Altisource Portfolio Solutions SA (ASPS) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Altisource third-quarter earnings call. (Operator Instructions). As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, Ms. Michelle Esterman, Chief Financial Officer. 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 facts 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.

Today's presentation also contains financial measures that are non-GAAP financial measures. A reconciliation of these non-GAAP measures to their GAAP equivalents is included in the appendix to today's presentation.

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.

I am pleased with the solid third-quarter sales performance of our servicer and origination solutions businesses and the progress we are making to position our newer consumer and real estate investor solutions businesses for longer-term growth. During the third quarter, we continued to generate strong operating cash flow, while executing on our strategy to diversify our business and grow our customer base.

While it is taking longer than originally projected to achieve our non-Ocwen revenue targets, we believe the investments in our diversification strategy, along with the increasing stability of our largest customers, position us to be a larger, stronger company.

This morning, I will discuss the progress we are making on each of our four strategic initiatives, Michelle will discuss the highlights from our financial results, and I will make a few closing remarks. As a reminder, our strategic initiatives, in no particular order, are to grow our servicer, origination, consumer real estate, and real estate investor solutions businesses.

Beginning with our servicer solutions business, we are well positioned for longer-term non-Ocwen growth. Altisource has experienced tremendous non-Ocwen service revenue growth over the last three years. However, we have not achieved our very high growth expectations we set for servicer solutions in 2016. This is primarily a function of timing, as it is taking longer than anticipated to onboard new deals and achieve stabilized recurring revenue from new customers.

Our pipeline, however, remains as strong as ever. Our servicer solutions value proposition continues to resonate well and new clients continue to discuss and expand volume and services with us. We fully expect that we will achieve our revenue growth targets as we reach stabilization with our newer clients and continue to win new business.

During the third quarter, we executed a master services agreement with a new top 10 bank customer and signed the first of what we expect to be several statements of work for this customer. We also signed an agreement with a mortgage insurance company to manage its REO and signed agreements with two other new servicer solutions customers.

We are actively negotiating master services agreements and SOWs with several new clients.

At the same time, we continue to broaden our relationships with our existing clients, which include six of the top 10 servicers and one of the GSEs. We are negotiating a statement of work for short sale and deed in lieu services and are in advanced discussions to provide foreclosure auction and REO services to some of our customers.

Based on our top four bank customers' assessment of our performance in providing property inspection and preservation services to them, we anticipate that we will see expanded volumes from them that will grow our revenue from this customer to well over $1 million per month in 2017.

Our second initiative is growing our origination solutions business. I'm very pleased with our progress, recent customer wins, and strong pipeline. We have a marquee list of clients and prospects that include some of the largest -- some of the larger and faster growing bank and non-bank originators. Based on our recent experience, these opportunities tend to convert to revenue faster than what we have experienced in our servicer solutions initiative.

Third-quarter 2016 revenue for this initiative was 22% higher than the second quarter of 2016. There are two primary factors contributing to our strong growth. The first is the market trend toward outsourcing loan origination fulfillment services, primarily due to the desire to convert fixed costs to variable and higher regulatory [boarding] on mortgage market participants. The second is the strength of Altisource's unique offering of origination products and solutions that deliver greater value as customers acquire additional services across the platform.

We are experiencing strong demands and we are taking a deliberate approach to growth to maintain our focus on providing high-quality services and an industry-leading customer experience.

The bottom line with respect to both our servicer and origination solutions initiatives is that we have an attractive and growing client base, we are performing very well for these customers and they continue to demonstrate an interest in expanding their services from us, and we continue to have a strong pipeline of opportunities.

Due to the new customer wins, favorable market dynamics, and increasing demand, we are accelerating our investments in the technologies and capabilities that we believe have contributed to our early success. We believe these investments will strengthen our value proposition, allow us to scale our origination solutions operations, improve our clients' experience, and expand our margins.

Our third initiative is growing our consumer real estate business, leveraging Owners.com. While we have yet to generate meaningful revenue from these efforts, our confidence in our strategy is being confirmed by an increasing volume of consumer interest in the product.

