UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
For the quarterly period ended March 31, 2011
OR
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-34354
 
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Exact name of Registrant as specified in its Charter)
 
   
Luxembourg Not applicable
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer Identification No.)
2, rue Jean Bertholet
L-1233291, Route d’Arlon
L-1150 Luxembourg
Grand Duchy of Luxembourg

(Address of principal executive offices) (Zip Code)
+352 2469 7900
Registrant’s telephone number
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noþo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):
       
Large accelerated fileroAccelerated filero Accelerated filerþNon-accelerated filerþoSmaller reporting companyo
(Do not check if a smaller reporting company) Smaller reporting companyo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ
As of September 30, 2010,April 15, 2011, there were 25,412,748 outstanding shares of the registrant’s shares of beneficial interest.
 
 

 


Table of Contents
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
FORM 10-Q
     
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Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

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PART I. FINANCIAL INFORMATION
Item 1.
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)Except Per Share Data)
        
         March 31, December 31, 
 September 30, December 31,  2011 2010 
 2010 2009  
ASSETS ASSETS
  
Current Assets:  
Cash and Cash Equivalents $23,037 $30,456  $26,324 $22,134 
Accounts Receivable, net 46,772 30,497  53,008 53,495 
Prepaid Expenses and Other Current Assets 4,689 2,904  9,445 13,076 
Deferred Tax Assets, net 3,532 1,546  641 551 
          
Total Current Assets 78,030 65,403  89,418 89,256 
  
Restricted Cash 779   1,222 1,045 
Premises and Equipment, net 16,157 11,408  16,910 17,493 
Deferred Tax Assets, net 892 1,206 
Intangible Assets, net 73,230 33,719  70,292 72,428 
Goodwill 15,380 9,324  11,836 11,836 
Other Non-current Assets 4,331 702 
Investment in Equity Affiliate 1,113  
Other Non-Current Assets 4,708 4,536 
          
  
Total Assets $187,907 $120,556  $196,391 $197,800 
          
  
LIABILITIES AND EQUITY LIABILITIES AND EQUITY
 
Current Liabilities:  
Accounts Payable and Accrued Expenses $26,960 $24,192  $26,606 $35,384 
Capital Lease Obligations — Current 804 536  694 680 
Other Current Liabilities 6,718 5,939  6,180 5,616 
          
Total Current Liabilities 34,482 30,667  33,480 41,680 
  
Capital Lease Obligations — Non-current 1,008 128  689 852 
Deferred Tax Liability, net 1,219 2,769 
Other Non-current Liabilities 3,400 644  3,027 3,370 
  
Commitment and Contingencies (Note 16) 
Commitments and Contingencies (Note 13) 
  
Equity:  
Common Stock ($1.00 par value; 100,000 shares authorized; 25,413 shares issued and 25,327 outstanding in 2010; 24,145 shares issued and outstanding in 2009) 25,413 24,145 
Common Stock ($1.00 par value; 100,000 shares authorized; 25,413 shares issued and 24,715 outstanding in 2011; 25,413 shares issued and 24,881 outstanding in 2010) 25,413 25,413 
Retained Earnings 44,150 11,665  71,954 58,546 
Additional Paid-in Capital 78,321 50,538 
Treasury Stock, at cost ($1.00 par value; 86 shares in 2010)  (2,311) 
Additional Paid-in-Capital 80,085 79,297 
Treasury Stock, at cost ($1.00 par value; 698 and 532 shares in 2011 and 2010, respectively)  (19,798)  (14,418)
          
Altisource Equity 145,573 86,348  157,654 148,838 
  
Non-controlling Interests 2,225   1,541 3,060 
     
      
Total Equity 147,798 86,348  159,195 151,898 
          
  
Total Liabilities and Equity $187,907 $120,556  $196,391 $197,800 
          
See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)Except Per Share Data)
        
                 Three Months Ended 
 Three Months Ended Nine Months Ended  March 31, 
 September 30, September 30,  2011 2010 
 2010 2009 2010 2009  
Revenue $77,580 $54,064 $209,901 $146,486  $88,670 $60,974 
Cost of Revenue 48,647 33,453 131,749 91,805  54,949 39,354 
              
  
Gross Profit 28,933 20,611 78,152 54,681  33,721 21,620 
Selling, General and Administrative Expenses 14,996 11,065 40,168 27,216  16,254 12,069 
              
  
Income from Operations 13,937 9,546 37,984 27,465  17,467 9,551 
 
Other Income (Expense), net 698 2,546 666 1,155  344  (72)
              
  
Income Before Income Taxes and Non-controlling Interests 14,635 12,092 38,650 28,620  17,811 9,479 
 
Income Tax Provision  (2,751)  (3,448)  (2,029)  (8,522)  (1,687)  (2,385)
              
  
Net Income 11,884 8,644 36,621 20,098  16,124 7,094 
  
Net Income Attributable to Non-controlling Interests  (2,052)   (4,136)    (1,299)  (787)
              
  
Net Income Attributable to Altisource $9,832 $8,644 $32,485 $20,098  $14,825 $6,307 
              
  
Earnings Per Share 
Earnings Per Share: 
Basic $0.39 $0.36 $1.30 $0.84  $0.60 $0.26 
              
Diluted $0.37 $0.36 $1.24 $0.83  $0.57 $0.25 
              
  
Weighted Average Shares Outstanding 
Weighted Average Shares Outstanding: 
Basic 25,318 24,050 25,080 24,050  24,845 24,690 
     
Diluted 26,544 24,303 26,168 24,303  25,928 25,663 
     
  
Transactions with Related Parties included above:  
Revenue $39,459 $26,035 $104,494 $67,222  $48,790 $29,251 
         
Selling, General and Administrative Expenses $223 $522 $811 $4,308  $391 $324 
         
Interest Expense $ $193 $ $1,290 
         
See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY
(in thousands)
                                
                                 Altisource Equity Non-   
 Additional Treasury      Retained Additional Treasury controlling Comprehensive 
 Retained Paid-in Stock, at Non-controlling Comprehensive  Common Stock Earnings Paid-in Capital Stock, at Cost Interests Total Income 
 Common Stock Earnings Capital Cost Interests Total Income  
Balance, December 31, 2009 24,145 $24,145 $11,665 $50,538 $ $ $86,348  24,145 $24,145 $11,665 $50,538 $ $ $86,348 $ 
 
Net Income   32,485   4,136 36,621 $36,621    6,307   787 7,094 6,307 
Acquisition of The Mortgage Partnership of America, L.L.C. 959 959  22,941  3,268 27,168  
Acquisition of MPA 959 959  22,941  3,268 27,168  
Contributions from Non-controlling Interest Holders      2 2  
Distributions to Non-controlling Interest Holders       (2,420)  (2,420)  
Share-based compensation    271   271  
Exercise of stock options 101 101  1,014   1,115  
                 
Balance, March 31, 2010 25,025 25,025 17,972 74,764  1,637 119,578 6,307 
                 
 
Balance, December 31, 2010 25,413 25,413 58,546 79,297  (14,418) 3,060 151,898  
Net Income   14,825   1,299 16,124 14,825 
Contributions from Non-controlling Interest Holders      28 28        6 6  
Distributions to Non-controlling Interest Holders       (5,207)  (5,207)         (2,824)  (2,824)  
Share-based Compensation Expense    2,134   2,134      788   788  
Exercise of Stock Options 298 298  2,708   3,006      (1,417)  1,858  441  
Delivery of Vested Restricted Stock 11 11     11  
Repurchase of Shares      (2,311)   (2,311)        (7,238)   (7,238)  
                                  
Balance, September 30, 2010 25,413 $25,413 $44,150 $78,321 $(2,311) $2,225 $147,798 $36,621 
Balance, March 31, 2011 25,413 $25,413 $71,954 $80,085 $(19,798) $1,541 $159,195 $14,825 
                                  
See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                
 Nine Months Ended  Three Months Ended 
 September 30,  March 31, 
 2010 2009  2011 2010 
Cash flows from Operating Activities: 
Cash Flows from Operating Activities:
 
Net Income $36,621 $20,098  $16,124 $7,094 
Reconciling Items:  
Depreciation and Amortization 5,015 4,188  1,938 1,523 
Amortization of Intangible Assets 4,089 2,004  1,273 1,189 
Share-based Compensation Expense 2,134   788 271 
Bad Debt Expense 1,280 241 
Deferred Income Taxes  (1,040)  (1,414) 224 551 
Changes in Operating Assets and Liabilities, net of MPA Acquisition: 
Changes in Operating Assets and Liabilities, net of Acquisition: 
Accounts Receivable  (13,031)  (8,810)  (793) 4,886 
Prepaid Expenses and Other Current Assets  (1,464) 505  687  (405)
Other Assets  (2,594)  (579)  (172)  (990)
Accounts Payable and Accrued Expenses  1,422  2,237   (4,971) 4,863 
Other Current and Non-current Liabilities 2,109 8,157  221 462 
          
  
Net Cash Flow from Operating Activities 33,261 26,386  16,599 19,685 
          
  
Cash flows from Investing Activities: 
Cash Flows from Investing Activities:
 
Additions to Premises and Equipment, net  (8,135)  (3,787)  (1,355)  (3,613)
Acquisition of Business, net of Cash Acquired  (26,830)  
Acquisition of Business, net of cash acquired   (25,462)
Investment in Equity Affiliate  (1,113)  
Change in Restricted Cash  (779)    (177)  
          
  
Net Cash Flow from Investing Activities  (35,744)  (3,787)  (2,645)  (29,075)
          
  
Cash flows from Financing Activities: 
Cash Flows from Financing Activities:
 
Principal Payments on Capital Lease Obligations  (463)  (422)  (149)  (143)
Payments of Line of Credit   (1,123)
Proceeds from Stock Option Exercises 3,017   441 1,115 
Purchase of Treasury Stock  (2,311)    (7,238)  
Contributions from Non-controlling Interests 28   6 2 
Distributions to Non-controlling Interests  (5,207)    (2,824)  (2,420)
Net Distribution to Parent   (3,332)
          
  
Net Cash Flow from Financing Activities  (4,936)  (4,877)  (9,764)  (1,446)
          
  
Net (Decrease) Increase in Cash and Cash Equivalents  (7,419) 17,722 
Cash and Cash Equivalents at the Beginning of the Year 30,456 6,988 
Net Increase (Decrease) in Cash and Cash Equivalents 4,190  (10,836)
Cash and Cash Equivalents at the Beginning of the Period 22,134 30,456 
     
      
Cash and Cash Equivalents at the End of the Period $23,037 $24,710  $26,324 $19,620 
          
  
Supplemental Cash Flow Information 
Supplemental Cash Flow Information: 
Interest Paid $ $25  $21 $ 
Income Taxes Paid $1,724 $534  $563 $25 
  
Non-Cash Investing and Financing Activities 
Shares Issued in Connection with MPA Acquisition $23,900 $ 
Increase in Common Stock due to the Company’s Conversion to a Luxembourg Société Anonyme $ $3,283 
Non-cash Investing and Financing Activities: 
Shares issued in connection with acquisition $ $23,900 
Reduction in Income Tax Payable from Tax Amortizable Goodwill $863 $ 
See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial StatementsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION
Altisource Portfolio Solutions S.A. (which may be referred to as Altisource, the Company, we, us or our), together with its subsidiaries is a provider of services focused on high value, technology-enabled, knowledge-based functions principally related to real estate and mortgage portfolio management, asset recovery and customer relationship management. Utilizing integrated technology that includes decision models and behavioral based scripting engines, we providethe Company provides solutions that improve clients’ performance and maximizes their returns.
We are publicly traded on the NASDAQ Global Select market under the symbol ASPS. We were incorporated under the laws of Luxembourg on November 4, 1999 as Ocwen Luxembourg S.à r.l..r.l., renamed Altisource Portfolio Solutions S.à r.l..r.l. on May 12, 2009 and converted into Altisource Portfolio Solutions S.A. on June 5, 2009. We became a publicly traded company as of August 10, 2009 see(the “Separation” below.
In February 2010, we acquired all of the outstanding membership interests of The Mortgage Partnership of America, L.L.C. (“MPA”). MPA was formed as a Missouri limited liability companyPrior to serve as the managerSeparation, our businesses were wholly-owned subsidiaries of Best Partners Mortgage Cooperative, Inc.Ocwen Financial Corporation (“BPMC”Ocwen”) doing business as Lenders One Mortgage Cooperative (“Lenders One”). Lenders One is a national alliance of independent mortgage bankers (“Members”) that provides its Members with education and training along with revenue enhancing, cost reducing and market share expanding opportunities (see Note 3).
We conduct our operations through three reporting segments: Mortgage Services, Financial Services and Technology Products.Services. In addition, we report our corporate related expenditures as a separate segment (see Note 1514 for a description of our business segments).
Separation
On August 10, 2009 (the “Separation Date”), we became a stand-alone public company in connection with our separation from Ocwen Financial Corporation (“Ocwen”) (the “Separation”). Prior to the Separation, our businesses were wholly-owned subsidiaries of Ocwen. On the Separation Date, Ocwen distributed all of the Altisource common stock to Ocwen’s shareholders (the “Distribution”). Ocwen’s shareholders received one share of Altisource common stock for every three shares of Ocwen common stock held as of August 4, 2009 (the “Record Date”). In addition, holders of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024 received one share of Altisource common stock deemed held on an as if converted basis. For such notes, the conversion ratio of 82.1693 shares of Ocwen common stock for every $1,000 in aggregate principal amount of notes held on the Record Date was calculated first, and then we applied the distribution ratio of one share of Altisource common stock for every three shares of Ocwen common stock on an as converted basis to determine the number of shares each note holder received.
In connection with the Separation, we entered into various agreements with Ocwen that define our relationship after the Separation including a Separation Agreement, a Tax Matters Agreement, an Employee Matters Agreement, an Intellectual Property Agreement, a Data Center and Disaster Recovery Agreement, a Technology Products Services Agreement, a Transition Services Agreement and certain long-term servicing contracts (collectively, the “Agreements”).
Basis of Presentation
Our historical financial statements include the assets and liabilities (accounted for at the historical values carried by Ocwen prior to the Separation), revenues and expenses directly attributable to our operations. Beginning August 10, 2009, after our assets and liabilities were formally contributed by Ocwen pursuant to the terms of a Separation Agreement, our financial statements have been presented on a consolidated basis for financial reporting purposes. Our condensed consolidated financial statements include the assets and liabilities, revenues and expenses directly attributable to our operations. All significant inter-company and inter-segment transactions and accounts have been eliminated upon consolidation.
For periods Certain amounts disclosed in prior period statements have been reclassified to conform to the Separation Date, these condensed consolidated financial statements include allocationscurrent period presentation.
In February 2010, we acquired Mortgage Partnership Association (“MPA”), the manager of expenses from Ocwen for corporate functions including insurance, employee benefit plan expensea national alliance of community mortgage bankers, correspondent lenders and allocations for certain centralized administration costs for executive management, treasury, real estate, accounting, auditing, tax, risk management, internal audit, human resourcessuppliers of mortgage products and benefits administration (See Note 2).
The condensed consolidated financial statements for the three and nine months ended September 30, 2009 also do not necessarily reflect what the Company’s condensed consolidated results of operations, financial position and cash flows would have been had the Company operatedservices that does business as an independent company during that entire period. For instance, as an independent public company, we incur costs in excess of those allocated by Ocwen for maintaining a separate Board of Directors, obtaining a separate audit, relocating certain executive management and hiring additional personnel.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Prior to our acquisition of MPA, MPA and Lenders One entered into a management agreement that ends on December 31, 2025. MPA was formed to act on behalf of Mortgage Cooperative (“Lenders One and its Members principally to provide its Members with education and training along with revenue enhancing, cost reducing and market share expanding opportunities. For providing these services MPA receives payment from Lenders One, and in some instances the vendors, based upon the benefits achieved for the Members.One”). The management agreement provides MPA with broad powers such as recruiting members for Lenders One, collection of fees and other obligations from Members of Lenders One, processing of all rebates owed to Lenders One, day-to-day operation of Lenders One and negotiation of contracts with vendors including signing contracts on behalf of Lenders One.
The management agreementManagement Agreement between MPA and Lenders One, pursuant to which MPA is the management company of Lenders One, represents a variable interest in a variable interest entity. MPA determined that they are the primary beneficiary of Lenders One as they have the power to direct the activities that most significantly impact Lenders One’s economic performance and the obligation to absorb losses or the right to receive benefits.benefits from Lenders One. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements on a consolidated basis with the interests of the Membersmembers reflected as Non-controlling InterestInterests on the Condensed Consolidated Balance Sheets. At September 30, 2010,March 31, 2011, Lenders One had total assets of $6.2$3.7 million and liabilities of $0.2 million.
We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete condensed consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented have been included. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our Form 10-K for the year ended December 31, 2010, filed with the SEC on March 17, 2010February 18, 2011, which contains a summary of our significant accounting policies. Certain footnote detail is also omitted from the condensed consolidated financial statements unless there is a material change from the information included in the Form 10-K.
Investment in Equity Affiliate
We utilize the equity method to account for investments in equity securities where we have the ability to exercise significant influence over operating and financial policies of the investee. We include a proportionate share of earnings and/or losses of equity method investees in equity income (loss), net in the condensed consolidated statements of operations. As of March 31, 2011 our only significant equity investment was Correspondent One S.A. (“Correspondent One”) which is in the formation process and therefore had no impact to our consolidated operations.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Foreign Currency Translation
Our reporting currency is the U.S. dollar. Other foreign currency assets and liabilities that are considered monetary items are translated at exchange rates in effect at the balance sheet date. Foreign currency revenues and expenses are translated at transaction date exchange rates. These exchange gains and losses are included in the determination of net income.
Fair Value of Financial Instruments
The fair value of financial instruments, which primarily include Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, net, Restricted Cash and Accounts Payable and Accrued Expenses at September 30, 2010March 31, 2011 and December 31, 2009,2010 are carried at amounts that approximate their fair value due to the short-term nature of these amounts.
In addition, we entered intoAdditionally, a put option arrangement with some ofwas issued to the predecessor owners of MPA in conjunction with the acquisition.MPA. The arrangement allows the holders to put a portion of the Altisource shares issued as consideration to Altisource at a predetermined price. Altisource calculated the fair value of this put option arrangement on the acquisition date at $1.3 million by utilizing a Black-Scholes option pricing model (see Note 3). The fair value calculation is deemed to be a Level 3 calculation. The fair value of the put at September 30, 2010as of $0.8March 31, 2011 of $0.4 million was valued using the following assumptions:
     
