Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-34354
 
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Exact name of Registrant as specified in its Charter)
 
Luxembourg
98-0554932
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

40, avenue Monterey
L-2163 Luxembourg
Grand Duchy of Luxembourg
(Address of principal executive offices) (Zip Code)

(352) 24 69 79 00
(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o

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, smaller reporting company or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act):
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o
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 by 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  No þ

As of April 20, 2018, there were 17,204,646 outstanding shares of the registrant’s shares of beneficial interest (excluding 8,208,102 shares held as treasury stock).
 


Table of Contents

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-Q

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
84,850

 
$
105,006

Investment in equity securities
41,652

 
49,153

Accounts receivable, net
50,839

 
52,740

Prepaid expenses and other current assets
73,955

 
64,742

Total current assets
251,296

 
271,641

 
 
 
 
Premises and equipment, net
65,585

 
73,273

Goodwill
86,283

 
86,283

Intangible assets, net
112,918

 
120,065

Deferred tax assets, net
305,679

 
303,707

Other assets
10,012

 
10,195

 
 
 
 
Total assets
$
831,773

 
$
865,164

 
 
 
 
LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
66,475

 
$
84,400

Current portion of long-term debt
5,945

 
5,945

Deferred revenue
15,489

 
9,802

Other current liabilities
6,651

 
9,414

Total current liabilities
94,560

 
109,561

 
 
 
 
Long-term debt, less current portion
401,716

 
403,336

Other non-current liabilities
15,415

 
12,282

 
 
 
 
Commitments, contingencies and regulatory matters (Note 19)


 


 
 
 
 
Equity:
 
 
 
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 17,343 outstanding as of March 31, 2018; 100,000 shares authorized, 25,413 shares issued and 17,418 outstanding as of December 31, 2017)
25,413

 
25,413

Additional paid-in capital
114,676

 
112,475

Retained earnings
600,253

 
626,600

Accumulated other comprehensive income

 
733

Treasury stock, at cost (8,070 shares as of March 31, 2018 and 7,995 shares as of December 31, 2017)
(421,486
)
 
(426,609
)
Altisource equity
318,856

 
338,612

 
 
 
 
Non-controlling interests
1,226

 
1,373

Total equity
320,082

 
339,985

 
 
 
 
Total liabilities and equity
$
831,773

 
$
865,164


See accompanying notes to condensed consolidated financial statements.

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
 
 
Three months ended
 March 31,
 
 
2018
 
2017
 
 
 
 
 
Revenue
 
$
197,438

 
$
240,483

Cost of revenue
 
147,194

 
177,953

 
 
 
 
 
Gross profit
 
50,244

 
62,530

Selling, general and administrative expenses
 
43,124

 
47,701

 
 
 
 
 
Income from operations
 
7,120

 
14,829

Other income (expense), net:
 
 
 
 
Interest expense
 
(5,863
)
 
(5,798
)
Unrealized loss on investment in equity securities (Note 3)
 
(7,501
)
 

Other income (expense), net
 
1,272

 
715

Total other income (expense), net
 
(12,092
)
 
(5,083
)
 
 
 
 
 
(Loss) income before income taxes and non-controlling interests
 
(4,972
)
 
9,746

Income tax benefit (provision)
 
1,365

 
(2,586
)
 
 
 
 
 
Net (loss) income
 
(3,607
)
 
7,160

Net income attributable to non-controlling interests
 
(525
)
 
(615
)
 
 
 
 
 
Net (loss) income attributable to Altisource
 
$
(4,132
)
 
$
6,545

 
 
 
 
 
(Loss) earnings per share:
 
 
 
 
Basic
 
$
(0.24
)
 
$
0.35

Diluted
 
$
(0.24
)
 
$
0.34

 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
Basic
 
17,378

 
18,662

Diluted
 
17,378

 
19,304

 
 
 
 
 
Comprehensive (loss) income:
 
 
 
 
Net (loss) income
 
$
(3,607
)
 
$
7,160

Other comprehensive income, net of tax:
 
 
 
 
Reclassification of unrealized gain on investment in equity securities, net of
income tax provision of $200, to retained earnings from the cumulative
effect of an accounting change (Note 1)
 
(733
)
 

Unrealized gain on investment in equity securities, net of income tax
provision of $4,725
 

 
12,723

 
 
 
 
 
Comprehensive (loss) income, net of tax
 
(4,340
)
 
19,883

Comprehensive income attributable to non-controlling interests
 
(525
)
 
(615
)
 
 
 
 
 
Comprehensive (loss) income attributable to Altisource
 
$
(4,865
)
 
$
19,268


See accompanying notes to condensed consolidated financial statements.

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
 
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, 2016
25,413

 
$
25,413

 
$
107,288

 
$
333,786

 
$
(1,745
)
 
$
(403,953
)
 
$
1,405

 
$
62,194

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
6,545

 

 

 
615

 
7,160

Other comprehensive income, net of tax

 

 

 

 
12,723

 

 

 
12,723

Distributions to non-controlling interest holders

 

 

 

 

 

 
(569
)
 
(569
)
Share-based compensation expense

 

 
695

 

 

 

 

 
695

Cumulative effect of an accounting change (Note 13)

 

 
932

 
(932
)
 

 

 

 

Exercise of stock options

 

 

 
(2,872
)
 

 
3,624

 

 
752

Repurchase of shares

 

 

 

 

 
(10,590
)
 

 
(10,590
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2017
25,413

 
$
25,413

 
$
108,915

 
$
336,527

 
$
10,978

 
$
(410,919
)
 
$
1,451

 
$
72,365

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
25,413

 
$
25,413

 
$
112,475

 
$
626,600

 
$
733

 
$
(426,609
)
 
$
1,373

 
$
339,985

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income

 

 

 
(4,132
)
 

 

 
525

 
(3,607
)
Distributions to non-controlling interest holders

 

 

 

 

 

 
(672
)
 
(672
)
Share-based compensation expense

 

 
2,201

 

 

 

 

 
2,201

Cumulative effect of accounting changes (Note 1)

 

 

 
(9,715
)
 
(733
)
 

 

 
(10,448
)
Exercise of stock options and issuance of restricted shares

 

 

 
(12,500
)
 

 
15,117

 

 
2,617

Repurchase of shares

 

 

 

 

 
(9,994
)
 

 
(9,994
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2018
25,413

 
$
25,413

 
$
114,676

 
$
600,253

 
$

 
$
(421,486
)
 
$
1,226

 
$
320,082


See accompanying notes to condensed consolidated financial statements.

