Altisource Portfolio Solutions S.A.(ASPS) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2024, the company generated $38.2 million in service revenue, an increase of $4 million or 11.8% year-over-year, marking the strongest quarterly service revenue performance in 12 quarters [4] - Adjusted EBITDA for the quarter was $3.6 million, reflecting a $2.8 million improvement compared to Q3 2023, but an $800,000 decline from the previous quarter [4][5] - Year-to-date service revenue is $7.5 million higher than last year, with adjusted EBITDA up by $13.8 million, resulting in adjusted EBITDA margins improving to 11.3% compared to negative 1.1% for the same period in 2023 [6][13] Business Line Data and Key Metrics Changes - The servicer and real estate segment saw service revenue grow by 4.7% sequentially and 13% year-over-year, but adjusted EBITDA remained flat compared to last year and decreased by 10.6% from the previous quarter due to higher SG&A expenses [8] - The origination segment improved adjusted EBITDA by $1.4 million year-over-year, driven by cost savings and efficiency initiatives, with service revenue growth of $500,000 [11][12] - The renovation business, launched in late April 2024, has already generated $1.5 million in revenue in Q3, indicating rapid growth potential [19][20] Market Data and Key Metrics Changes - The average serious delinquency rate through August 2024 is 1.2%, which is 15% lower than the same period in 2019 and 2023, negatively impacting foreclosure starts and sales [11] - Foreclosure starts and sales are significantly lower than pre-pandemic levels, with current figures being 34% and 54% lower than 2019, and 7% and 14% lower than 2023 [11] Company Strategy and Development Direction - The company is focusing on diversifying revenue streams and customer base through the ramp-up of the renovation business and ongoing sales wins [13] - Management anticipates strong service revenue and adjusted EBITDA growth over 2023, despite challenges in the foreclosure market [7] Management's Comments on Operating Environment and Future Outlook - Management noted that the market is not performing as expected, with lower foreclosure starts and sales impacting business [16] - There are early signs of potential market normalization, but the company is preparing to benefit from any future upturn while diversifying revenue [32] Other Important Information - The company ended the quarter with cash and cash equivalents of $28.3 million [5] - The renovation business is expected to be a strong contributor to service revenue and EBITDA in the coming months and years [9] Q&A Session Summary Question: Understanding the pre-foreclosure work and renovations business - Management acknowledged that the market is underperforming, impacting foreclosure starts and sales, but they are successfully adding new clients in earlier-stage processes [16][17] Question: Insights on the renovations business - The renovations business has ramped up significantly, generating $1.5 million in Q3, and management expects continued growth as they onboard new customers [19][21] Question: Discussion on higher SG&A and legacy indemnity claims - Management explained that higher SG&A costs were due to professional services and bad debt, with a total impact of approximately $3 million compared to expectations [22][23] Question: Outlook for the origination business - Management noted a temporary pickup in origination volumes but indicated that the market remains challenging with high mortgage rates [24][25] Question: Revenue projections for the renovation business in 2025 - Management is optimistic about the renovation business's contribution but finds it difficult to model exact revenues due to variability in referrals [26][27] Question: Capacity and risk management in the renovation business - Management expressed confidence in their capacity to handle increased referrals and outlined risk management strategies for cost overruns [28][29] Question: Views on the foreclosure market and delinquencies - Management indicated that while the market has not turned yet, they believe it will eventually normalize, and they are positioning the company to benefit from that change [31][32]