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Altisource Announces Second Quarter Financial Results

LUXEMBOURG, Aug. 09, 2017 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. (“Altisource” or the “Company”) (NASDAQ:ASPS) today reported financial results for the second quarter of 2017, reporting sequential growth in service revenue, net income and earnings per share.  Compared to the first quarter of 2017, Altisource’s service revenue grew by 4% to $238.1 million, net income attributable to Altisource grew by 38% to $9.0 million and diluted earnings per share grew by 41% to $0.48.  Further, adjusted net income attributable to Altisource(1) of $16.5 million and adjusted diluted earnings per share(1) of $0.88 increased from the first quarter of 2017 by 25% and 28%, respectively.

Compared to the first quarter of 2017, service revenue growth was driven by 15% growth in non-Ocwen revenue.  Service revenue relating to Ocwen and its portfolio was flat as growth from seasonality in the property inspection and preservation business was offset by lower technology related revenue and fewer delinquent loans.  Each of the Company’s four initiatives contributed to the 15% non-Ocwen revenue growth.  Compared to the second quarter of 2016, the 1% decline in service revenue was primarily from the normal runoff of Ocwen’s portfolio and Altisource Residential Corporation’s smaller portfolio of non-performing loans and REO partially offset by growth in referrals of higher fee property preservation services and growth in home sales revenue in the buy-renovate-sell business which began operations in the second half of 2016.

Compared to the first quarter of 2017, growth in diluted earnings per share and adjusted diluted earnings per share(1) was driven by service revenue growth, margin expansion in the property preservation and REO sales businesses and a positive second quarter income tax accrual adjustment.  The second quarter $3.9 million gain on the repurchase of debt ($0 in the first quarter of 2017) was largely offset by other non-recurring expenses relating to facility closures, litigation related costs and severance.  Compared to the second quarter of 2016, diluted earnings per share and adjusted diluted earnings per share(1) decreased 53% and 44%, 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 property preservation and buy-renovate-sell businesses and revenue declines in other higher margin businesses.  Diluted earnings per share and adjusted diluted earnings per share(1) were further impacted by a higher effective tax rate in the second quarter of 2017 compared to the second quarter of 2016.

“I am pleased with our solid second quarter 2017 financial results and our accomplishments since last quarter.  We continue to develop our four initiatives to build a diversified and growing company.  We also opportunistically purchased our debt and equity at very attractive prices,” said Chief Executive Officer William B. Shepro.

Mr. Shepro further commented, “As Ocwen and New Residential Investment Corp. (“NRZ”) have previously disclosed, they recently entered into agreements to transfer Ocwen’s remaining interests in certain MSRs to NRZ with Ocwen continuing to service these portfolios.(2)  While Altisource has long-term agreements in place to provide various fee-based services on an exclusive basis to portfolios serviced by Ocwen, we believe there are benefits to also establishing a relationship with NRZ.  We are actively negotiating long-term agreements with NRZ to be the provider for downstream services.  We are making good progress and believe we are close to reaching agreement which we believe would be beneficial for both parties. However, there can be no assurance that we will be able to reach agreement on acceptable terms in the near future or at all.”

Second Quarter 2017 Highlights Include(3):

Servicer Solutions

  • Grew non-Ocwen service revenue by 11% over the first quarter of 2017 and 9% over the second quarter of 2016
  • Selected by a top 25 bank to provide REO asset management and brokerage services

Origination Solutions

  • Grew non-Ocwen service revenue by 12% over the first quarter of 2017 and 11% over the second quarter of 2016
  • Recently signed an agreement with and began providing mortgage underwriting services for a top 5 correspondent lender

Consumer Real Estate Solutions

  • Grew the number of home purchase and sale transactions to 222, a 55% increase in unit transactions and an 82% increase in service revenue over the first quarter of 2017
  • Launched Owners.com Loans as part of our strategy to provide a broader suite of services to customers

Real Estate Investor Solutions

  • Grew non-Ocwen service revenue by 25% over the first quarter of 2017 (a 4% decline compared to the second quarter of 2016)
  • Sold 46 homes in the buy-renovate-sell program, generating 49% revenue growth in this program over the first quarter of 2017, and had 101 homes in inventory at June 30, 2017

Corporate

  • Purchased $26.0 million of the Company’s senior secured term loan at an average discount of 16.5%, generating a $3.9 million gain
  • Repurchased 416 thousand shares of Altisource’s common stock at $19.17 per share

Second Quarter 2017 Results Compared to First Quarter of 2017 and Second Quarter 2016

