Altisource Asset Management Corporation (AAMC) on Q1 2023 Results - Earnings Call Transcript
Operator: Good day, and welcome to the AAMC Investor Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Danya Sawyer. Please go ahead.
Danya Sawyer: Good morning, everyone, and welcome to AAMC’s Q1 2023 Annual Earnings Conference Call. I’m Danya Sawyer, the new Chief Operating Officer of Lending Operations at AAMC. Before we begin, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature, as described under Risk Factors in our Annual Report on Form 10-K. Forward-looking statements are subject to a variety of risks and uncertainties that could cause the Company’s actual results to differ from its believes, expectations, estimates and projections. Consequently, you should not rely on these forward-looking statements as predictions of future events. Statements made during this conference call are made as of today’s date and the Company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. As previously mentioned, today’s call is being recorded and a link to this webcast will be posted to our website later today. With that, joining me for today’s call is our Chief Executive Officer, Jason Kopcak. Jason will provide an update on our first quarter 2023 activity, review additional corporate developments and present an overview of our outlook for the year ahead. We will then open the line for questions. Lastly, materials for this call can be found in our Investor Presentation, which was issued earlier this morning. Related information can also be found on the stockholders page of our website at www.altisourceamc.om. And now, I’ll turn it over to Jason.
Jason Kopcak: Thank you, Danya. It has been about seven short weeks since we last spoke. However, a lot was accomplished in that time. As a reminder, we are a capital-light originator of private credit products. In our business model, for every dollar of capital that we deploy, we can originate $10 of assets to sell. Once we’ve achieved normalized operations, we turn our loans on average weekly with a net margin of 150 basis points. This means that we expect to earn $7.50 for every dollar capital deployed at the beginning of the year. On Slide 8, assuming $20 million in weekly production, the original $2 million of capital required would grow to $17.5 million at the end of the year. Therefore, as we grow faster, we would expect to generate more excess cash. Given the progress that we have made in building our loan production facility and pipeline, we have led the closed loan portfolio runoff to position our capital to be available for wholesale and the direct-to-borrower origination, which reduced interest income for the quarter. [Indiscernible] first quarter earnings improved by $1.1 million, reducing the first quarter loss to $3 million on revenue of $2.1 million. Our product mix includes both short duration one to two-year term, high-yielding fixed income assets with a gross weighted average coupon of 9.5% to 12%, secured by one to four family residential or multifamily residential properties going through value improvements, also known as residential transitional loans or RTLs, as well as long duration, interest-only secured by income-producing residential properties also known as DSCR loans. Unlike our peers, we do not use loan securitizations or banks as an exit for our loans. Instead, we establish individual criteria or a buy box to sell loans to institutions with permanent capital such as insurance companies, endowments and pension funds. Our investments do not have the infrastructure to originate yet potentially have over $1 trillion allocated to alternative fixed income assets. I have 15 years of experience and unique relationships with these institutions. As a reminder, once we have secured our take-on investor, we then go to originate these assets – these loans via our three channels: direct-to-borrower, wholesale and broker channel. Turning to our accomplishments. In Q1, we hired Danya Sawyer as COO of both Algent Lending, direct-to-borrower platform and Alternative Lending Group, our Wholesale Lending platform. She has made an immediate impact with the build out of our loan production operations across all origination channels and manages relationships with institutional buyers. We added three additional takeout investors, two of which have insurance money. We are in talks with several additional takeout investors. In 2022, we are primarily a buyer of closed residential transitional loans. But as of mid-January of 2023, as planned, we turned on our direct-to-borrower origination channel. And in late March, we did a soft rollout of our wholesale platform. As a reminder, there is materially more revenue and profits to be earned from originating a loan versus purchasing a closed loan. Furthermore, if the customer experience is good, these borrowers often finance multiple projects each year. In the fixed income market, there’s significantly more demand for soft originated paper. Turning to our