To provide historical perspective, we launched our buy-side brokerage offering in two markets in February of this year and have since expanded to 18 markets. Consumer interest in our offering has more than met our expectations, with the number of monthly leads growing from 5,000 in April to 28,000 in September. This is very good news. Consumers want to shop in our store.

However, we do not have sufficient capacity to respond to all of the leads and our initial approach did not provide a sufficient in-person experience to manage a prospect from lead to home purchase. We are adjusting our operational model to increase the number of local Owners.com real estate agents in each target market and to provide these agents and our inside sales team with the tools they need to manage the home buying process more efficiently.

During the third quarter, we increased our number of real estate agents from 21 to 97, and in the middle of October, we launched the beta version of our mobile real estate agent application.

These changes are beginning to make a difference. We are currently working with approximately 400 buyers in the late stage of the buying process. During this stage, we're showing them homes, assisting in the offer and negotiation process, and working to close transactions.

We have a high level of conviction that our Owners.com thesis is correct, and the consistent increase in buyer lead flow continues to validate that conviction. We are executing on a plan to substantially increase our capacity to convert more interest into sales and to better position us to capitalize on this very large market opportunity.

Our fourth initiative is growing our real estate investor solutions business. In the third quarter, we continued to support RESI as it transitions to a company solely focused on single-family rentals, by providing REO disposition services, the One-by-One acquisition program, and diligence services on the recent 4,250 rental home portfolio acquisition from Amherst.

With respect to RESI's recent bulk acquisition from Amherst, while we will not be the property manager during the term of RESI's loan on this portfolio, this acquisition and the $60 million liquidation fee we negotiated demonstrate RESI's commitment to the single-family rental business.

I will now turn the call over to Michelle for a short financial update, and then I will provide some closing remarks. Michelle.

Thank you, Bill.

This morning, I will discuss elements of our financial results and capital allocation for the quarter in greater detail. For a more complete explanation of our financial results for the quarter, please refer to the press release and Form 10-Q that we issued earlier today.

Service revenue growth from non-Ocwen customers and higher property preservation referrals from Ocwen largely offset the expected loss in revenue from Ocwen's declining portfolio and lower delinquencies, resulting in a decline of only 2% compared to the third quarter of 2015.

While third-quarter 2016 service revenue of $239.8 million was relatively flat compared to the third quarter of 2015, adjusted pretax income attributable to Altisource of $29.4 million declined by 42%. This was primarily the result of increased investments to support the Company's growth initiatives, service revenue mix changes, and technology price concessions provided to Ocwen effective January 1, 2016.

Net income attributable to Altisource of $10.6 million was further impacted by an increase in the 2016 effective tax rate and adjustments to true-up tax expense from prior quarters, resulting in an anticipated 2016 annual effective tax rate of approximately 20%. The effective tax rate increased primarily due to lower pretax income margins, which changed the expected mix of taxable income across the jurisdictions in which we operate. Over the next couple of years, we believe that margins will expand and that our effective cash tax rate will return to a rate that is closer to Altisource's historical rate.

From a cash perspective, we had a very good quarter. We generated $36.6 million of cash from operations, representing 15% of service revenue. Cash from operations would have been $43.2 million or 18% of service revenue had we not invested $6.6 million for the purchase of real estate that we are renovating and will resell. We used operating cash to repurchase $14.6 million of our common stock and invest $4.1 million in facilities and technology.

At the end of the quarter, we had $180.1 million of cash and available-for-sale securities.

The last topic I will discuss this morning is capital allocation. Since the beginning of the year, we repurchased 1.27 million shares of our common stock at an average price per share of $26.94 and $51 million of our senior secured term loan at a weighted average discount of 13.2%, bringing our outstanding debt to $481.1 million.

As of September 30, 2016, our net debt less marketable securities was $301 million, a 27% decrease from September 30, 2015. Looking forward, we plan to continue to execute a balanced approach to capital allocation that includes investments in our strategic initiatives, debt repurchases, capital investments in technologies and facilities, and share repurchases.

I will now turn the call over to Bill for closing remarks.

Thank you, Michelle.

