Business context and reporting period
Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) is a Luxembourg-based provider of services, technology and marketplaces for the U.S. mortgage and real estate industries. This Form 10-K covers the fiscal year ended December 31, 2021; it reports annual results, not standalone fourth-quarter results. The company has one reportable segment.
Financial results and liquidity
Amounts below are in U.S. dollars; figures are in millions except per-share data and percentages.
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $178.5 | $365.5 |
| Service revenue | $170.6 | $347.3 |
| Gross profit | $7.1 | $60.4 |
| Income (loss) from operations | $29.0 | $(44.4) |
| Net income (loss) attributable to Altisource | $11.8 | $(67.2) |
| Diluted earnings (loss) per share | $0.74 | $(4.31) |
| Cash used in operating activities | $(60.4) | $(22.4) |
- Gross margin was 4% of service revenue, down from 17%. Reported 2021 operating income included an $88.9 million gain on the Pointillist sale; therefore, the reported operating profit does not reflect operating performance before that unusual item.
- Cash and cash equivalents were $98.1 million at year-end, versus $58.3 million a year earlier. Cash, cash equivalents and restricted cash totaled $102.1 million. Current assets were $138.0 million and current liabilities $54.7 million.
- Senior secured term-loan principal was $247.2 million; its carrying amount, net of discount and issuance costs, was $243.6 million. The loan bore interest at 5.0% at year-end and matures in April 2024. The company reported no amount outstanding on its $20 million related-party revolving facility at year-end.
- Investing activities provided $102.8 million, primarily from business-sale proceeds; financing activities used $2.3 million. Capital expenditures were $1.4 million.
Material changes versus 2020
- Service revenue fell 51%. Field Services revenue declined 71% to $45.6 million, Marketplace declined 56% to $36.0 million, and Mortgage and Real Estate Solutions declined 20% to $83.6 million. Origination service revenue rose 11% to $58.0 million; Pointillist contributed $4.8 million before its sale.
- Lower foreclosure-related volumes amid pandemic-era moratoriums and forbearance, together with an MSR investor’s direction to transition certain Ocwen referrals to other providers, weighed heavily on default-related businesses. Cost of revenue fell 44% and SG&A fell 28%, but gross profit decreased substantially.
- Altisource sold Pointillist on December 1, 2021. It received approximately $106.0 million from its equity sale and collection of receivables, including escrowed amounts, and recognized an $88.9 million gain. The sale proceeds included approximately $102.2 million received at closing.
- Cash operating costs, excluding outside fees and services, were reduced by $49.3 million, or 25%, from 2020. The company also repaid $20.0 million on its revolving line of credit using Pointillist proceeds.
Outlook, risks and contingencies
- Management expected Default business demand to grow in 2022 after temporary loss-mitigation rules expired, with foreclosure activity reaching a more stable level during 2023. It anticipated continued Origination business growth from customer wins and cross-selling, despite forecasting lower industry origination volumes in 2022. These are expectations, not guarantees.
- Management stated that COVID-19 impacts could continue through at least mid-2023. It also expected the transition of certain Ocwen default valuation and title referrals to other providers to continue during 2022.
- Ocwen accounted for 31% of 2021 total revenue, down from 54% in 2020. The company’s 2021 revenue also depended on portfolios serviced by Ocwen when another party selected Altisource. The Ocwen service agreements were extended through August 2030, with expanded service opportunities subject to performance qualification and other conditions.
- Operating cash flow was negative, and management expected cash and available borrowing capacity, net of anticipated operating cash use, to cover liquidity needs for the next 12 months. The $247.2 million term-loan principal remains due in April 2024; refinancing and improved cash generation are important to longer-term liquidity.
- Key risks include customer concentration and Ocwen/NRZ relationship changes; low foreclosure and REO volumes; customer performance requirements; debt maturity, variable interest rates and restrictive covenants; regulatory and licensing exposure; cybersecurity, privacy and vendor risks; and wage pressures. A 1 percentage-point rise in the loan’s reference rate above its floor would increase annual interest expense by approximately $2.5 million.
- The company was responding to governmental inquiries concerning aspects of its business; management said it was premature to predict outcomes or estimate financial impacts. It did not expect ongoing litigation to have a material impact. The auditor issued an unqualified opinion on the financial statements and internal controls, while highlighting income-tax accounting and the Pointillist disposal valuation as critical audit matters.
Important facts for investors to verify
- How much of future earnings and cash flow is recurring operating performance versus the one-time Pointillist sale gain?
- Whether projected recovery in default referrals and growth in Origination revenue materialize, including the effect of the continuing referral transition and customer concentration.
- Operating cash burn, available liquidity and progress toward refinancing or repaying the April 2024 term-loan maturity.
- Whether expanded Ocwen services meet required performance conditions and translate into sustained revenue.
- Potential outcomes of regulatory inquiries, tax uncertainties and the related-party revolving facility arrangements.