Altisource Portfolio Solutions S.A. — Q1 2021 Form 10-Q
Business context and period. This unaudited report covers the three months ended March 31, 2021, with balance-sheet comparisons to December 31, 2020. Altisource provides services, marketplaces and technology to the mortgage and real estate industries. It reports one operating segment.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $50.5 million | $121.4 million |
| Service revenue | $48.1 million | $113.2 million |
| Gross profit | $0.3 million | $26.9 million |
| Gross profit / service revenue | 1% | 24% |
| Operating loss | $18.6 million | $4.2 million |
| Net loss attributable to Altisource | $22.0 million | $11.7 million |
| Basic and diluted loss per share | $1.40 | $0.75 |
| Cash used in operating activities | $16.8 million | $1.6 million |
At March 31, cash and cash equivalents were $41.3 million; cash, cash equivalents and restricted cash totaled $45.6 million. Long-term debt had a carrying value of $243.0 million, against $247.2 million of senior secured term loans. Total assets were $239.7 million and total deficit was $105.3 million. The term loan rate was 5.00%, and management estimated $12.4 million of interest and $7.7 million of lease payments over the next 12 months.
Material changes and drivers
- Revenue fell 58% year over year. Default-related services were sharply affected by pandemic-related foreclosure and eviction moratoriums, borrower forbearance and reduced REO activity, as well as transfers of certain Ocwen referrals to other providers.
- Field Services revenue declined 76%, Marketplace revenue 63%, and Mortgage and Real Estate Solutions revenue 20%. Within the latter, origination-related growth partly offset declines: service revenue from customers other than Ocwen, NRZ and RESI rose 12%, including 68% growth in origination businesses.
- Cost of revenue declined 47% and SG&A declined 33%, reflecting lower activity, reduced headcount and cost-saving measures. These reductions did not offset the revenue decline; gross profit fell to $0.3 million.
- Operating cash use increased to $16.8 million. Investing cash flow was positive $2.5 million, including the $3.0 million final installment from the sale of the rental property management business. Cash, cash equivalents and restricted cash decreased by $16.5 million during the quarter.
- Interest expense declined year over year, partly due to lower average debt and interest rates. The 2020 comparison included a $1.3 million unrealized investment loss and $2.9 million of restructuring charges, neither recorded in Q1 2021.
Outlook, risks and unusual items
- Management expects total service revenue to decline in 2021 versus 2020, with default-related referrals remaining severely depressed through 2021. It anticipates default demand may begin returning in late 2021 and into 2022, with the business potentially stabilizing in 2023; timing and volume depend on moratoriums, forbearance and delinquency levels. The filing gives no numerical revenue or earnings guidance.
- Management expects origination-related business to grow, supported by customer wins and new offerings, but notes its smaller scale relative to default-related businesses. The Mortgage Bankers Association forecast cited in the filing projected full-year 2021 origination volume to decline 14%.
- Ocwen accounted for 34% of Q1 revenue, down from 61% a year earlier; revenue from Ocwen was $16.9 million versus $74.2 million. This concentration, Ocwen’s regulatory and business risks, and possible changes in its relationship with NRZ could further reduce referrals or revenue.
- On May 5, 2021, after quarter-end, Altisource and Ocwen agreed to extend their services agreements from August 2025 to August 2030 and expand the potential scope of services, subject to performance requirements and other conditions. The agreement also resolved a contractual dispute; the filing does not quantify expected revenue from the expanded opportunities.
- Leverage exceeded 3.50 to 1.00 at March 31, 2021. The company could not borrow under its revolver while above that threshold, and incremental debt availability is also conditional on leverage not exceeding 3.00 to 1.00. Debt matures in April 2024; specified defaults could accelerate repayment.
- Management said existing liquidity, net of anticipated operating cash flows, should cover working capital, capital expenditures, debt service and other cash needs for the next 12 months. However, it reported negative operating cash flow, said it was evaluating options to increase liquidity, and cautioned that success and profitability are not assured.
- Other matters include ongoing governmental inquiries for which the potential outcome and financial impact could not be estimated, and sales-tax exposure that could change materially. Management did not consider current litigation outcomes likely to materially affect financial condition, results or cash flows.
Important facts for investors to verify
- Whether the May 2021 Ocwen agreement produces new referrals and whether Altisource meets the required performance conditions.
- Quarterly operating cash burn, available unrestricted cash, and the feasibility and terms of any liquidity-raising options.
- Progress in diversifying revenue away from Ocwen and recovering or replacing lost default-service referrals.
- Leverage, debt covenant headroom, and the ability to meet interest and lease obligations if operating performance remains weak.
- Developments in Ocwen and NRZ relationships, regulatory inquiries, and potential sales-tax exposure.