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Altisource Announces Second Quarter Results; Strong Progress on Strategic Initiatives

LUXEMBOURG, July 21, 2016 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. (“Altisource”) (NASDAQ:ASPS) today reported financial results for the second quarter of 2016, generating strong cash flows from operations and service revenue growth. Compared to the first quarter of 2016, service revenue growth was driven by an increase in the number of non-Ocwen and Ocwen homes sold on Hubzu® and a higher volume of property preservation referrals. Compared to the second quarter of 2015, service revenue growth was driven by a higher volume of property preservation referrals, growth in the percentage of homes sold through auction on Hubzu and growth in the number of non-Ocwen homes sold on Hubzu.

Compared to the first quarter of 2016, growth in diluted earnings per share and adjusted diluted earnings per share(1) was primarily from changes in service revenue mix and greater gains on debt repurchases, partially offset by lower technology revenue from Ocwen and transaction costs associated with the purchase of Altisource Residential Corporation (“RESI”) stock. Compared to the second quarter of 2015, the decline in diluted earnings per share and adjusted diluted earnings per share(1) was primarily from changes in service revenue mix, greater investment in our growth initiatives, lower technology revenue from Ocwen, transaction costs associated with the purchase of RESI stock and the inclusion of one-time Equator® and HLSS gains in the second quarter of 2015, partially offset by greater gains on debt repurchases.

Second Quarter 2016 Results Compared to First Quarter 2016 and Second Quarter 2015:

  • Service revenue of $241.3 million, a 3% increase compared to the first quarter 2016 and a 2% increase compared to the second quarter 2015
  • Net income attributable to Altisource of $20.0 million, an 8% increase compared to the first quarter 2016 and a 56% decrease compared to the second quarter 2015
  • Adjusted net income attributable to Altisource(1) of $31.0 million, a 5% increase compared to the first quarter 2016 and a 34% decrease compared to the second quarter 2015
  • Diluted earnings per share of $1.02, an 11% increase compared to the first quarter 2016 and a 54% decrease compared to the second quarter 2015
  • Adjusted diluted earnings per share(1) of $1.58, a 7% increase compared to the first quarter 2016 and a 31% decrease compared to the second quarter 2015
  • Cash from operations of $40.4 million, a 39% increase compared to the first quarter 2016 and a 43% decrease compared to the second quarter 2015

“I am very pleased with our performance in the second quarter of 2016 and through the first half of the year. We are executing well against our strategic initiatives and believe we are on track to achieve or exceed adjusted diluted earnings per share(1) of $6.00 per share, the midpoint of our updated scenarios(2),” said Chief Executive Officer William B. Shepro.

Shepro further commented, “We continue to make strong progress in growing our sales pipeline and developing a compelling suite of real estate and mortgage marketplace services. We have grown adjusted service revenue unrelated to Ocwen(1) by more than 40% in each of the last two years and anticipate the growth to exceed this in 2016. We believe this positions us to transform Altisource into a larger, more profitable company with a diversified and growing revenue base.”

Second Quarter 2016 highlights include:

Initiatives

  • Began providing property inspection and preservation services for a top four bank
  • Received approval from a top ten bank client to also provide it with short sale services
  • Executed a contract with a mortgage insurance company to manage its REO(3)
  • Selected by a top ten bank to provide Equator software to manage its short sales; this bank is evaluating Altisource for additional services
  • Grew second quarter 2016 service revenue in the Origination Solutions businesses by 20% over the first quarter of 2016

Capital Allocation

  • Repurchased $51.0 million of our senior secured term loan at a weighted average discount of 13.2%, recognizing a net gain of $5.5 million on the early extinguishment of debt
  • Repurchased $8.1 million of our common stock (0.3 million shares at an average price of $26.74 per share)
  • Purchased 1.6 million shares of RESI’s common stock for $18.8 million

__________________________

(1) This is a non-GAAP measure that is defined and reconciled to the corresponding GAAP measure herein.
(2) The 2016 scenarios have been adjusted to reflect our results for the first half of the year and anticipated performance for the balance of the year. The mid-point of the scenarios for adjusted diluted earnings per share remains the same as previously communicated.
(3) Executed in July 2016

