Altisource Portfolio Solutions S.A. (ASPS) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Altisource Portfolio Solutions First Quarter Earnings Call. [Operator Instructions]. As a reminder, today's program is being recorded. I'd now like to introduce your host for today's program, Indroneel Chatterjee, Chief Financial Officer. Please go ahead.

Thank you, operator. We first want to remind you that the earnings release, Form 10-Q and quarterly slides are available on our website at www.altisource.com. These provide additional information investors may find useful. Our remarks today may include forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ. Please review the forward-looking statement sections in the company's earnings release, quarterly slides and Form 10-Q as well as the risk factors contained in our 2017 Form 10-K, which describe factors that may lead to results. We want to take no obligation to update these statements as a result of 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 of the quarterly slides. Joining me for today's call is Bill Shepro, our Chief Executive Officer. I would now like to turn the call over to Bill.

Thanks, Indroneel. Good morning. Today, I plan to provide an overview of our financial performance and an update on the progress we are making in our 4 core business lines. I will begin with a couple of business highlights, including the refinancing of our term loan, the letter from the CFPB regarding the completion of its investigation of Altisource and Ocwen's announced acquisition of PHH. Beginning with our term loan. On April 3, we refinanced the loan to extend the maturity date from December 2020 to April 2024. In addition, we had secured a $15 million revolver that is available for general corporate purposes. The new term loan is covenant-light, carries over from our previous credit agreement, the available baskets for share repurchases and other restricted payments and expands the definition of net debt for purposes of determining excess cash flow sweeps, by giving us credit for up to $75 million of marketable securities. Interest on the term loan is 50 basis points higher than our previous facility, is based on three-month LIBOR and has mandatory annual amortization payment of 10% for the first two years and 3% in subsequent years. Given our liquidity, limited capital requirements, and expectations of strong free cash flow generation, we believe the higher amortization and interest rates are a good tradeoff for this six-year term loan. On the regulatory front, as more fully disclosed in the 10-Q filed today, we recently received a letter from the CFPB informing us that its investigation of Altisource has been completed and that it currently doesn't intend to take enforcement action against us. We are also advised that Altisource is relieved of its document retention obligations pursuant to the civil investigative process. We are pleased to put this matter behind us. Now to Ocwen's acquisition of PHH. On January 27, Ocwen announced that it was entering into a definitive agreement to acquire PHH Corporation. In addition to increasing Ocwen's subservicing portfolio, we believe the acquisition may pave the path for Ocwen's return to growth after a 5-year hiatus. In connection with the acquisition, Ocwen stated that it plans to accelerate its migration from Altisource's servicing system by transferring its loans to PHH's platform, reducing the risks and costs of the de novo implementation. Altisource have long-term agreements with Ocwen to provide the outsource fee-based services on Ocwen's portfolio. Similar to Ocwen's other servicing acquisitions, we anticipate that Altisource will provide the same fee-based services that we provide on Ocwen's current portfolio on the PHH portfolio. As we learn more about the timing for Ocwen's acquisition of PHH and the characteristics of the portfolio, we will provide more information on the benefit to Altisource. Turning to our first quarter results in Slide 5. Altisource generated $188.8 million of service revenue and $0.48 of adjusted diluted earnings per share. This translates into $1.3 million of adjusted operating cash flow after adding back $9.9 million in short-term real estate investments in our buy-renovate-lease-sell business. Operating cash flow is typically lowest in the first quarter due to the payment of cash bonuses. We anticipate generating adjusted operating cash flow in 2018 in the range of $80 million to $90 million, based on the scenarios that have been updated to reflect higher interest expense following the refinancing of our debt. First quarter service revenue represents 22% of the midpoint of our full year scenarios. Service revenue was lower than the first quarter of '17, primarily from the normal runoff of Ocwen servicing portfolio, and its foreclosure holds as a result of the California and Texas natural disasters and RESI's smaller portfolio of nonperforming loans in REO. The revenue decline was partially offset by non-Ocwen service revenue growth in the field services, Hubzu, renovation management, fulfillment and Owners.com businesses. We continue to anticipate that service revenue will be within the range of the midpoint of our financial scenarios. First quarter adjusted diluted earnings per share represents 24% of the updated midpoint of our full year scenarios, in line with our expectations for the seasonally slower first quarter. Compared to the first quarter of 2017, adjusted diluted earnings per share was lower from the decline in service revenue I just discussed, partially offset by our cost reduction initiatives. Diluted earnings per share has been adjusted to exclude mark-to-market losses of approximately $7.5 million from RESI shares in the first quarter, as we implemented new