UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2020



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-34354

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

(Exact name of ~~Registrant~~registrant as specified in its Charter)



Luxembourg			98-0554932
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

40, avenue Monterey

L-2163 Luxembourg

Grand Duchy of Luxembourg

(Address of principal executive offices) ~~(Zip Code)~~

(352) 24 69 79 00

(Registrant’s telephone ~~number)~~number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $1.00 par value

ASPS

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by ~~section~~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. Yes þ☑ 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes þ☑ No o

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, ~~(as defined~~” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act):~~

Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~ þ

~~Accelerated filer~~ o

~~Non-accelerated filer~~ o ~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~ o

Emerging growth companyo

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided bypursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ Noþ☑

As of October ~~20, 2017,~~23, 2020, there were ~~17,904,739~~15,649,709 outstanding shares of the registrant’s ~~shares of beneficial interest~~common stock (excluding ~~7,508,009~~9,763,039 shares held as treasury stock).

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-Q

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	September 30, 2020		December 31, 2019

ASSETS
Current assets:
Cash and cash equivalents	$	67,023	$	82,741
Investment in equity securities	30,185		42,618
Accounts receivable, net	28,056		43,615

Prepaid expenses and other current assets	14,718		15,214
Total current assets	139,982		184,188

Premises and equipment, net	14,983		24,526
Right-of-use assets under operating leases, net	20,303		29,074
Goodwill	73,849		73,849
Intangible assets, net	49,702		61,046

Other assets	11,284		12,436

Total assets	$	310,103	$	385,119

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	56,362	$	67,671

Deferred revenue	4,349		5,183
Other current liabilities	10,749		14,724
Total current liabilities	71,460		87,578

Long-term debt	288,930		287,882
Other non-current liabilities	26,291		31,016

Commitments, contingencies and regulatory matters (Note 24)

Equity (deficit):
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 15,646 outstanding as of September 30, 2020; 15,454 outstanding as of December 31, 2019)	25,413		25,413
Additional paid-in capital	140,225		133,669
Retained earnings	198,756		272,026
Treasury stock, at cost (9,767 shares as of September 30, 2020 and 9,959 shares as of December 31, 2019)	(442,107)		(453,934)
Altisource deficit	(77,713)		(22,826)

Non-controlling interests	1,135		1,469
Total deficit	(76,578)		(21,357)

Total liabilities and deficit	$	310,103	$	385,119

September 30,
2017 December 31,
2016

ASSETS
Current assets:
Cash and cash equivalents $ 114,123
$ 149,294
Available for sale securities 46,044
45,754
Accounts receivable, net 63,177
87,821
Prepaid expenses and other current assets 59,880
42,608
Total current assets 283,224
325,477

Premises and equipment, net 80,823
103,473
Goodwill 86,283
86,283
Intangible assets, net 128,289
155,432
Deferred tax assets, net 7,214
7,292
Other assets 10,568
11,255

Total assets $ 596,401
$ 689,212

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 83,352
$ 83,135
Accrued litigation settlement —
32,000
Current portion of long-term debt 5,945
5,945
Deferred revenue 9,746
8,797
Other current liabilities 10,982
19,061
Total current liabilities 110,025
148,938

Long-term debt, less current portion 414,431
467,600
Other non-current liabilities 7,796
10,480

Commitments, contingencies and regulatory matters (Note 20)

Equity:
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 17,905 outstanding as of September 30, 2017; 25,413 shares authorized and issued and 18,774 outstanding as of December 31, 2016) 25,413
25,413
Additional paid-in capital 111,457
107,288
Retained earnings 342,111
333,786
Accumulated other comprehensive loss (1,533 ) (1,745 )
Treasury stock, at cost (7,508 shares as of September 30, 2017 and 6,639 shares as of December 31, 2016) (414,668 ) (403,953 )
Altisource equity 62,780
60,789

Non-controlling interests 1,369
1,405
Total equity 64,149
62,194

Total liabilities and equity $ 596,401
$ 689,212

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019

Revenue	$	88,795	$	141,493	$	305,581	$	507,963
Cost of revenue	72,570		110,722		249,779		387,651

Gross profit	16,225		30,771		55,802		120,312
Operating expenses (income):
Selling, general and administrative expenses	20,812		25,833		73,606		104,275
Gain on sale of business	0		(17,558)		0		(17,558)
Restructuring charges	2,227		2,761		10,921		9,080

(Loss) income from operations	(6,814)		19,735		(28,725)		24,515
Other income (expense), net
Interest expense	(4,103)		(4,892)		(13,265)		(16,656)
Unrealized gain (loss) on investment in equity securities	138		(2,294)		(12,433)		11,731
Other (expense) income, net	(361)		406		412		1,308
Total other income (expense), net	(4,326)		(6,780)		(25,286)		(3,617)

(Loss) income before income taxes and non-controlling interests	(11,140)		12,955		(54,011)		20,898
Income tax provision	(1,757)		(5,379)		(5,295)		(20,670)

Net (loss) income	(12,897)		7,576		(59,306)		228
Net income attributable to non-controlling interests	(340)		(411)		(642)		(2,091)

Net (loss) income attributable to Altisource	$	(13,237)	$	7,165	$	(59,948)	$	(1,863)

(Loss) earnings per share:
Basic	$	(0.85)	$	0.45	$	(3.85)	$	(0.12)
Diluted	$	(0.85)	$	0.44	$	(3.85)	$	(0.12)

Weighted average shares outstanding:
Basic	15,637		15,897		15,578		16,133
Diluted	15,637		16,151		15,578		16,133

Comprehensive (loss) income:

Comprehensive (loss) income, net of tax	$	(12,897)	$	7,576	$	(59,306)	$	228
Comprehensive income attributable to non-controlling interests	(340)		(411)		(642)		(2,091)

Comprehensive (loss) income attributable to Altisource	$	(13,237)	$	7,165	$	(59,948)	$	(1,863)

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016

Revenue $ 234,979
$ 252,745
$ 726,147
$ 758,676
Cost of revenue 174,898
174,002
538,244
517,236

Gross profit 60,081
78,743
187,903
241,440
Selling, general and administrative expenses 46,622
53,886
146,793
161,709

Income from operations 13,459
24,857
41,110
79,731
Other income (expense), net:
Interest expense (5,599 ) (5,952 ) (16,862 ) (18,481 )
Other income (expense), net 2,497
(109 ) 8,015
2,608
Total other income (expense), net (3,102 ) (6,061 ) (8,847 ) (15,873 )

Income before income taxes and non-controlling interests 10,357
18,796
32,263
63,858
Income tax provision (2,591 ) (7,324 ) (7,615 ) (12,808 )

Net income 7,766
11,472
24,648
51,050
Net income attributable to non-controlling interests (805 ) (883 ) (2,107 ) (1,973 )

Net income attributable to Altisource $ 6,961
$ 10,589
$ 22,541
$ 49,077

Earnings per share:
Basic $ 0.39
$ 0.57
$ 1.23
$ 2.63
Diluted $ 0.38
$ 0.54
$ 1.20
$ 2.49

Weighted average shares outstanding:
Basic 18,023
18,715
18,337
18,669
Diluted 18,429
19,568
18,854
19,738

Comprehensive income:
Net income $ 7,766
$ 11,472
$ 24,648
$ 51,050
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of income tax benefit (provision) of $2,054, $(2,070), $(78), $889, respectively (5,530 ) 5,016
212
(2,156 )

Comprehensive income, net of tax 2,236
16,488
24,860
48,894
Comprehensive income attributable to non-controlling interests (805 ) (883 ) (2,107 ) (1,973 )

Comprehensive income attributable to Altisource $ 1,431
$ 15,605
$ 22,753
$ 46,921

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)


	Altisource Equity (Deficit)
	Common stock			Additional paid-in capital		Retained earnings		Treasury stock, at cost		Non-controlling interests		Total
	Shares

Balance, December 31, 2018	25,413	$	25,413	$	122,667	$	590,655	$	(443,304)	$	1,237	$	296,668

Net loss	—	—		—		(3,184)		—		440		(2,744)
Distributions to non-controlling interest holders	—	—		—		—		—		(620)		(620)
Share-based compensation expense	—	—		2,621		—		—		—		2,621

Exercise of stock options and issuance of restricted share units and restricted shares	—	—		—		(1,549)		1,577		—		28
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(1,163)		578		—		(585)

Balance, March 31, 2019	25,413	25,413		125,288		584,759		(441,149)		1,057		295,368

Net loss	—	—		—		(5,844)		—		1,240		(4,604)

Distributions to non-controlling interest holders	—	—		—		—		—		(518)		(518)
Share-based compensation expense	—	—		2,832		—		—		—		2,832

Exercise of stock options and issuance of restricted share units and restricted shares	—	—		—		(3,473)		3,680		—		207
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(1,402)		689		—		(713)
Repurchase of shares	—	—		—		—		(6,700)		—		(6,700)

Balance, June 30, 2019	25,413	25,413		128,120		574,040		(443,480)		1,779		285,872

Net income	—	—		—		7,165		—		411		7,576

Distributions to non-controlling interest holders	—	—		—		—		—		(865)		(865)
Share-based compensation expense	—	—		2,831		—		—		—		2,831

Exercise of stock options and issuance of restricted share units and restricted shares	—	—		—		(1,214)		1,371		—		157
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(434)		216		—		(218)
Repurchase of shares	—	—		—		—		(6,697)		—		(6,697)

Balance, September 30, 2019	25,413	$	25,413	$	130,951	$	579,557	$	(448,590)	$	1,325	$	288,656

Altisource Equity
Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost Non-controlling interests Total
Shares

Balance, December 31, 2015 25,413
$ 25,413
$ 96,321
$ 369,270
$ —
$ (440,026 ) $ 1,292
$ 52,270
Comprehensive income:
Net income —
—
—
49,077
—
—
1,973
51,050
Other comprehensive loss, net of tax —
—
—
—
(2,156 ) —
—
(2,156 )
Distributions to non-controlling interest holders —
—
—
—
—
—
(1,637 ) (1,637 )
Share-based compensation expense —
—
4,692
—
—
—
—
4,692
Exercise of stock options and issuance of restricted shares —
—
—
(58,912 ) —
67,788
—
8,876
Repurchase of shares —
—
—
—
—
(34,321 ) —
(34,321 )

Balance, September 30, 2016 25,413
$ 25,413
$ 101,013
$ 359,435
$ (2,156 ) $ (406,559 ) $ 1,628
$ 78,774

Balance, December 31, 2016 25,413
$ 25,413
$ 107,288
$ 333,786
$ (1,745 ) $ (403,953 ) $ 1,405
$ 62,194
Comprehensive income:
Net income —
—
—
22,541
—
—
2,107
24,648
Other comprehensive income, net of tax —
—
—
—
212
—
—
212
Distributions to non-controlling interest holders —
—
—
—
—
—
(2,143 ) (2,143 )
Share-based compensation expense —
—
3,237
—
—
—
—
3,237
Cumulative effect of an accounting change (Note 1) —
—
932
(932 ) —
—
—
—
Exercise of stock options and issuance of restricted shares —
—
—
(11,787 ) —
13,871
—
2,084
Treasury shares withheld for the payment of tax on restricted share issuances —
—
—
(1,497 ) —
409
—
(1,088 )
Repurchase of shares —
—
—
—
—
(24,995 ) —
(24,995 )

Balance, September 30, 2017 25,413
$ 25,413
$ 111,457
$ 342,111
$ (1,533 ) $ (414,668 ) $ 1,369
$ 64,149

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)


	Altisource Equity (Deficit)
	Common stock			Additional paid-in capital		Retained earnings		Treasury stock, at cost		Non-controlling interests		Total
	Shares

Balance, December 31, 2019	25,413	$	25,413	$	133,669	$	272,026	$	(453,934)	$	1,469	$	(21,357)

Net loss	—	—		—		(11,650)		—		105		(11,545)
Distributions to non-controlling interest holders	—	—		—		—		—		(311)		(311)
Share-based compensation expense	—	—		2,894		—		—		—		2,894
Issuance of restricted share units and restricted shares	—	—		—		(4,796)		4,796		—		0
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(3,114)		1,909		—		(1,205)

Balance, March 31, 2020	25,413	25,413		136,563		252,466		(447,229)		1,263		(31,524)

Net loss	—	—		—		(35,061)		—		197		(34,864)

Distributions to non-controlling interest holders	—	—		—		—		—		(180)		(180)
Share-based compensation expense	—	—		1,930		—		—		—		1,930


Issuance of restricted share units and restricted shares	—	—		—		(3,177)		3,177		—		0
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(1,205)		993		—		(212)


Balance, June 30, 2020	25,413	25,413		138,493		213,023		(443,059)		1,280		(64,850)

Net loss	—	—		—		(13,237)		—		340		(12,897)
Distributions to non-controlling interest holders	—	—		—		—		—		(485)		(485)
Share-based compensation expense	—	—		1,732		—		—		—		1,732
Issuance of restricted share units and restricted shares	—	—		—		(747)		747		—		0
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(283)		205		—		(78)

Balance, September 30, 2020	25,413	$	25,413	$	140,225	$	198,756	$	(442,107)	$	1,135	$	(76,578)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in ~~thousands)~~thousands)


	Nine months ended September 30,							Nine months ended September 30,
	2017			2016				2020		2019

Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	24,648		$	51,050
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							Net (loss) income	$	(59,306)	$	228
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:							Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	27,411			27,521			Depreciation and amortization	11,521		14,196
Amortization of right-of-use assets under operating leases							Amortization of right-of-use assets under operating leases	8,107		9,145
Amortization of intangible assets	27,143			36,432			Amortization of intangible assets	11,344		15,489
Change in the fair value of acquisition related contingent consideration	24			(1,174		)

Unrealized loss (gain) on investment in equity securities							Unrealized loss (gain) on investment in equity securities	12,433		(11,731)

Share-based compensation expense	3,237			4,692			Share-based compensation expense	6,556		8,284
Bad debt expense	3,101			763			Bad debt expense	1,423		114
Gain on early extinguishment of debt	(5,419		)	(5,464		)

Amortization of debt discount	225			307			Amortization of debt discount	500		499
Amortization of debt issuance costs	625			850			Amortization of debt issuance costs	548		552
Deferred income taxes	—			17			Deferred income taxes	274		15,568
Loss on disposal of fixed assets	2,776			30			Loss on disposal of fixed assets	459		330
Changes in operating assets and liabilities:
Gain on sale of business							Gain on sale of business	0		(17,558)

Changes in operating assets and liabilities (excludes effect of sale of business):							Changes in operating assets and liabilities (excludes effect of sale of business):
Accounts receivable	21,543			3,505			Accounts receivable	10,136		(31,580)
Short-term investments in real estate							Short-term investments in real estate	0		39,873
Prepaid expenses and other current assets	(17,272		)	(10,167		)	Prepaid expenses and other current assets	621		12,588
Other assets	760			496			Other assets	853		(55)
Accounts payable and accrued expenses	165			7,005			Accounts payable and accrued expenses	(10,676)		(17,058)
Current and non-current operating lease liabilities							Current and non-current operating lease liabilities	(8,518)		(9,713)
Other current and non-current liabilities	(41,838		)	(9,828		)	Other current and non-current liabilities	(352)		(6,977)
Net cash provided by operating activities	47,129			106,035
Net cash (used in) provided by operating activities							Net cash (used in) provided by operating activities	(14,077)		22,194

Cash flows from investing activities:							Cash flows from investing activities:
Additions to premises and equipment	(7,485		)	(16,525		)	Additions to premises and equipment	(2,502)		(1,204)
Acquisition of businesses, net of cash acquired	—			(9,617		)
Purchase of available for sale securities	—			(48,219		)
Change in restricted cash	(73		)	—
Other investing activities	—			266
Net cash used in investing activities	(7,558		)	(74,095		)

Proceeds received from sale of equity securities							Proceeds received from sale of equity securities	0		7,819
Proceeds from the sale of business							Proceeds from the sale of business	3,307		38,027
Other							Other	0		1,087
Net cash provided by investing activities							Net cash provided by investing activities	805		45,729

Cash flows from financing activities:							Cash flows from financing activities:
Repayment and repurchases of long-term debt	(48,600		)	(49,237		)

Repayments and repurchases of long-term debt							Repayments and repurchases of long-term debt	0		(44,820)

Proceeds from stock option exercises	2,084			8,876			Proceeds from stock option exercises	0		392

Purchase of treasury shares	(24,995		)	(34,321		)	Purchase of treasury shares	0		(13,397)
Distributions to non-controlling interests	(2,143		)	(1,637		)	Distributions to non-controlling interests	(976)		(2,003)
Payment of tax withholding on issuance of restricted shares	(1,088		)	—
Payments of tax withholding on issuance of restricted share units and restricted shares							Payments of tax withholding on issuance of restricted share units and restricted shares	(1,495)		(1,516)
Net cash used in financing activities	(74,742		)	(76,319		)	Net cash used in financing activities	(2,471)		(61,344)

Net decrease in cash and cash equivalents	(35,171		)	(44,379		)
Cash and cash equivalents at the beginning of the period	149,294			179,327
Net (decrease) increase in cash, cash equivalents and restricted cash							Net (decrease) increase in cash, cash equivalents and restricted cash	(15,743)		6,579
Cash, cash equivalents and restricted cash at the beginning of the period							Cash, cash equivalents and restricted cash at the beginning of the period	86,583		64,046

Cash and cash equivalents at the end of the period	$	114,123		$	134,948
Cash, cash equivalents and restricted cash at the end of the period							Cash, cash equivalents and restricted cash at the end of the period	$	70,840	$	70,625

Supplemental cash flow information:							Supplemental cash flow information:
Interest paid	$	16,203		$	17,244		Interest paid	$	12,218	$	16,271
Income taxes paid, net	15,445			14,178			Income taxes paid, net	742		2,397
Acquisition of right-of-use assets with operating lease liabilities							Acquisition of right-of-use assets with operating lease liabilities	1,051		5,888
Reduction of right-of-use assets from operating lease modifications or reassessments							Reduction of right-of-use assets from operating lease modifications or reassessments	(1,715)		(3,458)

Non-cash investing and financing activities:							Non-cash investing and financing activities:
Increase in payables for purchases of premises and equipment	$	52		$	2,458

Net increase in payables for purchases of premises and equipment							Net increase in payables for purchases of premises and equipment	$	60	$	203

See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Description of Business

Altisource Portfolio Solutions S.A., together with its subsidiaries (which may be referred to as “Altisource,” the “Company,” “we,” “us” or “our”), is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing ~~market.~~markets we serve.

~~Altisource Portfolio Solutions S.A. is organized under the laws of Luxembourg and is~~We are publicly traded on the NASDAQ Global Select Market under the symbol “ASPS.” We are organized under the laws of the Grand Duchy of Luxembourg.

Basis of Accounting and Presentation

The unaudited interim condensed consolidated financial statements have been prepared 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 Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the interim data includes all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented. The preparation of interim 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 interim condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Intercompany transactions and accounts have been eliminated in consolidation.

Altisource consolidates Best Partners Mortgage Cooperative, Inc., which is managed by The Mortgage Partnership of America, L.L.C. (“MPA”), a wholly-owned subsidiary of Altisource. Best Partners Mortgage Cooperative, Inc. is a mortgage cooperative doing business as Lenders One^® (“Lenders One”). MPA provides services to Lenders One under a management agreement that ends on December 31, 2025 (with renewals for ~~three~~3 successive five-year periods at MPA’s option).

The management agreement between MPA and Lenders One, pursuant to which MPA is the management company, represents a variable interest in a variable interest entity. MPA is the primary beneficiary of Lenders One as it has the power to direct the activities that most significantly impact the cooperative’s economic performance and the right to receive benefits from the cooperative. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements on a consolidated basis and the interests of the members are reflected as non-controlling interests. As of September 30, ~~2017,~~2020, Lenders One had total assets of ~~$4.6~~$2.4 million and total liabilities of ~~$2.0~~$0.5 million. As of December 31, ~~2016,~~2019, Lenders One had total assets of ~~$3.8~~$1.6 million and total liabilities of ~~$1.5~~$0.3 million.

In 2019, Altisource created Pointillist, Inc. (“Pointillist”) and contributed the Pointillist® customer journey analytics business and $8.5 million to it. Pointillist is owned by Altisource and management of Pointillist. Management of Pointillist owns a non-controlling interest representing 12.1% of the outstanding equity of Pointillist. Additional equity shares of Pointillist are available for issuance to management and board members of Pointillist. Altisource has no ongoing obligation to provide future funding to Pointillist. Pointillist is presented in the accompanying condensed consolidated financial statements on a consolidated basis and the portion of Pointillist owned by Pointillist management is reported as non-controlling interests.

These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, as filed with the SEC on ~~February 16, 2017.~~March 5, 2020.

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Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value Measurements

Fair value is defined as an exit price, representing the amount that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:

Level 1 — Quoted prices in active markets for identical assets and liabilities

Level 2— Observable inputs other than quoted prices included in Level 1

Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

Financial assets and financial liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

Recently Adopted Accounting ~~Pronouncement~~Pronouncements

~~The~~In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~, became effective on January 1, 2017. This standard simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard requires companies to recognize all award-related excess tax benefits and tax deficiencies in the income statement, classify any excess tax benefits as an operating activity in the statement of cash flows, limit tax withholding up to the maximum statutory tax rates in order to continue to apply equity accounting rules and classify cash paid by employers when directly withholding shares for tax withholding purposes as an investing activity in the statement of cash flows. The standard also provides companies with the option of estimating forfeitures or recognizing forfeitures as they occur. In connection with the adoption of this standard, the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures. This policy election resulted in a cumulative effect adjustment of $0.9 million to retained earnings and additional paid-in capital as of January 1, 2017 using the modified retrospective transition method. There were no other significant impacts of the adoption of this standard on the Company’s results of operations and financial position.

~~Future Adoption of New Accounting Pronouncements~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. This standard establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of this new standard is an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company plans to adopt ASU No. 2014-09 retrospectively with the cumulative effect of initially applying the new standard recognized on the date of the initial application. The new standard will be effective for the Company on January 1, 2018. Based on the Company’s analysis of all sources of revenue from customers for the nine months ended September 30, 2017, the Company estimates that less than 3% of consolidated revenue, primarily related to software development professional services, would likely be deferred and recognized over future periods under the new standard. The Company will continue to analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~. This standard will require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. It also amends certain financial statement presentation and disclosure requirements associated with the fair value of financial instruments. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted. Based on the Company’s analysis of this guidance, upon adoption of ASU No. 2016-01 the Company will reflect changes in the fair value of its available for sale securities in income. These changes in fair value are currently reflected in other comprehensive income. The Company will adopt ASU No. 2016-01 with a cumulative effect adjustment to the balance sheet as of the beginning of the year of adoption. The Company currently has one investment that will be impacted by this standard, its investment in Altisource Residential Corporation (“RESI”) (see Note 4). As of September 30, 2017 and December 31, 2016, the unrealized loss in accumulated other comprehensive loss related to the RESI investment was $1.5 million and $1.7 million, respectively.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~. This standard introduces a new lessee model that brings substantially all leases on the balance sheet. The standard will require companies to recognize lease assets and lease liabilities on their balance sheets and disclose key information about leasing arrangements in their financial statements. This standard will be effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period. Early application of this standard is permitted. The Company is currently evaluating the impact of this guidance on its results of operations and financial position. Based on the Company’s preliminary analysis of its lease arrangements as of September 30, 2017 where the Company is a lessee, less than $25.0 million, primarily related to office leases, would be recorded as right-of-use assets and

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

lease liabilities on the Company’s balance sheet under the new standard. The Company will continue to analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.

~~In March 2016, the FASB issued ASU No. 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~. This standard clarifies guidance on principal versus agent considerations in connection with revenue recognition. When another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606), as described above.~~

~~In April 2016, the FASB issued ASU No. 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing~~. This standard provides guidance on identifying performance obligations in a contract with a customer and clarifying several licensing considerations, including whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time) and guidance on sales-based and usage-based royalties. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606), as described above.~~

~~In May 2016, the FASB issued ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients~~. This standard addresses collectability, sales taxes and other similar taxes collected from customers, non-cash consideration, contract modifications at transition and completed contracts at transition. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606), as described above.~~

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~. This standard addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its statement of cash flows.

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.~~ This standard will require that companies recognize the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs. Current guidance prohibits companies from recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~. This standard will require that companies include restricted cash and restricted cash equivalents in their cash and cash equivalent balances in the statement of cash flows. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its statement of cash flows. As of September 30, 2017 and December 31, 2016, restricted cash was $4.2 million and $4.1 million, respectively.

~~In December 2016, the FASB issued ASU No. 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The FASB issued 13 technical corrections and improvements to ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, including providing optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. The amendments in this standard also expand the information that is required to be disclosed when an entity applies one of the optional exemptions. This standard will be effective for annual periods beginning after December 15, 2017, including interim

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606), as described above.~~

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business.~~ This standard clarifies the definition of a business and provides a screen to determine if a set of inputs, processes and outputs is a business. The screen requires that when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the assets acquired would not be a business. Under the new guidance, in order to be considered a business, an acquisition must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. In addition, the standard narrows the definition of the term “output” so that it is consistent with how it is described in ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606).~~ This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.

~~In January 2017, the FASB issued ASU No.~~ 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard ~~will simplify~~simplified the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ~~Current~~Prior guidance ~~requires~~required that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This standard ~~will require~~requires companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company adopted this standard effective January 1, 2020 and is applied prospectively. Adoption of this new standard did not have any impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard modified certain disclosure requirements such as the valuation processes for Level 3 fair value measurements. This standard also requires new disclosures such as the disclosure of certain assumptions used to develop significant unobservable inputs for Level 3 fair value measurements. The Company adopted this standard effective January 1, 2020 and is applied prospectively. Adoption of this new standard did not have any impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This standard aligns the requirements for capitalizing implementation costs in a hosting arrangement service contract with the existing guidance for capitalizing implementation costs incurred for an internal-use software license. This standard also requires capitalizing or expensing implementation costs based on the nature of the costs and the project stage during which they are incurred and establishes additional disclosure requirements. The Company adopted this standard effective January 1, 2020 and is applied prospectively. Adoption of this new standard did not have any impact on the Company’s condensed consolidated financial statements.

Future Adoption of New Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is part of the FASB’s initiative to reduce complexity in accounting standards by instituting several simplifying provisions and removing several exceptions pertaining to income tax accounting. This standard will be effective for annual periods beginning after December 15, ~~2019,~~2020, including interim periods within that reporting ~~period, and will be applied prospectively.~~period. Early adoption of this standard is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.

~~In February 2017, the FASB issued ASU No. 2017-05,~~ Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~. This standard was issued to clarify the scope of Subtopic 610-20,~~ ~~Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets~~, and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.

~~In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~. This standard provides guidance about which changes to the terms or conditions of a share-based payment award require the application of modification accounting. This standard will require companies to continue to apply modification accounting, unless the fair value, vesting conditions and classification of an award all do not change as a result of the modification. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~. The amendments in this standard better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedging results. This standard will be effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period. Early application is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.

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Notes to Condensed Consolidated Financial Statements (Continued)

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This standard provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR. This standard is effective from the period from March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a topic or an industry subtopic, the standard must be applied prospectively for all eligible contract modifications for that topic or industry subtopic. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.

NOTE 2 — CUSTOMER CONCENTRATION

Ocwen

Ocwen Financial Corporation ~~(“Ocwen”~~(together with its subsidiaries, “Ocwen”) is a residential mortgage loan servicer of mortgage servicing rights (“MSRs”) it owns, including those MSRs in which others have an economic interest, and a subservicer of MSRs owned by others.

During the three and nine months ended September 30, 2020, Ocwen was our largest ~~customer.~~customer, accounting for 57% of our total revenue for the nine months ended September 30, 2020 (48% of our revenue for the third quarter of 2020). Ocwen purchases certain mortgage ~~services and technology~~ services from us under the terms of ~~master~~ services agreements and amendments thereto (collectively, the “Ocwen ~~Service~~Services Agreements”) with terms extending through August 2025. Certain of the Ocwen ~~Service~~Services Agreements ~~among other things,~~ contain a “most favored nation” provision and also grant the parties the right to renegotiate ~~pricing. Certain~~pricing, among other things.

In February 2019, Altisource and Ocwen entered into agreements that, among other things, facilitated Ocwen’s transition from REALServicing and related technologies to another mortgage servicing software platform, establish a process for Ocwen to review and approve the assignment of one or more of our agreements to potential buyers of Altisource’s business lines, requiring Ocwen to use Altisource as service provider for certain service referrals totaling an amount equal to 100% of the applicable service referrals on certain portfolios plus an amount equal to not less than 90% of applicable service referrals from certain other portfolios (determined on a service by service basis), subject to certain additional restrictions and limitations, and affirm Altisource’s role as a strategic service provider to Ocwen ~~Service Agreements also prohibit Ocwen from establishing fee-based businesses that would directly or indirectly compete~~through August 2025. In connection with ~~Altisource’s services~~these agreements, Altisource expressly preserved and did not waive any of its existing contractual rights relating to service referrals, other than with respect to Ocwen transitioning from the ~~Homeward Residential, Inc.~~REALServicing and ~~Residential Capital, LLC~~related technologies. If Altisource fails certain performance standards for specified periods of time, then Ocwen may terminate Altisource as a provider for the applicable service(s), subject to certain limitations and Altisource’s right to cure. Ocwen’s transition to another mortgage servicing platform was completed during 2019.

Revenue from Ocwen primarily consists of revenue earned from the loan portfolios ~~acquired~~serviced and subserviced by Ocwen when Ocwen engages us as the service provider, and revenue earned directly from Ocwen, pursuant to the Ocwen Services Agreements. For the nine months ended September 30, 2020 and 2019, we recognized revenue from Ocwen of $174.1 million and $275.1 million, respectively ($42.5 million and $89.8 million for the third quarter of 2020 and 2019, respectively). Revenue from Ocwen as a percentage of consolidated revenue was 57% and 54% for the nine months ended September 30, 2020 and 2019, respectively (48% and 63% for the third quarter of 2020 and 2019, respectively).

