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Actionable news in ASPS: Altisource Portfolio Solutions S.A.,

For the quarterly period ended

Altisource loses Ocwen as a customer or there is a significant reduction in the volume of services they purchase from us
Ocwen loses, sells or transfers a significant portion or all of its non-GSE servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider
Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio
The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue
Three months ended September 30, 2017
(in thousands)Mortgage MarketReal Estate MarketOther Businesses, Corporate and EliminationsConsolidated Altisource
Revenue$199,262
$22,121
$13,596
$234,979
Cost of revenue137,466
23,497
13,935
174,898
Gross profit (loss)61,796
(1,376)(339)60,081
Selling, general and administrative expenses28,006
4,208
14,408
46,622
Income (loss) from operations33,790
(5,584)(14,747)13,459
Total other income (expense), net26

(3,128)(3,102)
Income (loss) before income taxes and
non-controlling interests
$33,816
$(5,584)$(17,875)$10,357
Three months ended September 30, 2016
(in thousands)Mortgage MarketReal Estate MarketOther Businesses, Corporate and EliminationsConsolidated Altisource
Revenue$211,821
$21,516
$19,408
$252,745
Cost of revenue138,646
16,634
18,722
174,002
Gross profit73,175
4,882
686
78,743
Selling, general and administrative expenses29,903
6,961
17,022
53,886
Income (loss) from operations43,272
(2,079)(16,336)24,857
Total other income (expense), net10

(6,071)(6,061)
Income (loss) before income taxes and
non-controlling interests
$43,282
$(2,079)$(22,407)$18,796
Nine months ended September 30, 2017
(in thousands)Mortgage MarketReal Estate MarketOther Businesses, Corporate and EliminationsConsolidated Altisource
Revenue$614,180
$67,314
$44,653
$726,147
Cost of revenue421,942
72,484
43,818
538,244
Gross profit (loss)192,238
(5,170)835
187,903
Selling, general and administrative expenses86,493
14,084
46,216
146,793
Income (loss) from operations105,745
(19,254)(45,381)41,110
Total other income (expense), net138

(8,985)(8,847)
Income (loss) before income taxes and
non-controlling interests
$105,883
$(19,254)$(54,366)$32,263
Nine months ended September 30, 2016
(in thousands)Mortgage MarketReal Estate MarketOther Businesses, Corporate and EliminationsConsolidated Altisource
Revenue$626,522
$70,229
$61,925
$758,676
Cost of revenue408,412
47,946
60,878
517,236
Gross profit218,110
22,283
1,047
241,440
Selling, general and administrative expenses90,498
18,755
52,456
161,709
Income (loss) from operations127,612
3,528
(51,409)79,731
Total other income (expense), net144

(16,017)(15,873)
Income (loss) before income taxes and
non-controlling interests
$127,756
$3,528
$(67,426)$63,858
(in thousands)Mortgage MarketReal Estate MarketOther Businesses, Corporate and EliminationsConsolidated Altisource
Total assets:



