Altisource Portfolio Solutions
Feb 16, 2017

Altisource Announces Fourth Quarter And Full Year Financial Results And That The Company Is Actively Exploring Refinancing Its Existing $480 Million Senior Secured Term Loan

LUXEMBOURG, Feb. 16, 2017 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. ("Altisource" or the "Company") (NASDAQ:ASPS) today reported financial results for the fourth quarter and full year 2016, reporting strong full year service revenue of $942.6 million.  Compared to 2015, 22% service revenue growth from customers other than Ocwen Financial Corporation ("Ocwen") and higher property preservation services offset the expected loss in revenue from Ocwen's declining portfolio, lower delinquencies and lower pricing for certain technologies.

Fourth quarter 2016 service revenue of $227.2 million was 5% lower than the third quarter of 2016 from seasonally lower REO sales and lawn maintenance and 9% lower than the fourth quarter of 2015 primarily from lower pricing to Ocwen for certain technologies and a decline in the number of loans on REALServicing.

2016 pretax income of $44.3 million and fourth quarter 2016 pretax loss of $19.5 million were impacted by a litigation settlement loss of $28.0 million, which is net of an anticipated $4.0 million insurance recovery.  Further, in the fourth quarter of 2016 and the full year 2016, the Company incurred expenses of $3.9 million and $5.3 million, respectively, relating to severance and the exit from certain facilities.

"In 2016, we continued our transformation from a mortgage services company generating the majority of revenue from Ocwen to a real estate and mortgage marketplace company offering many of the same innovative solutions to a diversified customer base.  Because the sales cycle was longer than originally projected, our 22% non-Ocwen service revenue growth and earnings were lower than we anticipated.  We are disappointed that we did not achieve our anticipated non-Ocwen revenue growth but the progress made in 2016 positions us for a higher rate of non-Ocwen growth in 2017 and beyond," said Chief Executive Officer William B. Shepro.

Mr. Shepro further commented, "I firmly believe in the value we're creating.  The market reception for our products and services is very strong, and we are gaining more visibility into our growth prospects. We believe the ongoing investments we are making in our growth will produce a high return on investment and are critical to the franchise we are building."

2016 Highlights:

Servicer Solutions

Origination Solutions

Consumer Real Estate Solutions

Real Estate Investor Solutions

While 2016 service revenue was flat compared to 2015, adjusted pretax income attributable to Altisource(1) of $117.2 million declined by 24%.  This was primarily the result of increased investments to support the Company's growth initiatives, service revenue mix changes and software price concessions provided to Ocwen.  Fourth quarter 2016 adjusted pretax income attributable to Altisource(1) of $18.9 million was 36% lower than the third quarter of 2016 from seasonally lower REO sales and lawn maintenance, $3.9 million of costs to exit certain facilities and severance costs related to cost reduction initiatives, and service revenue mix.  Fourth quarter 2016 adjusted pretax income attributable to Altisource(1) was 53% lower than the fourth quarter of 2015 from lower service revenue, higher investments to support the Company's growth initiatives and the $3.9 million of costs relating to our cost reduction initiatives.

The Company's 2016 diluted earnings per share of $1.46 and adjusted diluted earnings per share(1) of $4.59 were further impacted by an increase in the 2016 effective income tax rate from 16% in 2015 to 29% in 2016.  The effective tax rate increased primarily due to the $28.0 million litigation settlement loss and lower pretax income margins.  These items changed the mix of taxable income across the jurisdictions in which the Company operated.  Fourth quarter 2016 diluted loss per share of $1.08 and adjusted diluted earnings per share(1) of $0.55 were also impacted by an adjustment to increase the effective income tax rate for the first three quarters of 2016 from 20% to 29%.  Over the next several years, the Company expects that its effective cash income tax rate will return to a rate that is closer to the Company's historical rate.

The Company also announced that it is actively exploring refinancing its existing $480 million Senior Secured Term Loan to, among other things, extend the maturity date.  There can be no assurance that the Company will complete the refinancing transaction.

