Altisource Portfolio Solutions S.A. (ASPS) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Altisource Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, 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 Web site 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 Laws. 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 equivalent 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'm 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. All of this 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 it to be a larger stronger company. This morning, I will discuss the progress we were 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 have 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 with this customer. We also signed an agreement with the 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 includes six of the top 10 servicers and one of the GFDs [ph]. We are negotiating a statement of work for short sale and [indiscernible] services, and are in advanced discussions to provide foreclosure options in REO services to some of our customers. They sent our top four bank customer's assessment of our performance and 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 a million dollars per month in 2017. Our second initiative is growing our origination solutions business. I'm very pleased with our progress. We think 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 trends with outsourcing loan origination fulfillment services, primarily due to the desire to convert fixed costs to variable, and higher regulatory burden 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 require 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 in-growing client base, we are performing very well for these customers and they continue to demonstrate an interest in expanding the services from us, and we'll 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 originations solutions operations, improve our client's 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 and 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 has since expanded to 18 months. 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 leads 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 are showing them homes, assisting in the offer negotiation process, and working to close transactions. We have a high level of conviction that our Owners.com piece is correct, and the consistent increase in buyer lead flow continues to validate that conviction. We are executing on our plans 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 continue to support RESI as a transition to the company is 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 a 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'll now turn the call over to Michelle for a short financial update, and then I'll provide some closing remarks. Michelle?

Thank you, Bill. This morning I will discuss elements of our financial results and capital allocations for the quarter in greater detail. For a more complete explanation of our financial results for the quarter, please approach the press release and form 10Q 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 pre-tax and come attributable to Altisource of $29.4 million declined by 42%. This was primarily the result of increased investments to support the company's growth initiative, 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, an adjustment 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 pre-tax 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 our effected 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 that was in 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 we'll 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 sales security. The last topic I'll 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 30th, 2016, our net debt less marketable securities was $301 million, a 27% decrease from September 30th, 2015. Looking forward, we plan to continue to execute a balanced approached to capital allocation that includes investments in our strategic initiatives, debt repurchases, capital investments in technologies and facilities and share repurchases. I'll 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've not achieved our very high growth target. That said, this is a timing issue as we are attracting large clients, expanding services we are providing to these clients and have a great pipeline of opportunities. We are 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 customers improving stability position us well to deliver a long-term growth and very attractive shareholder returns. I would now open up the call for questions. Operator?

Thank you. [Operator Instructions] And our first question comes from Fred Small with Compass Point. Your line is open.

Hey, good morning. Can you help us understand sort of how much of the sequential margin decline is related to Hubzu and the decline in revenue there?

So, Fred, I think there are some puts and takes between the second and the third quarter, but the biggest difference in our overall margins was we didn't have the 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 service revenue between quarters were relatively flat as well.

Right.

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

Okay.

Our earnings would have been almost -- sorry, our adjusted pre-tax would have almost the same.

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

Yes, so there is 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 been…

You can see the numbers in the quarterly Hubzu revenue. Yes.

Fred, yes, you are the right that the Hubzu sales were down some as you would expect going into the third quarter seasonally it would slowdown some in September. And this was also a mix issue with greater percentage of the revenue toward property inspection and preservation which is a very attractive business for us which has happened to [indiscernible] margins.

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

Yes, so with respect to that, we can't talk about specific client spread. 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 about $100,000. But, we are signing up new clients that are also performing REO services for them. And some of our new clients the average property value is much higher than that particular client. So while we won't sell as many homes, we will sell higher value properties which will generate revenue. In addition, we are actively negotiating right now with a couple of client to provide, it's called CWCOT or conveyance without title 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 as well.

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

Yes, so Fred, I think these new -- we are beginning to pick up new volumes and new customers and 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, and it was really a 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 newer customers, one of newer customers and we are onboarding couple of other new customers as well. We are managing our 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 sort of what -- at least from a P&L perspective?

Sure. So I think the -- and the way we look at -- 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're developing which we do. And we're sort of 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 cost. And so, we think for the year, we probably will invest for the full year, Fred. I don't have it broken 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're 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 for delinquent non-GSE loan, I mean keeps going up every quarter. Can you help us understand what's driving that up?

Sure. So from the second quarter into third quarter, you saw an increase largely some higher volume property preservation referrals and higher sales values of REO.

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 loans -- on the loans -- the delinquent loans.

Okay, got it. Is there I mean that used to be sort of -- there used to be a decent amount of seasonality I think for awhile in that -- sort of in that metric, do you think that that's -- even though I know there is seasonality in the business, is it just not requested in that item anymore?

Third quarter tends to be one of 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?

Fred, really a lot depends on the mix of services we provide. So, it's hard to predict, but generally speaking though the summer and the fall would be stronger. And then as your loan cuts and things like that slow down in the winter and you would see the numbers come down. But, I would say there is -- there has been a push I think not just with Ocwen, but amongst the most service sellers to increase the amount of work they do to preserve properties that are abandoned. And so, as that -- as servicers do more work, to preserve the collateral and to protect the neighborhood that in terms of the benefit us there comes in more referrals.

Okay, got it. And then, 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's seems like it's 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 these do you think the low end is here?

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

Okay. Sorry. So just on the -- when you are talking about he margin guidance there, which slide -- I was looking at Slide eight at the adjusted earnings, you are just talking about the adjusted pre-tax sort of the net number there?

Adjusted pre-tax.

Okay, so…

[Indiscernible]

Right, somewhere between -- you still think somewhere between 117 and 135 is achievable?

Yes.

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

Thank you. And our next question from Mike Grondahl with Northland Securities. Your line is open.

Hey, thank you guys. The non-Ocwen revenue, it sounded like that is more of a tiny 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 kind of getting higher or off the $62 million non-Ocwen level?

Mike, thanks for the question. It's a good one. Let me explain. So the top four bank that we won, we started the process probably year and a half or two years ago with our first meeting, participated in an RFP process, won the transaction. I think we have notified -- exactly a year ago we are notified we won a share of your property inspection preservation business. We think we boarded our first files in April. And what I didn't realize was we are on probation for the first couple of months. So you receive a score card but it doesn't count during those first couple of months. And we have got a very modest amount of referrals. We then got out of probation. We performed very well on these what they call preliminary score card. And then we start receiving an actual score card. So no additional volumes, but now we are actually going to perform for the next couple months creating up to about a month ago where we are now getting a score card. And I can tell you out of the nine roughly providers we are at the top in terms of our performance. We are doing really, really well for this particular client. And so, what they told us though they only do market share adjustments a couple of times a year. Now we happen to get an off market share adjustment about two weeks ago, but they are going to do another market share adjustment in November, December of this year. And we fully anticipate based on our performance and all the feedback I have seen from this client that we are doing a really good job, and they are going to grow with us. And they spent a lot of money on that. And I think we'll do more than a million dollars a month, well more than that in 2017. But it's a process and that process takes much longer. Another example of these and when we win a transaction, the business unit says I want to hire you, you still in some cases are vetted by then the management, by the risk groups, you are also vetted by the law and the compliance department. And these things just take much, much longer from the time the business unit, 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 are getting from these customers is really, really good, both during our key stage and after we received the work. But it's a process to win the business. It's a process to get it onboarded. And it's 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're -- it is just a function of timing. And ultimately, we are going to see a lot of growth from these customers.

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

Yes. No, Mike, we didn't adjust the scenarios other than to put the year-to-date on there. So, yes, you're right. It is pushed out.

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

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

Sure.

But going longer term as we improve our margins over the next couple of years, so I wouldn't say '17, but add another year or two, we would expect it to be cash tax rate to go back to something closer to what our historical rate was.

Okay. Any other adjustments as you sort of lookout to '17 besides the tax rate and besides the non-Ocwen kind of 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 '17 and we are going to -- we'll present more on our next call. But as you start to think about '17, the expected or anticipated run off 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 are going have sort of natural decline in revenue. It's going to be -- and we are also going to continue to make investments in our longer term growth. They 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 a very thoughtful on how we manage our cost, but -- so generally speaking that just a framework, but if you think about we have put some slide historically just the natural runoff of Ocwen's portfolio is pretty meaningful and we think we're positioning ourselves very well to make up for some of that, but we're not going to make up all of it. We are going to continue to make these investments that we believe create long term tremendous shareholder value. And we are going to also grow through our non-Ocwen growth initiatives.

