Market Overview

Altisource Announces Fourth Quarter and Full Year Financial Results

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LUXEMBOURG, Feb. 22, 2018 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. ("Altisource" or the "Company") (NASDAQ:ASPS) today reported financial results for the fourth quarter and full year 2017, reporting full year service revenue of $899.6 million and fourth quarter 2017 service revenue of $207.3 million.  Full year 2017 net income attributable to Altisource was $308.9 million, or $16.53 per diluted share, and adjusted net income attributable to Altisource(1) for the full year 2017 was $52.3 million, or adjusted diluted earnings per share(1) of $2.80.  Fourth quarter 2017 net income attributable to Altisource was $286.4 million, or $15.72 per diluted share and adjusted net income attributable to Altisource(1) for the fourth quarter 2017 was $9.8 million, or adjusted diluted earnings per share(1) of $0.54.

"In 2017, we generated service revenue and adjusted diluted earnings per share(1) that were 105% and 102%, respectively, of our scenario mid-point.  We also continued our long history of strong cash flow generation with $110.5 million of adjusted cash flows from operating activities(1)," said Chief Executive Officer William B. Shepro.

Mr. Shepro further commented, "Importantly, during the fourth quarter of 2017, we had strong sales momentum which we continued to build upon in the first quarter of 2018.  We are also making meaningful investments to support our competitive positioning and the tremendous opportunities that our newer businesses represent.  We believe these investments, our customer relationships and recent momentum of customer wins position us well for 2018 and beyond."

In the fourth quarter of 2017, the Company recognized a net income tax benefit of $284.1 million relating to the merger of two of the Company's Luxembourg subsidiaries, the impact of statutory tax rate changes in the U.S. and Luxembourg, and foreign income tax reserves.  In December 2017, the Company merged two of its Luxembourg subsidiaries in connection with an internal restructuring plan designed to simplify and streamline the Company's structure.  For Luxembourg tax purposes, the transaction was recognized at fair value and generated a net operating loss of $1.3 billion.  The Luxembourg net operating loss is not subject to any limitation on its usage and has a 17 year life.

2017 Highlights(2)

Corporate

  • Generated $66.1 million of cash flows from operating activities and $110.5 million of adjusted cash flows from operating activities(1)
  • Ended 2017 with $154.2 million of cash, cash equivalents and marketable securities
  • Repurchased 1.6 million shares of our common stock at an average price of $23.84 per share
  • Repurchased $60.1 million par value of our senior secured term loan at a weighted average discount of 10.7%, recognizing a net gain of $5.6 million on the early extinguishment of debt
  • Recognized a net income tax benefit of $284.1 million in the fourth quarter of 2017 relating to the merger of two of the Company's Luxembourg subsidiaries, the impact of statutory tax rate changes in the U.S. and Luxembourg and foreign income tax reserves
  • Amended our senior secured term loan to allow the Company to directly repurchase its debt in the open market and permit the internal restructuring of our Luxembourg subsidiaries

Servicer Solutions

  • Selected by 9 bank and non-bank loan servicers to provide property preservation and inspection services, real estate brokerage and auction services, or title insurance and settlement services
  • Selected as a service provider by 4 servicers in the first quarter of 2018
  • Grew non-Ocwen Financial Corporation ("Ocwen") and non-NRZ (defined below) service revenue by 9% compared to 2016
  • Maintained Altisource as one of the leading REO asset managers and online auctioneers of residential real estate through its Hubzu.com platform
  • Entered into agreements with New Residential Investment Corp. (individually, together with one or more of its subsidiaries, or one or more of its subsidiaries individually, "NRZ") that establish Altisource as the exclusive provider of REO brokerage services for mortgage servicing rights that NRZ agreed to acquire from Ocwen
  • Entered into a non-binding Letter of Intent (subsequently amended) to enter into a Services Agreement with NRZ to provide fee-based services for mortgage servicing rights that NRZ agreed to acquire from Ocwen

Origination Solutions

  • Approved as a loan fulfillment provider for residential loan securitizations by Standard & Poor's Financial Services LLC, Moody's Investors Service, Inc., Kroll Bond Rating Agency, Inc., DBRS, Inc. and Fitch Ratings Inc. (acceptance by Fitch as a reviewer of loans for securitizations was received in January 2018)
  • Selected by 7 lenders in 2017 and early 2018 to provide platform solutions including loan fulfillment services, loan processing services, or CastleLine® certification and insurance services

