Altisource Portfolio Solutions SA (ASPS) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Altisource First Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. (Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Michelle Esterman, please go ahead.

Thank you, operator. We first want to remind you that the earnings release, Form 10-Q and quarterly slides are available on our website at www.altisource.com. These provide additional information investors may find useful.

Our presentation today contains forward-looking statements made pursuant to the Safe Harbor provisions of the Federal Securities Law. Statements in this conference call and in our press release issued earlier today which are other than historical fact are forward-looking statements. Factors that might cause actual results to differ materially are discussed in our earnings release as well as our public filings. The Company disclaims any intent or obligation to publicly update or revise any forward-looking statements regardless of whether new information becomes available future developments occur or otherwise.

Joining me for today's call are Bill Erbey, our Chairman and Bill Shepro, our Chief Executive Officer.

I would now like to turn the call over to Bill Erbey.

Thank you, Michelle. Good morning and thank you for joining today's call. This morning I plan on spending a few minutes providing an update on the progress we are making on our 2014 strategic initiatives. Michelle will provide an overview of our financial performance and Bill will discuss our first quarter operations and initiatives in more detail.

Altisource had a very strong quarter marking the twelfth straight quarter of sequential servicing revenue growth. We also had record pre-tax income and earnings per share. To maintain this trend, we remain focused on executing against our strategic plan.

There are four components to our plan; first, ensure we have a robust world-class compliance management system; second, advance our real estate marketplace vision and expand our residential rental property management business; third advance our mortgage marketplace vision supporting Ocwen and Lenders One's growth; and fourth, to put our cash to repurchase Altisource shares when trading at attractive prices and acquire companies that helps support the mortgage and real estate marketplace vision.

We're making good progress on each of these initiatives. With respect to compliance, our focus is on developing a world-class compliance management system and providing our customers with high-quality services in a compliant fashion. We have over 175 professionals working in our quality and compliance functions including business unit compliance managers, legal, internal audit and quality assurance staff with oversight from the Compliance Committee of the Board of Directors and our senior executives.

During 2014, we continue to improve our compliance technologies and are working with independent consultants to review and enhance other elements of our compliance management system. We believe our compliance focus has been and will be a contributing factor to our success in winning new clients.

Turning to our real estate marketplace, we continue to advance Altisource as a premier real estate marketplace with both content and distribution. In the distressed real estate market there has been large scale adoption of online auctions for the sale of homes. Hubzu, our online real estate sales marketplace is performing well with distressed real estate assets as we continue to drive the high volume of relevant traffic to the houses on Hubzu resulting in more REO sales.

We're excited by the number of new clients that are adopting Hubzu. Today, we signed agreements with seven servicers and asset managers to sell their houses, demonstrating our ability to further diversify our customer base. Notably, last week we signed an agreement with the top 10 financial institution to manage its REO from acquisition through disposition including providing asset management, valuation, brokerage, online auction and title services. We began working on this transaction over a year ago, participating in a multi-phase competitive process. Beginning the third quarter, we expect to receive approximately 200 to 400 REO referrals per month from this customer.

Our preferred partner program, we are still in the discovery phase. We are attempting to establish an online marketplace for individual homeowners and their brokers to auction homes and move home sales transactions that typically take place offline to an online environment. Unlike the REO space, this largely does not exist today. We have no difficulty in signing up brokers and having them market their properties on Hubzu. In fact 45% of the homes marketed on Hubzu are placed directly by brokers.

However the listing brokers are primarily using Hubzu as a complement to their traditional marketing efforts as opposed to leveraging Hubzu's auction and online transaction functionality. As a result, most sales are taking place outside of Hubzu. To more fully support sellers, buyers and brokers of non-distressed homes, we will continue to tailor the Hubzu preferred partner program and pilot strategies to increase adoption of home auction as we work to evolve the non-distressed home sale transaction process.

Our rental real estate marketplace provides services to improve rents and manage rental homes. We're providing this marketplace for Altisource Residential's assets and are prepared to support the growth of this portfolio. Throughout the quarter, we continue to develop and improve our end to end suite of services typically purchased in connection with the home rental or ongoing home maintenance.

During 2014, we plan to invest in more personnel to support the future growth of this business. Turning to the mortgage marketplace, we have two primary areas of focus; first, providing high quality compliance services for Ocwen servicing portfolio; and second, growing our origination-related services leveraging our relationships with Lenders One and Ocwen.

With respect to Ocwen, we continue to focus on providing high-quality compliance services to enhance their competitive position. With respect to Lenders One, the members have grown from 4% of the US originated through market in 2014 when we acquired the Lenders One management company to approximately 14% today. This represents an annual growth rate of 35%.

