Good day, and thank you for standing by. Welcome to the Altisource First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michelle Esterman, Chief Financial Officer. Michelle, the floor is yours.

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. In addition to the usual uncertainty associated with forward-looking statements, the continuing impact of government and servicer responses to the COVID pandemic, together with the current economic environment, 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 section in the company's earnings release and quarterly slides as well as the risk factors contained in our 2022 Form 10-K which describe 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. We will begin with Slide 4. We're off to a strong start in 2023 as we executed on our plan to recover from the impact of the COVID-19 pandemic. Our first quarter financial performance was better than planned with $1.5 million of adjusted EBITDA and gross profit margins of 23%, representing a $5.6 million improvement in adjusted EBITDA and an 800 basis point improvement in gross profit margins over the first quarter of 2022. These results were primarily driven by revenue growth in our pre-foreclosure solutions in our Servicer and Real Estate segment from the ongoing recovery of the default market, company-wide cost saving measures we took in 2022 and early 2023 and $1.3 million in other income related to an India tax refund. Our countercyclical Servicer and Real Estate segment generated both sequential and year-over-year revenue and adjusted EBITDA growth as we continue to benefit from the restart of the default market, product mix and cost savings initiatives. In both of our segments, we maintained a robust sales pipeline and won and onboarded significant new business. In February 2023, we also strengthened our balance sheet by raising equity, extending the maturity date of our term loan and revolver and reducing the principal balance of the term loan. We ended the quarter with $43 million in cash. Turning to Slide 5 and our Servicer and Real Estate segment. In the first quarter, we grew service revenue by 10% to $29.8 million and adjusted EBITDA by 63% to $11.1 million compared to the first quarter of last year. We also improved our adjusted EBITDA margins to 37% from 25% over the same period. Our revenue growth reflects the ongoing recovery of the default market, which initially benefits our pre-foreclosure solutions. Adjusted EBITDA and margin improvements reflect…

[Operator Instructions] Our first question comes from Mike Grondahl with Northland Securities.

Bill, my first question, in the deck, there's a couple of things that are always interesting and we track. My question to you is Hubzu inventory, non-GSE delinquent loans at Ocwen and maybe service revenue per non-GSE loan, which one do you think is the best leading indicator for your default business?

Yes. Mike. So I think two of those go hand-in-hand, which is Hubzu inventory and revenue per delinquent loan. I mean clearly, if you look back, I think on that slide, we have in the back of the deck, Michelle, maybe you can reference the page number. If you look back to the first quarter of 2020, which was really the last quarter pre-pandemic and really only January and February was pre-pandemic. Hubzu generated, I think, something like $22 million of revenue compared to -- I'm going from memory here around maybe a little over $8 million in the first quarter of this year. And so as the market comes back, where all these new foreclosures that started last year and are continuing. As those work through the process and get to the end and then you manage the REO for a period of time before you sell it, that's when we should start to see revenue per delinquent loan going up from those Hubzu sales and also Hubzu inventory increasing.

Got it. Got it. So...

But -- sorry.

I was just going to say Hubzu inventory seems to be maybe slightly better leading indicator than service revenue. Service revenue should tick up as you do more pre-foreclosure work. But ultimately, you need the inventory at Hubzu, I don't know, to kind of push that number a lot higher. Is that fair?

Yes. I mean Hubzu is a big -- it's a higher-margin product. And as that comes back, if you just think about it, if we had an extra $12 million or $14 million of revenue in a very high-margin product in the first quarter, we'd be having a very different conversation right now. So we're excited for the market to be getting back to normal. And given the economic conditions I described in my prepared remarks, potentially, the delinquency rates may rise to something above where they were pre-pandemic. And ultimately, we benefit as those new foreclosures work themselves through the process, become REO and then ultimately gets sold.