Consumer Real Estate Solutions

  • Grew Owners.com® residential purchases and sales by 713% in 2017 from 106 transactions in 2016 to 862 transactions in 2017
  • Launched Owners.com Loans to broker mortgages to Owners.com home buyers to deliver an integrated solution for consumers and grow revenue per sale
  • Implemented an agile operating model inspired by best-in-class Internet companies

Real Estate Investor Solutions

  • Purchased 257 homes and sold 158 homes in the buy-renovate-lease-sell business in 2017 compared to 119 home purchases and 14 home sales in 2016
  • Increased the inventory of homes in the buy-renovate-lease-sell business by 94% to 204 homes as of December 31, 2017 compared to December 31, 2016
  • Received a residential rental property management vendor rating of MOR RV2 from Morningstar Credit Ratings, LLC

Fourth Quarter 2017 Results Compared to Third Quarter 2017 and Fourth Quarter 2016:

  • Service revenue of $207.3 million, an 8% decrease compared to the third quarter 2017 and a 9% decrease compared to the fourth quarter 2016
  • Income (loss) before income taxes and non-controlling interests was $3.1 million for the fourth quarter 2017 compared to $10.4 million for the third quarter 2017 and a loss of $(19.5) million for the fourth quarter 2016
  • Pretax income (loss) attributable to Altisource(1) of $2.5 million for the fourth quarter 2017 compared to $9.6 million for the third quarter 2017 and a loss of $(20.3) million for the fourth quarter 2016
  • Adjusted pretax income attributable to Altisource(1) of $10.7 million, a 41% decrease compared to the third quarter 2017 and a 43% decrease compared to the fourth quarter 2016
  • Net income (loss) attributable to Altisource of $286.4 million for the fourth quarter 2017 compared to $7.0 million for the third quarter 2017 and a loss of $(20.4) million for the fourth quarter 2016
  • Adjusted net income attributable to Altisource(1) of $9.8 million, a 27% decrease compared to the third quarter 2017 and an 8% decrease compared to the fourth quarter 2016
  • Diluted earnings per share of $15.72 for the fourth quarter 2017 compared to $0.38 for the third quarter 2017 and a loss of $(1.08) for the fourth quarter 2016
  • Adjusted diluted earnings per share(1) of $0.54, a 26% decrease compared to the third quarter 2017 and a 2% decrease compared to the fourth quarter 2016
  • Cash from operations of $19.0 million, a 45% decrease compared to the third quarter 2017 and a 9% decrease compared to the fourth quarter 2016
  • Adjusted cash flows from operating activities less additions to premises and equipment(1) of $20.7 million, a 51% decrease compared to the third quarter 2017 and a 13% increase compared to the fourth quarter 2016

Full Year 2017 Results Compared to Full Year 2016

  • Service revenue of $899.6 million, a 5% decrease compared to the year ended December 31, 2016
  • Income before income taxes and non-controlling interests of $35.4 million, a 20% decrease compared to the year ended December 31, 2016
  • Pretax income attributable to Altisource(1) of $32.6 million, a 22% decrease compared to the year ended December 31, 2016
  • Adjusted pretax income attributable to Altisource(1) of $68.0 million, a 42% decrease compared to the year ended December 31, 2016
  • Net income attributable to Altisource of $308.9 million, a 977% increase compared to the year ended December 31, 2016
  • Adjusted net income attributable to Altisource(1) of $52.3 million, a 42% decrease compared to the year ended December 31, 2016
  • Diluted earnings per share of $16.53, a 1,032% increase compared to the year ended December 31, 2016
  • Adjusted diluted earnings per share(1) of $2.80, a 39% decrease compared to the year ended December 31, 2016
  • Cash from operations of $66.1 million, a 48% decrease compared to the year ended December 31, 2016
  • Adjusted cash flows from operating activities less additions to premises and equipment(1) of $99.9 million, a 14% decrease compared to the year ended December 31, 2016

________________________

(1) This is a non-GAAP measure that is defined and reconciled to the corresponding GAAP measure herein.
(2) Applies to 2017 unless otherwise indicated.

