Altisource Portfolio Solutions
Altisource Portfolio Solutions S.A. (Form: 10-K, Received: 02/16/2017 08:32:59)
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016

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
(352) 24 69 79 00
(Address and telephone number, including area code, of registrant’s principal executive offices)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $1.00 par value
 
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of the Registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting 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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2016 was $505,239,875 based on the closing share price as quoted on the NASDAQ Global Market on that day and the assumption that all directors and executive officers of the Company, and their families, are affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.
As of February 10, 2017 , there were 18,773,438 outstanding shares of the registrant’s shares of beneficial interest (excluding 6,639,310 shares held as treasury stock).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be filed subsequent to the date hereof with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s Annual Meeting of Shareholders to be held on May 17, 2017 are incorporated by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the conclusion of the registrant’s fiscal year ended December 31, 2016 .
 


Table of Contents



TABLE OF CONTENTS

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-K
 
 
 
Page
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 

 
 
 
 

 

 
 
 
 
 

 
 
 
 
 
 
 
 




2

Table of Contents



FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and certain information incorporated herein by reference contain forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may relate to, among other things, future events or our future performance or financial condition. Words such as “anticipate,” “intend,” “expect,” “may,” “could,” “should,” “would,” “plan,” “estimate,” “believe,” “predict,” “potential” or “continue” or the negative of these terms and comparable terminology are intended to identify such forward-looking statements. Such statements are based on expectations as to the future and are not statements of historical fact. Furthermore, forward-looking statements are not guarantees of future performance and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the risks discussed in Item 1A of Part I “Risk Factors.” We caution you not to place undue reliance on these forward-looking statements which reflect our view only as of the date of this report. We are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any such statement is based.
PART I
Except as otherwise indicated or unless the context requires otherwise “Altisource,” the “Company,” “we,” “us,” or “our” refer to Altisource Portfolio Solutions S.A., a Luxembourg société anonyme, or public limited liability company, and its wholly-owned subsidiaries.
ITEM 1.
BUSINESS
The Company
Altisource ® is a premier marketplace and transaction solutions provider for the real estate, mortgage and consumer debt industries. Altisource’s proprietary business processes, vendor and electronic payment management software and behavioral science-based analytics improve outcomes for marketplace participants.
We are publicly traded on the NASDAQ Global Select Market under the symbol “ASPS.” We are incorporated under the laws of the Grand Duchy of Luxembourg.
2016 Highlights
Servicer Solutions
Strengthened and grew existing customer relationships with leading bank and non-bank servicers
Signed a significant number of agreements and statements of work with strategic customers positioning us well for 2017
Developed new offerings to provide support services for Federal Housing Administration (“FHA”) mortgages
Origination Solutions
Strengthened and grew existing customer relationships with leading bank and non-bank originators
Signed a significant number of agreements and statements of work with strategic customers positioning us well for 2017
Developed new offerings to strengthen the Best Partners Mortgage Cooperative, Inc., a mortgage cooperative doing business as Lenders One ® , value proposition and grow sales of the platform solution
Consumer Real Estate Solutions
Launched the buy-side brokerage offering in February and are now operating in 26 markets
Re-launched the sell-side offering in the fourth quarter and are now operating in 12 markets
Grew the number of Owners.com ® real estate agents to 200
Launched Owners.com mobile apps for home buyers and real estate agents
Currently working with approximately 950 active buyers, up from 400 in October
Real Estate Investor Solutions
Increased the number of rental homes managed from 2,732 at December 31, 2015 to 4,357 at December 31, 2016
Sold 2,732 homes, primarily for Altisource Residential Corporation (“Residential”) and, to a lesser extent, for other clients

3

Table of Contents



Negotiated a $60 million payment to Altisource, if Residential disposes 50% or more of its single family rental portfolio managed by Altisource, in return for a limited waiver of our exclusive right to provide property management and other services to Residential
Launched the buy-renovate-sell program in 2016; acquired 119 homes, 14 of which were sold
Received a residential rental property management vendor rating of 2 from Morningstar Credit Ratings in February 2017
Reportable Segments
We classify our businesses into the following three reportable segments:
Mortgage Services : Provides loan servicers, originators, rental property investors and real estate consumers with products, services and technologies that span the mortgage and real estate lifecycle. Within the Mortgage Services segment, we provide:
Asset Management Services - the products, services and technologies typically used or licensed by loan servicers, rental property investors and real estate consumers to purchase, preserve, renovate, lease, manage, sell and auction single family residential real estate.
Origination Services - the products, solutions and services typically used or licensed by loan originators (or other similar mortgage market participants) in producing residential mortgages. Altisource also manages the Lenders One mortgage cooperative that provides its members with networking opportunities, industry related education and cost effective services and tools to help them increase revenue and improve profitability.
Insurance Services - origination and default related title insurance and settlement services for institutions and consumers, certified loan insurance and certification products to protect mortgage market participants against losses caused by mortgage underwriting defects, and residential and commercial loan and insurance claim disbursement processing, and risk mitigation and construction inspection services.
Property Valuation Services - traditional appraisal management services and a variety of broker and non-broker valuation products to support mortgage originators, loan servicers, rental property investors and consumers.
Default Management Services - foreclosure trustee services for loan servicers and non-legal processing and related services for and under the supervision of foreclosure, bankruptcy and eviction attorneys.
Financial Services : Provides collection services primarily to debt originators and servicers (e.g., credit card, auto lending, retail credit and mortgage) and customer relationship management services primarily to the utility, insurance and hotel industries. Within the Financial Services segment, we provide the following services:
Asset Recovery Management - primarily includes post-charge-off debt collection services on a contingency fee basis.
Customer Relationship Management - primarily includes customer care, technical support and early stage collections services as well as insurance call center and administrative support services.
Technology Services : Provides software and data analytics solutions that support the management of mortgage and real estate activities and marketplace transactions across the mortgage and real estate lifecycles and information technology (“IT”) infrastructure management services. Within the Technology Services segment, we provide:
Software Services - software and data analytics solutions that facilitate process automation, rules management, controls enforcement, data security, marketplace enablement and analytics-driven outcomes across the real estate and mortgage lifecycle. We provide these capabilities primarily as software-as-a-service, or SaaS, to our customers and as enabling technologies to other Altisource business segments through a shared services model. Our servicer technologies include residential and commercial loan servicing, loss mitigation (loan modification, short sales, deed-in-lieu) and default services (real estate owned (“REO”), foreclosure, bankruptcy, eviction). Our origination technologies include a loan origination system, a borrower application portal, an underwriting and quality control solution and a secondary loan trading platform. Our marketplace enabling technologies include patented vendor management, marketplace transaction management and payment management platforms, a document management platform and a data analytics delivery platform.
IT Infrastructure Services - IT management services including, among others, desktop support, data center support, network management, telephony services, application management and IT security. Some or all of these services are provided to Ocwen Financial Corporation (“Ocwen”), Residential and Altisource Asset Management Corporation (“AAMC”) through services agreements, and to other Altisource business segments through a shared services model.

