Altisource Portfolio Solutions SA (ASPS) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Altisource second quarter 2015 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. I'd now like to introduce your host for today's conference, Michelle Esterman, Chief Financial Officer. Ma'am, you may begin.

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 is Bill Shepro, our Chief Executive Officer. I would now like to turn the call over to Bill.

Good morning and thank you for joining today's call. This morning, I plan on providing an update on the progress we are making on our 2015 strategic initiatives, and Michelle will discuss our financial performance. I'm very proud of our team. Over the last several months, we came together as an organization to align our costs with our revenue, and as you can see from our financial results, we accomplished our objectives. In addition, our product offerings are being well received by the market as demonstrated by new client wins, advanced discussions with several large prospects, and an increase in RFP activity.

With the respect to the wins, we were recently selected by a Top 10 bank as part of a competitive bid process to manage the bank's OREO portfolio and provide certain pre-foreclosure services. We were also awarded a contract with a large retail client in our financial services segment. During the quarter, we achieved pro-forma adjusted net income of $45.7 million, and largely completed the execution of our cost reduction initiatives, driving a return to our historically higher gross profit and operating income margins. Michelle will discuss our financial results in greater detail in a couple of minutes.

Providing high quality compliance services to Ocwen remains a priority for us. During the second quarter, we hired a Chief Client Officer with extensive experience in the software and managed services industries to continue to drive and expand upon our customer-centric corporate culture. He is fully dedicated to supporting Ocwen to ensure that we continue to meet their needs.

Turning to slide 7. Our 2015 strategic initiatives are centered on advancing our real estate and mortgage marketplace strategy to diversify and grow our customer and revenue base. We are making good progress on our four initiatives, and believe we are largely on track to achieve the objectives we set out for this year. These initiatives are growing our origination services and origination technology businesses, attracting clients to our comprehensive default-related businesses, expanding our innovative online real estate marketplace, and growing our property management and renovation services businesses.

Beginning with our origination services and technology businesses, the opportunity continues to be very large and is growing as the Lender One members Wholesale One members and Mortgage Builder customer base grows. While there continues to be more work to do, we believe we are making progress. As part of our continuing efforts to increase value by expanding our origination related products and services, we recently acquired CastleLine for $37 million. The purchase price was comprised of both cash and stock with a meaningful portion payable over the next four years, including a component that is contingent on continued employment of the founders. CastleLine is the specialty risk management and insurance services firm that provides financial products and services to parties involved in the origination, underwriting, purchase and securitization of residential mortgages. CastleLine is the leading provider of certified loan insurance products, which are designed to protect the mortgage market participants from losses caused by mortgage underwriting defects.

The certified loan insurance program is driven by CastleLine proprietary certification process. In order to mitigate CastleLine's insurance risk, the certified loan program is reinsured through several A.M. Best A rated reinsurance carriers. In addition, CastleLine owns and operates a specialty insurance brokerage business. The acquisition provides three primary revenue streams when combined with other Altisource businesses. One CastleLine earns insurance premiums, two CastleLine earns brokerage commissions and other recurring fees and three, Altisource earns revenue from loan underwriting and other related services. The acquisition of CastleLine aligns with our strategy of continuing to help mortgage market participants safely and securely increase production and reduce costs. Further, it provides Altisource with additional high-margin scalable products. As part of the transaction, we are welcoming a highly talented leadership team. With respect to Lenders One and Wholesale One, the opportunity is as great as it has ever been. The members are spending a few billion dollars a year on origination-related products and services. In this regard, we are expanding the suite of products and services we offer to address the needs of the cooperative members and other customers. As we continue to expand upon the value proposition to our customers, we are optimistic that our revenue growth will accelerate. Our second initiative is to grow revenue from our comprehensive default-related businesses by expanding the services we provide to our existing customer base and attracting new customers. We are making very good progress. Recently a Top 10 US bank selected Altisource to provide certain pre-foreclosure services and manage all of its OREO, including providing asset management, brokerage, online auction, and title services. We began working on this transaction several months ago, participating in a multi-phase competitive process. In the third quarter, we expect to receive this customer's existing portfolio and future flow. Our management and sales team continues to develop a robust pipeline of opportunities. We are in advanced sales discussions with a couple of very large financial institutions for both our default and origination-related services and continue to build relationships with banks and servicers. With the reception and success we are experiencing in the market, we are investing in our sales and marketing team, and recently hired two well-respected sales executives with broad industry experience. We are also performing well with our existing customers. We sold more homes on Hubzu in the second quarter of 2015 than any other quarter in our history. As you can see on slide 10, over 9,000 homes were sold, over 1,100 of which were from customers other than Ocwen. This represents a 33% increase in the number of non-Ocwen homes sold compared to the first quarter of 2015. With our recent wins, we expect this number to continue to grow.

