Altisource completes majority of cuts, shores up financing

Altisource Portfolio Solutions remained in the red during the third quarter but saw gains in some underlying financials from reduced costs, an equity sale and new business.

The mortgage services company took a $11.3 million net loss compared to a negative $15.5 million the previous quarter. Its quarterly net loss was $14.4 million in the third quarter of last year. 

But the company's adjusted earnings before interest, taxes, depreciation, and amortization crossed back into the black at almost $900,000 in the latest quarterly report, an improvement on a negative $6.5 million a year earlier. Second quarter EBITDA was negative $3.5 million.

The company has completed the majority of its planned $15 million in cuts and sees signs that distressed mortgage business is picking up, which could boost some business lines it has next year.

Altisource has achieved at least $10 million in savings and could increase that number to around $12 million or so by Dec. 31. The reductions should be complete by the second half of 2024, CEO Bill Shepro said. Chief Financial Officer Michelle Esterman confirmed the numbers.

In September, the company also was able to use funds from an equity sale to reduce a term loan's principal balance. As a result, it was able to get rid of nearly 1 million penny warrants and extend the maturity of both term loan and a revolving credit line by one year to April 2026.

(Penny warrants are financing incentives but have a downside in that they can dilute the value of existing shareholders' stock. Altisource's stock price was just about $5 and vacillating but generally trending slightly lower at the time of this writing. Penny stocks are those trading below $5.)

The changes to Altisource's financing position will reduce interest expense by an estimated $3.4 million annually.

Also in September, Altisource had announced a new real-estate owned services client in the consolidating reverse mortgage market, Celink.

"We estimate that this new business represents $12.8 million in annual revenue, and a $3 billion to $5 million per year in adjusted EBITDA," Shepro said in the earnings call.

Figures showing delinquencies rose on consecutive-quarter basis suggest distressed mortgage services the company offers could generally be in higher demand in the future, Shepro said.

Around 9.4% more mortgages were late by one payment at the end of September as compared to three months earlier. Mortgage borrowers late by two payments increased 10.7% during the same period.

"The cracks in the housing market are beginning to appear," said Shepro, noting that the seasonally adjusted annual rate of home sales during the month was down 15.4%.

The median home sale price also fell in September on a consecutive-quarter basis even though it was up year-over-year by 2.8%, he added, noting that taken together, these numbers are "typical in the early stages of a housing downturn."

Low downpayment mortgages and recently originated loans would be the most susceptible to performance issues in a housing downturn due to their relatively limited equity positions, Shepro said.