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, 20172022
OR
|
| | | | |
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 Registrantregistrant as specified in its Charter)
|
| | | | |
Luxembourg | 98-0554932 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
33, Boulevard Prince Henri
40, avenue Monterey
L-2163L-1724 Luxembourg
Grand Duchy of Luxembourg
(Address of principal executive offices) (Zip Code)
(352) 24 69 7927 61 49 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 sectionSection 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):
| | | | | | | | | | | | | | | | | | | | |
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, 2017,28, 2022, there were 17,904,73916,123,433 outstanding shares of the registrant’s shares of beneficial interestcommon stock (excluding 7,508,0099,289,315 shares held as treasury stock).
Table of Contents
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
FORM 10-Q
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, 2022 | | December 31, 2021 |
| | | |
ASSETS |
Current assets: | | | |
Cash and cash equivalents | $ | 63,812 | | | $ | 98,132 | |
| | | |
Accounts receivable, net | 14,335 | | | 18,008 | |
Prepaid expenses and other current assets | 21,704 | | | 21,864 | |
Total current assets | 99,851 | | | 138,004 | |
| | | |
Premises and equipment, net | 4,970 | | | 6,873 | |
Right-of-use assets under operating leases | 5,965 | | | 7,594 | |
Goodwill | 55,960 | | | 55,960 | |
Intangible assets, net | 33,010 | | | 36,859 | |
Deferred tax assets, net | 6,023 | | | 6,386 | |
Other assets | 5,503 | | | 6,132 | |
| | | |
Total assets | $ | 211,282 | | | $ | 257,808 | |
| | | |
LIABILITIES AND DEFICIT |
Current liabilities: | | | |
Accounts payable and accrued expenses | $ | 41,456 | | | $ | 46,535 | |
| | | |
Deferred revenue | 4,050 | | | 4,342 | |
Other current liabilities | 3,095 | | | 3,870 | |
Total current liabilities | 48,601 | | | 54,747 | |
| | | |
Long-term debt | 244,844 | | | 243,637 | |
Deferred tax liabilities, net | 8,849 | | | 9,028 | |
| | | |
Other non-current liabilities | 17,508 | | | 19,266 | |
| | | |
Commitments, contingencies and regulatory matters (Note 21) | | | |
| | | |
Equity (deficit): | | | |
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 16,117 outstanding as of September 30, 2022; 15,911 outstanding as of December 31, 2021) | 25,413 | | | 25,413 | |
Additional paid-in capital | 148,197 | | | 144,298 | |
Retained earnings | 131,124 | | | 186,592 | |
Treasury stock, at cost (9,296 shares as of September 30, 2022 and 9,502 shares as of December 31, 2021) | (414,102) | | | (426,445) | |
Altisource deficit | (109,368) | | | (70,142) | |
| | | |
Non-controlling interests | 848 | | | 1,272 | |
Total deficit | (108,520) | | | (68,870) | |
| | | |
Total liabilities and deficit | $ | 211,282 | | | $ | 257,808 | |
|
| | | | | | | |
| 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.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMELOSS
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Revenue | | $ | 38,380 | | | $ | 43,243 | | | $ | 118,317 | | | $ | 139,749 | |
Cost of revenue | | 34,387 | | | 40,667 | | | 104,611 | | | 134,862 | |
| | | | | | | | |
Gross profit | | 3,993 | | | 2,576 | | | 13,706 | | | 4,887 | |
| | | | | | | | |
| | | | | | | | |
Selling, general and administrative expenses | | 14,556 | | | 16,604 | | | 43,055 | | | 52,046 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Loss from operations | | (10,563) | | | (14,028) | | | (29,349) | | | (47,159) | |
Other income (expense), net: | | | | | | | | |
Interest expense | | (4,349) | | | (3,755) | | | (11,439) | | | (10,672) | |
| | | | | | | | |
Other income (expense), net | | 459 | | | (115) | | | 1,392 | | | 791 | |
Total other income (expense), net | | (3,890) | | | (3,870) | | | (10,047) | | | (9,881) | |
| | | | | | | | |
Loss before income taxes and non-controlling interests | | (14,453) | | | (17,898) | | | (39,396) | | | (57,040) | |
Income tax benefit (provision) | | 197 | | | (430) | | | (2,210) | | | (1,857) | |
| | | | | | | | |
Net loss | | (14,256) | | | (18,328) | | | (41,606) | | | (58,897) | |
Net (income) loss attributable to non-controlling interests | | (133) | | | 59 | | | (468) | | | 151 | |
| | | | | | | | |
Net loss attributable to Altisource | | $ | (14,389) | | | $ | (18,269) | | | $ | (42,074) | | | $ | (58,746) | |
| | | | | | | | |
Loss per share: | | | | | | | | |
Basic | | $ | (0.89) | | | $ | (1.15) | | | $ | (2.62) | | | $ | (3.71) | |
Diluted | | $ | (0.89) | | | $ | (1.15) | | | $ | (2.62) | | | $ | (3.71) | |
| | | | | | | | |
Weighted average shares outstanding: | | | | | | | | |
Basic | | 16,087 | | | 15,831 | | | 16,051 | | | 15,816 | |
Diluted | | 16,087 | | | 15,831 | | | 16,051 | | | 15,816 | |
| | | | | | | | |
Comprehensive loss: | | | | | | | | |
| | | | | | | | |
Comprehensive loss, net of tax | | $ | (14,256) | | | $ | (18,328) | | | $ | (41,606) | | | $ | (58,897) | |
Comprehensive (income) loss attributable to non-controlling interests | | (133) | | | 59 | | | (468) | | | 151 | |
| | | | | | | | |
Comprehensive loss attributable to Altisource | | $ | (14,389) | | | $ | (18,269) | | | $ | (42,074) | | | $ | (58,746) | |
|
| | | | | | | | | | | | | | | | |
| | 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.
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, 2020 | 25,413 | | | $ | 25,413 | | | $ | 141,473 | | | $ | 190,383 | | | | | $ | (441,034) | | | $ | 1,209 | | | $ | (82,556) | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | (22,002) | | | | | — | | | 87 | | | (21,915) | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | | | — | | | (1,395) | | | (1,395) | |
Share-based compensation expense | — | | | — | | | 1,438 | | | — | | | | | — | | | — | | | 1,438 | |
Issuance of restricted share units and restricted shares | — | | | — | | | — | | | (5,905) | | | | | 5,905 | | | — | | | — | |
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances | — | | | — | | | — | | | (3,586) | | | | | 2,756 | | | — | | | (830) | |
| | | | | | | | | | | | | | | |
Balance, March 31, 2021 | 25,413 | | | $ | 25,413 | | | $ | 142,911 | | | $ | 158,890 | | | | | $ | (432,373) | | | $ | (99) | | | $ | (105,258) | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | (18,475) | | | | | — | | | (179) | | | (18,654) | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | | | — | | | (356) | | | (356) | |
Share-based compensation expense | — | | | — | | | 641 | | | — | | | | | — | | | — | | | 641 | |
| | | | | | | | | | | | | | | |
Issuance of restricted share units and restricted shares | — | | | — | | | — | | | (4,574) | | | | | 4,574 | | | — | | | — | |
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances | — | | | — | | | — | | | (571) | | | | | 474 | | | — | | | (97) | |
| | | | | | | | | | | | | | | |
Balance, June 30, 2021 | 25,413 | | | $ | 25,413 | | | $ | 143,552 | | | $ | 135,270 | | | | | $ | (427,325) | | | $ | (634) | | | $ | (123,724) | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | (18,269) | | | | | — | | | (59) | | | (18,328) | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | | | — | | | (53) | | | (53) | |
Share-based compensation expense | — | | | — | | | 431 | | | — | | | | | — | | | — | | | 431 | |
Issuance of restricted share units and restricted shares | — | | | — | | | — | | | (84) | | | | | 84 | | | — | | | — | |
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances | — | | | — | | | — | | | (36) | | | | | 27 | | | — | | | (9) | |
| | | | | | | | | | | | | | | |
Balance, September 30, 2021 | 25,413 | | | $ | 25,413 | | | $ | 143,983 | | | $ | 116,881 | | | | | $ | (427,214) | | | $ | (746) | | | $ | (141,683) | |
| | | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Altisource Equity (Deficit) | | | | |
| Common stock | | Additional paid-in capital | | Retained earnings | | | | Treasury stock, at cost | | Non-controlling interests | | Total |
| Shares | | | | | | | | | | | | | | |
Balance, December 31, 2021 | 25,413 | | | $ | 25,413 | | | $ | 144,298 | | | $ | 186,592 | | | | | $ | (426,445) | | | $ | 1,272 | | | $ | (68,870) | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | (12,190) | | | | | — | | | 161 | | | (12,029) | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | | | — | | | (264) | | | (264) | |
Share-based compensation expense | — | | | — | | | 1,290 | | | — | | | | | — | | | — | | | 1,290 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Issuance of restricted share units and restricted shares | — | | | — | | | — | | | (6,560) | | | | | 6,560 | | | — | | | — | |
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances | — | | | — | | | — | | | (4,046) | | | | | 3,032 | | | — | | | (1,014) | |
| | | | | | | | | | | | | | | |
Balance, March 31, 2022 | 25,413 | | | $ | 25,413 | | | $ | 145,588 | | | $ | 163,796 | | | | | $ | (416,853) | | | $ | 1,169 | | | $ | (80,887) | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | (15,495) | | | | | — | | | 174 | | | (15,321) | |
| | | | | | | | | | | | | | | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | | | — | | | (486) | | | (486) | |
Share-based compensation expense | — | | | — | | | 1,289 | | | — | | | | | — | | | — | | | 1,289 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Issuance of restricted share units and restricted shares | — | | | — | | | — | | | (2,384) | | | | | 2,384 | | | — | | | — | |
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances | — | | | — | | | — | | | (38) | | | | | 29 | | | — | | | (9) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance, June 30, 2022 | 25,413 | | | $ | 25,413 | | | $ | 146,877 | | | $ | 145,879 | | | | | $ | (414,440) | | | $ | 857 | | | $ | (95,414) | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | (14,389) | | | | | — | | | 133 | | | (14,256) | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | | | — | | | (142) | | | (142) | |
Share-based compensation expense | — | | | — | | | 1,320 | | | — | | | | | — | | | — | | | 1,320 | |
Issuance of restricted share units and restricted shares | — | | | — | | | — | | | (260) | | | | | 260 | | | — | | | — | |
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances | — | | | — | | | — | | | (106) | | | | | 78 | | | — | | | (28) | |
| | | | | | | | | | | | | | | |
Balance, September 30, 2022 | 25,413 | | | $ | 25,413 | | | $ | 148,197 | | | $ | 131,124 | | | | | $ | (414,102) | | | $ | 848 | | | $ | (108,520) | |
See accompanying notes to condensed consolidated financial statements.
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 | | 2022 | | 2021 |
| | | | | | | |
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 | | Net loss | $ | (41,606) | | | $ | (58,897) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 27,411 |
| | 27,521 |
| Depreciation and amortization | 2,700 | | | 3,479 | |
Amortization of right-of-use assets under operating leases | | Amortization of right-of-use assets under operating leases | 2,254 | | | 6,340 | |
Amortization of intangible assets | 27,143 |
| | 36,432 |
| Amortization of intangible assets | 3,849 | | | 8,183 | |
Change in the fair value of acquisition related contingent consideration | 24 |
| | (1,174 | ) | |
| Share-based compensation expense | 3,237 |
| | 4,692 |
| Share-based compensation expense | 3,899 | | | 2,510 | |
Bad debt expense | 3,101 |
| | 763 |
| Bad debt expense | 578 | | | 1,268 | |
Gain on early extinguishment of debt | (5,419 | ) | | (5,464 | ) | |
| Amortization of debt discount | 225 |
| | 307 |
| Amortization of debt discount | 495 | | | 499 | |
Amortization of debt issuance costs | 625 |
| | 850 |
| Amortization of debt issuance costs | 712 | | | 623 | |
Deferred income taxes | — |
| | 17 |
| Deferred income taxes | (329) | | | 8 | |
Loss on disposal of fixed assets | 2,776 |
| | 30 |
| Loss on disposal of fixed assets | 1 | | | 117 | |
Other non-cash items | | Other non-cash items | — | | | 137 | |
| Changes in operating assets and liabilities: | |
| | |
| Changes in operating assets and liabilities: | | | |
Accounts receivable | 21,543 |
| | 3,505 |
| Accounts receivable | 3,095 | | | 1,846 | |
| Prepaid expenses and other current assets | (17,272 | ) | | (10,167 | ) | Prepaid expenses and other current assets | 160 | | | 598 | |
Other assets | 760 |
| | 496 |
| Other assets | 363 | | | 1,439 | |
Accounts payable and accrued expenses | 165 |
| | 7,005 |
| Accounts payable and accrued expenses | (5,014) | | | (2,738) | |
Current and non-current operating lease liabilities | | Current and non-current operating lease liabilities | (2,444) | | | (6,958) | |
Other current and non-current liabilities | (41,838 | ) | | (9,828 | ) | Other current and non-current liabilities | (1,006) | | | 413 | |
Net cash provided by operating activities | 47,129 |
| | 106,035 |
| |
Net cash used in operating activities | | Net cash used in operating activities | (32,293) | | | (41,133) | |
| | | | | | | |
Cash flows from investing activities: | |
| | |
| Cash flows from investing activities: | | | |
Additions to premises and equipment | (7,485 | ) | | (16,525 | ) | Additions to premises and equipment | (863) | | | (1,125) | |
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 from the sale of business | | Proceeds from the sale of business | 346 | | | 3,000 | |
| Net cash (used in) provided by investing activities | | Net cash (used in) provided by investing activities | (517) | | | 1,875 | |
| | | | | | | |
Cash flows from financing activities: | |
| | |
| Cash flows from financing activities: | | | |
Repayment and repurchases of long-term debt | (48,600 | ) | | (49,237 | ) | |
Proceeds from stock option exercises | 2,084 |
| | 8,876 |
| |
Purchase of treasury shares | (24,995 | ) | | (34,321 | ) | |
Proceeds from revolving credit facility | | Proceeds from revolving credit facility | — | | | 20,000 | |
Debt issuance costs | | Debt issuance costs | — | | | (531) | |
Proceeds from convertible debt payable to related parties (Note 1) | | Proceeds from convertible debt payable to related parties (Note 1) | — | | | 1,200 | |
Distributions to non-controlling interests | (2,143 | ) | | (1,637 | ) | Distributions to non-controlling interests | (892) | | | (1,804) | |
Payment of tax withholding on issuance of restricted shares | (1,088 | ) | | — |
| |
Net cash used in financing activities | (74,742 | ) | | (76,319 | ) | |
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 | (1,051) | | | (936) | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (1,943) | | | 17,929 | |
| | | | | | | |
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 in cash, cash equivalents and restricted cash | | Net decrease in cash, cash equivalents and restricted cash | (34,753) | | | (21,329) | |
Cash, cash equivalents and restricted cash at the beginning of the period | | Cash, cash equivalents and restricted cash at the beginning of the period | 102,149 | | | 62,096 | |
| | | | | | | |
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 | $ | 67,396 | | | $ | 40,767 | |
| | | | | | | |
Supplemental cash flow information: | |
| | |
| Supplemental cash flow information: | | | |
Interest paid | $ | 16,203 |
| | $ | 17,244 |
| Interest paid | $ | 10,167 | | | $ | 9,373 | |
Income taxes paid, net | 15,445 |
| | 14,178 |
| Income taxes paid, net | 2,556 | | | 2,736 | |
Acquisition of right-of-use assets with operating lease liabilities | | Acquisition of right-of-use assets with operating lease liabilities | 797 | | | 6,976 | |
Reduction of right-of-use assets from operating lease modifications or reassessments | | Reduction of right-of-use assets from operating lease modifications or reassessments | (172) | | | (5,665) | |
| | | | |
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 decrease in payables for purchases of premises and equipment | | Net decrease in payables for purchases of premises and equipment | $ | (65) | | | $ | (47) | |
| The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets and the unaudited consolidated statements of cash flows: | | The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets and the unaudited consolidated statements of cash flows: |
| | | September 30, 2022 | | September 30, 2021 |
| Cash and cash equivalents | | Cash and cash equivalents | $ | 63,812 | | | $ | 36,492 | |
Restricted cash | | Restricted cash | 3,584 | | | 4,275 | |
Total cash, cash equivalents and restricted cash reported in the statements of cash flows | | Total cash, cash equivalents and restricted cash reported in the statements of cash flows | $ | 67,396 | | | $ | 40,767 | |
See accompanying notes to condensed consolidated financial statements.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION
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 isWe 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.periods. Actual results could differ from those estimates. Intercompany transactions and accounts have been eliminated in consolidation.
Effective January 1, 2017,2022, our reportable segments changed as a result of changesa change 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.performance, and the related changes in our internal organization. We now report our operations through two new reportable segments: Mortgage MarketServicer and Real Estate Market. and Origination. In addition, we report Other Businesses, Corporate and EliminationsOthers separately. Prior to the January 1, 20172022 change in reportable segments, ourthe Company operated with one reportable segments were Mortgage Services, Financial Services and Technology Services.segment (total Company). Prior year comparable period segment disclosures have been restated to conform to the current year presentation. See Note 2122 for a description of our business segments.
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 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, 2017,2022, Lenders One had total assets of $4.6$1.1 million and total liabilities of $2.0$0.8 million. As of December 31, 2016,2021, Lenders One had total assets of $3.8$2.2 million and total liabilities of $1.5$1.4 million.
In 2019, Altisource created Pointillist, Inc. (“Pointillist”) and contributed the Pointillist® customer journey analytics business and $8.5 million to it. On May 27, 2021, Pointillist issued $1.3 million in principal of convertible notes to related parties with a maturity date of January 1, 2023. The notes bore interest at a rate of 7% per annum. The principal and unpaid accrued interest then outstanding under the notes (1) would automatically convert to Pointillist equity at the earlier of the time Pointillist receives proceeds of $5.0 million or more from the sale of its equity or January 1, 2023, or (2) are repaid in cash or converted into Pointillist common stock equity based on a $13.1 million Pointillist valuation (at the Lenders’ option) in the event of a corporate transaction or initial public offering of Pointillist. On December 1, 2021, the notes were converted to Pointillist equity and Altisource and other shareholders of Pointillist sold all of the equity interests in Pointillist (See Note 3 for additional information). Prior to the sale, Pointillist was owned by Altisource and management of Pointillist, with management of Pointillist owning a non-controlling interest representing 12.1% of the outstanding equity of Pointillist. Through December 1, 2021, 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.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
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, 2016,2021, as filed with the SEC on February 16, 2017.March 3, 2022.