Our third initiative is expanding our innovative online real estate marketplace. During the second quarter, we transformed Owners.com into a national brokerage with a large team of real estate agent employees. Owners.com now provides a menu of services tailored for the growing self-directed real-estate segment. Many of today's homebuyers perform a lot of the work that was historically performed by their real estate agent. Data shows that homebuyers are engaging a real-estate agent much later in the home search process than they were five years ago, indicating that buyers are finding the home they want to purchase and then engaging an agent to assist in the execution of the transaction.

We believe buyers should be rewarded for the portion of the work they do. The re-launched Owners site displays real-estate listings directly from the local multiple listing services, as well as homes offered directly through Owners. Today, buyers can use Owners as the real-estate agent and receive approximately half of the buy-side commission for their effort in the search and buying process.

Since the acquisition of Owners, we have worked to put the infrastructure in place to support our strategy. This is largely complete. We are now turning our attention to the user experience and local marketing. In this regard, we have selected an award-winning digital agency to partner with us in developing a world-class user experience. From a marketing perspective, we're implementing our local marketing strategy and are initially launching in five cities. Our strategy includes an integrated multi-channel campaign designed to establish the brand and acquire customers. Based on the results and feedback from the initial market rollouts, we'll refine our marketing approach as we seek to optimize consumer awareness and adoption and expand into other geographies.

Our last initiative is growing our property management and renovation services business. We are pleased with the revenue growth we are experiencing from Altisource Residential. During the second quarter, we generated $14.2 million of service revenue from assets owned by RESI, a 23% increase from the first quarter. We are well-positioned to continue to support RESI as it grows its OREO and rental portfolio.

In addition to supporting RESI, we are focused on expanding the newest cooperative Residential Investor One. Since the launch, membership has increased to 14, and there is an active pipeline of prospects. As we grow the membership, the buying power of the cooperative strengthens, improving the value proposition to the members, which in turn drives revenue growth for Altisource.

In summary, I am pleased with our progress and results. We accomplished our objective of reducing our cost structure in line with our revenue. On the revenue side of the equation, we are winning business, including a new engagement to manage Top 10 bank's OREO. We have also developed a strong pipeline of opportunities and continue to expand our relationships. We believe our initiatives will diversify and grow our revenue streams.

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

Thank you, Bill. This morning, we reported second quarter 2015 service revenue of $236.6 million, adjusted net income attributable to shareholders of $54.2 million, and adjusted diluted earnings per share of $2.62. Net income included out of the ordinary items that on a net basis increased net income by $8.5 million. Absent these items, adjusted net income attributable to shareholders would have been $45.7 million.

Slide 2 through 6 provide highlights of our results for the current quarter compared to prior period. We are very pleased with the results for the quarter, marking the third highest service revenue quarter and the second highest net income quarter in the company's history. We continue to believe that the 2015 adjusted pre-tax income of $136 million at the midpoint of our scenarios is reasonable excluding the one-time gains recognized in the second quarter. While still preliminary, we also believe that our 2016 adjusted pre-tax income will be the same as or stronger than the midpoint of our 2015 scenarios. We anticipate providing 2016 scenarios and assumptions later this year.

Turning to service revenue. Second quarter 2015 service revenue was 10% lower than the second quarter of 2014, driven by the November 2014 discontinuation of the lender placed insurance brokerage business, fewer orders for property valuation services and lower Equator revenue. In 2014, Equator revenue included the amortization of acquisition-related deferred revenue, which was fully amortized by November of 2014. These declines were partially offset by impressive growth in Hubzu revenue from a higher number of non-Ocwen homes sold, revenue from Mortgage Builder, which was acquired in September of 2014, and revenue from other technology-related projects.

