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Altisource Announces Third Quarter Results

LUXEMBOURG, Oct. 27, 2016 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. (“Altisource” or the “Company”) (NASDAQ:ASPS) today reported financial results for the third quarter of 2016, reporting strong cash flows from operations and service revenue. Service revenue growth from non-Ocwen customers and higher property preservation referrals from Ocwen largely offset the expected loss in revenue from Ocwen’s declining portfolio and lower delinquencies, resulting in a decline of only 2% compared to the third quarter of 2015.

While third quarter 2016 service revenue of $239.8 million was relatively flat compared to third quarter 2015, pretax income attributable to Altisource(1) of $17.9 million and adjusted pretax income attributable to Altisource(1) of $29.4 million declined by 56% and 42%, respectively. This was primarily the result of increased investments to support the Company’s growth initiatives, service revenue mix changes and technology price concessions provided to Ocwen effective January 1, 2016. Net income attributable to Altisource of $10.6 million was further impacted by an increase in the 2016 effective tax rate and adjustments to true-up tax expense from prior quarters, resulting in an anticipated 2016 annual effective tax rate of approximately 20%. The effective tax rate increased primarily due to lower pretax income margins which changed the expected mix of taxable income across the jurisdictions in which we operate. Over the next couple of years, the Company believes that margins will expand and the effective cash tax rate will return to a rate that is closer to Altisource’s historical rate.

“During the quarter, Altisource continued to execute on its strategy to diversify and grow its customer base through our four initiatives. We believe the investments in our diversification strategy along with the growing stability of our largest customers position us to be a larger, stronger company,” said Chief Executive Officer William B. Shepro.

Shepro further commented, “While we have experienced tremendous non-Ocwen service revenue growth over the last three years, we have not achieved our very high growth expectations for 2016. In our Servicer Solutions initiative, this is primarily a function of timing as it is taking substantially longer than anticipated to achieve stabilized revenue from new customers and close transactions from our robust pipeline of opportunities. We fully expect that we will achieve our revenue growth expectations as we reach stabilization with our newer clients and continue to win new business. In our Consumer Real Estate Solutions initiative, we launched our buy side brokerage offering in February 2016 in two initial markets. We have since expanded to 18 markets, and the good news is that the consumer interest in our offering has more than met our expectations. However, we did not have sufficient capacity to respond to all of the leads and our initial approach did not provide a sufficient in-person experience to manage a prospect from lead to home purchase. We are adjusting our operational model and the changes are beginning to make a difference, better positioning us to capitalize on this very large market opportunity.”

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

  • Service revenue of $239.8 million, a 1% decrease compared to the second quarter 2016 and a 2% decrease compared to the third quarter 2015
  • Pretax income attributable to Altisource(1) of $17.9 million, a 23% decrease compared to the second quarter 2016 and a 56% decrease compared to the third quarter 2015
  • Adjusted pretax income attributable to Altisource(1) of $29.4 million, an 18% decrease compared to the second quarter 2016 and a 42% decrease compared to the third quarter 2015
  • Net income attributable to Altisource of $10.6 million, a 47% decrease compared to the second quarter 2016 and a 71% decrease compared to the third quarter 2015
  • Adjusted net income attributable to Altisource(1) of $17.6 million, a 43% decrease compared to the second quarter 2016 and a 62% decrease compared to the third quarter 2015
  • Diluted earnings per share of $0.54, a 47% decrease compared to the second quarter 2016 and a 70% decrease compared to the third quarter 2015
  • Adjusted diluted earnings per share(1) of $0.90, a 43% decrease compared to the second quarter 2016 and a 60% decrease compared to the third quarter 2015
  • Cash from operations of $36.6 million, a 9% decrease compared to the second quarter 2016 and a 33% decrease compared to the third quarter 2015; cash from operations would have been $43.2 million had the Company not invested $6.6 million for the purchase of real estate in the Real Estate Investor Solutions business that Altisource is renovating and will resell

Third Quarter 2016 highlights include:

Servicer Solutions:

  • Executed a master services agreement with a top ten bank customer and signed a statement of work with this customer to provide Equator software to manage its short sales
  • Executed an agreement with a mortgage insurance company to manage and sell its REO
  • Acquired Granite Loan Management of Delaware, LLC, a residential and commercial loan disbursement processing, risk mitigation and construction inspection services company, for $9.6 million

