Altisource Announces Third Quarter Results

Altisource Announces Third Quarter Results 80.8 KB

LUXEMBOURG, Oct. 27, 2016 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. ("Altisource" or the "Company") (NASDAQ:ASPS) today reported financial results for the third quarter of 2016, reporting strong cash flows from operations and service revenue. Service revenue growth from non-Ocwen customers and higher property preservation referrals from Ocwen largely offset the expected loss in revenue from Ocwen's declining portfolio and lower delinquencies, resulting in a decline of only 2% compared to the third quarter of 2015.

While third quarter 2016 service revenue of $239.8 million was relatively flat compared to third quarter 2015, pretax income attributable to Altisource⁽¹⁾ of $17.9 million and adjusted pretax income attributable to Altisource⁽¹⁾ of $29.4 million declined by 56% and 42%, respectively. This was primarily the result of increased investments to support the Company's growth initiatives, service revenue mix changes and technology price concessions provided to Ocwen effective January 1, 2016. Net income attributable to Altisource of $10.6 million was further impacted by an increase in the 2016 effective tax rate and adjustments to true-up tax expense from prior quarters, resulting in an anticipated 2016 annual effective tax rate of approximately 20%. The effective tax rate increased primarily due to lower pretax income margins which changed the expected mix of taxable income across the jurisdictions in which we operate. Over the next couple of years, the Company believes that margins will expand and the effective cash tax rate will return to a rate that is closer to Altisource's historical rate.

"During the quarter, Altisource continued to execute on its strategy to diversify and grow its customer base through our four initiatives. We believe the investments in our diversification strategy along with the growing stability of our largest customers position us to be a larger, stronger company," said Chief Executive Officer William B. Shepro.

Shepro further commented, "While we have experienced tremendous non-Ocwen service revenue growth over the last three years, we have not achieved our very high growth expectations for 2016. In our Servicer Solutions initiative, this is primarily a function of timing as it is taking substantially longer than anticipated to achieve stabilized revenue from new customers and close transactions from our robust pipeline of opportunities. We fully expect that we will achieve our revenue growth expectations as we reach stabilization with our newer clients and continue to win new business. In our Consumer Real Estate Solutions initiative, we launched our buy side brokerage offering in February 2016 in two initial markets. We have since expanded to 18 markets, and the good news is that the consumer interest in our offering has more than met our expectations. However, we did not have sufficient capacity to respond to all of the leads and our initial approach did not provide a sufficient in-person experience to manage a prospect from lead to home purchase. We are adjusting our operational model and the changes are beginning to make a difference, better positioning us to capitalize on this very large market opportunity."

Third Quarter 2016 Results Compared to Second Quarter 2016 and Third Quarter 2015:

Service revenue of $239.8 million, a 1% decrease compared to the second quarter 2016 and a 2% decrease compared to the third quarter 2015
Pretax income attributable to Altisource⁽¹⁾ of $17.9 million, a 23% decrease compared to the second quarter 2016 and a 56% decrease compared to the third quarter 2015
Adjusted pretax income attributable to Altisource⁽¹⁾ of $29.4 million, an 18% decrease compared to the second quarter 2016 and a 42% decrease compared to the third quarter 2015
Net income attributable to Altisource of $10.6 million, a 47% decrease compared to the second quarter 2016 and a 71% decrease compared to the third quarter 2015
Adjusted net income attributable to Altisource⁽¹⁾ of $17.6 million, a 43% decrease compared to the second quarter 2016 and a 62% decrease compared to the third quarter 2015
Diluted earnings per share of $0.54, a 47% decrease compared to the second quarter 2016 and a 70% decrease compared to the third quarter 2015
Adjusted diluted earnings per share⁽¹⁾ of $0.90, a 43% decrease compared to the second quarter 2016 and a 60% decrease compared to the third quarter 2015
Cash from operations of $36.6 million, a 9% decrease compared to the second quarter 2016 and a 33% decrease compared to the third quarter 2015; cash from operations would have been $43.2 million had the Company not invested $6.6 million for the purchase of real estate in the Real Estate Investor Solutions business that Altisource is renovating and will resell

Third Quarter 2016 highlights include:

Servicer Solutions:

Executed a master services agreement with a top ten bank customer and signed a statement of work with this customer to provide Equator software to manage its short sales
Executed an agreement with a mortgage insurance company to manage and sell its REO
Acquired Granite Loan Management of Delaware, LLC, a residential and commercial loan disbursement processing, risk mitigation and construction inspection services company, for $9.6 million

Origination Solutions:

Grew third quarter 2016 service revenue in the Origination Solutions businesses by 22% over the second quarter of 2016

