Altisource Portfolio Solutions SA (ASPS) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Altisource second quarter earnings call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Michelle Esterman, 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, our slides and in our press release issued earlier today, which are other than historical fact, are forward-looking statements. These include financial projections and scenarios contained in our slides and described during this call. Altisource makes no representation that our actual financial results will be the same as those set out in the financial projections and scenarios.

The financial projections and scenarios should not be unduly relied upon. 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 our slides.

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. We have accomplished a lot since last quarter. This morning, I'll update you on the dialogue we're having with New Residential, which I will refer to you as NRZ, concerning potential long-term agreements to provide downstream services. I will briefly address Ocwen's recent remarks regarding its planned transition to a new servicing system. I will then discuss our second quarter capital deployment and financial results and the progress we are making on our strategic initiatives.

As you probably know, Ocwen and NRZ entered into agreements last month to transfer Ocwen's remaining interests in certain MSRs to NRZ, with Ocwen continuing to service these portfolios. Altisource has long-term agreements in place to provide various fee-based services on an exclusive basis for portfolio service by Ocwen. Nevertheless, we believe there are benefits to establishing a relationship with NRZ and are actively negotiating long-term agreements with NRZ to be the provider for downstream services.

We agree with NRZ's statements made during Q&A on its second quarter earnings call that we are very close to reaching an agreement. Although there is no guarantee we will reach an agreement, we believe doing so would be mutually beneficial for NRZ and Altisource. Given this status, we won't be taking questions on this topic on today's call.

With respect to REALServicing, Ocwen recently commented on its earnings call that it's planning to transition to another loan servicing platform. REALServicing is a custom loan servicing software that we only provide to Ocwen. Ocwen is a very important and strategic customer of Altisource and we intend to support Ocwen through this transition.

From an earnings perspective, other than shutdown costs, this is a nonevent as we currently breakeven on this business. We expect that we will continue to support the system and generate revenue during what will likely be a multiyear transition. This decision does not impact the other fee-based services we provide to Ocwen. We will establish an interface with Ocwen servicing technology to receive their referrals, similar to what we do with our other customers.

Turning to our capital structure. We ended the second quarter with $167.8 million of cash and marketable securities and $282.8 million of net debt less marketable securities. During the quarter we purchased $26 million in UPB of our senior secured term loan at an average discount of 16.5%, generating a $3.9 million gain. This gain was largely offset by other nonrecurring expenses. We also repurchased 2% of our outstanding common stock for $8 million at an average price per share of $19.17, bringing our outstanding share count to approximately 18 million.

Looking forward, we plan to execute a balanced approach to capital allocation that includes investments in our strategic initiatives, opportunistic share repurchases and debt reduction.

Moving to our financial results on Slide 2. We had another solid quarter, generating $238 million of service revenue, $0.88 of adjusted earnings per share and $30.9 million of cash from operations.

As you can see on Slide 3, service revenue for the first half of 2017 of $468 million is 54% of the midpoint of our full year 2017 scenarios and adjusted diluted earnings per share of $1.57 is 56% of the midpoint. For the full year 2017, we currently anticipate that we will exceed the midpoint of our scenarios for service revenue. We anticipate adjusted diluted earnings per share to be within the range of the midpoint of our financial scenarios. 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.

To achieve longer-term growth and diversification, we are focused on growing our mortgage and real estate markets as set forth on Slide 4.

Slide 5 provides second quarter highlights by initiative. Given the challenging environment, we are pleased that we were able to grow non-Ocwen revenue by 15% over the first quarter of 2017, with each of the 4 initiatives contributing to this growth. We currently estimate that our full year non-Ocwen revenue growth over 2016 will be approximately 8% to 10%, and if you exclude the Financial Services business, we estimate that our non-Ocwen revenue growth will be 12% to 14%.

