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Altisource Announces Fourth Quarter and Full Year 2018 Financial Results

Full Year 2018

  • Service revenue of $805.5 million
  • Operating income of $42.5 million and adjusted operating income(1) of $88.3 million
  • Income before income taxes and non-controlling interests of $1.4 million and adjusted pre-tax income attributable to Altisource(1) of $62.0 million, or 7.7% of service revenue
  • Net loss attributable to Altisource of $(5.4) million, or $(0.32) per share, and adjusted net income attributable to Altisource(1) of $42.6 million, or $2.43 per diluted share

Fourth Quarter 2018

  • Service revenue of $210.9 million
  • Operating income of $2.0 million and adjusted operating income(1) of $24.3 million
  • Loss before income taxes and non-controlling interests of $(12.8) million and adjusted pre-tax income attributable to Altisource(1) of $17.6 million, or 8.3% of service revenue
  • Net loss attributable to Altisource of $(11.5) million, or $(0.69) per share, and adjusted net income attributable to Altisource(1) of $10.1 million, or $0.59 per diluted share

LUXEMBOURG, Feb. 26, 2019 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. (“Altisource” or the “Company”) (ASPS), a leading provider and marketplace for the real estate and mortgage industries, today reported financial results for the fourth quarter and full year 2018.

“2018 has been a productive year for Altisource, and we are actively taking steps to position the Company for a solid 2019 and better 2020.  From a financial perspective, we substantially exceeded the mid-point of our adjusted pre-tax income and adjusted earnings per share financial scenarios, and generated strong adjusted operating cash.  On the sales front, we are winning business and expanding relationships with some of the largest financial institutions in the United States. Operationally, we began to exit certain businesses and established Project Catalyst, to streamline the organization, focus on our larger opportunities, and help us achieve our longer term financial objectives,” said Chief Executive Officer William B. Shepro.

Mr. Shepro further commented, “From a capital perspective, we refinanced our term loan in April 2018, extending the maturity from December 2020 to April 2024.  We reduced our debt by approximately $75 million during the year and ended 2018 with $339 million of debt, $244 million of net debt less investment in equity securities(1) and $204 million after further reducing for the book value of homes in the buy-renovate-lease-sell business.  We also repurchased $40 million of Altisource stock, bringing the number of outstanding shares to 16.3 million at the end of the year.”

2018 service revenue of $805.5 million was 10% lower than 2017 primarily from the reduction in size of the Ocwen Financial Corporation (“Ocwen”) servicing portfolio and the Front Yard Residential Corporation (“RESI”) portfolio of non-performing loans and REO.  These declines were partially offset by growth in the Buy-Renovate-Lease-Sell (“BRS”) and Owners.com® businesses.

Fourth quarter 2018 service revenue of $210.9 million was 2% higher than the fourth quarter of 2017 primarily from growth in the BRS business, partially offset by lower revenue from Ocwen’s servicing portfolio and RESI.

2018 operating income of $42.5 million was 15% lower than 2017 primarily from $11.6 million of restructuring charges related to Project Catalyst, a $6.2 million 2018 reserve for sales tax, and a $2.6 million write-off of goodwill associated with the decision to exit the BRS business.  This was partially offset by a $13.7 million gain on sale of the Rental Property Management business and the benefits of Project Catalyst.

2018 adjusted operating income(1) of $88.3 million was 1% lower than 2017 primarily from the impact of revenue declines discussed above, almost entirely offset by margin expansion from the benefits of Project Catalyst.  2018 adjusted operating income(1) as a percentage of service revenue was 11.0% compared to 9.9% in 2017.

Fourth quarter 2018 operating income of $2.0 million was 76% lower than the fourth quarter of 2017 primarily from $8.1 million of restructuring charges related to Project Catalyst and a $2.6 million write-off of goodwill associated with the decision to exit the BRS business, partially offset by the benefits of Project Catalyst.

Fourth quarter 2018 adjusted operating income(1) of $24.3 million was 36% higher than the fourth quarter of 2017 primarily from the benefits of Project Catalyst.  Fourth quarter adjusted operating income(1) as a percentage of service revenue was 11.5% compared to 8.6% in the fourth quarter of 2017.

