenders one members save money and better compete drove substantial interest in our solutions.
On an annualized stabilized basis, we wanted an estimated $12 6 million in new business for the year.
Our weighted average sales pipeline at the end of 2024 was $13 2 million.
Speaker Change: With $2 $4 million of it in the contracting stage.
Speaker Change: Turning to our corporate segment on slide 14.
Speaker Change: We continued to bring down our operating costs 2020 for corporate adjusted EBITDA loss of $27 2 million was $7 9 million or 22% better than 2023.
Speaker Change: Lower adjusted EBITDA loss reflects our cost savings and efficiency initiatives.
Speaker Change: Moving to slide 15.
Speaker Change: The business environment over the last few years has been very difficult for alto source.
Speaker Change: Walt market was virtually shut down in 2020 and has still not recovered.
Speaker Change: 2020 for foreclosure starts were 35% lower than 2019 levels and foreclosure sales were 53% lower than 2019 levels.
Speaker Change: Driven by low delinquency rates and home price appreciation 2020 for foreclosure starts were also 6% lower than 2023, and foreclosure sales were 14% lower than 2023.
Speaker Change: The origination market has also had its challenges 2020 for mortgage origination volume was 35% lower than 2019 levels driven by higher interest rates.
Speaker Change: While 2020 for origination volume was higher than 23%. This was driven entirely by refinance activity with purchase volume down for the year.
Speaker Change: Despite this difficult default and origination market, we've won meaningful new business and implemented efficiency initiatives that helped drive 10% service revenue growth and $18 $3 million improvement in adjusted EBITDA in 2024 compared to 2023.
Speaker Change: Since 2021, we have grown adjusted EBITDA by almost $50 million.
Speaker Change: Turning to slide 16, and our outlook for 2025, we believe our sales wins improved margins and corporate cost structure position us for another year of service revenue and adjusted EBITDA growth and for the first time since 2019 positive operating cash flow.
Speaker Change: Based upon our current business and market expectations.
Speaker Change: Which assumes roughly flat delinquency rates and 13% growth in origination volume, we are forecasting service revenue of $165 million to $185 million and adjusted EBITDA of $18 million to $23 million.
Speaker Change: At the midpoint this represents 16% annual service revenue growth in.
Speaker Change: An 18% adjusted EBITDA growth over 2024.
Speaker Change: We anticipate service revenue growth will be driven by the continued ramping of sales wins converting pipeline opportunities to sales wins.
Speaker Change: This increases for certain services and growth of newer lenders one solutions.
Speaker Change: We anticipate the adjusted EBITDA improvement will be driven by service revenue growth and higher business unit margins for many businesses, primarily from a full year benefit of 2020 for efficiency initiatives and scale, partially offset by product mix and a modest increase in corporate operating costs do.
Speaker Change: To certain nonrecurring benefits in 2024.
Speaker Change: From a cash flow perspective, we anticipate generating positive operating cash flow for the year.
Speaker Change: In closing we believe we are positioned to diversify our revenue base and ramp business. We have won while maintaining cost discipline and significantly reducing corporate interest expense.
Speaker Change: To support longer term growth, we are focusing on accelerating the growth of certain of our businesses that we believe have a tailwind as.
Speaker Change: When the default market returns to normal we should also benefit from stronger revenue and adjusted EBITDA growth in our largest and most profitable businesses.
Speaker Change: I'll now open up the call for questions operator.
Speaker Change: Thank you as a reminder to ask a question. Please press star one to one on your telephone.
Speaker Change: <unk> for your name to be announced to withdraw your question. Please press star one one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Rumen Kamali: Our first question comes from the line of Rumen Kamali from C. S. A M.
Speaker Change: Good morning, and thank you for the.
Speaker Change: For the presentation and congrats on the results.
Speaker Change: Could you just comment on kind of some of the nature of some of the wins you've had.
Speaker Change: Ross as originations and servicing but also more importantly kind of talk about kind of the nature of the conversations you're having with.
Speaker Change: With some of these.
Speaker Change: <unk> opportunity is pro forma or post.
Speaker Change: Restructuring our post transaction has that changed at all.
Speaker Change: Great. Thanks for me yes.
Yes, we had a couple of <unk>.
Speaker Change: Initiatives last year focused primarily on our construction renovation business our trustee business.
