Altisource Portfolio Solutions S.A. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual filing covers the full year; quarterly figures are noted separately. Altisource is a real estate and mortgage services provider operating as one reportable segment, with Field Services, Marketplace, Mortgage and Real Estate Solutions, and earlier-stage Pointillist businesses.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Total revenue | $365.5 million | $648.7 million | Down 44% |
| Service revenue | $347.3 million | $621.9 million | Down 44% |
| Gross profit / margin on service revenue | $60.4 million / 17% | $155.4 million / 25% | Margin down 8 percentage points |
| Operating income (loss) | $(44.4) million | $18.1 million | Turned to loss |
| Net loss attributable to Altisource | $(67.2) million | $(308.0) million | Prior year included a large tax charge |
| Diluted loss per share | $(4.31) | $(19.26) | Improved year over year |
| Adjusted EBITDA (non-GAAP) | $10.2 million | $70.8 million | Down 86% |
| Operating cash flow | $(22.4) million | $46.7 million | Turned negative |
Revenue fell across the principal businesses: Field Services declined 42%, Marketplace 35%, and Mortgage and Real Estate Solutions 11%. Lower default-related volumes and business exits drove the decline. The company reported 9% growth in service revenue from customers other than Ocwen, NRZ and RESI; origination services revenue grew 47% excluding construction risk mitigation.
- Cash and debt: Cash and cash equivalents were $58.3 million at year-end, versus $82.7 million a year earlier. Gross senior secured term loans were $247.2 million; company-reported net debt less marketable securities was $188.9 million. RESI share-sale proceeds of $46.6 million were used to repay debt.
- Balance sheet: Total assets were $265.7 million and total liabilities $348.2 million, leaving an $82.6 million deficit. Current assets were $100.2 million and current liabilities $71.5 million.
- Debt and liquidity: The term loan matures in April 2024; estimated year-end principal due at maturity was $247.2 million. The year-end interest rate was 5.00%. The company said existing cash and expected operating cash flows would meet its next-12-month needs, including estimated interest of $12.4 million and lease payments of $8.3 million. However, leverage exceeded 3.50x during 2020, a threshold above which revolver borrowings are not permitted; there were no revolver borrowings outstanding.
Fourth-quarter 2020 revenue was $60.0 million, gross profit $4.6 million, net loss attributable to Altisource $7.2 million, and diluted loss per share $0.46.
Material changes and unusual items
- COVID-19 borrower forbearance plans and foreclosure and eviction moratoriums sharply reduced default and REO referrals. Foreclosure initiations were 84% lower from April through December 2020 than in the same 2019 period, despite rising mortgage delinquencies.
- Ocwen, the largest customer, represented 54% of 2020 total revenue, down from 56% in 2019. Separately, 7% of revenue came from portfolios serviced by Ocwen where another party selected Altisource.
- An MSR investor—believed by Altisource to be NRZ—directed Ocwen to move field-services referrals to other providers; the transition was largely completed by September 2020. Ocwen also began transitioning certain default valuation and title referrals in Q4, with further transition expected during 2021. Altisource believes the redirection breaches its agreement and is discussing the matter with Ocwen while reserving its rights.
- The 2020 income tax provision was $8.6 million despite a pretax loss, primarily because Luxembourg losses did not generate a tax benefit while certain foreign operations recorded taxable income. The 2019 net loss included a $291.5 million increase in the valuation allowance on Luxembourg net operating losses.
- Restructuring charges were $12.0 million in 2020. The company completed sales of its remaining 3.5 million RESI shares and received the final $3.3 million Financial Services sale installment.
Outlook, commentary and risks
Management expected total service revenue to decline in 2021 compared with 2020, as default-related referrals were forecast to remain severely depressed through 2021 amid extended moratoriums and the Ocwen referral transition. It expected origination-related business to continue growing, supported by market demand, customer wins and product launches. Management anticipated default demand could begin returning in late 2021 and into 2022, with the business stabilizing in 2023. The company cited an approximately $220 million unweighted sales pipeline; this is not contracted revenue.
Management described ongoing cost reductions and efforts to preserve capacity for a possible default-market recovery. A further workforce reduction affecting approximately 8% of global employees was announced in February 2021. Risks include customer concentration and potential further Ocwen/NRZ referral losses, slower-than-expected default recovery, refinancing the 2024 term loan, variable-rate debt, covenant restrictions, regulatory and tax uncertainty, and cybersecurity and vendor risks. The company was responding to regulatory inquiries but said outcomes and potential financial impacts could not yet be estimated; it did not expect current litigation to have a material impact.
The independent auditor issued an unqualified opinion on the financial statements and internal controls, while highlighting income-tax accounting as a critical audit matter and emphasizing customer concentration and uncertainty involving Ocwen. Management and the auditor concluded internal control over financial reporting was effective at year-end.
Most important facts for investors to verify
- Whether Ocwen continues redirecting referrals, the status and enforceability of the service agreements, and the resulting revenue exposure.
- Whether foreclosure restrictions expire as anticipated and whether default referrals return on management’s late-2021-to-2023 timeline.
- Quarterly operating cash flow, cash balances, covenant headroom, revolver availability and the company’s ability to refinance or repay the April 2024 term loan.
- Whether the $220 million unweighted sales pipeline converts into signed contracts and recurring revenue, and whether origination growth offsets default-service declines.
- Developments in regulatory inquiries, sales-tax exposure, tax positions and realization of deferred tax assets.