Altisource Portfolio Solutions (ticker: ASPS) has delivered a robust performance in its second-quarter earnings, with service revenue reaching $36.9 million and adjusted EBITDA hitting $4.4 million. The company experienced a 16% growth in its Servicer and Real Estate segments, although there was a 5% decline in the Origination segment.
With a series of sales wins and price increases in certain services, Altisource remains on course to meet its 2024 guidance, demonstrating cautious optimism for the latter half of the fiscal year. The focus remains on expanding customer base, ramping up sales, and maintaining cost efficiency.
Key Takeaways
- Altisource's Q2 service revenue stood at $36.9 million with a 16% increase in the Servicer and Real Estate segment.
- Adjusted EBITDA for the quarter was $4.4 million.
- The company projects strong service revenue and adjusted EBITDA growth in Q3 and Q4.
- Altisource is on track to achieve a run rate of over $30 million in adjusted EBITDA by year-end.
- Sales wins and price increases contributed to revenue growth, particularly in field services and valuation business.
- The company is capitalizing on market share in the early foreclosure process and has seen success in the renovation business.
Company Outlook
- Altisource aims to reach $52 million in adjusted EBITDA growth over the next three years.
- The company expects to sustain strong service revenue and adjusted EBITDA in the upcoming quarters.
Bearish Highlights
- Service revenue in the Origination segment saw a 5% decrease from the previous year.
Bullish Highlights
- Altisource reported sales wins and service price increases.
- There is a positive outlook on the pre and early foreclosure process market share.
- The renovation business is expected to generate between $70 million to $80 million in revenue.
- Expansion in the trustee work with an existing customer is anticipated.
Misses
- No specific guidance provided at this time for future earnings.
Q&A Highlights
- Bill Shepro mentioned 35 lenders are evaluating Altisource's program, with one already signed up.
- The company earns commissions from homeowners insurance policies, including renewals.
- Altisource is focused on simplifying the closing process for members.
- The renovation business model involves assessments and contracting out renovation work, with the company earning the margin.
Altisource Portfolio Solutions has presented a solid second-quarter performance amidst a challenging market environment. The company's strategic moves, particularly in the Servicer and Real Estate segment, have paid off with a significant increase in service revenue. While the Origination segment saw a slight downturn, the overall financial health of the company appears to be strong.
With continued sales wins, expansion efforts, and a disciplined approach to costs, Altisource is poised for further growth and is working towards achieving its long-term financial targets. The leadership's cautious optimism and the potential for increased market share in the foreclosure process indicate a forward-thinking strategy that could yield positive results in the coming years.
InvestingPro Insights
Altisource Portfolio Solutions (ticker: ASPS) has shown resilience in its Q2 performance, and as per the InvestingPro Tips, analysts are expecting net income and sales growth this year. This aligns with the company's own projections of strong service revenue and adjusted EBITDA growth in the latter half of the year. However, it's important to note that the company is trading at a low revenue valuation multiple, which could indicate that the market has not fully recognized the potential upside from its sales growth.
InvestingPro Data indicates a challenging backdrop, with a negative Price/Earnings (P/E) Ratio of -0.63, reflecting the market's concerns over profitability. Additionally, the company's stock has been subject to high price volatility, which could be a factor for potential investors to consider, especially in light of the 77.56% decline in the 1 Year Price Total Return.
On the upside, Altisource's liquid assets exceed its short-term obligations, suggesting a stable financial position in the near term. Moreover, while the company did not pay dividends, this could be a reflection of its focus on reinvesting into growth and operational efficiency.