4

Table of Contents



Corporate Items and Eliminations : 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, and also includes eliminations of transactions between the reportable segments. Corporate Items and Eliminations also include the cost of certain facilities.
We classify revenue in three categories: service revenue, revenue from reimbursable expenses and non-controlling interests. In evaluating our performance, we focus on service revenue. Service revenue consists of amounts attributable to our fee-based services. 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 Best Partners Mortgage Brokers Cooperative, Inc., a mortgage cooperative doing business as Wholesale One ® (“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.
Customers
Our customers include some of the largest financial institutions in the United States, government-sponsored enterprises (“GSEs”), utility companies, commercial banks, servicers, investors, non-bank originators and correspondent lenders, mortgage bankers, insurance companies and financial services companies. During 2016, we signed a significant number of agreements and statements of work with strategic customers positioning us well for 2017. Our largest customer, Ocwen, accounted for 56% of our total revenue for the year ended December 31, 2016 .
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 years ended December 31:
 
2016
 
2015
 
2014
 
 
 
 
 
 
Mortgage Services
60%
 
63%
 
67%
Financial Services
17%
 
21%
 
27%
Technology Services
42%
 
54%
 
42%
Consolidated revenue
56%
 
60%
 
60%
For the years ended December 31, 2016 , 2015 and 2014 , we generated revenue from Ocwen of $561.9 million , $631.6 million and $650.7 million , respectively. Services provided to Ocwen during such periods and reported in the Mortgage Services segment included real estate asset management and sales, residential property valuation, trustee management services, property preservation and inspection services and insurance services. Services provided to Ocwen and reported in the Financial Services segment included mortgage charge-off collections. Services provided to Ocwen and reported in the Technology Services segment included IT infrastructure management and software applications. 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 record revenue we earn from Ocwen under the terms of master services agreements and amendments thereto (collectively, the “Ocwen Service Agreements”).
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 years ended December 31, 2016 , 2015 and 2014 , we recognized revenue of $188.0 million , $216.9 million and $256.0 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 the revenue from Ocwen as a percentage of revenue in the table above.
Our services are provided to customers primarily located in the United States. Financial information for our segments can be found in Note 24 to our consolidated financial statements.
Sales and Marketing
We have a proven enterprise sales and marketing team, along with business unit sales executives, with extensive relationship management and industry experience. These individuals cultivate and maintain relationships throughout the industry sectors we serve. We sell our suite of services to mortgage servicers, mortgage originators, buyers and sellers of homes for personal and investment use and financial services firms.

5

Table of Contents



Our primary sales and marketing focus areas for institutional customers are to:
Expand relationships with existing customers by cross-selling additional services and growing the volume of existing services we provide. We believe our existing customers represent a meaningful growth opportunity for us;
Develop new customer relationships leveraging a comprehensive suite of services, strong performance and controls. We believe there is a large opportunity to provide our services to new customers; and
Sell new offerings to existing customers and prospects. Some of our newer offerings include our suite of support services for FHA mortgages, Vendorly™, a SaaS-based vendor management platform, Trelix Connect™, a SaaS-based loan review system, noteXchange ® , a SaaS platform to facilitate whole loan purchase and sale transactions, and residential and commercial loan disbursement processing, risk mitigation and construction inspection services.
Our primary sales and marketing focus areas for consumers are to:
Attract home buyers and sellers with a compelling value proposition through online marketing and search engine optimization;
Grow brand awareness of Owners.com and Investability ® through broadcast marketing and public relations; and
Leverage local real estate agents to provide personalized service.
Given the highly diverse nature of the industries we serve, the time and effort we spend in expanding relationships or winning new relationships is significant.
Intellectual Property and Data
We rely on a combination of contractual restrictions, internal security practices, patents, trademarks and copyrights to establish and protect our trade secrets, intellectual property, software, technology and expertise. We also own or, as necessary and appropriate, have obtained licenses from third parties to intellectual property relating to our services, processes and businesses. These intellectual property rights are important factors in the success of our businesses.
As of December 31, 2016 , we have been awarded one patent that expires in 2023, four patents that expire in 2024, seven patents that expire in 2025, two patents that expire in 2026, two patents that expire in 2029 and one patent that expires in 2030. In addition, we have registered trademarks, or recently filed applications for the registration of trademarks, in a number of jurisdictions including the United States, the European Union (“EU”), India and nine other jurisdictions. These trademarks generally can be renewed indefinitely, provided they are being used in commerce.
We actively protect our rights and intend to continue our policy of taking all measures we deem reasonable and necessary to develop and protect our patents, trademarks, copyrights, trade secrets and other intellectual property rights.
In addition, we may make use of data in connection with certain of our services. This data generally relates to real property information, mortgage information and consumer information. We gather this data from a variety of third party sources, including from governmental entities and, subject to licensed usage rights and legally permitted usage, we use this data in connection with our delivery of services.
Furthermore, we may also combine this data, subject to licensed usage rights and legally permitted usage, with proprietary data we generate and apply statistical data correction and proprietary algorithms to further enhance data in connection with other services in an attempt to predict metrics of interest across time periods and geographic boundaries in connection with certain of our services.
Market and Competition
We sell our suite of services to mortgage servicers, mortgage originators, buyers and sellers of homes for personal and investment use and financial services firms. The mortgage and real estate markets are very large and are influenced by macroeconomic factors such as credit availability, interest rates, home prices, inflation, unemployment rates and consumer confidence.
The markets to provide services for mortgage servicers and mortgage originators are highly competitive and generally consist of a few national companies, in-house providers and a large number of regional and local providers. We typically compete based upon product and service offerings, product and service delivery, quality and control environment, technology integration and support, price and financial strength.
The markets to provide services for buyers and sellers of homes for personal and investment use are highly competitive and generally consist of several national companies, a large number of regional and local providers and numerous start-up companies. We typically compete based upon product and service offerings, product and service delivery, ease of transacting, price and personal service.

