Altisource Asset Management Corporation
Q4 2015 Earnings Call Transcript

Published: 29 Feb 2016

[Operator:]

Good day, ladies and gentlemen and welcome to the Altisource Asset Management Corp. fourth quarter 2015 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 like to introduce your host for today's conference Mr. Robin Lowe, Chief Financial Officer. Sir, please go ahead.

[Robin Lowe:]

Thank you, Michelle. 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 logon 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 uses 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, second, and third quarter 2015 Form 10-Qs; and our year end 2015 Form 10-K that we have filed today. If you would like to receive our news releases, SEC filings, and other materials via e-mail, please register on the shareholders page of our website using the E-Mail Alert button. Joining me for today's presentation is George Ellison, Chairman and Chief Executive Officer of AAMC. I would now turn the call over to George.

[George Ellison:]

Thanks Rob. If you’ll turn to slide two on the deck we provided, please, you can see our fourth quarter highlights. Earnings, RESI earnings were $0.68 a share for the fourth quarter with a dividend of $0.10, a catch up of $0.15 which takes the dividend of $0.25 for the quarter and a total of a $1.90 for the year. Rental revenue as you see increased 41% just under $6 million. AAMC Managed to repurchase close to 400,000 shares of RESI stock, $5 million worth, during the quarter, and have now completed 25% of their $100 million buyback. RESI will continue to buy back shares and work to strike the right balance between this activity and the liquidity position and the opportunity to buy high yielding rental homes. We executed two fourth quarter sales of 772 loans at approximately 99% over the mark-to-market value. We launched and awarded RESI’s second NPL pool. The trade was awarded in the second week of January and is scheduled to close in mid-March. We anticipate the pricing to be even stronger than the first sale and even tighter to the mark-to-market level. On the acquisition front, we advised on the purchase of a small pool of a little over 600 stabilized rental homes in five different states that will close in March. We continued to expand RESI’s one-by-one program, their third quarter pilot entered its second phase and closed on 150 homes in the fourth quarter. The program is now purchasing in nine different MSAs for the first quarter goal of 350 homes. RESI closed the year end with 2,732 homes, and the NPL portfolio dipped below 6000 loans to 5,700. On the operations front, 96% of stabilized rentals released at quarter end. Net operating margin is estimated to be steady at 56% for the quarter, flat from the third quarter. REO sales are finally starting to pick up with about 1,300 new REOs for sale, and completed sales have increased materially to 389 in the fourth quarter with a goal of 600 this quarter. Rob will touch on funding in a minute, but his team’s great work of 2015 around funding is what’s driving higher REO sales that I just mentioned. Rob?

[Robin Lowe:]

Thank you, George. On Slide 3, 4, and 5 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 are 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, 4, and 5 that provides 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 $8.9 million or $4.12 per diluted share for the fourth quarter of 2015, down from a net loss of $2 million or $0.92 per diluted share in the third quarter. AAMC's standalone loss before taxes was $8.5 million in the fourth quarter. The main drivers of loss was lower [revenues, due to a $6.9 million repayment to Altisource Residential due to the recalculation of the management fee for the first quarter of 2015 as required under the new asset management agreement. Total expenses for the fourth quarter were $6.3 million, up from $5.7 million in the third quarter, mainly because of low restricted stock expense in the third quarter due to the mark-to-market of a non-employee award. Normalizing for that, expenses were down about 7% from the prior quarter mainly due to lower legal costs. As shown on slide 4, on a consolidated basis, we reported a net loss of $3.3 million, or $1.59 per diluted share for the full year 2015, down from net income of $59.7 million or $26.31 per diluted share in the prior year. On a standalone basis, AAMC reported a net loss of $889,000 for the full year 2015. Revenues were $24.3 million, consisting mainly of base management, incentive management, and conversion fees from RESI. Standalone expenses for 2015 were $25.2 million, which included $6.7 million in non-cash restricted stock expense and $3.8 million of expenses in connection with the new asset management agreement. Excluding these amounts, AAMC’s 2015 operating expense was $14.7 million, which can be broken down into two components, comprising $8.3 million employee compensation, our professional service, and other expenses of $4.4 million. 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 5, we show the standalone balance sheet of Residential, NewSource, and AAMC. I will now turn the call back over to George.

[George Ellison:]

Thanks, Robin. On page 6, we iterate -- we reiterate the themes we’ve stated on the last few calls. Obviously, growing Altisource Residential is paramount to the AAMC team. Its growth and success was completely aligned with AAMC. The first SFR home total amount will be reached by the end of this first quarter, 2,500 homes. On the insurance front, which we’ve talked about in the past, we were bidding on an insurance company when we last spoke, and after further review, we and the seller both agreed it was not a suitable candidate. We are, however, actively pitching fixed income asset management opportunities initially in the insurance space. And finally on the loan origination front, which I’ve talked about in the past, we are now actively interviewing co-loan trading candidates to hopefully plug in to ASPS’ Lenders One organization as well as other loan origination opportunities. I will now turn the call back to the operator for any questions, Michelle? Thank you. [Operator Instructions] I’m showing no questions at this time and would like to turn the conference back over to the company for any closing remarks.

[George Ellison:]

Thank you, everybody for joining today. Have a great day. Thank you.

[Robin Lowe:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.