Altisource Portfolio Solutions S.A.

Good day and thank you for standing by. Welcome to Altasource 4th Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michelle Esterman, Chief Financial Officer. Please go ahead.

Thank you, Operator. We first want to remind you that the earnings relief and quarterly slides are available on our website at www.althysource.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 sections in the company's earnings release and quarterly slides, as well as the risk factors contained in our 2023 Form 10-K and our 2024 Form 10-K once filed. These describe 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.

Thanks, Michelle, and good morning. I'll begin on slide four. We're pleased with our full year and fourth quarter 2024 performance as we continue to improve our financial results and win new business. In the face of serious market headwinds for both business segments, we had strong performance across the board. For the year, we grew total company service revenue by 10% and adjusted EBITDA by 18.3 million. In February 2025, we executed an exchange and maturity extension transaction with our lenders, significantly strengthening our balance sheet and reducing interest expense. Turning to our financial performance in slide five. For 2024, we generated $150 million of service revenue a 10% increase over 2023. The service revenue increase was driven by growth in both business segments. 2024 total company adjusted EBITDA of $17.4 million represents an $18.3 million improvement over 2023. The improvement was largely from the business segment's service revenue growth and higher adjusted EBITDA margins and from the corporate segment's lower adjusted EBITDA loss. The business segments generated 44.6 million of adjusted EBITDA at 29.7% adjusted EBITDA margins, representing a $10.4 million improvement in adjusted EBITDA and a 462 basis points improvement in adjusted EBITDA margins compared to 2023. The corporate segments adjusted EBITDA loss declined by $7.9 million, or 22%, to $27.2 million, primarily from efficiency initiatives. We also finished the year strong. As you can see on slide 6, fourth quarter service revenue of $38.4 million marked the highest level since the third quarter of 2021, and adjusted EBITDA of $4.7 million was the strongest quarter since the third quarter of 2020. Compared to the same period in 2023, fourth quarter 2024 service revenue grew by 19%, and adjusted EBITDA grew by $4.5 million. In February 2025, we completed an exchange and maturity extension transaction with our lenders, significantly strengthening our balance sheet and reducing interest expense. We also closed a $12.5 million super senior credit facility to fund the transaction costs and for general corporate purposes. Slides seven through nine provide additional information on these transactions. As a result of these transactions, we reduced our debt by over $60 million from $233 million to $172.5 million. Our new debt is comprised of a $110 million term loan, a $50 million non-interest-bearing exit fee, which is reduced on a pro rata basis with the repayment of the term loan, and a $12.5 million super senior credit facility. The interest rate on the $110 million term loan and the 12.5 million super senior credit facility is SOFRA plus 650 basis points, or 10.8% today. At today's SOFRA rate, this represents 13.4 million in annual cash interest costs, which is an approximately $18 million per year reduction in cash and PIC interest compared to our prior facility. 158.6 million of the new term loan matures on April 30, 2030, and $1.4 million matures on January 15, 2029. The Super Senior Credit Facility matures on February 19, 2029. In connection with these transactions, the lenders exchange $72.9 million of debt for approximately 58.2 million Altasource Commons shares, representing 63.5% of the pro forma equity of the company. to provide for the potential for pre-transaction stakeholders to increase their ownership interest in the company as the share price increases. Altasource will be issuing warrants to pre-transaction shareholders, penny warrant holders, and restricted stock unit holders as of the February 14 record date. These warrants enable stakeholders to purchase approximately 114.5 million common shares of Altasource and an exercise price of $1.20 per share. This equates to 3.25 shares of Altasource common stock for each share of or right to common stock held. 50% of the warrants expire on April 3rd, 2029 and require the exercise price to be paid in cash to the company. The other 50% of the warrants expire on April 30, 2032 and require net settlement through the forfeiture of shares to the company for the exercise price. We believe 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. The transactions also provide us with additional time to execute our turnaround plan by removing the April 2025 refinancing risk, improving Altasource's balance sheet and leverage ratios, and eliminating a major distraction for Altasource's team, shareholders, and customers. Moving to slide 10 in our countercyclical servicer and real estate segment. For 2024, service revenue of $120 million was 11% higher than 2023 from the launch and growth of our renovation business and sales wins, despite a market-wide 6% decline in foreclosure starts and 14% decline in foreclosure sales. 