Good day, ladies and gentlemen, and welcome to your Altisource Second 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 is being recorded. I would like to introduce your host for today’s conference, Michelle Esterman. Ma’am, 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. I’m very pleased with our performance in the second quarter and through the first half of the year. I’m proud of our leadership team and thousands of dedicated employees for executing well against our strategic initiatives and are working tirelessly to deliver high-quality services to our customers. As Michelle will discuss in a few minutes, we believe we are on track to achieve or exceed $6 of adjusted diluted earnings per share, the midpoint of our updated scenarios. As you can see on slide three, we believe that Altisource has developed distinct competitive advantages that will enable us to deliver sustainable growth and profitability for investors. To provide you with insight and to what our revenue and profitability could look like in five years, we estimated our 2021 revenue and operating income assuming a normal runoff of Ocwen’s portfolio and 40% annual growth of non-Ocwen revenue. Based on these assumptions, our 2021 service revenue would be $1.87 billion. This includes $260 million of service revenue from Ocwen, representing 14% of the total. With operating margins between 23% and 27%, we would generate $430 million to $505 million of operating income before corporate costs and interest expense. While there is no guarantee that we will achieve these numbers, we are off to a good start. We have grown non-Ocwen revenue by more than 40% in each of the last two years and anticipate the growth to exceed this in 2016. To provide you with additional insight into our view of the future, I will walk you through our vision and the progress we are making to obtain our objectives. Our goal is to become the premier mortgage and real estate marketplace, connecting market participants and providing related best-in-class services and solutions. We…

Thank you, Bill. This morning we reported second quarter 2016 service revenue of $241.3 million, adjusted net income attributable to shareholders of $31 million, and adjusted diluted earnings per share of $1.58. As you can see on slides eight, we’ve adjusted the 2016 scenarios to reflect our results for the first half of the year and anticipated performance for the balance of the year. We’ve made very good progress and believe we are well-positioned to achieve or exceed the midpoint of our scenarios. Slide four provides highlights of our results for the current quarter compared to prior period. This morning, I will discuss the financial results for the quarter in greater detail. Turning to service revenue, compared to the second quarter of 2015, service revenue was 2% higher. Growth in our asset management business more than offset lower revenue in the financial services and technology services segment. The asset management business’s growth was primarily driven by a higher volume of property preservation referrals, a higher percentage of homes sold through auction on Hubzu and growth in the number of non-Ocwen homes sold on Hubzu. The decline in financial services revenue was primarily from lower revenue in the customer relationship management business, as we have severed relationships with and reduced the volume of services provided to certain clients that were not profitable for us. The expected decline in the financial services revenue was driven by REALServicing and IT infrastructure services. Revenue from REALServicing declined as a result of Ocwen’s reduced servicing portfolio and the license fee reduction we discussed earlier this year. IT infrastructure services revenue declined as we have transitioned certain support resources to Ocwen as part of our previously announced separation of the Company’s technology infrastructure. From a revenue diversification perspective, we are making progress. As you can see…

Thank you. [Operator Instructions] Our first question comes from the line of Lee Cooperman with Omega Advisors. Your line is now open.

Thank you. Let me apologize in advance. I am on vacation in Utah. And I don’t have my files and worksheets with me. So, some of these questions might be basic but be as it may; there is a series of questions. Number one, what would you say is the minimum cash you need to run your business? Rough idea; I don’t need anything exact.

Look, because we want to make sure -- I guess to run our business, we don’t need that much cash to run the business. But because we want to make sure should anything a bad happen, even though we think that likelihood is very, very small, we want to make sure we have the cash to support ourselves. We are maintaining a healthy balance sheet in the meantime, more than we would typically need.

Should I assume 100 million; no number you want to volunteer?

Lee, I think 100 million is a fair number. I think from our perspective, we just want to make sure in the unlikely event we just have…

Okay. Second, what is your desired level of debt? You are focused on bringing down debt; I think you have 480 some odd million, $487.6 million gross. What would you like to see that number; what would be a comfort level; zero, would be [multiple speakers] what would you like to see there?