Q2 2023 goals and operating metric standard. To go live with our wholesale platform. Another goal of ours is to go live with our direct-to-broker channel. For the RTLs, we – our expected gross revenue per loan is in excess of 350 basis points. For term and DSCR loans, our expected gross revenue per loan is in excess of 250 basis points. Once stabilized, our cost of process alone is expected to be $160 per file. This represents a significant competitive advantage due to our – due to having our loan production principally conducted in Bangalore, India. Our expected average loan size for RTLs is approximately 500,000. Our expected average loan size for DSCR loans is approximately 300,000. As we are still in the process of setting up our loan production lines, there is no guarantee that all loans in our current pipeline will close. However, as of May 10, our pipeline consists of the following. Direct-to-borrower origination pipeline is approximately $75 million. The wholesale channel has a committed volume of $45 million. On Slide B, the $62 million of our pipeline from a direct-to-borrower channel represents net submissions of $38 million over the last past seven weeks, with a net of $11 million of closings. The $45 million of our pipeline from the wholesale channel represents a net submission of $37 million over the past seven weeks, net of $7 million of loan closings. We plan on rolling out our direct – I’m sorry, our broker direct channel this week. For the past seven weeks, our net submissions averaged $10.7 million per week and have grown substantially over the period. We expect continued growth in all three channels. By the way of example on Slide C, in the wholesale channel, we presently have five clients. Client one had net submissions of $29.5 million and has been active since March 1. We have 100% participation of their sales force, which has four loan officers. Client two has net submissions of $15 million has been active since March 9. We have approximately 2% for distribution of their sales force, which is approximately 250 loan officers. Client three has net submissions of $0.5 million, has been active since April 27 and we have approximately 5% of their sales force, which is 11 loan officers. Client four, we go live with them this week, has approximately 600 loan officers. Client five, we will go live the week of June 1, has approximately 2,000 loan officers. In summary, we are experiencing strong demand for our products from both the perspective of the borrowers and our takeout investors. Hence, we are perfecting – we’re focused on perfecting and scaling our operations. I’m excited by the team’s accomplishments since I joined as CEO last July. I’m looking forward to ramping our performance through the year. With that, I’ll turn the call back to the operator for questions.
Operator: Thank you. [Operator Instructions] We’ll take our first question from [Jeff Moore], private investor. Please go ahead.
Unidentified Analyst: Hey. Thanks for taking my questions, guys. On slide B, you say over the past seven weeks, net submissions have grown an average of $10.7 million per week and accelerated over the period. Kind of towards the more recent weeks in that period, about what of those average per week?
Jason Kopcak: I don’t have it broken out in front of me. We can circle back with that information. But, yes, we don’t have the information in front of me. So I’d like to circle back with you on that one, Jeff.
Unidentified Analyst: Okay. But I mean, at the end of the day, like, over the past, say, two months, you’ve had submissions of 10.7 a week. So call it, like, $45 million, $50 million a month, which will put you on a run rate for kind of the targets you put out at the start of the year. And you haven’t even really rolled out a lot of the broker wholesales yet.
Jason Kopcak: Exactly. So I think to your point, Jeff, what’s interesting is if you look in our direct-to-borrower platform, what we’ve seen is over the last seven weeks, our pipeline is more than double on the direct-to-borrower. And that’s the – that’s a channel we rolled out in mid January. We did a soft rollout on wholesale. And the goal with that is that you roll out a channel, you’re going to come across issues. And right away, I think the first two weeks, we had $15 million in submissions. Now we’re up at $45 million, and we really are scratching the surface. So the volume is picking up dramatically in the last three weeks. We feel good about it, but we are focused on operations. We’re focused on the process with our partners. So that way, we get them a smooth experience because anybody can go live, but it’s all about having a good customer experience and good execution. That’s what we’re focused on perfecting that part of it.
Unidentified Analyst: Okay. So on the execution front, like, on average, how long does it take to close one of these loans? And what are some of the challenges and the successes that you guys have had in kind of rolling this out operationally?
