Altisource Portfolio Solutions Third Quarter 2026 Earnings Call - ALTISOURCE PORTFOLIO SOLUTIONS SA

Financial Performance:

• Third quarter 2026 service revenue reached $49.8 million, a 26% year-over-year increase.
• Adjusted EBITDA totaled $4.3 million, up 17% year-over-year, with margins at 8.5% (down from prior year due to revenue mix shifts toward the lower-margin origination segment).
• Adjusted pre-tax income grew 59% to $2.1 million; adjusted earnings per share (EPS) rose 30% to $0.13.
• Net cash from operating activities was $3.5 million for the quarter and $1.3 million for the nine months ended September 30, 2026.
• The company opportunistically retired $900,000 of term loan debt and ended the quarter with $25.1 million in unrestricted cash.
• Gross profit margin declined from 27.5% (Q1) to 23.4% (Q3) primarily due to higher growth in the lower-margin origination segment and ramping new customer wins.

Guidance and Future Outlook:

• Management projects improved operating leverage and higher adjusted EBITDA margins in Q4 as customer wins season and efficiency initiatives accelerate.
• Long-term goal "Project 45" targets a $45 million run-rate adjusted EBITDA by Q4 2028.
• Q4 origination service revenue is forecast to remain strong compared to the prior year.
• Revenue from non-Onity/Rhythm customers is expected to drive diversification, having grown 96% year-over-year to represent 72% of total service revenue.
• Foreclosure activity indicators (serious delinquencies up 26%, foreclosure sales up 17%) suggest potential volume upside if the market normalizes.

Business Segments and Product Lines:

• Servicer and Real Estate: Service revenue increased 15% sequentially to $35.8 million (4% YoY growth on a sequential basis); segment adjusted EBITDA rose 2% to $10.2 million. HUBZoo inventory quadrupled to 26,000 assets (up 16% QoQ), with 789 homes transacted in Q3. Added $2.7 million in annualized stabilized revenue wins.
• Origination: Service revenue surged 65% YoY to $14 million despite a 6% decline in origination unit volumes; adjusted EBITDA grew 33% to $1.2 million. Secured $6.3 million in annualized stabilized wins, with a pipeline of $18.5 million.
• Corporate: Adjusted EBITDA loss narrowed by $200,000 year-over-year to $7.1 million, with costs decreasing $800,000 sequentially.
• AI & Automation: Expanded AI-enabled workflows across Marketplace, field services, valuations, and finance; developed new solutions for construction risk and commercial loan servicing.

Market and Competitive Landscape:

• The default market remains below pre-pandemic norms but shows upward trends in delinquencies and foreclosure starts.
• The origination market contracted 6% YoY (MBA forecasts 6% growth for total 2026 market); the company aims to outperform via market share gains and cost-efficiency solutions.
• Customer wins indicate strong lender demand for platforms that lower costs and improve execution scalability.
• Revenue mix shifted away from Onity and Rhythm, reducing concentration risk and enhancing revenue durability.

Risks and Challenges:

• Continued reliance on a transitioning revenue base during the wind-down of the Rhythm Cooperative Brokerage Agreement and transfer of loans.
• Industry volumes remain suppressed below normalized levels, potentially delaying full realization of operating leverage.
• Margins are temporarily depressed due to the mix of growing low-margin origination revenue and fixed costs associated with new customer implementation ramp-ups.

Management Commentary and Tone:

• Tone is confident and optimistic, citing traction in growth strategy despite a challenging macro environment.
• Management emphasizes "Project 45" and the transition to a more resilient, diversified revenue model.
• Executives expressed strong conviction that AI initiatives and new customer ramp-ups will drive significant margin expansion in upcoming quarters.

Analyst Questions and Answers:

• Timothy D'Agostino (R. Reilly Securities) asked about declining gross profit and EBITDA margins.
  • Response: Michelle Esterman and Bill Shepro explained the margin compression stems from a mix shift toward higher-growth, lower-margin origination services and the cost of ramping new customer implementations while simultaneously managing the decline of legacy Rhythm business.
  • Outlook: They anticipate margin expansion as new business seasons (converting fixed costs to variable), origination scales, and corporate costs remain stable while revenue grows.
• Question regarding Share-Based Compensation (SBC).
  • Response: SBC decreased from $1.2M (Q2) to $0.8M (Q3) due to typical quarterly fluctuations and potential reversals from employee exits. Management expects SBC to stabilize at Q1/Q2 levels in Q4.

Other Key Points:

• Revenue from customers other than Onity and Rhythm grew 96% YoY, now comprising 72% of total service revenue compared to 46% a year ago.
• The company achieved growth while industry volumes remained low, proving the resilience of its customer acquisition strategy.
• Pipeline metrics show $12.8 million in weighted average stabilized annual revenue in the Servicer segment and $18.5 million in the Origination segment.