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 ~~June~~September 30, 2011


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)		~~Not applicable~~ (I.R.S. Employer Identification No.)

291, 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).Yesþ Noo

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 filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

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 ~~July~~October 15, 2011, there were ~~24,505,125~~23,850,249 outstanding shares of the registrant’s shares of beneficial interest (excluding ~~907,623~~1,562,499 shares held as treasury stock).

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-Q


	Page

PART I — Financial Information

Item 1 Interim Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets		3

Condensed Consolidated Statements of Operations		4

Condensed Consolidated Statements of Equity		5

Condensed Consolidated Statements of Cash Flows		6

Notes to Condensed Consolidated Financial Statements

Note 1 — Organization and Basis of Presentation		7

Note 2 — Transactions with Related Parties		8

Note 3 — ~~Accounts Receivable, Net~~Acquisitions		9

Note 4 — ~~Prepaid Expenses and Other Current Assets~~Accounts Receivable, Net		1011

Note 5 — ~~Premises and Equipment, Net~~		10

~~Note 6 — Goodwill and Intangible, Net~~		10

~~Note 7 — Accounts Payable, Accrued~~Prepaid Expenses and Other Current ~~Liabilities~~Assets		12

Note 86 — ~~Equity Based Compensation~~Premises and Equipment, Net		12

Note 7 — Goodwill and Intangible Assets, Net		13

Note 98 — ~~Cost of Revenue~~Investment in Equity Affiliate		1514

Note 9 — Other Non-current Assets		14

Note 10 — ~~Selling, General~~Accounts Payable, Accrued Expenses and ~~Administrative Expenses~~Other Current Liabilities		15

Note 11 — ~~Other Income (Expense), Net~~Stock Based Compensation		16

Note 12 — ~~Earnings Per Share~~Cost of Revenue		1617

Note 13 — ~~Commitments~~Selling, General and ~~Contingencies~~Administrative Expenses		1618

Note 14 — Other Income (Expense), Net		18

Note 15 — Earnings Per Share		19

Note 16 — Commitments and Contingencies		19

Note 17 — Segment Reporting		1719

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		2022

Item 3 Quantitative and Qualitative Disclosures about Market Risk		3842

Item 4 Controls and Procedures		3842

PART II — Other Information

Item 1 Legal Proceedings		3943

Item 1A Risk Factors		3943

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		3943

Item 3 Defaults Upon Senior Securities		3943

Item 4 (Removed and Reserved)		3943

Item 5 Other Information		3943

Item 6 Exhibits		4044

SIGNATURES

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION


Item 1.		Interim Condensed Consolidated Financial Statements (Unaudited)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, Except per Share Data)


		June 30,			December 31,				September 30,			December 31,
		2011			2010				2011			2010

ASSETS	ASSETS							ASSETS

Current Assets:
Cash and Cash Equivalents		$	35,032		$	22,134			$	21,250		$	22,134
Accounts Receivable, net			52,495			53,495				50,239			53,495
Prepaid Expenses and Other Current Assets			4,405			13,076				6,793			13,076
Deferred Tax Assets, net			633			551
Deferred Tax Asset, net										2,328			551

Total Current Assets			92,565			89,256				80,610			89,256

Restricted Cash			1,222			1,045				1,222			1,045
Premises and Equipment, net			16,814			17,493				22,626			17,493
Deferred Tax Assets, net			490			1,206
Deferred Tax Asset, net										—			1,206
Intangible Assets, net			69,269			72,428				67,066			72,428
Goodwill			12,537			11,836				14,915			11,836
Investment in Equity Affiliate			3,328			—				14,645			—
Other Non-current Assets			6,824			4,536				8,645			4,536


Total Assets		$	203,049		$	197,800			$	209,729		$	197,800


LIABILITIES AND EQUITY	LIABILITIES AND EQUITY							LIABILITIES AND EQUITY

Current Liabilities:
Accounts Payable and Accrued Expenses		$	27,625		$	35,384			$	33,697		$	35,384
Capital Lease Obligations — Current			651			680				643			680
Other Current Liabilities			3,574			5,616				8,151			5,616

Total Current Liabilities			31,850			41,680				42,491			41,680

Capital Lease Obligations — Non-current			541			852				345			852
Deferred Tax Liability, net										539			—
Other Non-current Liabilities			2,782			3,370				2,679			3,370

Commitment and Contingencies (Note 13)
Commitment and Contingencies

Equity:
Common Stock ($1.00 par value; 100,000 shares authorized; 25,413 shares issued and 24,586 outstanding in 2011; 25,413 shares issued and 24,881 outstanding in 2010)			25,413			25,413
Common Stock ($1.00 par value; 100,000 shares authorized; 25,413 shares issued and 23,979 outstanding in 2011; 25,413 shares issued and 24,881 outstanding in 2010)										25,413			25,413
Retained Earnings			84,744			58,546				100,984			58,546
Additional Paid-in Capital			80,676			79,297
Treasury Stock, at cost ($1.00 par value; 827 and 532 shares in 2011 and 2010, respectively)			(24,442	)		(14,418	)
Additional Paid-in-Capital										81,406			79,297
Treasury Stock, at cost ($1.00 par value; 1,434 and 532 shares in 2011 2010, respectively)										(46,171	)		(14,418	)

Altisource Equity			166,391			148,838				161,632			148,838

Non-controlling Interests			1,485			3,060				2,043			3,060

Total Equity			167,876			151,898				163,675			151,898


Total Liabilities and Equity		$	203,049		$	197,800			$	209,729		$	197,800

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, Except Per Share Data)


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2011			2010			2011			2010			2011			2010			2011			2010

Revenue	$	93,268		$	71,348		$	181,938		$	132,321		$	109,793		$	77,580		$	291,731		$	209,901
Cost of Revenue		63,097			44,375			118,046			83,729			73,339			48,913			191,385			132,642


Gross Profit		30,171			26,973			63,892			48,592			36,454			28,667			100,346			77,259
Selling, General and Administrative Expenses		13,904			12,476			30,158			24,545			15,329			14,730			45,487			39,275


Income from Operations		16,267			14,497			33,734			24,047			21,125			13,937			54,859			37,984

Other Income (Expense), net		270			40			614			(32	)		(320	)		698			294			666


Income Before Income Taxes and Non-controlling Interests		16,537			14,537			34,348			24,015			20,805			14,635			55,153			38,650
Income Tax (Provision) Benefit		(1,847	)		3,107			(3,534	)		722
Income Tax Provision														(1,843	)		(2,751	)		(5,377	)		(2,029	)


Net Income		14,690			17,644			30,814			24,737			18,962			11,884			49,776			36,621

Net Income Attributable to Non-controlling Interests		(1,305	)		(1,297	)		(2,604	)		(2,084	)		(1,791	)		(2,052	)		(4,395	)		(4,136	)


Net Income Attributable to Altisource	$	13,385		$	16,347		$	28,210		$	22,653		$	17,171		$	9,832		$	45,381		$	32,485


Earnings Per Share:
Basic	$	0.54		$	0.65		$	1.14		$	0.91		$	0.71		$	0.39		$	1.84		$	1.30

Diluted	$	0.52		$	0.62		$	1.09		$	0.87		$	0.67		$	0.37		$	1.76		$	1.24


Weighted Average Shares Outstanding:
Basic		24,625			25,226			24,734			24,960			24,341			25,318			24,602			25,080

Diluted		25,773			26,247			25,851			25,965			25,489			26,544			25,720			26,168


Transactions with Related Parties Included Above:
Revenue	$	53,694		$	35,784		$	102,484		$	65,035		$	63,827		$	39,459		$	166,311		$	104,494
Selling, General and Administrative Expenses	$	455		$	264		$	846		$	588		$	506		$	223		$	1,352		$	811

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)


	Altisource Equity												Non-								Altisource Equity												Non-
					Retained			Additional		Treasury			controlling						Comprehensive						Retained			Additional		Treasury			controlling						Comprehensive
	Common Stock				Earnings			Paid-in Capital		Stock, at Cost			Interests			Total			Income		Common Stock				Earnings			Paid-in Capital		Stock, at 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		—		—		22,653			—		—			2,084			24,737		$	24,737		—		—		32,485			—		—			4,136			36,621		$	36,621
Acquisition of MPA		959		959		—			22,941		—			3,268			27,168			—		959		959		—			22,941		—			3,268			27,168			—
Contributions from Non-controlling Interest Holders		—		—		—			—		—			18			18			—		—		—		—			—		—			28			28			—
Distributions to Non-controlling Interest Holders		—		—		—			—		—			(3,896	)		(3,896	)		—		—		—		—			—		—			(5,207	)		(5,207	)		—

Share-based Compensation Expense		—		—		—			973		—			—			973			—		—		—		—			2,134		—			—			2,134			—
Exercise of Stock Options		127		127		—			1,150		—			—			1,277			—		298		298		—			2,708		—			—			3,006			—
Delivery of Vested Restricted Stock																						11		11		—			—		—			—			11			—
Repurchase of Shares																						—		—		—			—		(2,311	)		—			(2,311	)		—


Balance, June 30, 2010		25,231	$	25,231	$	34,318		$	75,602	$	—		$	1,474		$	136,625		$	24,737
Balance, September 30, 2010																						25,413	$	25,413	$	44,150		$	78,321	$	(2,311	)	$	2,225		$	147,798		$	36,621


Balance, December 31, 2010		25,413	$	25,413	$	58,546		$	79,297	$	(14,418	)	$	3,060		$	151,898					25,413	$	25,413	$	58,546		$	79,297	$	(14,418	)	$	3,060		$	151,898			—
Net Income		—		—		28,210			—		—			2,604			30,814		$	30,814		—		—		45,381			—		—			4,395			49,776		$	49,776
Contributions from Non-controlling Interest Holders		—		—		—			—		—			14			14			—		—		—		—			—		—			31			31			—
Distributions to Non-controlling Interest Holders		—		—		—			—		—			(4,193	)		(4,193	)		—		—		—		—			—		—			(5,443	)		(5,443	)		—
Share-based Compensation Expense		—		—		—			1,379		—			—			1,379			—		—		—		—			2,109		—			—			2,109			—
Exercise of Stock Options		—		—		(2,012	)		—		2,522			—			510			—		—		—		(2,943	)		—		3,718			—			775			—
Repurchase of Shares		—		—		—			—		(12,546	)		—			(12,546	)		—		—		—		—			—		(35,471	)		—			(35,471	)		—

Balance, June 30, 2011		25,413	$	25,413	$	84,744		$	80,676	$	(24,442	)	$	1,485		$	167,876		$	30,814
Balance, September 30, 2011																						25,413	$	25,413	$	100,984		$	81,406	$	(46,171	)	$	2,043		$	163,675		$	49,776

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Six Months Ended						Nine Months Ended
	June 30,						September 30,
	2011			2010			2011			2010

Cash flows from Operating Activities:
Cash Flows from Operating Activities:
Net Income	$	30,814		$	24,737		$	49,776		$	36,621
Reconciling Items:
Depreciation and Amortization		4,114			3,211			6,174			5,015
Amortization of Intangible Assets		2,613			2,639			3,952			4,089
Share-based Compensation Expense		1,379			973			2,109			2,134
Equity in Losses of Affiliate								355			—
Bad Debt Expense		684			706			999			988
Deferred Income Taxes		634			1,065			(32	)		(1,040	)
Changes in Operating Assets and Liabilities, net of Acquisitions:
Accounts Receivable		424			(4,514	)		2,546			(14,019	)
Prepaid Expenses and Other Current Assets		6,590			(211	)		5,066			(1,464	)
Other Assets		(2,288	)		(2,643	)		(4,109	)		(2,594	)
Accounts Payable and Accrued Expenses		(4,172	)		(3,488	)		71			1,422
Other Current and Non-current Liabilities		(2,630	)		1,867			1,844			2,109


Net Cash Flow from Operating Activities		38,162			24,342
Net Cash Flows from Operating Activities								68,751			33,261


Cash flows from Investing Activities:
Cash Flows from Investing Activities:
Additions to Premises and Equipment		(3,419	)		(5,234	)		(11,291	)		(8,135	)
Acquisition of Business, net of Cash Acquired		(1,785	)		(25,462	)		(2,515	)		(26,830	)
Investment in Equity Affiliate		(3,328	)		—			(15,000	)		—
Change in Restricted Cash		(177	)		(355	)		(177	)		(779	)


Net Cash Flow from Investing Activities		(8,709	)		(31,051	)
Net Cash Flows from Investing Activities								(28,983	)		(35,744	)


Cash flows from Financing Activities:
Cash Flows from Financing Activities:
Principal Payments on Capital Lease Obligations		(340	)		(306	)		(544	)		(463	)
Proceeds from Stock Option Exercises		510			1,277			775			3,017
Purchase of Treasury Stock		(12,546	)		—			(35,471	)		(2,311	)
Contributions from Non-controlling Interests		14			18			31			28
Distributions to Non-controlling Interests		(4,193	)		(3,896	)		(5,443	)		(5,207	)


Net Cash Flow from Financing Activities		(16,555	)		(2,907	)
Net Cash Flows from Financing Activities								(40,652	)		(4,936	)


Net Increase (Decrease) in Cash and Cash Equivalents		12,898			(9,616	)		(884	)		(7,419	)
Cash and Cash Equivalents at the Beginning of the Year		22,134			30,456			22,134			30,456


Cash and Cash Equivalents at the End of the Period	$	35,032		$	20,840		$	21,250		$	23,037


Supplemental Cash Flow Information
Interest Paid	$	46		$	—		$	65		$	—
Income Taxes (Received) Paid, net	$	(3,342	)	$	31		$	(2,684	)	$	1,724

Non-Cash Investing and Financing Activities
Shares issued in Connection with Acquisition	$	—		$	23,900		$	—		$	23,900
Reduction in Income Tax Payable from Tax Amortizable Goodwill	$	1,076		$	—		$	—		$	—

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Altisource Portfolio Solutions S.A., together with its subsidiaries, (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 solutions principally related to real estate and mortgage portfolio management, asset recovery and customer relationship management.

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., renamed Altisource Portfolio Solutions S.à 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 (the “Separation”). Prior to the Separation, our businesses were wholly-owned ~~subsidiaries of~~by Ocwen Financial Corporation (“Ocwen”).

We conduct our operations through three reporting segments: Mortgage Services, Financial Services and Technology Services. In addition, we report our corporate related expenditures as a separate segment (see Note 1417 for a description of our business segments).

Basis of Presentation

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. Certain amounts disclosed in prior period statements have been reclassified to conform to the current period presentation.