Fourth Quarter 2016 Results Compared to the Third Quarter of 2016 and the Fourth Quarter 2015

Full Year 2016 Results Compared to Full Year 2015

________________________

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

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. EST today to discuss our fourth quarter and full year 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)
 
  Three months ended
December 31 ,
 Year ended
 December 31,
  2016 2015 2016 2015
         
Service revenue        
Mortgage Services $180,906  $183,945  $749,944  $676,222 
Financial Services 16,867  21,351  74,243  88,328 
Technology Services 39,810  56,083  160,101  215,482 
Eliminations (10,370) (10,339) (41,689) (39,112)
Total service revenue 227,213  251,040  942,599  940,920 
Reimbursable expenses 10,694  18,102  52,011  107,344 
Non-controlling interests 720  745  2,693  3,202 
Total revenue 238,627  269,887  997,303  1,051,466 
Cost of revenue 162,115  154,390  638,034  579,983 
Reimbursable expenses 10,694  18,102  52,011  107,344 
Gross profit 65,818  97,395   307,258  364,139 
Selling, general and administrative expenses 52,446  65,558  214,155   220,868 
Litigation settlement loss, net of $4,000 insurance recovery 28,000    28,000   
Impairment losses   71,785    71,785 
Change in the fair value of Equator® Earn Out       (7,591)
Income (loss) from operations (14,628) (39,948) 65,103  79,077 
Other income (expense), net:        
Interest expense (5,931) (6,812) (24,412) (28,208)
Other income (expense), net 1,022  2,568  3,630  2,191 
Total other income (expense), net (4,909) (4,244) (20,782) (26,017)
         
Income (loss) before income taxes and non-controlling interests (19,537) (44,192)  44,321  53,060 
Income tax provision (127) (159) (12,935) (8,260)
         
Net income (loss) (19,664) (44,351) 31,386  44,800 
Net income attributable to non-controlling interests (720) (745) (2,693) (3,202)
         
Net income (loss) attributable to Altisource $(20,384) $(45,096) $28,693  $41,598 
         
Earnings (loss) per share:        
Basic $(1.08) $(2.35) $1.53  $2.13 
Diluted $(1.08) $(2.35) $1.46  $2.02 
         
Weighted average shares outstanding:        
Basic 18,788  19,196  18,696  19,504 
Diluted 18,788  19,196  19,612  20,619 
         
Comprehensive income (loss):        
Net income (loss) $(19,664) $(44,351) $31,386  $44,800 
Other comprehensive loss, net of tax:        
Unrealized gain (loss) on securities, net of income tax (provision) benefit of $(169), $0, $720, $0 411     (1,745)  
         
Comprehensive income (loss), net of tax (19,253) (44,351) 29,641  44,800 
Comprehensive income attributable to non-controlling interests (720) (745) (2,693) (3,202)
         
Comprehensive income (loss) attributable to Altisource $(19,973) $(45,096) $26,948   $41,598 
                 


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
 
  For the three months ended December 31, 2016
(in thousands) Mortgage
Services
 Financial
Services
 Technology
Services
 Corporate
Items and
Eliminations
 Consolidated
Altisource
           
Revenue          
Service revenue $180,906  $16,867  $39,810  $(10,370) $227,213 
Reimbursable expenses 10,670  24      10,694 
Non-controlling interests 720        720 
  192,296  16,891  39,810  (10,370) 238,627 
Cost of revenue 133,289  12,196  36,995  (9,671) 172,809 
Gross profit (loss)  59,007  4,695  2,815  (699) 65,818 
Selling, general and administrative expenses 25,868  5,253  7,698  13,627  52,446 
Litigation settlement loss, net of $4,000
  insurance recovery
       28,000  28,000 
Income (loss) from operations 33,139  (558) (4,883) (42,326) (14,628)
Other income (expense), net (14) 29  (35) (4,889) (4,909)
           
Income (loss) before income taxes and
  non-controlling interests
 $33,125  $(529) $(4,918) $(47,215) $(19,537)
                     
   
  For the three months ended December 31, 2015
(in thousands) Mortgage
Services
 Financial
Services
 Technology
Services
 Corporate
Items and
Eliminations
 Consolidated
Altisource
           
