Altisource Announces Third Quarter Financial Results
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):
- Strong quarter with service revenue of
$224.3 million , operating cash flow of$34.6 million and adjusted operating cash flow(1) of$44.1 million
- On target to exceed the mid-point of our full year 2017 scenarios for service revenue and to be within the range of the midpoint of our full year 2017 scenarios(3) for adjusted diluted earnings per share - Growing diversification momentum with non-
Ocwen/non-New Residential Investment Corp. ("NRZ") client revenue
- Three notable recent wins in the Servicer Solutions business and one in the Origination Solutions business (in the third quarter and early fourth quarter)
- Tangible improvements in lead conversions in the Consumer Real Estate Solutions business
- Continued transition of the Real Estate Investor Solutions business with a focus on (1) directly buying, renovating, leasing and selling homes, (2) providing renovation management services and (3) developing and growing our rental and investor property data sales - Continued execution on opportunistic debt and share repurchases
- Purchased$24.1 million of the Company's senior secured term loan at an average discount of 7.5%, generating a$1.5 million gain
- Repurchased 273 thousand shares of Altisource's common stock at an average price of$23.48 per share - Prior investments and long-term contractual relationships provide strong free cash flow generation and a high degree of visibility
into future earnings
- OnAugust 28, 2017 , entered into a long-term Cooperative Brokerage Agreement with NRZ, one of the largest and most active owners of non-GSE MSRs in the industry, to provide REO brokerage services on NRZ MSRs subserviced by Ocwen and certain other non-Ocwen subserviced MSR portfolios, and a letter of intent to enter into a Services Agreement within 60 days
- Engaged in constructive negotiations with NRZ on the Services Agreement
- Effective as ofOctober 23, 2017 , entered into an amendment with NRZ to extend the term of the letter of intent to provide the parties untilJanuary 12, 2018 to finalize the Services Agreement, as further described in the Company's third quarter 2017 Form 10-Q - Committed to investing in growth initiatives given our success in the Mortgage Market segment and our ability to leverage our experience and expansive suite of offerings to grow the newer Real Estate Market businesses
"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
Third Quarter 2017 Results Compared to Second Quarter 2017 and Third Quarter 2016:
- Service revenue of
$224.3 million , a 6% decrease compared to the second quarter 2017 and a 6% decrease compared to the third quarter 2016 - Income before income taxes and non-controlling interests of
$10.4 million , a 15% decrease compared to the second quarter 2017 and a 45% decrease compared to the third quarter 2016 - Pretax income attributable to
Altisource (1) of$9.6 million , a 17% decrease compared to the second quarter 2017 and a 47% decrease compared to the third quarter 2016 - Adjusted pretax income attributable to
Altisource (1) of$18.2 million , a 13% decrease compared to the second quarter 2017 and a 38% decrease compared to the third quarter 2016 - Net income attributable to
Altisource of$7.0 million , a 23% decrease compared to the second quarter 2017 and a 34% decrease compared to the third quarter 2016 - Adjusted net income attributable to
Altisource (1) of$13.4 million , a 19% decrease compared to the second quarter 2017 and a 24% decrease compared to the third quarter 2016 - Diluted earnings per share of
$0.38 , a 21% decrease compared to the second quarter 2017 and a 30% decrease compared to the third quarter 2016 - Adjusted diluted earnings per share(1) of
$0.73 , a 17% decrease compared to the second quarter 2017 and a 19% decrease compared to the third quarter 2016 - Cash from operations of
$34.6 million , a 12% increase compared to the second quarter 2017 and a 6% decrease compared to the 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.