Speaker Change: And.
Speaker Change: What was the third.
Speaker Change: Well in the construction, Oh, Im sorry, indirect lenders one origination business.
Speaker Change: And in the construction business and in the.
Speaker Change: The lenders one business.
Speaker Change: Launched two new products one.
Speaker Change: Just under two years ago, and one a year ago and I'm proud to say that both of those products the credit product on the renovation business each day to north of $1 million a month I think it was in February.
Speaker Change: This quarter of this year and so we've launched basically from scratch to $1 million a month in each of those businesses.
Speaker Change: Those initiatives last year, and we're quite quite quite proud of those results.
Speaker Change: As we look to 2025.
Speaker Change: There are several areas. We're focused on one is I think we could take those two businesses. The renovation business in the origination business, we've got the opportunity to more than double I think the monthly revenue of those businesses by the end of this year, we've got a very exciting pipeline in both of those businesses and certainly completing the transaction with our lenders has helped them to convert.
<unk>, we're having with our customers.
Speaker Change: Also looking at expanding our hubs.
Speaker Change: <unk>.
Speaker Change: Historically hubs has primarily been focused on managing foreclosure auctions and REO auctions. We've recently done a soft launch of a commercial auction platform inside of hub Zoo and we're also looking at selling non distressed residential auctions.
Speaker Change: And that platform so more to come as we develop those two products, we're continuing to grow our granite renovation, sorry, construction risk management business.
Speaker Change: Had some success in growing the revenue and earnings in that business last year, and we see some <unk> with some customer wins. This year again, I think helped by by the transaction and we're also continuing to build out that renovation business I just discussed by adding additional customers and then finally on lenders one we're going to continue to grow that.
Speaker Change: The new product, we launched the credit product and we're looking to essentially launch and relaunch and grow our homeowners insurance product. This year. So we've got four or five initiatives that we think will contribute to our growth this year and help us diversify our customer base, we're pretty excited about those.
Speaker Change: Okay, maybe one more question can you I guess, we're almost.
Speaker Change: Starting with Q1 can you give us some color on how things are trending thus far in 2025.
Speaker Change: Yes, sure we've started the year very strong from our perspective, we had a very good we've seen our unaudited of course January.
Speaker Change: Revenue and EBIT results, which were quite strong revenue was in line with our plan EBITDA was better than our plan February revenue also was right on target I haven't seen our February EBITDA, yet but.
Speaker Change: I believe it's going to perform well.
Also so I think we're off to a really good start.
Speaker Change: At or ahead of plan at plan on revenue and slightly ahead from an adjusted EBITDA perspective.
Speaker Change: Excellent. Thanks.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone.
Speaker Change: Wait for your name to be announced to withdraw your question. Please press star one one again.
Speaker Change: Our next question comes from the line of Robert Hymowitz from Concise capital.
Robert Hymowitz: Hey, guys congratulations on the transaction.
Robert Hymowitz: Just wanted to start by asking about.
Speaker Change: Foreclosure start to seem to be picking up.
Robert Hymowitz: And so I'm just curious.
Robert Hymowitz: When do you think this starts to get reflected in results, what's the lag time here.
Robert Hymowitz: Yes, it's kind of interesting and we've not done a great job of I would say forecasting what's going to happen with foreclosure starts and so in our and our plan for this year, we're assuming that the market the delinquency rates remained roughly flat.
That said I do think there is the market is wobbling a little bit we ended the year from a delinquency rate perspective, both both 30, plus and I think 90 plus.
Robert Hymowitz: Head of where we were in the middle of the year, but just slightly ahead of where we were at the end of 'twenty three and so it hasnt changed that much and then as you saw in our prepared remarks foreclosure starts and sales were also down in 24 compared to <unk> 23, so from a from a modeling and forecasting perspective at Alpha source, we're being very conservative.
Robert Hymowitz: And assuming it remains roughly the same I can tell you what we're hearing anecdotally from our clients is that.
Robert Hymowitz: We're getting ready and expecting an increase in foreclosure starts.
Robert Hymowitz: Hey.
Robert Hymowitz: <unk> on foreclosures ended in.
Robert Hymowitz: At the end of December so, we got a bit of a.
Robert Hymowitz: Or sort of one time.
