e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2010 |
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OR |
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-34354
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Exact name of Registrant as specified in its Charter)
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Luxembourg
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Not applicable |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
2, rue Jean Bertholet
L-1233 Luxembourg
Grand Duchy of Luxembourg
(Address of principal executive offices) (Zip Code)
+352 2469 7900
Registrants telephone number
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange
Act):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o No þ
As of September 30, 2010, there were 25,412,748 outstanding shares of the registrants shares
of beneficial interest.
Table of Contents
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
FORM 10-Q
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- 2 -
PART I. FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
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September 30, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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Current Assets: |
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Cash and Cash Equivalents |
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$ |
23,037 |
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$ |
30,456 |
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Accounts Receivable, net |
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46,772 |
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30,497 |
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Prepaid Expenses and Other Current Assets |
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4,689 |
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2,904 |
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Deferred Tax Assets, net |
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3,532 |
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1,546 |
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Total Current Assets |
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78,030 |
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65,403 |
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Restricted Cash |
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779 |
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Premises and Equipment, net |
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16,157 |
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11,408 |
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Intangible Assets, net |
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73,230 |
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33,719 |
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Goodwill |
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15,380 |
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9,324 |
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Other Non-current Assets |
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4,331 |
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702 |
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Total Assets |
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$ |
187,907 |
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$ |
120,556 |
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Accounts Payable and Accrued Expenses |
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$ |
26,960 |
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$ |
24,192 |
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Capital Lease Obligations Current |
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804 |
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536 |
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Other Current Liabilities |
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6,718 |
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5,939 |
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Total Current Liabilities |
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34,482 |
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30,667 |
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Capital Lease Obligations Non-current |
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1,008 |
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128 |
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Deferred Tax Liability, net |
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1,219 |
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2,769 |
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Other Non-current Liabilities |
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3,400 |
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644 |
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Commitment and Contingencies (Note 16) |
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Equity: |
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Common Stock ($1.00 par value; 100,000 shares authorized;
25,413 shares issued and 25,327 outstanding in 2010;
24,145 shares issued and outstanding in 2009) |
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25,413 |
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24,145 |
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Retained Earnings |
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44,150 |
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11,665 |
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Additional Paid-in Capital |
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78,321 |
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50,538 |
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Treasury Stock, at cost ($1.00 par value; 86 shares in 2010) |
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(2,311 |
) |
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Altisource Equity |
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145,573 |
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86,348 |
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Non-controlling Interests |
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2,225 |
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Total Equity |
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147,798 |
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86,348 |
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Total Liabilities and Equity |
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$ |
187,907 |
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$ |
120,556 |
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See accompanying notes to condensed consolidated financial statements.
- 3 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenue |
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$ |
77,580 |
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$ |
54,064 |
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$ |
209,901 |
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$ |
146,486 |
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Cost of Revenue |
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48,647 |
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33,453 |
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131,749 |
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91,805 |
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Gross Profit |
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28,933 |
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20,611 |
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78,152 |
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54,681 |
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Selling, General and Administrative
Expenses |
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14,996 |
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11,065 |
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40,168 |
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27,216 |
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Income from Operations |
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13,937 |
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9,546 |
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37,984 |
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27,465 |
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Other Income (Expense), net |
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698 |
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2,546 |
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666 |
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1,155 |
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Income Before Income Taxes and
Non-controlling Interests |
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14,635 |
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12,092 |
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38,650 |
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28,620 |
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Income Tax Provision |
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(2,751 |
) |
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(3,448 |
) |
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(2,029 |
) |
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(8,522 |
) |
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Net Income |
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11,884 |
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8,644 |
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36,621 |
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20,098 |
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Net Income Attributable to
Non-controlling Interests |
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(2,052 |
) |
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(4,136 |
) |
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Net Income Attributable to Altisource |
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$ |
9,832 |
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$ |
8,644 |
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$ |
32,485 |
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$ |
20,098 |
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Earnings Per Share |
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Basic |
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$ |
0.39 |
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$ |
0.36 |
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$ |
1.30 |
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$ |
0.84 |
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Diluted |
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$ |
0.37 |
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$ |
0.36 |
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$ |
1.24 |
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$ |
0.83 |
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Weighted Average Shares Outstanding |
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Basic |
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25,318 |
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24,050 |
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25,080 |
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24,050 |
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Diluted |
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26,544 |
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24,303 |
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26,168 |
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24,303 |
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Transactions with Related Parties
included above: |
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Revenue |
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$ |
39,459 |
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$ |
26,035 |
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$ |
104,494 |
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$ |
67,222 |
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Selling, General and
Administrative Expenses |
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$ |
223 |
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$ |
522 |
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$ |
811 |
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$ |
4,308 |
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Interest Expense |
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$ |
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$ |
193 |
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$ |
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$ |
1,290 |
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See accompanying notes to condensed consolidated financial statements.
- 4 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(in thousands)
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Additional |
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Treasury |
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Retained |
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Paid-in |
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Stock, at |
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Non-controlling |
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Comprehensive |
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Common Stock |
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Earnings |
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Capital |
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Cost |
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Interests |
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Total |
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Income |
|
Balance, December 31, 2009 |
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|
24,145 |
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$ |
24,145 |
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$ |
11,665 |
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$ |
50,538 |
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$ |
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$ |
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$ |
86,348 |
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Net Income |
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32,485 |
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4,136 |
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36,621 |
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$ |
36,621 |
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Acquisition of The
Mortgage Partnership of
America, L.L.C. |
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959 |
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959 |
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22,941 |
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3,268 |
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27,168 |
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Contributions from
Non-controlling Interest
Holders |
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28 |
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28 |
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Distributions to
Non-controlling Interest
Holders |
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(5,207 |
) |
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(5,207 |
) |
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Share-based Compensation
Expense |
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2,134 |
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2,134 |
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Exercise of Stock Options |
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|
298 |
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298 |
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2,708 |
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3,006 |
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Delivery of Vested
Restricted Stock |
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|
11 |
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11 |
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11 |
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Repurchase of Shares |
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(2,311 |
) |
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(2,311 |
) |
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Balance, September 30,
2010 |
|
|
25,413 |
|
|
$ |
25,413 |
|
|
$ |
44,150 |
|
|
$ |
78,321 |
|
|
$ |
(2,311 |
) |
|
$ |
2,225 |
|
|
$ |
147,798 |
|
|
$ |
36,621 |
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See accompanying notes to condensed consolidated financial statements.
- 5 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Nine Months Ended |
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|
September 30, |
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|
2010 |
|
|
2009 |
|
Cash flows from Operating Activities: |
|
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|
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Net Income |
|
$ |
36,621 |
|
|
$ |
20,098 |
|
Reconciling Items: |
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Depreciation and Amortization |
|
|
5,015 |
|
|
|
4,188 |
|
Amortization of Intangible Assets |
|
|
4,089 |
|
|
|
2,004 |
|
Share-based Compensation Expense |
|
|
2,134 |
|
|
|
|
|
Deferred Income Taxes |
|
|
(1,040 |
) |
|
|
(1,414 |
) |
Changes in Operating Assets and Liabilities, net of MPA Acquisition: |
|
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|
|
|
|
|
|
Accounts Receivable |
|
|
(13,031 |
) |
|
|
(8,810 |
) |
Prepaid Expenses and Other Current Assets |
|
|
(1,464 |
) |
|
|
505 |
|
Other Assets |
|
|
(2,594 |
) |
|
|
(579 |
) |
Accounts Payable and Accrued Expenses |
|
|
1,422 |
|
|
|
2,237 |
|
Other Current and Non-current Liabilities |
|
|
2,109 |
|
|
|
8,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flow from Operating Activities |
|
|
33,261 |
|
|
|
26,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from Investing Activities: |
|
|
|
|
|
|
|
|
Additions to Premises and Equipment, net |
|
|
(8,135 |
) |
|
|
(3,787 |
) |
Acquisition of Business, net of Cash Acquired |
|
|
(26,830 |
) |
|
|
|
|
Change in Restricted Cash |
|
|
(779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flow from Investing Activities |
|
|
(35,744 |
) |
|
|
(3,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from Financing Activities: |
|
|
|
|
|
|
|
|
Principal Payments on Capital Lease Obligations |
|
|
(463 |
) |
|
|
(422 |
) |
Payments of Line of Credit |
|
|
|
|
|
|
(1,123 |
) |
Proceeds from Stock Option Exercises |
|
|
3,017 |
|
|
|
|
|
Purchase of Treasury Stock |
|
|
(2,311 |
) |
|
|
|
|
Contributions from Non-controlling Interests |
|
|
28 |
|
|
|
|
|
Distributions to Non-controlling Interests |
|
|
(5,207 |
) |
|
|
|
|
Net Distribution to Parent |
|
|
|
|
|
|
(3,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flow from Financing Activities |
|
|
(4,936 |
) |
|
|
(4,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash and Cash Equivalents |
|
|
(7,419 |
) |
|
|
17,722 |
|
Cash and Cash Equivalents at the Beginning of the Year |
|
|
30,456 |
|
|
|
6,988 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at the End of the Period |
|
$ |
23,037 |
|
|
$ |
24,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Interest Paid |
|
$ |
|
|
|
$ |
25 |
|
Income Taxes Paid |
|
$ |
1,724 |
|
|
$ |
534 |
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Shares Issued in Connection with MPA Acquisition |
|
$ |
23,900 |
|
|
$ |
|
|
Increase in Common Stock due to the Companys Conversion to a
Luxembourg Société Anonyme |
|
$ |
|
|
|
$ |
3,283 |
|
See accompanying notes to condensed consolidated financial statements.
- 6 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
Altisource Portfolio Solutions S.A. (which may be referred to as Altisource, the Company, we, us or
our) together with its subsidiaries is a provider of services focused on high value,
knowledge-based functions principally related to real estate and mortgage portfolio management,
asset recovery and customer relationship management. Utilizing integrated technology that includes
decision models and behavioral based scripting engines, we provide solutions that improve clients
performance and maximizes their returns.
We are publicly traded on the NASDAQ Global Select market under the symbol ASPS. We were
incorporated under the laws of Luxembourg on November 4, 1999 as Ocwen Luxembourg S.à r.l., renamed
Altisource Portfolio Solutions S.à r.l. on May 12, 2009 and converted into Altisource Portfolio
Solutions S.A. on June 5, 2009. We became a publicly traded company as of August 10, 2009, see
Separation below.
In February 2010, we acquired all of the outstanding membership interests of The Mortgage
Partnership of America, L.L.C. (MPA). MPA was formed as a Missouri limited liability company to
serve as the manager of Best Partners Mortgage Cooperative, Inc. (BPMC) doing business as Lenders
One Mortgage Cooperative (Lenders One). Lenders One is a national alliance of independent
mortgage bankers (Members) that provides its Members with education and training along with
revenue enhancing, cost reducing and market share expanding opportunities (see Note 3).
We conduct our operations through three reporting segments: Mortgage Services, Financial Services
and Technology Products. In addition, we report our corporate related expenditures as a separate
segment (see Note 15 for a description of our segments).
Separation
On August 10, 2009 (the Separation Date), we became a stand-alone public company in connection
with our separation from Ocwen Financial Corporation (Ocwen) (the Separation). Prior to the
Separation, our businesses were wholly-owned subsidiaries of Ocwen. On the Separation Date, Ocwen
distributed all of the Altisource common stock to Ocwens shareholders (the Distribution).
Ocwens shareholders received one share of Altisource common stock for every three shares of Ocwen
common stock held as of August 4, 2009 (the Record Date). In addition, holders of Ocwens 3.25%
Contingent Convertible Unsecured Senior Notes due 2024 received one share of Altisource common
stock deemed held on an as if converted basis. For such notes, the conversion ratio of 82.1693
shares of Ocwen common stock for every $1,000 in aggregate principal amount of notes held on the
Record Date was calculated first, and then we applied the distribution ratio of one share of
Altisource common stock for every three shares of Ocwen common stock on an as converted basis to
determine the number of shares each note holder received.
In connection with the Separation, we entered into various agreements with Ocwen that define our
relationship after the Separation including a Separation Agreement, a Tax Matters Agreement, an
Employee Matters Agreement, an Intellectual Property Agreement, a Data Center and Disaster Recovery
Agreement, a Technology Products Services Agreement, a Transition Services Agreement and certain
long-term servicing contracts (collectively, the Agreements).
Basis of Presentation
Our historical financial statements include the assets and liabilities (accounted for at the
historical values carried by Ocwen prior to the Separation), revenues and expenses directly
attributable to our operations. Beginning August 10, 2009, after our assets and liabilities were
formally contributed by Ocwen pursuant to the terms of a Separation Agreement, our financial
statements have been presented on a consolidated basis for financial reporting purposes. Our
condensed consolidated financial statements include the assets and liabilities, revenues and
expenses directly attributable to our operations. All significant inter-company and inter-segment
transactions and accounts have been eliminated upon consolidation.
For periods prior to the Separation Date, these condensed consolidated financial statements include
allocations of expenses from Ocwen for corporate functions including insurance, employee benefit
plan expense and allocations for certain centralized administration costs for executive management,
treasury, real estate, accounting, auditing, tax, risk management, internal audit, human resources
and benefits administration (See Note 2).
The condensed consolidated financial statements for the three and nine months ended September 30,
2009 also do not necessarily reflect what the Companys condensed consolidated results of
operations, financial position and cash flows would have been had the Company operated as an
independent company during that entire period. For instance, as an independent public company, we
incur costs in excess of those allocated by Ocwen for maintaining a separate Board of Directors,
obtaining a separate audit, relocating certain executive management and hiring additional
personnel.
- 7 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Prior to our acquisition of MPA, MPA and Lenders One entered into a management agreement that ends
on December 31, 2025. MPA was formed to act on behalf of Lenders One and its Members principally to
provide its Members with education and training along with revenue enhancing, cost reducing and
market share expanding opportunities. For providing these services MPA receives payment from
Lenders One, and in some instances the vendors, based upon the benefits achieved for the Members.
The management agreement provides MPA with broad powers such as recruiting members for Lenders One,
collection of fees and other obligations from Members of Lenders One, processing of all rebates
owed to Lenders One, day-to-day operation of Lenders One and negotiation of contracts with vendors
including signing contracts on behalf of Lenders One.
The management agreement between MPA and Lenders One, pursuant to which MPA is the management
company of Lenders One, represents a variable interest in a variable interest entity. MPA
determined that they are the primary beneficiary of Lenders One as they have the power to direct
the activities that most significantly impact Lenders Ones economic performance and the obligation
to absorb losses or the right to receive benefits. As a result, Lenders One is presented in the
accompanying condensed consolidated financial statements on a consolidated basis with the interests
of the Members reflected as Non-controlling Interest on the Condensed Consolidated Balance Sheets.
At September 30, 2010, Lenders One had total assets of $6.2 million and liabilities of $0.2
million.
We have prepared our condensed consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X.
Accordingly, they do not include all of the information and notes required by GAAP for complete
condensed consolidated financial statements. In the opinion of management, all adjustments
considered necessary to fairly state the results for the interim periods presented have been
included. The preparation of condensed consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of our condensed
consolidated financial statements, as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
These condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in our Form 10-K filed with the SEC
on March 17, 2010 which contains a summary of our significant accounting policies. Certain
footnote detail is also omitted from the condensed consolidated financial statements unless there
is a material change from the information included in the Form 10-K.
Foreign Currency Translation
Our reporting currency is the U.S. dollar. Other foreign currency assets and liabilities that are
considered monetary items are translated at exchange rates in effect at the balance sheet date.
Foreign currency revenues and expenses are translated at transaction date exchange rates. These
exchange gains and losses are included in the determination of net income.
Fair Value of Financial Instruments
The fair value of financial instruments, which primarily include Cash and Cash Equivalents,
Restricted Cash, Accounts Receivable, net and Accounts Payable and Accrued Expenses at September
30, 2010 and December 31, 2009, are carried at amounts that approximate their fair value due to the
short-term nature of these amounts.