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
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
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 AdoptedFuture Adoption of New Accounting PronouncementPronouncements
TheIn March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation - Stock Compensation2020-04, Reference Rate Reform (Topic 718)848): Improvements to Employee Share-Based Payment Accounting, became effective on January 1, 2017. This standard simplifies several aspectsFacilitation of the accounting for share-based payment transactions, including the income tax consequences, classificationEffects of awards as either equity or liabilities Reference Rate Reform on Financial Reporting 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 2014,2021, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers2021-01, Reference Rate Reform (Topic 606)848): Scope. This standard establishesapplies 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 single comprehensive model for entitieslimited period of time to useease the potential burden in accounting for revenue arising from contracts with customers(or recognizing the effects of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, supersedes most current revenue recognition guidance. The core principleparticularly, the risk of this newcessation of LIBOR. This standard is aneffective from the period from March 12, 2020 through December 31, 2022. An entity should recognize revenuemay elect to depictapply the transferamendments for contract modifications as 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 theany 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 investmentan interim period 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 relatedincludes 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 RESI investment was $1.5 million and $1.7 million, respectively.
In February 2016,date that the FASB issued ASU No. 2016-02, Leases (Topic 842). Thisfinancial statements are available to be issued. Once elected for a topic or an industry subtopic, the standard introduces a new lessee model that brings substantiallymust be applied prospectively for 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
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
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 arrangeeligible contract modifications for that goodtopic 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.industry subtopic. 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
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
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 the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Current guidance requires 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 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. This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period, and will be applied prospectively. Early adoption of this standard is permitted. The Company is currently evaluating the impact this guidance may have on itscondensed 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.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
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, 2022, Ocwen was our largest customer.customer, accounting for 40% of our total revenue for the nine months ended September 30, 2022 (45% of our revenue for the third quarter of 2022). Ocwen purchases certain mortgage services and technology services from us under the terms of master services agreements and amendments thereto (collectively, the “Ocwen ServiceServices Agreements”) with terms extending through August 2025.2030. Certain of the Ocwen ServiceServices Agreements among other things, contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing. Certainpricing, among other things.
Revenue from Ocwen primarily consists of revenue earned from the loan portfolios serviced and subserviced by Ocwen when Ocwen engages us as the service provider, and revenue earned directly from Ocwen, pursuant to the Ocwen Service Agreements also prohibitServices Agreements. For the nine months ended September 30, 2022 and 2021, we recognized revenue from Ocwen of $47.2 million and $44.7 million, respectively ($17.2 million and $13.6 million for the third quarter of 2022 and 2021, respectively). Revenue from establishing fee-based businesses that would directly or indirectly compete with Altisource’s services with respectOcwen as a percentage of segment and consolidated revenue was as follows:
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Servicer and Real Estate | | 56 | % | | 51 | % | | 52 | % | | 50 | % |
Origination | | — | % | | — | % | | — | % | | — | % |
Corporate and Others | | — | % | | — | % | | — | % | | 1 | % |
Consolidated revenue | | 45 | % | | 31 | % | | 40 | % | | 32 | % |
We earn additional revenue related to the Homeward Residential, Inc.portfolios serviced and Residential Capital, LLC servicing portfolios acquiredsubserviced 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, 2022 and 2021, we recognized revenue of $7.3 million and $7.4 million, respectively ($2.2 million and $1.9 million for the third quarter of 2022 and 2021, respectively), of such revenue. These amounts are not included in deriving revenue from Ocwen and revenue from Ocwen as a percentage of revenue discussed above.
As of September 30, 2022, accounts receivable from Ocwen totaled $4.9 million, $4.3 million of which was billed and $0.6 million of which was unbilled. As of December 201231, 2021, accounts receivable from Ocwen totaled $3.0 million, $2.8 million of which was billed and February 2013, respectively. In addition, Ocwen purchases certain origination services from Altisource under an agreement that continues until January 23, 2019, but$0.2 million of which is subject to a 90 day termination right by Ocwen.was unbilled.
Ocwen has disclosed that on July 23, 2017 it entered into a master agreement and a transfer agreement with New Residential InvestmentRITM
Rithm Capital Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “RITM”) (formerly New Residential Investment Corp., or “NRZ”) is a real estate investment trust that invests in and manages investments primarily related to undertake certain actions to facilitate the transfer from residential real estate, including MSRs and excess MSRs.
Ocwen to NRZhas disclosed that RITM is its largest client. As of Ocwen’s remaining interests in Ocwen’s non-government-sponsored enterprise (“non-GSE”) mortgage servicing rights (“MSRs”)June 30, 2022, approximately 18% of loans serviced and subservicing relating to approximately $110 billionsubserviced by Ocwen (measured in unpaid principal balance as(“UPB”)) were related to RITM MSRs or rights to MSRs (the “Subject MSRs”).
RITM purchases brokerage services for real estate owned (“REO”) exclusively from us, irrespective of June 30, 2017. On August 28, 2017, the Company entered intosubservicer, subject to certain limitations, for certain MSRs set forth in and pursuant to the terms of a Cooperative Brokerage Agreement, as amended, and related letter agreement (collectively, the “Brokerage Agreement”) with NRZ. As a result, we expect 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 as a percentage of segment 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 | % |
terms extending through August 2025.For the nine months ended September 30, 20172022 and 2016,2021, we generatedrecognized revenue from OcwenRITM of $422.1$2.6 million and $422.2$2.4 million, respectively ($136.40.8 million and $141.6$0.7 million for the third quarter of 20172022 and 2016,2021, 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, 20172022 and 2016,2021, we recognized additional revenue of $118.0$10.4 million and $146.0$10.9 million, respectively ($35.13.0 million and $48.0$3.4 million for the third quarter of 20172022 and 2016,2021, respectively), relatedrelating to the portfolios serviced by OcwenSubject MSRs 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 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 NRZRITM selects Altisource as the service provider.
NOTE 3— ACQUISITIONSALE OF BUSINESSES
Granite AcquisitionPointillist Business
On July 29, 2016, we acquired certain assetsOctober 6, 2021, Altisource and assumed certain liabilitiesother shareholders of Granite Loan ManagementPointillist entered into a definitive Stock Purchase Agreement (as amended, the “SPA”) to sell all of Delaware, LLCthe equity interests in Pointillist to Genesys Cloud Services, Inc. (“Granite”Genesys”) for $9.5$150.0 million (the “Purchase Price”) (the “Transaction”). The Purchase Price consisted of (1) an up-front payment of $144.5 million, subject to certain adjustments, (2) $0.5 million deposited into an escrow account to be used to satisfy potential deficits between estimated closing date working capital and actual closing date working capital (the “Working Capital Escrow”), with excess amounts remaining after satisfying such deficits (if any) being paid to the sellers, and (3) $5.0 million deposited into an escrow account to satisfy certain Genesys indemnification claims that may arise on or prior to the first anniversary of the sale closing and, at Genesys’ election, any working capital deficits that exceed the Working Capital Escrow (the “Indemnification Escrow”), with the balance to be paid to the sellers thereafter. The Transaction closed on December 1, 2021. On a fully diluted basis, Altisource owned approximately 69% of the equity of Pointillist. After working capital and other applicable adjustments, Altisource received approximately $106.0 million from the sale of its Pointillist equity and the collection of outstanding receivables, with $102.2 million received at closing, approximately $0.3 million deposited into the Working Capital Escrow and approximately $3.5 million deposited into the Indemnification Escrow. The Working Capital Escrow was received in cash. Granite provides residentialMay 2022. The present value of the amounts in escrow is included in other current assets in the accompanying condensed consolidated balance sheets at a discounted value of $3.4 million and commercial loan disbursement processing, risk mitigation$3.6 million as of September 30, 2022 and December 31, 2021, respectively.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
Rental Property Management Business
In August 2018, Altisource entered into an amendment to its agreements with Front Yard Residential Corporation (“RESI”) to sell Altisource’s rental property management business to RESI and construction inspectionpermit RESI to internalize certain services to lenders. that had been provided by Altisource. The Granite acquisition is not materialproceeds from the transaction totaled $18.0 million, payable in relation totwo installments. The first installment of $15.0 million was received in August 2018 and the Company’s resultssecond installment of operations or financial position.$3.0 million was received in January 2021.
The final allocation of the purchase price is as follows:
|
| | | | |
(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 SECURITIES
During the nine months ended September 30, 2016, we purchased 4.1 million shares of RESI common stock for $48.2 million. This investment is classified as available for sale and reflected in the condensed consolidated balance sheets at fair value at the respective balance sheet dates ($46.0 million as of September 30, 2017 and $45.8 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 earnings and a new cost basis in the investment would be established. 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 (no comparative amounts in 2017 and the third quarter of 2016) related to this investment.
NOTE 5 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
| | (in thousands) | | September 30, 2017 | | December 31, 2016 | (in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | | | | | | |
Billed | | $ | 48,108 |
| | $ | 58,392 |
| Billed | | $ | 13,384 | | | $ | 17,907 | |
Unbilled | | 23,951 |
| | 39,853 |
| Unbilled | | 5,432 | | | 5,398 | |
| | 72,059 |
| | 98,245 |
| | 18,816 | | | 23,305 | |
Less: Allowance for doubtful accounts | | (8,882 | ) | | (10,424 | ) | |
Less: Allowance for credit losses | | Less: Allowance for credit losses | | (4,481) | | | (5,297) | |
| | | | | | | | |
Total | | $ | 63,177 |
| | $ | 87,821 |
| Total | | $ | 14,335 | | | $ | 18,008 | |
Unbilled receivablesaccounts receivable consist primarily of certain real estate asset management, REO sales, title and salesclosing services for which we generally recognize revenue when the service is provided but collect upon closing of the sale, and default managementforeclosure 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 receivablesaccounts receivable that are earned during a month and billed in the following month.
We are exposed to credit losses through our sales of products and services to our customers which are recorded as accounts receivable, net on the Company’s condensed consolidated financial statements. We monitor and estimate the allowance for credit losses based on our historical write-offs, historical collections, our analysis of past due accounts based on the contractual terms of the receivables, relevant market and industry reports and our assessment of the economic status of our customers, if known. Estimated credit losses are written off in the period in which the financial asset is determined to be no longer collectible. There can be no assurance that actual results will not differ from estimates or that consideration of these factors in the future will not result in an increase or decrease to our allowance for credit losses.
Changes in the allowance for expected credit losses consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Additions | |
(in thousands) | | Balance at Beginning of Period | | Charged to Expenses | | Deductions Note (1) | | Balance at End of Period |
| | | | | | | | |
Allowance for expected credit losses: | | | | | | | | |
| | | | | | | | |
Nine months ended September 30, 2022 | | $ | 5,297 | | | $ | 578 | | | $ | 1,394 | | | $ | 4,481 | |
Twelve months ended December 31, 2021 | | 5,581 | | | 1,354 | | | 1,638 | | | 5,297 | |
| | | | | | | | |
(1) Amounts written off as uncollectible or transferred to other accounts or utilized.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 65 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | |
Income taxes receivable | | $ | 6,214 | | | $ | 8,403 | |
Maintenance agreements, current portion | | 1,794 | | | 1,717 | |
Prepaid expenses | | 3,614 | | | 2,865 | |
Surety bond collateral | | 4,000 | | | 2,000 | |
Other current assets | | 6,082 | | | 6,879 | |
| | | | |
Total | | $ | 21,704 | | | $ | 21,864 | |
|
| | | | | | | | |
(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 76 — PREMISES AND EQUIPMENT, NET
Premises and equipment, net consists of the following:
| | (in thousands) | | September 30, 2017 | | December 31, 2016 | (in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | | | | | | |
Computer hardware and software | | $ | 175,512 |
| | $ | 164,877 |
| Computer hardware and software | | $ | 49,339 | | | $ | 50,452 | |
Leasehold improvements | | Leasehold improvements | | 5,848 | | | 5,927 | |
Furniture and fixtures | | Furniture and fixtures | | 3,840 | | | 4,441 | |
Office equipment and other | | 12,077 |
| | 20,188 |
| Office equipment and other | | 440 | | | 811 | |
Furniture and fixtures | | 13,826 |
| | 13,997 |
| |
Leasehold improvements | | 33,570 |
| | 33,808 |
| |
| | | 234,985 |
| | 232,870 |
| | 59,467 | | | 61,631 | |
Less: Accumulated depreciation and amortization | | (154,162 | ) | | (129,397 | ) | Less: Accumulated depreciation and amortization | | (54,497) | | | (54,758) | |
| | | | | | | | |
Total | | $ | 80,823 |
| | $ | 103,473 |
| Total | | $ | 4,970 | | | $ | 6,873 | |
Depreciation and amortization expense totaled $27.4amounted to $2.7 million and $27.5$3.5 million for the nine months ended September 30, 20172022 and 2016,2021, respectively ($8.50.9 million and $9.2$1.1 million for the third quarter of 20172022 and 2016,2021, 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.loss.
NOTE 7 — RIGHT-OF-USE ASSETS UNDER OPERATING LEASES, NET
Right-of-use assets under operating leases, net consists of the following:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | |
Right-of-use assets under operating leases | | $ | 12,529 | | | $ | 19,595 | |
Less: Accumulated amortization | | (6,564) | | | (12,001) | |
| | | | |
Total | | $ | 5,965 | | | $ | 7,594 | |
Amortization of operating leases was $2.3 million and $6.3 million for the nine months ended September 30, 2022 and 2021, respectively ($0.5 million and $1.8 million for the third quarter of 2022 and 2021, 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 loss.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 8 — GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The following is a summary of goodwill by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Total |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Balance as of September 30, 2022 and December 31, 2021 | | $ | 30,681 | | | $ | 25,279 | | | $ | — | | | $ | 55,960 | |
|
| | | | | | | | | | | | | | | | |
(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 |
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
each of our reporting units.
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 | | | 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 | (in thousands) | | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Definite lived intangible assets: | | | | | | | | | | | | | 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 |
| Customer related intangible assets | | 9 | | $ | 214,307 | | | $ | 214,307 | | | $ | (196,844) | | | $ | (194,594) | | | $ | 17,463 | | | $ | 19,713 | |
Operating agreement | | 20 | | 35,000 |
| | 35,000 |
| | (13,424 | ) | | (12,104 | ) | | 21,576 |
| | 22,896 |
| Operating agreement | | 20 | | 35,000 | | | 35,000 | | | (22,166) | | | (20,854) | | | 12,834 | | | 14,146 | |
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 |
| |
Trademarks and trade names | | Trademarks and trade names | | 16 | | 9,709 | | | 9,709 | | | (6,996) | | | (6,709) | | | 2,713 | | | 3,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 333,787 |
| | $ | 333,787 |
| | $ | (205,498 | ) | | $ | (178,355 | ) | | $ | 128,289 |
| | $ | 155,432 |
| Total | | $ | 259,016 | | | $ | 259,016 | | | $ | (226,006) | | | $ | (222,157) | | | $ | 33,010 | | | $ | 36,859 | |
Amortization expense for definite lived intangible assets was $27.1$3.8 million and $36.4$8.2 million for the nine months ended September 30, 20172022 and 2016,2021, respectively ($8.61.3 million and $11.5$2.7 million for the third quarter of 20172022 and 2016,2021, respectively). AnticipatedForecasted annual definite lived intangible asset amortization expense for 20172022 through 20212026 is $34.6$5.1 million, $26.2$5.1 million, $21.8$5.1 million, $18.2$5.1 million and $12.3$4.9 million, respectively.
NOTE 9 — OTHER ASSETS
Other assets consist of the following:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | |
Restricted cash | | $ | 3,584 | | | $ | 4,017 | |
Security deposits | | 825 | | | 1,043 | |
| | | | |
Other | | 1,094 | | | 1,072 | |
| | | | |
Total | | $ | 5,503 | | | $ | 6,132 | |
|
| | | | | | | | |
(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 |
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 10 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable and accrued expenses consist of the following:
|
| | | | | | | | |
(in thousands) | | September 30, 2017 | | December 31, 2016 |
| | | | |
Accounts payable | | $ | 12,251 |
| | $ | 8,787 |
|
Accrued salaries and benefits | | 42,312 |
| | 47,614 |
|
Accrued expenses - general | | 28,789 |
| | 26,426 |
|
Income taxes payable | | — |
| | 308 |
|
| | | | |
Total | | $ | 83,352 |
| | $ | 83,135 |
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | |
Accounts payable | | $ | 13,937 | | | $ | 15,978 | |
Accrued expenses - general | | 14,920 | | | 13,653 | |
Accrued salaries and benefits | | 10,711 | | | 12,254 | |
Income taxes payable | | 1,888 | | | 4,650 | |
| | | | |
Total | | $ | 41,456 | | | $ | 46,535 | |
Other current liabilities consist of the following:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | |
Operating lease liabilities | | $ | 2,303 | | | $ | 2,893 | |
Other | | 792 | | | 977 | |
| | | | |
Total | | $ | 3,095 | | | $ | 3,870 | |
|
| | | | | | | | |
(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 11 — LONG-TERM DEBT
Long-term debt consists of the following:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | |
Senior secured term loans | | $ | 247,204 | | | $ | 247,204 | |
Less: Debt issuance costs, net | | (1,053) | | | (1,632) | |
Less: Unamortized discount, net | | (999) | | | (1,494) | |
| | | | |
| | | | |
Total Senior secured term loans | | 245,152 | | | 244,078 | |
| | | | |
Credit Facility | | — | | | — | |
Less: Debt issuance costs, net | | (308) | | | (441) | |
Net Credit Facility | | (308) | | | (441) | |
| | | | |
| | | | |
| | | | |
Total Long-term debt | | $ | 244,844 | | | $ | 243,637 | |
|
| | | | | | | | |
(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 |
|
Credit AgreementOn 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 loancredit 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. Altisource terminated the revolving credit facility on December 1, 2021. Altisource Portfolio Solutions S.A. and certain subsidiaries are guarantors of the term loanTerm B Loans (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-establishTerm B Loans except as set forth below until the $200.0 million incremental term loan facility accordion, lower the interest rate, extend theApril 2024 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 must be repaid in equal consecutive quarterly principal installments of $1.5 million, withwhen the balance due at maturity.is due. All amounts outstanding under the senior secured term loan agreementTerm B Loans will become due on the earlier of (i) December 9, 2020April 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 agreementCredit Agreement upon the occurrence of any event of default under the senior secured term loan agreement.default.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
In addition to the scheduled principal payments, subject to certain exceptions, the term loan isTerm 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 theour 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 agreementCredit Agreement (the percentage increases if theour leverage ratio exceeds 3.50 to 1.00). No mandatory prepayments were owed for
Altisource may incur incremental indebtedness under the nine months ended September 30, 2017.