In February 2010, we acquired the Mortgage Partnership of ~~American,~~America, L.L.C. (“MPA”), the manager of a national alliance of community mortgage bankers, correspondent lenders and suppliers of mortgage products and services that does business as Lenders One Mortgage Cooperative (“Lenders One”). The ~~Management Agreement~~management 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 it is the primary beneficiary of Lenders One as it has 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 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 members reflected as Non-controlling Interest on the Condensed Consolidated Balance Sheets. At ~~June~~September 30, 2011, Lenders One had total assets of ~~$5.4~~$3.6 million and liabilities of less than $0.1 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, these financial statements do not include all of the information and notes required by GAAP for complete 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 February 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)~~Equity Income (Loss) in Affiliates, net which is included in Other Income (Expense), net in the ~~condensed consolidated statements of operations.~~

As of June 30, 2011 our only significant equity investment was a 50% stake in Correspondent One S.A. (“Correspondent One”) which was still in the formation process. Correspondent One facilitates the purchase of conforming and government guaranteed residential mortgages from approved mortgage originators. In July, we fulfilled our committed funding obligations and have provided a total of $15.0 million to Correspondent One. Our ownership was reduced below 50% due to investments by certain Lenders One members. For the six months ended June 30, 2011, Correspondent One has minimal impact to our Condensed Consolidated Statements of Operations. ~~Beginning in the third quarter of 2011, Correspondent One will partner with Ocwen and members of Lenders One to provide~~See Note 8 for additional ~~avenues for members to sell loans beyond Lenders One’s preferred investor arrangements and the members own network of loan buyers.~~information.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Acquisitions

In April 2011, we acquired Springhouse, LLC (“Springhouse”) an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the members of Lenders One, and real estate asset ~~managers.~~ managers for $1.8 million.

In July 2011, we acquired the assembled workforce of a sub-contractror (“Tracmail”) in India that performed asset recovery services for $2.4 million.

See Note 63 for additional information.

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, Accounts Receivable, net, Restricted Cash and Accounts Payable and Accrued Expenses at ~~June~~September 30, 2011 and December 31, 2010, are carried at amounts that approximate their fair value due to the short-term nature of these amounts.

Additionally, a put option arrangement was issued to the predecessor owners of MPA. The arrangement, which expires in February 2014, allows the holders to put a portion of the Altisource shares issued as consideration to Altisource at a predetermined price. The fair value calculation is deemed to be a Level 3 calculation. The fair value of the put option at ~~June~~September 30, 2011 of ~~$0.2~~$0.1 million was valued using the following assumptions:


	Assumptions

Risk-free Interest Rate		~~0.19%~~0.110% – ~~0.810~~0.430	%
Expected Stock Price Volatility		~~23%~~25% – 4437	%
Expected Dividend Yield		—
Expected Option Life (in years)		~~0.75~~0.5 – ~~2.75~~2.5
Contractual Life (in years)		—
Fair Value		~~$0.0~~ $0.0 – ~~$1.14~~$0.63

The put option agreement is a written derivative valued similar to stock options and is included within Other Non-current 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. Any changes in value are included as a component of Other Income (Expense), net in the Condensed Consolidated Statements of Operations.

NOTE 2 — TRANSACTIONS WITH RELATED PARTIES

Ocwen remains our largest customer. Following the date of Separation, Ocwen is contractually obligated to purchase certain Mortgage Services and Technology Services from us under service agreements. These agreements extend for eight years from the Separation, 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.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

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 ~~six~~nine months ended ~~June~~September 30:


	Three Months Ended						Six Months Ended						Three Months Ended						Nine months Ended
	June 30,						June 30,						September 30,						September 30,
	2011			2010			2011			2010			2011			2010			2011			2010

Mortgage Services		74	%		73	%		74	%		75	%		71	%		70	%		73	%		73	%
Technology Products		38	%		36	%		38	%		37	%
Technology Services														38	%		36	%		38	%		36	%
Financial Services		1	%		<1	%		<1	%		<1	%		<1	%		<1	%		<1	%		<1	%
Consolidated Revenue		58	%		50	%		56	%		49	%		58	%		51	%		57	%		50	%

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 charged by our competitors. As of January 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.

Transition Services

In connection with the Separation, Altisource and Ocwen entered into a Transition Services agreement under which services in such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other areas are provided to the counterparty for up to two years from the date of Separation. The agreement was subsequently extended in August 2011 for certain services for an additional year. For the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010, Altisource billed Ocwen ~~$0.9~~$1.7 million and ~~$0.8~~$1.2 million respectively ($~~0.5~~0.8 million and ~~$0.4~~$0.5 million for the ~~second~~third quarter of 2011 and 2010, respectively), and Ocwen billed Altisource ~~$0.8~~$1.4 million and ~~$0.6~~$0.8 million respectively ($0.5 million and ~~$0.3~~$0.2 million for the ~~second~~third quarter of 2011 and 2010, 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 — ~~ACCOUNTS RECEIVABLE, NET~~ACQUISITIONS

~~Accounts Receivable, net consists~~The results of operations of the ~~following:~~

June 30, December 31,
(in thousands) 2011 2010

Third-party Accounts Receivable $ 15,371 $ 19,039
Unbilled Fees 35,791 32,055
Receivable from Ocwen 2,941 3,950
Other Receivables 919 583

55,022 55,627
Allowance for Doubtful Accounts (2,527 ) (2,132 )

Total $ 52,495 $ 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~~ following ~~completion of the service.~~

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(continued)~~

~~NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS~~

~~Prepaid Expenses and Other Current Assets consist of the following:~~

June 30, December 31,
(in thousands) 2011 2010

Prepaid Expenses $ 3,463 $ 5,134
Income Tax Receivable — 7,327
Other Current Assets 942 615

Total $ 4,405 $ 13,076

~~NOTE 5 — PREMISES AND EQUIPMENT, NET~~

~~Premises and Equipment, net which includes amounts recorded under capital leases, consists of the following:~~

June 30, December 31,
(in thousands) 2011 2010

Computer Hardware and Software $ 34,492 $ 32,931
Office Equipment and Other 10,477 9,717
Furniture and Fixtures 2,346 2,226
Leasehold Improvements 5,495 4,501

$ 52,810 $ 49,375
Less: Accumulated Depreciation and Amortization (35,996 ) (31,882 )

Total $ 16,814 $ 17,493

Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $4.1 million and $3.2 million for the six months ended June 30, 2011 and 2010, respectively ($2.2 million and $1.7 million for the second quarter of 2011 and 2010, respectively), and isacquisitions have been included in ~~Cost~~our consolidated results from the respective acquisition dates. The acquisitions did not have a material effect on our financial position, results of ~~Revenue for operating assets and~~operations or cash flows.

Acquisition-related transaction costs are included in Selling, General and Administrative Expenses ~~for non-operating assets~~ in the ~~accompanying Condensed~~ Consolidated Statements of Operations.

~~NOTE 6 — GOODWILL AND INTANGIBLE ASSETS, NET~~

~~Goodwill~~

~~The following is a summary showing the balance of goodwill by segment:~~

Mortgage Technology
(in thousands) Services Services Total

Balance, December 31, 2010 $ 10,218 $ 1,618 $ 11,836
Acquisition of Springhouse 701 — 701

Balance, June 30, 2011 $ 10,919 $ 1,618 $ 12,537

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(continued)~~

Springhouse ~~Acquisition~~

In April 2011, we acquired Springhouse an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the members of Lenders One, and real estate asset managers.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Consideration for the transaction consisted of the amounts provided in the table below. The working capital amount is subject to additional revision in the ~~third~~fourth quarter which is not expected to be material:


(in thousands)	Consideration

Cash	$	1,900
Non-compete agreement		100
Working Capital Adjustment		(215	)

Total Consideration	$	1,785

~~A summary of the preliminary allocation of the~~The purchase consideration based on estimates of fair value of the assets acquired and the liabilities assumed is follows:


(in thousands)

Accounts Receivable	$	108
Premises and Equipment		16
Identifiable Intangible Assets		1,180
Goodwill		701

		2,005
Accounts Payable and Accrued Expenses		(220	)

Total Purchase Price	$	1,785

Management has assigned the following lives to identified assets acquired as a result of the acquisition:


	Estimated Life
	(in Years)

Premises and Equipment		2 – 5
Trademarks⁽¹⁾		4
Customer Lists⁽¹⁾		6
Non-compete⁽¹⁾		2
Goodwill	Indefinite


⁽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 Springhouse acquisition assigned to our Mortgage Services segment relates principally to in-place workforce and our ability to go to market more quickly with a retail origination appraisal business. All goodwill and intangible assets related to the acquisition are expected to be amortizable and deductible for income tax purposes.

~~The results~~Tracmail

In July 2011, we acquired the assembled workforce of ~~operations of Springhouse has been~~a sub-contractror in India that performed asset recovery services. Prior to acquisition, the costs paid to the sub-contractor were included in ~~our consolidated results~~Outside Fees and Services (included in Cost of Revenue in the Condensed Consolidated Financial Statements).

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Consideration for the transaction consisted of:


(in thousands)	Consideration

Total Consideration	$	2,378
Obligations Assumed, net		(1,648	)

Cash Consideration, net	$	730

The purchase consideration based on estimates of fair value of the assets acquired and the liabilities assumed is follows:


(in thousands)

Accounts Receivable	$	181
Goodwill		2,378

		2,559
Accounts Payable and Accrued Expenses		(1,829	)

Cash Consideration, net	$	730

Management has assigned the following lives to identified assets acquired as a result of the acquisition:


		Estimated Life
		(in Years)

Goodwill		Indefinite

The goodwill arising from the Tracmail acquisition ~~date. The acquisition did not have a material effect on~~assigned to our ~~financial position, results~~Financial Services segment relates principally to in-place workforce and is expected to be amortizable and deductible for income tax purposes.

NOTE 4 — ACCOUNTS RECEIVABLE, NET

Accounts Receivable, net consists of ~~operations or cash flows.~~the following:


	September 30,			December 31,
(in thousands)	2011			2010

Third-party Accounts Receivable	$	17,268		$	19,039
Unbilled Fees		30,564			32,055
Receivable from Ocwen		3,881			3,950
Receivable from Correspondent One		55			—
Other Receivables		548			583

		52,316			55,627
Allowance for Doubtful Accounts		(2,077	)		(2,132	)


Total	$	50,239		$	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 following completion of the service.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

~~Acquisition-related transaction costs are~~

NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid Expenses and Other Current Assets consist of the following:


	September 30,		December 31,
(in thousands)	2011		2010

Prepaid Expenses	$	5,954	$	5,134
Income Tax Receivable		—		7,327
Other Current Assets		839		615


Total	$	6,793	$	13,076

NOTE 6 — PREMISES AND EQUIPMENT, NET

Premises and Equipment, net which includes amounts recorded under capital leases, consists of the following:


	September 30,			December 31,
(in thousands)	2011			2010

Computer Hardware and Software	$	37,287		$	32,931
Office Equipment and Other		12,910			9,717
Furniture and Fixtures		3,628			2,226
Leasehold Improvements		6,843			4,501

		60,668			49,375
Less: Accumulated Depreciation and Amortization		(38,042	)		(31,882	)


Total	$	22,626		$	17,493

Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $6.2 million and $5.0 million for the nine months ended September 30, 2011 and 2010, respectively ($2.1 million and $1.8 million for the third quarter of 2011 and 2010, respectively), and is included in Cost of Revenue for operating assets and in Selling, General and Administrative Expenses for non-operating assets in the accompanying Condensed Consolidated Statements of Operations.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The following is a summary showing the balance of goodwill by segment:


	Mortgage		Financial		Technology
(in thousands)	Services		Services		Services		Total

Balance, December 31, 2010	$	10,218	$	—	$	1,618	$	11,836
Acquisition of Springhouse		701		—		—		701
Acquisition of Tracmail		—		2,378		—		2,378


Balance, September 30, 2011	$	10,919	$	2,378	$	1,618	$	14,915

Intangible Assets, Net

Intangible Assets, net consists of the following:


	Weighted															Weighted
	Average															Average
	Estimated		Gross Carrying Amount				Accumulated Amortization					Net Book Value				Estimated		Gross Carrying Amount				Accumulated Amortization					Net Book Value
	Useful Life		June 30,		December 31,		June 30,			December 31,		June 30,		December 31,		Useful Life		September 30,		December 31,		September 30,			December 31,		September 30,		December 31,
(dollars in thousands)	(Years)		2011		2010		2011			2010		2011		2010		(Years)		2011		2010		2011			2010		2011		2010

Definite-lived Intangible Assets
Definite-lived Intangible
Assets
Trademarks		16	$	10,614	$	10,200	$	2,836		$	2,346	$	7,778	$	7,854		16	$	10,614	$	10,200	$	3,095		$	2,346	$	7,519	$	7,854
Customer Lists		19		38,366		37,700		10,202	(a)		7,447		28,164		30,253		19		38,366		37,700		11,677	(a)		7,447		26,689		30,253
Operating Agreement		20		35,000		35,000		2,535			1,604		32,465		33,396		20		35,000		35,000		2,917			1,604		32,083		33,396
Non-compete Agreement		4		1,300		1,200		438			275		862		925		4		1,300		1,200		525			275		775		925


Total Intangible Assets			$	85,280	$	84,100	$	16,011		$	11,672	$	69,269	$	72,428			$	85,280	$	84,100	$	18,214		$	11,672	$	67,066	$	72,428


(a)		Prior to our acquisition of Nationwide Credit, Inc. (“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 first 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 as they are realized in our tax returns. The amount amortized was ~~$1.7~~$2.6 million for the ~~six~~nine months ended ~~June~~September 30, 2011. The balance of Component 2 goodwill remaining was ~~$8.5~~$7.1 million as of ~~June~~September 30, 2011 which should generate ~~$5.1~~$4.3 million of reductions of intangible assets when the benefit can be realized for U.S. tax purposes.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Amortization expense for definite lived intangible assets was ~~$2.6~~$4.0 million and ~~$2.6~~$4.1 million for the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010, respectively ($1.3 million and ~~$1.5~~$1.4 million for the ~~second~~third quarter of 2011 and 2010, respectively). Amortization expense is estimated to be $5.3 million for 2011, $5.0 million for 2012, $4.8 million for 2013, $4.5 million for 2014 and $4.4 million for 2015.

NOTE 78 — INVESTMENT IN EQUITY AFFILIATE

Correspondent One S.A. (“Correspondent One”) facilitates the purchase of closed conforming and government guaranteed residential mortgages from approved mortgage bankers. Correspondent One provides members of Lenders One additional avenues to sell loans beyond Lenders One’s preferred investor arrangements and the members’ own network of loan buyers. We have significant influence over the general operations of Correspondent One consistent with our 49% ownership level and therefore account for our investment under the equity method. We have no additional funding commitments to Correspondent One.