We are learning that in today's environment, on boarding new customers and growing share takes longer than we've historically anticipated. We believe this is largely due to market dynamics and the CFPB and state actions against Ocwen, which prompted some of our customers and prospects to perform additional diligence on Altisource. We are addressing their requests and believe that we will continue to experience attractive growth but slower than we anticipated.

Beginning with the new -- beginning with the mortgage marketplace. In our servicer solutions business, we made solid progress in the second quarter, growing non-Ocwen service revenue by 9% compared to the second quarter of '16 and 11% compared to the first quarter of 2017. During the quarter, we were selected by a top 25 bank to provide REO asset management and brokerage services. We have since signed the master services agreement with this client and are now negotiating the statement of work.

We also continue to grow FHA and short-sale auction referrals from our new clients, contributing to sequential growth in the number of non-Ocwen homes sold on Hubzu. Continuing with the mortgage marketplace, our second initiative is growing our origination solutions business.

Second quarter non-Ocwen service revenue for this initiative was 11% higher than the second quarter of 2016 and 12% higher compared to the first quarter of 2017. The 11% growth over the second quarter of '16 significantly outperformed both the estimated 9% decline in U.S. mortgage originations and 19% decline in mortgage applications for the same period.

We continue to make strong progress growing revenue from our existing platform solutions customers and recently signed an agreement and began providing mortgage underwriting services for a top 5 correspondent lender. We believe this lender could grow to become another platform solutions customer, with the potential to generate over $1 million of revenue per month.

Since our last quarter's call, we also received rating agency approval from S&P, Kroll and DBRS as a third-party fulfillment provider for securitizations.

Turning to the real estate marketplace. Our third initiative is to grow our consumer real estate solutions business. We continued our strong sequential revenue growth with 222 second quarter home purchase and sale transactions, representing a 55% increase in unit transactions and an 82% increase in revenue from the first quarter of 2017.

We are focused on improving the productivity of our real estate agents through enhancements to our agent mobile app, continued training and development and top-grading underperforming agents. In the third quarter, we anticipate closing between 210 and 240 transactions.

As part of our strategy to grow unit revenue and deliver a great customer experience, we are planning to provide home buyers and sellers with additional services associated with the purchase and sale transaction. In addition to title and escrow, which we began offering to Owners.com customers in February of 2016, we launched our mortgage brokerage operation, Owners.com Loans, in June. Over time, we anticipate that a greater percentage of our customers will use a broader suite of our services to complete their home purchase and sale transactions.

To accelerate growth and innovation across our online real estate businesses, we recently hired Marcello Mastioni as President of our real estate marketplace. Most recently, Marcello was Vice President and Managing Director of Europe, the Middle East and Africa for HomeAway, one of the largest online marketplaces for vacation rental properties. In this role, Marcello helped grow HomeAway's online brands into dominant players in their respective categories. We are looking forward to Marcello achieving similar success at Altisource.

Finally, our fourth initiative is growing our real estate investor solutions business. Second quarter non-Ocwen service revenue for this initiative was 4% lower than the second quarter of 2016 and 25% higher than the first quarter of 2017. The year-over-year contraction reflects RESI's declining portfolio of nonperforming loans and REO. The sequential growth is from the progress we are making in expanding our buy-renovate-sell business. Over time, the pivot of our business model from providing home acquisition brokerage services on a one-by-one basis for institutional customers to directly purchasing, renovating and then selling homes to institutional customers is anticipated to support the growth of this initiative.

Before I conclude, I would like to share an organizational change. Indroneel Chatterjee will soon be joining Altisource as our CFO. Indroneel most recently served as Head of Credit Solutions, Global Markets with Nomura Securities. We believe Indroneel's background and experience will support Altisource's growth.

Michelle will assume the role of Executive Vice President of Finance. In this role, she will continue to lead the company's accounting, tax, treasury, vendor management and facilities functions with an increased focus on driving operational and cost efficiencies.