Forward-Looking Statements

This press release contains forward-looking statements that involve a number of risks and uncertainties. These forward-looking statements include all statements that are not historical fact, including statements about management’s beliefs and expectations. These statements may be identified by words such as “anticipate,” “intend,” “expect,” “may,” “could,” “should,” “would,” “plan,” “estimate,” “seek,” “believe,” “potential” and similar expressions. Forward-looking statements are based on management’s beliefs as well as assumptions made by and information currently available to management. Because such statements are based on expectations as to the future and are not statements of historical fact, actual results may differ materially from what is contemplated by the forward-looking statements. Altisource undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. The risks and uncertainties to which forward-looking statements are subject include, but are not limited to, Altisource’s ability to integrate acquired businesses, retain key executives or employees, retain existing customers and attract new customers, general economic and market conditions, behavior of customers, suppliers and/or competitors, technological developments, governmental regulations, taxes and policies, availability of adequate and timely sources of liquidity and other risks and uncertainties detailed in the “Forward-Looking Statements,” “Risk Factors” and other sections of Altisource’s Form 10-K and other filings with the Securities and Exchange Commission.

Webcast

Altisource will host a webcast at 11:00 a.m. EDT today to discuss our second quarter results. A link to the live audio webcast will be available on Altisource’s website in the Investor Relations section. Those who want to listen to the call should go to the website at least fifteen minutes prior to the call to register, download and install any necessary audio software. A replay of the conference call will be available via the website approximately two hours after the conclusion of the call and will remain available for approximately 30 days.

About Altisource

Altisource Portfolio Solutions S.A. is a premier marketplace and transaction solutions provider for the real estate, mortgage and consumer debt industries. Altisource’s proprietary business processes, vendor and electronic payment management software and behavioral science-based analytics improve outcomes for marketplace participants. Additional information is available at www.Altisource.com.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
Three months ended
June 30,
Six months ended
June 30,
2016 2015 2016 2015
Service revenue
Mortgage Services $194,110 $165,674 $377,272 $310,055
Financial Services 19,734 23,350 39,810 45,663
Technology Services 38,100 55,992 78,747 107,962
Eliminations (10,620) (8,421) (20,225) (19,269)
Total service revenue 241,324 236,595 475,604 444,411
Reimbursable expenses 13,783 30,830 29,237 62,786
Non-controlling interests 692 896 1,090 1,606
Total revenue 255,799 268,321 505,931 508,803
Cost of revenue 160,588 137,329 313,997 278,199
Reimbursable expenses 13,783 30,830 29,237 62,786
Gross profit 81,428 100,162 162,697 167,818
Selling, general and administrative expenses 54,207 51,566 107,823 103,972
Change in the fair value of Equator Earn Out (7,591) (7,591)
Income from operations 27,221 56,187 54,874 71,437
Other income (expense), net:
Interest expense (5,988) (7,195) (12,529) (14,355)
Gain (loss) on HLSS equity securities and dividends received 1,431 (1,854)
Other income (expense), net 2,744 821 2,717 824
Total other income (expense), net (3,244) (4,943) (9,812) (15,385)
Income before income taxes and non-controlling interests 23,977 51,244 45,062 56,052
Income tax provision (3,291) (4,398) (5,484) (4,798)
Net income 20,686 46,846 39,578 51,254
Net income attributable to non-controlling interests (692) (896) (1,090) (1,606)
Net income attributable to Altisource $19,994 $45,950 $38,488 $49,648
Earnings per share:
Basic $1.08 $2.35 $2.06 $2.50
Diluted $1.02 $2.22 $1.94 $2.38
Weighted average shares outstanding:
Basic 18,437 19,571 18,646 19,870
Diluted 19,604 20,669 19,822 20,830
Comprehensive income:
Net income $20,686 $46,846 $39,578 $51,254
Other comprehensive income (loss), net of tax:
Unrealized loss on securities, net of income tax benefit of $3,249, $0, $2,960, $0 (7,871) (7,172)
Comprehensive income, net of tax 12,815 46,846 32,406 51,254
Comprehensive income attributable to non-controlling interests (692) (896) (1,090) (1,606)
Comprehensive income attributable to Altisource $12,123 $45,950 $31,316 $49,648


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
(unaudited)
Three months ended June 30, 2016
Mortgage
Services
Financial
Services
Technology
Services
Corporate
Items and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $194,110 $19,734 $38,100 $(10,620) $241,324
Reimbursable expenses 13,759 24 13,783
Non-controlling interests 692 692
208,561 19,758 38,100 (10,620) 255,799
Cost of revenue 127,626 14,149 42,424 (9,828) 174,371
Gross profit (loss) 80,935 5,609 (4,324) (792) 81,428
Selling, general and administrative expenses 28,607 4,204 7,440 13,956 54,207
Income (loss) from operations 52,328 1,405 (11,764) (14,748) 27,221
Total other income (expense), net 35 22 93 (3,394) (3,244)
Income (loss) before income taxes and
non-controlling interests
$52,363 $1,427 $(11,671) $(18,142) $23,977