Correspondent One is in the initial phases of building its operations and therefore is expected to operate at a loss into 2012. The Net loss on this investment using the equity method was $0.4 million for the nine months ended September 30, 2011 (all in the third quarter). The following table presents summarized financial information for Correspondent One which had no revenues as of September 30^th as no loans were sold:


	Nine Months Ended
(in thousands)	September 30, 2011

Net loss	$	(729	)

	September 30, 2011
Current Assets	$	30,239
Current Liabilities		217
Equity		30,022

NOTE 9 — OTHER NON-CURRENT ASSETS

Other Non-Current Assets consists of the following:


	September 30,		December 31,
(in thousands)	2011		2010

Security Deposits	$	6,871	$	3,047
Unbilled Fees		1,734		1,449
Other		40		40


Total	$	8,645	$	4,536

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

NOTE 10 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts Payable and Accrued Expenses consists of the following:

June 30, December 31,
(in thousands) 2011 2010

Accounts Payable $ 2,840 $ 5,960
Accrued Expenses — General 10,206 11,189
Accrued Salaries and Benefits 11,267 12,010
Income Taxes Payable 733 3,807
Payable to Ocwen 2,579 2,418

Total $ 27,625 $ 35,384

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(continued)~~


	September 30,		December 31,
(in thousands)	2011		2010

Accounts Payable	$	3,549	$	5,960
Accrued Expenses — General		12,859		11,189
Accrued Salaries and Benefits		13,278		12,010
Income Taxes Payable		1,685		3,807
Payable to Ocwen		2,326		2,418


Total	$	33,697	$	35,384

Other Current Liabilities consists of the following:


	June 30,		December 31,		September 30,		December 31,
(in thousands)	2011		2010		2011		2010

Deferred Revenue	$	1,637	$	2,542	$	2,198	$	2,542
Facility Closure Cost Accrual, Current Portion		127		253		129		253
Collections Due to Clients						672		726
Other		1,810		2,821		5,152		2,095


Total	$	3,574	$	5,616	$	8,151	$	5,616

Facility Closure Costs

During 2009, we accrued facility closure costs (included in Other Current and Other ~~Non-Current liabilities~~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 ~~six~~nine months ended ~~June~~September 30, 2011:


(in thousands)	Lease Costs			Lease Costs

Balance, December 31, 2010	$	672		$	672
Payments		(138	)		(181	)

Balance, June 30, 2011		534
Balance, September 30, 2011					491
Less: Long-Term Portion		407			362


Facility Closure Cost Accrual, Current Portion	$	127		$	129

We do not expect significant additional ~~significant~~ costs related to the closure of these facilities.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

NOTE 811 — ~~EQUITY~~STOCK 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.~~options for certain employees and officers. We recorded total stock compensation expense of ~~$1.4~~$2.1 million ~~and $1.0 million~~both for the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010 ~~respectively~~ ($~~0.6~~0.7 million and ~~$0.7~~$1.2 million for the ~~second~~third quarter of 2011 and 2010, respectively). The compensation expense is principally included in Selling, General and Administrative Expenses in the ~~accompany~~accompanying Condensed Consolidated Statements of Operations.

Below is a summary of the different types of stock-based awards issued under our stock plans:

Stock Options

Service-based Options.These options are granted at fair market value on the date of grant. The options generally vest over four years with equal annual cliff-vesting and expire on the earlier of 10 years after the date of grant or following termination of service. A total of 1.1 million service-based awards were outstanding at ~~June~~September 30, 2011.

Market-based Options. These option grants have two components each of which vest only upon the achievement of certain criteria. The first component, which we refer to internally as “ordinary performance” grants, consists of two-thirds of the market-based grant and begins to vest 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, begins to vest if the stock price realizes a compounded annual gain of at least 25% over the exercise price, so long as it is at least triple the exercise price. The vesting schedule for all market-based awards is 25% upon achievement of the criteria and the remaining 75% in three equal annual installments. A total of 2.2 million market-based awards were outstanding at ~~June~~September 30, 2011.

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(continued)~~

~~During~~The Company granted 0.2 million stock options (at an average price of $33.15) and 0.9 million stock options (at an average price of $23.54) during the ~~six~~nine months ended ~~June~~September 30, 2011 ~~the Company granted 0.1 million stock options. The options have an average exercise price of $29.99 per share.~~and 2010, respectively.

The fair value of the service-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:


	June 30, 2011						June 30, 2010						September 30, 2011						September 30, 2010
	Black-Scholes			Binominal			Black-Scholes			Binominal			Black-Scholes			Binominal			Black-Scholes			Binominal

Risk-free Interest Rate		2.20	%		0.03%–3.18	%		2.82	%		0.17%–3.36	%		1.69%–1.93	%		0.04%–3.03	%		2.82%–3.20	%		0.02%–3.66	%

Expected Stock Price Volatility		48	%		55.9	%		48	%		51.5	%		48	%		55.70%–55.80	%		48	%		52	%
Expected Dividend Yield		—			—			—			—			—			—			—			—

Expected Option Life (in years)		6.25			—			7			—			6.25			—			7			—
Contractual Life (in years)		—			14			—			14			—			14			—			10

Fair Value	$	16.55		$18.09 and $18.76			$	13.00		$10.50 and $12.35			$	16.33–$17.85		$	16.91–$20.39		$	11.71–$13.00		$	10.05–$12.35

The following table summarizes the weighted-average fair value of stock options granted, and the total intrinsic value of stock options exercised:


	June 30				September 30
(in thousands, except per share amounts)	2011		2010		2011		2010

Weighted-Average Fair Value at Date of Grant Per Share	$	16.03	$	11.58	$	17.66	$	11.60
Intrinsic Value of Options Exercised	$	2,855	$	1,827	$	4,193	$	5,024
Fair Value of Options Vested	$	788	$	131	$	2,240	$	208

Stock-based compensation expense is recorded net of estimated forfeiture rates ranging from 1% to 3%.

As of June 30, 2011, estimated unrecognized compensation costs related to share-based payments amounted to $7.0 million which we expect to recognize over a weighted-average remaining requisite service period of approximately 3.1 years.

~~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, 2010 3,451,613 $ 13.46 7.3 $ 52,641

Granted 85,000 29.99
Exercised (157,256 ) 12.76
Forfeited (138,750 ) 24.92

Outstanding at June 30, 2011 3,240,607 $ 13.44 7.1 $ 75,715

Exercisable at June 30, 2011 1,373,219 $ 10.21 6.0 $ 36,509

1416

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

As of September 30, 2011, estimated unrecognized compensation costs related to share-based payments amounted to $7.7 million which we expect to recognize over a weighted-average remaining requisite service period of approximately 3.2 years.

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, 2010		3,451,613		$	13.46		7.3	$	52,641

Granted		181,000			33.15
Exercised		(206,661	)		11.36
Forfeited		(155,579	)		24.52

Outstanding at September 30, 2011		3,270,373		$	14.15		6.9	$	69,546


Exercisable at September 30, 2011		1,453,964		$	10.27		5.9	$	36,522

Stock Repurchase Authorization

On May 19, 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market. From authorization through ~~June~~September 30, 2011, we have purchased ~~1.0~~1.7 million shares of our common stock on the open market at an average price of ~~$28.51,~~$31.02, leaving ~~2.8~~2.1 million shares still available for ~~purchase.~~purchase under the program.

NOTE 912 — COST OF REVENUE

Cost of Revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles; fees paid to external providers related to provision of services, reimbursable expenses, technology and telephony expenses as well as depreciation and amortization of operating assets. The components of Cost of Revenue were as follows for the periods ended ~~June~~September 30, 2011 and 2010:


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in thousands)	2011		2010		2011		2010		2011		2010		2011		2010

Compensation and Benefits	$	19,959	$	15,691	$	36,799	$	29,690	$	22,497	$	15,829	$	59,296	$	45,519
Outside Fees and Services		17,532		13,321		35,693		25,781		21,528		15,311		57,221		41,092
Expense Reimbursements		19,459		11,141		35,100		19,671		21,834		13,369		56,934		33,040
Technology and Communications		4,557		2,692		7,535		5,647		5,904		3,198		13,439		8,845
Depreciation and Amortization		1,590		1,530		2,919		2,940		1,576		1,206		4,495		4,146


Total	$	63,097	$	44,375	$	118,046	$	83,729	$	73,339	$	48,913	$	191,385	$	132,642

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

NOTE 1013 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, General and Administrative Expenses include payroll for personnel employed in executive, sales, marketing, human resources and finance roles. This category also includes occupancy costs, professional fees, depreciation and amortization on non-operating assets. The components of Selling, General and Administrative Expenses were as follows for the periods ended ~~June~~September 30, 2011 and 2010:


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in thousands)	2011		2010		2011		2010		2011		2010		2011		2010

Compensation and Benefits	$	5,825	$	3,965	$	11,745	$	8,005	$	5,530	$	5,250	$	17,275	$	13,255
Professional Services		1,055		1,761		3,157		4,057		1,479		1,812		4,636		5,869
Occupancy Related Costs		4,062		3,600		7,559		5,841		4,449		4,137		12,008		9,978
Amortization of Intangible Assets		1,340		1,450		2,613		2,639		1,339		1,450		3,952		4,089
Depreciation and Amortization		586		159		1,196		271		483		598		1,679		869
Other		1,036		1,541		3,888		3,732		2,049		1,483		5,937		5,215


Total	$	13,904	$	12,476	$	30,158	$	24,545	$	15,329	$	14,730	$	45,487	$	39,275

NOTE 14 — OTHER INCOME (EXPENSE), NET

Other Income (Expense), net consists of the following:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2011			2010			2011			2010

Interest Income	$	5		$	10		$	27		$	22
Interest Expense		(20	)		(36	)		(67	)		(87	)
Change in Fair Value of Put Option		70			538			652			445
Equity Loss in Affiliates, net		(355	)		—			(355	)		—
Other, net		(20	)		186			37			286


Total	$	(320	)	$	698		$	294		$	666

1518

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

NOTE ~~11 — OTHER INCOME (EXPENSE), NET~~

~~Other Income (Expense), net consists of the following:~~

Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2011 2010 2011 2010

Interest Income $ 17 $ 3 $ 22 $ 12
Interest Expense (24 ) (23 ) (47 ) (51 )
Change in Fair Value of Put Option 225 — 582 —
Other, net 52 60 57 7

Total $ 270 $ 40 $ 614 $ (32 )

~~NOTE 12~~15 — 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.

Basic and diluted earnings per share for the three and ~~six~~nine months ended ~~June~~September 30, 2011 and 2010 are calculated as follows:


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in thousands)	2011		2010		2011		2010		2011		2010		2011		2010

Net Income Attributable to Altisource	$	13,385	$	16,347	$	28,210	$	22,653	$	17,171	$	9,832	$	45,381	$	32,485


Weighted-Average Common Shares Outstanding, Basic		24,625		25,226		24,734		24,960		24,341		25,318		24,602		25,080
Dilutive Effect of Stock Options		1,148		1,018		1,117		1,002		1,148		1,226		1,118		1,085
Dilutive Effect of Restricted Shares		—		3		—		3		—		—		—		3

Weighted-Average Common Shares Outstanding, Diluted		25,773		26,247		25,851		25,965		25,489		26,544		25,720		26,168


Earnings Per Share
Basic	$	0.54	$	0.65	$	1.14	$	0.91	$	0.71	$	0.39	$	1.84	$	1.30

Diluted	$	0.52	$	0.62	$	1.09	$	0.87	$	0.67	$	0.37	$	1.76	$	1.24

For the three and ~~six~~nine months ended ~~June~~September 30, 2011, an immaterial amount of options that were anti-dilutive have been excluded from the computation of diluted EPS (0.2 million for the three and ~~six month~~nine months ended ~~June~~September 30, 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 for each of the three and ~~six~~nine months ended ~~June~~September 30, 2011 and 2010 are ~~0.6 and~~ 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 1316 — COMMITMENTS AND CONTINGENCIES

Litigation

The Company is from time to time involved in legal proceedings arising in the ordinary course of business. We record a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For proceedings where a range of loss is determined, we record a best estimate of loss within the range. When legal proceedings are material we disclose the nature of the litigation and to the extent possible the estimate of loss or range of loss. In the opinion of management, after consultation with legal counsel and considering insurance coverage where applicable, the outcome of current legal proceedings both individually and in the aggregate will not have a material impact on the Company’s financial condition, results of operations or cash flows.

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(continued)~~

NOTE 1417 — SEGMENT REPORTING

Our business segments are 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.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

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 Services 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 includes eliminations of transactions between the reporting segments and this segment also includes costs recognized by us related to corporate support functions such as finance, legal, human resources, six sigma and quality assurances.

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 conform with the current year presentation.

