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Altisource Announces Third Quarter Financial Results

LUXEMBOURG, Oct. 26, 2017 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. (“Altisource” or the “Company”) (NASDAQ:ASPS) today reported financial results for the third quarter of 2017, reporting service revenue of $224.3 million, net income attributable to Altisource of $7.0 million, adjusted net income attributable to Altisource(1) of $13.4 million, diluted earnings per share of $0.38 and adjusted diluted earnings per share(1) of $0.73.

Compared to the second quarter of 2017, service revenue declined by 6% due to the normal runoff of Ocwen Financial Corporation’s (“Ocwen”) portfolio, seasonality in the property inspection and preservation business and fewer home sales in the buy-renovate-sell business, partially offset by growth in the renovation management business. Compared to the third quarter of 2016, service revenue declined by 6% primarily from the normal runoff of Ocwen’s portfolio and Altisource Residential Corporation’s (“RESI”) smaller portfolio of non-performing loans and REO, partially offset by growth in referrals of higher fee property preservation services, growth in revenue in the buy-renovate-sell business, which began operations in the second half of 2016, and growth in the renovation management business.

Compared to the second quarter of 2017, diluted earnings per share and adjusted diluted earnings per share(1) declined by 21% and 17%, respectively, primarily from lower service revenue in certain higher margin businesses. Compared to the third quarter of 2016, diluted earnings per share and adjusted diluted earnings per share(1) declined by 30% and 19%, respectively. These declines were driven by higher investments to support the Company’s growth initiatives and service revenue mix changes. Revenue mix changes were the result of growth in the lower margin buy-renovate-sell and renovation businesses and revenue declines in other higher margin businesses primarily from the normal runoff of Ocwen’s portfolio and RESI’s smaller portfolio of non-performing loans and REO. The declines in diluted earnings per share and adjusted diluted earnings per share(1) were partially offset by a lower effective tax rate in the third quarter of 2017 compared to the third quarter of 2016.

Third Quarter 2017 Highlights Include(2):

  • Strong quarter with service revenue of $224.3 million, operating cash flow of $34.6 million and adjusted operating cash flow(1) of $44.1 million
    – On target to exceed the mid-point of our full year 2017 scenarios for service revenue and to be within the range of the midpoint of our full year 2017 scenarios(3) for adjusted diluted earnings per share

  • Growing diversification momentum with non-Ocwen/non-New Residential Investment Corp. (“NRZ”) client revenue
    – Three notable recent wins in the Servicer Solutions business and one in the Origination Solutions business (in the third quarter and early fourth quarter)
    – Tangible improvements in lead conversions in the Consumer Real Estate Solutions business
    – Continued transition of the Real Estate Investor Solutions business with a focus on (1) directly buying, renovating, leasing and selling homes, (2) providing renovation management services and (3) developing and growing our rental and investor property data sales

  • Continued execution on opportunistic debt and share repurchases
    – Purchased $24.1 million of the Company’s senior secured term loan at an average discount of 7.5%, generating a $1.5 million gain
    – Repurchased 273 thousand shares of Altisource’s common stock at an average price of $23.48 per share

  • Prior investments and long-term contractual relationships provide strong free cash flow generation and a high degree of visibility into future earnings
    – On August 28, 2017, entered into a long-term Cooperative Brokerage Agreement with NRZ, one of the largest and most active owners of non-GSE MSRs in the industry, to provide REO brokerage services on NRZ MSRs subserviced by Ocwen and certain other non-Ocwen subserviced MSR portfolios, and a letter of intent to enter into a Services Agreement within 60 days
    – Engaged in constructive negotiations with NRZ on the Services Agreement
    – Effective as of October 23, 2017, entered into an amendment with NRZ to extend the term of the letter of intent to provide the parties until January 12, 2018 to finalize the Services Agreement, as further described in the Company’s third quarter 2017 Form 10-Q

  • Committed to investing in growth initiatives given our success in the Mortgage Market segment and our ability to leverage our experience and expansive suite of offerings to grow the newer Real Estate Market businesses

“With a very active sales pipeline and three notable recent wins in the Servicer Solutions and one in the Origination Solutions business, we are beginning to see an acceleration of the new and existing customer wins that we anticipated were going to occur earlier in the year. These recent client wins, in conjunction with our sales pipeline, strong contractual cash flows, and the continued development of our newer businesses, pave the path for a very bright future,” said Chief Executive Officer William B. Shepro.

Mr. Shepro further commented, “I am pleased with our continued strong cash flow generation, which allows us to opportunistically repurchase our debt and common stock and invest in the future growth of the Company. Since December 31, 2014, we have reduced our debt by $166.5 million, including voluntary purchases of $150.1 million par value of our debt at a weighted average discount of 11.9%, bringing our net debt less marketable securities(1) to $264.9 million at the end of the third quarter.”