During the nine months ended September 30, 2017, we repurchased portions of our senior secured term loan withCredit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate par value of $50.1incremental principal amount not to exceed $125.0 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 repurchasessubject to certain conditions set forth in the third quarterCredit Agreement, including a sublimit of 2016).$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. The lenders have no obligation to provide any incremental indebtedness.
The term loan bearsTerm 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 applicablea 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, 20172022 was 4.74%6.25%.
Term loan payments areThe payment of all amounts owing by Altisource under the Credit Agreement is guaranteed by the Guarantors and areis 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.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
The senior secured term loan agreementCredit Agreement includes covenants that restrict or limit, among other things, our ability, to: createsubject 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 linesmake 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 yearyear; and engage in mergers and consolidations.
The senior secured term loan agreementCredit 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 agreementCredit 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) failure to pay principal or interest on any other debt that equals or exceeds $40.0 million when due, (v) 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) occurrence of a Change of Control, (vii) bankruptcy and insolvency events, (viii) 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) the occurrence of certain ERISA events and (x) 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 agreementCredit Agreement or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.
As of September 30, 2017,2022, debt issuance costs were $3.4$1.1 million, net of $6.8$3.5 million of accumulated amortization. As of December 31, 2016,2021, debt issuance costs were $4.5$1.6 million, net of $5.8$2.9 million of accumulated amortization.
Credit Facility
On June 22, 2021 Altisource S.à r.l, a subsidiary of Altisource Portfolio Solutions S.A., entered into a revolving credit facility with a related party, STS Master Fund, Ltd. (“STS”) (the “Credit Facility”). STS is an investment fund managed by Deer Park Road Management Company, LP. Deer Park Road Management Company, LP owns approximately 24% of Altisource’s common stock as of September 30, 2022. Deer Park’s Chief Investment Officer and managing partner was a member of Altisource’s Board of Directors until his resignation on March 1, 2022. The replacement director appointed by the Board of Directors is a current employee of Deer Park. Under the terms of the Credit Facility, STS will make loans to Altisource from time to time, in amounts requested by Altisource and Altisource may voluntarily prepay all or any portion of the outstanding loans at any time. The Credit Facility provides Altisource the ability to borrow a maximum amount of $20.0 million through June 22, 2022, $15.0 million through June 22, 2023, and $10.0 million until the end of the term. Amounts that are repaid may be re-borrowed in accordance with the limitations set forth below.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
Outstanding amounts borrowed pursuant to the Credit Facility will amortize over the three-year term as follows: on June 22, 2022, the difference between the then outstanding balance above $15.0 million and $15.0 million, on June 22, 2023, the difference between the then outstanding balance above $10.0 million and $10.0 million, and on June 22, 2024, the then outstanding balance of the loan will be due and payable by Altisource.
Borrowings under the Credit Facility bear interest at 9.00% per annum and are payable quarterly on the last business day of each March, June, September and December. In connection with the Credit Facility, Altisource is required to pay customary fees, including an upfront fee equal to $0.5 million at the initial extension of credit pursuant to the facility, an unused line fee of 0.5% and, an early termination fee in the event of a refinancing transaction.
Altisource’s obligations under the Credit Facility are secured by a lien on all equity in Altisource’s subsidiary incorporated in India, Altisource Business Solutions Private Limited, pursuant to a pledge agreement entered into by Altisource Asia Holdings Ltd I, a wholly owned Altisource subsidiary.
The Credit Facility contains additional representations, warranties, covenants, terms and conditions customary for transactions of this type, that restrict or limit, among other things, our ability to use the proceeds of credit only for general corporate purposes.
The Credit Facility 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 Credit Facility within three business days of becoming due, (ii) failure to perform or observe any material provisions of the Credit Documents to be performed or complied with, (iii) material incorrectness of representations and warranties when made, (iv) 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, (v) 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, (vi) occurrence of a Change of Control, (vii) bankruptcy and insolvency events. If any event of default occurs and is not cured within applicable grace periods set forth in the Credit Facility or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.
As of September 30, 2022 and December 31, 2021, there was no outstanding debt under the Credit Facility. As of September 30, 2022 and December 31, 2021, debt issuance costs were $0.3 million, net of $0.2 million of accumulated amortization, and $0.4 million, net of $0.1 million of accumulated amortization, respectively.
NOTE 12 — OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | |
Operating lease liabilities | | $ | 3,800 | | | $ | 5,029 | |
Income tax liabilities | | 13,588 | | | 14,156 | |
Deferred revenue | | 36 | | | — | |
Other non-current liabilities | | 84 | | | 81 | |
| | | | |
Total | | $ | 17,508 | | | $ | 19,266 | |
|
| | | | | | | | |
(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 |
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 13 — 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, 20172022 and December 31, 2016.2021. 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, 2022 | | December 31, 2021 |
(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 | | $ | 63,812 | | | $ | 63,812 | | | $ | — | | | $ | — | | | $ | 98,132 | | | $ | 98,132 | | | $ | — | | | $ | — | |
Restricted cash | | 4,200 |
| | 4,200 |
| | — |
| | — |
| | 4,127 |
| | 4,127 |
| | — |
| | — |
| Restricted cash | | 3,584 | | | 3,584 | | | — | | | — | | | 4,017 | | | 4,017 | | | — | | | — | |
Available for sale securities | | 46,044 |
| | 46,044 |
| | — |
| | — |
| | 45,754 |
| | 45,754 |
| | — |
| | — |
| |
| Short-term receivable | | Short-term receivable | | 3,433 | | | — | | | — | | | 3,433 | | | 3,643 | | | — | | | — | | | 3,643 | |
| | | | | | | | | | | | | | | | | | |
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 | | 247,204 | | | — | | | 200,235 | | | — | | | 247,204 | | | — | | | 224,956 | | | — | |
|
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.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
Available for sale securities are carried at fair value and consist of 4.1 million shares of RESI common stock. Available for sale securities are measured using Level 1 inputs as these securities have quoted prices in active markets.
The fair value of our long-term debtsenior 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 periodconnection with the changesale of Pointillist on December 1, 2021, Altisource is scheduled to receive, assuming no indemnification claims, $3.5 million on the first anniversary of the sale closing and received $0.3 million from the Working Capital Escrow in fair value recognized in earnings. LiabilitiesMay 2022 (See Note 3 for acquisition related contingent consideration were recorded in connection with acquisitions in prior years.additional information). We measure the liabilities for acquisition related contingent consideration using Level 3 inputs as they are determinedshort-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 portionderived 45% and 40% of its revenuesrevenue from Ocwen for the three and nine months ended September 30, 2022, respectively (see Note 2 for additional information on Ocwen revenues and accounts receivable balance). The Company mitigatesstrives 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 14 — 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 4.64.3 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, 2017,2022, approximately 3.92.4 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, 2022 and 2021. 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, 2022, we can repurchase up to approximately $71 million of our common stock under Luxembourg law. Our senior secured term loanCredit Agreement also limits the amount we can spend on share repurchases, which limit was approximately $403$421 million as of September 30, 2017,2022, and may prevent repurchases in certain circumstances.circumstances, including if our leverage ratio exceeds 3.50 to 1.00.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
Share-Based Compensation
We issue share-based awards in the form of stock options, restricted shares and restricted sharesshare units for certain employees, officers and directors. We recordedrecognized share-based compensation expense of $3.2$3.9 million and $4.7$2.5 million for the nine months ended September 30, 20172022 and 2016,2021, respectively ($1.41.3 million and $1.1$0.4 million for the third quarter of 20172022 and 2016,2021, respectively). As of September 30, 2017,2022, estimated unrecognized compensation costs related to share-based awards amounted to $9.4$4.0 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 2.151.43 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 736185 thousand service-based awardsoptions were outstanding as of September 30, 2017.2022.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
Market-Based Options. These option grants generally have two 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 awardsoptions 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 93596 thousand market-based awardsoptions were outstanding as of September 30, 2017.2022.
Performance-Based Options.These option grants begin togenerally will vest upon the achievement ofif certain specific financial measures. Generally, the awards begin vesting if the performance criteriameasures are achieved; one-third vesttypically with one-fourth vesting on each anniversary of the grant date. For certain other financial measures, awards cliff-vest upon the achievement of the specific performance during the period from 2017 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 generally 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 isoptions are canceled. The options generally expire on the earlier of ten years after the date of grant or following termination of service.service, unless the performance criteria is met prior to termination of service in which case vesting will generally continue in accordance with the provisions of the award agreement. There were 126450 thousand performance-based awardsoptions outstanding as of September 30, 2017.2022.
The Company granted 216105 thousand stock options (at a weighted average exercise price of $34.07$11.86 per share) and 143 thousand stock options (at a weighted average exercise price of $29.22 per share) duringfor the nine months ended September 30, 2017 and 2016, respectively.2022 (no comparative amount for the nine months ended September 30, 2021).
The fair values of the service-based options and performance-based options wereare 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, 20172022 | | Nine months ended
September 30, 2016 |
| Black-Scholes | Black-Scholes | | Binomial | | Black-Scholes | | Binomial |
| | | | | | | | |
Risk-free interest rate (%) | 1.62 | 1.89 - 2.29 |
| | 0.77 - 2.38 |
| | 1.25 - 1.89 |
| | 0.23 - 1.97 |
|
Expected stock price volatility (%) | 67.75 | 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 | 6.00 - 7.50 |
| | 2.55 - 4.32 |
| | 6.00 - 6.25 |
| | 4.54 - 4.88 |
|
Fair value | $ | $13.57 - $24.807.27 |
| | $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.
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 periodperiods 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 |
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | |
| | Nine months ended September 30, |
(in thousands, except per share data) | | 2022 | | 2021 |
| | | | |
Weighted average grant date fair value of stock options granted per share | | $ | 8.19 | | | $ | — | |
Intrinsic value of options exercised | | — | | | — | |
Grant date fair value of stock options that vested | | 1,031 | | | 1,203 | |
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, 2021 | 687,339 | | | $ | 27.99 | | | 4.57 | | $ | — | |
Granted | 105,000 | | | 11.86 | | | | | |
| | | | | | | |
Forfeited | (61,800) | | | 59.07 | | | | | |
| | | | | | | |
Outstanding as of September 30, 2022 | 730,539 | | | 27.34 | | | 4.98 | | 131 | |
| | | | | | | |
Exercisable as of September 30, 2022 | 542,290 | | | 25.44 | | | 4.42 | | — | |
Other Share-Based Awards
The Company’s other share-based and similar types of awards are composedcomprised of restricted shares and through August 29, 2016, Equity Appreciation Rights (“EAR”).restricted share units. The restricted shares and restricted share units are composedcomprised of a combination of service-based awards, performance-based awards, market-based awards and performance-basedperformance and market-based awards.
Service-Based Awards. These awards generally vest over one to four yearsyear periods with eithervesting in equal annual cliff-vesting, vesting of all of the restricted shares at the end of the vesting period or vesting beginning after two years of service.installments. A total of 272402 thousand service-based awards were outstanding as of September 30, 2017.2022.
Performance-Based Awards.These awards generally begin to vest upon the achievement ofif certain specific financial measures. Generally, the awards begin vesting if the performance criteriameasures are achieved; generally one-third vestvests on each anniversary of the grant date or cliff-vest on the third anniversary of the grant date. The awardnumber of performance-based restricted shares and restricted share units that may vest is adjusted based on the level of achievement as specified in the award agreements. If the performance criteria achieved is above thresholdcertain financial performance levels and Altisource’s share performance is above certain established criteria, participants have the opportunity to vest in 80%up to 150% 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 42154 thousand performance-based awards were outstanding as of September 30, 2017.2022.
Market-Based Awards. 50% of these awards generally vest if certain specific market conditions are achieved over a 30-day period and the remaining 50% of these awards generally vest on the one year anniversary of the initial vesting. The Company estimates the grant date fair value of these awards using a lattice (binomial) model. A total of 112 thousand market-based awards were outstanding as of September 30, 2022.
Performance-Based and Market-Based Awards. These awards generally vest if certain specific financial measures are achieved and if certain specific market conditions are achieved. If the performance criteria achieved is above certain financial performance levels and Altisource’s share performance is above certain established criteria, participants have the opportunity to vest in up to 300% of the restricted share unit award for certain awards. If the performance criteria or the market criteria is below certain thresholds, the award is canceled. The Company estimates the grant date fair value of these awards using a Monte Carlo simulation model. A total of 98 thousand performance-based and market-based awards were outstanding as of September 30, 2022.
The Company granted 189440 thousand restricted sharesshare units (at a weighted average grant date fair value of $30.94$10.69 per share) during the nine months ended September 30, 2017.2022. These grants include 46 thousand performance-based awards that include both a performance condition and a market condition and 46 thousand performance-based awards, for the nine months ended September 30, 2022. The Company granted 29 thousand performance-based awards that include both a performance condition and a market condition and 89 thousand performance-based awards, for the nine months ended September 30, 2021.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
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, 20162021 | 231,730677,175 |
|
Granted | 188,622440,072 |
|
Issued | (49,538(205,905) | ) |
Forfeited/canceled | (56,575(145,377) | ) |
| |
Outstanding atas of September 30, 20172022 | 314,239765,965 |
|
Effective August 29, 2016, the EAR plans were terminated.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 15 — REVENUE
Revenue includesWe 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 and sales of short-term investments in real estate.services. 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 isAltisource. 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) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Service revenue | | $ | 36,290 | | | $ | 41,626 | | | $ | 111,691 | | | $ | 133,672 | |
Reimbursable expenses | | 1,957 | | | 1,416 | | | 6,158 | | | 5,365 | |
Non-controlling interests | | 133 | | | 201 | | | 468 | | | 712 | |
| | | | | | | | |
Total | | $ | 38,380 | | | $ | 43,243 | | | $ | 118,317 | | | $ | 139,749 | |
Disaggregation of Revenue
Disaggregation of total revenues by segment and major source was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2022 |
(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 |
| | | | | | | | |
Servicer and Real Estate | | $ | 26,387 | | | $ | 2,633 | | | $ | 1,846 | | | $ | 30,866 | |
Origination | | 7,392 | | | 11 | | | 111 | | | 7,514 | |
| | | | | | | | |
Total revenue | | $ | 33,779 | | | $ | 2,644 | | | $ | 1,957 | | | $ | 38,380 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2021 |
(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 |
| | | | | | | | |
Servicer and Real Estate | | $ | 23,785 | | | $ | 1,782 | | | $ | 1,226 | | | $ | 26,793 | |
Origination | | 14,362 | | | 11 | | | 190 | | | 14,563 | |
Corporate and Others | | — | | | 1,887 | | | — | | | 1,887 | |
Total revenue | | $ | 38,147 | | | $ | 3,680 | | | $ | 1,416 | | | $ | 43,243 | |
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2022 |
(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 |
| | | | | | | | |
Servicer and Real Estate | | $ | 77,947 | | | $ | 7,654 | | | $ | 5,748 | | | $ | 91,349 | |
Origination | | 26,533 | | | 25 | | | 410 | | | 26,968 | |
| | | | | | | | |
Total revenue | | $ | 104,480 | | | $ | 7,679 | | | $ | 6,158 | | | $ | 118,317 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2021 |
(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 |
| | | | | | | | |
Servicer and Real Estate | | $ | 77,898 | | | $ | 6,832 | | | $ | 4,854 | | | $ | 89,584 | |
Origination | | 46,213 | | | 32 | | | 511 | | | 46,756 | |
Corporate and Others | | — | | | 3,409 | | | — | | | 3,409 | |
Total revenue | | $ | 124,111 | | | $ | 10,273 | | | $ | 5,365 | | | $ | 139,749 | |
Contract Balances
Our contract assets consist of unbilled accounts receivable (see Note 4). 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 $3.7 million and $4.7 million for the nine months ended September 30, 2022 and 2021, respectively ($0.8 million and $0.9 million for the third quarter of 2022 and 2021, respectively).
NOTE 16 — COST OF REVENUE
Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service, operations and operationstechnology 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) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Compensation and benefits | | $ | 11,885 | | | $ | 15,171 | | | $ | 39,231 | | | $ | 55,655 | |
Outside fees and services | | 15,319 | | | 16,891 | | | 42,573 | | | 52,473 | |
Technology and telecommunications | | 4,656 | | | 6,391 | | | 14,844 | | | 18,972 | |
Reimbursable expenses | | 1,957 | | | 1,416 | | | 6,158 | | | 5,365 | |
Depreciation and amortization | | 570 | | | 798 | | | 1,805 | | | 2,397 | |
| | | | | | | | |
Total | | $ | 34,387 | | | $ | 40,667 | | | $ | 104,611 | | | $ | 134,862 | |
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 17 — 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, technology, 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) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Compensation and benefits | | $ | 7,388 | | | $ | 6,859 | | | $ | 19,093 | | | $ | 21,007 | |
Amortization of intangible assets | | 1,281 | | | 2,673 | | | 3,849 | | | 8,183 | |
Professional services | | 2,584 | | | 2,318 | | | 8,432 | | | 7,896 | |
Occupancy related costs | | 1,008 | | | 2,182 | | | 4,049 | | | 7,652 | |
Marketing costs | | 774 | | | 327 | | | 2,446 | | | 1,500 | |
Depreciation and amortization | | 284 | | | 346 | | | 895 | | | 1,082 | |
Other | | 1,237 | | | 1,899 | | | 4,291 | | | 4,726 | |
| | | | | | | | |
Total | | $ | 14,556 | | | $ | 16,604 | | | $ | 43,055 | | | $ | 52,046 | |
|
| | | | | | | | | | | | | | | | |
| | 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 18 — OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Interest income (expense) | | $ | 212 | | | $ | — | | | $ | 318 | | | $ | (28) | |
Other, net | | 247 | | | (115) | | | 1,074 | | | 819 | |
| | | | | | | | |
Total | | $ | 459 | | | $ | (115) | | | $ | 1,392 | | | $ | 791 | |
|
| | | | | | | | | | | | | | | | |
| | 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 19 — EARNINGSINCOME TAXES
We recognized an income tax (provision) benefit of $(2.2) million and $(1.9) million for the nine months ended September 30, 2022 and 2021, respectively ($0.2 million and $(0.4) million for the third quarter of 2022 and 2021, respectively). The income tax (provision) benefit for the three and nine months ended September 30, 2022 was driven by income tax expense on transfer pricing income from India, income tax benefit from losses in the United States, no tax benefit on the pretax loss from our Luxembourg operating company and uncertain tax positions.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 20 — LOSS PER SHARE
Basic earningsloss per share (“EPS”) is computed by dividing incomeloss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion ofnet 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 EPSloss 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 |
|
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) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Net loss attributable to Altisource | | $ | (14,389) | | | $ | (18,269) | | | $ | (42,074) | | | $ | (58,746) | |
| | | | | | | | |
Weighted average common shares outstanding, basic | | 16,087 | | | 15,831 | | | 16,051 | | | 15,816 | |
| | | | | | | | |
| | | | | | | | |
Weighted average common shares outstanding, diluted | | 16,087 | | | 15,831 | | | 16,051 | | | 15,816 | |
| | | | | | | | |
Loss per share: | | | | | | | | |
Basic | | $ | (0.89) | | | $ | (1.15) | | | $ | (2.62) | | | $ | (3.71) | |
Diluted | | $ | (0.89) | | | $ | (1.15) | | | $ | (2.62) | | | $ | (3.71) | |
For the nine months ended September 30, 20172022 and 2016, 0.52021, 1.3 million and 1.5 million, respectively (1.3 million and 1.3 million for the third quarter of 2022 and 2021, respectively), stock options, restricted shares and 0.4restricted share units, were excluded from the computation of loss per share, as a result of the following:
•For both the nine months ended September 30, 2022 and 2021, 0.2 million (0.2 million for both the third quarter of 2022 and 2021), stock options, respectively, thatrestricted shares and restricted share units were anti-dilutive and have been excluded from the computation of diluted EPS (0.9loss per share because the Company incurred a net loss
•For the nine months ended September 30, 2022 and 2021, 0.2 million options and 0.40.3 million, optionsrespectively (0.2 million and 0.3 million for the third quarter of 20172022 and 2016,2021, respectively). These, stock options were anti-dilutive and have been excluded from the computation of diluted EPSloss 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 forstock
•For the nine months ended September 30, 20172022 and 2016,2021, 0.9 million and 1.0 million, respectively (0.4(0.9 million options and restricted shares and 0.40.8 million options for the third quarter of 20172022 and 2016,2021, 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 ofa total shareholder return compared to shareholdersthe market benchmark, that have not yet been met.met in each period have been excluded from the computation of diluted loss per share
NOTE 2021 — 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 a Notice and Opportunity
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Respond and Advise (“NORA”) letter on November 10, 2016 from the ConsumerCondensed Consolidated Financial Protection Bureau (“CFPB”Statements (Continued) 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.
