Altisource Portfolio Solutions SA (ASPS) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Altisource second-quarter earnings call. At this time all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Ms. Michelle Esterman. Ma'am, you may begin.

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

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 facts, are forward-looking statements. Factors that might cause actual results to differ materially are discussed in our earnings release. The Company disclaims any intent or obligation to publicly update or revise any forward-looking statements, regardless of whether new information becomes available, future development 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. Next month marks our fifth anniversary as a standalone public company. During this five-year period we have had tremendous service revenue and earnings growth and a focus on providing best in class services, developing new services, driving down costs through efficiency and technology initiatives, and investing in our future.

At separation, we said we wanted to be capital-light and grow our revenue and earnings at 15% to 20% per year and we have done exactly what we set out to do. In the last five years, service revenue has grown at an annual rate of 43%, net income and earnings per share at a rate of 47%, and operating cash flow at a rate of 44%.

I sincerely want to thank all of the employees of Altisource for this significant achievement. Our success over the last five years is a testament to their vision, hard work, and commitment to Altisource and to our customers.

This morning, I plan on spending a few minutes providing a progress update 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.

We have four strategic areas of focus in 2014. First, ensure we have a robust world-class compliance management system. Second, advance our real estate marketplace vision through Hubzu and our residential rental property management business. Third, advance our mortgage marketplace vision supporting Ocwen and Lenders One. And fourth, to pool our cash to repurchase Altisource shares when trading at attractive prices and acquire companies that help support the mortgage and real estate marketplace vision.

We are making good progress on each of these initiatives. Beginning with compliance. We continue to focus on developing a world-class compliance management system and providing our customers with high-quality services in a compliant manner. We operate in a highly regulated environment with oversight from many regulatory authorities. We expect there will be -- there will continue to be a heightened level of regulatory scrutiny of the mortgage, mortgage servicing and related services industry.

To improve Altisource's compliance with the growing body of regulatory and legal requirements, we are continuing to improve our compliance technologies and are working with consultants to review and enhance other elements of our compliance management system. We believe our compliance focus has been and will continue to be a contributing factor to our success.

Turning to our real estate marketplace, we have three areas of focus. First, growing Hubzu in a distressed real estate sales market. Second, enhancing the Hubzu offering to meet the needs of and expand further into the nondistressed home sales market and, third, expanding the single-family rental property management business.

We are excited that Hubzu, our online real estate sales marketplace is now a top 20 visited real estate site. Hubzu continues to perform well with distressed real estate assets, driving a high volume of relevant traffic to the houses on Hubzu. We are also pleased with the progress we are making to sell Hubzu to other servicers and asset managers. We just began receiving referrals this month from the new top 10 financial institution customer we discussed last quarter and we are also in advanced sales discussions with other potential customers, some of which are sizable.

For nondistressed houses, we continue to work on refining our offerings for our Preferred Partner program with real estate brokers. We are learning a lot from our pilot programs and the feedback we have received from the real estate brokers that use Hubzu. We are working to tailor and add functionality for the Preferred Partner program to increase the adoption of home auctions as we work to evolve the nondistressed home sales transaction process.

With respect to the rental property management business, we are prepared to support the anticipated growth of Altisource Residential's rental portfolio. During the second quarter of 2014, we increased our staff levels in this business while continuing to develop and improve our end to end suite of services, typically purchased in connection with a home rental or ongoing home maintenance.

Turning to the mortgage marketplace. We have two primary areas of focus. First, providing high-quality compliance services for Ocwen's servicing portfolio and, second, growing our origination related services, leveraging our relationships with Lenders One and Ocwen.

With respect to our originations-related services business, Lenders One accounts for approximately 14% of the overall origination market. We are focused on strategies that increase capture rate of services purchased by the Lenders One members. Our strategies include one, developing technology that allows the Lenders One members to order and receive our origination-related services directly from their loan origination system. Two, leveraging our large vendor network and buying power to expand the goods and services we provide to the Lenders One members at a lower cost. And three, working with Ocwen and others to develop new products for the Lenders One members to originate and sell.

For technology development we are currently recruiting the leader who will be responsible for developing the Altisource marketplace which includes the origination-related ordering and delivery technology. We expect to roll out our origination-related ordering technology in 2015. With Altisource's buying power, technology and vendor network, we believe we can provide significant value to the Lenders One members.

