e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-34354
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Exact name of Registrant as specified in its Charter)
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Luxembourg
(State or other jurisdiction of
incorporation or organization)
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Not applicable
(I.R.S. Employer Identification No.) |
2, rue Jean Bertholet
L-1233 Luxembourg
Grand Duchy of Luxembourg
(Address of principal executive offices) (Zip Code)
+352 2469 7900
Registrants telephone number
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange
Act):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of April 30, 2010, there were 25,227,551 outstanding shares of the registrants shares of
beneficial interest.
Table of Contents
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
FORM 10-Q
2
PART I. FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
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March 31, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
Current Assets: |
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Cash and Cash Equivalents |
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$ |
19,620 |
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$ |
30,456 |
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Accounts Receivable, net |
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29,649 |
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30,497 |
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Prepaid Expenses and Other Current Assets |
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3,630 |
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2,904 |
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Deferred Tax Assets, net |
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1,356 |
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1,546 |
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Total Current Assets |
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54,255 |
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65,403 |
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Premises and Equipment, net |
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13,516 |
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11,408 |
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Intangible Assets, net |
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76,130 |
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33,719 |
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Goodwill |
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19,505 |
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9,324 |
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Other Non-current Assets |
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1,692 |
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702 |
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Total Assets |
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$ |
165,098 |
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$ |
120,556 |
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LIABILITIES AND EQUITY |
Current Liabilities: |
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Accounts Payable and Accrued Expenses |
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$ |
33,398 |
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$ |
24,192 |
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Capital Lease Obligations Current |
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521 |
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536 |
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Other Current Liabilities |
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6,538 |
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5,939 |
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Total current liabilities |
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40,457 |
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30,667 |
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Capital Lease Obligations Non-current |
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128 |
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Deferred Tax Liabilities, net |
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3,130 |
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2,769 |
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Other Non-current Liabilities |
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1,933 |
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644 |
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Commitments and Contingencies (Note 10) |
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Equity: |
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Common Stock; ($1.00 par value; 100,000
shares authorized; 25,205 shares issued
and outstanding in 2010; 24,145 shares
issued and outstanding in 2009) |
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25,205 |
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24,145 |
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Retained Earnings |
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17,972 |
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11,665 |
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Additional Paid-in-Capital |
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74,764 |
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50,538 |
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Altisource Equity |
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117,941 |
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86,348 |
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Non-controlling Interests |
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1,637 |
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Total Equity |
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119,578 |
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86,348 |
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Total Liabilities and Equity |
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$ |
165,098 |
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$ |
120,556 |
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See accompanying notes to condensed consolidated financial statements.
3
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
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Three Months Ended |
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March 31, |
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2010 |
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2009 |
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Revenue |
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$ |
60,974 |
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$ |
42,619 |
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Cost of Revenue |
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38,390 |
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28,003 |
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Gross Profit |
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22,584 |
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14,616 |
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Selling, General and Administrative Expenses |
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13,033 |
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7,478 |
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Income from Operations |
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9,551 |
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7,138 |
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Other (Income) Expense, net |
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(72 |
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(619 |
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Income Before Income Taxes and Non-controlling Interests |
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9,479 |
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6,519 |
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Income Tax Provision |
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(2,385 |
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(2,080 |
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Net Income |
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7,094 |
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4,439 |
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Net Income Attributable to Non-controlling Interests |
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(787 |
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Net Income Attributable to Altisource |
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$ |
6,307 |
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$ |
4,439 |
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Earnings Per Share: |
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Basic |
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$ |
0.26 |
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$ |
0.18 |
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Diluted |
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$ |
0.25 |
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$ |
0.18 |
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Weighted Average Shares Outstanding: |
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Basic |
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24,690 |
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24,050 |
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Diluted |
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25,663 |
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24,050 |
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Transactions with Related Parties included above: |
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Revenue |
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$ |
28,736 |
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$ |
18,723 |
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Selling, General and Administrative Expenses |
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$ |
324 |
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$ |
1,943 |
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Interest Expense |
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$ |
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$ |
569 |
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See accompanying notes to condensed consolidated financial statements.
4
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
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Additional Paid-in |
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Non-Controlling |
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Common Stock |
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Retained Earnings |
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Capital |
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Interests |
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Total |
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Comprehensive Income |
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Balance, December
31, 2009 |
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24,145 |
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$ |
24,145 |
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$ |
11,665 |
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$ |
50,538 |
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$ |
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$ |
86,348 |
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Net Income |
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6,307 |
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787 |
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7,094 |
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$ |
6,307 |
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Acquisition of MPA |
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959 |
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959 |
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22,941 |
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3,268 |
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27,168 |
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Contributions from
Non-controlling
Interest Holders |
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2 |
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2 |
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Distributions to
Non-controlling
Interest Holders |
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(2,420 |
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(2,420 |
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Share-based
compensation |
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271 |
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271 |
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Exercise of stock
options |
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101 |
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101 |
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1,014 |
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1,115 |
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Balance, March 31,
2010 |
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25,205 |
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$ |
25,205 |
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$ |
17,972 |
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$ |
74,764 |
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$ |
1,637 |
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$ |
119,578 |
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$ |
6,307 |
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See accompanying notes to condensed consolidated financial statements.
5
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Three Months Ended |
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March 31, |
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2010 |
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2009 |
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Cash Flows from Operating Activities: |
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Net Income |
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$ |
7,094 |
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$ |
4,439 |
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Reconciling Items: |
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Depreciation and Amortization |
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1,523 |
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1,435 |
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Amortization of Intangible Assets |
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1,189 |
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637 |
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Deferred Income Taxes |
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551 |
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153 |
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Share-based Compensation Expense |
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271 |
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Changes in Operating Assets and Liabilities, net of Acquisition: |
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Accounts Receivable |
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5,127 |
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(642 |
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Prepaid Expenses and Other Current Assets |
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(405 |
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511 |
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Other Assets |
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(990 |
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Accounts Payable and Accrued Expenses |
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4,863 |
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(4,502 |
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Other Current and Non-current Liabilities |
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462 |
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(541 |
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Net Cash Flow from Operating Activities |
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19,685 |
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1,490 |
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Cash Flows from Investing Activities: |
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Additions to Premises and Equipment, net |
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(3,613 |
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(771 |
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Acquisition of Business, net of cash acquired |
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(25,462 |
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Net Cash Flow from Investing Activities |
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(29,075 |
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(771 |
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Cash Flows from Financing Activities: |
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Principal Payments on Capital Lease Obligations |
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(143 |
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(231 |
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Payments of Line of Credit |
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(1,123 |
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Proceeds from Stock Option Exercises |
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1,115 |
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Contributions from Non-controlling Interests |
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2 |
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Distributions to Non-controlling Interests |
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(2,420 |
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Net Distribution to Ocwen |
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(1,104 |
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Net Cash Flow from Financing Activities |
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(1,446 |
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(2,458 |
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Net Decrease in Cash and Cash Equivalents |
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(10,836 |
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(1,739 |
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Cash and Cash Equivalents at the Beginning of the Period |
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30,456 |
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6,988 |
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Cash and Cash Equivalents at the End of the Period |
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$ |
19,620 |
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$ |
5,249 |
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Supplemental Cash Flow Information: |
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Interest Paid |
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$ |
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$ |
9 |
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Income Taxes Paid |
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$ |
25 |
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$ |
171 |
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Non-cash Investing and Financing Activities: |
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Shares issued in connection with acquisition |
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$ |
23,900 |
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$ |
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Reduction in Income Tax Payable from Tax Amortizable Goodwill |
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$ |
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$ |
906 |
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See accompanying notes to condensed consolidated financial statements.
6
ALTISOURCE
PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
ORGANIZATION AND BASIS OF PRESENTATION
Altisource Portfolio Solutions S.A. (which may be referred to as Altisource, the Company, we,
us or our), together with its subsidiaries is a provider of services focused on high value,
knowledge-based functions principally related to real estate and mortgage portfolio management,
asset recovery and customer relationship management. Utilizing integrated technology that includes
decision models and behavioral based scripting engines, the Company provides solutions that improve
clients performance and maximizes their returns.
We are publicly traded on the NASDAQ Global Select market under the symbol ASPS. We were
incorporated under the laws of Luxembourg on November 4, 1999 as Ocwen Luxembourg S.à.r.l., renamed
Altisource Portfolio Solutions S.à.r.l. on May 12, 2009 and converted into Altisource Portfolio
Solutions S.A. on June 5, 2009. We became a publicly traded company as of August 10, 2009, see
Separation below.
In February 2010, we acquired all of the outstanding membership interests of The Mortgage
Partnership of America, L.L.C. (MPA). MPA was formed as a Delaware limited liability company
with the purpose of being the manager of Best Partners Mortgage Cooperative, Inc. (BPMC) doing
business as Lenders One Mortgage Cooperative (Lenders One). Lenders One is a national alliance of
independent mortgage bankers (Members) that provides its Members with education and training
along with revenue enhancing, cost reducing, and market share expanding opportunities (see Note 3).
We conduct our operations through three reporting segments: Mortgage Services, Financial
Services and Technology Products. In addition, we report our corporate related expenditures as a
separate segment (see Note 15 for a description of our business segments).
Separation
On August 10, 2009 (the Separation Date), we became a stand-alone public company in
connection with our separation from Ocwen Financial Corporation (Ocwen) (the Separation). Prior
to the Separation, our businesses were wholly-owned subsidiaries of Ocwen. On the Separation Date,
Ocwen distributed all of the Altisource common stock to Ocwens shareholders (the Distribution).
Ocwens stockholders received one share of Altisource common stock for every three shares of Ocwen
common stock held as of August 4, 2009 (the Record Date). In addition, holders of Ocwens 3.25%
Contingent Convertible Unsecured Senior Notes due 2024 received one share of Altisource common
stock deemed held on an as if converted basis. For such notes, the conversion ratio of 82.1693
shares of Ocwen common stock for every $1,000 in aggregate principal amount of notes held on the
Record Date was calculated first and then we applied the distribution ratio of one share of
Altisource common stock for every three shares of Ocwen common stock on an as converted basis to
determine the number of shares each note holder received.
In connection with the Separation, we entered into various agreements with Ocwen that define
our relationship after the Separation including a separation agreement, a tax matters agreement, an
employee matters agreement, an intellectual property agreement, a data center and disaster recovery
agreement, a technology products services agreement, a transition services agreement and certain
long-term servicing contracts (collectively, the Agreements).
Basis of Presentation
Our historical financial statements include the assets and liabilities (accounted for at the
historical values carried by Ocwen prior to the Separation), revenues and expenses directly
attributable to our operations. Beginning August 10, 2009, after our assets and
liabilities were formally contributed by Ocwen pursuant to the terms of a separation agreement, our
financial statements have been presented on a consolidated basis for financial reporting purposes.
Our condensed consolidated financial statements include the assets and liabilities, revenues and
expenses directly attributable to our operations. All significant inter-company and inter-segment
transactions and accounts have been eliminated upon consolidation. Certain amounts disclosed in
prior period statements have been reclassified to conform to the current period presentation.
