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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-34354
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Exact name of registrant as specified in its Charter)
Luxembourg98-0554932
(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)
(352) 24 69 79 00
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $1.00 par value
ASPSNASDAQ Global Select Market
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   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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 pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

As of October 23, 2020, there were 15,649,709 outstanding shares of the registrant’s common stock (excluding 9,763,039 shares held as treasury stock).


Table of Contents
Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-Q
Page

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PART I — FINANCIAL INFORMATION

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$67,023 $82,741 
Investment in equity securities30,185 42,618 
Accounts receivable, net28,056 43,615 
Prepaid expenses and other current assets14,718 15,214 
Total current assets139,982 184,188 
Premises and equipment, net 14,983 24,526 
Right-of-use assets under operating leases, net 20,303 29,074 
Goodwill73,849 73,849 
Intangible assets, net49,702 61,046 
Other assets11,284 12,436 
Total assets$310,103 $385,119 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses$56,362 $67,671 
Deferred revenue4,349 5,183 
Other current liabilities 10,749 14,724 
Total current liabilities71,460 87,578 
Long-term debt288,930 287,882 
Other non-current liabilities 26,291 31,016 
Commitments, contingencies and regulatory matters (Note 24)
Equity (deficit):
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 15,646 outstanding as of September 30, 2020; 15,454 outstanding as of December 31, 2019)
25,413 25,413 
Additional paid-in capital140,225 133,669 
Retained earnings198,756 272,026 
Treasury stock, at cost (9,767 shares as of September 30, 2020 and 9,959 shares as of December 31, 2019)
(442,107)(453,934)
Altisource deficit(77,713)(22,826)
Non-controlling interests1,135 1,469 
Total deficit(76,578)(21,357)
Total liabilities and deficit$310,103 $385,119 

See accompanying notes to condensed consolidated financial statements.
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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
Three months ended September 30,Nine months ended
September 30,
2020201920202019
Revenue$88,795 $141,493 $305,581 $507,963 
Cost of revenue72,570 110,722 249,779 387,651 
Gross profit16,225 30,771 55,802 120,312 
Operating expenses (income):
Selling, general and administrative expenses20,812 25,833 73,606 104,275 
Gain on sale of business (17,558) (17,558)
Restructuring charges 2,227 2,761 10,921 9,080 
(Loss) income from operations(6,814)19,735 (28,725)24,515 
Other income (expense), net
Interest expense(4,103)(4,892)(13,265)(16,656)
Unrealized gain (loss) on investment in equity securities 138 (2,294)(12,433)11,731 
Other (expense) income, net(361)406 412 1,308 
Total other income (expense), net(4,326)(6,780)(25,286)(3,617)
(Loss) income before income taxes and non-controlling interests(11,140)12,955 (54,011)20,898 
Income tax provision(1,757)(5,379)(5,295)(20,670)
Net (loss) income(12,897)7,576 (59,306)228 
Net income attributable to non-controlling interests(340)(411)(642)(2,091)
Net (loss) income attributable to Altisource$(13,237)$7,165 $(59,948)$(1,863)
(Loss) earnings per share:
Basic$(0.85)$0.45 $(3.85)$(0.12)
Diluted$(0.85)$0.44 $(3.85)$(0.12)
Weighted average shares outstanding:
Basic15,637 15,897 15,578 16,133 
Diluted15,637 16,151 15,578 16,133 
Comprehensive (loss) income:
Comprehensive (loss) income, net of tax$(12,897)$7,576 $(59,306)$228 
Comprehensive income attributable to non-controlling interests(340)(411)(642)(2,091)
Comprehensive (loss) income attributable to Altisource$(13,237)$7,165 $(59,948)$(1,863)

See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
 Altisource Equity (Deficit)
Common stockAdditional paid-in capitalRetained earningsTreasury stock, at costNon-controlling interestsTotal
 Shares
Balance, December 31, 201825,413 $25,413 $122,667 $590,655 $(443,304)$1,237 $296,668 
Net loss— — — (3,184)— 440 (2,744)
Distributions to non-controlling interest holders
— — — — — (620)(620)
Share-based compensation expense
— — 2,621 — — — 2,621 
Exercise of stock options and issuance of restricted share units and restricted shares
— — — (1,549)1,577 — 28 
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances
— — — (1,163)578 — (585)
Balance, March 31, 201925,413 25,413 125,288 584,759 (441,149)1,057 295,368 
Net loss— — — (5,844)— 1,240 (4,604)
Distributions to non-controlling interest holders
— — — — — (518)(518)
Share-based compensation expense
— — 2,832 — — — 2,832 
Exercise of stock options and issuance of restricted share units and restricted shares
— — — (3,473)3,680 — 207 
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances
— — — (1,402)689 — (713)
Repurchase of shares
— — — — (6,700)— (6,700)
Balance, June 30, 201925,413 25,413 128,120 574,040 (443,480)1,779 285,872 
Net income— — — 7,165 — 411 7,576 
Distributions to non-controlling interest holders
— — — — — (865)(865)
Share-based compensation expense
— — 2,831 — — — 2,831 
Exercise of stock options and issuance of restricted share units and restricted shares
— — — (1,214)1,371 — 157 
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances— — — (434)216 — (218)
Repurchase of shares
— — — — (6,697)— (6,697)
Balance, September 30, 201925,413 $25,413 $130,951 $579,557 $(448,590)$1,325 $288,656 
See accompanying notes to condensed consolidated financial statements.