In addition to origination-related services, we continue to explore other ways to enhance the value proposition for the members while supporting their growth. This includes negotiating lower pricing for our members on other products and services and working with others to develop additional products that members can originate and sale.

The fourth component of our strategic plan relates to cash deployment. Altisource is a capital light company that generates more opportune cash flow than net income. We anticipate using operating cash flow, $200 million from additional debt, and cash on hand to repurchase Altisource shares, make acquisitions, and invest in the organic development of new and next generation products and services that support our marketplace vision.

As we discussed with you last quarter, we have been working on a restructuring of our subsidiaries which, when completed, will enable us to be fully compliant with Luxembourg law without the restriction on share repurchases. We have substantially completed the restructuring plans and expected to be finalized shortly. Once it is completed, our debt agreement will be the most restrictive governor on our share repurchases.

With respect to acquisitions, Bill will discuss our recent announcement of the planned acquisition of Mortgage Builder. We continue to evaluate potential bolt-on acquisitions that we believe will help us achieve our longer-term marketplace objectives.

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

Thank you, Bill. This morning we reported record second-quarter 2014 service revenue of $263.2 million, net income attributable to shareholders of $54.1 million and diluted earnings per share of $2.24. Slides four through six provide highlights of our results for the current quarter compared to prior periods.

We are very pleased with our operating results as we continue to focus on compliance, quality, and efficiency initiatives expanding service offerings and investing in our next generation technologies and other growth initiatives.

Compared to the first quarter of 2014, service revenue increased 25% as we experienced the full benefit of the ones that Ocwen boarded on REALServicing in 2013 -- seasonally higher property preservation services, seasonally higher home sales on Hubzu, a greater percentage of Hubzu homes sold through auctions, and growth in our insurance services business.

As you can see on slide 10, service revenue per delinquent loan for non-GSE loans, the primary driver of our default-related services revenue increased from $362 in the first quarter of 2014 to $485 in the second quarter of 2014. The increase was primarily driven by the same factors that contributed to service revenue growth.

Net income attributable to shareholders in the second quarter of 2014 was 37% higher than the first quarter of 2014, primarily from revenue growth in the asset management services business within the mortgage services segment.

From a cash perspective, we generated $75.2 million of operating cash flow in the second quarter of 2014, representing $0.29 for every dollar of service revenue. We used cash during the quarter to repurchase $44.9 million of Altisource common stock representing 415,000 shares at an average purchase price of $108.24 per share, and to invest $17.6 million in facilities and technologies to support our growth.

At the end of the quarter, our cash balance was $116.4 million. In July 2014, we repurchased $12 million of Altisource common stock representing 105,000 shares at an average purchase price of $114.33 per share.

As Bill mentioned, we intend to borrow $200 million using the accordion feature of our existing debt and amend the senior secured term loan agreement to provide additional share buyback capacity. We anticipate the loan transaction will close next week.

The $200 million will carry the same interest rate as the existing debt. We intend to use this cash to repurchase shares and to support general corporate services.

With regard to share repurchases, we believe the purchase of our shares provides a tax efficient way to return value to our shareholders when our stock is attractively priced.

Slide seven provides a summary of our share buyback restrictions including the senior secured term loan agreement, Luxembourg law, and shareholder authorization. Once we borrow the additional $200 million and the subsidiary of restructuring is complete, we estimate that we have the ability under these restrictions to purchase the lesser of $280 million or 2.9 million shares.

Finally, we recorded two Equator-related adjustments in the second-quarter 2014 financial statement. The first relates to the liability for the potential earnout payable to the seller and the second relates to goodwill. The purchase price for Equator included up to $80 million of earn-out consideration to be determined based on Equator's financial performance in each of the three years following acquisition. In connection with marketing the company for sale, the sellers presented optimistic projections. For this reason we structured the transaction with more than half of the consideration to be paid in the event the business achieved the sellers' projections.

Based on our current projections, we estimate the probability weighted fair value of the liability to be $37.9 million lower than the amount we recorded in purchase accounting. Accordingly, we reduced the liability and recorded a corresponding gain in the income statement.

In connection with this adjustment, we evaluated Equator goodwill for impairment and recognized an impairment loss of $37.5 million which is also reflected in the income statement. We firmly believe the Equator acquisition was a very good transaction for Altisource and are pleased with the progress Equator is making.