Financial information for our segments is as follows:


	Three Months Ended June 30, 2011													Three Months Ended September 30, 2011
									Corporate														Corporate
	Mortgage		Financial			Technology			Items and			Consolidated		Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services		Services			Services			Eliminations			Altisource		Services			Services			Services			Eliminations			Altisource

Revenue	$	65,507	$	17,983		$	13,572		$	(3,794	)	$	93,268	$	82,170		$	17,303		$	14,827		$	(4,507	)	$	109,793
Cost of Revenue		43,544		13,574			9,334			(3,355	)		63,097		55,106			12,676			9,700			(4,143	)		73,339

Gross Profit		21,963		4,409			4,238			(439	)		30,171		27,064			4,627			5,127			(364	)		36,454
Selling, General and Administrative Expenses		2,853		3,502			1,537			6,012			13,904		4,227			4,268			756			6,078			15,329

Income (Loss) from Operations		19,110		907			2,701			(6,451	)		16,267		22,837			359			4,371			(6,442	)		21,125
Other Income (Expense), net		258		(7	)		(12	)		31			270		(283	)		(9	)		(12	)		(16	)		(320	)

Income (Loss) Before Income Taxes	$	19,368	$	900		$	2,689		$	(6,420	)	$	16,537	$	22,554		$	350		$	4,359		$	(6,458	)	$	20,805


Transactions with Related Parties:
Revenue	$	48,473	$	118		$	5,103		$	—		$	53,694	$	58,200		$	66		$	5,561		$	—		$	63,827

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	455		$	455	$	—		$	—		$	—		$	506		$	506


	Nine Months Ended September 30, 2011
									Corporate
	Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services		Services			Services			Eliminations			Altisource

Revenue	$	207,384	$	54,779		$	41,115		$	(11,547	)	$	291,731
Cost of Revenue		135,670		39,738			26,479			(10,502	)		191,385

Gross Profit		71,714		15,041			14,636			(1,045	)		100,346
Selling, General and Administrative Expenses		11,663		12,230			3,489			18,105			45,487

Income (Loss) from Operations		60,051		2,811			11,147			(19,150	)		54,859
Other Income (Expense), net		340		(27	)		(39	)		20			294

Income (Loss) Before Income Taxes	$	60,391	$	2,784		$	11,108		$	(19,130	)	$	55,153


Transactions with Related Parties:
Revenue	$	150,483	$	213		$	15,615		$	—		$	166,311

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	1,352		$	1,352

1720

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)


	Six Months Ended June 30, 2011													Three Months Ended September 30, 2010
									Corporate													Corporate
	Mortgage		Financial			Technology			Items and			Consolidated		Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services		Services			Services			Eliminations			Altisource		Services		Services			Services			Eliminations			Altisource

Revenue	$	125,214	$	37,476		$	26,288		$	(7,040	)	$	181,938	$	49,523	$	18,939		$	12,963		$	(3,845	)	$	77,580
Cost of Revenue		80,564		27,062			16,779			(6,359	)		118,046		31,383		13,870			7,239			(3,579	)		48,913

Gross Profit		44,650		10,414			9,509			(681	)		63,892		18,140		5,069			5,724			(266	)		28,667
Selling, General and Administrative Expenses		7,436		7,962			2,733			12,027			30,158		3,899		4,692			1,610			4,529			14,730

Income (Loss) from Operations		37,214		2,452			6,776			(12,708	)		33,734		14,241		377			4,114			(4,795	)		13,937
Other Expense, net		623		(18	)		(27	)		36			614
Other Income (Expense), net															687		(9	)		(24	)		44			698

Income (Loss) Before Income Taxes	$	37,837	$	2,434		$	6,749		$	(12,672	)	$	34,348	$	14,928	$	368		$	4,090		$	(4,751	)	$	14,635


Transactions with Related Parties:
Revenue	$	92,283	$	147		$	10,054		$	—		$	102,484	$	34,765	$	34		$	4,660		$	—		$	39,459

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	846		$	846	$	—	$	—		$	—		$	223		$	223


	Three Months Ended June 30, 2010														Nine Months Ended September 30, 2010
										Corporate													Corporate
	Mortgage			Financial			Technology			Items and			Consolidated		Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource		Services		Services			Services			Eliminations			Altisource

Revenue	$	42,665		$	19,891		$	12,485		$	(3,693	)	$	71,348	$	124,570	$	58,875		$	37,422		$	(10,966	)	$	209,901
Cost of Revenue		26,912			14,176			6,669			(3,382	)		44,375		79,588		42,572			20,555			(10,073	)		132,642

Gross Profit		15,753			5,715			5,816			(311	)		26,973		44,982		16,303			16,867			(893	)		77,259
Selling, General and Administrative Expenses		3,484			4,062			1,324			3,606			12,476		9,826		12,854			4,040			12,555			39,275

Income (Loss) from Operations		12,269			1,653			4,492			(3,917	)		14,497		35,156		3,449			12,827			(13,448	)		37,984
Other Income (Expense), net		(41	)		(13	)		(9	)		103			40		649		(38	)		(45	)		100			666

Income (Loss) Before Income Taxes	$	12,228		$	1,640		$	4,483		$	(3,814	)	$	14,537	$	35,805	$	3,411		$	12,782		$	(13,348	)	$	38,650


Transactions with Related Parties:
Revenue	$	31,222		$	25		$	4,537		$	—		$	35,784	$	90,749	$	110		$	13,635		$	—		$	104,494

Selling, General and Administrative Expenses	$	—		$	—		$	—		$	264		$	264	$	—	$	—		$	—		$	811		$	811

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(continued)~~

Six Months Ended June 30, 2010
Corporate
Mortgage Financial Technology Items and Consolidated
(in thousands) Services Services Services Eliminations Altisource

Revenue $ 75,047 $ 39,936 $ 24,459 $ (7,121 ) $ 132,321
Cost of Revenue 48,205 28,702 13,316 (6,494 ) 83,729

Gross Profit 26,842 11,234 11,143 (627 ) 48,592
Selling, General and Administrative Expenses 5,927 8,162 2,430 8,026 24,545

Income (Loss) from Operations 20,915 3,072 8,713 (8,653 ) 24,047
Other Expense, net (38 ) (29 ) (21 ) 56 (32 )

Income (Loss) Before Income Taxes $ 20,877 $ 3,043 $ 8,692 $ (8,597 ) $ 24,015

Transactions with Related Parties:
Revenue $ 55,984 $ 76 $ 8,975 $ — $ 65,035

Selling, General and Administrative Expenses $ — $ — $ — $ 588 $ 588

1921

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of results of operations (“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 ~~21,~~23, 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 ~~22,~~24, provides an analysis of our consolidated results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 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 ~~26,~~29, provides an analysis of each business segment for the three and ~~six~~nine months ended ~~June~~September 30, 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 ~~36,~~40, provides an analysis of our cash flows for the ~~six~~nine months ended ~~June~~September 30, 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;~~improve margins;

	•		expectations regarding collection rates and placements in our Financial Services segment;

	•		assumptions regarding the impact of seasonality;

	•		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 the “Risk Factors” section of our Form 10-K for the year ended December 31, 2010 and include the following:

~~our ability to retain and expand our existing customers and attract new customers; and~~

~~governmental regulations, taxes and policies.~~

	•		our ability to retain and expand our existing customers 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.

2022

OVERVIEW

Our Business

We are a provider of services focused on high-value, technology-enabled, knowledge-based solutions principally related to mortgage and real estate portfolio management, asset recovery and customer relationship management.

We classify our business into three reportable segments:

Mortgage Services:Consists of services that span the mortgage lifecycle and are typically outsourced by loan servicers and originators. 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 Service and Other was 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 primarily 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, invoice presentment and payment as well as providing infrastructure support. In 2011 we began to report our Consumer Analytics group within Technology Services. Previously this group was included in Corporate.

Stock Repurchase Plan

In May 2010, our shareholders authorized us to purchase 15% of our outstanding share capital, or 3.8 million shares of common stock, in the open market. From authorization through ~~June~~September 30, 2011, we have purchased ~~1.0~~1.7 million shares of common stock on the open market at an average price of ~~$28.51,~~$31.02, leaving ~~2.8~~2.1 million shares available for purchase under the program.

~~Springhouse, LLC~~Acquisitions

In April 2011, we acquired Springhouse, an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the members of Lenders One, and real estate asset managers. In July 2011, we acquired the assembled workforce of a sub-contractor in India that performs asset recovery services. See Note 3 to the condensed consolidated financial statements.

Factors Affecting Comparability

The following additional items may impact the comparability of our results:

In February 2010, we acquired all of the outstanding membership interest of MPA which was formed with 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; and

Effective January 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 cost plus mark-up methodology. This new model applies to the infrastructure amounts charged to Ocwen as well as internal allocations of infrastructure cost. The impact of this change is discussed further in the Technology Services segment.

	•		In February 2010, we acquired all of the outstanding membership interest of MPA which was formed with 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; and

	•		Effective January 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 cost plus mark-up methodology. This new model applies to the infrastructure amounts charged to Ocwen as well as internal allocations of infrastructure cost. The impact of this change is discussed further in the Technology Services segment.

2123

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 ~~June~~September 30, 2011 and 2010:


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
							%									%									% Better									% Better
(in thousands, except per share amounts)	2011			2010			Better/(worse)			2011			2010			Better/(worse)			2011			2010			/(worse)			2011			2010			/(worse)

Service Revenue	$	72,504		$	58,910			23		$	144,234		$	110,566			30		$	86,169		$	62,159			39		$	230,403		$	172,725			33
Reimbursable Expenses		19,459			11,141			75			35,100			19,671			78			21,833			13,369			63			56,933			33,040			72
Cooperative Non-controlling Interest		1,305			1,297			1			2,604			2,084			25			1,791			2,052			(13	)		4,395			4,136			6


Total Revenue		93,268			71,348			31			181,938			132,321			37			109,793			77,580			42			291,731			209,901			39

Cost of Revenue		63,097			44,375			(42	)		118,046			83,729			(41	)		73,339			48,913			(50	)		191,385			132,642			(44	)


Gross Profit		30,171			26,973			12			63,892			48,592			31			36,454			28,667			27			100,346			77,259			30

Gross Profit/Service Revenue		42	%		46	%					44	%		44	%					42	%		46	%					44	%		45	%

Selling, General and Administrative Expenses		13,904			12,476			(11	)		30,158			24,545			(23	)		15,329			14,730			(4	)		45,487			39,275			(16	)


Income from Operations		16,267			14,497			12			33,734			24,047			40			21,125			13,937			52			54,859			37,984			44

Income from Operations/Service Revenue		22	%		25	%					23	%		22	%					25	%		22	%					24	%		22	%

Other Expense, net		270			40			N/M			614			(32	)		N/M			(320	)		698			(146	)		294			666			(56	)

Income Before Income Taxes and Non-controlling Interests		16,537			14,537			14			34,348			24,015			43			20,805			14,635			42			55,153			38,650			43
Income Tax (Provision) Benefit		(1,847	)		3,107			(159	)		(3,534	)		722			N/M			(1,843	)		(2,751	)		33			(5,377	)		(2,029	)		(165	)


Net Income		14,690			17,644			(17	)		30,814			24,737			25			18,962			11,884			60			49,776			36,621			36

Net Income Attributable to Non-controlling Interests		(1,305	)		(1,297	)		(1	)		(2,604	)		(2,084	)		(25	)		(1,791	)		(2,052	)		13			(4,395	)		(4,136	)		(6	)

Net Income Attributable to Altisource	$	13,385		$	16,347			(18	)	$	28,210		$	22,653			25		$	17,171		$	9,832			75		$	45,381		$	32,485			40


Earnings Per Share
Basic	$	0.54		$	0.65			(17	)	$	1.14		$	0.91			25		$	0.71		$	0.39			82		$	1.84		$	1.30			42

Diluted	$	0.52		$	0.62			(16	)	$	1.09		$	0.87			25		$	0.67		$	0.37			81		$	1.76		$	1.24			42


Transactions with Related Parties:
Revenue	$	53,694		$	35,784			50		$	102,484		$	65,035			58		$	63,827		$	39,459			62		$	166,311		$	104,494			59

Selling, General and Administrative Expenses	$	455		$	264			72		$	846		$	588			44		$	506		$	223			127		$	1,352		$	811			67

~~N/M — not meaningful.~~

We recognized ~~$144.2~~$230.4 million of Service Revenue for the ~~six~~nine months ended September 30, 2011, a 33% increase over the prior year. For the quarter, we recognized $86.2 million of Service Revenue, a 19% increase when compared to the quarter ended June 30, ~~2011, a 30% increase over the same period~~2011. This sequential growth in ~~2010. We sequentially grew~~ Service Revenue was primarily due to an increase in the ~~second quarter through~~fulfillment of services to properties in pre-foreclosure (e.g., valuation, pre-foreclosure inspections), seasonally higher sales of real estate owned (REO) properties ~~due to seasonality~~ and expansion of ~~the title~~ insurance ~~business.~~services. Sequential growth in Service Revenue ~~was constrained by Financial~~for Technology Services improved due to seasonality as well as completion of temporary assignment in the first quarter, and by Mortgage Services due to decreased foreclosure referrals which resulted in reduced title search and default management services revenues.

For the third quarter, we expect modest growth in Service Revenue facilitated by seasonally strong REO sales and continued growth of the title insurance operations. For the fourth quarter, we expect substantially greater growth in Service Revenue assuming Ocwen concludes itsOcwen’s acquisition of the Litton platform and completion of certain development projects. The decline for Financial Services was principally due to seasonality.

We recognized $45.4 million in Income Attributable to Altisource or $1.76 per diluted share, for the ~~Company’s continued roll-out of our title insurance services.~~

nine months ended September 30, 2011, a 42% increase in diluted earnings per share over the same period in 2010. For the quarter, Income ~~before income tax~~Attributable to Altisource was $17.2 million or $0.67 per diluted share, a 29% increase in diluted earnings per share when compared to the quarter ended June 30, 2011.

Gross margin for the quarter remained flat when compared to the quarter ended June 30, 2011 as the increase in gross margin attributable to ~~Altisource grew~~Technology Services was offset by a decline in ~~both periods over~~gross margin attributable to Mortgage Services. This was due to Mortgage Services segment’s mix of services delivered and the ~~comparable periods in 2010 principally as~~build out of infrastructure to support Ocwen’s September 1, 2011 boarding of the Litton portfolio. As a result of the development of mortgage and real estate portfolio management services and the growth of Ocwen’s servicing portfolio. Sequentially, income before income tax attributable to Altisource declined $1.3 million due to increased investments in personnel and technology to support our growth initiatives, initial investments in infrastructure to support the acquisition by Ocwenboarding of the Litton portfolio, we delivered in the third quarter a proportionately higher percentage of services to homes in pre-foreclosure. For these services, the margins are generally lower. The delivery of pre-foreclosure services, however, is a strong leading indicator of future referrals of higher margin foreclosure and asset management services.

From an operating margin perspective, margins on a consolidated basis improved in the ~~seasonal decline~~quarter when compared to the quarter ended June 30, 2011 by 300 basis points to 25% of Service Revenue. This reflects faster growth in ~~Financial~~the higher margin Mortgage Services ~~revenue.~~segment as well as leveraging of the Corporate infrastructure.

For the fourth quarter, Service Revenue should continue to improve when compared to the third quarter ~~we expect initiatives to support~~based principally upon the Litton portfolio and investment in technology will limit margin expansion. We continuously undertake process improvement initiatives focused on margin enhancement of fully deployed services and we believe implementation of business process management software, deployment of next generation REALSuite software and leveraging of fixed costs on higher referral volume will facilitate continuedexpected growth in ~~margins over the longer term.~~foreclosure and asset management related referrals.

