Good day, ladies and gentlemen, and welcome to the Altisource First Quarter 2019 Earnings Conference Call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Michelle Esterman, Chief Financial Officer. Ma'am, you may begin.

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 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 section in the company's earnings release, quarterly slides and Form 10-Q as well as the risk factors contained in our 2018 Form 10-K and 2019 Form 10-Q, which describe factors that may lead to different results. We undertake 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 to the quarterly slides. Joining me for today's call is Bill Shepro, our Chief Executive Officer. I'd now like to turn the call over to Bill.

Good morning, and thank you for joining today's call. We had a solid first quarter. We're doing well financially and operationally, and we continue to streamline Altisource to focus on our larger opportunities. This year, we anticipate that we will substantially reduce our debt balance and generate $60 million to $70 million of adjusted operating cash flow, even after incurring anticipated losses in our earlier-stage businesses that we plan to separate and Project Catalyst restructuring costs totaling approximately $50 million. As I'll discuss in greater detail, we believe that the sum of the parts of Altisource may be worth much more than our current share of price reflects and we're taking steps that we believe could unlock this potential shareholder value. This morning, I will provide an update on these items. As you can see on Slides 4 and 5, we generated $0.48 of adjusted diluted earnings per share, $18.1 million of adjusted operating income and $11.3 million of adjusted pretax income on $165 million of service revenue. Adjusted earnings per share and adjusted net income both represent approximately 22% of the midpoint of our full year scenarios. As the first quarter is typically a lower earnings quarter, we believe we are well positioned for the rest of 2019. Notably, first quarter adjusted operating income was 10% higher than the first quarter of 2018 and our adjusted operating margins improved from 8.7% to 11%. The first quarter marks our third straight quarter of adjusted operating income growth compared to the same quarters in the prior year. Our earnings release and 10-Q provide a detailed discussion of our first quarter operating results compared to the same period last year. From a cash flow perspective, we generated approximately $600,000 of adjusted cash from operations. Keep in mind that our first quarter is…

[Operator instructions] Our first question comes from Lee Cooperman with Omega Advisors. Your line is now open.

Seems like you have religion all of a sudden. Let's see what happens. Just explain to me the status of the buyback. What do you have in the way of an authorization? And what is your financial capacity given your current plans and what you've announced?

Yes. Lee, give me one second. So there's 3.4 million shares under the authorization, Lee. And in terms of -- yes, go ahead.

And at the end of the quarter, we had, what, outstanding? 18-something?

No, no. We're down to, I think it's nondiluted shares of 16.3 -- yes, 16.3 million shares.

Okay. And you have 3.4 million authorized in the buyback. What's your financial capacity and the attitude towards buying them, assuming they were available.

Yes. So we're in the market now and we believe it does make sense to buy. I think we're not disclosing what our program is, Lee, but we have capacity to buy a meaningful amount of shares back.

Well, just if somebody offered you 3.4 million shares tomorrow in the confines of the market, would you buy it?

So we're not buying -- we're not going to buy back as much as 3.4 million. We're still taking a balanced approach around reducing the debt, Lee, and buying shares back.

So that's my question. What is your appetite? I'm not interested in selling to you. I'm just interested in what your appetite is given your financial situation, your projected cash flow.

Sure. So we're not disclosing how much we're going to buy back, but, Lee, I think -- what did we buy last year, Michelle? Roughly? Give us -- give me 1 second here. So last year, we spent about $40 million. I don't anticipate we'll spend that much this year, Lee. I think our authorization is probably around $20 million or $25 million for -- during the year.

So you might buy 1 million shares back or something like that.

Yes. We could buy 1 million or more back, yes.

Right. Why are you buying it back? I mean, your buyback has been totally flawed. You started with $200 million at over $100 a share. I can't remember how many years ago. Time flies when you're having fun. I would say at least 5, 6, 7 years ago.

