Hello and thank you for standing by. Welcome to Altisource Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Michelle Esterman, Chief Financial Officer. You may begin.

Thank you, operator. We first want to remind you that the earnings release, Form 10-K, 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-19 pandemic, government of fiscal policies, and current economic conditions make it extremely difficult to predict the future state of the economy and the industry 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 2023 Form 10-K describing some 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'll begin on Slides 4 and 5. We're pleased with our performance in 2023 as we continue to strengthen our financial position and win new business, which has not fully ramped. In the face of serious market headwinds for both business segments, service revenue in the Servicer and Real Estate segment was only 4% lower than 2022 and service revenue in the Origination segment outperformed the overall market with a decline of 11% compared to a 36% decline in industry-wide residential origination volume. We improved total company adjusted EBITDA by $15.7 million compared to 2022 and by $30.8 million compared to 2021. Our 2023 total company adjusted EBITDA improvement is largely from product mix, higher margins in our businesses, and lower corporate operating costs. The 2023 adjusted EBITDA margins in the business segments improved by 680 basis points to 25.1% and the corporate segment's adjusted EBITDA loss declined by 18.4% to $35.1 million. Company-wide, we generated positive adjusted EBITDA for five of the last six months of 2023, including $520,000 in December. We're off to a good start in 2024, generating $900,000 of adjusted EBITDA in January. During 2023, we won new business, strengthen our sales pipeline, and took steps to improve our balance sheet. I'll discuss our wins and sales pipeline in greater detail in a few minutes. With respect to the balance sheet, we reduced the principal balance of our term loan by $23.1 million or 9.4% and extended the maturity date of our term loan and revolver to April 2025 with the option to extend both by another year, subject to meeting certain conditions. Turning to Slide 6 and our 2024 forecast. We believe our sales wins, enhanced margins, and lower corporate costs position us for strong revenue and adjusted EBITDA growth.…

Thank you. [Operator Instructions] Our first question comes from the line of Raj Sharma with B. Riley. Your line is open.

Yes. Thank you for taking my questions and great on providing guidance for the first time in several years. Bill, could you talk about some of the new products that were launched on the Lenders One Origination side, especially the credit reporting? Can you give more color on that and how that's kind of doing in the first half of the year -- in the beginning of the year?

Hey thanks Raj and good morning. It's interesting, on the credit reporting business, we became a credit reporting agency in 2021 and went live with our first customer in January of 2022 and since then, we've grown the business to 30 customers. And I think last month, we did roughly $900,000 of revenue in that -- between the credit reporting business and the related white label services. And I think we're on track probably by March, if not March and April to be over $1 million a month run rate. So, I think -- excuse me, that's a very good example of how we can take a new product, launch it, roll it out to our members and generate $1 million a month in revenue or $12 million a year of annual revenue. And so the whole strategy around Lenders One in our Origination business is to continue to work with our members to understand of what their needs are, what their pain points are. And then we leverage their buying power to launch new programs to help them make more money and better compete. And so an example, which I talked about in my prepared remarks, is homeowners insurance. So, we're working with a insure tech company and launching this quarter a program to help our members and their loan officers and their borrowers efficiently and with less friction, get quotes for homeowners insurance. So, we're pretty excited about that program. It's still early. But we -- what we like about that business is we earn a commission on every policy that's originated and then that creates an annuity to the extent those borrowers renew the policy, we are an ongoing commission revenue in subsequent years. Another product we're in the process of launching is a flood insurance program. We're calling it Lenders One Flood insurance. And here, again, we're working with a partner to offer our members a cost-effective flood insurance policy. And again, the whole strategy is launch it, gain adoption, that gives us a stronger buying power that ultimately helps reduce our costs and provide a stronger pricing to our members, which increases the adoption and increases the profitability of the members and our profitability. So, we're pretty excited around the launch of these new programs and we're optimistic that these -- a couple of new programs we launch each year can contribute to future revenue and earnings growth.

Great. Thank you. And then moving on to the Default Services segment part of the business with the slower conversion into REOs, the indications are that you started -- or you have been focusing more on the earlier part of the foreclosure the pre-foreclosure process, is that accurate?

Yes. So, Raj, what we're seeing is the early stage delinquencies, as I pointed out on our call, look like they're starting to pick up. And clearly, foreclosure initiations have picked up substantially from the time of the pandemic, although not quite back at the levels they were at prior to the pandemic. What we haven't seen yet is that those early 2022 foreclosures make it all the way to the end. And so what we're doing now and what we're working on with our customers, existing and new customers, is focusing on those early-stage activities, where we are seeing a pretty good lift in referral volumes. So, just to give you an example, in the fourth quarter, in our Trustee business and our Foreclosure Title Search business, we saw about a 30% increase in referral volumes compared to the fourth quarter of the prior year. And that trend is continuing in the first quarter of this year. So, what we're doing from a sales perspective is focusing a lot on those earlier-stage activities, where there is an increase in referral volumes. And the guidance we gave doesn't -- assumes we're going to get a lift in some of those earlier stage activities, but we're only assuming a very modest lift at the end. So, as the market continues to get back to normal and your inflows and outflows stabilize, there is some upside, we think, to what we're forecasting. But because we're not seeing that increase or that conversion rate increase at the end yet, we're trying to be more conservative in terms of how we're approaching our guidance.