Revenue

The following table presents our Revenue for the periods ended ~~June~~September 30, 2011 and 2010:


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
							%									%									% Better									% Better
(in thousands, except per share amounts)	2011			2010			Better/(worse)			2011			2010			Better/(worse)
(in thousands)																			2011			2010			/(worse)			2011			2010			/(worse)

Mortgage Services:
Service Revenue	$	45,513		$	31,001			47		$	88,853		$	54,714			62		$	58,915		$	34,909			69		$	147,768		$	89,623			65
Reimbursable Expenses		18,689			10,367			80			33,757			18,249			85			21,464			12,562			71			55,221			30,811			79

Cooperative Non-controlling Interest		1,305			1,297			1			2,604			2,084			25			1,791			2,052			(13	)		4,395			4,136			6


Mortgage Services — Total Revenue		65,507			42,665			54			125,214			75,047			67			82,170			49,523			66			207,384			124,570			66

Financial Services:
Service Revenue		17,213			19,117			(10	)		36,133			38,514			(6	)		16,934			18,132			(7	)		53,067			56,646			(6	)
Reimbursable Expenses		770			774			(1	)		1,343			1,422			(6	)		369			807			(54	)		1,712			2,229			(23	)

Financial Services — Total Revenue		17,983			19,891			(10	)		37,476			39,936			(6	)		17,303			18,939			(9	)		54,779			58,875			(7	)

Technology Services		13,572			12,485			9			26,288			24,459			8			14,827			12,963			14			41,115			37,422			10

Eliminations		(3,794	)		(3,693	)		3			(7,040	)		(7,121	)		1			(4,507	)		(3,845	)		(17	)		(11,547	)		(10,966	)		(5	)

Total Revenue	$	93,268		$	71,348			31		$	181,938		$	132,321			37		$	109,793		$	77,580			42		$	291,731		$	209,901			39


Transactions with Related Parties:
Mortgage Services		48,473			31,222			55			92,283			55,984			65		$	58,200		$	34,765			67		$	150,483		$	90,749			66
Financial Services		118			25			N/M			147			76			93			66			34			94			213			110			94
Technology Services		5,103			4,537			13			10,054			8,975			12			5,561			4,660			19			15,615			13,635			15

~~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 members of Lenders One.

~~Growth~~The growth in Service Revenue continues to be primarily attributable to Mortgage Services for the ~~period~~periods presented ~~was due to~~and is the result of the development of mortgage and real estate portfolio management services across our national ~~platform. Our Mortgage Services~~platform and the growth in loans serviced by Ocwen. The Technology Services ~~segments~~segment also benefited from the growth in loans serviced by Ocwen ~~during this period.~~principally due to revenue tied to loan volume. Financial Services revenue declined in both periods presented compared to the same periods in 2010 principally due to a decline in revenues from one of the segment’s largest customers. The decline was in part ~~as a~~the result of the client shifting ~~work to our global delivery platform. This resulted in lower revenue although higher margins.~~

Sequentially, Service Revenue increased $0.8 million compared to the first quarter 2011 led by the Mortgage Services and Technology Services segment. Increases in the Mortgage Services segment were driven principally by the increased sales of REO properties and the growth of insured title services partially offset by decline in services dependent upon foreclosure referrals. The Technology Services segment continued to benefit from the growth in Ocwen’s loan portfolio. The Service Revenue for Financial Services segment decreased principally due to higher seasonal collections in the first quarter 2011 and the continued transfer of work to our global delivery platform.

Our revenues are seasonal. More specifically, Financial Services revenue tends to be higher in the first quarter and generally declines throughout the year. Mortgage Services revenue is impacted by REO sales which tend to be at their lowest level during fall and winter months and highest during spring and summer months.

Cost of Revenue

Cost of Revenue 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, technology and telephony expenses as well as depreciation and amortization of operating assets. The components of Cost of Revenue were as follows for the periods ended ~~June~~September 30, 2011 and 2010:


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
							%									%									% Better									% Better
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)			2011			2010			/(worse)			2011			2010			/(worse)

Compensation and Benefits	$	19,959		$	15,691			(27	)	$	36,799		$	29,690			(24	)	$	22,497		$	15,829			(42	)	$	59,296		$	45,519			(30	)
Outside Fees and Services		17,532			13,321			(32	)		35,693			25,781			(38	)		21,528			15,311			(41	)		57,221			41,092			(39	)
Reimbursable Expenses		19,459			11,141			(75	)		35,100			19,671			(78	)		21,834			13,369			(63	)		56,934			33,040			(72	)
Technology and Communications		4,577			2,692			(69	)		7,535			5,647			(33	)		5,904			3,198			(85	)		13,439			8,845			(52	)
Depreciation and Amortization		1,590			1,530			(4	)		2,919			2,940			1			1,576			1,206			(31	)		4,495			4,146			(8	)

Cost of Revenue	$	63,097		$	44,375			(42	)	$	118,046		$	83,729			(41	)	$	73,339			48,913			(50	)	$	191,385			132,642			(44	)


Gross Profit Percentage:
Gross Profit/Service Revenue		42	%		46	%					44	%		44	%					42	%		46	%					44	%		45	%

For the ~~six~~nine months ended ~~June~~September 30, 2011, our gross margin percentage ~~was flat. Our margins have~~has remained fairly stable although we have and continue to make significant investments in personnel and technology to support our growth plans. ~~Sequentially,~~Our gross margins are impacted by the timing and mix of services delivered which, in turn, are impacted by the timing of when loans are boarded by Ocwen. In the third quarter of 2011, we saw a significant increase in services related to homes in pre-foreclosure (e.g., valuation and inspection services) which is typical for newly boarded loan portfolios but for which gross margins are lower when compared to other types of services we deliver within our ~~margins declined as we increased our investments in personnel to support the development~~Mortgage Services segment. The provision of ~~our insured title~~pre-foreclosure services though is generally a leading indicator for default and ~~origination services as well as increases in technology costs due to the initial implementation of our business process software and higher software license costs given our continued growth.~~asset management referrals.

When compared to the ~~prior year~~same periods in 2010, the substantial increase in Cost of Revenue for the three and nine months ended September 30, 2011 is consistent with the growth in our Mortgage Services segment as we expanded our mortgage and real estate portfolio management ~~services. In addition,~~services nationally and increased ~~volumes attributable~~our personnel to support the growth in ~~Ocwen’s portfolio caused increases at both our Mortgage Services and Technology Services segment. This was partially offset~~portfolios serviced by ~~a decline in Cost of Revenue for our Financial Services segment as we continue to manage costs.~~Ocwen.

Compensation and Benefits costs for the quarter ended ~~June~~September 30, 2011 increased sequentially as ~~a result of the addition of personnel principally to support the development of our title agency and origination services related to mortgage portfolio management, the~~ expected ~~growth in referrals from Ocwen and personnel to develop our next generation of REALSuite technologies. We expect compensation and benefit costs to continue to increase in the third quarter~~ as we ~~ramp up our~~hired significant personnel to support the ~~expected~~ boarding of the Litton portfolio by ~~Ocwen.~~Ocwen on September 1, 2011 and as we continue to invest in personnel for our new insurance and origination services that are under development and/or roll-out.

Outside Fees and Services reflects external vendor costs for which we are not reimbursed. These costs are principally incurred by our Mortgage Services segment in the ~~quarter ended June 30, 2011 were essentially flat when compared~~provision of valuation and pre-foreclosure services. The increase in both periods presented over the same periods in 2010 reflects the growth in Ocwen’s portfolio. Sequentially, these costs increased due to ~~first quarter 2011.~~the delivery of pre-foreclosure services as a result of the boarding of the Litton platform by Ocwen.

Technology and Communication costs ~~increased sequentially for the quarter ended June 30, 2011~~continue to increase due to ~~continued~~ongoing investment in personnel and licenses ~~as a result~~to support the growth of the ~~growth in personnel to support existing and new services.~~businesses.

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses include payroll, employee benefits, occupancy and other costs associated with personnel employed in executive, sales, marketing, human resources 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 ~~June~~September 30, 2011 and 2010:

Three Months Ended June 30, Six Months Ended June 30,
% %
(in thousands) 2011 2010 Better/(worse) 2011 2010 Better/(worse)

Compensation and Benefits $ 5,825 $ 3,965 (47 ) $ 11,745 $ 8,005 (47 )
Professional Services 1,055 1,761 40 3,157 4,057 22
Occupancy Related Costs 4,062 3,600 (13 ) 7,559 5,841 (29 )
Amortization of Intangible Assets 1,340 1,450 8 2,613 2,639 1
Depreciation and Amortization 586 159 N/M 1,196 271 N/M
Other 1,036 1,541 33 3,888 3,732 (4 )

Total Selling, General and Administrative Expenses $ 13,904 $ 12,476 (11 ) $ 30,158 $ 24,545 (23 )

Operating Percentage:
Income from Operation/Service Revenue 22 % 25 % 23 % 22 %

~~N/M — not meaningful.~~


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Compensation and Benefits	$	5,530		$	5,250			(5	)	$	17,275		$	13,255			(30	)
Professional Services		1,479			1,812			18			4,636			5,869			21
Occupancy Related Costs		4,449			4,137			(8	)		12,008			9,978			(20	)
Amortization of Intangible Assets		1,339			1,450			8			3,952			4,089			3
Depreciation and Amortization		483			598			19			1,679			869			(93	)
Other		2,049			1,483			(38	)		5,937			5,215			(14	)

Total Selling, General & Administrative Expenses	$	15,329		$	14,730			(4	)	$	45,487		$	39,275			(16	)


Operating Percentage:
Income from Operations/Service Revenue		25	%		22	%					24	%		22	%

Our operating margin percentage was 23% for the six months ended June 30, 2011 and compares favorably to the same period in the prior year but reflects a sequential decline in margins in the second quarter 2011 when compared to the first quarter.

~~Compensation and Benefits increased~~ in both periods ~~compared to~~increased over the same periods in ~~2010~~2010. Selling, General and Administrative costs have stabilized during 2011 even as ~~we built out~~ our ~~support functions such as accounting, legal and human resources as well as added to the executive ranks~~businesses have substantially grown. Thus leveraging of our ~~segments to support the continued growth.~~

~~Professional Services fees have generally been declining as we have worked to reduce our external legal~~Corporate infrastructure costs ~~through increased compliance and by reducing costs paid to external advisors~~along with respect to legal advice. In addition, consulting costs related to accounting and tax support decreased as we have hired additional staff in these functions. Lastly, the first half of 2010 included professional costs associated with the acquisition of MPA.

~~Occupancy Related Costs increased in both periods as compared to the same periods in 2010 due to the~~ growth in our ~~business. As of June 30, 2011, we had over 5,800 employees worldwide compared~~more profitable segments has contributed to ~~approximately 3,900 at year end.~~the increase in margins.

Income Before Income Tax

The following table presents income before income tax including the amount attributable to Altisource by segment:


	Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
	June 30,						June 30,							September 30,						September 30,
(in thousands)	2011			2010			2011				2010			2011			2010			2011			2010

Mortgage Services:
Income Before Income Taxes	$	19,368		$	12,228		$	37,837			$	20,877		$	22,554		$	14,928		$	60,391		$	35,805
Non-controlling Interests		(1,305	)		(1,297	)		(2,604	)			(2,084	)		(1,791	)		(2,052	)		(4,395	)		(4,136	)

Income Before Income Taxes Attributable to Altisource	$	18,063		$	10,931		$	35,233			$	18,793
Pretax Income														$	20,763		$	12,876		$	55,996		$	31,669
As Percent of Service Revenue		40	%		35	%		40	%			34	%		35	%		37	%		38	%		35	%

Financial Services:
Income Before Income Taxes	$	900		$	1,640		$	2,434			$	3,043		$	350		$	368		$	2,784		$	3,411
As Percent of Service Revenue		5	%		9	%		7	%			8	%		2	%		2	%		5	%		6	%

Technology Services:
Income Before Income Taxes	$	2,689		$	4,483		$	6,749		��	$	8,692		$	4,359		$	4,090		$	11,108		$	12,782
As percent of Revenue		20	%		36	%		26	%			36	%
As Percent of Revenue															29	%		32	%		27	%		34	%

Corporate:
Income Before Income Taxes		(6,420	)		(3,814	)		(12,672	)			(8,597	)
Loss Before Income Taxes														$	(6,458	)	$	(4,751	)	$	(19,130	)	$	(13,348	)

Consolidated:
Income Before Income Taxes	$	16,537		$	14,537		$	34,348			$	24,015		$	20,805		$	14,635		$	55,153		$	38,650
Non-controlling Interests		(1,305	)		(1,297	)		(2,604	)			(2,084	)		(1,791	)		(2,052	)		(4,395	)		(4,136	)

Income Before Income Taxes Attributable to Altisource	$	15,232		$	13,240		$	31,744			$	21,931
As percent of Service Revenue		21	%		22	%		22	%			20	%
Pretax Income														$	19,014		$	12,583		$	50,758		$	34,514


As Percent of Service Revenue															22	%		20	%		22	%		20	%

On a consolidated basis, income before income tax attributable to Altisource grew in both periods over the ~~comparable~~same periods in 2010 principally as a result of the development of mortgage and real estate portfolio management services and the growth of Ocwen’s servicing portfolio. Sequentially, income before income taxes attributable to Altisource declined $1.3 million due to our increased investments in personnel and technology to support our growth initiatives including our next generation of REALSuite technologies, initial investments in infrastructure to support the acquisition by Ocwen of the Litton portfolio and the seasonal decline in Financial Services revenue.

Income Tax Provision

The Company recognized an income tax provision of ~~$3.5~~$5.4 million for the ~~six~~nine months ended ~~June~~September 30, 2011 representing an effective tax rate of ~~10.3%~~9.7%. The income tax provision computed by applying the Luxembourg statutory tax rate of 28.8% differs from the effective tax rate primarily because of the effect of ~~the~~a favorable tax ruling as well as the mix of income and losses in multiple taxing jurisdictions. The Company received 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 was retroactive to the date of Separation. As a result of the ruling, the Company recognized a $3.4 million credit attributable to 2009 as well as adjusted the year to date tax provision to the new effective tax rate of 12.5% in the second quarter 2010 which resulted in a credit of $0.7 million for the six months ended June 30, 2010.

SEGMENT RESULTS OF OPERATIONS

The following section provides a discussion of pretax results of operations of our business segments for the three and ~~six~~nine months ended ~~June~~September 30, 2011 and 2010. Transactions between segments are accounted for as third-party arrangements for purposes of presenting Segment Results of Operations. Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REALSuite applications from our Technology Service 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.