For those interested in a deeper dive, there are additional InvestingPro Tips available that could provide further insights into Altisource's financial health and market performance. To explore these tips and gain a more comprehensive understanding, visit: https://www.investing.com/pro/ASPS. Remember to use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
Full transcript - Altisource Portfolio Solutions SA (NASDAQ:ASPS) Q2 2024:
Operator: Good day, and thank you for standing by. Welcome to the Altisource Portfolio Solutions Second Quarter 2024 Earnings Call. [Operator Instructions] 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, 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. Financial projections and scenarios are expressly qualified as forward-looking statements and as with other forward-looking statements should not be unduly relied upon. In addition to the usual uncertainty associated with forward-looking statements, the continuing impacts of government and servicer responses to the COVID-19 pandemic, governmental fiscal policies and current economic conditions make it extremely difficult to predict the future state of the economy and the industries in which we operate, as well as 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 2023 Form 10-K, describing 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. 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 4. We had a strong second quarter and believe we are on track to achieve our 2024 guidance of 13% to 32% service revenue growth over 2023 and adjusted EBITDA of between $17.5 million and $22.5 million in 2024. For the quarter, we generated $36.9 million in service revenue and $4.4 million of adjusted EBITDA, and modestly increased cash to $29.7 million. We also went live and began to receive referrals from a renovation business customer and 3 foreclosure trustee customers. Our financial results reflect our strong sales wins, price increases, referral volume growth and lower cost base in what continues to be an incredibly difficult environment of close to historically low mortgage delinquency rates and low origination volume. Service revenue in our Servicer and Real Estate segment grew by 16% compared to the same quarter in 2023 in a market that had approximately 7% fewer foreclosure starts and 13% fewer foreclosure sales. Service revenue in our Origination segment declined by 5% compared to the same quarter in 2023, outperforming the 13% decline in total market mortgage origination volume. Slide 5 provides additional information on our total company financial performance. As you can see, the trends are positive. Service revenue was 11% higher, and adjusted EBITDA was $7.9 million better than the second quarter of last year. Adjusted EBITDA margins improved to 11.9% in the second quarter of 2024 compared to negative 10.5% in the second quarter of '23. The improvement in service revenue, adjusted EBITDA and adjusted EBITDA margins compared to last year was driven by sales wins, price increases for certain services, stronger default referrals, business segment margin expansion and lower corporate costs. Adjusted EBITDA and adjusted EBITDA margins declined modestly compared to the first quarter due to approximately $600,000 of first quarter net nonrecurring benefits comprised of $1.2 million of benefits in the Corporate segment and $600,000 of costs in the Servicer and Real Estate segment. Excluding these net nonrecurring first quarter benefits, second quarter adjusted EBITDA and adjusted EBITDA margins improved compared to the first quarter. For the third and fourth quarters, we anticipate strong service revenue and adjusted EBITDA growth over 2023 as we ramp sales wins in our more efficient and lower cost base. Slide 6 provides additional information on our Servicer and Real Estate segment. Second quarter 2024 service revenue in this segment was 16% higher than the second quarter of 2023 and flat to last quarter. We continue to experience growth in certain higher-margin businesses that support the earlier stage of the default process. Adjusted EBITDA of $11.1 million was 50% higher than the second quarter of 2023 and 6% higher than the first quarter of this year. Adjusted EBITDA margins were 38.1% in the second quarter of '24 compared to 29.5% in the second quarter of 2023 and 35.8% last quarter. The improvement compared to the second quarter of last year reflects revenue growth and efficiency initiatives. The improvement compared to the first quarter of this year reflects business unit efficiency initiatives as well as the $600,000 of nonrecurring expenses in the first quarter that I just discussed. Slide 7 provides a summary of our Servicer and Real Estate sales wins and pipeline. For the quarter, we won new business that we estimate will generate $15.3 million in annual revenue once fully ramped over the next couple of years. In the second quarter, we signed 3 agreements to provide foreclosure trustee services. This is in addition to the market share expansion of trustee business with a customer that we won in the first quarter. We completed the onboarding process of these 3 trustee customers and are ramping referrals. We anticipate that these wins will support service revenue and EBITDA growth. We also made progress ramping our renovation services for one of the largest owners of REO assets in the U.S. Since the program went live in late April, we have received over 35 renovation referrals, which we estimate will generate average revenue of close to $100,000 per property. We anticipate referral volume, revenue and earnings from this customer will ramp as the year progresses. We ended the quarter with a segment weighted average sales pipeline of $20.3 million of annual revenue on a stabilized basis, most of which we forecast will impact 2025 and beyond. The decline in the sales pipeline compared to last quarter primarily reflects the significant sales wins I just discussed and the addition of earlier stage opportunities to the pipeline, which have a lower assigned win probability. Turning to the macroeconomic environment on Slide 8. As we have discussed in the