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Three months ended
 March 31,
 
2018
 
2017
 
 
 
 
Cash flows from operating activities:
 

 
 

Net (loss) income
$
(3,607
)
 
$
7,160

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 

 
 

Depreciation and amortization
8,721

 
10,008

Amortization of intangible assets
7,147

 
9,146

Change in the fair value of acquisition related contingent consideration

 
8

Unrealized loss on investment in equity securities
7,501

 

Share-based compensation expense
2,201

 
695

Bad debt expense
724

 
1,903

Amortization of debt discount
89

 
105

Amortization of debt issuance costs
273

 
291

Deferred income taxes
(1,972
)
 

Loss on disposal of fixed assets
489

 
1,480

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
2,289

 
2,880

Prepaid expenses and other current assets
(9,213
)
 
(4,749
)
Other assets
481

 
(374
)
Accounts payable and accrued expenses
(18,189
)
 
(10,177
)
Other current and non-current liabilities
(5,503
)
 
(36,735
)
Net cash used in operating activities
(8,569
)
 
(18,359
)
 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to premises and equipment
(1,258
)
 
(1,944
)
Net cash used in investing activities
(1,258
)
 
(1,944
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Repayment of long-term debt
(1,486
)
 
(1,486
)
Debt issuance costs
(496
)
 

Proceeds from stock option exercises
2,617

 
752

Purchase of treasury shares
(9,994
)
 
(10,590
)
Distributions to non-controlling interests
(672
)
 
(569
)
Net cash used in financing activities
(10,031
)
 
(11,893
)
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(19,858
)
 
(32,196
)
Cash, cash equivalents and restricted cash at the beginning of the period
108,843

 
153,421

 
 
 
 
Cash, cash equivalents and restricted cash at the end of the period
$
88,985

 
$
121,225

 
 
 
 
Supplemental cash flow information:
 

 
 

Interest paid
$
5,269

 
$
5,456

Income taxes paid, net
946

 
6,515

 
 
 
 
Non-cash investing and financing activities:
 

 
 

Increase in payables for purchases of premises and equipment
$
264

 
$
2,094

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
NOTE 1ORGANIZATION 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 markets we serve.
We are publicly traded on the NASDAQ Global Select Market under the symbol “ASPS.” We are organized under the laws of the Grand Duchy of Luxembourg.
Basis of Accounting and Presentation
The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the interim data includes all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented. The preparation of interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our interim condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Intercompany transactions and accounts have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.
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 March 31, 2018, Lenders One had total assets of $4.8 million and total liabilities of $3.2 million. As of December 31, 2017, Lenders One had total assets of $4.6 million and total liabilities of $3.1 million.
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, 2017, as filed with the SEC on February 22, 2018.
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 1Quoted 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
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.

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Table of Content
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

Recently Adopted Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) and during 2016, the FASB issued additional guidance providing clarifications and corrections, including: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (collectively “Topic 606”). Topic 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most prior revenue recognition guidance. This new standard requires that an entity recognize revenue for the transfer of promised goods or services to a customer in an amount that reflects the consideration that the entity expects to receive and consistent with the delivery of the performance obligation described in the underlying contract with the customer.
The Company adopted Topic 606 effective January 1, 2018 using the cumulative effect method. As a result of this adoption, the Company recognized an $11.2 million increase in deferred revenue, a $1.1 million increase in unbilled accounts receivable, a $0.3 million increase in other current liabilities and a $10.4 million decrease in retained earnings as of January 1, 2018. Because the Company adopted Topic 606 retrospectively with a cumulative effect as of January 1, 2018, the comparative results as of December 31, 2017 and for the three months ended March 31, 2017 have not been restated and continue to be reported under Accounting Standards Codification Topic 605, Revenue Recognition and SEC Staff Accounting Bulletin Topic 13, Revenue Recognition. The details of the significant changes and quantitative impact of the adoption of Topic 606 are described below. Also see Note 14 for additional information on revenues, including disaggregation of revenue and contract balances.
As a result of the adoption of Topic 606, the Company’s accounting policy for revenue recognition is as follows:
We recognize revenue from the services we provide in accordance with the 5-step process outlined in Topic 606. We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer in an amount that reflects the consideration that we expect to receive. This revenue can be recognized at a point in time or over time. We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenues are recognized. When there is a timing difference between when we invoice customers and when revenues are recognized, we record either a contract asset (unbilled accounts receivable) or a contract liability (deferred revenue or other current liabilities), as appropriate. A description of our principal revenue generating activities by reportable segment are as follows:
Mortgage Market
For the majority of the services we provide, we recognize transactional revenue when the service is provided.
For loan servicing technologies, we recognize revenue based on the number of loans on the system, on a per-transaction basis or over the estimated average number of months the loans and real estate owned (“REO”) are on the platform, as applicable. We generally recognize revenue for professional services relating to loan servicing technologies over the contract period. For our loan origination system, we generally recognize revenue over the contract term, beginning on the commencement date of each contract. For foreclosure trustee services, we recognize revenue over the period during which we perform the related services, with full recognition upon completion and/or recording the related foreclosure deed. For loan disbursement processing services, we recognize revenue over the period during which we perform the processing services with full recognition upon completion of the disbursements. We use judgment to determine the period over which we recognize revenue for certain of these services. For mortgage charge-off collections performed on behalf of our clients, we recognize revenue as a percentage of amounts collected following collection from the borrowers.
For real estate brokerage and auction services, we recognize revenue on a net basis as we perform services as an agent without assuming the risks and rewards of ownership of the asset and the commission earned on the sale is a fixed percentage.
Reimbursable expenses revenue, primarily related to our property preservation and inspection services, real estate sales and our foreclosure trustee services businesses, is included in revenue with an equal amount recognized in cost of revenue. These amounts are recognized on a gross basis, principally because generally we have control over selection of vendors and the vendor relationship is with us, rather than with our customers.

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Table of Content
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

Real Estate Market
For the majority of the services we provide, we recognize transactional revenue when the service is provided.
For our renovation services, revenue is recognized over the period of the construction activity, based on the estimated percentage of completion of the projects. We use judgment to determine the period over which we recognize revenue for certain of these services. For real estate brokerage and auction services, we recognize revenue on a net basis as we perform services as an agent without assuming the risks and rewards of ownership of the asset and the commission earned on the sale is a fixed percentage. For the buy-renovate-lease-sell business, we recognize revenue associated with our sales of short-term investments in real estate on a gross basis as we assume the risks and rewards of ownership of the asset.
Reimbursable expenses revenue, primarily related to our real estate sales business, is included in revenue with an equal offsetting expense recognized in cost of revenue. These amounts are recognized on a gross basis, principally because generally we have control over selection of vendors and the vendor relationship is with us, rather than with our customers.
Other Businesses, Corporate and Eliminations
For the majority of the services we provide, we recognize transactional revenue when the service is provided. We generally earn fees for our post-charge-off consumer debt collection services as a percentage of the amount we collect on delinquent consumer receivables and recognize revenue following collection from the borrowers. We provide customer relationship management services for which we typically earn and recognize revenue on a per-person, per-call or per-minute basis as the related services are performed.
For the information technology (“IT”) infrastructure services we provide to Ocwen Financial Corporation (“Ocwen”), Front Yard Residential Corporation (“RESI”) and Altisource Asset Management Corporation (“AAMC”), we recognize revenue primarily based on the number of users of the applicable systems, fixed fees and the number and type of licensed platforms. We recognize revenue associated with implementation services upon completion and maintenance ratably over the related service period.
The following table summarizes the impact of adopting Topic 606 on the Company’s condensed consolidated balance sheet as of March 31, 2018:
 