I will now turn the call over to Bill for a discussion of the progress we have made on our growth initiative. Bill?

Thanks, Michelle. During the quarter we focused on providing high-quality compliance services to Ocwen, Lenders One, 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 discuss our mortgage and real estate marketplaces in greater detail.

Turning to our mortgage marketplace, we are focused on a number of objectives. I will discuss three with you today.

First, growing mortgage services operating margins, second, continuing to expand the services we offer, and third, growing origination-related service revenue.

Beginning with margins in our mortgage services segment. Overall pretax income margins in the mortgage services segment remained consistent with the first quarter of 2014 at 37%. During the second quarter of 2014, we continued to execute against our plan to increase margins -- leveraging scale, technology, and workforce efficiencies. We have made good progress.

Two things are happening to keep the margins of the overall segment from reflecting the success we are having in our default-related services.

First, as I will discuss with you in a minute, we are expanding the services we are providing in our insurance services business. In connection with this expansion, we are incurring expenses to build and develop the business capabilities and staff. Second, we have more staff in our origination-related and rental property management businesses than currently are required in order to support our future growth. In time, we believe mortgage services pretax income margins will increase.

Turning to the continued expansion of our services. Part of the success we have experienced at Altisource in the last five years has been from the development and rollout of new services. We continually evaluate adjacent and complementary services that we can develop or acquire to support our customers and our long-term growth. During the second quarter of 2014, we established [lost draft] processing services, developed a new flood insurance program for Lenders One members, and a property and casualty insurance program for Altisource Residential's REO and rental property portfolio.

Turning to growth of our origination-related services. Bill earlier described a number of strategies we have to enhance the value proposition for Lenders One members. Earlier this week, we announced that we entered into a purchase and sale agreement to acquire the assets of Mortgage Builder. The acquisition is for $15 million of initial consideration and up to $7 million of potential earn-out consideration.

Mortgage Builder is a technology company with a loan origination system and a marketplace. Today, approximately 19% of the Lenders One members are customers of Mortgage Builder. This acquisition expands our suite of origination-related services and makes it easier for users of the Mortgage Builder loan origination system to acquire services from Lenders One vendors, including Altisource.

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

With Hubzu, we are focused on optimizing our current product while developing enhanced functionality to address the nondistressed home sale market. We continue to gain momentum with Hubzu and distressed asset sales. During the second quarter of 2014, 8,000 houses were sold on Hubzu with over 1.4 million average unique visitors to the site.

Comparing the second quarter of 2013 to the second quarter of 2014, we increased the number of unique viewers of the Hubzu website by over 300%. During the second quarter, we also worked with our new top 10 financial institution clients to prepare for our launch of a full suite of REO services to them. We began receiving referrals in the middle of this month, and expect to receive 200 to 400 REO referrals per month.

Additionally, we completed the basic integration of the Equator and Hubzu technologies to make it easier for Equator's customers to offer houses for sale on Hubzu. To address the needs of nondistressed home sellers, buyers, and real estate agents, we believe it is important to continue to enhance the Hubzu platform in order to rapidly deliver new products to address the evolving market.

In the rental property management business, we more than doubled our staff in the second quarter of 2014, compared to the first quarter of 2014. Altisource Residential currently has 11,424 delinquent loans in its portfolio, 1,676 REOs that will either become rental properties or will be sold and 282 single-family assets that are either rented, for rent, or are under renovation.

Altisource Residential has publicly stated that it expects to have 1,000 rental houses by the end of 2014. We are prepared to support both the near-term and longer term growth of Altisource Residential.

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 compliance services.

At this time, we would like to open up the call to questions. Operator?

(Operator Instructions). Mike Grondahl, Piper Jaffray.

Thank you. And first off, congratulations on five years. The first question, could you help us a little bit just bridge the $370 range that you used to be in of service revenue per delinquent non-GSE loan? Just up to that $485 that you got in the quarter. Help us think about the increase there and what is driving it and how sustainable it is.

Sure, Mike. So, you have a couple of things going on. One is seasonality. So we usually have higher property preservation services and higher home sales during the second and third quarters of every year. And also, we have continued to increase the percentage of homes sold on Hubzu to auctions. And then, we have also had some growth in our insurance services business that contributed to that.

And I guess could you just detail the insurance services a little bit more because I guess that is some new products now that you are offering. Could you give an example of maybe one or two of those?