We earn additional revenue related to the portfolios serviced and subserviced by Ocwen when a party other than Ocwen or the MSR owner selects Altisource as the service provider. For the nine months ended September 30, 2020 and 2019, we recognized revenue of $19.9 million and $28.3 million, respectively ($7.2 million and $8.1 million for the third quarter of 2020 and 2019, respectively), related to the portfolios serviced by Ocwen when a party other than Ocwen or the MSR owner selected Altisource as the service provider. These amounts are not included in ~~December 2012~~deriving revenue from Ocwen and ~~February 2013, respectively. In addition,~~revenue from Ocwen ~~purchases~~as a percentage of revenue discussed above.

During the second quarter of 2020, Ocwen informed us that an investor had instructed Ocwen to use a field services provider other than Altisource on properties associated with certain ~~origination~~MSRs. They indicated that they were instructed to begin the transition in July 2020, and that the transition should be completed in a few months. We believe Ocwen commenced using another field services ~~from~~provider for these properties in July 2020 and continued to transition services during the third quarter of 2020. Based upon the impacted portfolios to date and the designated service provider, Altisource ~~under an agreement~~believes that ~~continues until January 23, 2019, but which is subject~~Ocwen received

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Notes to ~~a 90 day termination right by Ocwen.~~Condensed Consolidated Financial Statements (Continued)

~~Ocwen has disclosed that on July 23, 2017 it entered into a master agreement and a transfer agreement with~~

these directions from New Residential Investment Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “NRZ”). The transition to the replacement field service provider has largely been completed as of September 30, 2020. We estimate that $72.3 million and $115.6 million of service revenue from Ocwen for the nine months ended September 30, 2020 and 2019, respectively ($14.1 million and $38.1 million for the third quarter of 2020 and 2019, respectively) was derived from Field Services referrals from the NRZ portfolios. Without providing the timing or specific services impacted, Ocwen also communicated to Altisource that the same investor plans to direct them to transition certain other default related service referrals to other providers. We estimate that revenue from these certain other default related services represented approximately $25.6 million and $34.9 million of service revenue from Ocwen for the nine months ended September 30, 2020 and 2019, respectively ($6.4 million and $12.5 million for the third quarter of 2020 and 2019, respectively). Altisource believes that any action taken by Ocwen to redirect these service referrals breaches Altisource's agreement with Ocwen. We are currently in discussions with Ocwen to address this matter, and have reserved all of our rights with respect to this matter.

To address the reduction in revenue, Altisource has undertaken several measures to further reduce its cost structure and strengthen its operations.

As of September 30, 2020, accounts receivable from Ocwen totaled $10.2 million, $8.9 million of which was billed and $1.3 million of which was unbilled. As of December 31, 2019, accounts receivable from Ocwen totaled $19.1 million, $15.7 million of which was billed and $3.4 million of which was unbilled.

NRZ

NRZ is a real estate investment trust that invests in and manages investments primarily related to residential real estate, including MSRs and excess MSRs.

Ocwen has disclosed that NRZ is its largest client. As of June 30, 2020, NRZ MSRs or rights to MSRs relating to approximately 53% of loans serviced and subserviced by Ocwen (measured in unpaid principal balance (“UPB”)). In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s ~~remaining interests in Ocwen’s non-government-sponsored enterprise (“non-GSE”) mortgage servicing rights (“~~legal title to certain of its MSRs (the “Subject MSRs”) and ~~subservicing relating~~under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years, subject to ~~approximately $110 billion in unpaid principal balance as of June 30, 2017.~~ early termination rights.

On August 28, 2017, ~~the Company~~Altisource, through its licensed subsidiaries, entered into a Cooperative Brokerage Agreement, as amended, and related letter agreement (collectively, the “Brokerage Agreement”) with ~~NRZ. As~~NRZ which extends through August 2025. Under this agreement and related amendments, Altisource remains the exclusive provider of brokerage services for real estate owned (“REO”) associated with the Subject MSRs, irrespective of the subservicer, subject to certain limitations. NRZ’s brokerage subsidiary receives a ~~result, we expect~~cooperative brokerage commission on the sale of REO properties from these portfolios subject to certain exceptions.

The Brokerage Agreement may be terminated by NRZ upon the occurrence of certain specified events. Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that ~~over time NRZ would become our largest customer, potentially representing more than 50% of our revenues.~~

~~Revenue from Ocwen primarily consists of revenue earned directly from Ocwen and revenue earned from the loans serviced by Ocwen when Ocwen designates us as the service provider. Revenue from Ocwen~~there is significant uncertainty about Altisource’s ability to continue as a ~~percentage~~going concern, failure to maintain a specified level of ~~segment~~cash and ~~consolidated revenue was as follows:~~

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016

Mortgage Market 68 % 65 % 68 % 65 %
Real Estate Market 1 % — % 1 % — %
Other Businesses, Corporate and Eliminations 7 % 25 % 11 % 24 %
Consolidated revenue 58 % 56 % 58 % 56 %
an unapproved change of control.

For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, we ~~generated~~recognized revenue from ~~Ocwen~~NRZ of ~~$422.1~~$7.1 million and ~~$422.2~~$9.6 million, respectively ($~~136.4~~2.5 million and ~~$141.6~~$2.6 million for the third quarter of ~~2017~~2020 and ~~2016,~~2019, respectively)~~. Services provided to Ocwen during such periods and reported in~~, under the Mortgage Market segment included real estate asset management and sales, residential property valuation, trustee management services, property preservation and inspection services, insurance services, mortgage charge-off collections and certain software applications. Services provided to Ocwen and reported in the Real Estate Market segment included rental property management. Services provided to Ocwen and reported as Other Businesses, Corporate and Eliminations included information technology (“IT”) infrastructure management. As of September 30, 2017, accounts receivable from Ocwen totaled $23.7 million, $18.9 million of which was billed and $4.8 million of which was unbilled. As of December 31, 2016, accounts receivable from Ocwen totaled $26.2 million, $15.8 million of which was billed and $10.4 million of which was unbilled.

~~We earn additional revenue related to the portfolios serviced by Ocwen when a party other than Ocwen or NRZ selects Altisource as the service provider.~~Brokerage Agreement. For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, we recognized additional revenue of ~~$118.0~~$29.3 million and ~~$146.0~~$45.5 million, respectively ($~~35.1~~10.2 million and ~~$48.0~~$11.4 million for the third quarter of ~~2017~~2020 and ~~2016,~~2019, respectively), ~~related~~relating to the portfolios serviced by Ocwen when a party other than Ocwen or NRZ selected Altisource as the service provider. These amounts are not included in deriving revenue from Ocwen as a percentage of revenue in the table above.

~~We earned revenue from NRZ of $0.8 million related to the~~Subject MSRs ~~transferred by Ocwen to NRZ in the third quarter of 2017. We earned additional revenue of $1.0 million in the third quarter of 2017 related to the MSRs transferred by Ocwen to NRZ~~ when a party other than NRZ selects Altisource as the service provider.

NOTE 3— ~~ACQUISITION~~SALE OF THE FINANCIAL SERVICES BUSINESS

~~Granite Acquisition~~

On July ~~29, 2016, we acquired certain assets~~1, 2019, Altisource sold its Financial Services business, consisting of its post-charge-off consumer debt and ~~assumed certain liabilities of Granite Loan Management of Delaware, LLC~~mortgage charge-off collection services and customer relationship management services (the “Financial Services Business”) to Transworld Systems Inc. (“~~Granite”~~TSI”) for ~~$9.5~~$44.0 million ~~in cash. Granite provides residential~~consisting of an up-front payment of $40.0 million, subject to a working capital adjustment (finalized during 2019) and ~~commercial loan disbursement processing, risk mitigation~~transaction costs upon closing of the sale, and an additional $4.0 million payment on the one year anniversary of the sale closing. On July 1, 2020, the Company received net proceeds of $3.3 million

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

representing $4.0 million, net of certain amounts owed to TSI under the purchase and ~~construction inspection~~sale agreement. The parties also entered into a transition services agreement to ~~lenders.~~ ~~The Granite acquisition is not material in relation~~provide for the management and orderly transition of certain services and technologies to ~~the Company’s results~~TSI for periods ranging from 2 months to 13 months, subject to additional 3 month extensions. These services included support for information technology systems and infrastructure, facilities management, finance, compliance and human resources functions and were charged to TSI on a fixed fee or hourly basis. As of ~~operations or financial position.~~

~~The final allocation~~October 1, 2020, all of the ~~purchase price is as follows:~~transition services and technologies have been fully transitioned to TSI.

(in thousands)

Accounts receivable, net $ 1,024
Prepaid expenses 22
Other assets 25
Premises and equipment, net 299
Non-compete agreements 100
Trademarks and trade names 100
Customer relationships 3,400
Goodwill 4,827
9,797
Accounts payable and accrued expenses (57 )
Other current liabilities (192 )

Purchase price $ 9,548

NOTE 4 — ~~AVAILABLE FOR SALE~~INVESTMENT IN EQUITY SECURITIES

During 2016, we purchased 4.1 million shares of Front Yard Residential Corporation (“RESI”) common stock. This investment is reflected in the accompanying condensed consolidated balance sheets at fair value and changes in fair value are included in other income (expense), net in the accompanying condensed consolidated statements of operations and comprehensive income (loss). As of September 30, 2020 and December 31, 2019, we held 3.5 million shares of RESI common stock. As of September 30, 2020 and December 31, 2019, the fair value of our investment was $30.2 million and $42.6 million, respectively. During the nine months ended September 30, ~~2016,~~2020 and 2019, we ~~purchased 4.1 million shares of RESI common stock for $48.2 million. This investment is classified as available for sale and reflected~~recognized an unrealized (loss) gain from the change in ~~the condensed consolidated balance sheets at~~ fair value atof $(12.4) million and $11.7 million, respectively ($0.1 million and $(2.3) million for the ~~respective balance sheet dates ($46.0 million as~~third quarter of 2020 and 2019, respectively). The unrealized (loss) gain for the three and nine months ended September 30, ~~2017 and $45.8~~2019 included less than $0.1 million as of December 31, 2016). Unrealized gains and losses on available for sale securities are reflected in other comprehensive income, unless there is an impairment that is other than temporary. In the event that a decline in market value is other than temporary, we would record a charge to earningsnet loss and a ~~new cost basis in~~$1.9 million net gain, respectively, recognized on RESI shares sold during the ~~investment would be established.~~periods. During the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, we earned dividends of ~~$1.9~~$0.5 million and ~~$1.0~~$1.7 million, respectively ~~($0.6 million for the third quarter of 2017 and no~~(0 comparative amount for the third quarter of ~~2016)~~2020 and $0.5 million for the third quarter of 2019), related to this investment.

In ~~addition, during~~May 2019, the Company began selling its investment in RESI common stock. During the nine months ended September 30, ~~2016, we incurred expenses~~2019, the Company sold 0.7 million shares for net proceeds of ~~$3.4~~$7.8 million ~~(no comparative amounts in 2017 and~~(0.1 million shares for net proceeds of $1.3 million for the third quarter of ~~2016) related~~2019) (0 comparative amounts for the three and nine months ended September 30, 2020). Subsequent to ~~this investment.~~the end of the third quarter 2020, the Company sold 1.6 million shares for net proceeds of $21.1 million. The senior secured term loan agreement requires that the Company use the net proceeds to repay a portion of its senior secured term loan.

On October 19, 2020, RESI announced that it has entered into a definitive merger agreement whereby a partnership led by Pretium and including funds managed by the Real Estate Equity and Alternative Credit strategies of Ares Management Corporation will acquire RESI for $13.50 in cash per share. RESI also announced that the transaction is expected to close in the first quarter of 2021, subject to the approval of the holders of a majority of RESI’s outstanding shares and the satisfaction of customary closing conditions.

NOTE 5 — ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consists of the following:


(in thousands)	September 30, 2017			December 31, 2016			(in thousands)	September 30, 2020		December 31, 2019

Billed	$	48,108		$	58,392		Billed	$	23,649	$	35,921
Unbilled	23,951			39,853			Unbilled	10,060		12,166
	72,059			98,245				33,709		48,087
Less: Allowance for doubtful accounts	(8,882		)	(10,424		)
Less: Allowance for credit losses							Less: Allowance for credit losses	(5,653)		(4,472)

Total	$	63,177		$	87,821		Total	$	28,056	$	43,615

Unbilled ~~receivables~~accounts receivable consist primarily of certain real estate asset management, REO sales, title and ~~sales~~closing services for which we generally recognize revenue when the service is provided but collect upon closing of the sale, and ~~default management~~foreclosure trustee services, for which we generally recognize revenues over the service delivery period but bill following completion of the service. We also include amounts in unbilled ~~receivables~~accounts receivable that are earned during a month and billed in the following month.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:


(in thousands)	September 30, 2020		December 31, 2019

Income taxes receivable	$	2,368	$	5,098
Maintenance agreements, current portion	2,364		1,923
Prepaid expenses	4,502		3,924
Other current assets	5,484		4,269

Total	$	14,718	$	15,214

(in thousands) September 30,
2017 December 31,
2016

Short-term investments in real estate $ 24,644
$ 13,025
Income taxes receivable 13,219
5,186
Prepaid expenses 7,712
6,919
Maintenance agreements, current portion 4,658
6,590
Litigation settlement insurance recovery —
4,000
Other current assets 9,647
6,888

Total $ 59,880
$ 42,608

NOTE 7 — DISCONTINUATION OF LINES OF BUSINESS

Owners.com

In October 2019, the Company announced its plans to wind down and close the Owners.com business, which was completed by December 31, 2019. Owners.com was a technology-enabled real estate brokerage and provider of related mortgage brokerage and title services. Owners.com was not material in relation to the Company’s results of operations or financial position. Wind down expenses were included in the Project Catalyst restructuring charges (see Note 23).

Buy-Renovate-Lease-Sell

On November 26, 2018, the Company announced its plans to sell its short-term investments in real estate (“BRS Inventory”) and discontinue the Company’s Buy-Renovate-Lease-Sell (“BRS”) business. Altisource’s BRS business focused on buying, renovating, leasing and selling single-family homes to real estate investors. The BRS business was not material in relation to the Company’s results of operations or financial position. The Company completed the sale of the BRS Inventory during the year ended December31, 2019.

NOTE 8 — PREMISES AND EQUIPMENT, NET

Premises and equipment, net consists of the following:


(in thousands)	September 30, 2017			December 31, 2016			(in thousands)	September 30, 2020		December 31, 2019

Computer hardware and software	$	175,512		$	164,877		Computer hardware and software	$	68,242	$	144,608
Leasehold improvements							Leasehold improvements	17,857		23,800
Furniture and fixtures							Furniture and fixtures	6,553		8,775
Office equipment and other	12,077			20,188			Office equipment and other	2,812		4,004
Furniture and fixtures	13,826			13,997
Leasehold improvements	33,570			33,808

	234,985			232,870				95,464		181,187
Less: Accumulated depreciation and amortization	(154,162		)	(129,397		)	Less: Accumulated depreciation and amortization	(80,481)		(156,661)

Total	$	80,823		$	103,473		Total	$	14,983	$	24,526

Depreciation and amortization expense ~~totaled $27.4~~amounted to $11.5 million and ~~$27.5~~$14.2 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively ($~~8.5~~3.8 million and ~~$9.2~~$3.7 million for the third quarter of ~~2017~~2020 and ~~2016,~~2019, respectively)~~. These expenses are~~, 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 and comprehensive ~~income.~~income (loss).

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Premises and equipment, net consist of the following, by country:


(in thousands)	September 30, 2020		December 31, 2019

United States	$	7,332	$	13,426
Luxembourg	6,686		10,295
India	824		671
Uruguay	105		39
Philippines	36		95

Total	$	14,983	$	24,526

NOTE 89 — RIGHT-OF-USE ASSETS UNDER OPERATING LEASES, NET

Right-of-use assets under operating leases, net consists of the following:


(in thousands)	September 30, 2020		December 31, 2019

Right-of-use assets under operating leases	$	35,013	$	39,729
Less: Accumulated amortization	(14,710)		(10,655)

Total	$	20,303	$	29,074

Amortization of operating leases was $8.1 million and $9.1 million for the nine months ended September 30, 2020 and 2019, respectively ($2.6 million and $2.4 million for the third quarter of 2020 and 2019, 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 and comprehensive income (loss).

NOTE 10 — GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

~~The following is a summary~~Goodwill consists of ~~goodwill by segment:~~the following:


(in thousands)	Total







Balance as of September 30, 2020 and December 31, 2019	$	73,849

(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Total

Balance as of September 30, 2017 and December 31, 2016 $ 73,259
$ 10,056
$ 2,968
$ 86,283

Table of ~~Content~~Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Intangible ~~assets,~~Assets, net

Intangible assets, net consist of the following:


	Weighted average estimated useful life (in years)	Gross carrying amount				Accumulated amortization				Net book value
(in thousands)		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019

Definite lived intangible assets:
Customer related intangible assets	9	$	214,973	$	214,973	$	(185,089)	$	(176,043)	$	29,884	$	38,930
Operating agreement	20	35,000		35,000		(18,689)		(17,376)		16,311		17,624
Trademarks and trade names	16	9,709		9,709		(6,202)		(5,893)		3,507		3,816
Non-compete agreements	4	1,230		1,230		(1,230)		(1,215)		0		15
Intellectual property	—	0		300		0		(175)		0		125
Other intangible assets	5	1,800		3,745		(1,800)		(3,209)		0		536

Total		$	262,712	$	264,957	$	(213,010)	$	(203,911)	$	49,702	$	61,046

Weighted average estimated useful life
(in years)
Gross carrying amount Accumulated amortization Net book value
(in thousands) September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016

Definite lived intangible assets:
Trademarks and trade names 13 $ 15,354
$ 15,354
$ (8,630 ) $ (7,724 ) $ 6,724
$ 7,630
Customer related intangible assets 10 277,828
277,828
(181,019 ) (156,980 ) 96,809
120,848
Operating agreement 20 35,000
35,000
(13,424 ) (12,104 ) 21,576
22,896
Non-compete agreements 4 1,560
1,560
(799 ) (507 ) 761
1,053
Intellectual property 10 300
300
(108 ) (85 ) 192
215
Other intangible assets 5 3,745
3,745
(1,518 ) (955 ) 2,227
2,790

Total $ 333,787
$ 333,787
$ (205,498 ) $ (178,355 ) $ 128,289
$ 155,432

Amortization expense for definite lived intangible assets was ~~$27.1~~$11.3 million and ~~$36.4~~$15.5 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively ($~~8.6~~4.3 million and ~~$11.5~~$3.3 million for the third quarter of ~~2017~~2020 and ~~2016,~~2019, respectively). ~~Anticipated~~Expected annual definite lived intangible asset amortization expense for ~~2017~~2020 through ~~2021~~2024 is ~~$34.6~~$14.9 million, ~~$26.2~~$9.3 million, ~~$21.8~~$5.1 million, ~~$18.2~~$5.1 million and ~~$12.3~~$5.1 million, respectively.

NOTE 911 — OTHER ASSETS

Other assets consist of the following:


(in thousands)	September 30, 2020		December 31, 2019

Restricted cash	$	3,817	$	3,842
Security deposits	2,628		3,473
Deferred tax assets, net	1,262		1,626
Other	3,577		3,495

Total	$	11,284	$	12,436

(in thousands) September 30,
2017 December 31,
2016

Security deposits $ 5,164
$ 5,508
Restricted cash 4,200
4,127
Maintenance agreements, non-current portion 503
853
Other 701
767

Total $ 10,568
$ 11,255

NOTE 1012 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable and accrued expenses consist of the following:


(in thousands)	September 30, 2017		December 31, 2016		(in thousands)	September 30, 2020		December 31, 2019

Accounts payable	$	12,251	$	8,787	Accounts payable	$	17,861	$	22,431
Accrued expenses - general					Accrued expenses - general	18,678		24,558
Accrued salaries and benefits	42,312		47,614		Accrued salaries and benefits	17,533		18,982
Accrued expenses - general	28,789		26,426
Income taxes payable	—		308		Income taxes payable	2,290		1,700

Total	$	83,352	$	83,135	Total	$	56,362	$	67,671

Table of ~~Content~~Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Other current liabilities consist of the following:


(in thousands)	September 30, 2020		December 31, 2019

Operating lease liabilities	$	8,186	$	11,398
Other	2,563		3,326

Total	$	10,749	$	14,724

(in thousands) September 30,
2017 December 31,
2016

Unfunded cash account balances $ 5,054
$ 7,137
Other 5,928
11,924

Total $ 10,982
$ 19,061

NOTE 1113 — LONG-TERM DEBT

Long-term debt consists of the following:


(in thousands)	September 30, 2020		December 31, 2019

Senior secured term loans	$	293,826	$	293,826
Less: Debt issuance costs, net	(2,571)		(3,119)
Less: Unamortized discount, net	(2,325)		(2,825)



Long-term debt	$	288,930	$	287,882

(in thousands) September 30,
2017 December 31,
2016

Senior secured term loan $ 425,067
$ 479,653
Less: Debt issuance costs, net (3,445 ) (4,486 )
Less: Unamortized discount, net (1,246 ) (1,622 )
Net long-term debt 420,376
473,545
Less: Current portion (5,945 ) (5,945 )

Long-term debt, less current portion $ 414,431
$ 467,600

~~On November 27, 2012, Altisource Solutions S.à r.l., a wholly-owned subsidiary of~~ Altisource Portfolio Solutions S.A., and its wholly-owned subsidiary, Altisource S.à r.l. entered into a ~~senior secured term loan~~credit agreement (the “Credit Agreement”) in April 2018 with ~~Bank of America, N.A.~~Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and certain lenders. Under the Credit Agreement, Altisource borrowed $412.0 million in the form of Term B Loans and obtained a $15.0 million revolving credit facility. The Term B Loans mature in April 2024 and the revolving credit facility matures in April 2023. Altisource Portfolio Solutions S.A. and certain subsidiaries are guarantors of the term loan and the revolving credit facility (collectively, the “Guarantors”). ~~We subsequently entered into three amendments to the senior secured term loan agreement to increase the principal amount~~

There are no mandatory repayments of the ~~senior secured term loan and, among other changes, re-establish~~Term B Loans due until March 2023, when $1.3 million is due to be repaid. Thereafter, the $200.0 million incremental term loan facility accordion, lower the interest rate, extend the maturity date by approximately one year and increase the maximum amount of Restricted Junior Payments (as defined in the senior secured term loan agreement; other capitalized terms, unless defined herein, are defined in the senior secured term loan agreement).

~~After giving effect to the third amendment entered into on August 1, 2014, the term loan~~Term B Loans must be repaid in ~~equal~~ consecutive quarterly principal installments of ~~$1.5~~$3.1 million, with the balance due at maturity. All amounts outstanding under the ~~senior secured term loan agreement~~Term B Loans will become due on the earlier of (i) ~~December 9, 2020~~April 3, 2024, and (ii) the date on which the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders (as defined in the Credit Agreement; other capitalized terms, unless defined herein, are defined in the Credit Agreement) or as otherwise provided in the ~~senior secured term loan agreement~~Credit Agreement upon the occurrence of any event of ~~default under the senior secured term loan agreement.~~default.

In addition to the scheduled principal payments, subject to certain exceptions, the ~~term loan is~~Term B Loans are subject to mandatory prepayment upon issuances of debt, certain casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if ~~the~~our leverage ratio as of each year-end computation date is greater than 3.00 to 1.00, as calculated in accordance with the provisions of the ~~senior secured term loan agreement~~Credit Agreement (the percentage increases if ~~the~~our leverage ratio exceeds 3.50 to 1.00). NoCertain mandatory prepayments ~~were owed~~reduce future contractual amortization payments in direct order of maturity by an amount equal to the mandatory prepayment.

On July 1, 2019, Altisource closed the sale of the Financial Services Business to TSI and received a $40.0 million up-front payment less adjustments for working capital and transaction costs (see Note 3). On July 17, 2019, Altisource used $37.0 million to repay a portion of the ~~nine months ended September 30, 2017.~~senior secured term loan.

During the nine months ended September 30, ~~2017, we repurchased portions~~2019, the Company sold 0.7 million RESI shares for net proceeds of ~~our senior secured term loan with an aggregate par value~~$7.8 million (0.1 million shares for net proceeds of ~~$50.1~~$1.3 million at a weighted average discount of 12.2%, recognizing a net gain of $5.4 million on the early extinguishment of debt (repurchased aggregate par value of $24.1 million at a weighted average discount of 7.5%, recognizing a net gain of $1.5 million on the early extinguishment of debt for the third quarter of ~~2017)~~2019). ~~During~~Altisource used the net proceeds of $7.8 million to repay a portion of its senior secured term loan for the nine months ended September 30, ~~2016, we repurchased portions of our senior secured term loan with an aggregate par value of $51.0~~2019 ($2.0 million ~~at a weighted average discount of 13.2%, recognizing a net gain of $5.5 million on the early extinguishment of debt (no repurchases in~~for the third quarter of ~~2016)~~2019).

Altisource may incur incremental indebtedness under the Credit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate incremental principal amount not to exceed $125.0 million, subject to certain conditions set forth in the Credit Agreement, including a sublimit of $80.0 million with respect to incremental revolving credit commitments and, after giving effect to the incremental borrowing, the Company’s leverage ratio does not exceed 3.00 to 1.00. Our leverage ratio exceeded 3.00 to 1.00 during the third quarter of 2020. The lenders have no obligation to provide any incremental indebtedness.

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

The ~~term loan bears~~Term B Loans bear interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate. Adjusted Eurodollar Rate term loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Adjusted Eurodollar Rate for ~~the applicable~~a three month interest period and (y) 1.00% plus (ii) ~~a 3.50% margin.~~4.00%. Base Rate term loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Base Rate and (y) 2.00% plus (ii) ~~a 2.50% margin.~~3.00%. The interest rate atas of September 30, ~~2017~~2020 was ~~4.74%~~5.00%.

~~Term loan payments~~Loans under the revolving credit facility bear interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate. Adjusted Eurodollar Rate revolving loans bear interest at a rate per annum equal to the sum of (i) the Adjusted Eurodollar Rate for a three month interest period plus (ii) 4.00%. Base Rate revolving loans bear interest at a rate per annum equal to the sum of (i) the Base Rate plus (ii) 3.00%. The unused commitment fee is 0.50%. Borrowings under the revolving credit facility are not permitted if our leverage ratio exceeds 3.50 to 1.00. Our leverage ratio exceeded 3.50 to 1.00 during the third quarter of 2020. There were 0 borrowings outstanding under the revolving credit facility as of September 30, 2020.

The payment of all amounts owing by Altisource under the Credit Agreement is guaranteed by the Guarantors and ~~are~~is secured by a pledge of all equity interests of certain subsidiaries of Altisource, as well as a lien on substantially all of the assets of Altisource ~~Solutions~~ S.à r.l. and the Guarantors, subject to certain exceptions.

~~Table of Content~~

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

The ~~senior secured term loan agreement~~Credit Agreement includes covenants that restrict or limit, among other things, our ability, ~~to: create~~subject to certain exceptions and baskets, to incur indebtedness; incur liens ~~and encumbrances; incur additional indebtedness;~~on our assets; sell, transfer or dispose of assets; make Restricted Junior Payments including share repurchases, dividends and repayment of junior indebtedness; ~~change lines~~make investments; dispose of ~~business;~~equity interests of any Material Subsidiaries; engage in a line of business substantially different than existing businesses and businesses reasonably related, complimentary or ancillary thereto; amend material debt agreements or other material contracts; engage in certain transactions with affiliates; enter into sale/leaseback transactions; grant negative pledges or agree to such other restrictions relating to subsidiary dividends and distributions; make changes to our fiscal ~~year~~year; and engage in mergers and ~~consolidations.~~consolidations; and to the extent any Revolving Credit Loans are outstanding on the last day of a fiscal quarter, permit the Total Leverage Ratio to be greater than 3.50:1.00 as of the last day of such fiscal quarter, subject to a customary cure provision (the “Revolving Financial Covenant”).

The ~~senior secured term loan agreement~~Credit Agreement contains certain events of default including (i) failure to pay principal when due or interest or any other amount owing on any other obligation under the ~~senior secured term loan agreement~~Credit Agreement within five days of becoming due, (ii) material incorrectness of representations and warranties when made, (iii) breach of certain other covenants, subject to cure periods described in the Credit Agreement, (iv) a breach of the Revolving Financial Covenant, subject to a customary cure provision and not an Event of Default with respect to the Term Loans unless and until the Required Revolving Lenders accelerate the Revolving Credit Loans, (v) failure to pay principal or interest on any other debt that equals or exceeds $40.0 million when due, ~~(v)~~(vi) default on any other debt that equals or exceeds $40.0 million that causes, or gives the holder or holders of such debt the ability to cause, an acceleration of such debt, ~~(vi)~~(vii) occurrence of a Change of Control, ~~(vii)~~(viii) bankruptcy and insolvency events, ~~(viii)~~(ix) entry by a court of one or more judgments against us in an amount in excess of $40.0 million that remain unbonded, undischarged or unstayed for a certain number of days after the entry thereof, ~~(ix)~~(x) the occurrence of certain ERISA events and ~~(x)~~(xi) the failure of certain Loan Documents to be in full force and effect. If any event of default occurs and is not cured within applicable grace periods set forth in the ~~senior secured term loan agreement~~Credit Agreement or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.

As of September 30, ~~2017,~~2020, debt issuance costs were ~~$3.4~~$2.6 million, net of ~~$6.8~~$2.0 million of accumulated amortization. As of December 31, ~~2016,~~2019, debt issuance costs were ~~$4.5~~$3.1 million, net of ~~$5.8~~$1.4 million of accumulated amortization.