  Assumptions 
Risk-free Interest Rate  0.19% — 0.960.3% – 1.29%
Expected Stock Price Volatility  35% — 5829% – 49%
Expected Dividend Yield   
Expected Option Life (in years)  0.5 — 3.51 – 3 
Contractual Life (in years)   
Fair Value $0.01 — $3.880.05 – $2.32 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The put option agreement is a written derivative valued similar to stock options and is included within “OtherOther Non-current Liabilities”Liabilities on the Condensed Consolidated Balance Sheet. The fair value of the put option agreements will be determined each quarter until such puts are either exercised or forfeited with any changes in value included as a component of “OtherOther Income (Expense), net”net in the Condensed Consolidated Statements of Operations.
NOTE 2 — TRANSACTIONS WITH RELATED PARTIES
Ocwen remains our largest customer. Following the Separation, Ocwen is contractually obligated to purchase certain Mortgage Services and Technology ProductsServices from us under service agreements. These agreements extend for eight years from the Separation Date, subject to termination under certain provisions. Ocwen is not restricted from redeveloping these services. We settle amounts with Ocwen on a daily, weekly or monthly basis based upon the nature of the services and when the service is completed.
We consider certain services to be derived from Ocwen’s loan servicing portfolio rather than provided to Ocwen because such services are charged to the mortgagee and/or the investor and are not expenses to Ocwen. Ocwen, or services derived from Ocwen’s loan servicing portfolio, as a percentage of each of our segment revenues and as a percentage of consolidated revenues was as follows for the three and nine months ended September 30:March 31:
                        
 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30, September 30,  March 31, 
 2010 2009 2010 2009  2011 2010 
Mortgage Services  65%  72%  66%  73%  73%  77%
Technology Products  36%  41%  36%  45%
Technology Services 39 37 
Financial Services  <1%  <1%  <1%  <1% < 1 < 1 
Consolidated Revenues  51%  48%  50%  46%  55%  48%
We record revenues we earn from Ocwen under the various long-term servicing contracts at rates we believe to be market rates as they are consistent with one or more of the following: the fees we charge to other customers for comparable services; the rates Ocwen pays to other service providers; fees commensurate with market surveys prepared by unaffiliated firms; and prices being charged by our competitors.
Allocation As of Corporate Costs
The condensed consolidated financial statementsJanuary 1, 2011, we modified our pricing for IT Infrastructure Services within our Technology Services segment from a rate card model primarily based on headcount to a fully loaded costs plus mark-up methodology. This new model applies to the amounts charged to Ocwen as well as internal allocations of infrastructure costs. This resulted in reduced revenues for the threeTechnology Services segment and nine months ended September 30, 2009 include allocations of expenses from Ocwen for corporate functions including insurance, employee benefit plan expense and allocations for certain centralized administration costs for executive management, treasury, real estate, accounting, auditing, tax, risk management, internal audit, human resources and benefits administration. Ocwen determined these allocations using proportional cost allocation methods including the use of relevant operating profit, fixed assets, sales and payroll measurements. Specifically, personnel and all associated costs, including compensation, benefits, occupancy and other costs, were allocated based on the estimated percentage of time spent by the individual in the various departments. External costs such as audit fees, legal fees, business insurance and other were allocated based on a combination of the sales, fixed assets and operating profits of the department whichever is most appropriate given the nature of the expense. Total corporate costs allocated to the Company, were $4.3 million for the nine months ended September 30, 2009 ($0.5 million for the 2009 third quarter). The charges for these functions are included primarily in Selling, General and Administrative Expenses in the Condensed Consolidated Statements of Operations. However, these amounts may not be representative of the costs necessary for the Company to operate as a separate standalone entity.consolidated basis.

8


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In addition, prior to the Separation, Ocwen had allocated interest expense to us based upon our portion of assets to Ocwen’s total assets which is included in “Other Income (Expense) Net” in the Condensed Consolidated Statements of Operations.
Transition Services
In connection with the Separation, Altisource and Ocwen entered into a transition services agreementTransition Services Agreement under which services in such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics,

- 9 -


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
treasury, accounting, tax, risk management, legal, strategic planning, compliance and other areas are provided to the counterparty for up to two years from the Separation Date.date of Separation. For the nine monthsquarters ended September 30,March 31, 2011 and March 31, 2010, Altisource billed Ocwen $1.2$0.4 million ($0.5and $0.4 million, for the third quarter),respectively, and Ocwen billed Altisource $0.8$0.4 million ($0.2and $0.3 million, for the third quarter)respectively, for services provided under this agreement. These amounts are reflected as a component of Selling, General and Administrative expenses in the Condensed Consolidated Statements of Operations.
NOTE 3 — ACQUISITION OF MPA
In February 2010, we acquired all of the outstanding membership interests of MPA pursuant to a Purchase and Sale Agreement. MPA serves as the manager of Lenders One, a national alliance of independent mortgage bankers. The alliance was established in 2000 and as of September 30, 2010 consisted of more than 170 members.
Consideration for the transaction consisted of cash, common stock and put option agreements:
     
(in thousands) Consideration 
Cash $29,000 
Common Stock  23,900 
Put Option Agreements at Fair Value  1,289 
Working Capital Adjustment  835 
    
     
Total Consideration $55,024 
    
The common stock consisted of 959,085 shares of Altisource’s common stock valued at $24.92 per share based on the closing price of Altisource common stock on February 11, 2010. A portion of which (314,135 shares) will be held in escrow two years from the closing date of the acquisition to secure MPA’s indemnification obligations under the Purchase and Sale Agreement. In addition, we entered into three put option agreements with certain of the sellers whereby each seller has the right, with respect to an aggregate of 0.5 million shares of our common stock, to put up to 25% of eligible shares each year for a total of four years at a price equal to $16.84 per share. The fair value of the put was initially established at the date of acquisition ($1.3 million) using the following assumptions:
Assumptions
Risk-free Interest Rate0.345% — 1.914%
Expected Stock Price Volatility40% — 55%
Expected Dividend Yield
Expected Option Life (in years)1 — 4
Contractual Life (in years)
Fair Value$0.74 — $3.90

- 10 -


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The preliminary allocation of the purchase price is as follows:
     
(in thousands)   
Cash $2,170 
Accounts Receivable  4,279 
Prepaid Expenses and Other Current Assets  321 
Premises and Equipment  18 
Identifiable Intangible Assets  43,600 
Goodwill  10,218 
    
   60,606 
Accounts Payable and Accrued Expenses  (2,176)
Other Current Liabilities  (138)
Non-controlling Interests  (3,268)
    
Total Purchase Price $55,024 
    
During the second quarter of 2010, Altisource finalized its calculation of the Working Capital Adjustment within the 90 day period allocated by the purchase contract. The value was revised from $2.1 million to $0.8 million resulting in an offsetting decrease to Goodwill. The payment of the Working Capital Adjustment was made during the third quarter.
Management has assigned the following lives to identified assets acquired as a result of the acquisition:
Estimated Life
(in Years)
Premises and Equipment2 — 5
Management Agreement(1)
15
Trademarks(1)
15
Non-compete(1)
4
GoodwillIndefinite
(1)The identifiable assets are subject to amortization on a straight-line basis as this best approximates the benefit period related to these assets.
The goodwill arising from the acquisition, which was assigned to our Mortgage Services segment, consists of various components principally in-place workforce and anticipated revenue synergies given MPA’s market presence and future enhancements to our services including the development of origination services. All goodwill and intangible assets related to the acquisition of MPA are expected to be amortizable and deductible for income tax purposes.
We entered into employee agreements with certain key employees of MPA who also received the majority of our shares issued in connection with the acquisition.
Revenue and Net Income Attributable to Altisource from the date of acquisition through September 30, 2010, included in the Company’s Condensed Consolidated Statements of Operations, are as follows.
         
  Three Months Ended  Nine Months Ended 
(in thousands) September 30, 2010  September 30, 2010 
Revenue $5,585  $11,412 
Net Income Attributable to Altisource  1,768   1,812 
Acquisition-related transaction costs are included in Selling, General and Administrative and Expenses in the Condensed Consolidated Statements of Operations.

- 11 -


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The following tables present the unaudited pro forma Revenue, Net Income Attributable to Altisource and Diluted Earnings Per Share as if the acquisition of MPA had occurred at the beginning of the period presented.
         
  Nine Months Ended 
  September 30, 2010 
(in thousands, except per share amounts) As Reported  Pro Forma 
Revenue $209,901  $211,545 
Net Income Attributable to Altisource  32,485   32,357 
Earnings Per Share — Diluted  1.24   1.24 
                 
  Three Months Ended  Nine Months Ended 
  September 30, 2009  September 30, 2009 
(in thousands, except per share amounts) As Reported  Pro Forma  As Reported  Pro Forma 
Revenue $54,064  $59,755  $146,486  $162,459 
Net Income Attributable to Altisource  8,644   10,077   20,098   24,104 
Earnings Per Share — Diluted  0.36   0.40   0.83   0.95 
NOTE 4 — ACCOUNTS RECEIVABLE, NET
Accounts Receivable, net consists of the following:
                
 September 30, December 31,  March 31, December 31, 
(in thousands) 2010 2009  2011 2010 
 
Third-party Accounts Receivable $15,942 $11,638  $17,432 $19,039 
Unbilled Fees 28,816 9,073  34,562 32,055 
Receivable from Ocwen 2,556 10,066  2,850 3,950 
Other Receivables 1,100 416  1,478 583 
          
 48,414 31,193  56,322 55,627 
Allowance for Doubtful Accounts  (1,642)  (696)  (3,314)  (2,132)
          
  
Total $46,772 $30,497  $53,008 $53,495 
          
Unbilled Fees consist primarily of Asset Management and Default Management Services for which we recognize revenues over the service delivery period but bill at completion of the service.
One of our customers in the Financial Services segment accounted for 17% of consolidated revenue in the nine months ended September 30, 2010. Another customer accounted for 10% of consolidated revenue in both the Mortgage Services and Technology Products segments in the nine months ended September 30, 2010.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
NOTE 54 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid Expenses and Other Current Assets consistconsists of the following:
                
 September 30, December 31,  March 31, December 31, 
(in thousands) 2010 2009  2011 2010 
 
Prepaid Expenses $2,513 $1,471  $4,401 $5,134 
Income Tax Receivable 3,505 7,327 
Other Current Assets 2,176 1,433  1,539 615 
          
  
Total $4,689 $2,904  $9,445 $13,076 
          

9


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 65 — PREMISES AND EQUIPMENT, NET
Premises and Equipment, net which include amounts recorded under capital leases, consists of the following:
                
 September 30, December 31,  March 31, December 31, 
(in thousands) 2010 2009  2011 2010 
 
Computer Hardware and Software $30,135 $23,591  $33,164 $32,931 
Office Equipment and Other 9,411 9,203  9,960 9,717 
Furniture and Fixtures 2,168 2,663  2,258 2,226 
Leasehold Improvements 4,201 3,441  5,348 4,501 
          
 45,915 38,898  50,730 49,375 
Less: Accumulated Depreciation and Amortization  (29,758)  (27,490)  (33,820)  (31,882)
          
  
Total $16,157 $11,408  $16,910 $17,493 
          
Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $5.0$1.9 million and $4.2$1.5 million for the ninethree months ended September 30,March 31, 2011 and 2010, and 2009 respectively, ($1.8 million and $1.4 million for the third quarter of 2010 and 2009 respectively) and is included in Cost of Revenue for operating assets and in Selling, General and Administrative expense for non-operating assets in the accompanying Condensed Consolidated Statements of Operations.
NOTE 76 — GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
ChangesThere were no changes in Goodwill during the periodthree months ended September 30, 2010 are summarized below:March 31, 2011. The following is a summary showing the balance of Goodwill by segment:
                 
(in thousands) Mortgage
Services
  Financial
Services
  Technology
Products
  Total 
Balance, December 31, 2009 $  $7,706  $1,618  $9,324 
Acquisition of MPA  10,218         10,218 
Component 2 Amortization     (4,162)     (4,162)
             
Total $10,218  $3,544  $1,618  $15,380 
             
                 

- 13 -


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
             
  Mortgage  Technology    
(in thousands) Services  Services  Total 
             
Balance, March 31, 2011 $10,218  $1,618  $11,836 
          
Intangible Assets, Net
Intangible Assets, net consists of the following:
                            
                             Weighted       
 Weighted
Average 
 Gross Carrying Amount Accumulated Amortization Net Book Value  Average Gross     
 Estimated               Estimated Carrying Amount Accumulated Amortization Net Book Value 
 Useful Life September 30, December 31, September 30, December 31, September 30, December 31,  Useful Life March 31, December 31, March 31, December 31, March 31, December 31, 
(dollars in thousands) (Years) 2010 2009 2010 2009 2010 2009  (Years) 2011 2010 2011 2010 2011 2010 
 
Definite-lived Intangible Assets  
Trademarks 12 $10,200 $2,800 $2,196 $1,447 $8,004 $1,353  16 $10,200 $10,200 $2,578 $2,346 $7,622 $7,854 
Customer Lists 19 37,700 37,700 6,919 5,334 30,781 32,366  19 37,700 37,700  8,838(a) 7,447 28,862 30,253 
Operating Agreement 15 35,000  1,555  33,445   20 35,000 35,000 2,042 1,604 32,958 33,396 
Non-compete Agreements 4 1,200  200  1,000  
Non-compete Agreement 4 1,200 1,200 350 275 850 925 
                          
  
Total Intangible Assets $84,100 $40,500 $10,870 $6,781 $73,230 $33,719  $84,100 $84,100 $13,808 $11,672 $70,292 $72,428 
                          
(a)Prior to our acquisition of NCI in 2007, NCI completed an acquisition which created tax-deductible goodwill that amortizes for tax purposes over time. When we acquired NCI in 2007, we recorded a lesser amount of goodwill for financial reporting purposes than what had previously been recorded at NCI for tax purposes. This difference between the amount of goodwill recorded for financial reporting purposes and the amount recorded for taxes is referred to as “Component 2” goodwill and it resulted in our recording periodic reductions firstly to our book goodwill balance in our consolidated financial statements. As our book goodwill balance was fully written off at December 31, 2010. We continue to amortize the remaining Component 2 goodwill for U.S. tax purposes by reducing certain intangible assets by the remaining tax benefits of the Component 2 goodwill. The amount amortized was $0.9 million for the three months ended March 31, 2011. The balance of Component 2 goodwill remaining was $9.9 million as of March 31, 2011 which should generate $6.0 million of reductions of intangible assets.
Amortization expense for definite lived intangible assets was $4.1$1.3 million and $2.0$1.2 million for the ninethree months ended September 30,March 31, 2011 and 2010, and 2009, respectively ($1.4 million and $0.7 million for the third quarter ended 2010 and 2009 respectively). Amortization expense is expected to be $5.4 million, $5.6 million, $5.3 million, $5.1 million and $4.8 million for the years 2010 through 2014.respectively.

10


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 87 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts Payable and Accrued Expenses consists of the following:
                
 September 30, December 31,  March 31, December 31, 
(in thousands) 2010 2009  2011 2010 
 
Accounts Payable $2,821 $1,114  $6,729 $5,960 
Income Taxes Payable, Net 4,762 4,853 
Payable to Ocwen 805 2,716 
Accrued Expenses — General 9,317 8,373  10,041 11,189 
Accrued Salaries and Benefits 9,255 7,136  9,423 12,010 
Income Tax Payable  3,807 
Payable to Ocwen 413 2,418 
          
  
Total $26,960 $24,192  $26,606 $35,384 
          
Other Current Liabilities consists of the following:
         
  September 30,  December 31, 
(in thousands) 2010  2009 
Mortgage Charge-Off and Deficiency Collections $18  $2,458 
Deferred Revenue  3,125   989 
Facility Closure Cost Accrual, Current Portion  209   272 
Other  3,366   2,220 
       
         
Total $6,718  $5,939 
       

- 14 -


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
         
  March 31,  December 31, 
(in thousands) 2011  2010 
         
Mortgage Charge-Off and Deficiency Collections $12  $8 
Deferred Revenue  2,421   2,542 
Facility Closure Cost Accrual, current portion  125   253 
Other  3,622   2,813 
       
         
Total $6,180  $5,616 
       
Facility Closure Costs
During 2009, we accrued facility closure costs (included in other currentOther Current and other non-current liabilitiesOther Non-Current Liabilities in the Condensed Consolidated Balance Sheet) primarily consisting of lease exit costs (expected to be paid through 2014) and severance for the closure of two facilities. The following table summarizes the activity, all recorded in our Financial Services segment, for the ninethree months ended September 30, 2010:March 31, 2011:
        
(in thousands) Lease Costs  Lease costs 
Balance, December 31, 2009 $916 
 
Balance, December 31, 2010 $672 
Payments  (204)  (127)
      
Balance, September 30, 2010 712 
Balance, March 31, 2011 545 
Less: Long-Term Portion 503   (420)
      
  
Facility Closure Cost Accrual, Current Portion $209 
Facility Closure Cost Accrual, current portion $125 
      
We do not expect additional significant costs related to the closure of these facilities.