For periods prior to the Separation Date, these condensed consolidated financial statements
include allocations of expenses from Ocwen for corporate functions including insurance, employee
benefit plan expense and allocations for certain centralized administration costs for executive
management, treasury, real estate, accounting, auditing, tax, risk management, internal audit,
human resources and benefits administration (See Note 2).
The condensed consolidated financial statements for the three months ended March 31, 2009
also do not necessarily reflect what the Companys condensed consolidated results of operations,
financial position and cash flows would have been had
7
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
the Company operated as an independent
company during that period. For instance, as an independent public company, we incur costs in
excess of those allocated by Ocwen for maintaining a separate Board of Directors, obtaining a
separate audit, relocating certain executive management and hiring additional personnel.
Prior to our acquisition, MPA and Lenders One entered into a management agreement that ends on
December 31, 2025. MPA was formed to act on behalf of Lenders One and its Members principally to
negotiate favorable terms on products and services. For providing these services MPA receives
payment from Lenders One based upon the benefits achieved for the Members. The management agreement
provides MPA with broad powers such as recruiting members for Lenders One, collection of fees and
other obligations from Members of Lenders One, processing of all rebates owed to Lenders One,
day-to-day operation of Lenders One and negotiation of contracts with vendors including signing
contracts on behalf of Lenders One.
The Management Agreement between MPA and Lenders One, pursuant to which MPA is the management
company of Lenders One, represents a variable interest in a variable interest entity. MPA
determined that they are the primary beneficiary of Lenders One as they have the power to direct
the activities that most significantly impact Lenders Ones economic performance and the obligation
to absorb losses or the right to receive benefits from Lenders One. As a result, Lenders One is
presented in the accompanying condensed consolidated financial statements as of March 31, 2010 on a
consolidated basis with the interests of the Members reflected as Non-controlling Interest on the
Condensed Consolidated Balance Sheets. At March 31, 2010, Lenders One had total assets of $3.5
million and liabilities of $0.1 million.
We have prepared our condensed consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X.
Accordingly, they do not include all of the information and notes required by GAAP for complete
condensed consolidated financial statements. In the opinion of management, all normal recurring
adjustments considered necessary to fairly state the results for the interim periods presented have
been included. The preparation of condensed consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of our
condensed consolidated financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these estimates.
These condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in our Form 10-K filed with the SEC
on March 17, 2010, which contains a summary of our significant accounting policies. Certain
footnote detail is also omitted from the condensed consolidated financial statements unless there
is a material change from the information included in the Form 10-K.
Foreign Currency Translation
Our reporting currency is the U.S. dollar. Other foreign currency assets and liabilities that
are considered monetary items are translated at exchange rates in effect at the balance sheet date.
Foreign currency revenues and expenses are translated at transaction date exchange rates. These
exchange gains and losses are included in the determination of net income.
Fair Value of Financial Instruments
The fair value of financial instruments, which primarily include Cash and Cash Equivalents,
Accounts Receivable and Accounts Payable and Accrued Expenses at March 31, 2010 and December 31,
2009 are carried at amounts that approximate their fair value due to the short-term nature of these
amounts.
8
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Additionally, a put option arrangement was issued to the predecessor owners of MPA in
conjunction with the acquisition (see Note 3). The arrangement allows the holders to put a portion
of the Altisource shares issued as consideration to Altisource at a predetermined price.
Altisource calculated the fair value of this put option arrangement of $1.3 million by utilizing a
Black-Scholes option pricing model. The fair value calculation is deemed to be a Level 2
calculation under the guidelines set forth under FASB ASC 820, Fair Value Measurements and
Disclosures. The fair value of the put was valued using the following assumptions:
|
|
|
|
|
|
|
Assumptions |
|
Risk-free Interest Rate |
|
|
0.345% - 1.914% |
|
Expected Stock Price Volatility |
|
|
40% - 55% |
|
Expected Dividend Yield |
|
|
|
|
Expected Option Life (in years) |
|
|
1-4 |
|
Contractual Life (in years) |
|
|
|
|
Fair Value |
|
$ |
0.74 - $3.90 |
|
The put option agreement is a written derivative valued similar to stock options and is
included within Other Non-current Liabilities on the Condensed Consolidated Balance Sheet. The
fair value of the put option agreements will be determined each quarter until such puts are either
exercised or forfeited with any changes in value included as a component of Other Income
(Expense), net in the Condensed Consolidated Statements of Operations. There were no significant
changes to the fair value from its valuation at the acquisition date through the end of the
quarter.
NOTE 2
TRANSACTIONS WITH RELATED PARTIES
Ocwen remains our largest customer. Following the Separation, Ocwen is contractually obligated
to purchase certain Mortgage Services and Technology Products from us under service agreements.
These agreements extend for eight years from the Separation Date, subject to termination under
certain provisions; Ocwen is not restricted from redeveloping these services. We have agreed with
Ocwen to settle intercompany amounts on a weekly basis beginning in 2010.
We consider certain services to be derived from Ocwens loan servicing portfolio rather than
provided to Ocwen because such services are charged to the mortgagee and/or the investor and are
not expenses to Ocwen. Ocwen, or services derived from Ocwens loan servicing portfolio, as a
percentage of each of our segment revenues and as a percentage of consolidated revenues was as
follows for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Mortgage Services |
|
|
66 |
% |
|
|
75 |
% |
Technology Products |
|
|
37 |
|
|
|
51 |
|
Financial Services |
|
|
< 1 |
|
|
|
< 1 |
|
Consolidated Revenues |
|
|
47 |
% |
|
|
44 |
% |
We record revenues we earn from Ocwen under the various long-term servicing contracts at rates
we believe to be market rates as they are consistent with one or more of the following: the fees we
charge to other customers for comparable services; the rates Ocwen pays to other service providers;
fees commensurate with market surveys prepared by unaffiliated firms; and prices being charged by
our competitors.
Allocation of Corporate Costs
For the three months ended March 31, 2009, these condensed consolidated financial statements
include allocations of expenses from Ocwen for corporate functions including insurance, employee
benefit plan expense and allocations for certain
centralized administration costs for executive management, treasury, real estate,
accounting, auditing, tax, risk management, internal audit, human resources and benefits
administration. Ocwen determined these allocations using proportional cost allocation methods
including the use of relevant operating profit, fixed assets, sales and payroll measurements.
Specifically, personnel and all associated costs, including compensation, benefits, occupancy and
other costs, were allocated based on the estimated percentage of time spent by the individual in
the various departments. External costs such as audit fees, legal fees, business insurance and
other were allocated based on a combination of the sales, fixed assets and operating profits of the
9
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
department whichever is most appropriate given the nature of the expense. Total corporate costs
allocated to the Company, were $1.9 million for the three months ended March 31, 2009. The charges
for these functions are included primarily in Selling, General and Administrative Expenses in the
Condensed Consolidated Statements of Operations. However, these amounts may not be
representative of the costs necessary for the Company to operate as a separate standalone company.
In addition, prior to the Separation, Ocwen had allocated interest expense to us based upon
our portion of assets to Ocwens total assets which is included in Other Income (Expense) Net in
the Condensed Consolidated Statements of Operations.
Transition Services
In connection with the Separation, Altisource and Ocwen entered into a transition services
agreement that provides to each other services in such areas as human resources, vendor management,
corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting,
risk management, legal, strategic planning, compliance and other areas where we, and Ocwen, may
need transitional assistance and support following the Separation. For the quarter ended March 31,
2010, Altisource billed Ocwen $0.4 million and Ocwen billed Altisource $0.3 million for services
provided under this agreement. These amounts are reflected as a component of Selling, General and
Administrative expenses in the Condensed Consolidated Statements of Operations.
NOTE 3
ACQUISITION OF MPA
In February 2010, we acquired all of the outstanding membership interests of MPA pursuant to a
Purchase and Sale Agreement. MPA serves as the manager of Lenders One, a national alliance of
independent mortgage bankers. The alliance was established in 2000 and as of December 31, 2009
consists of more than 155 members.
Consideration for the transaction consisted of cash, common stock and put option agreements:
|
|
|
|
|
(in thousands) |
|
Consideration |
|
Cash |
|
$ |
29,000 |
|
Common Stock |
|
|
23,900 |
|
Put Option Agreements at Fair Value |
|
|
1,289 |
|
Working Capital Adjustment |
|
|
2,166 |
|
|
|
|
|
|
|
|
|
|
Total Consideration |
|
$ |
56,355 |
|
|
|
|
|
The common stock consisted of 959,085 shares of Altisources common stock valued at $24.92 per
share (based on the last closing price of Altisource common stock on February 11, 2010), a portion
of which (314,135 shares) will be held in escrow to secure MPAs indemnification obligations under
the Purchase and Sale Agreement. In addition, we entered into three put option agreements with
certain of the sellers whereby each seller has the right, with respect to an aggregate of 0.5
million shares of our common stock, to put up to 25% of eligible shares each year for a total of
four years at a price equal to $16.84 per share. The working capital adjustment included above is
an estimate that is expected to be trued-up and paid within the second quarter of 2010.
10
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The preliminary allocation of the purchase price is estimated as follows:
|
|
|
|
|
(in thousands) |
|
|
|
|
Cash |
|
$ |
3,538 |
|
Accounts Receivable |
|
|
4,279 |
|
Prepaid Expenses and Other Current Assets |
|
|
321 |
|
Premises and Equipment |
|
|
18 |
|
Identifiable Intangible Assets |
|
|
43,600 |
|
Goodwill |
|
|
10,181 |
|
|
|
|
|
|
|
|
61,937 |
|
Accounts Payable and Accrued Expenses |
|
|
(2,176 |
) |
Other Current Liabilities |
|
|
(138 |
) |
Non-controlling Interests |
|
|
(3,268 |
) |
|
|
|
|
Allocation of Purchase Price |
|
$ |
56,355 |
|
|
|
|
|
Management continues to evaluate the allocation of purchase price associated with the
acquisition. Management has also tentatively assigned the following lives to identified assets
acquired as a result of the acquisition (we expect to conclude on the fair value of assets and
associated lives during 2010):
|
|
|
|
|
|
|
Estimated Life |
|
|
|
(in Years) |
|
Premises and Equipment |
|
|
2-5 |
|
Management Agreement |
|
|
15 |
|
Trademarks |
|
|
15 |
|
Non-compete |
|
|
4 |
|
Goodwill |
|
Indefinite |
The goodwill arising from the acquisition, which was assigned to our Mortgage Services
segment, consists of various components primarily including in-place workforce and anticipated
revenue synergies given MPAs market presence and future enhancements to our services. All goodwill
and intangible assets related to the acquisition of the MPA assets are expected to be amortizable
and deductible for income tax purposes.
We entered into employee agreements with certain key employees of MPA who also received the
majority of our shares issued in connection with the acquisition.
Revenue
and Net Income Attributable to Non-controlling Interests from MPA of $2.3 million and $0.8
million, respectively, are included in the Companys Condensed Consolidated Statements of
Operations. Acquisition transaction costs are included in Selling, General and Administrative and
Expenses in the Condensed Consolidated Statements of Operations.