Lee, I understand that. I think the answer to that question also obviously depends on, if we had a crystal ball and more clarity to some of the issues with our clients, it would be easier to answer that question. But I think longer term, Lee, two times earnings is a healthy -- two times EBITDA is a healthy level of debt, 2, 2.5 and you’d bring it up to do deals potentially and then you’d over time bring it back down.

I don’t want to come across as an academic moron, but when you talk about clarity, you apparently have enough clarity to give people guidance on your earnings. You are saying that you expect to earn a minimum $6, so everything flows from there.

Right.

Third question, I think on the first call, I may be wrong, but I think you said that for the year you said you would generate either $120 million to $170 million in cash or $120 million to $190 million in cash. What is the cash generation you are expecting this year, if you could update that number, assuming the minimum $6…

Michelle, what did we generate for the first two quarters in cash, operating cash? It’s 40 million I think in the second quarter.

40 in the quarter, it was…

And then what’s for the first quarter?

First quarter, we had $29 million of operating cash.

So, Lee, I would think the run rate we’re at is probably a reasonable assumption, the run rate in the second quarter for the rest of the year?

So that’s $40 million times 4, $160 million?

We would do $40 million in the third and the fourth and what have we done year-to-date?

[Indiscernible]

70, so 70 plus, 80...

70 plus, 80 is 150. So what’s the answer to the question, you guys are mumbling in the background. I can’t hear you.

So, Lee about 150 I think is a reasonable number.

Now, the aggregate investment you now have on RESI, your balance sheet, is that the $38.08 million that the securities held for sale that’s the RESI investment $38 million?

That’s correct.

Let me just say this, RESI has a repurchase program in place. They think the stock is undervalued. Whether it’s more undervalued or less undervalued than ASPS, only time will tell. But I think all of us -- I don’t want to see it that way; speaking for myself, I would much rather us own more debt in ASPS or more equity in ASPS and not have the investment in RESI. Now, that this mini crisis has gone and your shysters have left the scene, it seems to me with RESI having a buyback program, you guys ought to do a deal where you could sell them your stock and take this cash and buy back our own debt or buy back more of our own equity. I have not yet had a chance to see your 2020 estimate, but I assume this $430 million to $505 million of operating income comes up with a very high EPS number. And it’d seem to me that -- I’d rather see the $38 million invested in our own securities than somebody else’s securities, as much as RESI seems undervalued.

Right. So, Lee, I guess fundamentally, I agree with you. The question is the matter of timing. It’s still trading -- RESI is still trading at a tremendous discount to book value and they are a very important client of ours. So, we want to continue to show support through ownership of their stock; but longer-term, I absolutely agree with you, Lee. As their stock improves, it’s not something -- it’s not core to our business owning shares of RESI.

Just one last question, I think Michelle addressed this in a sense. She recited like all the potential uses of cash. How would you guys order the best use of your cash at the present time? And, let’s say that the uses of stock repurchase, debt repayment, reinvestment in business, cash dividends, how would you prioritize say the rest of this year in terms of how you would like to use your cash flow, assuming events unfold along the lines you anticipate?

I think the approach we’ve been taking is probably the approach we’ll continue to take.

Well, in this first quarter you bought back $12 million worth of stock; the second quarter, you bought back $8.1 million; and then, you bought back 50 odd million of debt. So, in terms of dollars spent, it seems that debt would have a higher priority than equity.

Yes.

Yes. Also, can you just help me out -- I can’t access the web, being on vacation; I’m on a cell phone. What was the earnings per share number that you guys were guiding towards on your aspirational goals when you talk about the slide deck that you presented; what did that number come out to be in 2020?

We didn’t -- what we did was give you just estimate of revenue and operating margins; we didn’t actually indicate what EPS was.

We will figure that one out. Okay, thank you. I appreciate your response to my questions.

And our next question comes from the line of Kevin Barker with Piper Jaffray. Your line is now open.

In regards to the change in scenarios in regards to non-Ocwen revenue, does that also relate to the increase in tangible amortization expense?

Yes, our anticipated amortization for the rest of the year has been incorporated into our updated scenarios.

Are they related to the previous acquisitions and the non-Ocwen revenue -- the decline in non-Ocwen revenue expected or is that something separate?