To monetize the opportunity and improve the profitability of the members, we are focused on Altisource and our preferred vendors providing a greater percentage of the services purchased in connection with the members origination. As we discussed last quarter, we believe the development of a technology solution to receive and deliver services electronically will be a meaningful milestone that will drive a higher penetration rate.

We expect to begin that development in the second half of 2014 with the rollout in 2015. Even without the technology solutions in place, our origination related service revenue grew 18% in the first quarter of 2014 compared to the fourth quarter of 2013 while origination volume for the market as a whole declined an estimated 23% over the same period.

The fourth component of our strategic plan relates to cash deployment. Altisource is the capital light company that generates more operating cash flows than net income. In 2013, operating cash was 1.4 times Altisource's net income. We intend to deploy cash on hand and operating cash flow to make acquisitions that support the mortgage and real estate marketplace vision and to repurchase Altisource shares when trading at attractive prices.

During the first quarter of 2014, we continue to evaluate potential bolt-on acquisitions that we believe will help us achieve our long-term marketplace objectives. With respect to stock repurchases, we bought back 406,000 shares during the first four months of 2014 at an average price of approximately $113 per share.

As many of you know Luxembourg law places a restriction on the dollar amount of share repurchases. Our Board of Directors has approved the restructuring of our subsidiaries which when completed will establish our capacity under Luxembourg law for share repurchases at approximately $2.8 billion plus future earnings.

We're seeking lenders consent to add a new subsidiary as a guarantor to the loan. We expect to complete the restructuring in the next two months.

I'll now turn the call over to Michelle for a financial update. Michelle?

Thank you, Bill. This morning, we reported record first quarter 2014 service revenue of $210 million, net income attributable to shareholders of $39.6 million and diluted earnings per share of $1.61. Slides three and four provide highlights of our results for the current quarter compared to prior period.

We're very pleased with our operating result as we continue to expand the operating margins in our Mortgage Services segment, grow technology services revenue from Equator and increase the average number of loans on real servicing while continuing to invest in our next generation technologies. Compared to the fourth quarter of 2013, service revenue increased 9% as we began to experience the benefit of the loans that were boarded on REALServicing in 2013 and the inclusion of a full quarter of the Equator revenue compared to six weeks in the fourth quarter. Partially offsetting this growth was the decline in the asset recovery business in the Financial Services segment.

As you can see on slide 10, service revenue per delinquent loans per non GSE loans, the primary driver of our default related services revenue, remained relatively constant at $362 in the first quarter of 2014 compared to $363 in the fourth quarter of 2013.

Service revenue per delinquent loan is generally higher in the second and third quarters and lower in the first and fourth quarters from seasonal fluctuations in real estate sales and lawn maintenance.

Net income attributable to shareholders in the first quarter of 2014 was 12% higher than the fourth quarter of 2013, primarily from the expansion of operating margins services in our mortgaged services and Equator businesses and from lower interest expense, partially offset by investments in the growth of our rental property management, our non-distressed home sales and our origination related services businesses.

As Bill will discuss in greater detail in a few minutes, our default related services operating margins improved over the fourth quarter of 2013 contributing to the 200 basis point improvement in Mortgage Services operating margins. Interest expense was lower than the fourth quarter of 2013 because of the December 2013 refinancing of our senior secured term loan at a lower interest rate.

Turning to our operating profit margins, the Company's overall margins remained at the same at 23% in the first quarter of 2014 compared to the fourth quarter of 2013 even though mortgage services and technology services margins improved. The consistent margin was driven by a shift in revenue mix across the segments as the lower margin Technology Services segment grew at a faster rate than the higher margin Mortgage Services segment.

Within the Financial Services segment revenue mix was also a factor as the customer relationship management business grew at a faster rate than the higher margin asset recovery business. While operating margins in the Technology Services segment improved in the first quarter, we anticipate margins to remain constrained as we continue to invest in the development of our next generation technology and unlike many other companies we expense employee costs related to internally developed software.

On an absolute dollar basis, selling, general and administrative expenses increased in the first quarter of 2014 compared to the fourth quarter of 2013 from higher Hubzu marketing costs and the inclusion of a full quarter of Equator compared to half a quarter in 2013.

Additionally there are some costs we don't expect to be recurring such as duplicative facility costs as we move to new facilities and other one-time expenses. From a cash perspective, we generated $36.3 million in operating cash flow in the first quarter of 2014, representing $0.17 for every dollar of service revenue. The decline in operating cash flow as a percentage of service revenue compared to the fourth quarter of 2013 was primarily driven by the payment of the annual bonuses in March of 2014 and timing differences in converting accounts receivable to the cash.

