Altisource Portfolio Solutions
Altisource Portfolio Solutions S.A. (Form: 10-Q, Received: 04/27/2017 07:44:14)
 
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, 2017
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 þ
Accelerated filer o
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

As of April 21, 2017 , there were 18,432,419 outstanding shares of the registrant’s shares of beneficial interest (excluding 6,980,329 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,
2017
 
December 31,
2016
 
 
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
117,098

 
$
149,294

Available for sale securities
63,202

 
45,754

Accounts receivable, net
83,038

 
87,821

Prepaid expenses and other current assets
47,357

 
42,608

Total current assets
310,695

 
325,477

 
 
 
 
Premises and equipment, net
96,023

 
103,473

Goodwill
86,283

 
86,283

Intangible assets, net
146,286

 
155,432

Deferred tax assets, net
2,567

 
7,292

Other assets
11,629

 
11,255

 
 
 
 
Total assets
$
653,483

 
$
689,212

 
 
 
 
LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
75,052

 
$
83,135

Accrued litigation settlement

 
32,000

Current portion of long-term debt
5,945

 
5,945

Deferred revenue
9,626

 
8,797

Other current liabilities
14,299

 
19,061

Total current liabilities
104,922

 
148,938

 
 
 
 
Long-term debt, less current portion
466,510

 
467,600

Other non-current liabilities
9,686

 
10,480

 
 
 
 
Commitments, contingencies and regulatory matters (Note 20)


 


 
 
 
 
Equity:
 
 
 
Common stock ($1.00 par value; 25,413 shares authorized and issued and 18,413 outstanding as of March 31, 2017; 25,413 shares authorized and issued and 18,774 outstanding as of December 31, 2016)
25,413

 
25,413

Additional paid-in capital
108,915

 
107,288

Retained earnings
336,527

 
333,786

Accumulated other comprehensive income (loss)
10,978

 
(1,745
)
Treasury stock, at cost (7,000 shares as of March 31, 2017 and 6,639 shares as of December 31, 2016)
(410,919
)
 
(403,953
)
Altisource equity
70,914

 
60,789

 
 
 
 
Non-controlling interests
1,451

 
1,405

Total equity
72,365

 
62,194

 
 
 
 
Total liabilities and equity
$
653,483

 
$
689,212


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,
 
 
2017
 
2016
 
 
 
 
 
Revenue
 
$
240,483

 
$
250,132

Cost of revenue
 
177,953

 
168,863

 
 
 
 
 
Gross profit
 
62,530

 
81,269

Selling, general and administrative expenses
 
47,701

 
53,616

 
 
 
 
 
Income from operations
 
14,829

 
27,653

Other income (expense), net:
 
 
 
 
Interest expense
 
(5,798
)
 
(6,541
)
Other income (expense), net
 
715

 
(27
)
Total other income (expense), net
 
(5,083
)
 
(6,568
)
 
 
 
 
 
Income before income taxes and non-controlling interests
 
9,746

 
21,085

Income tax provision
 
(2,586
)
 
(2,193
)
 
 
 
 
 
Net income
 
7,160

 
18,892

Net income attributable to non-controlling interests
 
(615
)
 
(398
)
 
 
 
 
 
Net income attributable to Altisource
 
$
6,545

 
$
18,494

 
 
 
 
 
Earnings per share:
 
 
 
 
Basic
 
$
0.35

 
$
0.98

Diluted
 
$
0.34

 
$
0.92

 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
Basic
 
18,662

 
18,855

Diluted
 
19,304

 
20,040

 
 
 
 
 
Comprehensive income:
 
 
 
 
Net income
 
$
7,160

 
$
18,892

Other comprehensive income, net of tax:
 
 
 
 
Unrealized gain on securities, net of income tax expense of $4,725 and $289
 
12,723

 
699

 
 
 
 
 
Comprehensive income, net of tax
 
19,883

 
19,591

Comprehensive income attributable to non-controlling interests
 
(615
)
 
(398
)
 
 
 
 
 
Comprehensive income attributable to Altisource
 
$
19,268

 
$
19,193


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, 2015
25,413

 
$
25,413

 
$
96,321

 
$
369,270

 
$

 
$
(440,026
)
 
$
1,292

 
$
52,270

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
18,494

 

 

 
398

 
18,892

Other comprehensive income, net of tax

 

 

 

 
699

 

 

 
699

Distributions to non-controlling interest holders

 

 

 

 

 

 
(448
)
 
(448
)
Share-based compensation expense

 

 
1,877

 

 

 

 

 
1,877

Exercise of stock options

 

 

 
(2,312
)
 

 
2,678

 

 
366

Repurchase of shares

 

 

 

 

 
(11,691
)
 

 
(11,691
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2016
25,413

 
$
25,413

 
$
98,198

 
$
385,452

 
$
699

 
$
(449,039
)
 
$
1,242

 
$
61,965

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 1)

 

 
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


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,
 
2017
 
2016
 
 
 
 
Cash flows from operating activities:
 

 
 

Net income
$
7,160

 
$
18,892

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

 
 

Depreciation and amortization
10,008

 
9,208

Amortization of intangible assets
9,146

 
12,211

Change in the fair value of acquisition related contingent consideration
8

 
96

Share-based compensation expense
695

 
1,877

Bad debt expense
1,903

 
876

Amortization of debt discount
105

 
116

Amortization of debt issuance costs
291

 
322

Loss (gain) on disposal of fixed assets
1,480

 
(10
)
Changes in operating assets and liabilities:
 

 
 

Accounts receivable
2,880

 
6,502

Prepaid expenses and other current assets
(4,749
)
 
(4,970
)
Other assets
(374
)
 
(109
)
Accounts payable and accrued expenses
(10,177
)
 
(12,133
)
Other current and non-current liabilities
(36,735
)
 
(3,844
)
Net cash (used in) provided by operating activities
(18,359
)
 
29,034

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to premises and equipment
(1,944
)
 
(5,984
)
Purchase of available for sale securities

 
(29,429
)
Other investing activities

 
16

Net cash used in investing activities
(1,944
)
 
(35,397
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Repayment of long-term debt
(1,486
)
 
(1,486
)
Proceeds from stock option exercises
752

 
366

Purchase of treasury stock
(10,590
)
 