September 30, 2017$311,423
$63,067
$221,911
$596,401
December 31, 2016347,067
47,863
294,282
689,212
(in thousands)September 30,
2017
December 31,
2016
United States$51,900
$71,418
India9,657
14,006
Luxembourg17,117
14,791
Philippines1,981
3,027
Uruguay168
231
Total$80,823
$103,473
assumptions related to the sources of liquidity and the adequacy of financial resources;
assumptions about our ability to grow our business, including executing on our strategic initiatives;
if we are unable to reach agreement with New Residential Investment Corp. (individually, together with one or more of its subsidiaries, or one or more of its subsidiaries individually, “NRZ”) on a Services Agreement or if the Collective Brokerage Agreement and related letter agreement are terminated;
our ability to retain our existing customers, expand relationships and attract new customers;
our ability to comply with, and burdens imposed by, governmental regulations and policies and any changes in such regulations and policies; and
significant changes in the Luxembourg tax regime or interpretations of the Luxembourg tax regime.
• Property preservation and inspection services• Residential and commercial loan servicing technologies
• Real estate brokerage and auction services• Vendor management, marketplace transaction management and payment management platforms
• Title insurance (agent and related services) and settlement services
• Document management platform
• Appraisal management services and broker and non-broker valuation services• Default services (real estate owned (“REO”), foreclosure, bankruptcy, eviction) technologies
• Foreclosure trustee services• Mortgage charge-off collections
• Non-legal processing and related services for and under the supervision of foreclosure, bankruptcy and eviction attorneys• Residential and commercial loan disbursement processing, risk mitigation and construction inspection services
• Title insurance (agent and related services) and settlement services• Certified loan insurance and certification
• Vendor management oversight platform
• Appraisal management services and broker and non-broker valuation services• Mortgage banker cooperative, Best Partners Mortgage Cooperative, Inc., doing business as Lenders One® (“Lenders One”)
• Fulfillment services
• Loan origination system• Mortgage trading platform
• Document management platform
• Property preservation and inspection services• Buy-renovate-sell
• Real estate brokerage and auction services• Renovation services
• Data solutions• Property management services
• Title insurance (agent and related services) and settlement services• Appraisal management services and broker and non-broker valuation services
Altisource loses Ocwen as a customer or there is a significant reduction in the volume of services they purchase from us
Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio
The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue
The average number of loans serviced by Ocwen on REALServicing (including those MSRs owned by NRZ and subserviced by Ocwen) was 1.3 million for the nine months ended September 30, 2017 compared to 1.5 million for the nine months ended September 30, 2016, a decrease of 13% (1.2 million for the third quarter of 2017 and 1.4 million for the third quarter of 2016, a decrease of 12%). The average number of delinquent non-GSE loans serviced by Ocwen on REALServicing was 182 thousand for the nine months ended September 30, 2017 compared to 224 thousand for the nine months ended September 30, 2016, a decrease of 19% (178 thousand for the third quarter of 2017 and 211 thousand for the third quarter of 2016, a decrease of 16%). The number of loans transferred by Ocwen to NRZ and serviced by NRZ was 0.1 million for the nine months ended September 30, 2017 and the third quarter of 2017.
During the nine months ended September 30, 2017, we repurchased portions of our senior secured term loan with an aggregate par value of $50.1 million at a weighted average discount of 12.2%, recognizing a net gain of $5.4 million on the early extinguishment of debt (repurchased aggregate par value of $24.1 million at a weighted average discount of 7.5%, recognizing a net gain of $1.5 million on the early extinguishment of debt for the third quarter of 2017). During the nine months ended September 30, 2016, we repurchased portions of our senior secured term loan with an aggregate par value of $51.0 million at a weighted average discount of 13.2%, recognizing a net gain of $5.5 million on the early extinguishment of debt (no repurchases in the third quarter of 2016).
During the nine months ended September 30, 2016, we purchased 4.1 million shares of RESI common stock for $48.2 million (no comparative amounts in 2017). During the nine months ended September 30, 2017 and 2016, we earned dividends of $1.9 million and $1.0 million, respectively ($0.6 million for the third quarter of 2017 and no comparative amount for the third quarter of 2016), related to this investment. In addition, during the nine months ended September 30, 2016, we incurred expenses of $3.4 million related to this investment (no comparative amounts in 2017 and the third quarter of 2016).
The effective income tax rate increased to 23.6% for the nine months ended September 30, 2017 from 20.1% for the nine months ended September 30, 2016 (decreased to 25.0% for the third quarter of 2017 from 39.0% for the third quarter of 2016). The effective income tax rate increase for the nine months ended September 30, 2017 was primarily due to changes in the expected mix of taxable income across the jurisdictions in which we operate. The lower effective income tax rate for the third quarter of 2017 was primarily the result of adjustments made in the third quarter of 2016 to true-up the tax provision from prior quarters. This was partially offset by higher pretax income in the third quarter of 2016, which, as discussed above, changed the mix of taxable income across the jurisdictions in which we operate.
Three months ended September 30,Nine months ended September 30,
(in thousands, except per share data)20172016% Increase (decrease)20172016% Increase (decrease)
Service revenue