past, there continues to be early signs of consumer financial stress. Consumer savings has declined, credit card debt is near a record high and early-stage delinquencies are rising. Additionally, home affordability, which is highly correlated to home prices, remains low. Despite the significant increase in interest rates in the last 2 years, we believe home prices remain high largely because the inventory of homes for sale is very low. This appears to be changing. According to the National Association of Realtors, the inventory of existing homes for sale in May 2024 was 18.5% higher than May of last year and seasonally adjusted existing home sales were 2.8% lower. As inventory grows, home prices in certain markets may decline as the supply/demand dynamics normalize. Should this happen, stress consumers that have low down payment mortgages or loans that were originated over the last couple of years may no longer have equity in their homes and will therefore have fewer options to address loan defaults. This could increase foreclosure initiations and drive foreclosure conversion rates to more normal levels. Moving to our Origination segment on Slide 9. We are pleased that adjusted EBITDA improved by $1.8 million compared to the second quarter of last year despite a 5% decline in service revenue and a 13% decline in industry-wide residential origination volume for the same period. Adjusted EBITDA was flat to the first quarter on similar service revenue. Adjusted EBITDA improved over last year from cost savings and efficiency initiatives. As you can see on the slide, the Origination segment's gross profit, gross profit margins, adjusted EBITDA and adjusted EBITDA margins, all improved relative to prior year. Slide 10 provides a summary of our Origination segment sales wins and pipeline. On an annualized stabilized basis, we won an estimated $1.5 million in new business in the second quarter. Our weighted average sales pipeline at the end of the quarter was $14.7 million. We continue to focus on rolling out new solutions to help our Lenders One members make more money. We believe the regular launch of new solutions to Lenders One members, combined with greater adoption of our existing solutions, will strengthen our value proposition for Lenders One members and support further revenue and earnings growth in our Origination segment. During the second quarter, we signed agreements with our first homeowners insurance customer and have a pipeline of 35 member prospects. We believe that the homeowners insurance program can improve the loan closing process for our members, and their borrowers and establish an attractive revenue annuity for Altisource as policies are issued, the majority of which we believe will be renewed. Turning to our Corporate segment on Slide 11. We are maintaining strong cost discipline. Second quarter corporate adjusted EBITDA loss of $7.2 million was $2.4 million or 25% better than the second quarter of 2023 and $900,000 worse than the first quarter of this year. The first quarter 2024 results included an estimated $1.2 million of net nonrecurring benefits. Absent these benefits, second quarter 2024 adjusted EBITDA loss in corporate modestly improved compared to the first quarter of 2024. The lower adjusted EBITDA loss compared to last year reflects our cost savings and efficiency initiatives. Moving to Slide 12. In summary, I'm pleased with our second quarter and first half of the year performance and believe we are on track to achieve our 2024 guidance of 13% to 32% service revenue growth over 2023 and adjusted EBITDA between $17.5 million and $22.5 million in 2024. We continue to win new business and are making good progress ramping sales wins on a much lower cost base in a historically difficult market. As a result, service revenue for the first 6 months of this year is $3.5 million or 5% higher than the same period last year, and adjusted EBITDA is $11 million higher despite the decline in foreclosure starts, foreclosure sales and mortgage origination volume over the same period. If we achieve the midpoint of our adjusted EBITDA guidance, we will have grown adjusted EBITDA by approximately $52 million over 3 years. As we ramp new business, we are cautiously optimistic that we will exit the year at a $30 million plus adjusted EBITDA run rate. I'll now open up the call for questions. Operator?
Operator: [Operator Instructions] Our first question comes from Raj Sharma with B. Riley.
Raj Sharma: If you could talk about how is service revenue growing 16% with fewer foreclosure starts and fewer foreclosure sales? How much of that is price increases? And also, if you could talk about the incrementally new revenue from the pre and the early foreclosure process?
Bill Shepro: Raj, Bill Shepro here. So I think a couple of things are taking place in the Servicer and Real Estate segment. Michelle, you could jump in as well. I think one component of it is some price increases in our field services and valuation business, which is contributing to the growth. Two, if you remember in the second quarter of last year in California, one of our customers had some holds on foreclosures. Those have been released. And so from a comparability perspective, we don't have that issue this year in the second quarter. Third is we're winning new business, and we're adding on the earlier stage -- we're adding business to our earlier stage processes, and that includes primarily the foreclosure trustee business, where we've started receiving referrals from 3 new clients, two of which we think could be meaningful and one still will be -- it's an exciting new business, but more modest. And then finally, although it's in the early innings, we launched the renovation business in the second quarter. I think it only contributed about $200,000 or so to revenue in the second quarter, but that's ramping very nicely. I think as of a week ago or so, we had received 35 referrals. I think we're now up to north of 40 referrals from this customer. And so that business is ramping nicely, and we're very optimistic that, that can be a very meaningful contributor as we go forward.