Forward-Looking Statements

This press release contains forward-looking statements that involve a number of risks and uncertainties.  These forward-looking statements include all statements that are not historical fact, including statements about management's beliefs and expectations.  These statements may be identified by words such as "anticipate," "intend," "expect," "may," "could," "should," "would," "plan," "estimate," "seek," "believe," "potential" and similar expressions.  Forward-looking statements are based on management's beliefs as well as assumptions made by and information currently available to management.  Because such statements are based on expectations as to the future and are not statements of historical fact, actual results may differ materially from what is contemplated by the forward-looking statements.  Altisource undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.  The risks and uncertainties to which forward-looking statements are subject include, but are not limited to, various risks relating to the transactions described herein, including in respect of the satisfaction of closing conditions to New Residential Investment Corp.'s acquisition of the covered MSR portfolios, including obtaining the necessary third-party approvals; uncertainties as to the timing or completion of transfers related to New Residential Investment Corp.'s acquisition of the covered MSR portfolios; potential litigation relating to the transactions; the possibility of early termination of the Cooperative Brokerage Agreement; the possibility that Altisource and New Residential Investment Corp. will not be able to negotiate a satisfactory services agreement; the inability to obtain, or delays in achieving, the expected benefits of the transactions, as well as, Altisource's ability to integrate acquired businesses, retain key executives or employees, retain existing customers and attract new customers, general economic and market conditions, behavior of customers, suppliers and/or competitors, technological developments, governmental regulations, taxes and policies, availability of adequate and timely sources of liquidity and other risks and uncertainties detailed in the "Forward-Looking Statements," "Risk Factors" and other sections of Altisource's Form 10-K and other filings with the Securities and Exchange Commission.

Webcast

Altisource will host a webcast at 11:00 a.m. EST today to discuss our fourth quarter and full year results.  A link to the live audio webcast will be available on Altisource's website in the Investor Relations section.  Those who want to listen to the call should go to the website at least fifteen minutes prior to the call to register, download and install any necessary audio software.  A replay of the conference call will be available via the website approximately two hours after the conclusion of the call and will remain available for approximately 30 days.

About Altisource

Altisource Portfolio Solutions S.A. is an integrated service provider and marketplace for the real estate and mortgage industries.  Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing markets we serve.  Additional information is available at www.Altisource.com.


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)

    Three months ended
 December 31,
  Year ended
 December 31,
    2017   2016   2017   2016
                 
Service revenue                
Mortgage Market   $ 171,056     $ 189,774     $ 754,058     $ 774,514  
Real Estate Market   22,172     16,000     86,821     84,805  
Other Businesses, Corporate and Eliminations   14,079     21,439     58,682     83,280  
Total service revenue   207,307     227,213     899,561     942,599  
Reimbursable expenses   8,126     10,694     39,912     52,011  
Non-controlling interests   633     720     2,740     2,693  
Total revenue   216,066     238,627     942,213     997,303  
Cost of revenue   153,495     162,115     659,953     638,034  
Reimbursable expenses   8,126     10,694     39,912     52,011  
Gross profit   54,445     65,818     242,348     307,258  
Selling, general and administrative expenses   45,849     52,446     192,642     214,155  
Litigation settlement loss, net of $4,000 insurance recovery       28,000         28,000  
Income (loss) from operations   8,596     (14,628 )   49,706     65,103  
Other income (expense), net:                
Interest expense   (5,391 )   (5,931 )   (22,253 )   (24,412 )
Other income (expense), net   (93 )   1,022     7,922     3,630  
Total other income (expense), net   (5,484 )   (4,909 )   (14,331 )   (20,782 )
                 
Income (loss) before income taxes and non-controlling interests   3,112     (19,537 )   35,375     44,321  
Income tax benefit (provision)   283,871     (127 )   276,256     (12,935 )
                 
Net income (loss)   286,983     (19,664 )   311,631     31,386  
Net income attributable to non-controlling interests   (633 )   (720 )   (2,740 )   (2,693 )
                 
Net income (loss) attributable to Altisource   $ 286,350     $ (20,384 )   $ 308,891     $ 28,693  
                 
Earnings (loss) per share:                
Basic   $ 16.16     $ (1.08 )   $ 16.99     $ 1.53  
Diluted   $ 15.72     $ (1.08 )   $ 16.53     $ 1.46  
                 