2018 loss per share was $(0.32) compared to 2017 diluted earnings per share of $16.53.  2017 diluted earnings per share was considerably higher from a fourth quarter 2017 net income tax benefit of $284.1 million ($15.20 per diluted share) relating to the merger of two of the Company’s Luxembourg subsidiaries, the impact of statutory tax rate changes in the U.S. and Luxembourg, and foreign income tax reserves.  2018 loss per share was impacted by unrealized losses on marketable securities ($0.55 per share), restructuring charges ($0.51 per share), accrual for sales tax ($0.26 per share), loss on debt refinancing ($0.18 per share) and the write-off of goodwill in connection with the decision to exit the buy-renovate-lease-sell business ($0.11 per share).  These items were partially offset by the gain on the sale of the Rental Property Management business ($0.53 per share).

2018 adjusted earnings per share(1) of $2.43 was 18% lower than 2017 primarily from higher interest expense from the Company’s April 2018 debt refinancing transaction and rising interest rates, and a higher effective tax rate from changes in the jurisdictional mix of taxable income (losses).  This was partially offset by fewer diluted shares outstanding in 2018 from share repurchases.

Fourth quarter 2018 loss per share was $(0.69) compared to fourth quarter 2017 diluted earnings per share of $15.72.  Fourth quarter 2017 diluted earnings per share was considerably higher than 2018 primarily from the net income tax benefit described above ($15.60 per diluted share in the fourth quarter 2018).  Fourth quarter 2018 loss per share was impacted by unrealized losses on marketable securities ($0.38 per share), restructuring charges ($0.37 per share), the write-off of goodwill in connection with the decision to exit the buy-renovate-lease-sell business ($0.11 per share) and accrual for sales tax ($0.02 per share).

Fourth quarter 2018 adjusted diluted earnings per share(1) of $0.59 was the same as the fourth quarter of 2017 from adjusted operating income margin expansion and fewer diluted shares outstanding, offset by higher interest expense and effective tax rate described above.

2018 Highlights(2)

Corporate

  • Generated $68.4 million of cash flows from operating activities and $79.4 million of adjusted cash flows from operating activities(1)
  • Refinanced our senior secured term loan in April 2018, extending the maturity from December 2020 to April 2024; entered into an agreement for a $15 million revolving line of credit, available for general corporate purposes, as part of our new credit facility
  • Used $15.0 million received from the sale of the Rental Property Management business to RESI and $49.9 million received and anticipated to be received from the discontinuation of the BRS business to repay debt
  • Launched Project Catalyst to better align the Company’s cost structure with anticipated revenue, and improve operating margins and performance; we incurred $11.6 million of severance costs, professional services fees and facility shut-down costs in connection with Project Catalyst
  • Repurchased 1.6 million shares of our common stock at an average price of $25.53 per share
  • Ended 2018 with $94.5 million of cash, cash equivalents and investment in equity securities
  • Ended 2018 with $244.3 million of net debt less investment in equity securities(1)
  • Signed agreements with three new enterprise customers in the fourth quarter and was recognized as an industry leader by Forrester® in two Wave reports, one for Journey Visioning Platforms and the other for Journey Orchestration Platforms, in the Pointillist business

Mortgage Market

  • Executed an agreement with one of the largest institutional real estate and mortgage investors in the U.S. to provide REO, foreclosure and short sale auctions, and began receiving REO referrals in the third quarter and foreclosure auction referrals in the fourth quarter (anticipate receiving short sale auction referrals in the first quarter 2019)
  • Executed an agreement with a top-10 servicer to provide REO asset management and related services, and began receiving referrals in January 2019
  • Executed an agreement with a top-5 servicer to provide field services, and anticipate beginning to receive referrals in the second quarter 2019
  • Grew inventory of Hubzu homes by 64% from January 1, 2018 to December 31, 2018 (1,470 units on January 1, 2018 compared to 2,412 units on December 31, 2018) from customers other than Ocwen, New Residential Investment Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “NRZ”) and RESI
  • Launched the Trelix end-to-end fulfillment services offering

