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Altisource Announces Second Quarter Financial Results and Attractive Client Wins

July 26, 2018 7:14 AM

LUXEMBOURG, July 26, 2018 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. (“Altisource” or the “Company”) (NASDAQ: ASPS) today reported financial results for the second quarter 2018.

Second quarter service revenue of $208.9 million increased by 11% compared to the first quarter of 2018, driven by growth in the buy-renovate-lease-sell, Hubzu® and property preservation and inspection businesses. Second quarter 2018 service revenue was 12% lower than the second quarter of 2017 primarily from the reduction in size of the Ocwen Financial Corporation (“Ocwen”) servicing portfolio resulting from loan repayments, loan modifications, short sales, REO sales and other forms of resolution and Front Yard Residential Corporation’s (“RESI”) smaller portfolio of non-performing loans and REO. These declines were partially offset by non-Ocwen service revenue growth in the buy-renovate-lease-sell, property preservation and inspection, renovation management and Owners.com® businesses.

Second quarter 2018 diluted earnings per share was $0.09 and adjusted diluted earnings per share(1) was $0.60, compared to first quarter 2018 diluted loss per share of $(0.24) and adjusted diluted earnings per share(1) of $0.48. Second quarter adjusted diluted earnings per share was higher than the first quarter of 2018 from higher service revenue, partially offset by higher interest expense. Second quarter 2018 adjusted diluted earnings per share was 35% lower than the second quarter of 2017 primarily from higher interest expense and lower service revenue in 2018 and a gain on debt repurchase in 2017.

Second quarter 2018 adjusted diluted earnings per share(1) excludes $4.4 million of pretax loss related to the April 3, 2018 debt refinancing ($0 in the second quarter 2017) and mark-to-market pretax gain of approximately $1.5 million from our investment in RESI shares (not included in the determination of net income in 2017).

“I’m pleased with our second quarter financial performance. Compared to the mid-point of our full year 2018 scenarios, adjusted diluted earnings per share for the first half of 2018 is 53% of the mid-point,” said Chief Executive Officer William B. Shepro.

Mr. Shepro further commented, “More importantly, we are making excellent progress on the sales front as our industry consolidates to high performing vendors. We believe our recent wins with some of the largest financial institutions in the mortgage industry and the progress we are making onboarding these customers will provide strong diversified revenue growth.”

Second Quarter 2018 Highlights(2)

Corporate

Servicer Solutions

Origination Solutions

Real Estate Investor Solutions

Consumer Real Estate Solutions

Second Quarter 2018 Results Compared to First Quarter 2018 and Second Quarter 2017:

________________________

(1) This is a non-GAAP measure that is defined and reconciled to the corresponding GAAP measure herein.
(2) Applies to the second quarter 2018 unless otherwise indicated.
(3) Effective January 1, 2018, mark-to-market adjustments of our investment in RESI are reflected in our results of operations in connection with the adoption of a new accounting principle (previously reflected in comprehensive income).

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, our ability to retain existing customers and attract new customers and the potential for changes in our customer relationships, including the possibility of early termination of our Cooperative Brokerage Agreement with New Residential Investment Corp. or the possibility that we may not be successful in negotiating a satisfactory services agreement with New Residential Investment Corp.; the possibility that Ocwen Financial Corporation’s acquisition of PHH Corporation will not be completed; 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; and other risks and uncertainties detailed in the “Forward-Looking Statements,” “Risk Factors” and other sections of Altisource’s Form 10-K and other filings with the Securities and Exchange Commission.

Webcast

Altisource will host a webcast at 11:00 a.m. EDT today to discuss our second quarter. 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.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
Three months ended
June 30,		 Six months ended
June 30,
2018 2017 2018 2017
Service revenue
Mortgage Market $169,457 $198,414 $328,612 $393,387
Real Estate Market 23,664 24,347 38,467 43,536
Other Businesses, Corporate and Eliminations 15,740 15,346 30,548 31,023
Total service revenue 208,861 238,107 397,627 467,946
Reimbursable expenses 9,008 11,891 17,155 21,920
Non-controlling interests 687 687 1,212 1,302
Total revenue 218,556 250,685 415,994 491,168
Cost of revenue 154,198 173,502 293,245 341,426
Reimbursable expenses 9,008 11,891 17,155 21,920
Gross profit 55,350 65,292 105,594 127,822
Selling, general and administrative expenses 42,924 52,470 86,048 100,171
Income from operations 12,426 12,822 19,546 27,651
Other income (expense), net:
Interest expense (7,027) (5,465) (12,890) (11,263)
Unrealized gain (loss) on investment in equity securities 1,533 — (5,968) —
Other income (expense), net (3,861) 4,803 (2,589) 5,518
Total other income (expense), net (9,355) (662) (21,447) (5,745)
Income (loss) before income taxes and non-controlling interests 3,071 12,160 (1,901) 21,906
Income tax (provision) benefit (816) (2,438) 549 (5,024)
Net income (loss) 2,255 9,722 (1,352) 16,882
Net income attributable to non-controlling interests (687) (687) (1,212) (1,302)
Net income (loss) attributable to Altisource $1,568 $9,035 $(2,564) $15,580
Earnings (loss) per share:
Basic $0.09 $0.49 $(0.15) $0.84
Diluted $0.09 $0.48 $(0.15) $0.82
Weighted average shares outstanding:
Basic 17,142 18,335 17,260 18,497
Diluted 17,553 18,836 17,260 19,069
Comprehensive income (loss):
Net income (loss) $2,255 $9,722 $(1,352) $16,882
Other comprehensive income (loss), 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) —
Unrealized (loss) gain on investment in equity securities, net of
income tax benefit (provision) of $0, $2,593, $0, $(2,132)		 — (6,981) — 5,742
Comprehensive income (loss), net of tax 2,255 2,741 (2,085) 22,624
Comprehensive income attributable to non-controlling interests (687) (687) (1,212) (1,302)
Comprehensive income (loss) attributable to Altisource $1,568 $2,054 $(3,297) $21,322