Weighted average shares outstanding:                
Basic   17,724     18,788     18,183     18,696  
Diluted   18,211     18,788     18,692     19,612  
                 
Comprehensive income (loss):                
Net income (loss)   $ 286,983     $ (19,664 )   $ 311,631     $ 31,386  
Other comprehensive income (loss), net of tax:                
Unrealized gain (loss) on securities, net of income tax benefit (provision) of $(843), $(169), $(921), $720, respectively   2,266     411     2,478     (1,745 )
                 
Comprehensive income (loss), net of tax   289,249     (19,253 )   314,109     29,641  
Comprehensive income attributable to non-controlling interests   (633 )   (720 )   (2,740 )   (2,693 )
                 
Comprehensive income (loss) attributable to Altisource   $ 288,616     $ (19,973 )   $ 311,369     $ 26,948  
                                 

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION(1)
(in thousands)

                 
                For the three months ended December 31, 2017
                Mortgage
Market
  Real Estate
Market
  Other
Businesses,
Corporate and
Eliminations
  Consolidated
Altisource
                             
Revenue                            
Service revenue               $ 171,056     $ 22,172     $ 14,079     $ 207,307  
Reimbursable expenses               7,815     301     10     8,126  
Non-controlling interests               633             633  
                179,504     22,473     14,089     216,066  
Cost of revenue               123,565     24,483     13,573     161,621  
Gross profit (loss)               55,939     (2,010 )   516     54,445  
Selling, general and administrative expenses               27,722     4,634     13,493     45,849  
Income (loss) from operations               28,217     (6,644 )   (12,977 )   8,596  
Total other income (expense), net               (66 )   (4 )   (5,414 )   (5,484 )
                             
Income (loss) before income taxes and
  non-controlling interests
              $ 28,151     $ (6,648 )   $ (18,391 )   $ 3,112  
                                             


     
    For the three months ended December 31, 2016
    Mortgage
Market
  Real Estate
Market
  Other
Businesses,
Corporate and
Eliminations
  Consolidated
Altisource
                 
Revenue                
Service revenue   $ 189,774     $ 16,000     $ 21,439     $ 227,213  
Reimbursable expenses   10,308     361     25     10,694  
Non-controlling interests   720             720  
    200,802     16,361     21,464     238,627  
Cost of revenue   138,128     16,620     18,061     172,809  
Gross profit (loss)   62,674     (259 )   3,403     65,818  
Selling, general and administrative expenses   31,010     4,536     16,900     52,446  
Litigation settlement loss, net of $4,000 insurance recovery           28,000     28,000  
Income (loss) from operations   31,664     (4,795 )   (41,497 )   (14,628 )
Total other income (expense), net   10     (5 )   (4,914 )   (4,909 )
                 
Income (loss) before income taxes and
  non-controlling interests
  $ 31,674     $ (4,800 )   $ (46,411 )   $ (19,537 )
                                 

(1)   Effective January 1, 2017, our reportable segments changed as a result of a change in the way our Chief Executive Officer (our chief operating decision maker) manages our businesses, allocates resources and evaluates performance, and the related changes in our internal organization.  Prior year comparable period segment disclosures have been restated to conform to the current year presentation.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
SEGMENT FINANCIAL INFORMATION(1)
(in thousands)

                 
                For the year ended December 31, 2017
                Mortgage
Market
  Real Estate
Market
  Other
Businesses,
Corporate and
Eliminations
  Consolidated
Altisource
                             
Revenue                            
Service revenue               $ 754,058     $ 86,821     $ 58,682     $ 899,561  
Reimbursable expenses               36,886     2,966     60     39,912  
Non-controlling interests               2,740             2,740  
                793,684     89,787     58,742     942,213  
Cost of revenue               545,507     96,967     57,391     699,865  
Gross profit (loss)               248,177     (7,180 )   1,351     242,348  
Selling, general and administrative expenses               114,215     18,718     59,709     192,642  
Income (loss) from operations               133,962     (25,898 )   (58,358 )   49,706  
Total other income (expense), net               72     (4 )   (14,399 )   (14,331 )
                             
Income (loss) before income taxes and
  non-controlling interests
              $ 134,034     $ (25,902 )   $ (72,757 )   $ 35,375  
                                             