Financial information for our segments is as follows:


	Three Months Ended June 30, 2011													Three Months Ended September 30, 2011
									Corporate														Corporate
	Mortgage		Financial			Technology			Items and			Consolidated		Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services		Services			Services			Eliminations			Altisource		Services			Services			Services			Eliminations			Altisource

Revenue	$	65,507	$	17,983		$	13,572		$	(3,794	)	$	93,268	$	82,170		$	17,303		$	14,827		$	(4,507	)	$	109,793
Cost of Revenue		43,544		13,574			9,334			(3,355	)		63,097		55,106			12,676			9,700			(4,143	)		73,339

Gross Profit		21,963		4,409			4,238			(439	)		30,171		27,064			4,627			5,127			(364	)		36,454
Selling, General and Administrative Expenses		2,853		3,502			1,537			6,012			13,904		4,227			4,268			756			6,078			15,329

Income (Loss) from Operations		19,110		907			2,701			(6,451	)		16,267		22,837			359			4,371			(6,442	)		21,125
Other Income (Expense), net		258		(7	)		(12	)		31			270		(283	)		(9	)		(12	)		(16	)		(320	)

Income (Loss) Before Income Taxes	$	19,368	$	900		$	2,689		$	(6,420	)	$	16,537	$	22,554		$	350		$	4,359		$	(6,458	)	$	20,805


Transactions with Related Parties:
Revenue	$	48,473	$	118		$	5,103		$	—		$	53,694	$	58,200		$	66		$	5,561		$	—		$	63,827

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	455		$	455	$	—		$	—		$	—		$	506		$	506


	Nine Months Ended September 30, 2011
									Corporate
	Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services		Services			Services			Eliminations			Altisource

Revenue	$	207,384	$	54,779		$	41,115		$	(11,547	)	$	291,731
Cost of Revenue		135,670		39,738			26,479			(10,502	)		191,385

Gross Profit		71,714		15,041			14,636			(1,045	)		100,346
Selling, General and Administrative Expenses		11,663		12,230			3,489			18,105			45,487

Income (Loss) from Operations		60,051		2,811			11,147			(19,150	)		54,859
Other Income (Expense), net		340		(27	)		(39	)		20			294

Income (Loss) Before Income Taxes	$	60,391	$	2,784		$	11,108		$	(19,130	)	$	55,153


Transactions with Related Parties:
Revenue	$	150,483	$	213		$	15,615		$	—		$	166,311

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	1,352		$	1,352

2629


	Three Months Ended June 30, 2010														Three Months Ended September 30, 2010
										Corporate													Corporate
	Mortgage			Financial			Technology			Items and			Consolidated		Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource		Services		Services			Services			Eliminations			Altisource

Revenue	$	42,665		$	19,891		$	12,485		$	(3,693	)	$	71,348	$	49,523	$	18,939		$	12,963		$	(3,845	)	$	77,580
Cost of Revenue		26,912			14,176			6,669			(3,382	)		44,375		31,383		13,870			7,239			(3,579	)		48,913

Gross Profit		15,753			5,715			5,816			(311	)		26,973		18,140		5,069			5,724			(266	)		28,667
Selling, General and Administrative Expenses		3,484			4,062			1,324			3,606			12,476		3,899		4,692			1,610			4,529			14,730

Income (Loss) from Operations		12,269			1,653			4,492			(3,917	)		14,497		14,241		377			4,114			(4,795	)		13,937
Other Income (Expense), net		(41	)		(13	)		(9	)		103			40		687		(9	)		(24	)		44			698

Income (Loss) Before Income Taxes	$	12,228		$	1,640		$	4,483		$	(3,814	)	$	14,537	$	14,928	$	368		$	4,090		$	(4,751	)	$	14,635


Transactions with Related Parties:
Revenue	$	31,222		$	25		$	4,537		$	—		$	35,784	$	34,765	$	34		$	4,660		$	—		$	39,459

Selling, General and Administrative Expenses	$	—		$	—		$	—		$	264		$	264	$	—	$	—		$	—		$	223		$	223

Six Months Ended June 30, 2011
Corporate
Mortgage Financial Technology Items and Consolidated
(in thousands) Services Services Services Eliminations Altisource

Revenue $ 125,214 $ 37,476 $ 26,288 $ (7,040 ) $ 181,938
Cost of Revenue 80,564 27,062 16,779 (6,359 ) 118,046

Gross Profit 44,650 10,414 9,509 (681 ) 63,892
Selling, General and Administrative Expenses 7,436 7,962 2,733 12,027 30,158

Income (Loss) from Operations 37,214 2,452 6,776 (12,708 ) 33,734
Other Income (Expense), net 623 (18 ) (27 ) 36 614

Income (Loss) Before Income Taxes $ 37,837 $ 2,434 $ 6,749 $ (12,672 ) $ 34,348

Transactions with Related Parties:
Revenue $ 92,283 $ 147 $ 10,054 $ — $ 102,484

Selling, General and Administrative Expenses $ — $ — $ — $ 846 $ 846


	Six Months Ended June 30, 2010															Nine Months Ended September 30, 2010
										Corporate														Corporate
	Mortgage			Financial			Technology			Items and			Consolidated			Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource			Services		Services			Services			Eliminations			Altisource

Revenue	$	75,047		$	39,936		$	24,459		$	(7,121	)	$	132,321		$	124,570	$	58,875		$	37,422		$	(10,966	)	$	209,901
Cost of Revenue		48,205			28,702			13,316			(6,494	)		83,729			79,588		42,572			20,555			(10,073	)		132,642

Gross Profit		26,842			11,234			11,143			(627	)		48,592			44,982		16,303			16,867			(893	)		77,259
Selling, General and Administrative Expenses		5,927			8,162			2,430			8,026			24,545			9,826		12,854			4,040			12,555			39,275

Income (Loss) from Operations		20,915			3,072			8,713			(8,653	)		24,047			35,156		3,449			12,827			(13,448	)		37,984
Other Income (Expense), net		(38	)		(29	)		(21	)		56			(32	)		649		(38	)		(45	)		100			666

Income (Loss) Before Income Taxes	$	20,877		$	3,043		$	8,692		$	(8,597	)	$	24,015		$	35,805	$	3,411		$	12,782		$	(13,348	)	$	38,650


Transactions with Related Parties:
Revenue	$	55,984		$	76		$	8,975		$	—		$	65,035		$	90,749	$	110		$	13,635		$	—		$	104,494

Selling, General and Administrative Expenses	$	—		$	—		$	—		$	588		$	588		$	—	$	—		$	—		$	811		$	811

2730

Mortgage Services

The following table presents our results of operations for our Mortgage Services segment for the three and ~~six~~nine months ending ~~June~~September 30:

Three Months Ended June 30, Six Months Ended June 30,
% %
(in thousands) 2011 2010 Better/(worse) 2011 2010 Better/(worse)

Service Revenue $ 45,513 $ 31,001 47 $ 88,853 $ 54,714 62
Reimbursable Expenses 18,689 10,367 80 33,757 18,249 85
Cooperative Non-controlling Interest 1,305 1,297 1 2,604 2,084 25

Total Revenue 65,507 42,665 54 125,214 75,047 67
Cost of Revenue 43,544 26,912 (62 ) 80,564 48,205 (67 )

Gross Profit 21,963 15,753 39 44,650 26,842 66

Gross Profit/Service Revenue 48 % 51 % 50 % 49 %

Selling, General and Administrative Expenses 2,853 3,484 18 7,436 5,927 (26 )

Income from Operations $ 19,110 $ 12,269 56 $ 37,214 $ 20,915 80

Income from Operations/Service Revenue 42 % 40 % 42 % 38 %

Transactions with Related Parties Included Above:
Revenue $ 48,473 $ 31,222 55 $ 92,283 $ 55,984 65

~~N/M — not meaningful.~~


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Service Revenue	$	58,915		$	34,909			69		$	147,768		$	89,623			65
Reimbursable Expenses		21,464			12,562			71			55,221			30,811			79
Cooperative Non-controlling Interest		1,791			2,052			(13	)		4,395			4,136			6

Total Revenue		82,170			49,523			66			207,384			124,570			66
Cost of Revenue		55,106			31,383			(76	)		135,670			79,588			(70	)


Gross Profit		27,064			18,140			49			71,714			44,982			59

Gross Profit/Service Revenue		46	%		52	%					49	%		50	%

Selling, General and Administrative Expenses		4,227			3,899			(8	)		11,663			9,826			(19	)

Income from Operations	$	22,837		$	14,241			60		$	60,051		$	35,156			71


Income from Operations/Service Revenue		39	%		41	%					41	%		39	%

Transactions with Related Parties Included Above:
Revenue	$	58,200		$	34,765			67		$	150,483		$	90,749			66

Our Mortgage Services segment continues to be the primary driver of growth for both year to date and ~~second quarter~~quarterly results. As previously discussed, in 2011 we reorganized our reporting structure in that certain services that were originally part of Component Services and Other are now classified as part of Customer Relationship Management in our Financial Services segment.

~~Through July~~The growth in Mortgage Services in both periods presented over the same periods in 2010 was due to the development of mortgage and real estate portfolio services and growth in the loan portfolio serviced by Ocwen. On average, Ocwen serviced 482,973 loans for the nine months ended September 30, 2011 ~~we fulfilled our funding requirements~~compared to 373,248 for the nine months ended September 30, 2010. The growth in loans was principally driven by Ocwen’s acquisition of the HomEq portfolio which boarded on REALServicing in September 2010 and ~~have provided $15.0~~the Litton portfolio which was partially boarded on September 1, 2011. We expect the remaining loans associated with the Litton portfolio to board on REALServicing in November 2011.

Sequentially, Service Revenue increased $13.4 million or 29% with each service group recognizing an increase in ~~total~~the quarter. Closing and insurance services recorded the most significant increases in Service Revenue sequentially driven by the development of services and increase in title searches attributable to ~~Correspondent One.~~pre-foreclosure activities. Additionally, asset management services and valuation services benefited from services attributable to pre-foreclosure activities. We continued to see elevated levels of REO sales as a result of seasonality and on-going process improvements meant to reduce the time to sell an REO.

An initiative for 2011 is the formation of Correspondent One ~~is expected to partner with Ocwen and~~which provides members of Lenders One ~~to provide~~ additional avenues ~~for members~~ to sell loans beyond Lenders One’s preferred investor arrangements and the ~~members~~members’ own network of loan buyers. We anticipate this will result in improved capital markets execution for the members and facilitate the sale of our services to the members.

~~The growth in Mortgage Services was due~~ As of July 2011, we fulfilled our funding obligations to Correspondent One and account for such investment under the ~~development~~equity method. In the third quarter of ~~mortgage and real estate portfolio services and growth in the loan portfolio serviced by Ocwen. On average, Ocwen serviced 466,353 loans for the six months ended June 30,~~ 2011, ~~compared~~we recognized a net loss of $0.4 million attributable to 359,146 for the six months ended June 30, 2010. The growth in loans was principally driven by Ocwen’s acquisition of the HomEq portfolio which boarded in September 2010. Assuming Ocwen completes the acquisition of the Litton portfolio, we expect Ocwen to board at least an additional 200,000 loans principally impacting our results beginning in the fourth quarter.

Sequentially, Service Revenue increased $2.2 million or 5%. This growth was driven by our new insured title agency operations and seasonally improving REO brokerage commissions. These increases were partially offset by a decline in our title search and default management services operations which are dependent upon foreclosure referrals.Correspondent One. We expect Correspondent One to incur losses until the second half of 2012.

We continue to ~~ramp up the title insurance agency and, to a lesser extent, our origination services through the balance of the year.~~

~~Although we~~ believe the development of origination services is important to balancing our service offerings ~~it will require a significant investment~~and have invested significantly 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~~second quarter acquisition of Springhouse to facilitate the growth of origination services. ~~Although we~~We will continue to leverage our global delivery model and our experience with technological based solutions, econometrics and behavioral ~~science, these~~science. These investments, the mix of services provided and the need to hire employees and lease facilities in advance of expected business referral growth, could limit our ability in the near term to significantly expand Mortgage Services margins calculated based upon Service ~~Revenue, during 2011.~~Revenue.

Revenue

Three Months Ended June 30, Six Months Ended June 30,
% %
(in thousands) 2011 2010 Better/(worse) 2011 2010 Better/(worse)

Service Revenue:
Asset Management Services $ 14,535 $ 8,754 66 $ 26,841 $ 14,721 82
Origination Management Services 4,027 3,397 19 8,313 5,886 41
Residential Property Valuation 10,185 7,576 34 20,069 14,156 42
Closing and Title Services 10,111 6,091 66 19,492 11,344 72
Default Management Services 6,655 5,183 28 14,138 8,607 64

Total Service Revenue 45,513 31,001 47 88,853 54,714 62

Reimbursable Expenses:
Asset Management Services 17,764 9,759 82 31,645 17,128 85
Default Management Services 925 535 73 2,112 1,048 102
Closing and Title Services — 73 (100 ) — 73 (100 )

Total Reimbursable Expenses 18,689 10,367 80 33,757 18,249 85

Non-controlling Interests: 1,305 1,297 1 2,604 2,084 25

Total Revenue $ 65,507 $ 42,665 54 $ 125,214 $ 75,047 67

Transactions with Related Parties:
Asset Management Services $ 32,260 $ 18,470 75 $ 58,486 $ 31,849 84
Residential Property Valuation 9,543 7,438 28 19,200 13,453 43
Closing and Title Services 3,832 3,562 8 8,583 7,390 16
Default Management Services 2,838 1,752 62 6,014 3,292 83

Total $ 48,473 $ 31,222 55 $ 92,283 $ 55,984 65

~~N/M — not meaningful.~~


	Three Months Ended September 30,							Nine Months Ended September 30,
					% Better							% Better
(in thousands)	2011		2010		/(worse)			2011		2010		/(worse)

Service Revenue
Asset Management Services	$	18,281	$	10,450		75		$	45,122	$	25,171		79
Origination Management Services		4,760		4,802		(1	)		13,073		10,688		22
Residential Property Valuation		13,188		8,796		50			33,257		22,952		45
Closing and Insurance Services		15,013		6,359		136			34,505		17,703		95
Default Management Services		7,673		4,502		70			21,811		13,109		66

Total Service Revenue		58,915		34,909		69			147,768		89,623		65

Reimbursable Expenses:
Asset Management Services		20,643		11,899		73			52,288		29,027		80
Default Management Services		821		561		46			2,933		1,609		82
Closing and Insurance Services		—		102		(100	)		—		175		(100	)

Total Reimbursable Expenses		21,464		12,562		71			55,221		30,811		79

Non-controlling Interests:		1,791		2,052		(13	)		4,395		4,136		6

Total Revenue	$	82,170	$	49,523		66		$	207,384	$	124,570		66


Transactions with Related Parties:
Asset Management Services	$	38,924	$	21,250		83		$	97,410	$	53,099		83
Residential Property Valuation		12,158		8,729		39			31,358		22,182		41
Closing and Insurance Services		4,557		3,428		33			13,140		10,818		21
Default Management Services		2,561		1,358		89			8,575		4,650		84

Total	$	58,200	$	34,765		67		$	150,483	$	90,749		66

In our Mortgage Services segment, we generate the majority of our ~~Revenue~~revenue by providing outsourced services that span the lifecycle of a mortgage loan primarily for Ocwen or with respect to the 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.