In our first several years as a public company, we are highly focused on providing services to Ocwen and its growing portfolio. To diversify our client and revenue base, we established our four strategic initiatives. While we have experienced tremendous non-Ocwen service revenue growth over the last three years, we have not achieved our very high growth targets. That said, this is a timing issue, as we are attracting large clients, expanding the services we are providing to these clients, and have a great pipeline of opportunities.

We're also making investments in initiatives that leverage Altisource's unique assets, structure, and capabilities. We have already begun to see early market validation of these investments and will strategically accelerate these investments where we see success. Our investments, ongoing transformation, and our anchor customer's improving stability position us well to deliver long-term growth and very attractive shareholder returns.

I would now like to open up the call for questions. Operator?

(Operator Instructions). Fred Small, Compass Point.

Can you help us understand how much of the sequential margin decline is related to Hubzu and the decline in revenue there?

So, Fred, I think there were some puts and takes between the second and the third quarter, but the biggest difference in our overall margins was we didn't have that gain on the debt repurchase in the third quarter, because we didn't buy any debt back compared to the second quarter. That makes up the majority of the difference in earnings between the two quarters. And the revenues, the service revenue between the quarters were relatively flat as well.

Right, yes -- I am just looking at --

So there are some puts and takes within the business, but that's the -- technology performed a little bit better and mortgage services performed a little bit worse, because of Hubzu, as you pointed out, but the lion's share of the change between the second quarter and the third quarter, Company-wide, was the gain on the debt we had in the second quarter, which we didn't have in the third.

Okay.

(multiple speakers) earnings would have been almost -- sorry, our adjusted pretax would have been almost the same.

Right, yes. If I am just looking -- okay, so let's just talk about the mortgage segment, the mortgage services segment, maybe, to clean up discussion. How much of either the gross margin or the overall pretax margin decline there do you think would be attributable to lower revenue at Hubzu?

Yes, there were some revenue mix changes in the third quarter and Hubzu was down. We don't have the exact percentage as to how much this would have [increased].

You can see the numbers in the slide of Hubzu revenue, yes.

Fred, yes, you're right, the Hubzu sales were down some. As you would expect going into the third quarter, seasonally it would slow down some in September, and this was also a mix issue with a greater percentage toward -- of our revenue toward property inspection and preservation, which is a very attractive business for us, but just happens to have some lower margins.

Okay, and do you -- assuming that, I think you maybe talked about on the second-quarter call, but one of the customers that you had on Hubzu, one of the bank customers is winding down. Do you expect the new customers will be able to replace that volume, and will that new volume be similar margin to what you have experienced on Hubzu, either auction or non-auction, historically?

Yes, so with respect to that, we can't talk about specific clients, Fred, but, yes, one of our clients has been winding down and that revenue, I think, as of the end of September was very, very modest, I think sub $100,000.

But we are signing up new clients that we're also performing REO services for them, and some of our new clients, the average property value is much higher than that particular client's, so while we won't sell as many homes, we will sell higher-value properties, which will generate more revenue.

In addition, we're actively negotiating right now with a couple of clients to provide -- it is called CWCOT, or conveyance without title. It is also referred to as foreclosure auction sales. That will also take place through Hubzu. It is the product we launched during the third quarter, and that has very attractive margins in it as well.

Okay, great. And just in terms of volumes, do you think that the -- you said that that bank customer had already wound down. I think volumes were off a little bit. Do you expect that new volumes coming on will replace non-Ocwen volumes that are going away?

Yes, so, Fred, I think these new -- we are beginning to pick up new volume from new customers. It may not largely offset immediately the volume we had lost, although the volume from this other customer was pretty modest in the third quarter, Fred. It was really tailing off by the time we got to the third quarter.

So we are making up for that with higher value sales with some of our new customers, one of our newer customers, and we are onboarding a couple of other new customers while we are managing their REO, and we are in active negotiations to add this new product with a couple of customers as well.

Okay, got it. Thanks. I have two or three more questions. I missed the beginning of the call, but can you quantify the investments that you made in the operating businesses during the quarter? And what the -- at least from a P&L perspective?