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

So there -- I mean most of our focus has been on RESI. We are developing the RentRange product. It's a data product that we sell for third parties. We are doing a decent job growing revenue there, signing up new customers. That's a very, very -- once you cover your fix cost, that's a very, very high margin business. We are also making some investments in Investability platform. It's going to take some time, but we're making some investments there. And then lastly, we are taking some of our excess capital and putting into the buy-renovate-sell program. And Michelle, how many -- I think we've got about 8 or $9 million worth of homes. And we are renovating those. And we just started selling and 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 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 long-term prospects and as we just discussed we think we are making very good progress here. And we think those initiatives can create tremendous shareholder value. So, we are going to continue to re-evaluate our strategy over time based on the progress we are making on our initiatives and other environmental factors like what's going on at Ocwen and at RESI.

Okay. Thank you.

Thank you. [Operator Instructions] And our next question comes from Lee Cooperman with Omega Advisors. Your line is open.

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

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

Right. Okay. Secondly, I'm a little confused. If you look at the supplement page eight, we're sitting here October 27, the years '10-12s over and you are giving guidance of 5.10 to 6.89 with the year '10-12s over, I mean, what does it 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 would you adjust? You are an open mic as just is the world, what is your current expectations?

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

So, in other words, what you are saying is adjusted pre-tax between 117 and 135?

Yes.

Right. So, it's something…

Sorry, sorry, bear with me; one second.

Yes.

Yes.

The midpoint was -- the average with two scenarios was 135 and the low end is 117, so it's something between 117 and 135, is that what you are saying?

Yes, so I think that will 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've talked in terms of $6, now we're thinking in terms of 5.10?

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

Okay. So, most importantly there are 19.5 million shares outstanding, 12 million owned by three large shareholders, at least 7.5 million shares in the free float, obviously the 12 is technically free float as well. It's 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 looking out two or three years that you persist in buying back stock, because obviously turning to the vision, I mean, short interest is basically 75% of the outstanding freely-traded shares, if you believe, the 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 minor shareholders to some kind of cash dividend and then 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 in 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 in a little bit of RESI, we are making that up with non-Ocwen growth. We are 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 sort of 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 you return to shareholders either through a dividend or through a share buyback, Lee, first of all, I guess it's important to let shareholders know that under Luxembourg law, even if we wanted to do a dividend or recommend to doing a dividend, we need our shareholder approval and the best practice in Luxembourg is to get that -- would be to get that done as part of your Annual General Meeting which we have in May. So, I think that that's the second point. And then I guess the last point, 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'll continue to take that into consideration as we develop our strategies.

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, your building, and looking at two or three years, you think you just, like [indiscernible] you can't wait to buy back stock because you think it's so mispriced, which is a very different view of the 5 odd million shares at a short. I'm hoping you're right, because I'm a large shareholder, but I just wanted to -- just kind of putting you under the spotlight and you're saying you guys feel highly confident that you're doing me and all the other sticking shareholders a big favor by focusing on stock repurchase.

Lee, I think the balanced approach we've been taking is doing our shareholders - between the debt buybacks, as well as the modest amount of share buybacks that we've been doing is the right approach, given the tremendous - we have tremendous opportunities. Lee, I can't say emphatically enough we truly believe -- I went with investing, I took my own money 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're doing and believe as a result of that - and I can't tell you that it's 2018 or 2019, but we know we're 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's 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 response. I appreciate and good luck.

Thank you. Our next question comes from Matthew Paul with Piper Jaffray. Your line is open.

This is Kevin Barker from Piper Jaffray. 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 streamline HAMP and any of the services that you provide around the modification programs at Ocwen?

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

Okay. And then in regards to…

We provide virtually no HAMP modification work to…

Okay. So you want to record revenue as a delinquent loan in order to become performing or you want anything surrounding that?

No.

Okay. And then in regards to the - in regards to the tax rate, if you say you're having an increasing amount of plant and equipment as opposed to your Q in Luxembourg, is the payroll tax rate that you received in the past primarily related to services and earnings provided in Luxembourg or are there other jurisdictions that would determine that?

So, Fred, 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 impact 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.

Okay. And then in regards to the guidance, I think you're pretty clear on the servicing revenue and the adjusted pre-tax 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?

Yes, I think Kevin at this point -- I think the best thing you could do is just take our -- the effective tax rate we just disclosed and you can apply it to what I said on pretax. We are 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 that will be more - we may have more to talk about that in our next quarter.

And when you speak about the structure of the company, are you referring to breaking it up or consolidating it, or…

No, no, no, I'm sorry. Nothing about - now we're just talking about some of the - how we manage some of our subsidiaries; nothing to do with anything strategic in terms of that. It's 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.

Thanks.

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.