     
    For the year ended December 31, 2016
    Mortgage
Market
  Real Estate
Market
  Other
Businesses,
Corporate and
Eliminations
  Consolidated
Altisource
                 
Revenue                
Service revenue   $ 774,514     $ 84,805     $ 83,280     $ 942,599  
Reimbursable expenses   50,117     1,785     109     52,011  
Non-controlling interests   2,693             2,693  
    827,324     86,590     83,389     997,303  
Cost of revenue   546,540     64,566     78,939     690,045  
Gross profit   280,784     22,024     4,450     307,258  
Selling, general and administrative expenses   121,508     23,291     69,356     214,155  
Litigation settlement loss, net of $4,000 insurance recovery           28,000     28,000  
Income (loss) from operations   159,276     (1,267 )   (92,906 )   65,103  
Total other income (expense), net   154     (5 )   (20,931 )   (20,782 )
                 
Income (loss) before income taxes and
  non-controlling interests
  $ 159,430     $ (1,272 )   $ (113,837 )   $ 44,321  
                                 

(1)   Effective January 1, 2017, our reportable segments changed as a result of a change in the way our Chief Executive Officer (our chief operating decision maker) manages our businesses, allocates resources and evaluates performance, and the related changes in our internal organization.  Prior year comparable period segment disclosures have been restated to conform to the current year presentation.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

   
  December 31,
  2017   2016
       
ASSETS
Current assets:      
Cash and cash equivalents $ 105,006     $ 149,294  
Available for sale securities 49,153     45,754  
Accounts receivable, net 52,740     87,821  
Prepaid expenses and other current assets 64,742     42,608  
Total current assets 271,641     325,477  
       
Premises and equipment, net 73,273     103,473  
Goodwill 86,283     86,283  
Intangible assets, net 120,065     155,432  
Deferred tax assets, net 303,707     7,292  
Other assets 10,195     11,255  
       
Total assets $ 865,164     $ 689,212  
       
LIABILITIES AND EQUITY
Current liabilities:      
Accounts payable and accrued expenses $ 84,400     $ 83,135  
Accrued litigation settlement     32,000  
Current portion of long-term debt 5,945     5,945  
Deferred revenue 9,802     8,797  
Other current liabilities 9,414     19,061  
Total current liabilities 109,561     148,938  
       
Long-term debt, less current portion 403,336     467,600  
Other non-current liabilities 12,282     10,480  
       
Commitments, contingencies and regulatory matters      
       
Equity:      
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 17,418 outstanding as of December 31, 2017; 25,413 shares authorized and issued and 18,774 outstanding as of December 31, 2016) 25,413     25,413  
Additional paid-in capital 112,475     107,288  
Retained earnings 626,600     333,786  
Accumulated other comprehensive income (loss) 733     (1,745 )
Treasury stock, at cost (7,995 shares as of December 31, 2017 and 6,639 shares as of December 31, 2016) (426,609 )   (403,953 )
Altisource equity 338,612     60,789  
       
Non-controlling interests 1,373     1,405  
Total equity 339,985     62,194  
       
Total liabilities and equity $ 865,164     $ 689,212  
               

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

   
  For the years ended
 December 31,
  2017   2016
       
Cash flows from operating activities:      
Net income $ 311,631     $ 31,386  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 36,447     36,788  
Amortization of intangible assets 35,367     47,576  
Change in the fair value of acquisition related contingent consideration 24     (3,555 )
Share-based compensation expense 4,255     6,188  
Bad debt expense 5,116     1,829  
Gain on early extinguishment of debt (5,637 )   (5,464 )
Amortization of debt discount 301     413  
Amortization of debt issuance costs 833     1,141  
Deferred income taxes (297,336 )   (2,597 )
Loss on disposal of fixed assets 2,768     1,765  
Changes in operating assets and liabilities, net of effects of acquisitions:      
Accounts receivable 29,965     15,980  
Prepaid expenses and other current assets (22,134 )   (20,881 )
Other assets 770     1,053  
Accounts payable and accrued expenses 2,576     (9,113 )
Other current and non-current liabilities (38,864 )   24,309  
Net cash provided by operating activities 66,082     126,818  
       