Ocwen Related Matters
As discussed in Note 2, during the nine months ended September 30, 2022, 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 transfercustomer, accounting for 40% 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
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
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 thattotal 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%(45% of our revenue would have been related to NRZ. There can be no assurance thatfor the parties will reach an agreement with respect tothird quarter of 2022). Additionally, 6% of our revenue for the terms ofthree and nine months ended September 30, 2022 was earned on the Services Agreementloan 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 MSRs 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 have or could result 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 Statesome of Florida filed separate complaints in the United States District Court for the Southern District of Floridawhich include claims 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 administrativesubstantial monetary damages. Previous regulatory actions against Ocwen relatedhave subjected Ocwen to alleged violationsindependent oversight of applicable lawsits operations and regulations related to servicing residential mortgages. Certain of the allegations in the complaints andplaced 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 mortgageits ability to acquire servicing rights, continuing mortgage servicingrights. Existing 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 forgoingfuture similar matters could result in adverse regulatory or other actions against Ocwen. While not all inclusive, other regulatory actions to date have included subjecting Ocwen to independent oversight of its operations and placing 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 thatto 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
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
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, 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.actions.
Ocwen has disclosed that RITM is its largest client. As of June 30, 2022, approximately 18% of loans serviced and subserviced by Ocwen (measured in UPB) were related to RITM MSRs or rights to MSRs.
The foregoingexistence or outcome of Ocwen regulatory matters or the termination of the RITM 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-GSEnon-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.
If any of the following events occurred, Altisource’s revenue wouldcould be significantly lowerreduced 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 a significant reduction in the volume of services they purchase from us
•Ocwen loses, sells or transfers a significant portion or all of its non-GSEGSE or Federal Housing Administration servicing rights or subservicing arrangements or remaining other servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider
•The contractual relationship between Ocwen and RITM changes significantly, including Ocwen’s sub-servicing arrangement with RITM expiring without renewal, 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 suchbe 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 outcomewhether any of these mattersevents will occur or the amount of any impact they may have on Altisource. However, in the event these matters materially negatively impact Altisource, we believe the variable nature
Leases
We lease certain premises and equipment, primarily consisting of office space and information technology equipment. Certain of our cost structure would allow usleases include options to realignrenew at our cost structurediscretion or terminate leases early, and these options are considered in line with remaining revenue. Furthermore, inour determination of the eventexpected lease term. Certain of a significant reduction inour 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 $0.4 million and $0.6 million for the volumenine months ended September 30, 2022 and 2021, respectively (less than $0.1 million and $0.2 million for the third quarter of services purchased or loans serviced2022 and 2021, respectively). The amortization periods of right-of-use assets are generally limited by Ocwen (suchthe expected lease term. Our leases generally have expected lease terms at adoption of one to six years.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
Information about our lease terms and our discount rate assumption was as a transferfollows for the nine months ended September 30:
| | | | | | | | | | | | | | |
| | | | |
| | 2022 | | 2021 |
| | | | |
Weighted average remaining lease term (in years) | | 3.15 | | 3.28 |
Weighted average discount rate | | 5.66 | % | | 6.24 | % |
Our lease activity during the period was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Operating lease costs: | | | | | | | | |
Selling, general and administrative expense | | $ | 586 | | | $ | 1,486 | | | $ | 2,217 | | | $ | 4,696 | |
Cost of revenue | | — | | | 398 | | | 265 | | | 1,896 | |
| | | | | | | | |
Cash used in operating activities for amounts included in the measurement of lease liabilities | | $ | 515 | | | $ | 1,690 | | | $ | 2,022 | | | $ | 7,143 | |
Short-term (twelve months or less) lease costs | | 402 | | | (343) | | | 827 | | | (802) | |
Maturities of Ocwen’s servicing rights to a successor servicer), we believe the impact to Altisource could occur over an extended periodour lease liabilities as of time. During this period, we believe that we will continue to generate revenue from all or a portion of Ocwen’s portfolio.September 30, 2022 are as follows:
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 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 can be no assurance that our plans will be successful or our operations will be profitable. | | | | | | | | |
(in thousands) | | Operating lease obligations |
| | |
2022 | | $ | 557 | |
2023 | | 2,233 | |
2024 | | 1,715 | |
2025 | | 1,233 | |
2026 | | 636 | |
| | |
Total lease payments | | 6,374 | |
Less: interest | | (271) | |
| | |
Present value of lease liabilities | | $ | 6,103 | |
Escrow and Trust 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
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$20.0 million and $64.1$27.5 million atas of September 30, 20172022 and December 31, 2016,2021, respectively.
NOTE 2122 — 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, 2017,2022, our reportable segments changed as a result of changesa change in our internal organization, which changed the way our Chief Executive Officer (our chief operating decision makermaker) manages our businesses, allocates resources and evaluates performance.performance, and the related changes in our internal organization. We now report our operations through two new reportable segments: Mortgage MarketServicer and Real Estate Market and Origination. In addition, we report Other Businesses, Corporate and EliminationsOthers separately. Prior to the January 1, 20172022 change in reportable segments, ourthe Company operated with one reportable segments were Mortgage Services, Financial Services and Technology Services. The former Mortgage Servicessegment was separated into the Mortgage Market and Real Estate Market segments (as described below)(total Company). 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.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
The Mortgage Market Servicer and Real Estate segment provides loan servicers and originatorsreal estate investors with marketplacessolutions 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 consumerslifecycle. The Origination segment provides originators with marketplaces, productssolutions and servicestechnologies that span the real estatemortgage origination lifecycle. In addition, the Other Businesses, Corporate and Eliminations segmentOthers includes businesses that provide asset recovery management collection services primarily to debt originators (e.g.Pointillist (sold on December 1, 2021), 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, infrastructure and certain technology groups, 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, 2022 |
(in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Consolidated Altisource |
| | | | | | | | |
Revenue | | $ | 30,866 | | | $ | 7,514 | | | $ | — | | | $ | 38,380 | |
Cost of revenue | | 22,082 | | | 7,654 | | | 4,651 | | | 34,387 | |
Gross profit (loss) | | 8,784 | | | (140) | | | (4,651) | | | 3,993 | |
Selling, general and administrative expenses | | 2,931 | | | 2,399 | | | 9,226 | | | 14,556 | |
Income (loss) from operations | | 5,853 | | | (2,539) | | | (13,877) | | | (10,563) | |
Total other income (expense), net | | 4 | | | — | | | (3,894) | | | (3,890) | |
| | | | | | | | |
Income (loss) before income taxes and non-controlling interests | | $ | 5,857 | | | $ | (2,539) | | | $ | (17,771) | | | $ | (14,453) | |
| | | | | | | | |
| | | | Three months ended September 30, 2017 | | | Three months ended September 30, 2021 |
(in thousands) | | Mortgage Market | | Real Estate Market | | Other Businesses, Corporate and Eliminations | | Consolidated Altisource | (in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Consolidated Altisource |
| | | | | | | | | | | | | | | | | |
Revenue | | $ | 199,262 |
| | $ | 22,121 |
| | $ | 13,596 |
| | $ | 234,979 |
| Revenue | | $ | 26,793 | | | $ | 14,563 | | | $ | 1,887 | | | $ | 43,243 | |
Cost of revenue | | 137,466 |
| | 23,497 |
| | 13,935 |
| | 174,898 |
| Cost of revenue | | 21,088 | | | 11,555 | | | 8,024 | | | 40,667 | |
Gross profit (loss) | | 61,796 |
| | (1,376 | ) | | (339 | ) | | 60,081 |
| Gross profit (loss) | | 5,705 | | | 3,008 | | | (6,137) | | | 2,576 | |
Selling, general and administrative expenses | | 28,006 |
| | 4,208 |
| | 14,408 |
| | 46,622 |
| Selling, general and administrative expenses | | 3,289 | | | 1,586 | | | 11,729 | | | 16,604 | |
Income (loss) from operations | | 33,790 |
| | (5,584 | ) | | (14,747 | ) | | 13,459 |
| Income (loss) from operations | | 2,416 | | | 1,422 | | | (17,866) | | | (14,028) | |
Total other income (expense), net | | 26 |
| | — |
| | (3,128 | ) | | (3,102 | ) | Total other income (expense), net | | 2 | | | — | | | (3,872) | | | (3,870) | |
| | | | | | | | | | | | | | | | |
Income (loss) before income taxes and non-controlling interests | | $ | 33,816 |
| | $ | (5,584 | ) | | $ | (17,875 | ) | | $ | 10,357 |
| Income (loss) before income taxes and non-controlling interests | | $ | 2,418 | | | $ | 1,422 | | | $ | (21,738) | | | $ | (17,898) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2022 |
(in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Consolidated Altisource |
| | | | | | | | |
Revenue | | $ | 91,349 | | | $ | 26,968 | | | $ | — | | | $ | 118,317 | |
Cost of revenue | | 64,235 | | | 26,206 | | | 14,170 | | | 104,611 | |
Gross profit (loss) | | 27,114 | | | 762 | | | (14,170) | | | 13,706 | |
Selling, general and administrative expenses | | 9,227 | | | 6,739 | | | 27,089 | | | 43,055 | |
Income (loss) from operations | | 17,887 | | | (5,977) | | | (41,259) | | | (29,349) | |
Total other income (expense), net | | 4 | | | — | | | (10,051) | | | (10,047) | |
| | | | | | | | |
Income (loss) before income taxes and non-controlling interests | | $ | 17,891 | | | $ | (5,977) | | | $ | (51,310) | | | $ | (39,396) | |
| | | | | | | | |
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2021 |
(in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Consolidated Altisource |
| | | | | | | | |
Revenue | | $ | 89,584 | | | $ | 46,756 | | | $ | 3,409 | | | $ | 139,749 | |
Cost of revenue | | 69,063 | | | 38,722 | | | 27,077 | | | 134,862 | |
Gross profit (loss) | | 20,521 | | | 8,034 | | | (23,668) | | | 4,887 | |
Selling, general and administrative expenses | | 10,709 | | | 4,468 | | | 36,869 | | | 52,046 | |
Income (loss) from operations | | 9,812 | | | 3,566 | | | (60,537) | | | (47,159) | |
Total other income (expense), net | | 6 | | | — | | | (9,887) | | | (9,881) | |
| | | | | | | | |
Income (loss) before income taxes and non-controlling interests | | $ | 9,818 | | | $ | 3,566 | | | $ | (70,424) | | | $ | (57,040) | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Consolidated Altisource |
| | | | | | | | |
Total assets: | | | | | | | | |
September 30, 2022 | | $ | 64,885 | | | $ | 54,501 | | | $ | 91,896 | | | $ | 211,282 | |
December 31, 2021 | | 61,832 | | | 59,741 | | | 136,235 | | | 257,808 | |
Our services are primarily provided to customers primarily located in the United States. Premises and equipment, net consist of the following, by country:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
| | | | |
Luxembourg | | $ | 2,812 | | | $ | 3,883 | |
United States | | 779 | | | 1,932 | |
India | | 1,314 | | | 999 | |
Uruguay | | 65 | | | 59 | |
| | | | |
| | | | |
Total | | $ | 4,970 | | | $ | 6,873 | |
|
| | | | | | | | |
(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 resultTable 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.Contents
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, 20162021 filed with the Securities and Exchange Commission (“SEC”) on February 16, 2017.March 3, 2022.
FORWARD-LOOKING STATEMENTS
Certain statements in thisThis Form 10-Q regarding anticipated financial outcomes, business and market conditions, outlook and other similarcontains forward-looking statements related to Altisource’s future financial and operational performance are “forward-looking statements” made pursuant towithin the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of terminologyrelate 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-lookingterminology 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 in response to lower revenue due to COVID-19 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” in Part II, Item 1A of this Form 10-Q and the “Risk Factors” Risk Factors section of our Form 10-K for the year ended December 31, 20162021 including:
•the timing of the anticipated increase in default related referrals following the expiration of foreclosure and includeeviction moratoriums, forbearance programs and temporary governmental or servicer loss mitigation requirements, the following:timing of the expiration of such moratoriums, programs and requirements, and any other delays occasioned by government, investor or servicer actions;
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 inour ability to receive the anticipated volume of services they purchasereferrals from us;Ocwen;
if we are unable•our ability to reach agreement with New Residential Investmentretain Rithm Capital Corp. (individually, together with one or more of its subsidiaries, or one or more of its subsidiaries individually, “RITM”) (formerly New Residential Investment Corp., or “NRZ”) onas a Services Agreementcustomer or our ability to receive the anticipated volume of referrals from RITM;
•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;
•our ability to develop, launch and gain market acceptance of new solutions or recoup our investments in developing such new solutions;
•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 regimecountries, states and local jurisdictions in which we operate; and
•the risks and uncertainties related to pandemics, epidemics or interpretationsother 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 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 youthe 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.
Effective January 1, 2017,2022, our reportable segments changed as a result of changesa change 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.performance, and the related changes in our internal organization. We now report our operations through two new reportable segments: Mortgage MarketServicer and Real Estate Market and Origination. In addition, we report Other Businesses, Corporate and EliminationsOthers separately. Prior to the January 1, 20172022 change in reportable segments, ourthe Company operated with one reportable segments were Mortgage Services, Financial Services and Technology Servicessegment (total Company). Prior year comparable period segment disclosures have been restated to conform to the current year presentation.
Mortgage Market: ProvidesThe Servicer and Real Estate segment provides loan servicers and originatorsreal estate investors with marketplaces, servicessolutions and technologies that span the 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.
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| • 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 |
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| • 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.
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• 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”)
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• Fulfillment services | |
• Loan origination system | | • Mortgage trading platform |
• Document management platform | | |
Real Estate Market: Provides real estate consumers and rental property investors with marketplaces and services that span the real estate lifecycle. Within the Servicer and Real Estate Market segment we provide:
Consumer Real Estate Solutions - the solutions,
Our Solutions business includes property preservation and inspection services, title insurance (as an agent) and settlement services, real estate valuation services, foreclosure trustee services, and residential and commercial construction inspection and risk mitigation services.
Marketplace
Our Marketplace business includes the Hubzu® online real estate auction platform and real estate auction, real estate brokerage and asset management services.
Technology and software-as-a-service (“SaaS”) Products
Our Technology and SaaS Products business includes Equator® (a SaaS-based technology to manage real estate owned (“REO”), short sales, foreclosure, bankruptcy and eviction processes), Vendorly Invoice (a vendor invoicing and payment system), RentRange® (a single family rental data, analytics and rent-based valuation solution), REALSynergy® (a commercial loan servicing platform), and NestRangeTM (an automated valuation model and analytics solution).
The Origination segment provides originators with solutions and technologies typically used by home buyersthat span the mortgage origination lifecycle. Within the Origination segment we provide:
Solutions
Our Solutions business includes title insurance (as an agent) and sellers to handle key aspects of buying and selling a home.
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• Real estate brokerage | | • Mortgage brokerage |
• Title insurance (agent and related services) and settlement services | | • Homeowners insurance |
Real Estate Investor Solutions - the solutions,settlement services, real estate valuation services, and technologies used by buyersloan fulfillment, certification and sellerscertification insurance services.
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| • 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 |
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Lenders OneOther Businesses, Our Lenders One business includes management services provided to the Best Partners Mortgage Cooperative, Inc., doing business as Lenders One® (“Lenders One”), and certain loan manufacturing and capital markets services provided to the members of the Lenders One cooperative.
Technology and SaaS Products
Our Technology and SaaS Products business includes Vendorly Monitor (a vendor management platform), Lenders One Loan Automation (“LOLA”) (a marketplace to order services and a tool to automate components of the loan manufacturing process), TrelixAITM (technology to manage the workflow and automate components of the loan fulfillment, pre and post-close quality control and service transfer processes), ADMS (a document management and data analytics delivery platform), and automated valuation technology.
Corporate and Eliminations: Our Other Businesses, Corporate and Eliminations segmentOthers includes certain non-core businesses,Pointillist, Inc. (“Pointillist”) (sold on December 1, 2021), interest expense and costs related to corporate support functions. The businesses in this segment include post-charge-off consumer debt collection services, customer relationship management servicesfunctions including executive, infrastructure and informationcertain technology (“IT”) infrastructure management services. Interest expense relates to the Company’s senior secured term loan and corporate support functions include executive,groups, 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 eliminations of transactions between the reportable segments.
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 and sales of short-term investments in real estate.services. 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 isAltisource. 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 technology enabled solutions to a broad and diversified customer base of residential real estate and loan investors, 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. As we navigate the COVID-19 pandemic and its impacts on our business, we continue to evaluate our strategy and core businesses and seek to position our businesses to provide long term value to our customers and shareholders.
Each of our business segments provides Altisource the potential to grow and diversify our customer and revenue base. We believe these business segments address very large markets and directly leverage our core competencies and distinct competitive advantages. Our business segments and strategic initiatives follow:
Servicer and Real Estate:
Through our offerings that support residential real estate and loan investors and servicers, we provide a suite of solutions 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 RITM. 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 as they consolidate to larger, full-service providers or outsource services that have historically been performed in-house.