(11,691
)
Distributions to non-controlling interests
(569
)
 
(448
)
Net cash used in financing activities
(11,893
)
 
(13,259
)
 
 
 
 
Net decrease in cash and cash equivalents
(32,196
)
 
(19,622
)
Cash and cash equivalents at the beginning of the period
149,294

 
179,327

 
 
 
 
Cash and cash equivalents at the end of the period
$
117,098

 
$
159,705

 
 
 
 
Supplemental cash flow information:
 

 
 

Interest paid
$
5,456

 
$
6,104

Income taxes paid, net
6,515

 
3,830

 
 
 
 
Non-cash investing and financing activities:
 

 
 

Increase in payables for purchases of premises and equipment
$
2,094

 
$
1,030


See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
Description of Business
Altisource Portfolio Solutions S.A., together with its subsidiaries (which may be referred to as “Altisource,” the “Company,” “we,” “us” or “our”), is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing market.
Altisource Portfolio Solutions S.A. was formed under the laws of Luxembourg and is publicly traded on the NASDAQ Global Select Market under the symbol “ASPS.”
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.
Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization, which changed the way our chief operating decision maker manages our businesses, allocates resources and evaluates performance. We now report our operations through two new reportable segments: Mortgage Market and Real Estate Market. In addition, we report Other Businesses, Corporate and Eliminations separately. Prior to the January 1, 2017 change in reportable segments, our reportable segments were Mortgage Services, Financial Services and Technology Services. Prior year comparable period segment disclosures have been restated to conform to the current year presentation. See Note 21 for a description of our business segments.
Altisource consolidates two cooperative entities which are managed by The Mortgage Partnership of America, L.L.C. (“MPA”), a wholly-owned subsidiary of Altisource: Best Partners Mortgage Cooperative, Inc., a mortgage cooperative doing business as Lenders One ® (“Lenders One”) and Best Partners Mortgage Brokers Cooperative, Inc., a mortgage cooperative doing business as Wholesale One ® (“Wholesale 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) and to Wholesale One under a management agreement that ends on July 8, 2039 (with automatic renewals for three successive five-year periods).
The management agreements between MPA and Lenders One and between MPA and Wholesale One, pursuant to which MPA is the management company, represent variable interests in variable interest entities. MPA is the primary beneficiary of Lenders One and Wholesale One as it has the power to direct the activities that most significantly impact each of these cooperatives’ economic performance and the right to receive benefits from each of these cooperatives. As a result, Lenders One and Wholesale One are 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, 2017 , Lenders One had total assets of $3.8 million and total liabilities of $0.9 million . As of December 31, 2016 , Lenders One had total assets of $3.8 million and total liabilities of $1.5 million . As of March 31, 2017 and December 31, 2016 , Wholesale One had less than $0.1 million in total assets and less than $0.1 million in total liabilities.
These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 , as filed with the SEC on February 16, 2017 .

7

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 1 Quoted prices in active markets for identical assets and liabilities
Level 2 Observable inputs other than quoted prices included in Level 1
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.
Financial assets and financial liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
Recently Adopted Accounting Pronouncement
The Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , became effective on January 1, 2017. This standard simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard requires companies to recognize all award-related excess tax benefits and tax deficiencies in the income statement, classify any excess tax benefits as an operating activity in the statement of cash flows, limit tax withholding up to the maximum statutory tax rates in order to continue to apply equity accounting rules and classify cash paid by employers when directly withholding shares for tax withholding purposes as an investing activity in the statement of cash flows. The standard also provides companies with the option of estimating forfeitures or recognizing forfeitures as they occur. In connection with the adoption of this standard, the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures. This policy election resulted in a cumulative effect adjustment of $0.9 million to retained earnings and additional paid-in capital as of January 1, 2017 using the modified retrospective transition method. There were no other significant impacts of the adoption of this standard on the Company’s results of operations and financial position.
Future Adoption of New Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) . This standard establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of this new standard is an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. 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 over 95% of its revenue from customers for the three months ended March 31, 2017 , the Company estimated that less than 5% of consolidated revenue, primarily related to software development professional services, would likely be deferred and recognized over future periods under the new standard. The Company will continue to analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . This standard will require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. It also amends certain financial statement presentation and disclosure requirements associated with the fair value of financial instruments. This standard will be effective for annual periods beginning after December 31, 2017, including interim periods within that reporting period. Early adoption is not permitted. Based on the Company’s preliminary analysis of this guidance, upon adoption of ASU No. 2016-01 the Company will reflect changes in the fair value of its available for sale securities in income. These changes in fair value are currently reflected in other comprehensive income. The Company will continue to analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.

8

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



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . This standard introduces a new lessee model that brings substantially all leases on the balance sheet. The standard will require companies to recognize lease assets and lease liabilities on their balance sheets and disclose key information about leasing arrangements in their financial statements. This standard will be effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period. Early application of this standard is permitted. The Company is currently evaluating the impact of this guidance on its results of operations and financial position. Based on the Company’s preliminary analysis of its lease arrangements as of March 31, 2017 where the Company is a lessee, the impact of adopting the new standard is primarily related to office leases, which would be recorded as right-of-use assets and lease liabilities on the Company’s balance sheet under the new standard. The Company will continue to analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) . This standard clarifies guidance on principal versus agent considerations in connection with revenue recognition. When another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , as described above.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing . This standard provides guidance on identifying performance obligations in a contract with a customer and clarifying several licensing considerations, including whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time) and guidance on sales-based and usage-based royalties. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , as described above.
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients . This standard addresses collectability, sales taxes and other similar taxes collected from customers, non-cash consideration, contract modifications at transition and completed contracts at transition. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , as described above.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . This standard addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its statement of cash flows.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard will require that companies recognize the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs.  Current guidance prohibits companies from recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . This standard will require that companies include restricted cash and restricted cash equivalents in their cash and cash equivalent balances in the statement of cash flows. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard will be effective for annual periods beginning after December 15, 2017, including interim

