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

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-19 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 will now turn the call over to Bill.

Thanks, Michelle, and good morning. I will begin on Slide 4. Our adjusted EBITDA performance continues to improve over 2022. Second quarter adjusted EBITDA was 47% better than the same period in 2022 and year-to-date adjusted EBITDA was 81% better or $8.7 million. Based on our current forecast, we anticipate roughly breakeven adjusted EBITDA for the third quarter and positive adjusted EBITDA for the fourth quarter and full year. For our second quarter adjusted EBITDA was impacted by an estimated $900,000 from certain unexpected nonrecurring items, we remain ahead of our adjusted EBITDA plan for the first half of the year. Despite improving second quarter adjusted EBITDA compared to the same period in 2022, interest expense from the higher interest rate environment and our amended term loans contributed to the greater second quarter 2023 adjusted net loss. Second quarter service revenue was lower than the same quarter last year, primarily from the exit of a low-margin customer care business in the fourth quarter of 2022, the decline in the customer’s propensity to order services in 2 of our lower-margin default-related businesses and unexpected temporary delays in certain California foreclosures. We believe those temporary foreclosure holds are now behind us and that the associated revenue is largely deferred and not lost. We continue to position Altisource to take advantage of what we see as significant potential opportunities in the residential mortgage default market over the coming years as the market continues to normalize and consumers face financial stress. As you can see on Slide 5, our Sales Pipeline and Wins in both of our segments remain strong, and we continue to aggressively manage our expenses. Our consolidated weighted average pipeline at the end of the second quarter – excuse me, our consolidated weighted average sales pipeline at the end of the…

Thank you. [Operator Instructions] Our first call question comes from Mike Grondahl of Northland Securities. Mike, your line is open.

Hey, guys. Thanks. Bill, first question, just on the Hubzu inventory levels, when would you think that’s going to inflect higher?

Yes. So Mike, I don’t think our view has changed. I think as these new foreclosures work through the system, it starts to stabilize the middle of next year. Right now, our inventory is holding relatively flat because most of our business is REO-related. As those new foreclosures work through that inventory, we would expect to see – sorry, work through that process, we would expect to see it grow.

Got it. So if Hubzu inventory is sort of inflecting middle of next year, is it fair to assume sort of your revenue in flex middle of next year also? Is that the right way to think about it?

Yes. I mean I would say, Mike, look, we’re very focused on the revenue side on new sales in addition to the market recovering. And so while we anticipate the market is going to recover, we want to make sure we’re out there selling as hard as we can and winning new business in the meantime. And based upon revenue growth that we anticipate will take place throughout the rest of this year and revenue growth into next year. From our core business and our new sales wins, we think we can continue to improve our earnings quite significantly. In terms of the new foreclosures, clearly, Hubzu is our most profitable business and as the foreclosure initiations work through the process and become REO that represents more growth for us.

Great. That client – the asset management client, I think, representing $12.8 million, looked like a big win in July, and it’s going to drive, I think you said $3 million to $5 million of annualized EBITDA. Are there more out there like that? I mean is that something you can replicate and kind of run with a little bit?

Yes. So Mike, first of all, we are really excited about that opportunity. We are working very hard with this customer to get launched, hopefully, in September is our plan. In terms of other opportunities, we are working on some other opportunities as we speak. That look like they would be next year launch dates, not this year, should we be successful in winning those opportunities. So, we do have a couple of opportunities, we think that could be – represent more growth for Hubzu and some of our related services in a manner similar to this opportunity. But of course, until you win the deals, it’s not done, but we are pretty excited there.

And then just lastly, the July cost reduction with the $13.5 million of annual savings, I guess, talk about that for a moment. Is that kind of to set you up for ‘24 and just kind of pushing that margin and profitability kind of guaranteeing it in ‘24? I guess help me understand the July cost reduction.

Yes, sure. So, a couple of things. One is I think we will roughly be at $1 million a month of savings beginning, Michelle, in the month of September. Is that right?

