Operator: Good day, and thank you for standing by. Welcome to the Altisource Portfolio Solutions Q3 2026 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. 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michelle Esterman, Chief Financial Officer. Please go ahead.
Michelle Esterman: Thank you, operator. We first want to remind you that the earnings release 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. 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 2025 Form 10-K and our 2026 Form 10-Q filings. These describe some factors that may lead to different results. 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 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 Bill Shepro, our Chairman and Chief Executive Officer. I'll now turn the call over to Bill.
Bill Shepro: Thanks, Michelle, and good morning. I'll begin on slide four. Our Q3 results provide further evidence that Altisource's growth strategy is gaining traction. Service revenue and adjusted EBITDA increased year-over-year. Recent customer wins continued to ramp, and our AI and other efficiency initiatives began accelerating product development speed and are anticipated to drive scalability and operating leverage over the upcoming quarters. Importantly, we achieved this progress while industry volumes remained below normalized levels and our business was impacted by the wind down of the Rithm cooperative brokerage agreement and transfer of Rithm's Onity service loans to Rithm. Together, the continued ramp of customer wins, greater operating leverage, and disciplined cost management represent the core building blocks of Project 45, our objective of reaching $45 million of run rate adjusted EBITDA by Q4 2028.
Bill Shepro: We anticipate these same drivers to support higher adjusted EBITDA in the Q4. Turning to slide five. We delivered revenue and adjusted EBITDA growth across both segments while continuing to invest in customer implementations and capabilities to support our next phase of growth. Q3 service revenue of $49.8 million increased 26% over the same quarter last year, and adjusted EBITDA of $4.3 million increased 17% over the same period.
Bill Shepro: Adjusted EBITDA margins of 8.5% declined modestly from the same quarter a year ago from revenue mix changes with stronger growth in the lower margin Origination segment and continued investment in new customer implementations and future growth, largely offset by stable corporate costs and growing revenue. As the customer implementations progress, wins season, and our more recent efficiency initiatives take hold, we forecast improved operating leverage and higher Adjusted EBITDA margins. Moving to slide 6.
Bill Shepro: Revenue and EBITDA growth is also contributing to improving earnings performance. For the Q3 2026, adjusted pre-tax income grew by 59% to $2.1 million, compared to $1.3 million in the same 2025 period. Adjusted earnings per share grew by 30% to $0.13, compared to $0.10 in the Q3 2025. Net cash provided by operating activities was $1.3 million for the nine months ended 30 September 2026, and $3.5 million for the quarter. During the quarter, we also opportunistically purchased and retired $900,000 of our term loan. We ended the quarter with $25.1 million in unrestricted cash. Turning to slide 7 and our countercyclical Servicer and Real Estate segment. Q3 2026 service revenue increased 15% quarter-over-quarter and 4% sequentially to $35.8 million.
Bill Shepro: This growth was driven primarily by customer wins and strength in the Hubzu, Title, and Trustee businesses, partially offset by lower Rithm revenue. We believe recently won business provides a visible path to continued growth as it ramps towards stabilized volumes over the next several quarters, while a future normalization in default market activity could create additional upside.
Bill Shepro: Servicer and Real Estate segment Adjusted EBITDA increased 2% quarter-over-quarter to $10.2 million. The increase demonstrates that revenue from recent customer wins is offsetting the loss of Rithm revenue and beginning to translate into improved earnings. As this new business seasons, we anticipate a greater portion of incremental revenue to contribute to Adjusted EBITDA, improving margins. Slide 8 illustrates the progression of our Servicer and Real Estate segment growth. First, we added an estimated $2.7 million of annualized stabilized service revenue wins during the quarter.
Bill Shepro: Second, wins secured since 2024 generated $13 million of revenue this quarter, equivalent to $51.9 million on an annualized basis. Third, we ended the quarter with an estimated weighted average pipeline of $12.8 million in stabilized annual revenue. Together, these measures provide both current revenue momentum and additional opportunities for future growth. Turning to slide 9. Hubzu inventory within Marketplace more than quadrupled over the past year, reaching 26,000 assets as of 30 September 2026, compared with 5,700 assets a year earlier. That growth continued in the Q3, with inventory increasing by 16% from 22,300 assets as of 30 June 2026. Because Hubzu inventory typically moves through the foreclosure process and REO sales stages before generating revenue, inventory growth should be a precursor to home sales and revenue growth.