 
Impact of the adoption of Topic 606
(in thousands)
 
As reported
 
Adjustments
 
Balances without adoption of Topic 606
 
 
 
 
 
 
 
Accounts receivable, net
 
$
50,839

 
$
(28
)
 
$
50,811

Total current assets
 
251,296

 
(28
)
 
251,268

Total assets
 
831,773

 
(28
)
 
831,745

 
 
 
 
 
 
 
Other current liabilities
 
6,651

 
348

 
6,999

Deferred revenue
 
15,489

 
(6,655
)
 
8,834

Total current liabilities
 
94,560

 
(6,307
)
 
88,253

 
 
 
 
 
 
 
Deferred revenue, non-current
 
5,529

 
(3,890
)
 
1,639

 
 
 
 
 
 
 
Retained earnings
 
600,253

 
10,169

 
610,422

Altisource equity
 
318,856

 
10,169

 
329,025

Total equity
 
320,082

 
10,169

 
330,251

Total liabilities and equity
 
831,773

 
(28
)
 
831,745


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Table of Content
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

The following table summarizes the impact of adopting Topic 606 on the Company’s condensed consolidated statement of operations and comprehensive income for the three months ended March 31, 2018:
 
 
Impact of the adoption of Topic 606
(in thousands)
 
As reported
 
Adjustments
 
Balances without adoption of Topic 606
 
 
 
 
 
 
 
Revenue
 
$
197,438

 
$
412

 
$
197,850

Cost of revenue
 
147,194

 
797

 
147,991

Gross profit
 
50,244

 
(385
)
 
49,859

Income from operations
 
7,120

 
(385
)
 
6,735

Loss before income taxes and non-controlling interests
 
(4,972
)
 
(385
)
 
(5,357
)
Income tax benefit
 
1,365

 
106

 
1,471

Net loss
 
(3,607
)
 
(279
)
 
(3,886
)
Net loss attributable to Altisource
 
(4,132
)
 
(279
)
 
(4,411
)
The adoption of Topic 606 did not have any impact on net cash flows used in operating, financing or investing activities on the Company’s condensed consolidated statement of cash flows for the three months ended March 31, 2018.
Financial Instruments
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 requires 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 was effective for the Company on January 1, 2018. The adoption of this standard resulted in a cumulative effect adjustment to increase retained earnings and decrease accumulated other comprehensive income by $0.7 million on January 1, 2018. Changes in the fair value of the Company’s investment in RESI subsequent to January 1, 2018, as well as any equity investments acquired in the future, will be reflected as a component of net income in the Company’s condensed consolidated statements of operations and comprehensive income.
Other Recently Adopted Accounting Pronouncements
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 was effective for the Company on January 1, 2018, and the adoption of this guidance did not have any effect on the Company’s condensed consolidated 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 requires that companies recognize the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs. Previous guidance prohibited 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 was effective for the Company on January 1, 2018, and the adoption of this guidance did not have any effect on the Company’s 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 requires 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 was effective for the Company on January 1, 2018, and was adopted using the retrospective transition method, as required by the standard. The adoption of this standard resulted in the classification of the Company’s restricted cash with cash and cash equivalents reported in the Company’s condensed consolidated statements of cash flows. As a result, the Company included $4.1 million, $3.8 million, $4.1 million and $4.1 million of restricted cash with cash and cash equivalents in its condensed consolidated statements of cash flows as of March 31, 2018, December 31, 2017, March 31, 2017 and December 31, 2016, respectively.

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

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 Topic 606. This standard was effective for the Company on January 1, 2018, and the adoption of this guidance did not have any effect on the Company’s results of operations and financial position.
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 was effective for the Company on January 1, 2018, and the adoption of this guidance did not have any effect on the Company’s 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 requires 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 was effective for the Company on January 1, 2018, and the adoption of this guidance did not have any effect on the Company’s results of operations and financial position.
Future Adoption of New Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard introduces a new lessee model that brings substantially all leases on the balance sheet. This 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 arrangements where the Company is a lessee, we estimate that the new standard, if implemented as of March 31, 2018, would result in approximately $22.0 million right-of-use assets and lease liabilities on the Company’s condensed consolidated balance sheet as of March 31, 2018. 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 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 its consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this standard better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedging results. This standard will be effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period. Early application is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.

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

NOTE 2CUSTOMER CONCENTRATION
During the three months ended March 31, 2018, Ocwen was our largest customer, accounting for 52% of our total revenue. 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. Ocwen purchases certain mortgage services and technology services from us under the terms of master services agreements and amendments thereto (collectively, the “Ocwen Services Agreements”) with terms extending through August 2025. Certain of the Ocwen Service Agreements contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing, among other things. Certain of the Ocwen Service Agreements also prohibit Ocwen from establishing fee-based businesses that would directly or indirectly compete with Altisource’s services with respect to the Homeward Residential, Inc. and Residential Capital, LLC loan portfolios acquired by Ocwen in December 2012 and February 2013, respectively. Ocwen also purchases certain origination services from Altisource under an agreement that continues until January 2019, but which is subject to a 90 day termination right by Ocwen.
Revenue from Ocwen primarily consists of revenue earned from the loan portfolios serviced by Ocwen when Ocwen designates us as the service provider and revenue earned directly from Ocwen. For the three months ended March 31, 2018 and 2017, we generated revenue from Ocwen of $102.0 million and $141.4 million, respectively. Revenue from Ocwen as a percentage of segment and consolidated revenue was as follows for the three months ended March 31:
 
 
2018
 
2017
 
 
 
 
 