Real Estate Market

  • Launched a new and improved Owners.com user experience (website and mobile applications) for home buyers and sellers and our real estate agents, to improve purchase and sale funnel conversion rates
  • Grew Consumer Real Estate Solutions service revenue by 82% and the number of home purchase and sale transactions by 61%, in 2018 compared to 2017
  • Increased the Consumer Real Estate Solutions active customer base from 2,300 clients at the end of 2017 to 5,300 clients at the end of 2018
  • Sold the Real Estate Investor Solutions Rental Property Management business to RESI for total transaction proceeds of $18.0 million, $15.0 million of which was received on the closing date and $3.0 million of which will be received on the earlier of a RESI change of control or August 8, 2023; recognized a $13.7 million pretax gain on the sale of this business
  • Announced plans to sell the Real Estate Investor Solutions short-term investments in real estate and discontinue the BRS business; used $49.9 million in proceeds and anticipated proceeds from BRS sales to repay a portion of the senior secured term loan
  • Ended 2018 with $39.9 million of BRS inventory consisting of 287 homes; the Company anticipates selling the majority of the BRS inventory in 2019

Fourth Quarter and Full Year 2018 Results Compared to Fourth Quarter and Full Year 2017:

(in thousands, except per share data) Fourth Quarter 2018   Fourth Quarter 2017   Change   Full Year 2018   Full Year 2017   Change
Service revenue $ 210,947     $ 207,307     2 %   $ 805,480     $ 899,561     (10 )%
Income from operations 2,031     8,596     (76 )%   42,495     49,706     (15 )%
Adjusted operating income(1) 24,298     17,838     36 %   88,339     89,328     (1 )%
(Loss) income before income taxes and non‑controlling interests (12,829 )   3,112     (512 )%   1,399     35,375     (96 )%
Pretax (loss) income attributable to Altisource(1) (13,446 )   2,479     (642 )%   (1,284 )   32,635     (104 )%
Adjusted pretax income attributable to Altisource(1) 17,607     11,721     50 %   61,966     72,257     (14 )%
Net (loss) income attributable to Altisource (11,485 )   286,350     (104 )%   (5,382 )   308,891     (102 )%
Adjusted net income attributable to Altisource(1) 10,144     10,779     (6 )%   42,609     55,617     (23 )%
Diluted (loss) earnings per share (0.69 )   15.72     (104 )%   (0.32 )   16.53     (102 )%
Adjusted diluted earnings per share(1) 0.59     0.59     %   2.43     2.98     (18 )%
Cash flows from operating activities 24,752     18,953     31 %   68,402     66,082     4 %
Adjusted cash flows from operating activities(1) 13,437     23,714     (43 )%   79,370     110,462     (28 )%
Adjusted cash flows from operating activities less additions for premises and equipment(1) 13,728     20,685     (34 )%   75,454     99,948     (25 )%
  • Fourth quarter and full year 2018 operating income includes restructuring charges of $8.1 million and $11.6 million, respectively, related to Project Catalyst (no comparable amounts in 2017), a fourth quarter and full year write-off of goodwill related to the exit of the BRS business of $2.6 million (no comparable amounts in 2017) and a sales tax accrual of $0.4 million and $6.2 million, respectively (no comparable amounts in 2017) and a full year 2018 gain of $13.7 million in connection with the sale of the Rental Property Management business to RESI (no comparable amounts in the fourth quarter of 2018 and 2017)
  • Fourth quarter and full year 2018 pretax income attributable to Altisource(1) includes a mark-to-market loss on our equity investment in RESI of $8.8 million and $13.0 million, respectively (no comparable amounts in 2017(3))
  • Fourth quarter and full year 2018 net loss attributable to Altisource includes certain income tax related reserves, net of $0 million and $1.6 million, respectively (tax benefit for certain income tax related items of $284.1 million in both the fourth quarter and full year 2017)

________________________

(1)  This is a non-GAAP measure that is defined and reconciled to the corresponding GAAP measure herein.
(2)  Applies to 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 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. EST today to discuss our fourth quarter and full year 2018 results.  A link to the live audio webcast will be available on Altisource’s website in the Investor Relations section.  Those who want to listen to the call should go to the website at least fifteen minutes prior to the call to register, download and install any necessary audio software.  A replay of the conference call will be available via the website approximately two hours after the conclusion of the call and will remain available for approximately 30 days.

About Altisource

Altisource Portfolio Solutions S.A. is an integrated service provider and marketplace for the real estate and mortgage industries.  Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing markets we serve.  Additional information is available at www.Altisource.com.