Sure. And the way we look at those investments, Fred, is when we talk about the investments, we are talking about some of our newer businesses that are operating at a loss and some of the technology that we are developing, which we do -- and we are somewhat unique compared to others. We don't capitalize internally developed software, so we are talking about some of the losses in the early stage from developing these new businesses and some of our development activities, where we don't capitalize the development costs.

And so, we think for the year, we probably will invest for the full year, Fred. I don't have it broken out for the quarter, but I think it will work out to about $2.40 a share for this year in terms of the investments we are making in our growth. And we believe there is a very strong return on investment on those -- on these investments and then that positions us very well for the longer-term growth we expect to have at Altisource.

Okay, great. That's helpful. On the revenue per delinquent non-GSE loan, just keeps going up every quarter. Can you help us understand what is driving that up?

Sure, so from the second quarter to the third quarter, you saw an increase largely from higher volumes, property preservation referrals, and higher sales values of REO.

The REO prep, the value of REOs is increasing, Fred, and we are receiving more referrals, more property preservation and inspection referrals than we had historically on the same -- on the loans, the delinquent loans.

Okay, got it. That used to be -- there used to be a decent amount of seasonality, I think, for a while in that metric. Do you think that's -- even though I know there is still seasonality in the business, is it just not reflected in that item anymore?

Third quarter tends to be one of our higher quarters as well, but you should expect to see, I would think, a shift in the fourth quarter and the first quarter from seasonality, a downward shift.

Any sense of what a good run rate for that operating metric is going forward?

Really a lot depends on the mix of services we provide, so it is hard to predict. Generally speaking, though, the summer and the fall would be stronger and then as your lawn cuts and things like that slow down in the winter, and you would see the numbers come down.

But I would say there has been a push, I think, not just with Ocwen, but amongst most servicers, to increase the amount of work they do to preserve properties that are abandoned. And so, as servicers do more work to preserve the collateral and to protect neighborhoods, in terms of the benefit to us, that comes in more referrals.

Okay, got it. And then just last one on the guidance, maybe you talked about it at the beginning of the call, but the slides on the guidance didn't change based on where we are now. It seems like it is tough to get back to the midpoint. Do you still think that -- is that right or is something going on in the fourth quarter that we can't see, number one, and number two, how reasonable or achievable do you think the low end is here?

So, Fred, let's talk about adjusted pretax, if you don't mind, and from an adjusted pretax perspective, we think it will probably land somewhere between the midpoint and the low point and maybe a little bit closer toward the low point. And the reason for that is the timing issue that we discussed in our prepared remarks and we are continuing to make these investments, which we believe will create tremendous shareholder value.

Okay, sorry, so just on the -- when you were talking about the margin guidance there, I was looking at slide 8 at the adjusted earnings. You're just talking about the adjusted pretax, the net number there?

Adjusted pretax.

Okay, so (multiple speakers). Right, so somewhere between -- you still think somewhere between $117 million and $135 million is achievable?

Yes.

Okay, great. Thanks a lot for taking my questions.

Mike Grondahl, Northland Securities.

The non-Ocwen revenue, it sounded like that is more of a timing issue and not any lack of demand. Could you just elaborate more on some of the timing issues? And then, secondly, how should we think about the cadence of revenue there going forward getting higher or off the $62 million non-Ocwen level?

Mike, thanks for the question. It's a good one.

Let me explain. So this top four bank that we won, we started the process probably a year and a half or two years ago with our first meetings, participated in an RFP process, won the transaction. I think we were notified -- exactly a year ago, we were notified we won a share of their property inspection and preservation business.

I think we boarded our first files in April, and what I didn't realize was we were on probation for the first couple of months. You receive a scorecard, but it doesn't count during those first couple of months, and you got a very modest amount of referrals.

We then got out of probation. We performed very well on these what they call preliminary scorecards, and then we start receiving an actual scorecard. So no additional volumes, but now we are actually going to perform for the next couple of months, leading up to about a month ago where we are now getting a scorecard, and I can tell you out of those nine, roughly, providers, we're at the top in terms of our performance. We are doing really, really well for this particular client.

