Altisource Portfolio Solutions (NASDAQ:ASPS) Q1 2026 Earnings Call

0:00 Thank you for standing by. Welcome to the Altisource Portfolio Solutions First Quarter twenty twenty six Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press 1 on your telephone. You will then hear an automated message advising your hand is raised. To infer your question, please press 1 again. Please be advised that this conference is being recorded. I would now like to introduce your speaker for today, Michelle Esterman, Chief Financial Officer. Please go ahead. Thank you, operator. We first want to remind you that the earnings release and quarterly slides are available on our website at www.ltsource.com.

0:52 These provide additional information investors may find useful. Our remarks today include forward looking statements, which include 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 2025 Form 10 ks. 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.

1:48 Joining me for today's call is Bill Shepro, our Chairman and Chief Executive Officer. I will now turn the call over to Bill. Thanks, Michelle, and good morning. I'll begin on slide four. We're off to a strong start this year. For the quarter, we grew service revenue and pre tax GAAP earnings compared to the first quarter of twenty twenty five from sales wins and lower debt related interest and transaction costs. More importantly, we are seeing strength in both business segments. The origination segments first quarter service revenue and EBITDA growth compared to last year accelerated from sales wins and a stronger origination market. The servicer and real estate segment is positioned extremely well with HUBZU inventory at 17,200 homes as of the end of the first quarter, and exciting first quarter sales wins in the title and foreclosure trustee businesses.

2:43 We anticipate this momentum to continue as the year progresses. Turning to slide five. For the first quarter, we generated service revenue of 45,100,000, a 10% increase over the first quarter of twenty twenty five. This was driven by 71% growth in service revenue in our origination segment, primarily from sales wins in our lenders one business. Origination segment revenue growth is partially offset by a five percent revenue decline in our service and real estate segment, primarily from a one time 2025 pricing adjustment benefit in our foreclosure trustee business. Total company adjusted EBITDA declined by $800,000 due to revenue mix, including higher revenue in the lower margin origination segment, lower revenue in the servicer and real estate segment, and modestly higher corporate costs.

3:42 Moving to slide six, the company generated first quarter pretax GAAP income of $400,000 compared to a $4,500,000 loss in the first quarter of twenty twenty five. This improvement was primarily attributable to lower interest expense and debt exchange transaction expenses incurred last year. Net cash provided by operating activities was 4,500,000, a $9,400,000 improvement compared to the first quarter of twenty twenty five. We ended the quarter with $30,300,000 in unrestricted cash. Turning to slide seven and our countercyclical servicer and real estate segment. First quarter twenty twenty six service revenue of 31,400,000 decreased 5% from the same quarter last year.

4:36 The revenue decline was primarily attributable to a one time 2025 pricing adjustment benefit in our foreclosure trustee business and lower volume in our renovation business. First quarter servicer and real estate segment adjusted EBITDA of 10,800,000 decreased by 10% compared to the same quarter last year, primarily from the lower revenue in the foreclosure trustee business that I just discussed. Slide eight summarizes our servicer and real estate segment sales wins and pipeline. For the quarter, we won an estimated 12,400,000 in annualized stabilized service revenue wins. Two of the larger first quarter wins were in our higher margin foreclosure trustee and title businesses.

5:26 Towards the end of the first quarter, we began receiving referrals from this new business. We anticipate referral growth and earnings from these wins to accelerate as the year progresses. We ended the quarter with a servicer and real estate segment total weighted average sales pipeline of 11 700,000 on a stabilized basis. Turning to slide nine and our growing HUBZU inventory. As mentioned in our March call, we recently onboarded two larger HUBZU wins. Driven by these and other recent customer wins, total HUBZU inventory has more than tripled since September 30 and stands at 17,200 assets as of March 31 and over 18,800 assets as of earlier this week.

6:20 We anticipate revenue from these wins to grow during the year as REO and foreclosure referrals proceed for sale. We are forecasting full year service revenue growth in our servicer and real estate segment from the significant growth in HUBZU inventory and recent sales wins. Our forecast assumes that our revenue growth is partially offset by lower Oneidae and Rhythm revenue based on our estimated timing for both the service transfer of Oneidae servicing to Rhythm and the transition of the cooperative brokerage agreement REO assets from Altisource to Rhythm. Moving to slide 10 and our origination segment. We are continuing to demonstrate strong service revenue and adjusted EBITDA growth.

7:06 First quarter twenty twenty six service revenue of $13,700,000 was 71% higher than the first quarter of twenty twenty five. Adjusted EBITDA more than doubled to 1,200,000 in the first quarter of twenty twenty six from $500,000 in the same period last year. The acceleration of the origination segments revenue and EBITDA growth in the first quarter of twenty twenty six reflects sales wins and a stronger market. Slide 11 outlines our origination segment sales wins and pipeline. During the quarter, we secured an estimated 4,700,000 in wins, primarily in lenders one and ended the quarter with an estimated 17,200,000 weighted average sales pipeline.