accounting rules, which will require us to include changes in the fair value of securities in our income statement. We anticipate that full year 2018 adjusted diluted earnings per share will be within the range of the updated midpoint of our scenarios. In the first quarter, we used $10 million to repurchase 361,000 shares of our stock at an average price of $27.67, bringing the outstanding nondiluted share count to approximately 17 million. We ended the quarter with $127 million of cash and marketable securities, and $286 million of net debt plus marketable securities. Now I'd like to provide you with a brief overview of the progress we are making with each of our 4 core businesses. The strong momentum of client wins in our Servicer Solutions and Origination Solutions businesses that we experienced in the second half of 2017 continued during the first quarter. We received notification from 9 key prospects that we won their business. This compares the 13 key wins during the second half of 2017. Collectively, we anticipate that over time, these wins should produce approximately $75 million of annual revenue on a stabilized basis. Our Servicer Solutions business posted 10% non-Ocwen and non-NRZ revenue growth compared to the first quarter of last year. Based upon 2017 sales wins and the anticipated onboarding of these new clients, we anticipate non-Ocwen/NRZ revenue growth to accelerate as the year progresses. Our strong sales momentum in the first quarter of this year included notification from 6 prospects that we won their business. This new business includes property preservation and inspection, real estate asset management, brokerage and auction, and settlement services. Since our last earnings call, we executed the master services agreement with a top 10 bank and the statement of work with a top 25 bank to provide real estate asset management and auction services. We also have a very active and attractive sales pipeline. Our next strategic business is Origination Solutions, which maintained flat revenue compared to the first quarter of last year in an environment where origination volumes declined by 6%. During the first quarter of 2018, we are notified that we won 3 meaningful new customers, including 2 platform customers. These recent wins and the status of onboarding these clients should position our Origination Solutions business for attractive growth as the year progresses. Our real estate investor solutions business experienced a 28% service revenue decline compared to the first quarter of 2017. This reflects RESI's smaller portfolio of nonperforming loans and REO and relatively flat property sales in our BRS business. As the year progresses, we anticipate that the growth of the BRS business will more than offset the decline in revenue from RESI. Given the rising interest rate environment, we have refined our BRS underwriting criteria to reflect the potential decrease in home values. As it typically takes time for sellers to reduce their sales price expectations, following market changes, we anticipate that the growth of the BRS program may be somewhat lower than our original expectations for this year. Finally, our consumer real estate solutions business continues to capitalize on the growing trend of consumers using online tools to buy and sell homes. This business, under new leadership since August of 2017, is demonstrating solid progress. In the first quarter, we grew service revenue by 98% and the number of transactions by 63% compared to the same period last year. We continue the deployment of a natural operating model and are now running performance enhancement tests across our platform at levels similar to mature Internet-based companies. We also bolstered our leadership team, with hiring of a National Head of Sales and finished the quarter working with approximately 3,200 clients compared to the roughly 1,200 we were working with this time last year. We continue to believe that we can double Owners.com's revenue this year. In conclusion, I'm very pleased with our progress this year. I feel as good about our business and prospects as I have in a long time. We improved our liquidity profile by refinancing our term loan, we are positioned to benefit from Ocwen's acquisition of PHH, and we're pleased that the CFPB's investigation of Altisource has been completed. The management team is focused now more than ever on operational excellence and sales growth. We believe our 2017 and first quarter 2018 sales wins and our very strong pipeline positions Altisource to accelerate its non-Ocwen/NRZ sales growth as the year progresses. I'd now like to open up the call for questions. Operator?

[Operator Instructions]. Your first question comes from the line of Mike Grondahl from Northland Securities.

Just some questions to kind of better understand the trends in the quarter. The first one, service revenue per delinquent loan, it looks like it fell from about $810 to about $700. Can you just talk about that? Is that seasonality? What's going on there? Because that's a year-over-year number.

Mike, it's Bill. Yes, so I think, couple of things, one, your service revenue per delinquent loan is going to fluctuate from quarter-to-quarter. But I think more specifically here, what you saw happening is, are the number of delinquent loans or the delinquency rate actually is higher this year -- this time than last year, primarily as a result of the natural disasters in Texas and in California. And so what's happening is you have more delinquent loans or the denominator is bigger, but some of those delinquencies are on hold. They do a natural -- Ocwen has a natural disaster hold. And until those holds are lifted, you are not doing much work on those loans, so that brings down your actual revenue per delinquent loan.