11


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 98 — EQUITY BASED COMPENSATION
We provide stock-based awards as a form of compensation for certain employees and officers. We have issued stock-based awards in the form of stock options and restricted stock units. We recorded total stock compensation expense of $2.1$0.8 million for the ninethree months ended September 30, 2010 ($1.2 million for the quarter).March 31, 2011. The compensation expense is included in Selling, General and Administrative Expenses in the accompany Condensed Consolidated Statements of Operations.
DuringBelow is a summary of the nine months ended September 30, 2010, the Companydifferent types of stock-based awards issued under our stock plans:
Stock Options
Service-based Options.These options are granted 0.9 million stock options with exercise prices ranging between $22.00 and $25.00 per share dependingat fair market value on the grant date.date of grant. The vesting schedule for the options has a time-based component, in which 25% of the optionsgenerally vest in equal increments over four years with equal annual cliff-vesting and a market-based component, inexpire on the earlier of 10 years after the date of grant or 3 months after termination of service. A total of 1.1 million service-based awards were outstanding at March 31, 2011.
Market-based Options.These option grants have two components each of which up to 75% of the options could vest in equal increments over three years commencingonly upon the achievement of certain performance criteria relatedcriteria. The first component, which we refer to our stock price and the annualized rateinternally as “ordinary performance” grants, consists of return to investors. Two-thirdstwo-thirds of the market-based options would begingrant and begins to vest over three years if the stock price realizes a compounded annual gain of at least 20% over the exercise price, so long as the stock price is at least double the exercise price. The remaining third of the market-based options, which we refer to internally as “extraordinary performance” grants, would begin to vest over three years if the stock price realizes a compounded annual gain of at least 25% gain,over the exercise price, so long as the stock priceit is at least triple the exercise price. The vesting schedule for all market-based awards is 25% upon achievement of the criterion and the remaining 75% in three equal annual installments. A total of 2.2 million market-based awards were outstanding at March 31, 2011.
During the three months ended March 31, 2011, the Company granted 0.1 million stock options. The options have an average exercise price of $29.14 per share.
The fair value of the time-basedservice-based options was determined using the Black-Scholes options pricing model while a lattice (binomial) model was used to determine the fair value of the market-based options using the following assumptions as of the grant date:
                        
 March 31, 2011 March 31, 2010 
 Black- Black-   
(in thousands) Scholes Binomial Scholes Binomial 
 Black-Scholes Binomial  
Risk-free Interest Rate  2.82% — 3.20%  0.02% — 3.66%  2.38%  0.06 – 3.36%  1.90%  0.02 – 3.66%
Expected Stock Price Volatility  48%  52%  48%  56%  36%  24 – 41%
Expected Dividend Yield        
Expected Option Life (in years) 7   6.25  5  
Contractual Life (in years)  10   14  10 
Fair Value $11.71 — $13.00 $10.05 and $12.35 $14.18 and $14.82 $15.41 – $16.76 $6.80 $7.35 and $8.48
The following table summarizes the weighted-average fair value of stock options granted, and the total intrinsic value of stock options exercised:
         
  March 31 
(in thousands, except per share amounts) 2011  2010 
         
Weighted-Average Fair Value at Date of Grant Per Share $15.60  $11.03 
Intrinsic Value of Options Exercised $1,804  $1,818 
Fair Value of Options Vested $304  $15 
Stock-based compensation expense is recorded net of estimated forfeiture rates ranging from 1% to 3%.

12


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
As of September 30, 2010,March 31, 2011, estimated unrecognized compensation costs related to share-based payments amounted to $9.4$8.2 million which we expect to recognize over a weighted-average remaining requisite service period of approximately 3.53.3 years.

- 15 -


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The following table summarizes activity of our stock options:
                 
      Weighted  Weighted
Average
    
      Average  Contractual  Aggregate 
  Number of  Exercise  Term  Intrinsic Value 
  Options  Price  (in years)  (in thousands) 
Outstanding at December 31, 2009  3,190,639  $9.90         
Granted  907,500   23.54         
Exercised  (298,166)  10.08         
Forfeited  (209,042)  12.24         
                
Outstanding at September 30, 2010  3,590,931   13.21   7.4  $64,401 
               
                 
Exercisable at September 30, 2010  1,175,296  $9.79   5.3  $25,087 
               
Restricted Shares
The following table summarizes activity of our restricted shares
         
      Weighted 
      Average 
  Restricted  Grant Date 
  Shares  Fair Value 
Outstanding at December 31, 2009  3,236  $18.00 
Granted      
Forfeited      
Vested  (3,236) $18.00 
        
Outstanding at September 30, 2010      
        
                 
          Weighted    
      Weighted  Average  Aggregate 
      Average  Contractual  Intrinsic 
  Number of  Exercise  Term  Value 
  Options  Price  (in years)  (in thousands) 
                 
Outstanding at December 31, 2010  3,451,613  $13.46   7.3   52,641 
Granted  70,000   29.14         
Exercised  (114,136)  14.36         
Forfeited  (31,250)  22.01         
               
Outstanding at March 31, 2011  3,376,227  $13.67   7.3  $57,415 
             
                 
Exercisable at March 31, 2011  1,242,586  $9.83   6.1  $25,912 
             
Stock Repurchase Authorization
On May 19, 2010, our shareholders authorized us to purchase up to 3,784,6183.8 million shares of our common stock in the open market. During the third quarter of 2010,From authorization through March 31, 2011, we purchased 86,0980.9 million shares of our common stock on the open market at an average price of $26.81,$27.85, leaving 3,698,5202.9 million shares still available for purchase. Subsequently, during October 2010, we purchased an additional 65,317 shares. As of October 25, 2010, we have repurchased a total of 151,415 shares at an average share price of $26.39.
NOTE 109 — COST OF REVENUE
Cost of revenueRevenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles,roles; fees paid to external providers related to provision of services, reimbursable expenses and technology and telephony expenses as well as depreciation and amortization of operating assets. The components of costCost of revenueRevenue were as follows for the periods ended September 30, 2010March 31, 2011 and 2009:2010:
         
  Three Months Ended 
  March 31, 
(in thousands) 2011  2010 
         
Compensation and Benefits $16,840  $13,999 
Outside Fees and Services  18,161   12,460 
Expense Reimbursements  15,641   8,530 
Technology and Communications  4,307   4,365 
       
         
Total $54,949  $39,354 
       

- 16 -

13


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial StatementsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
                 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(in thousands) 2010  2009  2010  2009 
Compensation and Benefits $15,828  $13,735  $45,518  $39,612 
Outside Fees and Services  15,311   10,550   41,092   31,502 
Reimbursable Expenses  13,369   5,680   33,040   9,009 
Technology and Communications  4,139   3,488   12,099   11,682 
             
                 
Total $48,647  $33,453  $131,749  $91,805 
             
NOTE 1110 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, generalGeneral and administrativeAdministrative expenses include payroll, employee benefits, occupancy and other costs associated with personnel employed in executive, sales, marketing, human resources consumer behavior, internal audit and finance roles. This category also includes professional fees, depreciation and amortization on non-operating assets. The components of selling, generalSelling, General and administrativeAdministrative expenses were as follows for the periods ended September 30, 2010March 31, 2011 and 2009:2010:
                        
 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30, September 30,  March 31, 
(in thousands) 2010 2009 2010 2009  2011 2010 
 
Compensation and Benefits $5,251 $521 $13,256 $4,307  $5,920 $4,040 
Professional Services 1,812 4,158 5,869 7,514  2,102 2,296 
Occupancy Related Costs 4,733 1,976 10,845 6,086  3,333 2,353 
Amortization of Intangible Assets 1,450 668 4,089 2,004  1,273 1,189 
Other 1,750 3,742 6,109 7,305  3,626 2,191 
              
  
Total $14,996 $11,065 $40,168 $27,216  $16,254 $12,069 
              
NOTE 1211 — OTHER INCOME (EXPENSE), NET
Other Income (Expense), net consists of the following:
                 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(in thousands) 2010  2009  2010  2009 
Interest Expense, net $(26) $(192) $(65) $(1,601)
Other, net  724   2,738   731   2,756 
             
                 
Total $698  $2,546  $666  $1,155 
             
Through the date of Separation, Interest Expense (net) included an interest charge from Ocwen which represented an allocation of Ocwen’s total interest expense calculated based on our assets in comparison to Ocwen’s total assets. This charge was $1.3 million for the nine months ending September 30, 2009 ($0.2 million for the third quarter). Subsequent to the date of Separation, we are no longer subject to the interest charge from Ocwen.
NOTE 13 — INCOME TAXES
For periods prior to the Separation Date, we are included in Ocwen’s tax returns. Our responsibility with respect to these periods is governed by a tax sharing agreement. In accordance with this agreement, U.S. income taxes were allocated as if they had been calculated on a separate company basis except that benefits for any net operating losses will be provided to the extent such loss is
         
  Three Months Ended 
  March 31, 
(in thousands) 2011  2010 
         
Interest Income $5  $9 
Interest Expense  (23)  (28)
Change in Fair Value of Put Option  357    
Other, net  5   (53)
       
         
Total $344  $(72)
       

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14


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial StatementsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
utilized in the consolidated U.S. federal tax return. The provision for income taxes prior to the Separation Date has been determined on a pro-forma basis as if we had filed separate income taxes under our current structure for the periods presented.
The Company revised its estimated effective tax rate related to 2010 operations for the full year to 12.5% in the second quarter of 2010. The revised estimate was due to the receipt of a favorable ruling in June 2010 regarding the treatment of certain intangibles that exist for purposes of determining the Company’s taxable income. The ruling is retroactive to the Separation Date. As a result of the ruling, the Company recognized a $3.4 million credit attributable to 2009 in the second quarter 2010 which is not included in the estimate of the full year effective tax rate. Income tax provision on income before income tax differs from amounts that would be computed by applying the Luxembourg federal corporate income tax rate of 28.6% primarily because of the effect of enacted tax statutes in multiple jurisdictions, the treatment of intangibles for tax purposes and differing tax rates outside of Luxembourg. This ruling did not have a material impact on our deferred tax assets or liabilities.
The Distribution was intended to be a tax-free transaction under Section 355 of the Internal Revenue Code (the “Code”). To the extent Ocwen recognizes tax under Section 355 of the Code, Altisource has agreed to indemnify Ocwen. We do not believe we have a material obligation under this indemnity as separately Ocwen recognized substantially all of the gain it has in the assets that comprise Altisource as a result of the restructuring in accordance with other provisions of the Code.
NOTE 1412 — EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities. On August 10, 2009, the Distribution by Ocwen was completed to the Ocwen stockholders of one share of Altisource common stock for every 3 shares of Ocwen common stock held as of August 4, 2009. In addition, holders of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024 received one share of Altisource common stock deemed held on an as if converted basis. For such notes, the conversion ratio of 82.1693 shares of Ocwen common stock for every $1,000 in aggregate principal amount of notes held on August 4, 2009 was calculated first, and then we applied the distribution ratio of one share of Altisource common stock for every three shares of Ocwen common stock on an as converted basis to determine the number of shares each note holder received.
Basic and diluted earnings per share for the three and nine months ended September 30,March 31, 2011 and 2010 and 2009 are calculated as follows:
                         
      Three Months Ended          Three Months Ended    
      September 30, 2010          September 30, 2009    
      Weighted          Weighted    
      Ave.          Ave.    
(in thousands, except per share amounts) Income  Shares  Per Share  Income  Shares  Per Share 
Basic $9,832   25,318  $0.39  $8,644   24,050  $0.36 
                       
Effect of Dilutive Securities:                        
Stock Options     1,226          253     
                   
Diluted $9,832   26,544  $0.37  $8,644   24,303  $0.36 
                   
 
      Nine Months Ended          Nine Months Ended    
      September 30, 2010          September 30, 2009    
      Weighted          Weighted    
      Ave.          Ave.    
(in thousands, except per share amounts) Income  Shares  Per Share  Income  Shares  Per Share 
Basic $32,485   25,080  $1.30  $20,098   24,050  $0.84 
                       
Effect of Dilutive Securities:                        
Stock Options     1,085          253     
Restricted Stock     3               
                   
Diluted $32,485   26,168  $1.24  $20,098   24,303  $0.83 
                   

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
         
  For Three Months Ended 
  March 31, 
(in thousands, except per share amounts) 2011  2010 
         
Net Income $14,825  $6,307 
       
         
Weighted-Average Common Shares Outstanding, Basic  24,845   24,690 
Dilutive Effect of Stock Options  1,083   970 
Dilutive Effect of Restricted Shares     3 
       
Weighted-Average Common Shares Outstanding, Diluted  25,928   25,663 
       
         
Earnings Per Share        
Basic $0.60  $0.26 
       
Diluted $0.57  $0.25 
       
A totalFor the three months ended March 31, 2011, an immaterial amount of 0.2 million options that were anti-dilutive have been excluded from the computation of diluted EPS (0.7 million for the three and nine months ended September 30, 2010.March 31, 2010). These options were anti-dilutive because their exercise price was greater than the average market price of our stock. Also excluded from the computation of diluted EPS in bothfor each of the three months ended March 31, 2011 and 2010 periods are 0.7 million options, granted for shares that are issuable upon the achievement of certain market and performance criteria related to our stock price and an annualized rate of return to investors that have not been met at this point.
NOTE 1513 — COMMITMENTS AND CONTINGENCIES
Correspondent One S.A.
Correspondent One is formed to facilitate the purchase of conforming and government guaranteed residential mortgages from approved mortgage originators. During the first quarter of 2011, we provided initial funding to facilitate the establishment of the entity. We have committed to provide an additional $14.0 million which expect to fund in the second quarter.
Litigation
The Company is from time to time involved in legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the outcome of any such current matters will not have a material impact on the Company’s financial condition, results of operations or cash flows.
NOTE 14 — SEGMENT REPORTING
Our business segments reflectare based upon our organizational structure which focuses primarily on the services offered and are consistent with the internal reporting that we use to evaluate operating performance and to assess the allocation of our resources by our Chief Executive Officer.
Our segments are based upon our organizational structure which focuses primarily on the services offered.
We classify our businesses into three reportable segments.Mortgage Servicesconsists of mortgage portfolio management services that span the mortgage lifecycle.Financial Servicesprincipally consists of unsecured asset recovery and customer relationship management.Technology ProductsServices consists of modular, comprehensive integrated technological solutions for loan servicing, vendor management and invoice presentment and payment as well as providing infrastructure support. In addition, ourCorporate Items and Eliminationssegment prior to the Separation Date includes eliminations of transactions between the reporting segments as well as expenditures recognized by us related to the Separation. Subsequent to the Separation Date, in addition to the previously mentioned items,and this segment also includes costs recognized by us related to corporate support functions such as finance, legal, human resources, six sigma and consumer behavior.quality assurances.