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| 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 | $ | 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 | (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 | $ | 1,431 | $ | 15,605 | $ | 22,753 | $ | 46,921 | ||||||||
| SEGMENT FINANCIAL INFORMATION(1) | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Three months ended | ||||||||||||||||
| (in thousands) | Mortgage Market | Real Estate Market | Other Businesses, Corporate and Eliminations | Consolidated | ||||||||||||
| 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 | ||||||||||||||||
| (in thousands) | Mortgage Market | Real Estate Market | Other Businesses, Corporate and Eliminations | Consolidated | ||||||||||||
| 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
| SEGMENT FINANCIAL INFORMATION(1) | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Nine months ended | ||||||||||||||||
| (in thousands) | Mortgage Market | Real Estate Market | Other Businesses, Corporate and Eliminations | Consolidated | ||||||||||||
| 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 | ||||||||||||||||
| (in thousands) | Mortgage Market | Real Estate Market | Other Businesses, Corporate and Eliminations | Consolidated | ||||||||||||
| 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
| CONSOLIDATED BALANCE SHEETS | |||||||
| (in thousands, except per share data) | |||||||
| (unaudited) | |||||||
2017 | 2016 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 114,123 | $ | 149,294 | |||
| Available for sale securities | 46,044 | 45,754 | |||||
| Accounts receivable, net | 63,177 | 87,821 | |||||
| Prepaid expenses and other current assets | 59,880 | 42,608 | |||||
| Total current assets | 283,224 | 325,477 | |||||
| Premises and equipment, net | 80,823 | 103,473 | |||||
| 86,283 | 86,283 | ||||||
| Intangible assets, net | 128,289 | 155,432 | |||||
| Deferred tax assets, net | 7,214 | 7,292 | |||||
| Other assets | 10,568 | 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 debt | 5,945 | 5,945 | |||||
| Deferred revenue | 9,746 | 8,797 | |||||
| Other current liabilities | 10,982 | 19,061 | |||||
| Total current liabilities | 110,025 | 148,938 | |||||
| Long-term debt, less current portion | 414,431 | 467,600 | |||||
| Other non-current liabilities | 7,796 | 10,480 | |||||
| Commitments, contingencies and regulatory matters | |||||||
| Equity: | |||||||
| Common stock ( | 25,413 | 25,413 | |||||
| Additional paid-in capital | 111,457 | 107,288 | |||||
| Retained earnings | 342,111 | 333,786 | |||||
| Accumulated other comprehensive loss | (1,533 | ) | (1,745 | ) | |||
| (414,668 | ) | (403,953 | ) | ||||
| 62,780 | 60,789 | ||||||
| Non-controlling interests | 1,369 | 1,405 | |||||
| Total equity | 64,149 | 62,194 | |||||
| Total liabilities and equity | $ | 596,401 | $ | 689,212 | |||
| 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 amortization | 27,411 | 27,521 | |||||
| Amortization of intangible assets | 27,143 | 36,432 | |||||
| Change in the fair value of acquisition related contingent consideration | 24 | (1,174 | ) | ||||
| Share-based compensation expense | 3,237 | 4,692 | |||||
| Bad debt expense | 3,101 | 763 | |||||
| Gain on early extinguishment of debt | (5,419 | ) | (5,464 | ) | |||
| Amortization of debt discount | 225 | 307 | |||||
| Amortization of debt issuance costs | 625 | 850 | |||||
| Deferred income taxes | — | 17 | |||||
| Loss on disposal of fixed assets | 2,776 | 30 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | 21,543 | 3,505 | |||||
| Prepaid expenses and other current assets | (17,272 | ) | (10,167 | ) | |||
| Other assets | 760 | 496 | |||||
| Accounts payable and accrued expenses | 165 | 7,005 | |||||
| Other current and non-current liabilities | (41,838 | ) | (9,828 | ) | |||
| Net cash provided by operating activities | 47,129 | 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 exercises | 2,084 | 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 period | 149,294 | 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, net | 15,445 | 14,178 | |||||
| Non-cash investing and financing activities: | |||||||
| Increase in payables for purchases of premises and equipment | $ | 52 | $ | 2,458 | |||
NON-GAAP MEASURES
(in thousands, except per share data)
(unaudited)
Pretax income attributable to
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
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 | 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 | 9,552 | 17,913 | 11,473 | 30,156 | 61,885 | ||||||||||||||
| Intangible asset amortization expense | 8,604 | 11,465 | 9,393 | 27,143 | 36,432 | ||||||||||||||
| Adjusted pretax income attributable to | $ | 18,156 | $ | 29,378 | $ | 20,866 | $ | 57,299 | $ | 98,317 | |||||||||
| Net income attributable to | $ | 6,961 | $ | 10,589 | $ | 9,035 | $ | 22,541 | $ | 49,077 | |||||||||
| Intangible asset amortization expense | 8,604 | 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 tax | 6,452 | 6,998 | 7,510 | 20,736 | 29,125 | ||||||||||||||
| Adjusted net income attributable to | $ | 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 share | 0.35 | 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 - diluted | 18,429 | 19,568 | 18,836 | 18,854 | 19,738 | ||||||||||||||
| Cash provided by operating activities | $ | 34,612 | |||||||||||||||||
| Investments in short-term real estate | 9,530 | ||||||||||||||||||
| Adjusted operating cash flow | $ | 44,142 | |||||||||||||||||
| 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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