We primarily deployed first quarter 2014 operating cash by repurchasing $35.8 million of Altisource common stock representing 325,146 shares at an average purchase price of $109.97 per share and investing $12.9 million in facilities and technology to support our growth.

I will now turn the call over to Bill for a discussion of our first quarter operations and growth initiatives in more detail. Bill?

Thanks, Michelle. We are pleased with our operating results for the quarter achieving record quarterly service revenue and earnings per share. We are also pleased with the progress we are making with new and perspective clients as the sales cycles in our businesses can be quite long. We have recently been awarded two attractive contracts with top 10 financial institutions. The first is the REO asset management award that Bill discussed earlier and the second is in our asset recovery management business where we were chosen as one of a select group of vendors to provide additional recovery services across a variety of asset types for a major money center bank.

During the quarter, we focused on providing high quality compliance services to Ocwen, Altisource Residential and our other customers while diligently executing on our 2014 strategic initiatives to diversify and expand our revenue base.

This morning I will briefly address recent news reports and then discuss our mortgage and real estate marketplaces in greater detail.

Earlier this week Ocwen received a letter from the New York Department of Financial Services with inquiries primarily relating to Hubzu. We firmly believe that Altisource's asset management business provides a very transparent and efficient method to sell real estate, that the fees we charge are in line with or lower than industry standards and that we generate strong results for home owners.

Turning to our mortgage marketplace, we are focused on three objectives; first, supporting Ocwen; second, expanding operating margins in the default related services business; and third, growing origination related services revenue.

Our first initiatives and primary focus is providing high quality compliant services to Ocwen servicing portfolio. During the first quarter of 2014, we assisted Ocwen with the boarding of 307,000 loans on real servicing, including transfers from the legacy ResCap platform, OneWest and Greenpoint. Approximately 30% of these loans were non-GSE. We anticipate Ocwen will substantially complete the boarding of its remaining loans from their legacy ResCap platform in the middle of 2014.

Turning to operating margins for our default related services, we continue to execute against our plan to increase margins in our default related services businesses. While we fell just shy of the 47% margin objective, the expanded default related margins contributed to a 200 basis point improvement in Mortgage Services' overall operating margins compared to the fourth quarter of 2013.

We expect our Mortgage Services segment's margins to continue to expand as we further develop our non-default related businesses. We are investing in these businesses to support our future growth and expect these developing businesses to have attractive margins once they reach a level maturity and scale. For origination related services, there were 271 Lenders One members during the first quarter of 2014 representing approximately 14% of the overall origination market.

During the first quarter of 2014, origination related service revenue was approximately 2.3 basis points of the Lenders One origination volume, an increase from 1.5 basis points in the fourth quarter of 2013. We have two strategies to continue to increase our origination related services revenue; first, facilitating a distribution channel for new origination products for Lenders One members without the source performing origination related services on those products; and second, making it easier for the Lenders One members to order and receive services electronically from Altisource and our preferred vendors.

During the first quarter, we focused on the first strategy as we will not turn our attention to technology development until later in the year. We made progress during the first quarter but have more work to do to grow this business in line with our expectations.

In the real estate marketplace, we are focused on two objectives. First, growing distressed and non-distressed home sales on Hubzu and second providing property management services to Altisource Residential.

Reflecting on the progress we have made with Hubzu, we continue to perform well against the metrics we use to measure our performance. In the first quarter, we tripled our online traffic, increased property views 2.5 times and doubled the number of bids compared to the fourth quarter of 2013. To further support the growth of distressed assets sales on Hubzu, we are working to integrate the Equator and Hubzu technologies to make it easier for Equator's customers to offer houses for sale on Hubzu. We expect the basic integration to be completed in the second quarter.

For non-distressed assets, we have more work to do to change behavior and increase adoption as we work to evolve our non-distressed homes are sold in the United States. We are focused on product and system enhancements and expect to continue to refine our preferred partner offering.

We also increased our Hubzu marketing spend which we believe is driving improved distressed sales and in time will drive better results for the non-distressed home sales. The next initiative, the growth of our rental property management business for the single-family rental market is performing according to plan. We continue to provide services to Altisource Residential's portfolio and are prepared for its growth.

In closing, we are executing well against our strategic plan which focuses on developing a diversified revenue stream, long-term growth and strong cash flow generation, driven by the delivery of high quality compliant services. At this time, we would like to open up the call for questions. Operator?