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15


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NotesNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In 2011, we reorganized our reporting structure in that certain services that were originally part of the Mortgage Services Segment are now classified as part of Financial Services. Prior periods have been recast to Condensed Consolidated Financial Statements
(continued)conform with the current year presentation.
Financial information for our segments is as follows:
                    
                     Three Months Ended March 31, 2011 
 Three Months Ended September 30, 2010  Corporate   
 Corporate Items and Consolidated  Mortgage Financial Technology Items & Consolidated 
(in thousands) Mortgage Services Financial Services Technology Products Eliminations(1) Altisource  Services Services Services Eliminations Altisource 
 
Revenue $53,933 $14,529 $12,963 $(3,845) $77,580  $59,707 $19,493 $12,716 $(3,246) $88,670 
Cost of Revenue 33,119 12,134 7,239  (3,845) 48,647  37,020 13,488 7,445  (3,004) 54,949 
                      
Gross Profit 20,814 2,395 5,724  28,933  22,687 6,005 5,271  (242) 33,721 
Selling, General and Administrative Expenses 4,187 4,404 1,610 4,795 14,996 
Selling, General and Administrative 4,583 4,460 1,196 6,015 16,254 
                      
Income (Loss) from Operations 16,627  (2,009) 4,114  (4,795) 13,937  18,104 1,545 4,075  (6,257) 17,467 
Other Income (Expense), net 687  (9)  (24) 44 698  365  (11)  (15) 5 344 
                      
Income (Loss) Before Income Taxes $17,314 $(2,018) $4,090 $(4,751) $14,635  $18,469 $1,534 $4,060 $(6,252) $17,811 
                      
  
Transactions with Related Parties Included Above: 
Transactions with Related Parties: 
Revenue $34,765 $34 $4,660 $ $39,459  $43,810 $29 $4,951 $ $48,790 
                      
Selling, General and Administrative Expenses $ $ $ $223 $223  $ $ $ $391 $391 
                      
                    
                     Three Months Ended March 31, 2010 
 Nine Months Ended September 30, 2010  Corporate   
 Corporate Items and Consolidated  Mortgage Financial Technology Items & Consolidated 
(in thousands) Mortgage Services Financial Services Technology Products Eliminations(1) Altisource  Services Services Services Eliminations Altisource 
 
Revenue $137,803 $45,642 $37,422 $(10,966) $209,901  $32,383 $20,045 $11,974 $(3,428) $60,974 
Cost of Revenue 84,622 37,538 20,555  (10,966) 131,749  21,293 14,526 6,647  (3,112) 39,354 
                      
Gross Profit 53,181 8,104 16,867  78,152  11,090 5,519 5,327  (316) 21,620 
Selling, General and Administrative Expenses 10,683 11,997 4,040 13,448 40,168 
Selling, General and Administrative 2,443 4,100 1,106 4,420 12,069 
                      
Income (Loss) from Operations 42,498  (3,893) 12,827  (13,448) 37,984  8,647 1,419 4,221  (4,736) 9,551 
Other Income (Expense), net 649  (38)  (45) 100 666 
Other Expense, net 3  (16)  (12)  (47)  (72)
                      
Income (Loss) Before Income Taxes $43,147 $(3,931) $12,782 $(13,348) $38,650  $8,650 $1,403 $4,209 $(4,783) $9,479 
                      
  
Transactions with Related Parties Included Above: 
Transactions with Related Parties: 
Revenue $90,749 $110 $13,635 $ $104,494  $24,762 $51 $4,438 $ $29,251 
                      
Selling, General and Administrative Expenses $ $ $ $811 $811  $ $ $ $324 $324 
                      

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16


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
                     
  Three Months Ended September 30, 2009 
              Corporate Items and  Consolidated 
(in thousands) Mortgage Services  Financial Services  Technology Products  Eliminations(1)  Altisource 
Revenue $29,141  $15,837  $12,451  $(3,365) $54,064 
Cost of Revenue  17,262   12,635   5,582   (2,026)  33,453 
                
Gross Profit  11,879   3,202   6,869   (1,339)  20,611 
Selling, General and Administrative Expenses  1,238   6,802   1,084   1,941   11,065 
                
Income (Loss) from Operations  10,641   (3,600)  5,785   (3,280)  9,546 
Other Income (Expense), net  52   2,469   (51)  76   2,546 
                
Income (Loss) Before Income Taxes $10,693  $(1,131) $5,734  $(3,204) $12,092 
                
                     
Transactions with Related Parties Included Above:                    
Revenue $20,963  $28  $5,044  $  $26,035 
                
Selling, General and Administrative Expenses $531  $85  $294  $(388) $522 
                
Interest Expense $7  $147  $39  $  $193 
                
                     
  Nine Months Ended September 30, 2009 
              Corporate Items and  Consolidated 
(in thousands) Mortgage Services  Financial Services  Technology Products  Eliminations(1)  Altisource 
Revenue $70,861  $49,624  $35,133  $(9,132) $146,486 
Cost of Revenue  41,042   40,514   18,042   (7,793)  91,805 
                
Gross Profit  29,819   9,110   17,091   (1,339)  54,681 
Selling, General and Administrative Expenses  4,913   14,632   3,880   3,791   27,216 
                
Income (Loss) from Operations  24,906   (5,522)  13,211   (5,130)  27,465 
Other Income (Expense), net  29   1,354   (304)  76   1,155 
                
Income (Loss) Before Income Taxes $24,935  $(4,168) $12,907  $(5,054) $28,620 
                
                     
Transactions with Related Parties Included Above:                    
Revenue $51,355  $66  $15,801  $  $67,222 
                
Selling, General and Administrative Expenses $2,712  $467  $1,517  $(388) $4,308 
                
Interest Expense $30  $1,029  $231  $  $1,290 
                
(1)Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REAL products from our Technology Products segment to our other two segments. Generally, we reflect these charges within technology and communication in the segment receiving the services, except for consulting services, which we reflect in professional services.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
NOTE 16 — COMMITMENTS AND CONTINGENCIES
Litigation
The Company is from time to time involved in legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the outcome of any such current matters will not have a material impact on the Company’s financial condition, results of operations or cash flows.

- 22 -


Item 2. 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is a supplement to the accompanying consolidated financial statements and provides additional information on our businesses, current developments, financial condition, cash flows and results of operations. Significant sections of the MD&A are as follows:
Overview.This section, beginning on page 18, provides a description of recent developments we believe are important in understanding the results of operations and financial condition or in understanding anticipated future trends.
Consolidated Results of Operations. This section, beginning on page 19, provides an analysis of our consolidated results of operations for the three months ended March 31, 2011 and 2010. In addition, a brief description is provided of significant transactions and events that affect the comparability of results being analyzed.
Segment Results of Operations. This section, beginning on page 23, provides an analysis of each business segment for the three months ended March 31, 2011 and 2010 as well as our Corporate segment. In addition, we discuss significant transactions, events and trends that may affect the comparability of the results being analyzed.
Liquidity and Capital Resources. This section, beginning on page 31, provides an analysis of our cash flows for three months ended March 31, 2011 and 2010. We also discuss restrictions on cash movements, future commitments and capital resources.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements that relate to, among other things, our future financial and operating results. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms and other comparable terminology including, but not limited to, the following:
assumptions related to the sources of liquidity and the adequacy of financial resources;
assumptions about our ability to grow our business;
assumptions about our ability to reduce our cost structure;
expectations regarding collection rates and placements in our Financial Services segment;
estimates regarding the calculation of our effective tax rate; and
estimates regarding our reserves and valuations.
Forward-looking statements are not guarantees of future performance and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the risks discussed in “Risk Factors” in our Form 10-K for the year ended December 31, 2010 and include the following:
our ability to retain and expand our existing client relationships and attract new customers; and
governmental regulations, taxes and policies.
We caution you not to place undue reliance on these forward-looking statements which reflect our view only as of the date of this report. We are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any such statement is based.

17


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Altisource. MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying notes and with our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 17, 2010.
This MD&A contains forward-looking statements; please see Section 7 of this Item 2 for more information. Significant components of the MD&A section include:
Page
24
The overview section provides a summary of Altisource and our reportable business segments. We also include a discussion of factors affecting our consolidated results of operations as well as items specific to each business group. In addition, we provide a brief description of our basis of presentation for our financial results.
25
The consolidated results of operations section provides an analysis of our results on a consolidated basis for the three and nine months ending September 30, 2010 and 2009. When helpful in explaining trends, we also discuss sequential results. Significant subsections within this section are as follows:
25
26
27
28
28
29
29
The segment results of operations section provides an analysis of our results on a reportable operating segment basis for the three and nine months ending September 30, 2010 and 2009. We discuss known trends and uncertainties. When helpful in explaining trends, we also discuss sequential results. Significant subsections within this section are as follows:
34
37
40
42
The liquidity and capital resources section provides discussion of our ability to generate adequate amounts of cash to meet our current and future needs. Significant subsections within this section are as follows:
42
42
43
43
43
43
43
The other matters section provides a discussion of related party transactions and provisions of the various separation related agreements with Ocwen.
44
EX-31.1
EX-31.2
EX-32.1

- 23 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
SECTION 1 — OVERVIEW
Altisource isOur Business
We are a provider of services focused on high value, technology-enabled, knowledge-based functions principally related to real estate and mortgage portfolio management, asset recovery and customer relationship management. Utilizing integrated technology that includes decision models and behavioral based scripting engines, we provide solutions that improve clients’ performance and maximize their returns.
Our objective is to become a global knowledge process provider initially focused on the entire mortgage services lifecycle and credit to cash lifecycle management spaces. We classify our businesses into three reportable segments:
Mortgage Services:Consists of portfolio management services that span the mortgage lifecycle. In 2011, we reorganized our reporting structure in that certain services originally part of Component Services and Other in this segment are now classified as part of Customer Relationship Management in our Financial Services segment. Following this change, Component Services has been renamed Origination Management Services. Origination Management Services includes MPA, our legacy contract underwriting business and our origination fulfillment operations currently under development. Prior periods have been recast to conform to the current year presentation.
Financial Services:Consists of unsecured asset recovery and customer relationship management. As discussed above, Customer Relationship Management now includes certain services that were originally recorded as part of Mortgage Services.
Technology Services:Consists of modular, comprehensive integrated technological solutions for loan servicing, vendor management and invoice presentment and payment as well as providing infrastructure support.
Stock Repurchase Plan
We intend to achieve this objectivelimit dilution caused by executingoption exercises, including anticipated exercises, and acquisitions by repurchasing shares on the open market. On May 19, 2010, our strategiesshareholders authorized us to purchase 15% of penetrating existing customers, acquiring new customers, increasing quality and reducing costs and investingour outstanding share capital, or 3.8 million shares of our common stock, in new service offerings.the open market. Since the start of the stock repurchase program, we have purchased 0.9 million shares of our common stock on the open market at an average price of $27.85, leaving 2.9 million shares available for purchase under the program.
A. SeparationSpringhouse, LLC
On August 10, 2009, Altisource became a stand-alone public company in connection with our Separation from Ocwen. In connection with the Separation, Altisource and Ocwen entered into Agreements that address the allocation of assets and liabilities between them and that define their relationship after the Separation. Additional information may be found in Note 1 to the condensed consolidated financial statements.
B. Basis of Presentation
The accompanying condensed consolidated financial statements present the historical results of operations, assets and liabilities attributable to the Altisource businesses. For periods prior to the Separation Date, these condensed consolidated financial statements include allocations of expenses from Ocwen for certain corporate functions. Total corporate costs allocated to the Company were $4.3 million for the nine months ended September 30, 2009 ($0.5 million in 2009 for the third quarter). The charges for these functions are included primarily in Selling, General and Administrative Expenses in the Condensed Consolidated Statements of Operations. In addition, Ocwen had allocated interest expense to us based upon our portion of assets to Ocwen’s total assets which is reflected as Interest Expense in the Condensed Consolidated Statements of Operations. Other than transition services, there have been no allocations of Ocwen expenses charged to us since the Separation Date.
In February 2010,April 11, 2011, we acquired allSpringhouse, LLC (“Springhouse”) an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the outstanding membership interestsmembers of MPA. MPA was formed with the purpose of managing BPMC which operates as Lenders One. Lenders One, is a national alliance of independent mortgage bankers that provides its Members with education and training along with revenue enhancing, cost reducing and market share expanding opportunities. The results of operations of BPMC are consolidated under the variable interest model since the acquisition date.real estate asset managers.
For periods prior to the Separation, the condensed consolidated financial statements also do not necessarily reflect what the Company’s consolidated results of operations, financial position and cash flows would have been had the Company operated as an independent company during the entirety of the periods presented. For instance, as an independent public company, Altisource incurs costs in excess of those previously allocated by Ocwen for maintaining a separate Board of Directors, obtaining a separate audit, relocating certain executive management and hiring additional personnel.
Factors Affecting Comparability
In addition to theThe following items noted within theBasis of Presentationsection presented above, the following additional item may impact the comparability of our results:
DuringIn February 2010, to further alignwe acquired all of the outstanding membership interests of managementMPA which was formed with shareholders,the purpose of managing Lenders One (see Note 1 to the condensed consolidated financial statements). The results of operations of Lenders One have been consolidated under the variable interest model since the acquisition date;
Effective January 1, 2011, we expandedmodified our usepricing for IT Infrastructure Services within our Technology Services segment from a rate card model primarily based on headcount to a fully loaded cost plus mark-up methodology. This new model applies to the infrastructure amounts charged to Ocwen as well as internal allocations of equity compensation. For the nine months ended September 30, 2010, we have recognized $2.1 million ($1.2 millioninfrastructure costs. The impact of this change is discussed further in the third quarter) of equity compensation expense as compared to $0.3 million for the full year ending December 31, 2009. As a result of the share price doubling as compared to the grant price during June 2010, performance criteria were met for certain option grants which triggered vesting of the award and acceleration in the expense recognition of these grants. This contributed to the increase in equity compensation expense in the third quarter of 2010;Technology Services segment.
During the nine months ended September 30, 2009, we recognized $3.4 million ($1.5 million during the third quarter) of one-time costs in anticipation of the Separation from Ocwen; and
During the nine months ended September 30, 2009, we recognized $2.3 million in facility closure costs in Selling, General and Administrative Expenses and a $2.3 million litigation settlement gain in Other Income (both of which were recorded in the third quarter) in our Financial Services segment.

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18


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
SECTION 2 — CONSOLIDATED RESULTS OF OPERATIONS
Summary Consolidated Results
Following is a discussion of our consolidated results of operations for the periods indicated. In evaluating performance, we neutralize the impact of pass-through items for which we earn no margin by excluding reimbursable expenses and non-controlling interests where appropriate and calculating all margins based upon Service Revenue.
The following table sets forth information regarding our results of operations for the periods ended September 30, 2010March 31, 2011 and 2009:2010:
                                            
 Three Months Ended September 30, Nine Months Ended September 30,  Three Months Ended March 31, 
(in thousands, except per share amounts) 2010 2009 $ Change % Change 2010 2009 $ Change % Change 
 % 
(in thousands) 2011 2010 Better/(worse) 
 
Service Revenue $62,159 $48,384 13,775 28 $172,725 $137,477 35,248 26  $71,730 $51,657 39 
Reimbursable Expenses 13,369 5,680 7,689 135 33,040 9,009 24,031 N/M  15,641 8,530 83 
Cooperative Non-controlling Interest 2,052  2,052 N/M 4,136  4,136 N/M  1,299 787  (65)
              
Total Revenue 77,580 54,064 23,516 44 209,901 146,486 63,415 43  88,670 60,974 45 
 
Cost of Revenue 35,278 27,773 7,505 27 98,709 82,796 15,913 19  54,949 39,354  (40)
Reimbursable Expenses 13,369 5,680 7,689 135 33,040 9,009 24,031 N/M 
         
        
Gross Profit 28,933 20,611 8,322 40 78,152 54,681 23,471 43  33,721 21,620 56 
  
Gross Profit / Service Revenue  47%  41% 
 
Selling, General and Administrative Expenses 14,996 11,065 3,931 36 40,168 27,216 12,952 48  16,254 12,069  (35)
              
Income from Operations 17,467 9,551 83 
Income from Operations / Service Revenue  24%  18% 
  
Income from Operations 13,937 9,546 4,391 46 37,984 27,465 10,519 38 
 
Other Income (Expense), net 698 2,546  (1,848)  (73) 666 1,155  (489)  (42)
         
Other Expense, net 344  (72) N/M 
      
Income Before Income Taxes and Non-controlling Interests 14,635 12,092 2,543 21 38,650 28,620 10,030 35  17,811 9,479 88 
Income Tax Benefit (Provision)  (2,751)  (3,448) 697 20  (2,029)  (8,522) 6,493 76 
         
Income Tax Provision  (1,687)  (2,385) 29 
      
Net Income 11,884 8,644 3,240 37 36,621 20,098 16,523 82  16,124 7,094 127 
 
Net Income Attributable to Non-controlling Interests  (2,052)   (2,052) N/M  (4,136)   (4,136) N/M   (1,299)  (787)  (65)
         
      
Net Income Attributable to Altisource $9,832 $8,644 1,188 14 $32,485 $20,098 12,387 62  $14,825 $6,307 135 
              
  
Earnings Per Share  
Basic $0.39 $0.36 $1.30 $0.84  $0.60 $0.26 
         
Diluted $0.37 $0.36 $1.24 $0.83  $0.57 $0.25 
         
  
Transactions with Related Parties:  
Revenue $39,459 $26,035 13,424 52 $104,494 $67,222 37,272 55  $48,790 $29,251 67 
         
Selling, General and Administrative Expenses $223 $522  (299)  (57) $811 $4,308  (3,497)  (81) 391 324  (21)
         
Interest Expense $ $193  (193)  (100) $ $1,290  (1,290)  (100)
         
N/M — Not meaningful.
N/M— not meaningful.

