Altisource Portfolio Solutions S.A. (ASPS) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by and welcome to Altisource First Quarter 2021 Earnings Call. I would now like to hand the conference over to your host, Michelle Esterman, Chief Financial Officer. Please go ahead.
Michelle Esterman: 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.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. In addition to the usual uncertainties associated with forward-looking statements, the current COVID-19 pandemic makes it extremely difficult to predict the future state of the economy and the potential impact on Altisource. 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 2020 Form 10-K, which describe factors that may lead to different results. We undertake no obligation to update these statements as a result of new information or future events. 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.
Bill Shepro: Thank you, Michelle. Good morning and thank you for joining today’s call. This morning, I will discuss the progress we are making in our core origination and default businesses, describe the terms of our recently announced agreement with Ocwen, and provide a brief overview of our first quarter financial performance. Turning to Slide 3 in our origination business, we are pleased with the first quarter performance and more importantly, with our long-term prospects. We generated $16.8 million in revenue, which represents 68% growth compared to the first quarter of 2020. This growth reflects sales wins, greater market penetration with our existing solutions, the rollout of a new employment reseller solution and a strong origination market. For the full year, we believe we are on track to grow revenue in this business by approximately 40% to 50% compared to 2020 significantly outpacing the MBA’s forecast for a 14% decline in origination volume. Growth in our origination business further diversifies our revenue as almost all of our 2021 forecasted origination revenue is from customers other than Ocwen and NRZ and no one customer represents more than 11% of first quarter revenue. The next couple of slides provide you with an overview of our origination business, business model and growth strategy. Turning to Slide 4, Altisource is the manager of a 226 member Lenders One mortgage cooperative. As the manager, we offer a suite of solutions designed to help the members improve their profitability and compete against larger and better capitalized mortgage companies. We also provide the members with ongoing educational programs and access to roundtable events and conferences, where the members can interact with other likeminded executives to discuss best practices and other issues impacting the industry. We estimate that the Lenders One members collectively originated approximately 16% of residential mortgages in 2020, representing approximately $610 billion in origination volume. To give you a better sense of the members scale if you aggregate all the members’ origination production, Lenders One would be the largest residential mortgage lender and roughly the same size as the top three lenders combined. The growth in market share of the Lenders One members is impressive. Based upon the typical Lenders One members’ branch office business model, the members originate a greater proportion of purchase mortgages than the large nationwide lenders whose production is more heavily weighted to refi. It is anticipated that purchase mortgage originations will become a greater proportion of total originations in the next several years, benefiting Lenders One members. In 2020, we grew revenue in our origination business by 46% and anticipate growing by approximately 40% to 50% in 2021. We believe that the medium to longer term opportunity for our origination business is massive with a forecasted year end 2021 Lenders One membership base, representing a serviceable market of $5.7 billion.
Operator: Thank you. Our first question comes from the line of Mike Grondahl with Northland Capital Markets. Your line is open.
Unidentified Analyst: Hey, this is Michael on for Mike. Thanks for taking our questions. Maybe just first on the Ocwen deal, it seems like a nice sort of solution expansion overall. Do you lose any solutions or states there or is it just overall net positive there?
Bill Shepro: Yes. Hey, Mike. Good morning. So, the agreement with Ocwen, actually we view as a very positive. We are adding 5 years term, and we’re adding a slew of FHA-related services that we weren’t previously providing at Ocwen. Pre-pandemic, those FHA services were generating, I think, roughly $2 million a month of service revenue. Today, obviously, with the pandemic, they are down significantly from there. We just launched some of these services with Ocwen a couple of months ago, and we anticipate growing those quite significantly over the next – over the coming months. But basically, we’ve added 5 years to our term, which certainly increases the present value of our relationship with Ocwen.
Unidentified Analyst: Got it. And then just since the end of the first quarter, last few weeks here, I think in a news there was a federal judge on the eviction moratorium. Anything new there as far as how that – how you’re looking at that and outside of the business?
Bill Shepro: Sure. So I think there was a DC circuit court that ruled the CDC eviction moratorium was unconstitutional. That ruling did not address the foreclosure moratoriums. There are different opinions amongst the circuit courts with respect to the eviction moratoriums, and it looks like it’s going to go up on appeal. We’re working at Altisource on an assumption that the moratoriums end at the end of June, but that there’ll be other measures put in place by the government that essentially or effectively prevent foreclosures from being started till the end of this year. But over those – that 6-month period, that loss mitigation work will continue so that going into 2021, that foreclosure process could get back to a more normal operating environment.
Unidentified Analyst: Thanks, Bill. I will back in the queue.
Bill Shepro: Okay, thank you.
Operator: Thank you. Our next question comes from the line of Shachar Minkove with Napier Park. Your line is now open.
Shachar Minkove: Great. Thanks for taking the question. Can you just talk about how you see liquidity for the remainder of the year? Obviously, if things are starting to pick up, that’s a positive going into the fourth quarter. But can you just sort of address your thoughts around cash there?
Bill Shepro: Yes. So we ended the quarter with $41 million of cash, and we continue to implement cash savings activities in the first quarter and into April of this year, and that we believe that’s going to considerably reduce our EBITDA loss as the year progresses. Also in the first quarter, typically, working capital uses cash and then in subsequent quarters, it generates cash. And we are also anticipating a pretty sizable tax refund later this year. So we believe we’ve got adequate liquidity for the year. That said, we’re also evaluating some other opportunities to create a cushion. We believe there is some real opportunity to create shareholder value with our origination business, and we’re exploring options there. And we’re also exploring other ways in which we could create liquidity, which is probably a bit premature to talk about on this call.