7:58 Based upon the sales wins, sales pipeline and forecasted market conditions, we are anticipating strong full year service revenue growth in our origination segment. Turning to slide 12 and our corporate segment. First quarter twenty twenty six corporate adjusted EBITDA loss was 7,600,000, reflecting a modest increase compared to the first quarter of twenty twenty five. Looking forward, we believe corporate costs should remain relatively stable as revenue grows. Moving to slide 13 and the business environment. We continue to operate in an environment with both low delinquency rates and origination volume, though the market trends appear to be changing.

8:47 Ninety plus day mortgage delinquency rates increased from 1.45% in December 2025 to 1.6% in February. As of 02/28/2026, there were six hundred and twelve thousand late stage delinquent mortgages, a 9% increase since December. This marks the highest level of late stage delinquent mortgages since July 2022. Foreclosure starts for January and February 2026 were 5% higher than the same period in 2025 and foreclosure sales were 27 higher, although both remain significantly below pre pandemic levels.

9:33 For the origination market, first quarter twenty twenty six mortgage origination unit volume increased 42% compared to the first quarter twenty twenty five, driven by a 91% increase in refinance volume and a 19% increase in purchase volume. The MBA projects 5,700,000 loans will be originated in 2026, representing 4% growth over 2025. To conclude, I'm pleased with the first quarter performance and how we are positioned for the year. In addition to 10% service revenue growth and exciting sales wins that should support future growth, we improved pre tax GAAP earnings by 4,900,000 and cash provided by operating activities by 9,400,000 compared to the first quarter of twenty twenty five.

10:27 As the year progresses, we believe Oneidae and Rhythm will continue to become a smaller percentage of our revenue base and total company service revenue and EBITDA will be more balanced between our segments. I'm proud of what the team has accomplished this quarter and I'm excited about our future. I'll now open up the call for questions. Operator? Thank you. Our first question today will be coming from the line of Timothy D. Agostino of B. Riley Securities. Your line is open.

11:18 Thank you so much. Congrats on the quarter. My first question is on the sales pipeline in the servicer and real estate segment. I guess just understanding the quarter over quarter move a little bit more from $19,300,000 to 11,700,000 It'd be great to just kind of understand why it decreased. And I know earlier in the call, had mentioned it's at this stabilized level. So just understanding that language and what we should expect from the pipeline going forward throughout the year. Thank you. Hey, Tim, good morning. And we appreciate you covering Altisource. So the difference in the pipeline reflects the 10,000,000 or $11,000,000 in sales wins I discussed in the call. So it's just simply partially offset by some increases in the sales pipeline.

12:09 And so we'll be working very diligently to rebuild that pipeline, but the change reflects the fact that we had over $10,000,000 I think it was 11,000,000 in sales wins in Okay, the first great. Understood on that. Thank you. And then just as a second one, net cash provided by operating activities, as you highlighted earlier in the call, that $4,500,000 is a significant increase year over year. I guess, not really asking for guidance, but as we look to the second quarter, third quarter, fourth quarter, should we expect this to be positive? Or are there items later in the year that maybe could turn this back negative? Just trying to get an understanding if net cash is going to continue to be positive throughout the year as that's a pretty important and great milestone you all hit in the first quarter.

13:06 Michelle, do you want to take that? Yes, I'm happy to. Yes, I think we guided earlier in the year to positive cash flow, operating cash flow for the year. You do see fluctuations from quarter to quarter depending on revenue growth, etcetera. But yes, we do anticipate positive cash flow for the year. Okay, great. And then on that positive cash flow, is that more supported by the servicer and real estate segment or origination segment? I know Hubzu is one of the higher margin businesses, but just getting a better understanding of maybe the driver of the net cash provided? Thank you. Sure. So, you see you can see in our slides what our EBITDA is broken out in between servicer and real estate and origination. They both have positive EBITDA. You do have larger EBITDA in servicer and real estate, so more of the cash flow does come from that segment.

14:01 But as Bill mentioned, we expect that to become more balanced as we move through time. Okay, great. Thank you so much. I'll jump back in the queue. And there are no more questions in the queue. I would like to turn the call back over to Bill for closing remarks. Please go ahead. Thanks, operator. We're very pleased with the first quarter performance. We're particularly pleased that our HUBZU inventory is standing at roughly 18,800 assets as of earlier this week. And we think we're set up very well for continued growth during the year. Thanks for joining us today.

14:53 This does conclude today's conference call. You may all disconnect.