Got it. That make sense. And then just Hubzu, the actual revenue per home seemed to have jumped roughly 20% year-over-year from about $8,000 per home to about $10,000 per home. Is that HPA? What's sort of driving that on a unit basis?

Great question, Mike. So there's three things going on, earning more commissions, more homes are being sold by auction and home prices are appreciating. And by the way, that's a trend that we saw, it's continuing in the month of April as well.

So more commissions, meaning a...

More commissions, a greater percentage of homes sold by auction and home price appreciation.

Just define the greater commissions? Are you charging a little bit more? Or explain that one?

Sure. So we're the listing agent on a greater percentage of homes. And just the way our arrangement with NRZ was structured on some of the homes we sell in the beginning, that were transferred, we're also earning a greater commission on those in the beginning and that will normalize out over time. What you're really seeing is we're the listing agent, Mike, on a greater percentage of the homes that we're selling, so we're earning listing commission. We're selling more homes by auction, so we're earning a buyer's premium on more homes. And the home price, the values of the home price -- home sales have gone up quite substantially and that trend has continued into at least so far into the month of April, on all 3 fronts.

Well, this summer, when that season picks up to, that should be good. Specifically, you called out six wins in Servicer Solutions. Could you go over again sort of the nature of the business you won with those six and sort of the timing?

Yes, so I mean, Mike, these are, from our perspective, household names hiring us to do work like REO asset management and auction, where we could get 100, if not hundreds of units a month of volume on a go-forward basis from one of those institutions. The second institution, we could get 30 to 50 units a month. We've won some property inspection and preservation business with the top 20 bank. And so the nature of these wins is very good. So when you get the asset management business, we're off and hired off due to title insurance, the closing, the valuation, the Hubzu auction and we're the realtor. So it's very attractive from our perspective.

Got it. Got it. The two wins on the origination side. Can you talk a little bit about nature and timing there?

We're excited about these, because it's a little bit different than the type of work we'd been doing historically in our fulfillment operation. So now one of -- some of those wins, I think it's one, maybe it was two, where we're actually taking over the complete back office and we're doing the fulfillment, the underwriting and the processing of the loans and eventually that will include us being able to hire a premium titled to do the title insurance and our Springhouse valuation group to do the appraisal. So we're basically taking over the whole fulfillment office, using our loan origination system, our technology, Mortgage Builder, to do the underwriting, and we're taking over the back office. And so the revenue per file is very high. And what's interesting about those clients, normally our sales time line from even winning a deal to signing a contract and onboarding is very long. In this case, it moved a little bit faster. And we're actually now starting, in the month of April, to process loans, and we're taking over other branches sort of one-by-one to provide this work. And we have some interesting prospects in the pipeline to do the same thing. So we really like that business, the revenue per unit is much, much higher; the margins are attractive; and you truly become a partner with the clients because you are their back office.

Sounds interesting. The non-Ocwen revenues were at about 16% of the midpoint for the full year. Is that just seasonality? Or was that, like, less than what you guys expected?

Yes, I think, Mike, it's very hard for us to predict the exact timing of when these new wins generate revenue. And that's why we're excited. 2 of those deals that we signed contracts, we were notified of those wins this time last year, and we just signed those agreements in the last couple of weeks. And just started having meetings to do the onboarding process. So it's just -- it's hard to predict the exact timing of when it will start, but what we're most excited about is, those agreements are now getting -- got signed. We've had the meetings at those clients' offices to start the onboarding process, and we should start receiving referrals soon. And of course, when you're selling REO, it takes some time to get the homes listed, get a buyer and then sold. But the process is starting, and we feel very good that, that revenue is going to grow as the year progresses.

Got it. So even the 1Q was a little bit soft at 16% for non-Ocwen, the year you still feel good about it. Is that fair?

Yes. We still feel we'll be within the range. We're paying close attention to the buy-renovate-sell business in our real estate investor solutions business because we don't want to, frankly, overpay for homes in a rising interest rate environment, so that has the potential to have some impact. But right now, we're sticking with our -- the midpoint of our scenarios.

Got you. And then just lastly on the real estate investor services and the Owners.com. Is there any update on when those might breakeven? How are you thinking about that? I mean, you did say owners could double revenues this year.