6

Table of Contents



For financial services firms, we provide collection services and customer relationship management services. The markets to provide these services are highly competitive and generally consist of several national companies, a large number of regional and local providers and in-house providers. We typically compete based upon product and service offerings, product and service delivery, quality and control environment, technology integration and support, price and financial strength.
Our competitors may have greater financial resources, brand recognition, alternative or disruptive products and other competitive advantages. We cannot determine our market share with certainty, but believe for mortgage servicers and collection services for financial services firms, we have a modest share of the market, and for the others we have relatively small market share.
Employees
As of December 31, 2016 , we had the following number of employees:
 
 
United States
 
India
 
Philippines
 
Uruguay
 
Luxembourg
 
Consolidated Altisource
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Services
 
642

 
2,659

 
381

 
15

 
5

 
3,702

Financial Services
 
482

 
1,401

 
300

 

 
1

 
2,184

Technology Services
 
416

 
1,267

 
9

 

 
3

 
1,695

Corporate
 
163

 
432

 
20

 
145

 
15

 
775

 
 
 
 
 
 
 
 
 
 
 
 
 
Total employees
 
1,703

 
5,759

 
710

 
160

 
24

 
8,356

We have not experienced any work stoppages and we consider our relations with employees to be good. We believe our future success will depend, in part, on our continuing ability to attract, hire and retain skilled and experienced personnel.
Seasonality
Certain of our revenues are impacted by seasonality. More specifically, revenues from property sales, originations and lawn maintenance in our Mortgage Services segment tend to be at their lowest level during fall and winter months and at their highest level during spring and summer months. Financial Services’ asset recovery management revenue tends to be higher in the first quarter, as borrowers may utilize tax refunds and bonuses to pay debts, and generally declines throughout the rest of the year.
Government Regulation
Our business and the business of our customers are subject to extensive scrutiny and regulation by federal, state and local governmental authorities including the Federal Trade Commission (“FTC”), the Consumer Financial Protection Bureau (“CFPB”), the Bank Service Company Act, the Securities and Exchange Commission (“SEC”), the Department of Housing and Urban Development (“HUD”) and the state and local agencies that license or oversee certain of our auction, real estate brokerage, mortgage and debt collection services, trustee services, property management services and insurance services. We also must comply with a number of federal, state and local consumer protection laws including, among others, the Gramm-Leach-Bliley Act (“GLBA”), the Fair Debt Collection Practices Act (“FDCPA”), Unfair, Deceptive or Abusive Acts and Practices statutes (“UDAAP”), the Real Estate Settlement Procedures Act (“RESPA”), the Truth in Lending Act (“TILA”), the Fair Credit Reporting Act (“FCRA”), the Telephone Consumer Protection Act (“TCPA”), the Homeowners Protection Act (“HPA”), the California Homeowner Bill of Rights (“CHBR”), the New York Real Property Actions and Proceedings Law (“RPAPL”), the Fair Housing Act and the Secure and Fair Enforcement for Mortgage Licensing (“SAFE”) Act. We are also subject to the requirements of the Foreign Corrupt Practices Act (“FCPA”) and comparable foreign laws, due to our activities in foreign jurisdictions.
Legal requirements can and do change as statutes and regulations are enacted, promulgated or amended. One such enacted regulation is the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The Dodd-Frank Act is extensive and includes reform of the regulation and supervision of financial institutions, as well as the regulation of derivatives, capital market activities and consumer financial services. The Dodd-Frank Act, among other things, created the CFPB, a federal entity responsible for regulating consumer financial services and products. Title XIV of the Dodd-Frank Act contains the Mortgage Reform and Anti-Predatory Lending Act (“Mortgage Act”). The Mortgage Act imposes a number of additional requirements on lenders and servicers of residential mortgage loans by amending and expanding certain existing regulations. The interpretation or enforcement by regulatory authorities of applicable laws and regulations also may change over time. In addition, the creation of new regulatory authorities or changes in the regulatory authorities overseeing applicable laws and regulations may also result in changing interpretation or enforcement of such laws or regulations.
Our failure to comply with applicable laws or regulations or changing interpretation of such laws or regulations could subject the Company to criminal or civil liability, significant penalties, fines, settlements, costs and consent orders affecting us or our customers

