Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Altisource Portfolio Solutions SA (ASPS, Financial) reported a strong second quarter with $36.9 million in service revenue and $4.4 million of adjusted EBITDA.
- Service revenue in the Servicer and Real Estate segment grew by 16% compared to the same quarter in 2023.
- Adjusted EBITDA margins improved to 11.9% in the second quarter of 2024 compared to negative 10.5% in the second quarter of 2023.
- The company won new business estimated to generate $15.3 million in annual revenue once fully ramped over the next couple of years.
- ASPS launched a renovation business and received over 35 renovation referrals, which are expected to generate average revenue of close to $100,000 per property.
Negative Points
- Service revenue in the Origination segment declined by 5% compared to the same quarter in 2023.
- Adjusted EBITDA and adjusted EBITDA margins declined modestly compared to the first quarter due to approximately $600,000 of first quarter net nonrecurring benefits.
- The sales pipeline declined compared to last quarter, reflecting significant sales wins and the addition of earlier stage opportunities with lower assigned win probability.
- The macroeconomic environment remains challenging with early signs of consumer financial stress, including declining consumer savings and rising credit card debt.
- Despite the strong performance, the company faces uncertainty due to historically low mortgage delinquency rates and low origination volume.
Q & A Highlights
Q: How is service revenue growing 16% with fewer foreclosure starts and sales? How much of that is due to price increases, and what is the new revenue from the pre and early foreclosure process?
A: Several factors contribute to the growth in the Servicer and Real Estate segment. These include price increases in field services and valuation business, the resolution of foreclosure holds in California from the previous year, new business wins, and the addition of earlier stage foreclosure processes. Additionally, the launch of the renovation business, which contributed about $200,000 in revenue in the second quarter, is ramping up nicely.
Q: Can you provide an estimate on the margins for the pre and early foreclosure process versus your usual servicer business?
A: The trustee business has very high margins, north of 50%. The title business has margins in the 30s, while the field services business typically has mid to high teens margins. These margins are reasonably attractive, though not as high as those in the Hubzu business at the end of the foreclosure process.
Q: How confident are you in the pre and early foreclosure process continuing through this year and next? Is this a structural addition to the revenue base?
A: Delinquency rates remain very low, but we are focusing on earlier stage processes to capture market share. We are also expanding our foreclosure trustee business with existing customers. While the delinquency market has been muted, changes in home inventory and prices could lead to higher delinquencies, benefiting us in the future.
Q: Can you elaborate on the $15.3 million annual revenue estimate from the big win in Q2? Is it related to renovation services?
A: The $15.3 million estimate includes new trustee clients and the renovation business. The renovation business is generating close to $100,000 per property. In aggregate, recent wins, including the renovation opportunity and trustee clients, are estimated to generate around $88 million in revenue.
Q: Regarding the homeowners insurance program, are you taking any risk with the policies, or are you just acting as an agent?
A: We are acting as agents in partnership with Policygenius. We earn a commission on the homeowners insurance policies we sell, and we continue to earn commissions on policy renewals. We are not taking any risk with the policies.
Q: Can you explain what you are doing in the renovation business to earn $100,000 per property?
A: We evaluate the condition of properties, determine necessary renovations based on client business rules, and manage the renovation work through a contractor network. We earn the difference between what we are paid by the client and what we pay the contractors, minus internal costs.
Q: Any initial thoughts on 2025, assuming the market conditions remain stable?
A: We have included scenarios in our earnings presentation showing potential revenue and EBITDA as we fully ramp up sales wins. We are cautiously optimistic about exiting this year with a $30 million run rate EBITDA, though we are not providing specific guidance for 2025 at this time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