Yes, I think I gave you an example of three in my remarks. But we are prepared -- we are doing a lost draft work which is basically when there is an insurance claim on a house we and the insurance company has to make a payment. We make sure that those payments are made appropriately.

So that is -- did you call that a lost strategy? Or just repeat that word again.

No. Lost draft processing.

Okay. And then in terms of the stickiness of your mortgage default book, any comments there on the outlook for runoff or boardings and whatnot, sort of what you see?

Mike, I would just -- look, we give you some good information in the slide presentation around what percentage of the portfolio we expect to be delinquent overtime. I think that is a good place to turn to and then you can make your assumptions. I don't think we provide you with a CPR, but you can make your own assumptions on a CPR.

Okay and then just lastly, I think you mentioned in the prepared remarks there are a couple new third parties that you are talking to for Hubzu. What kind of timeline do you think those are on?

Yes and we have been working on these for probably close to a year now. Maybe we were talking to these clients even pre-the Equator acquisition and then with the Equator acquisition they have been -- we have been leveraging their relationships to help move them along. So, there's very active dialogue with two firms in particular, but there is not much more I can say. We are under a nondisclosure agreement.

Okay, thank you.

Henry Coffey, Sterne, Agee.

Michelle, could you help me out here? Can you go over the details of the write-down of the Oasis contract for me again?

Do you mean Equator?

Equator. I am sorry, yes.

No, no, that's okay. So we have projections in purchase accounting, you record the fair value of what you believe the contingent payout will be and we evaluated today what we expected that to be and it was lower than what we anticipated when we purchased Equator. So you market to market every quarter and we adjusted it.

(multiple speakers) Henry, let me try it another way with regard to it. We had a forecast of what we thought Equator could do when we purchased Equator. And they had a forecast of what they thought they could do.

The difference between those two was really related towards the incentive payment that they were eligible for. And that amount actually ended up being almost -- it was highly influenced the actual amount of goodwill that we had in the transaction as well. It was an input to that.

We are actually doing as well as we thought we would do with regard to it and Bill -- I mean, Michelle, you can comment we may be doing slightly better, but that does not mean that we are going to believe we are going to hit the projections that were given by the sellers. As a result you had an adjustment to both the incentive fee that you are paying which was almost exactly offset with the amount of writedown to the goodwill as well. So it had virtually no impact on earnings.

So, yes, what -- can you give me the debits and credits, the actual numbers? (multiple speakers) recorded in the P&L?

Sure. At the end of the day, Henry, there is a $300,000 or $400,000 pickup to earnings I think is the net impact. And Michelle, you can tell him where they are recorded.

So they are in a (multiple speakers) --

You are writing down an asset and you are writing down a liability.

We are taking to income the liability and we are writing down an asset, yes.

That's right. And they are both reflected as components of selling, general, and administrative expenses.

Okay. And then on the buyback, I know in the slide deck you give a sense of what you can do, but then you talked about this new accordion feature. Is the way to interpret page 7, simply to assume that you are going to be able to buy back another $200 million worth of stock above and beyond what your existing senior secured term loan will let you do?

That's right. That's right. That is where the $280 million I reported to came from.

And, obviously that is already covered by your existing authorization, correct?

Yes.

Yes. Yes.

Standing on the sidelines as an investor, should we say this is the first time that that has really been put out there? I know you talked about it before, but should we view this as kind of a either an increase in potential or how should we read into that?

Well, we referred to it last quarter, Henry, in terms of what steps we had to take to get into this position. And I think we are fairly (technical difficulty) to that. We are trying to be as clear as we can with respect to it. We still have upside to the bond, but we think that's -- our information today is that is accomplishable. And --

Right that's --

-- Do the final steps with less on board.

So the goal, I remember the goal was out there in the first quarter and now you have basically crossed the goal line.

I think we said we think it will be completed soon.

Yes, we are at the 1 yard line, Henry.

Let's put it this way. We are well within the red zone.

Let's put it that way. Let's go back to some hockey terms. You are over that blue line thing, right?

When we look at the dynamics driving the quarter, obviously trends in the number of delinquent loans being serviced are significant. If you look forward into 2015 as you have done in the past, should we be thinking about more loans forwarding? Should we simply just look at whatever is going on at Ocwen? Should we think of maybe the number of loans being delinquent loans being managed stays the same, but the revenue increases as you work through the resolution? How should we think about that for 2015?