Yes, I mean, Mike, so on Owners.com, we're doing a very good job of building the business, building the number of transactions, improving revenue. So -- look, we have some modeling that shows that we could be cutting the loss by as much as 75% in 2019. But there still is a lot of work to do to get there. And so -- and there's, on a really crushing it scenario, there's an opportunity the business could breakeven. So we think if we continue making the progress we hope to this year, our investment in that business will be coming down quite substantially in 2019. And then in the real estate investor solutions business, we are making money on the work we're doing to sell the homes for RESI, but we're not making a lot of money up there. And then we're still working to cover some of our fixed costs in our buy-renovate-sell business, and there, we're continuing to refine how we operate to improve the returns we're making on those homes.

Next question comes from the line of Pierce Dever from Piper Jaffray.

Just in regards to change in the guidance for cash flow. Is that entirely related to the interest expense and the debt?

Yes.

Okay. And then the change in the guidance for earnings per share, is there any other change besides the interest expense as well?

No, no.

Okay. And then how much did home price appreciation impact the profits -- the increase in the service revenue per loan on Hubzu?

We're not breaking out the benefit from those 3 components that I discussed. But home price appreciation has been very strong and continues to be strong in April.

Was there any home price appreciation in particular markets that has an outsize effect, given Ocwen's servicing portfolio and where it's located?

I mean, I don't have the data at my fingertips, but across the board -- but we're generally seeing sort of across the board at this price point appreciation.

Okay. And then in regards to the New Residential agreement, do you have any updates there? I'm sorry if I missed out at the very beginning of the call.

No problem. No, we're continuing. We have a very strong relationship with NRZ. We're getting very close to negotiating the servicers agreement, and then we're going to turn to the statements of work. So we're getting close. I wish it went faster, but both sides are working very diligently to get it signed.

Okay. And then when you think about the margins on the new business wins that you had, where do you expect the typical pretax margins on some of the property preservation in REO work that you're doing with the new wins?

Yes. I mean, I think the margins we expect to make on this new business are very consistent with the margins when you talk about Servicer Solutions that we make today. And then, of course, they will just depend on the mix of revenue, as to what the overall business unit margins are. So we feel very good from that perspective. And then on the Origination Solutions business, we think, again, that we're pricing those deals on a marginal base to make 25% to 30% margins. We still have a little bit of work to do to cover our fixed cost, but we're getting closer, and it's very attractive business and high margin.

Okay. And then in regards to the amortization schedule net debt, are you planning to continue to just pay down the debt according to the amortization schedule? Or would you consider accelerating that?

I don't know. Right now, we're focused on the amortization schedule. Of course, we always retain the ability to buy more. But right now, we're focused on the amortization schedule.

Our next question comes from the line of Shachar Minkove from Napier Park.

A couple of questions here. First, just on the Servicer Solutions. The non-Ocwen growth, was that from new contracts, the new contract wins or new customer wins? Or is that from prior customers? Just trying to get a sense for -- are we actually seeing some of that ramp up a little bit?

Yes. So it's the growth of some of the customers that we had won. So expanding market share with some of our newer customers, primarily. And we expect what's going to continue that growth going into sort of a second quarter and beyond. It's going to be bringing on these new customers, and we still are optimistic we can expand market share with some of the existing customers as well. And we are seeing, for example, the foreclosure auction business. We've seen our volumes grow substantially with that customer. We've seen our property preservation and inspection volumes, referral volumes and revenue grow up very meaningfully with the top bank. So we hope to continue to grab share from them as well as bringing on these new customers that should help drive the growth.

Okay. I was wondering, can you -- I know you don't have enough -- a lot of visibility, but are you starting to see any of the new customers ramp up in the second quarter? Will we see any of that volume in 2Q? Or is that more just beginning on the second half at best?

Yes. We hope we'll start to see some of the volume in Q2, but more likely than we'll start really ramping in Q3. And that's in Servicer Solutions. In Origination Solutions, I think we have a couple of tailwinds happening. One, we expect origination volumes to grow in the second quarter, and we are beginning to ramp these clients. So we'll see a little bit more growth perhaps in Origination Solutions. But in both cases, as the year progresses, we expect that those businesses to grow quite nicely.