Origination Solutions:

  • Grew third quarter 2016 service revenue in the Origination Solutions businesses by 22% over the second quarter of 2016

Consumer Real Estate Solutions:

  • Grew the total number of Owners.com monthly leads from 5,000 in April 2016 to 28,000 in September 2016, a 460% increase
  • Grew the total number of Owners.com real estate agents from 21 as of July 1, 2016 to 97 as of September 30, 2016
  • Launched the beta version of the Owners.com real estate agent app in mid-October 2016

Real Estate Investor Solutions:

  • Executed an agreement with RESI providing a limited waiver of Altisource’s exclusive right to provide property management and other services to RESI relating to its acquisition of single family rental homes from investment funds sponsored by Amherst Holdings LLC (the “Amherst Portfolio Acquisition”) in exchange for the right to receive a $60 million payment from RESI in the event that it sells, liquidates or otherwise disposes of 50% or more of its single family rental portfolio managed by Altisource(2)
  • Provided due diligence and title services to RESI in connection with the Amherst Portfolio Acquisition

Capital Allocation

  • Repurchased $14.6 million of our common stock (0.5 million shares at an average price of $28.68 per share)

__________________________

(1) This is a non-GAAP measure that is defined and reconciled to the corresponding GAAP measure herein.

(2) The terms are more fully described in the Amendment and Waiver Agreement which we filed with the Securities and Exchange Commission on Form 8-K on October 3, 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 third 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
September 30,
Nine months ended
September 30,
2016 2015 2016 2015
Service revenue
Mortgage Services $191,766 $182,222 $569,038 $492,277
Financial Services 17,566 21,314 57,376 66,977
Technology Services 41,544 51,437 120,291 159,399
Eliminations (11,094) (9,504) (31,319) (28,773)
Total service revenue 239,782 245,469 715,386 689,880
Reimbursable expenses 12,080 26,456 41,317 89,242
Non-controlling interests 883 851 1,973 2,457
Total revenue 252,745 272,776 758,676 781,579
Cost of revenue 161,922 147,394 475,919 425,593
Reimbursable expenses 12,080 26,456 41,317 89,242
Gross profit 78,743 98,926 241,440 266,744
Selling, general and administrative expenses 53,886 51,338 161,709 155,310
Change in the fair value of Equator Earn Out (7,591)
Income from operations 24,857 47,588 79,731 119,025
Other income (expense), net:
Interest expense (5,952) (7,041) (18,481) (21,396)
Loss on HLSS equity securities and dividends received, net (1,854)
Other income (expense), net (109) 653 2,608 1,477
Total other income (expense), net (6,061) (6,388) (15,873) (21,773)
Income before income taxes and non-controlling interests 18,796 41,200 63,858 97,252
Income tax provision (7,324) (3,303) (12,808) (8,101)
Net income 11,472 37,897 51,050 89,151
Net income attributable to non-controlling interests (883) (851) (1,973) (2,457)
Net income attributable to Altisource $10,589 $37,046 $49,077 $86,694
Earnings per share:
Basic $0.57 $1.94 $2.63 $4.42
Diluted $0.54 $1.82 $2.49 $4.19
Weighted average shares outstanding:
Basic 18,715 19,091 18,669 19,608
Diluted 19,568 20,411 19,738 20,688
Comprehensive income:
Net income $11,472 $37,897 $51,050 $89,151
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of income tax benefit (provision) of $(2,070), $0, $889, $0 5,016 (2,156)
Comprehensive income, net of tax 16,488 37,897 48,894 89,151
Comprehensive income attributable to non-controlling interests (883) (851) (1,973) (2,457)
Comprehensive income attributable to Altisource $15,605 $37,046 $46,921 $86,694


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
(unaudited)
Three months ended September 30, 2016
Mortgage
Services
Financial
Services
Technology
Services
Corporate
Items and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $191,766 $17,566 $41,544 $(11,094) $239,782
Reimbursable expenses 12,047 33 12,080
Non-controlling interests 883 883
204,696 17,599 41,544 (11,094) 252,745
Cost of revenue 132,399 13,238 38,557 (10,192) 174,002
Gross profit (loss) 72,297 4,361 2,987 (902) 78,743
Selling, general and administrative expenses 27,543 4,002 6,115 16,226 53,886
Income (loss) from operations 44,754 359 (3,128) (17,128) 24,857
Total other income (expense), net 8 28 1 (6,098) (6,061)
Income (loss) before income taxes and
non-controlling interests
$44,762 $387 $(3,127) $(23,226) $18,796


