Altisource Portfolio Solutions Q1 2025 Earnings Call Transcript

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May 1, 2025

There are 3 speakers on the call.

Operator

day, and welcome to the Altisource Portfolio Solutions First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker, Michelle Esterman, Chief Financial Officer. Please go ahead.

Speaker 1

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 section in the company's earnings release and quarterly slides, as well as the risk factors contained in our 2024 Form 10 ks and first quarter twenty twenty five ten Q.

Speaker 1

These describe some factors that may lead to different results. We undertake no obligation to update statements, financial scenarios or projections previously provided or provided herein as a result of a change in circumstances, 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.

Speaker 1

Joining me for today's call is Bill Shepro, our Chairman and Chief Executive Officer. I'll now turn the call over to Bill.

Speaker 2

Thanks, Michelle, and good morning. I'll begin on slide four. We're pleased with our first quarter performance as we continue to drive year over year and sequential service revenue and adjusted EBITDA growth, primarily from the ramp of our renovation business, stronger foreclosure starts and sales wins. Compared to the first quarter of last year, we grew total company service revenue by 11% to $40,900,000 and adjusted EBITDA by 14% to $5,300,000 Adjusted EBITDA growth outpaced service revenue growth from scale benefits and favorable revenue mix. On February 19, closed the exchange and maturity extension transaction with our lenders, significantly strengthening our balance sheet and reducing interest expense.

Speaker 2

We ended the quarter with $30,800,000 in unrestricted cash. Turning to our financial performance on slide five. For the first quarter, we generated $40,900,000 of service revenue, an 11% increase over the first quarter of twenty twenty four. The service revenue increase was driven by growth in both business segments. First quarter twenty twenty five total company adjusted EBITDA of $5,300,000 represents a 14% increase over the first quarter of twenty twenty four.

Speaker 2

The improvement was largely from the business segment service revenue growth and higher adjusted EBITDA margins in the servicer and real estate segment, partially offset by an increase in the corporate segment's adjusted EBITDA loss. The business segments generated $12,500,000 of adjusted EBITDA at 30.5% adjusted EBITDA margins, representing a 14.5% or $1,600,000 improvement in adjusted EBITDA and a 100 basis point improvement in adjusted EBITDA margins compared to the first quarter twenty twenty four. The Corporate segment's adjusted EBITDA loss increased by $900,000 or 15 percent to $7,200,000 primarily due to certain nonrecurring benefits in the first quarter of twenty twenty four. First quarter service revenue marked the highest level since the third quarter of twenty twenty one, and first quarter adjusted EBITDA was the strongest quarter since the third quarter of twenty twenty. Slide six provides a summary of the exchange and maturity extension transaction and $12,500,000 super senior credit facility that we closed on February 19.

Speaker 2

These transactions significantly strengthened our balance sheet and reduced interest expense. We reduced our long term debt by over $60,000,000 from $232,800,000 to 172,500,000.0 At today's SOFR rate, the annual cash interest cost on this debt is approximately $13,000,000 which is a reduction of cash and PIK interest of approximately $18,000,000 per year compared to our prior facility. For the first quarter of this year, our GAAP interest expense was $4,900,000 compared to $9,500,000 in the first quarter of twenty twenty four. Beginning with the second quarter, we will receive the full run rate benefit of the lower principal balance and interest rate from the exchange and maturity extension transaction. At today's SOFR rate and debt balances, we estimate annual GAAP interest expense on the new debt to be approximately $9,500,000 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.

Speaker 2

Moving to slide seven and our countercyclical servicer and real estate segment. First quarter twenty twenty five service revenue of $32,900,000 was 13% higher than the first quarter twenty twenty four, primarily from the launch and growth of our renovation business, stronger foreclosure starts, and sales wins. First quarter twenty twenty five adjusted EBITDA of $12,000,000 for the segment was $1,600,000 or 15% higher than the first quarter of twenty twenty four. Adjusted EBITDA margins improved to 36.5% from 35.8%. Adjusted EBITDA growth and margin improvement primarily reflects service revenue growth.

Speaker 2

Slide eight provides a summary of our service on real estate sales wins and pipeline. For the quarter, we won new business that we estimate will generate 4,700,000.0 in annual service revenue on a stabilized basis over the next couple of years. We had significant sales wins in our granite business. We ended the quarter with a servicer and real estate segment total weighted average sales pipeline of $26,100,000 of annual service revenue on a stabilized basis, most of which we anticipate will impact 2026 and beyond. Moving to our origination segment on slide nine.