And I think on Slide 13, what you can see, Mike, if you look at revenue per delinquent loan for 2022, it was around $950. If you look at the first quarter and annualize it, you'd be just shy of $1,200. And I think these scenarios that we gave you a quarter or 2 ago showed it going to $1,700. So you can see that we're making progress as these initiations work their way through, but there's more to come.

Yes. I mean today, we're primarily focused, as I mentioned on the call, on the prepared remarks, on pre-foreclosure services because we haven't seen that uptick yet in REO. We are seeing the uptick in our field services business and our title business and our trustee business, all the services that we provided earlier in the process.

Right. Good. Good. Okay. And on 2Q, I think you said you expect to see some sequential revenue growth. But I don't know -- I don't want to get ahead of ourselves a little bit of growth in 2Q, but sort of similar to Q1, is that fair?

Yes. I think -- that's a good -- we're currently anticipating that Q2 from a revenue perspective will be somewhat similar to Q1. The mix of the services may change a little bit, which could impact the margins to some degree, but we do expect revenue to be similar.

Got it. And then just lastly, I think in the deck, it's got like 18.4 million shares. But I don't know if that includes all the shares from the recent offering. Maybe what's a good fully diluted share count now to use going forward that includes everything from the offering?

Yes. I think if you look at our Q on the face of it, it says that we had 20.8 million shares outstanding at April 21.

20.8. Okay. Great.

[Operator Instructions] Our next question comes from Raj Sharma of B. Riley & Company.

Did you guys comment on any impact the Fannie Mae, Freddie Mac extension, the 40-year refinancing that's being offered to lenders. Is that expected -- efforts like these are they expected to kind of delay the process or have an impact? And also, just a follow-on. I mean, recently that there was a dip in the nationwide mortgage delinquency rate with serious delinquencies coming down. Do you have any thoughts on that why that could have happened and if that's indicative -- and if that means anything or is that a blip?

Yes. I'll take the second part of your question first, Raj. On delinquency rates, normally, what you see in the first quarter, particularly with tax refunds, is that the delinquency rates tick down some. I think given the economic environment and all the conditions I described, we suspect it's a blip, and there continues to be significant pressure and potentially more pressure on American consumers. With respect to your -- the first part of your question, I think that was an FHA program where the government essentially extended some of the COVID loan modification programs that were in place. I think a lot depends, look, on what happens with unemployment and your ability to pay bills. So basically, what the government is doing with interest rates so much higher, you can't do a streamlined refinance -- it's very difficult to do a streamlined refinance of an FHA loan because the borrowers rate would go up, not down in today's market. And so the government is looking for tools to keep the borrowers' payments steady, but they have to have the ability to make the payment. And so if the economic environment continues to put stress on consumers, and they're unable to make that payment. Maybe it's a slightly lower payment because it's extended out over a longer period of time, it won't have that much of an impact. I think a lot is going to ultimately depend on what happens with the overall economy, what happens with student loan payments. I think there's something like 26 million or 28 million adults that are saving over $200 a month in student loan payments, while there's been a moratorium on collecting on student loans. That is scheduled to restart those payments in a few months. So all these things could have the potential to continue to put pressure on consumers. But clearly, on the margin, Raj, that new FHA program incrementally will help borrowers but a lot ultimately depends on what happens with the overall economy.

Got it. Great. That makes sense. And then just last question on the cost base. Are we to think that the current cost base is to continue in terms of the corporate overhead and the other costs continue through the year? Any more cost cutting that is forthcoming?

Yes. So in the first quarter, we made some changes in our Origination segment, so we'll get the full quarter benefit of that beginning in the second quarter. In Corporate as a whole, I think we talked about in the prepared remarks, largely expecting corporate costs to be flat, maybe down a little bit compared to last year, excluding interest expense and the onetime costs associated with amending our debt.

I would now like to turn it back over to Bill Shepro for closing remarks.

Thank you, operator, and thank you for listening to the call. We appreciate your support. Have a good day.

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