  • Service revenue of $238.1 million, a 4% increase compared to the first quarter 2017 and a 1% decrease compared to the second quarter 2016
  • Income before income taxes and non-controlling interests of $12.2 million, a 25% increase compared to the first quarter 2017 and a 49% decrease compared to the second quarter 2016
  • Pretax income attributable to Altisource(1) of $11.5 million, a 26% increase compared to the first quarter 2017 and a 51% decrease compared to the second quarter 2016
  • Adjusted pretax income attributable to Altisource(1) of $20.9 million, a 14% increase compared to the first quarter 2017 and a 42% decrease compared to the second quarter 2016
  • Net income attributable to Altisource of $9.0 million, a 38% increase compared to the first quarter 2017 and a 55% decrease compared to the second quarter 2016
  • Adjusted net income attributable to Altisource(1) of $16.5 million, a 25% increase compared to the first quarter 2017 and a 47% decrease compared to the second quarter 2016
  • Diluted earnings per share of $0.48, a 41% increase compared to the first quarter 2017 and a 53% decrease compared to the second quarter 2016
  • Adjusted diluted earnings per share(1) of $0.88, a 28% increase compared to the first quarter 2017 and a 44% decrease compared to the second quarter 2016
  • Cash from operations of $30.9 million compared to cash used in operations of $18.4 million in the first quarter of 2017 (primarily driven by the $28.0 million net litigation settlement paid in the first quarter 2017) and cash from operations of $40.4 million in the second quarter 2016

________________________

  (1) This is a non-GAAP measure that is defined and reconciled to the corresponding GAAP measure herein.
  (2) This information is based on disclosures made by Ocwen and NRZ in their filings with the Securities and Exchange Commission, including their Second Quarter 2017 Form 10-Qs, Ocwen’s July 24, 2017 Form 8-K and NRZ’s July 27, 2017 Form 8-K.  Altisource takes no responsibility for the accuracy of any information provided in filings made by Ocwen and NRZ.
  (3) Applies to the second quarter of 2017 unless otherwise indicated.


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 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
 June 30,
  Six months ended
 June 30,
    2017   2016   2017   2016
                 
Service revenue                
Mortgage Market   $ 198,414     $ 197,479     $ 393,387     $ 385,564  
Real Estate Market   24,347     24,173     43,536     47,574  
Other Businesses, Corporate and Eliminations   15,346     19,672     31,023     42,466  
Total service revenue   238,107     241,324     467,946     475,604  
Reimbursable expenses   11,891     13,783     21,920     29,237  
Non-controlling interests   687     692     1,302     1,090  
Total revenue   250,685     255,799     491,168     505,931  
Cost of revenue   173,502     160,588     341,426     313,997  
Reimbursable expenses   11,891     13,783     21,920     29,237  
Gross profit   65,292     81,428     127,822     162,697  
Selling, general and administrative expenses   52,470     54,207     100,171     107,823  
Income from operations   12,822     27,221     27,651     54,874  
Other income (expense), net:                
Interest expense   (5,465 )   (5,988 )   (11,263 )   (12,529 )
Other income (expense), net   4,803     2,744     5,518     2,717  
Total other income (expense), net   (662 )   (3,244 )   (5,745 )   (9,812 )
                 
Income before income taxes and non-controlling interests   12,160     23,977     21,906     45,062  
Income tax provision   (2,438 )   (3,291 )   (5,024 )   (5,484 )
                 
Net income   9,722     20,686     16,882     39,578  
Net income attributable to non-controlling interests   (687 )   (692 )   (1,302 )   (1,090 )
                 
Net income attributable to Altisource   $ 9,035     $ 19,994     $ 15,580     $ 38,488  
                 
Earnings per share:                
Basic   $ 0.49     $ 1.08     $ 0.84     $ 2.06  
Diluted   $ 0.48     $ 1.02     $ 0.82     $ 1.94  
                 
Weighted average shares outstanding:                
Basic   18,335     18,437     18,497     18,646  
Diluted   18,836     19,604     19,069     19,822  
                 
Comprehensive income:                
Net income   $ 9,722     $ 20,686     $ 16,882     $ 39,578  
Other comprehensive income (loss), net of tax:                
Unrealized gain (loss) on securities, net of income tax (provision) benefit of $2,593, $3,249, $(2,132), $2,960   (6,981 )   (7,871 )   5,742     (7,172 )
                 
Comprehensive income, net of tax   2,741     12,815     22,624     32,406  
Comprehensive income attributable to non-controlling interests   (687 )   (692 )   (1,302 )   (1,090 )
                 
Comprehensive income attributable to Altisource   $ 2,054     $ 12,123     $ 21,322     $ 31,316  

/EIN News/ --

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION(1)
(in thousands)
(unaudited)
     
    Three months ended June 30, 2017
(in thousands)   Mortgage
Market
  Real Estate
Market
  Other
Businesses,
Corporate and
Eliminations
  Consolidated
Altisource
                 