Jason Kopcak: So typically, a loan on average, I guess, the average loan takes about 40, about 30 days, okay? These are nuance loans. What we find is with our new construction, the borrowers are typically a little more experienced and they close a little quicker and the fix and flip a little bit less experience take a little longer. So what we found exactly that is, the more experienced borrowers get – have packages that come in quicker and tighter. What have we learned? We learned that there’s a lot of demand even as rates are dramatically up over the year before. We’re not concerned about the amount of demand coming in the door. What we’re trying to do is make sure that we have a tight process that we can close unefficiently and deliver a saleable loan. So what do we – what experience have we had in last 30 days? I think our packages are a lot tighter today than they were 30 days ago. The scalability of our loans are tighter. I’ve been on the trading desk for years. And trust me, you’ll see operations that have really sloppy close packages. We don’t want that. We want the loan – the borrower coming in. We want it closing in 30 days and we want to be able to sell it within three to five days. So the amount of time today at closing a loan is probably half of what it was two months ago and our saleability has gone up dramatically. I mean, the quality of the packages we put together are much improved over the last 60 days.
Unidentified Analyst: Okay. So you’re going to be turning your capital every three days, every three to five days is what it sounds like, right?
Jason Kopcak: That’s the goal. The goal in an ideal role when we get to normalized operations, we’re turning the capital every three to five days, okay? If we run the system right, again, Danya, we brought Danya in for a reason. She’s very experienced. She’s very disciplined. And the goal is to turn – we close a loan and we sell it and we get reimbursed within three to five days. So that’s our target. We feel comfortable it can be done. But with that being said, that’s part of the process we’re building out right now.
Unidentified Analyst: It was impressive. So good luck on that. Also, I was happy to see you’ll repurchase just like just under 20,000 shares of stock. What – are those repurchases, do you think you’re going to continue them? I mean, how do you feel about those right now?
Jason Kopcak: So look, the thought was we’re there. We can do it. We still feel the stocks is undervalued. So part of what we do is we have the ability to please the stock. Number two is, if we feel that – we don’t have a strict amount that we had to put out and that we plan on buying. But we are opportunistic looking at the stock. So we still feel it’s undervalued, but frankly, right now we’re conserving our capital for our originations because turning our capital 50 times a year is more valuable than buying stock, so.
Unidentified Analyst: Okay. Got it. Well, thanks for answering my questions. I’ll hop back in if I have anything else.
Jason Kopcak: Thanks. Thanks, Jeff.
Operator: [Operator Instructions]
Jason Kopcak: So there’s a question that came in. It says, can you talk about the impact of the regional bank issues? And it’s a great question. So I want to come right out and say, look, our bank partners have been fantastic. They’ve been great partners. They’re very experienced banks in the real estate and mortgage space. They’ve come to us actually about increasing our line in doing more business. So from that standpoint, it’s very comforting. The bank issues – look, I think at the end of the day, the regional bank sector is overall holding up pretty well. How has it affected us? I think we’re – like we know what bank partners are good partners. So it’s actually strengthened. We had great relationships with our banks. We have the ability to increase our lines. So that’s shown that we picked the right partners. So I think for us has been great. It has caused – some of our peers has caused them problems because some of the weaker banks have fallen out and they pulled back from real estate. So frankly, the regional bank issues has actually been a win for us because we, again, we’ve lined ourselves with the right banks who understand and comfortable with the real estate space and mortgage space and their balance sheet is strong. And then some of our peers have been aligned with the – probably some of the softer regional banks and has caused them some headaches. So I feel, for us, it’s been a win-win for us. Any other questions?
Operator: [Operator Instructions] It appears there are no further questions at this time. I’ll turn the conference back over for any additional or closing remarks.
Jason Kopcak: Well, I appreciate your time. We look forward to the year ahead, and have a great week. Thank you.
Operator: This concludes today’s call. Thank you again for your participation. You may now disconnect and have a great day.
