Altisource Portfolio Solutions S.A. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 5, 2020. This is an annual report, not a standalone Q4 filing. The company provides services, software and marketplaces to the U.S. mortgage and real estate industries.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenue | $648.7 million | $838.2 million | Down 23% |
| Service revenue | $621.9 million | $805.5 million | Down 23% |
| Gross profit | $155.4 million | $216.0 million | Down 28% |
| Gross profit / service revenue | 25% | 27% | Down 2 percentage points |
| Operating income | $18.1 million | $42.5 million | Down 58% |
| Operating income / service revenue | 3% | 5% | Down 2 percentage points |
| Net loss attributable to Altisource | $(308.0) million | $(5.4) million | Greater loss |
| Diluted loss per share | $(19.26) | $(0.32) | Greater loss |
| Adjusted EBITDA (non-GAAP) | $70.8 million | $118.3 million | Down 40% |
| Adjusted net income (non-GAAP) | $21.8 million | $42.6 million | Down 49% |
Operating cash flow was $46.7 million, versus $68.4 million in 2018. Investing activities provided $44.9 million, largely reflecting business-sale and equity-sale proceeds; financing activities used $69.0 million, including $45.0 million of debt repayments and $20.0 million of share repurchases.
At year-end, cash and cash equivalents were $82.7 million and RESI equity securities were valued at $42.6 million. Term-loan principal was $293.8 million (reported debt carrying value: $287.9 million); net debt less equity securities, a non-GAAP measure, was $168.5 million. Current assets were $184.2 million and current liabilities $87.6 million. Total liabilities of $406.5 million exceeded total assets of $385.1 million, leaving a $21.4 million equity deficit.
Material changes and unusual items
- Revenue fell across core businesses amid a smaller Ocwen-serviced portfolio, fewer delinquent loans, lower REO activity and RESI portfolio reductions. The servicing-platform transition at Ocwen also temporarily reduced referrals and REO conversion.
- Ocwen accounted for 56% of total revenue ($362.7 million) in 2019, compared with 52% in 2018. The filing estimates the temporary REO-conversion impact reduced 2019 revenue by about $7.2 million.
- The company sold its Financial Services business for $44.0 million, including $40.0 million upfront and $4.0 million due on the first anniversary, and recorded a $17.8 million pretax gain. It completed the BRS inventory wind-down, closed Owners.com, and sold RESI shares for $8.0 million. Sale proceeds were used in part to repay debt.
- Project Catalyst generated $80 million, or 23%, lower specified compensation, technology and telecommunications, professional-services and occupancy costs compared with 2018. Restructuring charges were $14.1 million in 2019; management anticipated another $10–$13 million in future Project Catalyst costs.
- The $308.8 million tax provision was driven principally by a $291.5 million increase in the valuation allowance against Luxembourg deferred tax assets, reflecting uncertainty about realizing the tax benefits. The resulting $308.0 million net loss substantially exceeded the operating loss; adjusted results exclude specified tax and other items.
- Fourth-quarter revenue was $140.7 million and gross profit $35.1 million. The quarter recorded a $306.1 million net loss attributable to Altisource, including the major tax valuation-allowance charge; diluted loss per share was $19.66.
Debt, outlook and risks
The senior secured term loan had $293.8 million outstanding at year-end, a 5.94% interest rate and an April 2024 maturity; no revolving-credit borrowings were outstanding. The credit facility is secured by substantially all relevant assets and contains covenants and limits on matters including additional debt, dividends and share repurchases. Management expected $17.5 million of interest and $11.8 million of lease payments over the following 12 months and believed cash, operating cash flow and revolver availability would meet near-term liquidity needs.
Management expected REO conversion rates affected by Ocwen’s platform transition to return to historical levels in the first half of 2020. The filing provides no formal revenue or earnings guidance. Key uncertainties include continued customer and portfolio concentration, Ocwen’s regulatory and business challenges, possible changes in Ocwen or NRZ relationships, declining default-related volumes, pricing pressure, regulatory inquiries, sales-tax exposure, and the ability to realize deferred tax assets. The company said current legal proceedings were not expected to have a material impact, but it considered regulatory inquiries too preliminary to estimate their outcomes or financial effects.
Important facts for investors to verify
- Whether non-Ocwen customer growth can offset the continuing decline in Ocwen-related revenue, and whether the expected first-half 2020 REO conversion recovery occurred.
- Ocwen’s financial, regulatory and servicing developments; the status and economics of service-referral agreements; and the durability of the NRZ brokerage arrangement.
- Debt-covenant headroom, required cash-flow prepayments, the path to refinancing or repaying the term loan at maturity, and the adequacy of liquidity if operating cash flow declines.
- Whether the Luxembourg NOLs and deferred tax assets can be used before expiration, and whether further valuation-allowance, tax-reserve or sales-tax adjustments arise.
- Progress and remaining costs of Project Catalyst, and whether cost reductions can support margins as revenue contracts.