Good day, ladies and gentlemen, and welcome to the Altisource First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host Michelle Esterman, Chief Financial Officer. You may begin.

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 presentation today contains forward-looking statements made pursuant to the Safe Harbor provisions of the Federal Securities Laws. Statements in this conference call and in our press release issued earlier today, which are other than historical fact are forward-looking statements. Factors that might cause actual results to differ materially are discussed in our earnings release as well as our public filings. The company disclaims any intent or obligation to publicly update or revise any forward-looking statements regardless of whether new information becomes available, future developments occur or otherwise. Today’s presentation also contains financial measures that are non-GAAP financial measures. A reconciliation of these non-GAAP measures to their GAAP equivalents is included in the appendix to today’s presentation. Joining me for today’s call is Bill Shepro, our Chief Executive Officer. I would now like to turn the call over to Bill.

Good morning and thank you for joining today's call. As you will hear my voice, I'm seriously under the weather with a bad case of bronchitis. But because our calls with you are more important, we did not want to postpone today's call. However we hope to keep it brief by only taking a few questions today. Thank you for your understanding. This morning, I will discuss our financial performance for the quarter compared to our scenarios, the significant progress we're making on our four strategic initiatives and the execution on our capital allocation plan. Michelle will discuss our financial performance in greater detail. I'm very pleased with our first quarter financial results. As you can see on Slide 7, first quarter 2016 service revenue of $234 million is 26% of the midpoint of our full year 2016 scenarios, and adjusted diluted earnings per share of $1.47 is 25% of the midpoint. Given the fact that the second and third quarters have historically been our seasonally strongest of the year, we believe we are well positioned to achieve the midpoint of our 2016 financial scenarios. We also continue to make strong gains to diversify and grow our customer base. As you can see from Slide 8, adjusted service revenue unrelated to Ocwen for the quarter was 22% higher than the fourth quarter of 2015 and 38% higher than the first quarter of 2015. Slide 2 provides a list of our strategic initiatives which are centered on our strategy to diversify and grow our customer and revenue base. Our four strategic initiatives in no particular order are to grow our servicer solutions, our origination solutions, our consumer real estate solutions and our real estate investor solutions businesses. Beginning with our servicer solutions business. During the quarter, we continued to focus on…

Thank you, Bill. This morning we reported first quarter 2016 service revenue of $234.3 million, adjusted net income attributable to shareholders of $29.4 million, and adjusted diluted earnings per share of $1.47. Slides 3 through 6 provide highlights of our results for the current quarter compared to prior periods. This morning I will discuss the financial results for the quarter in greater detail. Turning to service revenue. We are very pleased with our first quarter service revenue. Compared to the first quarter of 2015, service revenue was 13% higher, and as you can see on Slide 8, non-Ocwen adjusted service revenue was 38% higher than the same quarter last year. Growth in our asset management business more than offset lower revenue in the financial services segment and lower infrastructure services revenue in the technology services segment. The asset management business's growth was primarily driven by a higher volume of property inspection and preservation referrals, and growth in the number of non-Ocwen homes sold on Hubzu. The decline in financial services revenue was primarily from lower mortgage charge-off collections driven by a decline in referrals. The decline in IT infrastructure services revenue was driven by a reduction in costs, as these services are billed on a cost-plus basis. Additionally, we have begun transitioning certain support resources to Ocwen as part of our previously-announced separation of the company's technology infrastructure. Turning to gross profit and margins. Gross profit in the first quarter of 2016 was $81.3 million, or 35% of service revenue, compared to $67.7 million, or 33% of service revenue in the first quarter of 2015. Gross profit growth as well as margin expansion was driven by higher revenue in the higher-margin mortgage services segment, modestly offset by declines in the gross profit margins of the segment. The modest margin declines…

[Operator Instructions] Your first question comes from the line of Lee Cooperman with Omega Advisors.

Thank you. Bill, I'm almost embarrassed to ask you questions, because you said you weren't feeling well. Let me first say, I hope you feel better very quickly, and I apologize for asking questions. But I have an important investment here, and I do have questions. You said you wanted to talk about capital management, but you really didn't get into intentions, and I'm trying to figure things through. Long-term debt, net, I think you said was about $395 million net of your cash. Your debt is costing you 4.5%. You said you're going to generate $120 million to $170 million of cash, I think was the previous conference call. You asked permission from the shareholders to buy back up to 25% of the stock over 5 years in the range of $1 to $500. I hope we buy it close to $1 and then we sell it at $500. But we have $333 million available for repurchase under the existing loan agreement. And I think market cap coming [ph] at $527 million. And so, I look at it and I say -- and I think you said in the last call that your expectation that we would have a larger, more profitable company in three or four years. So, how do you balance the relative attraction of retiring debt versus retiring equity? I mean, the equity's trading under 5 times the midpoint of your guidance, and I think your guidance is probably low; versus buying back debt that's costing you 4.5%, where your debt is maybe 3 to 4 times -- 3 times EBITDA at most. So, going forward, would you rather buy equity? Would you rather buy debt? And what can we look forward to? That's question number one. I have a few questions.