NOTE 1214 — OTHER NON-CURRENT LIABILITIES

Other non-current liabilities consist of the following:


(in thousands)	September 30, 2020		December 31, 2019

Operating lease liabilities	$	13,737	$	19,707
Income tax liabilities	12,026		10,935
Other non-current liabilities	528		374

Total	$	26,291	$	31,016

(in thousands) September 30,
2017 December 31,
2016

Deferred revenue $ 3,369
$ 5,680
Other non-current liabilities 4,427
4,800

Total $ 7,796
$ 10,480

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 1315 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

The following table presents the carrying amount and estimated fair value of financial instruments and certain liabilities measured at fair value as of September 30, ~~2017~~2020 and December 31, ~~2016.~~2019. The following fair values are estimated using market information and what the Company believes to be appropriate valuation methodologies under GAAP:


	September 30, 2017								December 31, 2016									September 30, 2020								December 31, 2019
(in thousands)	Carrying amount		Fair value						Carrying amount		Fair value						(in thousands)	Carrying amount		Fair value						Carrying amount		Fair value
			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3					Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Assets:																	Assets:
Cash and cash equivalents	$	114,123	$	114,123	$	—	$	—	$	149,294	$	149,294	$	—	$	—	Cash and cash equivalents	$	67,023	$	67,023	$	0	$	0	$	82,741	$	82,741	$	0	$	0
Restricted cash	4,200		4,200		—		—		4,127		4,127		—		—		Restricted cash	3,817		3,817		0		0		3,842		3,842		0		0
Available for sale securities	46,044		46,044		—		—		45,754		45,754		—		—
Investment in equity securities																	Investment in equity securities	30,185		30,185		0		0		42,618		42,618		0		0

Long-term receivable																	Long-term receivable	2,490		0		0		2,490		2,371		0		0		2,371

Liabilities:																	Liabilities:
Acquisition contingent consideration	401		—		—		401		376		—		—		376
Long-term debt	425,067		—		399,563		—		479,653		—		474,856		—
Senior secured term loan																	Senior secured term loan	293,826		0		205,678		0		293,826		0		277,666		0

Fair Value Measurements on a Recurring Basis

Cash and cash equivalents and restricted cash are carried at amounts that approximate their fair values due to the highly liquid nature of these instruments and were measured using Level 1 inputs.

~~Table of Content~~

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

~~Available for sale~~Investment in equity securities ~~are~~is carried at fair value and ~~consist~~consists of ~~4.1~~3.5 millionshares of RESI common ~~stock. Available for sale~~stock as of September 30, 2020 and December 31, 2019. The investment in equity securities ~~are~~is measured using Level 1 inputs as these securities have quoted prices in active markets.

The fair value of our ~~long-term debt~~senior secured term loan is based on quoted market prices. Based on the frequency of trading, we do not believe that there is an active market for our debt. Therefore, the quoted prices are considered Level 2 inputs.

In ~~accordance with ASC Topic 805,~~ ~~Business Combinations, liabilities for contingent consideration are reflected at fair value and adjusted each reporting period~~connection with the sale of the rental property management business in August 2018, Altisource will receive $3.0 million on the earlier of a RESI change ~~in fair value recognized in earnings. Liabilities for acquisition related contingent consideration were recorded in connection with acquisitions in prior years.~~of control or on August 8, 2023. We measure ~~the liabilities for acquisition related contingent consideration using Level 3 inputs as they are determined~~long-term receivables without a stated interest rate based on the present value of the future ~~estimated payments, which include sensitivities pertaining to discount rates and financial projections.~~payments.

There were no transfers between different levels during the periods presented.

Concentrations of Credit Risk

Financial instruments that subject us to concentrations of credit risk primarily consist of cash and cash equivalents and accounts receivable. Our policy is to deposit our cash and cash equivalents with larger, highly rated financial institutions. The Company ~~derives the largest portion~~derived 57% of its ~~revenues~~revenue from Ocwen for the nine months ended September 30, 2020 (48% of revenue for the third quarter of 2020) (see Note 2 for additional information on Ocwen revenues and accounts receivable balance). The Company ~~mitigates~~strives to mitigate its concentrations of credit risk with respect to accounts receivable by actively monitoring past due accounts and the economic status of larger customers, if known.

NOTE 1416 — SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Share Repurchase Program

On May ~~17, 2017,~~15, 2018, our shareholders approved the renewal and replacement of the share repurchase program previously approved by the shareholders on May ~~18, 2016, which replaced the previous share repurchase program.~~17, 2017. Under the program, we are authorized to purchase up to ~~4.6~~4.3 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval, at a minimum price of $1.00 per share and a maximum price of $500.00 per share, for a period of five years from the date of approval. Under the existing and prior programs, we purchased 1.1 million shares of common stock at an average price of $22.48 per share during the nine months ended September 30, 2017 and 1.3 million shares at an average price of $26.94 per share during the nine months ended September 30, 2016 (0.3 million shares at an average price of $23.48 per share for the third quarter of 2017 and 0.5 million shares at an average price of $28.68 per share for the third quarter of 2016). As of September 30, ~~2017,~~2020, approximately ~~3.9~~2.4 million shares of common stock remain available for repurchase under the program. There were 0 purchases of shares of common stock during the nine months ended September 30, 2020. We purchased 0.6 million shares of common stock at an average price of $21.03 per share during the nine months ended September 30, 2019 (0.3 million shares at an average price of $20.24 per share for the third quarter of 2019). Luxembourg law limits share repurchases

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

to the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings, less the value of shares repurchased. As of September 30, 2020, we can repurchase up to approximately $93 million of our common stock under Luxembourg law. Our ~~senior secured term loan~~Credit Agreement also limits the amount we can spend on share repurchases, which limit was approximately ~~$403~~$448 million as of September 30, ~~2017,~~2020, and may prevent repurchases in certain ~~circumstances.~~circumstances, including if our leverage ratio exceeds 3.50 to 1.00. Our leverage ratio exceeded 3.50 to 1.00 during the third quarter of 2020.

Share-Based Compensation

We issue share-based awards in the form of stock options, restricted shares and restricted ~~shares~~share units for certain employees, officers and directors. We ~~recorded~~recognized share-based compensation expense of ~~$3.2~~$6.6 million and ~~$4.7~~$8.3 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively ($~~1.4~~1.7 million and ~~$1.1~~$2.8 million for the third quarter of ~~2017~~2020 and ~~2016,~~2019, respectively). As of September 30, ~~2017,~~2020, estimated unrecognized compensation costs related to share-based awards amounted to ~~$9.4~~$6.6 million, which we expect to recognize over a weighted average remaining requisite service period of approximately ~~2.15~~1.38 years.

~~In connection with the January 1, 2017 adoption of FASB ASU No. 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ (see Note 1), the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures. Prior to this accounting change, share-based compensation expense for stock options and restricted shares was recorded net of estimated forfeiture rates ranging from 0% to 40%.

Stock Options

Stock option grants are composed of a combination of service-based, market-based and performance-based options.

Service-Based Options. These options generally vest over three or four years with equal annual vesting and generally expire on the earlier of ten years after the date of grant or following termination of service. A total of ~~736~~271 thousand service-based ~~awards~~options were outstanding as of September 30, ~~2017.~~2020.

~~Table of Content~~

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

Market-Based Options. These option grants generally have ~~two~~2 components, each of which vests only upon the achievement of certain criteria. The first component, which we refer to as “ordinary performance” grants, generally consists of two-thirds of the market-based grant and begins to vest if the stock price is at least double the exercise price, as long as the stock price realizes a compounded annual gain of at least 20% over the exercise price. The remaining third of the market-based options, which we refer to as “extraordinary performance” grants, generally begins to vest if the stock price is at least triple the exercise price, as long as the stock price realizes a compounded annual gain of at least 25% over the exercise price. Market-based ~~awards~~options vest in three or four year installments with the first installment vesting upon the achievement of the criteria and the remaining installments vesting thereafter in equal annual installments. Market-based options generally expire on the earlier of ten years after the date of grant or following termination of service, unless the performance criteria is met prior to termination of service or in the final three years of the option term, in which case vesting will generally continue in accordance with the provisions of the award agreement. A total of ~~935~~211 thousand market-based ~~awards~~options were outstanding as of September 30, ~~2017.~~2020.

Performance-Based Options.These option grants ~~begin to~~generally will vest ~~upon the achievement of~~if certain specific financial ~~measures. Generally, the awards begin vesting if the performance criteria~~measures are achieved; ~~one-third vest~~one-fourth vests on each anniversary of the grant date. For certain other financial measures, ~~awards~~options cliff-vest upon the achievement of the specific performance during the period from ~~2017~~2019 through 2021. The award of performance-based options is adjusted based on the level of achievement specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in ~~70%~~50% to ~~150%~~200% of the option grants, depending upon performance achieved. If the performance criteria achieved is below a certain threshold, the ~~award is~~options are canceled. The options generally expire on the earlier of ten years after the date of grant or following termination of service. There were ~~126~~460 thousand performance-based ~~awards~~options outstanding as of September 30, ~~2017.~~2020.

~~The Company granted 216 thousand~~There were 0 stock options ~~(at a weighted average exercise price of $34.07 per share) and 143 thousand stock options (at a weighted average exercise price of $29.22 per share)~~granted during the nine months ended September 30, ~~2017~~2020 and ~~2016, respectively.~~2019. Outstanding stock options increased by 228 thousand in February 2019 in connection with the determination of the level of achievement for certain performance-based options granted in 2018.

The fair values of the service-based options and performance-based options ~~were~~are determined using the Black-Scholes option pricing model and the fair values of the market-based options were determined using a lattice (binomial) model. ~~The following assumptions were used to determine the fair values as of the grant date:~~

~~Nine months ended~~
~~September 30, 2017~~

~~Nine months ended~~
~~September 30, 2016~~

~~Black-Scholes~~

~~Binomial~~

~~Black-Scholes~~

~~Binomial~~

~~Risk-free interest rate (%)~~

~~1.89 - 2.29~~

~~0.77 - 2.38~~

~~1.25 - 1.89~~

~~0.23 - 1.97~~

~~Expected stock price volatility (%)~~

~~61.49 - 71.31~~

~~66.68 - 71.31~~

~~59.75 - 62.14~~

~~59.76 - 62.14~~

~~Expected dividend yield~~

—

~~Expected option life (in years)~~

~~6.00 - 7.50~~

~~2.55 - 4.32~~

~~6.00 - 6.25~~

~~4.54 - 4.88~~

~~Fair value~~

~~$13.57 - $24.80~~

~~$11.94 - $24.30~~

~~$11.15 - $18.60~~

~~$11.06 - $19.27~~

We determined the expected option life of all service-based stock option grants using the simplified ~~method.~~method, determined based on the graded vesting term plus the contractual term of the options, divided by two. We use the simplified method because we believe that our historical data does not provide a reasonable basis upon which to estimate expected option life.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

The following table summarizes ~~the weighted average grant date fair value of stock options granted per share,~~ the total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the ~~period~~periods presented:

Nine months ended September 30,
(in thousands, except per share amounts) 2017 2016

Weighted average grant date fair value of stock options granted per share $ 20.95
$ 16.85
Intrinsic value of options exercised 2,524
17,280
Grant date fair value of stock options that vested 2,063
2,372

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~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)


	Nine months ended September 30,
(in thousands, except per share amounts)	2020		2019


Intrinsic value of options exercised	$	0	$	52
Grant date fair value of stock options that vested	2,717		3,014

The following table summarizes the activity related to our stock options:

Number of options Weighted average exercise price
Weighted average contractual term
(in years)

Aggregate intrinsic value
(in thousands)

Outstanding at December 31, 2016 1,996,509
$ 25.98
5.32 $ 15,942
Granted 216,430
34.07

Exercised (192,378 ) 10.83

Forfeited (222,920 ) 31.21

Outstanding at September 30, 2017 1,797,641
27.93
5.14 8,413

Exercisable at September 30, 2017 1,170,148
22.56
3.48 7,723


	Number of options	Weighted average exercise price		Weighted average contractual term (in years)	Aggregate intrinsic value (in thousands)

Outstanding as of December 31, 2019	1,468,046	$	29.19	4.60	$	94


Forfeited/expired	(526,454)	23.86

Outstanding as of September 30, 2020	941,592	32.17		5.85	0

Exercisable as of September 30, 2020	587,899	28.53		5.64	0

Other Share-Based Awards

The Company’s other share-based and similar types of awards are composed of restricted shares and ~~through August 29, 2016, Equity Appreciation Rights (“EAR”).~~restricted share units. The restricted shares and restricted share units are composed of a combination of service-based awards and performance-based awards.

Service-Based Awards. These awards generally vest over ~~one~~two to four ~~years~~year periods with ~~either~~(a) vesting in equal annual ~~cliff-vesting,~~installments, or (b) vesting of all of the restricted shares and restricted share units at the end of the vesting ~~period or vesting beginning after two years of service.~~period. A total of ~~272~~385 thousand service-based awards were outstanding as of September 30, ~~2017.~~2020. Beginning in 2019, service-based restricted share units were awarded as a component of most employees’ annual incentive compensation rather than cash.

Performance-Based Awards.These awards generally ~~begin to~~ vest ~~upon the achievement of~~if certain specific financial ~~measures. Generally, the awards begin vesting if the performance criteria~~measures are achieved; one-third ~~vest~~vests on each anniversary of the grant date or cliff-vest on the third anniversary of the grant date. The ~~award~~number of performance-based restricted shares ~~is adjusted~~and restricted share units that may vest will be based on the level of achievement as specified in the award agreements. If the performance criteria achieved is above ~~threshold~~certain financial performance levels and Altisource’s share performance is above certain established criteria, participants have the opportunity to vest in ~~80%~~up to ~~150%~~225% of the restricted share unit award ~~depending on performance achieved.~~for certain awards. If the performance criteria achieved is below a certain ~~threshold,~~thresholds, the award is canceled. A total of 42265 thousand performance-based awards were outstanding as of September 30, ~~2017.~~2020.

The Company granted ~~189~~349 thousand restricted ~~shares~~share units (at a weighted average grant date fair value of ~~$30.94~~$16.26 per share) during the nine months ended September 30, ~~2017.~~2020.

The following table summarizes the activity related to our restricted ~~shares:~~

shares and restricted share units:



	Number of restricted shares and restricted share units

Outstanding atas of December 31, ~~2016~~2019	~~231,730~~636,146
Granted	~~188,622~~349,459
Issued	~~(49,538~~(192,270)	)
Forfeited/canceled	~~(56,575~~(143,118)	)

Outstanding atas of September 30, ~~2017~~2020	~~314,239~~650,217

~~Effective August 29, 2016, the EAR plans were terminated.~~

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 1517 — REVENUE

~~Revenue includes~~We classify revenue in three categories: service revenue, revenue from reimbursable expenses and non-controlling interests. Service revenue consists of amounts attributable to our fee-based ~~services~~services. During the three and nine months ended September 30, 2019, service revenue included sales of short-term investments in real ~~estate.~~estate (see Note 7). Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup. Non-controlling interests represent the earnings of Lenders One, a consolidated entity that is a mortgage cooperative managed, but not owned, by ~~Altisource, and is~~Altisource. The Lenders One members’ earnings are included in revenue and reduced from net income to arrive at net income attributable to Altisource (see Note 1). Our services are provided to customers located in the United States. The components of revenue were as follows:


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2020		2019		2020		2019

Service revenue	$	85,386	$	133,781	$	289,570	$	489,300
Reimbursable expenses	2,810		7,213		14,495		16,484
Non-controlling interests	599		499		1,516		2,179

Total	$	88,795	$	141,493	$	305,581	$	507,963

Disaggregation of Revenue

Disaggregation of total revenues by major source is as follows:


(in thousands)	Revenue recognized when services are performed or assets are sold		Revenue related to technology platforms and professional services		Reimbursable expenses revenue		Total revenue

Three months ended September 30, 2020	$	82,067	$	3,918	$	2,810	$	88,795
Three months ended September 30, 2019	125,939		8,341		7,213		141,493

Nine months ended September 30, 2020	277,522		13,564		14,495		305,581
Nine months ended September 30, 2019	452,643		38,836		16,484		507,963

Contract Balances

Our contract assets consist of unbilled accounts receivable (see Note 5). Our contract liabilities consist of current deferred revenue and other non-current liabilities as reported on the accompanying condensed consolidated balance sheets. Revenue recognized that was included in the contract liability at the beginning of the period was $4.5 million and $9.4 million for the nine months ended September 30, 2020 and 2019, respectively ($0.7 million and $0.9 million for the third quarter of 2020 and 2019, respectively).

Three months ended
September 30, Nine months ended
September 30,
(in thousands) 2017 2016 2017 2016

Service revenue $ 224,308
$ 239,782
$ 692,254
$ 715,386
Reimbursable expenses 9,866
12,080
31,786
41,317
Non-controlling interests 805
883
2,107
1,973

Total $ 234,979
$ 252,745
$ 726,147
$ 758,676

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 1618 — 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, cost of real estate sold, reimbursable expenses, technology and telecommunications costs as well as depreciation and amortization of operating assets. The components of cost of revenue were as follows:


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2020		2019		2020		2019

Compensation and benefits	$	23,947	$	30,463	$	74,776	$	108,637
Outside fees and services	34,013		61,314		123,914		182,483
Technology and telecommunications	8,776		8,586		27,082		27,124
Reimbursable expenses	2,810		7,213		14,495		16,484
Depreciation and amortization	3,024		2,753		9,512		10,160
Cost of real estate sold	0		393		0		42,763

Total	$	72,570	$	110,722	$	249,779	$	387,651

Three months ended
September 30, Nine months ended
September 30,
(in thousands) 2017 2016 2017 2016

Compensation and benefits $ 60,332
$ 66,357
$ 186,090
$ 201,193
Outside fees and services 83,670
77,445
250,883
222,574
Cost of real estate sold 4,411
—
16,461
—
Reimbursable expenses 9,866
12,080
31,786
41,317
Technology and telecommunications 10,389
11,502
32,681
32,145
Depreciation and amortization 6,230
6,618
20,343
20,007

Total $ 174,898
$ 174,002
$ 538,244
$ 517,236

~~Table of Content~~

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

NOTE 1719 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses include payroll and employee benefits associated with personnel employed in executive, sales and marketing, finance, law, compliance, human resources, vendor management, facilities and risk management ~~sales and marketing~~ roles. This category also includes professional services fees, occupancy costs, ~~professional fees,~~ marketing costs, depreciation and amortization of non-operating assets and other expenses. The components of selling, general and administrative expenses were as follows:


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2020		2019		2020		2019

Compensation and benefits	$	9,077	$	10,395	$	30,396	$	36,986
Occupancy related costs	4,636		5,593		15,725		19,988
Amortization of intangible assets	4,295		3,298		11,344		15,489
Professional services	2,129		2,588		8,605		11,384
Marketing costs	422		3,481		2,810		9,402
Depreciation and amortization	796		921		2,009		4,036
Other	(543)		(443)		2,717		6,990

Total	$	20,812	$	25,833	$	73,606	$	104,275

Three months ended
September 30, Nine months ended
September 30,
(in thousands) 2017 2016 2017 2016

Compensation and benefits $ 15,068
$ 14,145
$ 43,115
$ 42,460
Occupancy related costs 8,536
8,903
28,347
26,785
Amortization of intangible assets 8,604
11,465
27,143
36,432
Professional services 3,886
4,097
11,983
17,533
Marketing costs 3,992
9,275
11,958
21,438
Depreciation and amortization 2,286
2,557
7,068
7,514
Other 4,250
3,444
17,179
9,547

Total $ 46,622
$ 53,886
$ 146,793
$ 161,709

NOTE 1820 — OTHER (EXPENSE) INCOME, ~~(EXPENSE),~~ NET

Other (expense) income, ~~(expense),~~ net consists of the following:


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2020		2019		2020		2019

Interest income	$	25	$	69	$	105	$	336
Other, net	(386)		337		307		972

Total	$	(361)	$	406	$	412	$	1,308

Three months ended
September 30, Nine months ended
September 30,
(in thousands) 2017 2016 2017 2016

Gain on early extinguishment of debt $ 1,482
$ —
$ 5,419
$ 5,464
Expenses related to the purchase of available for sale securities —
—
—
(3,356 )
Interest income 27
11
169
28
Other, net 988
(120 ) 2,427
472

Total $ 2,497
$ (109 ) $ 8,015
$ 2,608

NOTE 1921 — INCOME TAXES

We recognized an income tax provision of $5.3 million and $20.7 million for the nine months ended September 30, 2020 and 2019, respectively ($1.8 million and $5.4 million for the third quarter of 2020 and 2019, respectively). The decrease in the

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

income tax provision for the nine months ended September 30, 2020 was primarily from a $12.3 million reduction in Luxembourg deferred tax assets in connection with a decrease in the Luxembourg statutory income tax rate from 26.0% to 24.9% in the second quarter of 2019. The income tax provisions on losses before income taxes and non-controlling interests for the three and nine months ended September 30, 2020 were primarily driven by income in our US and other foreign operations from transfer pricing on services provided to our Luxembourg operating company and no tax benefit on the pretax losses from our Luxembourg operating company for the three and nine months ended September 30, 2020.

NOTE 22 — (LOSS) EARNINGS PER SHARE

Basic (loss) earnings per share ~~(“EPS”)~~ is computed by dividing ~~income~~loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted ~~EPS reflects the assumed conversion of~~net loss per share excludes all dilutive securities ~~using the treasury stock method.~~because their impact would be anti-dilutive, as described below.

Basic and diluted ~~EPS~~(loss) earnings per share are calculated as follows:

Three months ended
September 30, Nine months ended
September 30,
(in thousands, except per share data) 2017 2016 2017 2016

Net income attributable to Altisource $ 6,961
$ 10,589
$ 22,541
$ 49,077

Weighted average common shares outstanding, basic 18,023
18,715
18,337
18,669
Dilutive effect of stock options and restricted shares 406
853
517
1,069

Weighted average common shares outstanding, diluted 18,429
19,568
18,854
19,738

Earnings per share:
Basic $ 0.39
$ 0.57
$ 1.23
$ 2.63

Diluted $ 0.38
$ 0.54
$ 1.20
$ 2.49

~~Table of Content~~

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)


	Three months ended September 30,				Nine months ended September 30,
(in thousands, except per share data)	2020		2019		2020		2019

Net (loss) income attributable to Altisource	$	(13,237)	$	7,165	$	(59,948)	$	(1,863)

Weighted average common shares outstanding, basic	15,637		15,897		15,578		16,133
Dilutive effect of stock options, restricted shares and restricted share units	0		254		0		0

Weighted average common shares outstanding, diluted	15,637		16,151		15,578		16,133

(Loss) earnings per share:
Basic	$	(0.85)	$	0.45	$	(3.85)	$	(0.12)
Diluted	$	(0.85)	$	0.44	$	(3.85)	$	(0.12)

For both the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, 1.6 million (1.4 million and 1.5 million for the third quarter of 2020 and 2019, respectively) stock options, restricted shares and restricted share units were excluded from the computation of (loss) earnings per share, as a result of the following:

•As a result of the net loss attributable to Altisource for the nine months ended September 30, 2020 and 2019, 0.2 million and 0.3 million, respectively (0.2 million for the third quarter of 2020) stock options, restricted shares and restricted share units in each period were excluded from the computation of diluted loss per share, as their impacts were anti-dilutive

•For both the nine months ended September 30, 2020 and 2019, 0.5 million ~~options~~(0.3 million and ~~0.4~~0.7 million for the third quarter of 2020 and 2019, respectively) stock options ~~respectively, that~~ were anti-dilutive and have been excluded from the computation of diluted ~~EPS (0.9 million options and 0.4 million options for the third quarter of 2017 and 2016, respectively). These options were anti-dilutive and excluded from the computation of diluted EPS~~(loss) earnings per share because their exercise price was greater than the average market price of our common ~~stock. Also excluded from the computation of diluted EPS are 0.3 million options and restricted shares and 0.4 million options for~~stock

•For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, 0.9 million and 0.8 million, respectively ~~(0.4~~(0.9 million ~~options~~ and ~~restricted shares and 0.4~~0.8 million ~~options~~ for the third quarter of ~~2017~~2020 and ~~2016,~~2019, respectively), stock options, restricted shares and restricted share units, which begin to vest upon the achievement of certain market criteria related to our common stock price, performance criteria and an annualized rate of return to shareholders that have not yet been ~~met.~~met in each period have been excluded from the computation of diluted (loss) earnings per share

NOTE 2023 — RESTRUCTURING CHARGES

In August 2018, Altisource initiated Project Catalyst, a project intended to optimize its operations and reduce costs to better align its cost structure with its anticipated revenues and improve its operating margins. During the nine months ended September 30, 2020 and 2019, Altisource incurred $10.9 million and $9.1 million, respectively ($2.2 million and $2.8 million for the third quarter of 2020 and 2019, respectively), of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan. We expect to incur additional severance costs, professional services fees and technology costs in connection with this internal reorganization, automation and other technology related activities and will expense those costs as incurred. Based on our analysis, we currently anticipate the future costs relating to Project Catalyst to be in the range of approximately $2 million to $3 million.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 24 — COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS

We record a liability for contingencies if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For proceedings where the reasonable estimate of loss is a range, we record a best estimate of loss within the range.

Litigation

We are currently involved in legal actions in the course of our business, some of which seek monetary damages. We do not believe that the outcome of these proceedings, both individually and in the aggregate, will have a material impact on our financial condition, results of operations or cash flows.

Regulatory Matters

Periodically, we are subject to audits, examinations and investigations by federal, state and local governmental authorities and receive subpoenas, civil investigative demands or other requests for information from such governmental authorities in connection with their regulatory or investigative authority. We are currently responding to such inquiries from governmental authorities relating to certain aspects of our business. We believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with these inquiries.

~~As previously disclosed, Altisource received~~Sales Taxes

On June 21, 2018, the United States Supreme Court rendered a ~~Notice~~5-4 majority decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and ~~Opportunity to Respond~~remit sales tax on goods and Advise (“NORA”) letter on November 10, 2016 from the Consumer Financial Protection Bureau (“CFPB”) indicating that the CFPB is considering a potential enforcement action against Altisource relating to an alleged violation of federal law that primarily concerns certain technology services provided to ~~Ocwen.~~purchasers in the state, overturning existing court precedent. During the nine months ended September 30, 2019, the Company completed the analysis of its services for potential exposure to sales tax in various jurisdictions in the United States. The ~~NORA letter provides~~Company recognized a $(0.6) million and $0.4 million net (loss reimbursement) loss for the ~~recipient an opportunity to present its positions to~~nine months ended September 30, 2020 and 2019, respectively ($(0.6) million and $(1.7) million net loss reimbursement for the ~~CFPB before an enforcement action~~third quarter of 2020 and 2019, respectively) in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income (loss). In October 2020, the Company received additional reimbursements of $(1.7) million of sales taxes previously accrued and paid. The Company began invoicing, collecting and remitting sales tax in applicable jurisdictions in 2019. The Company is ~~recommended~~also in the process of seeking additional reimbursements for sales tax payments from clients; however, there can be no assurance that the Company will be successful in collecting some or commenced. On December 5, 2016, we provided a written response to the NORA letter setting forth the legal, policy and factual reasons why we believe an enforcement action is not warranted. We are committed to resolving any potential concerns of the CFPB. If the CFPB were to bring an enforcement action against us, the resolutionall of such ~~action~~additional reimbursements. Future changes in our estimated sales tax exposure could ~~have~~result in a material ~~adverse~~adjustment to our condensed consolidated financial statements, which would impact on our ~~business, reputation,~~ financial condition and results of operations. ~~However, we believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with any potential CFPB enforcement action.~~

Ocwen Related Matters

As discussed in Note 2, during the nine months ended September 30, 2020, Ocwen iswas our largest ~~customer. Ocwen disclosed that, on July 23, 2017, it entered into a master agreement and a transfer agreement with NRZ to undertake certain actions to facilitate the transfer~~customer, accounting for 57% of Ocwen’s remaining interests in approximately $110 billion in unpaid principal balance (as of June 30, 2017) of its non-government-sponsored enterprise (“non-GSE”) mortgage servicing rights (the “Subject MSRs”) to NRZ. As of June 30, 2017, the Subject MSRs represented approximately 78% of Ocwen’s non-GSE MSRs. In the event the required third party consents are not obtained by July 23, 2018 or an earlier date agreed to by Ocwen and NRZ, the applicable Subject MSRs may (i) become subject to a new agreement to be negotiated between Ocwen and NRZ, (ii) be acquired by Ocwen, or, if Ocwen does not desire or is otherwise unable to purchase, sold to one or more third parties, or (iii) remain subject to their existing agreements. Ocwen also disclosed that it entered into a five year subservicing agreement with NRZ pursuant to which Ocwen will subservice the mortgage loans related to the Subject MSRs that are transferred to NRZ. In addition, Ocwen disclosed that during the five year subservicing agreement term, NRZ may terminate the subservicing agreement for convenience, subject to Ocwen’s right to receive a termination fee and proper notice.

