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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 25, 2019
 
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Exact name of Registrant as specified in its Charter)
 
 
Luxembourg
 
001-34354
 
98-0554932
 
 
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)
 
40, avenue Monterey
L-2163 Luxembourg
Grand Duchy of Luxembourg
(Address of principal executive offices including zip code)
+352 2469 7900
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $1.00 par value
 
ASPS
 
NASDAQ Global Select Market
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 




Item 2.02 Results of Operations and Financial Condition.

On July 25, 2019, Altisource Portfolio Solutions S.A. (“Altisource”) issued a press release announcing its financial results for the quarter ended June 30, 2019. A copy of the press release is attached hereto as Exhibit 99.1.

The information in this Item 2.02, including the information in Exhibit 99.1, is furnished solely pursuant to Item 2.02 of this Form 8-K. Consequently, it is not deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that Section. It may only be incorporated by reference in another filing under the Securities Exchange Act of 1934 or Securities Act of 1933 if such subsequent filing specifically references this Item 2.02 of this Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.
 
Description
 





SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: July 25, 2019

 
Altisource Portfolio Solutions S.A.
 
 
 
 
 
By:
/s/ Michelle D. Esterman
 
 
Name:
Michelle D. Esterman
 
 
Title:
Chief Financial Officer
 







Exhibit


Exhibit 99.1
 
https://cdn.kscope.io/99335a157f69e1e57919f86e2dcea650-altisourceq220198k.jpg
FOR IMMEDIATE RELEASE
FOR FURTHER INFORMATION CONTACT:
 
 
 
Michelle D. Esterman
 
Chief Financial Officer
 
T: (770) 612-7007
 
E: Michelle.Esterman@altisource.com


ALTISOURCE ANNOUNCES SECOND QUARTER 2019 FINANCIAL RESULTS

Second Quarter 2019
•
Service revenue of $190.5 million
•
Income from operations of $6.1 million and adjusted operating income(1) of $16.2 million
•
Income before income taxes and non-controlling interests of $11.9 million and adjusted pre-tax income attributable to Altisource(1) of $8.9 million
•
Net loss attributable to Altisource of $(5.8) million, or $(0.36) per diluted share, and adjusted net income attributable to Altisource(1) of $5.9 million, or $0.36 per diluted share
Luxembourg, July 25, 2019 - Altisource Portfolio Solutions S.A. (“Altisource” or the “Company”) (NASDAQ: ASPS), a leading provider and marketplace for the real estate and mortgage industries, today reported financial results for the second quarter 2019.
“I am very pleased with our progress in streamlining Altisource. We recently sold the majority of the Buy-Renovate-Lease-Sell (“BRS”) properties and our Financial Services and Mortgage Charge-Off Collections business, and began selling our shares in Front Yard Residential Corporation (“RESI”). As we believe our share price doesn’t reflect the inherent value of Altisource, we continue to explore ways to maximize shareholder value, which may include, from time to time, exploring the potential sale of one or more of our businesses, third party investments in certain of our businesses or other forms of strategic transactions,” said Chairman and Chief Executive Officer William B. Shepro.
Mr. Shepro further commented, “We are also focusing on larger opportunities, including those in our Marketplace and Field Services businesses, where we are making considerable progress. Our ongoing success at winning and on-boarding new business is demonstrated by our 131% growth in Hubzu inventory and 17% growth in Field Services revenue, from customers other than Ocwen, NRZ and RESI, compared to the second quarter of 2018. Given recent market expansion, program launches with new clients, and scheduled on-boardings, we anticipate these trends to continue.”
Second quarter 2019 service revenue of $190.5 million was 9% lower than the second quarter 2018, primarily from the reduction in size of the Ocwen Financial Corporation (“Ocwen”) and RESI portfolios, a delay in referrals associated with Ocwen’s transition to a new servicing platform and the higher cooperative brokerage commission paid to New Residential Investment Corp. (“NRZ”), partially offset by higher revenue from the sale of the majority of the BRS inventory. The Company believes the delay in referrals from Ocwen is largely a matter of timing and it is anticipated that most of these impacted referrals will be received in the second half of 2019.
Second quarter 2019 operating income of $6.1 million was 51% lower than the second quarter 2018, primarily from the impact of revenue declines discussed above, revenue mix with higher revenue from the sale of the BRS inventory at a $1.8 million loss and restructuring charges of $1.9 million related to Project Catalyst, partially offset by the benefits of Project Catalyst. Project Catalyst was initiated in 2018 to better align the Company’s cost structure with anticipated revenue, and improve operating margins and performance.