7

Table of Contents



that may curtail or restrict the business as it is currently conducted and could have an adverse effect on our financial condition or results of operations.
Furthermore, certain of our technology services are provided at the direction and pursuant to the identified requirements of our customers. The failure of our customers to properly identify or account for regulatory requirements applicable to such technology services could expose us to significant penalties, fines, settlements, costs and consent orders that could have an adverse effect on our financial condition or results of operations.
We may be subject to licensing and regulation as a provider of certain services including, among others, services as a mortgage origination underwriter, valuation provider, appraisal management company, asset manager, property manager, title insurance agent, insurance broker and underwriter, real estate broker, auctioneer, foreclosure trustee and debt collector in a number of states. Our employees and subsidiaries may be required to be licensed by various state commissions for the particular type of service sold and to participate in regular continuing education programs. Periodically, we are subject to audits and examinations 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 any of these inquiries. In conjunction with one such inquiry, on November 10, 2016, Altisource received a Notice and Opportunity to Respond and Advise (“NORA”) letter from the CFPB indicating that the CFPB is considering a potential enforcement action against Altisource relating to an alleged violation of federal law that primarily concerns certain technology services provided to Ocwen. We understand that a NORA letter provides the recipient an opportunity to present its position 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 that may be under consideration.
Available Information
We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information with the SEC. These filings are available to the public over the Internet at the SEC’s website at http://www.sec.gov . You may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.
Our principal internet address is www.altisource.com and we encourage investors to use it as a way to easily find information about us. We promptly make the reports we file or furnish with the SEC, corporate governance information (including our Code of Business Conduct and Ethics), select press releases and other related information available on this website. The contents of our website are available for informational purposes only and shall not be deemed incorporated by reference in this report.
ITEM 1A.
RISK FACTORS
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks, or other events related to such risks, actually occur, our business, results of operations and financial condition could be adversely affected. Furthermore, the risk factors described below may not describe the full nature or scope of such risks.
Risks Related to Our Business and Industry
Ocwen is our largest customer and the loss of Ocwen as a customer or a reduction in the size of Ocwen could adversely affect our business and results of operations.
Ocwen is our largest customer and 56% of our revenue for the year ended December 31, 2016 was from Ocwen. Additionally, 19% of our revenue for the year ended December 31, 2016 was earned on the portfolios serviced by Ocwen, when a party other than Ocwen selected us as the service provider. Ocwen purchases certain services from our Mortgage Services, Financial Services and Technology Services segments under service agreements that extend through August 2025, subject to termination under certain conditions. 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.

8

Table of Contents



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. While not all inclusive, 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 a result of the sale of substantially all of the assets of Home Loan Servicing Solutions, Ltd. (“HLSS”) to New Residential Investment Corp. (“NRZ”) in April of 2015, NRZ owned the rights to approximately 78% of Ocwen’s non-GSE servicing rights as of September 30, 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 relationships 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 licenses. Additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in Ocwen’s business that could require it to sell assets or change its business operations. Any or all of these effects could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers.
If any of the following events occurred, Altisource’s revenue 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 or sells 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
There may be other events that could cause the loss of Ocwen as a customer or reduce the size of our relationship with Ocwen, or that could otherwise adversely affect the revenues we earn from Ocwen, and adversely affect our business and results of operations.
Our continuing relationship with Ocwen may inhibit our ability to attract and retain other customers.
Given our close and continuing relationship with Ocwen and the regulatory scrutiny related to the way in which Ocwen does business with Altisource, we may encounter difficulties in attracting new customers and retaining existing customers. Should these and other potential customers view Altisource as part of Ocwen or as too closely related to or dependent upon Ocwen, they may be unwilling to utilize our services and our growth could be inhibited as a result.
We have key customer relationships, other than Ocwen, the loss of which could affect our business and results of operations.
While no individual client, other than Ocwen, represents more than 10% of our consolidated revenue, we are exposed to customer concentration. Most of our customers are not contractually obligated to continue to use our services at historical levels or at all. The loss of any of these key customers or their failure to pay us could reduce our revenue and adversely affect our results of operations.
The strength of the economy and the housing market can affect demand for our services.
The performance and growth of certain of our businesses are dependent on the volume of loan originations and single family residential real estate transactions. In the event of an economic slowdown, increase in interest rates or any other factor that would likely lead to a decrease in the level of transactions, including refinancing transactions and single family residential real estate transactions, our origination services, residential real estate brokerage and real estate investor solutions could be adversely affected. Also, in a strengthening economy and housing market, reduced delinquencies negatively impact our default related businesses. Further, in the event that adverse economic conditions or other factors lead to a decline in levels of home ownership and a reduction in the aggregate number of United States mortgage loans outstanding, our revenues could be adversely affected.

