Altisource's Diversification Pivot: Replacing Rithm with Growth in a Tough Market
Service revenue up 19% as non-Onity/Rithm customers reach 65%; Hubzu inventory surges 30%.
ASPS · Earnings Call · 2026-07-23
A Pivot That's Working
Altisource's second-quarter report is a story of a company successfully executing a pivot away from its anchor customer, Rithm, toward a more diversified base. CEO Bill Shepro opened the call by noting that “Service revenue growth from customer wins has more than replaced the loss of a portion of the Rithm-related business” — William Shepro, Chief Executive Officer · 2026-07-23. The numbers back him up: total service revenue rose 19% year-over-year to $48.7 million, with the Origination segment up 62%. The shift is stark in the revenue mix — “revenue from customers other than Onity Rithm and those associated with Onity and Rithm's portfolios increased to 65% of total service revenue from 46%” — William Shepro, Chief Executive Officer · 2026-07-23, the highest since the company went public in 2009. This customer diversification is the core of the turnaround narrative, reducing reliance on a single client that has been actively transferring servicing away. The financial traction is visible in the fundamentals, though the company remains a work in progress. Total revenue has inflected upward, reaching $48M in the latest reported quarter (period-end 2026-04-17), up from $43M in the prior quarter, though still a fraction of the $256M peak in 2016. Gross margin is holding around 28%, and the company swung to positive free cash flow of $3M in Q1 2026 after years of negative FCF — a meaningful sign that the cost base is finally aligning with the smaller, more diversified revenue stream.Hubzu Inventory: The Leading Indicator
A key barometer for future revenue is the Hubzu inventory, which “grew 30% in the last quarter to 22,300 assets from 17,200 assets at March 31, 2026” — William Shepro, Chief Executive Officer · 2026-07-23. Management is careful to note the lag between inventory and revenue realization. In Q&A, Shepro explained the typical timeline: “when you receive an REO file, it could take anywhere from, let's say, 9 to 12 months to sell” — William Shepro, Chief Executive Officer · 2026-07-23, and foreclosure referrals similarly take around 12 months to reach sale. This means the inventory surge is essentially a pipeline of future revenue — and a positive signal for the second half of 2026 and into 2027. The uptick in foreclosure sales is also supportive. The company noted that 90-plus-day delinquent mortgages plus loans in foreclosure totaled 857,000, up 28% from May 2025, and that foreclosure starts and sales rose 14% and 19% respectively in the first five months of 2026. While volumes remain far below pre-pandemic levels, the direction is favorable for a company whose countercyclical sales wins are already ramping.Debt, Cash, and the Road to Project 45
The company also continues to manage leverage. Shepro highlighted that they repurchased $2 million of the term loan during the quarter, and in Q&A he laid out the philosophy:The balance sheet remains highly levered — Effective net cash is a negative $138 million — but the company is generating positive operating cash flow, and management believes the improving EBITDA trajectory will eventually support refinancing. The company is guiding to roughly flat Q3 adjusted EBITDA and a higher Q4, with the longer-term target of $45 million in run-rate adjusted EBITDA by Q4 2028 ("Project 45"). The recent momentum in revenue and pipeline supports this trajectory, but execution risk remains.if we have the opportunity to opportunistically buy back debt, we think that's a good use of cash, particularly when we're buying back at a discount.