Consumer Real Estate Solutions:

Grew the total number of Owners.com monthly leads from 5,000 in April 2016 to 28,000 in September 2016, a 460% increase
Grew the total number of Owners.com real estate agents from 21 as of July 1, 2016 to 97 as of September 30, 2016
Launched the beta version of the Owners.com real estate agent app in mid-October 2016

Real Estate Investor Solutions:

Executed an agreement with RESI providing a limited waiver of Altisource's exclusive right to provide property management and other services to RESI relating to its acquisition of single family rental homes from investment funds sponsored by Amherst Holdings LLC (the "Amherst Portfolio Acquisition") in exchange for the right to receive a $60 million payment from RESI in the event that it sells, liquidates or otherwise disposes of 50% or more of its single family rental portfolio managed by Altisource⁽²⁾
Provided due diligence and title services to RESI in connection with the Amherst Portfolio Acquisition

Capital Allocation

Repurchased $14.6 million of our common stock (0.5 million shares at an average price of $28.68 per share)

__________________________

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

(2) The terms are more fully described in the Amendment and Waiver Agreement which we filed with the Securities and Exchange Commission on Form 8-K on October 3, 2016.

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 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 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)
(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015

Service revenue
Mortgage Services	$	191,766		$	182,222		$	569,038		$	492,277
Financial Services	17,566			21,314			57,376			66,977
Technology Services	41,544			51,437			120,291			159,399
Eliminations	(11,094		)	(9,504		)	(31,319		)	(28,773		)
Total service revenue	239,782			245,469			715,386			689,880
Reimbursable expenses	12,080			26,456			41,317			89,242
Non-controlling interests	883			851			1,973			2,457
Total revenue	252,745			272,776			758,676			781,579
Cost of revenue	161,922			147,394			475,919			425,593
Reimbursable expenses	12,080			26,456			41,317			89,242
Gross profit	78,743			98,926			241,440			266,744
Selling, general and administrative expenses	53,886			51,338			161,709			155,310
Change in the fair value of Equator Earn Out	—			—			—			(7,591		)
Income from operations	24,857			47,588			79,731			119,025
Other income (expense), net:
Interest expense	(5,952		)	(7,041		)	(18,481		)	(21,396		)
Loss on HLSS equity securities and dividends received, net	—			—			—			(1,854		)
Other income (expense), net	(109		)	653			2,608			1,477
Total other income (expense), net	(6,061		)	(6,388		)	(15,873		)	(21,773		)

Income before income taxes and non-controlling interests	18,796			41,200			63,858			97,252
Income tax provision	(7,324		)	(3,303		)	(12,808		)	(8,101		)

Net income	11,472			37,897			51,050			89,151
Net income attributable to non-controlling interests	(883		)	(851		)	(1,973		)	(2,457		)

Net income attributable to Altisource	$	10,589		$	37,046		$	49,077		$	86,694

Earnings per share:
Basic	$	0.57		$	1.94		$	2.63		$	4.42
Diluted	$	0.54		$	1.82		$	2.49		$	4.19

Weighted average shares outstanding:
Basic	18,715			19,091			18,669			19,608
Diluted	19,568			20,411			19,738			20,688

Comprehensive income:
Net income	$	11,472		$	37,897		$	51,050		$	89,151
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of income tax benefit (provision) of $(2,070), $0, $889, $0	5,016			—			(2,156		)	—

Comprehensive income, net of tax	16,488			37,897			48,894			89,151
Comprehensive income attributable to non-controlling interests	(883		)	(851		)	(1,973		)	(2,457		)

Comprehensive income attributable to Altisource	$	15,605		$	37,046		$	46,921		$	86,694

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
(unaudited)

	Three months ended September 30, 2016
	Mortgage Services		Financial Services		Technology Services			Corporate Items and Eliminations			Consolidated Altisource

Revenue
Service revenue	$	191,766	$	17,566	$	41,544		$	(11,094	)	$	239,782
Reimbursable expenses	12,047		33		—			—			12,080
Non-controlling interests	883		—		—			—			883
	204,696		17,599		41,544			(11,094		)	252,745
Cost of revenue	132,399		13,238		38,557			(10,192		)	174,002
Gross profit (loss)	72,297		4,361		2,987			(902		)	78,743
Selling, general and administrative expenses	27,543		4,002		6,115			16,226			53,886
Income (loss) from operations	44,754		359		(3,128		)	(17,128		)	24,857
Total other income (expense), net	8		28		1			(6,098		)	(6,061		)

Income (loss) before income taxes and non-controlling interests	$	44,762	$	387	$	(3,127	)	$	(23,226	)	$	18,796