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

    Three months ended
 December 31,
  Year ended
 December 31,
    2018   2017   2018   2017
                 
Service revenue                
Mortgage Market   $ 158,665     $ 171,056     $ 655,766     $ 754,058  
Real Estate Market   37,463     22,172     88,755     86,821  
Other Businesses, Corporate and Eliminations   14,819     14,079     60,959     58,682  
Total service revenue   210,947     207,307     805,480     899,561  
Reimbursable expenses   6,069     8,126     30,039     39,912  
Non-controlling interests   617     633     2,683     2,740  
Total revenue   217,633     216,066     838,202     942,213  
Cost of revenue   158,116     153,495     592,126     659,953  
Reimbursable expenses   6,069     8,126     30,039     39,912  
Gross profit   53,448     54,445     216,037     242,348  
Operating expenses (income):                
Selling, general and administrative expenses   43,293     45,849     175,670     192,642  
Gain on sale of business           (13,688 )    
Restructuring charges   8,124         11,560      
Income from operations   2,031     8,596     42,495     49,706  
Other income (expense), net:                
Interest expense   (6,639 )   (5,391 )   (26,254 )   (22,253 )
Unrealized loss on investment in equity securities   (8,786 )       (12,972 )    
Other income (expense), net   565     (93 )   (1,870 )   7,922  
Total other income (expense), net   (14,860 )   (5,484 )   (41,096 )   (14,331 )
                 
(Loss) income before income taxes and non-controlling interests   (12,829 )   3,112     1,399     35,375  
Income tax benefit (provision)   1,961     283,871     (4,098 )   276,256  
                 
Net (loss) income   (10,868 )   286,983     (2,699 )   311,631  
Net income attributable to non-controlling interests   (617 )   (633 )   (2,683 )   (2,740 )
                 
Net (loss) income attributable to Altisource   $ (11,485 )   $ 286,350     $ (5,382 )   $ 308,891  
                 
(Loss) earnings per share:                
Basic   $ (0.69 )   $ 16.16     $ (0.32 )   $ 16.99  
Diluted   $ (0.69 )   $ 15.72     $ (0.32 )   $ 16.53  
                 
Weighted average shares outstanding:                
Basic   16,745     17,724     17,073     18,183  
Diluted   16,745     18,211     17,073     18,692  
                 
Comprehensive (loss) income:                
Net (loss) income   $ (10,868 )   $ 286,983     $ (2,699 )   $ 311,631  
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 )    
Unrealized gain on investment in equity securities, net of income tax provision of $0, $(843), $0, $(921)       2,266         2,478  
                 
Comprehensive (loss) income, net of tax   (10,868 )   289,249     (3,432 )   314,109  
Comprehensive income attributable to non-controlling interests   (617 )   (633 )   (2,683 )   (2,740 )
                 
Comprehensive (loss) income attributable to Altisource   $ (11,485 )   $ 288,616     $ (6,115 )   $ 311,369  


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

    For the three months ended December 31, 2018
    Mortgage Market   Real Estate Market   Other Businesses, Corporate and Eliminations   Consolidated Altisource
                 
Revenue                
Service revenue   $ 158,665     $ 37,463     $ 14,819     $ 210,947  
Reimbursable expenses   5,663     392     14     6,069  
Non-controlling interests   617             617  
    164,945     37,855     14,833     217,633  
Cost of revenue   107,070     40,265     16,850     164,185  
Gross profit (loss)   57,875     (2,410 )   (2,017 )   53,448  
Operating expenses (income):                
Selling, general and administrative expenses   19,880     7,075     16,338     43,293  
Restructuring charges   1,594     39     6,491     8,124  
Income (loss) from operations   36,401     (9,524 )   (24,846 )   2,031  
Total other income (expense), net   (5 )   41     (14,896 )   (14,860 )
                 
Income (loss) before income taxes and non-controlling interests   $ 36,396     $ (9,483 )   $ (39,742 )   $ (12,829 )


    For the three months ended December 31, 2017
    Mortgage Market   Real Estate Market   Other Businesses, Corporate and Eliminations   Consolidated Altisource
                 