Mortgage Market$189,615
$199,176
(5)$583,002
$584,740

Real Estate Market21,113
21,231
(1)64,649
68,805
(6)
Other Businesses, Corporate and Eliminations13,580
19,375
(30)44,603
61,841
(28)
Total service revenue224,308
239,782
(6)692,254
715,386
(3)
Reimbursable expenses9,866
12,080
(18)31,786
41,317
(23)
Non-controlling interests805
883
(9)2,107
1,973
7
Total revenue234,979
252,745
(7)726,147
758,676
(4)
Cost of revenue174,898
174,002
1
538,244
517,236
4
Gross profit60,081
78,743
(24)187,903
241,440
(22)
Selling, general and administrative expenses46,622
53,886
(13)146,793
161,709
(9)
Income from operations13,459
24,857
(46)41,110
79,731
(48)
Other income (expense), net:
Interest expense(5,599)(5,952)(6)(16,862)(18,481)(9)
Other income (expense), net2,497
(109)N/M
8,015
2,608
207
Total other income (expense), net(3,102)(6,061)(49)(8,847)(15,873)(44)
Income before income taxes and non-controlling interests10,357
18,796
(45)32,263
63,858
(49)
Income tax provision(2,591)(7,324)(65)(7,615)(12,808)(41)
Net income7,766
11,472
(32)24,648
51,050
(52)
Net income attributable to non-controlling interests(805)(883)(9)(2,107)(1,973)7
Net income attributable to Altisource$6,961
$10,589
(34)$22,541
$49,077
(54)
Margins:


Gross profit/service revenue27%33%27%34%
Income from operations/service revenue6%10%6%11%
Earnings per share:
Basic$0.39
$0.57
(32)$1.23
$2.63
(53)
Diluted$0.38
$0.54
(30)$1.20
$2.49
(52)
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Compensation and benefits$60,332
$66,357
(9)$186,090
$201,193
(8)
Outside fees and services83,670
77,445
8
250,883
222,574
13
Cost of real estate sold4,411

N/M
16,461

N/M
Reimbursable expenses9,866
12,080
(18)31,786
41,317
(23)
Technology and telecommunications10,389
11,502
(10)32,681
32,145
2
Depreciation and amortization6,230
6,618
(6)20,343
20,007
2
Cost of revenue$174,898
$174,002
1
$538,244
$517,236
4
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Compensation and benefits$15,068
$14,145
7
$43,115
$42,460
2
Occupancy related costs8,536
8,903
(4)28,347
26,785
6
Amortization of intangible assets8,604
11,465
(25)27,143
36,432
(25)
Professional services3,886
4,097
(5)11,983
17,533
(32)
Marketing costs3,992
9,275
(57)11,958
21,438
(44)
Depreciation and amortization2,286
2,557
(11)7,068
7,514
(6)
Other4,250
3,444
23
17,179
9,547
80
Selling, general and administrative expenses$46,622
$53,886
(13)$146,793
$161,709
(9)
Three months ended September 30, 2017
(in thousands)Mortgage MarketReal Estate MarketOther Businesses, Corporate and EliminationsConsolidated Altisource
Revenue



Service revenue$189,615
$21,113
$13,580
$224,308
Reimbursable expenses8,842
1,008
16
9,866
Non-controlling interests805


805
199,262
22,121
13,596
234,979
Cost of revenue137,466
23,497
13,935
174,898
Gross profit (loss)61,796
(1,376)(339)60,081
Selling, general and administrative expenses28,006
4,208
14,408
46,622
Income (loss) from operations33,790
(5,584)(14,747)13,459
Total other income (expense), net26

(3,128)(3,102)
Income (loss) before income taxes and
non-controlling interests
$33,816
$(5,584)$(17,875)$10,357
Margins:



Gross profit (loss)/service revenue33%(7)%(2)%27%
Income (loss) from operations/service revenue18%(26)%(109)%6%
Three months ended September 30, 2016
(in thousands)Mortgage MarketReal Estate MarketOther Businesses, Corporate and EliminationsConsolidated Altisource
Revenue



Service revenue$199,176
$21,231
$19,375
$239,782
Reimbursable expenses11,762
285
33
12,080
Non-controlling interests883


883
211,821
21,516
19,408
252,745
Cost of revenue138,646
16,634
18,722
174,002
Gross profit73,175
4,882
686
78,743
Selling, general and administrative expenses29,903
6,961
17,022
53,886
Income (loss) from operations43,272
(2,079)(16,336)24,857
Total other income (expense), net10

