Altisource Portfolio Solutions (ASPSZ) Q3 2026 earnings call transcript

Thank you, Operator. We first want to remind you that the earnings release and quarterly slides are available on our website at www. althesource. 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 2025 Form 10-K and our 2026 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.

Thanks, Michelle, and good morning. I'll begin on slide four. Our third quarter results provide further evidence that Altasource's growth strategy is gaining traction. Service revenue and adjusted EBITDA increased year over year. Recent customer wins continued to ramp, and our AI and other efficiency initiatives began accelerating product development speed and are anticipated to drive scalability and operating leverage over the upcoming quarters.

Importantly, we achieved this progress while industry volumes remained below normalized levels and our business was impacted by the wind down of the Rhythm Cooperative Brokerage Agreement and transfer of Rhythm's ownity service loans to Rhythm. Together, the continued ramp of customer wins, greater operating leverage, and disciplined cost management represent the core building blocks of Project 45. Our objective of reaching $45 million of run rate adjusted EBITDA by the fourth quarter of 2028.

We anticipate these same drivers to support higher adjusted EBITDA in the fourth quarter. Turning to slide five, we delivered revenue and adjusted EBITDA growth across both segments while continuing to invest in customer implementations and capabilities to support our next phase of growth. Third quarter service revenue of $49.8 million increased 26% over the same quarter last year, and adjusted EBITDA of $4.3 million increased 17% over the same period.

Adjusted EBITDA margins of 8.5% declined modestly from the same quarter a year ago from revenue mix changes with stronger growth in the lower margin origination segment and continued investment in new customer implementations and future growth, largely offset by stable corporate costs on growing revenue. As the customer implementations progress, wins, season, and our more recent efficiency initiatives take hold, we forecast improved operating leverage and higher adjusted EBITDA margins.

Moving to slide six, revenue and EBITDA growth is also contributing to improving earnings performance. For the third quarter of 2026, adjusted pre-tax income grew by 59% to $2.1 million compared to $1.3 million in the same 2025 period. Adjusted earnings per share grew by 30% to $0.13 compared to $0.10 in the third quarter of 2025. Net cash provided by operating activities was $1.3 million for the nine months ended September 30, 2026, and $3.5 million for the quarter. During the quarter, we also opportunistically purchased and retired $900,000 of our term loan. We ended the quarter with $25.1 million in unrestricted cash.

Turning to slide seven and our counter servicer and real estate segment third quarter 2026 service revenue increased 15 quarter over quarter and 4 sequentially to million This growth was driven primarily by customer wins and strength in the HUBZU, title, and trustee businesses, partially offset by lower rhythm revenue. We believe recently one business provides a visible path to continued growth as it ramps towards stabilized volumes over the next several quarters, while a future normalization in default market activity could create additional upside.

Service earned real estate segment adjusted EBITDA increased 2% quarter over quarter to $10.2 million. The increase demonstrates that revenue from recent customer wins is offsetting the loss of rhythm revenue and beginning to translate into improved earnings. As this new business seasons, we anticipate a greater portion of incremental revenue to contribute to adjusted EBITDA, improving margins. Slide 8 illustrates the progression of our service earned real estate segment growth.

First, we added an estimated $2.7 million of annualized stabilized service revenue wins during the quarter. Second, wins secured since 2024 generated $13 million of revenue this quarter, equivalent to $51.9 million on an annualized basis.

Third, we ended the quarter with an estimated weighted average pipeline of $12.8 million in stabilized annual revenue. Together, these measures provide both current revenue momentum and additional opportunities for future growth.

Turning to slide nine, HUBZO inventory within marketplace more than quadrupled over the past year, reaching 26,000 assets as of September 30, 2026, compared with 5,700 assets a year earlier. That growth continued in the third quarter, with inventory increasing by 16% from 22,300 assets as of June 30, 2026.

Because HUBZU inventory typically moves through the foreclosure process and REO sales stages before generating revenue, inventory growth should be a precursor to home sales and revenue growth. In the third quarter, we transacted 789 homes compared with 583 homes in the third quarter of 2025, and 710 homes last quarter. As our growing inventory seasons, we anticipate a larger number of assets to advance to sale, supporting future HUBZU transaction volumes and revenue growth.

Moving to slide 10, our origination segment delivered strong quarter-over-quarter sales growth despite a difficult origination market, with origination unit volume down by 6% compared to the third quarter 2025. Third quarter 2026 service revenue increased 65% over the same quarter last year to $14 million, driven principally by customer wins. Adjusted EBIT over the same period increased 33% to $1.2 million, even as we continue to invest in the talent and capabilities to support further growth.

These results demonstrate that our performance was driven primarily by market share gains and customer adoption rather than market-based fluctuations.

Slide 11 outlines our origination segment customer wins and pipeline. During the quarter, we secured an estimated 6.3 million of annualized stabilized revenue wins, primarily in LendersOne, and ended the quarter with an estimated weighted average pipeline of $18.5 million. The level of wins in pipeline activity reinforces our view that lenders are responding to solutions that can lower costs, improve execution, and provide access to scalable operating capabilities.

Based on sales wins, our pipeline, and the market, we forecast fourth quarter origination service revenue to remain strong compared to the prior year.