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
(unaudited)
Three months ended June 30, 2018
Mortgage
Market		 Real Estate
Market		 Other
Businesses,
Corporate and
Eliminations		 Consolidated
Altisource
Revenue
Service revenue $169,457 $23,664 $15,740 $208,861
Reimbursable expenses 8,518 481 9 9,008
Non-controlling interests 687 — — 687
178,662 24,145 15,749 218,556
Cost of revenue 115,329 28,191 19,686 163,206
Gross profit (loss) 63,333 (4,046) (3,937) 55,350
Selling, general and administrative expenses 20,604 5,180 17,140 42,924
Income (loss) from operations 42,729 (9,226) (21,077) 12,426
Total other income (expense), net (4) 12 (9,363) (9,355)
Income (loss) before income taxes and
non-controlling interests		 $42,725 $(9,214) $(30,440) $3,071


Three months ended June 30, 2017
Mortgage
Market		 Real Estate
Market		 Other
Businesses,
Corporate and
Eliminations		 Consolidated
Altisource
Revenue
Service revenue $198,414 $24,347 $15,346 $238,107
Reimbursable expenses 11,094 783 14 11,891
Non-controlling interests 687 — — 687
210,195 25,130 15,360 250,685
Cost of revenue 144,326 26,844 14,223 185,393
Gross profit (loss) 65,869 (1,714) 1,137 65,292
Selling, general and administrative expenses 29,805 5,551 17,114 52,470
Income (loss) from operations 36,064 (7,265) (15,977) 12,822
Total other income (expense), net 102 — (764) (662)
Income (loss) before income taxes and
non-controlling interests		 $36,166 $(7,265) $(16,741) $12,160


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION
(in thousands)
(unaudited)
Six months ended June 30, 2018
Mortgage
Market		 Real Estate
Market		 Other
Businesses,
Corporate and
Eliminations		 Consolidated
Altisource
Revenue
Service revenue $328,612 $38,467 $30,548 $397,627
Reimbursable expenses 16,176 958 21 17,155
Non-controlling interests 1,212 — — 1,212
346,000 39,425 30,569 415,994
Cost of revenue 226,402 46,745 37,253 310,400
Gross profit (loss) 119,598 (7,320) (6,684) 105,594
Selling, general and administrative expenses 43,978 9,298 32,772 86,048
Income (loss) from operations 75,620 (16,618) (39,456) 19,546
Total other income (expense), net 12 14 (21,473) (21,447)
Income (loss) before income taxes and
non-controlling interests		 $75,632 $(16,604) $(60,929) $(1,901)


Six months ended June 30, 2017
Mortgage
Market		 Real Estate
Market		 Other
Businesses,
Corporate and
Eliminations		 Consolidated
Altisource
Revenue
Service revenue $393,387 $43,536 $31,023 $467,946
Reimbursable expenses 20,229 1,657 34 21,920
Non-controlling interests 1,302 — — 1,302
414,918 45,193 31,057 491,168
Cost of revenue 284,476 48,987 29,883 363,346
Gross profit (loss) 130,442 (3,794) 1,174 127,822
Selling, general and administrative expenses 58,487 9,876 31,808 100,171
Income (loss) from operations 71,955 (13,670) (30,634) 27,651
Total other income (expense), net 112 — (5,857) (5,745)
Income (loss) before income taxes and
non-controlling interests		 $72,067 $(13,670) $(36,491) $21,906




ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
June 30,
2018		 December 31,
2017
ASSETS
Current assets:
Cash and cash equivalents$84,569 $105,006
Investment in equity securities43,185 49,153
Accounts receivable, net45,426 52,740
Prepaid expenses and other current assets70,009 64,742
Total current assets243,189 271,641
Premises and equipment, net58,820 73,273
Goodwill86,283 86,283
Intangible assets, net105,374 120,065
Deferred tax assets, net305,056 303,707
Other assets11,174 10,195
Total assets$809,896 $865,164
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses$67,646 $84,400
Current portion of long-term debt41,200 5,945
Deferred revenue19,131 9,802
Other current liabilities5,889 9,414
Total current liabilities133,866 109,561
Long-term debt, less current portion354,332 403,336
Other non-current liabilities9,407 12,282
Commitments, contingencies and regulatory matters
Equity:
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 17,027
outstanding as of June 30, 2018; 100,000 shares authorized, 25,413 shares issued and
17,418 outstanding as of December 31, 2017)		25,413 25,413
Additional paid-in capital116,586 112,475
Retained earnings596,268 626,600
Accumulated other comprehensive income— 733
Treasury stock, at cost (8,386 shares as of June 30, 2018 and 7,995 shares as of
December 31, 2017)		(427,380) (426,609)
Altisource equity310,887 338,612
Non-controlling interests1,404 1,373
Total equity312,291 339,985
Total liabilities and equity$809,896 $865,164



ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended
June 30,
2018 2017
Cash flows from operating activities:
Net (loss) income$(1,352) $16,882
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization17,049 18,895
Amortization of intangible assets14,691 18,539
Change in the fair value of acquisition related contingent consideration— 16
Unrealized loss on investment in equity securities5,968 —
Share-based compensation expense4,111 1,858
Bad debt expense1,503 2,890
Gain on early extinguishment of debt— (3,937)
Amortization of debt discount298 156
Amortization of debt issuance costs502 433
Deferred income taxes(1,349) —
Loss on disposal of fixed assets558 2,798
Loss on debt refinancing4,434 —
Changes in operating assets and liabilities:
Accounts receivable6,923 11,954
Prepaid expenses and other current assets(5,267) (6,811)
Other assets967 523
Accounts payable and accrued expenses(17,152) (10,637)
Other current and non-current liabilities(8,631) (41,042)
Net cash provided by operating activities23,253 12,517
Cash flows from investing activities:
Additions to premises and equipment(2,756) (5,658)
Net cash used in investing activities(2,756) (5,658)
Cash flows from financing activities:
Proceeds from issuance of long-term debt407,880 —
Repayments and repurchases of long-term debt(421,821) (24,766)
Debt issuance costs(5,042) —
Proceeds from stock option exercises2,707 765
Purchase of treasury shares(21,121) (15,531)
Distributions to non-controlling interests(1,181) (1,056)
Payment of tax withholding on issuance of restricted shares and stock option exercises(410) (1,089)
Net cash used in financing activities(38,988) (41,677)
Net decrease in cash, cash equivalents and restricted cash(18,491) (34,818)
Cash, cash equivalents and restricted cash at the beginning of the period108,843 153,421
Cash, cash equivalents and restricted cash at the end of the period$90,352 $118,603
Supplemental cash flow information:
Interest paid$11,540 $10,787
Income taxes paid, net2,865 12,668
Non-cash investing and financing activities:
Increase (decrease) in payables for purchases of premises and equipment$398 $(378)
Increase in payables for purchases of treasury shares— 3,042


