AAMC - Altisource Asset Management Corporation (AAMC) Q2 2023 Earnings Call Transcript

2023-08-14 23:15:20 ET

Altisource Asset Management Corporation (AAMC)

Q2 2023 Results Conference Call

August 14, 2023 04:15 PM ET

Company Participants

Danya Sawyer - Chief Operating Officer of Lending Operations

Charles Frischer - Board Member

William Erbey - Shareholder

Presentation

Operator

Good day, and welcome to the AAMC Investor Call. Today's call is being recorded. At this time, I would like to turn the conference over to Danya Sawyer. Please go ahead.

Danya Sawyer

Good afternoon, everyone, and welcome to AAMC's Q2 2023 Earnings Conference Call. I'm Danya Sawyer, the Chief Operating Officer of Lending Operations at AAMC. Before we begin, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not historical in nature. As described under Risk Factors in our annual report on Form 10-K, forward-looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs, expectations, estimates and projections.

Consequently, you should not rely on these forward-looking statements as predictions of future events. Statements made during this conference call are made as of today's date, and the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

As previously mentioned, today's call is being recorded, and a link to this webcast will be posted to our website later today.

Now I'd like to turn the call over to Charlie Frischer, member of our Board of Directors. Charlie?

Charles Frischer

Thank you, Danya, and thanks, everyone, for joining us today. I will report on positive developments in our significant legal matters, provide an update on our Lending Operations and talk about a potential new investment opportunity we are considering for the company. In the preferred shareholder case in New York, in June, the Appellate Division ruled in AAMC's favor and held that we did not breach any contractual obligation to redeem Luxor's preferred shares.

Luxor now seeks to take a second appeal, which we have opposed. We have also opposed a motion to dismiss our separate action in USVI Federal Court against Luxor Partner and former AAMC Director, Nathaniel Redleaf, alleging breach of fiduciary duty to AAMC. In a lawsuit against Blackrock and PIMCO in USVI Superior Court, AAMC status has been converted to party plaintiff.

Last month, a Staff Master assigned by the court to review pending motions issued his recommendations. He concluded that the court should exercise jurisdiction over 4 of the 5 Blackrock entity defendants and both of the PIMCO defendants. The Staff Master also recommended that all of AAMC tort and CICO claims -- damage claims be permitted to proceed.

The party's responses to the Staff Master's recommendations are due to be filed later this month. For detailed information regarding these matters, please refer to litigation disclosures contained in our second quarter 10-Q and prior public filings.

Let me now turn to the company's Lending Operations. 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 our shareholders. Our fix and flip, construction and other lending programs have not achieved profitability as fast as initially anticipated.

We are reviewing multiple initiatives to address operational capacity issues, reduce costs, improve liquidity and enhance overall performance. During the pendency of this review, which is ongoing, we are taking steps to move loans more quickly off our lines of credit. As we review our Lending business and as we continue our search for additional capital-light asset management businesses that could be accretive to our business and shareholder value, we want to report an interesting opportunity. We recently received a proposal regarding a new technology developed by an R&D venture led by AAMC shareholder, William Erbey. We invited Bill to join the call today to present this opportunity.

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. Given the enormous addressable EV market, these technology advances have significant upside potential. The opportunity is a pure intellectual property licensing play with low capital requirements.

Structure and other details are still under discussion, but we have agreed in principle that the company's upfront cash commitment would be 0. The company's primary out-of-pocket expenses would be approximately $7 million to $8 million in working capital over the next 18 to 24 months. These amounts would be extended as the technology is positioned for full commercialization.

There would be a stock-based earn-out and increments of 10% of company stock earned when our share price exceeds $100 and as the share climbs above each $100 threshold thereafter adjusted for appreciation attributed to lending. Any transactions would, of course, be subject to definitive contract documents and the presentation that Bill is going to give is also going to be placed upon onto our website.

At this time, I invite Bill to present this technology. Bill?

William Erbey

Thank you, Charlie. Good afternoon. First, let me caveat this presentation by saying there are no guarantees that the [Alpha] Control System will be technologically or commercially successful and that all elements of the presentation represent our understanding at the present time. The principal challenge of electromotive vehicles is their lack of range, which is caused by electric motors having an eye of high efficiency or over a narrow range of torque and speed.

Outside the eye of high efficiency, efficiency and range rapidly declined. 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. Our test results indicate a 50% reduction in energy loss and heat generation and -- resulting in an 8% increase in range.

The market for electromotive vehicles, cars, trucks, construction and mining equipment is large and rapidly growing. To penetrate the market, we are engaged with a world-class engineering team with outstanding industry contacts with the next steps being prototype development and commercialization. The two greatest challenges of electric vehicles are range and heat dissipation as corroborated by both Elon Musk and Peter Rawlinson, the CEO of Lucid Motors. The graph is one representation of the efficiency curve of an electric motor.

There is a very narrow range of torque and speed where given electric motor is highly efficient. Outside that range, efficiency and hence range declined rapidly. The opportunity lies in selecting multiple electric motors having peak efficiencies at various combinations of torque and speed, combining multiple motors with a control system which optimizes motor selection, significantly enhances efficiency and range.

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. Our patents cover not only optimized motor selection under driving conditions for a given set of motors but also can be utilized to select the optimal combination of motors to be installed in a particular electromotive vehicle.