9

Table of Contents



Our business is subject to substantial competition.
The markets for our services are very competitive. Our competitors vary in size and in the scope and breadth of the services they offer. We compete for existing and new customers against both third parties and the in-house capabilities of our customers. Some of our competitors are more established, better known and have substantial resources, and some have widely-used technology platforms which they seek to use as a competitive advantage to drive sales of other products and services. In addition, we expect the markets in which we compete will continue to attract new competitors and new technologies. These new technologies may render our existing technologies obsolete, resulting in operating inefficiencies and increased competitive pressure. There can be no assurance we will be able to compete successfully against current or future competitors or that competitive pressures we face in the markets in which we operate will not adversely affect our business, financial condition and results of operations.
Our intellectual property rights are valuable and any inability to protect them or challenges to our right to use them could reduce the value of our services or increase our costs.
Our patents, trademarks, trade secrets, copyrights and other intellectual property rights are important assets. The efforts we have taken to protect these proprietary rights may not be sufficient or effective in every case and in some cases we may not seek protection or to defend our rights. The unauthorized use of our intellectual property or significant impairment of our intellectual property rights could harm our business, make it more expensive to do business or hurt our ability to compete. Protecting our intellectual property rights is costly and time-consuming.
Although we seek to obtain patent protection for certain of our innovations, it is possible we may not be able to protect all of the innovations for which we seek protection. Changes in patent law, such as changes in the law regarding patentable subject matter, can also impact our ability to obtain patent protection for our innovations. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important. Furthermore, there is always the possibility, despite our efforts, that the scope of the protection gained will be insufficient or an issued patent may be deemed invalid or unenforceable.
Further, as our technology solutions and services develop, we may become increasingly subject to infringement claims by others. Any claims, whether with or without merit, could:
be expensive and time-consuming to defend;
cause us to cease making, licensing or using technology solutions that incorporate the challenged intellectual property;
require us to redesign our technology solutions, if feasible;
divert management’s attention and resources; and/or
require us to enter into royalty or licensing agreements in order to obtain the right to use necessary technologies.
Technology failures, defects or inadequacies, development delays or installation difficulties, security breaches, acts of vandalism or the introduction of harmful code could damage our business operations and increase our costs.
Disruptions, failures, defects or inadequacies in our technology or software we acquire from third parties, delays in the development of, or installation difficulties with, our technology, or security breaches, acts of vandalism, system attacks or the introduction of malicious code to our technology, may interrupt or delay our ability to provide services to our customers. Any sustained and repeated disruptions in these services may have an adverse impact on our and our customers’ results of operations. Further, Ocwen or other of our customers may require changes and improvements to the systems we provide to them to manage the volume and complexity, laws or regulations of their businesses, which changes and improvements may be costly and time-consuming to implement and may create disruptions in our provision of services to customers, which may have an adverse impact on our business operations and financial condition, and increase our costs. Additionally, the improper implementation or use of Altisource technology by customers could impact the operation of that technology, and potentially cause harm to our reputation, loss of customers, negative publicity or exposure to liability claims or government investigations or actions.
We depend on our ability to access data from external sources to maintain and grow our businesses. If we are unable to access data from these sources or if the prices charged for these services significantly increase, the quality, pricing and availability of our products and services may be adversely affected, which could have a material adverse impact on our business, financial condition and results of operations .
We rely on data from public and private sources to maintain and grow some of our businesses (such as Owners.com, Investability and RentRange ® ) and to maintain our databases (such as multiple listing service, or MLS data). Our data sources could cease providing or reduce the availability, type, details or other aspects of their data to us or increase the price we pay for their data. If a number of suppliers are no longer able or are unwilling to provide us with certain data, or if our sources of data become unavailable or too expensive, we may need to find alternative sources. If we are unable to identify and contract with suitable alternative data suppliers and efficiently and effectively integrate these data sources into our service offerings, we could experience service

10

Table of Contents



disruptions, increased costs and reduced quality of our services. New legal restrictions could limit the use or dissemination of data. Significant price increases or restrictions could have a material adverse effect on our business, results of operations or financial condition, in particular if we are unable to arrange for substitute sources of data on commercially reasonable terms or at all.
The Company s databases containing proprietary information and personal information of our customers, vendors and employees could be breached, which could subject us to adverse publicity, costly government enforcement actions or private litigation and expenses.
As part of our business and operation of our technology, we maintain proprietary information in tangible and electronic forms and electronically receive, process, store and transmit personally identifiable information (“PII”) and confidential and sensitive business information of ourselves and of our customers, vendors and employees. We also rely extensively on the operation of technology networks and systems that are administered by third parties, including the internet and cloud based solutions. We rely on the security of our facilities, networks, databases, systems and processes and, in certain circumstances, those of third parties, such as vendors, to protect our proprietary information and PII in our possession and information about our customers, vendors and employees. Hackers, criminals and others are constantly devising schemes to circumvent security safeguards and other large companies have suffered serious data security breaches. If our controls and those of our vendors are not effective, outdated or do not exist, unauthorized parties may gain access to our networks or databases, or those of our vendors, and they may be able to steal, publish, delete, or modify our sensitive proprietary information and sensitive third party information, including PII. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of such PII, proprietary or confidential information. In such circumstances, our business could suffer and we could be held liable to our customers, vendors, other parties or employees, as well as be subject to notification requirements or regulatory or other actions for breaching privacy laws or failing to adequately protect such information. This could result in costly investigations and litigation, civil or criminal penalties, large scale remediation requirements, operational changes or other response measures, significant penalties, fines, settlements, costs, consent orders, loss of consumer confidence in our security measures and negative publicity that could adversely affect our financial condition, results of operations and reputation. Furthermore, customer and governmental authorities increasingly impose more stringent security obligations on us, our services and the security of our customers’ data and PII, and impose new liabilities for data breaches, all of which could have an adverse effect on us and our results of operations.
We have long development and sales cycles for many of our services, analytics and technology solutions and if we fail to close sales after expending significant time and resources to do so, our business, financial condition and results of operations may be adversely affected.
We have long development and sales cycles for many of our services, analytics and technology solutions. We may expend significant time and resources in pursuing a particular customer that does not generate revenue or pursuing a particular service or solution for our existing customers that does not generate revenue. We may encounter delays when developing new services or technology solutions. Changes in relevant regulations or industry practices may render existing solutions or ongoing development efforts obsolete or require significant modifications. We may experience difficulties in installing or integrating our technologies on platforms used by our customers. Further, defects in our technology solutions, errors or delays in the processing of electronic transactions or other difficulties could result in interruption of business operations, delay in market acceptance, additional development and remediation costs, loss of customers, negative publicity or exposure to liability claims.
Delays due to the length of our sales cycle or costs incurred that do not result in sales could have an adverse effect on our business, financial condition or results of operations.
The failure of any of the insurance underwriting loss limitation methods we use could have adverse effects on our results .
Altisource, through its subsidiary Association of Certified Mortgage Originators Risk Retention Group, Inc., provides certified loan insurance to its customers. Altisource reduces a portion of its risk of insurance loss through third party reinsurance. The incidence and severity of claims against insurance policies are inherently unpredictable. Although we attempt to manage our exposure to insurance underwriting risk through the use of disciplined underwriting controls and the purchase of third party reinsurance, the frequency and severity of claims could be greater than contemplated in our pricing and risk management methods and our controls and mitigation efforts may not be effective or sufficient.
We also face counterparty risk when purchasing reinsurance from third party reinsurers. The insolvency or unwillingness of any of our present or future reinsurers to make timely payments to us under the terms of our reinsurance agreements could have an adverse effect on us. Further, there is no certainty that we will be able to purchase the amount or type of reinsurance we desire in the future or that the reinsurance we desire will be available on terms we consider acceptable or with reinsurers with whom we want to do business.