~~As disclosed in~~ our report on Form 8-K filed on August 28, 2017, REALHome Services and Solutions, Inc. and REALHome Services and Solutions - CT, Inc. (collectively, “RHSS”), two licensed real estate brokerage subsidiaries of the Company, entered into a Cooperative Brokerage Agreement (the “Brokerage Agreement”) with a licensed real estate brokerage subsidiary of NRZ pursuant to which RHSS will be the exclusive provider, irrespective of the subservicer, of real estate brokerage services for portfolios associated with Subject MSRs that are transferred to NRZ (the “Ocwen Transferred Portfolio”) and with respect to approximately $6 billion of non-Ocwen serviced non-GSE portfolios. NRZ’s brokerage subsidiary will receive a cooperative brokerage

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

commission on the sale of certain real estate owned (“REO”) properties from these portfolios. In addition, Altisource and RHSS entered into a letter agreement with NRZ which provides for NRZ to directly appoint RHSS (or another real estate brokerage subsidiary designated by Altisource) to perform the real estate brokerage services with respect to REO properties in the Ocwen Portfolio, subject to certain specified exceptions, in the event that NRZ’s brokerage subsidiary does not refer real estate listings from the Ocwen Portfolio to RHSS. In this case, the designated Altisource brokerage subsidiary would retain the full seller’s brokerage commission. The Brokerage Agreement and the letter agreement are effective through August 31, 2025 unless earlier terminated in accordance with their respective terms. Contemporaneously with the execution of the Brokerage Agreement, Altisource Solutions S.à r.l. executed a non-binding letter of intent (“LOI”) with NRZ to enter into a Services Agreement, setting forth the terms pursuant to which Altisource Solutions S.à r.l. would remain the exclusive service provider of fee-based services on the Ocwen Transferred Portfolio through August 2025, irrespective of the subservicer. The LOI provides for the parties to negotiate in good faith toward the execution of a Services Agreement within 30 days from the date of the LOI. This term was automatically extended by a further 30 days by the parties, pursuant to the terms of the LOI, as the parties continued to negotiate in good faith toward the completion and execution of a Services Agreement (such period, including as extended, the “Standstill Period”). Furthermore, as a result of continuing good faith negotiations on a Services Agreement, effective as of October 23, 2017, the parties amended the LOI to extend the term of the LOI and Standstill Period to November 30, 2017. This term will be automatically extended until January 12, 2018 if the parties are still negotiating the terms of the Services Agreement in good faith as of November 30, 2017. Pursuant to the LOI, the parties intend to negotiate all of the definitive and binding terms of the Services Agreement. RHSS has the right to terminate the Brokerage Agreement upon 90 days’ notice (which period may be shortened by NRZ) if a services agreement is not signed between Altisource and NRZ during the Standstill Period. The Brokerage Agreement may otherwise only be terminated upon the occurrence of certain specified events. NRZ has agreed that, during such notice period and/or the Standstill Period, it will not replace or reduce the role of Altisource as a service provider with respect to the Ocwen Transferred Portfolio.

~~Following the execution of the Services Agreement and the transfer of the Subject MSRs from Ocwen to NRZ, we anticipate that~~total revenue from NRZ would increase and revenue from Ocwen would decrease. As MSRs continue to transfer from Ocwen to NRZ, we anticipate that NRZ will become our largest customer. Had NRZ acquired all of the Subject MSRs and our agreements with NRZ were in place as of the beginning of the year, we estimate that approximately 50%(48% of our revenue ~~would have been related to NRZ. There can be no assurance that~~for the ~~parties will reach an agreement with respect to~~third quarter of 2020). Additionally, 7% of our revenue for the ~~terms~~nine months ended September 30, 2020 (8% of our revenue for the ~~Services Agreement~~third quarter of 2020) was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or ~~that a Services Agreement will be entered into on a timely basis or at all.~~the MSR owner selected Altisource as the service provider.

Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions and is subject to pending and threatened legal proceedings, ~~that~~some of which include claims against Ocwen for substantial monetary damages. In addition to monetary damages, various complaints have sought to obtain injunctive relief, consumer redress, refunds, restitution, disgorgement, civil penalties, costs and fees and other relief. Existing or future similar matters could result in, and in some cases, have resulted in, adverse regulatory or other actions against Ocwen. For example, on May 15, 2017, Ocwen disclosed that on April 20, 2017, the CFPB and the State of Florida filed separate complaints in the United States District Court for the Southern District of Florida against Ocwen alleging violations of Federal consumer financial law and, in the case of Florida, Florida statutes. As another example, on May 15, 2017, Ocwen also disclosed that on April 28, 2017, the Commonwealth of Massachusetts filed a lawsuit against Ocwen in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to Ocwen’s servicing business, including lender-placed insurance and property preservation fees. Ocwen disclosed that the complaints seek to obtain permanent injunctive relief, consumer redress, refunds, restitution, disgorgement, damages, civil penalties, costs and fees and other relief. In addition, Ocwen disclosed that a number of states publicly announced or otherwise undertook various administrativePrevious regulatory actions against Ocwen related to alleged violations of applicable laws and regulations related to servicing residential mortgages. Certain of the allegations in the complaints and certain of the state administrative actions assert that Ocwen’s use of certain Altisource services was a contributing factor to Ocwen’s purported violations. Ocwen disclosed that the state administrative actions announced or undertaken purportedly seek sanctions and various injunctive reliefs which may include restrictions on Ocwen obtaining additional mortgage servicing rights, continuing mortgage servicing or debt collection activities, originating or funding loans, initiating foreclosures or other limitations or restrictions on Ocwen’s business operations or licenses in certain of these states. Ocwen announced in several Form 8-K filings that it reached settlements with mortgage and banking regulatory agencies from certain of the states, the District of Columbia and state attorneys general that took regulatory actions against it on April 20, 2017 or shortly thereafter. Ocwen disclosed that, as part of these settlements, Ocwen will not acquire any new residential mortgage servicing rights until April 30, 2018 and will develop a plan of action and milestones regarding its transition from the servicing system it currently uses, REALServicing^®, to an alternative servicing system and will not board any new loans onto the REALServicing system, as well as other key provisions. All of the forgoing matters could result in adverse regulatory or other actions against Ocwen. While not all inclusive, other regulatory actions to date have ~~included subjecting~~subjected Ocwen to independent oversight of its operations and ~~placing~~placed certain restrictions on its ability to acquire servicing rights. In addition ~~in August 2017,~~to the above, Ocwen disclosed in its second quarter 2017 SEC Form 10-Q that it received a letter from Ginnie Mae that the state regulators’ cease and desist orders discussed above create a material change in Ocwen’s business status under Ginnie Mae’s MBS Guide and that Ginnie Maemay become subject to future adverse regulatory or other actions.

Ocwen has ~~accordingly declared an event of default under guaranty agreements between Ginnie Mae and Ocwen. Ocwen further~~ disclosed that NRZ is its largest client. As of June 30, 2020, NRZ MSRs or rights to MSRs relating to approximately 53% of loans serviced and subserviced by Ocwen (measured in UPB). In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the ~~letter it received, Ginnie Mae notified~~parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen ~~that it~~to NRZ of Ocwen’s legal title to the Subject MSRs and under which Ocwen will ~~refrain from immediately exercising any~~subservice mortgage loans underlying the Subject MSRs for an initial term of five years. NRZ can terminate its sub-servicing agreement with Ocwen in exchange for the payment of a termination fee.

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Notes to Condensed Consolidated Financial Statements (Continued)

~~rights relating to this matter for a period~~The existence or outcome of ~~90 days from~~Ocwen regulatory matters or the ~~date~~termination of the ~~letter. In addition,~~NRZ sub-servicing agreement with Ocwen has disclosed that during this period, Ginnie Mae has asked Ocwen to provide certain information regarding the cease and desist orders and certain information regarding Ocwen’s business plan, financials results and operations and Ocwen also stated that it continues to operate as a Ginnie Mae issuer in all respects and continues to participate in Ginnie Mae issuing of mortgaged-backed securities and home equity conversion loan pools in the ordinary course. Ocwen also disclosed that adverse actions by Ginnie Mae could materially and adversely impact Ocwen’s business, including if Ginnie Mae were to terminate Ocwen as an issuer or servicer of Ginnie Mae securities.

Ocwen may become subject to future federal and state regulatory investigations, inquiries, requests for information and legal proceedings, any of which could also result in adverse regulatory or other actions against Ocwen.

~~The foregoing~~ may have significant adverse effects on Ocwen’s business and/or our continuing relationship with Ocwen. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services, ~~(including information technology and software services),~~ it may be required to seek changes to its existing pricing structure with us, it may lose its ~~non-GSE~~non-government-sponsored enterprise (“GSE”) servicing rights or subservicing arrangements or may lose one or more of its state servicing or origination licenses. Additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in Ocwen’s business that could require it to sell assets or change its business operations. Any or all of these effects and others could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers.

IfDuring the second quarter of 2020, Ocwen informed us that an investor had instructed Ocwen to use a field services provider other than Altisource on properties associated with certain MSRs. They indicated that they were instructed to begin the transition in July 2020, and that the transition should be completed in a few months. We believe Ocwen commenced using another field services provider for these properties in July 2020 and continued to transition during the third quarter of 2020. Based upon the impacted portfolios to date and the designated service provider, Altisource believes that Ocwen received these directions from NRZ. The transition to the replacement field service provider has largely been completed as of September 30, 2020. We estimate that $72.3 million and $115.6 million of service revenue from Ocwen for the nine months ended September 30, 2020 and 2019, respectively ($14.1 million and $38.1 million for the third quarter of 2020 and 2019, respectively) was derived from Field Services referrals from the NRZ portfolios. Without providing the timing or specific services impacted, Ocwen also communicated to Altisource that the same investor plans to direct them to transition certain other default related service referrals to other providers. We estimate that revenue from these certain other default related services represented approximately $25.6 million and $34.9 million of service revenue from Ocwen for the nine months ended September 30, 2020 and 2019, respectively ($6.4 million and $12.5 million for the third quarter of 2020 and 2019, respectively). Altisource believes that any action taken by Ocwen to redirect these service referrals breaches Altisource's agreement with Ocwen. We are currently in discussions with Ocwen to address this matter, and have reserved all of our rights with respect to this matter.

To address the reduction in revenue, Altisource has undertaken several measures to further reduce its cost structure and strengthen its operations.

In addition to expected reductions in our revenue from the Field Services referrals transition, if any of the following events occurred, Altisource’s revenue ~~would~~could be further significantly ~~lower~~reduced and our results of operations could be materially adversely affected, including from the possible impairment or write-off of goodwill, intangible assets, property and equipment, other assets and accounts receivable:

•Altisource loses Ocwen as a customer or there is aan additional significant reduction in the volume of services they purchase from us

•Ocwen loses, sells or transfers a significant portion ~~or all~~ of its GSE and Federal Housing Administration servicing rights or subservicing arrangements or remaining non-GSE servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider

•The contractual relationship between Ocwen and NRZ changes significantly and this change results in a change in our status as a provider of services related to the Subject MSRs

•Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio

~~Altisource fails to be retained as a service provider~~

•The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue

~~Additionally, Ocwen has stated, including in connection with resolving several state administrative actions discussed above, that it plans~~•Altisource otherwise fails to ~~transition from REALServicing to another mortgage servicing software platform. We anticipate that such~~be retained as a transition could be a multi-year project and Altisource would support Ocwen through such a transition. We do not anticipate that a servicing technology transition would impact the other services we provide to Ocwen. For the nine months ended September 30, 2017 and 2016, service revenue from REALServicing was $20.1 million and $25.7 million, respectively ($6.7 million and $8.2 million for the third quarter of 2017 and 2016, respectively). We estimate, with respect to income before income tax, that the REALServicing business currently operates at break-even.provider

Management cannot predict ~~the outcome~~whether any of these ~~matters~~events will occur or the amount of any impact they may have on Altisource. However, we are focused on diversifying and growing our revenue and customer base and we have a sales and marketing strategy to support these efforts. Moreover, in the event one or more of these ~~matters~~events materially negatively impact Altisource, we believe the variable nature of our cost structure would allow us to realign our cost structure in line with remaining revenue. Furthermore, in the event of a significant reduction in the volume of services purchased or loans serviced by Ocwen (such as a transfer of Ocwen’s servicing rights to a successor servicer), we believe the impact to Altisource could occur over an extended period of time. During this period, we believe that we will continue to generate revenue from all or a portion of Ocwen’s portfolio.

~~Additionally, our Servicer Solutions, Origination Solutions, Consumer Real Estate Solutions and Real Estate Investor Solutions businesses are focused on diversifying and growing our~~ revenue and ~~customer base and we have a sales and marketing strategy to support these businesses.~~

~~Management believes our plans, together with~~that current liquidity and cash flows from operations would be sufficient to meet our working capital, capital expenditures, debt service and other cash needs. ~~However, there~~There can be no assurance that our plans will be successful or our operations will be profitable.

~~Escrow~~ Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and ~~Trust~~in July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements

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Notes to Condensed Consolidated Financial Statements (Continued)

(collectively “Topic 842”). Topic 842 introduced a new lessee model that brings substantially all leases on the balance sheet. The Company adopted Topic 842 effective January 1, 2019 using the modified retrospective transition approach. In addition, the Company elected the practical expedients permitted under the transition guidance within the new standard, including allowing the Company to carry forward its historical lease classification, using hindsight to determine the lease term for existing leases, combining fixed lease and non-lease components and excluding short-term leases. Adoption of this new standard resulted in the recognition of $42.1 million of right-of-use assets in right-of-use assets under operating leases, $45.5 million of operating lease liabilities ($16.7 million in other current liabilities and $28.8 million in other non-current liabilities) and reduced accrued rent and lease incentives of $3.4 million in accounts payable and accrued expenses and other non-current liabilities on the accompanying condensed consolidated balance sheets.

We lease certain premises and equipment, primarily consisting of office space and information technology equipment. Certain of our leases include options to renew at our discretion or terminate leases early, and these options are considered in our determination of the expected lease term. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. We sublease certain office space to third parties. Sublease income was $1.0 million and $1.3 million for the nine months ended September 30, 2020 and 2019, respectively ($0.3 million and $0.5 million for the third quarter of 2020 and 2019, respectively). The amortization periods of right-of-use assets are generally limited by the expected lease term. Our leases generally have expected lease terms at adoption of one to six years. As of September 30, 2020, we entered into a five year lease for additional office space which has not yet commenced.

Information about our lease terms and our discount rate assumption is as follows:


	As of
	September 30, 2020

Weighted average remaining lease term (in years)	3.30
Weighted average discount rate	7.00	%

Our lease activity during the period is as follows:


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2020		2019		2020		2019

Operating lease costs:
Selling, general and administrative expense	$	2,566	$	1,752	$	7,376	$	8,368
Cost of revenue	479		567		1,748		2,279

Cash used in operating activities for amounts included in the measurement of lease liabilities	$	3,496	$	3,771	$	10,254	$	12,228
Short-term (twelve months or less) lease costs	699		1,539		3,126		3,848

Maturities of our lease liabilities as of September 30, 2020 are as follows:


(in thousands)	Operating lease obligations

2020	$	2,552
2021	8,200
2022	5,718
2023	4,650
2024	2,892
Thereafter	599
Total lease payments	24,611
Less: interest	(2,688)

Present value of lease liabilities	$	21,923

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Escrow Balances

We hold customers’ assets in escrow ~~and trust~~ accounts at various financial institutions pending completion of certain real estate activities. ~~We also hold cash in trust accounts at various financial institutions where contractual obligations mandate maintaining dedicated bank accounts for our collections business.~~ These amounts are held in escrow ~~and trust~~ accounts for limited periods of

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~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

time and are not included in the accompanying condensed consolidated balance sheets. Amounts held in escrow ~~and trust~~ accounts were ~~$39.2~~$38.7 million and ~~$64.1~~$12.3 million atas of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

~~NOTE 21 — 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 used by our Chief Executive Officer (our chief operating decision maker) to evaluate operating performance and to assess the allocation of our resources.

Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization, which changed the way our chief operating decision maker manages our businesses, allocates resources and evaluates performance. We now report our operations through two new reportable segments: ~~Mortgage Market~~ ~~and~~ ~~Real Estate Market. In addition, we report~~ ~~Other Businesses, Corporate and Eliminations~~ ~~separately. Prior to the January 1, 2017 change in reportable segments, our reportable segments were~~ ~~Mortgage Services~~, ~~Financial Services~~ ~~and~~ ~~Technology Services. The former~~ ~~Mortgage Services~~ ~~segment was separated into the~~ ~~Mortgage Market~~ ~~and~~ ~~Real Estate Market~~ ~~segments (as described below). Furthermore, certain of the software services business units that were formerly in the~~ ~~Technology Services~~ ~~segment and the mortgage charge-off collections business that was formerly in the~~ ~~Financial Services~~ ~~segment are now included in the~~ ~~Mortgage Market~~. ~~Other Businesses, Corporate and Eliminations~~ ~~includes the other business that were formerly in the~~ ~~Financial Services~~ ~~segment as well as IT infrastructure management services formerly in the~~ ~~Technology Services~~ ~~segment. Prior year comparable period segment disclosures have been restated to conform to the current year presentation.~~

~~The~~ ~~Mortgage Market~~ ~~segment provides loan servicers and originators with marketplaces and services and a portfolio of software, data analytics and information technologies that span the mortgage lifecycle. The~~ ~~Real Estate Market~~ ~~segment provides rental property investors and real estate consumers with marketplaces, products and services that span the real estate lifecycle. In addition, the~~ ~~Other Businesses, Corporate and Eliminations~~ segment includes businesses that provide asset recovery management collection services primarily to debt originators (e.g., credit card, auto lending and retail credit), customer relationship management services primarily to the utility, insurance and hotel industries and IT infrastructure management services. ~~Other Businesses, Corporate and Eliminations~~ also includes interest expense and costs related to corporate support functions including executive, finance, law, compliance, human resources, vendor management, facilities, risk management, and sales and marketing costs not allocated to the business units as well as eliminations between the reportable segments.

~~Financial information for our segments is as follows:~~

Three months ended September 30, 2017
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue $ 199,262
$ 22,121
$ 13,596
$ 234,979
Cost of revenue 137,466
23,497
13,935
174,898
Gross profit (loss) 61,796
(1,376 ) (339 ) 60,081
Selling, general and administrative expenses 28,006
4,208
14,408
46,622
Income (loss) from operations 33,790
(5,584 ) (14,747 ) 13,459
Total other income (expense), net 26
—
(3,128 ) (3,102 )

Income (loss) before income taxes and
non-controlling interests $ 33,816
$ (5,584 ) $ (17,875 ) $ 10,357

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~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

Three months ended September 30, 2016
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue $ 211,821
$ 21,516
$ 19,408
$ 252,745
Cost of revenue 138,646
16,634
18,722
174,002
Gross profit 73,175
4,882
686
78,743
Selling, general and administrative expenses 29,903
6,961
17,022
53,886
Income (loss) from operations 43,272
(2,079 ) (16,336 ) 24,857
Total other income (expense), net 10
—
(6,071 ) (6,061 )

Income (loss) before income taxes and
non-controlling interests $ 43,282
$ (2,079 ) $ (22,407 ) $ 18,796

Nine months ended September 30, 2017
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue $ 614,180
$ 67,314
$ 44,653
$ 726,147
Cost of revenue 421,942
72,484
43,818
538,244
Gross profit (loss) 192,238
(5,170 ) 835
187,903
Selling, general and administrative expenses 86,493
14,084
46,216
146,793
Income (loss) from operations 105,745
(19,254 ) (45,381 ) 41,110
Total other income (expense), net 138
—
(8,985 ) (8,847 )

Income (loss) before income taxes and
non-controlling interests $ 105,883
$ (19,254 ) $ (54,366 ) $ 32,263

Nine months ended September 30, 2016
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue $ 626,522
$ 70,229
$ 61,925
$ 758,676
Cost of revenue 408,412
47,946
60,878
517,236
Gross profit 218,110
22,283
1,047
241,440
Selling, general and administrative expenses 90,498
18,755
52,456
161,709
Income (loss) from operations 127,612
3,528
(51,409 ) 79,731
Total other income (expense), net 144
—
(16,017 ) (15,873 )

Income (loss) before income taxes and
non-controlling interests $ 127,756
$ 3,528
$ (67,426 ) $ 63,858

(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Total assets:

September 30, 2017 $ 311,423
$ 63,067
$ 221,911
$ 596,401
December 31, 2016 347,067
47,863
294,282
689,212

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~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

~~Our services are primarily provided to customers located in the United States. Premises and equipment, net consist of the following, by country:~~

(in thousands) September 30,
2017 December 31,
2016

United States $ 51,900
$ 71,418
India 9,657
14,006
Luxembourg 17,117
14,791
Philippines 1,981
3,027
Uruguay 168
231

Total $ 80,823
$ 103,473

~~NOTE 22 — SUBSEQUENT EVENT~~

As discussed in Note 20, as a result of continuing good faith negotiations on a Services Agreement, effective as of October 23, 2017, the Company and NRZ amended the LOI to extend the term of the LOI and Standstill Period to November 30, 2017. This term will be automatically extended until January 12, 2018 if the parties are still negotiating the terms of the Services Agreement in good faith as of November 30, 2017. The parties continue to work toward executing a Services Agreement.

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

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is a supplement to the accompanying interim condensed consolidated financial statements and is intended to provide a reader of our financial statements with a narrative from the perspective of management on our businesses, current developments, financial condition, results of operations and liquidity. Our MD&A should be read in conjunction with our Form 10-K for the year ended December 31, ~~2016~~2019 filed with the Securities and Exchange Commission (“SEC”) on ~~February 16, 2017.~~March 5, 2020.

FORWARD-LOOKING STATEMENTS

~~Certain statements in this~~This Form 10-Q ~~regarding anticipated financial outcomes, business and market conditions, outlook and other similar~~contains forward-looking statements ~~related to Altisource’s future financial and operational performance are “forward-looking statements” made pursuant to~~within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These ~~forward-looking~~ statements may ~~be identified by the use of terminology~~relate to, among other things, future events or our future performance or financial condition. Words such as “anticipate,” “intend,” “expect,” “may,” “could,” “should,” “would,” “plan,” “estimate,” “believe,” “predict,” “potential” or “continue” or the negative of these terms and other comparable ~~terminology. Forward-looking~~terminology are intended to identify such forward-looking statements. Such statements are based on expectations as to the future and are not statements of historical fact. Furthermore, 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. The following are examples of such items and are not intended to be all inclusive:

•assumptions related to ~~the~~ sources of liquidity and the adequacy of financial resources;

•assumptions about our ability to grow our business, including executing on our strategic initiatives;

•assumptions about our ability to improve ~~margins;~~margins and affect anticipated expense reductions as a result of Project Catalyst and otherwise in response to lower revenues due to COVID-19, the transfer of certain Field Services referrals to another service provider discussed below, or other factors;

•assumptions about the variable nature of our cost structure that would allow us to realign our cost structure in line with revenue;

•assumptions regarding the impact of seasonality;

•assumptions regarding the impacts of the COVID-19 pandemic and the timeliness and effectiveness of actions taken in response thereto;

•estimates regarding our effective tax rate; and

•estimates regarding our reserves and valuations.

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”~~Risk Factors in Part II, Item 1A of ~~this~~the Form 10-Q for the quarterly period ended March 31, 2020 and the ~~“Risk Factors”~~ Risk Factors section of our Form 10-K for the year ended December 31, ~~2016 and include the following:~~2019 including:

~~if, as a result of difficulties faced by~~•our ability to retain Ocwen Financial Corporation ~~(“Ocwen”~~(together with its subsidiaries, “Ocwen”)~~, we were to lose Ocwen~~ as a customer or ~~there is a significant reduction in~~our ability to receive the anticipated volume of ~~services they purchase~~referrals from ~~us;~~Ocwen;

~~if we are unable~~•our ability to ~~reach agreement with~~retain New Residential Investment Corp. (individually, together with one or more of its subsidiaries, or one or more of its subsidiaries individually, “NRZ”) onas a ~~Services Agreement~~customer or our ability to receive the anticipated volume of referrals from NRZ;

•our ability to comply with material agreements if a change of control is deemed to have occurred including, among other things, through the ~~Collective Brokerage Agreement and related letter agreement are terminated;~~formation of a shareholder group, which may cause a termination event or event of default under certain of our agreements;

•our ability to execute on our strategic ~~initiatives;~~plan;

•our ability to retain our existing customers, expand relationships and attract new customers;

~~the level of loan delinquencies and charge-offs;~~

~~the level of origination volume;~~

~~technology failures;~~

~~the outsourcing trends;~~

~~our ability to raise debt;~~

~~our ability to retain our directors, executive officers and key personnel;~~

~~our ability to integrate acquired businesses;~~

•our ability to comply with ~~and burdens imposed by,~~ governmental regulations and policies and any changes in such regulations and policies;

•the level of loan delinquencies and charge-offs;

•the level of origination volume;

•technology incidents, data breaches and cybersecurity risks;

•significant changes in tax regulations and interpretations in the ~~Luxembourg tax regime~~countries, states and local jurisdictions in which we operate; and

•the risks and uncertainties related to pandemics, epidemics or ~~interpretations~~other force majeure events, including the COVID-19 pandemic, and associated impacts on the economy, supply chain, transportation, movement of ~~the Luxembourg tax regime.~~people, availability of vendors and demand for our products or services as well as increased costs, recommendations or restrictions imposed

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by governmental entities, changes in relevant business practices undertaken or imposed by our clients, vendors or regulators, impacts on contracts and client relationships and potential litigation exposure.

We caution ~~you~~the reader not to place undue reliance on these forward-looking statements as they 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 any change in events, conditions or circumstances on which any such statement is based.

OVERVIEW

Our Business

When we refer to “Altisource,” the “Company,” “we,” “us” or “our” we mean Altisource Portfolio Solutions S.A., a Luxembourg société anonyme, or public limited liability company, and its subsidiaries.

We are an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing ~~market.~~markets we serve.

~~Mortgage Market:~~ ~~Provides~~provide loan servicers and originators with marketplaces, services and technologies that span the residential mortgage lifecycle. ~~Within the Mortgage Market segment, we provide:~~

~~Servicer Solutions~~ ~~- the solutions, services and technologies typically used or licensed primarily by residential loan servicers.~~



	~~• Property preservation and inspection services~~		~~• Residential and commercial loan servicing technologies~~
	~~• Real estate brokerage and auction services~~		~~• Vendor management, marketplace transaction management and payment management platforms~~
	~~• Title insurance (agent and related services) and settlement services~~
			~~• Document management platform~~
	~~• Appraisal management services and broker and non-broker valuation services~~		~~• Default services (real estate owned (“REO”), foreclosure, bankruptcy, eviction) technologies~~

	~~• Foreclosure trustee services~~		~~• Mortgage charge-off collections~~
	~~• Non-legal processing and related services for and under the supervision of foreclosure, bankruptcy and eviction attorneys~~		~~• Residential and commercial loan disbursement processing, risk mitigation and construction inspection services~~

~~Origination Solutions~~ ~~- the solutions, services and technologies typically used or licensed by loan originators (or other similar mortgage market participants) in originating and buying residential mortgages.~~



~~• Title insurance (agent and related services) and settlement services~~		~~• Certified loan insurance and certification~~
		~~• Vendor management oversight platform~~
~~• Appraisal management services and broker and non-broker valuation services~~		~~• Mortgage banker cooperative, Best Partners Mortgage Cooperative, Inc., doing business as Lenders One~~^® ~~(“Lenders One”)~~
~~• Fulfillment services~~
~~• Loan origination system~~		~~• Mortgage trading platform~~
~~• Document management platform~~

~~Real Estate Market:~~ ~~Provides~~We provide real estate consumers ~~and rental property investors~~ with marketplaces and services that span the residential real estate lifecycle. ~~Within the~~

Our principal revenue generating activities are as follows:

Core Businesses

Field Services

•Property preservation and inspection services and marketplace transaction management, payment management and vendor management oversight software-as-a-service (“SaaS”) technologies

Marketplace

•Hubzu® online real estate auction platform, real estate auction, real estate brokerage and asset management

•Equator®, a SaaS-based technology to manage real estate owned (“REO”), short sales, foreclosure, bankruptcy and eviction processes

Mortgage and Real Estate ~~Market segment, we provide:~~Solutions

~~Consumer Real Estate Solutions~~ ~~- the solutions,~~•Mortgage loan fulfillment, certification and certification insurance services and technologies ~~typically used by home buyers~~

•Title insurance (as an agent), settlement and ~~sellers~~valuation services

•Residential and commercial construction inspection and risk mitigation services

•Management of the Best Partners Mortgage Cooperative, Inc., doing business as Lenders One® (“Lenders One”), mortgage banking cooperative

•Foreclosure trustee services

•Business services to ~~handle key aspects of buying and selling a home.~~assist financial institutions with mortgage-related calls from homeowners



~~• Real estate brokerage~~		~~• Mortgage brokerage~~
~~• Title insurance (agent and related services) and settlement services~~		~~• Homeowners insurance~~

~~Real Estate Investor Solutions~~ ~~- the solutions, services and technologies used by buyers and sellers of single-family investment homes.~~



	~~• Property preservation and inspection services~~		~~• Buy-renovate-sell~~
	~~• Real estate brokerage and auction services~~		~~• Renovation services~~
	~~• Data solutions~~		~~• Property management services~~
	~~• Title insurance (agent and related services) and settlement services~~		~~• Appraisal management services and broker and non-broker valuation services~~

Other Businesses ~~Corporate and Eliminations: Our~~

Earlier Stage Business

•Pointillist® customer journey analytics platform

Other ~~Businesses, Corporate and Eliminations~~ ~~segment includes certain non-core businesses, interest expense and costs related to corporate support functions. The businesses in this segment include~~

•Commercial loan servicing technology

•Financial Services business including post-charge-off consumer debt, mortgage charge-off collection services and customer relationship management services (sold on July 1, 2019)

•Buy-Renovate-Lease-Sell (“BRS”) business (wound down in 2019)

•Residential loan servicing technologies, document management platform and information technology (“IT”) infrastructure management ~~services. Interest expense relates~~services (wound down in 2019 following Ocwen’s transition to another servicing platform)

•Owners.com® technology-enabled real estate brokerage and provider of related mortgage brokerage and title services (discontinued in the Company’s senior secured term loan and corporate support functions include executive, finance, law, compliance, human resources, vendor management, facilities, risk management and sales and marketing costs not allocated to the business units. This segment also includes eliminationsfourth quarter of ~~transactions between the reportable segments.~~2019)

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We classify revenue in three categories: service revenue, revenue from reimbursable expenses and non-controlling interests. In evaluating our performance, we focus on service revenue. Service revenue consists of amounts attributable to our fee-based ~~services~~services. During the three and nine months ended September 30, 2019, service revenue included sales of short-term investments in real estate. Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup. Non-controlling interests represent the earnings of Lenders One. Lenders One is a mortgage cooperative managed, but not owned, by ~~Altisource and is~~Altisource. The Lenders One members’ earnings are included in revenue and reduced from net income to arrive at net income attributable to Altisource.