Raj Sharma: Right. And then can you give a sort of an estimate on the margins on the pre and the earlier part of this -- the foreclosure process versus your usual servicer business?
Bill Shepro: Yes. Sure. Look, a lot depends on the product, but the trustee business, because of our global operations, is a very high-margin business inside of the business unit. I think north of 50% in the title business, that's more probably, Michelle, what, in the 30s?
Michelle Esterman: Yes.
Bill Shepro: The EBITDA margin level. The field services business is typically mid- to high-teens margin business. And then that also can take place earlier in the process. And so the margins can be reasonably attractive, not necessarily as attractive as the margins inside of Hubzu at the very end of the process, but they're still pretty strong.
Raj Sharma: All right. That's very helpful. And then I wanted to understand your confidence level on the -- on how confident are you in the pre and the earlier foreclosure process to continue through this year and next? Is this a structural new addition to the revenue base? Or is it sort of until the actual foreclosures pick up?
Bill Shepro: Yes. So Raj, I think if you look at the reporting that comes from ICE (NYSE:ICE) or Black Knight (BMV:BKIN), delinquency rates are still low, very low, both 90-plus and early-stage delinquencies. Early-stage delinquencies did tick up in the second quarter, but it's unclear if that was just a timing question as to what day was -- the last day of the month. So they did tick up. We'll see if it's a trend or not. But generally speaking, delinquency rates remain very low. And so we want to focus on the earlier stage processes just because foreclosure initiations, while they're still down almost 30% from where they were pre-pandemic, they're up quite a bit from during the pandemic. And so that's an area we want to continue to focus on and work to grab market share. And then we're also expanding some work we're doing in the foreclosure trustee business with an existing customer. We added, I think, 6 new states with them, and we've also started providing services on the reverse mortgage portfolio in the trustee space. So we think that represents some growth for us. But all in all, I think the delinquency market has been fairly muted. That may change. I mean, Michelle -- during my prepared remarks, we mentioned what's going on with home inventory. And I think in May, homes for sale were up 18% compared to the prior year, and sales were down a couple of percent. So that's pretty interesting. So it appears there's a bit -- more homes are available for sale. And due to the bid-ask spreads, less homes are selling. That could be -- typically, that's a precursor to home prices coming down like we've already seen in markets like Austin. And I think if that happens, you're going to see some of the more recent cohorts of originations, particularly those with very high loan-to-value and also those loans, even if they had more equity, that equity was after a massive run up in home prices that may not continue or even come down. That's where I think there's some risk for higher delinquencies, and that could be perhaps the first set of job that starts to benefit us.
Raj Sharma: Right. And then just lastly, on the big win in Q2 of the $15.3 million, the annual -- that's the annual estimate for the next year or 2. Could you talk about that win? And is that related to the renovation services at all? The business that's getting -- did I hear it correctly, you're getting about $100,000 of property for...
Bill Shepro: Yes, roughly. I think we're just shy of $100,000 in renovation costs on the referrals that we've received so far where we've submitted bids and have them approved by the customer. So that's sort of the ticket price, if you will, of the total renovation cost that will be booked as revenue as we complete the renovations. And so I think, look, I like to look at our wins, our larger wins in aggregate, Raj. So if you look in the fourth quarter, we won this very large renovation opportunity in the first and second quarter. I think in the second quarter, we won these 3 trustee clients, and all 3 are now sending referrals. We think, in aggregate, if you were to look at the sales scenario slide, I think it's in the appendix, we've included that again this quarter, you'll see that between those 3 wins, Michelle, what's roughly -- you're looking at $70 million, $80 million of revenue is my recollection.
Michelle Esterman: $88 million is what we have in the deck on...