Shachar Minkove: Okay. That’s helpful.
Bill Shepro: But I guess, I would just – yes, I would just add to that. We think the impact from the pandemic is short-term. Unfortunately, the pandemic and this investor of Ocwen’s that move business away is having an impact on us this year. But we believe there is tremendous pent-up demand, as we discussed in my prepared remarks in our default business. We’ve also extended the runway with Ocwen for an additional 5 years and are adding additional services that we may provide to Ocwen. And then our origination business continues to grow at a very rapid pace, and we also believe that has a very long runway. And finally, as we talked about in my prepared remarks, we are also beginning to leverage those tools we’ve developed for the default space for our signature seller and signature buyer program to support real estate investors. And we think all in all, that will provide for longer term growth and a more balanced customer base for Altisource.
Shachar Minkove: Okay, great. Thank you.
Operator: Thank you. Our next question comes from the line of Raj Sharma with B. Riley. Your line is now open.
Raj Sharma: Hello. Good morning. Thanks for taking my question. I wanted to – can you touch upon the single family, the rental opportunity? How much is that – what does that comprise of your business today? And also – and what is different in how you’re approaching it? But also, how does the marketplace and the default services sort of differ from the rest of the business on the single-family rental?
Bill Shepro: Great. Raj, yes, thanks for your question. So in the real estate investor space we’re – today, we’re developing two programs. One is called the signature buyer program and the second is called the signature seller program. In the signature buyer program, we have a couple of channels to drive to business to that suite of services that we provide in the default space, title valuation, online auction, brokerage etcetera. And so one is, there are those investors that have cryptocurrency, we’ve created a relationship with a company, where they’ll convert that cryptocurrency to fiat, and so we can help crypto investors buy homes, by investment homes, using our suite of services. So that’s one channel. A second channel is we’re talking with retail investment advisers, who have customers that are looking to diversify their revenue stream, away from just, for example, the stock market and view real estate as another opportunity in the markets to make investments. So we’re working to establish those channel relationships with retail investment advisers to help their customers buy, manage and ultimately sell investment homes. Then, of course, we’re leveraging leads on our website, both on hubzu.com and on equator.com, where we’ve deployed, you’re starting to see some of these improvements to the site where we’ve deployed some tools that make it easier for investors to evaluate and under – search for evaluate and underwrite investment homes at a basic level. And then we can provide the brokerage services, the title services, valuation services, etcetera, to those investors. So those are some of the channels on the signature buyer side. On the signature seller side, what we’re doing, Raj, is helping investors, primarily investors, sell their rental homes on both hubzu.com and Equator. And I think in the first quarter, just to give you a sense of some of the progress we made, and we’re really just getting going. We signed 26 signature seller agreements, don’t hold me to the exact number, but I think we generated about $55,000, $60,000 of revenue in April, representing people – investors that are selling their homes on Hubzu. And so we’re looking to significantly expand that program as well. And then just to give you – to answer your question about why the pivot here, if you think about, we were more in the rental space through our relationship with front yard residential, and then we sold back our property management business to them a couple of years ago. And then ultimately, they sold their business and are now private. And so we’re now at a point where we’re saying, look, we should revisit these suite of services because it’s leveraging almost the exact same set of services that we’re providing to loan servicers and other investors on the default side. We can now pivot and also provide those services on the investor side, while, in particular, the default market has slowed down as much as it has. So we view this as a medium to longer term opportunity, we’re making good progress, but obviously, we’re still in the early innings.
Raj Sharma: Got it. Got it. And then on the Auckland extension, I think you mentioned that it was a settlement of all issues with part of the – was this – I mean this was 4 years ahead of schedule. Can you give some color around that? Does this take care of your – the – I guess, the issue that you had with NRZ?
Bill Shepro: So this is an agreement between Altisource and Ocwen, where we had a disagreement as to whether or not Ocwen had the ability to move services that were covered, what we believe were covered by our agreement to Altisource to NRZ’s captive vendor. So this was – this settles that disagreement by extending the term of our agreement for 5 years. So from August 25 to now August 30 – 2030. And we’ve also added FHA services, and we’ve now started, I think we’re getting 10% or roughly 20% of Ocwen’s volume, 10% or 20% of Ocwen’s volume. I think we’re at 20% beginning in April of their FHA field services work and for new foreclosures, their auction work. But keep in mind, with the pandemic the volumes are significantly lower than what they would normally be. And then we’re working with Ocwen in a very thoughtful manner to continue to expand the scope of services we’re providing to them on FHA, up to at least 90% of Ocwen’s volume. And then we also have the opportunity, which we have not started yet to add an additional 5 states where we do foreclosure trustee work for Ocwen. And then there is also some opportunities around Ocwen’s reverse mortgage portfolio, which we haven’t started yet.
Raj Sharma: Great, great. That’s it. Thank you. I will get back in line.
Bill Shepro: Thanks, Raj.
Operator: Thank you. There are no further questions. I will now turn the call back to Bill Shepro for closing remarks.
Bill Shepro: Great. Thank you, operator, and thank you for joining the call. We appreciate your support and interest in Altisource. Thanks.
Operator: Ladies and gentlemen, this concludes today’s conference call. We thank you for your participation. You may now disconnect.