9

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



periods within that reporting period. Early adoption of this standard is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its statement of cash flows. As of both March 31, 2017 and December 31, 2016, restricted cash was $4.1 million .
In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers . The FASB issued 13 technical corrections and improvements to ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , including providing optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. The amendments in this standard also expand the information that is required to be disclosed when an entity applies one of the optional exemptions. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , as described above.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This standard clarifies the definition of a business and provides a screen to determine if a set of inputs, processes and outputs is a business. The screen requires that when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the assets acquired would not be a business. Under the new guidance, in order to be considered a business, an acquisition must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. In addition, the standard narrows the definition of the term “output” so that it is consistent with how it is described in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.
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 February 2017, the FASB issued ASU No. 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets . This standard was issued to clarify the scope of Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets , and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.
NOTE 2 CUSTOMER CONCENTRATION
Ocwen Financial Corporation (“Ocwen”) is our largest customer. Ocwen purchases certain mortgage services and technology services from us under the terms of master services agreements and amendments thereto (collectively, the “Ocwen Service Agreements”) with terms extending through August 2025. Certain of the Ocwen Service Agreements, among other things, contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing. 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 servicing portfolios acquired by Ocwen in December 2012 and February 2013, respectively. In addition, Ocwen purchases certain origination services from Altisource under an agreement that continues until January 23, 2019, but which is subject to a 90 day termination right by Ocwen.

10

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



Revenue from Ocwen primarily consists of revenue earned directly from Ocwen and revenue earned from the loans serviced by Ocwen when Ocwen designates us as the service provider. Revenue from Ocwen as a percentage of segment and consolidated revenue was as follows for the three months ended March 31 :
 
 
2017
 
2016
 
 
 
 
 
Mortgage Market
 
68
%
 
66
%
Real Estate Market
 
1
%
 
1
%
Other Businesses, Corporate and Eliminations
 
14
%
 
25
%
Consolidated revenue
 
59
%
 
56
%
For the three months ended March 31, 2017 and 2016 , we generated revenue from Ocwen of $141.4 million and $140.1 million , respectively. Services provided to Ocwen during such periods and reported in the Mortgage Market segment included real estate asset management and sales, residential property valuation, trustee management services, property preservation and inspection services, insurance services, mortgage charge-off collections, software applications and information technology (“IT”) infrastructure management. Services provided to Ocwen and reported in the Real Estate Market segment included rental property management. Services provided to Ocwen and reported as Other Businesses, Corporate and Eliminations included IT infrastructure management. As of March 31, 2017 , accounts receivable from Ocwen totaled $24.7 million , $16.1 million of which was billed and $8.6 million of which was unbilled. As of December 31, 2016 , accounts receivable from Ocwen totaled $26.2 million , $15.8 million of which was billed and $10.4 million of which was unbilled.
We earn additional revenue related to the portfolios serviced by Ocwen when a party other than Ocwen selects Altisource as the service provider. For the three months ended March 31, 2017 and 2016 , we recognized revenue of $41.7 million and $46.6 million , respectively, related to the portfolios serviced by Ocwen when a party other than Ocwen 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.
NOTE 3 ACQUISITION
Granite Acquisition
On July 29, 2016 , we acquired certain assets and assumed certain liabilities of Granite Loan Management of Delaware, LLC (“Granite”) for $9.5 million in cash. Granite provides residential and commercial loan disbursement processing, risk mitigation and construction inspection services to lenders. The Granite acquisition is not material in relation to the Company’s results of operations or financial position.
The final allocation of the purchase price is as follows:
(in thousands)
 
 
 
 
 
Accounts receivable, net
 
$
1,024

Prepaid expenses
 
22

Other assets
 
25

Premises and equipment, net
 
299

Non-compete agreements
 
100

Trademarks and trade names
 
100

Customer relationships
 
3,400

Goodwill
 
4,827

 
 
9,797

Accounts payable and accrued expenses
 
(57
)
Other current liabilities
 
(192
)
 
 
 
Purchase price
 
$
9,548

NOTE 4 AVAILABLE FOR SALE SECURITIES
During the three months ended March 31, 2016 , we purchased 2.5 million shares of Altisource Residential Corporation (“Residential”) common stock for $29.4 million . Between April 1, 2016 and December 31, 2016, we purchased 1.6 million shares of Residential common stock for $18.8 million . These investments are classified as available for sale and reflected in the condensed consolidated balance sheets at fair value at the respective balance sheet dates ( $63.2 million as of March 31, 2017 and $45.8 million

11

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



as of December 31, 2016 ). Unrealized gains and losses on available for sale securities are reflected in other comprehensive income, unless there is an impairment that is other than temporary. In the event that a decline in market value is other than temporary, we would record a charge to earnings and a new cost basis in the investment would be established. During the three months ended March 31, 2017 , we earned dividends of $0.6 million related to this investment ( no comparative amount in 2016 ).
NOTE 5 ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
(in thousands)
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
Billed
 
$
53,990

 
$
58,392

Unbilled
 
40,077

 
39,853

 
 
94,067

 
98,245

Less: allowance for doubtful accounts
 
(11,029
)
 
(10,424
)
 
 
 
 
 
Total
 
$
83,038

 
$
87,821

Unbilled receivables consist primarily of certain real estate asset management and sales services for which we collect upon closing of the sale, and default management services, for which we generally recognize revenues over the service delivery period but bill following completion of the service. We also include amounts in unbilled receivables that are earned during a month and billed in the following month.
NOTE 6 PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
(in thousands)
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
Maintenance agreements, current portion
 
$
7,392

 
$
6,590

Short-term investments in real estate
 
15,532

 
13,025

Income taxes receivable
 
9,167

 
5,186

Prepaid expenses
 
7,796

 
6,919

Litigation settlement insurance recovery
 

 
4,000

Other current assets
 
7,470

 
6,888

 
 
 
 
 
Total
 
$
47,357

 
$
42,608

NOTE 7 PREMISES AND EQUIPMENT, NET
Premises and equipment, net consists of the following:
(in thousands)
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
Computer hardware and software
 
$
171,684

 
$
164,877

Office equipment and other
 
15,113

 
20,188

Furniture and fixtures
 
14,236

 
13,997

Leasehold improvements
 
33,727

 
33,808

 
 
234,760

 
232,870

Less: accumulated depreciation and amortization
 
(138,737
)
 
(129,397
)
 
 
 
 
 
Total
 
$
96,023

 
$
103,473

Depreciation and amortization expense amounted to $10.0 million and $9.2 million for the three months ended March 31, 2017 and 2016 , 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.