Mortgage Market
 
60
%
 
68
%
Real Estate Market
 
1
%
 
1
%
Other Businesses, Corporate and Eliminations
 
9
%
 
14
%
Consolidated revenue
 
52
%
 
59
%
We earn additional revenue related to the loan portfolios serviced by Ocwen when a party other than Ocwen or the MSR owner selects Altisource as the service provider. For the three months ended March 31, 2018 and 2017, we recognized revenue of $15.2 million and $41.7 million, respectively, related to the loan portfolios serviced by Ocwen when a party other than Ocwen or the MSR owner selected Altisource as the service provider. These amounts are not included in deriving revenue from Ocwen as a percentage of revenue in the table above.
As of March 31, 2018, accounts receivable from Ocwen totaled $18.4 million, $13.4 million of which was billed and $5.0 million of which was unbilled. As of December 31, 2017, accounts receivable from Ocwen totaled $18.9 million, $13.6 million of which was billed and $5.3 million of which was unbilled.
As of June 30, 2017, we estimate that New Residential Investment Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “NRZ”) owned certain economic rights in, but not legal title to, approximately 78% of Ocwen’s non-government-sponsored enterprise (“non-GSE”) MSRs (the “Subject MSRs”). As previously disclosed, in July 2017, Ocwen and NRZ entered into agreements to convert NRZ’s economic rights to the Subject MSRs into fully-owned MSRs in exchange for payments from NRZ to Ocwen when such Subject MSRs were transferred. The transfers are subject to certain third party consents. Ocwen disclosed that under these agreements, Ocwen would subservice the transferred Subject MSRs for an initial term of five years, and the agreements provided for the conversion of the existing arrangements into a more traditional subservicing arrangement.
In January 2018, Ocwen disclosed that it and NRZ entered into new agreements to accelerate the implementation of certain parts of their July 2017 arrangement in order to achieve the intent of the July 2017 agreements sooner while Ocwen continues the process of obtaining the third party consents necessary to transfer the Subject MSRs to NRZ.
On August 28, 2017, Altisource, through its licensed subsidiaries, entered into a Cooperative Brokerage Agreement, as amended, and related letter agreement (collectively, the “Brokerage Agreement”) with NRZ which extends through August 2025. Under this agreement and related amendments, Altisource remains the exclusive provider of brokerage services for REO associated with the Subject MSRs when Ocwen transfers such MSRs to NRZ or when NRZ acquires both an additional economic interest in such Subject MSRs and the right to designate the broker for REO properties in such portfolios. The Brokerage Agreement provides that Altisource is the exclusive provider of brokerage services for REO associated with the Subject MSRs, irrespective of the sub-servicer. NRZ’s brokerage subsidiary will receive a cooperative brokerage commission on the sale of certain REO properties from these portfolios subject to certain exceptions.
For the three months ended March 31, 2018, we earned revenue from NRZ of $10.3 million following the transfer of certain of the Subject MSRs from Ocwen to NRZ (the “Transferred MSRs”) (no comparative amount in 2017). For the three months ended

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

March 31, 2018, we earned additional revenue of $16.1 million relating to the Transferred MSRs when a party other than NRZ selects Altisource as the service provider (no comparative amount in 2017).
On August 28, 2017, Altisource and NRZ also entered into a non-binding Letter of Intent, as amended, to enter into a Services Agreement (the “Services LOI”), setting forth the terms pursuant to which Altisource would remain the exclusive service provider of fee-based services for the Subject MSRs through August 2025. The Services LOI was amended to continue through April 30, 2018 with a further automatic extension through May 15, 2018 provided that the parties continue to negotiate the Services Agreement in good faith.
The Brokerage Agreement can be terminated by Altisource if the Services Agreement is not signed by Altisource and NRZ during the term of the Services LOI, as extended. The Brokerage Agreement may otherwise only be terminated upon the occurrence of certain specified events. Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that there is significant uncertainty about Altisource’s ability to continue as a going concern, failure to maintain a specified level of cash and an unapproved change of control.
We anticipate that revenue from NRZ will increase over time and revenue from Ocwen will decrease. As Subject MSRs continue to transfer from Ocwen to NRZ and following the anticipated execution of the Services Agreement, we expect that NRZ will become our largest customer. Had all of the Subject MSRs been transferred to NRZ and the Brokerage Agreement and the Services Agreement with NRZ been in place as of January 1, 2018, we estimate that approximately 48% of our revenue for the three months ended March 31, 2018 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.
NOTE 3INVESTMENT IN EQUITY SECURITIES
During 2016, we purchased 4.1 million shares of RESI common stock for $48.2 million. This investment is reflected in the condensed consolidated balance sheets at a fair value of $41.7 million as of March 31, 2018 and $49.2 million as of December 31, 2017. During the three months ended March 31, 2018, we recognized an unrealized loss of $7.5 million on our investment in RESI as a result of a decline in the market value of RESI common shares in the condensed consolidated statements of operations and comprehensive income. During the three months ended March 31, 2017, an unrealized gain on our investment in RESI of $12.7 million, net of income tax expense, was reflected in other comprehensive income in the condensed consolidated statements of operations and comprehensive income (See Note 1 for additional information on the adoption of the new accounting standard on investments in equity securities). During the three months ended March 31, 2018 and 2017, we earned dividends of $0.6 million in each period related to this investment.
NOTE 4ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
(in thousands)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
Billed
 
$
42,509

 
$
40,787

Unbilled
 
19,231

 
22,532

 
 
61,740

 
63,319

Less: Allowance for doubtful accounts
 
(10,901
)
 
(10,579
)
 
 
 
 
 
Total
 
$
50,839

 
$
52,740

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

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

NOTE 5PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
(in thousands)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
Short-term investments in real estate
 
$
39,320

 
$
29,405

Maintenance agreements, current portion
 
6,362

 
8,014

Income taxes receivable
 
9,702

 
9,227

Prepaid expenses
 
7,748

 
7,898

Other current assets
 
10,823

 
10,198

 
 
 
 
 
Total
 
$
73,955

 
$
64,742

NOTE 6PREMISES AND EQUIPMENT, NET
Premises and equipment, net consists of the following:
(in thousands)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
Computer hardware and software
 
$
180,488

 
$
179,567

Leasehold improvements
 
33,202

 
33,417

Furniture and fixtures
 
14,015

 
14,092

Office equipment and other
 
9,574

 
9,388

 
 
237,279

 
236,464

Less: Accumulated depreciation and amortization
 
(171,694
)
 
(163,191
)
 
 
 
 
 
Total
 
$
65,585

 
$
73,273

Depreciation and amortization expense totaled $8.7 million and $10.0 million for the three months ended March 31, 2018 and 2017, respectively, and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations and comprehensive income.
NOTE 7GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The following is a summary of goodwill by segment:
(in thousands)
 
Mortgage Market
 
Real Estate Market
 
Other Businesses, Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2018 and December 31, 2017
 
$
73,259

 
$
10,056

 
$
2,968

 
$
86,283


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

Intangible Assets, net
Intangible assets, net consist of the following:
 
 
Weighted average estimated useful life (in years)
 
Gross carrying amount
 
Accumulated amortization
 
Net book value
(in thousands)
 
 
March 31,
2018
 
December 31,
2017
 
March 31,
2018
 
December 31,
2017
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Definite lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer related intangible assets
 
10
 
$
277,828

 
$
277,828

 
$
(194,470
)
 
$
(188,258
)
 
$
83,358

 
$
89,570

Operating agreement
 
20
 
35,000

 
35,000

 
(14,307
)
 
(13,865
)
 
20,693

 
21,135

Trademarks and trade names
 
13
 
15,354

 
15,354

 
(9,080
)
 
(8,881
)
 