Henry, we are not going to comment on Ocwen's ability to acquire additional servicing rights, but we hope for the best and plan for the worst is our approach. We are building a business that we believe can grow if -- obviously will grow a lot faster if Ocwen acquires additional servicing rights. And if they don't we are trying to position ourselves to grow without Ocwen buying servicing rights. And (multiple speakers) sorry.

Exactly. No, I get -- I think that is helpful.

Looking at your real estate management platform, the rental business, what sort of dialogue are you having with other entrepreneurs out there managing large pools of homes regarding the use of the platform?

Today, Henry, we are really focused on the Altisource Residential business, although I think at some point in the future, there will be other opportunities and we have a broader strategy with respect to the rental business that we don't want to get into today. But right now, we are really focused on supporting the Altisource Residential Business's growth.

Great. Thank you.

Chris Gamaitoni, Autonomous.

Good morning. Can you give us the update on the percentage of homes from Hubzu that were sold in auction this quarter?

I think it was a little over 80%.

80%. And what is the -- the motor services revenue increased pretty significantly. What kind of -- of the subline items that you are disclosing in your Q -- just trying to see what exact services were, whether it was seasonal or not. What is all the big increase?

Yes, I think what drove it was asset -- as Michelle mentioned in her remarks. Asset management and insurance services were the two biggest drivers.

And was insurance mostly seasonal on like because of higher, more basically title checks on higher sales or was there something else? I am just trying to figure out (inaudible) how much was the new, or how much was seasonal.

Yes, but there was some growth in the title business which is a subset of the insurance services business. But this new product contributed a lot to revenue growth. It did not contribute at all to earnings growth because we are still in the process of ramping it up.

And then (multiple speakers). Correct.

Okay, perfect. That is very helpful. And then on mortgage services, it was 2 basis points this quarter. I think you had given for the year it was 4.5. It is pretty hard to get there with the back half of the year, maybe you could give us an update on the outlook.

Sure. We still have a lot of work to do with respect to Lenders One and I am not happy -- the opportunity's as great as it has ever been and we need to do a much better job executing. A part of the solution is getting the technology in place which we are not going to have in place until sometime next year and we have to develop -- we basically have to be indispensable to the members and develop the vendor products and services that we can offer to them at a lower price. And the numbers are very open to it. We've just had a lot of other areas we have been focusing on and we need to turn our attention and that's required us to bring in some more employees into the organization and to get some more focus on the technology side.

The opportunity is still there, as I said earlier, we just have a lot more work to do to capture it.

Okay, perfect. And what was the -- there is a nice increase in revenue in the technology services line. I was just wondering what the driver of that was.

Yes, I think compared to the first quarter that's primarily just the growth of Ocwen's servicing portfolio. And the related infrastructure type services that we do to support Ocwen as it grows.

Okay. Perfect. Thank you.

Fred Small, Compass Point.

Good morning. I was wondering, Bill, if you could talk a little bit more about the economics of Mortgage Builder business that you bought. Sort of how they -- what sort of economic model there and in terms of how they generate revenue? Is it selling seats, is it on a per transaction basis? And then what do you think they --? Or what do you think you need to do to -- I am assuming that the members of Lenders One who are already using that are -- have current vendors in place that they buy services from.

What do you need to do to displace or win business -- win that business and what verticals do you think you will focus on?

Yes. So, first, Fred, I think the way to look at Mortgage Builder, it is very consistent with our marketplace strategy. If you look today, we had a residential loan servicing system with Equator, we really have a robust default management system that handles REO, bankruptcy, and eviction. And now with Mortgage Builder, we have an origination system. And across all those processes, we can develop a marketplace where those users can order and receive services from Altisource or from other vendors. And so that is the overall strategy.

I mean. it is a $15 million purchase price so I wouldn't look at it in terms of if it doesn't move the needle from an earnings perspective. It may be neutral to modestly accretive. I mean it is a very small transaction. And the way they build their clients would be similar to what you would expect at some legacy clients that are on a subscription license model and some newer clients that are moving more to a [by the drink].

Okay, got it. And you said that number you gave was 19% Lenders One members are -- currently use Mortgage Builder?

That's correct.

And would you expect to be able to convert more or do you know -- are most of the current -- do all their members, is there sort of a -- are 50% of them on Ellie Mae or is there another sort of key technology where -- that has big market share among Lenders One?