Revenue                
Service revenue   $ 198,414     $ 24,347     $ 15,346     $ 238,107  
Reimbursable expenses   11,094     783     14     11,891  
Non-controlling interests   687             687  
    210,195     25,130     15,360     250,685  
Cost of revenue   144,326     26,844     14,223     185,393  
Gross profit (loss)   65,869     (1,714 )   1,137     65,292  
Selling, general and administrative expenses   29,805     5,551     17,114     52,470  
Income (loss) from operations   36,064     (7,265 )   (15,977 )   12,822  
Total other income (expense), net   102         (764 )   (662 )
                 
Income (loss) before income taxes and
  non-controlling interests
  $ 36,166     $ (7,265 )   $ (16,741 )   $ 12,160  


    Three months ended June 30, 2016
(in thousands)   Mortgage
Market
  Real Estate
Market
  Other
Businesses,
Corporate and
Eliminations
  Consolidated
Altisource
                 
Revenue                
Service revenue   $ 197,479     $ 24,173     $ 19,672     $ 241,324  
Reimbursable expenses   13,129     631     23     13,783  
Non-controlling interests   692             692  
    211,300     24,804     19,695     255,799  
Cost of revenue   135,723     16,854     21,794     174,371  
Gross profit (loss)   75,577     7,950     (2,099 )   81,428  
Selling, general and administrative expenses   31,141     5,620     17,446     54,207  
Income (loss) from operations   44,436     2,330     (19,545 )   27,221  
Total other income (expense), net   74     4     (3,322 )   (3,244 )
                 
Income (loss) before income taxes and
  non-controlling interests
  $ 44,510     $ 2,334     $ (22,867 )   $ 23,977  
                                 

(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)
     
    Six months ended June 30, 2017
(in thousands)   Mortgage
Market
  Real Estate
Market
  Other
Businesses,
Corporate and
Eliminations
  Consolidated
Altisource
                 
Revenue                
Service revenue   $ 393,387     $ 43,536     $ 31,023     $ 467,946  
Reimbursable expenses   20,229     1,657     34     21,920  
Non-controlling interests   1,302             1,302  
    414,918     45,193     31,057     491,168  
Cost of revenue   284,476     48,987     29,883     363,346  
Gross profit (loss)   130,442     (3,794 )   1,174     127,822  
Selling, general and administrative expenses   58,487     9,876     31,808     100,171  
Income (loss) from operations   71,955     (13,670 )   (30,634 )   27,651  
Total other income (expense), net   112         (5,857 )   (5,745 )
                 
Income (loss) before income taxes and
  non-controlling interests
  $ 72,067     $ (13,670 )   $ (36,491 )   $ 21,906  


    Six months ended June 30, 2016
(in thousands)   Mortgage
Market
  Real Estate
Market
  Other
Businesses,
Corporate and
Eliminations
  Consolidated
Altisource
                 
Revenue                
Service revenue   $ 385,564     $ 47,574     $ 42,466     $ 475,604  
Reimbursable expenses   28,047     1,139     51     29,237  
Non-controlling interests   1,090             1,090  
    414,701     48,713     42,517     505,931  
Cost of revenue   269,766     31,312     42,156     343,234  
Gross profit   144,935     17,401     361     162,697  
Selling, general and administrative expenses   60,595     11,794     35,434     107,823  
Income (loss) from operations   84,340     5,607     (35,073 )   54,874  
Total other income (expense), net   134         (9,946 )   (9,812 )
                 
Income (loss) before income taxes and
  non-controlling interests
  $ 84,474     $ 5,607     $ (45,019 )   $ 45,062  
                                 

(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)
       
  June 30,
 2017
  December 31,
 2016
       
ASSETS
Current assets:      
Cash and cash equivalents $ 114,205     $ 149,294  
Available for sale securities 53,628     45,754  
Accounts receivable, net 72,977     87,821  
Prepaid expenses and other current assets 49,419     42,608  
Total current assets 290,229     325,477  
       
Premises and equipment, net 87,060     103,473  
Goodwill 86,283     86,283  
Intangible assets, net 136,893     155,432  
Deferred tax assets, net 5,160     7,292  
Other assets 11,003     11,255  
       
Total assets $ 616,628     $ 689,212  
       
LIABILITIES AND EQUITY
Current liabilities:      
Accounts payable and accrued expenses $ 75,162     $ 83,135  
Accrued litigation settlement     32,000  
Current portion of long-term debt 5,945     5,945  
Deferred revenue 9,886     8,797  
Other current liabilities 10,520     19,061  
Total current liabilities 101,513     148,938  
       
Long-term debt, less current portion 439,486     467,600  
Other non-current liabilities 8,906     10,480  
       