Strategy and Core Businesses

We are focused on becoming the premier provider of mortgage and real estate marketplaces and related services to a broad and diversified customer base of residential loan investors and servicers, and originators. The real estate and mortgage marketplaces represent very large markets, and we believe our scale and suite of offerings provide us with competitive advantages that could support our growth.

Through our offerings that support residential loan investors and servicers, we provide a suite of services and technologies intended to meet their growing and evolving needs. We are focused on growing referrals from our existing customer base and attracting new customers to our offerings. We have a customer base that includes government-sponsored enterprises (“GSEs”), asset managers, and several large bank and non-bank servicers including Ocwen and NRZ. We believe we are one of only a few providers with a broad suite of servicer solutions, nationwide coverage and scalability. Further, we believe we are well positioned to gain market share from existing and new customers in the event delinquency rates rise, or customers and prospects consolidate to larger, full-service providers or outsource services that have historically been performed in-house.

We also provide services to loan originators (or other similar mortgage market participants) in originating, buying and selling residential mortgages. We provide a suite of services and technologies to meet the evolving and growing needs of lenders, mortgage purchasers and securitizers. We are focused on growing referrals from our existing customer base and attracting new customers to our offerings. We have a customer base that includes the Lenders One cooperative mortgage bankers and mid-size and larger bank and non-bank loan originators. We believe our suite of services, technologies and unique access to the members of the Lenders One mortgage cooperative position us to grow our relationships with our existing customer base by providing additional products, services and solutions to these customers. Further, we believe we are well positioned to gain market share from existing and new customers in the event origination volumes rise, or customers and prospects consolidate to larger, full-service providers or outsource services that have historically been performed in-house.

Our earlier stage business consists of Pointillist, Inc. (“Pointillist”). The Pointillist business was developed by Altisource through our consumer analytics capabilities. We believe the Pointillist business is a potentially disruptive SaaS-based platform which provides unique customer journey analytics at scale and enables customers to engage through our intelligent platform. During 2019, we created Pointillist as a separate legal entity to position it for accelerated growth and outside investment and contributed the Pointillist business and $8.5 million to it. Pointillist is owned by Altisource and management of Pointillist. Management of Pointillist owns a non-controlling interest representing 12.1% of the outstanding equity of Pointillist. Additional equity shares of Pointillist are available for issuance to management and board members of Pointillist. Altisource has an option, but no ongoing obligation, to participate in future funding of Pointillist.

We previously reported the results of Owners.com as an earlier stage business. In October 2019, the Company announced its plans to wind down and close the Owners.com business, which was completed by December 31, 2019.

COVID-19 Pandemic Impacts

The COVID-19 pandemic continues to have an unprecedented impact on human life and the economy, including the real estate, mortgage and servicing industries in which we operate. Our financial performance in our default related services businesses during the nine months ended September 30, 2020 was negatively impacted by COVID-19 related governmental restrictions on services that could be performed and travel (i.e., only essential services and travel), restrictions on governmental services available (e.g., title offices closed), governmental and, in some instances, servicer measures to provide financial support to borrowers, including eviction moratoriums and forbearance programs, and changing vendor and consumer behavior. This impact was partially offset by stronger performance from our origination related businesses that benefited from lower interest rates throughout most of the nine months ended September 30, 2020 and the strengthening of the housing market during the third quarter 2020. We anticipate the COVID-19 circumstances will continue to have a negative impact on our default related services businesses. We further anticipate that the duration and quantum of this impact will be influenced by economic, regulatory and other factors that influence mortgage delinquency and foreclosure rates, evictions and the market for sales of one

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to four family homes. As long as these factors persist, we anticipate continued negative impact on our default related services businesses.

As a result of COVID-19, during portions of the nine months ended September 30, 2020 at differing times, certain jurisdictions in the United States have operated under certain social distancing restrictions, and restrictions on travel and commerce. The government and, in some instances, servicers have provided various forms of borrower assistance, including forbearance programs and foreclosure and eviction moratoriums. Despite government assistance programs, there has been a significant negative impact on United States employment, with a September 2020 unemployment rate of 7.9% according to the Bureau of Labor Statistics. These factors, together with the general economic impact of the pandemic, have led to a disruption in the real estate, mortgage and servicing markets. While we cannot predict the duration of the pandemic and future governmental measures that may continue to reduce foreclosure initiations and sales, we believe the short- to medium-term revenue impact to Altisource will largely be driven by significantly reduced foreclosure sales, significantly reduced inflow of REO, and the depletion of our REO inventory from REO sales. As a result of foreclosure and eviction moratoriums, forbearance plans and other borrower relief actions, along with social distancing restrictions, we anticipate that foreclosure, eviction and REO referrals will be substantially lower. Data from a recent Black Knight report shows that foreclosure initiations were 83% lower for April 2020 through August 2020 compared to the same period in 2019 despite the 87% growth in the number of non-current mortgages in August 2020 compared to August 2019. As long as these factors persist, we anticipate a continued negative impact on our Equator, title, foreclosure trustee, valuation, field services and REO businesses.

In addition, governmental restrictions on movement and the provision of certain services, social distancing requirements, the closure of or reduced services provided by certain governmental offices, vendors’ refusals or inability to provide certain services in certain jurisdictions and limitations on the availability of supplies continued to negatively impact our Field Services business in the third quarter. Governmental restrictions and designations of essential services are subject to interpretation and continue to evolve, negatively impacting the ability and willingness of our vendors in applicable jurisdictions to perform services and limiting services that we are able to provide to our customers, negatively impacting our Field Services businesses. Limited availability of supplies has also restricted the amount of services that we can provide, and in some cases, has increased the costs that we pay for these services. Some of our vendors have also refused to perform services that may involve contact with the public further limiting the services that we are capable of providing to customers. As long as these factors persist, we anticipate continued negative impact to our Field Services business.

At the same time, our originations businesses benefitted from the decline in mortgage interest rates and the growing refinance market. To the extent these factors continue, we anticipate stronger than planned growth in our origination related services. This potential growth could be limited, however, by the government’s and GSEs’ willingness, and purchase price, to acquire loans in forbearance, higher unemployment rates and economic deterioration.

We continue to experience declining default related referrals from foreclosure and eviction moratoriums and forbearance plans. To address this challenging environment, we implemented cost reduction measures in the second quarter of 2020, and as a result, we have been able to reduce the anticipated cash burn and maintain a strong cash position ending the quarter with $97.2 million in cash, cash equivalents and marketable equity securities.

Altisource is attempting to adapt to the evolving situation, including by:

•Taking steps designed to maintain the health and safety of our employees

•Adjusting operations to mitigate the impact to our customers and business while complying with governmental orders

•Addressing our cost structure and preserving liquidity to prepare for what could be a period of lower revenue than planned

During March 2020, we began implementing our business continuity plans and enabling remote work capabilities across the organization. Altisource has transitioned the majority of its global workforce to work remotely. We have largely been able to maintain our productivity, despite this shift to remote work arrangements. We have implemented heightened hygiene protocols to help safeguard the health of the small number of employees who continue to perform critical functions from certain facilities that cannot be performed remotely.

We adjusted our operations in response to the current environment. In addition to the cost reduction measures described below, we sought to retain and deploy otherwise underutilized employees to increase the capacity of our originations businesses. Our customer relationship management, sales and operations teams are in regular contact with our customers concerning changing circumstances and impacts on services and performance levels. We are seeking to work with our customers to adjust services and operations to address the COVID-19 business related challenges and opportunities.

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We are also preparing Altisource for what could be an extended period of lower revenue than planned from the near-term economic effects of COVID-19 and the governmental response to it. The Company has $67.0 million in cash and equivalents as of September 30, 2020. Our liquidity position has been further enhanced by our debt reduction efforts over the last several years. The current outstanding balance on our senior secured term loan is $293.8 million.

We have and continue to seek to address our cost structure. In addition to undertaking cost reduction activities planned prior to the COVID-19 pandemic, we took several additional measures to further reduce our 2020 cash expenses as a result of COVID-19 and reductions in referrals from Ocwen (see Ocwen Related Matters below), including employee furloughs and terminations, the elimination of certain discretionary spending and temporary employee and Board compensation reductions (the temporary reductions were largely restored in October 2020). Altisource estimates that the cost reduction measures undertaken since April 2020 will reduce 2020 expenses by approximately $65 million - $75 million compared to the fourth quarter 2019 annual run rate expenses excluding (1) outside fees and services that generally decline proportionately with a decline in service referrals, (2) reimbursable expenses which are the costs associated with reimbursable revenue, (3) depreciation and amortization and (4) amortization of intangible assets. Based upon our revenue and working capital forecasts, and the successful implementation of our planned cash expense reductions, we anticipate that we can adequately support the cash needs of the business largely from the results of operations and cash on hand.

We are also positioning our businesses to be able to respond to what we believe will be strong medium- to longer-term demand for our default related services from anticipated growth in loan delinquencies. Increasing delinquencies have the potential to result in an increase in demand for our default related services businesses, including an increase in demand for inspection and preservation services, real estate auction and brokerage services, foreclosure trustee services, valuation services, and title and settlement services. We also anticipate that the current unprecedented level of foreclosure, eviction and other mortgage borrower relief will likely subside and, if unemployment rates remain elevated, delinquency levels are likely to be higher than they were before the COVID-19 pandemic began. Given the countercyclical nature of several of our businesses, we believe Altisource has the potential to benefit from such an environment.

Share Repurchase Program

On May ~~17, 2017,~~15, 2018, our shareholders approved the renewal and replacement of the share repurchase program previously approved by the shareholders on May ~~18, 2016, which replaced the previous share repurchase program.~~17, 2017. Under the program, we are authorized to purchase up to ~~4.6~~4.3 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval, at a minimum price of $1.00 per share and a maximum price of $500.00 per share, for a period of five years from the date of approval. Under the existing and prior programs, we purchased 1.1 million shares of common stock at an average price of $22.48 per share during the nine months ended September 30, 2017 and 1.3 million shares at an average price of $26.94 per share during the nine months ended September 30, 2016 (0.3 million shares at an average price of $23.48 per share for the third quarter of 2017 and 0.5 million shares at an average price of $28.68 per share for the third quarter of 2016). As of September 30, ~~2017,~~2020, approximately ~~3.9~~2.4 million shares of common stock remain available for repurchase under the program. There were no purchases of shares of common stock during the nine months ended September 30, 2020. We purchased 0.6 million shares of common stock at an average price of $21.03 per share during the nine months ended September 30, 2019 (0.3 million shares at an average price of $20.24 per share for the third quarter of 2019). Luxembourg law limits share repurchases to the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings, less the value of shares repurchased. As of September 30, 2020, we can repurchase up to approximately $93 million of our common stock under Luxembourg law. Our ~~senior secured term loan~~Credit Agreement also limits the amount we can spend on share repurchases, which limit was approximately ~~$403~~$448 million as of September 30, ~~2017,~~2020, and may prevent repurchases in certain ~~circumstances.~~

~~Strategy and Growth Businesses~~

~~We are focused on becoming one~~circumstances, including if our leverage ratio exceeds 3.50 to 1.00. Our leverage ratio exceeded 3.50 to 1.00 during the third quarter of the premier providers of mortgage and real estate marketplaces and related services to a broad and diversified customer base while continuing to strengthen our compliance management system. Within the mortgage and real estate market segments, we facilitate transactions and provide products, solutions and services related to home sales, home purchases, home rentals, home maintenance, mortgage origination and mortgage servicing.

Each of our strategic businesses provides Altisource the potential to grow and diversify our customer and revenue base. We believe these businesses operate in very large markets and directly leverage our core competencies and distinct competitive advantages. A further description of our four strategic businesses follows.

~~Servicer Solutions:~~

Through this business, we provide a suite of services and technologies to meet the evolving and growing needs of loan servicers. We are focused on growing referrals from our existing customer base, expanding the service and proprietary technology offerings to our customer base, and attracting new customers to our offerings. We have a customer base that includes Ocwen, a government-sponsored enterprise (“GSE”), NRZ, several top ten bank servicers and non-bank servicers and asset managers. Even as loan delinquencies return to historical norms, we believe there is a very large addressable market for our offerings. We believe we are one of only a few providers with a broad suite of servicer solutions, nationwide coverage and demonstrated scalability. Further,

we believe we are well positioned to gain market share as existing customers and prospects consolidate to larger, full-service providers and outsource services that have historically been performed in-house.

~~Origination Solutions:~~

Through this business, we provide a suite of services and technologies to meet the evolving and growing needs of loan originators and correspondents. We are focused on growing referrals from our existing customer base, expanding the service and proprietary technology offerings to our customer base, and attracting new customers to our offerings. We have a customer base that includes the Lenders One cooperative mortgage bankers, the Mortgage Builder loan origination system customers and mid-size and larger bank and non-bank loan originators. We believe our suite of services and technologies positions us to grow our relationships with our existing customer base by providing additional products, services and solutions to these customers. Further, we believe we are well positioned to attract new customers as prospects consolidate to larger, full-service providers and outsource services that have historically been performed in-house.

~~Consumer Real Estate Solutions:~~

Through this business, we provide a technology enabled real estate brokerage and related services that handle key aspects of buying and selling a home. We are focused on developing this business by capitalizing on our core competencies in realty services and online real estate marketing and offering consumers right-sized commission structures, smart digital tools and personalized service from local real estate agents.

~~Real Estate Investor Solutions:~~

Through this business, we provide a suite of services and technologies to support buyers and sellers of single-family investment homes. We are focused on growing referrals from our existing customer base, expanding the service and proprietary technology offerings to our customer base, and attracting new customers to our offerings. We have a customer base that includes Altisource Residential Corporation (“RESI”) and other institutional and smaller single-family rental investors. The single-family rental market is large, geographically distributed and has fragmented ownership. We believe our acquisition, renovation, property management, leasing and disposition platform provides a strong value proposition for institutional and retail investors and positions us well for growth.

~~There can be no assurance that growth from our strategic businesses will be successful or our operations will be profitable.~~2020.

Ocwen Related Matters

~~Revenue from~~During the nine months ended September 30, 2020, Ocwen ~~represented 58%~~was our largest customer, accounting for 57% of our total revenue for the nine months ended September 30, 2020 (48% of our revenue for the third quarter of 2020). Additionally, 7% of our revenue for the nine months ended September 30, ~~2017 (58%~~2020 (8% of our revenue for the third quarter of ~~2017). Additionally, 16% of our revenue for the nine months ended September 30, 2017 (15% of our revenue for the third quarter of 2017)~~2020) was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or ~~NRZ~~the mortgage servicing rights (“MSRs”) owner selected Altisource as the service provider.

Ocwen disclosed that, on July 23, 2017, it entered into a master agreement and a transfer agreement with NRZ to undertake certain actions to facilitate the transfer of Ocwen’s remaining interests in approximately $110 billion in unpaid principal balance (as of June 30, 2017) of its non-government-sponsored enterprise (“non-GSE”) mortgage servicing rights (the “Subject MSRs”) to NRZ. As of June 30, 2017, the Subject MSRs represented approximately 78% of Ocwen’s non-GSE MSRs. In the event the required third party consents are not obtained by July 23, 2018 or an earlier date agreed to by Ocwen and NRZ, the applicable Subject MSRs may (i) become subject to a new agreement to be negotiated between Ocwen and NRZ, (ii) be acquired by Ocwen, or, if Ocwen does not desire or is otherwise unable to purchase, sold to one or more third parties, or (iii) remain subject to their existing agreements. Ocwen also disclosed that it entered into a five year subservicing agreement with NRZ pursuant to which Ocwen will subservice the mortgage loans related to the Subject MSRs that are transferred to NRZ. In addition, Ocwen disclosed that during the five year subservicing agreement term, NRZ may terminate the subservicing agreement for convenience, subject to Ocwen’s right to receive a termination fee and proper notice.

As disclosed in our report on Form 8-K filed on August 28, 2017, REALHome Services and Solutions, Inc. and REALHome Services and Solutions - CT, Inc. (collectively, “RHSS”), two licensed real estate brokerage subsidiaries of the Company, entered into a Cooperative Brokerage Agreement (the “Brokerage Agreement”) with a licensed real estate brokerage subsidiary of NRZ pursuant to which RHSS will be the exclusive provider, irrespective of the subservicer, of real estate brokerage services for portfolios associated with Subject MSRs that are transferred to NRZ (the “Ocwen Transferred Portfolio”) and with respect to approximately $6 billion of non-Ocwen serviced non-GSE portfolios. NRZ’s brokerage subsidiary will receive a cooperative brokerage commission on the sale of certain REO properties from these portfolios. In addition, Altisource and RHSS entered into a letter agreement with NRZ which provides for NRZ to directly appoint RHSS (or another real estate brokerage subsidiary designated by Altisource) to perform the real estate brokerage services with respect to REO properties in the Ocwen Portfolio, subject to

certain specified exceptions, in the event that NRZ’s brokerage subsidiary does not refer real estate listings from the Ocwen Portfolio to RHSS. In this case, the designated Altisource brokerage subsidiary would retain the full seller’s brokerage commission. The Brokerage Agreement and the letter agreement are effective through August 31, 2025 unless earlier terminated in accordance with their respective terms. Contemporaneously with the execution of the Brokerage Agreement, Altisource Solutions S.à r.l. executed a non-binding letter of intent (“LOI”) with NRZ to enter into a Services Agreement, setting forth the terms pursuant to which Altisource Solutions S.à r.l. would remain the exclusive service provider of fee-based services on the Ocwen Transferred Portfolio through August 2025, irrespective of the subservicer. The LOI provides for the parties to negotiate in good faith toward the execution of a Services Agreement within 30 days from the date of the LOI. This term was automatically extended by a further 30 days by the parties, pursuant to the terms of the LOI, as the parties continued to negotiate in good faith toward the completion and execution of a Services Agreement (such period, including as extended, the “Standstill Period”). Furthermore, as a result of continuing good faith negotiations on a Services Agreement, effective as of October 23, 2017, the parties amended the LOI to extend the term of the LOI and Standstill Period to November 30, 2017. This term will be automatically extended until January 12, 2018 if the parties are still negotiating the terms of the Services Agreement in good faith as of November 30, 2017. Pursuant to the LOI, the parties intend to negotiate all of the definitive and binding terms of the Services Agreement. RHSS has the right to terminate the Brokerage Agreement upon 90 days’ notice (which period may be shortened by NRZ) if a services agreement is not signed between Altisource and NRZ during the Standstill Period. The Brokerage Agreement may otherwise only be terminated upon the occurrence of certain specified events. NRZ has agreed that, during such notice period and/or the Standstill Period, it will not replace or reduce the role of Altisource as a service provider with respect to the Ocwen Transferred Portfolio.

Following the execution of the Services Agreement and the transfer of the Subject MSRs from Ocwen to NRZ, we anticipate that revenue from NRZ would increase and revenue from Ocwen would decrease. As mortgage servicing rights (“MSRs”) continue to transfer from Ocwen to NRZ, we anticipate that NRZ will become our largest customer. Had NRZ acquired all of the Subject MSRs and our agreements with NRZ were in place as of the beginning of the year, we estimate that approximately 50% of our revenue would have been related to NRZ. There can be no assurance that the parties will reach an agreement with respect to the terms of the Services Agreement or that a Services Agreement will be entered into on a timely basis or at all.

Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions and is subject to pending and threatened legal proceedings, ~~that~~some of which include claims against Ocwen for substantial monetary damages. In addition to monetary damages, various complaints have sought to obtain injunctive relief, consumer redress, refunds, restitution, disgorgement, civil penalties, costs and fees and other relief. Existing or future similar matters could result in, and in some cases, have resulted in, adverse regulatory or other actions against Ocwen. For example, on May 15, 2017, Ocwen disclosed that on April 20, 2017, the Consumer Financial Protection Bureau (“CFPB”) and the State of Florida filed separate complaints in the United States District Court for the Southern District of Florida against Ocwen alleging violations of Federal consumer financial law and, in the case of Florida, Florida statutes. As another example, on May 15, 2017, Ocwen also disclosed that on April 28, 2017, the Commonwealth of Massachusetts filed a lawsuit against Ocwen in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to Ocwen’s servicing business, including lender-placed insurance and property preservation fees. Ocwen disclosed that the complaints seek to obtain permanent injunctive relief, consumer redress, refunds, restitution, disgorgement, damages, civil penalties, costs and fees and other relief. In addition, Ocwen disclosed that a number of states publicly announced or otherwise undertook various administrativePrevious regulatory actions against Ocwen related to alleged violations of applicable laws and regulations related to servicing residential mortgages. Certain of the allegations in the complaints and certain of the state administrative actions assert that Ocwen’s use of certain Altisource services was a contributing factor to Ocwen’s purported violations. Ocwen disclosed that the state administrative actions announced or undertaken purportedly seek sanctions and various injunctive reliefs which may include restrictions on Ocwen obtaining additional mortgage servicing rights, continuing mortgage servicing or debt collection activities, originating or funding loans, initiating foreclosures or other limitations or restrictions on Ocwen’s business operations or licenses in certain of these states. Ocwen announced in several Form 8-K filings that it reached settlements with mortgage and banking regulatory agencies from certain of the states, the District of Columbia and state attorneys general that took regulatory actions against it on April 20, 2017 or shortly thereafter. Ocwen disclosed that, as part of these settlements, Ocwen will not acquire any new residential mortgage servicing rights until April 30, 2018 and will develop a plan of action and milestones regarding its transition from the servicing system it currently uses, REALServicing^®, to an alternative servicing system and will not board any new loans onto the REALServicing system, as well as other key provisions. All of the forgoing matters could result in adverse regulatory or other actions against Ocwen. While not all inclusive, other regulatory actions to date have ~~included subjecting~~subjected Ocwen to independent oversight of its operations and ~~placing~~placed certain restrictions on its ability to acquire servicing rights. In addition ~~in August 2017, Ocwen disclosed in its second quarter 2017 SEC Form 10-Q that it received a letter from Ginnie Mae that~~to the ~~state regulators’ cease and desist orders discussed~~ above, create a material change in Ocwen’s business status under Ginnie Mae’s MBS Guide and that Ginnie Mae has accordingly declared an event of default under guaranty agreements between Ginnie Mae and Ocwen. Ocwen further disclosed that in the letter it received, Ginnie Mae notified Ocwen that it will refrain from immediately exercising any rights relating to this matter for a period of 90 days from the date of the letter. In addition, Ocwen has disclosed that during this period, Ginnie Mae has asked Ocwen to provide certain information regarding the cease and desist orders and certain information regarding Ocwen’s business plan, financial results and operations and Ocwen also stated that it continues to

operate as a Ginnie Mae issuer in all respects and continues to participate in Ginnie Mae issuing of mortgage-backed securities and home equity conversion loan pools in the ordinary course. Ocwen also disclosed that adverse actions by Ginnie Mae could materially and adversely impact Ocwen’s business, including if Ginnie Mae were to terminate Ocwen as an issuer or servicer of Ginnie Mae securities.

Ocwen may become subject to future ~~federal and state regulatory investigations, inquiries, requests for information and legal proceedings, any of which could also result in~~ adverse regulatory or other actions.

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Ocwen has disclosed that NRZ is its largest client. As of June 30, 2020, NRZ MSRs or rights to MSRs relating to approximately 53% of loans serviced and subserviced by Ocwen (measured in unpaid principal balance). In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions ~~against Ocwen.~~to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to certain of its MSRs (the “Subject MSRs”) and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years. NRZ can terminate its sub-servicing agreement with Ocwen in exchange for the payment of a termination fee.

The ~~foregoing~~existence or outcome of Ocwen regulatory matters or the termination of the NRZ sub-servicing agreement with Ocwen may have significant adverse effects on Ocwen’s business and/or our continuing relationship with Ocwen. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services, ~~(including information technology and software services),~~ it may be required to seek changes to its existing pricing structure with us, it may lose its non-GSE servicing rights or subservicing arrangements or may lose one or more of its state servicing or origination licenses. Additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in Ocwen’s business that could require it to sell assets or change its business operations. Any or all of these effects and others could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers.

To address the reduction in revenue, Altisource has undertaken several measures to further reduce its cost structure and strengthen its operations.

•Altisource loses Ocwen as a customer or there is aan additional significant reduction in the volume of services they purchase from us

•The contractual relationship between Ocwen and NRZ changes significantly and this change results in a change in our status as a provider of services related to the Subject MSRs

•Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio

~~Altisource fails to be retained as a service provider~~

•The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue

~~Management believes our plans, together with~~that current liquidity and cash flows from operations would be sufficient to meet our working capital, capital expenditures,

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debt service and other cash needs. ~~However, there~~There can be no assurance that our plans will be successful or our operations will be profitable.

Factors Affecting Comparability

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

•The ~~average number of loans serviced~~Company’s financial performance for the three and nine months ended September 30, 2020 in its default related services businesses was negatively impacted by COVID-19 related governmental restrictions and changing vendor and consumer behavior. This impact was partially offset by stronger performance from the Company’s origination related businesses that benefited from lower interest rates for the three and nine months ended September 30, 2020. Across the Company’s three core businesses, service revenue from customers other than Ocwen, ~~on REALServicing (including those MSRs owned by~~ NRZ and ~~subserviced~~Front Yard Residential Corporation (“RESI”) for the nine months ended September 30, 2020 grew by ~~Ocwen)~~11% compared to the nine months ended September 30, 2019, despite the COVID-19 impacts the Company started facing late in the first quarter of 2020. Compared to the nine months ended September 30, 2019, the increase is primarily from the growth in our customer base and market share expansion. Service revenue from the origination businesses such as loan fulfillment, loan certification, title, settlement and valuation services in Mortgage and Real Estate Solutions grew by 38% for the nine months ended September 30, 2020 (30% for the third quarter of 2020). In the Marketplace and Field Services businesses, revenue growth from customers other than Ocwen and NRZ was ~~1.3~~more than offset by lower revenue from Ocwen’s declining servicing portfolio and the impact of COVID-19.

•During the second quarter of 2020, Ocwen informed us that an investor had instructed Ocwen to use a field services provider other than Altisource on properties associated with certain MSRs. They indicated that they were instructed to begin the transition in July 2020, and that the transition should be completed in a few months. Ocwen commenced using another field services provider for these properties in July 2020 and continued to transition services during the third quarter of 2020. Based upon the impacted portfolios to date and the designated service provider, Altisource believes that Ocwen received these directions from NRZ. The transition to the replacement field service provider has largely been completed as of September 30, 2020. We estimate that $72.3 million and $115.6 million of service revenue from Ocwen for the nine months ended September 30, 2020 and 2019, respectively ($14.1 million and $38.1 million for the third quarter of 2020 and 2019, respectively) was derived from Field Services referrals from the NRZ portfolios. Without providing the timing or specific services impacted, Ocwen also communicated to Altisource that the same investor plans to direct them to transition certain other default related service referrals to other providers. We estimate that revenue from these certain other default related services represented approximately $25.6 million and $34.9 million of service revenue from Ocwen for the nine months ended September 30, 2020 and 2019, respectively ($6.4 million and $12.5 million for the third quarter of 2020 and 2019, respectively). To address the reduction in revenue, Altisource has undertaken several measures to further reduce its cost structure and strengthen its operations.

•During the nine months ended September 30, 2020 and 2019, we recognized an unrealized (loss) gain of $(12.4) million and $11.7 million, respectively ($0.1 million and $(2.3) million for the third quarter of 2020 and 2019, respectively), from the change in fair value on our investment in RESI in other income (expense), net in the condensed consolidated statements of operations and comprehensive income (loss) from a change in the market value of RESI common shares.

•In August 2018, Altisource initiated Project Catalyst, a project intended to optimize its operations and reduce costs to better align its cost structure with its anticipated revenues and improve its operating margins. During the nine months ended September 30, 2020 and 2019, Altisource incurred $10.9 million and $9.1 million, respectively ($2.2 million and $2.8 million for the third quarter of 2020 and 2019, respectively), of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan. Altisource expects to incur additional severance costs, professional services fees and technology costs in connection with this internal reorganization, automation and other technology related activities and will expense those costs as incurred. Based on the Company’s analysis, it currently anticipates the future costs relating to Project Catalyst to be in the range of approximately $2 million to $3 million and does not include any anticipated costs associated with COVID-19 cost savings initiatives or planned cost reductions in connection with Ocwen’s decision to move certain field services referrals to another provider.

•On July 1, 2019, Altisource sold its Financial Services business, consisting of post-charge-off consumer debt and mortgage charge-off collection services and customer relationship management services (the “Financial Services Business”) to Transworld Systems Inc. (“TSI”) for $44.0 million consisting of an upfront payment of $40.0 million, subject to a working capital adjustment (finalized during 2019) and transaction costs upon closing of the sale, and an additional $4.0 million payment on the one year anniversary of the sale closing. On July 1, 2020, the Company received net proceeds of $3.3 million representing $4.0 million, net of certain amounts owed to TSI under the purchase and sale agreement. The parties also entered into a transition services agreement to provide for the management and

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orderly transition of certain services and technologies to TSI for periods ranging from 2 months to 13 months, subject to additional 3 month extensions. As of October 1, 2020, all of the transition services and technologies have been fully transitioned to TSI. On July 17, 2019, Altisource used $37.0 million of the net up-front payment to repay a portion of its senior secured term loan. For the nine months ended September 30, 2019, service revenue from the Financial Services Business was $33.4 million (no comparative amounts for the nine months ended September 30, 2020 and the third quarter of 2020 and 2019).