11

Table of Contents



Our business and the business of our customers are subject to extensive scrutiny and regulation, and failure to comply with existing or new regulations may adversely impact us.
Our business and the business of our customers are subject to extensive scrutiny and regulation by federal, state and local governmental authorities including the FTC, the CFPB, the SEC, the HUD and the state and local agencies that license or oversee certain of our auction, real estate brokerage, mortgage and debt collection services, trustee services and insurance services. We also must comply with a number of federal, state and local consumer protection laws including, among others, the GLBA, the FDCPA, UDAAP, RESPA, TILA, the FCRA, the TCPA, the HPA, the CHBR, the RPAPL, the Fair Housing Act, the SAFE Act, the Mortgage Act, the FCPA and the Dodd-Frank Act. These requirements can and do change as statutes and regulations are enacted, promulgated or amended. Furthermore, the interpretation or enforcement by regulatory authorities of these requirements may change over time. The creation of new regulatory authorities or changes in the regulatory authorities overseeing applicable laws and regulations may also result in changing interpretation or enforcement of such laws or regulations. We are also subject to licensing and regulation as a provider of certain services including, among others, services as a mortgage origination underwriter, valuation provider, appraisal management company, asset manager, property manager, title insurance agent, insurance broker and underwriter, real estate broker, auctioneer, foreclosure trustee and debt collector in a number of states. Our employees and subsidiaries may be required to be licensed by various state commissions for the particular type of service sold and to participate in regular continuing education programs. We incur significant ongoing costs to comply with licensing requirements and governmental regulations and to respond to government and regulatory confidential inquiries, audits, regulatory examinations and other similar matters.
Participants in the industries in which we operate are subject to a high level of government and regulatory scrutiny. This scrutiny has included review by federal and state governmental authorities of all aspects of the mortgage servicing and lending industries and the debt collection industry, including an increased legislative and regulatory focus on consumer protection practices. Our and our customers’ failure to comply with applicable laws, regulations, consent orders or settlements could subject the Company to civil and criminal liability, loss of licensure, damage to our reputation in the industry, significant penalties, fines, settlements, adverse publicity, litigation, including class action lawsuits or administrative enforcement actions, costs and consent orders against us or our customers that may curtail or restrict our business as it is currently conducted. If governmental authorities continue to impose new or more restrictive requirements or enhanced oversight, we may be required to increase or decrease our prices and/or we may incur significant additional costs to comply with such requirements. Also, if we are unable to adapt our products and services to conform to the new laws and regulations, or if these laws and regulations have a negative impact on our clients, we may experience client losses or increased operating costs. Any of the foregoing outcomes could have an adverse effect on our financial condition or results of operations. Furthermore, even if we believe we complied with such laws and regulations, we may choose to settle enforcement actions or lawsuits in order to avoid the potentially significant costs of defending such actions or lawsuits and to further avoid the risk of increased damages if we ultimately were to receive an unfavorable outcome.
Furthermore, certain of our technology services are provided at the direction and pursuant to the identified requirements of our customers. The failure of our customers to properly identify or account for regulatory requirements applicable to such technology services could expose us to significant penalties, fines, settlements, costs and consent orders that could have an adverse effect on our financial condition or results of operations.
Periodically, we are subject to audits and examinations 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, including as set forth in the Government Regulation section of Item 1 of Part I, “ Business ” above. Responding to such audits, examinations and inquiries will cause us to incur costs, including legal fees or other charges, which may be material in amount, and in addition, may result in management distraction or may cause us to modify or terminate certain services we currently offer. If any such audits, examinations or inquiries result in allegations of noncompliance, we could incur significant penalties, fines, settlements, costs and consent orders that may curtail, restrict or otherwise have an adverse effect on our business and results of operations. Furthermore, even if we believe we complied with applicable laws and regulations, we may choose to settle such allegations with the governmental authorities in order to avoid the potentially significant costs of defending such allegations and to further avoid the risk of increased damages if we ultimately were to receive an unfavorable outcome.
National servicing standards and federal and state government scrutiny and regulation and other requirements require very specific loan modification and foreclosure procedures among others that have further reduced the number of loans entering the foreclosure process and have negatively impacted our default services revenue and profit. It is unclear when or if volumes will increase in the future.