We've completed the technical and commercial assessment with our partner, which covered patent evaluation, simulation, modeling and testing and commercial feasibility and value assessment. Simulation occurred at the University of Bath in England at the world renounced IAAPS Advanced Propulsion Center.

The simulation concluded that for a Tesla Model 3, the patent technology will increase range by 8.4%. This can also have the significant impact on the environment, not only will the vehicle generate far less heat but to the extent fossil fuels are used to generate the electricity, less pollution, and again, less heat generated.

Please keep in mind that these results are simulations granted with actual motors. However, ultimately results in terms of performance enhancement and value created may vary widely in commercial application. The commercial assessment by our partner concluded that for the Tesla Model 3, which represents 19% of Tesla sales that the value created under 3 business cases was between $105 million and $393 million per year.

There is upside potential and range improvement. Current motor design is focused on single motor automotive use. The existing motors are very inefficient in low torque and speed conditions. Our partner is evaluating motors developed for other applications, which can be utilized as well as speaking with motor manufacturers to develop a motor specifically for this application.

Our partner's preliminary evaluation of the IP is the total available market of $49.5 billion and a serviceable available market of $9.2 billion annually. Of course, these are any projections and should not be relied upon. Keep in mind, however, Alpha is a licensed model in a highly tax advantaged location. At scale, most revenue should translate into after-tax earnings.

Early on, I recognized that I had neither the expertise nor the industry contacts to develop and commercialize the patent. Therefore, I sought out and was able to reach an agreement with one of the leading firms in the electromotive vehicles. It is the Alejandro Agag group of companies at the Formula E, the electric equivalent of Formula 1; the Extreme E, which is electric off-road racing; and E1, which is electric boat racing, along with SeaBird Technologies, which is responsible for motor development.

Many of the same constructors have participated in Formula 1 participated in Formula E, Jaguar, McLaren, Maserati, Nissan and Porsche. Supporting SeaBird is purple sector led by Mark Mathieson and his team. Mark is a former Chief Engineer of Powertrain Research at McLaren Engineering.

The next phase of the project is prototype development and commercialization, both Richard and Mark believe that developing a protocol will significantly increase our commercial returns. The prototype in commercialization are projected across between $7 million and $8 million and will require up to 18 months. The partner development contract demonstrates conviction in technology and commercial application by a world-class partner.

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. SeaBird is our exclusive worldwide distributor for 2 years, and we'll receive 10% of revenue up to $250 million and 20% of revenue over $250 million per annum. Thank you for your time.

Charles Frischer

Thanks. That was really helpful, Bill. I hope people appreciated the presentation. At this time, we'd be happy to take questions on the Alpha technology presentation and also at the end of this, I'll have a few special comments for the folks on the call. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from Jeff Moore with [Borough] Capital.

Unidentified Analyst

I'm curious, where is Jason? Is he on the call or...

Charles Frischer

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.

Unidentified Analyst

Okay. Got you. Okay. Can you comment any on the -- I guess, the general status of the Lending Operations?

Charles Frischer

Yes. We're not looking to take questions on the specifics of Lending Operations until our overall review is completed. I will tell you, Jeff, that it's just -- we are in this position because the Lending Operations, as you can see by our quarterly results, wasn't meeting our expectations, and we're being proactive in trying to make adjustments to make it profitable or to make the decision what to do with the operation in its entirety.

Unidentified Analyst

Okay. Well, thanks for being proactive about that. I think earlier you mentioned something about asset-light managers -- management services and stuff that you were looking at. And I may be misremembering that, but something to that effect, could you talk about that anything?

Charles Frischer

Yes. I think, Jeff, the way we think about it is with the business that Bill presented, it's the ultimate asset-light business. The revenues will largely be licensing. We'll have no production. We will have no manufacturing really to speak of.

And the vast majority of the revenue would drop down to the bottom line. So I think that really is a great example of what we're trying to do. So if you have one more question, Jeff?

Unidentified Analyst

Yes. Just one more and then I'll shut up. What's your commitment to the New York Stock Exchange listing? I know that the total market cap of the company, if I remember right, needs to be more than $50 million? It looks like after hours, you guys are about half that.

What's your commitment to maintaining that listing and whatnot?

Charles Frischer

Yes, I think we'll be proactive in maintaining -- taking best efforts to have a listing that's acceptable to shareholders.

Operator

[Operator Instructions] And we have no further phone questions.

Charles Frischer

Okay, operator. That's very helpful. I'd like to make a few final comments. First of all, thank you for joining us today. I would like to say that I've gotten to know Bill Erbey pretty well over the last few weeks and months, and I found him to be very smart, hard-working and with excellent judgment.

I think having Bill involved with the company in the future will be a strong addition, and he will hopefully help create value for shareholders.

As the largest shareholder with 45% ownership of the company, he has tremendous incentive to see the stock price move higher over time. I also look forward to providing more details regarding the review of the mortgage business over the next few months as we continue with the evaluation and improvements.

I've also put my [indiscernible] information on the company's press release if folks have additional questions or comments. The Board is excited about the possibilities of the control system technology. No venture is without risk, but licensing IP assets designed to extend the range of electric vehicles to provide significant return to shareholders, if successful.

We've also worked hard to create a potential acquisition with no cash consideration today and one that only earns a return for the seller if AAMC stock enjoys quite oversized returns. Thank you very much for your time today.

Operator

This concludes today's call. Thank you for your participation, and you may now disconnect.

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