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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
Altisource Equity (Deficit)
Common stockAdditional paid-in capitalRetained earningsTreasury stock, at costNon-controlling interestsTotal
Shares
Balance, December 31, 201925,413 $25,413 $133,669 $272,026 $(453,934)$1,469 $(21,357)
Net loss— — — (11,650)— 105 (11,545)
Distributions to non-controlling interest holders
— — — — — (311)(311)
Share-based compensation expense
— — 2,894 — — — 2,894 
Issuance of restricted share units and restricted shares
— — — (4,796)4,796 —  
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances
— — — (3,114)1,909 — (1,205)
Balance, March 31, 202025,413 25,413 136,563 252,466 (447,229)1,263 (31,524)
Net loss— — — (35,061)— 197 (34,864)
Distributions to non-controlling interest holders— — — — — (180)(180)
Share-based compensation expense— — 1,930 — — — 1,930 
Issuance of restricted share units and restricted shares
— — — (3,177)3,177 —  
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances
— — — (1,205)993 — (212)
Balance, June 30, 202025,413 25,413 138,493 213,023 (443,059)1,280 (64,850)
Net loss— — — (13,237)— 340 (12,897)
Distributions to non-controlling interest holders— — — — — (485)(485)
Share-based compensation expense— — 1,732 — — — 1,732 
Issuance of restricted share units and restricted shares— — — (747)747 —  
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances— — — (283)205 — (78)
Balance, September 30, 202025,413 $25,413 $140,225 $198,756 $(442,107)$1,135 $(76,578)

See accompanying notes to condensed consolidated financial statements.
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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
September 30,
20202019
Cash flows from operating activities:  
Net (loss) income$(59,306)$228 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:  
Depreciation and amortization11,521 14,196 
Amortization of right-of-use assets under operating leases8,107 9,145 
Amortization of intangible assets11,344 15,489 
Unrealized loss (gain) on investment in equity securities12,433 (11,731)
Share-based compensation expense6,556 8,284 
Bad debt expense1,423 114 
Amortization of debt discount500 499 
Amortization of debt issuance costs548 552 
Deferred income taxes274 15,568 
Loss on disposal of fixed assets459 330 
   Gain on sale of business (17,558)
Changes in operating assets and liabilities (excludes effect of sale of business):  
Accounts receivable10,136 (31,580)
Short-term investments in real estate 39,873 
Prepaid expenses and other current assets621 12,588 
Other assets853 (55)
Accounts payable and accrued expenses(10,676)(17,058)
Current and non-current operating lease liabilities(8,518)(9,713)
Other current and non-current liabilities(352)(6,977)
Net cash (used in) provided by operating activities(14,077)22,194 
Cash flows from investing activities:  
Additions to premises and equipment(2,502)(1,204)
Proceeds received from sale of equity securities 7,819 
Proceeds from the sale of business3,307 38,027 
Other 1,087 
Net cash provided by investing activities805 45,729 
Cash flows from financing activities:  
Repayments and repurchases of long-term debt (44,820)
Proceeds from stock option exercises 392 
Purchase of treasury shares (13,397)
Distributions to non-controlling interests(976)(2,003)
Payments of tax withholding on issuance of restricted share units and restricted shares(1,495)(1,516)
Net cash used in financing activities(2,471)(61,344)
Net (decrease) increase in cash, cash equivalents and restricted cash(15,743)6,579 
Cash, cash equivalents and restricted cash at the beginning of the period86,583 64,046 
Cash, cash equivalents and restricted cash at the end of the period$70,840 $70,625 
Supplemental cash flow information:  
Interest paid$12,218 $16,271 
Income taxes paid, net742 2,397 
Acquisition of right-of-use assets with operating lease liabilities1,051 5,888 
Reduction of right-of-use assets from operating lease modifications or reassessments(1,715)(3,458)
Non-cash investing and financing activities:  
Net increase in payables for purchases of premises and equipment$60 $203 
See accompanying notes to condensed consolidated financial statements.