Bill Shepro: In the third quarter, we transacted 789 homes, compared with 583 homes in the third quarter of 2025 and 710 homes last quarter. As our growing inventory seasons, we anticipate a larger number of assets to advance to sale, supporting future Hubzu transaction volumes and revenue growth. Moving to slide 10. Our Origination segment delivered strong quarter-over-quarter sales growth despite a difficult origination market, with origination unit volume down by 6% compared to the third quarter 2025.
Bill Shepro: Third quarter 2026 service revenue increased 65% over the same quarter last year to $14 million, driven principally by customer wins. Adjusted EBITDA over the same period increased 33% to $1.2 million, even as we continue to invest in the talent and capabilities to support further growth. These results demonstrate that our performance was driven primarily by market share gains and customer adoption rather than market-based fluctuations.
Bill Shepro: Slide 11 outlines our Origination segment customer wins and pipeline. During the quarter, we secured an estimated $6.3 million of annualized stabilized revenue wins, primarily in Lenders One, and ended the quarter with an estimated weighted average pipeline of $18.5 million. The level of wins and pipeline activity reinforces our view that lenders are responding to solutions that can lower costs, improve execution, and provide access to scalable operating capabilities.
Bill Shepro: Based on sales wins, our pipeline, and the market, we forecast Q4 origination service revenue to remain strong compared to the prior year. Turning to slide 12. We are executing against our plan to grow revenue, reduce our dependence on Onity and Rithm, and build a more resilient revenue base across Altisource. Total company service revenue in the third quarter of this year increased by 26% compared to the third quarter of 2025.
Bill Shepro: Over the same period, service revenue from customers other than Onity, Rithm, and customers associated with their portfolios grew by 96%, representing 72% of Altisource's service revenue, compared with 46% a year ago and 65% last quarter. This shift reduces Onity and Rithm customer concentration, broadens the source of our growth, and should enhance the durability of our revenue base. Moving to slide 13. Our AI and automation strategy is focused on three measurable outcomes: increasing operating efficiency, accelerating software development, and strengthening our product offering. During the quarter, we expanded AI-enabled workflows across Marketplace, field services, valuations, finance, and other corporate support functions. We also used AI to shorten development cycles across our software products and continued building new AI-developed software solutions for construction risk management, commercial loan servicing, and real estate asset management.
Bill Shepro: While many of these initiatives are still in the early stages, we believe they can improve our scalability and support revenue growth. Turning to slide 14 and our corporate segment. Third quarter 2026 corporate Adjusted EBITDA loss was -$7.1 million, reflecting a $200,000 reduction in corporate costs compared with the third quarter of 2025 and an $800,000 decrease compared with last quarter. We continue to expect corporate costs to remain relatively stable as the business grows. Because the business segments generated combined Adjusted EBITDA margins of approximately 23% in the third quarter, incremental revenue should contribute meaningfully to consolidated earnings. This operating leverage is a central component of the plan to achieve our Project 45 objectives. Moving to slide 15 and the business environment. The default market remains below pre-pandemic norms, but several indicators are beginning to move higher.
Bill Shepro: As of August 2026, the number of seriously delinquent loans and loans in foreclosure totaled 872,000, an increase of 26% from August 2025 and 9% from December 2025. Foreclosure starts for the 8 months ending August 2026 were 20% higher than in the comparable period in 2025, and foreclosure sales were 17% higher, although both remain below pre-pandemic activity.
Bill Shepro: A sustained increase in foreclosure activity could provide additional volume across several of our businesses. For the origination market, Q3 2026 mortgage Origination segment unit volume decreased 6% year over year, including an 8% decrease in refinance volume and a 5% decrease in purchase volume. The MBA projects 5.3 million loans will be originated in 2026, representing 6% growth over 2025. Against that backdrop, we believe our recent customer wins and pipeline position us to outperform the broader market. Any sustained market recovery should provide additional upside.