Three months ended June 30, 2015
Mortgage
Services
Financial
Services
Technology
Services
Corporate
Items and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $165,674 $23,350 $55,992 $(8,421) $236,595
Reimbursable expenses 30,791 39 30,830
Non-controlling interests 896 896
197,361 23,389 55,992 (8,421) 268,321
Cost of revenue 112,710 15,537 47,423 (7,511) 168,159
Gross profit (loss) 84,651 7,852 8,569 (910) 100,162
Selling, general and administrative expenses 25,228 4,588 7,246 14,504 51,566
Change in the fair value of Equator Earn Out (7,591) (7,591)
Income (loss) from operations 59,423 3,264 8,914 (15,414) 56,187
Total other income (expense), net 23 2 (18) (4,950) (4,943)
Income (loss) before income taxes and
non-controlling interests
$59,446 $3,266 $8,896 $(20,364) $51,244


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
(unaudited)
Six months ended June 30, 2016
Mortgage
Services
Financial
Services
Technology
Services
Corporate
Items and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $377,272 $39,810 $78,747 $(20,225) $475,604
Reimbursable expenses 29,185 52 29,237
Non-controlling interests 1,090 1,090
407,547 39,862 78,747 (20,225) 505,931
Cost of revenue 249,144 28,407 84,317 (18,634) 343,234
Gross profit (loss) 158,403 11,455 (5,570) (1,591) 162,697
Selling, general and administrative expenses 55,576 8,513 13,998 29,736 107,823
Income (loss) from operations 102,827 2,942 (19,568) (31,327) 54,874
Total other income (expense), net 49 35 100 (9,996) (9,812)
Income (loss) before income taxes and
non-controlling interests
$102,876 $2,977 $(19,468) $(41,323) $45,062


Six months ended June 30, 2015
Mortgage
Services
Financial
Services
Technology
Services
Corporate
Items and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $310,055 $45,663 $107,962 $(19,269) $444,411
Reimbursable expenses 62,706 80 62,786
Non-controlling interests 1,606 1,606
374,367 45,743 107,962 (19,269) 508,803
Cost of revenue 227,514 30,640 100,146 (17,315) 340,985
Gross profit (loss) 146,853 15,103 7,816 (1,954) 167,818
Selling, general and administrative expenses 45,789 9,303 14,561 34,319 103,972
Change in the fair value of Equator Earn Out (7,591) (7,591)
Income (loss) from operations 101,064 5,800 846 (36,273) 71,437
Total other income (expense), net 19 (10) (17) (15,377) (15,385)
Income (loss) before income taxes and
non-controlling interests
$101,083 $5,790 $829 $(51,650) $56,052


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
June 30, December 31,
2016 2015
ASSETS
Current assets:
Cash and cash equivalents $120,486 $179,327
Available for sale securities 38,087
Accounts receivable, net 100,165 105,023
Prepaid expenses and other current assets 27,747 21,751
Total current assets 286,485 306,101
Premises and equipment, net 114,576 119,121
Goodwill 81,406 82,801
Intangible assets, net 173,406 197,003
Deferred tax assets, net 6,917 3,619
Other assets 12,686 13,153
Total assets $675,476 $721,798
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $88,748 $91,871
Current portion of long-term debt 5,945 5,945
Deferred revenue 11,717 15,060
Other current liabilities 14,309 16,266
Total current liabilities 120,719 129,142
Long-term debt, less current portion 469,776 522,233
Other non-current liabilities 16,561 18,153
Equity:
Common stock ($1.00 par value; 25,413 shares authorized and issued and 18,350
outstanding as of June 30, 2016; 25,413 shares authorized and issued and 19,021
outstanding as of December 31, 2015)
25,413 25,413
Additional paid-in capital 99,890 96,321
Retained earnings 403,460 369,270
Accumulated other comprehensive loss (7,172)
Treasury stock, at cost (7,063 shares as of June 30, 2016 and 6,392 shares as of
December 31, 2015)
(454,488) (440,026)
Altisource equity 67,103 50,978
Non-controlling interests 1,317 1,292
Total equity 68,420 52,270
Total liabilities and equity $675,476 $721,798