- 25 -

19


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Revenue
The following table presents our revenues for the periods ended September 30, 2010March 31, 2011 and 2009:2010:
            
                                 Three Months Ended March 31, 
 Three Months Ended September 30, Nine Months Ended September 30,  % 
(in thousands) 2010 2009 $ Change % Change 2010 2009 $ Change % Change  2011 2010 Better/(worse) 
 
Mortgage Services:  
Service Revenue: $39,319 $23,461 15,858 68 $102,856 $61,852 41,004 66  $43,340 $23,714 83 
Reimbursable Expenses 12,562 5,680 6,882 121 30,811 9,009 21,802 242  15,068 7,882 91 
Cooperative Non-controlling Interest 2,052  2,052 N/M 4,136  4,136 N/M  1,299 787 65 
              
Mortgage Services — Total Revenue 53,933 29,141 24,792 85 137,803 70,861 66,942 95  59,707 32,383 84 
  
Financial Services: 
Financial Services 
Service Revenue: 13,722 15,837  (2,115)  (13) 43,413 49,624  (6,211)  (13) 18,920 19,397  (2)
Reimbursable Expenses 807  807 N/M 2,229  2,229 N/M  573 648  (12)
              
Financial Services — Total Revenue 14,529 15,837  (1,308)  (8) 45,642 49,624  (3,982)  (8) 19,493 20,045  (3)
  
Technology Products 12,963 12,451 512 4 37,422 35,133 2,289 7 
         
Technology Services 12,716 11,974 6 
  
Eliminations  (3,845)  (3,365)  (480)  (14)  (10,966)  (9,132)  (1,834)  (20)  (3,246)  (3,428)  (5)
              
 �� 
Total Revenue $77,580 $54,064 23,516 44 $209,901 $146,486 63,415 43 
Total Revenues $88,670 $60,974 45 
              
  
Transactions with Related Parties:  
 
Mortgage Services $34,765 $20,963 13,802 66 $90,749 $51,355 39,394 77  $43,810 $24,762 77 
         
 
Financial Services $34 $28 6 22 $110 $66 44 67  29 51  (43)
         
 
Technology Products $4,660 $5,044  (384)  (8) $13,635 $15,801  (2,166)  (14)
         
Technology Services 4,951 4,438 12 
N/M— not meaningful.
In evaluating our performance, we utilize Service Revenue which consists of amounts attributable to our fee based services. Reimbursable Expenses and Cooperative Non-controlling Interests are pass-through items for which we earn no margin. Reimbursable Expenses consists of amounts that we incur on behalf of our customers in performing our fee based services, but we pass such costs directly on to our customers without any additional markup. Cooperative Non-controlling Interests is attributable to the Membersmembers of Lenders One.
We have continued to grow both Total Revenue andrecognized $71.7 million of Service Revenue for the quarter ended March 31, 2011, a 39% increase over the same quarter in 2010. Revenues for the first quarter were consistent with our internal expectations. Mortgage Services revenue grew as a result of (i) the national rollout of services during 2010, including property preservation and inspection services, default management services and sale of real estate owned (REO), and (ii) the growth in Ocwen’s loan portfolio. Financial Services revenue declined compared to prior year due to a decline in revenues from the segment’s largest customer. The decline was in part as a result of the client shifting work to our global delivery platform. This resulted in lower revenue although higher margins. Technology Services revenue increased as the impact of lowering infrastructure services pricing (which occurred on January 1, 2011) was more than offset by the growth in REALSuite revenues, principally REALServicing®, given the growth in Ocwen’s servicing portfolio during 2010.
Sequentially, Service Revenue declined $2.6 million compared to the fourth quarter of 2010. The decline is principally attributable to the Mortgage Services segment primarily driven bywhich saw sequential decreases in Residential Property Valuation, Default Management Services and Closing and Title Services, all of which received elevated benefit in the development and execution of default oriented mortgage services over an expanding national delivery platform. Our acquisition of MPA has also contributed to the increasefourth quarter from the prior year. Our largest customer,boarding of additional loans by Ocwen recently expanded its residentialin September 2010. In addition, MPA declined in the first quarter compared to fourth quarter consistent with the overall market decline in loan portfolio to almost 500,000 loans as of September 30, 2010 with its acquisition of the HomEq residential loan portfolio of approximately 130,000 loans. Due to the timing of the HomEq referrals received from Ocwen, the impact of Ocwen’s acquisition had a limited impact to Altisource’s revenuesoriginations. Service Revenue for the third quarter.
With respect to our Financial Services segment contributing factorsincreased slightly, driven by stabilized performance in unsecured asset recovery and improved performance in our customer relationship management business. Technology Services revenue declined sequentially as expected due to the general decline in revenues include reduced placements from our largest customer for this segment partially offset by placements from other customers. In addition, we continue to build out a global delivery platform for collections which sometimes results in lower revenues per account although at higher margins.
Technology Products revenues have generally increased as Ocwen has increased its residential loan portfolio and headcount resulting in additional fees.previously mentioned billing methodology change.
Our revenues are seasonal. More specifically, Financial Services revenue tends to be higherhighest in the first half ofquarter and generally declines throughout the year, particularly the first quarter, as borrowers may utilize tax refunds to pay debts.year. Mortgage Services revenue is impacted by Real Estate Owned (“REO”)REO sales which tend to be at their lowest level during winter months and highest during summer months.

- 26 -

20


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Cost of Revenue
Cost of revenueRevenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to the provision of services, reimbursable expenses and technology and telephony expenses as well as depreciation and amortization of operating assets. The components of costCost of revenueRevenue were as follows for the periods ended September 30, 2010March 31, 2011 and 2009:2010:
            
                                 Three Months Ended March 31, 
 Three Months Ended September 30, Nine Months Ended September 30,  % 
(in thousands) 2010 2009 $ Change % Change 2010 2009 $ Change % Change  2011 2010 Better/(worse) 
 
Compensation and Benefits $15,828 $13,735 2,093 15 $45,518 $39,612 5,906 15  $16,840 $13,999  (20)
Outside Fees and Services 15,311 10,550 4,761 45 41,092 31,502 9,590 30  18,161 12,460  (46)
Reimbursable Expenses 13,369 5,680 7,689 135 33,040 9,009 24,031 N/M  15,641 8,530  (83)
Technology and Communications 4,139 3,488 651 19 12,099 11,682 417 4  4,307 4,365 1 
              
 
Cost of Revenue $48,647 $33,453 15,194 45 $131,749 $91,805 39,944 44  $54,949 $39,354  (40)
              
  
Gross Margin Percentage: 
Gross Profit Percentage 
Gross Profit/Service Revenue  47%  41% 
      
Cost of Revenue / Total Revenue  37%  38%  37%  37% 
         
Cost of Revenue less Reimbursable Expenses / Service Revenue  47%  43%  45%  40% 
         
N/M— not meaningful.
In evaluating the performance of our segments, we generally neutralize the impact of pass-through items for which we earn no margin by excluding reimbursable expenses from Cost of Revenue and computingOur gross margin based upon Service Revenue.
On a consolidated basis, ourpercentage increased to 47% for the three months ended March 31, 2011 from 41% for the same period in 2010. The increase in gross margin results from the composition of revenue being more weighted towards Mortgage Services which has higher margins. Sequentially, gross margins based on Service Revenue for the nine months ended September 30, 2010 increasedremained flat to fourth quarter as a decline in Mortgage Services segment margins, as a result of the compositionmix and timing of revenues being more weighted towards the higher margin Mortgage Services segment, the recent acquisition of MPA and our ability to efficiently scale our operations as our referral base grows.services, was offset by improved margins in Financial Services.
Compensation and benefitsBenefits costs have grown year to date as we scaledwas impacted by investments in personnel to support the national rolloutour suite of default oriented services and in anticipation of the growth in Ocwen’s residential loan portfolio. Sequentially, compensation and benefit costs have remained relatively flat.portfolio growth. In addition, during the first quarter 2011, we principally invested in personnel for periods subsequentnew services including title insurance and fulfillment services. We expect these modest investments to continue in the Separation Date, we treat compensation costs associated with segment executive management and segment marketing activities as a component of Selling, General and Administrative Expenses.second quarter.
Outside feesFees and servicesServices primarily increased in our Mortgage Services segment consistent with greater revenues. Outside fees andrevenues including those related to our new services also increased when compared to the prior yearsame period in our Financial Services segment as we increased our use of external collectors. In the third quarter, outside2010. Sequentially, outsides fees and services for Financial Services began to decline slightly as we transitioned more work from external collectors to employees.declined principally driven by the reduction in valuation reports delivered in the first quarter 2011 versus fourth quarter 2010.
Technology and communicationCommunication costs increasedwere relatively flat from the same period in both periods2010 as increases related to costs associated with the new data center. In addition, in the third quartercenter were generally offset by other cost reduction initiatives. Sequentially, technology and communicationscommunication costs increased as a result of the addition of new facilities and the expansion of bandwidth at existing facilitiesdeclined due principally to handle the increased demands expected in the fourth quarter.

- 27 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
lower telephony expenses.
Selling, General and Administrative Expenses
Selling, generalGeneral and administrative expensesAdministrative Expenses include payroll, employee benefits, occupancy and other costs associated with personnel employed in executive, sales, marketing, human resources consumer behavior, internal audit and finance roles. This category also includes professional fees, depreciation and amortization on non-operating assets. The components of Selling, General and Administrative Expenses were as follows for the periods ended September 30, 2010March 31, 2011 and 2009:2010:
            
                                 Three Months Ended March 31, 
 Three Months Ended September 30, Nine Months Ended September 30,  % 
(in thousands) 2010 2009 $ Change % Change 2010 2009 $ Change % Change  2011 2010 Better/(worse) 
 
Compensation and Benefits $5,251 $521 4,730 N/M $13,256 $4,307 8,949 208  $5,920 $4,040  (47)
Professional Services 1,812 4,158  (2,346)  (56) 5,869 7,514  (1,645)  (22) 2,102 2,296 8 
Occupancy Related Costs 4,733 1,976 2,757 140 10,845 6,086 4,759 78  3,333 2,353  (42)
Amortization of Intangible Assets 1,450 668 782 117 4,089 2,004 2,085 104  1,273 1,189  (7)
Other 1,750 3,742  (1,992)  (53) 6,109 7,305  (1,196)  (16) 3,626 2,191  (65)
              
 
Total Selling, General and Administrative Expenses $14,996 $11,065 3,931 36 $40,168 $27,216 12,952 48  $16,254 $12,069  (35)
              
  
Operating Percentage: 
Operating Margin Percentage 
Income from Operations/Service Revenue  24%  18% 
     
Operating Income / Total Revenue  18%  18%  18%  19% 
         
Operating Income / Service Revenue  22%  20%  22%  20% 
         

21


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
N/M— not meaningful.
SimilarOur operating margin percentage increased to gross margins, we evaluate operating margins by comparing Operating Income over Service Revenue to neutralize the impact of pass-through items for which we earn no margin.
When calculated based on Service Revenue, our operating margins24% for the three and nine months ended September 30, 2010 improved slightly when compared to the similar prior year period.
Compensation and Benefits has increased from the prior yearMarch 31, 2011 primarily as a result of the costcomposition of our revenues being more weighted towards our higher margin Mortgage Services segment. Sequentially, operating margins were relatively flat as declines in Mortgage Services attributable to revenue declines previously discussed were offset by improvements at Financial Services, which included a separate public companygoodwill impairment charge in the fourth quarter of 2010.
Compensation and Benefits increased compared to the need to have separateprior year primarily as we built out our support functions such as accounting, legal and human resources as well asthroughout 2010.
Professional Services were relatively flat compared to the previously mentioned reclassification of certain executive and marketing related compensation costs from cost of revenues. In addition, equity compensation for senior executives is recognized within Selling, General and Administrative Expenses.
Costs associated with Professional Services have increased over the prior year after we consider the impact of 2009 one-time costs of $3.4 million year to date ($1.5 million for the third quarter) related to the Separation and $2.3 million year to date (all recorded in the third quarter) related to facility closure costs in our Financial Services segment. The increase in Professional Services is primarily attributable to costs associated with being a separate public company including increased audit and legal fees as well as insurance.year.
Occupancy Related Costs increased as compared to 2010 due to the growth in 2010 primarily as a result of our expansion of servicesbusiness which led to new leased facilities in India and the United States. The year to date increase was partially offset by decreases associated with lease facility closures in Financial Servicesresulted in the third quarteraddition of 2009.approximately 1,000 people worldwide.
Amortization of Intangible Assets increased slightly as a result of the intangibles acquired in connection with the acquisition of MPA (see Notes 3in February 2010.
Income Before Income Tax
The following table presents income before income tax including amount attributable to Altisource by segment:
         
  Three Months Ended 
  March 31, 
(in thousands) 2011  2010 
         
Mortgage Services:
        
Income Before Income Taxes $18,469  $8,650 
Non-controlling Interests  (1,299)  (787)
       
Income Before Income Taxes Attributable to Altisource $17,170  $7,863 
As percent of Service Revenue  40%  33%
         
Financial Services:
        
Income Before Income Taxes $1,534  $1,403 
As percent of Service Revenue  8%  7%
         
Technology Services:
        
Income Before Income Taxes $4,060  $4,209 
As percent of Revenue  32%  35%
         
Consolidated:
        
Income Before Income Taxes $17,811  $9,479 
Non-controlling Interests  (1,299)  (787)
       
Income Before Income Taxes Attributable to Altisource $16,512  $8,692 
As percent of Service Revenue  23%  17%
On a consolidated basis, income before income tax attributable to Altisource grew principally as a result of the national rollout of mortgage services and 7the growth of Ocwen’s servicing portfolio during 2010 as previously discussed. Sequentially, income before income taxes attributable to Altisource grew $2.2 million; however, the fourth quarter included a $2.8 million charge for goodwill impairment in the Financial Services segment. Adjusting for the impairment charge, income before income taxes attributable to Altisource as a percent of Service Revenue remained constant at 23% for both quarters.
For the Mortgage Services segment, income before income taxes attributable to Altisource declined sequentially by $0.8 million attributable to the condensed consolidated financial statements).decline in Service Revenue as previously discussed. Income before income taxes attributable to Altisource as a percent of Service Revenue improved to 40% from 39% sequentially primarily as a result of the mix of services and a reduction in intersegment technology charges.
EBITDA
Altisource evaluates performance based on several factors of which a primary financial measure isFor the Financial Services segment, income before interest, tax, depreciationincome taxes improved $4.7 million sequentially primarily due to the $2.8 million goodwill impairment recognized in the fourth quarter and amortization (“EBITDA”). We believe thatthe benefit of a seasonally strong first quarter. In addition, the Financial Services segment also started to see the initial benefits of disciplined floor management and improved performance for our customers. Technology costs for the Financial Services segment increased sequentially; however, this non-GAAP financial measure is usefulexpected to investors and analystsimprove in the second half of 2011 as we implement certain cost containment measures.

- 28 -

22


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
in analyzing and assessing our overall business performance since we utilize this information for making operating decisions, for compensation decisions and for forecasting and planning future periods. WhileFor the Company uses non-GAAP financial measuresTechnology Services segment, income before income taxes declined $1.2 million sequentially, principally as a tool to enhance its understandingresult of certain aspects of its financial performance and to provide incremental insight into the underlying factors and trends affecting both the Company’s performance and its cash-generating potential, the Company does not consider these measures to be a substitutereduced pricing for or superior to, the information provided by GAAP financial measures. Consistent with this approach, the Company believes that disclosing non-GAAP financial measures to the readers of its financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance and enables investors to more fully understand trends in its current and future performance.IT infrastructure services as previously discussed.
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Income Before Income Taxes $14,635  $12,092   2,543   21  $38,650  $28,620   10,030   35 
Interest, net  26   191   (165)  (86)  65   1,601   (1,536)  (96)
Depreciation and Amortization  1,804   1,395   409   29   5,015   4,188   827   20 
Amortization of Intangibles  1,450   668   782   117   4,089   2,004   2,085   104 
Net Income Attributable to Non-controlling Interests  (2,052)     (2,052)  N/M   (4,136)     (4,136)  N/M 
                             
                                 
EBITDA(1)
 $15,863  $14,346   1,517   11  $43,683  $36,413   7,270   20 
                             
                                 
EBITDA Margin:                                
EBITDA / Total Revenue  20%  27%          21%  25%        
                             
                                 
EBITDA / Service Revenue  26%  30%          25%  26%        
                             
(1)See “SECTION 3 — SEGMENT RESULTS OF OPERATIONS” below for a reconciliation of the most directly comparable GAAP measure to EBITDA.
N/M — not meaningful.
We evaluate EBITDA margins against Service Revenue internally to neutralize the impact of pass-through items for which we earn no margin.
EBITDA margins based on Service Revenue declined year to dateCorporate costs increased $0.6 million principally due to a decline in performance of Financial Servicesincreased costs associated with compliance and scaling our operationsquality assurance, including related hiring costs, to support the national rolloutour growing business.
Income Tax Provision
The Company recognized an income tax provision of services and the anticipated growth in Ocwen’s residential loan portfolio. In addition, during 2010, to further align the interests of management with shareholders, we expanded our use of equity compensation. For the nine months ended September 30, 2010, we have recognized $2.2 million ($1.2 million in the third quarter) of equity compensation expense as compared to $0.3$1.7 million for the full year ending Decemberthree months ended March 31, 2009. We expect EBITDA as a percent of service revenue to improve in the fourth quarter as we begin to more fully realize the benefit of Ocwen’s acquisition of the residential loan portfolio of HomEq and leverage our larger operational structure.
Income Taxes
For the third quarter Altisource’s2011 representing an effective tax rate was 18.8%, which is higher than our estimated effective tax rate for the full year due to permanent differences recognized in the quarter.of 9%. The year to date effective tax rate is 5.2% which includes the impact of credits recognized in the second quarter associated with 2009. Income tax provision on income before income tax differs from amounts that would beprovision computed by applying the Luxembourg federal corporate incomestatutory tax rate of 28.6%28.9% differs from the effective tax rate primarily because of the effect of enactedthe favorable tax statutesruling as well as the mix of income and losses in multiple jurisdictions, the treatment of intangibles for tax purposes and differing tax rates outside of Luxembourg.
taxing jurisdictions.
SECTION 3 — SEGMENT RESULTS OF OPERATIONS
The following section provides a discussion of pre-tax results of operations of our business segments for the periodsthree months ended September 30, 2010March 31, 2011 and 2009.2010. Transactions between segments are accounted for as third-party arrangements for purposes of presenting segment resultsSegment Results of operations.Operations. Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REAL products from our Technology ProductsServices segment to our other two segments. Generally, we reflect these charges within technology and communication in the segment receiving the services, except for consulting services, which we reflect in professional services.

