Altisource Portfolio Solutions - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered modest top-line growth with Service revenue at $39.7M (+4% y/y) and a materially improved GAAP diluted loss per share of $(0.22) versus $(2.61) y/y; Adjusted EBITDA was flat at $3.6M as mix (renovation ramp) compressed margins.
• Sequentially, revenue and Adjusted EBITDA declined (Total revenue $41.9M vs. $43.3M; Adjusted EBITDA $3.6M vs. $5.4M) as business segment margins eased and Hubzu Marketplace saw fewer home sales; interest expense dropped sharply vs. last year on new debt.
• New business wins totaled an estimated $14.4M in annual Service revenue on a stabilized basis; Origination contributed ~$11.2M and Servicer & Real Estate ~$3.2M, with a combined weighted pipeline of $33.6M–$42.0M.
• No formal numerical guidance was provided; management expects Origination wins to begin benefiting Q4 and highlighted significant foreclosure auction/REO opportunities targeted for closure in Q4.
• Potential stock catalysts include sustained interest expense reductions from the February debt exchange and an S‑3 filed to register resale of lenders’ exchange shares (possible technical overhang).

What Went Well and What Went Wrong

What Went Well

• Interest expense reduction drove a $6.8M y/y improvement in loss before income taxes; CEO: “We grew Service revenue and improved pre‑ and post‑tax GAAP earnings… largely from… cost discipline and lower interest expense.”
• Servicer & Real Estate segment posted Q3 service revenue of $31.2M (+3% y/y) and Adjusted EBITDA of $10.0M; management emphasized pipeline breadth across countercyclical businesses (Foreclosure Trustee, Granite CRM, Field Services, Title).
• Strong sales momentum: estimated $14.4M annualized wins company-wide; Origination wins of $11.2M could lift segment service revenue by ~33% on a stabilized basis and are largely onboarded for Q4 impact.

What Went Wrong

• Mix headwind from renovation business compressed margins; Q3 Adjusted EBITDA margin fell to 9.1% from 9.5% y/y, and gross profit declined 6% y/y.
• Hubzu Marketplace experienced fewer home sales, contributing to lower business segment margins; management cited revenue mix as the main drag.
• Cash generation modest: Q3 operating cash flow was $0.718M; YTD operating cash flow negative amid working capital movements and debt-related items.

Transcript

Operator (participant)

Good day and thank you for standing by. Welcome to the Altisource Portfolio Solutions Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Michelle Esterman, Chief Financial Officer. Please go ahead.

Michelle Esterman (CFO)

Thank you, Operator. We first want to remind you that the earnings release 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. 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 2024 Form 10-K and our 2025 Form 10-Q filings. These describe 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'll now turn the call over to Bill.

Bill Shepro (Chairman and CEO)

Thanks, Michelle, and good morning. I'll begin on slide four. We delivered solid third-quarter performance. We grew service revenue and improved pre- and post-tax GAAP earnings, GAAP earnings per share, and cash flow from operations compared to the third quarter of last year. This is largely from our focus on growing our businesses that have tailwinds, cost discipline, and lower interest expense. Turning to slide five, compared to the third quarter of last year, we grew total company service revenue by 4% to $39.7 million. Service revenue growth primarily reflects the ramp of the renovation business and growth in the Lenders One, Foreclosure Trustee, Granite Construction Risk Management, and Field Services businesses. The business segments generated $10.9 million of adjusted EBITDA, representing modest growth compared to the third quarter of 2024. The corporate segment's adjusted EBITDA loss of $7.3 million was slightly higher than the third quarter of last year.

Adjusted EBITDA was flat at $3.6 million, primarily from service revenue growth offset by lower business segment margins from revenue mix. Moving to slide six, from a GAAP perspective, our loss before income taxes and non-controlling interests improved by $6.8 million to a pre-tax loss of $1.7 million in the third quarter of 2025, compared to a pre-tax loss of $8.5 million in the same quarter of last year. This was primarily driven by lower interest expense from the new debt. For the quarter, we improved operating cash flow by $2.3 million compared to last year. We ended the quarter with $28.6 million in unrestricted cash. In addition to delivering solid financial performance, we are making progress diversifying our customer base and growing the businesses that we believe represent an outsized growth opportunity for Altisource.

These businesses, which are set forth on slides seven and eight, include renovation, Granite Construction Risk Management, Lenders One, Hubzu Marketplace, Foreclosure Trustee, Field Services, and Title. On these slides, we provide a summary of the opportunities and the progress we are making with each. The success of these initiatives does not depend on an increase in foreclosure starts or sales, nor on a growing residential loan origination market. We believe these initiatives represent a strong growth engine for the company. Moving to slide nine in our largely countercyclical service earning real estate segment. Third quarter 2025 service revenue of $31.2 million was 3% higher than the third quarter of 2024, primarily from the ramp of the renovation business and growth in the Foreclosure Trustee, Granite Construction Risk Management, and Field Services businesses, partially offset by fewer home sales in the Hubzu Marketplace business.