12

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



NOTE 8 GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The following is a summary of goodwill by segment:
(in thousands)
 
Mortgage Market
 
Real Estate Market
 
Other Businesses, Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2017 and December 31, 2016
 
$
73,259

 
$
10,056

 
$
2,968

 
$
86,283

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,
2017
 
December 31,
2016
 
March 31,
2017
 
December 31,
2016
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Definite lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks and trade names
 
13
 
$
15,354

 
$
15,354

 
$
(8,026
)
 
$
(7,724
)
 
$
7,328

 
$
7,630

Customer related intangible assets
 
10
 
277,828

 
277,828

 
(165,094
)
 
(156,980
)
 
112,734

 
120,848

Operating agreement
 
20
 
35,000

 
35,000

 
(12,542
)
 
(12,104
)
 
22,458

 
22,896

Non-compete agreements
 
4
 
1,560

 
1,560

 
(604
)
 
(507
)
 
956

 
1,053

Intellectual property
 
10
 
300

 
300

 
(92
)
 
(85
)
 
208

 
215

Other intangible assets
 
5
 
3,745

 
3,745

 
(1,143
)
 
(955
)
 
2,602

 
2,790

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
$
333,787

 
$
333,787

 
$
(187,501
)
 
$
(178,355
)
 
$
146,286

 
$
155,432

Amortization expense for definite lived intangible assets was $9.1 million and $12.2 million for the three months ended March 31, 2017 and 2016 , respectively. Expected annual definite lived intangible asset amortization for 2017 through 2021 is $35.4 million , $26.7 million , $21.2 million , $17.3 million and $12.6 million , respectively.
NOTE 9 OTHER ASSETS
Other assets consist of the following:
(in thousands)
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
Security deposits
 
$
5,769

 
$
5,508

Maintenance agreements, non-current portion
 
766

 
853

Restricted cash
 
4,127

 
4,127

Other
 
967

 
767

 
 
 
 
 
Total
 
$
11,629

 
$
11,255


13

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



NOTE 10 ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable and accrued expenses consist of the following:
(in thousands)
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
Accounts payable
 
$
12,496

 
$
8,787

Accrued expenses - general
 
31,730

 
26,426

Accrued salaries and benefits
 
30,650

 
47,614

Income taxes payable
 
176

 
308

 
 
 
 
 
Total
 
$
75,052

 
$
83,135

Other current liabilities consist of the following:
(in thousands)
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
Unfunded cash account balances
 
$
5,263

 
$
7,137

Other
 
9,036

 
11,924

 
 
 
 
 
Total
 
$
14,299

 
$
19,061

NOTE 11 LONG-TERM DEBT
Long-term debt consists of the following:
(in thousands)
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
Senior secured term loan
 
$
478,167

 
$
479,653

Less: debt issuance costs, net
 
(4,195
)
 
(4,486
)
Less: unamortized discount, net
 
(1,517
)
 
(1,622
)
Net long-term debt
 
472,455

 
473,545

Less: current portion
 
(5,945
)
 
(5,945
)
 
 
 
 
 
Long-term debt, less current portion
 
$
466,510

 
$
467,600

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 wholly-owned subsidiaries are guarantors of the term loan (collectively, the “Guarantors”). We subsequently amended the senior secured term loan agreement to increase the principal amount of the senior secured term loan and, among other changes, re-establish the $200.0 million incremental term loan facility accordion, lower the interest rate, extend the maturity date by approximately one year and increase the maximum amount of Restricted Junior Payments (as defined in the senior secured term loan agreement; other capitalized terms, unless defined herein, are defined in the senior secured term loan agreement).
After giving effect to the third amendment entered into on August 1, 2014, the term loan must be repaid in equal consecutive quarterly principal installments of $1.5 million , with the balance due at maturity. All amounts outstanding under the senior secured term loan agreement will become 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 term loan is 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, 2017 .

14

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



The term loan bears interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate . Adjusted Eurodollar Rate loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Adjusted Eurodollar Rate for the applicable interest period and (y) 1.00% plus (ii) a 3.50% margin. Base Rate loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Base Rate and (y) 2.00% plus (ii) a 2.50% margin. The interest rate at March 31, 2017 was 4.50% .
Term loan payments are guaranteed by the Guarantors and are secured by a pledge of all equity interests of certain subsidiaries as well as a lien on substantially all of the assets of Altisource Solutions S.à r.l. and the Guarantors, subject to certain exceptions.
The senior secured term loan agreement includes covenants that restrict or limit, 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 contains certain events of default, including (i) failure to pay principal when due or interest or any other amount owing on any other obligation under the senior secured term loan agreement 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 causes, or gives the holder or holders of such debt the ability to cause, an acceleration of such debt, (vi) occurrence of a Change of Control, (vii) bankruptcy and insolvency events, (viii) entry by a court of one or more judgments against us in an amount in excess of $40.0 million that remain unbonded, undischarged or unstayed for a certain number of days after the entry thereof, (ix) the occurrence of certain ERISA events and (x) the failure of certain Loan Documents to be in full force and effect. If any event of default occurs and is not cured within applicable grace periods set forth in the senior secured term loan agreement or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.
As of March 31, 2017 , debt issuance costs were $4.2 million , net of $6.1 million of accumulated amortization. As of December 31, 2016 , debt issuance costs were $4.5 million , net of $5.8 million of accumulated amortization.
NOTE 12 OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
(in thousands)
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
Deferred revenue
 
$
5,089

 
$
5,680

Other non-current liabilities
 
4,597

 
4,800

 
 
 
 
 
Total
 
$
9,686

 
$
10,480


15

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



NOTE 13 FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
The following table presents the carrying amount and estimated fair value of financial instruments held by the Company and acquisition contingent consideration liabilities as of March 31, 2017 and December 31, 2016 . The following fair values are estimated using market information and what the Company believes to be appropriate valuation methodologies under GAAP:
 
