Altisource Portfolio Solutions S.A. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Altisource provides services, marketplaces and technology to the real estate and mortgage industries. Effective January 1, 2022, it began reporting Servicer and Real Estate, Origination, and Corporate and Others as separate segments; prior-period segment data was restated.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $39.5 million | $50.5 million |
| Service revenue | $37.8 million | $48.1 million |
| Gross profit; margin on service revenue | $5.6 million; 15% | $0.3 million; 1% |
| Operating loss | $8.3 million | $18.6 million |
| Net loss attributable to Altisource | $12.2 million; $0.76 per diluted share | $22.0 million; $1.40 per diluted share |
| Cash used in operating activities | $16.9 million | $16.8 million |
Revenue declined 22%, while cost of revenue fell 32% and SG&A fell 26%, reflecting cost reductions, lower occupancy and amortization costs, and the prior-year inclusion of Pointillist. Gross margin improved mainly from mix and cost savings, but the company remained loss-making.
- Segments: Servicer and Real Estate service revenue decreased 11% to $27.2 million; segment operating income rose to $5.7 million from $3.0 million. Origination service revenue fell 37% to $10.6 million; the segment moved to a $0.4 million operating loss from $1.7 million income. Corporate and Others had no revenue after the December 2021 Pointillist sale.
- Balance sheet and liquidity: Cash and equivalents were $80.0 million at March 31, 2022, down from $98.1 million at year-end; cash, equivalents and restricted cash totaled $83.9 million. Current assets were $123.7 million and current liabilities $48.9 million. Total assets were $239.8 million, and total deficit was $80.9 million.
- Debt: Long-term debt carrying value was $244.1 million; senior secured term-loan principal was $247.2 million. The loan bore 5.00% interest and matures in April 2024. No amounts were drawn on the separate related-party revolving facility at quarter-end; that facility charges 9.00% and has a maximum availability that steps down over time.
Material changes and management outlook
- Origination revenue was pressured by mortgage originations falling 37% year over year as interest rates rose. Servicer and Real Estate benefited from recovery in some default-related activity after borrower-relief measures expired, although foreclosure initiations remained below Q1 2020 levels.
- Management expects demand for the Default business to grow in 2022 and stabilize during 2023 as post-moratorium foreclosures progress to REO sales. It expects Origination to be roughly flat for full-year 2022 versus 2021, supported by customer wins and cross-selling. These are expectations, not quantified earnings guidance.
- Management said existing cash, anticipated operating cash flows and available borrowings were expected to meet liquidity needs for the next 12 months, including interest and lease payments. It expects to pay $12.4 million of interest and $2.2 million of lease payments during that period. The company expects to refinance the $247.2 million term-loan balance due in 2024.
- Operating cash use was $16.9 million. Management attributed working-capital cash use in part to higher annual incentive payments and receivable collection timing. Cash and equivalents declined by $18.2 million during the quarter.
Risks, contingencies and unusual items
- Customer concentration: Ocwen accounted for 35% of Q1 revenue ($13.7 million); an additional 6% of revenue related to Ocwen-serviced portfolios where another party selected Altisource. Ocwen’s regulatory, legal and business developments, changes in its servicing portfolio, or changes in its relationship with Altisource could materially reduce revenue. NRZ-related servicing arrangements are also a risk.
- Market and execution risks: Results are sensitive to foreclosure and mortgage-origination volumes, customer retention, seasonality, cost flexibility, and the timing of the expected default-market recovery. Management cautioned that actual results may differ from its expectations.
- Debt and rates: A one-percentage-point increase in the Eurodollar rate above the loan floor would increase annual interest expense by approximately $2.5 million. The 2024 maturity and expected refinancing are significant liquidity considerations.
- Legal and regulatory matters: The company is responding to governmental inquiries concerning aspects of its business; it said outcomes and potential financial impacts could not yet be estimated. It did not expect current litigation to materially affect results or cash flows.
- Pointillist: Sold in December 2021; Altisource received approximately $106 million, with amounts remaining in working-capital and indemnification escrows. A $3.7 million discounted short-term receivable was recorded at March 31, 2022.
Important facts for investors to verify
- Progress in diversifying revenue away from Ocwen and the status of Ocwen-related regulatory and servicing risks.
- Whether default-related referrals and revenue recover as management anticipates, and how Origination performs amid lower mortgage volumes.
- Operating cash-flow trajectory, working-capital needs and remaining cash runway.
- Refinancing plans and terms for the $247.2 million term loan due in April 2024, including sensitivity to floating interest rates.
- Collections and releases of the Pointillist escrow balances, and developments in the unresolved governmental inquiries.