Bill Shepro: Yes. So we're estimating from those wins and several others on the origination side, but those would be the 4 largest wins as well as the expansion of trustee work with an existing customer into new states. Raj, we feel good about building up to that level of revenue from those sales wins. In fact, there's an opportunity for us to -- look, if we're optimistic there's an opportunity, we could outperform it. If that renovation business were to turn into 100 files a month at $100,000 a month, you're looking $10 million of revenue a month. And we're not including anywhere near those levels in the forecast. But I think there's an opportunity for us to certainly achieve what we've included in the appendix of the slide deck -- today's slide deck.
Raj Sharma: Got it. Got it. I’ll end there with my questions and take it offline.
Operator: Our next question comes from Mike Grondahl with FNBO Northland.
Mike Grondahl: Bill, on the -- I think you mentioned 35 homeowners insurance in relation to that program. Are you taking any risk with the homeowners' insurance policies? Or are you just kind of an agent, if you could explain that?
Bill Shepro: Sure. So we launched with an insurtech partner called Policygenius, a homeowners insurance program where we're acting -- we're both just acting as agents. So we're licensed as an insurance agent essentially across the country as is Policygenius. And under the program as members join the program and our -- their loan officers are meeting with borrowers, we're getting lead referrals to provide homeowners insurance to those customers, and we're trying to simplify and reduce the friction in getting that homeowners insurance policy. And so through our partner, through Policygenius, we can provide multiple offers of homeowners insurance to the consumer and then we're essentially earning a commission. That commission, I think -- these are really rough numbers, but roughly half of the commission comes to us, half to our partner. And then that what's changed just modestly in the second -- for homeowner insurance renewals in the future. And so we're not -- the short answer is we're not taking any risk and...
Mike Grondahl: Right. You're not taking that risk. Okay. You are earning a commission kind of on a sale.
Bill Shepro: That's right. We have 35 members or lenders that are right now evaluating the program. We already have one signed up and are now receiving referrals. And we're optimistic. We've got an attractive pipeline and we look forward to closing some of these deals. What I like about this business is it's not just the commission you earn the first year as the homeowners insurance policies renew, and I think the industry data is around 85-plus percent renew, we continue to earn a commission as those policies get renewed. And at the same time, what's very important to us is we're actually making the closing process more frictionless for our members.
Mike Grondahl: Got it. Yes, you're leveraging that seat at the table for sure. On this newer renovation business, $100,000 per -- can you just explain what you're doing there? I'm a little naive, but is that the actual renovation work? Or what are you doing to earn the $100,000...
Bill Shepro: Sure. Yes, of course. So basically, we're hired by this customer that's one of the larger owners of REO. And by the way, we hope to expand this to real estate investors and single-family rental investors over time, particularly as that market starts to come back. But basically, what we're doing is we go out to the property, we evaluate the condition, all based upon business rules given to us by the clients. We determine based on their business rules, what work needs to be done, and we've got some pretty sophisticated tools to do this analysis and bid work. The client basically tells us what the prices that they pay for the services. We submit the bid. If the client says yes, we basically are managing the renovation work through a contractor network that actually is doing the work with our oversight, and then we make the difference between what we're paid and what we pay the contractors.
Mike Grondahl: Got it.
Bill Shepro: Less some internal costs.
Mike Grondahl: Sure, sure. Great. And then maybe it's too early, but any initial thoughts on '25? Just sort of assuming the world stays round, how are you thinking about '25 at this point?
Bill Shepro: Yes. So look, we put some – couple of scenarios in the back of the second quarter earnings slide presentation, and we show what we think revenue and EBITDA would look like as we fully ramp the sales that we’ve already won. And by the way, that doesn’t include – that does not include our sales pipeline. All that would be incremental to both those scenarios we’ve included in the presentation. And I think we also talked about on the call that we’re cautiously optimistic we can exit this year or end this year with a $30 million run rate EBITDA. And so of course, there’s some puts and takes. We’ve included some customer attrition or churn in our sales scenario to try to be reasonable in our approach. But I think that’s where – how we’re thinking about the business right now. But we’re not putting out any guidance at this point.
Operator: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Bill Shepro for closing remarks.
Bill Shepro: Great. Thank you, operator. We’re very happy with our second quarter financial performance and believe we’re well positioned for this year and beyond. Thanks for joining today’s call.
Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
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