Altisource Asset Management Corp Com

Good day and welcome to the AAMC Investor Call. Today's call is being recorded. At this time, I'd like to turn the call over to Donya Sawyer. Please go ahead.

Good morning, everyone, and welcome to AAMC's Q4 and 2022 Annual Earnings Conference Call. I'm Donya Sawyer, the new Chief Operating Officer of Lending Operations at AAMC. Before we begin, let me remind you that today's press release and the presentations made by our executives may include forward-looking statements. as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to the factors identified in the release and in our filings with the Securities and Exchange Commission. Consequently, you should not rely on these forward-looking statements as predictions of future events. Statements made during this conference call are made as of today's date, and the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. As previously mentioned, today's call is being recorded, and a link to this webcast will be posted to our website later today. With that, joining me for today's call is our Chief Executive Officer, Jason Kopchak. Jason will provide an update on our fourth quarter and full year 2022 activity, review additional corporate developments, and present an overview of our outlook for the year ahead. We will then open the line for questions. Lastly, materials for this call can be found in our investor presentation, which was issued earlier this morning. Related information can also be found on the stockholders page of our website at www.AltasourceAMC.com. And now I'll turn it over to Jason.

Thank you, Danya. Danya, as mentioned, is a new chief operating officer of our alternative lending group. We are extremely happy to have her on our team. She started her career at Countrywide. and she brings over 20 years of experience across the mortgage and alternative asset industry. She will be instrumental in helping us to execute transactions across all origination channels and manage relationships with institutional buyers. Also joining me in this meeting is Steve Krollman, our Chief Financial Officer. Turning to our Q4 financial performance at a high level is as follows. For the fourth quarter, AAMC generated a loss of $4.1 million on revenue of $2.5 million. I would like to highlight several factors here. One, revenue improved relative to Q3 by increasing of $600,000 or 33%. Secondly, Q4 included roughly $1.1 million of legal charges, branding expenses, and other items we consider to be non-recurring. Three, eliminating the special items and adjusted Q4 loss of $3 million was less than the $4 million that we realized in Q3. Our strategy, which is unique in the industry, is that we are a capital-light originator of private credit products. These products include both short-duration, high-yielding fixed-income assets secured by one to four single-family residential or multi-family residential properties going through value improvements, also known as residential transitional loans or RTLs, as well as long-duration interest-only secured by income-producing residential properties, also known as DSCR loans. Such products are distributed to institutions with permanent capital, such as insurance companies, pension funds, and endowments. I have 15 years of unique experience and relationships with these institutions. Unlike our peers, we do not use loan securitizations as an exit for our loans. Instead, we establish individual criteria or a buy box to sell loans to insurance companies or other funds that are backed by endowments and pension funds. These institutions have large, stable cash that needs to be invested in fixed income products. We then go to market to originate these loans via our three channels, direct to borrower, wholesale, broker direct channel. Back-end purchasers must be in place before we can ramp up our origination platform. As seen in recent weeks, companies with permanent capital, such as insurance companies, are at a premium, unlike banks and firms that depend on the securitization market. Insurance companies do not have the infrastructure to originate private credit products. Therefore, they look to partner with firms such as ourselves. Insurance companies, pension funds, and endowments have potentially over a trillion dollars allocated to be invested in alternative fixed income assets. Alternative fixed income assets, such as ours, are an attractive investment opportunity that is constantly resetting to the market. The typical metrics include short-duration originations with a range of 10.5% to 12% gross weighted average coupon, or WAC, with a one- to two-year term. These assets do not have the same interest rate risk, such as those that banks typically deal with with government and agency mortgage portfolios. Long duration, very low yields. As a reminder, the underlying collateral is short duration notes, collateralized by one to four single family or multifamily residential properties that are going through value improvements. Turning to our accomplishments. In Q4, we closed on our second warehouse, $50 million warehouse line. We closed our first forward takeout with a $55 billion plus money manager that owns an insurance company. We won an arbitration hearing against our former CEO with a judgment of 1.6 million plus unpaid interest. Turn to our Q1 2023 goals and operating standards. Our expected gross revenue per loan for RTLs is a range between 300 basis points to as high as 450 basis points. Our term or DSCR loans have a range between 200 basis points and 350 basis points. The above ranges reflect the all-in annualized revenue expected to be received from originating the loans consisting of origination fees, gain on sales, and interest strips. Our focus is originating as opposed to purchasing closed loans. We are expecting the cost of acquiring a client on the directed borrower channel to be around $1,500 for a client and over time is spread over multiple loans. My historical experience is that we can improve costs to capture clients from 1500 to 800. Our expected cost to process a loan is $160 per file. This represents a significant competitive advantage due to having our loan production principally in Bangalore, India. Our expected average loan size for RTLs is approximately 500K. while the expected average loan size for DSCR term loans is $300K. At the March 20th, we have a pipeline direct-to-borrow channel of originations of $35 million, and we are in active negotiations with an additional $25 million on top of the $35 million. As for our wholesale channel, which had a soft rollout on Friday, March 17th, we have committed volume of $15 million. We plan to roll out our broker direct channel over the next three weeks.