Altisource Portfolio Solutions S.A. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Altisource is an integrated service provider and marketplace for the real estate and mortgage industries. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions unless otherwise noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $43.2m | $88.8m | $139.7m | $305.6m |
| Gross profit | $2.6m | $16.2m | $4.9m | $55.8m |
| Gross margin on service revenue | 6% | 19% | 4% | 19% |
| Operating loss | $(14.0)m | $(6.8)m | $(47.2)m | $(28.7)m |
| Net loss attributable to Altisource | $(18.3)m | $(13.2)m | $(58.7)m | $(59.9)m |
| Basic and diluted loss per share | $(1.15) | $(0.85) | $(3.71) | $(3.85) |
- Revenue fell 51% in Q3 and 54% for the nine-month period year over year. Service revenue declined 51% and 54%, respectively.
- Q3 gross profit fell 84%; nine-month gross profit fell 91%. Lower revenue and a mix shift away from higher-margin Marketplace services pressured margins.
- For the nine months, operating cash flow was $(41.1)m, versus $(14.1)m used in 2020. Investing cash flow was $1.9m and financing cash flow was $17.9m, including $20.0m borrowed under the related-party credit facility.
- Cash and cash equivalents were $36.5m at September 30, 2021, down from $58.3m at year-end 2020. Restricted cash was $4.3m. Current assets of $74.7m exceeded current liabilities of $72.6m by about $2.1m.
- Reported debt was $263.2m, comprising net senior term loans and the STS credit facility; an additional $1.3m of convertible debt payable to related parties was reported separately. The term-loan rate was 5.00%; the STS facility rate was 9.00%.
Drivers and changes versus prior period
- Management attributed the revenue decline principally to pandemic-related foreclosure and eviction moratoriums and forbearance programs, and to an MSR investor’s direction that Ocwen transfer certain field-services, valuation and title referrals to other providers.
- Field Services service revenue fell 73% for the nine months; Marketplace fell 58%; Mortgage and Real Estate Solutions fell 20%. Origination service revenue rose 23% to $45.5m for the nine months, partly offsetting declines elsewhere.
- Ocwen remained the largest customer, representing 31% of Q3 revenue and 32% of nine-month revenue, versus 48% and 57% in the comparable 2020 periods. Nine-month Ocwen revenue was $44.7m, compared with $174.1m.
- Cost reductions lowered nine-month cost of revenue 46% and SG&A 29%, but did not keep pace with the revenue decline. No restructuring charges were recorded in 2021; 2020 included $10.9m for the nine months.
- Other expense improved year over year, chiefly because 2020 included a $12.4m unrealized loss on RESI shares. Interest expense also declined, partly offset by interest on the new facility.
Outlook, liquidity and notable items
- No formal earnings or revenue guidance is provided. Management expects default-market demand to grow in 2022 after temporary loss-mitigation restrictions expire and to stabilize during 2023; it also expects origination business growth. These expectations depend on the timing of referrals and market recovery.
- Management said existing cash, available facility borrowings and expected Pointillist sale proceeds, net of operating cash needs, should fund liquidity requirements for the next 12 months. The company had negative operating cash flow and stated it would continue cost reductions and cash-generation efforts.
- The senior term loan matures in April 2024. The company’s leverage ratio exceeded 3.50:1.00 at September 30, 2021, restricting access to its separate revolving facility and creating constraints under debt covenants. The $20m STS facility is related-party financing and amortizes in stages, with final repayment due June 2024.
- On October 6, 2021, after quarter-end, Pointillist shareholders agreed to sell the business to Genesys for $150m, subject to closing adjustments and an escrow. Altisource estimated it would receive about $100m at closing and $3.7m after one year if there were no indemnification claims, and estimated a $107m pre- and after-tax gain before any goodwill reduction. Closing was expected before year-end 2021; proceeds and gain were not realized as of September 30.
- On May 5, 2021, Altisource extended certain Ocwen agreements through August 2030 and expanded potential service opportunities, subject to performance and other conditions. Ocwen had transitioned more than 2,100 FHA first-chance auction inventory items to Altisource by quarter-end.
- Key risks include customer concentration and potential further Ocwen referral losses; Ocwen’s regulatory, legal and servicing risks; delayed foreclosure activity; debt and liquidity constraints; and execution, closing and indemnification risks related to the Pointillist sale. The company was responding to government inquiries but said it was too early to assess potential outcomes or financial impact. Management did not expect current litigation to materially affect results.
Most important facts for investors to verify
- Whether the Genesys transaction closed, final proceeds and adjustments, any indemnification claims, and the actual gain and goodwill impact.
- Subsequent operating cash burn, available liquidity, debt-covenant headroom and ability to meet interest and scheduled repayments.
- Ocwen’s referral volumes, the progress and economics of expanded services, and whether customer concentration declines.
- Timing and scale of default-market recovery and whether origination growth can offset continued weakness in default-related services.
- Any updates on regulatory inquiries, Ocwen-related proceedings or other contingencies that could materially affect the company.