Turning to margin. Gross profit and operating income as a percentage of service revenue in the second quarter of 2015 were largely consistent with the same quarter in 2014. This represents a substantial improvement over the first quarter of 2015 and is reflective of the success we had in adjusting our cost structure to align with our revenue. Adjusted net income attributable to shareholders in the second quarter of 2015 of $54.2 million was 15% lower than the second quarter of 2014, primarily from revenue mix in the Financial Services segment and lower revenue in the Mortgage Services segments, partially offset by $8.5 million of out of the ordinary items. As you can see on slide 4, we recognize a few out of the ordinary items during the quarter that net to an $8.5 million increase in net income. The first item relates to -- equates to Equator earn-out. During the quarter, we paid the former owners of Equator $500,000 to settle any future liability for earn-out consideration, and as a result, recognized a $7.6 million increase in earnings. We continue to be very pleased with the Equator business and our success in cross-selling our default-related services to Equator's customers.

Second item relates to our investment in HLSS stock. During the second quarter, we sold all of our HLSS shares and recognized a gain of $1.4 million. This reflects the difference between the market value of the HLSS stock at March 31, 2015, and the amount we received in the second quarter to liquidate our position. The third item relates to our debt. During the quarter, we repurchased $16 million of our senior secured term loan at 91% of par and recognized a gain of $1.1 million on extinguishment. Finally, we incurred $800,000 during the quarter for severance expense and compensation related to employees that were eliminated in connection with that cost savings initiative, which is now largely complete. From a cash perspective, we generated $70.7 million of cash from operations in the second quarter, representing 30% of service revenue. Operating cash flow improved over the first quarter from substantially higher net income and collections of accounts receivable. During the second quarter, we liquidated our position in HLSS generating $28.1 million of cash. We used cash from operations and a portion of the cash from the HLSS stock to repurchase $40 million of our common stock, invest $17.5 million in facilities and technology, and purchase $16 million of our debt for $14.7 million. As a capital light services business, we expect to generate significant cash from our operations in 2015. Throughout the remainder of the year; we will continue to assess our capital allocation strategy. Based on the environment, we may continue to repurchase some of our stock and debt during the balance of the year. While our view may change, we anticipate that the total amount we spend on repurchases of stock and debt in the second half of 2015 will be less than the total amount we spent in the first half of the year. In closing, we remain focused on supporting Ocwen and delivering high quality in compliance services to Ocwen and all of our customers. We believe we are focused on the right strategic initiative to diversify and grow our revenue and customer base and believe our recent new customer wins further demonstrate our value to the market. We're excited about our opportunities and look forward to updating you next quarter. I'd now like to open the call up for questions.

The core business with our, in our assumption as we put together and the scenarios is that at least the NR 2 scenarios is that Apple's portfolio continues to decline through the normal run off, as well as the decline in delinquencies and that we will place that decline with growth in our default related businesses are servicer support businesses and origination businesses with other customers okay, great. Thank you. Thank you. Our next question comes from that we have no more. Your line is open. Okay. Hi guys. Taking the question. I think I think most of my wedges, I've been already answered, but I guess a little bit more on the 2016 number this is the right way to think of that on an EPS basis. You know the midpoint that you guys have for 2015 is 56.18 so on an EPS basis you're kind of saying that that should be about the same or higher on a preliminary basis for 2013. Yeah. Yes, I think we said pre-tax. I don't think we've commented on earnings per share red area the midpoint, our series was under 36 million for 15 right, okay. Academic centers. It's very helpful. And then I guess lastly on capital allocation. Could you talk a little bit about your decision see what you know you're thinking behind repurchasing shares and buying that debt in the previous quarter. Clearly, spent a lot of debt free cash flow on that, on that agenda yeah, I think there's 2 things. With respect to the share buyback. One was we thought that backwards was cheap and 2 in anticipation of the capital on transaction where we knew we were going to use some shares and we thought it made sense to share orders and then most important to the for the seller. We want to buy back some of those shows that we knew we were going to issue now, okay. And on the down. Yes, well the debt doesn't mature until December 2020, but we bought okay. Capital management to some of our, our operating cash flow to do to reduce the debt and we're able to do so at a discount. I wanted to continue to evaluate doing that in the second half of the year. Okay, great. Let's make them at a lot of sense. Congrats on the good on the good quarter. Here, I can. Ladies and gentlemen, if you would like to ask a question please press star then worry on your touch tone telephone our next question comes from Fred small of Compass Point. Your line is open. Hey, good morning. Thanks for taking my question. I may have missed it, but can you walk through sort of what drove the higher revenue per delinquent loan per quarter, it was up or both. But not