1


Second quarter 2019 adjusted operating income(1) of $16.2 million was 26% lower than the second quarter 2018, primarily from the impact of revenue declines and revenue mix discussed above, partially offset by the benefits of Project Catalyst.
Second quarter 2019 income before income taxes and non-controlling interests of $11.9 million was 288% higher than the second quarter 2018, primarily from higher unrealized gains on our investment in RESI, partially offset by lower operating income discussed above.
Second quarter 2019 adjusted pre-tax income attributable to Altisource(1) of $8.9 million was 39% lower than the second quarter 2018, primarily from lower operating income discussed above.
Second quarter 2019 loss per share was $(0.36) compared to second quarter 2018 earnings per share of $0.09. The decline in earnings per share was primarily due to the increase in the income tax provision for the second quarter 2019 and lower operating income discussed above. The income tax provision increased from a non-cash expense of $12.3 million to reflect the revaluation of Luxembourg net deferred tax assets from a change in the statutory income tax rate from 26.0% to 24.9% and a $0.9 million increase in foreign income taxes in connection with an internal legal entity reorganization in advance of the sale of the Financial Services business. These decreases were partially offset by higher unrealized gains on our investment in RESI and fewer outstanding shares.
Second quarter 2019 adjusted earnings per share(1) of $0.36 was 40% lower than the second quarter 2018, primarily from lower adjusted operating income(1) discussed above, partially offset by fewer diluted shares outstanding.
Second quarter 2019 adjusted EBITDA(1) of $23.3 million was 22% lower than the second quarter 2018, primarily from the impact of revenue declines and revenue mix discussed above, partially offset by the benefits of Project Catalyst.
Second Quarter 2019 Highlights(2) 
•
Grew Hubzu inventory from customers other than Ocwen, NRZ and RESI by 131% compared to June 30, 2018, with such inventory representing 31% of total Hubzu inventory as of June 30, 2019
•
Grew Field Services revenue from customers other than Ocwen, NRZ and RESI by 17% compared to the second quarter of 2018
•
Selected by an existing customer, one of the largest institutional real estate and mortgage investors in the U.S., to provide Field Services (pre- and post-foreclosure) for a portion of its portfolio
•
Began receiving referrals from two new Hubzu customers, two new Trelix customers and one new loss draft inspection customer
•
In July, began receiving Field Services referrals from a Top Five servicer, Hubzu REO auction referrals from a servicer and pre-foreclosure Field Services referrals from another servicer
•
Sold the majority of remaining BRS inventory for net proceeds of $38.9 million
•
Sold 565,757 RESI shares for net proceeds of $6.5 million
•
On July 1, 2019, closed on the sale of the Financial Services business, consisting of the Asset Recovery Management, Customer Relationship Management and Mortgage Charge-Off Collections businesses, for $44 million, consisting of an up-front payment of $40 million less adjustments for targeted working capital and transaction costs, and an additional $4 million scheduled to be paid on the one year anniversary of the closing
•
On July 17, 2019, used net proceeds from the sale of the Financial Services business to repay $37 million of the senior secured term loan
•
Repurchased 0.3 million shares of Altisource common stock at an average price of $21.89 per share
•
Ended the second quarter 2019 with $129.1 million of cash, cash equivalents and investment in equity securities
•
Ended the second quarter 2019 with $203.9 million of net debt less investment in equity securities(1), 26% lower than June 30, 2018; adjusting for the July 2019 sale of the Financial Services business and related debt repayment, pro forma net debt less investment in equity securities(1) is $166.9 million

2


Second Quarter and Year-to-Date June 30, 2019 Results Compared to the Second Quarter and Year-to-Date June 30, 2018:
(in thousands, except per share data)
Second Quarter 2019
 
Second Quarter 2018
 
% Change
 
Year-to-Date June 30, 2019
 
Year-to-Date June 30, 2018
 
% Change
Service revenue
$
190,520

 
$
208,861

 
(9
)
 
$
355,519

 
$
397,627

 
(11
)
Income from operations
6,144

 
12,426

 
(51
)
 
6,315

 
19,546

 
(68
)
Adjusted operating income(1)
16,189

 
21,880

 
(26
)
 
34,305

 
38,348

 
(11
)
Income (loss) before income taxes and non-controlling interests
11,909

 
3,071

 
288

 
7,943

 
(1,901
)
 
N/M

Pretax income (loss) attributable to Altisource(1)
10,669

 
2,384

 
348

 
6,263

 
(3,113
)
 
301

Adjusted pretax income attributable to Altisource(1)
8,927

 
14,739

 
(39
)
 
20,228

 
26,091

 
(22
)
Net (loss) income attributable to Altisource
(5,844
)
 