Revenue          
Service revenue $183,945  $21,351  $56,083  $(10,339) $251,040 
Reimbursable expenses 18,085  17      18,102 
Non-controlling interests 745        745 
  202,775  21,368  56,083  (10,339) 269,887 
Cost of revenue 123,931  14,748  43,270  (9,457) 172,492 
Gross profit (loss) 78,844  6,620  12,813  (882) 97,395 
Selling, general and administrative expenses 35,965  4,851  7,713  17,029  65,558 
Impairment losses     71,785    71,785 
Income (loss) from operations 42,879  1,769  (66,685) (17,911) (39,948)
Other income (expense), net 478  37  40  (4,799) (4,244)
           
Income (loss) before income taxes and
  non-controlling interests
 $43,357  $1,806  $(66,645) $(22,710) $(44,192)
                      


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
 
  For the year ended December 31, 2016
(in thousands) Mortgage
Services
 Financial
Services
 Technology
Services
 Corporate
Items and
Eliminations
 Consolidated
Altisource
           
Revenue          
Service revenue $749,944  $74,243  $160,101  $(41,689) $942,599 
Reimbursable expenses 51,902  109      52,011 
Non-controlling interests 2,693        2,693 
  804,539  74,352  160,101  (41,689) 997,303 
Cost of revenue  514,832  53,841  159,869  (38,497) 690,045 
Gross profit (loss) 289,707  20,511  232   (3,192) 307,258 
Selling, general and administrative expenses 108,987  17,768  27,811  59,589  214,155 
Litigation settlement loss, net of $4,000
  insurance recovery
       28,000  28,000 
Income (loss) from operations 180,720  2,743  (27,579) (90,781) 65,103 
Other income (expense), net 43  92  66  (20,983) (20,782)
           
Income (loss) before income taxes and
  non-controlling interests
 $180,763  $2,835  $(27,513) $(111,764) $44,321 
                     
   
  For the year ended December 31, 2015
(in thousands) Mortgage
Services
 Financial
Services
 Technology
Services
 Corporate
Items and
Eliminations
 Consolidated
Altisource
           
Revenue          
Service revenue $676,222  $88,328  $215,482  $(39,112) $940,920 
Reimbursable expenses 107,224  120      107,344 
Non-controlling interests 3,202        3,202 
  786,648  88,448  215,482  (39,112) 1,051,466 
Cost of revenue  474,169  60,806  187,835  (35,483) 687,327 
Gross profit (loss) 312,479  27,642  27,647   (3,629) 364,139 
Selling, general and administrative expenses 105,153  18,707  29,902  67,106  220,868 
Impairment losses     71,785    71,785 
Change in the fair value of Equator Earn Out     (7,591)   (7,591)
Income (loss) from operations 207,326  8,935  (66,449) (70,735) 79,077 
Other income (expense), net 506  58  61  (26,642) (26,017)
           
Income (loss) before income taxes and
  non-controlling interests
 $207,832  $8,993  $(66,388) $(97,377) $53,060 
                     


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
  December 31,
  2016  2015
ASSETS
Current assets:    
Cash and cash equivalents $149,294  $179,327  
Available for sale securities 45,754   
Accounts receivable, net 87,821  105,023 
Prepaid expenses and other current assets 42,608  21,751 
Total current assets 325,477  306,101 
     
Premises and equipment, net 103,473   119,121 
Goodwill 86,283  82,801 
Intangible assets, net 155,432   197,003 
Deferred tax assets, net 7,292  3,619 
Other assets 11,255  13,153 
     
Total assets $689,212  $721,798 
     
LIABILITIES AND EQUITY
Current liabilities:     
Accounts payable and accrued expenses $83,135  $91,871 
Accrued litigation settlement 32,000   
Current portion of long-term debt 5,945  5,945 
Deferred revenue 8,797  15,060 
Other current liabilities 19,061  16,266 
Total current liabilities 148,938  129,142 
     
Long-term debt, less current portion 467,600  522,233 
Other non-current liabilities 10,480  18,153 
     