6,274

 
6,473

Non-compete agreements
 
4
 
1,560

 
1,560

 
(995
)
 
(897
)
 
565

 
663

Intellectual property
 
10
 
300

 
300

 
(123
)
 
(115
)
 
177

 
185

Other intangible assets
 
5
 
3,745

 
3,745

 
(1,894
)
 
(1,706
)
 
1,851

 
2,039

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
$
333,787

 
$
333,787

 
$
(220,869
)
 
$
(213,722
)
 
$
112,918

 
$
120,065

Amortization expense for definite lived intangible assets was $7.1 million and $9.1 million for the three months ended March 31, 2018 and 2017, respectively. Anticipated annual definite lived intangible asset amortization for 2018 through 2022 is $26.4 million, $21.8 million, $18.2 million, $11.4 million and $7.3 million, respectively.
NOTE 8OTHER ASSETS
Other assets consist of the following:
(in thousands)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
Security deposits
 
$
5,150

 
$
5,304

Restricted cash
 
4,135

 
3,837

Maintenance agreements, non-current portion
 
189

 
362

Other
 
538

 
692

 
 
 
 
 
Total
 
$
10,012

 
$
10,195

NOTE 9ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable and accrued expenses consist of the following:
(in thousands)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
Accounts payable
 
$
11,324

 
$
15,682

Accrued expenses - general
 
30,628

 
27,268

Accrued salaries and benefits
 
24,523

 
41,363

Income taxes payable
 

 
87

 
 
 
 
 
Total
 
$
66,475

 
$
84,400


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Table of Content
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

Other current liabilities consist of the following:
(in thousands)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
Unfunded cash account balances
 
$
3,597

 
$
5,900

Other
 
3,054

 
3,514

 
 
 
 
 
Total
 
$
6,651

 
$
9,414

NOTE 10LONG-TERM DEBT
Long-term debt consists of the following:
(in thousands)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
Senior secured term loan
 
$
412,095

 
$
413,581

Less: Debt issuance costs, net
 
(3,381
)
 
(3,158
)
Less: Unamortized discount, net
 
(1,053
)
 
(1,142
)
Net long-term debt
 
407,661

 
409,281

Less: Current portion
 
(5,945
)
 
(5,945
)
 
 
 
 
 
Long-term debt, less current portion
 
$
401,716

 
$
403,336

On November 27, 2012, Altisource Solutions S.à r.l., a wholly-owned subsidiary of Altisource Portfolio Solutions S.A., entered into a senior secured term loan agreement with Bank of America, N.A., as administrative agent, and certain lenders. Altisource Portfolio Solutions S.A. and certain subsidiaries were guarantors of the senior secured term loan (collectively, the “Guarantors”). We subsequently entered into four amendments to the senior secured term loan agreement to, among other changes, increase the principal amount of the senior secured term loan, re-establish the $200.0 million incremental senior secured term loan facility accordion, lower the interest rate, extend the maturity date by approximately one year, 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) and certain other changes including to facilitate an internal restructuring of the Company’s subsidiaries. On April 3, 2018, Altisource Portfolio Solutions S.A. and Altisource S.à r.l. entered into a credit agreement with Morgan Stanley Senior Funding, Inc. as administrative agent and collateral agent and the other lender parties thereto, pursuant to which the lenders have agreed to extend credit to Altisource S.à r.l. in the form of (i) Term B Loans (as defined in the credit agreement) in an aggregate principal amount equal to $412.0 million and (ii) a $15.0 million revolving credit facility. The proceeds of the Term B Loans were used to refinance Altisource S.à r.l.’s senior secured term loan. See Note 21 for additional information on the April 3, 2018 Term B Loans and revolving credit facility.
The senior secured term loan was required to be repaid in equal consecutive quarterly principal installments of $1.5 million, with the balance due at maturity. All amounts outstanding under the senior secured term loan agreement would have been due on the earlier of (i) December 9, 2020 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 or as otherwise provided in the senior secured term loan agreement upon the occurrence of any event of default under the senior secured term loan agreement.
In addition to the scheduled principal payments, subject to certain exceptions, the senior secured term loan was subject to mandatory prepayment upon issuances of debt, casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if the leverage ratio is greater than 3.00 to 1.00, as calculated in accordance with the provisions of the senior secured term loan agreement (the percentage increases if the leverage ratio exceeds 3.50 to 1.00). No mandatory prepayments were owed for the three months ended March 31, 2018.
The senior secured term loan bore interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate. Adjusted Eurodollar Rate loans bore interest at a rate per annum equal to the sum of (i) the greater of (x) the Adjusted Eurodollar Rate for the applicable interest period and (y) 1.00% plus (ii) a 3.50% margin. Base Rate loans bore 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. The interest rate at March 31, 2018 was 5.38%.

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Table of Content
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

Senior secured term loan payments were guaranteed by the Guarantors and were secured by a pledge of all equity interests of certain subsidiaries as well as a lien on substantially all of the assets of Altisource S.à r.l. and the Guarantors, subject to certain exceptions.
The senior secured term loan agreement included covenants that restricted or limited, among other things, our ability to create liens and encumbrances; incur additional indebtedness; sell, transfer or dispose of assets; make Restricted Junior Payments including share repurchases, dividends and repayment of junior indebtedness; change lines of business; amend material debt agreements or other material contracts; engage in certain transactions with affiliates; enter into sale/leaseback transactions; grant negative pledges or agree to such other restrictions relating to subsidiary dividends and distributions; make changes to our fiscal year; and engage in mergers and consolidations.
The senior secured term loan agreement contained certain events of default including (i) failure to pay principal when due or interest or any other amount owing on any other obligation under the senior secured term loan agreement within five days of becoming due, (ii) material incorrectness of representations and warranties when made, (iii) breach of covenants, (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 caused, or gave 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 occurred and was not cured within applicable grace periods set forth in the senior secured term loan agreement or waived, all loans and other obligations could have become due and immediately payable and the facility could have been terminated.
At March 31, 2018, debt issuance costs were $3.4 million, net of $7.4 million of accumulated amortization. At December 31, 2017, debt issuance costs were $3.2 million, net of $7.1 million of accumulated amortization.
NOTE 11OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
(in thousands)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
Income tax liabilities
 
$
5,825

 
$
5,955

Deferred revenue
 
5,529

 
2,101

Other non-current liabilities
 
4,061

 
4,226

 
 
 
 
 
Total
 
$
15,415

 
$
12,282

NOTE 12FAIR 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 March 31, 2018 and December 31, 2017. The following fair values are estimated using market information and what the Company believes to be appropriate valuation methodologies under GAAP:
 
 
March 31, 2018
 
December 31, 2017
(in thousands)
 
Carrying amount
 
Fair value
 
Carrying amount
 
Fair value
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
84,850

 
$
84,850

 
$

 
$

 
$
105,006

 
$
105,006

 
$

 
$

Restricted cash
 
4,135

 
4,135

 