Okay. That's helpful. And then on the -- I guess you talked about -- you should be spending more rebuying houses and -- for flipping. And wanted to just get a sense if you had -- I guess, how -- what kind of volume you did in this quarter? And how you see that relative to the coming -- in the next couple of quarters?

Yes. I think we had something in the -- give me a second. So in the first quarter, we acquired 93 properties and we renovated 98, leased 78. Our sales were fairly modest in the first quarter. We're getting those homes leased, and now we're focused on -- we've got a pretty aggressive effort to sell the leased homes in the second quarter, probably some will slip into the third. But we're starting to -- we're pleased with the yield we're earning on the homes. We're pleased with what we think our returns will be when we turn around and sell these, and we're continuing to sort to optimize to be able to turn these faster, buy a home, get it renovated faster, get it leased faster and sold ultimately faster.

In the first quarter was really the first time, if I recall, that you were actually doing this in earnest. So we're not really at a run rate of potential buy-renovate-sale. You are more on the first element of buy-renovate and will these -- is that right?

Yes. That's correct.

Presumably, as you move forward, we'll actually see more sort of, let's call it, churn. But you'll see more returning on the back and more cash generation from that.

Yes. Absolutely.

Okay. And then just my last question is, just trying to get my head around this a little bit better. You guys -- I mean, the business has not turned around. We've been -- as a lender, we've been watching you guys buying equity for the last bunch of quarters. And yes, you've been paying down debt, but this feels like -- I mean, this past quarter, you spent $10 million on buying back stock. It feels right until we start seeing the business turning around, your $400-plus million of debt, it feels like, I'm just trying to understand how -- why you are not spending more on paying down debt and less on equity?

Well, I think, first let me talk about the debt and then I will talk to you why we believe buying shares makes sense. But from the debt perspective, if you think about the loan and the amortization schedule we have for the next couple of years, I think we'll continue to be reducing the amount of debt we have outstanding at a reasonably good clip over the next couple of years. Also, we generate a lot of operating cash flow. We expect to generate something like $80 million to $90 million of operating cash flow this year. And that's on top of the $130-plus million of cash and marketable securities we have on hand right now. So we think we can very comfortably, without changing the risk, without materially changing the risk profile of the company pay down the debt, make investments in our businesses. And by the way, we're spending quite a bit; it's something like $1.60 a share of discretionary investments in new businesses. But we believe, as we were talking about with Mike earlier, our losses will come down, and we consider those losses as an investment. Those losses will come down reducing the investments, but of course we're in these businesses to make money. We actually expect to not only -- not to have those investments anymore but to be generating income on those businesses over the next couple of years. And we're seeing sort of green shoots in our investments over the last couple of quarters, so we feel very good about it. So if you think about our $2.01 of adjusted earnings per share and our scenarios plus the $1.60 of discretionary investments and we believe it's to support our long-term growth and we look at where the stock is trading and it won't materially impact the risk profile of the company, we think we can very comfortably continue to amortize the debt, make investments and when we believe the share price is attractive, as we do, buy shares back.

Okay. Presumably, we're talking about roughly $40-plus million of amortization in 2018 or the next 12 months. Is that safe to assume that it will be a big chunk of your free cash flow going to continue to pay down debt?

Well, we have I think $130 million of cash and marketable securities, plus we'll generate another $80 million. So yes, we certainly have those other tools we have in our toolkit. But yes, certainly, we have the cash available to make the amortization payments.

Our next question comes from the line of Ramin Kamali from Crédit Suisse.

I guess, I had similar questions to the previous caller about your plans with share buybacks. But wanted to focus a little bit on the buy-renovate-sell. So right now, it's just at about $40 million of assets on the balance sheet. Where should we see that trending over the course of the year, based on your current views of the market?

Yes. I think if you look at our scenarios, Ramin, we originally projected it would get to $60 million. I think based on our current views in the market, we're trying to be thoughtful that as interest rates rise and sellers I think there is a big supply issue right now. So prices between sellers' expectations and limited supply, the prices haven't come down like you would expect. And so we're being more thoughtful of around the purchases. So we haven't -- we don't have an updated estimate for where we expect to end the year. But I think the midpoint of our scenarios was to increase by about $60 million from -- yes, for the full year.

So it should be $100 million line item by year-end.

No. I think that was from the beginning of the year, Ramin, and we anticipate that number is going to come down in a meaningful way because we're being very thoughtful about making sure that we're buying homes that meet our underwriting criteria.

