Altisource Portfolio Solutions S.A. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Altisource provides services and technology to the mortgage and real estate industries. In 2022 it began reporting Servicer and Real Estate, Origination, and Corporate and Others as separate segments; prior-period segment data was restated.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $40.4 million | $46.0 million | $79.9 million | $96.5 million |
| Service revenue | $37.6 million | $44.0 million | $75.4 million | $92.0 million |
| Gross profit | $4.1 million | $2.0 million | $9.7 million | $2.3 million |
| Gross profit / service revenue | 11% | 5% | 13% | 3% |
| Operating loss | $(10.5) million | $(14.6) million | $(18.8) million | $(33.1) million |
| Net loss attributable to Altisource | $(15.5) million | $(18.5) million | $(27.7) million | $(40.5) million |
| Loss per diluted share | $(0.96) | $(1.17) | $(1.73) | $(2.57) |
Q2 revenue declined 12% and first-half revenue declined 17% year over year. First-half Servicer and Real Estate service revenue fell 4% to $56.6 million; Origination service revenue fell 40% to $18.8 million. Q2 Servicer and Real Estate service revenue grew 3%, while Origination declined 43%. The improved consolidated gross margin reflected cost reductions and a more favorable business mix, including the absence of Pointillist following its 2021 sale. Origination gross profit weakened as costs did not fall as quickly as revenue.
Cash, debt and liquidity
- Cash and cash equivalents were $70.7 million at June 30, 2022, down from $98.1 million at December 31, 2021. Cash, cash equivalents and restricted cash totaled $74.3 million.
- Operating cash used in the first half was $25.8 million, versus $22.8 million in the prior-year period. Investing activities used $0.3 million and financing activities used $1.8 million. Cash declined by $27.8 million over the period.
- Term-loan principal was $247.2 million; reported long-term debt, net of discounts and issuance costs, was $244.5 million. The loan bore interest at 5.01% and matures in April 2024. The company had no borrowings under its related-party revolving facility at quarter-end; the disclosed availability was $15 million.
- Management estimated $12.4 million of interest payments over the next 12 months, assuming no further principal repayments and the June 30 rate, plus $2.2 million of lease payments. It said current cash and available facility borrowings, net of anticipated operating cash flows, should meet liquidity needs for the next 12 months. Management expects to fund longer-term requirements in part through a refinancing of the term loan.
Outlook, commentary and key risks
- Management expects demand for default-related services to grow in 2022 and stabilize during 2023 as cases initiated after borrower-relief measures expire progress through foreclosure and REO sale. Industry foreclosure initiations rose 451% year over year in the first half of 2022, but remained 42% below the comparable 2019 period.
- Mortgage originations fell 36% in the first half of 2022 from the prior-year period amid higher interest rates. Management said its Origination segment may outperform the market for full-year 2022 through customer wins and cross-selling; this is an expectation, not quantified financial guidance.
- Customer concentration is significant: Ocwen accounted for 40% of Q2 revenue and 37% of first-half revenue. A reduction in Ocwen business, servicing rights, licenses, or its relationship with NRZ could materially hurt revenue and results. Ocwen’s services agreements with Altisource extend through August 2030, subject to contract terms.
- The company reported ongoing inquiries from government authorities concerning aspects of its business; it said it was premature to predict outcomes or estimate financial impacts. Management did not expect current litigation to have a material impact. The first-half tax provision was $2.4 million despite a pretax loss, driven by Indian transfer-pricing income, no tax benefit on the Luxembourg operating-company loss, and uncertain tax positions.
- Term-loan refinancing is an important longer-term liquidity assumption. The floating-rate debt creates exposure: the filing estimates a one-percentage-point rate change would alter annual interest expense by approximately $2.5 million.
Important facts for investors to verify
- Progress toward refinancing the $247.2 million term loan before its April 2024 maturity, and the resulting interest rate and covenants.
- Whether operating cash use moderates and cash balances remain adequate as the company funds operations and debt service.
- Changes in Ocwen-related revenue concentration, customer servicing portfolios, and any developments involving Ocwen or NRZ.
- Whether default-market recovery offsets continued weakness in mortgage originations, and whether Origination margins improve.
- Any outcome or financial exposure from regulatory inquiries and uncertain tax positions.