Revenue                
Service revenue   $ 171,056     $ 22,172     $ 14,079     $ 207,307  
Reimbursable expenses   7,815     301     10     8,126  
Non-controlling interests   633             633  
    179,504     22,473     14,089     216,066  
Cost of revenue   123,565     24,483     13,573     161,621  
Gross profit (loss)   55,939     (2,010 )   516     54,445  
Selling, general and administrative expenses   27,722     4,634     13,493     45,849  
Income (loss) from operations   28,217     (6,644 )   (12,977 )   8,596  
Total other income (expense), net   (66 )   (4 )   (5,414 )   (5,484 )
                 
Income (loss) before income taxes and
   non-controlling interests
  $ 28,151     $ (6,648 )   $ (18,391 )   $ 3,112  


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

    For the year ended December 31, 2018
    Mortgage Market   Real Estate Market   Other Businesses, Corporate and Eliminations   Consolidated Altisource
                 
Revenue                
Service revenue   $ 655,766     $ 88,755     $ 60,959     $ 805,480  
Reimbursable expenses   28,456     1,535     48     30,039  
Non-controlling interests   2,683             2,683  
    686,905     90,290     61,007     838,202  
Cost of revenue   447,108     102,893     72,164     622,165  
Gross profit (loss)   239,797     (12,603 )   (11,157 )   216,037  
Operating expenses (income):                
Selling, general and administrative expenses   85,013     21,561     69,096     175,670  
Gain on sale of business       (13,688 )       (13,688 )
Restructuring charges   2,495     113     8,952     11,560  
Income (loss) from operations   152,289     (20,589 )   (89,205 )   42,495  
Total other income (expense), net   81     77     (41,254 )   (41,096 )
                 
Income (loss) before income taxes and
   non-controlling interests
  $ 152,370     $ (20,512 )   $ (130,459 )   $ 1,399  


    For the year ended December 31, 2017
    Mortgage Market   Real Estate Market   Other Businesses, Corporate and Eliminations   Consolidated Altisource
                 
Revenue                
Service revenue   $ 754,058     $ 86,821     $ 58,682     $ 899,561  
Reimbursable expenses   36,886     2,966     60     39,912  
Non-controlling interests   2,740             2,740  
    793,684     89,787     58,742     942,213  
Cost of revenue   545,507     96,967     57,391     699,865  
Gross profit (loss)   248,177     (7,180 )   1,351     242,348  
Selling, general and administrative expenses   114,215     18,718     59,709     192,642  
Income (loss) from operations   133,962     (25,898 )   (58,358 )   49,706  
Total other income (expense), net   72     (4 )   (14,399 )   (14,331 )
                 
Income (loss) before income taxes and
   non-controlling interests
  $ 134,034     $ (25,902 )   $ (72,757 )   $ 35,375  


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

  December 31,
  2018   2017
ASSETS
Current assets:      
Cash and cash equivalents $ 58,294     $ 105,006  
Investment in equity securities 36,181     49,153  
Accounts receivable, net 36,466     52,740  
Short-term investments in real estate 39,873     29,405  
Prepaid expenses and other current assets 30,720     35,337  
Total current assets 201,534     271,641  
       
Premises and equipment, net 45,631     73,273  
Goodwill 81,387     86,283  
Intangible assets, net 91,653     120,065  
Deferred tax assets, net 309,089     303,707  
Other assets 12,406     10,195  
       
Total assets $ 741,700     $ 865,164  
       
LIABILITIES AND EQUITY
Current liabilities:      
Accounts payable and accrued expenses $ 87,240     $ 84,400  
Current portion of long-term debt     5,945  
Deferred revenue 10,108     9,802  
Other current liabilities 7,030     9,414  
Total current liabilities 104,378     109,561  
       
Long-term debt, less current portion 331,476     403,336  
Other non-current liabilities 9,178     12,282  
       
Commitments, contingencies and regulatory matters      
       
Equity:      
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 16,276 outstanding as of December 31, 2018; 17,418 outstanding as of December 31, 2017) 25,413     25,413  
Additional paid-in capital 122,667     112,475  
Retained earnings 590,655     626,600  
Accumulated other comprehensive income     733  
Treasury stock, at cost (9,137 shares as of December 31, 2018 and 7,995 shares as of December 31, 2017) (443,304 )   (426,609 )
Altisource equity 295,431     338,612  
       