 
March 31, 2017
 
December 31, 2016
(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
 
$
117,098

 
$
117,098

 
$

 
$

 
$
149,294

 
$
149,294

 
$

 
$

Restricted cash
 
4,127

 
4,127

 

 

 
4,127

 
4,127

 

 

Available for sale securities
 
63,202

 
63,202

 

 

 
45,754

 
45,754

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition contingent consideration
 
384

 

 

 
384

 
376

 

 

 
376

Long-term debt
 
478,167

 

 
461,431

 

 
479,653

 

 
474,856

 

Fair Value Measurements on a Recurring Basis
Cash and cash equivalents and restricted cash are carried at amounts that approximate their fair value due to the highly liquid nature of these instruments and were measured using Level 1 inputs.
Available for sale securities are carried at fair value and consist of 4.1 million shares of Residential common stock. Available for sale securities are measured using Level 1 inputs as these securities have quoted prices in active markets.
The fair value of our long-term 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.
In accordance with ASC Topic 805, Business Combinations , liabilities for contingent consideration are reflected at fair value and adjusted each reporting period with the change in fair value recognized in earnings. Liabilities for acquisition related contingent consideration were recorded in connection with acquisitions in prior years. We measure the liabilities for acquisition related contingent consideration using Level 3 inputs as they are determined based on the present value of future estimated payments, which include sensitivities pertaining to discount rates and financial projections.
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 customers, if known.
NOTE 14 SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
Share Repurchase Program
On May 18, 2016 , our shareholders approved a share repurchase program, which replaced the previous share repurchase program. Under the 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. This is in addition to amounts previously purchased under prior programs. Under the existing and prior programs, we purchased 0.4 million shares of common stock at an average price of $25.10 per share during the three months ended March 31, 2017 and 0.5 million shares at an average price of $25.17 per share during the three months ended March 31, 2016 . As of March 31, 2017 , approximately 3.5 million shares of common stock remain available for repurchase under the program. Our senior secured term loan limits the amount we can spend on share repurchases and may prevent repurchases in certain circumstances.

16

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



As of March 31, 2017 , approximately $394 million was available to repurchase shares of our common stock under our senior secured term loan.
Share-Based Compensation
We issue share-based awards in the form of stock options and restricted shares for certain employees, officers and directors. We recorded share-based compensation expense of $0.7 million and $1.9 million for the three months ended March 31, 2017 and 2016 , respectively. As of March 31, 2017 , estimated unrecognized compensation costs related to share-based awards amounted to $5.3 million , which we expect to recognize over a weighted average remaining requisite service period of approximately 2.08 years .
In connection with the January 1, 2017 adoption of FASB ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (see Note 1), the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures. Prior to this accounting change, share-based compensation expense for stock options and restricted shares was recorded net of estimated forfeiture rates ranging from 0% to 40% .
Stock Options
Stock option grants are composed of a combination of service-based, market-based and performance-based options.
Service-Based Options. These options generally vest over three or four years with equal annual cliff-vesting and expire on the earlier of ten years after the date of grant or following termination of service. A total of 0.8 million service-based awards were outstanding as of March 31, 2017 .
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 internally as “ordinary performance” grants, 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 internally as “extraordinary performance” grants, 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 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 1.0 million market-based awards were outstanding at March 31, 2017 .
Performance-Based Options. These option grants begin to vest upon the achievement of certain specific financial measures. Generally, 25% of the awards vest upon the achievement of the performance criteria and the remaining 75% vest thereafter in three equal annual installments. 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 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 no performance-based awards outstanding at March 31, 2017 .
The Company granted 0.1 million stock options (at a weighted average exercise price of $27.48 per share) during the three months ended March 31, 2016 ( no comparative amounts in 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, 2016
 
 
Black-Scholes
 
Binomial
 
 
 
 
 
Risk-free interest rate (%)
 
1.25 - 1.89

 
0.23 - 1.97

Expected stock price volatility (%)
 
59.75 - 62.14

 
59.76 - 62.14

Expected dividend yield
 

 

Expected option life (in years)
 
6.25

 
4.55 - 4.88

Fair value
 
$11.15 - $16.30

 
$11.06 - $15.73


17

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



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)
 
2017
 
2016
 
 
 
 
 
Weighted average grant date fair value of stock options granted per share
 
$

 
$
15.77

Intrinsic value of options exercised
 
868

 
601

Grant date fair value of stock options that vested
 
89

 
187

The following table summarizes the activity related to our stock options:
 
Number of options
 
Weighted average exercise price
 
Weighted average contractual term
(in years )
 
Aggregate intrinsic value
( in thousands)
 
 
 
 
 
 
 
 
Outstanding at December 31, 2016
1,996,509

 
$
25.98

 
5.32
 
$
15,942

Granted

 

 
 
 
 
Exercised
(61,280
)
 
12.27

 
 
 
 

Forfeited
(159,576
)
 
29.68

 
 
 
 

 
 
 
 
 
 
 
 
Outstanding at March 31, 2017
1,775,653

 
26.12

 
4.87
 
28,646

 
 
 
 
 
 
 
 
Exercisable at March 31, 2017
1,164,835

 
21.38

 
3.25
 
20,695

Other Share-Based Awards
The Company’s other share-based and similar types of awards are composed of restricted shares and, through August 29, 2016, Equity Appreciation Rights (“EAR”). Effective August 29, 2016, the EAR plans were terminated.
The restricted shares are service-based awards that vest over one to four years with either annual cliff-vesting, vesting of all of the restricted shares at the end of the vesting period or vesting beginning after two years of service. The Company granted 3 thousand restricted shares (at a weighted average price of $27.50 per share) during the three months ended March 31, 2017 .
The following table summarizes the activity related to our restricted shares:
 
Number of restricted shares
 
 
Outstanding at December 31, 2016
231,730

Granted
3,338

Forfeited
(13,100
)
 
 
Outstanding at March 31, 2017
221,968


18

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



NOTE 15 REVENUE
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 and Wholesale One, consolidated entities not owned by Altisource, and are 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)
 
2017
 
2016
 
 
 
 
 
Service revenue
 
$
229,839

 
$
234,280

Reimbursable expenses
 
10,029

 
15,454

Non-controlling interests
 
615

 
398

 
 
 
 