(Operator Instructions) Mike Grondahl, Piper Jaffray.

Thank you for taking my questions. The first one, can you discuss the buyer's premium related to hubzu.com? And also maybe what drove web traffic trends, was it more marketing or more the association with Equator? Thank you.

Yes. Hi, Mike. This is Bill. Mike, our overall strategy is to align our pricing to the market [to beat] market or lower. And with respect to our distressed or institutional business, Mike, most of the major banks, servicers, asset managers and GSEs, they all use auctions to sell houses and that's because auctions bring transparency, price discovery, additional prospective buyers to the process and this is a tool that, Mike, that's been in place for more than 15 years. And based on our research, we believe there is a 5% buyer's premium paid on houses sold by auction through our competitors.

As we said in my prepared remarks, Mike, Hubzu is beginning to win some new institutional clients beyond Ocwen. Those are the seven agreements we signed with other servicers and asset managers where they are going to use Hubzu to sell their assets.

We're also in active negotiations with four other clients. We charge 4.5% -- we typically charge 4.5% buyer's premium which is lower than the 5% market standard, and we believe it's our results that's helping us gain traction with new customers. We have about 50 institutional houses on Hubzu where there is a 3.5% buyer's premium and we expect by the end of our next auction cycle that all of the institutional homes on Hubzu will be listed with a 4.5% buyer's premium.

And we're spending, Mike, this answer the second part of your question, we're spending millions of dollars to drive traffic to the homes marketed on Hubzu in order to create more value for the investors. And then with respect to our non-distressed, or non-institutional program, what we're calling is our preferred partner program, here we're trying to establish an online marketplace for individual homeowners and our brokers to auction homes and to move the home sales transaction from an offline environment to an online environment.

So unlike the mature REO auction space, individual homeowners and their brokers typically don't sell homes through auction today. We're charging a lower buyer's premium here of 1.5%, but we're also doing less work and we've established a minimally -- excuse me, as we've talked about on the prior calls, we've established a minimally viable product and we're in a test and learn phase to determine what the needs of this market segment are and what the appropriate services and pricing should be.

So we don't know where the buyer's premium is ultimately going to shake out. But we believe it's going to be consistent across this particular marketplace and likely will be less in the buyer's premium on institutional houses. And just to give you some sense, today there is only about 80 homes participating in the preferred partner pilot.

Okay. And then Bill Erby mentioned that top 10 financial institution, but I didn't catch all the services you're providing that institution. Can you repeat those? I mean it sounded like there were more services than just selling properties on Hubzu?

Yes, so basically we're going to be the asset manager of the listing broker or going to be providing valuation services, Hubzu in terms of online auction services and we will also be providing settlement services or title insurance.

Okay. Thank you. And then, well, maybe just one more quick, directionally how do you think about overall margins sort of the rest of the year and into 2015?

So, Mike, I think with respect to the Mortgage Services business, there is still some room for margin improvement. In the technology business our margins, as Michelle stated, are going to be constrained as we continue to invest in personnel for our next generation technology. And then in Financial Services, I would expect [sector to] be pretty consistent.

Henry Coffey, Sterne Agee.

Good morning everyone and thank you for taking my call. I've just got a couple of questions and excuse my ignorance. In terms of the seven new customers that was a mix of servicing companies and realtors. I didn't quite understand all that.

Yes, Henry this is Bill, it's servicers and asset managers. So asset managers are typically people that are managing assets for servicers. So it's all on the institutional side.

Meaning, I am --

It's not individual real estate brokers, it's companies -- the servicing companies are banks for example.

So it's a combination of servicers or people that are managing REO disposition?

On behalf of servicers, yes.

Henry, it's people that either have REO for basically where it's their own for their own account or basically REO for a servicer but it would be like big banks and things like that.

And so the services you're performing, you are providing evaluation, you're providing settlement and you are also providing marketing through an exposure through Hubzu?

Yes, Henry, each contract is different but the contract we -- that Bill mentioned in his remarks, we are providing all those services. In the seven other contracts we're providing Hubzu services and each contract is different in terms of what other services we're providing.

I know there is some -- been a lot of unusual noise in the press and maybe offline I can tell you -- question the manner in which the news is disseminated but we won't talk about that now. If we look at the total fees engaged in the sale of REO through the Altisource source platform, could you kind of give us a generic breakdown of what that might look like?

Yes, Henry we don't typically break it out, but I think you can go -- we're providing brokerage services, buyer's premium , asset management title, property preservation and inspection and it's typical. We feel very comfortable that we're right in line, but lower than market.