- 29 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Financial information for our segments is as follows:
                    
                     Three Months Ended March 31, 2011 
 Three Months Ended September 30, 2010  Corporate   
 Mortgage Financial Technology Corporate
Items and
 Consolidated  Mortgage Financial Technology Items & Consolidated 
(in thousands) Services Services Products Eliminations(1) Altisource  Services Services Services Eliminations Altisource 
 
Revenue $53,933 $14,529 $12,963 $(3,845) $77,580  $59,707 $19,493 $12,716 $(3,246) $88,670 
Cost of Revenue 33,119 12,134 7,239  (3,845) 48,647  37,020 13,488 7,445  (3,004) 54,949 
                      
Gross Profit 20,814 2,395 5,724  28,933  22,687 6,005 5,271  (242) 33,721 
Selling, General and Administrative Expenses 4,187 4,404 1,610 4,795 14,996 
Selling, General and Administrative 4,583 4,460 1,196 6,015 16,254 
                      
Income (Loss) from Operations 16,627  (2,009) 4,114  (4,795) 13,937  18,104 1,545 4,075  (6,257) 17,467 
Other Income (Expense), net 687  (9)  (24) 44 698  365  (11)  (15) 5 344 
                      
Income (Loss) Before Income Taxes and Non-Controlling Interests $17,314 $(2,018) $4,090 $(4,751) $14,635 
           
 
Reconciliation to EBITDA 
Income (Loss) Before Income Taxes and Non-Controlling Interests $17,314 $(2,018) $4,090 $(4,751) $14,635 
Interest, net  (3) 13 23  (7) 26 
Depreciation and Amortization(2)
 74 478 1,140 112 1,804 
Amortization of Intangibles 781 669   1,450 
Net Income Attributable to Non-controlling Interests  (2,052)     (2,052)
           
EBITDA $16,114 $(858) $5,253 $(4,646) $15,863 
Income (Loss) Before Income Taxes $18,469 $1,534 $4,060 $(6,252) $17,811 
                      
  
Transactions with Related Parties:  
Revenue $34,765 $34 $4,660 $ $39,459  $43,810 $29 $4,951 $ $48,790 
                      
Selling, General and Administrative Expenses $ $ $ $223 $223  $ $ $ $391 $391 
                      
                     
  Three Months Ended March 31, 2010 
              Corporate    
  Mortgage  Financial  Technology  Items &  Consolidated 
(in thousands) Services  Services  Services  Eliminations  Altisource 
               ��     
Revenue $32,383  $20,045  $11,974  $(3,428) $60,974 
Cost of Revenue  21,293   14,526   6,647   (3,112)  39,354 
                
Gross Profit  11,090   5,519   5,327   (316)  21,620 
Selling, General and Administrative  2,443   4,100   1,106   4,420   12,069 
                
Income (Loss) from Operations  8,647   1,419   4,221   (4,736)  9,551 
Other Expense, net  3   (16)  (12)  (47)  (72)
                
Income (Loss) Before Income Taxes $8,650  $1,403  $4,209  $(4,783) $9,479 
                
                     
Transactions with Related Parties:                    
Revenue $24,762  $51  $4,438  $  $29,251 
                
Selling, General and Administrative Expenses $  $  $  $324  $324 
                

- 30 -

23


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
                     
  Three Months Ended September 30, 2009 
              Corporate    
  Mortgage  Financial  Technology  Items and  Consolidated 
(in thousands) Services  Services  Products  Eliminations(1)  Altisource 
Revenue $29,141  $15,837  $12,451  $(3,365) $54,064 
Cost of Revenue  17,262   12,635   5,582   (2,026)  33,453 
                
Gross Profit  11,879   3,202   6,869   (1,339)  20,611 
Selling, General and Administrative Expenses  1,238   6,802   1,084   1,941   11,065 
                
Income (Loss) from Operations  10,641   (3,600)  5,785   (3,280)  9,546 
Other Income (Expense), net  52   2,469   (51)  76   2,546 
                
Income (Loss) Before Income Taxes and Non-Controlling Interests $10,693  $(1,131) $5,734  $(3,204) $12,092 
                
                     
Reconciliation to EBITDA                    
Income (Loss) Before Income Taxes and Non-Controlling Interests $10,693  $(1,131) $5,734  $(3,204) $12,092 
Interest, net  7   146   53   (15)  191 
Depreciation and Amortization(2)
  19   609   758   9   1,395 
Amortization of Intangibles     668         668 
                
EBITDA $10,719  $292  $6,545  $(3,210) $14,346 
                
                     
Transactions with Related Parties:                    
Revenue $20,963  $28  $5,044  $  $26,035 
                
Selling, General and Administrative Expenses $531  $85  $294  $(388) $522 
                
Interest Expense $7  $147  $39  $  $193 
                

- 31 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
                     
  Nine Months Ended September 30, 2010 
              Corporate    
  Mortgage  Financial  Technology  Items and  Consolidated 
(in thousands) Services  Services  Products  Eliminations(1)  Altisource 
Revenue $137,803  $45,642  $37,422  $(10,966) $209,901 
Cost of Revenue  84,622   37,538   20,555   (10,966)  131,749 
                
Gross Profit  53,181   8,104   16,867      78,152 
Selling, General and Administrative Expenses  10,683   11,997   4,040   13,448   40,168 
                
Income (Loss) from Operations  42,498   (3,893)  12,827   (13,448)  37,984 
Other Income (Expense), net  649   (38)  (45)  100   666 
                
Income (Loss) Before Income Taxes and Non-controlling Interests $43,147  $(3,931) $12,782  $(13,348) $38,650 
                
                     
Reconciliation to EBITDA                    
Income (Loss) Before Income Taxes and Non-controlling Interests $43,147  $(3,931) $12,782  $(13,348) $38,650 
Interest, net  (8)  43   44   (14)  65 
Depreciation and Amortization(2)
  193   1,479   3,043   300   5,015 
Amortization of Intangibles  2,084   2,005         4,089 
Net Income Attributable to Non-controlling Interests  (4,136)           (4,136)
                
EBITDA $41,280  $(404) $15,869  $(13,062) $43,683 
                
                     
Transactions with Related Parties:                    
Revenue $90,749  $110  $13,635  $  $104,494 
                
Selling, General and Administrative Expenses $  $  $  $811  $811 
                
Interest Expense $  $  $  $  $ 
                

- 32 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
                     
  Nine Months Ended September 30, 2009 
              Corporate    
  Mortgage  Financial  Technology  Items and  Consolidated 
(in thousands) Services  Services  Products  Eliminations(1)  Altisource 
Revenue $70,861  $49,624  $35,133  $(9,132) $146,486 
Cost of Revenue  41,042   40,514   18,042   (7,793)  91,805 
                
Gross Profit  29,819   9,110   17,091   (1,339)  54,681 
Selling, General and Administrative Expenses  4,913   14,632   3,880   3,791   27,216 
                
Income (Loss) from Operations  24,906   (5,522)  13,211   (5,130)  27,465 
Other Income (Expense), net  29   1,354   (304)  76   1,155 
                
Income (Loss) Before Income Taxes and Non-controlling Interests $24,935  $(4,168) $12,907  $(5,054) $28,620 
                
                     
Reconciliation to EBITDA                    
Income (Loss) Before Income Taxes and Non-controlling Interests $24,935  $(4,168) $12,907  $(5,054) $28,620 
Interest, net  28   1,286   302   (15)  1,601 
Depreciation and Amortization(2)
  22   1,898   2,259   9   4,188 
Amortization of Intangibles     2,004         2,004 
                
EBITDA $24,985  $1,020  $15,468  $(5,060) $36,413 
                
                     
Transactions with Related Parties:                    
Revenue $51,355  $66  $15,801  $  $67,222 
                
Selling, General and Administrative Expenses $2,712  $467  $1,517  $(388) $4,308 
                
Interest Expense $30  $1,029  $231  $  $1,290 
                
(1)Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REAL products from our Technology Products segment to our other two segments. Generally, we reflect these charges within technology and communication in the segment receiving the services, except for consulting services which we reflect in professional services.
(2)Includes depreciation and amortization of $1.0 million and $1.6 million for the nine months ended September 30, 2010 and 2009 ($0.5 million for the quarter ended September 30, 2009), for assets reflected in the Technology Products segment but utilized by the Financial Services segment.

- 33 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Mortgage Services
The following table presents our results of operations for our Mortgage Services segment for the three and nine months ending September 30:March 31:
            
                                 Three Months Ended March 31, 
 Three Months Ended September 30, Nine Months Ended September 30,  % 
(in thousands) 2010 2009 $ Change % Change 2010 2009 $ Change % Change  2011 2010 Better/(worse) 
 
Service Revenue $39,319 $23,461 15,858 68 $102,856 $61,852 41,004 66  $43,340 $23,714 83 
Reimbursable Expenses 12,562 5,680 6,882 121 30,811 9,009 21,802 242  15,068 7,882 91 
Cooperative Non-controlling Interest 2,052  2,052 N/M 4,136  4,136 N/M  1,299 787 65 
              
 
Total Revenue 53,933 29,141 24,792 85 137,803 70,861 66,942 95  59,707 32,383 84 
 
Cost of Revenue 33,119 17,262 15,857 92 84,622 41,042 43,580 106  37,020 21,293  (74)
              
Gross Profit 22,687 11,090 105 
 20,814 11,879 8,935 75 53,181 29,819 23,362 78  
Gross Profit 
Gross Profit/Service Revenue  52%  47% 
 
Selling, General and Administrative Expenses 4,187 1,238 2,949 238 10,683 4,913 5,770 117  4,583 2,443  (88)
         
      
Income from Operations $16,627 $10,641 5,986 56 $42,498 $24,906 17,592 71  $18,104 $8,647 109 
              
  
EBITDA(1)
 $16,114 $10,719 5,395 50 $41,280 $24,985 16,295 65 
Income from Operations/Service Revenue  42%  36% 
          
 
Transactions with Related Parties Above: 
Transactions with Related Parties Included Above: 
Revenue $34,765 $20,963 13,802 66 $90,749 $51,355 39,394 77  $43,810 $24,762 77 
              
Selling, General and Administrative Expenses  531  (531) N/M  2,712  (2,712) N/M 
         
Interest Expense $ $7  (7) N/M $ $30  (30) N/M 
         
(1)See above for a reconciliation of the most directly comparable GAAP measure to EBITDA.
N/M — not meaningful.
Service Revenue for ourOur Mortgage Services segment has consistently grown for the periods presented primarily as a result of our development and rollout of default oriented Mortgage Services over our expanding national delivery platform, the growth in Ocwen’s residential loan portfolio and the acquisition of MPA in February 2010. Ocwen’s acquisition of the HomEq residential loan portfolio had limited impact to our revenues for the third quarter since we generally did not receive referrals until very late in September.
Altisource continues to expand its default services.be the primary driver of growth. As previously discussed, in 2011 we reorganized our reporting structure in that certain services that were originally part of September 30, 2010, we:Component Services and Other are now classified as part of Customer Relationship Management in our Financial Services segment.
Provide REO brokerage disposition services on over 8,500 properties (comparedWe expect to approximately 5,700 properties as of June 30, 2010); and
Managed property preservation services nationally for over 13,500 properties (compared to over 10,200 properties as of June 30, 2010).
In addition, we announcedfund our remaining investment in Correspondent One during the first quarter call that we had finalized a confidential agreementsecond quarter. Correspondent One is expected to provide asset management services to a potentially significant customer. We began performing services for this client in September and expect to begin revenue recognition in the fourth quarter.
Members United and Acquisition MPA
We are committed to providing a full suite of mortgage services in 2011 to assist mortgage originators including valuation, title, fulfillment and flood certification services. Through our acquisition of MPA and the recently signed agreement with Members United Corporate Federal Credit Union (“Members United”), we have preferred access to over 2,000 diverse financial institutions which we believe constitutes 7% of the total origination market. In addition, for members of MPA we believe that over time we can workpartner with Ocwen and other partnersmembers of Lenders One to provide additional avenues for members to sell loans beyond the currentLenders One’s preferred investor

- 34 -


Management’s Discussion arrangements and Analysisthe members own network of
Financial Condition and Results of Operations

(continued)
arrangements resulting loan buyers. We anticipate this will result in improved capital markets execution. We expect this willexecution for the members and facilitate the sale of our services to the members.
Sequentially, Mortgage Services revenues declined principally due to two factors. First, fourth quarter revenues were positively impacted due to the boarding of loans by Ocwen in September. This triggered an elevated level of valuation reports utilized by Ocwen to determine the appropriate course of action for the loans and an elevated level of foreclosure title searches and initiated foreclosure actions. Although the boarding of these loans did ultimately lead to an increase in referrals for various Mortgage Services businesses, we recognize revenue for these referrals over an extended period of time or when the homes sell. Given the seasonal nature of home sales, we would expect Asset Management Services revenues to significantly increase in the second and third quarters. Second, MPA and its consolidated subsidiary contributed $11.4 million of revenue, including $4.1 million attributable to non-controlling interests, and $3.9 million of EBITDA sincewas impacted by the February 2010 acquisition date. This revenue and EBITDA was a sequential improvement and was substantially in line with our internal projections which included a forecastedoverall market decline in loan origination volumes during 2010.activity experienced in the first quarter. Partially offsetting these declines was growth in our insured title business following the receipt of title agent licenses in California and the continued development of our title agent services in other states. We expect this decline to be somewhat mitigated givencontinue to ramp up the accelerated pacetitle insurance agency business through the balance of new members joining the cooperative. Through September 30, 2010, MPA has over 170 Members.year.
Although we believe the development of origination services is important to balancing our service offerings, it will require a significant investment in personnel, technology and management to ensure we can perform these services in-line with customer expectations. When appropriate, we will consider small complementary acquisitions similar in nature to the recent acquisition of Springhouse to facilitate the growth of origination services. Although we will continue to leverage our global delivery model and our experience with technological based solutions, econometrics and behavioral science, these investments could limit our ability to significantly expand Mortgage Services margins calculated based upon Service Revenue during 2011.

24


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Revenue
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Revenue:
                                
Asset Management Services $22,349  $10,570   11,779   111  $54,198  $19,417   34,781   179 
Component Services and Other  11,264   5,198   6,066   117   28,057   13,601   14,456   106 
Residential Property Valuation  8,796   6,233   2,563   41   22,952   20,268   2,684   13 
Closing and Title Services  6,461   4,334   2,127   49   17,878   12,924   4,954   38 
Default Management Services  5,063   2,806   2,257   80   14,718   4,651   10,067   216 
Total Revenue $53,933  $29,141   24,792   85  $137,803  $70,861   66,942   95 
                             
                                 
Transactions with Related Parties:
                                
Asset Management Services  21,250   10,570   10,680   101   53,099   19,417   33,682   174 
Residential Property Valuation  8,729   6,000   2,729   46   22,182   19,613   2,569   13 
Closing and Title Services  3,428   3,235   193   6   10,818   10,370   448   4 
Default Management Services  1,358   1,158   200   17   4,650   1,955   2,695   138 
                             
Total $34,765  $20,963   13,802   66  $90,749  $51,355   39,394   77 
                             
                                 
Reimbursable Expenses:
                                
Asset Management Services  11,899   5,191   6,708   129   29,027   8,337   20,690   248 
Default Management Services  561   489   72   15   1,609   672   937   139 
Closing and Title Services  102      102   N/M   175      175   N/M 
Total $12,562  $5,680   6,882   121  $30,811  $9,009   21,802   242 
                             
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Service Revenue:            
Asset Management Services $12,306  $5,967   106 
Origination Management Services  3,958   2,490   59 
Residential Property Valuation  9,884   6,580   50 
Closing and Title Services  9,381   5,253   79 
Default Management Services  7,483   3,424   119 
Others  328      N/M 
           
Total Service Revenue  43,340   23,714   83 
             
Reimbursable Expenses:            
Asset Management Services  13,881   7,369   88 
Default Management Services  1,187   513   131 
           
Total Reimbursable Expenses  15,068   7,882   91 
             
Non-controlling Interests:  1,299   787   65 
           
Total Revenue $59,707  $32,383   84 
           
             
Transactions with Related Parties:            
Asset Management Services $26,226  $13,380   96 
Residential Property Valuation  9,657   6,015   61 
Closing and Title Services  4,751   3,828   24 
Default Management Services  3,176   1,539   106 
           
Total $43,810  $24,762   77 
           
N/M — not meaningfulmeaningful.
In our Mortgage Services segment, we generate the majority of our revenue by providing outsourced services that span the lifecycle of a mortgage loan primarily for Ocwen or with respect to the residential loan portfolio serviced by Ocwen. In addition to our relationship with Ocwen, we have longstanding relationships with some of the leading capital markets firms, commercial banks, hedge funds, insurance companies, credit unions and lending institutions. We provide products that enhance their ability to make informed investment decisions and manage their core operations. With the acquisition of MPA in February 2010 and our strategic marketing agreement with Members United, we took a significant step in our evolution to become a full service provider in the mortgage services vertical and gained increased access to a growing group of mid-tier mortgage bankers and credit unions.
Asset Management Services.Asset management services principally include property preservation, property inspection, REO asset management and REO brokerage. In the first quarter of 2010, we completed our national network for property preservation services and, including our real estate broker referral network, have national coverage for REO dispositions. The increase in revenue has mostly been driven by our property preservation services to date; however, the increase in REO brokerage referrals should ultimately drive additional revenues as we dispose of these properties on behalf of our clients.
Asset Management Services.Asset Management Services principally include property preservation, property inspection, REO asset management and REO brokerage. In the first quarter of 2010, we completed our national network for property preservation services and, including our real estate broker referral network, have coverage nationally for REO dispositions. The completion of the national network and increases in Ocwen’s loan portfolio are the reasons for the significant growth compared to the prior year period. Sequentially, Service Revenue for this segment increased as a result of the growth in Ocwen’s loan portfolio and an increase in REO properties disposed when compared to the prior period.
Component
Origination Management Services and Other. Origination Management Services includes MPA and our developing fulfillment business. The increase in component services year over year is principally due to an expanded relationship with an existing customer beginning in the second quarter of 2009 and the inclusion of MPA’s results for an entire quarter in 2011 as compared to a partial period in 2010 from the date of acquisition. Sequentially, revenue declined as a result of the general decline in the loan origination market which impacted MPA’s results. For the quarter, MPA added six members.
Residential Property Valuation. As one of the more mature services in our portfolio, residential property valuations are subject to market conditions. During the thirdThe first quarter of 2011 was higher than first quarter 2010 we saw a sequential increase in revenues as a result of Ocwen’s residential loan portfolio growth, includinggrowth. As previously discussed, sequentially we saw a decline in revenues due to the HomEq portfolio, resultingelevated fourth quarter 2010 impact of loans boarded by Ocwen in the ordering of more valuations, particularly broker price opinions. We expect to see this increased level of referrals to continue during the fourth quarter.September 2010.