Give me one second, Kevin. Yes, Kevin, I think it’s completely separate. The change in non-Ocwen revenue, I think the midpoint of our scenarios, it’s still pretty attractive. I think it’s 59% non-Ocwen revenue growth; that’s come down from what we had included in the previous scenario assumptions we had provided. And frankly, it’s just a matter of the sales cycle takes time, and we’re still very optimistic about our prospects. We boarded the top-four bank in June. I think it generated $100,000 in June, but that client has the potential to be a couple of million dollars or more a month in revenue, as we perform for them and meet their expectations. So, it’s just a matter -- these transactions unfortunately take a long time to find; then, when you find them they take a long time to win; and once you win them, they take a long time to board, to integrate; and then, once they’re integrated, they take quite some time before they stabilize. But the opportunities are still really great.

And then, you mentioned this in the past that seasonally the REO sales that come through tend to be highest in the second quarter, and I think that’s reflected in your service revenue per delinquent loan on the non-GSE side; and then, I believe you’d left that disclosure in there. Thanks for putting that in there. Do you expect to be at $692 per loan on a go forward basis as well, or do you think that will decline in the back half of the year due to seasonality?

Yes. I think, you will see seasonality in the back half of the year, Kevin. And so, the increase was primarily driven by our real estate sales and through increased referrals in our property preservation and inspection business.

And then, as a percentage of [multiple speakers] revenue. So, seasonally you would expect that to come back down in the third and fourth quarter, is that right?

Yes, the back half of the third quarter and into the fourth quarter. Yes.

And then, in regards to the reimbursable expenses in -- as a percentage of total service and revenue, it’s come down to about 7% of total servicing revenue at this point. Do you expect that to continue to decline or is this close to a level that you expect it to be?

It should come down some more. Although -- yes, I think it will continue to come down a little bit, but it’s getting close to -- we don’t have the model in front of us, but I suspect it is getting closer to where it will be where it will come down a little bit.

And then, I noticed that the tax rate ticked up this quarter; I believe you mentioned something about that in previous quarters. Do you expect the tax rate to remain near 14% or do you think it’s going to remain closer to 10%, on a go forward basis?

Yes. I mean, I think for this year, we’re looking at something in the range of 12% to 14%. It will fluctuate from period-to-period, year-to-year depending on our mix of earnings across geographies.

Okay. And then, there is no change in the Luxembourg tax ruling, is that right?

No

No.

Do you have any updates in regards to that tax ruling or is that purely in the EC…

No. We have nothing further to say beyond what’s already in our public filings.

[Operator Instructions] Our next question comes from the line of Mike Grondahl with Northland Securities. Your line is now open.

First question is some of the initiatives you laid out on slide five, especially maybe the two with the top-10 banks in the short sales and the one with the mortgage insurance company managing their REOs, can you size those for us or give us a sense of the timing; and are those in your guidance?

So, we’ve worked that into this year’s financial scenarios, Mike. But what we typically see -- so for example this top-four bank I indicated, it was -- we started receiving referrals in June. If we perform well, we think that could be a couple to several million dollars a month of revenue. With respect to the two other top banks, one of those banks, we’ve grown quite nicely. I think we’ve seen that grow from nothing to north of I think $1 million a month now. And the other bank as their portfolio is winding down that business has come down some. And then, in terms of these new opportunities, as we said -- obviously it depends on the opportunity and the customer, but these opportunities can be 0.5 million to millions of dollars a month in revenue. Some of those were onboarding and expecting to start generating revenue soon and others will take some time. But they all take time to ramp up Mike, particularly if you’re selling real estate, you have to board the homes. Typically there is a real estate agent in place over time and we’re managing that agent, over time we’re receiving new referrals and we’re becoming agent and then there is a time -- there is a lag to get a home actually sold and then start generating the other fees. So, it takes several months but we did build that into our financial scenarios.

And last quarter, you had mentioned you were in discussions with two top-10 banks related to services. Did you win those two, are these the two mentioned here, just some clarity around that?