12

Table of Contents



Our customers are subject to government regulation, requiring our customers to, among other things, oversee their vendors and maintain documentation that demonstrates their oversight. If our performance does not meet such requirements, our results of operations could be adversely affected.
Our customers are subject to a variety of federal, state and local government regulations, including the Bank Service Company Act and those promulgated by the CFPB and others, as well as consent orders and settlements, including the National Mortgage Settlement. The foregoing may require our customers to oversee their vendors and document the procedures performed to demonstrate that oversight. Altisource, as a vendor, is subject to oversight by our customers. If we do not meet the standards established by or imposed upon our customers or if any other oversight procedures result in a negative outcome for Altisource, we may lose customers, may no longer be granted referrals for certain services, or may have to conform our business to address these standards, negatively impacting our business and results of operations. Even if Altisource satisfies its contractual obligations to its clients, regulators may allege that products or services provided by Altisource fail to meet applicable regulatory requirements.
We rely on third party vendors for many aspects of our business. If our vendor oversight activities are ineffective, we fail to meet customer or regulatory requirements or we face difficulties managing our relationships with third party vendors, our results of operations could be adversely affected.
We rely on third party vendors to provide goods and services in relation to many aspects of our operations. Our dependence on these vendors makes our operations vulnerable to the unavailability of such third parties, the pricing and services offered by such third parties and such third parties’ failure to perform adequately under our agreements with them. In addition, where a vendor provides services that we are required to provide under a contract with a client, we are generally responsible for such performance and could be held accountable by the client for any failure of performance by our vendors. We evaluate the competency and solvency of our key third party vendors. We perform ongoing vendor oversight activities to identify potential new vendors, review vendor pricing and to identify any performance or other issues related to current vendors. If our vendor oversight activities are ineffective or if a vendor fails to provide the services that we require or expect, or fails to meet contractual requirements, such as service levels or compliance with applicable laws, the failure could negatively impact our business by adversely affecting our ability to serve our customers and/or subjecting us to litigation and regulatory risk for ineffective vendor oversight. Furthermore, the failure to obtain services at anticipated pricing could impact our cost structure and the prices of services we provide. In addition, Altisource may be required by its customers or by applicable regulations to oversee its vendors and document procedures performed to demonstrate that oversight. If we fail to meet such customer or regulatory requirements, or we face difficulties managing our relationships with third party vendors, we may lose customers or may no longer be granted referrals for certain services or could be subject to adverse regulatory action, negatively impacting our business and results of operations. Such failures could adversely affect the reliability and quality of the services we provide our customers and could adversely affect our results of operations.
If financial institutions at which we hold cash and cash equivalents as well as escrow and trust funds fail, it could have an adverse impact on our Company.
We hold our cash and cash equivalents at various financial institutions. In addition, 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. These amounts are held in escrow and trust accounts for limited periods of time and are not included in the accompanying consolidated balance sheets. We may become liable for funds owed to third parties as a result of the failure of one or more of these financial institutions, in addition to loss of our cash and cash equivalents, and there is no guarantee we would recover the funds deposited, whether through Federal Deposit Insurance Corporation coverage, private insurance or otherwise.
We generate significant cash from our operations that is deposited into our operating accounts at banks and also, in connection with debt collections (our Financial Services businesses) and real estate transactions (Mortgage Services businesses), in escrow and trust accounts, which exposes us to risk of loss due to fraudulent or inadvertent misappropriation of cash.
We hold our cash and cash equivalents at various financial institutions. In addition, we hold customers’ assets in escrow and trust accounts at various financial institutions pending completion of certain real estate activities. These cash balances expose us to purposeful misappropriation of cash by employees or others and unintentional mistakes resulting in a loss of cash which may not be recoverable. In addition, we may become liable for funds owed to third parties as a result of such purposeful misappropriation of cash by employees or others and unintentional mistakes resulting in a loss of cash held in escrow and trust accounts, and there is no guarantee we would recover the lost funds from the party or parties involved in a fraudulent or inadvertent misappropriation of cash.

13

Table of Contents



Our primary source of liquidity is cash flows from operations. We seek to deploy cash generated in a disciplined manner, including to repurchase and repay our senior secured term loan and, from time to time, repurchase shares of our common stock. We may not continue to deploy cash as we have in the past.
While we have historically used cash from operations to repurchase and repay our senior secured term loan and repurchase shares of our common stock, there is no guarantee that we will continue to do so or that we will do so at attractive prices. Furthermore, there is no guarantee that cash from operations will be available for repurchasing our senior secured term loan and repurchasing shares of our common stock. Also, we may not repurchase our senior secured term loan and common stock at the same levels as in the past. In addition, while the Company has not historically declared dividends, the Company may decide in the future to declare a dividend rather than, or in addition to, repurchasing our senior secured term loan and/or repurchasing shares of our common stock. If we continue such repurchases or declare a dividend, we may not have sufficient cash for other opportunities that may arise.
We may be subject to claims of legal violations or wrongful conduct which may cause us to pay unexpected litigation costs, damages or indemnifications, or modify our products or processes.
From time to time, we may be subject to costly and time-consuming regulatory or legal proceedings that claim legal violations or wrongful conduct. These proceedings may involve regulators, clients, our clients’ customers, vendors, competitors and/or other large groups of plaintiffs and, if resulting in findings of violations, could result in substantial damages or indemnification obligations. Additionally, we may be forced to settle some claims and change existing company practices, services and processes that are currently revenue generating. This could lead to unexpected costs or a loss of revenue. Furthermore, even if we believe we have no liability for the alleged regulatory or legal violations or wrongful conduct, we may choose to settle such regulatory or legal proceedings in order to avoid the potentially significant costs of defending such allegations and to further avoid the risk of increased damages if we ultimately were to receive an unfavorable outcome.
Our debt makes us more sensitive to the effects of economic change; our level of debt and provisions in our debt agreements could limit our ability to react to changes in the economy or our industry.
Our debt makes us more vulnerable to changes in our results of operations because a portion of our cash flows from operations is dedicated to servicing our debt and is not available for other purposes. Our debt is secured by virtually all of our assets and from time to time trades at a substantial discount to face value. Our ability to raise additional debt is largely limited and in many circumstances would be subject to lender approval and would require modification of our current debt agreements. Additionally, increases in interest rates will negatively impact our cash flows as the interest rate on our debt is variable. The provisions of our debt agreement could have other negative consequences to us including the following:
limiting our ability to borrow money for our working capital, capital expenditures and debt service requirements or other general corporate purposes;
limiting our flexibility in planning for, or reacting to, changes in our operations, our business or the industry in which we compete;
requiring us to use a portion of our excess cash flow, as defined in the debt agreement, to repay debt in the event our debt to EBITDA ratios, as defined in the debt agreement, exceed certain thresholds; and
placing us at a competitive disadvantage by limiting our ability to invest in the business.
Our ability to make payments on our indebtedness depends, in part, on our ability to generate cash in the future. If we do not generate sufficient cash flows and do not have sufficient cash on hand to meet our debt service and working capital requirements, we may need to seek additional financing, raise equity or sell assets. This may make it more difficult for us to obtain financing on terms that are acceptable to us, or at all. Without any such financing or equity issuance, we could be forced to sell assets to make up for any shortfall in our payment obligations under unfavorable circumstances. If necessary, we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations. Failure to meet our debt service requirements could result in an event of default under our debt agreement which, if not cured or waived, could result in the holders of the defaulted debt causing all outstanding amounts with respect to that debt to be immediately due and payable.
In addition, our debt agreement contains covenants that limit our flexibility in planning for, or reacting to changes in, our business and our industry, including limitations on incurring additional indebtedness, making investments, granting liens and merging or consolidating with other companies. Complying with these covenants may impair our ability to finance our future operations or capital needs or to engage in other favorable business activities.