In closing, we have accomplished a lot since last quarter. We continue to develop our 4 initiatives to build a diversified and growing company. We opportunistically purchased our debt and equity at very attractive prices. And finally, we made progress in our discussions with NRZ to establish a long-term relationship and believe we are close to executing agreements.

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

(Operator Instructions) And your first question is from Kevin Barker with Piper Jaffray.

In regards to the REO brokership between Ocwen and yourself, do you currently pay Ocwen a fee of roughly 1.5% for every REO brokership sold on the Hubzu platform right now?

Yes, Kevin, we do pay a referral fee, a cooperating brokerage commission to Ocwen. I'm not sure it's publicly disclosed, but that's in the ballpark.

Okay. And then you obviously won't comment on the NRZ negotiations because they're in flux right now. But I mean, is it of your view that the original agreement between yourself and Ocwen will no longer be utilized and you'll renegotiate that agreement as well and potentially have an entirely new agreement on exclusive services between yourself and NRZ?

So Kevin, as I mentioned in my prepared remarks, we have long-term agreements in place to provide these fee-based services on an exclusive basis for portfolio service by Ocwen. We believe there are benefits to establishing a relationship with NRZ. But again, given the status of our negotiations with NRZ, we're not going to comment any further on this. And certainly, if and when we reach an agreement, we'll provide the appropriate disclosures around the terms.

Okay. And then in regards to the transition of the REALServicing platform, will there be other ancillary applications that Ocwen currently uses or different services that are provided that also will be transitioned over? Or will it be purely just the REALServicing platform?

Look, I mean, I think, what we're primarily talking about, Kevin, is the REALServicing platform. There's some other systems that go along with it that don't necessarily generate any additional revenue for us that Ocwen is probably looking at. But it's probably too early to speculate. But I don't anticipate those having any financial impact to us.

Okay. And then, you mentioned that the multiyear transition that will occur, did you expect it to be primarily weighted in the first year or 2 whereby you move over certain pools of mortgages or certain servicing pools, a larger portion of them in the first year or 2? Or is this something that you think that it's all going to transition at one time?

Kevin, typically, when you -- anytime you transition sort of an enterprise-wide loan servicing or banking system, it takes quite a bit of prep work and time on Ocwen's behalf, and we'll certainly be supporting them to get ready to make that transition. But then once you make the transition, you would typically transfer over -- you do a cut-off and transfer over all the loans to that system. So that process could be -- to get to the point in which they transfer is a multiyear process. So during that period of time, we would continue to generate our normal revenue from Ocwen. And we'll also be assisting with the work to make sure it's a smooth transition. But then once that transition's complete, after a multiyear process, that's when we would lose the revenue.

Okay, when you say multiyear, are you saying this is something -- 2 years? Or this is something closer to 4 years?

I mean, look, it's really hard for me because I'm not driving the project, Kevin, Ocwen is. I would say certainly 1 to 3 plus -- 1 to 3 years to do a servicing transition of this type. And you could look to other banks that have done it to get a -- if you want to do some research to get a better sense as to how long it takes.

Okay. And then, in regards to the CFO transition. Could you help us understand some of the reasons why you think Mr. Chatterjee is the right person for this role? I believe he had more of a financials role with distressed debt in his previous roles at Nomura. And given what Altisource is trying to achieve now with growing third-party service revenue and be more of a tech and service provider for the mortgage industry, what makes him fit well within Altisource?

Look, Kevin, we believe that Indroneel brings a unique and new skill set to the firm around corporate finance. He's got a very, very strong background. We're maintaining -- Michelle's staying with the organization, continuing to focus on all the GAAP-related accounting work that has to get done here and also focusing on our facilities and vendor management organization, with a particular focus on driving down our costs for outside goods and services. So we view it as incremental. We're bringing a new solid skill set to the organization, and we are maintaining the strong accounting group that we have in place today.

Your next question is from Mike Grondahl with Northland Securities.

Bill, can you talk a little bit about the service revenue per nondelinquent GSE loan? It was up close to $900 per loan. Kind of what incremental services have you added since last year when it was close to $700 per loan and how much higher can that go?