1,568

 
N/M

 
(9,028
)
 
(2,564
)
 
252

Adjusted net income attributable to Altisource(1)
5,850

 
10,557

 
(45
)
 
15,213

 
19,009

 
(20
)
Diluted (loss) earnings per share
(0.36
)
 
0.09

 
N/M

 
(0.56
)
 
(0.15
)
 
273

Adjusted diluted earnings per share(1)
0.36

 
0.60

 
(40
)
 
0.92

 
1.07

 
(14
)
Cash flows from operating activities
39,811

 
31,822

 
25

 
33,156

 
23,253

 
43

Adjusted cash flows from operating activities(1)
(49
)
 
27,791

 
(100
)
 
555

 
29,137

 
(98
)
Adjusted cash flows from operating activities less additions for premises and equipment(1)
(193
)
 
26,293

 
(101
)
 
(379
)
 
26,381

 
(101
)
N/M - not meaningful.

•
Second quarter and year-to-date June 30, 2019 income from operations includes a loss on BRS portfolio sale of $1.8 million (no comparable amounts in 2018). Second quarter and year-to-date June 30, 2019 include restructuring charges of $1.9 million and $6.3 million, respectively, related to Project Catalyst (no comparable amounts in 2018). Year-to-date June 30, 2019 includes a sales tax accrual of $2.1 million and an other asset write-off from a business exit of $0.2 million (no comparable amounts in 2018).
•
Second quarter and year-to-date June 30, 2019 pretax income attributable to Altisource(1) include unrealized mark-to-market gains on our equity investment in RESI of $11.8 million and $14.0 million, respectively, compared to the second quarter and year-to-date June 30, 2018 unrealized mark-to-market gain (loss) on our equity investment in RESI of $1.5 million and $(6.0) million, respectively. Second quarter and year-to-date June 30, 2018 include the write-off of net discount and debt issuance costs from debt refinancing of $4.4 million (no comparable amounts in 2019).
•
Second quarter and year-to-date June 30, 2019 net loss attributable to Altisource include non-cash income tax provision of $12.3 million to reflect a change in the Luxembourg statutory income tax rate from 26.0% to 24.9% and a $0.9 million income tax provision for foreign income taxes in connection with an internal legal entity reorganization in advance of the sale of the Financial Services business (no comparable amounts in 2018).
________________________
(1)
This is a non-GAAP measure that is defined and reconciled to the corresponding GAAP measure herein.
(2)
Applies to 2019 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

3


from what is contemplated by the forward-looking statements. Altisource does not undertake, and expressly disclaims, any 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, our ability to retain existing customers and attract new customers and the potential for changes in our customer relationships; various risks relating to our ability to effectively manage our regulatory and contractual obligations; the adequacy of our financial resources, including our sources of liquidity and ability to repay borrowings and comply with our Credit Agreement, including the financial and other covenants contained therein; as well as Altisource’s ability to retain key executives or employees, general economic and market conditions, behavior of customers, suppliers and/or competitors, technological developments, governmental regulations, taxes and policies, 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 8:30 a.m. EDT today to discuss our second quarter. 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 markets we serve. Additional information is available at www.Altisource.com.



4


 
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)

 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Service revenue
 
$
190,520

 
$
208,861

 
$
355,519

 
$
397,627

Reimbursable expenses
 
4,775

 
9,008

 
9,271

 
17,155

Non-controlling interests
 
1,240

 
687

 
1,680

 
1,212

Total revenue
 
196,535

 
218,556

 
366,470

 
415,994

Cost of revenue
 
147,866

 
154,198

 
267,474

 
293,245

Reimbursable expenses
 
4,775

 
9,008

 
9,271

 
17,155

Gross profit
 
43,894

 
55,350

 
89,725

 
105,594

Operating expenses:
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
35,851

 
42,924

 
77,091

 
86,048

Restructuring charges
 
1,899

 
—

 
6,319

 
—

Income from operations
 
6,144

 
12,426

 
6,315

 
19,546

Other income (expense), net
 
 
 
 
 
 
 
 
Interest expense
 
(6,550
)
 
(7,027
)
 
(13,299
)
 
(12,890
)
Unrealized gain (loss) on investment in equity securities
 
11,787

 
1,533

 
14,025

 
(5,968
)
Other income (expense), net
 
528

 
(3,861
)
 
902

 
(2,589
)
Total other income (expense), net
 
5,765

 
(9,355
)
 
1,628

 
(21,447
)
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes and non-controlling interests
 
11,909

 
3,071

 
7,943

 
(1,901
)
Income tax (provision) benefit
 
(16,513
)
 