Yes. So, Lee, I think our net debt less marketable securities was $345 million.

$345 million. Okay. And you're generating $120 million to $170 million -- go ahead, I'm sorry.

Yes. Look, I'm a shareholder myself, and I continue to buy stock in Altisource with my own money. So, I'm a big believer in what we're doing. But I also know that there's very few, if any, things that could kill us, other than the existential risk associated with our debt. So, we want to continue to take a balanced approach, I guess is my point. And that's why we will continue to look to opportunistically buy back the debt and buy back shares. But my belief is that, while it is -- certainly is a great opportunity to buy shares back at these prices, and reduce the -- more ownership for existing shareholders, including myself, it's also -- if we can take that risk largely off the table related to the debt, that's a huge benefit, I think, for our shareholders, and could drive the stock up quite a bit as well. So, we're going to continue to be balanced in our approach.

Okay. Before I get to my next question, on this question, is there a level of net debt that you would be very comfortable at? You don't want it to be zero, I assume, with historically low interest rates. So, if you got net debt from $345 million to $200 million, $250 million or -- is there a number in mind that you would say then, you would rather channel all your cash flow into repurchase and none into debt retirement?

Yes. Lee, I'm probably -- I know you're not going to like, but I don't necessarily want to answer the question. Because a lot just depends on the environment around us. Because, to your point, if we keep executing and we're a bigger company, then of course we should have a modest amount of debt -- 1.5, 2 times EBITDA perhaps, and then perhaps higher, when you need additional debt to do acquisitions or other things. So, I think we'll just keep taking this balanced approach and keep monitoring what's happening with our larger customers, and be very thoughtful about it.

Okay, I'll move on, but I'll just make the point. Your debt's 20 times earnings and your stock is less than 5 times earnings. But be that as it may, the second issue relates to your largest customer. I noticed this morning that they had a screw-up in some of the compliances and that 17,000 loans were placed on foreclosure hold. Just generally speaking, is this a significant issue for you -- that one specific thing? And do you have a general feeling whether things are getting better or worse at your largest customer?

So, yes. First of all, I think that was a -- that article was not accurate, Lee. It's --

Oh, good.

I actually -- we opened up the report that the Monitor put out today, and we can have -- Michelle, it's a public report -- we can have Michelle circulate the link to the report to those that want it. And we couldn't find anything in that report that referenced the foreclosure issue. We think Ocwen -- to answer your second question, and I read the transcript from Ocwen's call this morning -- I think Ocwen's making really, really good progress in terms of strengthening its corporate governance, improving its operations, and as Ron, I think, Faris, indicated on the call, he's very optimistic that his servicer rating will be upgraded. So, I think from -- and obviously their financial numbers weren't great, but from an operations and performance perspective I think they're doing very well.

Good. One other question, and a suggestion. I assume that if you felt comfortable in tightening guidance after the first quarter, you would have done it. So, you would like just to stick with the present guidance?

Yes. I mean, I think, more likely than not, we'll exceed the midpoint of the scenarios. But for today's call, we just left it at that.

Okay. One last -- this is a suggestion, not a question. It would be very helpful -- you do a great job, and -- you and Michelle, in providing information to the market and forecasting and what have you. If you could go through a -- prepare a slide of the derivation of our earnings between Ocwen and non-Ocwen sources. And I know we're looking for the non-Ocwen business to grow quite dramatically. But to the extent that one could understand what we earn from -- away from Ocwen, and what we're earning with Ocwen-related companies, that might give the market some insight and comfort. But I'll let you think about that one. Just feel better. Take care of yourself. You're doing a good job for the shareholders.

Thank you. And our next question comes from the line of Mike Grondahl with Northland Securities.

Thanks for taking my questions. The first one on non-Ocwen business. Do you feel that's on target after the March quarter for the whole year?

Yes, Mike. We feel really, really good about the opportunities that we've won and are now starting to generate business. We also have a very robust pipeline of opportunities that we've been working on for quite some time. So, just to give you an example, that top-4 bank that we are going to start providing services for them in early May, we've already made it to the second round for another set of services that also could be very interesting and lucrative for Altisource. We're talking to two other top-10 banks about a suite of services as well, and with one of them we're actually, I think both, we're in the middle of negotiating the agreements with them. So, we feel really, really good about our prospects. And if we keep growing at the rate we grew in the first quarter with non-Ocwen business, then we get pretty close to the midpoint of the scenarios for the year.

Got it. And then Owners.com or consumer real estate solutions, is the revenue there supposed to start in the summer with the home-selling and buying season? How do we think of the ramp there?

So, I guess just to reiterate, we are really pleased with the number of leads we've received in our two launch markets, Atlanta and South Florida, West Palm Beach through -- down to Miami. And what we're working on doing, Mike, is improving our conversion rate of those leads to sales. We obviously have -- some of those leads have gone under contract, but we need to improve our conversion rate. But what's most important is that the market -- the message is resonating with the market, and we're generating a very meaningful number of leads, and now we need to improve our ability to convert those leads. And then, of course, the summer months are usually our strongest-selling months. And so, we would expect sales to be picking up as we go into the next couple of months and as we roll out to new markets.

