Altisource Asset Management Corporation
Q3 2015 Earnings Call Transcript

Published: 9 Nov 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the Altisource Asset Management Corporation Third quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. I would now like to introduce your host for today's conference Mr. Robin Lowe, Chief Financial Officer. Sir, you may begin.

[Robin Lowe:]

Thank you, Lauren. Good morning everyone, and thank you for joining us today. My name is Robin Lowe and I'm the Chief Financial Officer of Altisource Asset Management Corporation which we refer to as AAMC. Before we begin, I want to remind you that a slide presentation is available to accompany our remarks. To access the slides, please log on to our website at www.altisourceamc.com. These slides provide additional information investors may find useful. As indicated on Slide 1, our presentation may contain certain forward-looking statements pursuant to the Safe Harbor provisions of the Federal Securities Laws. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology and may involve risks and uncertainties that could cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. For an elaboration of the factors that may cause such a difference, please refer to the risk disclosure statement in our earnings release as well as the Company's filings with the Securities and Exchange Commission including our year-end 2014 Form 10-K, our first quarter and second quarter 2015 Form 10-Qs, and our third quarter 2015 Form 10-Q that we have filed today. If you would like to receive our news releases, SEC filings and other materials via email, please register on the shareholders page of our website using the E-Mail Alerts button. Joining me for today's presentation is George Ellison, Chairman and Chief Executive Officer of AAMC. I would now like to turn the call over to George. George?

[George Ellison:]

Thanks Robin and good morning everyone and thank you for joining us today. I'd like to begin with some key highlights on page 2. On the financial front , AAMC received $5 million in fees from Altisource Residential. AAMC facilitated a payment of $0.55 per share as well as the execution of 20% of the announced share buyback. We advised on Resi's first NPL sale from their portfolio as well as their purchase of 1300 homes in the Atlanta area. AAMC’s team completed Phase 1 of our announced one by one initiative which was a small pilot program targeting about 200 homes. Phase 2 has been launched and is targeting about 800 homes. We've increased Resi's portfolio rapidly and it is now well over 2,000 homes and rising. Operationally, we have worked with our strategic partners at Altisource Portfolio Solutions or ASPS to get 95% of Resi's stabilized rentals leased at quarter-end with an early read of NOI running at around 56% and also completed the onboarding of the 1,300 homes purchased in Atlanta. On the funding front, Rob and his team did a great job of expanding and improving our funding and financing capacity. Most important among these was the amending of our repo facility with Wells Fargo which expanded its capacity, increased its REO sublimit, and extended the facility’s term. Rob?

[Robin Lowe:]

Thank you, George. On Slide 3 and 4, we show our financials. As we have stated in previous earnings releases, under GAAP, we're required to consolidate Resi into our financial statements as if we were the parent in a typical parent subsidiary relationship. But in reality, we do not have a claim on either 100% of the income or assets of Resi. Also because we own 100% of the voting common stock of NewSource, and there were no substantive kick out rights granted to other equity owners, we consolidated NewSource in our consolidated financial statements. In order to provide clarity to our shareholders, we have included certain non-GAAP disclosures on Slides 3 and 4 that provide standalone financials for AAMC. We believe this non-GAAP presentation provides a meaningful comparison between our reported results and how we internally manage our business. This non-GAAP information should be viewed in addition to and not as an alternative for our reported results under GAAP. As shown on Slide 3, on a consolidated basis, we reported a net loss of $2 million or $0.92 per diluted share for the third quarter of 2015, down from a net gain of $743,000 or $0.27 per diluted share in the second quarter. AAMC standalone loss before taxes was $372,000 in the third quarter. Revenues for the third quarter were $5.2 million, marginally down from $5.4 million in the second quarter. Total expenses for the third quarter were $5.7 million, up from $4.4 million in the second quarter. However, normalizing for second quarter legal provision reversal of $1.5 million, expenses were down about 3% from the prior quarter. AAMC's balance sheet under GAAP includes the equity of residential, which is then reflected in AAMC's book value per share. This reporting does not reflect the true economics to AAMC shareholders; and so on Slide 4, we show the standalone balance sheets of Residential, NewSource, and AAMC. I'd now like to turn the call back over to George. George?

[George Ellison:]

Thanks Rob. On Slide 5, we outlined the same initiatives we've been working on for most of this year. One, we continued to drive Resi's single-family rental growth while maintaining the appropriate ROE , liquidity, and operational efficiencies. As we stated last quarter, getting Resi healthy is the best thing for both companies. Resi's rented homes will soon hit 2,500 properties which will cause us to achieve the first base fee increase under our new asset management agreement. We expect the second hurdle of 4,500 homes to not be far behind. Increasing the number of rental units at the appropriate operating yield is also the fastest and most stable path to initiate the incentive fee. Number two, as Resi starts to get its legs under, we've been diligently working on our next growth initiative, which if successful we'll get AAMC into the insurance asset management business. We are in the middle of negotiating a game-changing transaction in the life and annuity space. I will warn you that these types of transactions fail more than they succeed. With that said, we want our shareholders to know that if this deal falls through, there will be another to take its place. We are committed to becoming a large participant in the asset management business. Three, finally we continue to probe into the mortgage origination space with our partners at ASPS, specifically with our cooperative called Lenders One as well as new sources of origination being built. We remain focused on cracking the code of stalled single-family mortgage origination in this country. The rules and regulations around this business are complex, and the business has significant regulatory risk, but we believe there is a way to get financing the families currently locked out of the mortgage market. We also continue to work with ASPS to start originating loans to lessors of multiple homes. I will be disappointed if one or more of these initiatives isn't started or at least piloted by the next time we speak. Just as I said last quarter, getting Resi right came first. Resi is now beginning to transition and unfold into what it was meant to be, a large well-run single-family rental REIT that can compete with any participant in the business. Resi still has a long way to go, but now that its goals are clear and the plan to get there is in place, it is time to launch the next business venture or two inside of AAMC. These businesses are no longer concepts, but deals currently being negotiated. If these discussions are successful, these ventures will be the beginning of the second chapter in AAMC's history. Thank you. I'll turn it back to Lauren.

[Operator:]

[Operator Instructions]. At this time, I'm showing no questions. I will like to turn the call back over to Company for closing remarks.

[George Ellison:]

Great. Thanks Lauren. Thank you everyone for dialing in. We appreciate your support and I'm sure we'll be talking to the most of you throughout the day and later this week. Thank you. Thanks Rob.

[Robin Lowe:]

Thanks.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may all disconnect. Have a great day.