(816
)
 
(15,291
)
 
549

 
 
 
 
 
 
 
 
 
Net (loss) income
 
(4,604
)
 
2,255

 
(7,348
)
 
(1,352
)
Net income attributable to non-controlling interests
 
(1,240
)
 
(687
)
 
(1,680
)
 
(1,212
)
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to Altisource
 
$
(5,844
)
 
$
1,568

 
$
(9,028
)
 
$
(2,564
)
 
 
 
 
 
 
 
 
 
(Loss) earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.36
)
 
$
0.09

 
$
(0.56
)
 
$
(0.15
)
Diluted
 
$
(0.36
)
 
$
0.09

 
$
(0.56
)
 
$
(0.15
)
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
16,214

 
17,142

 
16,253

 
17,260

Diluted
 
16,214

 
17,553

 
16,253

 
17,260

 
 
 
 
 
 
 
 
 
Comprehensive (loss) income:
 
 
 
 
 
 
 
 
Net (loss) income
 
$
(4,604
)
 
$
2,255

 
$
(7,348
)
 
$
(1,352
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
Reclassification of unrealized gain on investment in equity securities,
net of income tax provision of $200, to retained earnings from the
cumulative effect of an accounting change
 
—

 
—

 
—

 
(733
)
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income, net of tax
 
(4,604
)
 
2,255

 
(7,348
)
 
(2,085
)
Comprehensive income attributable to non-controlling interests
 
(1,240
)
 
(687
)
 
(1,680
)
 
(1,212
)
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income attributable to Altisource
 
$
(5,844
)
 
$
1,568

 
$
(9,028
)
 
$
(3,297
)

5


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




 
June 30,
2019
 
December 31,
2018
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
85,379

 
$
58,294

Investment in equity securities
43,730

 
36,181

Accounts receivable, net
44,247

 
36,466

Short-term investments in real estate
414

 
39,873

Assets held for sale
35,656

 
—

Prepaid expenses and other current assets
23,633

 
30,720

Total current assets
233,059

 
201,534

 
 
 
 
Premises and equipment, net
59,980

 
45,631

Goodwill
79,009

 
81,387

Intangible assets, net
68,616

 
91,653

Deferred tax assets, net
293,287

 
309,089

Other assets
9,920

 
12,406

 
 
 
 
Total assets
$
743,871

 
$
741,700

 
 
 
 
LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
63,791

 
$
87,240

Current portion of long-term debt
6,502

 
—

Deferred revenue
5,590

 
10,108

Liabilities held for sale
14,850

 
—

Other current liabilities
20,410

 
7,030

Total current liabilities
111,143

 
104,378

 
 
 
 
Long-term debt, less current portion
319,854

 
331,476

Other non-current liabilities
27,002

 
9,178

 
 
 
 
Commitments, contingencies and regulatory matters
 
 
 
 
 
 
 
Equity:
 
 
 
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 16,079 outstanding as of June 30, 2019; 16,276 outstanding as of December 31, 2018)
25,413

 
25,413

Additional paid-in capital
128,120

 
122,667

Retained earnings
574,040

 
590,655

Treasury stock, at cost (9,334 shares as of June 30, 2019 and 9,137 shares as of
December 31, 2018)
(443,480
)
 
(443,304
)
Altisource equity
284,093

 
295,431

 
 
 
 
Non-controlling interests
1,779

 
1,237

Total equity
285,872

 
296,668

 
 
 
 
Total liabilities and equity
$
743,871

 
$
741,700





6


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


 
Six months ended
 June 30,
 
2019
 
2018
 
 
 
 
Cash flows from operating activities:
 

 
 

Net loss
$
(7,348
)
 
$
(1,352
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Depreciation and amortization
17,315

 
17,049

Amortization of intangible assets
12,191

 
14,691

Unrealized (gain) loss on investment in equity securities
(14,025
)
 
5,968

Share-based compensation expense
5,453

 
4,111

Bad debt expense
131

 
1,503

Amortization of debt discount
327

 
298

Amortization of debt issuance costs
363

 
502

Deferred income taxes
15,846

 
(1,349
)
Loss on disposal of fixed assets
908

 
558

Loss on debt refinancing
—

 
4,434

Changes in operating assets and liabilities (excludes assets and liabilities held for sale):
 

 
 

Accounts receivable
(15,789
)
 
6,923

Short-term investments in real estate
39,459

 
(5,884
)
Prepaid expenses and other current assets
5,239

 
617

Other assets
(511
)
 
967

Accounts payable and accrued expenses
(16,587
)
 
(17,152
)
Other current and non-current liabilities
(9,816
)
 