In addition, we entered into a put option arrangement with some of the predecessor owners of MPA in
conjunction with the acquisition. The arrangement allows the holders to put a portion of the
Altisource shares issued as consideration to Altisource at a predetermined price. Altisource
calculated the fair value of this put option arrangement on the acquisition date at $1.3 million by
utilizing a Black-Scholes option pricing model (see Note 3). The fair value calculation is deemed
to be a Level 3 calculation. The fair value of the put at September 30, 2010 of $0.8 million was
valued using the following assumptions:
|
|
|
|
|
|
|
Assumptions |
|
Risk-free Interest Rate |
|
|
0.19% 0.96 |
% |
Expected Stock Price Volatility |
|
|
35% 58 |
% |
Expected Dividend Yield |
|
|
|
|
Expected Option Life (in years) |
|
|
0.5 3.5 |
|
Contractual Life (in years) |
|
|
|
|
Fair Value |
|
$ |
0.01 $3.88 |
|
- 8 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The put option agreement is a written derivative valued similar to stock options and is included
within Other Non-current Liabilities on the Condensed Consolidated Balance Sheet. The fair value
of the put option agreements will be determined each quarter until such puts are either exercised
or forfeited with any changes in value included as a component of Other Income (Expense), net in
the Condensed Consolidated Statements of Operations.
NOTE 2 TRANSACTIONS WITH RELATED PARTIES
Ocwen remains our largest customer. Following the Separation, Ocwen is contractually obligated to
purchase certain Mortgage Services and Technology Products from us under service agreements. These
agreements extend for eight years from the Separation Date subject to termination under certain
provisions. Ocwen is not restricted from redeveloping these services. We settle amounts with Ocwen
on a daily, weekly or monthly basis based upon the nature of the services and when the service is
completed.
We consider certain services to be derived from Ocwens loan servicing portfolio rather than
provided to Ocwen because such services are charged to the mortgagee and/or the investor and are
not expenses to Ocwen. Ocwen, or services derived from Ocwens loan servicing portfolio, as a
percentage of each of our segment revenues and as a percentage of consolidated revenues was as
follows for the three and nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Mortgage Services |
|
|
65 |
% |
|
|
72 |
% |
|
|
66 |
% |
|
|
73 |
% |
Technology Products |
|
|
36 |
% |
|
|
41 |
% |
|
|
36 |
% |
|
|
45 |
% |
Financial Services |
|
|
<1 |
% |
|
|
<1 |
% |
|
|
<1 |
% |
|
|
<1 |
% |
Consolidated Revenues |
|
|
51 |
% |
|
|
48 |
% |
|
|
50 |
% |
|
|
46 |
% |
We record revenues we earn from Ocwen under the various long-term servicing contracts at rates we
believe to be market rates as they are consistent with one or more of the following: the fees we
charge to other customers for comparable services; the rates Ocwen pays to other service providers;
fees commensurate with market surveys prepared by unaffiliated firms; and prices being charged by
our competitors.
Allocation of Corporate Costs
The condensed consolidated financial statements for the three and nine months ended September 30,
2009 include allocations of expenses from Ocwen for corporate functions including insurance,
employee benefit plan expense and allocations for certain centralized administration costs for
executive management, treasury, real estate, accounting, auditing, tax, risk management, internal
audit, human resources and benefits administration. Ocwen determined these allocations using
proportional cost allocation methods including the use of relevant operating profit, fixed assets,
sales and payroll measurements. Specifically, personnel and all associated costs, including
compensation, benefits, occupancy and other costs, were allocated based on the estimated percentage
of time spent by the individual in the various departments. External costs such as audit fees,
legal fees, business insurance and other were allocated based on a combination of the sales, fixed
assets and operating profits of the department whichever is most appropriate given the nature of
the expense. Total corporate costs allocated to the Company, were $4.3 million for the nine months
ended September 30, 2009 ($0.5 million for the 2009 third quarter). The charges for these functions
are included primarily in Selling, General and Administrative Expenses in the Condensed
Consolidated Statements of Operations. However, these amounts may not be representative of the
costs necessary for the Company to operate as a separate standalone entity.
In addition, prior to the Separation, Ocwen had allocated interest expense to us based upon our
portion of assets to Ocwens total assets which is included in Other Income (Expense) Net in the
Condensed Consolidated Statements of Operations.
Transition Services
In connection with the Separation, Altisource and Ocwen entered into a transition services
agreement under which services in such areas as human resources, vendor management, corporate
services, six sigma, quality assurance, quantitative analytics,
- 9 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
treasury, accounting, tax, risk management, legal, strategic planning, compliance and other areas
are provided to the counterparty for up to two years from the Separation Date. For the nine months
ended September 30, 2010, Altisource billed Ocwen $1.2 million ($0.5 million for the third
quarter), and Ocwen billed Altisource $0.8 million ($0.2 million for the third quarter) for
services provided under this agreement. These amounts are reflected as a component of Selling,
General and Administrative expenses in the Condensed Consolidated Statements of Operations.
NOTE 3 ACQUISITION OF MPA
In February 2010, we acquired all of the outstanding membership interests of MPA pursuant to a
Purchase and Sale Agreement. MPA serves as the manager of Lenders One, a national alliance of
independent mortgage bankers. The alliance was established in 2000 and as of September 30, 2010
consisted of more than 170 members.
Consideration for the transaction consisted of cash, common stock and put option agreements:
|
|
|
|
|
(in thousands) |
|
Consideration |
|
Cash |
|
$ |
29,000 |
|
Common Stock |
|
|
23,900 |
|
Put Option Agreements at Fair Value |
|
|
1,289 |
|
Working Capital Adjustment |
|
|
835 |
|
|
|
|
|
|
|
|
|
|
Total Consideration |
|
$ |
55,024 |
|
|
|
|
|
The common stock consisted of 959,085 shares of Altisources common stock valued at $24.92 per
share based on the closing price of Altisource common stock on February 11, 2010. A portion of
which (314,135 shares) will be held in escrow two years from the closing date of the acquisition to
secure MPAs indemnification obligations under the Purchase and Sale Agreement. In addition, we
entered into three put option agreements with certain of the sellers whereby each seller has the
right, with respect to an aggregate of 0.5 million shares of our common stock, to put up to 25% of
eligible shares each year for a total of four years at a price equal to $16.84 per share. The fair
value of the put was initially established at the date of acquisition ($1.3 million) using the
following assumptions:
|
|
|
|
|
|
|
Assumptions |
|
Risk-free Interest Rate |
|
|
0.345% 1.914 |
% |
Expected Stock Price Volatility |
|
|
40% 55 |
% |
Expected Dividend Yield |
|
|
|
|
Expected Option Life (in years) |
|
|
1 4 |
|
Contractual Life (in years) |
|
|
|
|
Fair Value |
|
$ |
0.74 $3.90 |
|
- 10 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The preliminary allocation of the purchase price is as follows:
|
|
|
|
|
(in thousands) |
|
|
|
Cash |
|
$ |
2,170 |
|
Accounts Receivable |
|
|
4,279 |
|
Prepaid Expenses and Other Current Assets |
|
|
321 |
|
Premises and Equipment |
|
|
18 |
|
Identifiable Intangible Assets |
|
|
43,600 |
|
Goodwill |
|
|
10,218 |
|
|
|
|
|
|
|
|
60,606 |
|
Accounts Payable and Accrued Expenses |
|
|
(2,176 |
) |
Other Current Liabilities |
|
|
(138 |
) |
Non-controlling Interests |
|
|
(3,268 |
) |
|
|
|
|
Total Purchase Price |
|
$ |
55,024 |
|
|
|
|
|
During the second quarter of 2010, Altisource finalized its calculation of the Working Capital
Adjustment within the 90 day period allocated by the purchase contract. The value was revised from
$2.1 million to $0.8 million resulting in an offsetting decrease to Goodwill. The payment of the
Working Capital Adjustment was made during the third quarter.
Management has assigned the following lives to identified assets acquired as a result of the
acquisition:
|
|
|
|
|
|
|
Estimated Life |
|
|
|
(in Years) |
|
Premises and Equipment |
|
|
2 5 |
|
Management Agreement (1) |
|
|
15 |
|
Trademarks (1) |
|
|
15 |
|
Non-compete (1) |
|
|
4 |
|
Goodwill |
|
Indefinite |
|
|
|
(1) |
|
The identifiable assets are subject to amortization on a straight-line basis as this
best approximates the benefit period related to these assets. |
The goodwill arising from the acquisition, which was assigned to our Mortgage Services segment,
consists of various components principally in-place workforce and anticipated revenue synergies
given MPAs market presence and future enhancements to our services including the development of
origination services. All goodwill and intangible assets related to the acquisition of MPA are
expected to be amortizable and deductible for income tax purposes.
We entered into employee agreements with certain key employees of MPA who also received the
majority of our shares issued in connection with the acquisition.
Revenue and Net Income Attributable to Altisource from the date of acquisition through September
30, 2010, included in the Companys Condensed Consolidated Statements of Operations, are as
follows.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
(in thousands) |
|
September 30, 2010 |
|
|
September 30, 2010 |
|
Revenue |
|
$ |
5,585 |
|
|
$ |
11,412 |
|
Net Income Attributable to Altisource |
|
|
1,768 |
|
|
|
1,812 |
|
Acquisition-related transaction costs are included in Selling, General and Administrative and
Expenses in the Condensed Consolidated Statements of Operations.
- 11 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The following tables present the unaudited pro forma Revenue, Net Income Attributable to Altisource
and Diluted Earnings Per Share as if the acquisition of MPA had occurred at the beginning of the
period presented.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
(in thousands, except per share amounts) |
|
As Reported |
|
|
Pro Forma |
|
Revenue |
|
$ |
209,901 |
|
|
$ |
211,545 |
|
Net Income Attributable to Altisource |
|
|
32,485 |
|
|
|
32,357 |
|
Earnings Per Share Diluted |
|
|
1.24 |
|
|
|
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2009 |
|
(in thousands, except per share amounts) |
|
As Reported |
|
|
Pro Forma |
|
|
As Reported |
|
|
Pro Forma |
|
Revenue |
|
$ |
54,064 |
|
|
$ |
59,755 |
|
|
$ |
146,486 |
|
|
$ |
162,459 |
|
Net Income Attributable to Altisource |
|
|
8,644 |
|
|
|
10,077 |
|
|
|
20,098 |
|
|
|
24,104 |
|
Earnings Per Share Diluted |
|
|
0.36 |
|
|
|
0.40 |
|
|
|
0.83 |
|
|
|
0.95 |
|
NOTE 4 ACCOUNTS RECEIVABLE, NET
Accounts Receivable, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Third-party Accounts Receivable |
|
$ |
15,942 |
|
|
$ |
11,638 |
|
Unbilled Fees |
|
|
28,816 |
|
|
|
9,073 |
|
Receivable from Ocwen |
|
|
2,556 |
|
|
|
10,066 |
|
Other Receivables |
|
|
1,100 |
|
|
|
416 |
|
|
|
|
|
|
|
|
|
|
|
48,414 |
|
|
|
31,193 |
|
Allowance for Doubtful Accounts |
|
|
(1,642 |
) |
|
|
(696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
46,772 |
|
|
$ |
30,497 |
|
|
|
|
|
|
|
|
Unbilled Fees consist primarily of Asset Management and Default Management Services for which we
recognize revenues over the service delivery period but bill at completion of the service.
One of our customers in the Financial Services segment accounted for 17% of consolidated revenue in
the nine months ended September 30, 2010. Another customer accounted for 10% of consolidated
revenue in both the Mortgage Services and Technology Products segments in the nine months ended
September 30, 2010.
- 12 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
NOTE 5 PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid Expenses and Other Current Assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Prepaid Expenses |
|
$ |
2,513 |
|
|
$ |
1,471 |
|
Other Current Assets |
|
|
2,176 |
|
|
|
1,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,689 |
|
|
$ |
2,904 |
|
|
|
|
|
|
|
|
NOTE 6 PREMISES AND EQUIPMENT, NET
Premises and Equipment, net which include amounts recorded under capital leases, consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Computer Hardware and Software |
|
$ |
30,135 |
|
|
$ |
23,591 |
|
Office Equipment and Other |
|
|
9,411 |
|
|
|
9,203 |
|
Furniture and Fixtures |
|
|
2,168 |
|
|
|
2,663 |
|
Leasehold Improvements |
|
|
4,201 |
|
|
|
3,441 |
|
|
|
|
|
|
|
|
|
|
|
45,915 |
|
|
|
38,898 |
|
Less: Accumulated Depreciation and Amortization |
|
|
(29,758 |
) |
|
|
(27,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,157 |
|
|
$ |
11,408 |
|
|
|
|
|
|
|
|
Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $5.0
million and $4.2 million for the nine months ended September 30, 2010 and 2009 respectively ($1.8
million and $1.4 million for the third quarter of 2010 and 2009 respectively) and is included in
Cost of Revenue for operating assets and in Selling, General and Administrative expense for
non-operating assets in the accompanying Condensed Consolidated Statements of Operations.
NOTE 7 GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
Changes in Goodwill during the period ended September 30, 2010 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Mortgage
Services |
|
|
Financial
Services |
|
|
Technology
Products |
|
|
Total |
|
Balance, December 31, 2009 |
|
$ |
|
|
|
$ |
7,706 |
|
|
$ |
1,618 |
|
|
$ |
9,324 |
|
Acquisition of MPA |
|
|
10,218 |
|
|
|
|
|
|
|
|
|
|
|
10,218 |
|
Component 2 Amortization |
|
|
|
|
|
|
(4,162 |
) |
|
|
|
|
|
|
(4,162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,218 |
|
|
$ |
3,544 |
|
|
$ |
1,618 |
|
|
$ |
15,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 13 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Intangible Assets, Net
Intangible Assets, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|
December 31, |
|
(dollars in thousands) |
|
(Years) |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Definite-lived
Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
12 |
|
|
$ |
10,200 |
|
|
$ |
2,800 |
|
|
$ |
2,196 |
|
|
$ |
1,447 |
|
|
$ |
8,004 |
|
|
$ |
1,353 |
|
Customer Lists |
|
|
19 |
|
|
|
37,700 |
|
|
|
37,700 |
|
|
|
6,919 |
|
|
|
5,334 |
|
|
|
30,781 |
|
|
|
32,366 |
|
Operating Agreement |
|
|
15 |
|
|
|
35,000 |
|
|
|
|
|
|
|
1,555 |
|
|
|
|
|
|
|
33,445 |
|
|
|
|
|
Non-compete
Agreements |
|
|
4 |
|
|
|
1,200 |
|
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets |
|
|
|
|
|
$ |
84,100 |
|
|
$ |
40,500 |
|
|
$ |
10,870 |
|
|
$ |
6,781 |
|
|
$ |
73,230 |
|
|
$ |
33,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for definite lived intangible assets was $4.1 million and $2.0 million for
the nine months ended September 30, 2010 and 2009, respectively ($1.4 million and $0.7 million for
the third quarter ended 2010 and 2009 respectively). Amortization expense is expected to be $5.4
million, $5.6 million, $5.3 million, $5.1 million and $4.8 million for the years 2010 through 2014.