So I think that what was driving that up is the -- it's the growth in referrals of certain higher-fee property preservation services. Also REO sales prices have been increasing and we're selling a greater percentage of the homes through auction, which generates more fees for us. And of course, as you know, there's a lot of seasonality to this. But certainly, as the property values increase, we would expect to generate more revenue per loan. But outside that, we think we are hitting sort of a stabilized number, keeping in mind that the number will fluctuate based on seasonality.

Got you. Okay. In terms of non-Ocwen revenues, your non-Ocwen revenues are a little lower at 37% of your midpoint even though your investments are slightly higher at 60% of your midpoint. So is it just that it's taking longer on the non-Ocwen side and the boarding's taking longer as you kind of talked about? I kind of would've thought if you're spending and investing more, we'd see more progress on the non-Ocwen, kind of help us understand how we think of those 2 and how they're related?

Yes, no, really, really straightforward, Mike. So because it's taking us longer to onboarding and grow some of these clients than we originally anticipated, our investments, which include sort of some of the losses we're making on these products, are a little bit higher than we anticipated. So they should be inversely related. So as it takes a little bit longer -- as it takes longer to get these clients going, you incur some additional losses, which were in our calculation we included in the definition of investments. And so, for example, in our origination business, as we onboard this top 5 correspondent lender, we had some fixed cost that we've been incurring in that business in anticipation of onboarding this client and other smaller clients. As those clients onboard and grow, that's going to reduce those losses in that business and ultimately, we think it's a 20% to 30% margin business, our origination solutions, and our investments will come down and we'll be making money. So it's just a product of timing, Mike.

Got it. And then is there any way -- can you quantify or kind of give us a ballpark figure of what those losses are that you're experiencing today on the non-Ocwen initiatives? Because when they flip, it's kind of a slingshot. But I'm just -- give us a sense for what are we talking about today or in 2Q?

So Mike, if you look -- I think there's a slide, I don't have it at my fingertips, where we talk about what the investments -- the amount of the investments we're making, which I think you may have just referenced. So we're losing -- today, we're making investments in Owners.com and Investability, in our origination technologies to support the growth -- what we anticipate will be very strong growth in our origination business. So on both the technologies and that business unit right now and some of our other origination business we're making some investments. I'd also point out that many companies would be capitalizing some of these technology investments. We don't capitalize those investments. We run them through the income statement.

Got it. I mean, any sense is it...

I look at it, by the way, Mike -- if you look at the -- you can just multiply how much we're spending by how many shares we have -- what is it? Give me a second. So Mike, if you look on Slide 3, it's roughly $30 million of investments. And I look at that as also R&D for Altisource. This is going to support our long-term growth of the business. And I do believe while the growth in revenue for this first half of the year is not what we had hoped for, it still is pretty attractive growth. If you back out the Financial Services business, we think we'll grow 12% to 14% over last year.

Got it. And then, hey, in the ranges you give for the year for service revenue, adjusted EPS, where you lay all that out, is there anything embedded in there for this potential agreement with NRZ?

No, Mike, we did not -- none of this takes into consideration, that's Slide 3, a transaction with NRZ. We believe it's just premature at this point until we have a signed agreement.

Got it. Okay. And then lastly, has -- you're doing some work still for RESI. Has that -- directionally we know that's declined, they've sold less homes, they've cleaned up their REOs. Is that a meaningful customer for you still or kind of what's the outlook there?

Yes, so I think, for RESI, we're helping them dispose of their REO assets. And as George covered on his call, he hopes to have those assets sold by the end of the year. So that's been very meaningful for us. We also provide property management work for their business. I wouldn't say it's very meaningful, but it generates, I don't know, less than probably $10 million a year of revenue for the firm. And then we're very focused on helping George identify -- we'll buy homes, renovate them and sell them to George essentially at a pre-established [accounting focus] and think we can be very helpful for George there. And clearly, his growth is good for us as a service provider and as a shareholder.