(8,631
)
Net cash provided by operating activities
33,156

 
23,253

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to premises and equipment
(934
)
 
(2,756
)
Proceeds received from sale of equity securities
6,476

 
—

Other
1,087

 
—

Net cash provided by (used in) investing activities
6,629

 
(2,756
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from issuance of long-term debt
—

 
407,880

Repayments and repurchases of long-term debt
(5,810
)
 
(421,821
)
Debt issuance costs
—

 
(5,042
)
Proceeds from stock option exercises
235

 
2,707

Purchase of treasury shares
(6,700
)
 
(21,121
)
Distributions to non-controlling interests
(1,138
)
 
(1,181
)
Payments of tax withholding on issuance of restricted share units and restricted shares
(1,298
)
 
(410
)
Net cash used in financing activities
(14,711
)
 
(38,988
)
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
25,074

 
(18,491
)
Cash, cash equivalents and restricted cash at the beginning of the period
64,046

 
108,843

 
 
 
 
Cash, cash equivalents and restricted cash at the end of the period
$
89,120

 
$
90,352

 
 
 
 
Supplemental cash flow information:
 

 
 

Interest paid
$
11,279

 
$
11,540

Income taxes (received) paid, net
(27
)
 
2,865

 
 
 
 
Non-cash investing and financing activities:
 

 
 

Net (decrease) increase in payables for purchases of premises and equipment
$
(25
)
 
$
398

Acquisition of right-to-use assets with lease obligations
6,200

 
—

Reduction of lease obligations from lease terminations and amendments
(3,409
)
 
—


7


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




Adjusted operating income, pretax income (loss) attributable to Altisource, adjusted pretax income attributable to Altisource, adjusted net income attributable to Altisource, adjusted diluted earnings per share, adjusted cash flows from operating activities, adjusted cash flows from operating activities less additions to premises and equipment, adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) and net debt less investment in equity securities, which are presented elsewhere in this earnings release, 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 from operations, income (loss) before income taxes and non-controlling interests, net (loss) income attributable to Altisource, diluted earnings (loss) per share, cash flows from operating activities and 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 and cash flow generation more on the basis of continuing cost and cash flows as they exclude amortization expense related to acquisitions that occurred in prior periods and non-cash share-based compensation, as well as the effect of more significant non-operational items from earnings, cash flows from operating activities and long-term debt net of cash on-hand and investment in equity 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-operational 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.
Adjusted operating income is calculated by removing intangible asset amortization expense, share-based compensation expense, loss on BRS portfolio sale, sales tax accrual, restructuring charges and other asset write-off from business exit from income from operations. Pretax income (loss) attributable to Altisource is calculated by removing non-controlling interests from income (loss) before income taxes and non-controlling interests. Adjusted pretax income attributable to Altisource is calculated by removing non-controlling interests, intangible asset amortization expense, share-based compensation expense, loss on BRS portfolio sale, sales tax accrual, restructuring charges, other asset write-off from business exit, write-off of net discount and debt issuance costs from debt refinancing and unrealized (loss) gain on investment in equity securities from income (loss) before income taxes and non-controlling interests. Adjusted net income attributable to Altisource is calculated by removing intangible asset amortization expense (net of tax), share-based compensation expense (net of tax), loss on BRS portfolio sale (net of tax), sales tax accrual (net of tax), restructuring charges (net of tax), other asset write-off from business exit (net of tax), write-off of net discount and debt issuance costs from debt refinancing (net of tax), unrealized (loss) gain on investment in equity securities (net of tax) and certain income tax related items from net (loss) income attributable to Altisource. Adjusted diluted earnings per share is calculated by dividing net (loss) income attributable to Altisource after removing intangible asset amortization expense (net of tax), share-based compensation expense (net of tax), loss on BRS portfolio sale (net of tax), sales tax accrual (net of tax), restructuring charges (net of tax), other asset write-off from business exit (net of tax), write-off of net discount and debt issuance costs from debt refinancing (net of tax), unrealized (loss) gain on investment in equity securities (net of tax) and certain income tax related items by the weighted average number of diluted shares. Adjusted EBITDA is calculated by adding income tax provision, adding interest expense (net of interest income), adding depreciation and amortization, deducting unrealized gain on investment in equity securities, adding share-based compensation, adding loss on BRS portfolio sale, adding restructuring charges and adding write-off of net discount and debt issuance costs from debt refinancing to net (loss) income attributable to Altisource. Adjusted cash flows from operating activities is calculated by removing the decrease (increase) in short-term investments in real estate and payment of sales tax accrual from cash flows from operating activities. Adjusted cash flows from operating activities less additions to premises and equipment is calculated by removing the decrease (increase) in short-term investments in real estate, payment of sales tax accrual and additions to premises and equipment from cash flows from operating activities. Net debt less investment in equity securities is calculated as long-term debt, including current portion, minus cash and cash equivalents and investment in equity securities.