Through that portfolio to the. But the sales become an increasing percentage but defaulted loans yeah. But I think we can, we do give those 2 scenarios where we, we estimate what we think are going to the revenue will generate from iPhone will look like over time. And we believe we have the new business, we're working on well we'll offset that decline to, to answer your second question their loans in foreclosure, but ultimately become our so-so that it, there's a very long tail to that revenue. So that will continue to occur. Hi. But, but as of now, again, a lot depends on our interest rate environment. On the ACC wins the very strong at that modifying and that's all that will have an impact on the on the revenue we generate from our current portfolio, but we've been. So if you look back the last couple of years, I think we've done a very good job estimating were delinquency rates would be and what the CPI would look like and we, and we look at the, the count CPR not traditional the only count that really matters to us so I think you can, you can look for those scenarios to help you with your model thanks. Thank you again. Ladies and gentlemen, if you like to ask a question please press star then why your touchtone telephone. Our next question comes from James from remarking with KBW. Your line is open. Hi, thanks for taking my question. I was wondering if you could provide any additional color on the single-family rental cooperative and how that's going. Maybe you could touch on how many entities joint so far. And also what the initial market acceptance and has been for that sure. So we're really, really early in the process. I think we said we have 14 or 15 Members so far, there is a very, very attractive pipeline members that are interested, we're still trying to slightly different cooperative Lenders One we expected ultimately to be much, much bigger than Lenders One and so we're trying to tweak some of our processes in terms of to make it easier to get members to sign up, which we think will begin to accelerate the membership. But of course the bigger the membership is the more buying power. We have the more value we provide to the membership. The more members. We can generate. So we hope to get that whole ecosystem for that network effect, if you will, going over the next quarter or 2, but the reception has been very good. And we've also signed. I think 21 or 25 preferred vendors up to help lower their costs. So there's a real value proposition. So those that joined. We just got to make it easier to sign up these numbers, and we're working on that. And what's the process to identify and attract new members, is it mainly conference attendance are using correspondents or anything now where we're taking more of a digital marketing, and online approach here.

(Operator instructions)

Mike Grondahl, Piper Jaffray.

Thanks guys. Two questions here. The first one, could you talk a little bit about the 279,000 non-GSE delinquent loans and the revenue per loan was [$486]. The revenue per loan was a little higher than what I thought and the actual loan count was a little bit lower. Could you just provide a little bit of color on the drivers behind those?

Yes, sure Mike. Hi, this is Michelle. The historical decline really from the first quarter to the second quarter is the highest as borrowers use their tax refunds and their bonuses to make mortgage payments. And the remaining quarters have historically remained relatively consistent and we see no reason why that would not continue this year. With respect to the revenue per delinquent loan, this quarter is higher than the first quarter really due to seasonality and also the impact of revenue that was historically a component of reimbursable expense revenue becoming service revenue.

Got you. So it's a fair number. It's seasonally higher but except for that seasonality, it's reasonable, it's clean.

That's right.

And then, secondly just related to 2Q. Tax services revenue increased and cost of revenue decreased in 2Q from 1Q. Can you help describe that a little bit?

Sure. So, on the revenue side of the equation, yes, we were selling additional services to some of our customers and this resulted in higher revenue during the quarter. On the cost side of the equation, we realized the benefit of some of the cost reduction initiatives that took place in the first quarter, and largely saw the benefit of that in the second quarter. In that segment particular some of the eliminations of staff happened late in the first quarter but the full benefit of those reduction initiatives were reflected in the second quarter.

Hi, Mike. I think it's probably important to mention that those reductions were not related to the technology that we provide to Ocwen. They were related to some of the other longer-term initiatives that we decided to discontinue. We actually invested more in our technology for Ocwen in the second quarter.

Got it. In terms of your diversification efforts, Bill, where you're making the most progress in terms of sort of near to medium term revenues, and where you may be behind a little bit?

Yes, Mike, it's really interesting. I think, what we're seeing in the default-related businesses, there's been some environmental changes. We've had some of the -- there are very few players that offer the full suite of end-to-end services for servicers today. There's been some consolidation of companies through acquisitions and some big companies that were providing these services got out of it. And so today, we're one of just a few that provides these type of the full suite of end-to-end services for loan servicers.