And so what they have told us, though, is they only do market-share adjustments a couple of times a year. Now we happened to get an off-market market-share adjustment about two weeks ago, but they are going to do another market-share adjustment in November or December of this year.

And we fully anticipate, based in our performance and all the feedback I have seen from this client, that we are doing a really good job and they're going to grow with us. And they spend a lot of money on this, and I think I said we will do more than $1 million a month, well more than that in 2017, but it is a process and that process takes much longer.

Another example is even when we win a transaction, the business unit says, I want to hire you, you still in some cases are vetted by vendor management, by the risk groups. You're also vetted by the law and the compliance departments. And these things just take much, much longer. From the time the business unit at these large clients say we want to hire you and here is the services we want you to provide, it just takes much, much longer, and I thought I was being conservative and I wasn't conservative enough.

But we do believe that these opportunities are tremendous and the feedback we're getting from these customers is really, really good growth, both during the RFP stage and after we receive the work. But it is a process to win the business, it is a process to get it onboarded, and it is a process then to grow and stabilize that business and add new statements of work with those existing customers. It just takes time.

But we still believe that we are -- it is just a function of timing and ultimately we're going to see a lot of growth from these customers.

Got you. Your assumptions didn't change there, $270 million to $330 million, and even the low end there would speak to a very large fourth quarter. So, is it fair to assume that is pushed out a little bit?

No, Mike, we didn't adjust the scenarios, other than to put year to date on there, so, yes, you are right. It is pushed out some.

Got it, got it. And then, I missed the beginning of the call. It was hard to get in the call today. But I think you said the tax rate all in for 2016 should be about 20%. Have you commented what is a fair or appropriate tax rate in 2017?

So what we said, Mike, and I think we will leave it at this, is that for this year we expect the effective tax rate to be approximately 20%, and in the third quarter, it reflects a catch-up of prior quarters.

Sure.

But longer term as we improve our margins over the next couple years, so I wouldn't say 2017, but out another year or two, we would expect the cash tax rate to go back to something closer to what our historical rate was.

Okay. Any other adjustments as you look out to 2017, besides the tax rate and besides the non-Ocwen getting pushed out a little bit? Any other positive or negative changes in the business?

Right, so I think as you start to think about 2017, and we're going to -- we will present more on our next call, but as you start to think about 2017, you have the expected or anticipated runoff you would get from Ocwen's portfolio decline and declining delinquencies.

We also sold some homes for RESI, which we won't be selling as many of those homes next year, so you're going to have that sort of natural decline in revenue. It's going to be -- and we're also going to continue to make investments in our longer-term growth. That may come down a little modestly next year, but we are still going to make investments.

And then, we are going to offset some of that with the revenue growth from our non-Ocwen customers and also from being very thoughtful around how we manage our costs, so, generally speaking, that will give you just a framework. But if you think about, and we have put some slides out, historically just the natural runoff of Ocwen's portfolio is pretty meaningful and we think we are positioning ourselves very well to make up for some of that, but we are not going to make up all of it. We're going to continue to make these investments that we believe creates long-term tremendous shareholder value and we're going to also grow through our non-Ocwen growth initiatives.

Got you. And then, maybe just lastly, the real estate investor services area, what is the progress that you have made there? Where is the incremental capital going in your attention?

So, there, most of our focus has been on RESI. We are developing the RentRange product. It is a data product that we sell to third parties. We're doing a decent job growing revenue there, signing up new customers. That's a very, very -- once you cover your fixed costs, that's a very, very high-margin business.

We're also making some investments in the Investability platform. It is going to take some time, but we are making some investments there.

And then, lastly, we are taking some of our excess capital and putting into this buy, renovate, sell program and, Michelle, how many -- I think we have bought about $8 million or $9 million worth of homes, and we are renovating those and we have just started selling them, and it is just a way to use some of our excess capital right now, and also build that muscle around how to buy and sell homes.

Got it. And then, maybe just lastly, any updated thoughts on the buyback or debt repurchases?