Bill Shepro: To conclude, the Q3 provides further evidence that our strategy is working. First, customer wins should continue to drive strong revenue growth. Second, our revenue base is more diversified from Onity and Rithm. Third, our AI automation and operating efficiency initiatives should build a more scalable cost structure. We are delivering this progress in default and origination markets that remain below normalized volume levels. As recent wins continue to ramp in season and efficiency benefits build, we believe Altisource is positioned to generate stronger earnings, increased operating leverage, and durable stakeholder value with upside if market conditions improve. I will now open up the call for questions. Operator?
Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Timothy D'Agostino of B. Riley Securities. Your line is now open.
Timothy D'Agostino: Yeah. Hi, good morning. Thanks for taking the questions. I guess on margins, there has been a lot of helpful commentary here, but I guess working up to the gross profit margin. At the company level, that has ticked down here over the past couple quarters. I guess it would be great to just hear a little bit of commentary on why that might be. Just looking at our spreadsheet here, it went from about 27.5% in the Q1 to about 23.4% in the Q3. So any additional color there would be great to hear.
Bill Shepro: Hey, Tim, I am going to have Michelle answer the question more specifically, but at a high level, keep in mind that what is going on at Altisource is we are ramping up a lot of new customer wins. I think we talked about something like Non-Onity and Rithm wins up something like 90% plus over last year, while we were ramping down the Rithm cooperative brokerage agreement and the business we are losing as a result of Onity no longer being the sub-servicer on the Rithm assets as those were transitioned back. So you are managing business, getting ready for growth while you are also managing down as well.
Bill Shepro: That creates some complications just from an operating perspective. I will let Michelle explain in more detail, but I feel very confident that we are in a good position to significantly grow our EBITDA margins over the coming quarters. I will let Michelle get into the specifics.
Michelle Esterman: Yeah, absolutely right. I think from a gross profit margin, you could see a mix issue as well because we have had much higher growth in the Origination segment than we have experienced in the Servicer and Real Estate segment. But from a total company EBITDA margin perspective, we think these margins are going to significantly improve over the coming quarters. In addition to benefiting from our ongoing AI automation and operating efficiency initiatives, there are really three drivers that we think would support margin expansion. The first would be in the Servicer and Real Estate segment. Bill talked about this new business, but as it seasons, we anticipate that a greater portion of incremental revenue is going to contribute to margin.
Michelle Esterman: In short, you can think about it as we were already incurring the cost to support growing revenue from higher inventory and referral volumes, but we are not going to incur more costs as that revenue grows. The second, in the Origination segment, we have been investing in the talent and capabilities to support our future growth. So as revenue continues to grow in that segment, we expect net margins will expand. Then finally, at a total company level, we expect corporate costs to remain relatively stable as the business grows. So in the Q3, business segments contributed combined EBITDA margins of about 23%. As we grow revenue while maintaining relatively flat corporate costs, total company margins should expand, both at the gross profit and the total EBITDA level.
Timothy D'Agostino: Okay, that's super helpful. I appreciate the color. Then I guess, just looking at my model here, just a quick question. When working down to adjusted net income, the share-based comp expense, it was a little bit below our estimates. Seems like it moved from about $1.2 million in the Q2 to about $800,000 in the Q3. Is that a one-time decrease? Just want to note if there's anything there that we should be thinking about or it's actually normal and it's back up in the Q4. Thank you.
Michelle Esterman: Yeah. With share-based comp, you do see fluctuations from quarter to quarter. A lot of grants happen in the first quarters of each year, so sometimes you'll see a little bit higher. It did trend down a little bit this quarter. I expect it'll stabilize probably somewhere back to Q1, Q2 level.
Timothy D'Agostino: Okay, great. That's super helpful. That's all I have on my end today, but thanks again for taking the questions. And yeah.
Michelle Esterman: Yeah. Also, in that you may have had some reversal of share-based comp in the Q3 related to exits or severance kind of things.
Timothy D'Agostino: Okay, great. Thank you so much.
Operator: Thank you. As a reminder, to ask a question, you will need to press *11 on your telephone. Okay, I am showing no further questions at this time. I would now like to turn it back to Bill for closing remarks.
Bill Shepro: Great. Thank you, operator. We're pleased with our Q3 performance and believe we are set up for continued growth and margin improvement. Thank you for joining us today.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
