Altisource Portfolio Solutions
Aug 9, 2017

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

Origination Solutions

Consumer Real Estate Solutions

Real Estate Investor Solutions

Corporate

Second Quarter 2017 Results Compared to First Quarter of 2017 and 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 


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 securities53,628  45,754 
Accounts receivable, net72,977  87,821 
Prepaid expenses and other current assets49,419  42,608 
Total current assets290,229  325,477 
    
Premises and equipment, net87,060  103,473 
Goodwill86,283  86,283 
Intangible assets, net136,893  155,432 
Deferred tax assets, net5,160  7,292 
Other assets11,003  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 debt5,945  5,945 
Deferred revenue9,886  8,797 
Other current liabilities10,520  19,061 
Total current liabilities101,513  148,938 
    
Long-term debt, less current portion439,486  467,600 
Other non-current liabilities8,906  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 capital110,078  107,288 
Retained earnings341,926  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 equity65,072  60,789 
    
Non-controlling interests1,651  1,405 
Total equity66,723  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 amortization18,895  18,346 
Amortization of intangible assets18,539  24,967 
Change in the fair value of acquisition related contingent consideration16  193 
Share-based compensation expense1,858  3,569 
Bad debt expense2,890  1,041 
Gain on early extinguishment of debt(3,937) (5,464)
Amortization of debt discount156  201 
Amortization of debt issuance costs433  557 
Deferred income taxes  18 
Loss on disposal of fixed assets2,798  9 
Changes in operating assets and liabilities:   
Accounts receivable11,954  3,407 
Prepaid expenses and other current assets(6,811) (6,012)
Other assets523  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 activities12,517  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 exercises765  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 period149,294  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, net12,668  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 shares3,042   


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 Altisource11,473  23,285  9,131  20,604  43,972 
Intangible asset amortization expense9,393  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 expense9,393  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 tax7,510  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 share0.40  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 - diluted18,836  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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Source: Altisource Portfolio Solutions S.A.

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