So the brokers' source is that the 6% that gets divided up between the seller and the buyer?

That's correct.

And then the buyer's premium is an additional premium then if I'm using the Hubzu website and buying the property I also pay?

If you're buying a home through the auction site we charge 4.5% buyer's premium. The market charges a 5% buyer's premium and that's paid for by the buyer and not the seller.

Right, but that's in addition to the brokers' commission.

Correct.

Is that correct. I just want to get all the numbers, so there is a broker's commission and then -- which historically is somewhere between 5% and 6%. There is the buyer's premium which you are saying is about 4.5%. There are probably some other fees and the like. How does that -- can you give us a comparison to other services or other competitors to get a feeling for how that stacks up, because I know, for example, there is at least one other public company that has a division that's doing this. These numbers seem consistent with what they're sharing, but we don't get insight into all of the other private companies that are probably doing this as well.

Henry, we've done -- we do market studies and we work to ensure that our pricing is at market or lower for the services we provide. I don't think we want to get into the individual for competitive reasons. I don't think we want to get into the individual pricing on each of our services, but we feel very comfortable that the pricing charge is in line with the lower than market great.

Great well thank you very much.

Douglas Kass, Seabreeze Partners.

Hey, Bill, how are you? Just then to summarize because my questions were almost all asked, and obviously people are concerned about this probe [by asking] just to summarize, you are basically saying that Hubzu charges more the property service by Ocwen because it provides additional services compared to non-Ocwen property.

No, we are charging the same or less than anyone else would typically charge a servicer for the services that we provide and we charge other customers in line with what we charge Ocwen.

Okay, fine. It is unclear how many homes lost keys claims address? Can you give us some sense?

No, I don't have it at my fingertips how many homes we have in New York -- but -- I don't have it in my fingertips, Doug.

Quincy Lee, Teton Capital.

Yes, on a different note, with regards to the capital structure that you envision for this company over the next few years, could you imagine the leverage ratio increasing over time? I guess how do you feel about future capital structure situations?

Bill, do you want to take that?

Sure, I can take that. I think that we certainly could have a higher leverage than we have today. The business generates very strong positive cash flow and we have fairly small proportionate requirements for capital to run and grow the business so that I would think that we could carry higher debt to equity ratios than we have today.

We certainly -- we'll try to be -- we're not going to push the envelope anywhere close to some of the higher end of the scale but we've really quite strong earnings coverage today and that could go up.

DeForest Hinman, Walthausen & Company.

Hi. Thanks. I kind of had a little off-topic question, but just on the Equator, just trying to understand the acquisition a little bit better. You gave some more disclosures in the K. These weren't really performing very well when we acquired them or putting them in the technology segment and then you kind of made some commentary about kind of integrating it with the Hubzu. Is that the primary strategy with that acquisition or did it have anything to do with some sort of build versus buy on the expense we were looking to outlay for kind of the REALSuite too because when I look at their website it looks like they've done a lot of the things that we have been talking about with the REALSuite or am I missing something?

Yes, let me take your second, this is Bill, let me take your second question first. There may be some opportunities for us to sunset some Altisource's legacy technologies and replace it with the Equator technologies where there are some duplications. That's interesting for us too. We're very interested in working -- the Equator -- our new Equator colleagues and the Altisource team are working very closely to integrate Equator to Hubzu so that we could provide to Equator's customers the asset management services and Hubzu services that we provide for others. So we're leveraging their relationships that they have.

So was that the [primary kind of] that acquisition?

That was an important component of that acquisition, yes. In addition to that they have a good core business as well with very strong customer base.

If you think of it from a media perspective, we handle a lot of content. Equator really is like the pipe, it's the backbone over which large numbers of transactions occur amongst banks and servicers and the real estate market. So it was a very significant footprint within that space.

Okay. And then we look at the payout incentives in that, it would mean a pretty sizable turnaround in their performance. So is there any way that you can help us think about what has to happen from the hit those thresholds where they hit those payouts? Obviously we have to pay them some cash. But overall [it would mean] the performances improved materially relative to when we repurchased them.

DeForest, I would just suggest to go back to the original investor presentation and also take a look at the Equator contract that I believe was attached to our 8-K to give you some sense as to what's included in that adjusted earnings to get to the [our] calculation, but we're really not prepared at this point to talk much more than that about it.

Fred Small, Compass Point.

So just two questions, first one is on margins and the second one is on the share repurchase or the structural stuff that you talked about earlier. On the margin, Bill, I think you said that you just missed the margin goals for the default segment. Can you say what the default segment margin was?