That’s right.

And in terms of look, I think Mike, we need – we were, at one point, pre-pandemic, a much larger company, and we need to make sure that our costs reflect the size of the company today. And we also want to make sure we have very significant operating leverage as the market comes back. And I think by taking these actions today, we help ensure we have stronger operating leverage going forward. And depending on the timing of the market – depending upon the timing of the market for when it recovers, we have more flexibility. And so thought it was an important step to take and proud of the work the team has done to help us identify those cost savings and get those implemented quickly.

Got it. Okay. Thank you.

Thanks Mike.

Thank you very much. One moment for our next question. Our next question comes from Raj Sharma of B. Riley Financial. Raj, your line is open.

Yes. Thank you. Thank you for taking my questions. Bill and Michelle, I just wanted to understand the foreclosure holds and the impact on the 2Q revenues. Can you give us some more color on that and when did they come off? Do you – were they done entirely in 2Q and no impact in 3Q? And if there are any such similar holds in other states?

Sure. Good morning Raj. One of our customers agreed with the State of California in the second quarter to put their pending foreclosures in that state on hold for roughly 60 days, but it did not start at once. So, it was primarily a second quarter event that impacted primarily two of our businesses, our foreclosure trustee business and our title business that are both have a very high-margin services for us. We saw those holds start to come off at the end of June. And now we believe they are fully off, and we are back in the business in California. That revenue was largely – the $500,000 I referred to of EBITDA, is largely deferred. We think will come back in the third quarter and fourth quarter this year.

Great. Thank you. And any other such holds or commentary in other states?

No, we are not aware of anything at this point in time. I mean the only thing I would say – no, we are not aware, Raj, of any impact from our customers in other states today.

Got it. And then just secondly, just touching upon the cost reductions one more time. These are an addition to several cost cuts that were done the last 2 years. What areas of these cost reductions in?

Yes. I would say the vast majority – and Michelle, correct me if I am wrong, are coming from comp and benefits with some coming from – a much smaller amount coming from technology and insurance costs, things like that. Michelle, is that correct?

Yes. That’s right. Okay.

Right. So, because our impression was that the fixed costs, the cost cuts that were done in the last 2 years were largely fixed costs, this is more variable?

No, I would say, look, we are – yes, I would say, Raj, we are still addressing sort of fixed costs infrastructure both inside the corporate department and inside the business units and then to a lesser degree, variable costs.

Great. And then congratulations on the big asset management you win. I wanted to understand or maybe get your take on growth opportunities that are inorganic that are may be more tuck-in possibilities. Do you see in the environment out there potential to acquire or tuck-in…?

Yes. I mean if you listen to the large – the loan servicers that have reported their earnings already this quarter and those – all of those servicers that reported their earnings last – in their last quarter’s earnings – first quarter earnings calls. Everyone is talking about the very large amount of portfolios that are available in the market for sale. And some of those portfolios and platforms include fee-based businesses inside of them. And so we think there are some opportunities should our customer, or partners be successful in acquiring those portfolios for us to potentially benefit and/or participate. And so there seems like there is a lot of activity short is the short answer. And we will wait and see how successful our customers are.

Great. Other than the acquisition of servicing rights from the servicers and the flow-through business to you, are there other opportunities that could potentially be taking share through acquisitions in default services market?

Yes. We always keep our eyes open. We are very focused, of course on organically growing our revenue, being very aggressive in terms of managing our expenses, benefiting from the market to come back. But sure, like we will absolutely keep our eyes open for other opportunities if they make sense and for the company.

Perfect. So much in the questions, I will take it offline. Thank you.

Thanks Raj.

[Operator Instructions] At this time, I am showing no further questions. I would now like to turn the conference back to Bill Shepro for closing remarks.

Great. Thank you, operator, and thanks for joining the call, and we appreciate everyone’s support. Take care.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.