Yes. So Lee, if we -- so in hindsight, Lee, it makes a lot of sense what you're saying. At the time, given our growth expectations, we believed that made sense. And right now, we believe, given our view of the value of Altisource, that it's trading at a substantial discount. And the risk profile of the company, we believe it makes sense to continue to buy back shares and also to continue to reduce our debt.

Is 2019 a year where you think you could deliver to your shareholders what you've been talking about for the last 5 years? Or is this going to take a longer process to deliver the value to the shareholders?

No. We think compared to where our scenarios were set last year, Lee, we have a plan to grow earnings compared to last year -- compared to last year's scenarios. And I think if you look at Slide 6 in our deck, Lee, this is what I think -- I find to be really, really interesting. We're receiving today close to 600 referrals of REO from customers other than Ocwen, NRZ and RESI. Close to 600. I think it was 595 a month. We sold on average, don't hold me to this number, I think it was about 145 a month in the first quarter. And I think our average sales price on Hubzu sales, if you do the math on that Slide 6, is about $8,000 per home. We're substantially growing our inventory from customers other than Ocwen. And because it's been growing so quickly over the last year, you're not seeing it in the sales results yet or in the revenue from this non-Ocwen, non-RESI/NRZ customers, but that is going to start to flow through earnings and that's a pretty exciting business.

Yes. What I was really referring to, you made a lot of references to structural changes at the company where you might bring in venture capital, sell off businesses that don't fit the longer-term picture, that you have businesses that are worth substantially more than the market is paying for them within the company. Do you think that these moves you're contemplating will create value in 2019 for the shareholders? Because the shareholders have been like in a desert. They've waited for a long time for positive results and the earnings are going in the wrong direction. You say that the stock does not reflect the sum of the parts. Do you think that the moves you're contemplating making are a 2019 event or a 2020 event or whatever? That's the question. And you probably should be as open as humanly possible because if you're buying back stock, you're really trading against your shareholders. You're telling the shareholders, "We're going to buy back stock because we think it's undervalued." You ought to give them all the information you have that leads you to believe that it's undervalued, so you don't -- you're not trading against your shareholders.

Lee, I think we're pretty transparent about what we're doing at Altisource. I think we've hit our -- the numbers we've said we would for the last couple of years in our scenarios. And I think the moves we're making today will increase shareholder value. Absolutely.

We'll wait and see. We'll wait and see here.

[Operator instructions] Our next question comes from Mike Grondahl with Northland Securities.

Bill and Michelle, couple of questions. First off, you've sold the property management business, about $18 million. You're winding down BRS, around $40 million. Now you've sold the Financial Services business, roughly $44 million. What else is nonstrategic? What else are you thinking about sort of selling or streamlining? Is there much left?

So Mike, you still have the RESI stock which, at $10 a share, is worth about $41 million -- $44 million, I apologize. So you have the RESI stock, which we plan on selling. You've got the book value of the homes we own, which is about $40 million, the BRS Homes. The sale of Financial Services in total will be $44 million. And then you've got those two earlier-stage businesses, which we plan to essentially separate from Altisource and raise venture capital, which will stop the -- we hope will stop the cash burn at Altisource while maintaining an option on those businesses which are growing at an attractive pace. And so then you're left with...

I was just going to say, anything in the mortgage origination area or Lenders One or Vendorly or REALSynergy? Any other pieces of the business that's noncore that you could think about selling?

So we have some smaller businesses, Mike, which we could evaluate. But what's left really, Lenders One is left, of course. Hubzu, where we're making very, very good progress. We have our Field Services business. Those are the largest businesses, really, Hubzu and Field Services. Then, of course, we've got title, valuation, trustee, some of those other businesses. And so we're regularly evaluating what makes the most sense to keep and what makes the most sense to sell, and frankly, to optimize shareholder value. As Lee discussed, the shares, the price has been relatively flat for the last couple of years and we're as anxious as Lee and our other shareholders are to create value of the company and we're hoping some of the moves we're making will demonstrate that these parts are worth a lot of money.

