Ladies and gentlemen, thank you for standing by. And welcome to the Altisource Fourth Quarter 2021 Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Michelle Esterman, Chief Financial Officer. Please go ahead.

Thank you, operator. We first want to remind you that the earnings release, Form 10-K 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. In addition to the usual uncertainty associated with forward-looking statements, the continuing COVID-19 pandemic makes it extremely difficult to predict the future state of the economy and its potential impact on Altisource. Please review the forward-looking statements section in the company's earnings release and quarterly slides as well as the risk factors contained in our 2021 Form 10-K which describe factors that may lead to different results. We undertake no obligation to update these statements, financial scenarios and projections previously provided or provided herein as a result of 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. Good morning and thank you for joining today's call. I'll begin on slide 3. Altisource demonstrated a resiliency during 2021. A year defined by challenges from the pandemic and related borrower relief programs that significantly impacted our revenue and adjusted earnings. We strengthened our balance sheet with a fourth quarter sale of Pointillist. We ended 2021 with $98.1 million in cash and $149.1 million of net debt, representing a 68% increase in cash and a 21% reduction in net debt compared to 2020. We believe we are poised to return to revenue growth in 2022 with quarterly year-over-year revenue forecasted to grow over the same period in 2021 beginning in the third quarter. The growth reflects the anticipated tailwinds in our Default business from the recent termination of the temporary pandemic-related borrower relief programs and launch of new solutions, customer wins and greater product adoption in our Origination business. With the expected revenue growth and the benefit of our prior cost reduction initiatives, we anticipate we'll generate positive adjusted EBITDA for the second half of 2022. This morning, I'll briefly discuss our fourth quarter results and our core Origination and Default businesses in greater detail. Turning to slide 4; our fourth quarter financial performance was largely in line with our expectations with revenue impacted by pandemic-related temporary borrower loss mitigation measures and seasonality. Fourth quarter net income of $70.6 million benefited from the gain on sale of Pointillist. On December 1, we completed the sale of our equity interest in Pointillist and received approximately $102 million in cash, significantly strengthening our balance sheet and generating an $80 million post tax gain. We used $20 million of the proceeds to repay the outstanding balance on our revolver. Assuming no adjustments, we expect to receive an additional $3.8 million in 2022, with the majority to be received in December. This sale was a big win for Altisource, and we believe demonstrates that we've developed an attractive collection of valuable businesses. Turning to slide 5 and our strategic priorities for 2022. We have two primary areas of focus. First, continuing to build out and grow our Origination business through new solutions, customer wins and greater product adoption. And second, growing our Default business leveraging our history as a leading provider of solutions that support loan servicers and the tailwinds from the expiration of the foreclosure moratoriums and temporary loss mitigation measures. Slide 6 provides additional information on how we intend to continue to develop and grow our Origination business. The mission for our Origination business is to help small to midsize banks, credit unions and independent mortgage bankers that are members of the Lenders One cooperative, improve their profitability and better compete. We believe this mission strongly resonates with our Lenders One members and prospects, they’re looking for a competitive edge, particularly in this challenging Origination market. In this vein, in the fourth quarter, we grew Lenders One membership by 11 members to 251 members, and launched our tri-merge credit report offering and certain verification, fraud and other solutions that are typically ordered during the loan manufacturing process. We also launched the Lenders One Loan Automation technology, which we refer to as LOLA following a successful beta launch. LOLA makes it easier for Lenders One members to order and receive our solutions through a single platform and automates loan manufacturing processes to improve their operational efficiency. The launch of these offerings and increased adoption of our existing solutions, along with the growth and planned growth for a number of Lenders One members, should support full year double digit revenue growth in the Origination business despite the MBA's forecast for a 34% decline in Origination volume. We anticipate year-over-year quarterly growth in the Origination business to begin with the third quarter. Keep in mind that the Lenders One members are well positioned to gain market share in a rising interest rate environment, as their typical branch office model favors purchase as opposed to refinance mortgage originations. And the purchase market is forecasted to grow by 8% over last year. Turning to slide 7 in our Default business, since early 2020 this business has been severely impacted by the pandemic as temporary foreclosure moratoriums and loss mitigation measures significantly reduced referrals to Altisource despite higher delinquency rates. Recently, however, we believe that the Default market is entering the early innings of a recovery. The federal government's pandemic-related foreclosure moratorium expired at the end of July, and the CFPB’s temporary loss mitigation measures expired at the end of last year. As a result, servicers have begun to restart and initiate new foreclosures. We are beginning to see some of the leading indicators that support our growth expectations and are experiencing an increase in referrals in several of our Default businesses. Hubzu referrals in the fourth quarter were 158% higher than the same quarter in 2020. And ending Hubzu inventory of over 6,300 homes marks our third consecutive quarter of inventory growth. For the first two months of this year, we have also experienced a significant increase in Trustee, pre-foreclosure title and Hubzu referrals, with these businesses growing referrals by 57%, 22% and 217%, respectively, over the same two months last year. The growth in Hubzu referrals was largely driven by higher foreclosure auction referrals, a portion of which will result in future revenue. While it's difficult to predict how servicers are going to respond to the expiration of the temporary governmental measures, and how home price appreciation may impact the default market, we expect these positive trends to continue as the year progresses. We also have insight into which of our solutions should begin to grow earlier in the recovery process and which should take longer. Slides 8 and 9 provide you with an illustration of the way we believe our Default revenue will recover as the market returns to what we believe will be historical norms. We anticipate that the first services to return will be title and valuation work on foreclosure initiations. We expect this will be followed by foreclosure auction referrals. Homes that don't resolve prior to the foreclosure auction or sell at the foreclosure auction usually become REO referrals. On the REO referrals, we typically first generate field services revenue, and at the home sale generate title insurance, real estate brokerage and auction fees. Because REO inventory was depleted during the pandemic, and the sale of REO is the last step in the default process, we anticipate that it will take time for our REO inventory levels to return to a normal operating level. We currently estimate that we'll be in a normal post-pandemic operating environment by the middle of 2023. A driving factor of revenue in our Default business is delinquency levels. December 2021, 90 Plus day delinquency rates were 2%, a 59% increase compared to the pre-pandemic delinquency rate. As shown on slide 10, we estimate that our Default business revenue could grow on a stabilized basis to between $214 million and $237 million holding all other assumptions constant. At the low end, we assume a return to historically low delinquency rates immediately prior to the pandemic. At the high end, we assume delinquency rates are at the higher December 2021 levels. Based upon our anticipated return to revenue growth in both our Origination and Default business businesses, we forecast Altisource will begin to generate positive adjusted EBITDA for the second half of 2022 on a significantly reduced cost structure. For the full year of 2021, cash costs excluding outside fees and services, which are typically incurred only if revenue was generated were $49.3 million lower than 2020. Before I conclude, I'd like to provide you with an update on the board's process to evaluate our options to enhance shareholder value with respect to our Origination business that we announced on July 29, 2021. We recently concluded this process, and after exploring a range of alternatives for the Origination business, we determined that it is in the best interest of the company and our shareholders to retain and further invest in the business. We have an exciting strategic plan and believe the Origination business’ unique distribution engine and strong growth prospects will be a significant catalyst to create value for shareholders. The last couple of years have not been easy, but I am pleased that we have strengthened our balance sheet and are forecasting a return to revenue and adjusted EBITDA growth. In addition to market tailwinds in our Default business, we are building an exciting and innovative Origination business that we believe will create substantial value for our shareholders and customers. I'd like to thank and recognize Altisource’s board, leadership team, and employees who supported the company as we navigated through the pandemic, while continuing to provide high-quality services to our customers. I’ll now open up the call for questions.

Our first question will come from Mike Grondahl with Northland Securities.

Yes, good morning, guys. First question is you mentioned some of the referral strength in January and February, Bill, would you describe that as sort of in line with kind of your expected recovery? Maybe ahead, maybe a little bit behind? What should our takeaway from January and February be?

So I think in those three businesses, foreclosure auction referrals, trustee, and valuation, it was in line with or slightly better than we were expecting for those first two months. Again, the first to foreclosures get restarted, or new foreclosures are initiated, these are the first services that you would expect to receive. And that's what we planned for in our budget for this year. And the numbers were better than we budgeted. But it's roughly in line with our expectation.

Got it. And then over the past couple of years, you've right-sized the cost structure. Would you now say that the cost structure you have in place is pretty much where you need to be and you're just kind of waiting for the recovery in the volume of the business? Is there anything to call out on the cost structure? And then can I ask part two? So what are you thinking about from a cash generation or a cash usage in 2022? Kind of related to that cost structure question?

Yes. Regarding our cost structure, we have successfully reduced our fixed and semi-fixed costs by about $50 million, excluding external goods and services, which typically decline with lower orders. We've focused on improving our cost base effectively. There is some slight improvement anticipated this year, but it is not significant. Our main priority is to grow revenue, enhance gross profit margins, and achieve positive adjusted EBITDA, which we expect will occur in the second half of the year. From a cash flow standpoint, we anticipate generating positive cash in the fourth quarter. Typically, the first quarter uses more cash due to prepayments for contracts and bonuses. We expect our EBITDA in the first quarter to be weaker than in later months. We predict sequential revenue growth starting in the second quarter and continuing through the end of the year, along with a corresponding growth in EBITDA. While we hope first quarter revenue and EBITDA will be slightly better than they were in the fourth quarter, it's still too early to determine with only the first month of the year complete.

Got it, and overall for the year, you use a little bit of cash, is that the way to think about it?

Yes, we're still expecting to use cash, Mike. We anticipate cash consumption for the first two to three quarters, followed by cash generation in the fourth quarter. For the year, we still expect cash to decrease. However, Michelle, please correct me if I'm mistaken. It's difficult to predict because we're still assessing the impact of the pandemic. Currently, we're forecasting cash to be around $80 million at the end of the year and potentially increasing by that time as well.

Got it, that helps directionally. And then maybe just lastly, in the press release, you do mention losses from our earlier stage businesses in the fourth quarter was $1.5 million. Did that represent Pointillist before you sold it? Or is there another earlier stage business that's generating those small losses?

That was Pointillist.

We do have a question from Raj Sharma with B. Riley.

Thank you. Yes. So could you comment on how, I know you on slide 10 here you given the range of service revenues into $214 million and $237 million. Would you quantify a little bit how field services and Hubzu and Origination business is going to break out this sort of same sort of proportion to before and how that cadence is? Do you expect a pickup in Hubzu really, the second half of the year? Could you give some more color on that?

Sure. Just with respect to Hubzu, we are seeing a pickup in the first quarter because the inflow and the inventory, the inflows were strong in the fourth quarter, and the inventory is strong. So we are seeing a pickup in the first quarter on Hubzu compared to the fourth quarter. And we think that will continue as the year progresses, we've gotten a very significant number of foreclosure referrals, Raj, foreclosure auction. Now some of those, ultimately, the servicer will negotiate a resolution or the borrower will re-perform and pay off. But a significant number of those will make it to the foreclosure sale and will generate revenue; that just takes time. So that will progress as the year goes by. Michelle, in terms of the mix of revenue between businesses as you look out a year or so. I don't have that in front of me. If you have any color you could add there.

Yes, I think so what's included here, you mentioned field services and Hubzu. Those are part of the Default businesses. And then the Origination business is not included, it is just Default.

But in terms of right, Raj, I think what we are expecting to see is, as you know, in the early stage, you're getting a lot of the services related to a foreclosure initiation, title valuation, we're getting referrals of foreclosure auction work, but they won't generate revenue until you get to the foreclosure sale. REO referrals are picking up to some degree because if you recall, foreclosures that were in process have restarted. So those in-process foreclosures are becoming REO. It's growing but not growing tremendously because really where that growth is going to come from are from the new foreclosure initiations that are taking place now, probably over the first quarter or two of this year that will ultimately become, some of which will ultimately become REO. And we don't think that stabilizes until the middle of 2023. Even what we're hearing anecdotally some servicers are starting up faster than others. So in January, we have seen a meaningful increase in referrals. But we also understand that getting the machinery going for some of the servicers is taking time, and servicers are being very thoughtful before they're starting a foreclosure action. And so we think that pipeline will continue to build as the year progresses.

If I understand correctly, the field services and marketplace, which is Hubzu, generated $108 million in 2021. They are projected to more than double at the midpoint.

Stabilization. Yes.

At this year.

No, that's the midpoint of 2023; the middle of 2023 is when we reach the stabilization.

And where do you expect your origination’s business, how much do you expect that to grow?

So I think we were just in our prepared remarks, Raj, were saying we anticipate the double-digit growth over last year in a market that's going to be down 34%. And I thought just to give you some sense, we launched a tri-merge credit product, we really went live with our first customer in the first quarter, we've got a pipeline that if you include both signed contracts as well as customers that have committed to signing, and those were our negotiating terms, that pipeline on an annual basis is $14.7 million. And I'm excluding any customer that said we haven't gotten an outright no; we've gotten some customers that said, it's not our top priority right now. So I'm excluding those. And then if you include those that are in the evaluation stage, so these are customers that have been qualified and have now moved down the sales funnel to evaluation, that's another $12.7 million. So we're getting close to $30 million of annual revenue that's either been committed in a contract signed or committed, or at the point where they're evaluating. And so we're pretty excited about our progress. It's taking us a little bit longer to onboard signed customers; there's a lot of paperwork that has to be done, and completed and integrations in order to get a customer live. But we're very, very pleased with the progress we're making with not only the credit product but all of our new white label products. And that's what will help us grow in the market that is declining.

Got it. And then when we look at the market overall, we see the mortgage numbers, foreclosure starts, January was up seven times from December. How do we translate that into your results in the lag? Could you talk about when do, how do we look at your business relative to the market in terms of the market share? Is your market share still stable? And can you give some color on that?

Yes, I mean I think the best way to think about our revenue growth in the Default business are those slides that we've included in the presentation. It's on page 10. And it's all just a matter of timing before we get to the stabilized rate of that $214 million if you go to pre-pandemic delinquency rates. I think that's the best way to think about it, Raj.

Right. And so is when you look at the foreclosure starts, apparently, half of those starts are from serious delinquency prior to the pandemic and the other half are from March 2020 onwards. Is your business representative of that ratio too on the foreclosure starts?

Raj, I don't, I can only tell you what I think anecdotally because I don't have that information at my fingertips. What I can tell you is the restarts began in I would say probably the even though they could have restarted in the third quarter, a lot of servicers were super careful and making sure they've exhausted all sorts of options even for customers that were delinquent pre-pandemic before restarting. So we saw some of that in the fourth quarter with the restarts and that's why I think we saw a decent amount of Hubzu referrals, both REO and foreclosure referrals and then the increase we saw in the first quarter and those statistics I quoted, most of that is coming from new foreclosure initiations.

And speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back to Mr. Bill Shepro for any closing remarks.

Great. Thank you, operator and thank you for listening to today's call. We really appreciate your interest in Altisource.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.