Asset Management Services.Asset Management Services principally include property preservation, property inspection, REO asset management and REO brokerage. InAsset Management Services has been the ~~first quarter~~largest contributor to Service Revenue growth year to date which reflects increased sales of ~~2010,~~REO properties, increased number of properties for which we ~~completed our national network for~~provide property preservation services and ~~including our real estate broker referral network, have coverage nationally for REO dispositions. The completion of the national network of our services, coupled with the~~an increase in ~~Ocwen’s loan portfolio, are~~pre-foreclosure inspection services. We expect to receive additional property preservation and brokerage referrals beginning in the ~~reasons for the significant growth compared to the prior year period. Sequentially, Service Revenue for this segment increased primarily~~fourth quarter as a result of Ocwen’s recent acquisition of the ~~increase~~Litton portfolio for which the revenue will begin to be recognized in ~~REO properties sold due to~~ the ~~seasonal nature of home sales when compared to first quarter 2011.~~2012.

Origination Management Services. Origination Management Services includes MPA and our developing fulfillment business. The increase year over year is principally due to the inclusion of MPA’s results for an entire period in 2011 as compared to a partial period in 2010 from the date of acquisition. Sequentially, Revenue ~~declined as a result~~increased due to the performance of ~~a reduction in~~MPA and the ~~volume~~slow but incremental roll-out of ~~loans sold through preferred investor agreements as well as a general decline in the loan~~new origination ~~market which, although expected, impacted MPA’s results.~~services. For the ~~six~~nine months ended ~~June~~September 30, 2011, MPA ~~added 18~~experienced a net increase of 26 members ~~(12~~(net increase of 12 members in the ~~second~~third quarter) and as of ~~June~~September 30, 2011 had ~~190~~202 members.

Residential Property Valuation. The increase in both ~~year to date and second quarter~~periods presented as compared to the same periods in ~~the prior year~~2010 was asprimarily a result of Ocwen’s residential loan portfolio ~~growth.~~growth and to a lesser degree results from the Springhouse acquisition in April 2011. Sequentially, Revenue increased ~~slightly principally~~significantly as expected due to ~~our~~Ocwen’s recent acquisition of the Litton portfolio and the aforementioned acquisition of Springhouse. We expect elevated levels of valuation referrals to continue into the fourth quarter.

Closing and ~~Title~~Insurance Services.~~During 2010, we began to roll out our~~Closing and Insurance Services principally consists of title search, title agency ~~business in key markets. In December 2010, we obtained agency status in California.~~and insurance services. During 2011, we ~~are~~remain focused on increasing our referral capture rate in our operational states and rolling out insured title services nationwide, similar to what we accomplished with our title search and asset management businesses in 2010. The continued focus on completing the rollout drove the year over year increase. Sequentially, Revenue increased principally as we continue to expand our ~~insured~~ title agency ~~offerings sufficient enough to offset declines in default title search.~~and other insurance services offerings.

Default Management Services.We provide non-legal back-office support for foreclosure, bankruptcy and eviction attorneys as well as foreclosure trustee services. The increase in both periods presented as compared to the same periods in 2010 was a result of our continued rollout of a national platform as well as Ocwen’s servicing portfolio growth. Sequentially, we saw ~~a decrease~~an increase in Revenue primarily due to ~~a decrease~~an increase in foreclosure referrals received in the second quarter. We expect referrals to further increase late in the fourth quarter due to the ~~attorneys we provide services to and our trustee business.~~addition of Litton. These referrals will translate into revenue in the first half of 2012.

Cost of Revenue


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
							%									%									% Better									% Better
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)			2011			2010			/(worse)			2011			2010			/(worse)

Expenditures	$	11,005		$	7,183			(53	)	$	19,282		$	12,056			(60	)	$	14,216		$	7,287			(95	)	$	33,498		$	19,343			(73	)
Outside Fees and Services		13,850			9,362			(48	)		27,525			17,900			(54	)		19,426			11,534			(68	)		46,951			29,434			(60	)
Reimbursable Expenses		18,689			10,367			(80	)		33,757			18,249			(85	)		21,464			12,562			(71	)		55,221			30,811			(79	)


Cost of Revenue	$	43,544		$	26,912			(62	)	$	80,564		$	48,205			(67	)	$	55,106		$	31,383			(76	)	$	135,670		$	79,588			(70	)


Gross Margin Percentage:
Gross Profit / Service Revenue		48	%		51	%					50	%		49	%
Gross Profit/Service Revenue																				46	%		52	%					49	%		50	%

Expenditures, which consists primarily of compensation and technology costs, increased in both periods presented as compared to the same periods in 2010 due to the growth in default oriented mortgage services. Sequentially, ~~expenditures~~Expenditures increased principally as a result of employee costs to support the roll-out of our title agency operations, development of origination services and hiring of employees to support expected growth. We would expect ~~expenditures~~Expenditures to continue to increase in the ~~third~~fourth quarter as we ~~prepare for the~~continue to hire to support anticipated ~~referrals from the boarding of the Litton portfolio by Ocwen.~~growth in referrals.

Outside ~~fees~~Fees and ~~services~~Services increased over the ~~prior year period~~same periods in 2010 due to the increase in default oriented services for the periods presented. Sequentially, ~~outside fees~~Outside Fees and Services increased principally due to the provision of pre-foreclosure related services ~~was essentially flat.~~(e.g., valuation, property inspection services) for which vendor costs are generally not considered reimbursable expenses. We anticipate ~~outside fees~~that Outside Fees and ~~services~~Services will continue to increase in the ~~third~~fourth quarter ~~as we expand our retail valuation~~given the recent boarding of loans associated with the Litton platform and ~~title agency offerings.~~the subsequent boarding on to REALServicing of the remaining Litton loans in November.

Several factors impact our gross margins from period to period including seasonality, the mix of services delivered, timing of investments in new services, hiring of staff and leasing of facilities in advance of new business and the timing of when loans are boarded by our customers. Sequentially, our gross margin decreased principally as a result of increased ~~compensation~~Outside Fees and ~~technology costs, particularly related~~Services attributable to ~~our title agency and origination~~pre-foreclosure activities for which we earn a lower margin when compared to other services ~~under development.~~offered.

Selling, General and Administrative Expenses


	Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
							%								%									% Better									% Better
(in thousands)	2011			2010			Better/(worse)		2011			2010			Better/(worse)			2011			2010			/(worse)			2011			2010			/(worse)

Total Selling, General and Administrative Expenses	$	2,853		$	3,484			18	$	7,436		$	5,927			(26	)	$	4,227		$	3,899			(8	)	$	11,663		$	9,826			(19	)


Operating Percentage:
Income from Operations/Service Revenue		42	%		40	%				42	%		38	%					39	%		41	%					41	%		39	%

Selling, General and Administrative Expenses increased ~~over~~in both periods presented over the same periods in 2010 principally due to the exponential growth in the segment which required investments in facilities, technology and other general and administrative costs. Sequentially, Selling, General and Administrative Expenses ~~declined as a result of~~increased primarily due to reduced reserves for bad debt, reversal of stock compensation expense due to the departure of certain executives and lower expenses for professional ~~services.~~services in the second quarter. Selling, General and Administrative Expenses for the third quarter in 2011 are consistent with the first quarter. As this segment continues to grow, we should ~~see continued~~begin to leverage Selling, General and Administrative Expenses resulting in increased margins.

Financial Services

The following table presents our results of operations for our Financial Services segment for the three and ~~six~~nine months ending ~~June~~September 30:


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
							%									%									% Better									% Better
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)			2011			2010			/(worse)			2011			2010			/(worse)

Service Revenue	$	17,213		$	19,117			(10	)	$	36,133		$	38,514		$	(6	)	$	16,934		$	18,132			(7	)	$	53,067		$	56,646			(6	)
Reimbursable Expenses		770			774			(1	)		1,343			1,422			(6	)		369			807			(54	)		1,712			2,229			(23	)

Total Revenue		17,983			19,891			(10	)		37,476			39,936			(6	)		17,303			18,939			(9	)		54,779			58,875			(7	)

Cost of Revenue		13,574			14,176			4			27,062			28,702			6			12,676			13,870			9			39,738			42,572			7

Gross Profit		4,409			5,715			(23	)		10,414			11,234			(7	)		4,627			5,069			(9	)		15,041			16,303			(8	)

Gross Profit/Service Revenue		26	%		30	%					29	%		29	%					27	%		28	%					28	%		29	%

Selling, General and Administrative Expenses		3,502			4,062			14			7,962			8,162			3			4,268			4,692			9			12,230			12,854			5

Income from Operations	$	907		$	1,653			(45	)	$	2,452		$	3,072			(20	)	$	359		$	377			(5	)	$	2,811		$	3,449			(18	)


Income from Operations/Service Revenue		5	%		9	%					7	%		8	%					2	%		2	%					5	%		6	%

Transactions with Related Parties Above:
Revenue	$	118		$	25			N/M		$	147		$	76			93		$	66		$	34			94		$	213		$	110			94

~~N/M — not meaningful.~~

As discussed above, Customer Relationship Management now includes certain services that were originally recorded as part of Mortgage Services.

Financial Services revenue declined in both periods as compared to the same periods in 2010 due to a decline in ~~Revenue~~revenues attributable to asset recovery management and primarily from one of the segment’s largest customers. The decline was in part (i) a result of the client shifting work to the Company’s global delivery platform which resulted in lower revenue ~~although at higher margins.~~and (ii) the general economic environment which has kept collection rates depressed. This decline was partially offset by growth in new asset recovery management accounts and growth in customer relationship management revenues. Sequentially, Revenue ~~declined $1.5 million, or 8%, primarily~~was down due principally to ~~the~~ seasonality ~~of collections which are usually higher~~associated with asset recovery management services, partially offset by a sequential increase in ~~the first quarter and a short-term~~ customer relationship management ~~assignment that was completed in the first quarter.~~revenues.

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 margin improvement.~~

In July 2011, we purchased the assembled workforce of a sub-contractor in India ~~for $2.4 million~~ that ~~performed~~performs asset recovery services. For periods prior to the ~~periods presented,~~acquisition, the costs paid to the sub-contractor were included as a component of Outside Fees and Services. ~~In future periods,~~Since acquisition, the costs ~~will be~~have been recorded as employee costs, technology or occupancy as appropriate which ~~will result~~has resulted in some movement between Cost of Revenue and Selling, General and Administrative Expense categories.

Revenue

Three Months Ended June 30, Six Months Ended June 30,
% %
(in thousands) 2011 2010 Better/(worse) 2011 2010 Better/(worse)

Service Revenue:
Asset Recovery Management $ 9,538 $ 11,801 (19 ) $ 20,442 $ 23,973 (15 )
Customer Relationship Management 7,675 7,316 5 15,691 14,541 8

Total Service Revenue 17,213 19,117 (10 ) 36,133 38,514 6

Reimbursable Expenses:
Asset Recovery Management 770 774 (1 ) 1,343 1,422 (6 )

Total Reimbursable Expenses 770 774 (1 ) 1,343 1,422 (6 )

Total Revenue $ 17,983 $ 19,891 (10 ) $ 37,476 $ 39,936 (6 )

Transactions with Related Parties:
Asset Recovery Management $ 118 $ 25 N/M $ 147 $ 76 93

~~N/M — not meaningful.~~


	Three Months Ended September 30,							Nine Months Ended September 30,
					% Better							% Better
(in thousands)	2011		2010		/(worse)			2011		2010		/(worse)

Service Revenue
Asset Recovery Management	$	8,778	$	10,735		(18	)	$	29,220	$	34,708		(16	)
Customer Relationship Management		8,156		7,397		10			23,847		21,938		9

Total Service Revenue		16,934		18,132		(7	)		53,067		56,646		(6	)

Reimbursable Expenses:
Asset Recovery Management		369		807		(54	)		1,712		2,229		(23	)

Total Reimbursable Expenses		369		807		(54	)		1,712		2,229		(23	)


Total Revenue	$	17,303	$	18,939		(9	)	$	54,779	$	58,875		(7	)


Transactions with Related Parties:
Asset Recovery Management	$	66	$	34		94		$	213	$	110		94

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~~services and ~~from fees we earn for performing~~ customer relationship ~~management for our customers.~~management.

Asset Recovery Management.Our revenue associated with contingency collections declined in both periods when compared to the same periods in 2010 due to a decline in revenue from one of the segment’s largest customers. 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. In general, we have seen improved performance of our collectors which we believe will translate into ~~better~~increased placements in the future should such performance continue.

Customer Relationship Management. Our revenue associated with customer relationship management increased in both periods as compared to the same periods in 2010 as a result of increased services to two key customers. ~~Sequentially, Revenue decreased due to a temporary increase in staffing during~~We recently strengthened the ~~first quarter~~management team for ~~one~~customer relationship services with the intention of ~~our customers.~~growing these services.

Cost of Revenue

Three Months Ended June 30, Six Months Ended June 30,
% %
(in thousands) 2011 2010 Better/(worse) 2011 2010 Better/(worse)

Expenditures $ 8,788 $ 9,431 7 $ 17,806 $ 19,398 8
Outside Fees and Services 4,016 3,971 (1 ) 7,913 7,882 N/M
Reimbursable Expenses 770 774 1 1,343 1,422 6

Cost of Revenue $ 13,574 $ 14,176 4 $ 27,062 $ 28,702 6

Gross Margin Percentage:
Gross Profit/Service Revenue 26 % 30 % 29 % 29 %

~~N/M — not meaningful.~~


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Expenditures	$	10,435		$	9,287			(12	)	$	28,241		$	28,685			2
Outside Fees and Services		1,872			3,776			50			9,785			11,658			16
Reimbursable Expenses		369			807			54			1,712			2,229			23


Cost of Revenue	$	12,676		$	13,870			9		$	39,738		$	42,572			7


Gross Margin Percentage:
Gross Profit/Service Revenue		27	%		28	%					28	%		29	%

Our gross margin ~~declined~~increased sequentially from 26% to ~~26%~~27% principally as a result of the ~~decrease~~acquisition of Tracmail which resulted in ~~revenue as Cost~~changes to how costs were categorized since the date of ~~Revenue was essentially flat for the first and second quarter of 2011.~~acquisition. When compared to the ~~prior year, expenditures~~same periods in 2010, Expenditures in both periods declined principally as a result of lower employee costs as we expanded the use of our global delivery footprint.