The following tables present the unaudited pro forma Condensed and Consolidated Results of
Operations as if the acquisition of MPA had occurred at the beginning of the period presented.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2010 |
|
|
As Reported |
|
Pro Forma |
Revenue |
|
$ |
60,974 |
|
|
$ |
62,618 |
|
Net Income Attributable to Altisource |
|
|
6,307 |
|
|
|
6,179 |
|
Earnings Per Share Diluted |
|
|
0.25 |
|
|
|
0.24 |
|
11
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2009 |
|
|
As Reported |
|
Pro Forma |
Revenue |
|
$ |
42,619 |
|
|
$ |
47,023 |
|
Net Income Attributable to Altisource |
|
|
4,439 |
|
|
|
5,751 |
|
Earnings Per Share Diluted |
|
|
0.18 |
|
|
|
0.24 |
|
NOTE 4
ACCOUNTS RECEIVABLE, NET
Accounts Receivable, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Third-party Accounts Receivable |
|
$ |
12,741 |
|
|
$ |
11,638 |
|
Unbilled Fees |
|
|
16,177 |
|
|
|
9,073 |
|
Receivable from Ocwen |
|
|
1,217 |
|
|
|
10,066 |
|
Other Receivables |
|
|
632 |
|
|
|
416 |
|
|
|
|
|
|
|
|
|
|
|
30,767 |
|
|
|
31,193 |
|
Allowance for Doubtful Accounts |
|
|
(1,118 |
) |
|
|
(696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
29,649 |
|
|
$ |
30,497 |
|
|
|
|
|
|
|
|
One of our customers in the Financial Services segment accounted for 11% and 23% of
consolidated revenues in the three months ended March 31, 2010 and 2009, respectively. No single
customer accounted for more than 10% of accounts receivable at March 31, 2010.
NOTE 5 PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid Expenses and Other Current Assets consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Prepaid Expenses |
|
$ |
1,888 |
|
|
$ |
1,471 |
|
Other Current Assets |
|
|
1,742 |
|
|
|
1,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,630 |
|
|
$ |
2,904 |
|
|
|
|
|
|
|
|
NOTE 6 PREMISES AND EQUIPMENT, NET
Premises and Equipment, net which include amounts recorded under capital leases, consists of
the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Computer Hardware and Software |
|
$ |
24,801 |
|
|
$ |
23,591 |
|
Office Equipment and Other |
|
|
11,552 |
|
|
|
9,203 |
|
Furniture and Fixtures |
|
|
2,731 |
|
|
|
2,663 |
|
Leasehold Improvements |
|
|
3,441 |
|
|
|
3,441 |
|
|
|
|
|
|
|
|
|
|
|
42,525 |
|
|
|
38,898 |
|
Less: Accumulated Depreciation and Amortization |
|
|
(29,009 |
) |
|
|
(27,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,516 |
|
|
$ |
11,408 |
|
|
|
|
|
|
|
|
12
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $1.5 million and $1.4 million for
the three months ended March 31, 2010 and 2009, respectively, and is included in Cost of Revenue for operating assets and in Selling, General and Administrative
expense for non-operating assets in the accompanying Condensed
Consolidated Statements of Operations.
NOTE
7 GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
Changes in Goodwill during the year ended March 31, 2010 and December 31, 2009 are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
Financial |
|
|
Technology |
|
|
|
|
(in thousands) |
|
Services |
|
|
Services |
|
|
Products |
|
|
Total |
|
Balance, December 31, 2009 |
|
$ |
|
|
|
$ |
7,706 |
|
|
$ |
1,618 |
|
|
$ |
9,324 |
|
Acquisition of MPA |
|
|
10,181 |
|
|
|
|
|
|
|
|
|
|
|
10,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,181 |
|
|
$ |
7,706 |
|
|
$ |
1,618 |
|
|
$ |
19,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets, Net
Intangible Assets, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
Useful |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Book Value |
|
|
Life |
|
March 31, |
|
December 31, |
|
March 31, |
|
December 31, |
|
March 31, |
|
December 31, |
|
|
(Years) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Definite-lived Intangible
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
12 |
|
|
$ |
10,200 |
|
|
$ |
2,800 |
|
|
$ |
1,669 |
|
|
$ |
1,447 |
|
|
$ |
8,531 |
|
|
$ |
1,353 |
|
Customer Lists |
|
|
19 |
|
|
|
37,700 |
|
|
|
37,700 |
|
|
|
5,862 |
|
|
|
5,334 |
|
|
|
31,838 |
|
|
|
32,366 |
|
Operating Agreement |
|
|
15 |
|
|
|
35,000 |
|
|
|
|
|
|
|
389 |
|
|
|
|
|
|
|
34,611 |
|
|
|
|
|
Non-compete Agreement |
|
|
4 |
|
|
|
1,200 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
1,150 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets |
|
|
|
|
|
$ |
84,100 |
|
|
$ |
40,500 |
|
|
$ |
7,970 |
|
|
$ |
6,781 |
|
|
$ |
76,130 |
|
|
$ |
33,719 |
|
|
|
|
|
|
|
|
Amortization expense for definite lived intangible assets was $1.2 million and $0.6 million
for the three months ended March 31, 2010 and 2009, respectively. Amortization expense is expected
to be $5.4 million, $5.6 million, $5.3 million, $5.1 million and $4.8 million for the years 2010
through 2014.
13
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 8
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts Payable and Accrued Expenses consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Accounts Payable |
|
$ |
2,292 |
|
|
$ |
1,114 |
|
Income Taxes Payable, net |
|
|
6,663 |
|
|
|
4,853 |
|
Payable to Ocwen |
|
|
3,202 |
|
|
|
2,716 |
|
Accrued Expenses General |
|
|
15,221 |
|
|
|
8,373 |
|
Accrued Salaries and Benefits |
|
|
6,020 |
|
|
|
7,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
33,398 |
|
|
$ |
24,192 |
|
|
|
|
|
|
|
|
Other Current Liabilities consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Mortgage Charge-Off and Deficiency Collections |
|
$ |
2,474 |
|
|
$ |
2,458 |
|
Deferred Revenue |
|
|
1,412 |
|
|
|
989 |
|
Facility Closure Cost Accrual, current portion |
|
|
189 |
|
|
|
272 |
|
Other |
|
|
2,463 |
|
|
|
2,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,538 |
|
|
$ |
5,939 |
|
|
|
|
|
|
|
|
Facility Closure Costs
During 2009, we accrued facility closure costs (included in other current and other
non-current liabilities in the Condensed Consolidated Balance Sheet) primarily consisting of lease
exit costs (expected to be paid through 2014) and severance for the closure of two facilities. The
following table summarizes the activity, all recorded in our Financial Services segment, for the
three months ended March 31, 2010:
|
|
|
|
|
|
|
Lease |
|
(in thousands) |
|
costs |
|
Balance at January 1, 2010 |
|
$ |
916 |
|
Payments |
|
|
(83 |
) |
|
|
|
|
Balance at March 31, 2010 |
|
|
833 |
|
Less: Long-Term Portion |
|
|
(644 |
) |
|
|
|
|
Facility Closure Cost Accrual, current portion |
|
$ |
189 |
|
|
|
|
|
We do not expect additional significant costs related to the closure of these facilities
NOTE 9 EQUITY BASED COMPENSATION
We provide stock-based awards as a form of compensation for employees and officers. We
have issued stock-based awards in the form of stock options and restricted stock units. We recorded
total stock compensation expense of $0.3 million for the three months ended March 31, 2010. The
compensation expense is included in Selling, General and Administrative Expenses in the accompany
Condensed Consolidated Statements of Operations.
14
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
During the three months ended March 31, 2010, the Company granted 0.4 million stock options.
The options have an exercise price of $21.94 per share. The vesting schedule for the options has a
time-based component, in which 25% of the options vest in equal increments over four years, and a
market-based component, in which up to 75% of the options could vest in equal increments over four
years commencing upon the achievement of certain performance criteria related to our stock price
and the annualized rate of return to investors. Two-thirds of the market-based options would begin
to vest over three years if the stock price realizes a compounded annual gain of at least 20% over
the exercise price, so long as the stock price is at least double the exercise price. The
remaining third of the market-based options would begin to vest over three years if the stock price
realizes a 25% gain, so long as it is at least triple the exercise price.
The fair value of the time-based options was determined using the Black-Scholes options
pricing model while a lattice (binomial) model was used to determine the fair value of the
market-based options using the following assumptions as of the grant date:
|
|
|
|
|
|
|
|
|
|
|
Black-Scholes |
|
Binomial |
Risk-free Interest Rate |
|
|
1.90 |
% |
|
|
0.02 3.66 |
% |
Expected Stock Price Volatility |
|
|
36 |
% |
|
|
24 41 |
% |
Expected Dividend Yield |
|
|
|
|
|
|
|
|
Expected Option Life (in years) |
|
|
5 |
|
|
|
|
|
Contractual Life (in years) |
|
|
|
|
|
|
10 |
|
Fair Value |
|
$ |
6.80 |
|
|
$7.35 and $8.48 |
As of March 31, 2010, estimated unrecognized compensation costs related to share-based
payments amounted to $4.2 million which we expect to recognize over a weighted-average remaining
requisite service period of approximately 3.6 years.
The following table summarizes activity of our stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise |
|
|
Term |
|
|
Intrinsic Value |
|
|
|
Options |
|
|
Price |
|
|
(in years) |
|
|
(in thousands) |
|
Outstanding at December 31, 2009 |
|
|
3,190,639 |
|
|
$ |
9.90 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
407,500 |
|
|
|
21.94 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(100,853 |
) |
|
|
10.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 |
|
|
3,497,286 |
|
|
$ |
11.29 |
|
|
|
7.6 |
|
|
$ |
38,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2010 |
|
|
1,066,355 |
|
|
$ |
9.78 |
|
|
|
5.4 |
|
|
$ |
13,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10 COMMITMENTS AND CONTINGENCIES
Litigation
The Company is from time to time involved in legal actions arising in the ordinary course
of business. In the opinion of management, after consultation with legal counsel, the outcome of
such matters will not have a material impact on the Companys financial condition, results of
operations or cash flows.
Tax Matters Agreement
The Distribution was intended to be a tax-free transaction under Section 355 of the Internal
Revenue Code (the Code). However, Ocwen recognized, and will pay tax on, substantially all of the
gain it has in the assets that comprise Altisource as a result of the restructuring. To the extent
Ocwen does recognize tax under Section 355 of the Code, Altisource has agreed to indemnify Ocwen.
In addition, we have agreed to indemnify Ocwen should the expected tax treatments not be upheld
15
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
upon review or audit to the extent related to our operating results. As of March 31, 2010, the
Company does not believe it has a material obligation under this indemnity.
NOTE 11 EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the period. Diluted
EPS reflects the assumed conversion of all dilutive securities. On August 10, 2009, the
Distribution by Ocwen was completed to the Ocwen stockholders of one share of Altisource common
stock for every 3 shares of Ocwen common stock held as of August 4, 2009. In addition, holders of
Ocwens 3.25% Contingent Convertible Unsecured Senior Notes due 2024 received one share of
Altisource common stock deemed held on an as if converted basis. For such notes, the conversion
ratio of 82.1693 shares of Ocwen common stock for every $1,000 in aggregate principal amount of
notes held on August 4, 2009 was calculated first and then we applied the distribution ratio of one
share of Altisource common stock for every three shares of Ocwen common stock on an as converted
basis to determine the number of shares each note holder received. As a result on August 10, 2009,
the Company had 24,050,340 shares of common stock outstanding, and this share amount is being
utilized for the calculation of basic EPS for all periods presented prior to the date of the
Distribution.