Non-controlling interests 1,237     1,373  
Total equity 296,668     339,985  
       
Total liabilities and equity $ 741,700     $ 865,164  


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

  For the years ended
 December 31,
  2018   2017
       
Cash flows from operating activities:      
Net (loss) income $ (2,699 )   $ 311,631  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:      
Depreciation and amortization 30,799     36,447  
Amortization of intangible assets 28,412     35,367  
Unrealized loss on investment in equity securities 12,972      
Change in the fair value of acquisition related contingent consideration     24  
Goodwill write-off from business exit 2,640      
Share-based compensation expense 10,192     4,255  
Bad debt expense 2,830     5,116  
Gain on early extinguishment of debt     (5,637 )
Amortization of debt discount 717     301  
Amortization of debt issuance costs 965     833  
Deferred income taxes (5,791 )   (297,336 )
Loss on disposal of fixed assets 727     2,768  
Gain on sale of business (13,688 )    
Loss on debt refinancing 4,434      
Changes in operating assets and liabilities:      
Accounts receivable 14,556     29,965  
Short-term investments in real estate (10,468 )   (16,380 )
Prepaid expenses and other current assets 4,617     (5,754 )
Other assets 2,278     770  
Accounts payable and accrued expenses 1,651     2,576  
Other current and non-current liabilities (16,742 )   (38,864 )
Net cash provided by operating activities 68,402     66,082  
       
Cash flows from investing activities:      
Additions to premises and equipment (3,916 )   (10,514 )
Proceeds from the sale of business 15,000      
Other investing activities     188  
Net cash provided by (used in) investing activities 11,084     (10,326 )
       
Cash flows from financing activities:      
Proceeds from issuance of long-term debt 407,880      
Repayments and repurchases of long-term debt (486,759 )   (59,761 )
Debt issuance costs (5,042 )    
Proceeds from stock option exercises 3,644     2,374  
Purchase of treasury shares (40,362 )   (39,011 )
Distributions to non-controlling interests (2,819 )   (2,772 )
Payment of tax withholding on issuance of restricted shares and stock option exercises (825 )   (1,164 )
Net cash used in financing activities (124,283 )   (100,334 )
       
Net decrease in cash, cash equivalents and restricted cash (44,797 )   (44,578 )
Cash, cash equivalents and restricted cash at the beginning of the period 108,843     153,421  
Cash, cash equivalents and restricted cash at the end of the period $ 64,046     $ 108,843  
       
Supplemental cash flow information:      
Interest paid $ 24,123     $ 21,210  
Income taxes paid, net 7,136     18,332  
Non-cash investing and financing activities:      
Decrease in payables for purchases of premises and equipment $ (32 )   $ (1,311 )


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

Adjusted operating income, pretax income 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 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, (loss) income before income taxes and non-controlling interests, net (loss) income attributable to Altisource, diluted (loss) earnings 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, gain on sale of business, sales tax accrual, restructuring charges, goodwill write-off from business exit and litigation settlement loss from income from operations.  Pretax (loss) income attributable to Altisource is calculated by removing non-controlling interests from (loss) income 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, gain on sale of business, sales tax accrual, restructuring charges, loss on debt refinancing, goodwill write-off from business exit, unrealized (loss) gain on investment in equity securities and litigation settlement loss from (loss) income 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), gain on sale of business (net of tax), sales tax accrual (net of tax), restructuring charges (net of tax), loss on debt refinancing (net of tax), goodwill write-off from business exit (net of tax), unrealized (loss) gain on investment in equity securities (net of tax), certain income tax related items, net and litigation settlement loss (net of tax) 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), gain on sale of business (net of tax), sales tax accrual (net of tax), restructuring charges (net of tax), loss on debt refinancing (net of tax), goodwill write-off from business exit (net of tax), unrealized (loss) gain on investment in equity securities (net of tax), certain income tax related items, net and litigation settlement loss (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 payment and the (decrease) increase 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 (decrease) increase in short-term investments in real estate 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.