(Operator Instructions) Your next question is from Fred Small of Compass Point.

The first one -- I'm not sure if you'll answer, but what happens if you don't come to an agreement with NRZ?

So I think I've said it now twice, Fred. We believe we have long-term agreements with Ocwen to provide to them as the servicer, on an exclusive basis, the services. We think there's a tremendous benefit to reaching agreement with NRZ. If you listen to the CEO of NRZ, Mike Nierenberg, the answer to one of the questions, I think it was from Kevin Barker about where we stand, I think he agrees and we agree with him that we're very close to reach an agreement. Of course, until it's done, it's not done. But both parties are working really, really hard to reach an agreement because both parties believe it's beneficial to their firm and to their shareholders. And so we have long-term agreements with Ocwen. We also are working very hard, as is NRZ, to get an agreement signed between our parties. And we hope we'll have something we could talk about in the coming weeks.

Okay. Got it. And then it looked like in the disclosure from Ocwen's 10-Q that they're no longer going to be receiving the split on Hubzu sales, the REO referral commission after that portfolio transfers. Is that correct?

So look, I don't want to comment on Ocwen's Q. But I can tell you, we're certainly -- that is something we're discussing with NRZ and with Ocwen.

Okay, great. Thanks. I'll stop bugging you on that. The -- can you quantify the cost impact from migrating Ocwen off of REALServicing over the next few years?

So we think that the cost, Fred, is largely going to be around severance, retention and terminating some of the software licenses that we acquire in order to support that system. And we think that it will probably be somewhere between $7 million and $10 million over that period of time. We're still working through -- over time. And we're still working through how the accounting for that will happen. But from a cash perspective, it will bleed in over time.

From a cash perspective, bleeding over time, $7 million to $10 million. Are there any potential write-downs associated with Ocwen transitioning off of that?

Now if you remember, at the end of 2015, we took a very large write-down and there's virtually nothing on the balance sheet today related to this.

Okay. Got it. And then you mentioned some nonrecurring costs that offset the debt repurchase gain in the quarter. What were those?

Sure. There was -- I think we mentioned it in both the press release and in our Q. I think it's some litigation-related expense, some sort of extraordinary severance and -- what was the third component? I think there's 3 pieces we mentioned? Give us 1 second. Yes, facilities related. Fred, we've subleased some facilities that we don't need and we incurred probably $1 million or north of a $1 million of costs that went through the income statement in the quarter on top of these other matters I mentioned to you. It virtually offset almost all the gain we got from the debt buyback.

Okay. And then in terms of capital allocation priorities going forward, are you still seeing potential acquisition targets out there? Is there any expectation for that to ramp up once the new CFO joins?

Well, look, we're very, very focused on organic growth here. We certainly look at opportunities periodically and have done some smaller bolt-on type acquisitions. But Fred, we're focused right now on organic growth. And we're going to look to use our excess cash to support our strategic initiatives, to buy shares back opportunistically and also to reduce our debt. I don't want to say never, but it's certainly something we periodically look at and will continue to do so. But I wouldn't say it's at the highest -- of the highest priority.

All right. And then on the mortgage or the origination solutions business that you think over time can be a 20% or 30% margin business. I guess, if I look back to the MPA acquisition 7.5 years ago, something like that, what sort of profitability has that generated over that time period? And I guess, what's additive now that's going to accelerate margins?