Okay. And then I guess, you mentioned some weakness in the revenue per loan and you attributed that to California and Texas. Can you quantify kind of the revenue impact in the quarter related to those kind of foreclosure delays?

Ramin, it's hard to tell you exactly how much is tied to that, but clearly, I think the number -- the percentage of loans that are delinquent is up substantially, so the denominator is greater. And we're not earning revenue on those -- that are on hold. So they are in the denominator, but not generating revenue. I think that's probably maybe not all of it, but most of the decline in delinquent revenue per loan.

So if not for that moratorium, you would've seen flat revenue year-over-year per loan increases? And just directionally what...

Well, I think what you would see -- relative to last year, I don't know they would increase relative to last year. But I think what you would see is as those loans come off hold, you'll continue the foreclosure process, our trustee business, you continue ordering valuations, you continue doing inspections and the holds are in states that are nonjudicial, California and Texas, so the foreclosure process is faster in those states to get to an REO. So you would have seen more REO referrals. So I think we're fueling it across most of the services. And then ultimately it's to be seen how many of those loans end up coming back as a performing loan and what percent remain delinquent when they come off the hold. I've been told that the holds can last as long as six months, and each of the investors have different guidelines as to how a servicer is required to handle it, but it could be as long as six months. So for example, in California -- I'm sorry, in Texas, not California, in Texas, they're just starting to come off hold in February. And in California, for the most part, they are still on hold. But that should start to change, and then it's to be seen what percentage actually we perform and what percentage remain in default.

Should we see a similar decline in Q2?

No. I would expect -- no, because the taxes has come off and it's a seasonally stronger quarter for us, Ramin. I would expect it to grow.

Okay. I guess, given the continued kind of softness in the other segments kind of because not turning into profitability, you would be advised kind of a cautious approach to buying back stock?

We appreciate the feedback and the support, Ramin, as you know. By the way, we have a stronger sales pipeline as we've had in a very long time. And these are with household names, and they are very, very enviable marquee customer base. And we're very excited about sort of the growth opportunities. We're disappointed it's not growing as quickly as you were or we would want, but we do feel very good about our prospects here. And we'd be disappointed if it doesn't start picking up meaningfully.

[Operator Instructions]. Our next question comes from the line of Lee Cooperman from Omega Advisors.

I really have a few questions. The people that follow your industry most closely seem to be convinced that the industry is heading to a significant consolidation. Do you have an opinion on that? And do you have any degree of confidence of how you would make out if the industry consolidated? There's a talk that this WMIH, which has substantial tax loss carryforwards and agreed to buy NSM would be a buyer above the servicing companies. Would this be a plus or minus for you, as best as you can tell, number one? The second question is, your repurchase stuff up until now has been really wasted money in a sense. But what is that, that you think you're buying back? In other words, the earnings have been going in the wrong direction for the last 3 or 4 years. You have a, I guess, a forecast for this year of about $2 in a range of $1.86 to $2.18. Directionally, are you comfortable that you're going to have higher earnings in 2019? Or is that uncertain for you? And then you mentioned something about the RESI stock, I missed it earlier, but what are we doing with the RESI stock?

Great. So on your first question regarding industry consolidation, I mean, it's clear that there is some consolidation taking place, Lee, Nationstar, you've got Ocwen's acquisition of PHH. So there's clearly some consolidation. We have -- what's nice about our agreements is we have long-term agreements, Lee, with Ocwen, and we've got long-term at least the cooperative brokerage agreement, it seemed to be the service agreement, with NRZ. So from our perspective, I think Ocwen's consolidation is very good for Ocwen, and in turn, very good for us. It's hard for me to predict whether they're going to -- the buyer of Nationstar is going to use that tax loss to go do other acquisitions, I mean that makes logical sense to me. But it's hard for me to predict where that's going to go. I was going to move to your next question.

And to spend time on that question, because your bottom line is you're spending a lot of the shareholder money on stock repurchase. Warren Buffet has publicly said in a sense when companies are buying back stock, they are operating against their shareholders, and he wants the shareholders to know exactly what he's thinking when he buys back stock. So I'm curious, what are you thinking when you're buying stock back at $27.89? Your stock is now $24.25. What is that, that you think you're buying back in terms of value? Because the only time it makes sense to buy back stock is if you think you are buying it back at a discount to what the business is worth. So tell us what you think the business is worth and why you disagree with the market?