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
 December 31,
  Years ended
 December 31,
  2018   2017   2018   2017
               
Income from operations $ 2,031     $ 8,596     $ 42,495     $ 49,706  
               
Intangible asset amortization expense 7,101     8,224     28,412     35,367  
Share-based compensation expense 4,042     1,018     10,192     4,255  
Gain on sale of business         (13,688 )    
Sales tax accrual 360         6,228      
Restructuring charges 8,124         11,560      
Goodwill write-off from business exit 2,640         2,640      
Litigation settlement loss         500      
               
Adjusted operating income $ 24,298     $ 17,838     $ 88,339     $ 89,328  
               
(Loss) income before income taxes and
   non-controlling interests
$ (12,829 )   $ 3,112     $ 1,399     $ 35,375  
               
Non-controlling interests (617 )   (633 )   (2,683 )   (2,740 )
Pretax (loss) income attributable to Altisource (13,446 )   2,479     (1,284 )   32,635  
Intangible asset amortization expense 7,101     8,224     28,412     35,367  
Share-based compensation expense 4,042     1,018     10,192     4,255  
Gain on sale of business         (13,688 )    
Sales tax accrual 360         6,228      
Restructuring charges 8,124         11,560      
Loss on debt refinancing         4,434      
Goodwill write-off from business exit 2,640         2,640      
Unrealized loss on investment in equity securities 8,786         12,972      
Litigation settlement loss         500      
               
Adjusted pretax income attributable to Altisource $ 17,607     $ 11,721     $ 61,966     $ 72,257  
               
Net (loss) income attributable to Altisource $ (11,485 )   $ 286,350     $ (5,382 )   $ 308,891  
               
Intangible asset amortization expense,
   net of tax
4,193     7,597     19,905     27,523  
Share-based compensation expense,
   net of tax
2,387     940     7,141     3,311  
Gain on sale of business, net of tax         (9,341 )    
Sales tax accrual, net of tax 266         4,608      
Restructuring charges, net of tax 6,329         8,966      
Loss on debt refinancing, net of tax         3,232      
Goodwill write-off from business exit,
   net of tax
1,953         1,953      
Unrealized loss on investment in equity securities,
   net of tax
6,501         9,598      
Certain income tax related items, net     (284,108 )   1,588     (284,108 )
Litigation settlement loss, net of tax         341      
               
Adjusted net income attributable to Altisource $ 10,144     $ 10,779     $ 42,609     $ 55,617  
               
Diluted (loss) earnings per share $ (0.69 )   $ 15.72     $ (0.32 )   $ 16.53  
               
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
0.25     0.42     1.14     1.47  
Share-based compensation expense,
   net of tax, per diluted share
0.14     0.05     0.41     0.18  
Gain on sale of business, net of tax,
   per diluted share
        (0.53 )    
Sales tax accrual, net of tax,
   per diluted share
0.02         0.26      
Restructuring charges, net of tax,
   per diluted share
0.37         0.51      
Loss on debt refinancing, net of tax,
   per diluted share
        0.18      
Goodwill write-off from business exit,
   net of tax, per diluted share
0.11         0.11      
Unrealized loss on investment in equity securities,
   net of tax, per diluted share
0.38         0.55      
Certain income tax related items, net, per diluted share     (15.60 )   0.09     (15.20 )
Litigation settlement loss, net of tax,
   per diluted share
        0.02      
               
Adjusted diluted earnings per share $ 0.59     $ 0.59     $ 2.43     $ 2.98  
               
Calculation of the impact of intangible asset amortization expense, net of tax              
Intangible asset amortization expense $ 7,101     $ 8,224     $ 28,412     $ 35,367  
Tax benefit from intangible asset amortization (2,908 )   (627 )   (8,507 )   (7,844 )
Intangible asset amortization expense,
   net of tax
4,193     7,597     19,905     27,523  
Diluted share count 17,091     18,211     17,523     18,692  
               
Intangible asset amortization expense,
net of tax, per diluted share
$ 0.25     $ 0.42     $ 1.14     $ 1.47  
               
Calculation of the impact of share-based compensation expense, net of tax              
Share-based compensation expense $ 4,042     $ 1,018     $ 10,192     $ 4,255  
Tax benefit from share-based compensation expense (1,655 )   (78 )   (3,051 )   (944 )
Share-based compensation expense,
   net of tax
2,387     940     7,141     3,311  
Diluted share count 17,091     18,211     17,523     18,692  
               
Share-based compensation expense,
   net of tax, per diluted share
$ 0.14     $ 0.05     $ 0.41     $ 0.18  
               
               
               
Calculation of the impact of gain on sale of business, net of tax              
Gain on sale of business $     $     $ (13,688 )   $  
Tax provision from gain on sale of business         4,347      
Gain on sale of business, net of tax         (9,341 )    
Diluted share count 17,091     18,211     17,523     18,692  
               