Got it. Thanks. And then just last question for me. On the fiscal 2024 guidance, can you talk about perhaps to guide to the cadence of is there a slight rise in foreclosure activity? Is the guidance largely back half loaded?

Yes. So, I think you're going to see that -- look, from a revenue perspective, I think in the first quarter, March, is a -- it was -- for a variety of reasons, is a tough comp for us. But January and February, I think our revenue, Michelle, correct me if I'm wrong, was roughly 8%, 9% higher service revenue than the same time last year and better than every month last year other than March, our revenue in both January and February. So, I think we're off to a good start from a revenue perspective. I talked about our EBITDA being $900,000 in the month of January. We think February is going to continue to be strong. So, Raj, to answer your question, I think you're going to see the revenue as we ramp -- the good news is we've largely won the customers that support our revenue growth for the year, and it's all about the timing for how we ramp those customers, how they onboard and ramp throughout the year. So, we feel -- and that's why there's a range in our revenue forecast because it's all about -- it's either wins that we already have signed a contract or we've gotten a verbal commitment that are in those numbers, largely that are in those numbers. And as we ramp throughout the year, we would expect that revenue to grow and our EBITDA to grow. So, I think I would look to -- and Michelle, correct me if I'm wrong, first quarter, I think, because of March will be a tough comp from a revenue side, but we'll be pretty close to revenue -- service revenue last year. EBITDA will be better in the first quarter than last year, and we would expect our EBITDA and revenue to grow as the year progresses as we ramp these customers that we've already won and where we've gotten a verbal commitment.

Great. Thank you for answering the questions. I'll take it offline. Thanks.

Great. Thanks Raj.

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

Hey Bill, good morning. How would you describe your outlook for Hubzu inventory over the course of 2024?

And Michelle, you can jump in as well. So, I think, Mike, we're being very -- we're trying to be conservative on Hubzu inventory. So, I think we're focusing a lot on what we can control. And what we can control around a lot of these sales wins and the earlier stage of foreclosure starts, we're making really, really good progress. And we think that's going to drive pretty significant revenue and EBITDA growth. We're being more cautious on Hubzu because until we actually see that conversion rate from a foreclosure start all the way to the end, getting back to sort of the pre-pandemic levels, we want to be more modest in our projections. Michelle, I don't have the inventory in front of me projection. But I think it's a very modest growth in inventory, Mike, as my recollection.

Got it. And Slide 9 lays out a bunch of wins in a dollar amount. But as it's been for a while, revenue from those wins really lag, is 2024 and 2025 kind of the years that the growth in revenue catches up to those strong sales wins? How do we just think about that conversion?

Yes. So, the bottom-line, it just takes time from when you win to when you ramp. Of course, things can happen and customers could go out of business, they could increase market share, decrease market share. So, a lot could happen with these wins, and we sort of leave it as a static. But there's a -- in the $58.4 million, Mike, there's a couple of larger wins. This new REO renovation business we won, that's got massive potential for us, and we haven't launched it yet. So, that's going to launch, we think we're going to get our first referrals hopefully in the next week or two and that's got the potential to become very, very significant from a revenue perspective. We launched a new construction lending program in our Granite business. That's been ramping as the year progressed last year, but we're nowhere near to stabilize from a revenue perspective. Michelle, help me out here -- our REO win that we got our first referral, I think, in September, we issued a press release around that win. I mean it takes -- we're getting an attractive number of referrals. It takes time for those referrals ultimately to get to an REO sale and generate revenue. But it's ramping quite nicely. And as we planned, we would -- we are expecting as the year progresses to get more market share from that customer as well. So, the bottom-line, Mike, is it just takes time from these wins to actually generating revenue and earnings. But they're very -- they're household names. They're very attractive wins and we believe the margins are strong in those -- in that -- associated with that revenue and we're going to continue to ramp it this year and next.

Got it. Got it. And then lastly, any milestones related to the debt this year to remind us about? Or not that any amounts do or anything, but just like any milestones you need to reach during 2024 for the debt?

Yes. No, look, I think we've made really strong progress in a very, very tough environment, as I talked about in the prepared remarks, you had both the pandemic impact to the default market and the higher interest rates impacting the origination market a bit of a perfect storm. And even during this difficult time. we've improved our EBITDA over the last couple of years by over $30 million and we're forecasting $21 million, $22 million improvement this year. So, I think we're going in the right direction in terms of getting back to strong margins, strong EBITDA the costs are in line. And as we continue to make progress in our growth, our plans are to ultimately refinance the debt. So, right now, we've got time. The debt matures in April 2025, but we have an automatic right subject to some conditions around an extension fee and complying with reps and warrants another year. And so we feel good about our position. We got to continue to grow our adjusted EBITDA and put the company in a position to refi the debt and hopefully reduce our interest expense.

Got it. Hey, thank you.

Thanks Mike.

Thank you. [Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to Bill for closing remarks.

Great. Thank you, operator. We're pleased with our financial performance and sales wins in 2023 and believe this sets us up really well for this year. Thanks for joining.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.