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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION
Description of Business
Altisource Portfolio Solutions S.A., together with its subsidiaries (which may be referred to as “Altisource,” the “Company,” “we,” “us” or “our”), is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing 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 September 30, 2020, Lenders One had total assets of $2.4 million and total liabilities of $0.5 million. As of December 31, 2019, Lenders One had total assets of $1.6 million and total liabilities of $0.3 million.
In 2019, Altisource created Pointillist, Inc. (“Pointillist”) and contributed the Pointillist® customer journey analytics business and $8.5 million to it. Pointillist is owned by Altisource and management of Pointillist. Management of Pointillist owns a non-controlling interest representing 12.1% of the outstanding equity of Pointillist. Additional equity shares of Pointillist are available for issuance to management and board members of Pointillist. Altisource has no ongoing obligation to provide future funding to Pointillist. Pointillist is presented in the accompanying condensed consolidated financial statements on a consolidated basis and the portion of Pointillist owned by Pointillist management is reported as non-controlling interests.
These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 5, 2020.
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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:
Level 1Quoted prices in active markets for identical assets and liabilities
Level 2Observable inputs other than quoted prices included in Level 1
Level 3Unobservable 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.
Recently Adopted Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard simplified the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Prior guidance required that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This standard requires companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company adopted this standard effective January 1, 2020 and is applied prospectively. Adoption of this new standard did not have any impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard modified certain disclosure requirements such as the valuation processes for Level 3 fair value measurements. This standard also requires new disclosures such as the disclosure of certain assumptions used to develop significant unobservable inputs for Level 3 fair value measurements. The Company adopted this standard effective January 1, 2020 and is applied prospectively. Adoption of this new standard did not have any impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This standard aligns the requirements for capitalizing implementation costs in a hosting arrangement service contract with the existing guidance for capitalizing implementation costs incurred for an internal-use software license. This standard also requires capitalizing or expensing implementation costs based on the nature of the costs and the project stage during which they are incurred and establishes additional disclosure requirements. The Company adopted this standard effective January 1, 2020 and is applied prospectively. Adoption of this new standard did not have any impact on the Company’s condensed consolidated financial statements.
Future Adoption of New Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is part of the FASB’s initiative to reduce complexity in accounting standards by instituting several simplifying provisions and removing several exceptions pertaining to income tax accounting. This standard will be effective for annual periods beginning after December 15, 2020, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.
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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This standard provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR. This standard is effective from the period from March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a topic or an industry subtopic, the standard must be applied prospectively for all eligible contract modifications for that topic or industry subtopic. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.
NOTE 2 — CUSTOMER CONCENTRATION
Ocwen
Ocwen Financial Corporation (together with its subsidiaries, “Ocwen”) is a residential mortgage loan servicer of mortgage servicing rights (“MSRs”) it owns, including those MSRs in which others have an economic interest, and a subservicer of MSRs owned by others.
During the three and nine months ended September 30, 2020, Ocwen was our largest customer, accounting for 57% of our total revenue for the nine months ended September 30, 2020 (48% of our revenue for the third quarter of 2020). Ocwen purchases certain mortgage services from us under the terms of services agreements and amendments thereto (collectively, the “Ocwen Services Agreements”) with terms extending through August 2025. Certain of the Ocwen Services Agreements contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing, among other things.
In February 2019, Altisource and Ocwen entered into agreements that, among other things, facilitated Ocwen’s transition from REALServicing and related technologies to another mortgage servicing software platform, establish a process for Ocwen to review and approve the assignment of one or more of our agreements to potential buyers of Altisource’s business lines, requiring Ocwen to use Altisource as service provider for certain service referrals totaling an amount equal to 100% of the applicable service referrals on certain portfolios plus an amount equal to not less than 90% of applicable service referrals from certain other portfolios (determined on a service by service basis), subject to certain additional restrictions and limitations, and affirm Altisource’s role as a strategic service provider to Ocwen through August 2025. In connection with these agreements, Altisource expressly preserved and did not waive any of its existing contractual rights relating to service referrals, other than with respect to Ocwen transitioning from the REALServicing and related technologies. If Altisource fails certain performance standards for specified periods of time, then Ocwen may terminate Altisource as a provider for the applicable service(s), subject to certain limitations and Altisource’s right to cure. Ocwen’s transition to another mortgage servicing platform was completed during 2019.