Gain on sale of business, net of tax,
   per diluted share
$     $     $ (0.53 )   $  
               
Calculation of the impact of sales tax accrual, net of tax              
Sales tax accrual $ 360     $     $ 6,228     $  
Tax benefit from sales tax accrual (94 )       (1,620 )    
Sales tax accrual, net of tax 266         4,608      
Diluted share count 17,091     18,211     17,523     18,692  
               
Sales tax accrual, net of tax,
   per diluted share
$ 0.02     $     $ 0.26     $  
               
Calculation of the impact of restructuring charges, net of tax              
Restructuring charges $ 8,124     $     $ 11,560     $  
Tax benefit from restructuring charges (1,795 )       (2,594 )    
Restructuring charges, net of tax 6,329         8,966      
Diluted share count 17,091     18,211     17,523     18,692  
               
Restructuring charges, net of tax,
   per diluted share
$ 0.37     $     $ 0.51     $  
               
Calculation of the impact of the loss on debt refinancing,
   net of tax
             
Loss on debt refinancing $     $     $ 4,434     $  
Tax benefit from the loss on debt refinancing         (1,202 )    
Loss on debt refinancing, net of tax         3,232      
Diluted share count 17,091     18,211     17,523     18,692  
               
Loss on debt refinancing, net of tax,
   per diluted share
$     $     $ 0.18     $  
               
Calculation of goodwill write-off from business exit, net of tax              
Goodwill write-off from business exit $ 2,640     $     $ 2,640     $  
Tax benefit from goodwill write-off from business exit (687 )       (687 )    
Goodwill write-off from business exit,
   net of tax
1,953         1,953      
Diluted share count 17,091     18,211     17,523     18,692  
               
Goodwill write-off from business exit,
   net of tax, per diluted share
$ 0.11     $     $ 0.11     $  
               
               
Calculation of the impact of the unrealized loss on investment in equity securities, net of tax              
Unrealized loss on investment in equity securities $ 8,786     $     $ 12,972     $  
Tax benefit from the unrealized loss on investment in
   equity securities
(2,285 )       (3,374 )    
Unrealized loss on investment in equity securities,
   net of tax
6,501         9,598      
Diluted share count 17,091     18,211     17,523     18,692  
               
Unrealized loss on investment in equity securities,
   net of tax, per diluted share
$ 0.38     $     $ 0.55     $  
               
Certain income tax related items, net resulting from:              
Luxembourg subsidiaries merger, net $     $ (300,908 )   $     $ (300,908 )
Other income tax rate changes     6,270         6,270  
Foreign income tax reserves     10,530     1,588     10,530  
Certain income tax related items, net     (284,108 )   1,588     (284,108 )
Diluted share count 17,091     18,211     17,523     18,692  
               
Certain income tax related items, net, per diluted share $     $ (15.60 )   $ 0.09     $ (15.20 )
               
Calculation of the impact of litigation settlement loss,
   net of tax
             
Litigation settlement loss $     $     $ 500     $  
Tax benefit from litigation settlement loss         (159 )    
Litigation settlement loss, net of tax         341      
Diluted share count 17,091     18,211     17,523     18,692  
               
Litigation settlement loss, net of tax,
   per diluted share
$     $     $ 0.02     $  
               
Cash flows from operating activities $ 24,752     $ 18,953     $ 68,402     $ 66,082  
Net litigation settlement loss payment 500         500     28,000  
(Decrease) increase in short-term investments in real estate (11,815 )   4,761     10,468     16,380  
Adjusted cash flows from operating activities 13,437     23,714     79,370     110,462  
Adjustments and less additions to premises and equipment 291     (3,029 )   (3,916 )   (10,514 )
               
Adjusted cash flows from operating activities less additions to premises and equipment $ 13,728     $ 20,685     $ 75,454     $ 99,948  
               
  December 31, 2018            
Senior secured term loan $ 338,822              
Less: Cash and cash equivalents (58,294 )            
Less: Investment in equity securities (36,181 )            
               
Net debt less investment in equity securities $ 244,347              

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

FOR FURTHER INFORMATION CONTACT

Michelle D. Esterman  
Chief Financial Officer  
T:  (770) 612-7007  
E:  Michelle.Esterman@altisource.com