8


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,
 
Six months ended
 June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Income from operations
 
$
6,144

 
$
12,426

 
$
6,315

 
$
19,546

 
 
 
 
 
 
 
 
 
Intangible asset amortization expense
 
3,544

 
7,544

 
12,191

 
14,691

Share-based compensation expense
 
2,832

 
1,910

 
5,453

 
4,111

Loss on BRS portfolio sale
 
1,770

 
—

 
1,770

 
—

Sales tax accrual
 
—

 
—

 
2,053

 
—

Restructuring charges
 
1,899

 
—

 
6,319

 
—

Other asset write-off from business exit
 
—

 
—

 
204

 
—

 
 
 
 
 
 
 
 
 
Adjusted operating income
 
$
16,189

 
$
21,880

 
$
34,305

 
$
38,348

 
 
 
 
 
 
 
 
 
Income (loss) before income taxes and non-controlling interests
 
$
11,909

 
$
3,071

 
$
7,943

 
$
(1,901
)
 
 
 
 
 
 
 
 
 
Non-controlling interests
 
(1,240
)
 
(687
)
 
(1,680
)
 
(1,212
)
Pretax income (loss) attributable to Altisource
 
10,669

 
2,384

 
6,263

 
(3,113
)
Intangible asset amortization expense
 
3,544

 
7,544

 
12,191

 
14,691

Share-based compensation expense
 
2,832

 
1,910

 
5,453

 
4,111

Loss on BRS portfolio sale
 
1,770

 
—

 
1,770

 
—

Sales tax accrual
 
—

 
—

 
2,053

 
—

Restructuring charges
 
1,899

 
—

 
6,319

 
—

Other asset write-off from business exit
 
—

 
—

 
204

 
—

Write-off of net discount and debt issuance costs from debt refinancing
 
—

 
4,434

 
—

 
4,434

Unrealized (gain) loss on investment in equity securities
 
(11,787
)
 
(1,533
)
 
(14,025
)
 
5,968

 
 
 
 
 
 
 
 
 
Adjusted pretax income attributable to Altisource
 
$
8,927

 
$
14,739

 
$
20,228

 
$
26,091

 
 
 
 
 
 
 
 
 
Net (loss) income attributable to Altisource
 
$
(5,844
)
 
$
1,568

 
$
(9,028
)
 
$
(2,564
)
 
 
 
 
 
 
 
 
 
Intangible asset amortization expense, net of tax
 
2,471

 
5,499

 
9,400

 
10,880

Share-based compensation expense, net of tax
 
1,975

 
1,392

 
4,205

 
3,045

Loss on BRS portfolio sale, net of tax
 
1,405

 
—

 
1,405

 
—

Sales tax accrual, net of tax
 
—

 
—

 
1,519

 
—

Restructuring charges, net of tax
 
1,458

 
—

 
4,856

 
—

Other asset write-off from business exit, net of tax
 
—

 
—

 
151

 
—

Write-off of net discount and debt issuance costs from debt refinancing, net of tax
 
—

 
3,232

 
—

 
3,232

Unrealized (gain) loss on investment in equity securities, net of tax
 
(8,847
)
 
(1,134
)
 
(10,527
)
 
4,416

Certain income tax related items
 
13,232

 
—

 
13,232

 
—

 
 
 
 
 
 
 
 
 
Adjusted net income attributable to Altisource
 
$
5,850

 
$
10,557

 
$
15,213

 
$
19,009

 
 
 
 
 
 
 
 
 

9


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



 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Diluted (loss) earnings per share
 
$
(0.36
)
 
$
0.09

 
$
(0.56
)
 
$
(0.15
)
 
 
 
 
 
 
 
 
 
Impact of using diluted share count instead of basic share count
for a loss per share
 
0.01

 
—

 
0.01

 
0.01

Intangible asset amortization expense, net of tax, per diluted share
 
0.15

 
0.31

 
0.57

 
0.61

Share-based compensation expense, net of tax, per diluted share
 
0.12

 
0.08

 
0.25

 
0.17

Loss on BRS portfolio sale, net of tax, per diluted share
 
0.09

 
—

 
0.08

 
—

Sales tax accrual, net of tax, per diluted share
 
—

 
—

 
0.09

 
—

Restructuring charges, net of tax, per diluted share
 
0.09

 
—

 
0.29

 
—

Other asset write-off from business exit, net of tax, per diluted share
 
—

 
—

 
0.01

 
—

Write-off of net discount and debt issuance costs from debt refinancing, net of tax, per diluted share
 