Got it. And then just on Owners and Pointillist. Last quarter, you gave kind of an update on some of the trends and metrics. Can you provide some color this quarter on Owners and Pointillist? Just in terms of customer win or units and kind of what transitioned there the last 90 days.

Sure. So at Owners, I think, don't hold me to the exact numbers, but revenue was up roughly 20% or 25%. I think it's 25% from last year. And we purposefully, based on learning's from last year, dialed back some of our marketing to focus more on the seasonally strong spring and summer months. And the leading indicators already in April for that business are number of homes under contract, I think, are already up 50% in April compared to April of last year. And we still believe we're going to close to double the revenue in that business this year. In terms of Pointillist, we're making very good progress with both bookings, new customers, and our sales pipeline, and we're getting a lot of interest from our channel partners. So we're working with some leading consulting companies that are working with their clients and bringing Pointillist as a solution to them. Those customers appear to be very, very interested. We're signing up pilots with household names in the financial services industry and the cable industry, telecommunications industries. So we're pretty excited about the momentum we're getting in Pointillist as well and think it's going to have a very good year. And again, that's the reason why we're focused on really establishing these businesses as separate operations so that we can raise venture money in both of them.

And do you think that venture money is a 2019 event or a 2020 event?

So on Pointillist, we're working hard for it to be either late 2019 or into 2020. And on Owners, we're a little bit further behind in starting the process, but we're trying to get moving quickly. So I hope it would be early 2020, if not sooner.

Got it. And then I don't have -- the non-Ocwen revenue in the quarter was $38 million or about 17%. What was it in the year-ago quarter? I'm just trying to understand the overall trend there with non-Ocwen revenues.

So I think what you're seeing, Mike, is, keep in mind we sold the property management business, the BRS -- the revenue from the BRS business is down. Originations was down somewhat from the significantly slower originations this year. And I think the servicer, what we typically call the Servicer Solutions business was relatively flat, is my recollection, but with good opportunities for that to grow as the year progresses.

Got it. And then maybe just quickly on Page 7. What 1 or 2 really stick out for you there? Is it basically just the very large opportunities that we should be tracking pretty closely just as they're over $25 million? I think that top 5 servicer slid another quarter to 3Q from 2Q. But anything else to really call out there?

So on the top 5 servicer, we're going to be one -- so this is a household name, one of the largest servicers in the country. We're going to be 1 of 3 providers, 3 vendors that provide field services to them. So that definitely stands out. The -- in the middle of the page, one of the largest institutional real estate mortgage investors in the U.S., that has a tremendous opportunity. We're receiving -- they're directing the servicers in 4 states to send us all their foreclosure auctions. And we're one of three vendors providing REO sales. And we're one of two vendors doing short sales. And that's just starting to ramp up and continues to grow. And then we just boarded in March, don't hold me to that, but I think it was March, another household name, a major bank in the United States. They moved something like probably close to 600 or maybe more than 600 homes, REO homes, to us. By the way, what was interesting with this bank was we originally were going to be one of two vendors and they ultimately decided to move the whole portfolio over to us. So now we're the sole vendor doing Hubzu auctions, real estate brokerage, asset management for them as well as title and field services. And we have a second more middle, mid-tier bank that we onboarded in April and I think we've boarded 160, 170 assets. That's another client that was going to go to two vendors and ultimately decided to go to just us. So we're getting very good reception. We have a couple other wins that are going to start boarding REO, probably late in the second quarter into the third quarter, more into the third quarter. So we're making very good progress with our Hubzu and auction and asset management as well.

Well, it'll be interesting to see some of that flow through this summer and fall for Hubzu. Okay.

And I'm not showing any further questions at this time. I would now like to turn the call back to Mr. Shepro for any closing remarks.

Great. Thanks for joining the call, and have a great day.

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