Third Quarter 2017 Results Compared to Second Quarter 2017 and Third Quarter 2016:

  • Service revenue of $224.3 million, a 6% decrease compared to the second quarter 2017 and a 6% decrease compared to the third quarter 2016
  • Income before income taxes and non-controlling interests of $10.4 million, a 15% decrease compared to the second quarter 2017 and a 45% decrease compared to the third quarter 2016
  • Pretax income attributable to Altisource(1) of $9.6 million, a 17% decrease compared to the second quarter 2017 and a 47% decrease compared to the third quarter 2016
  • Adjusted pretax income attributable to Altisource(1) of $18.2 million, a 13% decrease compared to the second quarter 2017 and a 38% decrease compared to the third quarter 2016
  • Net income attributable to Altisource of $7.0 million, a 23% decrease compared to the second quarter 2017 and a 34% decrease compared to the third quarter 2016
  • Adjusted net income attributable to Altisource(1) of $13.4 million, a 19% decrease compared to the second quarter 2017 and a 24% decrease compared to the third quarter 2016
  • Diluted earnings per share of $0.38, a 21% decrease compared to the second quarter 2017 and a 30% decrease compared to the third quarter 2016
  • Adjusted diluted earnings per share(1) of $0.73, a 17% decrease compared to the second quarter 2017 and a 19% decrease compared to the third quarter 2016
  • Cash from operations of $34.6 million, a 12% increase compared to the second quarter 2017 and a 6% decrease compared to the third quarter 2016

________________________

(1) This is a non-GAAP measure that is defined and reconciled to the corresponding GAAP measure herein.
(2) Applies to the third quarter of 2017 unless otherwise indicated.
(3) The scenarios have been adjusted to reflect the anticipated impact of the agreements with NRZ and certain operational changes.

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, various risks relating to the transactions described herein, including in respect of the satisfaction of closing conditions to New Residential Investment Corp.’s acquisition of the covered MSR portfolios, including obtaining the necessary third-party approvals; uncertainties as to the timing or completion of transfers related to New Residential Investment Corp.’s acquisition of the covered MSR portfolios; potential litigation relating to the transactions; the possibility of early termination of the Cooperative Brokerage Agreement; the possibility that Altisource and New Residential Investment Corp. will not be able to negotiate a satisfactory services agreement; the inability to obtain, or delays in achieving, the expected benefits of the transactions, as well as, 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 an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing market. 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,
2017 2016 2017 2016
Service revenue
Mortgage Market $189,615 $199,176 $583,002 $584,740
Real Estate Market 21,113 21,231 64,649 68,805
Other Businesses, Corporate and Eliminations 13,580 19,375 44,603 61,841
Total service revenue 224,308 239,782 692,254 715,386
Reimbursable expenses 9,866 12,080 31,786 41,317
Non-controlling interests 805 883 2,107 1,973
Total revenue 234,979 252,745 726,147 758,676
Cost of revenue 165,032 161,922 506,458 475,919
Reimbursable expenses 9,866 12,080 31,786 41,317
Gross profit 60,081 78,743 187,903 241,440
Selling, general and administrative expenses 46,622 53,886 146,793 161,709
Income from operations 13,459 24,857 41,110 79,731
Other income (expense), net:
Interest expense (5,599) (5,952) (16,862) (18,481)
Other income (expense), net 2,497 (109) 8,015 2,608
Total other income (expense), net (3,102) (6,061) (8,847) (15,873)
Income before income taxes and non-controlling interests 10,357 18,796 32,263 63,858
Income tax provision (2,591) (7,324) (7,615) (12,808)
Net income 7,766 11,472 24,648 51,050
Net income attributable to non-controlling interests (805) (883) (2,107) (1,973)
Net income attributable to Altisource $6,961 $10,589 $22,541 $49,077
Earnings per share:
Basic $0.39 $0.57 $1.23 $2.63
Diluted $0.38 $0.54 $1.20 $2.49
Weighted average shares outstanding:
Basic 18,023 18,715 18,337 18,669
Diluted 18,429 19,568 18,854 19,738
Comprehensive income:
Net income $7,766 $11,472 $24,648 $51,050
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of income tax benefit (provision) of $2,054, $(2,070), $(78), $889, respectively (5,530) 5,016 212 (2,156)
Comprehensive income, net of tax 2,236 16,488 24,860 48,894
Comprehensive income attributable to non-controlling interests (805) (883) (2,107) (1,973)
Comprehensive income attributable to Altisource $1,431 $15,605 $22,753 $46,921