So Lee, first of all, I think at least I'm putting my money where my mouth is. I've been personally buying back stock on the open market over the last year. And as recently as this quarter, my restricted share, as I paid the taxes on the restricted shares and wrote a pretty big check, so I am personally putting my money because I believe the company is undervalued. I also believe that the buying back of stock doesn't change, materially change, the risk profile of the company. And when you think about the company and it's $2.01 this year, and you add back the investments that are truly discretionary investments that we're making because we believe we can grow and then I look at our sales pipeline, it's taking longer to materialize but it's there. It hasn't disappeared. We feel very good about our long-term prospects. We haven't updated our 2019 numbers, so our view at least, at this point, is 2019's adjusted earnings should be the same or better than 2018. So we believe the company is substantially undervalued when you think about it from that perspective. And at least I'm consistent in terms of my belief as to what I'm doing with my own money, in terms of buying shares and paying taxes and holding the stock. So that's why we're buying shares back, and we believe we also generate a lot of free cash flow. $80 million to $90 million is a lot of cash flow, and we think one of the things we should be doing with some of this cash flow in addition to investing in the business is paying down debt and also buying shares back, given the current scenario.

Where does the dividend fit in the picture?

We haven't changed our view on dividends, Lee. We still feel the same. We talked about that...

So far you've been wrong. I'm looking at -- what I'm asking you is the timing for when the stock repurchase would have looked like a correct decision, which is all tied to earnings. I'm not impressed if we have a flat year in 2019. 3 years ago, you were talking $6 to $7 in earnings. Clearly, that has alluded you. Now I understand $80 million or $90 million of cash flow on 17 million shares is worth more than the stock is trading for unless the $80 million or $90 million is going to go down materially over the next few years rather than grow, that's the issue. So you're making a statement about confidence in growth, and so far, we have not seen the growth.

Lee, we believe it's coming. We believe we are making tremendous progress. And I'm as disappointed as you that the stock hasn't moved up.

I don't care about the prices of the stock. I care about the direction of the earnings. That's what I care about. The stock price will take care of itself. The issue is you're making a statement, you think your stock is materially undervalued, and that's why the cash flow is being put into stock repurchase. And frankly, that's kept me involved in the stock because it is not really academic when I look at the ownership, the concentrated ownership, when you have people owning so much in the company and constantly are more interested in buying back stock than paying a dividend or whatever, you pay attention. Mr. Erbey still owns 35% of the company; Deer Park, smart people, they own 18%, Putnam 17%, my firm is close to 10% owner, et cetera. So -- and then you correctly say, you own about 425,000 shares plus options. So you tend to pay attention when allegedly smart people are buying back stock. And my question is, when are we going to see the earnings progression to justify the decision to buy back the equity?

As we stated that we believe our adjusted pretax is going to be the same or growing next year.

Same doesn't do anything for you. Growing does.

Lee, I agree with you. But we're also generating a tremendous amount of free cash flow, and we have very limited capital requirements. And given where the stock is trading and the cash flow we're generating, I agree, if we just stayed flat for a few year, it wouldn't be so bad given the amount of cash flow we generate. But we also, of course, believe we're going to grow over the next couple of years.

Right, right, right. And then lastly the RESI stock, you made a comment earlier on, I missed the comment. What is our intentions there?

The last one, I would say, Lee, also is we're in a very good position from where we are in the economic cycle. So delinquencies are at all-time lows today. They're beginning to spike up for the first time in a long time even outside of those natural disasters, and there are fewer vendors that have -- that fewer vendors with a national scale in the services and products that we provide. I think we are very well positioned if the economy turns, as well positioned as you could be. So as you look out a couple of years, depending on your view of the world, if it were to -- even if as the underwriting standards loosen and we don't see a recession, we're in a very, very good position to benefit as delinquencies grow off of all-time historical lows. So I think that's another reason why Altisource is a very interesting sort of company to invest in at this point.

So tell me about RESI, what did you say earlier? I missed it. And what are our intentions?

Sure. So RESI is an important customer, Lee. As I said before, we don't plan to own their stock for the long run. So we're working on having conversations with RESI. But at some point, we do hope in the not-to -- over the next several quarters to work our way out of that position. But more to come.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Indroneel Chatterjee for any further remarks.

Thanks for joining the call. We look forward to speaking to you soon. Thanks.

Thank you, ladies and gentlemen, for your precipitation in today's conference. This does concludes the program. You may now disconnect. Good day.