Revenue from Ocwen primarily consists of revenue earned from the loan portfolios serviced and subserviced by Ocwen when Ocwen engages us as the service provider, and revenue earned directly from Ocwen, pursuant to the Ocwen Services Agreements. For the nine months ended September 30, 2020 and 2019, we recognized revenue from Ocwen of $174.1 million and $275.1 million, respectively ($42.5 million and $89.8 million for the third quarter of 2020 and 2019, respectively). Revenue from Ocwen as a percentage of consolidated revenue was 57% and 54% for the nine months ended September 30, 2020 and 2019, respectively (48% and 63% for the third quarter of 2020 and 2019, respectively).
We earn additional revenue related to the portfolios serviced and subserviced by Ocwen when a party other than Ocwen or the MSR owner selects Altisource as the service provider. For the nine months ended September 30, 2020 and 2019, we recognized revenue of $19.9 million and $28.3 million, respectively ($7.2 million and $8.1 million for the third quarter of 2020 and 2019, respectively), related to the portfolios serviced by Ocwen when a party other than Ocwen or the MSR owner selected Altisource as the service provider. These amounts are not included in deriving revenue from Ocwen and revenue from Ocwen as a percentage of revenue discussed above.
During the second quarter of 2020, Ocwen informed us that an investor had instructed Ocwen to use a field services provider other than Altisource on properties associated with certain MSRs. They indicated that they were instructed to begin the transition in July 2020, and that the transition should be completed in a few months. We believe Ocwen commenced using another field services provider for these properties in July 2020 and continued to transition services during the third quarter of 2020. Based upon the impacted portfolios to date and the designated service provider, Altisource believes that Ocwen received
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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

these directions from New Residential Investment Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “NRZ”). The transition to the replacement field service provider has largely been completed as of September 30, 2020. We estimate that $72.3 million and $115.6 million of service revenue from Ocwen for the nine months ended September 30, 2020 and 2019, respectively ($14.1 million and $38.1 million for the third quarter of 2020 and 2019, respectively) was derived from Field Services referrals from the NRZ portfolios. Without providing the timing or specific services impacted, Ocwen also communicated to Altisource that the same investor plans to direct them to transition certain other default related service referrals to other providers. We estimate that revenue from these certain other default related services represented approximately $25.6 million and $34.9 million of service revenue from Ocwen for the nine months ended September 30, 2020 and 2019, respectively ($6.4 million and $12.5 million for the third quarter of 2020 and 2019, respectively). Altisource believes that any action taken by Ocwen to redirect these service referrals breaches Altisource's agreement with Ocwen. We are currently in discussions with Ocwen to address this matter, and have reserved all of our rights with respect to this matter.
To address the reduction in revenue, Altisource has undertaken several measures to further reduce its cost structure and strengthen its operations.
As of September 30, 2020, accounts receivable from Ocwen totaled $10.2 million, $8.9 million of which was billed and $1.3 million of which was unbilled. As of December 31, 2019, accounts receivable from Ocwen totaled $19.1 million, $15.7 million of which was billed and $3.4 million of which was unbilled.
NRZ
NRZ is a real estate investment trust that invests in and manages investments primarily related to residential real estate, including MSRs and excess MSRs.
Ocwen has disclosed that NRZ is its largest client. As of June 30, 2020, NRZ MSRs or rights to MSRs relating to approximately 53% of loans serviced and subserviced by Ocwen (measured in unpaid principal balance (“UPB”)). In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to certain of its MSRs (the “Subject MSRs”) and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years, subject to early termination rights.
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 real estate owned (“REO”) associated with the Subject MSRs, irrespective of the subservicer, subject to certain limitations. NRZ’s brokerage subsidiary receives a cooperative brokerage commission on the sale of REO properties from these portfolios subject to certain exceptions.
The Brokerage Agreement may be terminated by NRZ upon the occurrence of certain specified events. Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that 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.