•In February 2019, Altisource and Ocwen entered into agreements that, among other things, facilitated Ocwen’s transition from REALServicing and related technologies to another mortgage servicing software platform. The transition was completed during 2019. For the nine months ended September 30, 2019, service revenue from REALServicing and related technologies was $13.8 million ($2.5 million for the third quarter of 2019).

•In November 2018, the Company announced its plans to sell its short-term investments in real estate and exit the Company’s BRS business. For the three and nine months ended September 30, 2019, service revenue from BRS was $0.4 million and $42.5 million, respectively (no comparative amounts for the three and nine months ended September 30, 2020).

•In May 2019, the Company began selling its investment in RESI common stock. During the nine months ended September 30, 2019, the Company sold 0.7 million shares for net proceeds of $7.8 million (0.1 million shares for net proceeds of $1.3 million for the third quarter of 2019) (no comparative amounts for the three and nine months ended September 30, 2020). As required by the senior secure term loan agreement, the Company used the net proceeds to repay a portion of its senior secured term loan.

•In October 2019, the Company announced its plans to wind down and close the Owners.com business, which was completed by December 31, 2019. For the three and nine months ended September 30, 2019, service revenue from Owners.com was $2.1 million and $5.9 million, respectively (no comparative amounts for the three and nine months ended September 30, 2020).

•On June 21, 2018, the United States Supreme Court rendered a 5-4 majority decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. During the nine months ended September 30, 2019, the Company completed the analysis of its services for potential exposure to sales tax in various jurisdictions in the United States. The Company recognized a $(0.6) million and $0.4 million net (loss reimbursement) loss for the nine months ended September 30, 2020 and 2019, respectively ($(0.6) million and $(1.7) million net loss reimbursement for the third quarter of 2020 and 2019, respectively) in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income (loss). In October 2020, the Company received additional reimbursements of $(1.7) million of sales taxes previously accrued and paid. The Company began invoicing, collecting and remitting sales tax in applicable jurisdictions in 2019. The Company is also in the process of seeking additional reimbursements for sales tax payments from clients; however, there can be no assurance that the Company will be successful in collecting some or all of such additional reimbursements. Future changes in our estimated sales tax exposure could result in a material adjustment to our consolidated financial statements, which would impact our financial condition and results of operations.

•The Company recognized an income tax provision of $5.3 million and $20.7 million for the nine months ended September 30, ~~2017 compared~~2020 and 2019, respectively ($1.8 million and $5.4 million for the third quarter of 2020 and 2019, respectively). The decrease in the income tax provision for the nine months ended September 30, 2020 was primarily from a $12.3 million reduction in Luxembourg deferred tax assets in connection with a decrease in the Luxembourg statutory income tax rate from 26.0% to ~~1.5~~24.9% in the second quarter of 2019. The income tax provisions on losses before income taxes and non-controlling interests for the three and nine months ended September 30, 2020 were primarily driven by income in our US and other foreign operations from transfer pricing on services provided to our Luxembourg operating company and no tax benefit on the pretax losses from our Luxembourg operating company for the three and nine months ended September 30, 2020.

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RESULTS OF OPERATIONS

Summary Results

The following is a discussion of our results of operations for the periods indicated.

The following table sets forth information on our consolidated results of operations:


	Three months ended September 30,							Nine months ended September 30,
(in thousands, except per share data)	2020			2019			% Increase (decrease)	2020			2019			% Increase (decrease)

Service revenue	$	85,386		$	133,781		(36)	$	289,570		$	489,300		(41)
Reimbursable expenses	2,810			7,213			(61)	14,495			16,484			(12)
Non-controlling interests	599			499			20	1,516			2,179			(30)
Total revenue	88,795			141,493			(37)	305,581			507,963			(40)
Cost of revenue	72,570			110,722			(34)	249,779			387,651			(36)
Gross profit	16,225			30,771			(47)	55,802			120,312			(54)
Operating expenses (income):
Selling, general and administrative expenses	20,812			25,833			(19)	73,606			104,275			(29)
Gain on sale of business	—			(17,558)			(100)	—			(17,558)			(100)
Restructuring charges	2,227			2,761			(19)	10,921			9,080			20
(Loss) income from operations	(6,814)			19,735			(135)	(28,725)			24,515			(217)
Other income (expense), net
Interest expense	(4,103)			(4,892)			(16)	(13,265)			(16,656)			(20)
Unrealized gain (loss) on investment in equity securities	138			(2,294)			106	(12,433)			11,731			(206)
Other (expense) income, net	(361)			406			(189)	412			1,308			(69)
Total other income (expense), net	(4,326)			(6,780)			(36)	(25,286)			(3,617)			N/M

(Loss) income before income taxes and non-controlling interests	(11,140)			12,955			(186)	(54,011)			20,898			N/M
Income tax provision	(1,757)			(5,379)			(67)	(5,295)			(20,670)			(74)

Net (loss) income	(12,897)			7,576			(270)	(59,306)			228			N/M
Net income attributable to non-controlling interests	(340)			(411)			(17)	(642)			(2,091)			(69)

Net (loss) income attributable to Altisource	$	(13,237)		$	7,165		(285)	$	(59,948)		$	(1,863)		N/M

Margins:
Gross profit/service revenue	19		%	23		%		19		%	25		%
(Loss) income from operations/service revenue	(8)		%	15		%		(10)		%	5		%

(Loss) earnings per share:
Basic	$	(0.85)		$	0.45		(289)	$	(3.85)		$	(0.12)		N/M
Diluted	$	(0.85)		$	0.44		(293)	$	(3.85)		$	(0.12)		N/M

Weighted average shares outstanding:
Basic	15,637			15,897			(2)	15,578			16,133			(3)
Diluted	15,637			16,151			(3)	15,578			16,133			(3)

N/M — not meaningful.

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Revenue

Revenue by line of business was as follows:


	Three months ended September 30,					Nine months ended September 30,
(in thousands)	2020		2019		% Increase (decrease)	2020		2019		% Increase (decrease)

Service revenue:
Field Services	$	34,570	$	69,873	(51)	$	137,050	$	204,355	(33)
Marketplace	24,075		25,910		(7)	67,403		95,480		(29)
Mortgage and Real Estate Solutions	25,998		31,728		(18)	81,742		85,081		(4)
Earlier Stage Business	547		399		37	1,686		995		69
Other	196		5,871		(97)	1,689		103,389		(98)
Total service revenue	85,386		133,781		(36)	289,570		489,300		(41)

Reimbursable expenses:
Field Services	693		2,008		(65)	3,861		7,082		(45)
Marketplace	1,453		4,175		(65)	7,520		6,410		17
Mortgage and Real Estate Solutions	664		1,030		(36)	3,114		2,802		11
Other	—		—		—	—		190		(100)
Total reimbursable expenses	2,810		7,213		(61)	14,495		16,484		(12)

Non-controlling interests:
Mortgage and Real Estate Solutions	599		499		20	1,516		2,179		(30)

Total revenue	$	88,795	$	141,493	(37)	$	305,581	$	507,963	(40)

We recognized service revenue of $289.6 million for the nine months ended September 30, ~~2016,~~2020, a decrease of 13% (1.2 million for the third quarter of 2017 and 1.4 million for the third quarter of 2016, a decrease of 12%). The average number of delinquent non-GSE loans serviced by Ocwen on REALServicing was 182 thousand for the nine months ended September 30, 2017 compared to 224 thousand for the nine months ended September 30, 2016, a decrease of 19% (178 thousand for the third quarter of 2017 and 211 thousand for the third quarter of 2016, a decrease of 16%). The number of loans transferred by Ocwen to NRZ and serviced by NRZ was 0.1 million for the nine months ended September 30, 2017 and the third quarter of 2017.

During the nine months ended September 30, 2017, we repurchased portions of our senior secured term loan with an aggregate par value of $50.1 million at a weighted average discount of 12.2%, recognizing a net gain of $5.4 million on the early extinguishment of debt (repurchased aggregate par value of $24.1 million at a weighted average discount of 7.5%, recognizing a net gain of $1.5 million on the early extinguishment of debt for the third quarter of 2017). During the nine months ended September 30, 2016, we repurchased portions of our senior secured term loan with an aggregate par value of $51.0 million at a weighted average discount of 13.2%, recognizing a net gain of $5.5 million on the early extinguishment of debt (no repurchases in the third quarter of 2016).

During the nine months ended September 30, 2016, we purchased 4.1 million shares of RESI common stock for $48.2 million (no comparative amounts in 2017). During the nine months ended September 30, 2017 and 2016, we earned dividends of $1.9 million and $1.0 million, respectively ($0.6 million for the third quarter of 2017 and no comparative amount for the third quarter of 2016), related to this investment. In addition, during the nine months ended September 30, 2016, we incurred expenses of $3.4 million related to this investment (no comparative amounts in 2017 and the third quarter of 2016).

~~On July 29, 2016, we acquired certain assets and assumed certain liabilities of Granite Loan Management of Delaware, LLC (“Granite”) for $9.5 million.~~

The effective income tax rate increased to 23.6% for the nine months ended September 30, 2017 from 20.1% for the nine months ended September 30, 2016 (decreased to 25.0% for the third quarter of 2017 from 39.0% for the third quarter of 2016). The effective income tax rate increase for the nine months ended September 30, 2017 was primarily due to changes in the expected mix of taxable income across the jurisdictions in which we operate. The lower effective income tax rate for the third quarter of 2017 was primarily the result of adjustments made in the third quarter of 2016 to true-up the tax provision from prior quarters. This was partially offset by higher pretax income in the third quarter of 2016, which, as discussed above, changed the mix of taxable income across the jurisdictions in which we operate.

~~CONSOLIDATED RESULTS OF OPERATIONS~~

~~Summary Consolidated Results~~

The following is a discussion of our consolidated results of operations for the periods indicated. For a more detailed discussion of the factors that affected the results of our business segments in these periods, see “~~Segment Results of Operations” below.~~

~~The following table sets forth information regarding our results of operations:~~

Three months ended September 30, Nine months ended September 30,
(in thousands, except per share data) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Service revenue

Mortgage Market $ 189,615
$ 199,176
(5 ) $ 583,002
$ 584,740
—
Real Estate Market 21,113
21,231
(1 ) 64,649
68,805
(6 )
Other Businesses, Corporate and Eliminations 13,580
19,375
(30 ) 44,603
61,841
(28 )
Total service revenue 224,308
239,782
(6 ) 692,254
715,386
(3 )
Reimbursable expenses 9,866
12,080
(18 ) 31,786
41,317
(23 )
Non-controlling interests 805
883
(9 ) 2,107
1,973
7
Total revenue 234,979
252,745
(7 ) 726,147
758,676
(4 )
Cost of revenue 174,898
174,002
1
538,244
517,236
4
Gross profit 60,081
78,743
(24 ) 187,903
241,440
(22 )
Selling, general and administrative expenses 46,622
53,886
(13 ) 146,793
161,709
(9 )
Income from operations 13,459
24,857
(46 ) 41,110
79,731
(48 )
Other income (expense), net:
Interest expense (5,599 ) (5,952 ) (6 ) (16,862 ) (18,481 ) (9 )
Other income (expense), net 2,497
(109 ) N/M
8,015
2,608
207
Total other income (expense), net (3,102 ) (6,061 ) (49 ) (8,847 ) (15,873 ) (44 )

Income before income taxes and non-controlling interests 10,357
18,796
(45 ) 32,263
63,858
(49 )
Income tax provision (2,591 ) (7,324 ) (65 ) (7,615 ) (12,808 ) (41 )

Net income 7,766
11,472
(32 ) 24,648
51,050
(52 )
Net income attributable to non-controlling interests (805 ) (883 ) (9 ) (2,107 ) (1,973 ) 7

Net income attributable to Altisource $ 6,961
$ 10,589
(34 ) $ 22,541
$ 49,077
(54 )

Margins:

Gross profit/service revenue 27 % 33 % 27 % 34 %
Income from operations/service revenue 6 % 10 % 6 % 11 %

Earnings per share:
Basic $ 0.39
$ 0.57
(32 ) $ 1.23
$ 2.63
(53 )
Diluted $ 0.38
$ 0.54
(30 ) $ 1.20
$ 2.49
(52 )

~~N/M — not meaningful.~~

~~Revenue~~

~~We recognized service revenue of $692.3 million for the nine months ended September 30, 2017, a 3%~~41% decrease compared to the nine months ended September 30, ~~2016~~2019 ($~~224.3~~85.4 million for the third quarter of ~~2017,~~2020, a 6%36% decrease compared to the third quarter of ~~2016)~~2019), primarily from COVID-19 pandemic related governmental restrictions, Ocwen’s transition of Field Services referrals associated with certain MSRs to another service provider (which began in July 2020), the reduction in the size of Ocwen’s portfolio, and NRZ’s higher percentage of home sales at the foreclosure auction (resulting in a lower percentage of foreclosures converting to REO, which in turn reduces our REO auction, brokerage, field services and title service revenue). Service revenue also declined as a result of the 2019 sale, discontinuation and exit from certain businesses (resulting in a 4% and 20% decline in service revenue for the three and nine months ended September 30, 2020, respectively). The decrease for the nine months ended September 30, 2020 was partially offset by an 11% increase in revenue from customers other than Ocwen, NRZ and RESI in our Field Services, Marketplace and Mortgage and Real Estate Solutions businesses from new customer on-boardings, market share expansion with existing customers, and higher origination related volumes driven by a lower interest rate environment. Service revenue from the origination businesses in Mortgage and Real Estate Solutions grew by 38% for the nine months ended September 30, 2020 (30% for the third quarter of 2020). Other service revenue declined for the three and nine months ended September 30, 2020 from lower REALServicing revenue from Ocwen’s migration to another servicing system and the wind down of Owners.com compared to the three and nine months ended September 30, 2019. Other service revenue declined for the nine months ended September 30, 2020 from the July 1, 2019 sale of the Financial Services Business and the discontinuation of the BRS business.

We recognized reimbursable expense revenue of $14.5 million for the nine months ended September 30, 2020, a 12% decrease compared to the nine months ended September 30, 2019 ($2.8 million for the third quarter of 2020, a 61% decrease compared to the third quarter of 2019). These decreases in reimbursable expenses for the three and nine months ended September 30, 2020 were consistent with the declines in service revenue discussed above. The decrease in reimbursable expense revenue for the nine months ended September 30, ~~2017~~2020 was partially offset by an increase in certain title and ~~the third quarter of 2017 were primarily from lower service revenue~~foreclosure trustee volumes in ~~our customer relationship management~~Mortgage and IT infrastructure services businesses in the Other Businesses, Corporate and Eliminations segment, the normal runoff of Ocwen’s portfolio in the Mortgage Market and RESI’s smaller portfolio of non-performing loans and REO in the Real Estate ~~Market. Customer relationship management revenue declined primarily because during 2016 we severed relationships with certain clients that were not profitable to us~~Solutions and ~~we experienced~~ a

~~reduction~~ new early stage disposition service offering (cash for keys program and evictions) initiated in volume from the transition of services from one customer to another. IT infrastructure services revenue declined from the transition of resources supporting Ocwen’s technology infrastructure to Ocwen. These decreases were largely offset by growthJune 2019 in referrals of certain higher fee property preservation services and growth in home sales revenue in the buy-renovate-sell business, which began operations in the second half of 2016. Reimbursable expenses revenue declined from a 2015 change in the pricing and billing model for preservation services on new Ocwen REO referrals that resulted in certain services that were historically reimbursable expenses revenue becoming service revenue.Marketplace.

Certain of our revenues ~~are~~can be impacted by seasonality. More specifically, revenues from property sales, loan originations and certain property preservation services in Field Services typically tend to be at their lowest level during the fall and winter months and at their highest level during the spring and summer months. ~~In addition, the asset recovery management business tends to be higher in the first quarter, as borrowers may utilize tax refunds and bonuses to pay debts, and generally declines throughout the rest~~

Table of ~~the year.~~Contents

Cost of Revenue and Gross Profit

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, ~~and the~~ cost of real estate sold, reimbursable expenses, technology and telecommunications costs and depreciation and amortization of operating assets.

Cost of revenue ~~consisted~~consists of the following:


	Three months ended September 30,					Nine months ended September 30,
(in thousands)	2020		2019		% Increase (decrease)	2020		2019		% Increase (decrease)

Compensation and benefits	$	23,947	$	30,463	(21)	$	74,776	$	108,637	(31)
Outside fees and services	34,013		61,314		(45)	123,914		182,483		(32)
Technology and telecommunications	8,776		8,586		2	27,082		27,124		—
Reimbursable expenses	2,810		7,213		(61)	14,495		16,484		(12)
Depreciation and amortization	3,024		2,753		10	9,512		10,160		(6)
Cost of real estate sold	—		393		(100)	—		42,763		(100)

Cost of revenue	$	72,570	$	110,722	(34)	$	249,779	$	387,651	(36)

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 60,332
$ 66,357
(9 ) $ 186,090
$ 201,193
(8 )
Outside fees and services 83,670
77,445
8
250,883
222,574
13
Cost of real estate sold 4,411
—
N/M
16,461
—
N/M
Reimbursable expenses 9,866
12,080
(18 ) 31,786
41,317
(23 )
Technology and telecommunications 10,389
11,502
(10 ) 32,681
32,145
2
Depreciation and amortization 6,230
6,618
(6 ) 20,343
20,007
2

Cost of revenue $ 174,898
$ 174,002
1
$ 538,244
$ 517,236
4

~~N/M — not meaningful.~~

~~Cost~~We recognized cost of revenue of $249.8 million for the nine months ended September 30, ~~2017 of $538.2 million increased 4%~~2020, a 36% decrease compared to the nine months ended September 30, ~~2016~~2019 ($~~174.9~~72.6 million for the third quarter of ~~2017,~~2020, a ~~1% increase~~34% decrease compared to the third quarter of ~~2016)~~2019). The ~~increases~~decreases in ~~cost of revenue were primarily driven by higher~~compensation and benefits, outside fees and services and cost of real estate sold ~~partially offset~~were primarily driven by ~~decreases~~lower service revenue in ~~compensation~~Field Services and Marketplace businesses and the wind down of Owners.com, and for the nine months ended September 30, 2020, the July 1, 2019 sale of the Financial Services Business and the discontinuation of the BRS business, discussed in the revenue section above. Compensation and benefits ~~and reimbursable expenses. Outside fees and services increased in the Mortgage Market~~also decreased due to ~~growth~~lower headcount and temporary reductions in referrals of certain higher cost property preservation services in the Servicer Solutions business, partially offset by lower costs related to RESI’s smaller portfolio of non-performing loans and REO in the Real Estate Investor Solutions business. The increases in cost of real estate sold were the result of properties soldcompensation in connection with ~~our buy-renovate-sell program, which began operations~~cash cost savings measures initiated in the second ~~half~~quarter of ~~2016.~~

~~Compensation and benefits declined~~2020 in response to the ~~Mortgage Market in the Servicer Solutions business as we reduced headcount levels in certain businesses, consistent with the decline~~COVID-19 related decreases in service revenue discussed in the revenue section above and ~~benefited from efficiency initiatives. In~~as a result of the ~~Other Businesses, Corporate and Eliminations segment, compensation and benefits decreased~~Project Catalyst reorganization. The decreases in ~~connection~~reimbursable expenses were consistent with the ~~transition of resources supporting Ocwen’s technology infrastructure to Ocwen and lower headcount levels~~changes in ~~our customer relationship management business from a decrease in client relationships, as~~reimbursable expense revenue discussed in the revenue section above. In the Real Estate Market, compensation and benefits increased in the Consumer Real Estate Solutions business to support growth of this business, partially offset by lower headcount levels in the Real Estate Investor Solutions business driven by lower customer volumes in certain business units.

~~Reimbursable expenses declined in the Mortgage Market’s Servicer Solutions business primarily as a result of the change in the pricing and billing model discussed in the revenue section above.~~

Gross profit decreased to ~~$187.9~~$55.8 million, representing ~~27%~~19% of service revenue, for the nine months ended September 30, ~~2017~~2020 compared to ~~$241.4~~$120.3 million, representing ~~34%~~25% of service revenue, for the nine months ended September 30, ~~2016~~2019 (decreased to ~~$60.1~~$16.2 million, representing ~~27%~~19% of service revenue, for the third quarter of ~~2017~~2020 compared to ~~$78.7~~$30.8 million, representing ~~33%~~23% of service revenue, for the third quarter of ~~2016)~~2019). Gross profit as a percentage of service revenue for the nine months ended September 30, 2020 decreased compared to the nine months ended September 30, 2019 primarily due to revenue

mix with lower revenue from higher margin Marketplace businesses, the impact of the July 1, 2019 sale of the Financial Services Business and higher revenue in the second quarter of 2019 from the sale of the short-term investments in ~~our growth businesses. Revenue mix changed from growth~~real estate (“BRS Inventory”), which resulted in a $1.8 million loss. Gross profit as a percentage of service revenue for the third quarter of 2020 decreased compared to the third quarter of 2019 primarily due to a lower gross margin in the ~~lower margin property preservation~~Field Services business because decreases in compensation and ~~buy-renovate-sell businesses~~benefits and ~~declines~~technology and telecommunications costs were proportionately less than the decrease in ~~other higher margin businesses.~~service revenue. These decreases were partially offset by our COVID-19 cash cost savings measures and Project Catalyst cost reduction initiatives.

Selling, General and Administrative Expenses

Selling, general and administrative ~~expenses~~ (“SG&A”) expenses include payroll for personnel employed in executive, sales and marketing, finance, law, compliance, human resources, vendor management, facilities and risk management ~~sales and marketing~~ roles. This category also includes ~~occupancy related costs, amortization of intangible assets,~~ professional services fees, occupancy costs, marketing costs, ~~and~~ depreciation and amortization of non-operating assets and other expenses.

Table of Contents

SG&A ~~expense consisted~~expenses consist of the following:


	Three months ended September 30,						Nine months ended September 30,							Three months ended September 30,					Nine months ended September 30,
(in thousands)	2017		2016		% Increase (decrease)		2017		2016		% Increase (decrease)		(in thousands)	2020		2019		% Increase (decrease)	2020		2019		% Increase (decrease)

Compensation and benefits	$	15,068	$	14,145	7		$	43,115	$	42,460	2		Compensation and benefits	$	9,077	$	10,395	(13)	$	30,396	$	36,986	(18)
Occupancy related costs	8,536		8,903		(4	)	28,347		26,785		6		Occupancy related costs	4,636		5,593		(17)	15,725		19,988		(21)
Amortization of intangible assets	8,604		11,465		(25	)	27,143		36,432		(25	)	Amortization of intangible assets	4,295		3,298		30	11,344		15,489		(27)
Professional services	3,886		4,097		(5	)	11,983		17,533		(32	)	Professional services	2,129		2,588		(18)	8,605		11,384		(24)
Marketing costs	3,992		9,275		(57	)	11,958		21,438		(44	)	Marketing costs	422		3,481		(88)	2,810		9,402		(70)
Depreciation and amortization	2,286		2,557		(11	)	7,068		7,514		(6	)	Depreciation and amortization	796		921		(14)	2,009		4,036		(50)
Other	4,250		3,444		23		17,179		9,547		80		Other	(543)		(443)		(23)	2,717		6,990		(61)

Selling, general and administrative expenses	$	46,622	$	53,886	(13	)	$	146,793	$	161,709	(9	)	Selling, general and administrative expenses	$	20,812	$	25,833	(19)	$	73,606	$	104,275	(29)

SG&A expenses for the nine months ended September 30, ~~2017~~2020 of ~~$146.8~~$73.6 million decreased 9%by 29% compared to the nine months ended September 30, ~~2016~~2019 ($~~46.6~~20.8 million for the third quarter of ~~2017,~~2020, a ~~13%~~19% decrease compared to the third quarter of ~~2016)~~2019). The decreases ~~in SG&A~~ were primarily ~~due to~~driven by lower compensation and benefits, occupancy related costs and marketing costs. Compensation and benefits decreased as we reduced headcount and temporarily reduced compensation from COVID-19 cash cost savings measures and Project Catalyst cost reduction initiatives. The decreases in occupancy related costs primarily resulted from the July 1, 2019 sale of the Financial Services Business and facility consolidation initiatives. The decreases in marketing costs were primarily driven by ~~initial non-recurring~~the wind down of Owners.com ~~market launch costs incurred during~~in the fourth quarter of 2019. For the nine months ended September 30, ~~2016,~~2020, Other expenses decreased primarily due to lower travel and entertainment costs driven by lower headcount and COVID-19 travel restrictions, billings to TSI for transition services and higher net sales tax loss reimbursements, partially offset by higher bad debt expense. In addition, the ~~reduction~~decrease in ~~Owners.com recurring marketing spending as the business unit focuses on improving the lead to closing conversion rate and lower~~ amortization of intangible assets driven by an increase in total projected revenue to be generated by the Homeward Residential, Inc. (“Homeward”) and Residential Capital, LLC (“ResCap”) portfolios over the lives of these portfolios (revenue-based amortization). In addition, professional services legal costs were lower for the nine months ended September 30, ~~2017~~2020 was driven by the completion of the amortization period of certain intangible assets during 2019, the July 1, 2019 sale of the Financial Services Business and lower revenue generated from the Homeward Residential, Inc. and Residential Capital, LLC portfolios (revenue-based amortization) consistent with the reduction in the size of Ocwen’s portfolio, discussed in the revenue section above.

Other Operating Expenses (Income)


	Three months ended September 30,					Nine months ended September 30,
(in thousands)	2020		2019		% Increase (decrease)	2020		2019		% Increase (decrease)

Gain on sale of business	$	—	$	(17,558)	(100)	$	—	$	(17,558)	(100)
Restructuring charges	2,227		2,761		(19)	10,921		9,080		20

Other operating expense (income), net	$	2,227	$	(14,797)	(115)	$	10,921	$	(8,478)	(229)

On March 28, 2019, Altisource entered into a definitive agreement to sell the Financial Services Business to TSI for $44.0 million consisting of an up-front payment of $40.0 million, subject to a working capital adjustment (finalized in 2019) and transaction costs upon closing of the sale, and an additional $4.0 million payment on the one year anniversary of the sale closing. On July 1, 2020, the Company received net proceeds of $3.3 million representing $4.0 million, net of certain amounts owed to TSI under the purchase and sale agreement. The sale closed on July 1, 2019 and in connection with this sale, we recognized a $17.6 million pretax gain on sale for the ~~resolution of,~~three and ~~reduction in activities related~~nine months ended September 30, 2019.

In August 2018, Altisource initiated Project Catalyst, a project intended to ~~several litigation~~optimize its operations and ~~regulatory matters. The decrease in SG&A for~~reduce costs to better align its cost structure with its anticipated revenues and improve its operating margins. During the nine months ended September 30, ~~2017 was partially offset by unfavorable loss accrual adjustments of $2.7~~2020 and 2019, Altisource incurred $10.9 million ~~relating to facility closures~~ and ~~litigation related costs in other SG&A in the second quarter of 2017 (no comparative amount~~$9.1 million, respectively ($2.2 million and $2.8 million for the nine months ended September 30, 2016). In addition, the decreases in SG&A for the nine month ended September 30, 2017 were partially offset by a $3.0 million favorable loss accrual adjustment in other SG&A in the nine months ended September 30, 2016 (no comparative amounts for the nine months ended September 30, 2017 and the third quarter of ~~2017~~2020 and ~~2016).~~2019, respectively), of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan. Altisource expects to incur additional severance costs, professional services fees and technology costs in connection with this internal reorganization, automation and other technology related activities and will expense those costs as incurred. Based on the Company’s analysis, it currently anticipates the future costs relating to Project Catalyst to be in the range of approximately $2 million to $3 million.

Table of Contents

(Loss) Income from Operations

Income from operations decreased to ~~$41.1~~a loss of $(28.7) million, representing 6%(10)% of service revenue, for the nine months ended September 30, ~~2017~~2020, compared to ~~$79.7~~$24.5 million, representing ~~11%~~5% of service revenue, for the nine months ended September 30, ~~2016~~2019 (decreased to ~~$13.5~~a loss of $(6.8) million, representing 6%(8)% of service revenue, for the third quarter of ~~2017~~2020 compared to ~~$24.9~~$19.7 million, representing ~~10%~~15% of service revenue, for the third quarter of ~~2016)~~2019). ~~The decrease in operating income~~Income from operations as a percentage of service revenue ~~was~~decreased for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, primarily as a result of ~~the decrease in~~lower gross profit ~~margin,~~and a higher gain on the sale of business during the three and nine months ended September 30, 2019, partially offset by lower SG&A expenses, as discussed above.

Other Income (Expense), net

Other income (expense), net principally includes interest expense, unrealized (loss) gain on our investment in RESI common shares and other non-operating gains and losses. ~~Interest expense~~

Other income (expense), net was ~~$16.9~~$(25.3) million for the nine months ended September 30, ~~2017, a decrease of $1.6~~2020 compared to $(3.6) million ~~compared to~~for the nine months ended September 30, ~~2016~~2019 ($~~5.6~~(4.3) million for the third quarter of ~~2017, a decrease of $0.4~~2020 and $(6.8) million ~~compared to~~ the third quarter of ~~2016), primarily due to the 2017 and 2016 repurchases of portions of our senior secured term loan with an aggregate par value of $101.1 million, partially offset by an~~2019). The increase in the senior secured term loan interest rate from 4.50% as of December 31, 2016 and 4.72% as of June 30, 2017 to 4.74% as of September 30, 2017. Other non-operating gains and losses primarily represent gains on the early extinguishment of debt and income and expenses related to our investment in RESI common stock.

~~During~~other expense for the nine months ended September 30, ~~2017, we repurchased portions of our senior secured term loan with an aggregate par value of $50.1~~2020 was primarily driven by a $(12.4) million ~~at a weighted average discount of 12.2%, recognizing a net gain of $5.4 million~~unrealized loss on the early extinguishment of debt (repurchased aggregate par value of $24.1 million at a weighted average discount of 7.5%, recognizing a net gain of $1.5 million on the early extinguishment of debt for the third quarter of 2017). During the nine months ended September 30, 2016, we repurchased portions of our senior secured term loan with an aggregate par value of $51.0 million at a weighted average discount of 13.2%, recognizing a net gain of $5.5 million on the early extinguishment of debt (no repurchases in the third quarter of 2016).

During the nine months ended September 30, 2017 and 2016, we earned dividends of $1.9 million and $1.0 million, respectively ($0.6 million for the third quarter of 2017 and no comparative amount for the third quarter of 2016) related to our investment in ~~RESI. In addition,~~RESI common shares compared to a $11.7 million unrealized gain in 2019. The increase in other expense was partially offset by lower interest expense during the nine months ended September 30, ~~2016, we incurred expenses~~2020. Interest expense decreased primarily due to lower average outstanding balances of ~~$3.4 million related~~the senior secured term loan as a result of repayments during 2019 and lower interest rates. For the nine months ended September 30, 2020, the interest rate of the senior secured term loan was 5.46% compared to ~~this investment (no comparative amounts~~6.44% for the nine months ended September 30, 2019. The decrease in ~~2017 and~~other expense for the third quarter of ~~2016)~~2020 was primarily driven by a $0.1 million unrealized gain on our investment in RESI common shares compared to a $(2.3) million unrealized loss in 2019, partially offset by lower interest expense in 2020 (interest rate of the senior secured term loan was 5.00% for the third quarter of 2020 compared to 6.33% for the third quarter of 2019).

Income Tax Provision

We recognized an income tax provision of ~~$7.6~~$5.3 million and $20.7 million for the nine months ended September 30, ~~2017 compared to $12.8~~2020 and 2019, respectively ($1.8 million and $5.4 million for the third quarter of 2020 and 2019, respectively). The decrease in the income tax provision for the nine months ended September 30, ~~2016 ($2.6~~2020 was primarily from a $12.3 million reduction in Luxembourg deferred tax assets in connection with a decrease in the Luxembourg statutory income tax rate from 26.0% to 24.9% in the second quarter of 2019. The income tax provisions on losses before income taxes and ~~$7.3 million~~non-controlling interests for the ~~third quarter of 2017~~three and ~~2016, respectively). Our effective tax rate was 23.6% and 20.1% for the~~ nine months ended September 30, ~~2017~~2020 were primarily driven by the income in our US and ~~September 30, 2016, respectively (25.0%~~other foreign operations from transfer pricing on services provided to our Luxembourg operating company and ~~39.0%~~no tax benefit on the pretax losses from our Luxembourg operating company for the ~~third quarter of 2017~~three and 2016, respectively). Our effective tax rates differ from the Luxembourg statutory tax rate of 27.1% and 29.2% in 2017 and 2016, respectively, primarily due to the effect of certain deductions in Luxembourg and the mix of income and losses with varying tax rates in multiple taxing jurisdictions. The higher effective income tax rate for the nine months ended September 30, 2017 was primarily the result of lower pretax income, which changed the mix of taxable income across the jurisdictions in which we operate. The lower effective income tax rate for the third quarter of 2017 was primarily the result of adjustments made in the third quarter of 2016 to true-up the tax provision from prior quarters. This was partially offset by higher pretax income in the third quarter of 2016, which, as discussed above, changed the mix of taxable income across the jurisdictions in which we operate.2020.

~~SEGMENT RESULTS OF OPERATIONS~~

Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization, which changed the way our Chief Executive Officer (our chief operating decision maker) manages our businesses, allocates resources and evaluates performance. We now report our operations through two new reportable segments: ~~Mortgage Market~~ ~~and~~ ~~Real Estate Market. In addition, we report~~ ~~Other Businesses, Corporate and Eliminations~~ ~~separately. Prior to the January 1, 2017 change in reportable segments, our reportable segments were~~ ~~Mortgage Services~~, ~~Financial Services~~ ~~and~~ ~~Technology Services. The former~~ ~~Mortgage Services~~ ~~segment was separated into the~~ ~~Mortgage Market~~ ~~and~~ ~~Real Estate Market~~ ~~segments (see Overview - Our Business). Furthermore, certain of the software services business units that were formerly in the~~ ~~Technology Services~~ ~~segment and the mortgage charge-off collections business that was formerly in the~~ ~~Financial Services~~ ~~segment are now included in the~~ ~~Mortgage Market~~. ~~Other Businesses, Corporate and Eliminations~~ ~~includes the asset recovery management services and customer relationship management services that were formerly in the~~ ~~Financial Services~~ ~~segment as well as IT infrastructure management services formerly in the~~ ~~Technology Services~~ ~~segment (see Overview - Our Business). Prior year comparable period segment disclosures have been restated to conform to the current year presentation.~~

The following section provides a discussion of pretax results of operations of our business segments. Transactions between segments are accounted for as third party arrangements for purposes of presenting segment results of operations and eliminated in consolidation.

~~Financial information for our segments was as follows:~~

Three months ended September 30, 2017
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue

Service revenue $ 189,615
$ 21,113
$ 13,580
$ 224,308
Reimbursable expenses 8,842
1,008
16
9,866
Non-controlling interests 805
—
—
805
199,262
22,121
13,596
234,979
Cost of revenue 137,466
23,497
13,935
174,898
Gross profit (loss) 61,796
(1,376 ) (339 ) 60,081
Selling, general and administrative expenses 28,006
4,208
14,408
46,622
Income (loss) from operations 33,790
(5,584 ) (14,747 ) 13,459
Total other income (expense), net 26
—
(3,128 ) (3,102 )

Income (loss) before income taxes and
non-controlling interests $ 33,816
$ (5,584 ) $ (17,875 ) $ 10,357

Margins:

Gross profit (loss)/service revenue 33 % (7 )% (2 )% 27 %
Income (loss) from operations/service revenue 18 % (26 )% (109 )% 6 %

Three months ended September 30, 2016
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue

Service revenue $ 199,176
$ 21,231
$ 19,375
$ 239,782
Reimbursable expenses 11,762
285
33
12,080
Non-controlling interests 883
—
—
883
211,821
21,516
19,408
252,745
Cost of revenue 138,646
16,634
18,722
174,002
Gross profit 73,175
4,882
686
78,743
Selling, general and administrative expenses 29,903
6,961
17,022
53,886
Income (loss) from operations 43,272
(2,079 ) (16,336 ) 24,857
Total other income (expense), net 10
—
(6,071 ) (6,061 )

Income (loss) before income taxes and
non-controlling interests $ 43,282
$ (2,079 ) $ (22,407 ) $ 18,796

Margins:

Gross profit/service revenue 37 % 23 % 4 % 33 %
Income (loss) from operations/service revenue 22 % (10 )% (84 )% 10 %

Nine months ended September 30, 2017
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue

Service revenue $ 583,002
$ 64,649
$ 44,603
$ 692,254
Reimbursable expenses 29,071
2,665
50
31,786
Non-controlling interests 2,107
—
—
2,107
614,180
67,314
44,653
726,147
Cost of revenue 421,942
72,484
43,818
538,244
Gross profit (loss) 192,238
(5,170 ) 835
187,903
Selling, general and administrative expenses 86,493
14,084
46,216
146,793
Income (loss) from operations 105,745
(19,254 ) (45,381 ) 41,110
Total other income (expense), net 138
—
(8,985 ) (8,847 )

Income (loss) before income taxes and
non-controlling interests $ 105,883
$ (19,254 ) $ (54,366 ) $ 32,263

Margins:

Gross profit (loss)/service revenue 33 % (8 )% 2 % 27 %
Income (loss) from operations/service revenue 18 % (30 )% (102 )% 6 %

Nine months ended September 30, 2016
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue

Service revenue $ 584,740
$ 68,805
$ 61,841
$ 715,386
Reimbursable expenses 39,809
1,424
84
41,317
Non-controlling interests 1,973
—
—
1,973
626,522
70,229
61,925
758,676
Cost of revenue 408,412
47,946
60,878
517,236
Gross profit 218,110
22,283
1,047
241,440
Selling, general and administrative expenses 90,498
18,755
52,456
161,709
Income (loss) from operations 127,612
3,528
(51,409 ) 79,731
Total other income (expense), net 144
—
(16,017 ) (15,873 )

Income (loss) before income taxes and
non-controlling interests $ 127,756
$ 3,528
$ (67,426 ) $ 63,858

Margins:

Gross profit/service revenue 37 % 32 % 2 % 34 %
Income (loss) from operations/service revenue 22 % 5 % (83 )% 11 %

~~Mortgage Market~~

~~Revenue~~

~~Revenue by business unit was as follows:~~

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Service revenue:

Servicer Solutions $ 176,258
$ 183,804
(4 ) $ 545,447
$ 546,736
—
Origination Solutions 13,357
15,372
(13 ) 37,555
38,004
(1 )
Total service revenue 189,615
199,176
(5 ) 583,002
584,740
—

Reimbursable expenses:
Servicer Solutions 8,803
11,684
(25 ) 28,854
39,632
(27 )
Origination Solutions 39
78
(50 ) 217
177
23
Total reimbursable expenses 8,842
11,762
(25 ) 29,071
39,809
(27 )

Non-controlling interests 805
883
(9 ) 2,107
1,973
7

Total revenue $ 199,262
$ 211,821
(6 ) $ 614,180
$ 626,522
(2 )

We recognized service revenue of $583.0 million for the nine months ended September 30, 2017, a less than 1% decrease compared to the nine months ended September 30, 2016 ($189.6 million for the third quarter of 2017, a 5% decrease compared to the third quarter of 2016). Service revenue for the nine months ended September 30, 2017 declined primarily as a result of the normal run-off of Ocwen’s loan servicing portfolio in the Servicer Solutions business. This decline was almost entirely offset by growth in referrals of certain higher fee property preservation services, a change in 2015 in the pricing and billing model for preservation services on new Ocwen REO referrals that resulted in certain services that were historically reimbursable expenses revenue becoming service revenue, the acquisition of Granite in July 2016 and growth in non-Ocwen service revenues from new and existing customers in the Servicer Solutions business. Service revenue for the third quarter of 2017 declined primarily as a result of the normal run-off of Ocwen’s loan servicing portfolio in the Servicer Solutions business. This decline was partially offset by growth in referrals of certain higher fee property preservation services, a change in 2015 in the pricing and billing model for preservation services as discussed above and growth in non-Ocwen service revenues from new and existing customers in the Servicer Solutions business.

~~The decreases in reimbursable expenses revenue were primarily due to the change in 2015 in the pricing and billing model for preservation services on new Ocwen REO referrals described above.~~

Certain of our Mortgage Market businesses are impacted by seasonality. Revenues from property sales, loan originations and certain property preservation services are generally lowest during the fall and winter months and highest during the spring and summer months.

~~Cost of Revenue and Gross Profit~~

~~Cost of revenue consisted of the following:~~

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 41,475
$ 44,876
(8 ) $ 126,153
$ 134,693
(6 )
Outside fees and services 74,902
70,506
6
228,982
199,737
15
Reimbursable expenses 8,842
11,762
(25 ) 29,071
39,809
(27 )
Technology and telecommunications 7,708
7,372
5
23,589
21,795
8
Depreciation and amortization 4,539
4,130
10
14,147
12,378
14

Cost of revenue $ 137,466
$ 138,646
(1 ) $ 421,942
$ 408,412
3

Cost of revenue for the nine months ended September 30, 2017 of $421.9 million increased by 3% compared to the nine months ended September 30, 2016 ($137.5 million for the third quarter of 2017, a 1% decrease compared to the third quarter of 2016). The increase in cost of revenue for the nine months ended September 30, 2017 was primarily driven by higher outside fees and services, partially offset by decreases in reimbursable expenses and compensation and benefits. Outside fees and services increased due to growth in referrals of certain higher cost property preservation services in the Servicer Solutions business, consistent with the growth in service revenue discussed in the revenue section above, particularly during the first half of 2017. Reimbursable expenses declined primarily as a result of the change in billing discussed in the revenue section above. Compensation and benefits declined in certain of the Servicer Solutions businesses as we reduced headcount levels in certain businesses, consistent with the decline in service revenue discussed in the revenue section above and benefited from efficiency initiatives. The decrease in cost of revenue for the third quarter of 2017 was primarily due to a decrease in compensation and benefits in certain of the Servicer Solutions businesses and reimbursable expenses, partially offset by an increase in outside fees and services, consistent with the service revenue discussion above.

Gross profit decreased to $192.2 million, representing 33% of service revenue, for the nine months ended September 30, 2017 compared to $218.1 million, representing 37% of service revenue, for the nine months ended September 30, 2016 (decreased to $61.8 million, representing 33% of service revenue for the third quarter of 2017, compared to $73.2 million, representing 37% of service revenue for the third quarter of 2016). Gross profit as a percentage of service revenue declined primarily due to revenue mix from growth in the lower margin property preservation services and declines in other higher margin businesses. Our margins can vary substantially depending upon service revenue mix.

~~Selling, General and Administrative Expenses and Income from Operations~~

~~SG&A expenses consisted of the following:~~

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 6,292
$ 5,492
15
$ 17,393
$ 16,368
6
Occupancy related costs 5,648
4,997
13
17,687
15,187
16
Amortization of intangible assets 7,975
10,761
(26 ) 25,119
34,179
(27 )
Professional services 2,319
2,186
6
7,018
9,314
(25 )
Marketing costs 2,170
3,443
(37 ) 6,405
7,859
(19 )
Depreciation and amortization 1,012
1,053
(4 ) 2,881
2,964
(3 )
Other 2,590
1,971
31
9,990
4,627
116

Selling, general and administrative expenses $ 28,006
$ 29,903
(6 ) $ 86,493
$ 90,498
(4 )

SG&A for the nine months ended September 30, 2017 of $86.5 million decreased by 4% compared to the nine months ended September 30, 2016 ($28.0 million for the third quarter of 2017, a 6% decrease compared to the third quarter of 2016). The decreases in SG&A were primarily driven by lower amortization of intangible assets, driven by an increase in total projected revenue to be generated by the Homeward and ResCap portfolios over the lives of these portfolios (revenue-based amortization). In addition, professional services legal costs were lower for the nine months ended September 30, 2017 in connection with the resolution of, and reduction in activities related to, several litigation and regulatory matters. The decreases in SG&A for the nine months ended September 30, 2017 were partially offset by a $3.0 million favorable loss accrual adjustment in other SG&A in the nine months ended September 30, 2016 (no comparative amounts for the nine months ended September 30, 2017 and the third quarter of 2017 and 2016).

Income from operations decreased to $105.7 million, representing 18% of service revenue, for the nine months ended September 30, 2017 compared to $127.6 million, representing 22% of service revenue, for the nine months ended September 30, 2016 (decreased to $33.8 million, representing 18% of service revenue for the third quarter of 2017, compared to $43.3 million, representing 22% of service revenue for the third quarter of 2016). The decreases in operating income as a percentage of service revenue were primarily the result of lower gross profit margins from the decrease in revenue, partially offset by lower SG&A, as discussed above.

~~Real Estate Market~~

~~Revenue~~

~~Revenue by business unit was as follows:~~

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Service revenue:

Consumer Real Estate Solutions $ 1,441
$ 213
N/M
$ 3,440
$ 732
N/M
Real Estate Investor Solutions 19,672
21,018
(6 ) 61,209
68,073
(10 )
Total service revenue 21,113
21,231
(1 ) 64,649
68,805
(6 )

Reimbursable expenses:
Real Estate Investor Solutions 1,008
285
254
2,665
1,424
87
Total reimbursable expenses 1,008
285
254
2,665
1,424
87

Total revenue $ 22,121
$ 21,516
3
$ 67,314
$ 70,229
(4 )

~~N/M — not meaningful.~~

We recognized service revenue of $64.6 million for the nine months ended September 30, 2017, a 6% decrease compared to the nine months ended September 30, 2016 ($21.1 million for the third quarter of 2017, a 1% decrease compared to the third quarter of 2016). The decreases in service revenue were primarily due to RESI’s lower property preservation referrals and REO sales in the Real Estate Investor Solutions business as RESI continues its transition from buying non-performing loans to directly acquiring rental homes. These decreases were partially offset by growth in home sales revenue in our buy-renovate-sell program in the Real Estate Investor Solutions business, which began operations in the second half of 2016, and growth in the Consumer Real Estate Solutions business from higher transaction volumes.

~~Cost of Revenue and Gross Profit (Loss)~~

~~Cost of revenue consisted of the following:~~

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 8,777
$ 8,173
7
$ 28,167
$ 21,335
32
Outside fees and services 7,865
6,229
26
19,249
20,751
(7 )
Cost of real estate sold 4,411
—
N/M
16,461
—
N/M
Reimbursable expenses 1,008
285
254
2,665
1,424
87
Technology and telecommunications 1,203
1,766
(32 ) 4,659
3,874
20
Depreciation and amortization 233
181
29
1,283
562
128

Cost of revenue $ 23,497
$ 16,634
41
$ 72,484
$ 47,946
51

~~N/M — not meaningful.~~

Cost of revenue for the nine months ended September 30, 2017 of $72.5 million increased by 51% compared to the nine months ended September 30, 2016 ($23.5 million for the third quarter of 2017, a 41% increase compared to the third quarter of 2016). The increases in cost of revenue were primarily due to increased cost of real estate sold in the Real Estate Investor Solutions business from real estate sold in connection with our buy-renovate-sell program, partially offset by lower property preservation referrals. Compensation and benefits increased in the Consumer Real Estate Solutions business to support growth of this business, partially offset by lower headcount levels in the Real Estate Investor Solutions business driven by lower customer volumes in certain business units, consistent with the decline in service revenue discussed in the revenue section above.

Gross profit decreased to a loss of $5.2 million, representing (8)% of service revenue, for the nine months ended September 30, 2017, compared to gross profit of $22.3 million, representing 32% of service revenue, for the nine months ended September 30, 2016 (decreased to a loss of $1.4 million, representing (7)% of service revenue for the third quarter of 2017, compared to gross

profit of $4.9 million, representing 23% of service revenue for the third quarter of 2016). Gross profit declined primarily as a result of growth of the lower margin buy-renovate-sell program and lower brokerage commissions from higher margin REO sales.

~~Selling, General and Administrative Expenses and Income (Loss) from Operations~~

~~SG&A expenses consisted of the following:~~

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 732
$ 541
35
$ 2,469
$ 1,451
70
Occupancy related costs 631
615
3
2,353
1,681
40
Amortization of intangible assets 211
204
3
633
752
(16 )
Professional services 339
368
(8 ) 974
972
—
Marketing costs 1,786
5,751
(69 ) 5,390
13,231
(59 )
Depreciation and amortization 180
92
96
561
342
64
Other 329
(610 ) 154
1,704
326
N/M

Selling, general and administrative expenses $ 4,208
$ 6,961
(40 ) $ 14,084
$ 18,755
(25 )

~~N/M — not meaningful.~~

SG&A for the nine months ended September 30, 2017 of $14.1 million decreased by 25% compared to the nine months ended September 30, 2016 ($4.2 million for the third quarter of 2017, a 40% decrease compared to the third quarter of 2016). The decreases in SG&A were primarily the result of lower marketing costs as a result of initial non-recurring Owners.com market launch costs incurred in 2016 and the reduction in Owners.com recurring marketing spending as the business unit focuses on improving the lead to closing conversion rate.

Income from operations decreased to a loss from operations of $19.3 million, representing (30)% of service revenue, for the nine months ended September 30, 2017 compared to income from operations of $3.5 million, representing 5% of service revenue, for the nine months ended September 30, 2016 (loss from operations of $5.6 million, representing (26)% of service revenue for the third quarter of 2017, compared to a loss from operations of $2.1 million, representing (10)% of service revenue for the third quarter of 2016). The decrease in operating income as a percentage of service revenue was primarily the result of lower gross profit margins, partially offset by lower SG&A, as discussed above.

~~Other Businesses, Corporate and Eliminations~~

~~Revenue~~

~~Revenue by business unit was as follows:~~

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Service revenue:

Customer relationship management $ 6,822
$ 8,777
(22 ) $ 21,682
$ 29,052
(25 )
Asset recovery management 5,743
5,849
(2 ) 17,940
18,609
(4 )
IT infrastructure services 1,015
4,749
(79 ) 4,981
14,180
(65 )
Total service revenue 13,580
19,375
(30 ) 44,603
61,841
(28 )

Reimbursable expenses:
Asset recovery management 16
33
(52 ) 50
84
(40 )
Total reimbursable expenses 16
33
(52 ) 50
84
(40 )

Total revenue $ 13,596
$ 19,408
(30 ) $ 44,653
$ 61,925
(28 )

We recognized service revenue of $44.6 million for the nine months ended September 30, 2017, a 28% decrease compared to the nine months ended September 30, 2016 ($13.6 million for the third quarter of 2017, a 30% decrease compared to the third quarter of 2016). The decreases were primarily due to a decline in IT infrastructure services, which are typically billed on a cost plus basis, due to the transition of resources supporting Ocwen’s technology infrastructure to Ocwen. In addition, customer relationship management revenues were lower as we severed relationships with certain clients that were not profitable and we experienced a reduction in volume from the transition of services from one customer to another.

Certain of our other businesses are impacted by seasonality. Revenue in the asset recovery management business tends to be higher in the first quarter, as borrowers may utilize tax refunds and bonuses to pay debts, and generally declines throughout the remainder of the year.

~~Cost of Revenue and Gross Profit (Loss)~~

~~Cost of revenue consisted of the following:~~

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 10,080
$ 13,308
(24 ) $ 31,770
$ 45,165
(30 )
Outside fees and services 903
710
27
2,652
2,086
27
Reimbursable expenses 16
33
(52 ) 50
84
(40 )
Technology and telecommunications 1,478
2,364
(37 ) 4,433
6,476
(32 )
Depreciation and amortization 1,458
2,307
(37 ) 4,913
7,067
(30 )

Cost of revenue $ 13,935
$ 18,722
(26 ) $ 43,818
$ 60,878
(28 )

Cost of revenue for the nine months ended September 30, 2017 of $43.8 million decreased by 28% compared to the nine months ended September 30, 2016 ($13.9 million for the third quarter of 2017, a 26% decrease compared to the third quarter of 2016). The decreases in cost of revenue were primarily due to a decrease in compensation and benefits associated with the transition of resources supporting Ocwen’s technology infrastructure to Ocwen and reduced headcount levels in our customer relationship management business from a decrease in client relationships, as discussed in the revenue section above.

Gross profit decreased to $0.8 million, representing 2% of service revenue, for the nine months ended September 30, 2017 compared to $1.0 million, representing 2% of service revenue, for the nine months ended September 30, 2016 (decrease to gross loss of $0.3 million, representing (2)% of service revenue for the third quarter of 2017, compared to gross profit of $0.7 million, representing 4% of service revenue for the third quarter of 2016). Gross profit as a percentage of service revenue decreased due to the decrease in IT infrastructure and customer relationship management revenue, largely offset by a reduction in compensation and benefits.

~~Selling, General and Administrative Expenses, Loss from Operations and Other Expenses, net~~

SG&A in Other Businesses, Corporate and Eliminations include SG&A expenses of the customer relationship management, asset recovery management and IT infrastructure services business. It also includes costs related to corporate support functions not allocated to the Mortgage Market and Real Estate Market segments.

~~Other income (expense), net includes interest expense and non-operating gains and losses.~~

~~Other Businesses, Corporate and Eliminations also include eliminations of transactions between the reportable segments.~~

~~SG&A expenses consisted of the following:~~

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 8,044
$ 8,112
(1 ) $ 23,253
$ 24,641
(6 )
Occupancy related costs 2,257
3,291
(31 ) 8,307
9,917
(16 )
Amortization of intangible assets 418
500
(16 ) 1,391
1,501
(7 )
Professional services 1,228
1,543
(20 ) 3,991
7,247
(45 )
Marketing costs 36
81
(56 ) 163
348
(53 )
Depreciation and amortization 1,094
1,412
(23 ) 3,626
4,208
(14 )
Other 1,331
2,083
(36 ) 5,485
4,594
19

Selling, general and administrative expenses 14,408
17,022
(15 ) 46,216
52,456
(12 )

Other expenses, net 3,128
6,071
(48 ) 8,985
16,017
(44 )

Total corporate costs $ 17,536
$ 23,093
(24 ) $ 55,201
$ 68,473
(19 )

SG&A for the nine months ended September 30, 2017 of $46.2 million decreased by 12% compared to the nine months ended September 30, 2016 ($14.4 million for the third quarter of 2017, a 15% decrease compared to the third quarter of 2016). The decrease in SG&A for the nine months ended September 30, 2017 was primarily due to lower professional services legal costs in connection with the resolution of, and reduction in activities related to, several legal and regulatory matters and lower occupancy costs driven by subleasing certain office facilities during the fourth quarter of 2016 and the first half of 2017, partially offset by unfavorable loss accrual adjustments of $2.7 million related to facility closures and litigation related costs in other SG&A in the first half of 2017. The decrease in SG&A for the third quarter of 2017 was primarily due to lower occupancy costs, as discussed above.

Loss from operations decreased to $45.4 million for the nine months ended September 30, 2017 compared to a loss of $51.4 million for the nine months ended September 30, 2016 (decreased to $14.7 million for the third quarter of 2017 compared to a loss of $16.3 million for the third quarter of 2016). The decreases in loss from operations were primarily driven by decreases in SG&A, as discussed above.

Other expenses, net principally includes interest expense and other non-operating gains and losses. For the nine months ended September 30, 2017, other expenses, net of $9.0 million decreased by 44% compared to the nine months ended September 30, 2016 ($3.1 million for the third quarter of 2017, decreased by 48% compared to the third quarter of 2016) due to lower interest expense in 2017 and non-recurring expenses incurred in the first half of 2016, relating to our investment in RESI. In addition, other expenses, net decreased for the third quarter of 2017 from increased gains on the early extinguishment of debt and income related to our investment in RESI.

Interest expense was $16.9 million for the nine months ended September 30, 2017, a decrease of $1.6 million compared to the nine months ended September 30, 2016 ($5.6 million for the third quarter of 2017, a decrease of $0.4 million compared to the third quarter of 2016), primarily due to the 2017 and 2016 repurchases of portions of our senior secured term loan with an aggregate par value of $101.1 million, partially offset by an increase in the senior secured term loan interest rate from 4.50% as of December 31, 2016 and 4.72% as of June 30, 2017 to 4.74% as of September 30, 2017.

During the nine months ended 2017 and 2016, we earned dividends of $1.9 million and $1.0 million, respectively ($0.6 million for the third quarter of 2017 and no comparative amount for the third quarter of 2016) related to our investment in RESI. In addition, during the nine months ended September 30, 2016, we incurred expenses of $3.4 million related to this investment (no comparative amounts in 2017 and the third quarter of 2016).

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our primary source of liquidity ishas historically been cash ~~flows~~flow from ~~operations.~~operations, cash proceeds from sales of businesses and equity securities, and cash on hand. However, the COVID-19 pandemic and Ocwen’s transition of Field Services referrals to another service provider associated with certain MSRs have resulted in a reduction in cash flow from operations for the nine months ended September 30, 2020, as lower service revenue has not been fully offset by cash cost savings initiatives. We seek to deploy cash generated in a disciplined manner. Principally, we intend to use cash to develop and grow complementary services and businesses that we believe will generate attractive margins in line with our core capabilities and strategy. We use cash for ~~scheduled~~ repayments of our ~~senior secured term loan~~long-term debt, capital investments and ~~seek to~~we anticipate that we may use cash from time to time to repurchase shares of our common ~~stock and repurchase portions of our senior secured term loan.~~stock. In addition, we consider and evaluate business acquisitions, ~~that may arise~~dispositions, closures or other similar actions from time to time that are aligned with our strategy.

~~For~~Credit Agreement

In 2018, Altisource entered into the ~~nine months ended~~Credit Agreement pursuant to which Altisource borrowed $412.0 million in the form of Term B Loans and obtained a $15.0 million revolving credit facility. The Term B Loans mature in April 2024 and the revolving credit facility matures in April 2023. As of September 30, ~~2017, we used $48.6~~2020, $293.8 million ~~to repay and repurchase portions~~ of the ~~senior secured term loan ($23.8 million for~~Term B Loans were outstanding. Borrowings under the revolving credit facility are not permitted if our leverage ratio exceeds to 3.50 to 1.00. Our leverage ratio exceeded 3.50 to 1.00 during the third quarter of ~~2017) and $25.0 million to repurchase shares of our common stock ($9.5 million for the third quarter of 2017).~~

~~Senior Secured Term Loan~~

On November 27, 2012, Altisource Solutions S.à r.l., a wholly-owned subsidiary of Altisource Portfolio Solutions S.A., entered into a senior secured term loan agreement with Bank of America, N.A., as administrative agent, and certain lenders. Altisource Portfolio Solutions S.A. and certain subsidiaries are guarantors of the term loan. We subsequently entered into three amendments to the senior secured term loan agreement to increase the principal amount of the senior secured term loan and, among other changes, re-establish the $200.0 million incremental term loan facility accordion, lower the interest rate, extend the maturity date by approximately one year and increase the maximum amount of Restricted Junior Payments (as defined in the senior secured term loan agreement; other capitalized terms, unless defined herein, are defined in the senior secured term loan agreement). The lenders of the senior secured term loan, as amended, have2020. There were no ~~obligation to provide any such additional debt~~borrowings outstanding under the ~~accordion provision. As~~revolving credit facility as of September 30, ~~2017, $425.1~~2020.