Three months ended September 30, 2015
Mortgage
Services
Financial
Services
Technology
Services
Corporate
Items and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $182,222 $21,314 $51,437 $(9,504) $245,469
Reimbursable expenses 26,433 23 26,456
Non-controlling interests 851 851
209,506 21,337 51,437 (9,504) 272,776
Cost of revenue 122,724 15,418 44,419 (8,711) 173,850
Gross profit (loss) 86,782 5,919 7,018 (793) 98,926
Selling, general and administrative expenses 23,399 4,553 7,628 15,758 51,338
Income (loss) from operations 63,383 1,366 (610) (16,551) 47,588
Total other income (expense), net 9 31 38 (6,466) (6,388)
Income (loss) before income taxes and
non-controlling interests
$63,392 $1,397 $(572) $(23,017) $41,200


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
(unaudited)
Nine months ended September 30, 2016
Mortgage
Services
Financial
Services
Technology
Services
Corporate
Items and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $569,038 $57,376 $120,291 $(31,319) $715,386
Reimbursable expenses 41,232 85 41,317
Non-controlling interests 1,973 1,973
612,243 57,461 120,291 (31,319) 758,676
Cost of revenue 381,543 41,645 122,874 (28,826) 517,236
Gross profit (loss) 230,700 15,816 (2,583) (2,493) 241,440
Selling, general and administrative expenses 83,119 12,515 20,113 45,962 161,709
Income (loss) from operations 147,581 3,301 (22,696) (48,455) 79,731
Total other income (expense), net 57 63 101 (16,094) (15,873)
Income (loss) before income taxes and
non-controlling interests
$147,638 $3,364 $(22,595) $(64,549) $63,858


Nine months ended September 30, 2015
Mortgage
Services
Financial
Services
Technology
Services
Corporate
Items and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $492,277 $66,977 $159,399 $(28,773) $689,880
Reimbursable expenses 89,139 103 89,242
Non-controlling interests 2,457 2,457
583,873 67,080 159,399 (28,773) 781,579
Cost of revenue 350,238 46,058 144,565 (26,026) 514,835
Gross profit (loss) 233,635 21,022 14,834 (2,747) 266,744
Selling, general and administrative expenses 69,188 13,856 22,189 50,077 155,310
Change in the fair value of Equator Earn Out (7,591) (7,591)
Income (loss) from operations 164,447 7,166 236 (52,824) 119,025
Total other income (expense), net 28 21 21 (21,843) (21,773)
Income (loss) before income taxes and
non-controlling interests
$164,475 $7,187 $257 $(74,667) $97,252


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
September 30,
2016
December 31,
2015
ASSETS
Current assets:
Cash and cash equivalents $134,948 $179,327
Available for sale securities 45,174
Accounts receivable, net 101,580 105,023
Prepaid expenses and other current assets 31,927 21,751
Total current assets 313,629 306,101
Premises and equipment, net 109,785 119,121
Goodwill 89,905 82,801
Intangible assets, net 162,976 197,003
Deferred tax assets, net 4,847 3,619
Other assets 12,190 13,153
Total assets $693,332 $721,798
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $101,361 $91,871
Current portion of long-term debt 5,945 5,945
Deferred revenue 10,927 15,060
Other current liabilities 13,846 16,266
Total current liabilities 132,079 129,142
Long-term debt, less current portion 468,689 522,233
Other non-current liabilities 13,790 18,153
Equity:
Common stock ($1.00 par value; 25,413 shares authorized and issued and 18,878 outstanding as of September 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 101,013 96,321
Retained earnings 359,435 369,270
Accumulated other comprehensive loss (2,156)
Treasury stock, at cost (6,535 shares as of September 30, 2016 and 6,392 shares as of December 31, 2015) (406,559) (440,026)
Altisource equity 77,146 50,978
Non-controlling interests 1,628 1,292
Total equity 78,774 52,270
Total liabilities and equity $693,332 $721,798