Commitments, contingencies and regulatory matters    
     
Equity:    
Common stock ($1.00 par value; 25,413 shares authorized and issued and 18,774 outstanding as of December 31, 2016; 25,413 shares authorized and issued and 19,021 outstanding as of December 31, 2015) 25,413  25,413 
Additional paid-in capital 107,288  96,321 
Retained earnings 333,786  369,270 
Accumulated other comprehensive loss  (1,745)  
Treasury stock, at cost (6,639 shares as of December 31, 2016 and 6,392 shares as of December 31, 2015) (403,953) (440,026)
Altisource equity 60,789  50,978 
      
Non-controlling interests 1,405  1,292 
Total equity 62,194  52,270 
     
Total liabilities and equity $689,212  $721,798 
         


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 For the years ended December 31,
 2016 2015
    
Cash flows from operating activities:   
Net income$31,386  $44,800 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization 36,788  36,470 
Amortization of intangible assets47,576  41,135 
Loss on HLSS equity securities and dividends received, net  1,854 
Change in the fair value of acquisition related contingent consideration(3,555) (7,184)
Impairment losses  71,785 
Share-based compensation expense6,188  4,812 
Bad debt expense1,829   5,514 
Gain on early extinguishment of debt(5,464) (3,836)
Amortization of debt discount413  498 
Amortization of debt issuance costs1,141  1,374 
Deferred income taxes(2,597) (1,326)
Loss on disposal of fixed assets1,765  26 
Changes in operating assets and liabilities, net of effects of acquisitions:   
Accounts receivable15,980  2,401 
Prepaid expenses and other current assets(20,881) 1,883 
Other assets1,053  2,993 
Accounts payable and accrued expenses(9,113) (14,483)
Other current and non-current liabilities24,309  6,636 
Net cash provided by operating activities126,818  195,352 
    
Cash flows from investing activities:   
Additions to premises and equipment(23,269) (36,188)
Acquisition of businesses, net of cash acquired(9,409) (28,675)
Purchase of available for sale securities(48,219) (29,966)
Proceeds received from sale of and dividends from HLSS equity securities  28,112 
Change in restricted cash674  722 
Net cash used in investing activities(80,223) (65,995)
    
Cash flows from financing activities:   
Repayment and repurchases of long-term debt(50,723) (50,373)
Proceeds from stock option exercises9,558  1,390 
Excess tax benefit on stock-based compensation4,779   
Purchase of treasury stock(37,662) (58,949)
Distributions to non-controlling interests(2,580) (2,959)
Other financing activities  (500)
Net cash used in financing activities(76,628) (111,391)
    
Net (decrease) increase in cash and cash equivalents(30,033) 17,966 
Cash and cash equivalents at the beginning of the period179,327  161,361  
    
Cash and cash equivalents at the end of the period$149,294  $179,327 
    
Supplemental cash flow information:   
Interest paid$22,717  $26,274 
Income taxes paid, net18,327  9,725 
    
Non-cash investing and financing activities:   
Acquisition of businesses with restricted shares$  $21,733 
Increase (decrease) in payables for purchases of premises and equipment404  (6,679)
      

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

Pretax income (loss) 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 (loss) before income taxes and non-controlling interests, net income (loss) attributable to Altisource or diluted earnings (loss) 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.

Pretax income (loss) attributable to Altisource is calculated by deducting non-controlling interests from income (loss) before income taxes and non-controlling interests.  Adjusted pretax income attributable to Altisource is calculated by adding intangible asset amortization expense plus litigation settlement loss, net of $4.0 million insurance recovery, plus impairment losses and deducting the gain associated with the reduction of the Equator Earn Out) from pretax income (loss) attributable to Altisource.  Adjusted net income attributable to Altisource is calculated by adding intangible asset amortization expense (net of tax) plus litigation settlement loss, net of insurance recovery (net of tax), plus impairment losses (net of tax) and deducting the gain associated with the reduction of the Equator Earn Out (net of tax) from GAAP net income (loss) attributable to Altisource.  Adjusted diluted earnings per share is calculated by dividing net income (loss) attributable to Altisource plus intangible asset amortization expense (net of tax), plus litigation settlement loss, net of insurance recovery (net of tax), plus impairment losses (net of tax) less the gain associated with the reduction of the Equator Earn Out (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
December 31,
  Three months
ended
September 30,
 Years ended
December 31,
 2016 2015  2016 2016 2015
           