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION(1)
(in thousands)
(unaudited)
Three months ended September 30, 2017
(in thousands) Mortgage
Market
Real Estate
Market
Other Businesses,
Corporate and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $189,615 $21,113 $13,580 $224,308
Reimbursable expenses 8,842 1,008 16 9,866
Non-controlling interests 805 805
199,262 22,121 13,596 234,979
Cost of revenue 137,466 23,497 13,935 174,898
Gross profit (loss) 61,796 (1,376) (339) 60,081
Selling, general and administrative expenses 28,006 4,208 14,408 46,622
Income (loss) from operations 33,790 (5,584) (14,747) 13,459
Total other income (expense), net 26 (3,128) (3,102)
Income (loss) before income taxes and
non-controlling interests
$33,816 $(5,584) $(17,875) $10,357


Three months ended September 30, 2016
(in thousands) Mortgage
Market
Real Estate
Market
Other Businesses,
Corporate and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $199,176 $21,231 $19,375 $239,782
Reimbursable expenses 11,762 285 33 12,080
Non-controlling interests 883 883
211,821 21,516 19,408 252,745
Cost of revenue 138,646 16,634 18,722 174,002
Gross profit 73,175 4,882 686 78,743
Selling, general and administrative expenses 29,903 6,961 17,022 53,886
Income (loss) from operations 43,272 (2,079) (16,336) 24,857
Total other income (expense), net 10 (6,071) (6,061)
Income (loss) before income taxes and
non-controlling interests
$43,282 $(2,079) $(22,407) $18,796

(1) Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization. Prior year comparable period segment disclosures have been restated to conform to the current year presentation.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION(1)
(in thousands)
(unaudited)
Nine months ended September 30, 2017
(in thousands) Mortgage
Market
Real Estate
Market
Other Businesses,
Corporate and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $583,002 $64,649 $44,603 $692,254
Reimbursable expenses 29,071 2,665 50 31,786
Non-controlling interests 2,107 2,107
614,180 67,314 44,653 726,147
Cost of revenue 421,942 72,484 43,818 538,244
Gross profit (loss) 192,238 (5,170) 835 187,903
Selling, general and administrative expenses 86,493 14,084 46,216 146,793
Income (loss) from operations 105,745 (19,254) (45,381) 41,110
Total other income (expense), net 138 (8,985) (8,847)
Income (loss) before income taxes and
non-controlling interests
$105,883 $(19,254) $(54,366) $32,263


Nine months ended September 30, 2016
(in thousands) Mortgage
Market
Real Estate
Market
Other Businesses,
Corporate and
Eliminations
Consolidated
Altisource
Revenue
Service revenue $584,740 $68,805 $61,841 $715,386
Reimbursable expenses 39,809 1,424 84 41,317
Non-controlling interests 1,973 1,973
626,522 70,229 61,925 758,676
Cost of revenue 408,412 47,946 60,878 517,236
Gross profit 218,110 22,283 1,047 241,440
Selling, general and administrative expenses 90,498 18,755 52,456 161,709
Income (loss) from operations 127,612 3,528 (51,409) 79,731
Total other income (expense), net 144 (16,017) (15,873)
Income (loss) before income taxes and
non-controlling interests
$127,756 $3,528 $(67,426) $63,858

(1) Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization. Prior year comparable period segment disclosures have been restated to conform to the current year presentation.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
September 30,
2017
December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents$114,123 $149,294
Available for sale securities46,044 45,754
Accounts receivable, net63,177 87,821
Prepaid expenses and other current assets59,880 42,608
Total current assets283,224 325,477
Premises and equipment, net80,823 103,473
Goodwill86,283 86,283
Intangible assets, net128,289 155,432
Deferred tax assets, net7,214 7,292
Other assets10,568 11,255
Total assets$596,401 $689,212
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses$83,352 $83,135
Accrued litigation settlement 32,000
Current portion of long-term debt5,945 5,945
Deferred revenue9,746 8,797
Other current liabilities10,982 19,061
Total current liabilities110,025 148,938
Long-term debt, less current portion414,431 467,600
Other non-current liabilities7,796 10,480
Commitments, contingencies and regulatory matters
Equity:
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 17,905 outstanding as of September 30, 2017; 25,413 shares authorized and issued and 18,774 outstanding as of December 31, 2016)25,413 25,413
Additional paid-in capital111,457 107,288
Retained earnings342,111 333,786
Accumulated other comprehensive loss(1,533) (1,745)
Treasury stock, at cost (7,508 shares as of September 30, 2017 and 6,639 shares as of December 31, 2016)(414,668) (403,953)
Altisource equity62,780 60,789
Non-controlling interests1,369 1,405
Total equity64,149 62,194
Total liabilities and equity$596,401 $689,212



ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
September 30,
2017 2016
Cash flows from operating activities:
Net income$24,648 $51,050
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization27,411 27,521
Amortization of intangible assets27,143 36,432
Change in the fair value of acquisition related contingent consideration24 (1,174)
Share-based compensation expense3,237 4,692
Bad debt expense3,101 763
Gain on early extinguishment of debt(5,419) (5,464)
Amortization of debt discount225 307
Amortization of debt issuance costs625 850
Deferred income taxes 17
Loss on disposal of fixed assets2,776 30
Changes in operating assets and liabilities:
Accounts receivable21,543 3,505
Prepaid expenses and other current assets(17,272) (10,167)
Other assets760 496
Accounts payable and accrued expenses165 7,005
Other current and non-current liabilities(41,838) (9,828)
Net cash provided by operating activities47,129 106,035
Cash flows from investing activities:
Additions to premises and equipment(7,485) (16,525)
Acquisition of businesses, net of cash acquired (9,617)
Purchase of available for sale securities (48,219)
Change in restricted cash(73)
Other investing activities 266
Net cash used in investing activities(7,558) (74,095)
Cash flows from financing activities:
Repayment and repurchases of long-term debt(48,600) (49,237)
Proceeds from stock option exercises2,084 8,876
Purchase of treasury shares(24,995) (34,321)
Distributions to non-controlling interests(2,143) (1,637)
Payment of tax withholding on issuance of restricted shares(1,088)
Net cash used in financing activities(74,742) (76,319)
Net decrease in cash and cash equivalents(35,171) (44,379)
Cash and cash equivalents at the beginning of the period149,294 179,327
Cash and cash equivalents at the end of the period$114,123 $134,948
Supplemental cash flow information:
Interest paid$16,203 $17,244
Income taxes paid, net15,445 14,178
Non-cash investing and financing activities:
Increase in payables for purchases of premises and equipment$52 $2,458

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, adjusted diluted earnings per share, adjusted operating cash flow and net debt less marketable securities are non-GAAP measures used by management, existing shareholders, potential shareholders and other users of our financial information to measure Altisource’s performance and do not purport to be alternatives to income before income taxes and non-controlling interests, net income attributable to Altisource, diluted earnings per share, operating cash flow or long-term debt, including current portion as measures of Altisource’s performance. We believe these measures are useful to management, existing shareholders, potential shareholders and other users of our financial information in evaluating operating profitability more on a continuing cost basis as they exclude amortization expense related to acquisitions that occurred in prior periods as well as the effect of more significant non-recurring items from earnings and cash flows from operations and long-term debt net of cash on hand and marketable securities. We believe these measures are also useful in evaluating the effectiveness of our operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. Furthermore, we believe the exclusion of more significant non-recurring items enables comparability to prior period performance and trend analysis.

It is management’s intent to provide non-GAAP financial information to enhance the understanding of Altisource’s GAAP financial information, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies. The non-GAAP financial information should not be unduly relied upon.

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 pretax income attributable to Altisource. Adjusted net income attributable to Altisource is calculated by adding intangible asset amortization expense (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), by the weighted average number of diluted shares. Adjusted operating cash flow is calculated by adding short-term real estate investments related to the buy-renovate-sell program to cash provided by operating activities. Net debt less marketable securities is calculated as long-term debt, including current portion, less cash and cash equivalents and marketable securities.

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

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,
2017 2016 2017 2017 2016
Income before income taxes and non-controlling interests$10,357 $18,796 $12,160 $32,263 $63,858
Non-controlling interests(805) (883) (687) (2,107) (1,973)
Pretax income attributable to Altisource9,552 17,913 11,473 30,156 61,885
Intangible asset amortization expense8,604 11,465 9,393 27,143 36,432
Adjusted pretax income attributable to Altisource$18,156 $29,378 $20,866 $57,299 $98,317
Net income attributable to Altisource$6,961 $10,589 $9,035 $22,541 $49,077
Intangible asset amortization expense8,604 11,465 9,393 27,143 36,432
Tax benefit from intangible asset amortization(2,152) (4,467) (1,883) (6,407) (7,307)
Intangible asset amortization expense, net of tax6,452 6,998 7,510 20,736 29,125
Adjusted net income attributable to Altisource$13,413 $17,587 $16,545 $43,277 $78,202
Diluted earnings per share$0.38 $0.54 $0.48 $1.20 $2.49
Intangible asset amortization expense, net of tax, per diluted share0.35 0.36 0.40 1.10 1.48
Adjusted diluted earnings per share$0.73 $0.90 $0.88 $2.30 $3.96
Weighted average shares outstanding - diluted18,429 19,568 18,836 18,854 19,738
Cash provided by operating activities$34,612
Investments in short-term real estate9,530
Adjusted operating cash flow$44,142
Sept. 30, 2017
Long-term debt, including current portion$425,067
Less: Cash and cash equivalents(114,123)
Less: Marketable securities(46,044)
Net debt less marketable securities$264,900

__________________________

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

CONTACT: Indroneel Chatterjee Chief Financial Officer T: +352 2469 7988 E: Indroneel.Chatterjee@altisource.com

Source:Altisource Portfolio Solutions S.A.