It was very, very close. I mean, we just missed it by less than a percent for the fourth quarter.

When the goal was set we were at 40% roughly overall and the goal was to get to 47% (multiple speakers)

Yes, that helped driving -- yes, that's correct. And I think going forward, we're going to speak more about the overall segment margins as opposed to just default related services and we largely accomplished the objective in the first quarter and we're still continuing to focus on improving margins in our default related services but we're also looking at the whole segment now.

Got it. So my question was --

And that should be easier for you to follow up.

Got it. The pre-tax margin in the Mortgage Services segment overall still looks I guess over 300 basis points lower than it was when we set the goal and most of the segment's revenues are coming from default. So I am just wondering what I missed. Why aren't they -- how have you gotten almost to the goal in default and not overall?

Sure. So there are other business in the Mortgage Services segment that are growing and developing and we're investing in those businesses, I think as Bill mentioned in his prepared remarks. So we're scalings resi our origination related services and others.

And we also [have, isn't there a lot] more when you get to operating margins, amortization expense.

There is. Now if you're comparing the 40% to the pre-tax this year, yes there is quite a bit more amortization. Just in the first quarter alone there was $7.1 million of amortization of intangibles, compared to $671,000 in the first quarter of last year.

Great. And I thought in the past you said that you were -- the goals were the same even adjusted for the amortization.

That's right. And so even adjusted for amortization we're able to get our operating margins on the default related businesses to close to 47%. We still have some more work to do on our non-default related businesses to improve their margins.

So can overall -- I mean before we were talking about getting it -- including the amortization expense here I guess -- that's lumped in the SG&A which went up a little bit as a percent of -- which went up 300 basis points as a percent of service revenues quarter-over-quarter anyway, but can pre-tax as a percentage of service revs they will get above 40%?

(inaudible) let's back up and then if I take mortgage services performance and I break it out between default and non-default, on the default side we were just shy of achieving 47% pretax after amortization expense. And so I think what Bill is saying is we're investing in the growth of some of our newer businesses and in time we expect that those margins to be quite attractive as well.

And there is still more room to grow the default. But we're going to talk about this from an overall segment perspective going forward as opposed to the default related businesses, just easier I think for everyone to follow.

Got it. Just overall when you lump everything together, can you still get back above, from the segment perspective, can you still get back above where you were at the end of 2012 when you set the goals?

Yes, I mean -- Fred, I think there is a lot of opportunity for us over time to improve margins and we're very, very operationally focused in the mortgage services business which are at least on the default side is much more mature. And so I think there is more room to improve our margins there, but we're not going to give any guidance in terms of where we think we're going to land in that, at least not today.

Okay. Got it. And the new businesses that you talked about adding where there have been a couple of questions, do those change sort of -- do those have a big impact on the overall margin mix or the goals or would you expect that?

I'm not sure I'm following the question.

The new businesses or the new business that you added with some outside customers, are the margins comparable to--?

Oh, yes, I think they are comparable, yes.

Okay, great. And then on the share repurchase, what you talked about before, does this completely lift the -- having the sub, does it completely lift the Luxembourg restrictions?

The Luxembourg restriction now is $2.8 billion plus future earnings.

Yes, once we get to the --

I would think that's the best we were not intending to have a stock buyback plan at anywhere close to $2.8 billion. So it's not an effective limitation right now.

Right. No, I get that. So that's the limit and this goes into place over the next two to three months you said?

Right.

Okay. Great. And do you think those --

Effectively there that's no longer a -- it's no longer a practical limitation because it's well outside of whatever we would even consider buying back shares. So we don't -- no longer have to consider it as one of the limitations.

The primary limitation is how we want to run our balance sheet. I think we could raise a lot more debt than we have today. We certainly don't ever look to push the debt limit to the maximum amount because times get tough at times, you want to have more safety in your capital structure. So I mean the effective limitation today is what the Board of Directors feels comfortable with in terms of basically repurchasing shares.

Understood. And if I look at the breakout of the share repurchase on page 39 of Q, it was really significant in February and then slowed down in March. Did you hit the cap there?

Yes, we were still subject to the Luxemburg law limitation, the old limitation, in the first quarter and then we put a program in place, again, in the month of April.

Okay. Got it. Thanks a lot for your help.

But I think we tell you what our limitations are today in the Q.

Mike Grondahl, Piper Jaffray.

Yes, guys. Just three quick follow-ups. One, did you disclose what Hubzu revenue was in the quarter? Secondly, is there much of a difference in the fees for foreclosures or short sales? And then just lastly, will you guys press release or sort of let us know when the buyback sealing in the restructuring is done? Do you intend to do that?