And then, just lastly, I didn't see Hubzu unit sales or sort of revenue per delinquent non-GSE loans. Are you guys still disclosing those, or where are they? Can you disclose those, if I missed them?

Yes. So, Mike, we had previewed last quarter that we were going to change the reporting on our operating metrics to more closely align with our strategic initiatives and our growth diversification efforts, then. So, we did decide to pull those metrics out. There's no -- there's nothing more to it than that. But we did see that our non-Ocwen Hubzu sales grew by -- Michelle, was it 16%?

It went from 12% to 16% of settled unit sales.

And revenue on Hubzu also went up for the quarter. I think total unit sales went down a little bit, but revenue went up, and we had a greater percentage of non-Ocwen sales.

Thank you. Our next question comes from the line of Kevin Barker with Piper Jaffray.

Could you outline how much of the loss accrual adjustments impacted the quarter?

Kevin, I'm not -- yes, I'm not sure what you're referring to.

There's a loss accrual adjustment mentioned in the 10-Q that --

Oh, yes. We didn't separately disclose the dollar amount of that.

Okay. All right. And then you mentioned that the revenue at Hubzu went up this quarter. Could you -- but the properties went down. How much revenue per property did you get from Hubzu this quarter versus last quarter?

We did $52.8 million of revenue in Hubzu for the quarter. I don't have it broken down in revenue per unit. But usually, Kevin, what could happen is the number of homes that are sold by auction or non-auction -- as that mix changes, your revenue could go up or down. And we also grew our non-Ocwen home sales.

And then, do you have the average service revenue per loan for non-GSE and GSE loans? I believe last quarter you had -- that number was about $598 per non-GSE loan in the mortgage services segment and $85 per loan. What are those numbers this quarter?

Yes. Sure. I'll give you the number, but we are trying to move away from these metrics over time. It was $611, primarily driven by property inspection and preservation services.

Is that all-in or is that just purely non-GSE?

No, that was non-GSE.

And that number --

GSE was $93.

Okay. And that number continually went higher through 2015 and went higher again this quarter. I think you mentioned in the past that a lot of it was volatility or certain increased amount of activity in regards to default servicing. Was there any specific reason --

Kevin, I think, it was two reasons. One was, and we've disclosed this quite robustly in the Q. We've changed the way in which -- our client changed the way in which they pay us for the services. So, when we manage REO, rather than getting a flat fee and then charge just pass-through costs, so, we're only booking the flat fee. We now actually don't charge a flat fee on new REO referrals. We charge for the actual services and earn a margin on those. At the end of the day, putting aside volume for the time being, it doesn't change your earnings that much. It just changes the way in which we bill. And because now, service -- for example, if you repair the window, we charge for the repair of the window, and now that goes into service revenue. So, that was driving up service revenue per delinquent loan. A little bit of empty calories, because --

We saw reimbursable expenses go down. So, from the same quarter last year, reimbursable expenses went down from $32 million to $15 million.

That would explain why service revenue per loan was going up. One of the reasons.

Is that purely an accounting issue, or is that something that some of the regulatory investigations are looking into, regarding how that was billed?

Kevin, this is nothing to do with the regulatory. The client changed the way in which they want to pay us for our service. I actually don't think it impacts much in terms of our profitability. But this is more normal with how the industry pays their vendors, and so we didn't have a problem changing it. I think in terms of our bottom line, it didn't make a difference one way or the other. It does change the way in which we present, because some revenue that was not showing up in service revenue -- or, sorry -- is now showing up as part of service revenue.

Okay. And then, I just wanted to follow up on the question Leon had about the National Mortgage Settlement Monitor halting the foreclosure of 17,000 loans. Would that have a delay in some of your fee income, or would it have an -- may it even increase or decrease your fee income due to those services?

Kevin, maybe I wasn't clear. I don't think I was clear, maybe, to Lee, and it could be the bronchitis here. But I think that the press -- the National Mortgage news article was wrong. I think if you actually look at the National Monitor's press release and report that came out earlier today, it reads very differently than what that press release said. And so, I don't think it -- there's no new news here.

So, there's no delay in the foreclosure?

Yes. This is something that Ocwen agreed to quite some time ago. There's nothing new here. To the extent we were going to be impacted by it, it's already happened. I mean, there's nothing new.

If that -- if those halts were removed, would that increase your fee revenue?

I mean, potentially modestly, if those loans are going through the foreclosure process and some of them become REO. But I think Ocwen's very good at modifying loans, and I'm sure they would fully expect that a large percentage of those loans will go through its modification process. But sure, if Ocwen's number of loans in foreclosure increases, that has the potential to generate more revenue for us.

And then one last one. The fee revenue from other and non-default revenue within the mortgage services segment, which I believe was $22.1 million last quarter. Do you know what that is this quarter?

Give us one second, Kevin. Kevin, we can't -- we don't have it at our fingertips.

Okay. Thank you for taking my questions. I hope you feel better. End of Q&A

And I'm showing no further questions. I would now like to turn the call back to Michelle Esterman for any further remarks.

Thank you for joining the call today, and we'll talk to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.