AAMC: The Short But Revealing Altisource Asset Management Q2 2023 Earnings Call

Altisource Asset Management Corporation (NYSE: AAMC) reported its Q2 2023 financials and as the firm puts it: the results “were similar to the first quarter of 2023.” The firm ended the quarter with $1.9 million in revenue compared to last quarter’s $2.1 million and last year’s $0.5 million.

With ballooning expenses totaling $6.1 million for the quarter, the firm still ended with a net loss of $3.8 million. In Q1 2023, total expenses were $5.7 million leading to a net loss of $3.0 million while Q2 2022 had total expenses of $4.3 million and a net loss of$4.1 million.

The firm’s shares have plummeted as much as 72% since Monday after releasing the financials. Aside from the disappointing numbers, the firm also recapped new developments including a favorable ruling in its litigation with shareholder Luxor, an ongoing lawsuit against Blackrock and PIMCO, and the approval of a 2-for-1 stock split.

Lending in review

However, more color on the company’s performance and management was revealed during the earnings call that followed.

First, absent was the discussion of the company’s financial performance. Instead, a board member, Charlie Frischer, was tasked to face the analysts, starting his update on the aforementioned legal battles.

In talking about the company’s lending operations, all that Frischer mentioned is that “the Board of Directors is undertaking a comprehensive assessment to determine what can be done to improve the performance of this business to bring it in line with the expectations of the Board and [the] shareholders.”

“Our fix and flip, construction and other lending programs have not achieved profitability as fast as initially anticipated,” Frischer explained. “We are reviewing multiple initiatives to address operational capacity issues, reduce costs, improve liquidity and enhance overall performance.”

While said review is still in progress, Frischer said that the company is actively working to expedite the process of transferring loans from credit lines. Concurrently, the firm is also in “search for additional capital-light asset management businesses” that could be accretive to its business and shareholder value.

“We recently received a proposal regarding a new technology developed by an R&D venture led by AAMC shareholder, William Erbey,” he continued.

Going EV?

Frischer then called on Erbey to take the floor. The supposed earnings call then became a presentation of a new venture the firm is looking at–optimizing electric vehicles (EV).

“As he will explain, this patented breakthrough technology is designed to substantially reduce energy loss and heat generation in electric vehicles, thereby increasing their range and efficiency,” Frischer prefaced.

Tentatively called Alpha Control System, the patented technology aims to improve the efficiency and address the lack of range in electric vehicles.

“Beginning in 2017, my concept is to utilize multiple motors with unique peak efficiencies at various torque and speed combinations throughout the drive cycle and engage those motors through our standard optimization algorithm, such as the most efficient motor or motors are always being utilized. We’re using mathematics to solve a physical problem,” said Erbey, who owns 45% of the company and is its largest shareholder.

Initial test results indicate a 50% reduction in energy loss and heat generation, resulting in an 8% increase in range, as Erbey reported.

“The key point is the greater the variability in torque and speed, the greater the opportunity to increase efficiency with our patent. Alpha Controls owns 2 U.S. patents and 1 U.K. patent with additional patents pending,” he further explained.

Erbey also said that the initial assessment indicates a potential total market size of $49.5 billion and a serviceable addressable market of $9.2 billion on an annual basis for the intellectual property (IP). Importantly, Alpha operates as a licensed model in a geographically advantageous jurisdiction for tax benefits. As operations expand, a substantial portion of revenue is expected to translate into post-tax earnings.

Tapping into this new venture, the company projects primary out-of-pocket expenses would be approximately $7 million to $8 million in working capital over the next 18 to 24 months. Frischer added that “there would be a stock-based earn-out and increments of 10% of company stock earned when the firm’s share price exceeds $100 and as the share climbs above each $100 threshold thereafter adjusted for appreciation attributed to lending.”

“SeaBird receives a 10% ownership in Alpha when revenues attributable to partner’s efforts exceeds $500 million per year. Again, this is a licensing model,” Erbey concluded.

No CEO, no comment on operations

A question from one of the analysts the only analyst during the earnings call inquired about CEO Jason Kopcak, who was not on the call.

“No, Jason is not on the call. Jason is working on our strategic review. And — but we’ve had the decision to make that not have him on the call,” replied Frischer.

When the analyst asked about any comment on the lending operations, Frischer skirted to answer the question and reiterated the aforementioned review of the business instead.

“[We’re] not looking to take questions on the specifics of Lending Operations until our overall review is completed,” he said. “I will tell you… we are in this position because the Lending Operations, as you can see by our quarterly results, wasn’t meeting our expectations.”

The analyst also further prodded on “capital-light asset management businesses” to which Frischer responded by making Erbey’s EV venture as an example.

“The revenues will largely be licensing. We’ll have no production. We will have no manufacturing really to speak of,” he added.

As the final question from the analyst–and from the call itself–Frischer was asked about the firm’s commitment to the New York Stock Exchange listing in terms of maintaining a certain level of market cap. The analyst noted that the decline in share price puts the company precariously below the commitment level.

Frischer only replied with a noncommittal: “Yes, I think we’ll be proactive in maintaining — taking best efforts to have a listing that’s acceptable to shareholders.”

With the recent major decline in its share price, the firm erased the gains it gathered in the first half of the year. Year-to-date, the company saw its market cap fall by as much as 50%.

Information for this story was found via Seeking Alpha and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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