 

 
3,837

 
3,837

 

 

Investment in equity securities
 
41,652

 
41,652

 

 

 
49,153

 
49,153

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
412,095

 

 
412,095

 

 
413,581

 

 
407,377

 


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Table of Content
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

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.
Investment in equity securities is carried at fair value and consists of 4.1 million shares of RESI common stock. The investment in equity securities is measured using Level 1 inputs as this security has a quoted price in an active market.
The fair value of our long-term debt 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.
There were no transfers between different levels during the periods presented.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk primarily consist of cash and cash equivalents and accounts receivable. Our policy is to deposit our cash and cash equivalents with larger, highly rated financial institutions. The Company derives the largest portion of its revenues from Ocwen (see Note 2 for additional information on Ocwen revenues and accounts receivable balance). The Company mitigates 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 13SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
Share Repurchase Program
On May 17, 2017, our shareholders approved the renewal of the share repurchase program previously approved by the shareholders on May 18, 2016, which replaced the previous share repurchase program. We are authorized to purchase up to 4.6 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. As of March 31, 2018, approximately 3.1 million shares of common stock remain available for repurchase under the program. We purchased 0.4 million shares of common stock at an average price of $27.67 per share during the three months ended March 31, 2018 and 0.4 million shares at an average price of $25.10 per share during the three months ended March 31, 2017. 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 March 31, 2018, we can repurchase up to approximately $141 million of our common stock under Luxembourg law. Our senior secured term loan limited the amount we could have spent on share repurchases, which was approximately $464 million as of March 31, 2018, and may have prevented repurchases in certain circumstances. The new credit agreement retains this amount available for share repurchases and other restricted payments. See Note 21 for additional information on the new credit agreement.
Share-Based Compensation
We issue share-based awards in the form of stock options, restricted shares and restricted share units for certain employees, officers and directors. We recognized share-based compensation expense of $2.2 million and $0.7 million for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, estimated unrecognized compensation costs related to share-based awards amounted to $16.9 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 2.28 years.
In connection with the January 1, 2017 adoption of ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, 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 recognized net of estimated forfeiture rates ranging from 0% to 40%. 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.

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

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 expire on the earlier of ten years after the date of grant or following termination of service. A total of 611 thousand service-based awards were outstanding as of March 31, 2018.
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 awards 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 707 thousand market-based awards were outstanding as of March 31, 2018.
Performance-Based Options. These option grants generally begin to vest upon the achievement of certain specific financial measures. Generally, the awards begin vesting if the performance criteria are achieved; one-fourth vest 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 2018 through 2021. The award of performance-based options is adjusted based on the level of achievement specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in 50% to 200% of the option grants, depending upon performance achieved. If the performance criteria achieved is below a certain threshold, the award is canceled. The options expire on the earlier of ten years after the date of grant or following termination of service. There were 306 thousand performance-based awards outstanding as of March 31, 2018.
The Company granted 261 thousand stock options (at a weighted average exercise price of $24.95 per share) during the three months ended March 31, 2018. There were no stock option grants during the three months ended March 31, 2017.
The fair values of the service-based options and performance-based options were 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:
 
 
Three months ended
 March 31, 2018
 
 
Black-Scholes
 
Binomial
 
 
 
 
 
Risk-free interest rate (%)
 
2.66 – 2.70

 
1.65 – 2.77

Expected stock price volatility (%)
 
70.31 – 71.81

 
71.81

Expected dividend yield
 

 

Expected option life (in years)
 
6.00 – 6.25

 
2.56 – 4.32

Fair value
 
$16.17 – $17.15

 
$15.58 – $18.28

We determined the expected option life of all service-based stock option grants using the simplified method. 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.
The following table summarizes the weighted average grant date fair value of stock options granted per share, the total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the period presented:
 
 
Three months ended March 31,
(in thousands, except per share amounts)
 
2018
 
2017
 
 
 
 
 
Weighted average grant date fair value of stock options granted per share
 
$
16.20

 
$

Intrinsic value of options exercised
 
4,320

 
868

Grant date fair value of stock options that vested
 
23

 
89


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

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, 2017
1,745,906

 
$
28.20

 
4.96
 
$
10,202

Granted
260,697

 
24.95

 
 
 
 
Exercised
(286,252
)
 
9.14

 
 
 
 

Forfeited
(96,734
)
 
36.35

 
 
 
 

 
 
 
 
 
 
 
 
Outstanding at March 31, 2018
1,623,617

 
30.55

 
6.09
 
3,999

 
 
 
 
 
 
 
 
Exercisable at March 31, 2018
841,472

 
27.81

 
3.95
 
2,817

Other Share-Based Awards
The Company’s other share-based and similar types of awards are composed of restricted shares and, beginning in 2018, restricted share units. The restricted shares and restricted share units are composed of a combination of service-based awards and performance-based awards.
Service-Based Awards. These awards generally vest over one to four years with vesting in equal annual installments, vesting of all of the restricted shares at the end of the vesting period or vesting beginning after two years of service. A total of 565 thousand service-based awards were outstanding as of March 31, 2018.
Performance-Based Awards. These awards generally begin to vest upon the achievement of certain specific financial measures. Generally, the awards begin vesting if the performance criteria are achieved; one-third vest on each anniversary of the grant date. The number of performance-based restricted shares that may vest will be based on the level of achievement, as specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in 80% to 150% of the restricted share award, depending on performance level achieved. If the performance criteria achieved is below a certain threshold, the award is canceled. A total of two thousand performance-based awards were outstanding as of March 31, 2018.
The Company granted 255 thousand restricted shares and restricted share units (at a weighted average grant date fair value of $24.54 per share) during the three months ended March 31, 2018.
The following table summarizes the activity related to our restricted shares and restricted share units:
 
Number of restricted shares
 
 
Outstanding at December 31, 2017
356,509

Granted
254,619

Forfeited/canceled
(43,697
)
 
 
Outstanding at March 31, 2018
567,431


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

NOTE 14REVENUE
Revenue includes service revenue, 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. 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. Lenders One is included in revenue and reduced from net income to arrive at net income attributable to Altisource (see Note 1). The components of revenue were as follows for the three months ended March 31:
(in thousands)
 
2018
 
2017
 
 
 
 
 
Service revenue
 
$
188,766

 
$
229,839

Reimbursable expenses
 
8,147

 
10,029

Non-controlling interests
 
525

 
615

 
 
 
 
 
Total
 
$
197,438

 
$
240,483

As discussed in Note 1, the Company adopted Topic 606 effective January 1, 2018 using the cumulative effect method.
Disaggregation of Revenue
Disaggregation of total revenues by segment and major source is as follows for the three months ended March 31, 2018:
(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
 
 
 
 
 
 
 
 
 
Mortgage Market
 
 
 
 
 
 
 