And the second component as we're seeing that such there is an increasing focus as you can imagine on hiring firms that have a very strong focus on compliance as well. And so we think environmentally there is a shift toward fewer people that can provide the full suite of services and also have very, very strong focus on compliance. And as a result, we're getting more interest on the default-related services than I frankly would have expected and they are competitive, but we're getting very, very good feedback from our prospects on our services and the quality of our offerings. That's one component of it.

The second component is we are beginning to see on the origination side much more interest in our fulfillment services from some very large originators. And this is again, in most cases, these are competitive processes. They take a long time to close. But when they close, we think they could be very -- they are going to move the [needle revenue] for us.

Do you know the number of OREOs that the Top 10 bank has. Can you disclose that?

Yes, we're not at liberty to disclose it. It's less than what we are receiving from the other Top 10 banks that we closed on a couple of -- that we started receiving the flows on several months ago, a quarter or two ago. But we are going to provide more services to them beyond just OREO. We're also going to be providing some pre-foreclosure services. I think it's a little bit premature and we are under a confidentiality agreement. There is not much I can disclose.

And the other, I guess you guys call them large prospects. Is that primarily on the default side or where in the spectrum are they?

No, we're seeing both on the default and on the origination side.

And do you think those prospects are making decisions in 2015, I mean -- will we know by year-end who they are choosing?

Yes, Mike, we do expect -- the decision should be made this year whether we start receiving business or not. New York continues to go by, the more likely than not with the integration, the time to complete the sales process and then the integration. We probably won't start receiving revenue until next year or toward the end of this year, late this year or early next year.

Michelle you said something about 2016. Can you repeat that? I didn't completely get all of it. You were talking about, I think the average of scenario A and B and the adjusted pre-tax of $136 million. Can you repeat what you said about 2016?

Sure. I said while it's still preliminary, we also believe that our 2016 adjusted pre-tax income will be the same as or stronger than the mid-point of the 2015 scenario.

That's robust. What's leading you to say that? Is it the progress you're seeing on the diversification efforts or is it a slower attrition of the delinquent non-GSE loans?

Mike, let me take it, it's Bill. We would expect the Ocwen's portfolio, under normal circumstances you would have the normal CPR and reduction in delinquencies. And we believe, we can largely -- we can offset the reduction in Ocwen's portfolio and delinquencies from this new business that we already won and hope to win over the next quarter too along with the progress we're making in our origination business. So, we think that the default-related business with new customers and the new origination wins will largely offset the decline that we would anticipate from the run-off of Ocwen's portfolio and the decline in delinquencies in Ocwen's portfolio. And then, we also believe and it's again very early, but we believe we're going to make some really good progress over time on our online real estate business and we still have a lot of work to do to prove it's going to be successful but we feel very good about it. And then lastly our renovation business I think it's making some real progress and to the extent RESI is able to -- continues to buy Altisource Residential, continues to buy more portfolios, and we also just -- simply continuing to manage its growing portfolio of OREO and rental homes that offers us another good opportunity to grow revenue and help offset some of the declines we will experience from Ocwen. And that we are assuming, by the way that Ocwen doesn't -- continues to just have normal run-off. It's always possible that could change although I've no information one way or the other with respect to that.

Bob Evans, Pennington Capital

Good morning, and thanks for taking my questions. First, sorry if I missed this, but what is your ending share count at the end of the quarter.

The 10-Q to be disclosed, 18.7 million.

Okay. And I know you are a more aggressive buyer of your stock. Should we, again I know I'm sure it's valuation dependent somewhat, but should we expect you to use your free cash flow to do a combination of share buyback and pay-down of debt?

Hi Bob, this is Bill. We anticipate being much more modest in our share buybacks in the second half of the year than we were in the first half based on what we know today and we'll certainly consider the buybacks based on where the share price is trading and where we see the value in the stock. But we may buy shares back and also buy some debt although we expect in total, to be much more modest than the first half of the year.

And can you also comment on -- it's a follow-up to Mike's question. In terms of the deal on the pipeline, can you give us a sense of scale in terms of what you view a large deal and do you know, I mean, are we talking $25 million deals, $50 million deals or $5 million dollar deals, just trying to get a sense of what's there that can provide the diversification you're looking for.