NOTE 8 ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts Payable and Accrued Expenses consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Accounts Payable |
|
$ |
2,821 |
|
|
$ |
1,114 |
|
Income Taxes Payable, Net |
|
|
4,762 |
|
|
|
4,853 |
|
Payable to Ocwen |
|
|
805 |
|
|
|
2,716 |
|
Accrued Expenses General |
|
|
9,317 |
|
|
|
8,373 |
|
Accrued Salaries and Benefits |
|
|
9,255 |
|
|
|
7,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,960 |
|
|
$ |
24,192 |
|
|
|
|
|
|
|
|
Other Current Liabilities consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Mortgage Charge-Off and Deficiency Collections |
|
$ |
18 |
|
|
$ |
2,458 |
|
Deferred Revenue |
|
|
3,125 |
|
|
|
989 |
|
Facility Closure Cost Accrual, Current Portion |
|
|
209 |
|
|
|
272 |
|
Other |
|
|
3,366 |
|
|
|
2,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,718 |
|
|
$ |
5,939 |
|
|
|
|
|
|
|
|
- 14 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Facility Closure Costs
During 2009, we accrued facility closure costs (included in other current and other non-current
liabilities in the Condensed Consolidated Balance Sheet) primarily consisting of lease exit costs
(expected to be paid through 2014) and severance for the closure of two facilities. The following
table summarizes the activity, all recorded in our Financial Services segment, for the nine months
ended September 30, 2010:
|
|
|
|
|
(in thousands) |
|
Lease Costs |
|
Balance, December 31, 2009 |
|
$ |
916 |
|
Payments |
|
|
(204 |
) |
|
|
|
|
Balance, September 30, 2010 |
|
|
712 |
|
Less: Long-Term Portion |
|
|
503 |
|
|
|
|
|
|
|
|
|
|
Facility Closure Cost Accrual, Current Portion |
|
$ |
209 |
|
|
|
|
|
We do not expect additional significant costs related to the closure of these facilities.
NOTE 9 EQUITY BASED COMPENSATION
We provide stock-based awards as a form of compensation for certain employees and officers. We have
issued stock-based awards in the form of stock options and restricted stock units. We recorded
total stock compensation expense of $2.1 million for the nine months ended September 30, 2010 ($1.2
million for the quarter). The compensation expense is included in Selling, General and
Administrative Expenses in the accompany Condensed Consolidated Statements of Operations.
During the nine months ended September 30, 2010, the Company granted 0.9 million stock options with
exercise prices ranging between $22.00 and $25.00 per share depending on the grant date. The
vesting schedule for the options has a time-based component, in which 25% of the options vest in
equal increments over four years, and a market-based component, in which up to 75% of the options
could vest in equal increments over three years commencing upon the achievement of certain
performance criteria related to our stock price and the annualized rate of return to investors.
Two-thirds of the market-based options would begin to vest over three years if the stock price
realizes a compounded annual gain of at least 20% over the exercise price, so long as the stock
price is at least double the exercise price. The remaining third of the market-based options would
begin to vest over three years if the stock price realizes a 25% gain, so long as the stock price
is at least triple the exercise price.
The fair value of the time-based options was determined using the Black-Scholes options pricing
model while a lattice (binomial) model was used to determine the fair value of the market-based
options using the following assumptions as of the grant date:
|
|
|
|
|
|
|
|
|
|
|
Black-Scholes |
|
|
Binomial |
|
Risk-free Interest Rate |
|
|
2.82% 3.20 |
% |
|
|
0.02% 3.66 |
% |
Expected Stock Price Volatility |
|
|
48 |
% |
|
|
52 |
% |
Expected Dividend Yield |
|
|
|
|
|
|
|
|
Expected Option Life (in years) |
|
|
7 |
|
|
|
|
|
Contractual Life (in years) |
|
|
|
|
|
|
10 |
|
Fair Value |
|
$ |
11.71 $13.00 |
|
|
$10.05 and $12.35 |
As of September 30, 2010, estimated unrecognized compensation costs related to share-based payments
amounted to $9.4 million which we expect to recognize over a weighted-average remaining requisite
service period of approximately 3.5 years.
- 15 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The following table summarizes activity of our stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise |
|
|
Term |
|
|
Intrinsic Value |
|
|
|
Options |
|
|
Price |
|
|
(in years) |
|
|
(in thousands) |
|
Outstanding at December 31, 2009 |
|
|
3,190,639 |
|
|
$ |
9.90 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
907,500 |
|
|
|
23.54 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(298,166 |
) |
|
|
10.08 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(209,042 |
) |
|
|
12.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
3,590,931 |
|
|
|
13.21 |
|
|
|
7.4 |
|
|
$ |
64,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2010 |
|
|
1,175,296 |
|
|
$ |
9.79 |
|
|
|
5.3 |
|
|
$ |
25,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Shares
The following table summarizes activity of our restricted shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Restricted |
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Outstanding at December 31, 2009 |
|
|
3,236 |
|
|
$ |
18.00 |
|
Granted |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
Vested |
|
|
(3,236 |
) |
|
$ |
18.00 |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Repurchase Authorization
On May 19, 2010, our shareholders authorized us to purchase up to 3,784,618 shares of our common
stock in the open market. During the third quarter of 2010, we purchased 86,098 shares of our
common stock on the open market at an average price of $26.81, leaving 3,698,520 shares still
available for purchase. Subsequently, during October 2010, we purchased an additional 65,317
shares. As of October 25, 2010, we have repurchased a total of 151,415 shares at an average share
price of $26.39.
NOTE 10 COST OF REVENUE
Cost of revenue principally includes payroll and employee benefits associated with personnel
employed in customer service and operations roles, fees paid to external providers related to
provision of services, reimbursable expenses, technology and telephony expenses as well as
depreciation and amortization of operating assets. The components of cost of revenue were as
follows for the periods ended September 30, 2010 and 2009:
- 16 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Compensation and Benefits |
|
$ |
15,828 |
|
|
$ |
13,735 |
|
|
$ |
45,518 |
|
|
$ |
39,612 |
|
Outside Fees and Services |
|
|
15,311 |
|
|
|
10,550 |
|
|
|
41,092 |
|
|
|
31,502 |
|
Reimbursable Expenses |
|
|
13,369 |
|
|
|
5,680 |
|
|
|
33,040 |
|
|
|
9,009 |
|
Technology and Communications |
|
|
4,139 |
|
|
|
3,488 |
|
|
|
12,099 |
|
|
|
11,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
48,647 |
|
|
$ |
33,453 |
|
|
$ |
131,749 |
|
|
$ |
91,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include payroll, employee benefits, occupancy and
other costs associated with personnel employed in executive, sales, marketing, human resources,
consumer behavior, internal audit and finance roles. This category also includes professional
fees, depreciation and amortization on non-operating assets. The components of selling, general
and administrative expenses were as follows for the periods ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Compensation and Benefits |
|
$ |
5,251 |
|
|
$ |
521 |
|
|
$ |
13,256 |
|
|
$ |
4,307 |
|
Professional Services |
|
|
1,812 |
|
|
|
4,158 |
|
|
|
5,869 |
|
|
|
7,514 |
|
Occupancy Related Costs |
|
|
4,733 |
|
|
|
1,976 |
|
|
|
10,845 |
|
|
|
6,086 |
|
Amortization of Intangible Assets |
|
|
1,450 |
|
|
|
668 |
|
|
|
4,089 |
|
|
|
2,004 |
|
Other |
|
|
1,750 |
|
|
|
3,742 |
|
|
|
6,109 |
|
|
|
7,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,996 |
|
|
$ |
11,065 |
|
|
$ |
40,168 |
|
|
$ |
27,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12 OTHER INCOME (EXPENSE), NET
Other Income (Expense), net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Interest Expense, net |
|
$ |
(26 |
) |
|
$ |
(192 |
) |
|
$ |
(65 |
) |
|
$ |
(1,601 |
) |
Other, net |
|
|
724 |
|
|
|
2,738 |
|
|
|
731 |
|
|
|
2,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
698 |
|
|
$ |
2,546 |
|
|
$ |
666 |
|
|
$ |
1,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through the date of Separation, Interest Expense (net) included an interest charge from Ocwen which
represented an allocation of Ocwens total interest expense calculated based on our assets in
comparison to Ocwens total assets. This charge was $1.3
million for the nine months ending September 30, 2009 ($0.2 million for the third quarter).
Subsequent to the date of Separation, we are no longer subject to the interest charge from Ocwen.
NOTE 13 INCOME TAXES
For periods prior to the Separation Date, we are included in Ocwens tax returns. Our
responsibility with respect to these periods is governed by a tax sharing agreement. In accordance
with this agreement, U.S. income taxes were allocated as if they had been calculated on a separate
company basis except that benefits for any net operating losses will be provided to the extent such
loss is
- 17 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
utilized in the consolidated U.S. federal tax return. The provision for income taxes prior to the
Separation Date has been determined on a pro-forma basis as if we had filed separate income taxes
under our current structure for the periods presented.
The Company revised its estimated effective tax rate related to 2010 operations for the full year
to 12.5% in the second quarter of 2010. The revised estimate was due to the receipt of a favorable
ruling in June 2010 regarding the treatment of certain intangibles that exist for purposes of
determining the Companys taxable income. The ruling is retroactive to the Separation Date. As a
result of the ruling, the Company recognized a $3.4 million credit attributable to 2009 in the
second quarter 2010 which is not included in the estimate of the full year effective tax rate.
Income tax provision on income before income tax differs from amounts that would be computed by
applying the Luxembourg federal corporate income tax rate of 28.6% primarily because of the effect
of enacted tax statutes in multiple jurisdictions, the treatment of intangibles for tax purposes
and differing tax rates outside of Luxembourg. This ruling did not have a material impact on our
deferred tax assets or liabilities.
The Distribution was intended to be a tax-free transaction under Section 355 of the Internal
Revenue Code (the Code). To the extent Ocwen recognizes tax under Section 355 of the Code,
Altisource has agreed to indemnify Ocwen. We do not believe we have a material obligation under
this indemnity as separately Ocwen recognized substantially all of the gain it has in the assets
that comprise Altisource as a result of the restructuring in accordance with other provisions of
the Code.
NOTE 14 EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted EPS reflects the
assumed conversion of all dilutive securities. On August 10, 2009, the Distribution by Ocwen was
completed to the Ocwen stockholders of one share of Altisource common stock for every 3 shares of
Ocwen common stock held as of August 4, 2009. In addition, holders of Ocwens 3.25% Contingent
Convertible Unsecured Senior Notes due 2024 received one share of Altisource common stock deemed
held on an as if converted basis. For such notes, the conversion ratio of 82.1693 shares of Ocwen
common stock for every $1,000 in aggregate principal amount of notes held on August 4, 2009 was
calculated first, and then we applied the distribution ratio of one share of Altisource common
stock for every three shares of Ocwen common stock on an as converted basis to determine the number
of shares each note holder received.
Basic and diluted earnings per share for the three and nine months ended September 30, 2010 and
2009 are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Ave. |
|
|
|
|
|
|
|
|
|
|
Ave. |
|
|
|
|
(in thousands, except per share amounts) |
|
Income |
|
|
Shares |
|
|
Per Share |
|
|
Income |
|
|
Shares |
|
|
Per Share |
|
Basic |
|
$ |
9,832 |
|
|
|
25,318 |
|
|
$ |
0.39 |
|
|
$ |
8,644 |
|
|
|
24,050 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
1,226 |
|
|
|
|
|
|
|
|
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
9,832 |
|
|
|
26,544 |
|
|
$ |
0.37 |
|
|
$ |
8,644 |
|
|
|
24,303 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Ave. |
|
|
|
|
|
|
|
|
|
|
Ave. |
|
|
|
|
(in thousands, except per share amounts) |
|
Income |
|
|
Shares |
|
|
Per Share |
|
|
Income |
|
|
Shares |
|
|
Per Share |
|
Basic |
|
$ |
32,485 |
|
|
|
25,080 |
|
|
$ |
1.30 |
|
|
$ |
20,098 |
|
|
|
24,050 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
1,085 |
|
|
|
|
|
|
|
|
|
|
|
253 |
|
|
|
|
|
Restricted Stock |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
32,485 |
|
|
|
26,168 |
|
|
$ |
1.24 |
|
|
$ |
20,098 |
|
|
|
24,303 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 18 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
A total of 0.2 million options that were anti-dilutive have been excluded from the computation of
diluted EPS for the three and nine months ended September 30, 2010. These options were
anti-dilutive because their exercise price was greater than the average market price of our stock.
Also, excluded from the computation of diluted EPS in both 2010 periods are 0.7 million options
granted for shares that are issuable upon the achievement of certain market and performance
criteria related to our stock price and an annualized rate of return to investors that have not
been met at this point.
NOTE 15 SEGMENT REPORTING
Our business segments reflect the internal reporting that we use to evaluate operating performance
and to assess the allocation of our resources by our Chief Executive Officer.
Our segments are based upon our organizational structure which focuses primarily on the services
offered.
We classify our businesses into three reportable segments. Mortgage Services consists of mortgage
portfolio management services that span the mortgage lifecycle. Financial Services principally
consists of unsecured asset recovery and customer relationship management. Technology Products
consists of modular, comprehensive integrated technological solutions for loan servicing, vendor
management and invoice presentment as well as providing infrastructure support. In addition, our
Corporate Items and Eliminations segment prior to the Separation Date includes eliminations of
transactions between the reporting segments as well as expenditures recognized by us related to the
Separation. Subsequent to the Separation Date, in addition to the previously mentioned items, this
segment also includes costs recognized by us related to corporate support functions such as
finance, legal, human resources and consumer behavior.
- 19 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Financial information for our segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Items and |
|
|
Consolidated |
|
(in thousands) |
|
Mortgage Services |
|
|
Financial Services |
|
|
Technology Products |
|
|
Eliminations(1) |
|
|
Altisource |
|
Revenue |
|
$ |
53,933 |
|
|
$ |
14,529 |
|
|
$ |
12,963 |
|
|
$ |
(3,845 |
) |
|
$ |
77,580 |
|
Cost of Revenue |
|
|
33,119 |
|
|
|
12,134 |
|
|
|
7,239 |
|
|
|
(3,845 |
) |
|
|
48,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
20,814 |
|
|
|
2,395 |
|
|
|
5,724 |
|
|
|
|
|
|
|
28,933 |
|
Selling, General and
Administrative Expenses |
|
|
4,187 |
|
|
|
4,404 |
|
|
|
1,610 |
|
|
|
4,795 |
|
|
|
14,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
16,627 |
|
|
|
(2,009 |
) |
|
|
4,114 |
|
|
|
(4,795 |
) |
|
|
13,937 |
|
Other Income (Expense), net |
|
|
687 |
|
|
|
(9 |
) |
|
|
(24 |
) |
|
|
44 |
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income
Taxes |
|
$ |
17,314 |
|
|
$ |
(2,018 |
) |
|
$ |
4,090 |
|
|
$ |
(4,751 |
) |
|
$ |
14,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related
Parties Included Above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
34,765 |
|
|
$ |
34 |
|
|
$ |
4,660 |
|
|
$ |
|
|
|
$ |
39,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
223 |
|
|
$ |
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Items and |
|
|
Consolidated |
|
(in thousands) |
|
Mortgage Services |
|
|
Financial Services |
|
|
Technology Products |
|
|
Eliminations(1) |
|
|
Altisource |
|
Revenue |
|
$ |
137,803 |
|
|
$ |
45,642 |
|
|
$ |
37,422 |
|
|
$ |
(10,966 |
) |
|
$ |
209,901 |
|
Cost of Revenue |
|
|
84,622 |
|
|
|
37,538 |
|
|
|
20,555 |
|
|
|
(10,966 |
) |
|
|
131,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
53,181 |
|
|
|
8,104 |
|
|
|
16,867 |
|
|
|
|
|
|
|
78,152 |
|
Selling, General and
Administrative Expenses |
|
|
10,683 |
|
|
|
11,997 |
|
|
|
4,040 |
|
|
|
13,448 |
|
|
|
40,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
42,498 |
|
|
|
(3,893 |
) |
|
|
12,827 |
|
|
|
(13,448 |
) |
|
|
37,984 |
|
Other Income (Expense), net |
|
|
649 |
|
|
|
(38 |
) |
|
|
(45 |
) |
|
|
100 |
|
|
|
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income
Taxes |
|
$ |
43,147 |
|
|
$ |
(3,931 |
) |
|
$ |
12,782 |
|
|
$ |
(13,348 |
) |
|
$ |
38,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related
Parties Included Above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
90,749 |
|
|
$ |
110 |
|
|
$ |
13,635 |
|
|
$ |
|
|
|
$ |
104,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
811 |
|
|
$ |
811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Items and |
|
|
Consolidated |
|
(in thousands) |
|
Mortgage Services |
|
|
Financial Services |
|
|
Technology Products |
|
|
Eliminations(1) |
|
|
Altisource |
|
Revenue |
|
$ |
29,141 |
|
|
$ |
15,837 |
|
|
$ |
12,451 |
|
|
$ |
(3,365 |
) |
|
$ |
54,064 |
|
Cost of Revenue |
|
|
17,262 |
|
|
|
12,635 |
|
|
|
5,582 |
|
|
|
(2,026 |
) |
|
|
33,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
11,879 |
|
|
|
3,202 |
|
|
|
6,869 |
|
|
|
(1,339 |
) |
|
|
20,611 |
|
Selling, General and
Administrative Expenses |
|
|
1,238 |
|
|
|
6,802 |
|
|
|
1,084 |
|
|
|
1,941 |
|
|
|
11,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
10,641 |
|
|
|
(3,600 |
) |
|
|
5,785 |
|
|
|
(3,280 |
) |
|
|
9,546 |
|
Other Income (Expense), net |
|
|
52 |
|
|
|
2,469 |
|
|
|
(51 |
) |
|
|
76 |
|
|
|
2,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income
Taxes |
|
$ |
10,693 |
|
|
$ |
(1,131 |
) |
|
$ |
5,734 |
|
|
$ |
(3,204 |
) |
|
$ |
12,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related
Parties Included Above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
20,963 |
|
|
$ |
28 |
|
|
$ |
5,044 |
|
|
$ |
|
|
|
$ |
26,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses |
|
$ |
531 |
|
|
$ |
85 |
|
|
$ |
294 |
|
|
$ |
(388 |
) |
|
$ |
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
7 |
|
|
$ |
147 |
|
|
$ |
39 |
|
|
$ |
|
|
|
$ |
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Items and |
|
|
Consolidated |
|
(in thousands) |
|
Mortgage Services |
|
|
Financial Services |
|
|
Technology Products |
|
|
Eliminations(1) |
|
|
Altisource |
|
Revenue |
|
$ |
70,861 |
|
|
$ |
49,624 |
|
|
$ |
35,133 |
|
|
$ |
(9,132 |
) |
|
$ |
146,486 |
|
Cost of Revenue |
|
|
41,042 |
|
|
|
40,514 |
|
|
|
18,042 |
|
|
|
(7,793 |
) |
|
|
91,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
29,819 |
|
|
|
9,110 |
|
|
|
17,091 |
|
|
|
(1,339 |
) |
|
|
54,681 |
|
Selling, General and
Administrative Expenses |
|
|
4,913 |
|
|
|
14,632 |
|
|
|
3,880 |
|
|
|
3,791 |
|
|
|
27,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
24,906 |
|
|
|
(5,522 |
) |
|
|
13,211 |
|
|
|
(5,130 |
) |
|
|
27,465 |
|
Other Income (Expense), net |
|
|
29 |
|
|
|
1,354 |
|
|
|
(304 |
) |
|
|
76 |
|
|
|
1,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income
Taxes |
|
$ |
24,935 |
|
|
$ |
(4,168 |
) |
|
$ |
12,907 |
|
|
$ |
(5,054 |
) |
|
$ |
28,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related
Parties Included Above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
51,355 |
|
|
$ |
66 |
|
|
$ |
15,801 |
|
|
$ |
|
|
|
$ |
67,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses |
|
$ |
2,712 |
|
|
$ |
467 |
|
|
$ |
1,517 |
|
|
$ |
(388 |
) |
|
$ |
4,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
30 |
|
|
$ |
1,029 |
|
|
$ |
231 |
|
|
$ |
|
|
|
$ |
1,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REAL products from our Technology Products
segment to our other two segments. Generally, we reflect these charges within technology and communication in the segment receiving the services, except for consulting services, which we
reflect in professional services. |
- 21 -
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
NOTE 16 COMMITMENTS AND CONTINGENCIES
Litigation
The Company is from time to time involved in legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel, the outcome of any
such current matters will not have a material impact on the Companys financial condition, results
of operations or cash flows.
- 22 -
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
intended to help the reader understand the results of operations and financial condition of
Altisource. MD&A is provided as a supplement to, and should be read in conjunction with, our
Condensed Consolidated Financial Statements and the accompanying notes and with our Annual Report
on Form 10-K as filed with the Securities and Exchange Commission on March 17, 2010.
This MD&A contains forward-looking statements; please see Section 7 of this Item 2 for more
information. Significant components of the MD&A section include:
|
|
|
|
|
Page |
|
|
24 |
The overview section provides a summary of Altisource and our
reportable business segments. We also include a discussion of
factors affecting our consolidated results of operations as well as
items specific to each business group. In addition, we provide a
brief description of our basis of presentation for our financial
results. |
|
|
|
|
|
|
|
25 |
The consolidated results of operations section provides an analysis
of our results on a consolidated basis for the three and nine months
ending September 30, 2010 and 2009. When helpful in explaining
trends, we also discuss sequential results. Significant subsections
within this section are as follows: |
|
|
|
|
|
|
|
25 |
|
|
26 |
|
|
27 |
|
|
28 |
|
|
28 |
|
|
29 |
|
|
|
|
|
29 |
The segment results of operations section provides an analysis of our
results on a reportable operating segment basis for the three and
nine months ending September 30, 2010 and 2009. We discuss known
trends and uncertainties. When helpful in explaining trends, we also
discuss sequential results. Significant subsections within this
section are as follows: |
|
|
|
|
|
|
|
34 |
|
|
37 |
|
|
40 |
|
|
|
|
|
42 |
The liquidity and capital resources section provides discussion of
our ability to generate adequate amounts of cash to meet our current
and future needs. Significant subsections within this section are as
follows: |
|
|
|
|
|
|
|
42 |
|
|
42 |
|
|
43 |
|
|
43 |
|
|
43 |
|
|
|
|
|
43 |
|
|
|
|
|
43 |
The other matters section provides a discussion of related party
transactions and provisions of the various separation related
agreements with Ocwen. |
|
|
|
|
|
|
|
44 |
EX-31.1 |
EX-31.2 |
EX-32.1 |
- 23 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
SECTION 1 OVERVIEW
Altisource is a provider of services focused on high value, knowledge-based functions principally
related to real estate and mortgage portfolio management, asset recovery and customer relationship
management. Utilizing integrated technology that includes decision models and behavioral based
scripting engines, we provide solutions that improve clients performance and maximize their
returns.
Our objective is to become a global knowledge process provider initially focused on the entire
mortgage services lifecycle and credit to cash lifecycle management spaces. We intend to achieve
this objective by executing on our strategies of penetrating existing customers, acquiring new
customers, increasing quality and reducing costs and investing in new service offerings.
A. Separation
On August 10, 2009, Altisource became a stand-alone public company in connection with our
Separation from Ocwen. In connection with the Separation, Altisource and Ocwen entered into
Agreements that address the allocation of assets and liabilities between them and that define their
relationship after the Separation. Additional information may be found in Note 1 to the condensed
consolidated financial statements.
B. Basis of Presentation
The accompanying condensed consolidated financial statements present the historical results of
operations, assets and liabilities attributable to the Altisource businesses. For periods prior to
the Separation Date, these condensed consolidated financial statements include allocations of
expenses from Ocwen for certain corporate functions. Total corporate costs allocated to the Company
were $4.3 million for the nine months ended September 30, 2009 ($0.5 million in 2009 for the third
quarter). The charges for these functions are included primarily in Selling, General and
Administrative Expenses in the Condensed Consolidated Statements of Operations. In addition, Ocwen
had allocated interest expense to us based upon our portion of assets to Ocwens total assets which
is reflected as Interest Expense in the Condensed Consolidated Statements of Operations. Other than
transition services, there have been no allocations of Ocwen expenses charged to us since the
Separation Date.
In February 2010, we acquired all of the outstanding membership interests of MPA. MPA was formed
with the purpose of managing BPMC which operates as Lenders One. Lenders One is a national
alliance of independent mortgage bankers that provides its Members with education and training
along with revenue enhancing, cost reducing and market share expanding opportunities. The results
of operations of BPMC are consolidated under the variable interest model since the acquisition
date.
For periods prior to the Separation, the condensed consolidated financial statements also do not
necessarily reflect what the Companys consolidated results of operations, financial position and
cash flows would have been had the Company operated as an independent company during the entirety
of the periods presented. For instance, as an independent public company, Altisource incurs costs
in excess of those previously allocated by Ocwen for maintaining a separate Board of Directors,
obtaining a separate audit, relocating certain executive management and hiring additional
personnel.
Factors Affecting Comparability
In addition to the items noted within the Basis of Presentation section presented above, the
following additional item may impact the comparability of our results:
|
|
|
During 2010, to further align the interests of management with shareholders, we expanded
our use of equity compensation. For the nine months ended September 30, 2010, we have
recognized $2.1 million ($1.2 million in the third quarter) of equity compensation expense
as compared to $0.3 million for the full year ending December 31, 2009. As a result of the
share price doubling as compared to the grant price during June 2010, performance criteria
were met for certain option grants which triggered vesting of the award and acceleration in
the expense recognition of these grants. This contributed to the increase in equity
compensation expense in the third quarter of 2010; |
|
|
|
During the nine months ended September 30, 2009, we recognized $3.4 million ($1.5
million during the third quarter) of one-time costs in anticipation of the Separation from
Ocwen; and |
|
|
|
|
During the nine months ended September 30, 2009, we recognized $2.3 million in facility
closure costs in Selling, General and Administrative Expenses and a $2.3 million litigation
settlement gain in Other Income (both of which were recorded in the third quarter) in our
Financial Services segment. |
- 24 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
SECTION 2 CONSOLIDATED RESULTS OF OPERATIONS
Summary Consolidated Results
Following is a discussion of our consolidated results of operations for the periods indicated.
The following table sets forth information regarding our results of operations for the periods
ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Service Revenue |
|
$ |
62,159 |
|
|
$ |
48,384 |
|
|
|
13,775 |
|
|
|
28 |
|
|
$ |
172,725 |
|
|
$ |
137,477 |
|
|
|
35,248 |
|
|
|
26 |
|
Reimbursable Expenses |
|
|
13,369 |
|
|
|
5,680 |
|
|
|
7,689 |
|
|
|
135 |
|
|
|
33,040 |
|
|
|
9,009 |
|
|
|
24,031 |
|
|
|
N/M |
|
Cooperative Non-controlling Interest |
|
|
2,052 |
|
|
|
|
|
|
|
2,052 |
|
|
|
N/M |
|
|
|
4,136 |
|
|
|
|
|
|
|
4,136 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
77,580 |
|
|
|
54,064 |
|
|
|
23,516 |
|
|
|
44 |
|
|
|
209,901 |
|
|
|
146,486 |
|
|
|
63,415 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
35,278 |
|
|
|
27,773 |
|
|
|
7,505 |
|
|
|
27 |
|
|
|
98,709 |
|
|
|
82,796 |
|
|
|
15,913 |
|
|
|
19 |
|
Reimbursable Expenses |
|
|
13,369 |
|
|
|
5,680 |
|
|
|
7,689 |
|
|
|
135 |
|
|
|
33,040 |
|
|
|
9,009 |
|
|
|
24,031 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
28,933 |
|
|
|
20,611 |
|
|
|
8,322 |
|
|
|
40 |
|
|
|
78,152 |
|
|
|
54,681 |
|
|
|
23,471 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses |
|
|
14,996 |
|
|
|
11,065 |
|
|
|
3,931 |
|
|
|
36 |
|
|
|
40,168 |
|
|
|
27,216 |
|
|
|
12,952 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
|
13,937 |
|
|
|
9,546 |
|
|
|
4,391 |
|
|
|
46 |
|
|
|
37,984 |
|
|
|
27,465 |
|
|
|
10,519 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), net |
|
|
698 |
|
|
|
2,546 |
|
|
|
(1,848 |
) |
|
|
(73 |
) |
|
|
666 |
|
|
|
1,155 |
|
|
|
(489 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes and
Non-controlling Interests |
|
|
14,635 |
|
|
|
12,092 |
|
|
|
2,543 |
|
|
|
21 |
|
|
|
38,650 |
|
|
|
28,620 |
|
|
|
10,030 |
|
|
|
35 |
|
Income Tax Benefit (Provision) |
|
|
(2,751 |
) |
|
|
(3,448 |
) |
|
|
697 |
|
|
|
20 |
|
|
|
(2,029 |
) |
|
|
(8,522 |
) |
|
|
6,493 |
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
11,884 |
|
|
|
8,644 |
|
|
|
3,240 |
|
|
|
37 |
|
|
|
36,621 |
|
|
|
20,098 |
|
|
|
16,523 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Non-controlling
Interests |
|
|
(2,052 |
) |
|
|
|
|
|
|
(2,052 |
) |
|
|
N/M |
|
|
|
(4,136 |
) |
|
|
|
|
|
|
(4,136 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Altisource |
|
$ |
9,832 |
|
|
$ |
8,644 |
|
|
|
1,188 |
|
|
|
14 |
|
|
$ |
32,485 |
|
|
$ |
20,098 |
|
|
|
12,387 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.39 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
$ |
1.30 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.37 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
$ |
1.24 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
39,459 |
|
|
$ |
26,035 |
|
|
|
13,424 |
|
|
|
52 |
|
|
$ |
104,494 |
|
|
$ |
67,222 |
|
|
|
37,272 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
$ |
223 |
|
|
$ |
522 |
|
|
|
(299 |
) |
|
|
(57 |
) |
|
$ |
811 |
|
|
$ |
4,308 |
|
|
|
(3,497 |
) |
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
|
|
|
$ |
193 |
|
|
|
(193 |
) |
|
|
(100 |
) |
|
$ |
|
|
|
$ |
1,290 |
|
|
|
(1,290 |
) |
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 25 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Revenue
The following table presents our revenues for the periods ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Mortgage Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue: |
|
$ |
39,319 |
|
|
$ |
23,461 |
|
|
|
15,858 |
|
|
|
68 |
|
|
$ |
102,856 |
|
|
$ |
61,852 |
|
|
|
41,004 |
|
|
|
66 |
|
Reimbursable Expenses |
|
|
12,562 |
|
|
|
5,680 |
|
|
|
6,882 |
|
|
|
121 |
|
|
|
30,811 |
|
|
|
9,009 |
|
|
|
21,802 |
|
|
|
242 |
|
Cooperative Non-controlling Interest |
|
|
2,052 |
|
|
|
|
|
|
|
2,052 |
|
|
|
N/M |
|
|
|
4,136 |
|
|
|
|
|
|
|
4,136 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Services Total Revenue |
|
|
53,933 |
|
|
|
29,141 |
|
|
|
24,792 |
|
|
|
85 |
|
|
|
137,803 |
|
|
|
70,861 |
|
|
|
66,942 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue: |
|
|
13,722 |
|
|
|
15,837 |
|
|
|
(2,115 |
) |
|
|
(13 |
) |
|
|
43,413 |
|
|
|
49,624 |
|
|
|
(6,211 |
) |
|
|
(13 |
) |
Reimbursable Expenses |
|
|
807 |
|
|
|
|
|
|
|
807 |
|
|
|
N/M |
|
|
|
2,229 |
|
|
|
|
|
|
|
2,229 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Total Revenue |
|
|
14,529 |
|
|
|
15,837 |
|
|
|
(1,308 |
) |
|
|
(8 |
) |
|
|
45,642 |
|
|
|
49,624 |
|
|
|
(3,982 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Products |
|
|
12,963 |
|
|
|
12,451 |
|
|
|
512 |
|
|
|
4 |
|
|
|
37,422 |
|
|
|
35,133 |
|
|
|
2,289 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations |
|
|
(3,845 |
) |
|
|
(3,365 |
) |
|
|
(480 |
) |
|
|
(14 |
) |
|
|
(10,966 |
) |
|
|
(9,132 |
) |
|
|
(1,834 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
77,580 |
|
|
$ |
54,064 |
|
|
|
23,516 |
|
|
|
44 |
|
|
$ |
209,901 |
|
|
$ |
146,486 |
|
|
|
63,415 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Services |
|
$ |
34,765 |
|
|
$ |
20,963 |
|
|
|
13,802 |
|
|
|
66 |
|
|
$ |
90,749 |
|
|
$ |
51,355 |
|
|
|
39,394 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services |
|
$ |
34 |
|
|
$ |
28 |
|
|
|
6 |
|
|
|
22 |
|
|
$ |
110 |
|
|
$ |
66 |
|
|
|
44 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Products |
|
$ |
4,660 |
|
|
$ |
5,044 |
|
|
|
(384 |
) |
|
|
(8 |
) |
|
$ |
13,635 |
|
|
$ |
15,801 |
|
|
|
(2,166 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue consists of amounts attributable to our fee based services. Reimbursable
Expenses consists of amounts that we incur on behalf of our customers in performing our fee based
services, but we pass such costs directly on to our customers without any additional markup.
Cooperative Non-controlling Interests is attributable to the Members of Lenders One.
We have continued to grow both Total Revenue and Service Revenue in our Mortgage Services segment
primarily driven by the development and execution of default oriented mortgage services over an
expanding national delivery platform. Our acquisition of MPA has also contributed to the increase
from the prior year. Our largest customer, Ocwen, recently expanded its residential loan portfolio
to almost 500,000 loans as of September 30, 2010 with its acquisition of the HomEq residential loan
portfolio of approximately 130,000 loans. Due to the timing of the HomEq referrals received from
Ocwen, the impact of Ocwens acquisition had a limited impact to Altisources revenues for the
third quarter.
With respect to our Financial Services segment, contributing factors to the general decline in
revenues include reduced placements from our largest customer for this segment partially offset by
placements from other customers. In addition, we continue to build out a global delivery platform
for collections which sometimes results in lower revenues per account although at higher margins.
Technology Products revenues have generally increased as Ocwen has increased its residential loan
portfolio and headcount resulting in additional fees.
Our revenues are seasonal. More specifically, Financial Services revenue tends to be higher in the
first half of the year, particularly the first quarter, as borrowers may utilize tax refunds to pay
debts. Mortgage Services revenue is impacted by Real Estate Owned (REO) sales which tend to be
at their lowest level during winter months and highest during summer months.
- 26 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Cost of Revenue
Cost of revenue principally includes payroll and employee benefits associated with personnel
employed in customer service and operations roles, fees paid to external providers related to
provision of services, reimbursable expenses, technology and telephony expenses as well as
depreciation and amortization of operating assets. The components of cost of revenue were as
follows for the periods ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Compensation and Benefits |
|
$ |
15,828 |
|
|
$ |
13,735 |
|
|
|
2,093 |
|
|
|
15 |
|
|
$ |
45,518 |
|
|
$ |
39,612 |
|
|
|
5,906 |
|
|
|
15 |
|
Outside Fees and Services |
|
|
15,311 |
|
|
|
10,550 |
|
|
|
4,761 |
|
|
|
45 |
|
|
|
41,092 |
|
|
|
31,502 |
|
|
|
9,590 |
|
|
|
30 |
|
Reimbursable Expenses |
|
|
13,369 |
|
|
|
5,680 |
|
|
|
7,689 |
|
|
|
135 |
|
|
|
33,040 |
|
|
|
9,009 |
|
|
|
24,031 |
|
|
|
N/M |
|
Technology and Communications |
|
|
4,139 |
|
|
|
3,488 |
|
|
|
651 |
|
|
|
19 |
|
|
|
12,099 |
|
|
|
11,682 |
|
|
|
417 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
$ |
48,647 |
|
|
$ |
33,453 |
|
|
|
15,194 |
|
|
|
45 |
|
|
$ |
131,749 |
|
|
$ |
91,805 |
|
|
|
39,944 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin Percentage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue / Total Revenue |
|
|
37 |
% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
37 |
% |
|
|
37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue less
Reimbursable Expenses /
Service Revenue |
|
|
47 |
% |
|
|
43 |
% |
|
|
|
|
|
|
|
|
|
|
45 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In evaluating the performance of our segments, we generally neutralize the impact of
pass-through items for which we earn no margin by excluding reimbursable expenses from Cost of
Revenue and computing gross margin based upon Service Revenue.
On a consolidated basis, our gross margins based on Service Revenue for the nine months ended
September 30, 2010 increased as a result of the composition of revenues being more weighted towards
the higher margin Mortgage Services segment, the recent acquisition of MPA and our ability to
efficiently scale our operations as our referral base grows.
Compensation and benefits costs have grown year to date as we scaled to support the national
rollout of services and in anticipation of the growth in Ocwens residential loan portfolio.
Sequentially, compensation and benefit costs have remained relatively flat. In addition, for
periods subsequent to the Separation Date, we treat compensation costs associated with segment
executive management and segment marketing activities as a component of Selling, General and
Administrative Expenses.
Outside fees and services primarily increased in our Mortgage Services segment consistent with
greater revenues. Outside fees and services also increased when compared to the prior year in our
Financial Services segment as we increased our use of external collectors. In the third quarter,
outside fees and services for Financial Services began to decline slightly as we transitioned more
work from external collectors to employees.
Technology and communication costs increased in both periods related to costs associated with the
new data center. In addition, in the third quarter technology and communications costs increased
as a result of the addition of new facilities and the expansion of bandwidth at existing facilities
to handle the increased demands expected in the fourth quarter.
- 27 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Selling, General and Administrative Expenses
Selling, general and administrative expenses include payroll, employee benefits, occupancy and
other costs associated with personnel employed in executive, sales, marketing, human resources,
consumer behavior, internal audit and finance roles. This category also includes professional
fees, depreciation and amortization on non-operating assets. The components of Selling, General
and Administrative Expenses were as follows for the periods ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Compensation and Benefits |
|
$ |
5,251 |
|
|
$ |
521 |
|
|
|
4,730 |
|
|
|
N/M |
|
|
$ |
13,256 |
|
|
$ |
4,307 |
|
|
|
8,949 |
|
|
|
208 |
|
Professional Services |
|
|
1,812 |
|
|
|
4,158 |
|
|
|
(2,346 |
) |
|
|
(56 |
) |
|
|
5,869 |
|
|
|
7,514 |
|
|
|
(1,645 |
) |
|
|
(22 |
) |
Occupancy Related Costs |
|
|
4,733 |
|
|
|
1,976 |
|
|
|
2,757 |
|
|
|
140 |
|
|
|
10,845 |
|
|
|
6,086 |
|
|
|
4,759 |
|
|
|
78 |
|
Amortization of Intangible Assets |
|
|
1,450 |
|
|
|
668 |
|
|
|
782 |
|
|
|
117 |
|
|
|
4,089 |
|
|
|
2,004 |
|
|
|
2,085 |
|
|
|
104 |
|
Other |
|
|
1,750 |
|
|
|
3,742 |
|
|
|
(1,992 |
) |
|
|
(53 |
) |
|
|
6,109 |
|
|
|
7,305 |
|
|
|
(1,196 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Selling, General and
Administrative Expenses |
|
$ |
14,996 |
|
|
$ |
11,065 |
|
|
|
3,931 |
|
|
|
36 |
|
|
$ |
40,168 |
|
|
$ |
27,216 |
|
|
|
12,952 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Percentage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income / Total Revenue |
|
|
18 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
18 |
% |
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income / Service Revenue |
|
|
22 |
% |
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
22 |
% |
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Similar to gross margins, we evaluate operating margins by comparing Operating Income over
Service Revenue to neutralize the impact of pass-through items for which we earn no margin.
When calculated based on Service Revenue, our operating margins for the three and nine months ended
September 30, 2010 improved slightly when compared to the similar prior year period.
Compensation and Benefits has increased from the prior year primarily as a result of the cost of
being a separate public company and the need to have separate support functions such as accounting,
legal and human resources as well as to the previously mentioned reclassification of certain
executive and marketing related compensation costs from cost of revenues. In addition, equity
compensation for senior executives is recognized within Selling, General and Administrative
Expenses.
Costs associated with Professional Services have increased over the prior year after we consider
the impact of 2009 one-time costs of $3.4 million year to date ($1.5 million for the third quarter)
related to the Separation and $2.3 million year to date (all recorded in the third quarter) related
to facility closure costs in our Financial Services segment. The increase in Professional Services
is primarily attributable to costs associated with being a separate public company including
increased audit and legal fees as well as insurance.
Occupancy Related Costs increased in 2010 primarily as a result of our expansion of services which
led to new leased facilities in India and the United States. The year to date increase was
partially offset by decreases associated with lease facility closures in Financial Services in the
third quarter of 2009.
Amortization of Intangible Assets increased as a result of the intangibles acquired in connection
with the acquisition of MPA (see Notes 3 and 7 to the condensed consolidated financial statements).
EBITDA
Altisource evaluates performance based on several factors of which a primary financial measure is
income before interest, tax, depreciation and amortization (EBITDA). We believe that this
non-GAAP financial measure is useful to investors and analysts
- 28 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
in analyzing and assessing our
overall business performance since we utilize this information for making operating decisions, for
compensation decisions and for forecasting and planning future periods. While the Company uses
non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its
financial performance and to provide incremental insight into the underlying factors and trends
affecting both the Companys performance and its cash-generating potential, the Company does not
consider these measures to be a substitute for, or superior to, the information provided by GAAP
financial measures. Consistent with this approach, the Company believes that disclosing non-GAAP
financial measures to the readers of its financial statements provides such readers with useful
supplemental data that, while not a substitute for GAAP financial measures, allows for greater
transparency in the review of its financial and operational performance and enables investors to
more fully understand trends in its current and future performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Income Before Income Taxes |
|
$ |
14,635 |
|
|
$ |
12,092 |
|
|
|
2,543 |
|
|
|
21 |
|
|
$ |
38,650 |
|
|
$ |
28,620 |
|
|
|
10,030 |
|
|
|
35 |
|
Interest, net |
|
|
26 |
|
|
|
191 |
|
|
|
(165 |
) |
|
|
(86 |
) |
|
|
65 |
|
|
|
1,601 |
|
|
|
(1,536 |
) |
|
|
(96 |
) |
Depreciation and Amortization |
|
|
1,804 |
|
|
|
1,395 |
|
|
|
409 |
|
|
|
29 |
|
|
|
5,015 |
|
|
|
4,188 |
|
|
|
827 |
|
|
|
20 |
|
Amortization of Intangibles |
|
|
1,450 |
|
|
|
668 |
|
|
|
782 |
|
|
|
117 |
|
|
|
4,089 |
|
|
|
2,004 |
|
|
|
2,085 |
|
|
|
104 |
|
Net Income Attributable to
Non-controlling Interests |
|
|
(2,052 |
) |
|
|
|
|
|
|
(2,052 |
) |
|
|
N/M |
|
|
|
(4,136 |
) |
|
|
|
|
|
|
(4,136 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
$ |
15,863 |
|
|
$ |
14,346 |
|
|
|
1,517 |
|
|
|
11 |
|
|
$ |
43,683 |
|
|
$ |
36,413 |
|
|
|
7,270 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA / Total Revenue |
|
|
20 |
% |
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
21 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA / Service Revenue |
|
|
26 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
25 |
% |
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See SECTION 3 SEGMENT RESULTS OF OPERATIONS below for a reconciliation of the most directly comparable GAAP measure to EBITDA. |
N/M not meaningful.
We evaluate EBITDA margins against Service Revenue internally to neutralize the impact of
pass-through items for which we earn no margin.
EBITDA margins based on Service Revenue declined year to date principally due to a decline in
performance of Financial Services and scaling our operations to support the national rollout of
services and the anticipated growth in Ocwens residential loan portfolio. In addition, during
2010, to further align the interests of management with shareholders, we expanded our use of equity
compensation. For the nine months ended September 30, 2010, we have recognized $2.2 million ($1.2
million in the third quarter) of equity compensation expense as compared to $0.3 million for the
full year ending December 31, 2009. We expect EBITDA as a percent of service revenue to improve in
the fourth quarter as we begin to more fully realize the benefit of Ocwens acquisition of the
residential loan portfolio of HomEq and leverage our larger operational structure.
Income Taxes
For the third quarter Altisources effective tax rate was 18.8%, which is higher than our estimated
effective tax rate for the full year due to permanent differences recognized in the quarter. The
year to date effective tax rate is 5.2% which includes the impact of credits recognized in the
second quarter associated with 2009. Income tax provision on income before income tax differs from
amounts that would be computed by applying the Luxembourg federal corporate income tax rate of
28.6% primarily because of the effect of enacted tax statutes in multiple jurisdictions, the
treatment of intangibles for tax purposes and differing tax rates outside of Luxembourg.
SECTION 3 SEGMENT RESULTS OF OPERATIONS
The following section provides a discussion of pre-tax results of operations of our business
segments for the periods ended September 30, 2010 and 2009. Transactions between segments are
accounted for as third-party arrangements for purposes of presenting segment results of operations.
Intercompany transactions primarily consist of information technology infrastructure services and
charges for the use of certain REAL products from our Technology Products segment to our other two
segments. Generally, we reflect these charges within technology and communication in the segment
receiving the services, except for consulting services, which we reflect in professional services.
- 29 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Financial information for our segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 |
|
|
|
Mortgage |
|
|
Financial |
|
|
Technology |
|
|
Corporate
Items and |
|
|
Consolidated |
|
(in thousands) |
|
Services |
|
|
Services |
|
|
Products |
|
|
Eliminations(1) |
|
|
Altisource |
|
Revenue |
|
$ |
53,933 |
|
|
$ |
14,529 |
|
|
$ |
12,963 |
|
|
$ |
(3,845 |
) |
|
$ |
77,580 |
|
Cost of Revenue |
|
|
33,119 |
|
|
|
12,134 |
|
|
|
7,239 |
|
|
|
(3,845 |
) |
|
|
48,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
20,814 |
|
|
|
2,395 |
|
|
|
5,724 |
|
|
|
|
|
|
|
28,933 |
|
Selling, General and Administrative Expenses |
|
|
4,187 |
|
|
|
4,404 |
|
|
|
1,610 |
|
|
|
4,795 |
|
|
|
14,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
16,627 |
|
|
|
(2,009 |
) |
|
|
4,114 |
|
|
|
(4,795 |
) |
|
|
13,937 |
|
Other Income (Expense), net |
|
|
687 |
|
|
|
(9 |
) |
|
|
(24 |
) |
|
|
44 |
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes and
Non-Controlling Interests |
|
$ |
17,314 |
|
|
$ |
(2,018 |
) |
|
$ |
4,090 |
|
|
$ |
(4,751 |
) |
|
$ |
14,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes and
Non-Controlling Interests |
|
$ |
17,314 |
|
|
$ |
(2,018 |
) |
|
$ |
4,090 |
|
|
$ |
(4,751 |
) |
|
$ |
14,635 |
|
Interest, net |
|
|
(3 |
) |
|
|
13 |
|
|
|
23 |
|
|
|
(7 |
) |
|
|
26 |
|
Depreciation and Amortization(2) |
|
|
74 |
|
|
|
478 |
|
|
|
1,140 |
|
|
|
112 |
|
|
|
1,804 |
|
Amortization of Intangibles |
|
|
781 |
|
|
|
669 |
|
|
|
|
|
|
|
|
|
|
|
1,450 |
|
Net Income Attributable to Non-controlling
Interests |
|
|
(2,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
16,114 |
|
|
$ |
(858 |
) |
|
$ |
5,253 |
|
|
$ |
(4,646 |
) |
|
$ |
15,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
34,765 |
|
|
$ |
34 |
|
|
$ |
4,660 |
|
|
$ |
|
|
|
$ |
39,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
223 |
|
|
$ |
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 30 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Mortgage |
|
|
Financial |
|
|
Technology |
|
|
Items and |
|
|
Consolidated |
|
(in thousands) |
|
Services |
|
|
Services |
|
|
Products |
|
|
Eliminations(1) |
|
|
Altisource |
|
Revenue |
|
$ |
29,141 |
|
|
$ |
15,837 |
|
|
$ |
12,451 |
|
|
$ |
(3,365 |
) |
|
$ |
54,064 |
|
Cost of Revenue |
|
|
17,262 |
|
|
|
12,635 |
|
|
|
5,582 |
|
|
|
(2,026 |
) |
|
|
33,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
11,879 |
|
|
|
3,202 |
|
|
|
6,869 |
|
|
|
(1,339 |
) |
|
|
20,611 |
|
Selling, General and Administrative Expenses |
|
|
1,238 |
|
|
|
6,802 |
|
|
|
1,084 |
|
|
|
1,941 |
|
|
|
11,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
10,641 |
|
|
|
(3,600 |
) |
|
|
5,785 |
|
|
|
(3,280 |
) |
|
|
9,546 |
|
Other Income (Expense), net |
|
|
52 |
|
|
|
2,469 |
|
|
|
(51 |
) |
|
|
76 |
|
|
|
2,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes and
Non-Controlling Interests |
|
$ |
10,693 |
|
|
$ |
(1,131 |
) |
|
$ |
5,734 |
|
|
$ |
(3,204 |
) |
|
$ |
12,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes and
Non-Controlling Interests |
|
$ |
10,693 |
|
|
$ |
(1,131 |
) |
|
$ |
5,734 |
|
|
$ |
(3,204 |
) |
|
$ |
12,092 |
|
Interest, net |
|
|
7 |
|
|
|
146 |
|
|
|
53 |
|
|
|
(15 |
) |
|
|
191 |
|
Depreciation and Amortization(2) |
|
|
19 |
|
|
|
609 |
|
|
|
758 |
|
|
|
9 |
|
|
|
1,395 |
|
Amortization of Intangibles |
|
|
|
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
10,719 |
|
|
$ |
292 |
|
|
$ |
6,545 |
|
|
$ |
(3,210 |
) |
|
$ |
14,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
20,963 |
|
|
$ |
28 |
|
|
$ |
5,044 |
|
|
$ |
|
|
|
$ |
26,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
$ |
531 |
|
|
$ |
85 |
|
|
$ |
294 |
|
|
$ |
(388 |
) |
|
$ |
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
7 |
|
|
$ |
147 |
|
|
$ |
39 |
|
|
$ |
|
|
|
$ |
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 31 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Mortgage |
|
|
Financial |
|
|
Technology |
|
|
Items and |
|
|
Consolidated |
|
(in thousands) |
|
Services |
|
|
Services |
|
|
Products |
|
|
Eliminations(1) |
|
|
Altisource |
|
Revenue |
|
$ |
137,803 |
|
|
$ |
45,642 |
|
|
$ |
37,422 |
|
|
$ |
(10,966 |
) |
|
$ |
209,901 |
|
Cost of Revenue |
|
|
84,622 |
|
|
|
37,538 |
|
|
|
20,555 |
|
|
|
(10,966 |
) |
|
|
131,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
53,181 |
|
|
|
8,104 |
|
|
|
16,867 |
|
|
|
|
|
|
|
78,152 |
|
Selling, General and Administrative Expenses |
|
|
10,683 |
|
|
|
11,997 |
|
|
|
4,040 |
|
|
|
13,448 |
|
|
|
40,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
42,498 |
|
|
|
(3,893 |
) |
|
|
12,827 |
|
|
|
(13,448 |
) |
|
|
37,984 |
|
Other Income (Expense), net |
|
|
649 |
|
|
|
(38 |
) |
|
|
(45 |
) |
|
|
100 |
|
|
|
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes and
Non-controlling Interests |
|
$ |
43,147 |
|
|
$ |
(3,931 |
) |
|
$ |
12,782 |
|
|
$ |
(13,348 |
) |
|
$ |
38,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes and
Non-controlling Interests |
|
$ |
43,147 |
|
|
$ |
(3,931 |
) |
|
$ |
12,782 |
|
|
$ |
(13,348 |
) |
|
$ |
38,650 |
|
Interest, net |
|
|
(8 |
) |
|
|
43 |
|
|
|
44 |
|
|
|
(14 |
) |
|
|
65 |
|
Depreciation and Amortization(2) |
|
|
193 |
|
|
|
1,479 |
|
|
|
3,043 |
|
|
|
300 |
|
|
|
5,015 |
|
Amortization of Intangibles |
|
|
2,084 |
|
|
|
2,005 |
|
|
|
|
|
|
|
|
|
|
|
4,089 |
|
Net Income Attributable to Non-controlling
Interests |
|
|
(4,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
41,280 |
|
|
$ |
(404 |
) |
|
$ |
15,869 |
|
|
$ |
(13,062 |
) |
|
$ |
43,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
90,749 |
|
|
$ |
110 |
|
|
$ |
13,635 |
|
|
$ |
|
|
|
$ |
104,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
811 |
|
|
$ |
811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 32 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Mortgage |
|
|
Financial |
|
|
Technology |
|
|
Items and |
|
|
Consolidated |
|
(in thousands) |
|
Services |
|
|
Services |
|
|
Products |
|
|
Eliminations(1) |
|
|
Altisource |
|
Revenue |
|
$ |
70,861 |
|
|
$ |
49,624 |
|
|
$ |
35,133 |
|
|
$ |
(9,132 |
) |
|
$ |
146,486 |
|
Cost of Revenue |
|
|
41,042 |
|
|
|
40,514 |
|
|
|
18,042 |
|
|
|
(7,793 |
) |
|
|
91,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
29,819 |
|
|
|
9,110 |
|
|
|
17,091 |
|
|
|
(1,339 |
) |
|
|
54,681 |
|
Selling, General and Administrative Expenses |
|
|
4,913 |
|
|
|
14,632 |
|
|
|
3,880 |
|
|
|
3,791 |
|
|
|
27,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
|
24,906 |
|
|
|
(5,522 |
) |
|
|
13,211 |
|
|
|
(5,130 |
) |
|
|
27,465 |
|
Other Income (Expense), net |
|
|
29 |
|
|
|
1,354 |
|
|
|
(304 |
) |
|
|
76 |
|
|
|
1,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes and
Non-controlling Interests |
|
$ |
24,935 |
|
|
$ |
(4,168 |
) |
|
$ |
12,907 |
|
|
$ |
(5,054 |
) |
|
$ |
28,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes and
Non-controlling Interests |
|
$ |
24,935 |
|
|
$ |
(4,168 |
) |
|
$ |
12,907 |
|
|
$ |
(5,054 |
) |
|
$ |
28,620 |
|
Interest, net |
|
|
28 |
|
|
|
1,286 |
|
|
|
302 |
|
|
|
(15 |
) |
|
|
1,601 |
|
Depreciation and Amortization(2) |
|
|
22 |
|
|
|
1,898 |
|
|
|
2,259 |
|
|
|
9 |
|
|
|
4,188 |
|
Amortization of Intangibles |
|
|
|
|
|
|
2,004 |
|
|
|
|
|
|
|
|
|
|
|
2,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
24,985 |
|
|
$ |
1,020 |
|
|
$ |
15,468 |
|
|
$ |
(5,060 |
) |
|
$ |
36,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
51,355 |
|
|
$ |
66 |
|
|
$ |
15,801 |
|
|
$ |
|
|
|
$ |
67,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
$ |
2,712 |
|
|
$ |
467 |
|
|
$ |
1,517 |
|
|
$ |
(388 |
) |
|
$ |
4,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
30 |
|
|
$ |
1,029 |
|
|
$ |
231 |
|
|
$ |
|
|
|
$ |
1,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Intercompany transactions primarily consist of information technology infrastructure
services and charges for the use of certain REAL products from our Technology Products segment
to our other two segments. Generally, we reflect these charges within technology and
communication in the segment receiving the services, except for consulting services which we
reflect in professional services. |
|
(2) |
|
Includes depreciation and amortization of $1.0 million and $1.6 million for the nine
months ended September 30, 2010 and 2009 ($0.5 million for the quarter ended September 30,
2009), for assets reflected in the Technology Products segment but utilized by the Financial
Services segment. |
- 33 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Mortgage Services
The following table presents our results of operations for our Mortgage Services segment for the
three and nine months ending September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Service Revenue |
|
$ |
39,319 |
|
|
$ |
23,461 |
|
|
|
15,858 |
|
|
|
68 |
|
|
$ |
102,856 |
|
|
$ |
61,852 |
|
|
|
41,004 |
|
|
|
66 |
|
Reimbursable Expenses |
|
|
12,562 |
|
|
|
5,680 |
|
|
|
6,882 |
|
|
|
121 |
|
|
|
30,811 |
|
|
|
9,009 |
|
|
|
21,802 |
|
|
|
242 |
|
Cooperative Non-controlling Interest |
|
|
2,052 |
|
|
|
|
|
|
|
2,052 |
|
|
|
N/M |
|
|
|
4,136 |
|
|
|
|
|
|
|
4,136 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
53,933 |
|
|
|
29,141 |
|
|
|
24,792 |
|
|
|
85 |
|
|
|
137,803 |
|
|
|
70,861 |
|
|
|
66,942 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
33,119 |
|
|
|
17,262 |
|
|
|
15,857 |
|
|
|
92 |
|
|
|
84,622 |
|
|
|
41,042 |
|
|
|
43,580 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,814 |
|
|
|
11,879 |
|
|
|
8,935 |
|
|
|
75 |
|
|
|
53,181 |
|
|
|
29,819 |
|
|
|
23,362 |
|
|
|
78 |
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
|
4,187 |
|
|
|
1,238 |
|
|
|
2,949 |
|
|
|
238 |
|
|
|
10,683 |
|
|
|
4,913 |
|
|
|
5,770 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
$ |
16,627 |
|
|
$ |
10,641 |
|
|
|
5,986 |
|
|
|
56 |
|
|
$ |
42,498 |
|
|
$ |
24,906 |
|
|
|
17,592 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
$ |
16,114 |
|
|
$ |
10,719 |
|
|
|
5,395 |
|
|
|
50 |
|
|
$ |
41,280 |
|
|
$ |
24,985 |
|
|
|
16,295 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties Above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
34,765 |
|
|
$ |
20,963 |
|
|
|
13,802 |
|
|
|
66 |
|
|
$ |
90,749 |
|
|
$ |
51,355 |
|
|
|
39,394 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
|
|
|
|
|
531 |
|
|
|
(531 |
) |
|
|
N/M |
|
|
|
|
|
|
|
2,712 |
|
|
|
(2,712 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
|
|
|
$ |
7 |
|
|
|
(7 |
) |
|
|
N/M |
|
|
$ |
|
|
|
$ |
30 |
|
|
|
(30 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See above for a reconciliation of the most directly comparable GAAP measure to
EBITDA. |
N/M not meaningful.
Service Revenue for our Mortgage Services segment has consistently grown for the periods
presented primarily as a result of our development and rollout of default oriented Mortgage
Services over our expanding national delivery platform, the growth in Ocwens residential loan
portfolio and the acquisition of MPA in February 2010.
Ocwens acquisition of the HomEq residential loan portfolio
had limited impact to our revenues for the third quarter since we generally did not receive
referrals until very late in September.
Altisource continues to expand its default services. As of September 30, 2010, we:
|
|
|
Provide REO brokerage disposition services on over 8,500 properties (compared to
approximately 5,700 properties as of June 30, 2010); and |
|
|
|
Managed property preservation services nationally for over 13,500 properties (compared
to over 10,200 properties as of June 30, 2010). |
In addition, we announced during the first quarter call that we had finalized a confidential
agreement to provide asset management services to a potentially significant customer. We began
performing services for this client in September and expect to begin revenue recognition in the
fourth quarter.
Members United and Acquisition MPA
We are committed to providing a full suite of mortgage services in 2011 to assist mortgage
originators including valuation, title, fulfillment and flood certification services. Through our
acquisition of MPA and the recently signed agreement with Members United Corporate Federal Credit
Union (Members United), we have preferred access to over 2,000 diverse financial institutions
which we believe constitutes 7% of the total origination market. In addition, for members of MPA
we believe that over time we can work with Ocwen and other partners to provide additional avenues
to sell loans beyond the current preferred investor
- 34 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
arrangements resulting in improved capital markets execution. We expect this will facilitate the
sale of our services to the members.
MPA and its consolidated subsidiary contributed $11.4 million of revenue, including $4.1 million
attributable to non-controlling interests, and $3.9 million of EBITDA since the February 2010
acquisition date. This revenue and EBITDA was a sequential improvement and was substantially in
line with our internal projections which included a forecasted decline in origination volumes
during 2010. We expect this decline to be somewhat mitigated given the accelerated pace of new
members joining the cooperative. Through September 30, 2010, MPA has over 170 Members.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management Services |
|
$ |
22,349 |
|
|
$ |
10,570 |
|
|
|
11,779 |
|
|
|
111 |
|
|
$ |
54,198 |
|
|
$ |
19,417 |
|
|
|
34,781 |
|
|
|
179 |
|
Component Services and Other |
|
|
11,264 |
|
|
|
5,198 |
|
|
|
6,066 |
|
|
|
117 |
|
|
|
28,057 |
|
|
|
13,601 |
|
|
|
14,456 |
|
|
|
106 |
|
Residential Property Valuation |
|
|
8,796 |
|
|
|
6,233 |
|
|
|
2,563 |
|
|
|
41 |
|
|
|
22,952 |
|
|
|
20,268 |
|
|
|
2,684 |
|
|
|
13 |
|
Closing and Title Services |
|
|
6,461 |
|
|
|
4,334 |
|
|
|
2,127 |
|
|
|
49 |
|
|
|
17,878 |
|
|
|
12,924 |
|
|
|
4,954 |
|
|
|
38 |
|
Default Management Services |
|
|
5,063 |
|
|
|
2,806 |
|
|
|
2,257 |
|
|
|
80 |
|
|
|
14,718 |
|
|
|
4,651 |
|
|
|
10,067 |
|
|
|
216 |
|
Total Revenue |
|
$ |
53,933 |
|
|
$ |
29,141 |
|
|
|
24,792 |
|
|
|
85 |
|
|
$ |
137,803 |
|
|
$ |
70,861 |
|
|
|
66,942 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management Services |
|
|
21,250 |
|
|
|
10,570 |
|
|
|
10,680 |
|
|
|
101 |
|
|
|
53,099 |
|
|
|
19,417 |
|
|
|
33,682 |
|
|
|
174 |
|
Residential Property Valuation |
|
|
8,729 |
|
|
|
6,000 |
|
|
|
2,729 |
|
|
|
46 |
|
|
|
22,182 |
|
|
|
19,613 |
|
|
|
2,569 |
|
|
|
13 |
|
Closing and Title Services |
|
|
3,428 |
|
|
|
3,235 |
|
|
|
193 |
|
|
|
6 |
|
|
|
10,818 |
|
|
|
10,370 |
|
|
|
448 |
|
|
|
4 |
|
Default Management Services |
|
|
1,358 |
|
|
|
1,158 |
|
|
|
200 |
|
|
|
17 |
|
|
|
4,650 |
|
|
|
1,955 |
|
|
|
2,695 |
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
34,765 |
|
|
$ |
20,963 |
|
|
|
13,802 |
|
|
|
66 |
|
|
$ |
90,749 |
|
|
$ |
51,355 |
|
|
|
39,394 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursable Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management Services |
|
|
11,899 |
|
|
|
5,191 |
|
|
|
6,708 |
|
|
|
129 |
|
|
|
29,027 |
|
|
|
8,337 |
|
|
|
20,690 |
|
|
|
248 |
|
Default Management Services |
|
|
561 |
|
|
|
489 |
|
|
|
72 |
|
|
|
15 |
|
|
|
1,609 |
|
|
|
672 |
|
|
|
937 |
|
|
|
139 |
|
Closing and Title Services |
|
|
102 |
|
|
|
|
|
|
|
102 |
|
|
|
N/M |
|
|
|
175 |
|
|
|
|
|
|
|
175 |
|
|
|
N/M |
|
Total |
|
$ |
12,562 |
|
|
$ |
5,680 |
|
|
|
6,882 |
|
|
|
121 |
|
|
$ |
30,811 |
|
|
$ |
9,009 |
|
|
|
21,802 |
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M not meaningful
In our Mortgage Services segment, we generate the majority of our revenue by providing
outsourced services that span the lifecycle of a mortgage loan primarily for Ocwen or with respect
to the residential loan portfolio serviced by Ocwen. In addition to our relationship with Ocwen, we
have relationships with some of the leading capital markets firms, commercial banks, hedge funds,
insurance companies, credit unions and lending institutions. We provide products that enhance
their ability to make informed investment decisions and manage their core operations. With the
acquisition of MPA in February 2010 and our strategic marketing agreement with Members United, we
took a significant step in our evolution to become a full service provider in the mortgage services
vertical and gained increased access to a growing group of mid-tier mortgage bankers and credit
unions.
Asset Management Services. Asset management services principally include property preservation,
property inspection, REO asset management and REO brokerage. In the first quarter of 2010, we
completed our national network for property preservation services and, including our real estate
broker referral network, have national coverage for REO dispositions. The increase in revenue has
mostly been driven by our property preservation services to date; however, the increase in REO
brokerage referrals should ultimately drive additional revenues as we dispose of these properties
on behalf of our clients.
Component Services and Other. The increase in component services year over year is due to an
expanded relationship with an existing customer beginning in the second quarter of 2009 and the
inclusion of MPAs results.
Residential Property Valuation. As one of the more mature services in our portfolio, residential
property valuations are subject to market conditions. During the third quarter of 2010, we saw a
sequential increase in revenues as a result of Ocwens residential loan portfolio growth, including
the HomEq portfolio, resulting in the ordering of more valuations, particularly broker price
opinions. We expect to see this increased level of referrals to continue during the fourth
quarter.
- 35 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Closing and Title Services. This business includes legacy services such as pre-foreclosure title
services as well as an expanded array of title services that were rolled out during 2010 and 2009
principally around REO purchase transactions. During 2010, we are focused on rolling out our title
agency business in key markets which we believe will drive significant revenue growth in 2011 at
attractive margins. We expect to obtain agency status in California in the fourth quarter.
Default Management Services. This group includes support services whereby we provide non-legal
back-office support for foreclosure, bankruptcy and eviction attorneys as well as non-judicial
foreclosure services in California and Nevada through our trustee company Western Progressive, LLC.
We do not execute or notarize any foreclosure affidavits. During the third quarter, we experienced
a slight sequential decline in revenue. This decline since the second quarter was principally
caused by the timing of referrals which were more heavily weighted towards the end of September
(resulting in less revenue being recognized in the quarter) and the elongation of the time it takes
to process foreclosures which resulted in us extending the period over which we recognize revenue
for some states.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Expenditures |
|
$ |
20,557 |
|
|
|
11,582 |
|
|
|
8,975 |
|
|
|
77 |
|
|
|
53,811 |
|
|
|
32,033 |
|
|
|
21,778 |
|
|
|
68 |
|
Reimbursable Expenses |
|
|
12,562 |
|
|
|
5,680 |
|
|
|
6,882 |
|
|
|
121 |
|
|
|
30,811 |
|
|
|
9,009 |
|
|
|
21,802 |
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
$ |
33,119 |
|
|
$ |
17,262 |
|
|
|
15,857 |
|
|
|
92 |
|
|
$ |
84,622 |
|
|
$ |
41,042 |
|
|
|
43,580 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin Percentage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue / Total Revenue |
|
|
39 |
% |
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
39 |
% |
|
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue less
Reimbursable Expenses /
Service Revenue |
|
|
48 |
% |
|
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
48 |
% |
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily during the second and third quarter, we began scaling our operations to support the
national rollout of services and in anticipation of the growth in Ocwens residential loan
portfolio. These costs have principally included increased compensation and benefit and technology
costs. Due to the number of persons we were hiring as well as training time, it was necessary to
hire these resources several months prior to the completion of Ocwens acquisition of the HomEq
residential loan portfolio. We expect to begin utilizing these expanded operations to generate
additional revenue in the fourth quarter and throughout 2011.
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Total Selling, General and
Administrative Expenses |
|
$ |
4,187 |
|
|
$ |
1,238 |
|
|
|
2,949 |
|
|
|
238 |
|
|
$ |
10,683 |
|
|
$ |
4,913 |
|
|
|
5,770 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Percentage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income / Total Revenue |
|
|
31 |
% |
|
|
37 |
% |
|
|
|
|
|
|
|
|
|
|
31 |
% |
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income / Service Revenue |
|
|
42 |
% |
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
41 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses increased principally as a result of the
classification of certain compensation and benefit costs related to segment management and
marketing previously being captured either in Cost of Revenue or as a component of the Corporate
segment now being captured in Selling, General and Administrative Expenses. In addition,
professional services fees such as those associated with the external audit have increased as a
result of being a public company. Such costs are allocated to the segments based upon expected
hours to be incurred per segment by the vendor.
Our operating margins for the nine months ended September 30, 2010 based on Service Revenue
remained relatively flat as the significant additional facility costs as a result of scaling our
operations were substantially offset by revenue growth.
- 36 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
EBITDA |
|
$ |
16,114 |
|
|
$ |
10,719 |
|
|
|
5,395 |
|
|
|
50 |
|
|
$ |
41,280 |
|
|
$ |
24,985 |
|
|
|
16,295 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA / Total Revenue |
|
|
30 |
% |
|
|
37 |
% |
|
|
|
|
|
|
|
|
|
|
30 |
% |
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA / Service Revenue |
|
|
41 |
% |
|
|
46 |
% |
|
|
|
|
|
|
|
|
|
|
40 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Services EBITDA growth in both periods was predominantly driven by the expansion of
our national footprint and the increase in Ocwens residential loan portfolio in November 2009 and
May 2010. Mortgage Services EBITDA margins calculated based upon Service Revenue remained
consistent with the second quarter.
Financial Services
The following table presents our results of operations for our Financial Services segment for the
three and nine months ending September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Service Revenue |
|
$ |
13,722 |
|
|
|
15,837 |
|
|
|
(2,115 |
) |
|
|
(13 |
) |
|
$ |
43,413 |
|
|
|
49,624 |
|
|
|
(6,211 |
) |
|
|
(13 |
) |
Reimbursable Expenses |
|
|
807 |
|
|
|
|
|
|
|
807 |
|
|
|
|
|
|
|
2,229 |
|
|
|
|
|
|
|
2,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
14,529 |
|
|
|
15,837 |
|
|
|
(1,308 |
) |
|
|
(8 |
) |
|
|
45,642 |
|
|
|
49,624 |
|
|
|
(3,982 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
12,134 |
|
|
|
12,635 |
|
|
|
(501 |
) |
|
|
(4 |
) |
|
|
37,538 |
|
|
|
40,514 |
|
|
|
(2,976 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
2,395 |
|
|
|
3,202 |
|
|
|
(807 |
) |
|
|
(25 |
) |
|
|
8,104 |
|
|
|
9,110 |
|
|
|
(1,006 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
|
4,404 |
|
|
|
6,802 |
|
|
|
(2,398 |
) |
|
|
(35 |
) |
|
|
11,997 |
|
|
|
14,632 |
|
|
|
(2,635 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
|
(2,009 |
) |
|
|
(3,600 |
) |
|
|
1,591 |
|
|
|
44 |
|
|
|
(3,893 |
) |
|
|
(5,522 |
) |
|
|
1,629 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
$ |
(858 |
) |
|
$ |
292 |
|
|
|
(1,150 |
) |
|
|
N/M |
|
|
$ |
(404 |
) |
|
$ |
1,020 |
|
|
|
(1,424 |
) |
|
|
(140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties Above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
34 |
|
|
$ |
28 |
|
|
|
6 |
|
|
|
21 |
|
|
$ |
110 |
|
|
$ |
66 |
|
|
|
44 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
$ |
|
|
|
$ |
85 |
|
|
|
(85 |
) |
|
|
N/M |
|
|
$ |
|
|
|
$ |
467 |
|
|
|
(467 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
|
|
|
$ |
147 |
|
|
|
(147 |
) |
|
|
N/M |
|
|
$ |
|
|
|
$ |
1,029 |
|
|
|
(1,029 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See above for a reconciliation of the most directly comparable GAAP measure to
EBITDA. |
N/M not meaningful.
Financial Services revenue declined both for the quarter and year to date when compared to the
prior year. Sequentially, revenues declined $1.0 million due to decreased placements from our
largest customer. We were able to partially offset this decline by increased placements from a
customer we began servicing in 2009 as well as growth in revenue from other customers.
Our strategy for 2010 continues to be focused on improving margins principally via improving
revenue per collector, expanding our quality initiatives and investing in new technology. In
addition, in the fourth quarter of 2010, we named a new President for the segment.
- 37 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Recovery Management |
|
$ |
11,542 |
|
|
$ |
12,180 |
|
|
|
(638 |
) |
|
|
(5 |
) |
|
$ |
36,937 |
|
|
$ |
39,419 |
|
|
|
(2,482 |
) |
|
|
(6 |
) |
Customer Relationship Management |
|
|
2,987 |
|
|
|
3,657 |
|
|
|
(670 |
) |
|
|
(18 |
) |
|
|
8,705 |
|
|
|
10,205 |
|
|
|
(1,500 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
14,529 |
|
|
$ |
15,837 |
|
|
|
(1,308 |
) |
|
|
(8 |
) |
|
$ |
45,642 |
|
|
$ |
49,624 |
|
|
|
(3,982 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Recovery Management |
|
$ |
34 |
|
|
$ |
28 |
|
|
|
6 |
|
|
|
21 |
|
|
$ |
110 |
|
|
$ |
66 |
|
|
|
44 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In our Financial Services segment, we generate the majority of our revenue from asset recovery
management fees we earn for collecting amounts due to our customers and from fees we earn for
performing customer relationship management for our customers.
Asset Recovery Management. Our revenues associated with contingency collections declined in both
periods principally due to lower placements and a shift in placements to operations that provide
lower per collector revenue, but higher margin.
Customer Relationship Management. Our revenues associated with customer relationship management
declined over both periods as we sought to wind down our relationship with one customer due to
unsatisfactory margins as well as due to the seasonal nature of the business. In the third
quarter, we expanded our relationship with another customer.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Expenditures |
|
$ |
11,327 |
|
|
$ |
12,635 |
|
|
|
(1,308 |
) |
|
|
(104 |
) |
|
$ |
35,309 |
|
|
$ |
40,514 |
|
|
|
(5,205 |
) |
|
|
(13 |
) |
Reimbursable Expenses |
|
|
807 |
|
|
|
|
|
|
|
807 |
|
|
|
N/M |
|
|
|
2,229 |
|
|
|
|
|
|
|
2,229 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
$ |
12,134 |
|
|
$ |
12,635 |
|
|
|
(501 |
) |
|
|
(4 |
) |
|
$ |
37,538 |
|
|
$ |
40,514 |
|
|
|
(2,976 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin Percentage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue / Total Revenue |
|
|
16 |
% |
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
18 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue less
Reimbursable Expenses /
Service Revenue |
|
|
17 |
% |
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
19 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M not meaningful.
Our Cost of Revenues, net of reimbursable expenses, decreased principally due to a reduction in
compensation and benefits as a result of a lower number of collectors and reduced commissions. In
addition, we continue to seek ways to reduce technology and communication costs for this segment.
- 38 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Total Selling, General and
Administrative Expenses |
|
$ |
4,404 |
|
|
$ |
6,802 |
|
|
|
(2,398 |
) |
|
|
(35 |
) |
|
$ |
11,997 |
|
|
$ |
14,632 |
|
|
|
(2,635 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Percentage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income / Total Revenue |
|
|
(14) |
% |
|
|
(23) |
% |
|
|
|
|
|
|
|
|
|
|
(9) |
% |
|
|
(11) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income / Service Revenue |
|
|
(15) |
% |
|
|
(23) |
% |
|
|
|
|
|
|
|
|
|
|
(9) |
% |
|
|
(11) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2009, we recognized $2.3 million (all recorded in
the third quarter) in facility closure costs. Excluding these costs, Selling, General and
Administrative Expenses in both 2010 periods were consistent with the comparative 2009 periods.
EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
EBITDA |
|
$ |
(858 |
) |
|
$ |
292 |
|
|
|
(1,150 |
) |
|
|
N/M |
|
|
$ |
(404 |
) |
|
$ |
1,020 |
|
|
|
(1,424 |
) |
|
|
(140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA / Total Revenue |
|
|
(6) |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
(1) |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services EBITDA declined $1.2 million year over year despite a revenue decline of
$4.0 million which reflects the cost savings initiatives we undertook in the second half of 2009
and the wind-down of business from a lower margin customer relationship management client in 2010.
Sequentially EBITDA declined in part due to the seasonality of the business as well as the
previously mentioned decline in placements. The facility closure costs discussed above were offset
by a litigation settlement of $2.3 million awarded to us during the third quarter of 2009.
- 39 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Technology Products
The following table presents our results of operations for our Technology Products segment for the
three and nine months ending September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Revenue |
|
$ |
12,963 |
|
|
$ |
12,451 |
|
|
|
512 |
|
|
|
4 |
|
|
$ |
37,422 |
|
|
$ |
35,133 |
|
|
|
2,289 |
|
|
|
7 |
|
Cost of Revenue |
|
|
7,239 |
|
|
|
5,582 |
|
|
|
1,657 |
|
|
|
30 |
|
|
|
20,555 |
|
|
|
18,042 |
|
|
|
2,513 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
5,724 |
|
|
|
6,869 |
|
|
|
(1,145 |
) |
|
|
(17 |
) |
|
|
16,867 |
|
|
|
17,091 |
|
|
|
(224 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses |
|
|
1,610 |
|
|
|
1,084 |
|
|
|
526 |
|
|
|
49 |
|
|
|
4,040 |
|
|
|
3,880 |
|
|
|
160 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
$ |
4,114 |
|
|
$ |
5,785 |
|
|
|
(1,671 |
) |
|
|
(29 |
) |
|
$ |
12,827 |
|
|
$ |
13,211 |
|
|
|
(384 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1) |
|
$ |
5,253 |
|
|
$ |
6,545 |
|
|
|
(1,292 |
) |
|
|
(20 |
) |
|
$ |
15,869 |
|
|
$ |
15,468 |
|
|
|
401 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties Above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
4,660 |
|
|
$ |
5,044 |
|
|
|
(384 |
) |
|
|
(8 |
) |
|
$ |
13,635 |
|
|
$ |
15,801 |
|
|
|
(2,166 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses |
|
$ |
|
|
|
$ |
294 |
|
|
|
(294 |
) |
|
|
N/M |
|
|
$ |
|
|
|
$ |
1,517 |
|
|
|
(1,517 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
|
|
|
$ |
39 |
|
|
|
(39 |
) |
|
|
N/M |
|
|
$ |
|
|
|
$ |
231 |
|
|
|
(231 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See above for a reconciliation of the most directly comparable GAAP measure
to EBITDA. |
|
N/M |
|
not meaningful. |
The primary focus of the Technology Products segment continues to be supporting the growth of
Mortgage Services and Ocwen as well as the cost reduction and quality initiatives on-going within
the Financial Services segment. During the first quarter, we re-organized the management team of
Technology Products by naming a new President for the segment. We are focused on enhancing our
development and infrastructure capabilities to support both our expansion efforts and those of
Ocwen. In addition, we remain focused on the longer-term commercialization of our service
offerings to expand their applicability to a broader audience.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REALSuite |
|
$ |
7,864 |
|
|
$ |
6,822 |
|
|
|
1,042 |
|
|
|
15 |
|
|
$ |
22,415 |
|
|
$ |
18,478 |
|
|
|
3,937 |
|
|
|
21 |
|
IT Infrastructure Services |
|
|
5,099 |
|
|
|
5,629 |
|
|
|
(530 |
) |
|
|
(9 |
) |
|
|
15,007 |
|
|
|
16,655 |
|
|
|
(1,648 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
12,963 |
|
|
$ |
12,451 |
|
|
|
512 |
|
|
|
4 |
|
|
$ |
37,422 |
|
|
$ |
35,133 |
|
|
|
2,289 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Related Parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REALSuite |
|
$ |
2,744 |
|
|
$ |
2,445 |
|
|
|
299 |
|
|
|
12 |
|
|
$ |
7,952 |
|
|
$ |
7,281 |
|
|
|
671 |
|
|
|
9 |
|
IT Infrastructure Services |
|
|
1,916 |
|
|
|
2,599 |
|
|
|
(683 |
) |
|
|
(26 |
) |
|
|
5,683 |
|
|
|
8,520 |
|
|
|
(2,837 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,660 |
|
|
$ |
5,044 |
|
|
|
(384 |
) |
|
|
(8 |
) |
|
$ |
13,635 |
|
|
$ |
15,801 |
|
|
|
(2,166 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning with the second quarter of 2009, we began generating the majority of our revenue
within this segment from our REALSuite of services, and we expect this trend to continue for the
foreseeable future.
REALSuite. Our REALSuite revenue is primarily driven by REALServicing® which is our
comprehensive residential loan servicing platform. Increases in both year-to-date and quarterly
revenues were driven by increases in REALServicing
- 40 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
attributable to an expanded agreement with a
non-related third party customer and the growth in Ocwens residential loan portfolio.
IT Infrastructure Services. Our IT infrastructure services revenues declined when compared to the
comparable periods in 2009 primarily due to lower intercompany billings (which we eliminate in
consolidation but include in our segment presentation) and reduced charges to Ocwen. Sequentially,
Revenue increased slightly as Ocwen expanded their operations to support the acquisition of the
HomEq residential loan portfolio.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Cost of Revenue |
|
$ |
7,239 |
|
|
$ |
5, 582 |
|
|
|
1,657 |
|
|
|
30 |
|
|
$ |
20,555 |
|
|
$ |
18,042 |
|
|
|
2,513 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin Percentage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue / Total Revenue |
|
|
44 |
% |
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
45 |
% |
|
|
49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue margins decreased both year to date and in the third quarter as a result of an
increase in compensation and benefits as we added personnel to enhance our service capabilities,
support our growth and commercialize our products. In addition, in the third quarter, technology
and communications costs increased both as a result of the addition of new facilities and the
expansion of bandwidth at existing facilities to handle the increased demands expected in the
fourth quarter.
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Total Selling, General and
Administrative Expenses |
|
$ |
1,610 |
|
|
$ |
1,084 |
|
|
|
526 |
|
|
|
49 |
|
|
$ |
4,040 |
|
|
$ |
3,880 |
|
|
|
160 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Percentage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income / Total Revenue |
|
|
32 |
% |
|
|
46 |
% |
|
|
|
|
|
|
|
|
|
|
34 |
% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses increased both year to date and in the third
quarter as a result of increased occupancy charges associated with the new data center.
Sequentially, Selling, General and Administrative Expenses increased primarily as a result of costs
incurred in preparing for the HomEq transaction.
EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
EBITDA |
|
$ |
5,253 |
|
|
$ |
6,545 |
|
|
|
(1,292 |
) |
|
|
(20 |
) |
|
$ |
15,869 |
|
|
$ |
15,468 |
|
|
|
401 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
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|
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|
EBITDA Margin: |
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
EBITDA / Total Revenue |
|
|
41 |
% |
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
42 |
% |
|
|
44 |
% |
|
|
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|
Technology Products EBITDA increased year over year but declined quarter over quarter.
Sequentially, margins decreased as higher revenues were more than offset by increased compensation
and occupancy costs associated with the new data center as described above. The Company is
increasing expenditures in technology software and hardware to support its commercialization
efforts, Ocwens growing servicing portfolio and Altisources growth.
- 41 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
SECTION 4 LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We believe that we have the ability to generate more than sufficient cash from our current
operations for the next twelve months to meet anticipated cash requirements. Anticipated cash
requirements principally include operational expenditures such as compensation and benefits,
working capital requirements and spending for capital expenditures.
We generate significant excess cash that we will seek to deploy in a disciplined manner.
Principally, we will continue to invest in compelling services that we believe will generate high
margins. In addition, we may seek to acquire a limited number of companies that fit our strategic
objectives. Finally, given the tax inefficiency of dividends, the low returns earned on cash held
and our desire to only perform a limited number of acquisitions, we believe one of the best ways to
return value to shareholders is a share repurchase program. On May 19, 2010, our shareholders
authorized us to purchase up to 3,784,618 shares of our common stock in the open market. During
the third quarter of 2010, we purchased 86,098 shares of our common stock on the open market at an
average price of $26.81, leaving 3,698,520 shares still available for purchase. Subsequently,
during October, we purchased an additional 65,317 shares. As of October 25, 2010, we have
repurchased a total of 151,415 shares at an average share price of $26.39.
Cash Flows
The following table presents our cash flows for the nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Net Income Adjusted for Non-cash Items |
|
$ |
46,819 |
|
|
$ |
24,876 |
|
|
|
21,943 |
|
|
|
88 |
|
Working Capital |
|
|
(13,558 |
) |
|
|
1,510 |
|
|
|
(15,068 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Operating Activities |
|
|
33,261 |
|
|
|
26,386 |
|
|
|
6,875 |
|
|
|
26 |
|
Cash Flow from Investing Activities |
|
|
(35,744 |
) |
|
|
(3,787 |
) |
|
|
(31,957 |
) |
|
|
N/M |
|
Cash Flow from Financing Activities |
|
|
(4,936 |
) |
|
|
(4,877 |
) |
|
|
(59 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash |
|
|
(7,419 |
) |
|
|
17,722 |
|
|
|
(25,141 |
) |
|
|
(142 |
) |
Cash at Beginning of Period |
|
|
30,456 |
|
|
|
6,988 |
|
|
|
23,468 |
|
|
|
N/M |
|
|
|
|
|
|
|
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|
|
|
|
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|
|
Cash at End of Period |
|
$ |
23,037 |
|
|
$ |
24,710 |
|
|
|
(1,673 |
) |
|
|
(7 |
) |
|
|
|
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|
Cash Flow from Operating Activities
Cash flow from operating activities consists of two components: (i) net income adjusted for
depreciation, amortization and certain other non-cash items and (ii) working capital. For the nine
months ended September 30, 2010, we generated $33.3 million in positive cash flow from operations
which reflects our increased profitability adjusted for non-cash items as our businesses have
expanded. Our working capital requirements increased significantly during the third quarter as a
result of our expanded Asset Management and Default Management services within our Mortgage
Services segment and the increase in associated referrals.
Cash Flow from Investing Activities
The largest use of cash flow for investing activities was the acquisition of MPA in February 2010
for which the purchase consideration included $29.0 million in cash. In addition, we saw an
increase in purchases of premises and equipment and technology to support our expansion of
operations and in anticipated growth in Ocwens residential loan portfolio.
Cash Flow from Financing Activities
During 2010, cash flow from financing activities primarily includes activity associated with stock
option exercises, share repurchases and payments to non-controlling interest owners as a result of
the acquisition of MPA. Prior to our Separation from Ocwen, we participated in a centralized cash
management program with Ocwen. We made a significant amount of our cash disbursements through
centralized payable systems which were operated by Ocwen, and a significant amount of our cash
receipts
- 42 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
were received by us and transferred to centralized accounts maintained by Ocwen. There were no
formal financing arrangements with Ocwen. Prior to the Separation we recorded all cash receipts
and disbursement activity between Ocwen and us through invested equity in the Condensed
Consolidated Balance Sheets and as net distributions in the Condensed Consolidated Statements of
Equity and Cash Flows because we considered such amounts to have been distributed to Ocwen.
Liquidity Requirements after September 30, 2010
Between October 1 and October 25, 2010, we repurchased 65,317 shares at a total cost of $1.7
million.
During the fourth quarter 2010, we expect to distribute $2.1 million to non-controlling interests.
Management is not aware of any other trends or events, commitments or uncertainties which have not
otherwise been disclosed that will or are likely to impact liquidity in a material way.
Capital Resources
Given our ability to generate cash flow which is sufficient to fund both current operations as well
as expansion activities, we require very limited capital. Were we to need additional capital, we
believe we have adequate access to both debt and equity capital markets.
Commitments and Contingencies
For details of these transactions, see Note 16 to the condensed consolidated financial statements.
SECTION 5 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our condensed consolidated financial statements in accordance with accounting principles
generally accepted in the United States. In applying many of these accounting principles, we need
to make assumptions, estimates and/or judgments that affect the reported amounts of assets,
liabilities, revenues and expenses in our condensed consolidated financial statements. We base our
estimates and judgments on historical experience and other assumptions that we believe are
reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are
often subjective. Actual results may be affected negatively based on changing circumstances. If
actual amounts are ultimately different from our estimates, the revisions are included in our
results of operations for the period in which the actual amounts become known.
Our critical accounting policies are described in the MD&A section in our 2009 Form 10-K. Such
policies have not changed during 2010.
SECTION 6 OTHER MATTERS
Related Party Ocwen
For the nine months ended September 30, 2010, approximately $90.7 million of the Mortgage Services,
$0.1 million of the Financial Services and $13.6 million of the Technology Products segment
revenues were from services provided to Ocwen or sales derived from Ocwens loan servicing
portfolio. Services provided to Ocwen included residential property valuation, real estate asset
management and sales, trustee management services, property inspection and preservation, closing
and title services, charge-off second mortgage collections, core technology back office support and
multiple business technologies including our REALSuite of products. We provided all services at
rates we believe to be comparable to market rates.
In connection with the Separation, Altisource and Ocwen entered into various agreements that
address the allocation of assets and liabilities between them and that define their relationship
after the Separation including a Separation Agreement, a Tax Matters Agreement, an Employee Matters
Agreement, an Intellectual Property Agreement, a Data Center and Disaster Recovery
Agreement, a Technology Products Services Agreement, a Transition Services Agreement and certain
long-term servicing contracts (collectively, the Agreements) (see Note 4 to our 2009 Form 10-K).
For the nine months ended September 30, 2010, Altisource billed Ocwen $1.2 million ($0.5 million
for the third quarter), and Ocwen billed Altisource $0.8 million ($0.2 million for the third
quarter) for services provided under the Transition Services Agreement. These amounts are reflected
as a component of Selling, General and Administrative expenses in the accompanying Condensed
Consolidated Statements of Operations.
- 43 -
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
SECTION 7 FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements that relate to, among other things, our
future financial and operating results. In many cases, you can identify forward-looking statements
by terminology such as may, will, should, expect, intend, plan, anticipate,
believe, estimate, predict, potential or continue or the negative of these terms and
other comparable terminology including, but not limited to, the following:
|
|
|
assumptions related to the sources of liquidity and the adequacy of financial resources; |
|
|
|
|
assumptions about our ability to grow our business; |
|
|
|
|
assumptions about our ability to reduce our cost structure; |
|
|
|
|
expectations regarding collection rates and placements in our Financial Services
segment; |
|
|
|
|
estimates regarding the calculation of our effective tax rate; and |
|
|
|
|
estimates regarding our reserves and valuations. |
Forward-looking statements are not guarantees of future performance and involve a number of
assumptions, risks and uncertainties that could cause actual results to differ materially.
Important factors that could cause actual results to differ materially from those suggested by the
forward-looking statements include, but are not limited to, the risks discussed in Risk Factors
in our Registration Statement on Form 10 and the following:
|
|
|
our ability to retain existing customers and attract new customers; |
|
|
|
|
general economic and market conditions; |
|
|
|
|
governmental regulations, taxes and policies; and |
|
|
|
|
availability of adequate and timely sources of liquidity. |
We caution you not to place undue reliance on these forward-looking statements which reflect our
view only as of the date of this report. We are under no obligation (and expressly disclaim any
obligation) to update or alter any forward-looking statements contained herein to reflect any
change in our expectations with regard thereto or change in events, conditions or circumstances on
which any such statement is based.
- 44 -
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our financial market risk consists primarily of foreign currency exchange risk.
Foreign Currency Exchange Risk
We consider the US Dollar to be our functional currency worldwide and the majority of our servicing
agreements are denominated in US Dollars. Where required locally, we incur certain costs,
primarily lease and payroll costs, in local currencies which include the Euro and Indian Rupee.
Costs incurred in local currencies expose us to foreign exchange rate fluctuations to the extent
our foreign positions remain un-hedged.
Item 4. Controls and Procedures.
a) |
|
Evaluation of Disclosure Controls and Procedures |
|
|
|
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the
Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this quarterly report. Based on such evaluation, such officers have concluded that
our disclosure controls and procedures as of the end of the period covered by this quarterly
report were effective to ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and to ensure that such
information is accumulated and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. |
b) |
|
Internal Control over Financial Reporting |
|
|
|
There were no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ending
September 30, 2010, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. |
- 45 -
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to routine litigation and administrative proceedings arising in the ordinary course
of business.
Item 1A. Risk Factors.
As of the date of this filing, there have been no material changes in our risk factors from those
disclosed in Part I, Item 1A, of our 2009 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Equity Securities purchased by us
The following table presents information related to our repurchases of our equity securities during
the three months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchased as |
|
|
Maximum number |
|
|
|
Total |
|
|
Weighted |
|
|
part of publicly |
|
|
of shares that may |
|
|
|
number of |
|
|
average |
|
|
announced plans |
|
|
yet be purchased |
|
|
|
shares |
|
|
price paid |
|
|
or |
|
|
under the |
|
Period |
|
purchased |
|
|
per share |
|
|
programs(1) |
|
|
plans or programs |
|
Common shares(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1 31, 2010 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
3,784,618 |
|
August 1 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,784,618 |
|
September 1 30, 2010 |
|
|
86,098 |
|
|
|
26.81 |
|
|
|
86,098 |
|
|
|
3,698,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common shares |
|
|
86,098 |
|
|
$ |
26.81 |
|
|
|
86,098 |
|
|
|
3,698,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In the second quarter of 2010, our shareholders authorized us to purchase up to 3,784,618 shares
of our common stock in the open market. |
Item 3. Defaults upon Senior Securities. None
Item 4. (Removed and Reserved)
Item 5. Other Information. None
Item 6. Exhibits.
31.1 |
|
Certification by the Chief Executive
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed
herewith) |
|
31.2 |
|
Certification by the Chief Financial
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed
herewith) |
|
32.1 |
|
Certification by the Chief Executive
Officer and Chief Financial Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed
herewith) |
- 46 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Registrant) |
|
|
Date: October 28, 2010 |
By: |
/s/ Robert D. Stiles
|
|
|
|
Robert D. Stiles |
|
|
|
Chief Financial Officer
(On behalf of the Registrant and as its principal financial officer) |
|
- 47 -