—

 
0.18

 
—

 
0.18

Unrealized (gain) loss on investment in equity securities, net of tax,
per diluted share
 
(0.54
)
 
(0.06
)
 
(0.64
)
 
0.25

Certain income tax related items per diluted share
 
0.80

 
—

 
0.80

 
—

 
 
 
 
 
 
 
 
 
Adjusted diluted earnings per share
 
$
0.36

 
$
0.60

 
$
0.92

 
$
1.07

 
 
 
 
 
 
 
 
 
Calculation of the impact of intangible asset amortization expense,
net of tax
 
 
 
 
 
 
 
 
Intangible asset amortization expense
 
$
3,544

 
$
7,544

 
$
12,191

 
$
14,691

Tax benefit from intangible asset amortization
 
(1,073
)
 
(2,045
)
 
(2,791
)
 
(3,811
)
Intangible asset amortization expense, net of tax
 
2,471

 
5,499

 
9,400

 
10,880

Diluted share count
 
16,477

 
17,553

 
16,557

 
17,717

 
 
 
 
 
 
 
 
 
Intangible asset amortization expense, net of tax, per diluted share
 
$
0.15

 
$
0.31

 
$
0.57

 
$
0.61

 
 
 
 
 
 
 
 
 
Calculation of the impact of share-based compensation expense,
net of tax
 
 
 
 
 
 
 
 
Share-based compensation expense
 
$
2,832

 
$
1,910

 
$
5,453

 
$
4,111

Tax benefit from share-based compensation expense
 
(857
)
 
(518
)
 
(1,248
)
 
(1,066
)
Share-based compensation expense, net of tax
 
1,975

 
1,392

 
4,205

 
3,045

Diluted share count
 
16,477

 
17,553

 
16,557

 
17,717

 
 
 
 
 
 
 
 
 
Share-based compensation expense, net of tax, per diluted share
 
$
0.12

 
$
0.08

 
$
0.25

 
$
0.17

 
 
 
 
 
 
 
 
 
Calculation of the impact of loss on BRS portfolio sale, net of tax
 
 
 
 
 
 
 
 
Loss on BRS portfolio sale
 
$
1,770

 
$
—

 
$
1,770

 
$
—

Tax benefit from loss on BRS portfolio sale
 
(365
)
 
—

 
(365
)
 
—

Loss on BRS portfolio sale, net of tax
 
1,405

 
—

 
1,405

 
—

Diluted share count
 
16,477

 
17,553

 
16,557

 
17,717

 
 
 
 
 
 
 
 
 
Loss on BRS portfolio sale, net of tax, per diluted share
 
$
0.09

 
$
—

 
$
0.08

 
$
—

 
 
 
 
 
 
 
 
 
Calculation of the impact of sales tax accrual, net of tax
 
 
 
 
 
 
 
 
Sales tax accrual
 
$
—

 
$
—

 
$
2,053

 
$
—

Tax benefit from sales tax accrual
 
—

 
—

 
(534
)
 
—

Sales tax accrual, net of tax
 
—

 
—

 
1,519

 
—

Diluted share count
 
16,477

 
17,553

 
16,557

 
17,717

 
 
 
 
 
 
 
 
 
Sales tax accrual, net of tax, per diluted share
 
$
—

 
$
—

 
$
0.09

 
$
—

 
 
 
 
 
 
 
 
 

10


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



 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Calculation of the impact of restructuring charges, net of tax
 
 
 
 
 
 
 
 
Restructuring charges
 
$
1,899

 
$
—

 
$
6,319

 
$
—

Tax benefit from restructuring charges
 
(441
)
 
—

 
(1,463
)
 
—

Restructuring charges, net of tax
 
1,458

 
—

 
4,856

 
—

Diluted share count
 
16,477

 
17,553

 
16,557

 
17,717

 
 
 
 
 
 
 
 
 
Restructuring charges, net of tax, per diluted share
 
$
0.09

 
$
—

 
$
0.29

 
$
—

 
 
 
 
 
 
 
 
 
Calculation of the impact of other asset write-off from business exit,
net of tax
 
 
 
 
 
 
 
 
Other asset write-off from business exit
 
$
—

 
$
—

 
$
204

 
$
—

Tax benefit from other asset write-off from business exit
 
—

 
—

 
(53
)
 
—

Other asset write-off from business exit, net of tax
 
—

 
—

 
151

 
—

Diluted share count
 
16,477

 
17,553

 
16,557

 
17,717

 
 