2024 adjusted EBITDA of $42.1 million for the segment was $5 million or 14% higher than 2023. Adjusted EBITDA margins improved to 35.1% from 34.4%. Adjusted EBITDA growth and margin improvement reflects service revenue growth and cost reduction and efficiency initiatives partially offset by revenue mix. Slide 11 provides a summary of our servicer and real estate sales wins and pipeline. For the year, we won new business that we estimate will generate $25.8 million in annual service revenue on a stabilized basis over the next couple of years. We had significant sales wins in our trustee, HUBZoo, and granite businesses that should help contribute to 2025 service revenue growth. We ended the year with a servicer and real estate segment total weighted average sales pipeline of $29.4 million of annual service revenue on a stabilized basis, most of which we anticipate will impact 2026 and beyond. Moving to our origination segment in slide 12. 2024 service revenue of $30.4 million was 6% higher than 2023 and adjusted EBITDA improved by $5.4 million to $2.5 million. This primarily reflects revenue growth in the LendersOne business from customer wins from our newer solutions, price increases, and market share gains in our Trellix loan fulfillment business, partially offset by revenue declines in our other origination businesses that were impacted to a greater degree by lower purchase origination volumes. Adjusted EBITDA improved from revenue growth and stronger margins for certain business units from efficiency initiatives. For 2024, the origination segments gross profit, gross profit margins, adjusted EBITDA, and adjusted EBITDA margins all improved relative to 2023. Slide 13 provides a summary of our origination segment sales wins and pipeline. During a difficult origination market, our focus on helping our LendersOne members save money and better compete drove substantial interest in our solutions. On an annualized stabilized basis, we want an estimated 12.6 million in new business for the year. Our weighted average sales pipeline at the end of 2024 was $13.2 million with 2.4 million of it in the contracting stage. Turning to our corporate segment in slide 14, we continue to bring down our operating costs. 2024 corporate adjusted EBITDA loss of $27.2 million was 7.9 million or 22% better than 2023. The lower adjusted EBITDA loss reflects our cost savings and efficiency initiatives. Moving to slide 15. The business environment over the last few years has been very difficult for AlphaSource. The default market was virtually shut down in 2020 and has still not recovered. 2024 foreclosure starts were 35% lower than 2019 levels and foreclosure sales were 53 percent lower than 2019 levels. Driven by low delinquency rates and home price appreciation, 2024 foreclosure starts were also 6 percent lower than 2023, and foreclosure sales were 14 percent lower than 2023. The origination market has also had its challenges. 2024 mortgage origination volume was 35 percent lower than 2019 levels, driven by higher interest rates. And while 2024 origination volume was higher than 23, this was driven entirely by refinance activity with purchase volume down for the year. Despite this difficult default and origination market, we've won meaningful new business and implemented efficiency initiatives that helped drive 10% service revenue growth and an $18.3 million improvement in adjusted EBITDA in 2024 compared to 2023. Since 2021, we have grown adjusted EBITDA by almost $50 million. Turning to slide 16 and our outlook for 2025, we believe our sales wins, improved margins, and corporate cost structure position us for another year of service revenue and adjusted EBITDA growth, and for the first time since 2019, positive operating cash flow. Based upon our current business and market expectations, which assumes roughly flat delinquency rates and 13 percent growth in origination volume, we are forecasting service revenue of $165 to $185 million and adjusted EBITDA of $18 to $23 million. At the midpoint, this represents 16 percent annual service revenue growth and 18 percent adjusted EBITDA growth over 2024. We anticipate service revenue growth will be driven by the continued ramping of sales wins, converting pipeline opportunities to sales wins, price increases for certain services, and growth of newer LendersOne solutions. We anticipate the adjusted EBITDA improvement will be driven by service revenue growth and higher business unit margins for many businesses, primarily from the full-year benefit of 2024 efficiency initiatives and scale, partially offset by product mix and a modest increase in corporate operating costs due to certain non-recurring benefits in 2024. From a cash flow perspective, we anticipate generating positive operating cash flow for the year. In closing, we 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. When the default market returns to normal, we should also benefit from stronger revenue and adjusted EBITDA growth in our largest and most profitable businesses. I'll now open up the call for questions. Operator?