I can't give any more specifics on this particular deal, Bob. But on the deals we're -- the customers we're talking to, they move the needle deals, pay big, they range anywhere from $1 million or $1.5 million of service revenue a month, and we anticipate the margins will be largely in line right with our Mortgage Service segment margins to a couple of million dollars a month. So, they are meaningful deals. We're not going to win all of them. But the reception we're getting is very positive.

Okay. So and basically your confidence for next year's earnings comes from, what you expect under diversification as well as your existing core business.

NA

The core business with our -- our assumption, as we put together in the scenarios is that, at least in our two scenarios is that Ocwen's portfolio continues to decline through the normal run-off as well as the decline in delinquencies and that we will replace that decline with growth in our default-related businesses or our servicer support businesses and origination businesses with other customers.

Okay, alright. Thank you.

Thank you. Our next question comes from Matt Liebowitz of Nomura. Your line is open.

Hi guys. Thanks for taking the question. I think most of my questions have been already answered but I guess a little bit more on the 2016 number. Is the right way to think of that on an EPS basis, you know the midpoint that you guys have for 2015 is [$6.18], so on an EPS basis you're kind of saying that, that should be about the same or higher on a preliminary basis for 2016.

Yes, I think we said pre-tax. I don't think we commented on earnings per share. The midpoint of our scenarios was $136 million for 2015.

Right, okay. That makes sense. It's very helpful. And then, I guess lastly on capital allocation. Can you talk a little bit about your decision -- you're thinking behind repurchasing shares, and buying back debt in the previous quarter. Clearly, you spent a lot of your free cash flow on that agenda?

Yes, I think there's two things with the respect to the share buybacks. One was we thought that the stock was cheap and two, in anticipation of the CastleLine transaction where we knew we were going to use some shares, and we thought it made sense to use shares, and that was important to the seller. We wanted to buy back some of those shares that we knew we were going to issue. And I am going to down the debt, well, if the debt doesn't mature until December of 2020 but we thought -- it's prudent capital management to use some of our operating cash flow to reduce the debt, and we were able to do so at a discount, and we are going to continue to evaluate doing that in the second half of the year.

Okay, great. That makes a lot of sense. Congrats on the good quarter.

(Operator Instructions) Fred Small, Compass Point.

Hey, good morning. Thanks for taking my question. I may have missed it, but can you walk through sort of what drove the higher revenue per delinquent loan per quarter, because it was up for both the non-GSE and GSE loans?

Yes, I think we've covered it earlier, but really over the first quarter the increase is really due to seasonality with more asset management revenue, and also from the impact of revenue that was historically a component of reimbursable expense revenue becoming service revenue.

Okay. How much of the increase was related to the change in revenue recognition?

Yes, we haven't broken that out separately Fred.

Okay. I mean relative to last year, would this quarter have been sort of in line with -- I mean last year, the seasonal impacts increased the number a lot too.

We don't have that analysis at our fingertips, and there is a fair amount that was tied to the movement into a service revenue of reimbursable expenses, and some of it was tied to just the usual seasonality experience in the summer months.

Okay, got it. And, I think the when you guys brought on HSBC last year, that was a couple of hundred -- was it a couple of hundred OREO a month that that was sort of driving to the business?

Fred, we're not disclosing the name of our best customer, although maybe out there in the public but we're -- I think we said at the time it would be about 200 to 400 referrals a month, and then I think we're -- it's around the lower end of that range. But we are receiving those referrals.

Okay. And just in terms of scale relative to that. You said that the new bank customer would be around the same size or a little bit smaller?

So in terms of the OREO business, we expect that the number of referrals will be lower but we are going to do additional work, we're going to do certain pre-foreclosure services for them as well, which will drive additional revenue to us. And again we're not at liberty of saying much more than that.

Okay, got it. If I just look at the overall sort of though the margin was really strong in the Mortgage Services segment, how much of that was due to the rebound in the margin was due to cost reduction do you think versus the actual sort of increases in the margin content on the revenue side?

Do you mean service mix or do you mean is that the second half of your question, Fred?

Sure. Yes

Yes, so there is a component that was service revenue mix if you compare it to the first quarter and certainly the impact of our cost savings initiative payroll and our margin improvement.

Right, I was just wondering if you had a sense of sort of how much drove each part?

We don't break that on the call, Fred.

Okay. And then just in terms of increasing the traction with Lenders One, what do you think are the sort of top one or two things that you can do to get more traction on the -- turn more of that into revenues, because the membership seems to stay pretty strong.