Robert Hymowitz: Set of referrals.
Robert Hymowitz: January and February related to VA loans and that will then start to normalize on a go forward basis.
And our clients are telling us that they're expecting delinquency rates will start to pick up.
Robert Hymowitz: Monitoring.
Robert Hymowitz: Unemployment, that's usually a pretty good leading indicator if you look at other.
Robert Hymowitz: Credit assets like auto loans credit card delinquencies things like that but delinquency rates are continuing to rise in those areas at some point, it's likely all translate into mortgage delinquencies as well, but we haven't seen it yet.
Speaker Change: Thanks, that's helpful and you mentioned the VA moratorium are there other agencies that are.
Robert Hymowitz: For lack of better term.
Robert Hymowitz: Implementing.
Robert Hymowitz: Unfriendly creditor type of policies that you see.
Robert Hymowitz: Those types of.
Our policy is coming to an end like like the VA moratorium that might impact the business as well.
Robert Hymowitz: The big one is the FHA.
Robert Hymowitz: When interest rates were going down made a streamlined modification program that allowed delinquent borrowers to essentially refi into a new loan with a lower interest rate if they could qualify for.
Robert Hymowitz: For our mortgage with that lower interest rates and then when rates were going up knowing could qualify for a streamlined refi anymore and so the government initiated a new program, where you could wave don't hold me to the exact number but I think it's 25% you can defer 25% of the principle to the end of the loan.
Robert Hymowitz: And if you could qualify for those payments you've got essentially mod that loan what we're seeing though is that even even after going through that process. Those borrowers are continuing to default on those loans and in the fourth quarter, we actually saw a pretty good.
Good size uptick and our FHA related revenue.
Robert Hymowitz: And a slight decline in our non FHA related revenue and the decline in the non FHA.
Robert Hymowitz: Revenue was a combination of two things the revenue per delinquent loan went down a little bit.
Robert Hymowitz: Typical seasonality that was partially offset however, because of the number of delinquent loans. We are managing went up a little bit on the non GSE and so I think we're starting to see that FHA.
Robert Hymowitz: It could open up a bit and there's only so many times. These borrowers can attempt to modify their loan and then go delinquent again before they're going to ultimately go through the whole process and I suspect that's going to start to happen more this year under the new administration compared to the last.
Robert Hymowitz: Got it thanks.
Robert Hymowitz: And for Q1.
Robert Hymowitz: It's not in your EBITDA guide, but you guys should see a sizable gain that should add some some solid equity.
Robert Hymowitz: Reduce the negative equity position on the balance sheet correct.
Robert Hymowitz: So.
Speaker Change: Ill, let michelle get into sort of how it translates into the income statement and balance sheet, but in terms of from an EBIT perspective, I think we did $4 7 million of EBITDA in the fourth quarter I think in the fourth quarter.
Robert Hymowitz: <unk>.
Speaker Change: We still haven't closed our books for February and we still have March but I think we should be in that range are slow or better in the first quarter than the fourth quarter. So we should from a revenue perspective, I think see a very strong revenue quarter, well probably see.
Similar probably if not better results from an EBITDA perspective in which case.
Speaker Change: Both will be better quarter than each quarter last year. So we're off to a very strong start we're happy with our R. R.
Speaker Change: Our performance out of the gate this year.
Speaker Change: And from a book perspective, remember we had the.
The prior debt through February 19th so youre going to see higher interest expense in the first quarter of the year than you will for the remaining quarters at 25.
Speaker Change: Okay, but you guys had a lot of let's say pick interest in Q4.
Speaker Change: During that you're never going to have to actually pay off.
Speaker Change: Sure.
Speaker Change: Some sort of gain there.
Speaker Change: I think youre going to see interest expense.
Speaker Change: We're still finalizing all of the accounting related to the transaction, but putting that aside interest expense is going to be coming down as we mentioned on the call from something like $32 million a year to $13 4 million a year.
Speaker Change: On an annualized basis.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one to one again.
Speaker Change: At this time I would now like to turn the conference back over to Bill chaparral for closing remarks.
Bill: Thanks, Operator, we're pleased with our performance last year and believe we're off to a good start in 2025, we appreciate.
Speaker Change: All of your support and we'll talk to you soon thank you.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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