 
Total
 
$
240,483

 
$
250,132

NOTE 16 COST OF REVENUE
Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to the provision of services and the cost of sales of short-term investments in real estate, 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)
 
2017
 
2016
 
 
 
 
 
Compensation and benefits
 
$
63,092

 
$
65,063

Outside fees and services
 
85,894

 
71,803

Reimbursable expenses
 
10,029

 
15,454

Technology and telecommunications
 
11,351

 
9,940

Depreciation and amortization
 
7,587

 
6,603

 
 
 
 
 
Total
 
$
177,953

 
$
168,863

NOTE 17 SELLING, 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, risk management, sales and marketing roles. This category also includes occupancy costs, professional fees, marketing costs, depreciation and amortization of non-operating assets and other expenses. The components of selling, general and administrative expenses were as follows for the three months ended March 31 :
(in thousands)
 
2017
 
2016
 
 
 
 
 
Compensation and benefits
 
$
12,506

 
$
13,991

Occupancy related costs
 
10,273

 
9,083

Amortization of intangible assets
 
9,146

 
12,211

Professional services
 
3,730

 
6,740

Marketing costs
 
4,269

 
6,492

Depreciation and amortization
 
2,421

 
2,605

Other
 
5,356

 
2,494

 
 
 
 


Total
 
$
47,701

 
$
53,616


19

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



NOTE 18 OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following for the three months ended March 31 :
(in thousands)
 
2017
 
2016
 
 
 
 
 
Interest income
 
$
98

 
$
11

Other, net
 
617

 
(38
)
 
 
 
 
 
Total
 
$
715

 
$
(27
)
NOTE 19 EARNINGS 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.
Basic and diluted EPS are calculated as follows for the three months ended March 31 :
(in thousands, except per share data)
 
2017
 
2016
 
 
 
 
 
Net income attributable to Altisource
 
$
6,545

 
$
18,494

 
 
 
 
 
Weighted average common shares outstanding, basic
 
18,662

 
18,855

Dilutive effect of stock options and restricted shares
 
642

 
1,185

 
 
 
 
 
Weighted average common shares outstanding, diluted
 
19,304

 
20,040

 
 
 
 
 
Earnings per share:
 
 
 
 
Basic
 
$
0.35

 
$
0.98

 
 
 
 
 
Diluted
 
$
0.34

 
$
0.92

For the three months ended March 31, 2017 and 2016 , 0.4 million options and 0.4 million options, respectively, that were anti-dilutive have been excluded from the computation of diluted EPS. These options were anti-dilutive and excluded from the computation of diluted EPS because their exercise price was greater than the average market price of our common stock. Also excluded from the computation of diluted EPS are 0.2 million options and 0.3 million options for the three months ended March 31, 2017 and 2016 , respectively, granted for shares that 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.
NOTE 20 COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS
Litigation
From time to time, we are involved in legal and administrative proceedings arising in the course of our business. We record a liability for these matters 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.
On September 8, 2014, the West Palm Beach Firefighters’ Pension Fund filed a putative securities class action suit against Altisource Portfolio Solutions S.A. and certain of its current or former officers and directors in the United States District Court for the Southern District of Florida alleging violations of the Securities Exchange Act of 1934 and Rule 10b-5 with regard to disclosures concerning pricing and transactions with related parties that allegedly inflated Altisource Portfolio Solutions S.A. share prices. The Court subsequently appointed the Pension Fund for the International Union of Painters and Allied Trades District Council 35 and the Annuity Fund for the International Union of Painters and Allied Trades District Council 35 as Lead Plaintiffs. On January 30, 2015, Lead Plaintiffs filed an amended class action complaint which added Ocwen Financial Corporation as a defendant, and seeks a determination that the action may be maintained as a class action on behalf of purchasers of Altisource Portfolio Solutions S.A. securities between April 25, 2013 and December 21, 2014 and an unspecified amount of damages. Altisource Portfolio Solutions S.A. moved to dismiss the suit on March 23, 2015. On September 4, 2015, the Court granted the defendants’ motion to dismiss,