With respect to the buyback, we have to talk about it, Mike. We haven't had that discussion yet internally on whether or not we should 8-K that, but we'll let you know if we plan -- we'll let the public know if we plan on doing that.

Your second question was related to -- or the first question was related to Hubzu revenue. And, Mike, we look at that as really not just Hubzu but also our brokerage business and that was about $33 million in the first quarter.

And then with respect to short sale and foreclosure, on short sale, we're just acting as essentially the auctioneer. We're not acting as the listing agent today on those properties. So we're earning a buyer's premium. But on short sales we only earn the buyer's premium when the house marketed on Hubzu ends up selling for more than what the borrower and their broker originally proposed.

And what we've found so far, at least since we will start up the program for all the houses we've sold to-date, Mike, approximately 50% of the time we're selling the house for more money than was originally proposed by the borrower and their broker when it goes on Hubzu and that translates to about $17,000 of additional proceeds to the investor or almost 11% more in terms of higher purchase price.

So we've had a lot of success for the homes that sell -- the short sell homes that sell on Hubzu, they are selling for substantially more money than was originally proposed and we believe that's because we're bringing transparency to the process. We're bringing in a lot of bidders to the process and we're bringing a lot of -- there is transparency and there is more bidders for the process which is driving a higher price. So we're having great success there. We actually think that's a good proxy for the performance of our REO related business.

Sure. And then one last one I just thought of looking through my notes, I think last quarter you said that the percent of sales on Hubzu about 42% or 43% was auction related. Has that continued to trend up?

Mike, I think on the call today about 45% of our homes on the site are really just marketing related not auction related.

Okay.

About 45% not auctioned, so 55% would be auctioned.

Would be auctioned. So that has trended up from 43% in December. Okay. Thank you.

Ryan Zacharia, JAM.

Thanks for taking the question. I just want to follow up on some of the numbers that you just pointed out on the short sales that are then listed on Hubzu. So if an offer is brought to you guys for $100,000 and then it's listed on Hubzu that same potential buyer has to pay [$104,500] to buy the house?

No, Ryan, let me explain. We have an -- Ocwen has as an assisted short sale program. When a borrower or their broker approach Ocwen to approve a short sale, Ocwen wants to make sure that there is the appropriate price discovery that took place, that it's being sold for a fair price. Only if the home sells for more money than was originally proposed after taking into consideration it has -- there has to be more proceeds to the investor of the home before we earn a penny at Altisource. And what we're finding is 50% of the time when a home comes to Hubzu under the assisted short sale program the house sells for more money and that more money for those homes that sell for more is about $17,000 more per home to the investor.

We only earn money on those houses that sell for more money and we're only earning a buyer's premium. We don't take anything today from the listing agent. The listing agent's commission remains exactly the same.

But let's say an offer is brought to you and there is only one bidder and it's still the original --

We take no fees.

Potential buyer and that buyer comes in at $100,000, do they have to pay the buyer's premium?

The buyer does not pay the buyer's premium. As I said, we take no fees so the buyer is not paying a buyer's premium if the price is the same or less.

Okay.

Kenneth James, Sterne Agee.

Hi. Good morning. I just had a couple of questions here following up on some stuff Henry asked about. First, in respect to the new contract and how we might see those flow through the model of the financials, is it going to just -- would you anticipate then just driving higher Hubzu unit sales, does it actually going to put loans, average delinquent loans increase that number on the platform to show up in Mortgage Services revenue, wondering if you could give a little more color on how that much --?

Sure. Kenneth, this is Bill. It's going to just show up in our various different business lines. It's completely unrelated to the number of loans on the real servicing platform. So that won't drive any increase or decrease in loans on the REAL servicing platform and you'll see the revenue show up in our asset management business and our valuation business in our insurance business.

Okay. So, won't drive new loans in the platform, right. And another question was in relation to the amortization expense that was up a couple million sequentially, is that a permanent step higher in kind of the where the amortization expense will run or is this more of a variable expense kind of tied to the timing of revenue recognition?

Sequentially amortization of intangibles went from $9.3 million to $9.4 million.

I guess, I took the number out of cash flow statement talking about, I guess, total amortization and depreciation or everything?

Okay. So depreciation was a little higher sequentially, yes. The amortization of intangibles will vary with the revenue or earnings from the Equator platform, the ResCap and Homeward fee-based businesses that we acquired and depreciation generally speaking is recognized on a straight line basis.

Okay. So there can be some play in it? I'm just trying to figure out exactly what the amortization expense is going to be going forward, not exactly but --?