	Three months ended September 30, 2015
	Mortgage Services		Financial Services		Technology Services			Corporate Items and Eliminations			Consolidated Altisource

Revenue
Service revenue	$	182,222	$	21,314	$	51,437		$	(9,504	)	$	245,469
Reimbursable expenses	26,433		23		—			—			26,456
Non-controlling interests	851		—		—			—			851
	209,506		21,337		51,437			(9,504		)	272,776
Cost of revenue	122,724		15,418		44,419			(8,711		)	173,850
Gross profit (loss)	86,782		5,919		7,018			(793		)	98,926
Selling, general and administrative expenses	23,399		4,553		7,628			15,758			51,338
Income (loss) from operations	63,383		1,366		(610		)	(16,551		)	47,588
Total other income (expense), net	9		31		38			(6,466		)	(6,388		)

Income (loss) before income taxes and non-controlling interests	$	63,392	$	1,397	$	(572	)	$	(23,017	)	$	41,200

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
(unaudited)

	Nine months ended September 30, 2016
	Mortgage Services		Financial Services		Technology Services			Corporate Items and Eliminations			Consolidated Altisource

Revenue
Service revenue	$	569,038	$	57,376	$	120,291		$	(31,319	)	$	715,386
Reimbursable expenses	41,232		85		—			—			41,317
Non-controlling interests	1,973		—		—			—			1,973
	612,243		57,461		120,291			(31,319		)	758,676
Cost of revenue	381,543		41,645		122,874			(28,826		)	517,236
Gross profit (loss)	230,700		15,816		(2,583		)	(2,493		)	241,440
Selling, general and administrative expenses	83,119		12,515		20,113			45,962			161,709
Income (loss) from operations	147,581		3,301		(22,696		)	(48,455		)	79,731
Total other income (expense), net	57		63		101			(16,094		)	(15,873		)

Income (loss) before income taxes and non-controlling interests	$	147,638	$	3,364	$	(22,595	)	$	(64,549	)	$	63,858

	Nine months ended September 30, 2015
	Mortgage Services		Financial Services		Technology Services			Corporate Items and Eliminations			Consolidated Altisource

Revenue
Service revenue	$	492,277	$	66,977	$	159,399		$	(28,773	)	$	689,880
Reimbursable expenses	89,139		103		—			—			89,242
Non-controlling interests	2,457		—		—			—			2,457
	583,873		67,080		159,399			(28,773		)	781,579
Cost of revenue	350,238		46,058		144,565			(26,026		)	514,835
Gross profit (loss)	233,635		21,022		14,834			(2,747		)	266,744
Selling, general and administrative expenses	69,188		13,856		22,189			50,077			155,310
Change in the fair value of Equator Earn Out	—		—		(7,591		)	—			(7,591		)
Income (loss) from operations	164,447		7,166		236			(52,824		)	119,025
Total other income (expense), net	28		21		21			(21,843		)	(21,773		)

Income (loss) before income taxes and non-controlling interests	$	164,475	$	7,187	$	257		$	(74,667	)	$	97,252

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

	September 30, 2016			December 31, 2015

ASSETS
Current assets:
Cash and cash equivalents	$	134,948		$	179,327
Available for sale securities	45,174			—
Accounts receivable, net	101,580			105,023
Prepaid expenses and other current assets	31,927			21,751
Total current assets	313,629			306,101

Premises and equipment, net	109,785			119,121
Goodwill	89,905			82,801
Intangible assets, net	162,976			197,003
Deferred tax assets, net	4,847			3,619
Other assets	12,190			13,153

Total assets	$	693,332		$	721,798

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	101,361		$	91,871
Current portion of long-term debt	5,945			5,945
Deferred revenue	10,927			15,060
Other current liabilities	13,846			16,266
Total current liabilities	132,079			129,142

Long-term debt, less current portion	468,689			522,233
Other non-current liabilities	13,790			18,153

Equity:
Common stock ($1.00 par value; 25,413 shares authorized and issued and 18,878 outstanding as of September 30, 2016; 25,413 shares authorized and issued and 19,021 outstanding as of December 31, 2015)	25,413			25,413
Additional paid-in capital	101,013			96,321
Retained earnings	359,435			369,270
Accumulated other comprehensive loss	(2,156		)	—
Treasury stock, at cost (6,535 shares as of September 30, 2016 and 6,392 shares as of December 31, 2015)	(406,559		)	(440,026		)
Altisource equity	77,146			50,978

Non-controlling interests	1,628			1,292
Total equity	78,774			52,270

Total liabilities and equity	$	693,332		$	721,798

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Nine months ended September 30,
	2016			2015