So Fred, I think, over the first 3 or 4 years after we bought the company, we probably from its earnings got back our investment. And that was largely related to, we had some very attractive preferred investor transactions, where as we drove volume to lenders, we got paid a certain amount of basis points, as did our customers, and that was driving a lot of revenue and earnings for a period of time. I think we mentioned a couple of years back that when that came to an end -- as it came to an end, they -- that firm eliminated all those affiliated relationships. That reduced the earnings at MPA. But what I'd say is really interesting and we actually have our Lenders One conference is taking place as we speak in [St. Paul/] Minneapolis. What we're doing today is really focused on what we're calling a platform solution. So we have these lenders that are very, very interested in getting origination volume and we have all these mortgage bankers that are originating loans and they need to sell those loans. And they like to get greater basis points for selling those loans. So we've put those 2 parties together and sort of -- as we've put those parties together, part of our value proposition to these correspondents is we can get you volume, we can also provide the services to you, the underwriting and the fulfillment service as good or better than others in the industry at the same or better cost, but you also get volume for us. So it's a lot easier to do business with a company that's giving you volume and not just charging you money. So we can give origination volume for that customer and in return, we're also getting a few extra basis points for all those loans that are going to that correspondent, as is our members. So it's a great value proposition for our members. And then we can offer them the fulfillment services at the same time, which is a very attractive business for us, and over time, we'll become more and more automated and more and more profitable to drive additional business to Altisource. So it's a win for everybody. So we think that creates a pretty unique competitive advantage. And we've been very successful at selling that product to household names.

Okay, got it. I mean, if you had a crystal ball and you could tell us when that business starts to make money, is it 2018, '19, '20?

I think, the -- and again, I'm not talking about all origination solutions. I certainly think, as we get closer to the end of the year and there's a little bit of seasonality, the fulfillment business, where we've been losing a meaningful amount of money each month, will begin to turn around as we get toward the end of this year. And then some of the other investments we're making in the origination technology will go into more maintenance mode and less investment mode. We won't need as many people to go into maintenance mode. So some of those costs will begin to come down probably the middle of next year. And then on our origination system, where we're strengthening the modules, those investments will probably continue for the next couple of years, but we see a pretty big opportunity over time to cross-sell the customers of our Mortgage Builder technology to other services at Altisource and that we can provide and that we can resell. And so we think that that's probably a little bit longer. But that's just to give you a sense as to how we're doing. In balance, Fred, probably looking at toward the end -- the losses will come down throughout next year and maybe the year after we'll be -- should be -- begin to get very attractive from a profitability perspective.

All right. Thanks. Then just on Hubzu stuff, the transactions. The Ocwen-related transactions were down quarter-over-quarter despite 2Q normally being seasonally stronger. What -- anything going on underneath the surface there that led to the sequential decline?

Yes, so Fred, I think actually, our decline was relatively modest and is reflective of the fact that Ocwen's portfolio is coming down, and also as RESI exits its REO assets. But we're seeing a lot of success onboarding FHA auction clients and short-sale clients and we're, as I discussed in my prepared remarks, also adding REO asset management clients. I'm trying to find -- I think I have the data here somewhere. Our referrals -- let me see if I can find it -- our referrals from -- in the second quarter of new listings -- and again, I'm talking about FHA auction, short sale and REO -- unrelated to Ocwen and unrelated to RESI are up something like 67% and they're also up something like tenfold over last year. That's not sales, I'm talking about referrals. Our non-Ocwen -- I'm trying to find the absolute number. That's pretty attractive as well. And our non-Ocwen, non-RESI sales are also up sequentially. They're down from last year in the second quarter, primarily because of that one client we had that got out of the business where we had some runoff. But I think we're seeing really good success at growing the non-Ocwen, non-RESI referrals and sales sequentially and hope that will continue to grow. And Fred, as I mentioned also, the impact from the decline in Ocwen and RESI's portfolios is not as great from a revenue perspective because the average sales price has been going up and as we've been auctioning -- and we've been auctioning more of the homes.

Got it. And the new business -- the new FHA and short sale business, that's still 50%, 60% pretax margin? Is that the right context?

Yes, I mean, we don't break out the margins there but it's very attractive, yes. I would point out also, in the revenue for loan in the -- sorry, the revenue per homes sold in the slide, that doesn't -- that includes more than just the commission and auction fee. There's some other charges included in there. There's some other revenue included in there.

In the Hubzu revenue?