20

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



finding that the Lead Plaintiffs’ amended complaint failed to state a claim as to any of the defendants, but permitting the Lead Plaintiffs to file another amended complaint. Lead Plaintiffs subsequently filed second and third amended complaints with substantially similar claims and theories. Altisource Portfolio Solutions S.A. moved to dismiss the third amended complaint on October 22, 2015. On December 22, 2015, the Court issued an order dismissing with prejudice all claims against Ocwen Financial Corporation and certain claims against Altisource Portfolio Solutions S.A. and the officer and director defendants, but denying the motion to dismiss as to other claims. On December 19, 2016, the Court granted Lead Plaintiffs leave to file the fourth amended complaint, and Lead Plaintiffs filed the fourth amended complaint on December 28, 2016. On January 6, 2017, Defendants filed a motion to strike certain matters from the fourth amended complaint and a motion to dismiss certain claims pled in the fourth amended complaint. Before the Court ruled on Defendants’ motions, the parties notified the Court on January 19, 2017 of their agreement to settle the action, which is subject to Court approval and other customary terms and conditions described in the settlement stipulation filed with the Court, including rights of the parties to terminate the settlement under certain conditions. On February 10, 2017, the Court entered an order preliminarily approving the settlement, certifying a settlement class, approving the form and content of notice of the settlement to class members, establishing procedures for shareholders to request exclusion from the class or object to the settlement, and setting a hearing for May 30, 2017 to determine whether the settlement should be approved and the case dismissed with prejudice. Under the proposed settlement, Altisource Portfolio Solutions S.A. paid a total of $32 million in cash, $4 million of which was funded by insurance proceeds, to a settlement fund to resolve all claims asserted and which could have been asserted on behalf of investors who purchased or otherwise acquired Altisource Portfolio Solutions S.A. stock between April 25, 2013 and December 21, 2014. The proposed settlement provides that Altisource Portfolio Solutions S.A. and the officer and director defendants deny all claims of wrongdoing or liability.
On February 11, 2015, W.A. Sokolowski, an alleged shareholder of Ocwen Financial Corporation, filed an amended shareholder derivative complaint in the United States District Court for the Southern District of Florida against Ocwen Financial Corporation (as a nominal defendant), certain of its current or former officers and directors, Altisource Portfolio Solutions S.A. and other companies. The suit seeks recovery of an unspecified amount of damages for alleged breaches of fiduciary duty by Ocwen Financial Corporation’s officers and directors, which were allegedly aided and abetted by Altisource Portfolio Solutions S.A. and other defendants. Altisource Portfolio Solutions S.A. filed a motion to dismiss the complaint on November 9, 2015. While that motion was pending, additional lawsuits alleging similar claims for alleged breaches of fiduciary duties by current or former Ocwen Financial Corporation officers and directors were filed in or transferred to the Court. The Court subsequently consolidated these actions and denied Altisource Portfolio Solutions S.A.’s motion to dismiss the Sokolowski complaint without prejudice to re-file following appointment of lead counsel for the consolidated action and the filing or designation of an operative complaint. Lead counsel for plaintiffs filed their Consolidated Verified Shareholder Derivative Complaint (the “Consolidated Complaint”) on March 8, 2016. The Consolidated Complaint alleges claims that Altisource Portfolio Solutions S.A., its subsidiary Beltline Road Insurance Agency, Inc. and other defendants aided and abetted alleged breaches of fiduciary duties by Ocwen Financial Corporation officers and directors and/or were unjustly enriched in connection with business dealings with Ocwen Financial Corporation. The Consolidated Complaint also seeks contribution from Altisource Portfolio Solutions S.A., its subsidiary Beltline Road Insurance Agency, Inc. and other defendants for amounts Ocwen Financial Corporation paid in connection with a settlement with the New York State Department of Financial Services. Altisource Portfolio Solutions S.A. and Beltline Road Insurance Agency, Inc. filed motions to dismiss the Consolidated Complaint on May 13, 2016. On October 13, 2016, the Court disclosed that the parties reached a settlement at a settlement conference held that same day. Following a Final Approval Hearing on January 18, 2017, the Court granted final approval of the settlement and entered a judgment dismissing the action with prejudice. Neither Altisource Portfolio Solutions S.A. nor Beltline Road Insurance Agency, Inc. made any monetary contribution to the settlement, and both Altisource Portfolio Solutions S.A. and Beltline Road Insurance Agency, Inc. deny all claims of wrongdoing or liability in connection with the Sokolowski action.
On March 26, 2015, Robert Moncavage, an alleged shareholder of Ocwen Financial Corporation, filed an amended shareholder derivative complaint in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida against Ocwen Financial Corporation (as a nominal defendant), certain of its current or former officers and directors, Altisource Portfolio Solutions S.A. and other companies. The suit seeks recovery of an unspecified amount of damages for alleged breaches of fiduciary duties by the current or former Ocwen Financial Corporation officers and directors, which were allegedly aided and abetted by Altisource Portfolio Solutions S.A. and other defendants. On November 9, 2015, the Court entered an order staying all proceedings in the case pending further order of the Court. The judgment entered in connection with the Sokolowski action discussed above bars further prosecution of all claims asserted, or that could have been asserted, in this action based on the facts, events, conduct, and transactions alleged, all of which were released as part of the Sokolowski settlement. On February 9, 2017, the plaintiff filed a notice of voluntary dismissal without prejudice and submitted a proposed order to the Court asking it to approve the dismissal of plaintiff’s claims against all defendants. On March 1, 2017, the Court entered an order dismissing the action without prejudice. Altisource Portfolio Solutions S.A. denies all claims of wrongdoing or liability in connection with the Moncavage action.

21

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



In addition to the matters referenced above, we are involved in legal actions in the course of our business, some of which seek monetary damages. We do not believe that the outcome of these proceedings, both individually and in the aggregate, will have a material impact on our financial condition, results of operations or cash flows.
Regulatory Matters
Periodically, we are subject to audits, examinations and investigations by federal, state and local governmental authorities and receive subpoenas, civil investigative demands or other requests for information from such governmental authorities in connection with their regulatory or investigative authority. We are currently responding to such inquiries from governmental authorities relating to certain aspects of our business. We believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with these inquiries.
As previously disclosed, Altisource received a Notice and Opportunity to Respond and Advise (“NORA”) letter on November 10, 2016 from the Consumer Financial Protection Bureau (“CFPB”) indicating that the CFPB is considering a potential enforcement action against Altisource relating to an alleged violation of federal law that primarily concerns certain technology services provided to Ocwen. The NORA letter provides the recipient an opportunity to present its positions to the CFPB before an enforcement action is recommended or commenced. On December 15, 2016, we provided a written response to the NORA letter setting forth the legal, policy and factual reasons why we believe an enforcement action is not warranted. We are committed to resolving any potential concerns of the CFPB. If the CFPB were to bring an enforcement action against us, the resolution of such action could have a material adverse impact on our business, reputation, financial condition and results of operations. However, we believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with any potential CFPB enforcement action.
Ocwen Related Matters
Ocwen is our largest customer and 59% of our revenue for the three months ended March 31, 2017 was from Ocwen. Additionally, 17% of our revenue for the three months ended March 31, 2017 was earned on the portfolios serviced by Ocwen, when a party other than Ocwen selected Altisource as the service provider.
Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, requests for information and other actions and is subject to pending legal proceedings that have or could result in adverse regulatory or other actions against Ocwen. 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. The complaints seek to obtain permanent injunctive relief, consumer redress, refunds, restitution, disgorgement, damages, civil penalties, costs and fees and other relief. In addition, a number of states publicly announced or otherwise undertook various administrative actions against Ocwen related to alleged violations of applicable laws and regulations related to servicing residential mortgages. Certain of the allegations in the complaints and certain of the state administrative actions assert that Ocwen’s use of certain Altisource services was a contributing factor to Ocwen’s purported violations. The state administrative actions announced or undertaken purportedly seek sanctions and various injunctive reliefs which may include restrictions on Ocwen obtaining additional mortgage servicing rights, continuing mortgage servicing or debt collection activities, originating or funding loans, initiating foreclosures or other limitations or restrictions on Ocwen’s business operations or licenses in certain of these states. All of the forgoing matters could result in adverse regulatory or other actions against Ocwen. While not all inclusive, other regulatory actions to date have included subjecting Ocwen to independent oversight of its operations and placing certain restrictions on its ability to acquire servicing rights. Ocwen may become subject to future federal and state regulatory investigations, inquiries, requests for information and legal proceedings, any of which could also result in adverse regulatory or other actions against Ocwen.
As of December 31, 2016, New Residential Investment Corp. (“ NRZ ”) owned the rights to approximately 78% of Ocwen’s non-government-sponsored enterprise (“non-GSE”) servicing rights as of December 31, 2016 . Under an agreement between NRZ and Ocwen, NRZ has the right (not necessarily the obligation or ability) to transfer servicing away from Ocwen if Ocwen does not maintain certain minimum servicer ratings on or after April 6, 2017.
Any or all of the foregoing may have significant adverse effects on Ocwen’s business and our continuing relationship with Ocwen. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services (including information technology and software services), it may be required to seek changes to its existing pricing structure with us, it may lose or sell some or all of 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.