(6,071)(6,061)
Income (loss) before income taxes and
non-controlling interests
$43,282
$(2,079)$(22,407)$18,796
Margins:



Gross profit/service revenue37%23 %4 %33%
Income (loss) from operations/service revenue22%(10)%(84)%10%
Nine months ended September 30, 2017
(in thousands)Mortgage MarketReal Estate MarketOther Businesses, Corporate and EliminationsConsolidated Altisource
Revenue



Service revenue$583,002
$64,649
$44,603
$692,254
Reimbursable expenses29,071
2,665
50
31,786
Non-controlling interests2,107


2,107
614,180
67,314
44,653
726,147
Cost of revenue421,942
72,484
43,818
538,244
Gross profit (loss)192,238
(5,170)835
187,903
Selling, general and administrative expenses86,493
14,084
46,216
146,793
Income (loss) from operations105,745
(19,254)(45,381)41,110
Total other income (expense), net138

(8,985)(8,847)
Income (loss) before income taxes and
non-controlling interests
$105,883
$(19,254)$(54,366)$32,263
Margins:



Gross profit (loss)/service revenue33%(8)%2 %27%
Income (loss) from operations/service revenue18%(30)%(102)%6%
Nine months ended September 30, 2016
(in thousands)Mortgage MarketReal Estate MarketOther Businesses, Corporate and EliminationsConsolidated Altisource
Revenue



Service revenue$584,740
$68,805
$61,841
$715,386
Reimbursable expenses39,809
1,424
84
41,317
Non-controlling interests1,973


1,973
626,522
70,229
61,925
758,676
Cost of revenue408,412
47,946
60,878
517,236
Gross profit218,110
22,283
1,047
241,440
Selling, general and administrative expenses90,498
18,755
52,456
161,709
Income (loss) from operations127,612
3,528
(51,409)79,731
Total other income (expense), net144

(16,017)(15,873)
Income (loss) before income taxes and
non-controlling interests
$127,756
$3,528
$(67,426)$63,858
Margins:



Gross profit/service revenue37%32%2 %34%
Income (loss) from operations/service revenue22%5%(83)%11%
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Service revenue:


Servicer Solutions$176,258
$183,804
(4)$545,447
$546,736

Origination Solutions13,357
15,372
(13)37,555
38,004
(1)
Total service revenue189,615
199,176
(5)583,002
584,740

Reimbursable expenses:
Servicer Solutions8,803
11,684
(25)28,854
39,632
(27)
Origination Solutions39
78
(50)217
177
23
Total reimbursable expenses8,842
11,762
(25)29,071
39,809
(27)
Non-controlling interests805
883
(9)2,107
1,973
7
Total revenue$199,262
$211,821
(6)$614,180
$626,522
(2)
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Compensation and benefits$41,475
$44,876
(8)$126,153
$134,693
(6)
Outside fees and services74,902
70,506
6
228,982
199,737
15
Reimbursable expenses8,842
11,762
(25)29,071
39,809
(27)
Technology and telecommunications7,708
7,372
5
23,589
21,795
8
Depreciation and amortization4,539
4,130
10
14,147
12,378
14
Cost of revenue$137,466
$138,646
(1)$421,942
$408,412
3
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Compensation and benefits$6,292
$5,492
15
$17,393
$16,368
6
Occupancy related costs5,648
4,997
13
17,687
15,187
16
Amortization of intangible assets7,975
10,761
(26)25,119
34,179
(27)
Professional services2,319
2,186
6
7,018
9,314
(25)
Marketing costs2,170
3,443
(37)6,405
7,859
(19)
Depreciation and amortization1,012
1,053
(4)2,881
2,964
(3)
Other2,590
1,971
31
9,990
4,627
116
Selling, general and administrative expenses$28,006
$29,903
(6)$86,493
$90,498
(4)
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Service revenue:


Consumer Real Estate Solutions$1,441
$213
N/M
$3,440
$732
N/M
Real Estate Investor Solutions19,672
21,018
(6)61,209
68,073
(10)
Total service revenue21,113
21,231
(1)64,649
68,805
(6)
Reimbursable expenses:
Real Estate Investor Solutions1,008
285
254
2,665
1,424
87
Total reimbursable expenses1,008
285
254
2,665
1,424
87
Total revenue$22,121
$21,516
3
$67,314
$70,229
(4)
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Compensation and benefits$8,777
$8,173
7
$28,167
$21,335
32
Outside fees and services7,865
6,229
26
19,249
20,751
(7)
Cost of real estate sold4,411

