Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. Altisource Portfolio Solutions S.A. (1462418) 10-Q published on Jul 25, 2019 at 6:53 am
Reporting Period: Jun 29, 2019
We recognized an income tax (provision) benefit of $(15.3) million and $0.5 million for the six months ended June 30, 2019 and 2018, respectively ($(16.5) million and $(0.8) million the second quarter of 2019 and 2018, respectively). The effective income tax rate increased to 192.5% for the six months ended June 30, 2019 from 28.9% for the six months ended June 30, 2018 (increased to 138.7% for the second quarter of 2019 from 26.6% for the second quarter of 2018). The increases in the income tax provision for the six months ended June 30, 2019 and second quarter of 2019 were primarily from a $12.3 million reduction in Luxembourg deferred tax assets in connection with a decrease in the Luxembourg statutory income tax rate from 26.0% to 24.9% in the second quarter of 2019 and a $0.9 million increase in foreign income taxes in connection with an internal legal entity reorganization in advance of the sale of the Financial Services Business (see Note 3). Excluding these two items, the effective tax rate would have been 25.9% for the six months ended June 30, 2019 and 27.6% for the second quarter of 2019.
We recognized service revenue of $355.5 million for the six months ended June 30, 2019, an 11% decrease compared to the six months ended June 30, 2018 ($190.5 million for the second quarter of 2019, a 9% decrease compared to the second quarter of 2018). Field Services, Marketplace and Mortgage and Real Estate Solutions were negatively impacted during these periods by the reduction in the size of Ocwen’s portfolio and number of delinquent loans, RESI’s smaller portfolio of non-performing loans and REO, as RESI continued to sell off its portfolio and focus on directly acquiring, renovating and managing rental homes, and higher brokerage commission earned from the NRZ portfolio during the three and six months ended June 30, 2018 related to REO properties that transferred to NRZ from Ocwen that were already listed on Hubzu. This transitional service revenue for these transferred properties ended in 2018. In addition, during the second quarter of 2019, we believe foreclosure holds and other temporary effects of Ocwen’s transition to another mortgage servicing software platform negatively impacted referral volume and service revenue. These decreases in service revenue were partially offset by net service revenue growth in Other and service revenue growth from Earlier Stage Businesses. The service revenue increase in Other was from the sale of the majority of the BRS Inventory to Lafayette Real Estate for $38.9 million in the second quarter of 2019, partially offset by lower rental property management and construction management service revenue from RESI as we exited these businesses in 2018. Service revenue growth in the Earlier Stage Businesses was driven by increases in transaction volumes at Owners.com and customer wins at Pointillist.
SG&A for the six months ended June 30, 2019 of $77.1 million decreased by 10% compared to the six months ended June 30, 2018 ($35.9 million for the second quarter of 2019, a 16% decrease compared to the second quarter of 2018). The decreases were primarily driven by lower occupancy related costs, amortization of intangible assets and Other expenses, partially offset by increases in depreciation and amortization expense and compensation and benefits. Occupancy related costs were lower and depreciation and amortization expense was higher primarily as a result of the January 1, 2019 implementation of a new accounting standard on operating leases. The new standard required the recognition of operating leases by companies as lease obligation liabilities on their balance sheets and also required the recognition of right-of-use assets, resulting in higher depreciation and amortization expense and interest expense and lower occupancy related costs. Consequently, depreciation and amortization expense related to the right-to-use assets increased for the three and six months ended June 30, 2019 (see Notes 1 and 23 to the condensed consolidated financial statements for additional information regarding this accounting change). The decreases in amortization of intangible assets were driven by lower revenue generated by the Homeward Residential, Inc. and Residential Capital, LLC portfolios (revenue-based amortization), consistent with the reduction in the size of Ocwen’s portfolio discussed in the revenue section above. In addition, as a result of reclassifying the Financial Services Business as assets held for sale as of March 28, 2019 (see Note 3 to the condensed consolidated financial statements for additional information), we no longer amortize the Financial Services Business’ intangible assets. Other expenses decreased primarily due to lower travel and entertainment costs driven by Project Catalyst cost reduction initiatives and lower bad debt expense as a result of improved collections. The increase in compensation and benefits was driven by the transfer of employees into selling, general and administrative functions from cost of revenue functions in connection with the Project Catalyst reorganization, as discussed in the cost of revenue section above, and higher share-based compensation expense.
We recognized an income tax (provision) benefit of $(15.3) million and $0.5 million for the six months ended June 30, 2019 and 2018, respectively ($(16.5) million and $(0.8) million the second quarter of 2019 and 2018, respectively). The effective income tax rate increased to 192.5% for the six months ended June 30, 2019 from 28.9% for the six months ended June 30, 2018 (increased to 138.7% for the second quarter of 2019 from 26.6% for the second quarter of 2018). The increases in the income tax provision for the six months ended June 30, 2019 and second quarter of 2019 were primarily from a $12.3 million reduction in Luxembourg deferred tax assets in connection with a decrease in the Luxembourg statutory income tax rate from 26.0% to 24.9% in the second
Cash flows from operating activities generally consist of the cash effects of transactions and events that enter into the determination of net income. For the six months ended June 30, 2019, cash flows provided by operating activities were $33.2 million, or approximately $0.09 for every dollar of service revenue ($0.21 for every dollar of service revenue for the second quarter of 2019), compared to cash flows provided by operating activities of $23.3 million, or approximately $0.06 for every dollar of service revenue, for the six months ended June 30, 2018 ($0.15 for every dollar of service revenue for the second quarter of 2018). During the six months ended June 30, 2019, the increase in cash provided by operations was driven by higher cash provided by the changes in operating assets and liabilities of $25.2 million, partially offset by a $15.3 million unfavorable change in net loss, adjusted for non-cash items. The increase in cash provided by changes in operating assets and liabilities was driven by the decrease in short-term investments in real estate of $39.5 million primarily related to the sale of the majority of the remaining BRS Inventory for $38.9 million in the second quarter of 2019. The cash flow impact of the decrease in short-term investments was partially offset by an increase of $15.8 million in accounts receivable during the six months ended June 30, 2019 driven by the timing of collections. During the second quarter of 2019, accounts receivable increased in part as a result of delays in receiving payments from Ocwen in connection with Ocwen’s transition to another mortgage servicing software platform. The decrease in net loss, adjusted for non-cash items, was primarily driven by lower gross profit during the six months ended June 30, 2019 from lower service revenue and the Project Catalyst restructuring charges, partially offset by decreases in expenses as a result of the Project Catalyst cost reduction initiatives and an unrealized gain on investment in equity securities of $14.0 million for the six months ended June 30, 2019, compared to an unrealized loss on investment in equity securities of $(6.0) million for the six months ended June 30, 2018. Operating cash flows can be negatively impacted because of the nature of some of our services and the mix of services provided. Certain services are performed immediately following or shortly after the referral, but the collection of the receivable does not occur until a specific event occurs (e.g., the foreclosure is complete, the REO asset is sold, etc.). Furthermore, lower margin services generate lower income and cash flows from operations. Consequently, our cash flows from operations may be negatively impacted when comparing one period to another.