Basic and diluted earnings per share for the three months ended March 31, 2010 and 2009 are
calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
|
|
|
|
|
|
Weighted Ave. |
|
|
|
|
|
|
|
|
|
|
Weighted Ave. |
|
|
|
|
(in thousands, except per share amounts) |
|
Income |
|
|
Shares |
|
|
Per Share |
|
|
Income |
|
|
Shares |
|
|
Per Share |
|
Basic |
|
$ |
6,307 |
|
|
|
24,690 |
|
|
$ |
0.26 |
|
|
$ |
4,439 |
|
|
|
24,050 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
6,307 |
|
|
|
25,663 |
|
|
$ |
0.25 |
|
|
$ |
4,439 |
|
|
|
24,050 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An average of 509,376 options that were anti-dilutive have been excluded from the
computation of diluted EPS for the three months ended March 31, 2010. These options were
anti-dilutive because their exercise price was greater than the average market price of our stock.
Also excluded from the computation of diluted EPS are 985,682 options granted for shares that are
issuable upon the achievement of certain market and performance criteria related to our stock price
and an annualized rate of return to investors that have not been met at this point.
16
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 12 COST OF REVENUE
Cost of revenue principally includes payroll and employee benefits associated with personnel
employed in customer service roles; fees paid to external providers related to provision of
services, reimbursable expenses and technology and telephony expenses as well as depreciation and
amortization of operating assets. The components of cost of revenue were as follows for the periods
ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Compensation and Benefits |
|
$ |
13,999 |
|
|
$ |
13,074 |
|
Outside Fees and Services |
|
|
12,460 |
|
|
|
9,598 |
|
Expense Reimbursements |
|
|
7,882 |
|
|
|
1,006 |
|
Technology and Communications |
|
|
4,049 |
|
|
|
4,325 |
|
|
|
|
|
|
|
|
Total |
|
$ |
38,390 |
|
|
$ |
28,003 |
|
|
|
|
|
|
|
|
NOTE 13 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include payroll, employee benefits, occupancy and
other costs associated with personnel employed in executive, sales, marketing, human resources and
finance roles. This category also includes professional fees, depreciation and amortization on
non-operating assets. The components of selling, general and administrative expenses were as
follows for the periods ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Compensation and Benefits |
|
$ |
4,040 |
|
|
$ |
1,943 |
|
Professional Services |
|
|
2,944 |
|
|
|
827 |
|
Occupancy Related Costs |
|
|
2,353 |
|
|
|
2,135 |
|
Amortization of Intangible Assets |
|
|
1,189 |
|
|
|
637 |
|
Other |
|
|
2,507 |
|
|
|
1,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,033 |
|
|
$ |
7,478 |
|
|
|
|
|
|
|
|
NOTE 14 OTHER INCOME (EXPENSE), NET
Other Income (Expense), net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Interest Income |
|
$ |
9 |
|
|
$ |
|
|
Interest Expense |
|
|
(28 |
) |
|
|
(614 |
) |
Other, net |
|
|
(53 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
(72 |
) |
|
$ |
(619 |
) |
|
|
|
|
|
|
|
Through the date of Separation, Interest Expense included an interest charge from Ocwen which
represented an allocation of Ocwens total interest expense calculated based on our assets in
comparison to Ocwens total assets. This charge was $0.6 million for the three months ending March
31, 2009. Subsequent to the date of Separation, we are no longer subject to the interest charge
from Ocwen.
17
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 15 SEGMENT REPORTING
Our business segments reflect the internal reporting that we use to evaluate operating
performance and to assess the allocation of our resources by our Chief Executive Officer.
Our segments are based upon our organizational structure which focuses primarily on the
services offered.
We classify our businesses into three reportable segments. Mortgage Services consists of
mortgage portfolio management services that span the mortgage lifecycle. Financial Services
principally consists of unsecured asset recovery and customer relationship management. Technology
Products consists of modular, comprehensive integrated technological solutions for loan servicing,
vendor management and invoice presentment. In addition, our Corporate Items and Eliminations
segment prior to the Separation Date includes eliminations of transactions between the reporting
segments as well as expenditures recognized by us related to the Separation. Subsequent to the
Separation Date, in addition to the previously mentioned items, this segment also includes costs
recognized by us related to corporate support functions such as finance, legal, human resources and
consumer behavior.
Financial information for our segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Mortgage |
|
|
Financial |
|
|
Technology |
|
|
Items & |
|
|
Consolidated |
|
(in thousands) |
|
Services |
|
|
Services |
|
|
Products |
|
|
Eliminations (1) |
|
|
Altisource |
|
Revenue |
|
$ |
36,795 |
|
|
$ |
15,633 |
|
|
$ |
11,974 |
|
|
$ |
(3,428 |
) |
|
$ |
60,974 |
|
Cost of Revenue |
|
|
22,984 |
|
|
|
12,187 |
|
|
|
6,647 |
|
|
|
(3,428 |
) |
|
|
38,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
13,811 |
|
|
|
3,446 |
|
|
|
5,327 |
|
|
|
|
|
|
|
22,584 |
|
Selling, General and Administrative |
|
|
2,778 |
|
|
|
4,413 |
|
|
|
1,106 |
|
|
|
4,736 |
|
|
|
13,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
11,033 |
|
|
|
(967 |
) |
|
|
4,221 |
|
|
|
(4,736 |
) |
|
|
9,551 |
|
Other Income (Expense), net |
|
|
3 |
|
|
|
(16 |
) |
|
|
(12 |
) |
|
|
(47 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
$ |
11,036 |
|
|
$ |
(983 |
) |
|
$ |
4,209 |
|
|
$ |
(4,783 |
) |
|
$ |
9,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
24,247 |
|
|
$ |
51 |
|
|
$ |
4,438 |
|
|
$ |
|
|
|
$ |
28,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
324 |
|
|
$ |
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Mortgage |
|
|
Financial |
|
|
Technology |
|
|
Items & |
|
|
Consolidated |
|
(in thousands) |
|
Services |
|
|
Services |
|
|
Products |
|
|
Eliminations (1) |
|
|
Altisource |
|
Revenue |
|
$ |
17,700 |
|
|
$ |
17,318 |
|
|
$ |
10,573 |
|
|
$ |
(2,972 |
) |
|
$ |
42,619 |
|
Cost of Revenue |
|
|
10,411 |
|
|
|
14,069 |
|
|
|
6,495 |
|
|
|
(2,972 |
) |
|
|
28,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
7,289 |
|
|
|
3,249 |
|
|
|
4,078 |
|
|
|
|
|
|
|
14,616 |
|
Selling, General and Administrative |
|
|
1,718 |
|
|
|
4,082 |
|
|
|
1,678 |
|
|
|
|
|
|
|
7,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
5,571 |
|
|
|
(833 |
) |
|
|
2,400 |
|
|
|
|
|
|
|
7,138 |
|
Other Expense, net |
|
|
(13 |
) |
|
|
(468 |
) |
|
|
(138 |
) |
|
|
|
|
|
|
(619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
$ |
5,558 |
|
|
$ |
(1,301 |
) |
|
$ |
2,262 |
|
|
$ |
|
|
|
$ |
6,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
13,312 |
|
|
$ |
16 |
|
|
$ |
5,395 |
|
|
$ |
|
|
|
$ |
18,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses |
|
$ |
1,128 |
|
|
$ |
188 |
|
|
$ |
627 |
|
|
$ |
|
|
|
$ |
1,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
12 |
|
|
$ |
458 |
|
|
$ |
99 |
|
|
$ |
|
|
|
$ |
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Intercompany transactions primarily consist of information technology
infrastructure services and charges for the use of certain REAL products from our
Technology Products segment to our other two segments. Generally, we reflect these
charges within technology and communication in the segment receiving the services,
except for consulting services, which we reflect in professional services. |
18
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
intended to help the reader understand the results of operations and financial condition of
Altisource Portfolio Solutions S.A (Altisource or the Company). MD&A is provided as a
supplement to, and should be read in conjunction with, our condensed consolidated financial
statements and the accompanying notes and with our Registration Statement on Form 10-Q as filed
with the Securities and Exchange Commission on March 17, 2010.
This MD&A contains forward-looking statements; please see page 35 for more information.
Significant components of the MD&A section include:
|
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|
Page |
SECTION 1 Overview
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|
20 |
|
|
The overview section provides a summary of Altisource and our
reportable business segments. We also include a discussion of
factors affecting our consolidated results of operations as well as
items specific to each business group. In addition, we provide a
brief description of our basis of presentation for our financial
results. |
|
|
|
|
|
|
|
|
|
SECTION 2 Consolidated Results of Operations
|
|
|
21 |
|
|
The consolidated results of operations section provides an analysis
of our results on a consolidated basis for the three months ending
March 31, 2010 and 2009. When helpful in explaining trends, we also
discuss sequential results. Significant subsections within this
section are as follows: |
|
|
|
|
|
|
|
|
|
Summary Consolidated Results |
|
|
21 |
|
Revenue |
|
|
21 |
|
Cost of Revenue |
|
|
22 |
|
Selling, General and Administrative Expenses |
|
|
23 |
|
EBITDA |
|
|
24 |
|
Income Taxes |
|
|
25 |
|
|
|
|
|
|
SECTION 3 Segment Results of Operations
|
|
|
25 |
|
|
The segment results of operations section provides an analysis of our
results on a reportable operating segment basis for the three months
ending March 31, 2010 and 2009. We discuss known trends and
uncertainties. When helpful in explaining trends, we also discuss
sequential results. Significant subsections within this section are
as follows: |
|
|
|
|
|
|
|
|
|
Mortgage Services |
|
|
27 |
|
Financial Services |
|
|
30 |
|
Technology Products |
|
|
31 |
|
|
|
|
|
|
SECTION 4 Liquidity and Capital Resources
|
|
|
33 |
|
|
The liquidity and capital resources section provides discussion of
our ability to generate adequate amounts of cash to meet our current
and future needs. Significant subsections within this section are as
follows: |
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
33 |
|
Cash Flows |
|
|
33 |
|
Liquidity Requirements after March 31, 2010 |
|
|
34 |
|
Capital Resources |
|
|
34 |
|
Commitments and Contingencies |
|
|
34 |
|
|
|
|
|
|
SECTION 5 Critical Accounting Policies |
|
|
34 |
|
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|
|
SECTION 6 Other Matters
|
|
|
34 |
|
|
The other matters section provides a discussion of related party
transactions and provisions of the various separation related
agreements with Ocwen. |
|
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|
|
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|
|
SECTION 7 Forward Looking Statements |
|
|
35 |
|
19
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
SECTION 1 OVERVIEW
Altisource is a provider of services focused on high value, knowledge-based functions
principally related to real estate and mortgage portfolio management, asset recovery and customer
relationship management. Utilizing integrated technology that includes decision models and
behavioral based scripting engines, we provide solutions that improve clients performance and
maximize their returns.