N/M
16,461

N/M
Reimbursable expenses1,008
285
254
2,665
1,424
87
Technology and telecommunications1,203
1,766
(32)4,659
3,874
20
Depreciation and amortization233
181
29
1,283
562
128
Cost of revenue$23,497
$16,634
41
$72,484
$47,946
51
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Compensation and benefits$732
$541
35
$2,469
$1,451
70
Occupancy related costs631
615
3
2,353
1,681
40
Amortization of intangible assets211
204
3
633
752
(16)
Professional services339
368
(8)974
972

Marketing costs1,786
5,751
(69)5,390
13,231
(59)
Depreciation and amortization180
92
96
561
342
64
Other329
(610)154
1,704
326
N/M
Selling, general and administrative expenses$4,208
$6,961
(40)$14,084
$18,755
(25)
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Service revenue:


Customer relationship management$6,822
$8,777
(22)$21,682
$29,052
(25)
Asset recovery management5,743
5,849
(2)17,940
18,609
(4)
IT infrastructure services1,015
4,749
(79)4,981
14,180
(65)
Total service revenue13,580
19,375
(30)44,603
61,841
(28)
Reimbursable expenses:
Asset recovery management16
33
(52)50
84
(40)
Total reimbursable expenses16
33
(52)50
84
(40)
Total revenue$13,596
$19,408
(30)$44,653
$61,925
(28)
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Compensation and benefits$10,080
$13,308
(24)$31,770
$45,165
(30)
Outside fees and services903
710
27
2,652
2,086
27
Reimbursable expenses16
33
(52)50
84
(40)
Technology and telecommunications1,478
2,364
(37)4,433
6,476
(32)
Depreciation and amortization1,458
2,307
(37)4,913
7,067
(30)
Cost of revenue$13,935
$18,722
(26)$43,818
$60,878
(28)
Three months ended September 30,Nine months ended September 30,
(in thousands)20172016% Increase (decrease)20172016% Increase (decrease)
Compensation and benefits$8,044
$8,112
(1)$23,253
$24,641
(6)
Occupancy related costs2,257
3,291
(31)8,307
9,917
(16)
Amortization of intangible assets418
500
(16)1,391
1,501
(7)
Professional services1,228
1,543
(20)3,991
7,247
(45)
Marketing costs36
81
(56)163
348
(53)
Depreciation and amortization1,094
1,412
(23)3,626
4,208
(14)
Other1,331
2,083
(36)5,485
4,594
19
Selling, general and administrative expenses14,408
17,022
(15)46,216
52,456
(12)
Other expenses, net3,128
6,071
(48)8,985
16,017
(44)
Total corporate costs$17,536
$23,093
(24)$55,201
$68,473
(19)
(in thousands)20172016% Increase (decrease)
Net income adjusted for non-cash items$83,771
$115,024
(27)
Changes in operating assets and liabilities(36,642)(8,989)N/M
Net cash provided by operating activities47,129
106,035
(56)
Net cash used in investing activities(7,558)(74,095)90
Net cash used in financing activities(74,742)(76,319)2
Net decrease in cash and cash equivalents(35,171)(44,379)21
Cash and cash equivalents at the beginning of the period149,294
179,327
(17)
Cash and cash equivalents at the end of the period$114,123
$134,948
(15)
PeriodTotal number of shares purchasedWeighted average price paid per shareTotal number of shares purchased as part of publicly announced plans or programs(1)Maximum number of shares that may yet be purchased under the plans or programs(1)
Common stock:
July 1 – 31, 2017
$

4,219,665
August 1 – 31, 201722,200
22.46
22,200
4,197,465
September 1 – 30, 2017250,920
23.57
250,920
3,946,545
273,120
$23.48
273,120
3,946,545
(1)On May 17, 2017, our shareholders approved the renewal of the share repurchase program originally approved by the shareholders on May 18, 2016, which replaced the previous share repurchase program and authorizes us to purchase up to 4.6 million shares of our common stock in the open market, subject to certain parameters.

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