For the nine months ended September 30, 2020 and 2019, we recognized revenue from NRZ of $7.1 million and $9.6 million, respectively ($2.5 million and $2.6 million for the third quarter of 2020 and 2019, respectively), under the Brokerage Agreement. For the nine months ended September 30, 2020 and 2019, we recognized additional revenue of $29.3 million and $45.5 million, respectively ($10.2 million and $11.4 million for the third quarter of 2020 and 2019, respectively), relating to the Subject MSRs when a party other than NRZ selects Altisource as the service provider.
NOTE 3 — SALE OF THE FINANCIAL SERVICES BUSINESS
On July 1, 2019, Altisource sold its Financial Services business, consisting of its post-charge-off consumer debt and mortgage charge-off collection services and customer relationship management services (the “Financial Services Business”) to Transworld Systems Inc. (“TSI”) for $44.0 million consisting of an up-front payment of $40.0 million, subject to a working capital adjustment (finalized during 2019) and transaction costs upon closing of the sale, and an additional $4.0 million payment on the one year anniversary of the sale closing. On July 1, 2020, the Company received net proceeds of $3.3 million
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representing $4.0 million, net of certain amounts owed to TSI under the purchase and sale agreement. The parties also entered into a transition services agreement to provide for the management and orderly transition of certain services and technologies to TSI for periods ranging from 2 months to 13 months, subject to additional 3 month extensions. These services included support for information technology systems and infrastructure, facilities management, finance, compliance and human resources functions and were charged to TSI on a fixed fee or hourly basis. As of October 1, 2020, all of the transition services and technologies have been fully transitioned to TSI.
NOTE 4 — INVESTMENT IN EQUITY SECURITIES
During 2016, we purchased 4.1 million shares of Front Yard Residential Corporation (“RESI”) common stock. This investment is reflected in the accompanying condensed consolidated balance sheets at fair value and changes in fair value are included in other income (expense), net in the accompanying condensed consolidated statements of operations and comprehensive income (loss). As of September 30, 2020 and December 31, 2019, we held 3.5 million shares of RESI common stock. As of September 30, 2020 and December 31, 2019, the fair value of our investment was $30.2 million and $42.6 million, respectively. During the nine months ended September 30, 2020 and 2019, we recognized an unrealized (loss) gain from the change in fair value of $(12.4) million and $11.7 million, respectively ($0.1 million and $(2.3) million for the third quarter of 2020 and 2019, respectively). The unrealized (loss) gain for the three and nine months ended September 30, 2019 included less than $0.1 million net loss and a $1.9 million net gain, respectively, recognized on RESI shares sold during the periods. During the nine months ended September 30, 2020 and 2019, we earned dividends of $0.5 million and $1.7 million, respectively (no comparative amount for the third quarter of 2020 and $0.5 million for the third quarter of 2019), related to this investment.
In May 2019, the Company began selling its investment in RESI common stock. During the nine months ended September 30, 2019, the Company sold 0.7 million shares for net proceeds of $7.8 million (0.1 million shares for net proceeds of $1.3 million for the third quarter of 2019) (no comparative amounts for the three and nine months ended September 30, 2020). Subsequent to the end of the third quarter 2020, the Company sold 1.6 million shares for net proceeds of $21.1 million. The senior secured term loan agreement requires that the Company use the net proceeds to repay a portion of its senior secured term loan.
On October 19, 2020, RESI announced that it has entered into a definitive merger agreement whereby a partnership led by Pretium and including funds managed by the Real Estate Equity and Alternative Credit strategies of Ares Management Corporation will acquire RESI for $13.50 in cash per share. RESI also announced that the transaction is expected to close in the first quarter of 2021, subject to the approval of the holders of a majority of RESI’s outstanding shares and the satisfaction of customary closing conditions.
NOTE 5 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
(in thousands)September 30,
2020
December 31,
2019
Billed$23,649 $35,921 
Unbilled10,060 12,166 
33,709 48,087 
Less: Allowance for credit losses(5,653)(4,472)
Total$28,056 $43,615 
Unbilled accounts receivable consist primarily of certain real estate asset management, REO sales, title and closing 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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NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
(in thousands)September 30,
2020
December 31,
2019
Income taxes receivable$2,368 $5,098 
Maintenance agreements, current portion2,364 1,923 
Prepaid expenses4,502 3,924 
Other current assets5,484 4,269 
Total$14,718 $15,214 
NOTE 7 — DISCONTINUATION OF LINES OF BUSINESS
Owners.com
In October 2019, the Company announced its plans to wind down and close the Owners.com business, which was completed by December 31, 2019. Owners.com was a technology-enabled real estate brokerage and provider of related mortgage brokerage and title services. Owners.com was not material in relation to the Company’s results of operations or financial position. Wind down expenses were included in the Project Catalyst restructuring charges (see Note 23).
