Business Context and Reporting Period
Company: Altisource Portfolio Solutions S.A.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Key Event: On August 10, 2009, Altisource completed its separation from Ocwen Financial Corporation and became a stand-alone public company. The financial statements reflect historical results of operations attributable to Altisource businesses, with pre-separation periods including allocated corporate expenses from Ocwen.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Revenue | $54.1 million | $146.5 million |
| Gross Profit | $20.6 million (38.1% margin) | $54.7 million (37.3% margin) |
| Net Income | $8.6 million | $20.1 million |
| EBITDA | $14.3 million | $36.4 million |
| Cash and Equivalents | $24.7 million | $24.7 million (Ending Balance) |
| Operating Cash Flow | N/A | $26.4 million |
| Debt | $0 (Line of credit repaid) | $0 (Line of credit repaid) |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 42.2% for the quarter and 20.6% for the nine months compared to the prior year. This was driven primarily by a 150.8% increase in Mortgage Services revenue due to new default management and property preservation services.
- Profitability Surge: Net income increased 816.6% for the quarter and 192.3% for the nine months. Operating margins improved significantly to 17.7% (quarter) and 18.7% (nine months) from 5.1% and 9.5% respectively in 2008.
- Segment Performance:
- Mortgage Services: Revenue up 76.4% YTD; Operating income up 152.1%.
- Financial Services: Revenue down 13.2% YTD due to economic conditions and lower collection rates, though operating loss narrowed.
- Technology Products: Revenue up 1.6% YTD; Operating income up 107.9%.
- Liquidity: Cash balances increased from $7.0 million at year-end 2008 to $24.7 million at September 30, 2009, bolstered by operating cash flows and a legal settlement.
Guidance, Outlook, and Risks
Management Commentary:
- Outlook: Management expects to continue generating positive cash flow and believes current resources are sufficient to fund operations for at least the next 12 months without additional debt. They anticipate continued growth in Mortgage Services and plan to cross-sell services to improve profitability.
- Cost Reduction: The company is actively reducing costs in the Financial Services segment through facility closures and staff redistribution to less expensive locations.
- Seasonality: Financial Services revenues typically decline throughout the year, while Mortgage Services REO sales are lowest in Q4.
Risks and Contingencies:
- Related Party Dependence: Ocwen remains the largest customer, representing 42.7% of total revenues for the nine months ended September 30, 2009.
- Legal Proceedings: Pending litigation includes a suit against a former equipment vendor (Noble Systems Corp.) seeking approximately $3.1 million in damages. A separate dispute with Nationwide Inflection, LLC was settled in Q3, resulting in a $2.3 million gain.
- One-Time Items: Results were impacted by $3.4 million in separation-related expenses and $2.3 million in facility closure costs recorded in Q3.
Investor Verification Checklist
- Related Party Revenue: Verify the sustainability of revenue streams from Ocwen (42.7% of total) post-separation and the terms of the long-term servicing contracts.
- Financial Services Turnaround: Assess the effectiveness of cost-cutting measures (facility closures) in offsetting declining collection rates and revenue in the Financial Services segment.
- One-Time Adjustments: Analyze earnings excluding the $2.3 million litigation gain and $3.4 million separation costs to understand core operational performance.
- Debt Capacity: Confirm the company's ability to access capital markets given the termination of its revolving credit facility in June 2009.
- Legal Exposure: Monitor the status of the Noble Systems Corp. litigation and potential impact on future cash flows.