Yes, so I think where we're very, very focused on making sure we are continuing to grow what we call the preferred investor base. Those are lenders or correspondent lenders that want to buy loans from the members and particularly new entrants into the space love their ability to grab market share, very, very quickly from our members by becoming a preferred investor. So that's one way we can move the needle. We're continuing to develop operational cost savings for the members. We're going to announce, for example, we think we're going to have to lower their medical costs, for example. So we're working on those. And then, we're also going to work on ways through which we can help the members deliver potentially their fall-out. So we have several initiatives and then the last point is I think there is a very strong interest in fulfillment services. We've signed, I think 50 or 60 contracts (inaudible) but we've signed a lot of contracts in the fulfillment space and we're beginning to see some real traction and we saw, while still modest, we saw some nice revenue growth in that area of the business from the first quarter to the second, and we expect that to continue to grow nicely.

Those are contracts you signed with -- when you say 50 contracts or 60 contracts those are with actual Lenders One members?

Correct.

Okay, got it. And then I think just on the 2016, when -- you talk about offsetting the sort of run-off in Ocwen business on the default side. Is there a good way to think about that in turn -- I mean, you lose, I guess, sort of ongoing revenue and Hubzu revenue on the OREO sales, right now, you're running around 8,000 a quarter on -- this quarter it was 7,000 or 8,000 a quarter on the Ocwen sales. Does that sort of move down in progression with their portfolio as it runs off just normal sort of CPR, CDR or does that potentially increase like as the loss content, as the losses through their portfolio -- to their sales become an increasing percentage of defaulted loans.

Yeah, Fred, I think we do get those two scenarios where we estimate what we think Ocwen's -- the revenue will generate from Ocwen will look like over time. And we believe the new business we are working on will offset that decline. To answer your second question, Ocwen's -- their loans and foreclosure that ultimately become OREO. So that and is a very long tail to that revenue. So that will continue to occur. But again, a lot depends on interest rate environment and on Ocwen is very strong at modifying borrowers, and all that will have an impact on the revenue we generate from Ocwen's portfolio. But we've been, if we look back the last couple of years, I think we've done a very good job estimating where delinquency rates would be and what the CPR would look like, and we look at CPR as the loan count CPR, not another traditional UPB CPR because it's the loan count that really matters to us. So, I think you can look to those scenarios to help you with your modeling.

Got it, thanks.

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Jade Rahmani, KBW.

Hi, thanks for taking my question. I was wondering if you could provide any additional color on the single-family rental cooperative, and how that's going. Maybe you could touch on how many entities joined so far. And also what initial market acceptance has been for that?

Sure, so we're really, really early in the process, I think we said we have 14 or 15 members there so far. There is a very, very attractive pipeline members that are interested. We're still trying to slightly different cooperative than Lenders One, we expected ultimately to be much, much bigger than Lenders One and so we're trying to tweak some of our processes to make it easier to get members to sign up, which we think will begin to accelerate the membership. But of course the bigger the membership is the more buying power we have, the more value we provide to the membership, the more members we can generate. So we hope to get that whole ecosystem or that network effect if you were going over the next quarter or two. But the reception has been very good and we've also signed, I think 21 or 25 preferred vendors up. They help lower their costs, so there's real value proposition to those that joined we just got to make it easier to sign up these numbers, and we're working on that.

And what's the process to identify and attract new members, is it mainly conference attendance or using correspondents or anything?

No, we're taking more of a digital marketing and online approach here. So we're working, the business unit is working very closely with our marketing team and we're doing online marketing to attract prospective members. We're actually having a dialog around how to grow this every couple of days. We have a lot of good ideas I don't want to discuss them on the call, because they are a bit proprietary, but we're very optimistic, we're going to be able to grow the membership.

Thanks for taking my questions.

Thank you.

Mayur Tipnis of Courage Capital.

Hi, sorry, I missed the purchase consideration on the CastleLine transaction and how many shares are you going to issue as a part of that transaction?

It was 495,000 approximately.

And what was the total purchase consideration?

I'm sorry, what was the question.

What was the total purchase consideration?

The total purchase consideration was $37 million.

Great, thank you.

Some was in cash, some was in stock and some of it's paid out over time, over four years.

Great, thank you.

Thank you. This concludes our question-and-answer session, I'd now like to turn the call back to Michelle Esterman for closing remarks.

Great, thanks everyone for joining today. Have a great day.

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