Altisource Portfolio Solutions S.A. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports unaudited quarterly results, including Q4 2012. Altisource provides mortgage and real estate services, financial services, and mortgage-related technology. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Total revenue | $568.4 million | $423.7 million | +34% |
| Service revenue | $466.9 million | $334.8 million | +39% |
| Gross profit | $202.2 million | $147.8 million | +37% |
| Income from operations | $127.4 million | $85.7 million | +49% |
| Net income attributable to Altisource | $110.6 million | $71.1 million | +56% |
| Diluted EPS | $4.43 | $2.77 | +60% |
| Operating cash flow | $116.5 million | $111.6 million | +4% |
- Gross profit as a share of service revenue was 43%, down from 44%; operating income as a share of service revenue improved to 27% from 26%.
- Cash and cash equivalents were $105.5 million at year-end, versus $32.1 million. Accounts receivable increased to $89.0 million from $52.0 million; management attributed weaker operating cash flow per service-revenue dollar to receivables growth.
- The company borrowed $200 million under a seven-year senior secured term loan, with a 5.75% interest rate at year-end and $198.0 million reported net of discount. Current debt was $2.0 million. It also made a $75 million unsecured term loan to Ocwen, bearing 8.25% at year-end.
- Current assets were $203.9 million and current liabilities $71.6 million. The filing states management believed cash generation would fund operations, capital expenditures, and required debt payments.
- Investing cash outflow was $110.6 million, including the $75 million Ocwen loan and $35.6 million in capital expenditures. Financing cash inflow was $67.4 million, including debt proceeds and the $105 million distribution to the spun-off businesses.
Q4 2012 and material changes
- Q4 revenue was $141.1 million, compared with $132.0 million in Q4 2011. Net income attributable to Altisource was $30.3 million versus $25.7 million; diluted EPS was $1.20 versus $1.02.
- Mortgage Services service revenue rose 56% to $351.9 million, reflecting Ocwen portfolio growth and expansion of mortgage-related services. Technology Services revenue increased 32% to $74.2 million. Financial Services service revenue declined 8% to $64.0 million, primarily due to lower asset-recovery placements and lower fees for work shifted to lower-cost geographies.
- Ocwen accounted for 60% of consolidated revenue, up from 58%; the three largest customers represented 71%. Related-party revenue includes services selected by Ocwen for loans it services.
- On December 21, Altisource spun off Altisource Residential Corporation and Altisource Asset Management Corporation, distributing $105 million of cash in total. The separation reduced retained earnings. Altisource reported $2.7 million of separation expenses and $1.0 million to develop rental-property management capabilities.
Outlook, risks and unusual items
- Management’s 2013 priorities included supporting Ocwen’s expanded servicing portfolio, growing origination services and Hubzu, developing single-family rental property services, investing in next-generation software, and improving Financial Services earnings. The filing does not provide quantified company-wide financial guidance.
- On January 31, 2013, Altisource signed letters of intent to buy fee-based businesses associated with Ocwen’s Homeward and anticipated ResCap servicing portfolios for $218.6 million. Completion remained subject to customary consents and approvals. The company expected the ResCap transaction to close in Q1 2013; this was an expectation, not a completed transaction as of the filing.
- Key risks include high customer concentration and dependence on Ocwen, potential conflicts involving shared leadership and related-party dealings, variable-rate debt and covenant restrictions, regulatory and litigation exposure, technology and data-security risks, and seasonal revenue patterns. The $75 million Ocwen loan is unsecured and exposed to repayment and creditor-priority risks.
- Management said current legal proceedings were not expected to materially affect financial condition, results, or cash flows. Escrow balances held for customers, which are not included on the balance sheet, were $47.2 million at year-end. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether Ocwen’s servicing growth translated into sustained Altisource referrals and whether customer concentration declined.
- Receivables collection, bad-debt trends, and operating cash flow relative to rapid revenue growth.
- Completion, financing, expected returns, and integration risks for the proposed $218.6 million acquisitions.
- Repayment and credit quality of the unsecured $75 million Ocwen loan, and compliance with debt covenants and repayment requirements.
- Execution and economics of Hubzu, rental-property services, origination growth, and technology investments; these initiatives carried no guaranteed results.