Good day. Welcome to the Altisource Third Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Michelle Esterman, Chief Financial Officer. Please go ahead.

Thank you, operator. We first of all, 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 impacts 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 sections in the company's earnings release and quarterly slides as well as the risk factors contained in our 2022 Form 10-K and 2023 Form 10-Qs, 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. I'll begin on Slide 4. We are pleased with our third quarter performance. For the quarter, we generated $874,000 of adjusted EBITDA, a $4.4 million improvement over the second quarter of 2023 and a $7.3 million improvement over the same quarter in 2022. For the first nine months of 2023, we improved adjusted EBITDA by $16.1 million compared to the same period last year. Based on our current forecast, we anticipate positive company-wide adjusted EBITDA for the fourth quarter and full year. Turning to Slide 5, during the quarter, we generated $18.4 million in net proceeds from the sale of equity and used $10 million of the proceeds to reduce the principal balance of our term loan. As a result of the debt reduction, we eliminated 966,000 penny warrants, and exercise an option to extend the maturity date of our term loan and revolver by one year to April 2026 and we'll save an estimated $3.4 million per year in interest expense. Extending the maturity date of the loan is subject to customary conditions and the payment of an extension fee as described in our 10-Q. We ended the quarter with $36.6 million in cash and cash equivalents. We continue to position Altisource to take advantage of what we see as significant potential opportunities with existing and new customers in both of our segments over the coming years as the default market continues to normalize and we gain traction with our newer solutions that strengthen Lenders One members' performance. As you can see on Slide 6, our sales pipeline and wins in both of our segments remain strong. Our consolidated weighted average pipeline at the end of the third quarter was an estimated $46 million of annual revenue on a stabilized basis, representing 34% of…

Thank you. We will now conduct the question-and-answer session. [Operator Instructions] Our first question comes from Raj Sharma from B. Riley. Please go ahead.

Hi, thank you for taking the questions. Really good results. Congratulations on the improvement in the EBITDA. I had a question on the industry-wide foreclosure starts and sales. There seems to be maybe some early shoots of an improvement. Also days in foreclosure seemingly dropped pretty considerable relative to earlier part of the year, from 1,200 days down to 700. Is that indicative of anything, of an improvement in the space? And could you comment -- could you give a little bit more color on that? And of course, the early delinquencies are rising. And how soon could that start showing up more significantly in your results, you think?

Hi, Raj. This is Bill. Thanks for your questions. So I think we are seeing early indications that delinquency rates, particularly 30 and 60 days are starting to rise. That's a pretty significant increase just from a couple of months ago. And we're also seeing here, to bring it sort of home, if you will, in our foreclosure trustee business and our insured title search and foreclosure information report business, which are title searches related to the start of a foreclosure, we saw a 42% increase in the months of September and month-to-date in October in referrals compared to the same time last year. And the reason why we focused on September and October is earlier in the month, we got some benefit from the restart in California. So we wanted to normalize for that. So it does appear that both industry-wide and at Altisource, we're starting to see an increase in the earlier stage activities and referrals. And this could be a precursor, over time as those foreclosures work through the system, for an increase in our higher margin -- well, in our high-margin REO auction business or Hubzu.

Great. And then another question is on your recently announced cost cuts of $13.5 million. Could you give any sort of progress on that? Or any comments on the ongoing cost cuts?

Sure. Yes, I think today, we're at about $10.5 million a year of annualized savings. I think we achieved about $900,000 of savings in the month of September. We should be, Michelle, roughly at $12 million or $12.5 million of savings by the end of the year and then the balance of the savings, the other -- the additional $1 million, $1.5 million will come in the second half of next year.

That's right.

So we're making very good progress with that initiative.

Yeah, thank you. I'll go back in line. I have no questions.

Thanks Raj.

Thank you. [Operator Instructions] Our next question comes from Mike Grondahl from Northland Securities. Please go ahead.

Hey, Bill and Michelle. Two questions. One, could you just talk a little bit about any visibility you have on an increase in Hubzu inventory? Or when you think that may begin to inflect? And then secondly, just in sort of a base case for '24, what do you sort of think of as potential cash flow or cash usage just in a base case for '24?

Hi, Mike, it's Bill. So with respect to Hubzu inventory, we spend a lot of time looking at how that business is performing. And clearly, it takes time for those new foreclosure initiations that increased quite substantially in the first quarter of 2022 to work their way through that system and get to the end. And also, we're also monitoring the conversion rate, what percentage of those foreclosures are actually converting to REO. And we think, given what's going on with the economy for all the reasons we talked about when we discussed the macroeconomic environment and home affordability, we do think over time, as those foreclosures continue through that process that, that conversion rate will return. It's certainly closer to what it looked like prior to the pandemic. And so then it's just a matter of how long it takes for that increase in foreclosures from the first quarter of 2022 to work its way through the system. I think we've been guiding people that it's typically about 24 months. And in some states, it's faster, in other states, it's slower to get through the foreclosure. And then typically, it's another six months to sell the REO. So those increase in foreclosure initiations typically take about 24 months to get to the sale and another six to the foreclosure auction and another six months to be sold. So we should start to see an increase going into next year from those first quarter of 2022 initiations. In terms of cash flow for next year, Mike, we're not providing guidance. What I will say is we're making very good progress improving the earnings for the company. In the third quarter, I was very pleased to see consistent positive EBITDA each month and EBITDA improve each month. In the fourth quarter, you typically would see, it's a seasonally slower period. I think our revenue will be roughly in line with where it was in the third quarter, but higher than the fourth quarter of last year. And we think our EBITDA is going to continue to improve, setting us up for a good run rate going into 2024. Are you still there Mike? [ph]. Operator, I'm not sure if there's any additional questions.

[Operator Instructions] I am showing no further questions. I would now like to turn the conference over to Bill for final remarks.

Yes. Thanks for joining today's call. We appreciate your support, and we're very pleased with the progress we're making in improving the EBITDA at the company and growing our -- and strengthening our sales pipeline. Talk to you soon. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.