Turning to slide 12, we are executing against our plan to grow revenue, reduce our dependence on ownity and rhythm, and build a more resilient revenue base across AltaSource. Total company service revenue in the third quarter of this year increased by 26 percent compared to the third quarter of 2025. Over the same period, service revenue from customers other than Onity, Rhythm, and customers associated with their portfolios grew by 96 representing 72 of Altasource service revenue compared with 46 a year ago and 65 last quarter This shift reduces ownity and rhythm customer concentration broadens the source of our growth and should enhance the durability of our revenue base.

Moving to slide 13, our AI and automation strategy is focused on three measurable outcomes, increasing operating efficiency, accelerating software development, and strengthening our product offering. During the quarter, we expanded AI-enabled workflows across marketplace, field services, valuations, finance, and other corporate support functions. We also used AI to shorten development cycles across our software products and continued building new AI-developed software solutions for construction risk management, commercial loan servicing, and real estate asset management.

While many of these initiatives are still in the early stages, we believe they can improve our scalability and support revenue growth. Turning to slide 14 in our corporate segment, third quarter 2026 corporate adjusted EBITDA loss was $7.1 million, reflecting a $200,000 reduction in corporate costs compared with a third quarter of 2025 and an $800,000 decrease compared with last quarter.

We continue to expect corporate costs to remain relatively stable as the business grows. Because the business segments generated combined adjusted EBITDA margins of approximately 23% in the third quarter, incremental revenue should contribute meaningfully to consolidated earnings. This operating leverage is a central component of the plan to achieve our Project 45 objectives.

Moving to slide 15 and the business environment. The default market remains below pre-pandemic norms, but several indicators are beginning to move higher. As of August 2026, the number of seriously delinquent loans and loans in foreclosure totaled $872,000, an increase of 26% from August 2025 and 9% from December 2025. Foreclosure starts for the eight months ending August 2026 were 20% higher than in the comparable period in 2025, and foreclosure sales were 17% higher, although both remain below pre-pandemic activity.

A sustained increase in foreclosure activity could provide additional volume across several of our businesses. For the origination market, third quarter 2026 mortgage origination unit volume decreased 6% year-over-year, including an 8% decrease in refinance volume and a 5% decrease in purchase volume. The MBA projects 5.3 million loans will be originated in 2026, representing 6% growth over 2025. Against that backdrop, we believe our recent customer wins and pipeline position us to outperform the broader market.

Any sustained market recovery should provide additional upside. To conclude, the third quarter provides further evidence that our strategy is working. First, customer wins should continue to drive strong revenue growth.

Second, our revenue base is more diversified from ownity and rhythm. Third, our AI automation and operating efficiency initiatives should build a more scalable cost structure. We are delivering this progress in default and origination markets that remain below normalized volume levels. As recent winds continue to ramp in season and efficiency benefits build, we believe Altasource is positioned to generate stronger earnings, increased operating leverage, and durable stakeholder value with upside if market conditions improve.

I'll now open up the call for questions. Operator?

Hey, Tim, I'm going to have Michelle answer the question more specifically. But at a high level, keep in mind that what's going on at AltaSource is we're ramping up a lot of new customer wins. I think we talked about something like non-Ownity and Rhythm wins up something like 90 plus percent over last year. While we were ramping down the Rhythm Cooperative Brokerage Agreement and the business we received as a result of Aquin no longer being the subservicer on the Rhythm assets as those were transitioned back. So you're managing business, you know, getting ready for growth while you're also managing down as well. And so that creates some complications just from an operating perspective. And I'll let Michelle explain in more detail.

But I feel very confident that we're in a good position to significantly grow our EBITDA margins over the coming quarters. But I'll let Michelle get into the specifics.

Yeah, absolutely right. And I think from a gross profit margin, you could see a mix issue as well, because we've had much higher growth in the origination segment than we've experienced in the servicer and real estate segment. But from a total company EBITDA margin perspective, we think these margins are going to significantly improve over the coming quarters. in addition to benefiting from our ongoing AI automation and operating efficiency initiatives, there's really kind of three drivers that we think would support margin expansion. The first would be in the servicer and real estate segment.

Bill talked about this new business, but as it seasons, we anticipate that a greater portion of incremental revenue is going to contribute to margin. So, you know, in short, you can think about it as we were already incurring the cost to support growing revenue from higher inventory and referral volumes. But that revenue hasn't, you know, we're not going to incur more costs as that revenue grows.

And the second in the origination segment, we've been investing in the talent and capabilities to support our future growth. So as revenue continues to grow in that segment, you know, we expect that margins will expand. And then finally, the total company level, we expect corporate costs to remain relatively stable as the business grows. So in the third quarter, business segments contributed combined EBITDA margins of about 23%. And as we grow revenue while maintaining relatively flat corporate costs, total company margins should expand, both at the gross profit and the total EBITDA level.

Yeah, with share-based comp, you do see fluctuations from quarter to quarter. A lot of grants happen in the first quarters of each year, so sometimes you'll see a little bit higher. It did trend down a little bit this quarter, I expect it'll stabilize probably somewhere back to kind of first quarter, second quarter level.

Also, you may have had some reversal of share based comp in the third quarter related to exits or severance kind of things.

Bill Walsh, Thank you, operator. We're pleased with our third quarter performance and believe we are set up for continued growth and margin improvement. Thank you for joining us today.