Selling, General and Administrative Expenses


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
							%								%								% Better								% Better
(in thousands)	2011			2010			Better/(worse)		2011			2010			Better/(worse)		2011			2010			/(worse)		2011			2010			/(worse)

Total Selling, General and Administrative Expenses	$	3,502		$	4,062			14	$	7,962		$	8,162			3	$	4,268		$	4,692			9	$	12,230		$	12,854			5


Operating Percentage:
Income from Operations/Service Revenue		5	%		9	%				7	%		8	%				2	%		2	%				5	%		6	%

Selling, General and Administrative Expenses in both periods decreased slightly compared to the ~~prior year~~same periods in 2010 principally as a result of reduced legal costs. Sequentially, Selling, General and Administrative Expenses ~~declined when compared~~increased due to the ~~first quarter as a result of decreased legal expenses~~previously mentioned acquisition and ~~a release of reserves associated with a vendor matter satisfactorily resolved.~~its impact on cost classifications.

Technology Services

The following table presents our results of operations for our Technology Services segment for the three and ~~six~~nine months ending ~~June~~September 30:


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
							%									%									% Better									% Better
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)			2011			2010			/(worse)			2011			2010			/(worse)

Revenue	$	13,572		$	12,485			9		$	26,288		$	24,459			8		$	14,827		$	12,963			14		$	41,115		$	37,422			10
Cost of Revenue		9,334			6,669			(40	)		16,779			13,316			(26	)		9,700			7,239			(34	)		26,479			20,555			(29	)

Gross Profit		4,238			5,816			(27	)		9,509			11,143			(15	)		5,127			5,724			(10	)		14,636			16,867			(13	)

Gross Profit/Service Revenue		31	%		47	%					36	%		46	%
Gross Profit/Revenue																				35	%		44	%					36	%		45	%

Selling, General and Administrative Expenses		1,537			1,324			(16	)		2,733			2,430			(13	)		756			1,610			53			3,489			4,040			14

Income from Operations	$	2,701		$	4,492			(40	)	$	6,776		$	8,713			(22	)	$	4,371		$	4,114			6		$	11,147		$	12,827			(13	)


Income from Operations/Service Revenue		20	%		36	%					26	%		36	%
Income from Operations/Revenue																				29	%		32	%					27	%		34	%

Transactions with Related Parties Above:
Revenue	$	5,103		$	4,537			13		$	10,054		$	8,975			12		$	5,561		$	4,660			19		$	15,615		$	13,635			15

The primary focus of the Technology Services segment today 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~~are expending 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 and efficiently manage our operations; and

The development and early stage incubation of technology ~~solutions principally based on patented technologies.~~solutions.

Effective January 1, 2011, we modified our pricing for IT Infrastructure Services within our Technology Services segment from a 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.

3337

Revenue


	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
					%						%							% Better						% Better
(in thousands)	2011		2010		Better/(worse)		2011		2010		Better/(worse)			2011		2010		/(worse)		2011		2010		/(worse)

Service Revenue:
Revenue:
REALSuite	$	8,275	$	7,565		9	$	16,431	$	14,551		13		$	8,964	$	7,864		14	$	25,395	$	22,415		13
IT Infrastructure Services		5,297		4,920		8		9,857		9,908		(1	)		5,863		5,099		15		15,720		15,007		5

Total Revenue	$	13,572	$	12,485		9	$	26,288	$	24,459		8		$	14,827	$	12,963		14	$	41,115	$	37,422		10


Transactions with Related Parties:
REALSuite	$	3,008	$	2,653		13	$	6,013	$	5,208		16			3,493		2,744		27		9,506		7,952		20
IT Infrastructure Services		2,095		1,884		11		4,041		3,767		7			2,068		1,916		8		6,109		5,683		7

Revenue	$	5,103	$	4,537		13	$	10,054	$	8,975		12		$	5,561	$	4,660		19	$	15,615	$	13,635		15

REALSuite. Our REALSuite revenue is primarily driven by our REALServicing^® product which is our comprehensive residential loan servicing platform. The primary driver for the growth in revenue is the increase in Ocwen’s residential loan portfolio.

IT Infrastructure Services.Our IT infrastructure services ~~revenue declined~~revenues in both periods were generally declining when compared to the ~~comparable period~~same periods in 2010 ~~almost entirely~~ due to our change in pricing for infrastructure ~~services. Sequentially, revenue increased given~~services; however this trend reversed in the ~~increased headcount both internally and at Ocwen. The mark-ups~~third quarter 2011 as a result of the growth in Ocwen’s personnel as its servicing business has grown. Mark-ups for infrastructure services are based upon economic studies performed that are generally consistent with our transfer pricing methodology.

Cost of Revenue


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
							%									%									% Better									% Better
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)			2011			2010			/(worse)			2011			2010			/(worse)

Cost of Revenue	$	9,334		$	6,669			(40	)	$	16,779		$	13,316			(26	)	$	9,700		$	7,239			(34	)	$	26,479		$	20,555			(29	)


Gross Margin Percentage:
Gross Profit / Total Revenue		31	%		47	%					36	%		46	%
Gross Profit/Total Revenue																				35	%		44	%					36	%		45	%

Our gross margin declined to 36% for the ~~six~~nine months ended ~~June~~September 30, 2011 as we now report our Consumer Analytics group within Technology Services during ~~2011.~~2011 (previously reported in our Corporate Segment). Our Consumer Analytics group seeks to expand our use of behavioral sciences by building proprietary algorithms and psychologically-optimized communications through a customized technology platform. In addition, we have seen an increase in licensing fees given the increase in personnel both at Ocwen and Altisource.

Selling, General and Administrative Expenses


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,								Nine Months Ended September 30,
							%									%									% Better								% Better
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)			2011			2010			/(worse)		2011			2010			/(worse)

Total Selling, General and Administrative Expenses	$	1,537		$	1,324			(16	)	$	2,733		$	2,430			(13	)	$	756		$	1,610			53	$	3,489		$	4,040			14


Operating Percentage:
Operating Income / Total Revenue		20	%		36	%					26	%		36	%
Operating Income/Total Revenue																				29	%		32	%				27	%		34	%

Selling, General and Administrative Expenses ~~increased slightly primarily due to higher occupancy charges. Margins~~decreased sequentially principally ~~decreased~~ as a result of reduction in bad debt reserves due to improved collections. This as well as the increase in ~~Cost of Revenue as previously described.~~Revenues led to a significant increase in sequential margins.

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 June 30,							Six Months Ended June 30,							Three Months Ended September 30,							Nine Months Ended September 30,
					%							%							% Better							% Better
(in thousands)	2011		2010		Better/(worse)			2011		2010		Better/(worse)			2011		2010		/(worse)			2011		2010		/(worse)

Total Selling, General and Administrative Expenses	$	6,012	$	3,606		(67	)	$	12,027	$	8,026		(50	)	$	6,078	$	4,529		(34	)	$	18,105	$	12,555		(44	)

Corporate costs rose throughout 2010 as we invested in staff to support our growing operations.

During 2011, we hired additional resources principally focused on legal, compliance and quality assurance. In addition, lease costs increased related to the build out of new facilities to support the growth we expect from Ocwen’s acquisition of the Litton portfolio. Typically, we include new leases costs within Corporate until the facility is put into use at which time the prospective lease cost is included within the appropriate segment. Lastly, 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. When compared to the ~~first~~second quarter, corporate costs ~~were~~remained flat.

3539

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.

In May 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market. Through ~~June~~September 30, 2011, we purchased ~~1.0~~1.7 million shares of our common stock on the open market at an average price of ~~$28.51,~~$31.02, leaving ~~2.8~~2.1 million shares still available for ~~purchase.~~purchase under the program.

Cash Flows

The following table presents our cash flows for the ~~six~~nine months ended ~~June~~September 30:


	Six Months Ended June 30,									Nine Months Ended September 30,
							%									%
(dollars in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Net Income Adjusted for Non-Cash Items	$	40,238		$	33,331			21		$	62,757		$	46,819			34
Working Capital		(2,076	)		(8,989	)		77			5,994			(13,558	)		144

Cash Flow from Operating Activities		38,162			24,342			57			68,751			33,261			107
Cash Flow from Investing Activities		(8,709	)		(31,051	)		72			(28,983	)		(35,744	)		19
Cash Flow from Financing Activities		(16,555	)		(2,907	)		N/M			(40,652	)		(4,936	)		N/M

Net Change in Cash		12,898			(9,616	)		234			(884	)		(7,419	)		88
Cash at Beginning of Period		22,134			30,456			(27	)		22,134			30,456			(27	)

Cash at End of Period	$	35,032		$	20,840			68		$	21,250		$	23,037			(8	)

N/M — Not meaningful.

Cash Flow from Operating Activities

Cash flow from operating activities consists of two components: (i) net income adjusted for depreciation, amortization and certain other non-cash items and (ii) working capital. In 2011, we generated ~~$38.2~~$68.8 million in positive cash flow from operations or approximately ~~$0.26~~$0.30 per every dollar of Service Revenue. This primarily reflects our profitability adjusted for non-cash items in the period primarily as a result of our year-over-year growth in mortgage related ~~services partially offset by an increase in working capital requirements.~~services.

Cash Flow from Investing Activities

During the ~~six~~nine months ended ~~June~~September 30, 2011, we invested ~~approximately $3.3~~$15.0 million in Correspondent One to facilitate the establishment of this business. In ~~addition, in the second quarter~~ 2011, we acquired Springhouse for net consideration of $1.8 million and Tracmail for net consideration of $0.7 million. We ~~currently expect capital expenditures in 2011 to be higher than 2010 levels as we ramp up~~estimate our ~~development costs related to REALSuite. Our current estimate of~~ capital expenditures for the full year is2011 to be at the lower end of our previously provided range of $16 million to $18 million. Our cash flow from investing activities in 2010 includes the acquisition of MPA for which the purchase consideration included $29.0 million in cash.

Cash Flow from Financing Activities

Cash flow from financing activities in 2011 primarily includes activity associated with stock option exercises, share repurchases and payments to non-controlling interests as a result of the acquisition of MPA. We utilized significantly more cash in 2011 from financing activities as a result of our stock repurchase program. In the third quarter, we returned $22.9 million to shareholders through our stock repurchase program.

Liquidity Requirements after ~~June~~September 30, 2011

In July 2011, we paid $12.0 million to fund our remaining commitment to Correspondent One and a net amount of $0.7 million to a sub-contractor to terminate the existing arrangement and acquire an in-place workforce of approximately 600 persons. During the ~~third~~fourth quarter, we expect to distribute ~~$1.3~~$1.8 million to the Lenders One members representing non-controlling interests. Between October 1 and 21, 2011, we purchased 0.1 million shares at a total cost of $4.1 million.

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 current operations as well as expansion activities, we require very limited capital. Were we to need additional capital, we believe we have adequate access to both debt and equity capital markets.

Contractual Obligation, Commitments and Contingencies

For the ~~six~~nine months ended ~~June~~September 30, 2011, there were no significant changes to our contractual obligations from those identified in our Form 10-K for the fiscal year ended December 31, 2010, other than those which occur in the normal course of business (primarily the addition of operating leases due to our growth). See also Note 1316 to the condensed consolidated financial ~~statements for additional information on commitments and contingencies.~~statements.

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, revenue 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 Form 10-K for the year ended December 31, 2010. Such policies have not changed during the quarter ended ~~June~~September 30, 2011.

OTHER MATTERS

Related Party — Ocwen

For the ~~six~~nine months ended ~~June~~September 30, 2011, approximately ~~$92.3~~$150.5 million of the Mortgage Services ($~~48.5~~58.2 million for the ~~second~~third quarter), ~~$0.1~~$0.2 million ($0.1 million for the ~~second~~third quarter) of the Financial Services and ~~$10.1~~$15.6 million ($~~5.1~~5.5 million for the ~~second~~third quarter) of the Technology ~~Service~~Services segment revenue 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 a Transition Services agreement under which services in such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other areas are provided to the counterparty for up to two years from the date of Separation. For the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010, Altisource billed Ocwen ~~$0.9~~$1.7 million and ~~$0.8~~$1.2 million respectively ($~~0.5~~0.8 million and ~~$0.4~~$0.5 million for the ~~second~~third quarter of 2011 and 2010, respectively), and Ocwen billed Altisource ~~$0.8~~$1.4 million and ~~$0.6~~$0.8 million respectively ($0.5 million and ~~$0.3~~$0.2 million for the ~~second~~third quarter of 2011 and 2010, 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.

3741


Item 3.		Quantitative and Qualitative Disclosures about Market Risk.

Our financial market risk consists primarily of foreign currency exchange risk. We are exposed to foreign currency exchange rate risk in connection with our investment in non-U.S. dollar functional currency operations, which are very limited, to the extent that our foreign exchange positions remain un-hedged.


Item 4.		Controls and Procedures.

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.

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 June~~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, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3842

PART II — OTHER INFORMATION


Item 1.		Legal Proceedings.

We are subject to routine litigation and administrative proceedings arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel and considering insurance coverage where applicable, the outcome of current legal proceedings both individually and in the aggregate will not have a material impact on the Company’s financial condition, results of operations or cash flows.


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 Form 10-K for the year ended December 31, 2010.


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 ~~June~~September 30, 2011:

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):

April 1 — 30, 2011 32,334 $ 30.68 32,334 2,864,374
May 1 — 31, 2011 119,841 32.83 119,841 2,744,533
June 1 — 30, 2011 — — — 2,744,533

Total common shares 152,175 $ 32.37 152,175 2,744,533

Total number

Maximum

of shares

number

purchased as

of shares

part of

that may

publicly

yet be

Total

Weighted

announced

purchased

number of

average

plans

under the

price paid

plans or

Period

purchased⁽¹⁾

per share

programs⁽²⁾

programs

Common shares:

July 1 – 31, 2011

89,459

37.01

89,459

2,655,074

August 1 – 31, 2011

256,091

32.26

245,003

2,410,071

September 1 – 30, 2011

310,000

35.59

310,000

2,100,071

Total common shares

655,550

34.48

644,462

2,100,071


⁽¹⁾		Includes shares withheld from employees to satisfy tax withholding obligations that arose from the exercise of stock options.

⁽²⁾		In the second quarter of 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market.


Item 3.		Defaults upon Senior Securities.None


Item 4.		(Removed and Reserved)


Item 5.		Other Information.None

3943


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 the Sarbanes-Oxley Act of 2002 (filed herewith)

	101			Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended ~~June~~September 30, 2011, is formatted in XBRL interactive data files: (i) Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2011 and December 31, 2010; (ii) Condensed Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2011 and 2010; (iii) Condensed Consolidated Statements of Equity for the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010; (iv) Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010; and (iv) Notes to Condensed Consolidated Financial Statements (As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Act of 1934)

4044

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: ~~July 28,~~October 27, 2011	By:	/s/ Robert D. Stiles
		Robert D. Stiles
		Chief Financial Officer (On behalf of the Registrant and as its principal financial officer)