Speaker 2

First quarter 20 20 five service revenue of 8,000,000 was 3% higher than the first quarter of twenty twenty four. Adjusted EBITDA of $500,000 was roughly flat to the same quarter last year. Service revenue growth primarily reflects sales wins in certain of our origination segment businesses. Industry wide origination volume decreased by 1% in the first quarter compared to the first quarter of last year, with purchase origination volume down by 11%, partially offset by a 25% increase in refinance activity. The flat adjusted EBITDA reflects stronger margins for certain business units, partially offset by higher professional services expenses.

Speaker 2

Slide 10 provides a summary of our origination segment sales wins and pipeline. During what continues to be a difficult origination market, our focus on helping our Lenders One member save money and better compete drove substantial interest in our solutions. On an annualized stabilized basis, we won an estimated $4,700,000 in new business in the first quarter. Our weighted average sales pipeline at the end of the quarter was $11,900,000 Turning to our corporate segment on slide 11. We continue to maintain cost discipline.

Speaker 2

While first quarter twenty twenty five corporate adjusted EBITDA loss of $7,200,000 was $900,000 more than the first quarter twenty twenty four. The increase primarily reflects certain one time benefits we received last year. Moving to slide 12 and the business environment. Starting with the residential mortgage default market, ninety plus day mortgage delinquency rates remain low at 1.3% in March compared to a historical low of 1.1% in May 2024. Despite the low delinquency rate environment, foreclosure starts increased by 25% in the first quarter of twenty twenty five compared to the same period in 2024.

Speaker 2

We believe the increase in foreclosure starts is largely related to the 12/31/2024 termination of the VA targeted foreclosure moratoriums. First quarter twenty twenty five foreclosure starts were 18% lower than the same period in 2019. Foreclosure sales for the first quarter of twenty twenty five declined by 2% compared to last year and are 53% lower than the same period in 2019. While foreclosure starts and sales remain low compared to historical pre pandemic periods, there are several environmental factors that we believe could drive these higher. One of those factors is the rise in delinquency rates for FHA mortgages, which are typically granted to lower and moderate income Americans with more favorable terms, including lower down payment requirements.

Speaker 2

According to a recent Wall Street Journal article, the thirty plus day delinquency rate on FHA mortgages recently reached 11%, the highest level since 2013. A second factor is HUD's recently announced updates to the FHA servicer guidelines. In April, HUD issued updates and replacements of certain servicer requirements that limit borrowers to one new permanent loss mitigation option every twenty four months from every eighteen months, subject to certain limited exceptions. This change could reduce repeated borrower loss mitigation attempts and lead to more properties entering the foreclosure process. In addition, effective 10/01/2025, the temporary COVID-nineteen loss mitigation options will be replaced with new permanent loss mitigation options.

Speaker 2

While the new options have many similarities to the temporary COVID options, the implementation of certain additional borrower requirements and limitations could reduce the number of modifications granted, potentially increasing foreclosure starts and subsequently foreclosure sales. A third factor is the risk of a weakening U. S. Economy from, for example, tariff changes and the resumption of collection activities on defaulted federal student loans. Should there be a deterioration of The U.

Speaker 2

S. Economy, inflation or unemployment could rise, likely driving higher loan delinquencies, foreclosure starts, and eventually foreclosure sales. The origination market also continues to have challenges. First quarter twenty twenty five mortgage origination volume was relatively flat to the first quarter of twenty twenty four. For the full year, NBA's April twenty twenty five forecast projects there will be 5,800,000 loans originated.

Speaker 2

This is down by 4% from the NBA's November twenty twenty four forecast. In closing, we are pleased with our first quarter results and 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. To support longer term growth, we are focusing on accelerating the growth of certain of our businesses that we believe have tailwinds. It also appears that The US economy and consumer is facing pressure, which could drive higher mortgage delinquency rates, foreclosure starts, and eventually foreclosure sales. Should loan delinquencies, foreclosure starts, and foreclosure sales increase, we believe we are well positioned to benefit from stronger revenue and adjusted EBITDA growth in our largest and most profitable countercyclical businesses.

Speaker 2

I'll now open up the call for questions. Operator?

Operator

Thank you. Please press 11 on your telephone and wait for your name to be announced. To withdraw your question, press 11 again. I'm currently showing no questions in the queue at this time. I'll turn the call back over to Mr.

Operator

Bill Shepro for any closing remarks.

Speaker 2

Great. Thanks, operator. We're pleased with our first quarter performance and believe we are set up well. Thanks for joining us today.

Operator

This concludes today's program. Thank you all for participating. You may now disconnect.

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Earnings Conference Call
Altisource Portfolio Solutions Q1 2025
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