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
September 30,
2016 2015
Cash flows from operating activities:
Net income$51,050 $89,151
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization27,521 27,637
Amortization of intangible assets36,432 27,995
Loss on HLSS equity securities and dividends received, net 1,854
Change in the fair value of acquisition related contingent consideration(1,174) (7,302)
Share-based compensation expense4,692 3,258
Bad debt expense763 3,477
Gain on early extinguishment of debt(5,464) (1,986)
Amortization of debt discount307 379
Amortization of debt issuance costs850 1,045
Deferred income taxes17 54
Loss on disposal of fixed assets30 50
Changes in operating assets and liabilities:
Accounts receivable3,505 (19,681)
Prepaid expenses and other current assets(10,167) 2,001
Other assets496 2,085
Accounts payable and accrued expenses7,005 (20,876)
Other current and non-current liabilities(9,828) 10
Net cash provided by operating activities106,035 109,151
Cash flows from investing activities:
Additions to premises and equipment(16,525) (27,670)
Acquisition of businesses, net of cash acquired(9,617) (11,193)
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 activities266 722
Net cash used in investing activities(74,095) (39,995)
Cash flows from financing activities:
Repayment and repurchases of long-term debt(49,237) (29,087)
Proceeds from stock option exercises8,876 332
Purchase of treasury stock(34,321) (48,971)
Distributions to non-controlling interests(1,637) (2,144)
Other financing activities (500)
Net cash used in financing activities(76,319) (80,370)
Net decrease in cash and cash equivalents(44,379) (11,214)
Cash and cash equivalents at the beginning of the period179,327 161,361
Cash and cash equivalents at the end of the period$134,948 $150,147
Supplemental cash flow information:
Interest paid$17,244 $19,770
Income taxes paid, net14,178 6,638
Non-cash investing and financing activities:
Acquisition of businesses with restricted shares$ $14,427
Increase (decrease) in payables for purchases of premises and equipment2,458 (5,326)


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

Pretax income attributable to Altisource, adjusted pretax income attributable to Altisource, adjusted net income attributable to Altisource and adjusted diluted earnings per share are non-GAAP measures used by management, existing shareholders and potential shareholders to measure Altisource’s performance. Pretax income attributable to Altisource is calculated by deducting non-controlling interests from income before income taxes and non-controlling interests. Adjusted pretax income attributable to Altisource is calculated by adding intangible asset amortization expense to, and deducting the gain associated with the reduction of the Equator earn out liability from, pretax income attributable to Altisource. Adjusted net income attributable to Altisource is calculated by adding intangible asset amortization expense (net of tax) to, and deducting the gain associated with the reduction of the Equator earn out liability (net of tax) from, 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. Reconciliations of the non-GAAP measures to the corresponding GAAP measures are as follows:

Three months ended
September 30,
Three months
ended June 30,
Nine months ended
September 30,
2016 2015 2016 2016 2015
Income before income taxes and non-controlling interests$18,796 $41,200 $23,977 $63,858 $97,252
Non-controlling interests(883) (851) (692) (1,973) (2,457)
Pretax income attributable to Altisource17,913 40,349 23,285 61,885 94,795
Amortization of intangible assets11,465 10,118 12,756 36,432 27,995
Gain on Equator earn out liability (7,591)
Adjusted pretax income attributable to Altisource$29,378 $50,467 $36,041 $98,317 $115,199
Net income attributable to Altisource$10,589 $37,046 $19,994 $49,077 $86,694
Amortization of intangible assets11,465 10,118 12,756 36,432 27,995
Tax benefit on amortization of intangible assets(4,467) (811) (1,751) (7,307) (2,332)
Amortization of intangible assets, net of tax6,998 9,307 11,005 29,125 25,663
Gain on Equator earn out liability (7,591)
Tax provision from the gain on Equator earn out liability 651
Gain on Equator earn out liability, net of tax (6,940)
Adjusted net income attributable to Altisource$17,587 $46,353 $30,999 $78,202 $105,417
Diluted earnings per share$0.54 $1.82 $1.02 $2.49 $4.19
Amortization of intangible assets, net of tax, per diluted share0.36 0.46 0.56 1.48 1.24
Gain on Equator earn out liability, net of tax, per diluted share (0.34)
Adjusted diluted earnings per share$0.90 $2.27 $1.58 $3.96 $5.10
Weighted average shares outstanding - diluted19,568 20,411 19,604 19,738 20,688

__________________________

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.