 
Servicer Solutions
 
$
129,536

 
$
18,273

 
$
7,602

 
$
155,411

Origination Solutions
 
9,185

 
2,686

 
56

 
11,927

Total Mortgage Market
 
138,721

 
20,959

 
7,658

 
167,338

 
 
 
 
 
 
 
 
 
Real Estate Market
 
 
 
 
 
 
 
 
Consumer Real Estate Solutions
 
1,405

 

 
2

 
1,407

Real Estate Investor Solutions
 
13,398

 

 
475

 
13,873

Total Real Estate Market
 
14,803

 

 
477

 
15,280

 
 
 
 
 
 
 
 
 
Other Businesses, Corporate and Eliminations
 
13,432

 
1,376

 
12

 
14,820

Total revenue
 
$
166,956

 
$
22,335

 
$
8,147

 
$
197,438

Contract Balances
Our contract assets consist of unbilled accounts receivable (see Note 4). Our contract liabilities consist of current deferred revenue as reported on the condensed consolidated balance sheets and non-current deferred revenue (see Note 11). Revenue recognized that was included in the contract liability at the beginning of the period, including amounts added to the contract liability as part of the cumulative effect of the adopting Topic 606, was $5.9 million for the three months ended March 31, 2018.

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

NOTE 15COST OF REVENUE
Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to the provision of services, cost of real estate sold, reimbursable expenses, technology and telecommunications costs as well as depreciation and amortization of operating assets. The components of cost of revenue were as follows for the three months ended March 31:
(in thousands)
 
2018
 
2017
 
 
 
 
 
Compensation and benefits
 
$
54,866

 
$
63,092

Outside fees and services
 
65,098

 
80,959

Cost of real estate sold
 
3,179

 
4,935

Technology and telecommunications
 
9,451

 
11,351

Reimbursable expenses
 
8,147

 
10,029

Depreciation and amortization
 
6,453

 
7,587

 
 
 
 
 
Total
 
$
147,194

 
$
177,953

NOTE 16SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include payroll and employee benefits associated with personnel employed in executive, finance, law, compliance, human resources, vendor management, facilities, risk management, sales and marketing roles. This category also includes professional fees, occupancy costs, marketing costs, depreciation and amortization of non-operating assets and other expenses. The components of selling, general and administrative expenses were as follows for the three months ended March 31:
(in thousands)
 
2018
 
2017
 
 
 
 
 
Compensation and benefits
 
$
13,569

 
$
12,506

Occupancy related costs
 
8,434

 
10,273

Amortization of intangible assets
 
7,147

 
9,146

Marketing costs
 
3,607

 
4,269

Professional services
 
3,226

 
3,730

Depreciation and amortization
 
2,268

 
2,421

Other
 
4,873

 
5,356

 
 
 
 
 
Total
 
$
43,124

 
$
47,701

NOTE 17OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following for the three months ended March 31:
(in thousands)
 
2018
 
2017
 
 
 
 
 
Interest income
 
$
131

 
$
98

Other, net
 
1,141

 
617

 
 
 
 
 
Total
 
$
1,272

 
$
715

NOTE 18EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities using the treasury stock method.

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

Basic and diluted EPS are calculated as follows for the three months ended March 31:
(in thousands, except per share data)
 
2018
 
2017
 
 
 
 
 
Net (loss) income attributable to Altisource
 
$
(4,132
)
 
$
6,545

 
 
 
 
 
Weighted average common shares outstanding, basic
 
17,378

 
18,662

Dilutive effect of stock options and restricted shares
 

 
642

 
 
 
 
 
Weighted average common shares outstanding, diluted
 
17,378

 
19,304

 
 
 
 
 
(Loss) earnings per share:
 
 
 
 
Basic
 
$
(0.24
)
 
$
0.35

Diluted
 
$
(0.24
)
 
$
0.34

For the three months ended March 31, 2018 and 2017, 0.3 million options and 0.4 million options, respectively, were excluded from the computation of diluted EPS because they were anti-dilutive since their exercise price was greater than the average market price of our common stock. Also excluded from the computation of diluted EPS for the three months ended March 31, 2018 and 2017 were 0.6 million options, restricted shares and restricted share units and 0.2 million options, respectively, which begin to vest upon the achievement of certain market criteria related to our common stock price, performance criteria and an annualized rate of return to shareholders that have not yet been met. Furthermore, as a result of the net loss attributable to Altisource for the three months ended March 31, 2018, 0.5 million options, restricted shares and restricted share units were excluded from the computation of diluted EPS for the three months ended March 31, 2018, as their impact was anti-dilutive.
NOTE 19COMMITMENTS, 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, the Company received a Notice and Opportunity to Respond and Advise (“NORA”) letter on November 10, 2016 from the Consumer Financial Protection Bureau (“CFPB”) indicating that the CFPB was considering a potential enforcement action against Altisource relating to an alleged violation of federal law focused on the REALServicing® platform and certain other technology services provided to Ocwen, including claims related to the features, functioning and support of such technology. The NORA process 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. By letter dated April 3, 2018, the CFPB informed the Company that the investigation of the Company has been completed and the staff of the CFPB’s Office of Enforcement currently does not intend to recommend that the CFPB take enforcement action, and further that the Company is relieved of the document-retention obligations pursuant to the civil investigative process.

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

Ocwen Related Matters
As discussed in Note 2, during the three months ended March 31, 2018, Ocwen was our largest customer, accounting for 52% of our total revenue. Additionally, 8% of our revenue for the three months ended March 31, 2018 was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or the MSR owner selected Altisource as the service provider.
Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, cease and desist orders, consent orders, inquiries, subpoenas, civil investigative demand, requests for information and other actions and is subject to pending legal proceedings, some of which include claims against Ocwen for substantial monetary damages. For example, on May 15, 2017, Ocwen disclosed that on April 20, 2017, the CFPB and the State of Florida filed separate complaints in the United States District Court for the Southern District of Florida against Ocwen alleging violations of Federal consumer financial law and, in the case of Florida, Florida statutes. As another example, on May 15, 2017, Ocwen also disclosed that on April 28, 2017, the Commonwealth of Massachusetts filed a lawsuit against Ocwen in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to Ocwen’s servicing business, including lender-placed insurance and property preservation fees. Ocwen disclosed that the complaints seek to obtain permanent injunctive relief, consumer redress, refunds, restitution, disgorgement, damages, civil penalties, costs and fees and other relief. The forgoing or other matters could result in, and in some cases, have resulted in, adverse regulatory or other actions against Ocwen. Previous regulatory actions against Ocwen resulted in subjecting Ocwen to independent oversight of its operations and placing certain restrictions on its ability to acquire servicing rights.
In addition to the above, Ocwen may become subject to future federal and state regulatory investigations, cease and desist orders, consent orders, inquiries, subpoenas, civil investigative demands, requests for information, other matters or legal proceedings, any of which could also result in adverse regulatory or other actions against Ocwen.
The foregoing may have significant adverse effects on Ocwen’s business and/or our continuing relationship with Ocwen. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services (including IT 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 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 could be significantly lower 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 remaining non-GSE servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider
Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio
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
Altisource otherwise fails to be retained as a service provider
Management cannot predict the outcome of these matters 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 of our cost structure would allow us to realign our cost structure in line with remaining revenue. Furthermore, in the event of a significant reduction in the volume of services purchased or loan portfolios serviced by Ocwen (such as a transfer of Ocwen’s remaining 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 loan portfolios.
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.
Additionally, Ocwen has notified us, disclosed in its filings and stated in connection with resolving several state administrative actions discussed above, that it plans to transition from REALServicing to another mortgage servicing software platform. Furthermore, Ocwen disclosed in its filings that its pending acquisition of PHH Corporation is expected to accelerate its transition