- 35 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Closing and Title Services.This business includes legacy services such as pre-foreclosure title services as well as an expanded array of title services that were rolled out during 2010 and 2009 principally around REO purchase transactions. During 2010,2011, we are focused on rolling out insured title services nationwide, similar to what we accomplished with our REO closing business in 2010 which explains increase year over year. Sequentially, revenues slightly declined as the growth in insured title agency business in key markets which we believe will drive significant revenue growth in 2011 at attractive margins. We expectproducts was insufficient to obtain agency status in Californiaoffset the elevated title search revenues in the fourth quarter.quarter caused by the boarding of loans by Ocwen in September 2010. We expect closing and title services to significantly grow throughout the year as we expand our insured title agency offerings.

25


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Default Management Services.This group includes support services whereby we provide non-legal back-office support for foreclosure, bankruptcy and eviction attorneys as well as non-judicial foreclosure services in California and Nevada throughtrustee services. The first quarter of 2011 was higher than the first quarter of 2010 as a result of our trustee company Western Progressive, LLC. We do not execute or notarize any foreclosure affidavits. During the third quarter, we experienced a slight sequential decline in revenue. This decline since the second quarter was principally caused by the timing of referrals which were more heavily weighted towards the end of September (resulting in less revenue being recognized in the quarter) and the elongation of the time it takes to process foreclosures which resulted in us extending the period over which we recognize revenue for some states.
Cost of Revenue
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Expenditures $20,557   11,582   8,975   77   53,811   32,033   21,778   68 
Reimbursable Expenses  12,562   5,680   6,882   121   30,811   9,009   21,802   242 
                             
                                 
Cost of Revenue $33,119  $17,262   15,857   92  $84,622  $41,042   43,580   106 
                             
                                 
Gross Margin Percentage:                                
                                 
Cost of Revenue / Total Revenue  39%  41%          39%  42%        
                             
Cost of Revenue less Reimbursable Expenses / Service Revenue  48%  51%          48%  48%        
                             
Primarily during the second and third quarter, we began scaling our operations to support the nationalcontinued rollout of services and in anticipation of the growth in Ocwen’s residential loan portfolio. These costs have principally included increased compensation and benefit and technology costs. Due to the number of persons we were hiringa national platform as well as training time, it was necessaryOcwen’s servicing portfolio growth. Sequentially, we saw a decrease in revenues during the first quarter primarily due to hire these resources several months prior to the completion of Ocwen’s acquisition of the HomEq residential loan portfolio. We expect to begin utilizing these expanded operations to generate additional revenueelevated foreclosure referrals in the fourth quarter and throughout 2011.
Selling, General and Administrative Expenses
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Total Selling, General and Administrative Expenses $4,187  $1,238   2,949   238  $10,683  $4,913   5,770   117 
                             
                                 
Operating Percentage:                                
Operating Income / Total Revenue  31%  37%          31%  35%        
                             
Operating Income / Service Revenue  42%  45%          41%  40%        
                             
Selling, General and Administrative Expenses increased principally as a resultfollowing Ocwen’s boarding of the classification of certain compensation and benefit costs related to segment management and marketing previously being captured eitheradditional loans in Cost of Revenue or as a component of the Corporate segment now being captured in Selling, General and Administrative Expenses. In addition, professional services fees such as those associated with the external audit have increased as a result of being a public company. Such costs are allocated to the segments based upon expected hours to be incurred per segment by the vendor.September.
Our operating margins for the nine months ended September 30, 2010 based on Service Revenue remained relatively flat as the significant additional facility costs as a result of scaling our operations were substantially offset by revenue growth.

- 36 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
EBITDA
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
EBITDA $16,114  $10,719   5,395   50  $41,280  $24,985   16,295   65 
                             
                                 
EBITDA Margin:                                
EBITDA / Total Revenue  30%  37%          30%  35%        
                             
                                 
EBITDA / Service Revenue  41%  46%          40%  40%        
                             
Mortgage Services EBITDA growth in both periods was predominantly driven by the expansion of our national footprint and the increase in Ocwen’s residential loan portfolio in November 2009 and May 2010. Mortgage Services EBITDA margins calculated based upon Service Revenue remained consistent with the second quarter.
Financial Services
The following table presents our results of operations for our Financial Services segment for the three and nine months ending September 30:
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Service Revenue $13,722   15,837   (2,115)  (13) $43,413   49,624   (6,211)  (13)
Reimbursable Expenses  807      807      2,229      2,229    
                         
Total Revenue  14,529   15,837   (1,308)  (8)  45,642   49,624   (3,982)  (8)
                         
                                 
Cost of Revenue  12,134   12,635   (501)  (4)  37,538   40,514   (2,976)  (7)
                             
                                 
Gross Profit  2,395   3,202   (807)  (25)  8,104   9,110   (1,006)  (11)
                                 
Selling, General and Administrative Expenses  4,404   6,802   (2,398)  (35)  11,997   14,632   (2,635)  (18)
                             
                                 
Loss from Operations  (2,009)  (3,600)  1,591   44   (3,893)  (5,522)  1,629   30 
                             
                                 
EBITDA(1)
 $(858) $292   (1,150)  N/M  $(404) $1,020   (1,424)  (140)
                             
                                 
Transactions with Related Parties Above:                                
Revenue $34  $28   6   21  $110  $66   44   67 
                             
Selling, General and Administrative Expenses $  $85   (85)  N/M  $  $467   (467)  N/M 
                             
Interest Expense $  $147   (147)  N/M  $  $1,029   (1,029)  N/M 
                             
(1)See above for a reconciliation of the most directly comparable GAAP measure to EBITDA.
N/M — not meaningful.
Financial Services revenue declined both for the quarter and year to date when compared to the prior year. Sequentially, revenues declined $1.0 million due to decreased placements from our largest customer. We were able to partially offset this decline by increased placements from a customer we began servicing in 2009 as well as growth in revenue from other customers.
Our strategy for 2010 continues to be focused on improving margins principally via improving revenue per collector, expanding our quality initiatives and investing in new technology. In addition, in the fourth quarter of 2010, we named a new President for the segment.

- 37 -

Cost of Revenue
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Expenditures $21,952  $13,411   (64)
Reimbursable Expenses  15,068   7,882   (91)
           
Cost of Revenue $37,020  $21,293   (74)
           
             
Gross Margin Percentage:            
Gross Profit/Service Revenue  52%  47%    
           
Our gross margin was 52% for the first quarter of 2011. Several factors impact our gross margins from period to period including seasonality, the mix of services delivered, timing of investments in new services and the timing of when loans are boarded by our customers.
Selling, General and Administrative Expenses
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Total Selling, General and Administrative Expenses $4,583  $2,443   (88)
           
             
Operating Percentage:            
Income from Operations/Service Revenue  42%  36%    
           
Selling, General and Administrative Expenses increased year over year principally due to the exponential growth in the segment which required investments in facilities, technology and other general and administrative costs. As this segment continues to grow, we should see continued leverage resulting in increased margin.

26


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Financial Services
The following table presents our results of operations for our Financial Services segment for the three months ending March 31:
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Service Revenue $18,920  $19,397   (2)
Reimbursable Expenses  573   648   (12)
           
Total Revenue  19,493   20,045   (3)
             
Cost of Revenue  13,488   14,526   7 
           
Gross Profit  6,005   5,519   9 
             
Gross Profit/Service Revenue  32%  28%    
             
Selling, General and Administrative Expenses  4,460   4,100   (9)
           
Income / (Loss) from Operations $1,545  $1,419   9 
           
             
Income from Operations/Service Revenue  8%  7%    
        
Transactions with Related Parties:            
Revenue $29  $51   (43)
           
As discussed above, Customer Relationship Management now includes certain services that were originally recorded as part of Mortgage Services.
Financial Services revenue declined compared to the prior year due to a decline in revenue from the segment’s largest customer. The decline was in part as a result of the client shifting work to the Company’s global delivery platform which resulted in lower revenue although higher margins. This decline was partially offset by growth in new asset recovery management accounts and growth in customer relationship management revenues. Sequentially, revenue grew $0.8 million, or 5%, primarily due to the seasonality of collections.
Our new leadership team is focused on disciplined floor management and cost containment as well as improving the analytics to determine which accounts to contact, what offer to make and what to say. In addition, we are focused on delivering more services over our global delivery platform, expanding our quality initiatives and investing in new technology. We expect limited revenue growth in this segment and instead will be focused on the performance of our collectors, which should facilitate future year growth as well as margin improvement.
Revenue
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Service Revenue:            
Asset Recovery Management $10,904  $12,172   (10)
Customer Relationship Management  8,016   7,225   11 
           
Total Service Revenue  18,920   19,397   2 
             
Reimbursable Expenses:            
Asset Recovery Management  573   648   (12)
           
Total Reimbursable Expenses  573   648   (12)
           
             
Total Revenue  19,493   20,045   3 
           
        
Transactions with Related Parties:            
Asset Recovery Management $29  $51   (43)
           

27


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition and Results of Operations
(continued)
Revenue
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Revenue:
                                
Asset Recovery Management $11,542  $12,180   (638)  (5) $36,937  $39,419   (2,482)  (6)
Customer Relationship Management  2,987   3,657   (670)  (18)  8,705   10,205   (1,500)  (15)
                             
                                 
Total Revenue $14,529  $15,837   (1,308)  (8) $45,642  $49,624   (3,982)  (8)
                             
                                 
Transactions with Related Parties:
                                
Asset Recovery Management $34  $28   6   21  $110  $66   44   67 
                             
In our Financial Services segment, we generate the majority of our revenue from asset recovery management fees we earn for collecting amounts due to our customers and from fees we earn for performing customer relationship management for our customers.
Asset Recovery Management.Our revenues associated with contingency collections declined in both periods principallywhen compared to the first quarter of 2010 due to a decline in revenues from our largest customer. The decline was in part a result of the client shifting work to the Company’s global delivery platform which resulted in lower revenue although generally at higher margins and as a result of collector performance. In general, we have seen improved performance of our collectors which we believe will translate into better placements and a shift in placements to operations that provide lower per collector revenue, but higher margin.the future should such performance continue.
Customer Relationship Management. Our revenues associated with customer relationship management declinedincreased year over both periods as we sought to wind down our relationship with one customer due to unsatisfactory margins as well as due to the seasonal nature of the business. In the third quarter, we expanded our relationship with another customer.
Cost of Revenue
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Expenditures $11,327  $12,635   (1,308)  (104) $35,309  $40,514   (5,205)  (13)
Reimbursable Expenses  807      807   N/M   2,229      2,229   N/M 
                             
                                 
Cost of Revenue $12,134  $12,635   (501)  (4) $37,538  $40,514   (2,976)  (7)
                             
                                 
Gross Margin Percentage:                                
                                 
Cost of Revenue / Total Revenue  16%  20%          18%  18%        
                             
                                 
Cost of Revenue less Reimbursable Expenses / Service Revenue  17%  20%          19%  18%        
                             
N/M — not meaningful.
Our Cost of Revenues, net of reimbursable expenses, decreased principally due to a reduction in compensation and benefitsyear as a result of a lower number of collectors and reduced commissions. In addition, we continueincreased services to seek waystwo key customers. We expect revenues to reduce technology and communication costs for this segment.

- 38 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Selling, General and Administrative Expenses
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Total Selling, General and Administrative Expenses $4,404  $6,802   (2,398)  (35) $11,997  $14,632   (2,635)  (18)
                             
                                 
Operating Percentage:                                
                                 
Operating Income / Total Revenue  (14)%  (23)%          (9)%  (11)%        
                             
                                 
Operating Income / Service Revenue  (15)%  (23)%          (9)%  (11)%        
                             
During the nine months ended September 30, 2009, we recognized $2.3 million (all recorded in the third quarter) in facility closure costs. Excluding these costs, Selling, General and Administrative Expenses in both 2010 periods were consistent with the comparative 2009 periods.
EBITDA
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
EBITDA $(858) $292   (1,150)  N/M  $(404) $1,020   (1,424)  (140)
                             
                                 
EBITDA Margin:                                
EBITDA / Total Revenue  (6)%  2%          (1)%  2%        
                             
Financial Services EBITDA declined $1.2 million year over year despite a revenue decline of $4.0 million which reflects the cost savings initiatives we undertookbe flat or decrease in the second half of 2009 and the wind-down of business from a lower marginquarter due to customer relationship management client in 2010. Sequentially EBITDA declinedrequirements offset in part due to the seasonality of the business as well as the previously mentioned decline in placements. The facility closure costs discussed above were offset by a litigation settlement of $2.3 million awarded to us during the third quarter of 2009.seasonality.

- 39 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Cost of Revenue
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
Expenditures $12,915   13,878   7 
             
Reimbursable Expenses  573   648   12 
           
Cost of Revenue $13,488  $14,526   7 
           
             
Gross Margin Percentage:            
Gross Profit/Service Revenue  32%  28%    
           
Our gross margin was 32% for the first quarter of 2011. The primary component of Cost of Revenue is compensation and benefits for our collectors. Personnel costs declined when compared to the prior year as a result of expanding our global delivery footprint while rationalizing higher cost locations. This was partially offset by higher technology costs.
Selling, General and Administrative Expenses
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Total Selling, General and Administrative Expenses $4,460  $4,100   (9)
           
             
Operating Percentage:            
Income / (Loss) from Operations/Service Revenue  8%  7%    
           
Selling, General and Administrative Expenses increased, compared to the prior year, primarily as a result of additional costs incurred to support increased placements and the expansion of our Goa facility.

28


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Technology Services
The following table presents our results of operations for our Technology Services segment for the three months ending March 31:
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Revenue $12,716  $11,974   6 
Cost of Revenue  7,445   6,647   (12)
           
Gross Profit  5,271   5,327   (1)
             
Gross Profit/Service Revenue  41%  44%    
             
Selling, General and Administrative Expenses  1,196   1,106   (8)
           
Income from Operations $4,075  $4,221   (3)
           
             
Income from Operations/Service Revenue  32%  35%    
             
Transactions with Related Parties:            
Revenue $4,951  $4,438   12 
           
The primary focus of the Technology Services segment is to support the growth of Mortgage Services and Ocwen. In addition, Technology Services is assisting in the cost reduction and quality initiatives on-going within the Financial Services segment. In 2011, we intend to expend significant resources, principally personnel costs and external consulting costs to accomplish three key objectives:
The re-architecture and enhancement of our REALSuite of services;
The deployment of business process management and business intelligence reporting systems to more effectively manage our operations; and
The development and early stage incubation of technology solutions principally based on patented technologies.
Effective January 1, 2011, we modified our pricing for IT Infrastructure Services within our Technology Services segment from a rate card model based principally on headcount to a fully loaded costs plus mark-up methodology. This new model applies to the infrastructure amounts charged to Ocwen as well as internal allocations of infrastructure costs.
Revenue
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Service Revenue:            
REAL Suite $8,156  $6,986   17 
IT Infrastructure Services  4,560   4,988   (9)
           
Total Revenue $12,716  $11,974   6 
           
        
Transactions with Related Parties:            
REALSuite $1,946  $2,555   (24)
IT Infrastructure Services  3,005   1,883   60 
           
Revenue $4,951  $4,438   12 
           
Technology Products
The following table presents our results of operations for our Technology Products segment for the three and nine months ending September 30:
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Revenue $12,963  $12,451   512   4  $37,422  $35,133   2,289   7 
Cost of Revenue  7,239   5,582   1,657   30   20,555   18,042   2,513   14 
                             
                                 
Gross Profit  5,724   6,869   (1,145)  (17)  16,867   17,091   (224)  (1)
                                 
Selling, General and Administrative Expenses  1,610   1,084   526   49   4,040   3,880   160   4 
                             
                                 
Income from Operations $4,114  $5,785   (1,671)  (29) $12,827  $13,211   (384)  (3)
                             
                                 
EBITDA(1)
 $5,253  $6,545   (1,292)  (20) $15,869  $15,468   401   3 
                             
                                 
Transactions with Related Parties Above:                                
Revenue $4,660  $5,044   (384)  (8) $13,635  $15,801   (2,166)  (14)
                             
Selling, General and Administrative Expenses $  $294   (294)  N/M  $  $1,517   (1,517)  N/M 
                             
Interest Expense $  $39   (39)  N/M  $  $231   (231)  N/M 
                             
(1)
 See “above for a reconciliation of the most directly comparable GAAP measure to EBITDA.
N/M— not meaningful.
The primary focus of the Technology Products segment continues to be supporting the growth of Mortgage Services and Ocwen as well as the cost reduction and quality initiatives on-going within the Financial Services segment. During the first quarter, we re-organized the management team of Technology Products by naming a new President for the segment. We are focused on enhancing our development and infrastructure capabilities to support both our expansion efforts and those of Ocwen. In addition, we remain focused on the longer-term commercialization of our service offerings to expand their applicability to a broader audience.
Revenue
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Revenue:
                                
REALSuite $7,864  $6,822   1,042   15  $22,415  $18,478   3,937   21 
IT Infrastructure Services  5,099   5,629   (530)  (9)  15,007   16,655   (1,648)  (10)
                             
Total Revenue $12,963  $12,451   512   4  $37,422  $35,133   2,289   7 
                             
                                 
Transactions with Related Parties:
                                
REALSuite $2,744  $2,445   299   12  $7,952  $7,281   671   9 
IT Infrastructure Services  1,916   2,599   (683)  (26)  5,683   8,520   (2,837)  (33)
                             
Total $4,660  $5,044   (384)  (8) $13,635  $15,801   (2,166)  (14)
                             
Beginning with the second quarter of 2009, we began generating the majority of our revenue within this segment from our REALSuite of services, and we expect this trend to continue for the foreseeable future.
REALSuite. Our REALSuite revenue is primarily driven by our REALServicing® product which is our comprehensive residential loan servicing platform. IncreasesThe primary driver for the growth in both year-to-date and quarterly revenues were driven by increases in REALServicing

- 40 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
attributable to an expanded agreement with a non-related third party customer andrevenue is the growthincrease in Ocwen’s residential loan portfolio.