No, in the slide where we referenced how much revenue we're generating from Hubzu. That includes auction revenue, brokerage revenue and some other fees that we earn related to those services.

Is that the -- so I mean, I think that when I backed into it before that includes like the RHSS 1.5-point transaction fee and then a technology fee. Is that what you mean? Or are these different fees you're talking about?

Yes, it's some closing fees is my recollection, Fred, some fees we get for closing the transaction.

Okay. And then, just if I look at -- I mean, I did some math on estimating Hubzu profitability in the past. Just is all of Altisource profitable or can you sort of talk at all about the profitability of Altisource excluding Hubzu?

Yes, let's -- Fred, if you take a step back, right, just covered origination, where it's growing quite nicely. It's not making money today. In our real estate investor solutions business, it's making a little bit of money. As we continue that pivot to the buy-renovate-sell program, we think we'll improve its earnings. Inside servicer solutions -- and again, the work we perform for other clients is as profitable or more profitable than the work we do for Ocwen on like services. Think about what we're providing there, property inspection and preservation. It's lower margin but it's a very attractive business and we do that work for Ocwen and we do that work for others. We do title insurance and escrow work. That's a very attractive business, nice margins. We do valuations. It's a lower-margin business, but we do that work for Ocwen and we do it for others. And that's lower than Hubzu but it's still an attractive margin. So yes, virtually across the servicer solutions business, in fact, we're making money in all those businesses. So while REO is certainly an important component, we generated attractive earnings in those other businesses as well, although at lower margins.

Okay, right. I mean, I was just asking for Altisource overall as a company. I mean, what sort of level or profitability, if you back out Hubzu? Do you have any estimates on that?

No and we don't break it out, Fred.

You do have a follow-up from Kevin Barker with Piper Jaffray.

Had a quick question on the tax accrual adjustment. Could you quantify what your effective tax rate would've been in the quarter and your expectations going forward for the tax rate?

Sure. So it would've been about 24%, 25% in the quarter. And our projection for the year is 24% to 27%.

Okay. And then, do you have any updates on the expiration of the tax credit agreement that you have with Luxembourg in 2019? Or is that still in place and your expectation that, that will stay in place?

Kevin, we are not going to comment on that on the call. But yes, we believe we have an attractive tax rate. It's gone up a little bit based on the mix of our earnings across jurisdictions. But over time, we believe we're going to continue to have an attractive tax rate. And as our earnings go up -- as our GAAP earnings go up, our tax rate should come down over the next couple of years.

Okay. And then, in regards to the -- your capital allocation. You bought back a little bit of stock this quarter, but the majority, obviously, was due to the paydown of debt. When you go forward from here, can you update us on your priorities on whether to repay debt or to pay down -- or to buy back stock and some of the decisions around that?

I think I covered that in my prepared remarks, but our plan is to continue to take a balanced approach. We'll look to invest in our initiatives, to opportunistically buy back stock and we'll also look to reduce the debt. We've got plenty of term left on our debt, but we will continue to look for opportunities to pay that down.

It looks like the amount of capital that you deployed this quarter was close to the amount of free cash flow that was generated from operations. Is that a fair way to look at how much capital you're going to deploy in the future?

No, I'm not sure I'm following you. We deployed a couple of million dollars in capital, if you're talking about like for facilities and equipment, and things like that.

(inaudible) $26 million on the debt and the share repurchase.

No, no, that's not necessarily the best way to look at it if that's what you're asking, Kevin.

Okay. I was just trying to get a quantification on how much you will look to...

I mean, I think from a capital perspective like facilities, equipment, technology, et cetera, we're looking at spending $16 million, $17 million this year. In terms of the deployment of cash toward debt paydown and stock repurchases, I think that's more opportunistic and hard to quantify for you.

And I'm showing no further questions. I would now like to turn the conference back to Michelle Esterman for any further remarks.

Thank you for joining the call. We look forward to talking to you next quarter.

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