Yes, I think for right now we're going to continue to take a balanced approach to capital allocations, Mike, and that is going to include debt repurchases, capital investments, and share repurchases.

From our perspective, Ocwen and RESI are much more stable than they have been. We also have tremendous conviction, Mike, in our strategy and our long-term prospects, and as we just discussed, we think we're making very good progress here. And we think those initiatives can create tremendous shareholder value.

So, we're going to continue to reevaluate our strategy over time, based on the progress we are making on our initiatives and other environmental factors, like what is going on at Ocwen and at RESI.

Okay, thank you.

(Operator Instructions). Lee Cooperman, Omega Advisors.

I have three questions. The first one is relatively easy, get it out of the way. The cash on the balance sheet now is about $135 million. What is your comfort level in terms of minimum cash to run the business?

So, Lee, I think I have told you in the past we want to maintain around $100 million, but at the same time we want to take that approach to capital allocation that I just described.

Right. Secondly, I am a little confused. If you look at the supplement on page 8, we're sitting here October 27. The year is 10/12s over, and you're giving guidance of $5.10 to $6.89 with the year 10/12ths over? What does this say about the ability to forecast our business? Why such a wide range, just out of curiosity?

So, Lee, we did not -- as I just mentioned to Mike, we did not adjust those numbers this quarter.

Why wouldn't you adjust them? You are an open mic, this the world. What is your current expectations?

So I just -- maybe -- I am not sure if you heard or not, I just mentioned to -- I think it was to Fred, Lee, that we believe our adjusted pretax is going to be somewhere between the midpoint and the low scenario, and the reason being it's the timing around bringing on this new business while we are continuing to make these investments.

So in other words, what you're saying is adjusted pretax between $117 million and $135 million?

Yes.

Right, so if something --

Sorry, sorry, bear with me. One second.

The midpoint was -- the average of the two scenarios was $135 million and the low end is $117 million. So you are assuming something between $117 million and $135 million? Is that what you are saying?

Yes, and I think I said it would be closer to the low side than the midpoint.

So that means we will be closer to the $5.10 as opposed to previously thinking -- in the last call, you had talked in terms of $6; so now we are thinking in terms of $5.10?

Yes, I don't want to -- Lee, from a tax perspective, it is creating a little bit of noise, given the changes we just made, and so -- and some things we're working on, so I just want to talk about it from an adjusted pretax perspective. But, yes, assuming you could apply our current tax rate, and you would, at least as things stand right now, get to an EPS based that adjusted pretax.

Okay. Third, and most importantly, there are 19.5 million shares outstanding. There are 12 million owned by three large shareholders. That leaves 7.5 million shares in the free float. Well, obviously the 12 million is technically free float as well. There is a short interest of over 5 million shares.

You continue to buy back stock in lieu of paying a dividend, while investors wait for the improved results. Can you share with us what is your vision of the Company looking out two or three years that you persist in buying back stock? This is obviously an alternative vision. A short interest is basically 75% of the outstanding freely traded shares, if you believe your three top shareholders are long-term committed, as I think they are.

So what is your vision that leads you to want to continue to buy back stock, as opposed to splitting the returning of money to shareholders through some kind of a cash dividend and a repurchase?

So, Lee, first of all, our longer-term belief is that the investments we are making today, put aside share dividend for a second, or do neither, put that aside for a minute, we believe that the value we are going to create in the longer term, based on the investments we are making and these growth initiatives, will be tremendous for our shareholders over the next couple of years

We are going through a transition period or a transformation period, if you will, that we are a couple of years into. As Ocwen's portfolio comes down and a little bit of RESI, we are making that up with non-Ocwen growth. We're making a lot of progress, not as quickly as I would like, but we are making a lot of progress and we think the prospects are really, really strong.

So with that as the backdrop, we want to make sure that we can continue -- nothing gets in the way in terms of our ability to get that done.

So in terms of money that we return to shareholders either through a dividend or through a share buyback, Lee, as -- first of all, I guess, it's important to let our shareholders know that under Luxembourg law, even if we wanted to do a dividend or recommended doing a dividend, we need our shareholder approval, and the best practice in Luxembourg would be to get that done as part of your annual general meeting, which we have in May. So I think that's the second point.