Income (loss) before income taxes and
non-controlling interests
$(19,537) $(44,192) $18,796  $44,321  $53,060 
          
Non-controlling interests(720) (745) (883) (2,693) (3,202)
Pretax income (loss) attributable to Altisource(20,257) (44,937) 17,913  41,628  49,858 
Intangible asset amortization expense11,144  13,140  11,465  47,576  41,135 
Net litigation settlement, net of $4,000 insurance recovery28,000      28,000   
Impairment loss  71,785      71,785 
Gain on Equator Earn Out        (7,591)
          
Adjusted pretax income attributable to Altisource$18,887  $39,988  $29,378   $117,204  $155,187 
                    


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NON-GAAP MEASURES
(in thousands, except per share data)
(unaudited)
 
 Three months ended
December 31,
 Three months
ended
September 30,
 Years ended
December 31,
 2016  2015 2016 2016 2015
           
Net income (loss) attributable to Altisource$(20,384) $(45,096) $10,589  $28,693  $41,598 
           
Intangible asset amortization expense, net of tax6,477  12,514  6,998  36,819  38,187 
Net litigation settlement loss, net of tax24,583      24,583   
Impairment loss, net of tax  70,630      70,630 
Gain on Equator Earn Out, net of tax        (6,940)
          
Adjusted net income attributable to Altisource$10,676  $38,048  $17,587  $90,095  $143,475 
          
Diluted earnings (loss) per share$(1.08) $(2.35) $0.54  $1.46  $2.02 
          
Impact of using diluted share count instead of
basic share count for a loss per share
0.01  0.14       
Intangible asset amortization expense, net of tax,
per diluted share
0.34  0.61   0.36  1.88  1.85 
Net litigation settlement loss, net of tax,
per diluted share
1.28      1.25   
Impairment loss, net of tax, per diluted share  3.46      3.43 
Gain on Equator Earn Out, net of tax, per diluted share        (0.34)
          
Adjusted diluted earnings per share$0.55  $1.86  $0.90  $4.59  $6.96 
          
Calculation of the impact of intangible asset amortization
expense, net of tax
         
Intangible asset amortization expense$11,144  $13,140  $11,465  $47,576  $41,135 
Tax benefit from intangible asset amortization(4,667) (626) (4,467) (10,757) (2,948)
Intangible asset amortization expense, net of tax6,477  12,514  6,998  36,819  38,187 
Diluted share count19,246  20,417  19,568  19,612  20,619 
          
Intangible asset amortization expense, net of tax,
per diluted share
$ 0.34  $0.61  $0.36  $1.88  $1.85 
          
Calculation of the impact of net litigation settlement loss,
net of tax
         
Net litigation settlement loss$28,000  $  $  $28,000  $ 
Tax benefit from net litigation settlement loss(3,417)     (3,417)  
Net litigation settlement loss, net of tax24,583       24,583   
Diluted share count19,246  20,417  19,568  19,612  20,619 
          
Net litigation settlement loss, net of tax, per diluted share$1.28  $  $  $1.25  $ 
          
Calculation of the impact of impairment loss, net of tax         
Impairment loss$  $71,785  $  $  $71,785 
Tax benefit from impairment loss  (1,155)     (1,155)
Impairment loss, net of tax  70,630      70,630 
Diluted share count19,246  20,417  19,568  19,612  20,619 
          
Impairment loss, net of tax, per diluted share$  $3.46  $  $  $3.43 
                    


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NON-GAAP MEASURES
(in thousands, except per share data)
(unaudited)
 
 Three months ended
December 31,
 Three months
ended
September 30,
 Years ended
December 31,
 2016 2015 2016 2016 2015
          
Calculation of gain on Equator Earn Out, net of tax         
Gain on Equator Earn Out$  $  $  $  $(7,591)
Tax provision from the gain on Equator Earn Out        651 
Gain on Equator Earn Out, net of tax        (6,940)
Diluted share count19,246  20,417  19,568  19,612  20,619 
          
Gain on Equator Earn Out, net of tax, per diluted share$  $  $  $  $(0.34)
                    

__________________________

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

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Source: Altisource Portfolio Solutions S.A.

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