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

to a new servicing platform. Altisource is supporting Ocwen through this transition. We do not anticipate that a servicing technology transition would impact the other services we provide to Ocwen. For the three months ended March 31, 2018 and 2017, service revenue from REALServicing was $6.5 million and $7.0 million, respectively.
In addition to the above, as of June 30, 2017, we estimate that NRZ owned certain economic rights in, but not legal title to, approximately 78% of the Subject MSRs. As previously disclosed, in July 2017, Ocwen and NRZ entered into agreements to convert NRZ’s economic rights to the Subject MSRs into fully-owned MSRs in exchange for payments from NRZ to Ocwen when such Subject MSRs were transferred. The transfers are subject to certain third party consents. Ocwen disclosed that under these agreements, Ocwen would subservice the transferred Subject MSRs for an initial term of five years, and the agreements provided for the conversion of the existing arrangements into a more traditional subservicing arrangement.
In January 2018, Ocwen disclosed that it and NRZ entered into new agreements to accelerate the implementation of certain parts of their July 2017 arrangement in order to achieve the intent of the July 2017 agreements sooner while Ocwen continues the process of obtaining the third party consents necessary to transfer the Subject MSRs to NRZ.
On August 28, 2017, Altisource, through its licensed subsidiaries, entered into the Brokerage Agreement with NRZ which extends through August 2025. Under this agreement and related amendments, Altisource remains the exclusive provider of brokerage services for REO associated with the Subject MSRs when Ocwen transfers such MSRs to NRZ or when NRZ acquires both an additional economic interest in such Subject MSRs and the right to designate the broker for REO properties in such portfolios. The Brokerage Agreement provides that Altisource is the exclusive provider of brokerage services for REO associated with the Subject MSRs, irrespective of the sub-servicer. NRZ’s brokerage subsidiary will receive a cooperative brokerage commission on the sale of certain REO properties from these portfolios subject to certain exceptions.
On August 28, 2017, Altisource and NRZ also entered into the Services LOI, setting forth the terms pursuant to which Altisource would remain the exclusive service provider of fee-based services for the Subject MSRs through August 2025. The Services LOI was amended to continue through April 30, 2018 with a further automatic extension through May 15, 2018 provided that the parties continue to negotiate the Services Agreement in good faith.
The Brokerage Agreement can be terminated by Altisource if the Services Agreement is not signed by Altisource and NRZ during the term of the Services LOI, as extended. The Brokerage Agreement may otherwise only be terminated upon the occurrence of certain specified events. Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that there is significant uncertainty about Altisource’s ability to continue as a going concern, failure to maintain a specified level of cash and an unapproved change of control.
We anticipate that revenue from NRZ will increase over time and revenue from Ocwen will decrease. As Subject MSRs continue to transfer from Ocwen to NRZ and following the anticipated execution of the Services Agreement, we expect that NRZ will become our largest customer. Had all of the Subject MSRs been transferred to NRZ and the Brokerage Agreement and the Services Agreement with NRZ been in place as of January 1, 2018, we estimate that approximately 48% of our revenue for the three months ended March 31, 2018 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.
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 asset recovery management business’s collections. These amounts are held in escrow and trust accounts for limited periods of time and are not included in the condensed consolidated balance sheets. Amounts held in escrow and trust accounts were $24.6 million and $35.1 million at March 31, 2018 and December 31, 2017, respectively.
NOTE 20SEGMENT 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.

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

We report our operations through two reportable segments: Mortgage Market and Real Estate Market. In addition, we report Other Businesses, Corporate and Eliminations separately. The Mortgage Market segment provides loan servicers and originators with marketplaces, services and technologies that span the mortgage lifecycle. The Real Estate Market segment provides real estate consumers and rental property investors with marketplaces and services that span the real estate lifecycle. In addition, the Other Businesses, Corporate and Eliminations segment includes businesses that provide post-charge-off consumer debt collection services primarily to debt originators (e.g., credit card, auto lending and retail credit), customer relationship management services primarily to the utility, insurance and hotel industries and IT infrastructure management services. Other Businesses, Corporate and Eliminations also includes interest expense and costs related to corporate support functions including executive, finance, law, compliance, human resources, vendor management, facilities, risk management, and sales and marketing costs not allocated to the business units as well as eliminations between the reportable segments.
Financial information for our segments is as follows:
 
 
Three months ended March 31, 2018
(in thousands)
 
Mortgage Market
 
Real Estate Market
 
Other Businesses, Corporate and Eliminations
 
Consolidated Altisource
 
 
 
 
 
 
 
 
 
Revenue
 
$
167,338

 
$
15,280

 
$
14,820

 
$
197,438

Cost of revenue
 
111,073

 
18,554

 
17,567

 
147,194

Gross profit (loss)
 
56,265

 
(3,274
)
 
(2,747
)
 
50,244

Selling, general and administrative expenses
 
23,374

 
4,118

 
15,632

 
43,124

Income (loss) from operations
 
32,891

 
(7,392
)
 
(18,379
)
 
7,120

Total other income (expense), net
 
16

 
2

 
(12,110
)
 
(12,092
)
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes and
non-controlling interests
 
$
32,907

 
$
(7,390
)
 
$
(30,489
)
 
$
(4,972
)
 
 
Three months ended March 31, 2017
(in thousands)
 
Mortgage Market
 
Real Estate Market
 
Other Businesses, Corporate and Eliminations
 
Consolidated Altisource
 
 
 
 
 
 
 
 
 
Revenue
 
$
204,723

 
$
20,063

 
$
15,697

 
$
240,483

Cost of revenue
 
140,150

 
22,143

 
15,660

 
177,953

Gross profit (loss)
 
64,573

 
(2,080
)
 
37

 
62,530

Selling, general and administrative expenses
 
28,682

 
4,325

 
14,694

 
47,701

Income (loss) from operations
 
35,891

 
(6,405
)
 
(14,657
)
 
14,829

Total other income (expense), net
 
10

 

 
(5,093
)
 
(5,083
)
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes and
non-controlling interests
 
$
35,901

 
$
(6,405
)