Cash flows from operating activities:
Net income	$	51,050		$	89,151
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	27,521			27,637
Amortization of intangible assets	36,432			27,995
Loss on HLSS equity securities and dividends received, net	—			1,854
Change in the fair value of acquisition related contingent consideration	(1,174		)	(7,302		)
Share-based compensation expense	4,692			3,258
Bad debt expense	763			3,477
Gain on early extinguishment of debt	(5,464		)	(1,986		)
Amortization of debt discount	307			379
Amortization of debt issuance costs	850			1,045
Deferred income taxes	17			54
Loss on disposal of fixed assets	30			50
Changes in operating assets and liabilities:
Accounts receivable	3,505			(19,681		)
Prepaid expenses and other current assets	(10,167		)	2,001
Other assets	496			2,085
Accounts payable and accrued expenses	7,005			(20,876		)
Other current and non-current liabilities	(9,828		)	10
Net cash provided by operating activities	106,035			109,151

Cash flows from investing activities:
Additions to premises and equipment	(16,525		)	(27,670		)
Acquisition of businesses, net of cash acquired	(9,617		)	(11,193		)
Purchase of available for sale securities	(48,219		)	(29,966		)
Proceeds received from sale of and dividends from HLSS equity securities	—			28,112
Other investing activities	266			722
Net cash used in investing activities	(74,095		)	(39,995		)

Cash flows from financing activities:
Repayment and repurchases of long-term debt	(49,237		)	(29,087		)
Proceeds from stock option exercises	8,876			332
Purchase of treasury stock	(34,321		)	(48,971		)
Distributions to non-controlling interests	(1,637		)	(2,144		)
Other financing activities	—			(500		)
Net cash used in financing activities	(76,319		)	(80,370		)

Net decrease in cash and cash equivalents	(44,379		)	(11,214		)
Cash and cash equivalents at the beginning of the period	179,327			161,361

Cash and cash equivalents at the end of the period	$	134,948		$	150,147

Supplemental cash flow information:
Interest paid	$	17,244		$	19,770
Income taxes paid, net	14,178			6,638

Non-cash investing and financing activities:
Acquisition of businesses with restricted shares	$	—		$	14,427
Increase (decrease) in payables for purchases of premises and equipment	2,458			(5,326		)

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 and potential shareholders to measure Altisource's performance. 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, and deducting the gain associated with the reduction of the Equator earn out liability from, pretax income attributable to Altisource. Adjusted net income attributable to Altisource is calculated by adding intangible asset amortization expense (net of tax) to, and deducting the gain associated with the reduction of the Equator earn out liability (net of tax) from, 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) less the gain associated with the reduction of the Equator earn out liability (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 September 30,						Three months ended June 30,			Nine months ended September 30,
	2016			2015			2016			2016			2015

Income before income taxes and non-controlling interests	$	18,796		$	41,200		$	23,977		$	63,858		$	97,252

Non-controlling interests	(883		)	(851		)	(692		)	(1,973		)	(2,457		)

Pretax income attributable to Altisource	17,913			40,349			23,285			61,885			94,795

Amortization of intangible assets	11,465			10,118			12,756			36,432			27,995
Gain on Equator earn out liability	—			—			—			—			(7,591		)

Adjusted pretax income attributable to Altisource	$	29,378		$	50,467		$	36,041		$	98,317		$	115,199


Net income attributable to Altisource	$	10,589		$	37,046		$	19,994		$	49,077		$	86,694

Amortization of intangible assets	11,465			10,118			12,756			36,432			27,995
Tax benefit on amortization of intangible assets	(4,467		)	(811		)	(1,751		)	(7,307		)	(2,332		)
Amortization of intangible assets, net of tax	6,998			9,307			11,005			29,125			25,663

Gain on Equator earn out liability	—			—			—			—			(7,591		)
Tax provision from the gain on Equator earn out liability	—			—			—			—			651
Gain on Equator earn out liability, net of tax	—			—			—			—			(6,940		)

Adjusted net income attributable to Altisource	$	17,587		$	46,353		$	30,999		$	78,202		$	105,417

Diluted earnings per share	$	0.54		$	1.82		$	1.02		$	2.49		$	4.19

Amortization of intangible assets, net of tax, per diluted share	0.36			0.46			0.56			1.48			1.24
Gain on Equator earn out liability, net of tax, per diluted share	—			—			—			—			(0.34		)

Adjusted diluted earnings per share	$	0.90		$	2.27		$	1.58		$	3.96		$	5.10

Weighted average shares outstanding - diluted	19,568			20,411			19,604			19,738			20,688

__________________________

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

Source: Altisource Portfolio Solutions S.A.

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