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

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 and net debt less marketable 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 (loss) before income taxes and non-controlling interests, net income (loss) 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-recurring items from earnings, cash flows from operating activities 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 (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 intangible asset amortization expense, share-based compensation expense, unrealized gain (loss) on investment in equity securities, the write-off of net discount and debt issuance costs from debt refinancing and non-controlling interests 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 (net of tax), the write-off of net discount and debt issuance costs from debt refinancing (net of tax) and unrealized gain (loss) on investment in equity securities (net of tax) from net income (loss) attributable to Altisource. Adjusted diluted earnings per share is calculated by dividing net income attributable to Altisource after removing intangible asset amortization expense (net of tax), share-based compensation (net of tax), the write-off of net discount and debt issuance costs from debt refinancing (net of tax) and unrealized gain (loss) on investment in equity securities (net of tax) by the weighted average number of diluted shares. Adjusted cash flows from operating activities is calculated by removing the cash payment related to the net litigation settlement loss and the increase (decrease) in short-term investments in real estate from cash flows from operating activities. Adjusted cash flows from operating activities less additions to premises and equipment is calculated by removing the cash payment related to the net litigation settlement loss, the increase (decrease) in short-term investments in real estate and additions to premises and equipment from cash flows from operating activities. Net debt less marketable securities is calculated as long-term debt, including current portion, minus 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
June 30,		 Three months
ended
March 31,		 Six months ended
June 30,
2018 2017 2018 2018 2017
Income (loss) before income taxes and non-controlling interests$3,071 $12,160 $(4,972) $(1,901) $21,906
Non-controlling interests(687) (687) (525) (1,212) (1,302)
Pretax income (loss) attributable to Altisource2,384 11,473 (5,497) (3,113) 20,604
Intangible asset amortization expense7,544 9,393 7,147 14,691 18,539
Share-based compensation expense1,910 1,163 2,201 4,111 1,858
Write-off of net discount and debt issuance costs from debt refinancing4,434 — — 4,434 —
Unrealized (gain) loss on investment in equity securities(1,533) — 7,501 5,968 —
Adjusted pretax income attributable to Altisource$14,739 $22,029 $11,352 $26,091 $41,001
Net income (loss) attributable to Altisource$1,568 $9,035 $(4,132) $(2,564) $15,580
Intangible asset amortization expense, net
of tax		5,499 7,510 5,491 10,880 14,288
Share-based compensation expense, net
of tax		1,392 930 1,691 3,045 1,432
Write-off of net discount and debt issuance costs from debt refinancing, net of tax3,232 — — 3,232 —
Unrealized (gain) loss on investment in equity securities, net of tax(1,134) — 5,551 4,416 —
Adjusted net income attributable to Altisource$10,557 $17,475 $8,601 $19,009 $31,300
Diluted earnings (loss) per share$0.09 $0.48 $(0.24) $(0.15) $0.82
Impact of using diluted share count instead of basic share count for a loss per share— — 0.01 0.01 —
Intangible asset amortization expense, net
of tax, per diluted share		0.31 0.40 0.31 0.61 0.75
Share-based compensation expense, net of tax, per diluted share0.08 0.05 0.09 0.17 0.08
Write-off of net discount and debt issuance costs from debt refinancing, net of tax, per diluted share0.18 — — 0.18 —
Unrealized (gain) loss on investment in equity securities, net of tax, per diluted share(0.06) — 0.31 0.25 —
Adjusted diluted earnings per share$0.60 $0.93 $0.48 $1.07 $1.64
Calculation of the impact of intangible asset amortization expense, net of tax
Intangible asset amortization expense$7,544 $9,393 $7,147 $14,691 $18,539
Tax benefit from intangible asset amortization(2,045) (1,883) (1,656) (3,811) (4,251)
Intangible asset amortization expense, net
of tax		5,499 7,510 5,491 10,880 14,288
Diluted share count17,553 18,836 17,881 17,717 19,069
Intangible asset amortization expense, net of tax, per diluted share$0.31 $0.40 $0.31 $0.61 $0.75
Calculation of the impact of share-based compensation expense, net of tax
Share-based compensation expense$1,910 $1,163 $2,201 $4,111 $1,858
Tax benefit from share-based compensation expense(518) (233) (510) (1,066) (426)
Share-based compensation expense, net
of tax		1,392 930 1,691 3,045 1,432
Diluted share count17,553 18,836 17,881 17,717 19,069
Share-based compensation expense, net of tax, per diluted share$0.08 $0.05 $0.09 $0.17 $0.08
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 tax3,232 — — 3,232 —
Diluted share count17,553 18,836 17,881 17,717 19,069
Write-off of net discount and debt issuance costs from debt refinancing, net of tax, per diluted share$0.18 $— $— $0.18 $—
Calculation of the impact of the unrealized (gain) loss on investment in equity securities, net of tax
Unrealized (gain) loss on investment in equity securities$(1,533) $— $7,501 $5,968 $—
Tax provision (benefit) from the unrealized (gain) loss on investment in equity securities399 — (1,950) (1,552) —
Unrealized (gain) loss on investment in equity securities, net of tax(1,134) — 5,551 4,416 —
Diluted share count17,553 18,836 17,881 17,717 19,069
Unrealized (gain) loss on investment in equity securities, net of tax, per diluted share$(0.06) $— $0.31 $0.25 $—
Cash flows from operating activities$31,822 $30,876 $(8,569) $23,253 $12,517
Net litigation settlement loss payment— — — — 28,000
(Decrease) increase in short-term investments in real estate(4,031) (418) 9,915 5,884 2,089
Adjusted cash flows from operating activities27,791 30,458 1,346 29,137 42,606
Less: Additions to premises and equipment(1,498) (3,714) (1,258) (2,756) (5,658)
Adjusted cash flows from operating activities less additions to premises and equipment$26,293 $26,744 $88 $26,381 $36,948
June 30,
2018
Term loans$403,760
Less: Cash and cash equivalents(84,569)
Less: Marketable securities(43,185)
Net debt less marketable securities$276,006

_____________________________

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

FOR FURTHER INFORMATION CONTACT:

Indroneel Chatterjee
Chief Financial Officer
T: +352 2469 7988
E: [email protected]

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