And then, I guess, the last point, Lee, is we continue to have a dialogue with our Board and with you and with others and all of our shareholders to get their views around capital allocation, and we will continue to take that into consideration as we develop our strategy.

I wasn't really trumpeting the dividend. What I was really asking is, have you guys used a sharp pencil, have you thought things through, and you just see that the stock is very mispriced relative to the enterprise you are building, and looking out two or three years, you think you're just like a kid in a candy store. You can't wait to buy back stock because you think it's so mispriced, which is a very different view of the 5 million-odd shares that are short.

I am hoping you are right, because I am a large shareholder, but I am just putting you under the spotlight and just saying you guys feel highly confident that you are doing me and all the other sticking shareholders a big favor by focusing on stock repurchase.

Lee, I think the balanced approach we have been taking is doing our -- between the debt buybacks, as well as the modest amount of share buybacks that we've been doing, it is the right approach, given the tremendous -- we have tremendous opportunities, Lee. I can't say it emphatically enough.

We truly believe -- I wouldn't have invested -- I took my own money and invested in the stock. We truly believe in these initiatives. They may not all be successful, but we have very high level of conviction in what we are doing and believe as a result of that, and I can't tell you is it 2018 or 2019, but we know we are building a much larger, more profitable Company over the long term. And the feedback we're getting from our clients, both consumers and B2B, is good. It is positive. And we think we're making progress.

Good, good, good. All right, good. I'm hoping you're right. I'm on your team. All right, thank you very much for your responses. I appreciate it. And good luck.

Matthew Paul, Piper Jaffray.

This is Kevin Barker from Piper Jaffray. I just wanted to follow up on some of the questions that Fred had regarding the mortgage services segment and the revenue per delinquent loan at $722. Was that -- you mentioned that there was an increasing amount of activity in this quarter. Was any of that related to streamlined HAMP and any of the services you provide around the modification programs at Ocwen?

Fred, we really don't provide much services at all related to -- sorry, Kevin, related to HAMP (multiple speakers). That would not (multiple speakers) drive it one way or the other.

Okay. And then, in regards to --

(multiple speakers) we provide virtually no HAMP modification work to Ocwen.

Okay. So you wouldn't record revenue if a delinquent loan were to become performing or there wouldn't be anything surrounding that.

No.

Okay, and then in regards to the tax rate, it appears that you are having an increasing amount of plant and equipment, as disclosed in your Q in Luxembourg. Is the favorable tax rate that you received in the past primarily related to services and earnings provided in Luxembourg or were there other jurisdictions that would have driven that?

So we operate in several jurisdictions across the globe, and just as we earn less money in lower tax jurisdictions and more money in higher tax jurisdictions, that impacts the tax rate, but, as I mentioned earlier, over the next couple of years as we improve our margins, we believe our tax rate will come back down -- our cash tax rate will come back down.

Okay. And then in regards to the guidance, I think you were pretty clear on the servicing revenue and the adjusted pretax income. Now on a net income basis, do you expect to hit your low end of your target or do you think that would be below that as well?

I think, Kevin, at this point, I think the best thing you could do is just take the effective tax rate we just disclosed and you can apply it to what I said on pretax. We're trying to evaluate a couple of different options with respect to the structuring of the Company. That could have an impact one way or the other on post tax, but I think for modeling purposes, that's probably the best approach you could take. And there will be more -- we may have more to talk about that by next quarter.

When you speak about the structure of the Company, are you referring to breaking it up or consolidating it or --

No, no, no, sorry, nothing about -- no, we are just talking about some of this -- how we manage some of our subsidiaries, nothing to do with anything strategic in terms of that. It is business as usual, but there is some work that we're doing to simplify the operation, and that may or may not have an effect on our effective and cash tax rate.

Okay. Thank you for taking my questions.

Thank you. I am showing no further questions at this time. I would like to turn the call back to Ms. Michelle Esterman for any further remarks.

Thank you for joining our call 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.