22

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



If any of the following events occurred, Altisource’s revenue would 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 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
Altisource fails to be retained as a service provider
The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue
Management cannot predict the outcome of the above Ocwen related matters or the impact they may have on Altisource. However, in the event these Ocwen related 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 loans serviced by Ocwen, we believe the impact to Altisource could occur over an extended period of time.
In this regard, we have a plan that we believe would allow us to efficiently execute on this realignment. We believe that transfers of Ocwen’s servicing rights to a successor servicer(s) would take an extended period of time because of the approval required from many parties, including regulators, rating agencies, residential mortgage-backed securities trustees, lenders and others. During this period of time, we believe we would continue to generate revenue from the services we provide to the to be transferred portfolio. Additionally, we have several strategic initiatives that focus on diversifying and growing our revenue and customer base. Our major strategic initiatives include growing our:
Servicer Solutions business
Origination Solutions business
Consumer Real Estate Solutions business
Real Estate Investor Solutions business
We have a sales and marketing strategy to support these initiatives.
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 informed Altisource that it is conducting a strategic review of the continued long-term use of REALServicing as its mortgage servicing software platform. Altisource is supporting Ocwen in its evaluation. Should Ocwen decide to transition to another platform, we anticipate that such a transition would be a multi-year project and Altisource would support Ocwen through such a transition. We do not anticipate that a servicing technology transition would impact the other services we provide to Ocwen. For the three months ended March 31, 2017 and 2016 , service revenue from REALServicing was $7.0 million and $9.9 million , respectively. We estimate that income before income tax from the REALServicing business currently operates at approximately break-even.
Escrow and Trust Balances
We hold customers’ assets in escrow and trust accounts at various financial institutions pending completion of certain real estate activities. We also hold cash in trust accounts at various financial institutions where contractual obligations mandate maintaining dedicated bank accounts for our collections business. These amounts are held in escrow and trust accounts for limited periods of time and are not included in the condensed consolidated balance sheets. Amounts held in escrow and trust accounts were $49.2 million and $64.1 million at March 31, 2017 and December 31, 2016 , respectively.
NOTE 21 SEGMENT REPORTING
Our business segments are based upon our organizational structure, which focuses primarily on the services offered, and are consistent with the internal reporting used by our Chief Executive Officer (our Chief Operating Decision Maker) to evaluate operating performance and to assess the allocation of our resources.
Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization, which changed the way our chief operating decision maker manages our businesses, allocates resources and evaluates performance. We now report our operations through two new reportable segments: Mortgage Market and Real Estate Market . In addition, we report Other

23

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



Businesses, Corporate and Eliminations separately. Prior to the January 1, 2017 change in reportable segments, our reportable segments were Mortgage Services , Financial Services and Technology Services . The former Mortgage Services segment was separated into the Mortgage Market and Real Estate Market segments (as described below) with the software services formerly in the Technology Services segment and the mortgage charge-off collections business that was formerly in the Financial Services segment. Other Businesses, Corporate and Eliminations includes the other business that were formerly in the Financial Services segment as well as IT infrastructure management services formerly in the Technology Services segment. Prior year comparable period segment disclosures have been restated to conform to the current year presentation.
The Mortgage Market segment provides loan servicers and originators with services and a portfolio of software, data analytics and information technologies that span the mortgage lifecycle. The Real Estate Market segment provides rental property investors and real estate consumers with products and services that span the real estate lifecycle. In addition, the Other Businesses, Corporate and Eliminations segment includes businesses that provide 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, 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, 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
)
 
$
(19,750
)
 
$
9,746

 
 
Three months ended March 31, 2016
(in thousands)
 
Mortgage Market
 
Real Estate Market
 
Other Businesses, Corporate and Eliminations
 
Consolidated Altisource
 
 
 
 
 
 
 
 
 
Revenue
 
$
203,401

 
$
23,909

 
$
22,822

 
$
250,132

Cost of revenue
 
134,043

 
14,458

 
20,362

 
168,863

Gross profit
 
69,358

 
9,451

 
2,460

 
81,269

Selling, general and administrative expenses
 
29,454

 
6,174

 
17,988

 
53,616

Income (loss) from operations
 
39,904

 
3,277

 
(15,528
)
 
27,653

Total other income (expense), net
 
60

 
(4
)
 
(6,624
)
 
(6,568
)
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes and non-controlling interests
 
$
39,964

 
$
3,273

 
$
(22,152
)
 
$
21,085

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

 
 

 
 

 
 

March 31, 2017
 
$
336,556

 
$
45,750

 
$
271,177

 
$
653,483

December 31, 2016
 
347,067

 
47,863

 
294,282

 
689,212


24

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



Our services are provided to customers primarily located in the United States. Premises and equipment, net consist of the following, by country:
(in thousands)
 
March 31,
2017
 
December 31,
2016
 
 
 
 
 
United States
 
$
64,638

 
$
71,418

India
 
12,225

 
14,006

Luxembourg
 
16,252

 
14,791

Philippines
 
2,692

 
3,027

Uruguay
 
216

 
231

 
 
 
 
 
Total
 
$
96,023

 
$
103,473


25


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is a supplement to the accompanying interim condensed consolidated financial statements and is intended to provide a reader of our financial statements with a narrative from the perspective of management on our businesses, current developments,