Origination:
Through our offerings that support mortgage loan originators (or other similar mortgage market participants), we provide a suite of solutions and technologies to meet the evolving and growing needs of lenders, mortgage purchasers and securitizers. We are focused on growing business from our existing customer base, attracting new customers to our offerings and developing new offerings. We have a customer base that includes the Lenders One cooperative members, which includes independent mortgage bankers, credit unions, and banks, as well as 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 growing membership of Lenders One, increasing member adoption of existing solutions and developing and cross-selling new offerings. Further, we believe we are well positioned to gain market share from existing and new customers as customers and prospects look to Lenders One to help them improve their profitability and better compete.
Corporate and Others includes Pointillist (sold on December 1, 2021), interest expense and costs related to corporate functions including executive, infrastructure and certain technology groups, finance, law, compliance, human resources, vendor management, facilities, risk management and eliminations between reportable segments. We developed the Pointillist business through our consumer analytics capabilities. On December 1, 2021, the shareholders of Pointillist sold all of the equity interests in Pointillist to Genesys Cloud Services, Inc. for $150.0 million. On a fully diluted basis, we owned approximately 69% of the equity of Pointillist. After working capital and other applicable adjustments, we received approximately $106.0 million from the sale of our Pointillist equity and the collection of outstanding receivables, with $102.2 million received at closing, approximately $0.3 million deposited into the Working Capital Escrow and approximately $3.5 million deposited into the Indemnification Escrow. The Working Capital Escrow was received on May 9, 2022.
COVID-19 Pandemic Impacts
In response to the COVID-19 pandemic, beginning in March 2020, various governmental entities and servicers implemented unprecedented foreclosure and eviction moratoriums, forbearance programs and loss mitigation measures to help mitigate the impact to borrowers and renters. As a result of these measures and other related actions, industrywide foreclosure initiations were 89% lower for the nine months ended September 2021 compared to the same pre-COVID-19 period in 2019 and foreclosure sales were 79% lower for the same periods. The Federal government’s foreclosure moratorium expired on July 1, 2021 and the Consumer Financial Protection Bureau’s (“CFPB’s”) temporary loss mitigation measures expired on December 31, 2021. Despite the expiration of such governmental measures, we believe servicers are proceeding slowly with foreclosure initiations for borrowers in default. Industrywide foreclosure initiations were 386% higher for the nine months ended September 2022 compared to the same period in 2021, although still 45% lower than the same pre-COVID-19 period in 2019. Industrywide foreclosure sales were 45% higher for the nine months ended September 2022 compared to the same period in 2021, although still 69% lower than the same pre-COVID-19 period in 2019. The decline in foreclosure initiations and foreclosure sales throughout the pandemic, partially offset by the restart of the default market, significantly decreased default related referrals to Altisource and continues to negatively impact virtually all of Altisource’s default related services revenue.
At the same time, beginning in March 2020 the Federal Reserve lowered the target for the federal funds rate to 0% to 0.25% and bought billions of dollars of mortgage backed securities on the secondary market to reduce interest rates. As a result of the lower interest rate environment, mortgage originations were 25% higher for the nine months ended September 30, 2021 compared to the same period in 2020 (according to the Mortgage Bankers Association) driving higher demand for origination related services. In November of 2021, the Federal Reserve began reducing the volume of mortgage backed securities it was purchasing and ended its monthly purchases in March 2022. Additionally, the Federal Reserve increased the target for the federal funds rate several times in 2022, most recently to 3.75% to 4.00% in November 2022. As a result of the higher interest rate environment, mortgage originations were 46% lower for the nine months ended September 30, 2022 compared to the same period in 2021 (according to the Mortgage Bankers Association).
We cannot predict the duration of the pandemic and future governmental and industry measures. Based on the expirations of the Federal government’s foreclosure and eviction moratoriums and the CFPB’s rules on temporary loss mitigation measures, we believe the demand for our Default business will grow. We estimate that in today’s environment it typically takes on average two years to convert foreclosure initiations to foreclosure sales and six months to market and sell the REO. Due to this timing, we anticipate that our later stage foreclosure auction and REO asset management services will not fully benefit from the early 2022 higher foreclosure initiations until late 2023 or early 2024. We further anticipate that despite the forecasted decline in origination volumes in 2022 compared to 2021 and increases in the target federal funds rate, our Lenders One business within our Origination segment may outperform the market for the full year compared to 2021 from new customer wins, and cross selling existing and new offerings to customers that are intended to help reduce their costs.
During 2021 and 2022, to address lower revenue, we worked to (1) reduce our cost structure, (2) maintain the infrastructure to deliver default related services for our customer base and support the anticipated increase in demand following the expiration of the moratoriums and forbearance plans and CFPB’s rules on temporary loss mitigation measures, (3) grow Lenders One membership, launch new solutions and increase customer adoption of our solutions to accelerate the growth of our origination business, and (4) generate cash from the 2021 sale of Pointillist.
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 4.64.3 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, 2017,2022, approximately 3.92.4 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, 2022 and 2021. 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, 2022, we can repurchase up to approximately $71 million of our common stock under Luxembourg law. Our senior secured term loan agreement also limits the amount we can spend on share repurchases, which limit was approximately $403$421 million as of September 30, 2017,2022, and may prevent repurchases in certain circumstances.
Strategy and Growth Businesses
We are focused on becoming one of the premier providers of mortgage and real estate marketplaces and related servicescircumstances, including if our leverage ratio exceeds 3.50 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.1.00.
Ocwen Related Matters
Revenue fromDuring the nine months ended September 30, 2022, Ocwen represented 58%was our largest customer, accounting for 40% of our total revenue for the nine months ended September 30, 2017 (58%2022 (45% of our revenue for the third quarter of 2017)2022). Additionally, 16%6% of our revenue for the three and nine months ended September 30, 2017 (15% of our revenue for the third quarter of 2017)2022 was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or NRZthe 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 have or could result 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 Statesome of Florida filed separate complaints in the United States District Court for the Southern District of Floridawhich include claims 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 administrativesubstantial monetary damages. Previous regulatory actions against Ocwen relatedhave subjected Ocwen to alleged violationsindependent oversight of applicable lawsits operations and regulations related to servicing residential mortgages. Certain of the allegations in the complaints andplaced 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 mortgageits ability to acquire servicing rights, continuing mortgage servicingrights. Existing 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 forgoingfuture similar matters could result in adverse regulatory or other actions against Ocwen. While not all inclusive, other regulatory actions to date have included subjecting Ocwen to independent oversight of its operations and placing 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 thatto 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 against Ocwen.actions.
Ocwen has disclosed that RITM is its largest client. As of June 30, 2022, approximately 18% of loans serviced and subserviced by Ocwen (measured in unpaid principal balance) were related to RITM MSRs or rights to MSRs.
The foregoingexistence or outcome of Ocwen regulatory matters or the termination of the RITM 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.
If any of the following events occurred, Altisource’s revenue wouldcould be significantly lowerreduced 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 a significant reduction in the volume of services they purchase from us
•Ocwen loses, sells or transfers a significant portion or all of its non-GSEGSE or Federal Housing Administration servicing rights or subservicing arrangements or remaining other servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider
•The contractual relationship between Ocwen and RITM changes significantly, including Ocwen’s sub-servicing arrangement with RITM expiring without renewal, and this change results in a change in our status as a provider of services related to the RITM MSRs or rights to 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 suchbe 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 outcomewhether any of these mattersevents will occur or the amount of any impact they may have on Altisource. However,We are seeking to diversify and grow 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 mattersevents 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 eventto address some 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 withthat current liquidity and cash flows from operations would be sufficient to meet our working capital, capital expenditures, debt service and other cash needs. However, thereThere 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:
•Industrywide foreclosure initiations were 386% higher for the nine months ended September 30, 2022 compared to the same period in 2021 as the foreclosure market begins to normalize following the Federal government’s foreclosure moratorium expiration on July 1, 2021 and the CFPB’s temporary loss mitigation measures expiration on December 31, 2021.
•Industrywide foreclosure sales were 45% higher for the nine months ended September 30, 2022, compared to the same period in 2021.
•Industrywide mortgage originations were 46% lower for the nine months ended September 30, 2022 compared to the same period in 2021 resulting from a higher interest rate environment.
•On December 1, 2021 the shareholders of Pointillist, a majority owned subsidiary of Altisource, sold all of the equity interests in Pointillist. For the three and nine months ended 2021, service revenue from Pointillist was $1.9 million and $3.4 million, respectively, and loss before income taxes and non-controlling interest was $1.9 million and $6.3 million, respectively (no comparative amounts for the three and nine months ended September 30, 2022).
•The average numberCompany recognized an income tax (provision) benefit of loans serviced by Ocwen on REALServicing (including those MSRs owned by NRZ$(2.2) million and subserviced by Ocwen) was 1.3$(1.9) million for the nine months ended September 30, 2017 compared to 1.52022 and 2021, respectively ($0.2 million for the nine months ended September 30, 2016, a decrease of 13% (1.2and $(0.4) million for the third quarter of 20172022 and 1.4 million2021, respectively). The income tax (provision) benefit 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 thethree and nine months ended September 30, 2017 compared to 224 thousand for2022 was driven by income tax expense on transfer pricing income from India, income tax benefit from losses in 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 millionUnited States, no tax benefit on the early extinguishmentpretax loss from our Luxembourg operating company and uncertain tax positions.
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 regardingon our consolidated results of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(in thousands, except per share data) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | |
Service revenue | | | | | | | | | | | | |
Servicer and Real Estate | | $ | 29,020 | | | $ | 25,567 | | | 14 | | | $ | 85,601 | | | $ | 84,730 | | | 1 | |
Origination | | 7,270 | | | 14,172 | | | (49) | | | 26,090 | | | 45,533 | | | (43) | |
Corporate and Others | | — | | | 1,887 | | | (100) | | | — | | | 3,409 | | | (100) | |
Total service revenue | | 36,290 | | | 41,626 | | | (13) | | | 111,691 | | | 133,672 | | | (16) | |
Reimbursable expenses | | 1,957 | | | 1,416 | | | 38 | | | 6,158 | | | 5,365 | | | 15 | |
Non-controlling interests | | 133 | | | 201 | | | (34) | | | 468 | | | 712 | | | (34) | |
Total revenue | | 38,380 | | | 43,243 | | | (11) | | | 118,317 | | | 139,749 | | | (15) | |
Cost of revenue | | 34,387 | | | 40,667 | | | (15) | | | 104,611 | | | 134,862 | | | (22) | |
Gross profit | | 3,993 | | | 2,576 | | | 55 | | | 13,706 | | | 4,887 | | | 180 | |
| | | | | | | | | | | | |
Selling, general and administrative expenses | | 14,556 | | | 16,604 | | | (12) | | | 43,055 | | | 52,046 | | | (17) | |
| | | | | | | | | | | | |
Loss from operations | | (10,563) | | | (14,028) | | | 25 | | | (29,349) | | | (47,159) | | | 38 | |
Other income (expense), net: | | | | | | | | | | | | |
Interest expense | | (4,349) | | | (3,755) | | | 16 | | | (11,439) | | | (10,672) | | | 7 | |
| | | | | | | | | | | | |
Other income (expense), net | | 459 | | | (115) | | | N/M | | 1,392 | | | 791 | | | 76 | |
Total other income (expense), net | | (3,890) | | | (3,870) | | | 1 | | | (10,047) | | | (9,881) | | | 2 | |
| | | | | | | | | | | | |
Loss before income taxes and non-controlling interests | | (14,453) | | | (17,898) | | | 19 | | | (39,396) | | | (57,040) | | | 31 | |
Income tax benefit (provision) | | 197 | | | (430) | | | (146) | | | (2,210) | | | (1,857) | | | 19 | |
| | | | | | | | | | | | |
Net loss | | (14,256) | | | (18,328) | | | 22 | | | (41,606) | | | (58,897) | | | 29 | |
Net (income) loss attributable to non-controlling interests | | (133) | | | 59 | | | N/M | | (468) | | | 151 | | | (410) | |
| | | | | | | | | | | | |
Net loss attributable to Altisource | | $ | (14,389) | | | $ | (18,269) | | | 21 | | | $ | (42,074) | | | $ | (58,746) | | | 28 | |
| | | | | | | | | | | | |
Margins: | | | | | | | | | | | | |
Gross profit/service revenue | | 11 | % | | 6 | % | | | | 12 | % | | 4 | % | | |
Loss from operations/service revenue | | (29) | % | | (34) | % | | | | (26) | % | | (35) | % | | |
| | | | | | | | | | | | |
Loss per share: | | | | | | | | | | | | |
Basic | | $ | (0.89) | | | $ | (1.15) | | | 23 | | | $ | (2.62) | | | $ | (3.71) | | | 29 | |
Diluted | | $ | (0.89) | | | $ | (1.15) | | | 23 | | | $ | (2.62) | | | $ | (3.71) | | | 29 | |
| | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | 16,087 | | | 15,831 | | | 2 | | | 16,051 | | | 15,816 | | | 1 | |
Diluted | | 16,087 | | | 15,831 | | | 2 | | | 16,051 | | | 15,816 | | | 1 | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 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$111.7 million for the nine months ended September 30, 2017,2022, a 3%16% decrease compared to the nine months ended September 30, 20162021 ($224.336.3 million for the third quarter of 2017,2022, a 6%13% decrease compared to the third quarter of 2016)2021).
The decreasesincrease in service revenue in the Servicer and Real Estate segment for the nine months ended September 30, 20172022 is primarily from higher revenue in our Marketplace and Technology and SaaS Products businesses, partially offset by lower revenue in our Solutions business. The increase in the Marketplace business is driven by a higher number of homes sold, partially offset by lower average sales prices and lower commission rate from a higher percentage of foreclosure auctions. The increase in the Technology and SaaS Products business is from higher professional services revenue in the Equator business. The decline in our Solutions business is primarily driven by fewer preservation referrals per property in the Field Services business, largely offset by higher revenues from our other Solutions businesses. Revenue in the other Solutions businesses grew as the default market began to recover following the expiration of the pandemic related borrower relief measures. For the three months ended September 30, 2022, the increase in service revenue is driven by increases across all our Solutions, Marketplace and Technology and SaaS Products businesses as the default market continues to recover.
The decrease in service revenue in the Origination segment for the three and nine months ended September 30, 2022 is primarily driven by the overall market decline in mortgage originations. The decline in Lenders One revenue is lower than the overall market decline as we gained traction with our solutions that are designed to help our members save money. The decline in the Solutions business revenue was greater than the overall market decline as customers transitioned services in-house to retain their employees in some of our Solutions businesses and a greater percentage of revenue in some of these businesses was derived from refinance transactions which declined faster than the market.
The decrease in service revenue in Corporate and Other is from the December 2021 Pointillist sale.
We recognized reimbursable expense revenue of $6.2 million for the nine months ended September 30, 2022, a 15% increase compared to the nine months ended September 30, 2021 ($2.0 million for the third quarter of 2017 were primarily from lower service revenue2022, a 38% increase compared to the third quarter of 2021). The increase in our customer relationship management 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 and we experienced a
reduction 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 growth 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.for the three and nine months ended September 30, 2022 is largely due to a higher volume of asset resolution and asset management activities.
Certain of our revenues arecan 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,However, as borrowers may utilize tax refunds and bonuses to pay debts, and generally declines throughout the resta result of the year.pandemic and related measures, the seasonal impact to revenue may not follow historical patterns.
Cost of Revenue and Gross Profit
Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service, operations and operationstechnology 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 andas well as depreciation and amortization of operating assets.
Cost of revenue consistedconsists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | |
Compensation and benefits | | $ | 11,885 | | | $ | 15,171 | | | (22) | | | $ | 39,231 | | | $ | 55,655 | | | (30) | |
Outside fees and services | | 15,319 | | | 16,891 | | | (9) | | | 42,573 | | | 52,473 | | | (19) | |
Technology and telecommunications | | 4,656 | | | 6,391 | | | (27) | | | 14,844 | | | 18,972 | | | (22) | |
Reimbursable expenses | | 1,957 | | | 1,416 | | | 38 | | | 6,158 | | | 5,365 | | | 15 | |
Depreciation and amortization | | 570 | | | 798 | | | (29) | | | 1,805 | | | 2,397 | | | (25) | |
| | | | | | | | | | | | |
Cost of revenue | | $ | 34,387 | | | $ | 40,667 | | | (15) | | | $ | 104,611 | | | $ | 134,862 | | | (22) | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 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.
CostWe recognized cost of revenue of $104.6 million for the nine months ended September 30, 2017 of $538.2 million increased 4%2022, a 22% decrease compared to the nine months ended September 30, 20162021 ($174.934.4 million for the third quarter of 2017,2022, a 1% increase15% decrease compared to the third quarter of 2016)2021). The increases in cost of revenue were primarily driven by higher outside fees and services and cost of real estate sold, partially offset by decreases in compensationCompensation and benefits for the three and reimbursable expenses.nine months ended September 30, 2022 decreased primarily due to cash cost savings measures taken in 2021, the December 2021 sale of Pointillist and from lower service revenue in the Origination segment. Outside fees and services increasedfor the nine months ended September 30, 2022 decreased primarily from lower
service revenue in the Mortgage Market due to growth 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 sold in connection with our buy-renovate-sell program, which began operations in the second half of 2016.
Compensation and benefits declined in the Mortgage Market in the Servicer Solutions businessOrigination segment, 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.lower Field Services revenue in the Solutions business of the Servicer and Real Estate segment. In addition, the Other Businesses, Corporate and Eliminations segment, compensation and benefits decreasedincreases in connectionreimbursable expenses are consistent with the transition of resources supporting Ocwen’s technology infrastructure to Ocwen and lower headcount levelschanges in our customer relationship management business from a decrease in client relationships, as discussed in thereimbursable expense 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 decreasedincreased to $187.9$13.7 million, representing 27%12% of service revenue, for the nine months ended September 30, 20172022 compared to $241.4$4.9 million, representing 34%4% of service revenue, for the nine months ended September 30, 2016 (decreased2021 (increased to $60.1$4.0 million, representing 27%11% of service revenue, for the third quarter of 20172022, compared to $78.7$2.6 million, representing 33%6% of service revenue, for the third quarter of 2016)2021). Gross profit as a percentage of service revenue decreasedfor the three and nine months ended September 30, 2022 increased compared to the three and nine months ended September 30, 2021 primarily due to revenue
mix with higher revenue from the higher margin businesses in Servicer and investments inReal Estate, the December 1, 2021 Pointillist sale and our growth businesses. Revenue mix changed from growthCOVID-19 cash cost savings measures, partially offset by lower gross profit margin in the Origination business from lower margin property preservation and buy-renovate-sell businesses and declines in other higher margin businesses.revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) includeexpenses includes payroll for personnel employed in executive, sales and marketing, finance, technology, 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.
SG&A expense consistedexpenses 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) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | $ | 15,068 |
| | $ | 14,145 |
| | 7 |
| | $ | 43,115 |
| | $ | 42,460 |
| | 2 |
| Compensation and benefits | | $ | 7,388 | | | $ | 6,859 | | | 8 | | | $ | 19,093 | | | $ | 21,007 | | | (9) | |
Occupancy related costs | | 8,536 |
| | 8,903 |
| | (4 | ) | | 28,347 |
| | 26,785 |
| | 6 |
| Occupancy related costs | | 1,008 | | | 2,182 | | | (54) | | | 4,049 | | | 7,652 | | | (47) | |
Amortization of intangible assets | | 8,604 |
| | 11,465 |
| | (25 | ) | | 27,143 |
| | 36,432 |
| | (25 | ) | Amortization of intangible assets | | 1,281 | | | 2,673 | | | (52) | | | 3,849 | | | 8,183 | | | (53) | |
Professional services | | 3,886 |
| | 4,097 |
| | (5 | ) | | 11,983 |
| | 17,533 |
| | (32 | ) | Professional services | | 2,584 | | | 2,318 | | | 11 | | | 8,432 | | | 7,896 | | | 7 | |
Marketing costs | | 3,992 |
| | 9,275 |
| | (57 | ) | | 11,958 |
| | 21,438 |
| | (44 | ) | Marketing costs | | 774 | | | 327 | | | 137 | | | 2,446 | | | 1,500 | | | 63 | |
Depreciation and amortization | | 2,286 |
| | 2,557 |
| | (11 | ) | | 7,068 |
| | 7,514 |
| | (6 | ) | Depreciation and amortization | | 284 | | | 346 | | | (18) | | | 895 | | | 1,082 | | | (17) | |
Other | | 4,250 |
| | 3,444 |
| | 23 |
| | 17,179 |
| | 9,547 |
| | 80 |
| Other | | 1,237 | | | 1,899 | | | (35) | | | 4,291 | | | 4,726 | | | (9) | |
| | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | $ | 46,622 |
| | $ | 53,886 |
| | (13 | ) | | $ | 146,793 |
| | $ | 161,709 |
| | (9 | ) | Selling, general and administrative expenses | | $ | 14,556 | | | $ | 16,604 | | | (12) | | | $ | 43,055 | | | $ | 52,046 | | | (17) | |
SG&A expenses for the nine months ended September 30, 20172022 of $146.8$43.1 million decreased 9%by 17% compared to the nine months ended September 30, 20162021 ($46.614.6 million for the third quarter of 2017,2022, a 13%12% decrease compared to the third quarter of 2016)2021). The decreases in SG&A were primarily due to lower marketing costs, driven by initial non-recurring Owners.com market launch costs incurred during the nine months ended September 30, 2016, the reduction in Owners.com recurring marketing spending as the business unit focuses on improving the lead to closing conversion rateCompensation 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 lowerbenefits for the nine months ended September 30, 2017 in connection with2022 decreased primarily due to cash cost savings initiatives. Occupancy related costs for the resolutionthree and nine months ended September 30, 2022 decreased primarily from facility consolidation initiatives. Amortization of intangible assets for the three and reduction in activities related to, several litigation and regulatory matters.nine months ended September 30, 2022 decreased from the completion of the amortization period of certain intangible assets during 2021. The decrease in SG&Adecreases for the nine months ended September 30, 2017 was2022 are partially offset by unfavorable loss accrual adjustments of $2.7 million relating to facility closures and litigation relatedincreases in marketing costs from Lenders One convention activities that were cancelled in other SG&A in the secondfirst quarter of 2017 (no comparative amount2021 due to the pandemic.
Loss from Operations
Loss from operations 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 and 2016).
Income from Operations
Income from operations decreased to $41.12022 was $(29.3) million, representing 6%(26)% of service revenue, compared to $(47.2) million, representing (35)% of service revenue, for the nine months ended September 30, 2017 compared2021 (increased to $79.7$(10.6) million, representing 11% of service revenue, for the nine months ended September 30, 2016 (decreased to $13.5 million, representing 6%(29)% of service revenue, for the third quarter of 20172022, compared to $24.9$(14.0) million, representing 10%(34)% of service revenue for the third quarter of 2016)2021). The decrease in operating incomeLoss from operations as a percentage of service revenue wasimproved for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021, primarily as a result of the decrease inhigher gross profit margin, partially offset by lowermargins and, for the nine months ended September 30, 2022, the percentage reduction in SG&A expenses asin excess of the percentage change in revenue, discussed above.
Other Income (Expense), net
Other income (expense), net principally includes interest expense and other non-operating gains and losses. Interest expense
Other income (expense), net was $16.9$(10.0) million for the nine months ended September 30, 2017, a decrease of $1.62022 compared to $(9.9) million compared tofor the nine months ended September 30, 20162021 ($5.6(3.9) million for the third quarter of 2017, a decrease of $0.42022 and $(3.9) million compared tofor 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. 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.
During2021). The change for the nine months ended September 30, 2017, we repurchased portions2022 is primarily driven by an increase of $0.8 million in interest expense driven by higher interest rate on 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 onCredit Facility partially offset by higher interest income and foreign currency exchange gains. For 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 ninethree months ended September 30, 2016, we repurchased portions of2022, higher interest expense from higher interest rates on 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, 2017Credit Facility was largely offset by higher interest income 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).foreign currency exchange gains.
Income Tax Provision
We recognized an income tax provision(provision) benefit of $7.6$(2.2) million and $(1.9) million for the nine months ended September 30, 2017 compared to $12.8 million for the nine months ended September 30, 20162022 and 2021, respectively ($2.60.2 million and $7.3$(0.4) million for the third quarter of 20172022 and 2016,2021, respectively). Our effectiveThe income tax rate was 23.6% and 20.1%(provision) benefit for the three and nine months ended September 30, 2017 and September 30, 2016, respectively (25.0% and 39.0% for the third quarter of 2017 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 effective2022 was driven by income tax rate for the nine months ended September 30, 2017 was primarily the result of lower pretaxexpense on transfer pricing income which changed the mix of taxable income across the jurisdictions in which we operate. The lower effectivefrom India, income tax rate for the third quarter of 2017 was primarily the result of adjustments madebenefit from losses in the third quarterUnited States, no tax benefit on the pretax loss from our Luxembourg operating company and uncertain tax positions.
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.operations.
Financial information for our segments was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2022 |
(in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Consolidated Altisource |
| | | | | | | | |
Revenue | | | | | | | | |
Service revenue | | $ | 29,020 | | | $ | 7,270 | | | $ | — | | | $ | 36,290 | |
Reimbursable expenses | | 1,846 | | | 111 | | | — | | | 1,957 | |
Non-controlling interests | | — | | | 133 | | | — | | | 133 | |
| | 30,866 | | | 7,514 | | | — | | | 38,380 | |
Cost of revenue | | 22,082 | | | 7,654 | | | 4,651 | | | 34,387 | |
Gross profit (loss) | | 8,784 | | | (140) | | | (4,651) | | | 3,993 | |
Selling, general and administrative expenses | | 2,931 | | | 2,399 | | | 9,226 | | | 14,556 | |
Income (loss) from operations | | 5,853 | | | (2,539) | | | (13,877) | | | (10,563) | |
Total other income (expense), net | | 4 | | | — | | | (3,894) | | | (3,890) | |
| | | | | | | | |
Income (loss) before income taxes and non-controlling interests | | $ | 5,857 | | | $ | (2,539) | | | $ | (17,771) | | | $ | (14,453) | |
| | | | | | | | |
Margins: | | | | | | | | |
Gross profit (loss) /service revenue | | 30 | % | | (2) | % | | N/M | | 11 | % |
Income (loss) from operations/service revenue | | 20 | % | | (35) | % | | N/M | | (29) | % |
_____________________________________N/M — not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2021 |
(in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Consolidated Altisource |
| | | | | | | | |
Revenue | | | | | | | | |
Service revenue | | $ | 25,567 | | | $ | 14,172 | | | $ | 1,887 | | | $ | 41,626 | |
Reimbursable expenses | | 1,226 | | | 190 | | | — | | | 1,416 | |
Non-controlling interests | | — | | | 201 | | | — | | | 201 | |
| | 26,793 | | | 14,563 | | | 1,887 | | | 43,243 | |
Cost of revenue | | 21,088 | | | 11,555 | | | 8,024 | | | 40,667 | |
Gross profit (loss) | | 5,705 | | | 3,008 | | | (6,137) | | | 2,576 | |
Selling, general and administrative expenses | | 3,289 | | | 1,586 | | | 11,729 | | | 16,604 | |
Income (loss) from operations | | 2,416 | | | 1,422 | | | (17,866) | | | (14,028) | |
Total other income (expense), net | | 2 | | | — | | | (3,872) | | | (3,870) | |
| | | | | | | | |
Income (loss) before income taxes and non-controlling interests | | $ | 2,418 | | | $ | 1,422 | | | $ | (21,738) | | | $ | (17,898) | |
| | | | | | | | |
Margins: | | | | | | | | |
Gross profit (loss) /service revenue | | 22 | % | | 21 | % | | (325) | % | | 6 | % |
Income (loss) from operations/service revenue | | 9 | % | | 10 | % | | N/M | | (34) | % |
_____________________________________N/M — not meaningful.
| | | | Three months ended September 30, 2017 | | | Nine months ended September 30, 2022 |
(in thousands) | | Mortgage Market | | Real Estate Market | | Other Businesses, Corporate and Eliminations | | Consolidated Altisource | (in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Consolidated Altisource |
| | | | | | | | | | | | | | | | | |
Revenue | | |
| | |
| | |
| | |
| Revenue | | | | | | | | |
Service revenue | | $ | 189,615 |
| | $ | 21,113 |
| | $ | 13,580 |
| | $ | 224,308 |
| Service revenue | | $ | 85,601 | | | $ | 26,090 | | | $ | — | | | $ | 111,691 | |
Reimbursable expenses | | 8,842 |
| | 1,008 |
| | 16 |
| | 9,866 |
| Reimbursable expenses | | 5,748 | | | 410 | | | — | | | 6,158 | |
Non-controlling interests | | 805 |
| | — |
| | — |
| | 805 |
| Non-controlling interests | | — | | | 468 | | | — | | | 468 | |
| | 199,262 |
| | 22,121 |
| | 13,596 |
| | 234,979 |
| | 91,349 | | | 26,968 | | | — | | | 118,317 | |
Cost of revenue | | 137,466 |
| | 23,497 |
| | 13,935 |
| | 174,898 |
| Cost of revenue | | 64,235 | | | 26,206 | | | 14,170 | | | 104,611 | |
Gross profit (loss) | | 61,796 |
| | (1,376 | ) | | (339 | ) | | 60,081 |
| Gross profit (loss) | | 27,114 | | | 762 | | | (14,170) | | | 13,706 | |
Selling, general and administrative expenses | | 28,006 |
| | 4,208 |
| | 14,408 |
| | 46,622 |
| Selling, general and administrative expenses | | 9,227 | | | 6,739 | | | 27,089 | | | 43,055 | |
Income (loss) from operations | | 33,790 |
| | (5,584 | ) | | (14,747 | ) | | 13,459 |
| Income (loss) from operations | | 17,887 | | | (5,977) | | | (41,259) | | | (29,349) | |
Total other income (expense), net | | 26 |
| | — |
| | (3,128 | ) | | (3,102 | ) | Total other income (expense), net | | 4 | | | — | | | (10,051) | | | (10,047) | |
| | | | | | | | | | | | | | | | |
Income (loss) before income taxes and non-controlling interests | | $ | 33,816 |
| | $ | (5,584 | ) | | $ | (17,875 | ) | | $ | 10,357 |
| Income (loss) before income taxes and non-controlling interests | | $ | 17,891 | | | $ | (5,977) | | | $ | (51,310) | | | $ | (39,396) | |
| | | | | | | | | | | | | | | | |
Margins: | | |
| | |
| | |
| | |
| Margins: | |
Gross profit (loss)/service revenue | | 33 | % | | (7 | )% | | (2 | )% | | 27 | % | |
Gross profit (loss) /service revenue | | Gross profit (loss) /service revenue | | 32 | % | | 3 | % | | N/M | | 12 | % |
Income (loss) from operations/service revenue | | 18 | % | | (26 | )% | | (109 | )% | | 6 | % | Income (loss) from operations/service revenue | | 21 | % | | (23) | % | | N/M | | (26) | % |
_____________________________________
N/M — not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2021 |
(in thousands) | | Servicer and Real Estate | | Origination | | Corporate and Others | | Consolidated Altisource |
| | | | | | | | |
Revenue | | | | | | | | |
Service revenue | | $ | 84,730 | | | $ | 45,533 | | | $ | 3,409 | | | $ | 133,672 | |
Reimbursable expenses | | 4,854 | | | 511 | | | — | | | 5,365 | |
Non-controlling interests | | — | | | 712 | | | — | | | 712 | |
| | 89,584 | | | 46,756 | | | 3,409 | | | 139,749 | |
Cost of revenue | | 69,063 | | | 38,722 | | | 27,077 | | | 134,862 | |
Gross profit (loss) | | 20,521 | | | 8,034 | | | (23,668) | | | 4,887 | |
Selling, general and administrative expenses | | 10,709 | | | 4,468 | | | 36,869 | | | 52,046 | |
Income (loss) from operations | | 9,812 | | | 3,566 | | | (60,537) | | | (47,159) | |
Total other income (expense), net | | 6 | | | — | | | (9,887) | | | (9,881) | |
| | | | | | | | |
Income (loss) before income taxes and non-controlling interests | | $ | 9,818 | | | $ | 3,566 | | | $ | (70,424) | | | $ | (57,040) | |
| | | | | | | | |
Margins: | | | | | | | | |
Gross profit (loss) /service revenue | | 24 | % | | 18 | % | | N/M | | 4 | % |
Income (loss) from operations/service revenue | | 12 | % | | 8 | % | | N/M | | (35) | % |
_____________________________________N/M — not meaningful.
|
| | | | | | | | | | | | | | | | |
| | 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 MarketServicer and Real Estate
Revenue
Revenue by line of business unit was as follows:
| | | | 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) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Service revenue: | | |
| | | | | | |
| | | | |
| 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 | ) | |
Solutions | | Solutions | | $ | 19,418 | | | $ | 17,432 | | | 11 | | | $ | 54,178 | | | $ | 54,841 | | | (1) | |
Marketplace | | Marketplace | | 6,727 | | | 6,138 | | | 10 | | | 23,014 | | | 22,215 | | | 4 | |
Technology and SaaS Products | | Technology and SaaS Products | | 2,875 | | | 1,997 | | | 44 | | | 8,409 | | | 7,674 | | | 10 | |
Total service revenue | | 189,615 |
| | 199,176 |
| | (5 | ) | | 583,002 |
| | 584,740 |
| | — |
| Total service revenue | | 29,020 | | | 25,567 | | | 14 | | | 85,601 | | | 84,730 | | | 1 | |
| | | | | | | | | | | | | |
Reimbursable expenses: | | | | | | | | | | | | | Reimbursable expenses: | |
Servicer Solutions | | 8,803 |
| | 11,684 |
| | (25 | ) | | 28,854 |
| | 39,632 |
| | (27 | ) | |
Origination Solutions | | 39 |
| | 78 |
| | (50 | ) | | 217 |
| | 177 |
| | 23 |
| |
Solutions | | Solutions | | 915 | | | 781 | | | 17 | | | 2,416 | | | 2,739 | | | (12) | |
Marketplace | | Marketplace | | 931 | | | 445 | | | 109 | | | 3,332 | | | 2,115 | | | 58 | |
| Total reimbursable expenses | | 8,842 |
| | 11,762 |
| | (25 | ) | | 29,071 |
| | 39,809 |
| | (27 | ) | Total reimbursable expenses | | 1,846 | | | 1,226 | | | 51 | | | 5,748 | | | 4,854 | | | 18 | |
| | | | | | | | | | | | | |
Non-controlling interests | | 805 |
| | 883 |
| | (9 | ) | | 2,107 |
| | 1,973 |
| | 7 |
| |
| | | | | | | | | | | | | | |
Total revenue | | $ | 199,262 |
| | $ | 211,821 |
| | (6 | ) | | $ | 614,180 |
| | $ | 626,522 |
| | (2 | ) | Total revenue | | $ | 30,866 | | | $ | 26,793 | | | 15 | | | $ | 91,349 | | | $ | 89,584 | | | 2 | |
We recognized service revenue of $583.0$85.6 million for the nine months ended September 30, 2017,2022, a less than 1% decreaseincrease compared to the nine months ended September 30, 20162021 ($189.629.0 million for the third quarter of 2017,2022, a 5% decrease14% increase compared to the third quarter of 2016)2021). ServiceWe also recognized reimbursable expense revenue of $5.7 million for the nine months ended September 30, 2017 declined primarily as a result of2022, an 18% increase compared to 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 revenuenine months ended September 30, 2021 ($1.8 million for the third quarter of 2017 declined primarily as2022, a result51% increase compared to the third quarter of the normal run-off of Ocwen’s loan servicing portfolio2021). The increase in service revenue in the Servicer Solutions business. This decline wasand Real Estate segment for the nine months ended September 30, 2022 is primarily from higher revenue in our Marketplace and Technology and SaaS Products businesses, partially offset by growthlower revenue in referrals of certain higher fee property preservation services, a change in 2015our Solutions business. The increase in the pricingMarketplace business is driven by a higher number of homes sold, partially offset by lower average sales prices and billing model forlower commission rate from a higher percentage of foreclosure auctions. The increase in the Technology and SaaS Products business is from higher professional services revenue in the Equator business. The decline in our Solutions business is primarily driven by fewer preservation services as discussed above and growthreferrals per property in non-Ocwen servicethe Field Services business, largely offset by higher revenues from new and existing customersour other Solutions businesses. Revenue in the Servicerother Solutions business.businesses grew as the default market began to recover following the expiration of the pandemic related borrower relief measures. For the three months ended September 30, 2022 the increase in service revenue is driven by increases across all our Solutions, Marketplace and Technology and SaaS Products businesses as the default market continues to recover.
The decreasesFor the three months ended September 30, 2022, the increase in reimbursable expensesservice revenue were primarily dueis driven by an increase in our Solutions business as the default market continues to the changerecover, higher revenue in 2015our Marketplace business driven by a higher number of homes sold, partially offset by lower average sales prices and lower commission rate from a higher percentage of foreclosure auction sales, and an increase in our Technology and SaaS Products business from higher professional services revenue in the pricing and billing model for preservation services on new Ocwen REO referrals described above.Equator business.