Our objective is to become a global knowledge process provider focused on the entire mortgage
services lifecycle and credit to cash lifecycle management spaces. We intend to achieve this
objective by executing on our strategies of penetrating existing customers, acquiring new
customers, continuing to focus on increasing quality and reducing costs and investing in new
service offerings.
A. Separation
On August 10, 2009, Altisource became a stand-alone public company in connection with our
Separation from Ocwen. In connection with the Separation, Altisource and Ocwen entered into
Agreements that address the allocation of assets and liabilities between them and that define their
relationship after the Separation. Additional information may be found in Note 1 to the condensed
consolidated financial statements.
B. Basis of Presentation
The accompanying condensed consolidated financial statements present the historical results of
operations, assets and liabilities attributable to the Altisource businesses. For periods prior
to the Separation Date, these condensed consolidated financial statements include allocations of
expenses from Ocwen for certain corporate functions. Total corporate costs allocated to the Company
were $1.9 million for the three months ended March 31, 2009. The charges for these functions are
included primarily in Selling, general and administrative expenses in the Condensed Consolidated
Statements of Operations. In addition, Ocwen had allocated interest expense to us based upon our
portion of assets to Ocwens total assets which is reflected as Interest expense in the Condensed
Consolidated Statements of Operations. Other than transition servicers, there have been no
allocations of Ocwen expenses charged to us since the Separation Date.
In February 2010, we acquired all of the outstanding membership interests of MPA. MPA was
formed as a Delaware limited liability company with the purpose of managing BPMC which operates as
Lenders One. Lenders One is a national alliance of independent mortgage bankers that provides its
Members with education and training along with revenue enhancing, cost reducing and market share
expanding opportunities. The results of operations of BPMC are consolidated under the variable
interest model.
The condensed consolidated financial statements also do not necessarily reflect what the
Companys consolidated results of operations, financial position and cash flows would have been had
the Company operated as an independent company during the entire periods presented. For instance,
as an independent public company, Altisource expects to incur costs in excess of those allocated by
Ocwen for maintaining a separate Board of Directors, obtaining a separate audit, relocating certain
executive management and hiring additional personnel.
Factors Affecting Comparability
In addition to the items noted within the Basis of Presentation section presented above, the
following additional item may impact the comparability of our results:
|
|
|
$0.5 million increase in Mortgage Services revenues due to our semi-annual
review of the time it takes to sell REO properties which impacts the timing over which
we recognize property preservation revenues. |
20
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
SECTION 2 CONSOLIDATED RESULTS OF OPERATIONS
Summary Consolidated Results
Following is a discussion of our consolidated results of operations for the periods indicated.
The following table sets forth information regarding our results of operations for the periods
ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Revenue |
|
$ |
60,974 |
|
|
$ |
42,619 |
|
|
|
18,355 |
|
|
|
43 |
|
Cost of Revenue |
|
|
38,390 |
|
|
|
28,003 |
|
|
|
10,387 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
22,584 |
|
|
|
14,616 |
|
|
|
7,968 |
|
|
|
55 |
|
Selling, General and Administrative Expenses |
|
|
13,033 |
|
|
|
7,478 |
|
|
|
5,555 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
|
9,551 |
|
|
|
7,138 |
|
|
|
2,413 |
|
|
|
34 |
|
Other Expense, net |
|
|
(72 |
) |
|
|
(619 |
) |
|
|
547 |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes and Non-controlling
Interests |
|
|
9,479 |
|
|
|
6,519 |
|
|
|
2,960 |
|
|
|
45 |
|
Income Tax Provision |
|
|
(2,385 |
) |
|
|
(2,080 |
) |
|
|
(305 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
7,094 |
|
|
|
4,439 |
|
|
|
2,655 |
|
|
|
60 |
|
Net Income Attributable to Non-controlling Interests |
|
|
(787 |
) |
|
|
|
|
|
|
(787 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Altisource |
|
$ |
6,307 |
|
|
$ |
4,439 |
|
|
|
1,868 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
28,736 |
|
|
$ |
18,723 |
|
|
|
10,013 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses |
|
$ |
324 |
|
|
$ |
1,943 |
|
|
|
(1,619 |
) |
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
|
|
|
$ |
569 |
|
|
|
(569 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
The following table presents our revenues for the periods ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Mortgage Services |
|
$ |
36,795 |
|
|
$ |
17,700 |
|
|
|
19,095 |
|
|
|
108 |
|
Financial Services |
|
|
15,633 |
|
|
|
17,318 |
|
|
|
(1,685 |
) |
|
|
(10 |
) |
Technology Products |
|
|
11,974 |
|
|
|
10,573 |
|
|
|
1,401 |
|
|
|
13 |
|
Eliminations |
|
|
(3,428 |
) |
|
|
(2,972 |
) |
|
|
(456 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
60,974 |
|
|
$ |
42,619 |
|
|
|
18,355 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Services |
|
$ |
24,247 |
|
|
$ |
13,312 |
|
|
|
10,935 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services |
|
$ |
51 |
|
|
$ |
16 |
|
|
|
35 |
|
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Products |
|
$ |
4,438 |
|
|
$ |
5,395 |
|
|
|
(957 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues for the three months ended March 31, 2010 increased to $61.0 million, a 43% increase
over the comparable three months for 2009. In addition, we achieved a 8% sequential increase in
revenues despite a decline in Financial Services revenues and a decline in foreclosure starts in
January and February.
21
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
At the end of the first quarter, we achieved a significant milestone by completing our
national rollout of property preservation services. As of March 31st we had over 7,500
properties under management with respect to property preservation as compared to approximately
3,000 at year-end. In addition, we obtained national coverage of our REO disposition services and
as of March 31st, had over 4,800 properties listed with REO brokers compared to
approximately 3,500 at year end. The last significant piece of our national default-oriented
services rollout includes the geographic expansion of default management services and title agency
services. We are still on target to complete the rollout during the remainder of 2010 to the extent
the timing is within our control.
The acquisition of MPA added approximately $2.3 million of revenue.
Our revenues are seasonal. More specifically, Financial Services revenues tend to be highest
in the first quarter and generally declines throughout the year. Mortgage Services revenue is
impacted by REO sales which tend to be at their lowest level during winter months and highest
during summer months.
During 2010, we believe that we will be able to continue to grow our revenues when compared to
prior periods for several reasons:
|
|
|
Continued geographic expansion of our Mortgage Services products capturing a greater
share of revenues related to loans serviced by Ocwen; |
|
|
|
|
Expansion of Ocwens residential loan portfolio including the $9.7 billion increase in
unpaid principal balance boarded in November 2009 and the $6.9 billion increase in unpaid
principal balance boarded in May 2010; |
|
|
|
|
Inclusion of MPA since the February 2010 acquisition date; and |
|
|
|
|
Greater penetration of existing Financial Services clients. |
Cost of Revenue
Cost of revenue principally includes payroll and employee benefits associated with personnel
employed in customer service roles; fees paid to external providers related to provision of
services, reimbursable expenses and technology and telephony expenses as well as depreciation and
amortization of operating assets. The components of cost of revenue were as follows for the periods
ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Compensation and Benefits |
|
$ |
13,999 |
|
|
$ |
13,074 |
|
|
|
925 |
|
|
|
7 |
|
Outside Fees and Services |
|
|
12,460 |
|
|
|
9,598 |
|
|
|
2,862 |
|
|
|
30 |
|
Expense Reimbursements |
|
|
7,882 |
|
|
|
1,006 |
|
|
|
6,876 |
|
|
|
N/M |
|
Technology and Communications |
|
|
4,049 |
|
|
|
4,325 |
|
|
|
(276 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenue |
|
$ |
38,390 |
|
|
$ |
28,003 |
|
|
|
10,387 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin Percentage |
|
|
37 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our gross margin percentage increased to 37% for the three months ended March 31, 2010 from
34% for the same period in 2009. The increase in gross margin results from the composition of
revenues being more weighted towards Mortgage Services which have higher margins and the recent
acquisition of MPA and its consolidated subsidiary.
Compensation and benefits costs were impacted by investments in asset management, default
management and title personnel to support the national rollout of services and in anticipation of
the growth in Ocwens residential loan portfolio. In addition, we continue to seek ways of
reducing our compensation costs within our Financial Services segment primarily by redistributing
collectors to less expensive locations. During the first quarter we also sought to improve our
reporting by isolating compensation costs associated with segment executive management and segment
marketing activities and reclassifying such costs to be a component of selling, general and
administrative. Where possible, we have adjusted the prior period to be consistent with the
current presentation.
22
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Outside fees and services primarily increased in our Mortgage Services segment consistent with
greater revenues from our new services. Outside fees and services also increased in our Financial
Services segment as we are attempting to collect on more accounts in 2010 than in 2009 and
therefore incurred greater costs. Our Financial Services segment also increased its use of external
collectors resulting in a shift in costs from compensation and benefits to outside fees and
services.
Technology and communication costs were relatively flat as increases related to the new data
center were generally offset by other cost reduction initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include payroll, employee benefits, occupancy and
other costs associated with personnel employed in executive, sales, marketing, human resources and
finance roles. This category also includes professional fees, depreciation and amortization on
non-operating assets. The components of selling, general and administrative expenses were as
follows for the periods ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Compensation and Benefits |
|
$ |
4,040 |
|
|
$ |
1,943 |
|
|
|
2,097 |
|
|
|
108 |
|
Professional Services |
|
|
2,944 |
|
|
|
827 |
|
|
|
2,117 |
|
|
|
256 |
|
Occupancy related costs |
|
|
2,353 |
|
|
|
2,135 |
|
|
|
218 |
|
|
|
10 |
|
Amortization of Intangible Assets |
|
|
1,189 |
|
|
|
637 |
|
|
|
552 |
|
|
|
87 |
|
Other |
|
|
2,507 |
|
|
|
1,935 |
|
|
|
572 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Selling, General and Administrative Expenses |
|
$ |
13,033 |
|
|
$ |
7,478 |
|
|
|
5,555 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin |
|
|
16 |
% |
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operating margin percentage decreased to 16% for the three months ended March 31, 2010
primarily as a result of the increase costs of being a separate public company.
Compensation and benefits has increased to the prior year primarily as a result of the cost of
being a separate public company and the need to have separate support functions such as accounting,
legal and human resources as well as to the previously mentioned reclassification of certain
executive and marketing related compensation costs from cost of revenues.
Professional services increased primarily due to an increase in legal fees, including
miscellaneous settlements within our financial services segment as well as the cost of a separate
public company audit and related services.
Occupancy and equipment in both 2009 periods was relatively unchanged from the comparable
prior year periods as decreases associated with lease facility closure costs in Financial Services
were offset by increases in data center and other facility costs.
Amortization of intangible assets increased as a result of the intangibles acquired in
connection with the acquisition of MPA (see Notes 3 and 7 to the condensed consolidated financial
statements).
23
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
EBITDA
Altisource evaluates performance based on several factors, of which a primary financial
measure is income before interest, tax, depreciation and amortization (EBITDA). We believe that
this non-GAAP financial measure is useful to investors and analysts in analyzing and assessing our
overall business performance since we utilize this information for making operating decisions, for
compensation decisions and for forecasting and planning future periods. While the Company uses
non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its
financial performance and to provide incremental insight into the underlying factors and trends
affecting both the Companys performance and its cash-generating potential, the Company does not
consider these measures to be a substitute for, or superior to, the information provided by GAAP
financial measures. Consistent with this approach, the Company believes that disclosing non-GAAP
financial measures to the readers of its financial statements provides such readers with useful
supplemental data that, while not a substitute for GAAP financial measures, allows for greater
transparency in the review of its financial and operational performance and enables investors to
more fully understand trends in its current and future performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Income Before Income Taxes |
|
$ |
9,479 |
|
|
$ |
6,519 |
|
|
|
2,960 |
|
|
|
45 |
|
Interest, net |
|
|
19 |
|
|
|
614 |
|
|
|
(595 |
) |
|
|
(97 |
) |
Depreciation and Amortization |
|
|
1,523 |
|
|
|
1,435 |
|
|
|
88 |
|
|
|
6 |
|
Amortization of Intangibles |
|
|
1,189 |
|
|
|
637 |
|
|
|
552 |
|
|
|
87 |
|
Net Income Attributable to Non-controlling Interests |
|
|
(787 |
) |
|
|
|
|
|
|
(787 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (1) |
|
$ |
11,423 |
|
|
$ |
9,205 |
|
|
|
2,218 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA by Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Services |
|
$ |
10,822 |
|
|
$ |
5,573 |
|
|
|
5,249 |
|
|
|
94 |
|
Financial Services |
|
|
242 |
|
|
|
452 |
|
|
|
(210 |
) |
|
|
(46 |
) |
Technology Products |
|
|
5,076 |
|
|
|
3,180 |
|
|
|
1,896 |
|
|
|
60 |
|
Corporate |
|
|
(4,717 |
) |
|
|
|
|
|
|
(4,717 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
11,423 |
|
|
$ |
9,205 |
|
|
|
2,218 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See SECTION 3 SEGMENT RESULTS OF OPERATIONS below for a reconciliation
of the most directly comparable GAAP measure to EBITDA. |
Mortgage Services EBITDA increased $5.2 million year over year due to the expansion of
residential default and real estate oriented services and the acquisition of MPA. Sequentially,
EBITDA declined $1.0 million compared to the fourth quarter of 2009. The sequential decline was
principally driven by the inclusion of $0.6 million of marketing department costs that were
previously included as a component of Corporate. The remaining decline was due to additional
compensation costs as we significantly expanded our default management, asset management, REO
Brokerage and title functions to ramp up for the anticipated increase in referrals from Ocwen and
as we accelerate our national rollout of services to capture as much of the seasonally high summer
revenue opportunities as possible.
Financial Services EBITDA declined $0.2 million year over year despite a revenue decline of
$1.7 million which reflects the cost savings initiatives we undertook during 2009. Sequentially,
EBITDA marginally declined $0.2 million after considering the impact of the arbitration loss in the
fourth quarter, principally due to technology costs associated with an external vendor. Given the
seasonal nature of contingency collections, our revenues and EBITDA were less than anticipated in
the first quarter of 2010.
Technology Products EBITDA increased $1.9 million year over year as a result of a
REALServicing contract renewal in the second quarter of 2009. Sequentially, EBITDA declined $0.6
million with the principal driver being the increased operating costs of the new data center.
Corporate and Eliminations EBITDA improved sequentially by $0.9 million principally as a
result of the allocation of segment specific marketing and accounting costs from corporate to the
segments and as a result of the reduction in professional fees.
24
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Income Taxes
The income tax provision was $2.4 million in the three months ended March 31, 2010
representing an effective tax rate of 27.4%. Income tax provision on income before income tax
differs from amounts that would be computed by applying the Luxembourg federal corporate income tax
rate of 28.6% primarily because of the effect of differing tax rates outside of Luxembourg,
indefinite deferral on earnings of non-U.S. affiliates and additional foreign income taxes.
SECTION 3 SEGMENT RESULTS OF OPERATIONS
The following section provides a discussion of pre-tax results of operations of our business
segments for the three months ended March 31, 2010 and 2009. Transactions between segments are
accounted for as third-party arrangements for purposes of presenting segment results of operations.
Intercompany transactions primarily consist of information technology infrastructure services and
charges for the use of certain REAL products from our Technology Products segment to our other two
segments. Generally, we reflect these charges within technology and communication in the segment
receiving the services, except for consulting services, which we reflect in professional services.
Financial information for our segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Items & |
|
|
Consolidated |
|
(in thousands) |
|
Mortgage Services |
|
|
Financial Services |
|
|
Technology Products |
|
|
Eliminations (1) |
|
|
Altisource |
|
Revenue |
|
$ |
36,795 |
|
|
$ |
15,633 |
|
|
$ |
11,974 |
|
|
$ |
(3,428 |
) |
|
$ |
60,974 |
|
Cost of Revenue |
|
|
22,984 |
|
|
|
12,187 |
|
|
|
6,647 |
|
|
|
(3,428 |
) |
|
|
38,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
13,811 |
|
|
|
3,446 |
|
|
|
5,327 |
|
|
|
|
|
|
|
22,584 |
|
Selling, General and Administrative |
|
|
2,778 |
|
|
|
4,413 |
|
|
|
1,106 |
|
|
|
4,736 |
|
|
|
13,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
11,033 |
|
|
|
(967 |
) |
|
|
4,221 |
|
|
|
(4,736 |
) |
|
|
9,551 |
|
Other Income (Expense), net |
|
|
3 |
|
|
|
(16 |
) |
|
|
(12 |
) |
|
|
(47 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
$ |
11,036 |
|
|
$ |
(983 |
) |
|
$ |
4,209 |
|
|
$ |
(4,783 |
) |
|
$ |
9,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income taxes |
|
$ |
11,036 |
|
|
$ |
(983 |
) |
|
$ |
4,209 |
|
|
$ |
(4,783 |
) |
|
$ |
9,479 |
|
Interest, net |
|
|
(3 |
) |
|
|
16 |
|
|
|
12 |
|
|
|
(6 |
) |
|
|
19 |
|
Depreciation and Amortization(2) |
|
|
55 |
|
|
|
541 |
|
|
|
855 |
|
|
|
72 |
|
|
|
1,523 |
|
Amortization of Intangibles |
|
|
521 |
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
1,189 |
|
Net income Attributable to Non-controlling
Interests |
|
|
(787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
10,822 |
|
|
$ |
242 |
|
|
$ |
5,076 |
|
|
$ |
(4,717 |
) |
|
$ |
11,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
24,247 |
|
|
$ |
51 |
|
|
$ |
4,438 |
|
|
$ |
|
|
|
$ |
28,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
324 |
|
|
$ |
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
Technology |
|
|
Items & |
|
|
Consolidated |
|
(in thousands) |
|
Mortgage Services |
|
|
Services |
|
|
Products |
|
|
Eliminations (1) |
|
|
Altisource |
|
Revenue |
|
$ |
17,700 |
|
|
$ |
17,318 |
|
|
$ |
10,573 |
|
|
$ |
(2,972 |
) |
|
$ |
42,619 |
|
Cost of Revenue |
|
|
10,411 |
|
|
|
14,069 |
|
|
|
6,495 |
|
|
|
(2,972 |
) |
|
|
28,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
7,289 |
|
|
|
3,249 |
|
|
|
4,078 |
|
|
|
|
|
|
|
14,616 |
|
Selling, General and Administrative |
|
|
1,718 |
|
|
|
4,082 |
|
|
|
1,678 |
|
|
|
|
|
|
|
7,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
5,571 |
|
|
|
(833 |
) |
|
|
2,400 |
|
|
|
|
|
|
|
7,138 |
|
Other Expense, net |
|
|
(13 |
) |
|
|
(468 |
) |
|
|
(138 |
) |
|
|
|
|
|
|
(619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
$ |
5,558 |
|
|
$ |
(1,301 |
) |
|
$ |
2,262 |
|
|
$ |
|
|
|
$ |
6,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
$ |
5,558 |
|
|
$ |
(1,301 |
) |
|
$ |
2,262 |
|
|
$ |
|
|
|
$ |
6,519 |
|
Interest, net |
|
|
12 |
|
|
|
471 |
|
|
|
131 |
|
|
|
|
|
|
|
614 |
|
Depreciation and Amortization(2) |
|
|
3 |
|
|
|
645 |
|
|
|
787 |
|
|
|
|
|
|
|
1,435 |
|
Amortization of Intangibles |
|
|
|
|
|
|
637 |
|
|
|
|
|
|
|
|
|
|
|
637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
5,573 |
|
|
$ |
452 |
|
|
$ |
3,180 |
|
|
$ |
|
|
|
$ |
9,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
13,312 |
|
|
$ |
16 |
|
|
$ |
5,395 |
|
|
$ |
|
|
|
$ |
18,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses |
|
$ |
1,128 |
|
|
$ |
188 |
|
|
$ |
627 |
|
|
$ |
|
|
|
$ |
1,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
12 |
|
|
$ |
458 |
|
|
$ |
99 |
|
|
$ |
|
|
|
$ |
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Intercompany transactions primarily consist of information technology
infrastructure services and charges for the use of certain REAL products from our
Technology Products segment to our other two segments. Generally, we reflect these
charges within technology and communication in the segment receiving the services,
except for consulting services, which we reflect in professional services. |
|
(2) |
|
Includes depreciation and amortization of $0.5 million in each of the three
months ended March 31, 2010 and 2009, for assets reflected in the Technology Products
segment but utilized by the Financial Services segment. |
26
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Mortgage Services
The following table presents our results of operations for our Mortgage Services segment for
the three months ending March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Revenue |
|
$ |
36,795 |
|
|
$ |
17,700 |
|
|
|
19,095 |
|
|
|
108 |
|
Cost of Revenue |
|
|
22,984 |
|
|
|
10,411 |
|
|
|
12,573 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
13,811 |
|
|
|
7,289 |
|
|
|
6,522 |
|
|
|
90 |
|
Selling, General and
Administrative Expenses |
|
|
2,778 |
|
|
|
1,718 |
|
|
|
1,060 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
$ |
11,033 |
|
|
$ |
5,571 |
|
|
|
5,462 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
$ |
10,822 |
|
|
$ |
5,573 |
|
|
|
5,249 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related
Parties Included Above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
24,247 |
|
|
$ |
13,312 |
|
|
|
10,935 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses |
|
$ |
|
|
|
$ |
1,128 |
|
|
|
(1,128 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
|
|
|
$ |
12 |
|
|
|
(12 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See SECTION 3 SEGMENT RESULTS OF OPERATIONS below for a reconciliation
of the most directly comparable GAAP measure to EBITDA. |
N/M not meaningful.
Mortgage Services revenue increased year over year as a result of the development and
rollout of residential default and real estate oriented services and the acquisition of MPA.
Sequentially, revenue grew $4.6 million, or 14%, which was comprised of $2.3 million of organic
growth, or 7%, and $2.3 million attributable to the acquisition of MPA. This sequential growth
rate was lower than anticipated due to weak market conditions early in the quarter including the
slowdown in the industry of foreclosure starts; however, we saw significantly improving trends in
our default services and real estate operations in March results which was aided by increased
referrals from the $9.7 billion of loans boarded by Ocwen in November 2009.
In addition, Altisource completed the national rollout of property preservation services and
obtained national coverage for its REO disposition services in March. As of the end of April, we
had REO brokerage coverage in eleven states with a referral network in place to cover the remainder
of the country. We expect to complete the national rollout of default management services and
title agency services, where possible, during the remainder of 2010. We will also seek to expand
our brokerage coverage throughout 2010.
We continue to believe that we are well positioned to grow revenues in Mortgage Services for
the foreseeable future for the following reasons:
|
|
|
As of the end of March, we completed our national rollout of asset management services
which will allow us to capture additional revenue particularly during the seasonally high
summer period; |
|
|
|
|
Ocwen boarded residential loans totaling unpaid principal balance of $9.7 billion as of
November 2009 and $6.9 billion as of May 2010. We saw a material increase in referrals
primarily in March 2010 related to the November 2009 acquisition; |
27
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
|
|
|
Given the existing volume of loans in various stages of default and foreclosure, we
believe the default and REO services market is likely to grow through 2011; |
|
|
|
|
The acquisition of MPA; |
|
|
|
|
We generate significant amounts of free cash flow that allow us to invest in new and
existing services at attractive margins; and |
|
|
|
|
Given our small market position in very significant markets, we believe we have an
ability to capture additional market share. |
Acquisition of MPA
MPA and its consolidated subsidiary contributed $2.3 million of revenue and $0.4 million of
EBITDA since the February 2010 acquisition date. This revenue and EBITDA was in line with our
internal projections which included a forecasted decline in origination volumes during 2010. We
expect this decline to be somewhat mitigated as home buyers take advantage of expiring home buying
tax credits; the accelerated pace of new members joining the cooperative and the addition of new
preferred investors. Through April, MPA has added ten new members that originated approximately
$3.1 billion of loans during 2009.
We remain focused on developing Altisource services that we can provide to the Members as we
approach 2011 including valuation, title and closing services. We believe that over time we can
work with Ocwen and other partners to provide Members additional avenues to sell their loans beyond
the current preferred investor arrangements resulting in improved capital markets execution for the
members.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management Services |
|
$ |
13,336 |
|
|
$ |
2,198 |
|
|
|
11,138 |
|
|
|
N/M |
|
Component Services and Other |
|
|
7,689 |
|
|
|
3,065 |
|
|
|
4,624 |
|
|
|
151 |
|
Residential Property Valuation |
|
|
6,580 |
|
|
|
7,427 |
|
|
|
(847 |
) |
|
|
(11 |
) |
Closing and Title Services |
|
|
5,253 |
|
|
|
4,421 |
|
|
|
832 |
|
|
|
19 |
|
Default Management Services |
|
|
3,937 |
|
|
|
589 |
|
|
|
3,348 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
36,795 |
|
|
$ |
17,700 |
|
|
|
19,095 |
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Property Valuation |
|
$ |
6,015 |
|
|
$ |
7,154 |
|
|
|
(1,139 |
) |
|
|
(16 |
) |
Closing and Title Services |
|
|
3,628 |
|
|
|
3,777 |
|
|
|
(149 |
) |
|
|
(4 |
) |
Default Management Services |
|
|
1,539 |
|
|
|
205 |
|
|
|
(1,334 |
) |
|
|
N/M |
|
Asset Management Services |
|
|
12,865 |
|
|
|
2,176 |
|
|
|
10,689 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24,247 |
|
|
$ |
13,312 |
|
|
|
10,935 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Reimbursements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Default Management Services |
|
$ |
513 |
|
|
$ |
596 |
|
|
|
(83 |
) |
|
|
(14 |
) |
Asset Management Services |
|
|
7,369 |
|
|
|
410 |
|
|
|
6,959 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,882 |
|
|
$ |
1,006 |
|
|
|
6,876 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M not meaningful.
In our Mortgage Services segment, we generate the majority of our revenue by providing
outsourced services that span the lifecycle of a mortgage loan primarily for Ocwen or with respect
to the loan portfolio serviced by Ocwen. In addition to our relationship with Ocwen, we have
longstanding relationships with some of the leading capital markets firms, commercial banks, hedge
funds, insurance companies and lending institutions and provide products that enhance their ability
to make informed investment decisions and manage their core operations. With the acquisition of
MPA in February 2010, we took a significant
28
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
step in our evolution to become a full service provider in the mortgage services vertical and
gained increased access to a growing group of mid-tier mortgage bankers.
Asset Management Services. Asset management services principally include property
preservation, property inspection, REO asset management and REO brokerage. In the first quarter of
2010, we completed our national network for property preservation services and, including our real
estate broker referral network, have coverage nationally for REO dispositions. As of March 31,
2010, we were licensed to sell real estate in ten states (eleven as of end of April) as compared to
three as of year-end. This resulted in an increase in REO brokerage referrals which drove revenues
in the seasonally weak first quarter and should continue to drive revenue particularly in the
strong second and third quarters.
Component Services and Other. The increase in component services year over year is due to an
expanded relationship with an existing customer in the second quarter of 2009 and the inclusion of
MPAs results.
Residential Property Valuation. As one of the more mature services in our portfolio,
residential property valuations are subject to market conditions and therefore continue to see
declines year over year given the mortgage crisis. The first quarter of 2010 was higher than
fourth quarter 2009 as a result of Ocwens residential loan portfolio growth resulting in the
ordering of more valuations.
Closing and Title Services. This business includes legacy services such as pre-foreclosure
title services as well as an expanded array of title services that were rolled out during 2009
principally around default title. During 2010, we are focused on rolling out our title agency
business nationally which we believe will drive significant revenue growth at attractive margins.
We have also applied for our title agency license in several counties in California which is a
significant market for us. However, we do not expect to obtain agency status in California until
the fourth quarter of 2010 at the earliest.
Default Management Services. This group includes support services whereby we provide
non-legal back-office support for foreclosure, bankruptcy and eviction attorneys as well as trustee
management services. Although we continued to expand our geographic footprint, we did see a
decline in revenues in sequential quarters due to the overall slowdown in foreclosure starts in
January and February 2010.
Cost of Revenue
Our gross margin was 38% for the first quarter of 2010 including $7.9 million of reimbursable
expenses for which we achieve no margin. Our gross margins declined from the fourth quarter as we
significantly invested in our businesses including the addition of persons within the United States
(REO Brokers, REO asset managers, title agents and support staff) as well as significantly
expanding our staff in our offshore operations (e.g., asset management, default management). We
expect that we will need to continue to invest in additional staff through the second quarter in
order to process the expected increase in volume from Ocwens recent acquisitions which could have
a temporary negative impact on margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased principally as a result of the
classification of certain compensation and benefit costs related to executive management and
marketing previously being captured either in cost of revenues or as a component of the Corporate
segment now being captured in selling, general and administrative. In addition, professional
services fees such as those associated with the external audit have increased as a result of being
a public company. Such costs are allocated to the segments generally based upon expected hours to
be incurred per segment by the vendor.
29
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Financial Services
The following table presents our results of operations for our Financial Services segment for
the three months ending March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Revenue |
|
$ |
15,633 |
|
|
$ |
17,318 |
|
|
|
(1,685 |
) |
|
|
(10 |
) |
Cost of Revenue |
|
|
12,187 |
|
|
|
14,069 |
|
|
|
(1,882 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
3,446 |
|
|
|
3,249 |
|
|
|
197 |
|
|
|
6 |
|
Selling, General and
Administrative Expenses |
|
|
4,413 |
|
|
|
4,082 |
|
|
|
331 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
$ |
(967 |
) |
|
$ |
(833 |
) |
|
|
(134 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
$ |
242 |
|
|
$ |
450 |
|
|
|
(208 |
) |
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
51 |
|
|
$ |
16 |
|
|
|
35 |
|
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses |
|
$ |
|
|
|
$ |
188 |
|
|
|
(188 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
|
|
|
$ |
458 |
|
|
|
(458 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See SECTION 3 SEGMENT RESULTS OF OPERATIONS below for a reconciliation
of the most directly comparable GAAP measure to EBITDA. |
N/M not meaningful.
Financial Services revenue declined year over year as increases in revenues from most
customers, due to increased customer penetration, were not substantial enough to offset declines in
revenues from one of our most significant customers. Sequentially, revenue grew $0.8 million, or
6%, primarily due to the seasonality of collections.
Our strategy for 2010 continues to be focused on improving margins principally via improving
revenue per collector, expanding our quality initiatives, investing in new technology and
rationalizing our work force costs.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Recovery Management |
|
$ |
12,820 |
|
|
$ |
14,289 |
|
|
|
(1,469 |
) |
|
|
(10 |
) |
Customer Relationship Management |
|
|
2,813 |
|
|
|
3,029 |
|
|
|
(216 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
15,633 |
|
|
$ |
17,318 |
|
|
|
(1,685 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Recovery Management |
|
$ |
51 |
|
|
$ |
16 |
|
|
|
35 |
|
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In our Financial Services segment, we generate the majority of our revenue from asset recovery
management fees we earn for collecting amounts due to our customers and from fees we earn for
performing customer relationship management for our customers.
Asset Recovery Management. Our revenues associated with contingency collections declined when
compared to the first quarter in the prior year principally due to lower collection rates and the
change in product mix for our largest customer.
30
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Compared to the fourth quarter of 2009, we saw improvement in collection rates during the
first quarter of 2010 and continue to gain market share with key customers that we began
penetrating in 2009.
Customer Relationship Management. Our revenues with customer relationship management declined
year over year as we sought to wind down our relationship with one customer due to unsatisfactory
margins. The intended termination of this customer is expected to have an impact to second quarter
revenues as well while we seek to replace this lower margin client with other higher margin
customers.
Cost of Revenue
Our cost of revenues decreased in 2010 compared to 2009 principally due to a reduction in
compensation and benefits as a result of a lower number of collectors and reduced commissions. In
addition, we continue to seek ways to reduce technology and communication costs for this segment.
Partially offsetting the decreases in compensation and benefits was the use of more outside
collectors which we utilize in an effort to limit our exposure on the placements which have lower
collection rates.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased primarily as a result of increased
placements which require us to incur additional costs.
Technology Products
The following table presents our results of operations for our Technology Products segment for
the three months ending March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Revenue |
|
$ |
11,974 |
|
|
$ |
10,573 |
|
|
|
1,401 |
|
|
|
13 |
|
Cost of Revenue |
|
|
6,647 |
|
|
|
6,495 |
|
|
|
152 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
5,327 |
|
|
|
4,078 |
|
|
|
1,249 |
|
|
|
31 |
|
Selling, General and
Administrative Expenses |
|
|
1,106 |
|
|
|
1,678 |
|
|
|
(572 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
$ |
4,221 |
|
|
$ |
2,400 |
|
|
|
1,821 |
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
$ |
5,076 |
|
|
$ |
3,180 |
|
|
|
1,896 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
4,438 |
|
|
$ |
5,395 |
|
|
|
(957 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses |
|
$ |
|
|
|
$ |
627 |
|
|
|
(627 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
|
|
|
$ |
99 |
|
|
|
(99 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See SECTION 3 SEGMENT RESULTS OF OPERATIONS below for a reconciliation
of the most directly comparable GAAP measure to EBITDA. |
N/M not meaningful.
31
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
The primary focus of the Technology Products segment continues to be to support the growth
of Mortgage Services as well as the cost reduction and quality initiatives on-going within the
Financial Services segment. During the first quarter, we re-organized the management team of
Technology Products by naming a new Chief Operating Officer for the segment. We are focused on
enhancing both our development and infrastructure capabilities to support both our expansion
efforts and those of Ocwen. In addition, we remain focused on the commercialization of our service
offerings to expand their applicability to a broader audience.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REAL Suite |
|
$ |
6,986 |
|
|
$ |
5,637 |
|
|
|
1,349 |
|
|
|
24 |
|
IT Infrastructure Services |
|
|
4,988 |
|
|
|
4,936 |
|
|
|
52 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
11,974 |
|
|
$ |
10,573 |
|
|
|
1,401 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REALSuite |
|
$ |
2,555 |
|
|
$ |
2,407 |
|
|
|
148 |
|
|
|
6 |
|
IT Infrastructure Services |
|
|
1,883 |
|
|
|
2,988 |
|
|
|
(1,105 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
4,438 |
|
|
$ |
5,395 |
|
|
|
(957 |
) |
|
|
(177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning with the second quarter of 2009, we began generating the majority of our revenue
within this segment from our REALSuite of services, and we expect this trend to continue for the
foreseeable future.
REALSuite. Our REALSuite revenue is primarily driven by our REALServicing® product
which is our comprehensive residential loan servicing platform. In the second quarter of 2009, we
expanded an agreement with an existing third-party customer for use of the REALServicing product by
executing a five year renewal. Revenues were substantially flat to fourth quarter.
IT Iinfrastructure Services. Our IT infrastructure services revenues declined when compared to
the comparable period in 2009 primarily due to lower billings to the Financial Services segment
(which we eliminate in consolidation but include in our segment presentation).
Cost of Revenue
Cost of revenue increased marginally when compared to the first quarter of 2009 primarily as a
result of compensation and benefits as we added personnel to enhance our service capabilities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses declined primarily due to lower occupancy
charges.
32
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
SECTION 4 LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We believe that we have the ability to generate more than sufficient cash from our current
operations for the next twelve months to meet anticipated cash requirements. Anticipated cash
requirements principally include operational expenditures such as compensation and benefits,
working capital requirements and spending for capital expenditures.
We generate significant excess cash that we will seek to deploy in a disciplined manner.
Principally, we will continue to invest in compelling services that we believe will generate high
margins. In addition, we may seek to acquire a limited number of companies that fit our strategic
objectives. Finally, given the tax inefficiency of dividends, the low returns earned on cash held
and our desire to only perform a limited number of acquisitions, we believe one of the best ways to
return value to shareholders is to consider a share repurchase program. Under Luxembourg law, we
need shareholder approval to initiate such a program. We have requested shareholder approval at
our next Annual General Meeting scheduled for May 19, 2010 for a share repurchase
program as further described in our proxy.
Cash Flows
The following table presents our cash flows for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Net Income Adjusted for Non-Cash Items |
|
$ |
10,628 |
|
|
$ |
6,664 |
|
|
|
3,964 |
|
|
|
60 |
|
Working Capital |
|
|
9,057 |
|
|
|
(5,174 |
) |
|
|
14,231 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Operating Activities |
|
|
19,685 |
|
|
|
1,490 |
|
|
|
18,195 |
|
|
|
122 |
|
Cash Flow from Investing Activities |
|
|
(29,075 |
) |
|
|
(771 |
) |
|
|
(28,304 |
) |
|
|
N/M |
|
Cash Flow from Financing Activities |
|
|
(1,446 |
) |
|
|
(2,458 |
) |
|
|
1,012 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash |
|
|
(10,836 |
) |
|
|
(1,739 |
) |
|
|
(9,097 |
) |
|
|
N/M |
|
Cash at Beginning of Period |
|
|
30,456 |
|
|
|
6,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at End of Period |
|
$ |
19,620 |
|
|
$ |
5,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M Not meaningful.
Cash Flow from Operating Activities
Cash flow from operating activities consists of two components including (i) net income
adjusted for depreciation, amortization and certain other non-cash items and (ii) working capital.
We generated $19.7 million in positive cash flow from operations which primarily reflects our
profitability adjusted for non-cash items in the period but also as a result of improvement of
working capital. The increase in cash flows from operating activities is consistent with the
overall improved operating performance.
Cash Flow from Investing Activities
Our cash flow from investing activities primarily includes the acquisition of MPA in February
2010 for which the purchase consideration included $29.0 million in cash. In addition, we saw an
elevated increase in purchases of premises and equipment in anticipation of Ocwens portfolio
increases. We expect this elevated level of premises and equipment to continue into the second
quarter and for total capital expenditures to be higher than originally anticipated for 2010.
Cash Flow from Financing Activities
During 2010, cash flow from financing activities primarily includes activity associated with
stock option exercises and payments to non-controlling interest members as a result of the
acquisition of MPA. Prior to our Separation from Ocwen, we participated in a centralized cash
management program with Ocwen. We made a significant amount of our cash disbursements through
centralized payable systems which were operated by Ocwen, and a significant amount of our cash
receipts were received by us and transferred to centralized accounts maintained by Ocwen. There
were no formal financing arrangements with Ocwen,
33
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
and we recorded all cash receipts and
disbursement activity between Ocwen and us through invested equity in the Condensed Consolidated
Balance Sheets and as net distributions or contributions in the Condensed Consolidated Statements
of Equity and Cash Flows because we consider such amounts to have been contributed by or
distributed to Ocwen.
Liquidity Requirements after March 31, 2010
In connection with the acquisition of MPA, a final working capital adjustment will be paid to
the prior owners of MPA in the second quarter of 2010 (see Note 3 to the condensed consolidated
financial statements). In addition, in May 2010, distributions of $1.4 million will be paid to
non-controlling interests. Management is not aware of any other trends or events, commitments or
uncertainties which have not otherwise been disclosed, that will or are likely to impact liquidity
in a material way.
Capital Resources
Given our ability to generate significant cash flow sufficient enough to fund current
operations as well as expansion of our operations, we require very limited, if any, capital. Were
we to need additional capital, we believe we have adequate access to
both debt and equity capital markets.
Commitments and Contingencies
For details of these transactions, see Note 10 to the condensed consolidated financial
statements.
SECTION 5 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our condensed consolidated financial statements in accordance with accounting
principles generally accepted in the United States. In applying many of these accounting
principles, we need to make assumptions, estimates and/or judgments that affect the reported
amounts of assets, liabilities, revenues and expenses in our condensed consolidated financial
statements. We base our estimates and judgments on historical experience and other assumptions
that we believe are reasonable under the circumstances. These assumptions, estimates and/or
judgments, however, are often subjective. Actual results may be affected negatively based on
changing circumstances. If actual amounts are ultimately different from our estimates, the
revisions are included in our results of operations for the period in which the actual amounts
become known.
Our critical accounting policies are described in the MD&A section in our 2009 Form 10-K.
Such policies have not changed during 2010.
SECTION 6 OTHER MATTERS
Related Party Ocwen
For the three months ended March 31, 2010, approximately $24.2 million of the Mortgage
Services, $0.1 million of the Financial Services and $4.4 million of the Technology Products
segment revenues were from services provided to Ocwen or sales derived from Ocwens loan servicing
portfolio. Services provided to Ocwen included residential property valuation, real estate asset
management and sales, trustee management services, property inspection and preservation, closing
and title services, charge-off second mortgage collections, core technology back office support and
multiple business technologies including our REALSuite of products. We provided all services at
rates we believe to be comparable to market rates.
In connection with the Separation, Altisource and Ocwen entered into various agreements that
address the allocation of assets and liabilities between them and that define their relationship
after the Separation including a Separation Agreement, a Tax Matters Agreement, an Employee Matters
Agreement, an Intellectual Property Agreement, a Data Center and Disaster Recovery Agreement, a
Technology Products Services Agreement, a Transition Services Agreement and certain long-term
servicing contracts (collectively, the Agreements) (see Note 4 to our 2009 Form 10-K).
34
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
SECTION 6 FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements that relate to, among other things,
our future financial and operating results. In many cases, you can identify forward-looking
statements by terminology such as may, will, should, expect, intend, plan,
anticipate, believe, estimate, predict, potential or continue or the negative of these
terms and other comparable terminology including, but not limited to, the following:
|
|
|
assumptions related to the sources of liquidity and the adequacy of financial resources; |
|
|
|
|
assumptions about our ability to grow our business; |
|
|
|
|
assumptions about our ability to reduce our cost structure; |
|
|
|
|
expectations regarding collection rates and placements in our Financial Services segment; |
|
|
|
|
estimates regarding our ability to lower our effective tax rate; and |
|
|
|
|
estimates regarding our reserves and valuations. |
Forward-looking statements are not guarantees of future performance and involve a number of
assumptions, risks and uncertainties that could cause actual results to differ materially.
Important factors that could cause actual results to differ materially from those suggested by the
forward-looking statements include, but are not limited to, the risks discussed in Risk Factors
in our Registration Statement on Form 10 and the following:
|
|
|
our ability to retain existing customers and attract new customers; |
|
|
|
|
general economic and market conditions; |
|
|
|
|
governmental regulations, taxes and policies; and |
|
|
|
|
availability of adequate and timely sources of liquidity. |
We caution you not to place undue reliance on these forward-looking statements which reflect
our view only as of the date of this report. We are under no obligation (and expressly disclaim
any obligation) to update or alter any forward-looking statements contained herein to reflect any
change in our expectations with regard thereto or change in events, conditions or circumstances on
which any such statement is based.
35
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our financial market risk consists primarily of foreign currency exchange risk.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange rate risk in connection with our investment in
non-U.S. dollar functional currency operations, which are very limited, to the extent that our
foreign exchange positions remain un-hedged.
Item 4. Controls and Procedures.
a) |
|
Evaluation of Disclosure Controls and Procedures |
|
|
|
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the
Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this quarterly report. Based on such evaluation, such officers have concluded that
our disclosure controls and procedures as of the end of the period covered by this quarterly
report were effective to ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and to ensure that such
information is accumulated and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. |
|
b) |
|
Internal Control over Financial Reporting |
|
|
|
There were no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ending March
31, 2010, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. |
36
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to routine litigation and administrative proceedings arising in the ordinary course
of business.
Item 1A. Risk Factors.
As of the date of this filing, there have been no material changes in our risk factors from those
disclosed in Part I, Item 1A, of our 2009 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None
Item 3. Defaults upon Senior Securities. None
Item 4. (Removed and Reserved)
Item 5. Other Information. None
Item 6. Exhibits.
|
|
|
31.1
|
|
Certification by the Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002
(filed herewith) |
|
|
|
31.2
|
|
Certification by the Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002
(filed herewith) |
|
|
|
32.1
|
|
Certification by the Chief
Executive Officer and Chief
Financial Officer pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
(filed herewith) |
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Registrant)
|
|
Date: May 14, 2010 |
By: |
/s/ Robert D. Stiles
|
|
|
|
Robert D. Stiles |
|
|
|
Chief Financial Officer
(On behalf of the Registrant and as its principal financial officer) |
|
|
38