29


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
IT Infrastructure Services.Our IT infrastructure services revenues declined when compared to the comparable periodsperiod in 2009 primarily2010 almost entirely due to lower intercompany billings (which we eliminateour change in consolidation but includepricing for infrastructure services. The mark-ups are based upon economic studies performed consistent with our transfer pricing methodology. We expect revenues to be consistent or down in our segment presentation) and reduced charges to Ocwen. Sequentially, Revenue increased slightly as Ocwen expanded their operations to support the acquisition of the HomEq residential loan portfolio.
Cost of Revenue
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Cost of Revenue $7,239  $5, 582   1,657   30  $20,555  $18,042   2,513   14 
                             
                                 
Gross Margin Percentage:                                
                                 
Cost of Revenue / Total Revenue  44%  55%          45%  49%        
                             
Cost of Revenue margins decreased both year to date and in the third quarter as a result of an increase in compensation and benefitsfuture periods as we added personnel to enhance our service capabilities, support our growthfocus on reducing costs both internally and commercialize our products. In addition, in the third quarter, technology and communications costs increased both as a result of the addition of new facilities and the expansion of bandwidth at existing facilities to handle the increased demands expected in the fourth quarter.
Selling, General and Administrative Expenses
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
Total Selling, General and Administrative Expenses $1,610  $1,084   526   49  $4,040  $3,880   160   4 
                             
                                 
Operating Percentage:                                
                                 
Operating Income / Total Revenue  32%  46%          34%  38%        
                             
Selling, General and Administrative Expenses increased both year to date and in the third quarter as a result of increased occupancy charges associated with the new data center. Sequentially, Selling, General and Administrative Expenses increased primarily as a result of costs incurred in preparing for the HomEq transaction.Ocwen.
EBITDA
                                 
  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) 2010  2009  $ Change  % Change  2010  2009  $ Change  % Change 
EBITDA $5,253  $6,545   (1,292)  (20) $15,869  $15,468   401   3 
                             
                                 
EBITDA Margin:                                
EBITDA / Total Revenue  41%  53%          42%  44%        
                             
Technology Products EBITDA increased year over year but declined quarter over quarter. Sequentially, margins decreased as higher revenues were more than offset by increased compensation and occupancy costs associated with the new data center as described above. The Company is increasing expenditures in technology software and hardware to support its commercialization efforts, Ocwen’s growing servicing portfolio and Altisource’s growth.

- 41 -


Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
SECTION 4 — LIQUIDITY AND CAPITAL RESOURCES
Cost of Revenue
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Cost of Revenue $7,445  $6,647   (12)
           
             
Gross Margin Percentage:            
Cost of Revenue / Total Revenue  41%  44%    
           
Our gross margin declined to 41% when compared to the first quarter of 2011 primarily as a result of compensation and benefits as we added personnel to enhance our service capabilities as well as the previously mentioned change in billing methodology.
Selling, General and Administrative Expenses
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Total Selling, General and Administrative Expenses $1,196  $1,106   (8)
           
             
Operating Percentage:            
Operating Income / Total Revenue  32%  35%    
           
Selling, General and Administrative Expenses increased slightly primarily due to higher occupancy charges. Margins principally decreased as a result of the previously mentioned change in billing methodology.
Corporate
Our Corporate Segment includes costs recognized by us related to corporate support functions such as finance, legal, human resources, compliance and quality assurance.
             
  Three Months Ended March 31, 
          % 
(in thousands) 2011  2010  Better/(worse) 
             
Total Selling, General and Administrative Expenses $6,015  $4,420   (36)
           
Corporate costs rose throughout 2010 as we invested in staff to support our growing operations. In the first quarter, we hired additional resource principally focused on legal, compliance and quality assurance. In addition, we continue to invest in an enterprise resource planning system that we expect will increase the quality of our support functions and over time reduce costs.

30


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We seek to deploy excess cash generated in a disciplined manner. Principally, we will continue to invest in compelling services that we believe will generate high margins. In addition, we may seek to acquire a limited number of complementary companies that fit our strategic objectives. Finally, given the tax inefficiency of dividends, the low returns earned on cash held and our current belief to pursue a limited number of acquisitions, we believe one of the best ways to return value to shareholders is a stock repurchase program.
On May 19, 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market. Through March 31, 2011, we purchased 0.9 million shares of our common stock on the open market at an average price of $27.85, leaving 2.9 million shares still available for purchase.
Liquidity
We believe that we have the ability to generate more than sufficient cash from our current operations for the next twelve months to meet anticipated cash requirements. Anticipated cash requirements principally include operational expenditures such as compensation and benefits, working capital requirements and spending for capital expenditures.
We generate significant excess cash that we will seek to deploy in a disciplined manner. Principally, we will continue to invest in compelling services that we believe will generate high margins. In addition, we may seek to acquire a limited number of companies that fit our strategic objectives. Finally, given the tax inefficiency of dividends, the low returns earned on cash held and our desire to only perform a limited number of acquisitions, we believe one of the best ways to return value to shareholders is a share repurchase program. On May 19, 2010, our shareholders authorized us to purchase up to 3,784,618 shares of our common stock in the open market. During the third quarter of 2010, we purchased 86,098 shares of our common stock on the open market at an average price of $26.81, leaving 3,698,520 shares still available for purchase. Subsequently, during October, we purchased an additional 65,317 shares. As of October 25, 2010, we have repurchased a total of 151,415 shares at an average share price of $26.39.
Cash Flows
The following table presents our cash flows for the ninethree months ended September 30:March 31:
                            
 Nine Months Ended September 30,  Three Months Ended March 31, 
(in thousands) 2010 2009 $ Change % Change 
Net Income Adjusted for Non-cash Items $46,819 $24,876 21,943 88 
 % 
(dollars in thousands) 2011 2010 Better/(worse) 
 
Net Income Adjusted for Non-Cash Items $21,627 $10,869 99 
Working Capital  (13,558) 1,510  (15,068) N/M   (5,028) 8,816  (157)
          
Cash Flow from Operating Activities 33,261 26,386 6,875 26  16,599 19,685  (16)
Cash Flow from Investing Activities  (35,744)  (3,787)  (31,957) N/M   (2,645)  (29,075) 91 
Cash Flow from Financing Activities  (4,936)  (4,877)  (59)  (1)  (9,764)  (1,446) N/M 
          
Net Change in Cash  (7,419) 17,722  (25,141)  (142) 4,190  (10,836) 139 
Cash at Beginning of Period 30,456 6,988 23,468 N/M  22,134 30,456  (27)
          
Cash at End of Period $23,037 $24,710  (1,673)  (7) $26,324 $19,620 34 
          
N/M — Not meaningful.
N/M— not meaningful.
Cash Flow from Operating Activities
Cash flow from operating activities consists of two components:components including (i) net income adjusted for depreciation, amortization and certain other non-cash items and (ii) working capital. ForIn the nine months ended September 30, 2010,first quarter of 2011, we generated $33.3$16.6 million in positive cash flow from operations whichoperations. This primarily reflects our increased profitability adjusted for non-cash items as our businesses have expanded. Our working capital requirements increased significantly duringin the third quarterperiod as a result of our expanded Asset Management and Default Managementyear-over-year growth in mortgage related services within our Mortgage Services segmentpartially offset by a decline in working capital. The decline in working capital was due to the timing of services incurred at year-end and the increase in associated referrals.payments to vendors as well as the payment of incentive compensation.
Cash Flow from Investing Activities
The largestmost significant use of cash flow for investing activities in the first quarter of 2011 was the purchase of equipment and technology as well as external consulting costs associated with our Technology Services initiatives. Our cash flow from investing activities in 2010 includes the acquisition of MPA in February 2010 for which the purchase consideration included $29.0 million in cash. In addition, in first quarter 2011 we saw an increaseinvested approximately $1.1 million in purchasesCorrespondent One to facilitate the establishment of premises and equipment and technologythis business. We currently expect capital expenditures in 2011 to supportbe consistent with 2010 levels as we expect to ramp up our expansion of operations and in anticipated growth in Ocwen’s residential loan portfolio.development costs related to REALSuite.
Cash Flow from Financing Activities
During 2010, cashCash flow from financing activities in 2011 primarily includes activity associated with stock option exercises, share repurchases and payments to non-controlling interest ownersinterests as a result of the acquisition of MPA. Prior to our SeparationWe utilized significantly more cash from Ocwen, we participated infinancing activities as a centralized cash management program with Ocwen. We made a significant amountresult of our cash disbursements through centralized payable systems which were operated by Ocwen,stock repurchase program.
Liquidity Requirements after March 31, 2011
During the second quarter of 2011, we expect to distribute $1.3 million to non-controlling interests; $1.7 million for the Springhouse acquisition and a significant amount of$14.0 million to fund our cash receiptsremaining commitment to Correspondent One.

- 42 -

31


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
were received by us and transferred to centralized accounts maintained by Ocwen. There were no formal financing arrangements with Ocwen. Prior to the Separation we recorded all cash receipts and disbursement activity between Ocwen and us through invested equity in the Condensed Consolidated Balance Sheets and as net distributions in the Condensed Consolidated Statements of Equity and Cash Flows because we considered such amounts to have been distributed to Ocwen.
Liquidity Requirements after September 30, 2010
Between October 1 and October 25, 2010, we repurchased 65,317 shares at a total cost of $1.7 million.
During the fourth quarter 2010, we expect to distribute $2.1 million to non-controlling interests.
Management is not aware of any other trends or events, commitments or uncertainties which have not otherwise been disclosed that will or are likely to impact liquidity in a material way.
Capital Resources
Given our ability to generate cash flow which is sufficient to fund both current operations as well as expansion activities,of our operations, we require very limited capital. Were we to need additional capital, we believe we have adequate access to both debt and equity capital markets.
Commitments and Contingencies
For details of these transactions, see Note 1613 to the condensed consolidated financial statements.
SECTION 5 — CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States. In applying many of these accounting principles, we need to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our condensed consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective. Actual results may be affected negatively based on changing circumstances. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.
Our critical accounting policies are described in the MD&A section in our 2009 Form 10-K.10-K for the year ended December 31, 2010. Such policies have not changed during 2010.
the first quarter of 2011.
SECTION 6 — OTHER MATTERS
Related Party — Ocwen
For the ninethree months ended September 30, 2010,March 31, 2011, approximately $90.7$44 million of the Mortgage Services, $0.1$0.03 million of the Financial Services and $13.6$5.0 million of the Technology ProductsServices segment revenues were from services provided to Ocwen or sales derived from Ocwen’s loan servicing portfolio. Services provided to Ocwen included residential property valuation, real estate asset management and sales, trustee management services, property inspection and preservation, closing and title services, charge-off second mortgage collections, core technology back office support and multiple business technologies including our REALSuite of products. We provided all services at rates we believe to be comparable to market rates.
In connection with the Separation, Altisource and Ocwen entered into various agreements that address the allocation of assets and liabilities between them and that define their relationship after the Separation including a Separation Agreement, a Tax Matters Agreement, an Employee Matters Agreement, an Intellectual Property Agreement, a Data Center and Disaster Recovery Agreement, a Technology Products Services Agreement, a Transition Services Agreement and certain long-term servicing contracts (collectively, the “Agreements”) (see Note 4 to our 2009 Form 10-K). For the ninethree months ended September 30,March 31, 2010, Altisource billed Ocwen $1.2$0.4 million, ($0.5 million for the third quarter), and Ocwen billed Altisource $0.8$0.3 million ($0.2 million for the third quarter) for services provided under the Transition Services Agreement. These amounts are reflected as a component of Selling, General and Administrative expensesExpenses in the accompanying Condensed Consolidated Statements of Operations.

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
SECTION 7 — FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements that relate to, among other things, our future financial and operating results. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms and other comparable terminology including, but not limited to, the following:
assumptions related to the sources of liquidity and the adequacy of financial resources;
assumptions about our ability to grow our business;
assumptions about our ability to reduce our cost structure;
expectations regarding collection rates and placements in our Financial Services segment;
estimates regarding the calculation of our effective tax rate; and
estimates regarding our reserves and valuations.
Forward-looking statements are not guarantees of future performance and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the risks discussed in “Risk Factors” in our Registration Statement on Form 10 and the following:
our ability to retain existing customers and attract new customers;
general economic and market conditions;
governmental regulations, taxes and policies; and
availability of adequate and timely sources of liquidity.
We caution you not to place undue reliance on these forward-looking statements which reflect our view only as of the date of this report. We are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any such statement is based.

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Item 3.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our financial market risk consists primarily of foreign currency exchange risk.
Foreign Currency Exchange Risk
We consider the US Dollarare exposed to beforeign currency exchange rate risk in connection with our investment in non-U.S. dollar functional currency worldwide and the majority of our servicing agreementsoperations, which are denominated in US Dollars. Where required locally, we incur certain costs, primarily lease and payroll costs, in local currencies which include the Euro and Indian Rupee. Costs incurred in local currencies expose us to foreign exchange rate fluctuationsvery limited, to the extent that our foreign exchange positions remain un-hedged.
Item 4. Controls and Procedures.
Item 4.
Controls and Procedures.
a) 
Evaluation of Disclosure Controls and Procedures
 
  Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on such evaluation, such officers have concluded that our disclosure controls and procedures as of the end of the period covered by this quarterly report were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
b) 
Internal Control over Financial Reporting
 
  There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ending September 30, 2010,March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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33


PART II — OTHER INFORMATION
Item 1.
Item 1. Legal Proceedings.
We are subject to routine litigation and administrative proceedings arising in the ordinary course of business.
Item 1A.
Item 1A. Risk Factors.
As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our 2009 Form 10-K.10-K for the year ended December 31, 2010.
Item 2.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Equity Securities purchased by us
The following table presents information related to our repurchases of our equity securities during the three months ended September 30, 2010:March 31, 2011:
                 
          Total number    
          of shares    
          purchased as  Maximum number 
  Total  Weighted  part of publicly  of shares that may 
  number of  average  announced plans  yet be purchased 
  shares  price paid  or  under the 
Period purchased  per share  programs(1)  plans or programs 
Common shares(1):
                
July 1 — 31, 2010    $      3,784,618 
August 1 — 31, 2010           3,784,618 
September 1 — 30, 2010  86,098   26.81   86,098   3,698,520 
             
Total common shares  86,098  $26.81   86,098   3,698,520 
             
                 
          Total number  Maximum 
          of shares  number 
          purchased as  of shares that 
          part of  may 
          publicly  yet be 
  Total  Weighted  announced  purchased 
  number of  average  plans  under the 
  shares  price paid  or  plans or 
Period purchased  per share  programs(1)  programs 
                 
Common shares(1):
                
January 1 – 31, 2011    $      3,128,503 
February 1 – 28, 2011  26,000   30.09   26,000   3,102,503 
March 1 – 31, 2011  205,795   30.00   205,795   2,896,708 
             
                 
Total common shares  231,795  $30.01   231,795   2,896,708 
             
(1) In the second quarter of 2010, our shareholders authorized us to purchase up to 3,784,6183.8 million shares of our common stock in the open market.
Item 3.
Item 3. Defaults upon Senior Securities.None
Item 4. (Removed
Item 4.
(Removed and Reserved)
Item 5.
Item 5. Other Information.None
Item 6.
Item 6. Exhibits.
31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
32.1 
Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002 (filed herewith)

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34


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
     
 ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Registrant)
 
Date: OctoberApril 28, 20102011 By:  /s/ Robert D. Stiles   
  Robert D. Stiles  
  Chief Financial Officer
(On behalf of the Registrant and as its
principal financial officer) 
 

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35