Amortization of -- sorry, let's back out just a minute. Depreciation and amortization relates to our fixed assets. The reason we have amortization in there is we amortize leasehold improvements. So this is PP&E depreciation and amortization and then you separately have amortization of intangible assets.

Right.

Is that helpful?

Yes. We can follow up offline. I guess I am just comparing all of it combined in the first to the fourth and just kind of wonder what the difference is. I am trying to verify that [I get no other] wrong numbers.

Yes, I will be happy to. You're welcome.

Douglas Kass, Seabreeze Partners.

Thanks, Michelle. I apologize if this question was answered. I had to step out for a couple of minutes. But again on the P&L statement and the cash flow question, on the P&L statement it appears that there was almost $0.11 or $0.12 negative swing in the other income line with interest expense rising quite substantially despite the fact that debt balances hadn't changed. In addition, other income basically went from about [three quarters of million to zero]. So the dual effect was about almost $2.5 million negative swing. Could you explain that?

Secondly, on the cash flow statement, I see that out of nowhere there was a bad debt expense of about $1.8 million, what was that?

Sure. So your questions on the income statement, I think you're comparing first quarter 2014 to first quarter 2013. The interest rate increase, our debt is basically double what it was in the first quarter of 2013. We originally acquired -- we had $200 million of debt in December of 2012 and then in May of 2013 we increased it to $400 million.

In December of 2013, we refinanced our debt to achieve a lower interest rate. So if you look at fourth quarter versus first quarter, you would see that our interest rate has actually declined.

Got you.

Hello, Doug, with respect to the bad debt, that's in one of our businesses where we incurred some bad debt. The way in which some of our clients gets pay changed and they wanted to change how we get paid and so we were just working through that.

Okay, thank you.

Henry Coffey, Sterne Agee.

Yes. Hi. Henry Coffey. Thank you for giving me time and a follow-up. You told Mike Grondahl that the real estate transaction revenue is $33 million. How does that compare to the $22.7 million you reported on your slide deck in the fourth quarter. Can you give us a sense of what that?

Henry, it's comparable to the same [entries].

So the Hubzu servicer revenue was $33 million?

It's Hubzu and our brokerage business, yes.

And what was the brokerage contribution in the fourth quarter?

We don't break out the two, Henry.

Maybe we can go over this later. Thank you.

Fred Small, Compass Point.

Hello. Sorry, just one quick follow-up. Thanks. On REO sales and/or short sales, can you say what the number of sales were in Q1?

I think it's --

(inaudible) it was 6,705 assets.

And you can't give the break out between REO and short sale?

We don't disclose that.

Okay, great. Thanks a lot.

Bryan Wren, Independence Capital.

Hi. Thanks for the time guys. I had two quick questions. Last week Ocwen missed the advance ratio at HLSS by a pretty decent amount and they spoke about REOs being a little off on the timing and they be moved into March and April versus the first quarter due to some weather. Can you guys talk about how that if it did and how much it affects you guys?

And then two just to be crystal clear on the share repo, once this is restructured I believe you have 3.3 million shares left on the buyback today. Can you buy those shares whenever you want with no restrictions? Thanks.

So with respect to your first question, I'm not quite sure what you're referring to. But in the first quarter, I think the first quarter is typically as Michelle mentioned, it's a seasonally slower period typically for selling REO that we have a bigger inventory, so we sell more in the first quarter than the fourth.

Okay.

And then our share capacity, I think you are asking about our Luxembourg share capacity, is that right?

Yes.

Right. So at the end of the quarter it was $15 million and we have the ability to repurchase that and as we earn -- as we have earnings in April approximately 90% of that will be used to increase our capacity under Luxembourg law until we have a restructuring.

Once restructured that 3.3 million is all available, is that correct?

So the 3.3 million shares is how many is authorized to be repurchased under the approval. And then Luxembourg law dictates the dollar amount we can repurchase irrespective of the number of shares.

Okay. Thank you, guys.

You're welcome.

Ben Glaze Apollo Management.

Hi, guys. So Henry asked my first question. The second one is kind of related to the short sale units and REO unit. Is the 6,705, like how would that compare to the total units that you guys are doing in both of those?

Ben, that includes both our short sale and REO sales.

All of the short sale and REO that happened during the quarter, okay.

Correct.

Okay. That's it. Thanks.

Thank you.

Thank you. And at this time, I'm not showing any further questions. I would now like to turn the call back over to Michelle Esterman for any closing remarks.

Thank you for your interest in Altisource and joining the call today. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.