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended June 30,
2016 2015
Cash flows from operating activities:
Net income $39,578 $51,254
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 18,346 18,432
Amortization of intangible assets 24,967 17,877
Loss on HLSS equity securities and dividends received, net 1,854
Change in the fair value of acquisition related contingent consideration 193 (7,346)
Share-based compensation expense 3,569 1,315
Bad debt expense 1,041 2,143
Gain on early extinguishment of debt (5,464) (1,114)
Amortization of debt discount 201 255
Amortization of debt issuance costs 557 585
Deferred income taxes 18 5
Loss on disposal of fixed assets 9 20
Changes in operating assets and liabilities:
Accounts receivable 3,407 (6,726)
Prepaid expenses and other current assets (6,012) 4,480
Other assets 447 1,338
Accounts payable and accrued expenses (4,454) (28,557)
Other current and non-current liabilities (6,998) (1,008)
Net cash provided by operating activities 69,405 54,807
Cash flows from investing activities:
Additions to premises and equipment (12,441) (21,421)
Purchase of available for sale securities (48,219) (29,966)
Proceeds received from sale of and dividends from HLSS equity securities 28,112
Other investing activities (10) (4)
Net cash used in investing activities (60,670) (23,279)
Cash flows from financing activities:
Repayment and repurchases of long-term debt (47,751) (17,701)
Proceeds from stock option exercises 986 203
Purchase of treasury stock (19,746) (43,965)
Distributions to non-controlling interests (1,065) (1,347)
Net cash used in financing activities (67,576) (62,810)
Net decrease in cash and cash equivalents (58,841) (31,282)
Cash and cash equivalents at the beginning of the period 179,327 161,361
Cash and cash equivalents at the end of the period $120,486 $130,079
Supplemental cash flow information:
Interest paid $11,694 $13,345
Income taxes paid, net 5,618 3,490
Non-cash investing and financing activities:
Increase (decrease) in payables for purchases of premises and equipment $1,369 $(4,091)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NON-GAAP MEASURES
(in thousands, except per share data)
(unaudited)

Adjusted net income attributable to Altisource, adjusted diluted earnings per share and adjusted service revenue unrelated to Ocwen are non-GAAP measures used by management, existing shareholders and potential shareholders to measure Altisource’s performance. Adjusted net income attributable to Altisource is calculated by adding intangible asset amortization expense (net of tax) and deducting the gain associated with the reduction of the Equator earn out liability (net of tax) to GAAP net income attributable to Altisource. Adjusted diluted earnings per share is calculated by dividing net income attributable to Altisource plus intangible asset amortization expense (net of tax) less the gain associated with the reduction of the Equator earn out liability (net of tax) by the weighted average number of diluted shares. Adjusted service revenue unrelated to Ocwen is calculated by reducing the amortization of deferred revenue recorded in connection with the 2013 Equator acquisition from the applicable GAAP service revenue amount. Reconciliations of the non-GAAP measures to the corresponding GAAP measures are as follows:

Three months ended
June 30,
Six months ended
June 30,
2016 2015 2016 2015
Net income attributable to Altisource $19,994 $45,950 $38,488 $49,648
Amortization of intangible assets 12,756 8,986 24,967 17,877
Tax benefit on amortization of intangible assets (1,751) (771) (3,038) (1,530)
Amortization of intangible assets, net of tax 11,005 8,215 21,929 16,347
Gain on Equator earn out liability (7,591) (7,591)
Tax provision from the gain on Equator earn out liability 651 651
Gain on Equator earn out liability, net of tax (6,940) (6,940)
Adjusted net income attributable to Altisource $30,999 $47,225 $60,417 $59,055
Diluted earnings per share $1.02 $2.22 $1.94 $2.38
Amortization of intangible assets, net of tax, per diluted share 0.56 0.40 1.11 0.78
Gain on Equator earn out liability, net of tax, per diluted share (0.34) (0.33)
Adjusted diluted earnings per share $1.58 $2.28 $3.05 $2.84
Weighted average shares outstanding - diluted 19,604 20,669 19,822 20,830


Years ended December 31,
2015 2014 2013
Service revenue unrelated to Ocwen $193,430 $167,342 $100,236
Less: Amortization of Equator acquisition deferred revenue (32,109) (4,587)
Adjusted service revenue unrelated to Ocwen $193,430 $135,233 $95,649


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Note: Amounts may not add to the total due to rounding.

CONTACT: Michelle D. Esterman Chief Financial Officer T: +352 2469 7950 E: Michelle.Esterman@altisource.lu

Source:Altisource Portfolio Solutions S.A.