Certain of our Mortgage MarketServicer and Real Estate 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. However, as a result of the pandemic and related measures, the seasonal impact to revenue may not follow historical patterns.
Cost of Revenue and Gross Profit
Cost of revenue consisted 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) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | $ | 41,475 |
| | $ | 44,876 |
| | (8 | ) | | $ | 126,153 |
| | $ | 134,693 |
| | (6 | ) | Compensation and benefits | | $ | 6,554 | | | $ | 6,658 | | | (2) | | | $ | 20,819 | | | $ | 23,538 | | | (12) | |
Outside fees and services | | 74,902 |
| | 70,506 |
| | 6 |
| | 228,982 |
| | 199,737 |
| | 15 |
| Outside fees and services | | 11,382 | | | 10,729 | | | 6 | | | 30,216 | | | 33,097 | | | (9) | |
Technology and telecommunications | | Technology and telecommunications | | 2,059 | | | 2,204 | | | (7) | | | 6,723 | | | 6,751 | | | — | |
Reimbursable expenses | | 8,842 |
| | 11,762 |
| | (25 | ) | | 29,071 |
| | 39,809 |
| | (27 | ) | Reimbursable expenses | | 1,846 | | | 1,227 | | | 50 | | | 5,748 | | | 4,855 | | | 18 | |
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 |
| Depreciation and amortization | | 241 | | | 270 | | | (11) | | | 729 | | | 822 | | | (11) | |
| | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | $ | 137,466 |
| | $ | 138,646 |
| | (1 | ) | | $ | 421,942 |
| | $ | 408,412 |
| | 3 |
| Cost of revenue | | $ | 22,082 | | | $ | 21,088 | | | 5 | | | $ | 64,235 | | | $ | 69,063 | | | (7) | |
Cost of revenue for the nine months ended September 30, 20172022 of $421.9$64.2 million increaseddecrease by 3%7% compared to the nine months ended September 30, 20162021 ($137.522.1 million for the third quarter of 2017,2022, a 1% decrease5% increase compared to the third quarter of 2016)2021). The increasedecrease in cost of revenue for the nine months ended September 30, 2017 was2022 is primarily driven by higherlower outside fees and services from lower Field Services revenue in the Solutions business, as discussed above, and lower compensation and benefits primarily due to cash cost savings initiatives. These decreases are partially offset by decreasesan increase in reimbursable expenses from a higher volume of asset resolution 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. asset management activities.
The decreaseincrease in cost of revenue for the third quarter of 2017 wasthree months ended September 30, 2022 is primarily due to a decrease in compensation and benefits in certain of the Servicer Solutions businesses and reimbursable expenses, partially offsetdriven by an increase in reimbursable expenses from a higher volume of asset resolution and asset management activities and higher outside fees and services consistent within the serviceField Services business in the Solutions business from revenue discussion above.growth. This increase is partially offset by slightly lower compensation and benefits primarily due to cash costs savings initiatives.
Gross profit decreasedincreased to $192.2$27.1 million, representing 33%32% of service revenue, for the nine months ended September 30, 20172022 compared to $218.1$20.5 million, representing 37%24% of service revenue, for the nine months ended September 30, 2016 (decreased2021 (increase to $61.8$8.8 million, representing 33%30% of service revenue, for the third quarter of 2017,2022, compared to $73.2$5.7 million, representing 37%22% of service revenue, for the third quarter of 2016)2021). Gross profit as a percentage of service revenue declinedfor the three and nine months ended September 30, 2022 increased primarily due to revenue mix from growth in the lower margin property preservation servicesour COVID-19 cash cost savings and declines in other higher margin businesses.efficiency measures. Our margins can vary substantially depending upon the 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) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | |
Compensation and benefits | | $ | 733 | | | $ | (16) | | | N/M | | $ | 2,130 | | | $ | 25 | | | N/M |
Occupancy related costs | | 228 | | | 195 | | | 17 | | | 756 | | | 564 | | | 34 | |
Amortization of intangible assets | | 742 | | | 2,131 | | | (65) | | | 2,230 | | | 6,548 | | | (66) | |
Professional services | | 558 | | | 510 | | | 9 | | | 2,040 | | | 2,016 | | | 1 | |
Marketing costs | | 336 | | | 152 | | | 121 | | | 1,148 | | | 510 | | | 125 | |
Depreciation and amortization | | 4 | | | 4 | | | — | | | 10 | | | 10 | | | — | |
Other | | 330 | | | 313 | | | 5 | | | 913 | | | 1,036 | | | (12) | |
| | | | | | | | | | | | |
Selling, general and administrative expenses | | $ | 2,931 | | | $ | 3,289 | | | (11) | | | $ | 9,227 | | | $ | 10,709 | | | (14) | |
_____________________________________N/M — not meaningful.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 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, 20172022 of $86.5$9.2 million decreased by 4%14% compared to the nine months ended September 30, 20162021 ($28.02.9 million for the third quarter of 2017,2022, a 6%11% decrease compared to the third quarter of 2016)2021). The decreasesdecrease in SG&A werefor the three and nine months ended September 30, 2022 is primarily driven bydue to lower amortization of intangible assets driven by an increasethe completion of the amortization period of certain intangible assets during 2021. These decreases are partially offset by higher compensation and benefits for the three and nine months ended September 30, 2022 from the assignment of sales and marketing employees to the business segments beginning in total projectedJanuary 1, 2022 and higher marketing costs from higher participation in convention activities for the Solutions businesses and related Technology and SaaS Products business.
Income from Operations
Income from operations increased to $17.9 million, representing 21% of service 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 resolution2022 compared to $9.8 million, representing 12% of and reduction in activities related to, several litigation and regulatory matters. The decreases in SG&Aservice revenue, for the nine months ended September 30, 2017 were partially offset by2021 (increased to $5.9 million, representing 20% of service revenue, for the third quarter of 2022, compared to $2.4 million, representing 9% of service revenue for the third quarter of 2021). The increase in operating income as a $3.0 million favorable loss accrual adjustment in other SG&A inpercentage of service revenue for the three and nine months ended September 30, 2016 (no comparative amounts2022 is primarily the result of higher gross profit margins and, for the nine months ended September 30, 2017 and2022, the percentage reduction in SG&A expenses in excess of the percentage change in revenue, discussed above.
Origination
Revenue
Revenue by business unit was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | |
Service revenue: | | | | | | | | | | | | |
Lenders One | | $ | 4,962 | | | $ | 6,003 | | | (17) | | | $ | 15,703 | | | $ | 18,797 | | | (16) | |
Solutions | | 2,126 | | | 7,970 | | | (73) | | | 9,839 | | | 26,169 | | | (62) | |
Technology and SaaS Products | | 182 | | | 199 | | | (9) | | | 548 | | | 567 | | | (3) | |
| | | | | | | | | | | | |
Total service revenue | | 7,270 | | | 14,172 | | | (49) | | | 26,090 | | | 45,533 | | | (43) | |
| | | | | | | | | | | | |
Reimbursable expenses: | | | | | | | | | | | | |
Solutions | | 111 | | | 190 | | | (42) | | | 410 | | | 511 | | | (20) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total reimbursable expenses | | 111 | | | 190 | | | (42) | | | 410 | | | 511 | | | (20) | |
| | | | | | | | | | | | |
Non-controlling interests | | 133 | | | 201 | | | (34) | | | 468 | | | 712 | | | (34) | |
| | | | | | | | | | | | |
Total revenue | | $ | 7,514 | | | $ | 14,563 | | | (48) | | | $ | 26,968 | | | $ | 46,756 | | | (42) | |
We recognized service revenue of $26.1 million for the nine months ended September 30, 2022, a 43% decrease compared to the nine months ended September 30, 2021 ($7.3 million for the third quarter of 20172022, a 49% decrease compared to the third quarter of 2021). We also recognized reimbursable expense revenue of $0.4 million for the nine months ended September 30, 2022, a 20% decrease compared to the nine months ended September 30, 2021 ($0.1 million for the third quarter of 2022, a 42% decrease compared to the third quarter of 2021). The decrease in service revenue in the Origination segment for the three and 2016).nine months ended September 30, 2022 is primarily driven by the overall market decline in mortgage originations. The decline in Lenders One revenue for the three and nine months ended September 30, 2022 is lower than the overall market decline as we gained traction with our solutions, comprising existing and recent product launches, that are designed to help our members save money. The decline in our other Solutions business revenue for the three and nine months ended September 30, 2022 is greater than the overall market decline as customers transitioned services in-house to retain their employees in some of our Solutions businesses and a greater percentage of revenue in some of these businesses was derived from refinance transactions which declined faster than the market.
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) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | |
Compensation and benefits | | $ | 3,121 | | | $ | 4,752 | | | (34) | | | $ | 11,947 | | | $ | 17,414 | | | (31) | |
Outside fees and services | | 3,937 | | | 6,111 | | | (36) | | | 12,357 | | | 19,325 | | | (36) | |
Technology and telecommunications | | 476 | | | 486 | | | (2) | | | 1,464 | | | 1,424 | | | 3 | |
Reimbursable expenses | | 111 | | | 190 | | | (42) | | | 410 | | | 511 | | | (20) | |
Depreciation and amortization | | 9 | | | 16 | | | (44) | | | 28 | | | 48 | | | (42) | |
| | | | | | | | | | | | |
Cost of revenue | | $ | 7,654 | | | $ | 11,555 | | | (34) | | | $ | 26,206 | | | $ | 38,722 | | | (32) | |
Cost of revenue for the nine months ended September 30, 2022 of $26.2 million decreased by 32% compared to the nine months ended September 30, 2021 ($7.7 million for the third quarter of 2022, a 34% decrease compared to the third quarter of 2021). The decrease in cost of revenue for the three and nine months ended September 30, 2022 are primarily driven by lower compensation and benefits and outside fees and services driven by the decrease in service revenue discussed above. In addition, the decrease in reimbursable expenses for the three and nine months ended September 30, 2022 is consistent with the changes in reimbursable expense revenue discussed in the revenue section above.
Gross profit decreased to $105.7$0.8 million, representing 3% of service revenue, for the nine months ended September 30, 2022 compared to $8.0 million, representing 18% of service revenue, for the nine months ended September 30, 2017 compared2021 (decreased to $127.6$(0.1) 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)(2)% of service revenue, for the third quarter of 2017,2022, compared to gross
profit of $4.9$3.0 million, representing 23%21% of service revenue for the third quarter of 2016)2021). Gross profit declinedas a percentage of service revenue decreased primarily as a result of growth ofcosts did not decline at the lower margin buy-renovate-sell program and lower brokerage commissions from higher margin REO sales.same rate that revenue declined.
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) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | |
Compensation and benefits | | $ | 1,172 | | | $ | 107 | | | N/M | | $ | 2,119 | | | $ | 487 | | | 335 | |
Occupancy related costs | | 133 | | | 68 | | | 96 | | | 483 | | | 214 | | | 126 | |
Amortization of intangible assets | | 539 | | | 542 | | | (1) | | | 1,619 | | | 1,635 | | | (1) | |
Professional services | | 149 | | | 249 | | | (40) | | | 625 | | | 748 | | | (16) | |
Marketing costs | | 436 | | | (41) | | | N/M | | 1,286 | | | 322 | | | 299 | |
| | | | | | | | | | | | |
Other | | (30) | | | 661 | | | (105) | | | 607 | | | 1,062 | | | (43) | |
| | | | | | | | | | | | |
Selling, general and administrative expenses | | $ | 2,399 | | | $ | 1,586 | | | 51 | | | $ | 6,739 | | | $ | 4,468 | | | 51 | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 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, 20172022 of $14.1$6.7 million decreasedincreased by 25%51% compared to the nine months ended September 30, 20162021 ($4.22.4 million for the third quarter of 2017, a 40% decrease2022, increased by 51% compared to the third quarter of 2016)2021). The decreasesincrease in SG&A werefor the three and nine months ended September 30, 2022 is primarily due to higher compensation and benefits from the resultassignment of lowersales and marketing employees to the business segments beginning in January 1, 2022. In addition, the increase in marketing costs as a resultand other for the nine months ended September 30, 2022 is from Lenders One convention activities that were cancelled in first quarter of initial non-recurring Owners.com market launch costs incurred in 2016 and2021 due to the reduction in Owners.com recurring marketing spending as the business unit focuses on improving the lead to closing conversion rate.pandemic.
(Loss) Income from Operations
(Loss) income from operations decreased to a loss from operations of $19.3$(6.0) million, representing (30)(23)% of service revenue, for the nine months ended September 30, 20172022 compared to income from operations of $3.5$3.6 million, representing 5%8% of service revenue, for the nine months ended September 30, 2016 (loss from operations of $5.62021 (decreased to $(2.5) million, representing (26)(35)% of service revenue, for the third quarter of 2017,2022, compared to a loss from operations of $2.1$1.4 million, representing (10)%10% of service revenue for the third quarter of 2016)2021). The decrease in operating (loss) income as a percentage of service revenue wasfor the three and nine months ended September 30, 2022 is primarily the result of lower gross profit margins partially offset by lowerand higher SG&A costs, as discussed above.
Other Businesses, Corporate and EliminationsOthers
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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | |
Service revenue: | | | | | | | | | | | | |
Pointillist | | $ | — | | | $ | 1,887 | | | (100) | | | $ | — | | | $ | 3,409 | | | (100) | |
Total service revenue | | — | | | 1,887 | | | (100) | | | — | | | 3,409 | | | (100) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total revenue | | $ | — | | | $ | 1,887 | | | (100) | | | $ | — | | | $ | 3,409 | | | (100) | |
We recognized service revenue of $44.6$1.9 million and $3.4 million for the three and nine months ended September 30, 2017, a 28% decrease compared to2021, respectively (no comparative amount for the three and nine months ended September 30, 2016 ($13.6 million2022). The decrease in service revenue for the third quarter of 2017, a 30% decrease compared tothree and nine months ended September 30, 2022 is driven by 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.December 1, 2021, Pointillist sale.
Cost of Revenue and Gross Profit (Loss)
Cost of revenue consisted 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) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | $ | 10,080 |
| | $ | 13,308 |
| | (24 | ) | | $ | 31,770 |
| | $ | 45,165 |
| | (30 | ) | Compensation and benefits | | $ | 2,210 | | | $ | 3,761 | | | (41) | | | $ | 6,465 | | | $ | 14,703 | | | (56) | |
Outside fees and services | | 903 |
| | 710 |
| | 27 |
| | 2,652 |
| | 2,086 |
| | 27 |
| Outside fees and services | | — | | | 50 | | | (100) | | | — | | | 50 | | | (100) | |
Reimbursable expenses | | 16 |
| | 33 |
| | (52 | ) | | 50 |
| | 84 |
| | (40 | ) | |
Technology and telecommunications | | 1,478 |
| | 2,364 |
| | (37 | ) | | 4,433 |
| | 6,476 |
| | (32 | ) | Technology and telecommunications | | 2,121 | | | 3,701 | | | (43) | | | 6,657 | | | 10,797 | | | (38) | |
| Depreciation and amortization | | 1,458 |
| | 2,307 |
| | (37 | ) | | 4,913 |
| | 7,067 |
| | (30 | ) | Depreciation and amortization | | 320 | | | 512 | | | (38) | | | 1,048 | | | 1,527 | | | (31) | |
| | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | $ | 13,935 |
| | $ | 18,722 |
| | (26 | ) | | $ | 43,818 |
| | $ | 60,878 |
| | (28 | ) | Cost of revenue | | $ | 4,651 | | | $ | 8,024 | | | (42) | | | $ | 14,170 | | | $ | 27,077 | | | (48) | |
Cost of revenue for the nine months ended September 30, 20172022 of $43.8$14.2 million decreased by 28%48% compared to the nine months ended September 30, 20162021 ($13.94.7 million for the third quarter of 2017,2022, a 26%42% decrease compared to the third quarter of 2016)2021). The decreasesdecrease 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 three and nine months ended September 30, 2017 compared2022 is primarily driven by lower compensation and benefits due to $1.0 million, representing 2%cash cost savings initiatives, the December 1, 2021 Pointillist sale and the assignment of service revenue, forsales and marketing employees to 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 revenuebusiness segments beginning in January 1, 2022. In addition, technology and telecommunications decreased due to lower service contract costs as a result of the decrease in IT infrastructureDecember 1, 2021, Pointillist sale and customer relationship management revenue, largely offset by a reduction in compensation and benefits.cost savings initiatives.
Selling, General and Administrative Expenses Loss from Operations and Other Expenses, net
SG&A in Other Businesses, Corporate and EliminationsOthers include SG&A expenses of the customer relationship management, asset recovery management and IT infrastructure services business. It also includes costs related to the corporate support functions not allocated to the Mortgage Marketincluding executive, finance, technology, law, compliance, human resources, vendor management, facilities, risk management 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, | | Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | | 2017 | | 2016 | | % Increase (decrease) | | 2017 | | 2016 | | % Increase (decrease) | (in thousands) | | 2022 | | 2021 | | % Increase (decrease) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | $ | 8,044 |
| | $ | 8,112 |
| | (1 | ) | | $ | 23,253 |
| | $ | 24,641 |
| | (6 | ) | Compensation and benefits | | $ | 5,483 | | | $ | 6,768 | | | (19) | | | $ | 14,844 | | | $ | 20,495 | | | (28) | |
Occupancy related costs | | 2,257 |
| | 3,291 |
| | (31 | ) | | 8,307 |
| | 9,917 |
| | (16 | ) | Occupancy related costs | | 647 | | | 1,919 | | | (66) | | | 2,810 | | | 6,874 | | | (59) | |
Amortization of intangible assets | | 418 |
| | 500 |
| | (16 | ) | | 1,391 |
| | 1,501 |
| | (7 | ) | |
| Professional services | | 1,228 |
| | 1,543 |
| | (20 | ) | | 3,991 |
| | 7,247 |
| | (45 | ) | Professional services | | 1,877 | | | 1,559 | | | 20 | | | 5,767 | | | 5,132 | | | 12 | |
Marketing costs | | 36 |
| | 81 |
| | (56 | ) | | 163 |
| | 348 |
| | (53 | ) | Marketing costs | | 2 | | | 216 | | | (99) | | | 12 | | | 668 | | | (98) | |
Depreciation and amortization | | 1,094 |
| | 1,412 |
| | (23 | ) | | 3,626 |
| | 4,208 |
| | (14 | ) | Depreciation and amortization | | 280 | | | 342 | | | (18) | | | 885 | | | 1,072 | | | (17) | |
Other | | 1,331 |
| | 2,083 |
| | (36 | ) | | 5,485 |
| | 4,594 |
| | 19 |
| Other | | 937 | | | 925 | | | 1 | | | 2,771 | | | 2,628 | | | 5 | |
| | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | 14,408 |
| | 17,022 |
| | (15 | ) | | 46,216 |
| | 52,456 |
| | (12 | ) | Selling, general and administrative expenses | | $ | 9,226 | | | $ | 11,729 | | | (21) | | | $ | 27,089 | | | $ | 36,869 | | | (27) | |
| | | | | | | | | | | | | |
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, 20172022 of $46.2$27.1 million decreased by 12%27% compared to the nine months ended September 30, 20162021 ($14.49.2 million for the third quarter of 2017,2022, a 15%21% decrease compared to the third quarter of 2016)2021). The decrease in SG&ACompensation and benefits for the three and nine months ended September 30, 2017 was2022 decreased primarily due to lower professional services legal costscash cost savings initiatives, and from the assignment of sales and marketing employees to the business segments beginning in connection withJanuary 1, 2022. In addition, the resolution of, and reductiondecrease 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 thethree and 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 loss2022 primarily resulted from operations were primarily driven by decreases in SG&A, as discussed above.facility elimination initiatives.