Sure. Yes. So, one of them we’ve been told on the business side, we’ve won and that one was mentioned with respect to Equator. We’re still finalizing, getting through their vendor management process, which we expect should be done within a few week or within a few weeks, I suspect. So, we’ve been told we won; we’ve marked up the agreement; we’ve reached an agreement on the terms; we’re just now waiting to sign it once they’re vendor review finishes their work. And on the other, our customer, we’re still in sales conversations with that other large bank customer; and we’re making progress but we haven’t disclosed it yet.

And then, lastly, you mentioned the pipeline was pretty strong, just a little bit more help on that pipeline. I mean, has it gotten stronger; what to expect; and does that move ‘17?

So, with respect to I’d say three of our initiatives which were growing at least all or partially with institutional clients. So, in servicer solutions we’re talking to not only the top banks but let’s say in numbers 10 to 20 and having an active dialogue. It will take some time to work through the process, but we’re having a very good dialogue and we’re participating in RFPs. Then, I would say in our Origination Solutions business, we’re focused not on the top 10 lenders, we’re focused on maybe numbers 10 through 30, both bank and non-bank lenders. And we’re actively moving -- we’ve been in very active dialogue responding to RFPs and moving along. And I expect a couple of those transactions to close and those are our platform sales I was talking about. And then on the institution -- sorry, on the rental investor solutions business, we’re making decent progress growing the pipeline of rent range data sales and getting institutional clients to leverage our tools to sell homes and potentially also use us to help them buy homes.

And then, the next question really is if we look at -- I think it’s slide 13, Bill, the new scenarios, a couple of things stick out there. Could you just talk about the drivers of the increases at Ocwen and real estate investor services, and then also the drivers of the decreases at Owners.com and the originations area? I just want to make sure I understand the movements there.

So, I mean we’ve put the original scenarios together, I can’t remember which quarter, but it was a few quarters ago for this year…

Late last…

It was third or fourth quarter; I think it was third quarter last year. So, what we tried to do is tighten them up a bit. And with respect to Ocwen, what we’re seeing is what we discussed around more referrals, around property inception and preservation, which is driving the increase combined with the change in billing on the REO. And then, in real estate investor solutions, that’s growth with better than expected growth with RESI and starting to drive revenue with other customers. And Origination Solutions, we brought it back some -- primarily because we’re focusing a lot on the platform sales and some of the other services not related to the platform sales have fallen back some. We’re not as focused on those. But we’re really focused because we believe long-term growth is going to come from that platform sale. So we just adjusted our current year assumptions there.

And then, OPwners.com, just a slower, harder time converting the leads; is that the thought?

Here’s what I would say, and I look at this daily. I think we’re making -- I know, we’re making really good progress. If you look at the funnel of the close, a lead and the time a lead comes in to helping them find a home to making an offer to going under contract and then closing, what we’re seeing is that we’re making a lot more progress on the more recent leads than we have on the earlier leads, back in when we started the program in February. So, I know, we’re making very good progress and improving our conversion and that’s without getting all the agents we need in place and without having the mobile application that we discussed for both the buyers and our real estate agents in place, which I think will help tremendously in converting more leads. So, as we hire more agents and get those apps in place, we’re very optimistic; and most importantly, I see that we’re making very good progress on our conversion rates on the leads. It’s nothing -- it’s not worth discussing how many closings and things like that yet, but we are making very, very good progress. So, we feel good about it right now.

And then, lastly, just as it relates to real estate services, I want to confirm that you do have a real pipeline there outside of RESI. And then secondly, you were going to put some of your capital to work this year sort of buying properties and working them yourself. Did you ever start that?

So, with respect to your second question, the answer is yes. I think we’ve purchased close to 29 or 30 properties, and they have another 15 or so under contract. So, we’re making progress there. And more importantly, we are focused on -- we’ve just brought on a couple of sales leaders into this initiative and they are doing a nice job building the pipeline along with our management team and their relationships. So, we are starting to build the pipeline. RESI obviously is very important customer but we are working to diversify the revenue there as well.

[Operator Instructions] At this time, I’m showing no further questions. I would like to turn the call back over to Michelle Esterman for any closing remarks.

Thank you for joining the call today. Have a great day.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.