Cash flows from investing activities:      
Additions to premises and equipment (10,514 )   (23,269 )
Acquisition of businesses, net of cash acquired     (9,409 )
Purchase of available for sale securities     (48,219 )
Change in restricted cash 290     674  
Other investing activities 188      
Net cash used in investing activities (10,036 )   (80,223 )
       
Cash flows from financing activities:      
Repayments and repurchases of long-term debt (59,761 )   (50,723 )
Proceeds from stock option exercises 2,374     9,558  
Excess tax benefit on stock-based compensation     4,779  
Purchase of treasury shares (39,011 )   (37,662 )
Distributions to non-controlling interests (2,772 )   (2,580 )
Payment of tax withholding on issuance of restricted shares (1,164 )    
Net cash used in financing activities (100,334 )   (76,628 )
       
Net decrease in cash and cash equivalents (44,288 )   (30,033 )
Cash and cash equivalents at the beginning of the period 149,294     179,327  
       
Cash and cash equivalents at the end of the period $ 105,006     $ 149,294  
       
Supplemental cash flow information:      
Interest paid $ 21,210     $ 22,717  
Income taxes paid, net 18,332     18,327  
       
Non-cash investing and financing activities:      
(Decrease) increase in payables for purchases of premises and equipment $ (1,311 )   $ 404  
               

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NON-GAAP MEASURES
(in thousands, except per share data)
(unaudited)

Pretax income (loss) attributable to Altisource, adjusted pretax income attributable to Altisource, adjusted net income attributable to Altisource, adjusted diluted earnings per share, adjusted cash flows from operating activities and adjusted cash flows from operating activities less additions to premises and equipment, which are presented elsewhere in this earnings release, are non-GAAP measures used by management, existing shareholders, potential shareholders and other users of our financial information to measure Altisource's performance and do not purport to be alternatives to income (loss) before income taxes and non-controlling interests, net income (loss) attributable to Altisource, diluted earnings (loss) per share and cash flows from operating activities as measures of Altisource's performance.  We believe these measures are useful to management, existing shareholders, potential shareholders and other users of our financial information in evaluating operating profitability and cash flow generation more on the basis of continuing cost and cash flows as they exclude amortization expense related to acquisitions that occurred in prior periods, as well as the effect of more significant non-recurring items from earnings and cash flows from operating activities.  We believe these measures are also useful in evaluating the effectiveness of our operations and underlying business trends in a manner that is consistent with management's evaluation of business performance.  Furthermore, we believe the exclusion of more significant non-recurring items enables comparability to prior period performance and trend analysis.

It is management's intent to provide non-GAAP financial information to enhance the understanding of Altisource's GAAP financial information, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP.  Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure.  The non-GAAP financial information presented may be determined or calculated differently by other companies.  The non-GAAP financial information should not be unduly relied upon.

Pretax income (loss) attributable to Altisource is calculated by deducting non-controlling interests from income (loss) before income taxes and non-controlling interests.  Adjusted pretax income attributable to Altisource is calculated by adding intangible asset amortization expense and the litigation settlement loss, net of $4.0 million insurance recovery to, and deducting non-controlling interests from, income (loss) before income taxes and non-controlling interests.  Adjusted net income attributable to Altisource is calculated by adding intangible asset amortization expense (net of tax) and net litigation settlement loss, net of insurance recovery (net of tax) and adding or deducting certain income tax related items relating to the Luxembourg subsidiary merger, other income tax rate changes in Luxembourg and the United States and an increase in foreign income tax reserves (and related interest) from net income attributable to Altisource.  Adjusted diluted earnings per share is calculated by dividing net income attributable to Altisource plus intangible asset amortization expense (net of tax) and net litigation settlement loss (net of tax) and adding or deducting certain income tax related items described above, by the weighted average number of diluted shares.  Adjusted cash flows from operating activities is calculated by adding the cash payment related to the net litigation settlement loss and the increase in short-term investments in real estate to cash flows from operating activities.  Adjusted cash flows from operating activities less additions to premises and equipment is calculated by adding the cash payment related to the net litigation settlement loss and the increase in short-term investments in real estate to, and deducting additions to premises and equipment from, cash flows from operating activities.

Reconciliations of the non-GAAP measures to the corresponding GAAP measures are as follows:

           
  Three months ended
 December 31,
  Three months ended
September 30,
  Years ended
 December 31,
  2017   2016   2017   2017   2016
                   
Income (loss) before income taxes and non-controlling interests $ 3,112     $ (19,537 )   $ 10,357     $ 35,375     $ 44,321  
                   
Non-controlling interests (633 )   (720 )   (805 )   (2,740 )   (2,693 )
Pretax income (loss) attributable to Altisource 2,479     (20,257 )   9,552     32,635     41,628  
Intangible asset amortization expense 8,224     11,144     8,604     35,367     47,576  
Litigation settlement loss, net of $4,000 insurance recovery     28,000             28,000  
                   
Adjusted pretax income attributable to Altisource $ 10,703     $ 18,887     $ 18,156     $ 68,002     $ 117,204  
                   
Net income (loss) attributable to Altisource $ 286,350     $ (20,384 )   $ 6,961     $ 308,891     $ 28,693  
                   
Intangible asset amortization expense, net of tax 7,597     6,477     6,452     27,523     36,819  
Certain income tax related items, net (284,108 )           (284,108 )    
Net litigation settlement loss, net of tax     24,583             24,583  
                   
Adjusted net income attributable to Altisource $ 9,839     $ 10,676     $ 13,413     $ 52,306     $ 90,095  
                   
Diluted earnings (loss) per share $ 15.72     $ (1.08 )   $ 0.38     $ 16.53     $ 1.46  
                   
Impact of using diluted share count instead of basic share count for a loss per share     0.01              
Intangible asset amortization expense, net of tax, per diluted share 0.42     0.34     0.35     1.47     1.88  
Certain income tax related items, net (15.60 )           (15.20 )    
Net litigation settlement loss, net of tax, per diluted share     1.28             1.25  
                   
Adjusted diluted earnings per share $ 0.54     $ 0.55     $ 0.73     $ 2.80     $ 4.59  
                   
Calculation of the impact of intangible asset amortization expense, net of tax                  
Intangible asset amortization expense $ 8,224     $ 11,144     $ 8,604     $ 35,367     $ 47,576  
Tax benefit from intangible asset amortization (627 )   (4,667 )   (2,152 )   (7,844 )   (10,757 )
Intangible asset amortization expense, net of tax 7,597     6,477     6,452     27,523     36,819  
Diluted share count 18,211     19,246     18,429     18,692     19,612  
                   
Intangible asset amortization expense, net of tax, per diluted share $ 0.42     $ 0.34     $ 0.35     $ 1.47     $ 1.88  
                   
Certain income tax related items, net, resulting from:                  
Luxembourg subsidiaries merger, net $ (300,908 )   $     $     $ (300,908 )   $  
Other income tax rate changes 6,270             6,270      
Foreign income tax reserves 10,530             10,530      
Certain income tax related items, net (284,108 )           (284,108 )    
Diluted share count 18,211     19,246     18,429     18,692     19,612  
                   
Certain income tax related items, net, per diluted share $ (15.60 )   $     $     $ (15.20 )   $  
                   
Calculation of the impact of net litigation settlement loss, net of tax                  
Net litigation settlement loss $     $ 28,000     $     $     $ 28,000  
Tax benefit from net litigation settlement loss     (3,417 )           (3,417 )
Net litigation settlement loss, net of tax     24,583             24,583  
Diluted share count 18,211     19,246     18,429     18,692     19,612  
                   
Net litigation settlement loss, net of tax, per diluted share $     $ 1.28     $     $     $ 1.25  
                   
Cash flows from operating activities $ 18,953     $ 20,783     $ 34,612     $ 66,082     $ 126,818  
Net litigation settlement loss payment             28,000      
Increase in short-term investments in real estate 4,761     4,330     9,530     16,380     13,025  
Adjusted cash flows from operating activities 23,714     25,113     44,142     110,462     139,843  
Less: Additions to premises and equipment (3,029 )   (6,744 )   (1,827 )   (10,514 )   (23,269 )
                   
Adjusted cash flows from operating activities less additions to premises and equipment $ 20,685     $ 18,369     $ 42,315     $ 99,948     $ 116,574  
                                       


CONTACT:
Indroneel Chatterjee
Chief Financial Officer
T:  +352 2469 7988
E:  Indroneel.Chatterjee@altisource.com


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