Other expenses,Income (Expense), net
Other income (expense), net principally includes interest expense and other non-operating gains and losses. For the nine months ended September 30, 2017, other expenses,
Other income (expense), 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 $16.9$(10.1) million for the nine months ended September 30, 2017, a decrease of $1.62022 compared to $(9.9) million compared tofor the nine months ended September 30, 20162021 ($5.6(3.9) million for the third quarter of 2017, a decrease of $0.42022 and $(3.9) million compared tofor 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.
During2021). The change for the nine months ended September 30, 2017, we repurchased portions2022 is primarily driven by an increase of $0.8 million in interest expense driven by higher interest rate 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).Credit Facility, partially offset by higher interest income and foreign currency exchange gains.
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 flowsflow from operations.operations, cash proceeds from sales of businesses and cash on hand. However, due to the COVID-19 pandemic revenue has declined significantly. The lower revenue, partially offset by cost savings initiatives, resulted in negative operating cash flow from operations for nine months ended September 30, 2022 and 2021. To increase our liquidity we entered into a $20 million revolving credit facility during the second quarter of 2021 ($15 million available as of September 30, 2022). In addition, Altisource’s December 1, 2021 sale of its equity interest in Pointillist increased our liquidity. The Pointillist sale generated approximately $106.0 million in cash, with $102.2 million received at closing, approximately $0.3 million deposited into the Working Capital Escrow and received in May 2022, and approximately $3.5 million deposited into the Indemnification Escrow. Finally, we believe the anticipated revenue growth as the default market returns and revenue mix along with our reduced cost structure should help reduce negative operating cash flow. 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.strategy and fund negative operating cash flow. We also use cash for scheduled repayments of our senior secured term loanlong-term debt and seek to use cashcapital investments. In addition, from time to time to repurchase shares of our common stock and repurchase portions of our senior secured term loan. In addition, we consider and evaluate business acquisitions, that may arise from time to timedispositions, closures or other similar actions that are aligned with our strategy.
For the nine months ended September 30, 2017, we used $48.6 million to repay and repurchase portions
Senior Secured Term LoanCredit Agreement
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.April 3, 2018, Altisource Portfolio Solutions S.A. and certain subsidiaries are guarantors of the term loan. We subsequentlyits wholly-owned subsidiary, Altisource S.à r.l. entered into three amendmentsa credit agreement (the “Credit Agreement”) pursuant 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 $200.0which Altisource borrowed $412.0 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 definedform of Term B Loans and obtained a $15.0 million revolving credit facility. The Term B Loans mature in April 2024. We terminated the senior secured term loan agreement). The lenders of the senior secured term loan, as amended, have no obligation to provide any such additional debt under the accordion provision.revolving credit facility on December 1, 2021. As of September 30, 2017, $425.1 million2022, the principal balance of the Term B Loans was outstanding under$247.2 million.
There are no mandatory repayments of the senior secured term loan agreement,Term B Loans due until maturity in April 2024, except as amended, compared to $479.7 million as of December 31, 2016.
After giving effect tootherwise described herein and in the third amendment entered into on August 1, 2014, the term loan must be repaid in equal consecutive quarterly principal installments of $1.5 million, with the balance due at maturity.Credit Agreement. All amounts outstanding under the senior secured term loan agreementTerm B Loans will become due on the earlier of (i) December 9, 2020April 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 agreementCredit Agreement upon the occurrence of any event of default underdefault.
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 theour leverage ratio exceedsas 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 principalCredit Agreement (the percentage increases if theour leverage ratio exceeds 3.50 to 1.00). No mandatory prepayments were required for the nine months ended September 30, 2017.
The interest rate on the Term B Loans as of September 30, 20172022 was 4.74%6.25%, representing the sum of (i) the greater of (x) the Adjusted Eurodollar Rate for a three month interest period and (y) 1.00% plus (ii) 4.00%.
DuringAltisource may incur incremental indebtedness under the nine months ended September 30, 2017, we repurchased portions of our senior secured term loan withCredit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate par value of $50.1incremental principal amount not to exceed $125.0 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 repurchasessubject to certain conditions set forth in the third quarterCredit Agreement, including a sublimit of 2016).$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. The lenders have no obligation to provide any incremental indebtedness.
The debtCredit Agreement includes covenants in the senior secured term loan agreementthat 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 seniorCredit Agreement.
Credit Facility
On June 22, 2021 Altisource S.à r.l, a subsidiary of Altisource Portfolio Solutions S.A., entered into a revolving credit facility with a related party, STS Master Fund, Ltd. (“STS”) (the “Credit Facility”). STS is an investment fund managed by Deer Park Road Management Company, LP. Deer Park Road Management Company, LP owns approximately 24% of Altisource’s common stock as of September 30, 2022. Deer Park’s Chief Investment Officer and managing partner was a member of Altisource’s Board of Directors until his resignation on March 1, 2022. The replacement director appointed by the Board of Directors is a current employee of Deer Park. Under the terms of the Credit Facility, STS will make loans to Altisource from time to time, in amounts requested by Altisource and Altisource may voluntarily prepay all or any portion of the outstanding loans at any time. The Credit Facility provides Altisource the ability to borrow a maximum amount of $20.0 million through June 22, 2022, $15.0 million through June 22, 2023, and $10.0 million until the end of the term. Amounts that are repaid may be re-borrowed in accordance with the limitations set forth below.
Outstanding amounts borrowed pursuant to the Credit Facility will amortize over the three-year term as follows: on June 22, 2022, the difference between the then outstanding balance above $15.0 million and $15.0 million, will be due and payable by Altisource; on June 22, 2023, the difference between the then outstanding balance above $10.0 million and $10.0 million, will be due and payable by Altisource; and on June 22, 2024, the then outstanding balance of the loan will be due and payable by Altisource.
Borrowings under the Credit Facility bear interest of 9.00% per annum and are payable quarterly on the last business day of each March, June, September and December, commencing on September 30, 2021. In connection with the Credit Facility, Altisource is required to pay customary fees, including an upfront fee equal to $0.5 million at the initial extension of credit pursuant to the facility, an unused line fee of 0.5% and, an early termination fee in the event of a refinancing transaction.
Altisource’s obligations under the Credit Facility are secured term loan.by a lien on all equity in Altisource’s subsidiary incorporated in India, Altisource Business Solutions Private Limited, pursuant to a pledge agreement entered into by Altisource Asia Holdings Ltd I, a wholly owned Altisource subsidiary.
The Credit Facility contains additional representations, warranties, covenants, terms and conditions customary for transactions of this type, that restrict or limit, among other things, our ability to use the proceeds of credit only for general corporate purposes.
The Credit Facility 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 Credit Facility within three business days of becoming due, (ii) failure to perform or observe any material provisions of the Credit Documents to be performed or complied with, (iii) material incorrectness of representations and warranties when made, (iv) 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, (v) 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, (vi) occurrence of a Change of Control, (vii) bankruptcy and insolvency events. If any event of default occurs and is not cured within applicable grace periods set forth in the Credit Facility or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.
As of September 30, 2022, there was no outstanding debt under the Credit Facility.
Cash Flows
The following table presents our cash flows for the nine months ended September 30:
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| | | | | | | | | | | |
(in thousands) | | 2017 | | 2016 | | % Increase (decrease) |
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Net income adjusted for non-cash items | | $ | 83,771 |
| | $ | 115,024 |
| | (27 | ) |
Changes in operating assets and liabilities | | (36,642 | ) | | (8,989 | ) | | N/M |
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Net cash provided by operating activities | | 47,129 |
| | 106,035 |
| | (56 | ) |
Net cash used in investing activities | | (7,558 | ) | | (74,095 | ) | | 90 |
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Net cash used in financing activities | | (74,742 | ) | | (76,319 | ) | | 2 |
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Net decrease in cash and cash equivalents | | (35,171 | ) | | (44,379 | ) | | 21 |
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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) | | 2022 | | 2021 | | % Increase (decrease) |
| | | | | | |
Net cash used in operating activities | | $ | (32,293) | | | $ | (41,133) | | | 21 | |
Net cash (used in) provided by investing activities | | (517) | | | 1,875 | | | (128) | |
Net cash (used in) provided by financing activities | | (1,943) | | | 17,929 | | | (111) | |
Net decrease in cash, cash equivalents and restricted cash | | (34,753) | | | (21,329) | | | 63 | |
Cash, cash equivalents and restricted cash at the beginning of the period | | 102,149 | | | 62,096 | | | 65 | |
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Cash, cash equivalents and restricted cash at the end of the period | | $ | 67,396 | | | $ | 40,767 | | | 65 | |
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 income.loss. For the nine months ended September 30, 2017,2022, net cash flows provided byused in operating activities were $47.1was $(32.3) million or $0.07 for every dollar of service revenue ($34.6 million, or $0.15 for every dollar of service revenue for the third quarter of 2017) compared to net cash flows generated fromused in operating activities of $106.0$(41.1) million or $0.15 for every dollar of service revenue for the nine months ended September 30, 2016 ($36.62021. During the nine months ended September 30, 2022, the decrease in cash used in operating activities was driven by a $17.3 million or $0.15decrease in net loss partially offset by a $4.1 million decrease in non-cash depreciation, amortization of intangibles and stock based compensation expenses, and a $4.0 million increase in cash used for every dollar of service revenue for the third quarter of 2016).working capital. The decrease in net loss was primarily due to higher gross profit during the nine months ended September 30, 2022 from revenue mix with higher revenue from the higher margin businesses in Servicer and Real Estate, our cash flowscost savings measures, the sale of Pointillist and lower SG&A expenses, partially offset by lower gross profit in the Origination business from operationslower revenue. The increase in cash used for changes in working capital was primarily driven by higher cash payments for annual incentive compensation bonuses in the first quarter of 2022 by $3.7 million partially offset by $1.3 million more cash generated from the change in accounts receivable for the nine months ended September 30, 2017,2022 compared to the nine months ended September 30, 2016, was principally2021, largely driven by the $28.0 million net payment for the previously accrued litigation settlement, an $11.6 million increase in short-term investments in real estate and lower net income, partially offset by higher collections of accounts receivable, primarily driven by timing of collections.
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, 20172022 and 2016 primarily included capital expenditures2021 consisted of additions to premises and purchasesequipment and salesproceeds from the sale of availablea business. Net cash (used in) provided by investing activities was $(0.5) million and $1.9 million for sale securities. For the nine months ended September 30, 20172022 and 2016,2021, respectively. The change in cash provided by investing activities was driven by $3.0 million in proceeds received in 2021 in connection with the second installment from the August 2018 sale of the rental property management business to Front Yard Residential Corporation (“RESI”). In addition, we used $7.5$(0.9) million for the nine months ended September 30, 2022 compared to $(1.1) million in 2021, for additions to premises and $16.5 million, respectively, for capital expendituresequipment primarily related to investments in the development of certain software applications IT infrastructure and facility build-outs. The decrease in capital expenditures primarily related to the completionimprovements.
Cash Flows from Financing Activities
Cash flows fromNet cash used in financing activities were $(1.9) million and $17.9 million for the nine months ended September 30, 20172022 and 2016 primarily included activities associated with share repurchases, debt repayments and repurchases, stock option exercises and payments to non-controlling interests. During the nine months ended September 30, 2017 and 2016, we used $25.0 million and $34.3 million, respectively, to repurchase our common stock. In addition, during the nine months ended September 30, 2017 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,2021, respectively. During the nine months ended September 30, 20172022 and 2016, we distributed $2.1 million and $1.6 million, respectively, to non-controlling interests. Also during the nine months ended September 30, 2017,2021, we made payments of $1.1$(1.1) million and $(0.9) million, respectively, 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.
Liquidity Requirements after In addition, during the nine months ended September 30, 2017
On2022 and 2021, we distributed $(0.9) million and $(1.8) million, respectively, to non-controlling interests. During the nine months ended September 12, 2014,30, 2021, we acquired certain assetsreceived proceeds from the issuance of long-term debt of $20.0 million and assumed certain liabilities of Mortgage Builder Software, Inc. (“Mortgage Builder”). The Mortgage Builder purchase agreement providespaid $0.5 million in debt issuance costs in connection with borrowings under the Credit Facility (no comparable amount for the payment of up to $7.0 million in potential additional consideration based on Adjusted Revenue (as defined in the purchase agreement). As ofnine months ended September 30, 2017,2022). During the nine months ended September 30, 2021, we have recorded $0.4also received proceeds from the Pointillist convertible notes payable to related parties of $1.2 million (no comparable amount for the nine months ended September 30, 2022).
Future Uses of potential additional consideration relatedCash
Our significant future liquidity obligations primarily pertain to the Mortgage Builder acquisition. The amount ultimately paid will depend on Mortgage Builder’s Adjusted Revenue in the lastmaturity 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.
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 million ofCredit Agreement, interest expense under the senior secured term loan agreement.Credit Agreement (see Liquidity section above), distributions to Lenders One members and operating lease payments on certain of our premises and equipment.
Significant future uses of cash include the following:
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| | | | Payments Due by Period |
(in thousands) | | Total | | 2022 | | 2023-2024 | | 2025-2026 |
| | | | | | | | |
Credit Agreement outstanding balance (1) | | $ | 247,204 | | | $ | — | | | $ | 247,204 | | | $ | — | |
Interest expense payments (2) | | 28,562 | | | 4,743 | | | 23,819 | | | — | |
Lease payments | | 6,919 | | | 1,102 | | | 3,948 | | | 1,869 | |
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Total | | $ | 282,685 | | | $ | 5,845 | | | $ | 274,971 | | | $ | 1,869 | |
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(1) The outstanding balance of our Credit Agreement of $247.2 million is due on April 1, 2024.
(2) Assuming no further principal repayments, estimated future interest payments based on the interest rate as of September 30, 2022 and the April 1, 2024 maturity date. Based on the April 1, 2024 maturity date, no interest expense has been included beyond April 1, 2024.
We believe that ouranticipate to fund future liquidity requirements with a combination of existing cash balances, cash anticipated to be generated by operating activities and cash equivalent balancesanticipated proceeds from a refinancing of our Credit Agreement. For further information, see Note 11 and our anticipated cash flows from operations will be sufficientNote 21 to meet our liquidity needs, including to fund capital expendituresthe condensed consolidated financial statements.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of escrow arrangements.
We hold customers’ assets in escrow accounts at various financial institutions pending completion of certain real estate activities. These amounts are held in escrow accounts for limited periods of time and required debtare not included in the condensed consolidated balance sheets. Amounts held in escrow accounts were $20.0 million and interest payments, for the next 12 months.$27.5 million as of September 30, 2022 and December 31, 2021, respectively.
Contractual Obligations, Commitmentsand Contingencies
For the nine months ended September 30, 2017,2022, there were no significant changes to our contractual obligations from those identified in our Form 10-K for the fiscal year ended December 31, 2016,2021 and this Form 10-Q, other than those that occur in the normal course of business. See Note 2021 to the condensed consolidated financial statements.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTPRONOUNCEMENTS
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. 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, 20162021 filed with the SEC on February 16, 2017. ThoseMarch 3, 2022. There have been no material changes to our critical accounting policies have not changed during the nine months ended September 30, 2017.2022.
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, 2017,2022, the interest rate charged on the senior secured term loanTerm B Loan was 4.74%6.25%. The interest rate is calculated based on the Adjusted Eurodollar Rate for a three month interest period (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, 2017,2022, a one percentage point increase in the Eurodollar Raterate above the minimum floor would increase our annual interest expense by approximately $4.3 million, based on the September 30, 2017 Adjusted Eurodollar Rate.$2.5 million. There would be a $1.0$2.5 million decrease in our annual interest expense if there was a one percentage point decrease in the Eurodollar Rate.
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 duringfor the third quarter of 2017,2022, 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$0.3 million.
Item 4. Controls and Procedures
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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, 2017,2022, 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, 2017.2022.
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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, 2017,2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
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 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, 20162021 filed with the SEC on February 16, 2017, except as follows:March 3, 2022.
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 revenueand results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information related to our repurchasesThere were no purchases of our equity securitiesshares of common stock during the three months ended September 30, 2017:2022. 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, 2022, 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, 2022, 93,628 common shares were withheld from employees to satisfy tax withholding obligations that arose from the vesting of restricted shares.
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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) |
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Common stock: | | | | | | | | |
July 1 – 31, 2017 | | — |
| | $ | — |
| | — |
| | 4,219,665 |
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August 1 – 31, 2017 | | 22,200 |
| | 22.46 |
| | 22,200 |
| | 4,197,465 |
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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
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Exhibit Number |
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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, 20172022 is formatted in Inline XBRL interactive data files: (i) Condensed Consolidated Balance Sheets atas of September 30, 20172022 and December 31, 2016;2021; (ii) Condensed Consolidated Statements of Operations and Comprehensive IncomeLoss for the three and nine months ended September 30, 20172022 and 2016;2021; (iii) Condensed Consolidated Statements of Equity for the nine months ended September 30, 20172022 and 2016;2021; (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20172022 and 2016;2021; and (v) Notes to Condensed Consolidated Financial Statements. |
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†104 * |
| Denotes a management contract or compensatory arrangementCover Page Interactive Data File formatted as Inline XBRL and contained in Exhibit 101 |
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| 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.
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| | | ALTISOURCE PORTFOLIO SOLUTIONS S.A. |
| | | (Registrant) |
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| | ALTISOURCE PORTFOLIO SOLUTIONS S.A. |
| | (Registrant) | | |
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Date: | October 26, 2017 | By: | /s/ William B. Shepro | |
| | | William B. Shepro | |
| | | Director and Chief Executive Officer | |
Date: | November 3, 2022 | | (Principal Executive Officer) |
By: | | | |
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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) |