Third quarter 2025 adjusted EBITDA of $10 million for the segment was $100,000 or 1% higher than the third quarter of 2024. Adjusted EBITDA margins declined to 32.1% from 32.5% from revenue mix, with higher growth in the lower margin renovation business. Slide 10 provides a summary of our service earning real estate sales wins and pipeline. For the third quarter, we won new business that we estimate will generate $3.2 million in annual service revenue on a stabilized basis over the next couple of years. We ended the quarter with a service earning real estate segment estimated total weighted average sales pipeline of $24.4 million of annual service revenue on a stabilized basis. The pipeline includes a few very significant foreclosure auction and REO asset management opportunities that we hope to close in the fourth quarter.

Before turning to our origination segment, I'd like to discuss the status of the cooperative brokerage agreement between Altisource Portfolio Solutions S.A. and Rhythm, which I'll refer to as the CBA. Under the terms of the CBA, the agreement expired on August 31. At Rhythm's discretion, Altisource Portfolio Solutions S.A. has continued to manage the REO and receive new referrals with limited exceptions despite the expiration of this agreement. Moving to our origination segment on slide 11, third quarter 2025 service revenue of $8.5 million was 9% higher than the third quarter of 2024. Adjusted EBITDA of $900,000 was flat compared to the same quarter last year, and adjusted EBITDA margins declined to 10.3% from 11.7%. The increase in service revenue primarily reflects growth in the Lenders One business, while the margin decline relates to product mix. Slide 12 provides a summary of our origination segment sales wins and pipeline.

Our focus on helping Lenders One members save money and better compete continues to drive substantial interest in our solutions. On an annualized stabilized basis, we won an estimated $11.2 million in new sales in the third quarter, primarily in our Lenders One business. On a fully stabilized basis, this new business would increase the origination segment's annualized third quarter service revenue by 33%. We have already onboarded most of these wins and anticipate beginning to benefit from them in the fourth quarter. Our estimated weighted average sales pipeline at the end of the quarter was $13.4 million. We anticipate that our sales pipeline and recent sales wins will contribute to strong growth in our origination segment. Turning to our corporate segment in slide 13, third quarter 2025 corporate adjusted EBITDA loss of $7.3 million was $100,000 higher than the third quarter of 2024.

We believe that we can maintain relatively stable corporate segment costs as revenue grows. Moving to slide 14 in the business environment, starting with the residential mortgage default market, 90-plus-day mortgage delinquency rates remain near historic lows at 1.3% in August. Despite the low delinquency rates, foreclosure starts and sales are increasing. Foreclosure starts increased by 19% and foreclosure sales increased by 10% for the eight months ended August 2025 compared to the same period in 2024. We believe the increase reflects rising FHA delinquency rates and a weakening real estate market. Borrowers may soon face additional pressure as the April FHA mortgagee letter extends the time between loan modifications from every 18 months to every 24 months, beginning as early as October 1.

Turning to the real estate market, we believe the market is weakening as demonstrated by higher for sale inventory, extended sales timelines, and rising sale cancellation rates. As a result, we believe a lower percentage of homes are selling to third parties at the foreclosure auctions, driving higher REO inventory. This is supported by our own experience. Altisource's third quarter REO asset management referrals from Onity and Rhythm were the highest since the second quarter of 2024. For the origination market, mortgage origination unit volume increased by 17% from the nine months ended September 30, 2025, compared to the same period in 2024, with purchase origination volume declining by 4% and refinance volume increasing by 103%. For the full year, the MBA's October 2025 forecast projects that there will be 5.4 million loans originated in 2025, an 18% increase compared to 2024.

The MBA's full-year projections reflect an 87% increase in refinance activity and a 2% decline in purchase activity. Turning to slide 15, we are pleased with our third quarter results. More importantly, we are winning new business and have a strong sales pipeline while maintaining cost discipline and significantly reducing corporate interest expense. To support longer-term growth, we are focusing our efforts on accelerating the growth of those businesses that we believe have tailwinds in what remains a close to historically low delinquency environment. Should loan delinquencies, foreclosure starts, and foreclosure sales increase, we believe we are well positioned to also benefit from stronger revenue and adjusted EBITDA growth in our largest and most profitable countercyclical businesses. I'll now open up the call for questions. Operator?

Operator (participant)

Certainly. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by while we compile our Q&A roster. As a reminder, to ask a question, please press *11 on your telephone. I would now like to turn the call to Michelle Esterman for additional questions.

Michelle Esterman (CFO)

Bill, we received an email question. I'll read that. On August 18th, the company announced some customer wins for the Equator platform. Are these customer wins expected to translate to more inventory on Hubzu Marketplace in the future?

Bill Shepro (Chairman and CEO)

Yeah, thanks, Michelle. In August, we announced we won four new customers for the Equator platform. Three of those customers are now live and loading properties, and one is in the process of implementing the Equator platform. As these customers load more assets, we should begin to generate revenue. Historically, we've had good success in cross-selling Equator customers with the Hubzu Marketplace and other services, which we would hope to continue to do with some of these newer customers. Operator, is there any additional questions?

Operator (participant)

Okay. As a reminder, please press *11 for any questions. I am showing no further questions. I would now like to hand the call back to Bill for closing remarks.

Bill Shepro (Chairman and CEO)

Great. Thank you, Operator. We're pleased with our third-quarter performance and believe we are set up well for continued growth. Thanks for joining us today.

Operator (participant)

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