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There are no mandatory repayments of the Term B Loans due until March 2023, when $1.3 million ~~was outstanding under~~ is due to be repaid. Thereafter, the ~~senior secured term loan agreement, as amended, compared to $479.7 million as of December 31, 2016.~~

In addition to the ~~senior secured term loan agreement. However,~~scheduled principal payments, subject to certain exceptions, the Term B Loans are subject to mandatory prepayment upon issuances of debt, certain casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if ~~the~~our leverage ratio ~~exceeds~~as of each year-end computation date is greater than 3.00 to 1.00, as calculated in accordance with the provisions of the ~~senior secured term loan agreement, a percentage of cash flows must be used to repay principal~~Credit Agreement (the percentage increases if ~~the~~our leverage ratio exceeds 3.50 to 1.00). NoCertain mandatory prepayments ~~were required for~~reduce future contractual amortization payments by an amount equal to the ~~nine months ended September 30, 2017.~~ mandatory prepayment.

The interest rate on the Term B Loans as of September 30, ~~2017~~2020 was ~~4.74%~~5.00%.

~~During~~Altisource may incur incremental indebtedness under the ~~nine months ended September 30, 2017, we repurchased portions of our senior secured term loan with~~Credit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate ~~par value~~incremental principal amount not to exceed $125.0 million, subject to certain conditions set forth in the Credit Agreement, including a sublimit of ~~$50.1~~$80.0 million ~~at a weighted average discount of 12.2%, recognizing a net gain of $5.4 million on~~with respect to incremental revolving credit commitments and, after giving effect to the ~~early extinguishment of debt (repurchased aggregate par value of $24.1 million at a weighted average discount of 7.5%, recognizing a net gain of $1.5 million on~~incremental borrowing, the ~~early extinguishment of debt for~~Company’s leverage ratio does not exceed 3.00 to 1.00. Our leverage ratio exceeded 3.00 to 1.00 during the third quarter of 2017). During the nine months ended September 30, 2016, we repurchased portions of our senior secured term loan with an aggregate par value of $51.0 million at a weighted average discount of 13.2%, recognizing a net gain of $5.5 million on the early extinguishment of debt (no repurchases in the third quarter of 2016).2020. The lenders have no obligation to provide any incremental indebtedness.

The ~~debt~~Credit Agreement includes covenants ~~in the senior secured term loan agreement~~that restrict or limit, among other things, our ability, subject to certain exceptions and baskets, to incur additional debt, pay dividends and repurchase shares of our common stock. In the event we require additional liquidity, our ability to obtain it may be limited by the ~~senior secured term loan.~~

Credit Agreement.

Cash Flows

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

(in thousands) 2017 2016 % Increase (decrease)

Net income adjusted for non-cash items $ 83,771
$ 115,024
(27 )
Changes in operating assets and liabilities (36,642 ) (8,989 ) N/M
Net cash provided by operating activities 47,129
106,035
(56 )
Net cash used in investing activities (7,558 ) (74,095 ) 90
Net cash used in financing activities (74,742 ) (76,319 ) 2
Net decrease in cash and cash equivalents (35,171 ) (44,379 ) 21
Cash and cash equivalents at the beginning of the period 149,294
179,327
(17 )

Cash and cash equivalents at the end of the period $ 114,123
$ 134,948
(15 )

~~N/M — not meaningful.~~


(in thousands)	2020		2019		% Increase (decrease)

Net (loss) income adjusted for non-cash items	$	(6,141)	$	35,116	(117)
Changes in operating assets and liabilities	(7,936)		(12,922)		39
Net cash (used in) provided by operating activities	(14,077)		22,194		(163)
Net cash provided by investing activities	805		45,729		(98)
Net cash used in financing activities	(2,471)		(61,344)		96
Net (decrease) increase in cash, cash equivalents and restricted cash	(15,743)		6,579		(339)
Cash, cash equivalents and restricted cash at the beginning of the period	86,583		64,046		35

Cash, cash equivalents and restricted cash at the end of the period	$	70,840	$	70,625	—

Cash Flows from Operating Activities

Cash flows from operating activities generally consist of the cash effects of transactions and events that enter into the determination of net (loss) income. For the nine months ended September 30, ~~2017,~~2020, cash flows ~~provided by~~used in operating activities were ~~$47.1~~$(14.1) million, or ~~$0.07~~approximately $(0.05) for every dollar of service revenue ($~~34.6 million, or $0.15~~(0.03) for every dollar of service revenue for the third quarter of ~~2017)~~2020), compared to cash flows ~~generated from~~provided by operating activities of ~~$106.0~~$22.2 million, or ~~$0.15~~approximately $0.05 for every dollar of service revenue for the nine months ended September 30, ~~2016 ($36.6 million, or $0.15~~2019 (cash used in operating activities of $(0.08) for every dollar of service revenue for the third quarter of ~~2016)~~2019). During the nine months ended September 30, 2020, the decrease in cash provided by operating activities was driven by a $41.3 million increase in net loss, adjusted for non-cash items, partially offset by lower cash used for changes in operating assets and liabilities of $5.0 million. The increase in net loss, adjusted for non-cash items, was primarily due to lower gross profit during the nine months ended September 30, 2020 from lower service revenue driven by the COVID-19 pandemic, reduced customer volumes and the July 1, 2019 sale of the Financial Services Business, partially offset by decreases in expenses as a result of COVID-19 cash cost savings measures, the Project Catalyst cost reduction initiatives and lower SG&A expenses. The decrease in cash ~~flows from operations~~used for changes in operating assets and liabilities was primarily driven by a decrease in accounts receivable of $10.1 million for the nine months ended September 30, ~~2017,~~2020 compared to an increase in accounts receivable of $31.6 million during the nine months ended September 30, ~~2016, was principally~~2019, largely driven by the ~~$28.0~~ timing of collections, a decrease in cash used for changes in operating assets and liabilities driven by $6.9

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million ~~net payment~~of payments of sales tax accruals during the first quarter of 2019 and lower cash payments for annual incentive compensation bonuses in the ~~previously accrued litigation settlement, an $11.6 million increase~~first quarter of 2020 by $7.3 million. These decreases in cash used for changes in operating assets and liabilities were largely offset by the decrease in short-term investments in real estate ~~and lower net income, partially offset by higher collections~~ of $39.9 million during the nine months ended September 30, 2019 related to the sale of the majority of the remaining BRS Inventory. During 2019, accounts receivable ~~primarily driven by timing~~increased in part as a result of ~~collections.~~

delays in receiving payments from Ocwen in connection with Ocwen’s transition to another mortgage servicing software platform. Operating cash flows can be negatively impacted because of the nature of some of our services and the mix of services provided. Certain services are performed immediately following or shortly after the referral, but the collection of the receivable does not occur until a specific event occurs (e.g., the foreclosure is complete, the REO asset is sold, etc.). Furthermore, lower margin services generate lower income and cash flows from operations. ~~In addition, annual incentive compensation bonuses are typically paid during the first quarter of each year.~~ Consequently, our cash flows from operations may be negatively impacted when comparing one ~~interim~~ period to another.

Cash Flows from Investing Activities

Cash flows from investing activities for the nine months ended September 30, ~~2017~~2020 and ~~2016 primarily included capital expenditures~~2019 consisted of additions to premises and ~~purchases~~equipment and ~~sales~~proceeds from the sale of ~~available~~a business and, for ~~sale securities. For~~ the nine months ended September 30, ~~2017 and 2016, we used $7.5~~2019, proceeds from the sale of equity securities. Cash flows provided by investing activities were $0.8 million and ~~$16.5~~$45.7 million ~~respectively,~~ for ~~capital expenditures~~the nine months ended September 30, 2020 and 2019, respectively. The change in cash provided by investing activities was primarily ~~related to investments~~driven by $38.0 million in net proceeds received from the ~~development~~sale of ~~certain software applications, IT infrastructure~~the Financial Services Business and ~~facility build-outs. The decrease~~$7.8 million in ~~capital expenditures primarily related to~~proceeds received from the ~~completion~~sale of ~~several software development projects and facility build-outs~~a portion of our investment in ~~2016. In addition,~~RESI common stock during the nine months ended September 30, ~~2016, we purchased 4.1~~2019 and net proceeds of $3.3 million ~~shares~~from the sale of ~~RESI common stock for $48.2 million including brokers’ commissions and acquired Granite for $9.6 million, prior to a $0.1 million purchase price adjustment (no comparative amounts in 2017).~~the Financial Services Business received on the one year anniversary of the sale closing received during the nine months ended September 30, 2020.

Cash Flows from Financing Activities

Cash flows from financing activities for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 primarily included ~~activities associated with~~payments of tax withholdings on issuance of restricted share ~~repurchases, debt repayments~~units and ~~repurchases, stock option exercises~~restricted shares and ~~payments~~distributions to non-controlling ~~interests. During~~interests, and for the nine months ended September 30, ~~2017~~2019, included repayments of long-term debt, the purchase of treasury shares and ~~2016, we~~proceeds from stock option exercises. Cash flows used ~~$25.0~~in financing activities were $(2.5) million and ~~$34.3~~$(61.3) million ~~respectively, to repurchase our common stock. In addition, during~~for the nine months ended September 30, ~~2017~~2020 and 2016, we used $48.6 million and $49.2 million, respectively, to repurchase portions of our senior secured term loan and make scheduled repayments of our senior secured term loan. During the nine months ended September 30, 2017 and 2016, stock option exercises provided proceeds of $2.1 million and $8.9 million,2019, respectively. During the nine months ended September 30, ~~2017~~2020 and ~~2016, we distributed $2.1 million and $1.6 million, respectively, to non-controlling interests. Also during the nine months ended September 30, 2017,~~2019, we made payments of ~~$1.1~~$(1.5) million in each period to satisfy employee tax withholding obligations on the issuance of restricted share units and restricted shares. These payments were made to tax authorities, at the employees’ direction, to satisfy the employees’ tax obligations rather than issuing a portion of vested restricted share units and restricted shares to employees.

In addition, during the nine months ended September 30, 2020 and 2019, we distributed $(1.0) million and $(2.0) million, respectively, to non-controlling interests. During the nine months ended September 30, 2019, we used $(44.8) million for repayments of long-term debt largely from proceeds received from the sales of the Financial Services Business and RESI shares and we used $(13.4) million to repurchase shares of our common stock.

Liquidity Requirements after September 30, ~~2017~~2020

~~On September 12, 2014, we acquired certain assets~~Our significant future liquidity obligations primarily pertain to long-term debt interest expense under the Credit Agreement (see Liquidity section above) and assumed certain liabilities of Mortgage Builder Software, Inc. (“Mortgage Builder”). The Mortgage Builder purchase agreement provides for the payment of up to $7.0 million in potential additional consideration based on Adjusted Revenue (as defined in the purchase agreement). As of September 30, 2017, we have recorded $0.4 million of potential additional consideration related to the Mortgage Builder acquisition. The amount ultimately paid will depend on Mortgage Builder’s Adjusted Revenue in the last of the three consecutive 12-month periods following acquisition, which concludes during the fourth quarter of 2017.

On July 17, 2015, we acquired CastleLine Holdings, LLC and its subsidiaries. A portion of the purchase consideration totaling $10.5 million is payable to the sellers over four years from the acquisition date, including $3.8 million to be paid to certain of the sellers that is contingent on future employment. As of September 30, 2017, we have paid $8.0 million of the up to $10.5 million that is payable over four years from the acquisition date and $1.3 million of the $3.8 million purchase consideration that is contingent on future employment.

lease payments. During the next 12 months, we expect to ~~distribute approximately $2.5 million to the Lenders One members representing non-controlling interest, make mandatory repayments of $5.9 million of the senior secured term loan and~~ pay ~~$20.0~~$14.7 million of interest expense (assuming no further principal repayments and the September 30, 2020 interest rate) under the ~~senior secured term loan agreement.~~Credit Agreement and make lease payments of $8.8 million.

We believe that our existing cash and cash ~~equivalent~~equivalents balances and our anticipated cash flows from operations will be sufficient to meet our liquidity needs, including to fund ~~capital expenditures~~required interest payments and ~~required debt and interest~~lease payments, for the next 12 months.

Contractual Obligations, Commitmentsand Contingencies

For the nine months ended September 30, ~~2017,~~2020, there were no significant changes to our contractual obligations from those identified in our Form 10-K for the fiscal year ended December 31, ~~2016,~~2019 and this Form 10-Q, other than those that occur in the normal course of business. See Note 2024 to the condensed consolidated financial statements.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RECENT ACCOUNTING ~~PRONOUNCEMENT~~PRONOUNCEMENTS

We prepare our interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. In applying many of these accounting principles, we need to make assumptions, estimates and 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 judgments, however, are often subjective.

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Actual results may be negatively affected 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 of our Form 10-K for the year ended December 31, ~~2016~~2019 filed with the SEC on ~~February 16, 2017. Those~~March 5, 2020. There have been no material changes to our critical accounting policies ~~have not changed~~ during the nine months ended September 30, ~~2017.~~2020.

Recently Adopted and Future Adoption of New Accounting Pronouncements

See Note 1 to the condensed consolidated financial statements for a discussion of recently issued accounting pronouncements, including pronouncements that were adopted in the ~~future adoption of new accounting pronouncements.~~current period.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

Our financial market risk consists primarily of interest rate and foreign currency exchange rate risk.

Interest Rate Risk

As of September 30, ~~2017,~~2020, the interest rate charged on the ~~senior secured term loan~~Term B Loan was ~~4.74%~~5.00%. The interest rate is calculated based on the Adjusted Eurodollar Rate (as defined in the senior secured term loan agreement) with a minimum floor of 1.00% plus ~~3.50%~~4.00%.

Based on the principal amount outstanding atand the Adjusted Eurodollar Rate as of September 30, ~~2017,~~2020, a one percentage point increase in the Eurodollar ~~Rate~~rate would increase our annual interest expense by approximately ~~$4.3 million, based on the September 30, 2017 Adjusted Eurodollar Rate.~~$2.9 million. There would be ~~a $1.0 million~~no decrease in our annual interest expense if there was a one percentage point decrease in the Eurodollar ~~Rate.~~

Rate, as a result of the 1.00% minimum floor.

Currency Exchange Risk

We are exposed to currency risk from potential changes in currency values of our non-United States dollar denominated expenses, assets, liabilities and cash flows. Our most significant currency exposure relates to the Indian rupee. Based on expenses incurred in Indian rupees ~~during~~for the third quarter of ~~2017,~~2020, a one percentage point increase or decrease in value of the Indian rupee in relation to the United States dollar would increase or decrease our annual expenses by approximately ~~$1.1~~$0.4 million.

Item 4. Controls and Procedures


a)	~~Evaluation of Disclosure Controls and Procedures~~

a) Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chairman and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, ~~2017,~~2020, an evaluation was conducted under the supervision and with the participation of our management, including our Chairman and Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based on this evaluation, such officers have concluded that our disclosure controls and procedures were effective as of September 30, ~~2017.~~2020.


b)	~~Internal Control over Financial Reporting~~

b) Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter ended September 30, ~~2017,~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

Regulatory Matters

As previously disclosed, Altisource received a Notice and Opportunity to Respond and Advise (“NORA”) letter on November 10, 2016 from the CFPB indicating that the CFPB is considering a potential enforcement action against Altisource relating to an alleged violation of federal law that primarily concerns certain technology services provided to Ocwen. The NORA letter provides the recipient an opportunity to present its positions to the CFPB before an enforcement action is recommended or commenced. On December 5, 2016, we provided a written response to the NORA letter setting forth the legal, policy and factual reasons why we believe an enforcement action is not warranted. We are committed to resolving any potential concerns of the CFPB. If the CFPB were to bring an enforcement action against us, the resolution of such action could have a material adverse impact on our business, reputation, financial condition and results of operations. However, we believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with any potential CFPB enforcement action.

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, ~~2016~~2019 filed with the SEC on ~~February 16, 2017,~~March 5, 2020, except as ~~follows:~~discussed in our Form 10-Q for the quarterly period ended March 31, 2020.

We are negotiating a Services Agreement with NRZ to provide certain-fee based services on the Ocwen Transferred Portfolio. If we are not able to reach an agreement with respect to the terms of the Services Agreement, our business and results of operations could be affected.

We executed a non-binding LOI, as amended, with NRZ to enter into a Services Agreement, setting forth the terms pursuant to which Altisource Solutions S.à r.l. would be the exclusive service provider of certain fee-based services with respect to the Ocwen Transferred Portfolio through August 2025. If we are not able to reach an agreement with respect to the terms of the Services Agreement, and our role as a service provider with respect to the Ocwen Transferred Portfolio is replaced or reduced, our revenue could be lower and our results of operations could be materially adversely affected.

We have entered into a Brokerage Agreement with NRZ’s licensed brokerage subsidiary with respect to the Ocwen Transferred Portfolio. If the Brokerage Agreement is terminated, our business and results of operations could be affected.

We have entered into a Brokerage Agreement with NRZ’s licensed brokerage subsidiary, and in a related letter agreement with NRZ, to provide real estate brokerage services on the Ocwen Transferred Portfolio and with respect to approximately $6 billion of non-Ocwen serviced non-GSE portfolios. The Brokerage Agreement and the letter agreement are effective through August 31, 2025 but may be terminated early upon certain termination events (including by us if we are not able to enter into a Services Agreement with NRZ), some of which are not subject to a cure period. If any one of these termination events occurs and the Brokerage Agreement is terminated, this could have a material adverse impact on our future revenue~~and results of operations.~~

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

~~The following table presents information related to our repurchases~~There were no purchases of ~~our equity securities~~shares of common stock during the three months ended September 30, ~~2017:~~2020. On May 15, 2018, our shareholders approved the renewal and replacement of the share repurchase program previously approved by the shareholders on May 17, 2017. Under the program, we are authorized to purchase up to 4.3 million shares of our common stock in the open market, subject to certain parameters, for a period of five years from the date of approval. As of September 30, 2020, the maximum number of shares that may be purchased under the repurchase program is 2.4 million shares of the Company’s common stock. In addition to the share repurchase program, during the three months ended September 30, 2020, 6,012 common shares were withheld from employees to satisfy tax withholding obligations that arose from the vesting of restricted shares.

Period Total number of shares purchased Weighted average price paid per share
Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾

Maximum number of shares that may yet be purchased under the plans or programs⁽¹⁾

Common stock:
July 1 – 31, 2017 —
$ —
—
4,219,665
August 1 – 31, 2017 22,200
22.46
22,200
4,197,465
September 1 – 30, 2017 250,920
23.57
250,920
3,946,545

273,120
$ 23.48
273,120
3,946,545

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⁽¹⁾	On May 17, 2017, our shareholders approved the renewal of the share repurchase program originally approved by the shareholders on May 18, 2016, which replaced the previous share repurchase program and authorizes us to purchase up to 4.6 million shares of our common stock in the open market, subject to certain parameters.

Item 6. Exhibits



~~3.1~~ Exhibit Number					~~Amended and Restated Articles of Incorporation of Altisource Portfolio Solutions S.A. (incorporated by reference to~~ Exhibit ~~3.1 of the Company’s Form 10-Q filed on August 9, 2017)~~ Description





~~10.1~~31.1 *			†	~~Form of Non-Qualified Stock Option Award Agreement (2017 Performance-Based Stock Options) (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on April 13, 2017)~~

~~10.2~~	†	~~Form of Non-Qualified Stock Option Award Agreement (Service Revenue Stock Options) (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on April 13, 2017)~~

~~10.3~~	†	~~Form of Restricted Stock Award Agreement (2017 Performance-Based Restricted Shares) (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on April 13, 2017)~~

~~10.4~~	†	~~Form of Restricted Stock Award Agreement (Service-Based Restricted Shares) (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed on April 13, 2017)~~

~~10.5~~	*†	~~Employment Agreement dated August 3, 2017 between Altisource Solutions S.à r.l. and Indroneel Chatterjee~~

~~10.6~~	*†	~~Non-Qualified Stock Option Award Agreement between the Company and Indroneel Chatterjee dated as of October 5, 2017~~

~~10.7~~	*†	~~Restricted Stock Award Agreement between the Company and Indroneel Chatterjee dated as of October 5, 2017~~

~~10.8~~	**	~~Cooperative Brokerage Agreement, dated as of August 28, 2017, between REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and New Residential Sales Corp.~~

~~10.9~~	**	Letter Agreement, dated as of August 28, 2017, between New Residential Investment Corp., New Residential Mortgage LLC, REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and Altisource Solutions S.à r.l.

~~31.1~~	*	Section 302 Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)

31.2*			*	Section 302 Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)

32.1*			*	Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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 September 30, ~~2017~~2020 is formatted in Inline XBRL interactive data files: (i) Condensed Consolidated Balance Sheets atas of September 30, ~~2017~~2020 and December 31, ~~2016;~~2019; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, ~~2017~~2020 and ~~2016;~~2019; (iii) Condensed Consolidated Statements of Equity for the nine months ended September 30, ~~2017~~2020 and ~~2016;~~2019; (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2020 and ~~2016;~~2019; and (v) Notes to Condensed Consolidated Financial Statements.

†104 *			~~Denotes a management contract or compensatory arrangement~~Cover Page Interactive Data File formatted as Inline XBRL and contained in Exhibit 101
*			~~Filed herewith~~
______________________________________
**			Filed herewith. ~~Portions of this exhibit have been redacted pursuant to a request for confidential treatment. The non-public information has been filed separately with the Securities and Exchange Commission.~~

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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)

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~(Registrant)~~

~~Date:~~

~~October 26, 2017~~

~~By:~~

~~/s/ William B. Shepro~~

~~William B. Shepro~~

~~Director and Chief Executive Officer~~

Date:

October 29, 2020

~~(Principal Executive Officer)~~

By:

~~Date:~~

~~October 26, 2017~~

~~By:~~

/s/ Michelle D. Esterman

Michelle D. Esterman

~~Executive Vice President, Finance~~

Chief Financial Officer

(On behalf of the Registrant and as its Principal Financial Officer and Principal Accounting Officer)


						Page
PART I — Financial Information

				~~Page~~
~~PART I — Financial Information~~

	Item 1		Interim Condensed Consolidated Financial Statements (Unaudited)
					Condensed Consolidated Balance Sheets	3
					Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	4
					Condensed Consolidated Statements of Equity	5
					Condensed Consolidated Statements of Cash Flows	67
					Notes to Condensed Consolidated Financial Statements	78

		Item 2			Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

		Item 3			Quantitative and Qualitative Disclosures about Market Risk	4543

		Item 4			Controls and Procedures	4643

PART II — Other Information

		Item 1			Legal Proceedings	4744

		Item 1A			Risk Factors	4744

		Item 2			Unregistered Sales of Equity Securities and Use of Proceeds	4844

		Item 6			Exhibits	4945

SIGNATURES						5046



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016

Revenue	$	234,979		$	252,745		$	726,147		$	758,676
Cost of revenue	174,898			174,002			538,244			517,236

Gross profit	60,081			78,743			187,903			241,440
Selling, general and administrative expenses	46,622			53,886			146,793			161,709

Income from operations	13,459			24,857			41,110			79,731
Other income (expense), net:
Interest expense	(5,599		)	(5,952		)	(16,862		)	(18,481		)
Other income (expense), net	2,497			(109		)	8,015			2,608
Total other income (expense), net	(3,102		)	(6,061		)	(8,847		)	(15,873		)

Income before income taxes and non-controlling interests	10,357			18,796			32,263			63,858
Income tax provision	(2,591		)	(7,324		)	(7,615		)	(12,808		)

Net income	7,766			11,472			24,648			51,050
Net income attributable to non-controlling interests	(805		)	(883		)	(2,107		)	(1,973		)

Net income attributable to Altisource	$	6,961		$	10,589		$	22,541		$	49,077

Earnings per share:
Basic	$	0.39		$	0.57		$	1.23		$	2.63
Diluted	$	0.38		$	0.54		$	1.20		$	2.49

Weighted average shares outstanding:
Basic	18,023			18,715			18,337			18,669
Diluted	18,429			19,568			18,854			19,738

Comprehensive income:
Net income	$	7,766		$	11,472		$	24,648		$	51,050
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of income tax benefit (provision) of $2,054, $(2,070), $(78), $889, respectively	(5,530		)	5,016			212			(2,156		)

Comprehensive income, net of tax	2,236			16,488			24,860			48,894
Comprehensive income attributable to non-controlling interests	(805		)	(883		)	(2,107		)	(1,973		)

Comprehensive income attributable to Altisource	$	1,431		$	15,605		$	22,753		$	46,921



	Altisource Equity
	Common stock			Additional paid-in capital		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock, at cost			Non-controlling interests			Total
	Shares

Balance, December 31, 2015	25,413	$	25,413	$	96,321	$	369,270		$	—		$	(440,026	)	$	1,292		$	52,270
Comprehensive income:
Net income	—	—		—		49,077			—			—			1,973			51,050
Other comprehensive loss, net of tax	—	—		—		—			(2,156		)	—			—			(2,156		)
Distributions to non-controlling interest holders	—	—		—		—			—			—			(1,637		)	(1,637		)
Share-based compensation expense	—	—		4,692		—			—			—			—			4,692
Exercise of stock options and issuance of restricted shares	—	—		—		(58,912		)	—			67,788			—			8,876
Repurchase of shares	—	—		—		—			—			(34,321		)	—			(34,321		)

Balance, September 30, 2016	25,413	$	25,413	$	101,013	$	359,435		$	(2,156	)	$	(406,559	)	$	1,628		$	78,774

Balance, December 31, 2016	25,413	$	25,413	$	107,288	$	333,786		$	(1,745	)	$	(403,953	)	$	1,405		$	62,194
Comprehensive income:
Net income	—	—		—		22,541			—			—			2,107			24,648
Other comprehensive income, net of tax	—	—		—		—			212			—			—			212
Distributions to non-controlling interest holders	—	—		—		—			—			—			(2,143		)	(2,143		)
Share-based compensation expense	—	—		3,237		—			—			—			—			3,237
Cumulative effect of an accounting change (Note 1)	—	—		932		(932		)	—			—			—			—
Exercise of stock options and issuance of restricted shares	—	—		—		(11,787		)	—			13,871			—			2,084
Treasury shares withheld for the payment of tax on restricted share issuances	—	—		—		(1,497		)	—			409			—			(1,088		)
Repurchase of shares	—	—		—		—			—			(24,995		)	—			(24,995		)

Balance, September 30, 2017	25,413	$	25,413	$	111,457	$	342,111		$	(1,533	)	$	(414,668	)	$	1,369		$	64,149



(in thousands)

Accounts receivable, net	$	1,024
Prepaid expenses	22
Other assets	25
Premises and equipment, net	299
Non-compete agreements	100
Trademarks and trade names	100
Customer relationships	3,400
Goodwill	4,827
	9,797
Accounts payable and accrued expenses	(57		)
Other current liabilities	(192		)

Purchase price	$	9,548



(in thousands)	Mortgage Market		Real Estate Market		Other Businesses, Corporate and Eliminations		Total

Balance as of September 30, 2017 and December 31, 2016	$	73,259	$	10,056	$	2,968	$	86,283



	Number of options		Weighted average exercise price		Weighted average contractual term (in years)	Aggregate intrinsic value (in thousands)

Outstanding at December 31, 2016	1,996,509		$	25.98	5.32	$	15,942
Granted	216,430		34.07
Exercised	(192,378	)	10.83
Forfeited	(222,920	)	31.21

Outstanding at September 30, 2017	1,797,641		27.93		5.14	8,413

Exercisable at September 30, 2017	1,170,148		22.56		3.48	7,723



	Three months ended September 30, 2017
(in thousands)	Mortgage Market		Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue	$	199,262	$	22,121		$	13,596		$	234,979
Cost of revenue	137,466		23,497			13,935			174,898
Gross profit (loss)	61,796		(1,376		)	(339		)	60,081
Selling, general and administrative expenses	28,006		4,208			14,408			46,622
Income (loss) from operations	33,790		(5,584		)	(14,747		)	13,459
Total other income (expense), net	26		—			(3,128		)	(3,102		)

Income (loss) before income taxes and non-controlling interests	$	33,816	$	(5,584	)	$	(17,875	)	$	10,357



	Three months ended September 30, 2016
(in thousands)	Mortgage Market		Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue	$	211,821	$	21,516		$	19,408		$	252,745
Cost of revenue	138,646		16,634			18,722			174,002
Gross profit	73,175		4,882			686			78,743
Selling, general and administrative expenses	29,903		6,961			17,022			53,886
Income (loss) from operations	43,272		(2,079		)	(16,336		)	24,857
Total other income (expense), net	10		—			(6,071		)	(6,061		)

Income (loss) before income taxes and non-controlling interests	$	43,282	$	(2,079	)	$	(22,407	)	$	18,796



	Nine months ended September 30, 2017
(in thousands)	Mortgage Market		Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue	$	614,180	$	67,314		$	44,653		$	726,147
Cost of revenue	421,942		72,484			43,818			538,244
Gross profit (loss)	192,238		(5,170		)	835			187,903
Selling, general and administrative expenses	86,493		14,084			46,216			146,793
Income (loss) from operations	105,745		(19,254		)	(45,381		)	41,110
Total other income (expense), net	138		—			(8,985		)	(8,847		)

Income (loss) before income taxes and non-controlling interests	$	105,883	$	(19,254	)	$	(54,366	)	$	32,263



	Nine months ended September 30, 2016
(in thousands)	Mortgage Market		Real Estate Market		Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue	$	626,522	$	70,229	$	61,925		$	758,676
Cost of revenue	408,412		47,946		60,878			517,236
Gross profit	218,110		22,283		1,047			241,440
Selling, general and administrative expenses	90,498		18,755		52,456			161,709
Income (loss) from operations	127,612		3,528		(51,409		)	79,731
Total other income (expense), net	144		—		(16,017		)	(15,873		)

Income (loss) before income taxes and non-controlling interests	$	127,756	$	3,528	$	(67,426	)	$	63,858



Period	Total number of shares purchased	Weighted average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾	Maximum number of shares that may yet be purchased under the plans or programs⁽¹⁾

Common stock:
July 1 – 31, 2017	—	$	—	—	4,219,665
August 1 – 31, 2017	22,200	22.46		22,200	4,197,465
September 1 – 30, 2017	250,920	23.57		250,920	3,946,545

	273,120	$	23.48	273,120	3,946,545