Yes and I think you'd see that the Lenders One numbers are dispersed across the origination -- Ellie Mae obviously has a big market share. So you'd find a lot of members on Ellie Mae's system.

I mean our -- we believe that we will be able to use this as a tool to help the members make more money and save money; and we think we will be able to convert additional members on to the platform. Mortgage Builder has been a preferred vendor of Lenders One for some time now and we think with a more financially strong owner of the company they will be able to close some transactions which they otherwise lost because of their size.

But at the end of the day it more has held and fits into our overall strategy than this company of itself being a very big needle mover for Altisource.

Okay, got it. Just in terms maybe last one on Mortgage Builder in terms of revenues that you can generate from the -- via the purchase. Does it -- do you think it will put you closer to the original target that even though it probably wasn't included in the original target, will it push you closer to that original target of 4.5 basis points that you talked about at the end of 2013?

Yes, Fred, I think it will certainly help them better. I didn't answer your question. There are -- Mortgage Builder already has a marketplace, but they don't provide all the services that are available or that you would normally expect in the marketplace and Altisource could supplement some of those services as a way where we could pick up business from their existing customers.

Okay, got it. And can you give an example -- I mean it is (multiple speakers) certification, or what would be an (multiple speakers) example?

Valuation, closing, title, quality control or underwriting would be some examples.

Okay, got it. And without the additional expenses that you went through that are muting the mortgage services margin, how much do you think -- the revenue per transaction and the revenue for -- per delinquent loans were up huge in the quarter. How much do you think overall mortgage services margin could have been up without the expenses?

I think we -- and this is very ballpark numbers, but we are probably incurring anywhere from, I would say, Michelle, tell me if you agree, $400,000 to $700,000 of additional expenses in order to support the growth a month. (inaudible)

A month, okay, got it.

Yes.

Got it. And on the different -- the Q4 balance sheet numbers were different versus in the release today versus the K. Is that due to the Equator financials and the changes there?

Right. So accounting requires you to retrospectively adjust if you have purchase price true-ups. When you finalize your purchase accounting, you push it all the way back in time. So it is purchase accounting-related.

Got it. So I am assuming then that the Q1 balance sheet is different also.

That's right.

And will you file -- will that get refiled? Will those be filed as amendments, the true-up or --?

This is not the way -- it does not -- the way it works with quarterly you only present the balance sheet in the quarter that you file it. Because the comparative period is always the end of the prior year, so you don't restate the prior interim period's balance sheet in public filings.

Last one, just with -- you said 80% running through auction on Hubzu, I think. Is that right?

Yes, a little over 80% is my recollection.

A little over 80%. And the overall revenue per delinquent loans at 480, I think that was (inaudible) 485 for non-GSE loans. What is the -- where is -- is there a peak to that, you think? Is there a number you think that can't go? What -- if 100% of Hubzu was running through auction with that number be substantially higher?

Fred, we are not going to give any specific guidance as to where that number could go, but there are incrementally additional services we could provide. I think we talked last quarter a bit about short sales, greater percentage of homes sold through auction. There are other services potentially that we are not providing today. So we are not going to give any guidance on where that number could go.

But as Michelle pointed out, there is some seasonality to it in the summer months. But some of that increase is very sustainable for the longer term.

Okay, great. Thanks a lot.

(Operator Instructions). Mike Grondahl, Piper Jaffray.

Yes, how should we think about SG&A going forward? Does that just stay elevated as you are supporting some of this growth and whatnot?

Yes. I think we -- SG&A has gone up a little bit from Hubzu marketing and higher amortization expense in the quarter, but we think it will stabilize.

Mike, we are seeing a little bit more money on some compliance-related employees, things like that, but we do expect it to stabilize going.

Okay, great. And I think I know the answer to this, but the Hubzu pricing for the third parties, that is the same as Ocwen, correct? That all got --

Yes, Mike, as it pertains to distressed REO it is the same across the board.

Right, okay, good. And then this slide deck with 2Q didn't have any of those sort of forward projections or sort of ways to think about the business. Any reason those weren't in there?

No, we just don't update that each quarter, Mike.

Okay. Well, thanks again.

At this time I am showing no further questions. I would like to turn the call back over to management.

Thank you for joining the call today. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program. You may all disconnect. Everyone have a great day.