Buy-Renovate-Lease-Sell
On November 26, 2018, the Company announced its plans to sell its short-term investments in real estate (“BRS Inventory”) and discontinue the Company’s Buy-Renovate-Lease-Sell (“BRS”) business. Altisource’s BRS business focused on buying, renovating, leasing and selling single-family homes to real estate investors. The BRS business was not material in relation to the Company’s results of operations or financial position. The Company completed the sale of the BRS Inventory during the year ended December 31, 2019.
NOTE 8 — PREMISES AND EQUIPMENT, NET
Premises and equipment, net consists of the following:
(in thousands)September 30,
2020
December 31,
2019
Computer hardware and software$68,242 $144,608 
Leasehold improvements17,857 23,800 
Furniture and fixtures6,553 8,775 
Office equipment and other2,812 4,004 
95,464 181,187 
Less: Accumulated depreciation and amortization(80,481)(156,661)
Total$14,983 $24,526 
Depreciation and amortization expense amounted to $11.5 million and $14.2 million for the nine months ended September 30, 2020 and 2019, respectively ($3.8 million and $3.7 million for the third quarter of 2020 and 2019, respectively), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations and comprehensive income (loss).
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Premises and equipment, net consist of the following, by country:
(in thousands)September 30,
2020
December 31,
2019
United States$7,332 $13,426 
Luxembourg6,686 10,295 
India824 671 
Uruguay105 39 
Philippines36 95 
Total$14,983 $24,526 
NOTE 9 — RIGHT-OF-USE ASSETS UNDER OPERATING LEASES, NET
Right-of-use assets under operating leases, net consists of the following:
(in thousands)September 30,
2020
December 31,
2019
Right-of-use assets under operating leases$35,013 $39,729 
Less: Accumulated amortization(14,710)(10,655)
Total$20,303 $29,074 
Amortization of operating leases was $8.1 million and $9.1 million for the nine months ended September 30, 2020 and 2019, respectively ($2.6 million and $2.4 million for the third quarter of 2020 and 2019, respectively), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations and comprehensive income (loss).
NOTE 10 — GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
Goodwill consists of the following:
(in thousands)Total
Balance as of September 30, 2020 and December 31, 2019$73,849 
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Intangible Assets, net
Intangible assets, net consist of the following:
 
Weighted average estimated useful life
(in years)
Gross carrying amountAccumulated amortizationNet book value
(in thousands)September 30,
2020
December 31,
2019
September 30,
2020
December 31,
2019
September 30,
2020
December 31,
2019
Definite lived intangible assets:
Customer related intangible assets9$214,973 $214,973 $(185,089)$(176,043)$29,884 $38,930 
Operating agreement2035,000 35,000 (18,689)(17,376)16,311 17,624 
Trademarks and trade names169,709 9,709 (6,202)(5,893)3,507 3,816 
Non-compete agreements41,230 1,230 (1,230)(1,215) 15 
Intellectual property 300  (175) 125 
Other intangible assets51,800 3,745 (1,800)(3,209) 536 
Total$262,712 $264,957 $(213,010)$(203,911)$49,702 $61,046 
Amortization expense for definite lived intangible assets was $11.3 million and $15.5 million for the nine months ended September 30, 2020 and 2019, respectively ($4.3 million and $3.3 million for the third quarter of 2020 and 2019, respectively). Expected annual definite lived intangible asset amortization expense for 2020 through 2024 is $14.9 million, $9.3 million, $5.1 million, $5.1 million and $5.1 million, respectively.
NOTE 11 — OTHER ASSETS
Other assets consist of the following:
(in thousands)September 30,
2020
December 31,
2019
Restricted cash$3,817 $3,842 
Security deposits2,628 3,473 
Deferred tax assets, net1,262 1,626 
Other3,577 3,495 
Total$11,284 $12,436 
NOTE 12 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable and accrued expenses consist of the following:
(in thousands)September 30,
2020
December 31,
2019
Accounts payable$17,861 $22,431 
Accrued expenses - general18,678 24,558 
Accrued salaries and benefits17,533 18,982 
Income taxes payable2,290 1,700 
Total$56,362 $67,671 
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Other current liabilities consist of the following: