Good day, and thank you for joining us. Welcome to the Altisource Portfolio Solutions Second Quarter 2024 Earnings Call. Please note that today's conference is being recorded. I will now turn the call over to our first speaker, Michelle Esterman, Chief Financial Officer. Please proceed.

Thank you, operator. We first want to remind you that the earnings release, Form 10-Q 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. Financial projections and scenarios are expressly qualified as forward-looking statements and, as with other forward-looking statements, should not be unduly relied upon. In addition to the usual uncertainty associated with forward-looking statements, the continuing impacts of government and servicer responses to the COVID-19 pandemic, governmental fiscal policies and current economic conditions make it extremely difficult to predict the future state of the economy and the industries in which we operate, as well as the potential impact on Altisource. 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, describing 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 4. We had a strong second quarter and believe we are on track to achieve our 2024 guidance of 13% to 32% service revenue growth over 2023 and adjusted EBITDA of between $17.5 million and $22.5 million in 2024. For the quarter, we generated $36.9 million in service revenue and $4.4 million of adjusted EBITDA, and modestly increased cash to $29.7 million. We also went live and began to receive referrals from a renovation business customer and three foreclosure trustee customers. Our financial results reflect our strong sales wins, price increases, referral volume growth, and lower cost base in what continues to be an incredibly difficult environment of close to historically low mortgage delinquency rates and low origination volume. Service revenue in our Servicer and Real Estate segment grew by 16% compared to the same quarter in 2023, in a market that had approximately 7% fewer foreclosure starts and 13% fewer foreclosure sales. Service revenue in our Origination segment declined by 5% compared to the same quarter in 2023, outperforming the 13% decline in total market mortgage origination volume. Slide 5 provides additional information on our total company financial performance. As you can see, the trends are positive. Service revenue was 11% higher, and adjusted EBITDA was $7.9 million better than the second quarter of last year. Adjusted EBITDA margins improved to 11.9% in the second quarter of 2024 compared to negative 10.5% in the second quarter of '23. The improvement in service revenue, adjusted EBITDA and adjusted EBITDA margins compared to last year was driven by sales wins, price increases for certain services, stronger default referrals, business segment margin expansion, and lower corporate costs. Adjusted EBITDA and adjusted EBITDA margins declined modestly compared to the first quarter due to approximately $600,000 of first quarter net nonrecurring benefits comprised of $1.2 million of benefits in the Corporate segment and $600,000 of costs in the Servicer and Real Estate segment. Excluding these net nonrecurring first quarter benefits, second quarter adjusted EBITDA and adjusted EBITDA margins improved compared to the first quarter. For the third and fourth quarters, we anticipate strong service revenue and adjusted EBITDA growth over 2023 as we ramp sales wins in our more efficient and lower cost base. Slide 6 provides additional information on our Servicer and Real Estate segment. Second quarter 2024 service revenue in this segment was 16% higher than the second quarter of 2023 and flat to last quarter. We continue to experience growth in certain higher-margin businesses that support the earlier stage of the default process. Adjusted EBITDA of $11.1 million was 50% higher than the second quarter of 2023 and 6% higher than the first quarter of this year. Adjusted EBITDA margins were 38.1% in the second quarter of '24 compared to 29.5% in the second quarter of 2023 and 35.8% last quarter. The improvement compared to the second quarter of last year reflects revenue growth and efficiency initiatives. The improvement compared to the first quarter of this year reflects business unit efficiency initiatives as well as the $600,000 of nonrecurring expenses in the first quarter that I just discussed. Slide 7 provides a summary of our Servicer and Real Estate sales wins and pipeline. For the quarter, we won new business that we estimate will generate $15.3 million in annual revenue once fully ramped over the next couple of years. In the second quarter, we signed three agreements to provide foreclosure trustee services. This is in addition to the market share expansion of trustee business with a customer that we won in the first quarter. We completed the onboarding process of these three trustee customers and are ramping referrals. We anticipate that these wins will support service revenue and EBITDA growth. We also made progress ramping our renovation services for one of the largest owners of REO assets in the U.S. Since the program went live in late April, we have received over 35 renovation referrals, which we estimate will generate average revenue close to $100,000 per property. We anticipate referral volume, revenue, and earnings from this customer will ramp as the year progresses. We ended the quarter with a segment weighted average sales pipeline of $20.3 million of annual revenue on a stabilized basis, most of which we forecast will impact 2025 and beyond. The decline in the sales pipeline compared to last quarter primarily reflects the significant sales wins I just discussed and the addition of earlier stage opportunities to the pipeline, which have a lower assigned win probability. Turning to the macroeconomic environment on Slide 8, as we have discussed in the past, there continue to be early signs of consumer financial stress. Consumer savings has declined, credit card debt is near a record high, and early-stage delinquencies are rising. Additionally, home affordability, which is highly correlated to home prices, remains low. Despite the significant increase in interest rates in the last two years, we believe home prices remain high largely because the inventory of homes for sale is very low. This appears to be changing. According to the National Association of Realtors, the inventory of existing homes for sale in May 2024 was 18.5% higher than May of last year, and seasonally adjusted existing home sales were 2.8% lower. As inventory grows, home prices in certain markets may decline as the supply/demand dynamics normalize. Should this happen, stressed consumers that have low down payment mortgages or loans that were originated over the last couple of years may no longer have equity in their homes and will therefore have fewer options to address loan defaults. This could increase foreclosure initiations and drive foreclosure conversion rates to more normal levels. Moving to our Origination segment on Slide 9, we are pleased that adjusted EBITDA improved by $1.8 million compared to the second quarter of last year despite a 5% decline in service revenue and a 13% decline in industry-wide residential origination volume for the same period. Adjusted EBITDA was flat to the first quarter on similar service revenue. Adjusted EBITDA improved over last year from cost savings and efficiency initiatives. As you can see on the slide, the Origination segment's gross profit, gross profit margins, adjusted EBITDA, and adjusted EBITDA margins all improved relative to the prior year. Slide 10 provides a summary of our Origination segment sales wins and pipeline. On an annualized stabilized basis, we won an estimated $1.5 million in new business in the second quarter. Our weighted average sales pipeline at the end of the quarter was $14.7 million. We continue to focus on rolling out new solutions to help our Lenders One members make more money. We believe the regular launch of new solutions to Lenders One members, combined with greater adoption of our existing solutions, will strengthen our value proposition for Lenders One members and support further revenue and earnings growth in our Origination segment. During the second quarter, we signed agreements with our first homeowners insurance customer and have a pipeline of 35 member prospects. We believe that the homeowners insurance program can improve the loan closing process for our members and their borrowers and establish an attractive revenue annuity for Altisource as policies are issued, the majority of which we believe will be renewed. Turning to our Corporate segment on Slide 11, we are maintaining strong cost discipline. Second quarter corporate adjusted EBITDA loss of $7.2 million was $2.4 million or 25% better than the second quarter of 2023 and $900,000 worse than the first quarter of this year. The first quarter 2024 results included an estimated $1.2 million of net nonrecurring benefits. Absent these benefits, second quarter 2024 adjusted EBITDA loss in corporate modestly improved compared to the first quarter of 2024. The lower adjusted EBITDA loss compared to last year reflects our cost savings and efficiency initiatives. Moving to Slide 12, in summary, I'm pleased with our second quarter and first half of the year performance and believe we are on track to achieve our 2024 guidance of 13% to 32% service revenue growth over 2023 and adjusted EBITDA between $17.5 million and $22.5 million in 2024. We continue to win new business and are making good progress ramping sales wins on a much lower cost base in a historically difficult market. As a result, service revenue for the first 6 months of this year is $3.5 million or 5% higher than the same period last year, and adjusted EBITDA is $11 million higher despite the decline in foreclosure starts, foreclosure sales, and mortgage origination volume over the same period. If we achieve the midpoint of our adjusted EBITDA guidance, we will have grown adjusted EBITDA by approximately $52 million over 3 years. As we ramp new business, we are cautiously optimistic that we will exit the year at a $30 million plus adjusted EBITDA run rate. I'll now open up the call for questions. Operator?

Our first question comes from Raj Sharma with B. Riley.

If you could talk about how is service revenue growing 16% with fewer foreclosure starts and fewer foreclosure sales? How much of that is price increases? And also, if you could talk about the incrementally new revenue from the pre and the early foreclosure process?

Thank you, Raj. Bill Shepro here. In the Servicer and Real Estate segment, several factors are contributing to our growth. First, we've seen some price increases in our field services and valuation business. Additionally, last year in the second quarter, one of our customers in California had holds on foreclosures, which have now been lifted, allowing for better comparability this year. We are also securing new business and enhancing our earlier stage processes, particularly in the foreclosure trustee business, where we’ve started receiving referrals from three new clients—two of which appear promising, while the third has potential but is smaller in scale. Lastly, we've launched a renovation business in the second quarter, contributing approximately $200,000 to revenue thus far. This business is gaining traction; we recently received 35 referrals, and that number has now risen to over 40. We are optimistic about its future contribution.

Can you provide an estimate on the margins during the foreclosure process compared to your usual servicing business?

Yes. Sure. Look, a lot depends on the product, but the trustee business, because of our global operations, is a very high-margin business inside of the business unit. I think north of 50% in the title business, that's more probably, Michelle, what, in the 30s?

Yes.

The EBITDA margin level. The field services business is typically mid- to high-teens margin business. And then that also can take place earlier in the process. And so the margins can be reasonably attractive, not necessarily as attractive as the margins inside of Hubzu at the very end of the process, but they're still pretty strong.

That's very helpful. I wanted to know how confident you are in the pre-foreclosure and earlier foreclosure process continuing through this year and next. Is this a new, structural addition to the revenue base, or is it temporary until actual foreclosures increase?

Yes. If you look at the reports from ICE or Black Knight, delinquency rates remain very low, both for 90-plus days and early-stage delinquencies. Early-stage delinquencies did increase slightly in the second quarter, but it’s uncertain if that was simply due to timing related to the last day of the month. We will see if this trend continues. Overall, delinquency rates are quite low. We aim to focus on early-stage processes since foreclosure initiations, although still down by almost 30% from pre-pandemic levels, have increased significantly from during the pandemic. This is an area we plan to concentrate on and work to gain market share. Additionally, we are expanding our work in the foreclosure trustee business with an existing customer, adding six new states and beginning to provide services for the reverse mortgage portfolio in the trustee space, which we believe will contribute to our growth. However, the delinquency market has been relatively stable, although that could change. In May, we noted homes for sale increased by 18% compared to the previous year while sales slightly declined. This indicates more homes are available for sale, and due to the differences in asking and selling prices, fewer homes are selling. Historically, this could lead to a drop in home prices, as we've seen in areas like Austin. If that occurs, it may pose risks for higher delinquencies among recent originations, especially those with high loan-to-value ratios, or those loans that gained equity after a significant rise in home prices that might not continue. This situation may lead to the first wave of jobs that could benefit us.

Could you provide more details about the $15.3 million win in Q2? Is this estimate for the next year or two related to the renovation services? Did I understand correctly that you're acquiring properties for around $100,000?

Yes, approximately. We're just under $100,000 in renovation costs for the referrals we've received so far where we've submitted bids and they've been approved by the customer. This is essentially the ticket price for the total renovation cost that will be recorded as revenue as we complete the renovations. I prefer to focus on our significant successes in total. In the fourth quarter, we secured a substantial renovation opportunity in the first and second quarter. In the second quarter, we won three trustee clients, and all three are now providing referrals. Overall, if you reference the sales scenario slide included in the appendix this quarter, you'll see that these three wins are expected to generate around $70 million to $80 million in revenue, if I recall correctly.

$88 million is what we have in the deck on...

Yes. We are estimating revenue from those wins and a few others on the origination side, with the four largest wins and the expansion of trustee work with an existing customer into new states being significant contributors. Raj, we are optimistic about reaching that revenue level from these sales wins. In fact, if we're optimistic, there's a chance we could exceed expectations. If that renovation business grows to 100 files a month at $100,000 each, that would translate to $10 million in monthly revenue. We are not factoring in such high levels in our forecast. However, I believe we have a strong opportunity to meet what we've outlined in the appendix of today's slide deck.

Got it. Got it. I’ll end there with my questions and take it offline.

Our next question comes from Mike Grondahl with FNBO Northland.

Bill, I think you mentioned having 35 homeowners insurance policies related to that program. Are you assuming any risk with these homeowners' insurance policies, or are you acting just as an agent? Could you explain that?

Sure. We launched a homeowners insurance program in partnership with Policygenius, where both of us act as agents. We are licensed insurance agents across the country, just like Policygenius. As members join the program and their loan officers interact with borrowers, we receive lead referrals to offer homeowners insurance to those customers, aiming to simplify and minimize the friction involved in obtaining a homeowners insurance policy. Through Policygenius, we can present multiple homeowners insurance options to consumers and earn a commission from this process. Roughly half of the commission goes to us, and half goes to our partner. This has changed slightly for future homeowner insurance renewals. In short, we are not taking on any risk.

Right. You're not taking that risk. Okay. You are earning a commission kind of on a sale.

That's right. We have 35 members or lenders that are right now evaluating the program. We already have one signed up and are now receiving referrals. And we're optimistic. We've got an attractive pipeline and we look forward to closing some of these deals. What I like about this business is it's not just the commission you earn the first year as the homeowners insurance policies renew, and I think the industry data is around 85-plus percent renew, we continue to earn a commission as those policies get renewed. And at the same time, what's very important to us is we're actually making the closing process more frictionless for our members.

Got it. Yes, you're making good use of your position. Regarding the new renovation business, can you explain what you're doing there to earn the $100,000? I'm a bit unclear whether that amount refers to the actual renovation work or something else.

Sure. Yes, of course. So basically, we're hired by this customer that's one of the larger owners of REO. And by the way, we hope to expand this to real estate investors and single-family rental investors over time, particularly as that market starts to come back. But basically, what we're doing is we go out to the property, we evaluate the condition, all based upon business rules given to us by the clients. We determine based on their business rules, what work needs to be done, and we've got some pretty sophisticated tools to do this analysis and bid work. The client basically tells us what the prices that they pay for the services. We submit the bid. If the client says yes, we basically are managing the renovation work through a contractor network that actually is doing the work with our oversight, and then we make the difference between what we're paid and what we pay the contractors.

Got it.

Less some internal costs.

Sure, sure. Great. And then maybe it's too early, but any initial thoughts on '25? Just sort of assuming the world stays round, how are you thinking about '25 at this point?

Yes. So look, we put some – couple of scenarios in the back of the second quarter earnings slide presentation, and we show what we think revenue and EBITDA would look like as we fully ramp the sales that we’ve already won. And by the way, that doesn’t include – that does not include our sales pipeline. All that would be incremental to both those scenarios we’ve included in the presentation. And I think we also talked about on the call that we’re cautiously optimistic we can exit this year or end this year with a $30 million run rate EBITDA. And so of course, there’s some puts and takes. We’ve included some customer attrition or churn in our sales scenario to try to be reasonable in our approach. But I think that’s where – how we’re thinking about the business right now. But we’re not putting out any guidance at this point.

Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Bill Shepro for closing remarks.

Great. Thank you, operator. We’re very happy with our second quarter financial performance and believe we’re well positioned for this year and beyond. Thanks for joining today’s call.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.