Altisource Portfolio Solutions
Oct 26, 2017

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):

"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:

________________________

(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

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Source: Altisource Portfolio Solutions S.A.

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