 
 
 
 
 
 
 
Other asset write-off from business exit, net of tax, per diluted share
 
$
—

 
$
—

 
$
0.01

 
$
—

 
 
 
 
 
 
 
 
 
Calculation of the impact of the write-off of net discount and debt issuance costs from debt refinancing, net of tax
 
 
 
 
 
 
 
 
Write-off of net discount and debt issuance costs from debt refinancing
 
$
—

 
$
4,434

 
$
—

 
$
4,434

Tax benefit from the write-off of net discount and debt issuance costs from debt refinancing
 
—

 
(1,202
)
 
—

 
(1,202
)
Write-off of net discount and debt issuance costs from debt refinancing, net of tax
 
—

 
3,232

 
—

 
3,232

Diluted share count
 
16,477

 
17,553

 
16,557

 
17,717

 
 
 
 
 
 
 
 
 
Write-off of net discount and debt issuance costs from debt refinancing, net of tax, per diluted share
 
$
—

 
$
0.18

 
$
—

 
$
0.18

 
 
 
 
 
 
 
 
 
Calculation of the impact of the unrealized (gain) loss on investment
in equity securities, net of tax
 
 
 
 
 
 
 
 
Unrealized (gain) loss on investment in equity securities
 
$
(11,787
)
 
$
(1,533
)
 
$
(14,025
)
 
$
5,968

Tax provision (benefit) from the unrealized (gain) loss on investment
in equity securities
 
2,940

 
399

 
3,498

 
(1,552
)
Unrealized (gain) loss on investment in equity securities, net of tax
 
(8,847
)
 
(1,134
)
 
(10,527
)
 
4,416

Diluted share count
 
16,477

 
17,553

 
16,557

 
17,717

 
 
 
 
 
 
 
 
 
Unrealized (gain) loss on investment in equity securities, net of tax,
per diluted share
 
$
(0.54
)
 
$
(0.06
)
 
$
(0.64
)
 
$
0.25

 
 
 
 
 
 
 
 
 
Certain income tax related items resulting from:
 
 
 
 
 
 
 
 
Deferred tax adjustment (Luxembourg tax rate change)
 
$
12,323

 
$
—

 
$
12,323

 
$
—

India restructuring
 
909

 
—

 
909

 
—

Certain income tax related items
 
13,232

 
—

 
13,232

 
—

Diluted share count
 
16,477

 
17,553

 
16,557

 
17,717

 
 
 
 
 
 
 
 
 
Certain income tax related items per diluted share
 
$
0.80

 
$
—

 
$
0.80

 
$
—

 
 
 
 
 
 
 
 
 

11


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



 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
 
$
39,811

 
$
31,822

 
$
33,156

 
$
23,253

(Decrease) increase in short-term investments in real estate
 
(39,860
)
 
(4,031
)
 
(39,459
)
 
5,884

Payment of sales tax accrual
 
—

 
—

 
6,858

 
—

Adjusted cash flows from operating activities
 
(49
)
 
27,791

 
555

 
29,137

Less additions to premises and equipment
 
(144
)
 
(1,498
)
 
(934
)
 
(2,756
)
 
 
 
 
 
 
 
 
 
Adjusted cash flows from operating activities less additions
to premises and equipment
 
$
(193
)
 
$
26,293

 
$
(379
)
 
$
26,381

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 June 30,
 
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to Altisource
 
 
 
 
 
$
(5,844
)
 
$
1,568

Add: Income tax provision
 
 
 
 
 
16,513

 
816

Add: Interest expense, net of interest income
 
 
 
 
 
6,434

 
6,927

Add: Depreciation and amortization
 
 
 
 
 
11,490

 
15,872

Less: Unrealized gain on investment in equity securities
 
 
 
 
 
(11,787
)
 
(1,533
)
Add: Share-based compensation
 
 
 
 
 
2,832

 
1,910

Add: Loss on BRS portfolio sale
 
 
 
 
 
1,770

 
—

Add: Restructuring charges
 
 
 
 
 
1,899

 
—

Add: Write-off of net discount and debt issuance costs from debt refinancing
 
 
 
 
 
—

 
4,434

 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
$
23,307

 
$
29,994

 
 
 
 
 
 
 
 
 

 
June 30, 2019
 
June 30, 2018
 
 
 
 
Senior secured term loan
$
333,012

 
$
403,760

Less: Cash and cash equivalents
(85,379
)
 
(84,569
)
Less: Investment in equity securities
(43,730
)
 
(43,185
)
 
 
 
 
Net debt less investment in equity securities
$
203,903

 
$
276,006

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

12