Commitments, contingencies and regulatory matters      
       
Equity:      
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 18,034 outstanding as of June 30, 2017; 25,413 shares authorized and issued and 18,774 outstanding as of December 31, 2016)   25,413     25,413  
Additional paid-in capital 110,078     107,288  
Retained earnings 341,926     333,786  
Accumulated other comprehensive income (loss) 3,997     (1,745 )
Treasury stock, at cost (7,379 shares as of June 30, 2017 and 6,639 shares as of December 31, 2016) (416,342 )   (403,953 )
Altisource equity 65,072     60,789  
       
Non-controlling interests 1,651     1,405  
Total equity 66,723     62,194  
       
Total liabilities and equity $ 616,628     $ 689,212  


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
   
  Six months ended
 June 30,
  2017   2016
       
Cash flows from operating activities:      
Net income $ 16,882     $ 39,578  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 18,895     18,346  
Amortization of intangible assets 18,539     24,967  
Change in the fair value of acquisition related contingent consideration 16     193  
Share-based compensation expense 1,858     3,569  
Bad debt expense 2,890     1,041  
Gain on early extinguishment of debt (3,937 )   (5,464 )
Amortization of debt discount 156     201  
Amortization of debt issuance costs 433     557  
Deferred income taxes     18  
Loss on disposal of fixed assets 2,798     9  
Changes in operating assets and liabilities:      
Accounts receivable 11,954     3,407  
Prepaid expenses and other current assets (6,811 )   (6,012 )
Other assets 523     447  
Accounts payable and accrued expenses (10,637 )   (4,454 )
Other current and non-current liabilities (41,042 )   (6,998 )
Net cash provided by operating activities 12,517     69,405  
       
Cash flows from investing activities:      
Additions to premises and equipment (5,658 )   (12,441 )
Purchase of available for sale securities     (48,219 )
Change in restricted cash (271 )   (10 )
Net cash used in investing activities (5,929 )   (60,670 )
       
Cash flows from financing activities:      
Repayment and repurchases of long-term debt (24,766 )   (47,751 )
Proceeds from stock option exercises 765     986  
Purchase of treasury shares (15,531 )   (19,746 )
Distributions to non-controlling interests (1,056 )   (1,065 )
Payment of tax withholding on issuance of restricted shares (1,089 )    
Net cash used in financing activities (41,677 )   (67,576 )
       
Net decrease in cash and cash equivalents (35,089 )   (58,841 )
Cash and cash equivalents at the beginning of the period 149,294     179,327  
       
Cash and cash equivalents at the end of the period $ 114,205     $ 120,486  
       
Supplemental cash flow information:      
Interest paid $ 10,787     $ 11,694  
Income taxes paid, net 12,668     5,618  
       
Non-cash investing and financing activities:      
(Decrease) increase in payables for purchases of premises and equipment $ (378 )   $ 1,369  
Increase in payables for purchases of treasury shares 3,042      


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, 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 or diluted earnings per share 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.  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.


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
 June 30,
  Three months
ended
March 31,
  Six months ended
 June 30,
  2017   2016   2017   2017   2016
                   
Income before income taxes and non-controlling interests $ 12,160     $ 23,977     $ 9,746     $ 21,906     $ 45,062  
                   
Non-controlling interests (687 )   (692 )   (615 )   (1,302 )   (1,090 )
Pretax income attributable to Altisource 11,473     23,285     9,131     20,604     43,972  
Intangible asset amortization expense 9,393     12,756     9,146     18,539     24,967  
                   
Adjusted pretax income attributable to Altisource $ 20,866     $ 36,041     $ 18,277     $ 39,143     $ 68,939  
                   
Net income attributable to Altisource $ 9,035     $ 19,994     $ 6,545     $ 15,580     $ 38,488  
                   
Intangible asset amortization expense 9,393     12,756     9,146     18,539     24,967  
Tax benefit from intangible asset amortization (1,883 )   (1,751 )   (2,426 )   (4,251 )   (3,038 )
Intangible asset amortization expense, net of tax 7,510     11,005     6,720     14,288     21,929  
                   
Adjusted net income attributable to Altisource $ 16,545     $ 30,999     $ 13,265     $ 29,868     $ 60,417  
                   
Diluted earnings per share $ 0.48     $ 1.02     $ 0.34     $ 0.82     $ 1.94  
                   
Intangible asset amortization expense, net of tax, per diluted share 0.40     0.56     0.35     0.75     1.11  
                   
Adjusted diluted earnings per share $ 0.88     $ 1.58     $ 0.69     $ 1.57     $ 3.05  
                   
Weighted average shares outstanding - diluted 18,836     19,604     19,304     19,069     19,822  

__________________________

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

FOR FURTHER INFORMATION CONTACT:

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

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