14

Table of Contents



Our failure to comply with the covenants contained in our debt agreement, including as a result of events beyond our control, could result in an event of default which could adversely affect our operating results and our financial condition.
Our debt agreement requires us to comply with various operational, reporting and other covenants including, among other things, limit us from engaging in certain types of transactions. If there were an event of default under our debt agreement that was not cured or waived, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be immediately due and payable. We cannot assure you that our assets or cash flows would be sufficient to fully repay borrowings under our outstanding debt instruments, either upon maturity or if accelerated, upon an event of default or that we would be able to refinance or restructure the payments on those debt instruments.
Our failure to maintain certain debt to EBITDA ratios contained in our debt agreement could result in required payments to the lenders of a percentage of our excess cash flows, which could adversely affect our ability to use our excess cash flows for other purposes.
Our debt agreement requires us to distribute to our lenders 50% of our consolidated excess cash flows, as defined in the debt agreement, if our net debt to EBITDA ratio, as defined in the debt agreement, exceeds 3.50 to 1.00 and 25% of our consolidated excess cash flows if our net debt to EBITDA ratio is 3.50 to 1.00 or less, but greater than 3.00 to 1.00. If we were required to distribute a portion of our excess cash flows to our lenders, we may be limited in our ability to support our business, grow our business through acquisitions or investments in technology and we may be limited in our ability to repurchase our common stock. We cannot assure you that we will maintain debt to EBITDA ratios at levels that will not require us to distribute a portion of our excess cash flows to lenders.
If we fail to maintain proper and effective internal controls, our ability to prepare accurate and timely financial statements could be impaired, which could adversely affect investor confidence in our reported financial information.
We may discover areas of our internal controls that need improvement. We cannot be certain that we will be successful in implementing or maintaining adequate internal control over our financial reporting and financial processes. The existence of material weaknesses in our internal control over financial reporting could materially adversely affect our ability to comply with applicable financial reporting requirements.
We have significant investments in goodwill and intangible assets recorded as a result of prior acquisitions and an impairment of these assets would require a write-down that would reduce our net income.
Goodwill and intangible assets are assessed for impairment annually or sooner if circumstances indicate a possible impairment. Factors that could lead to impairment of goodwill and intangible assets include significant under-performance relative to historical or projected future operating results, a significant decline in our stock price and market capitalization and negative industry or economic trends, among other indications of impairment. In the event that the recorded values of goodwill and intangible assets are impaired, any such impairment would be charged to earnings in the period of impairment. In the event of significant volatility in the capital markets or a worsening of current economic conditions, we may be required to record an impairment charge, which would negatively impact our results of operations. Possible future impairment of goodwill and intangible assets may have a material adverse effect on our business, results of operations and financial condition.
Risks Related to our Growth Strategy
Our ability to grow is affected by our ability to execute on our strategic initiatives, retain and expand our existing customer relationships and our ability to attract new customers.
Our ability to retain existing customers and expand those relationships and attract new customers is subject to a number of risks including the risk that we do not:
execute on our strategic initiatives;
maintain or improve the quality and compliance of services we provide to our customers;
meet or exceed the expectations of our customers;
successfully leverage our existing customer relationships to sell additional services; and
attract new customers.
If our efforts to execute on our strategic initiatives, retain and expand our customer relationships and attract new customers do not prove effective, it could have an adverse effect on our business and results of operations and our ability to maintain and grow our operations.

15

Table of Contents



Our ability to expand existing relationships and attract new customers is also affected by broader economic factors and the strength of the overall housing market, which can reduce demand for our services and increase competition for each customer’s business. See “The strength of the economy and the housing market can affect demand for our services.”
If we do not adapt our services to changes in technology or in the marketplace, changing requirements of governmental authorities, or if our ongoing efforts to upgrade our technology and particularly our efforts to complete development of our technology are not successful, we could lose customers and have difficulty attracting new customers for our services, which could have an adverse effect on our business and results of operations.
The markets for our services are characterized by constant technological change, our customers’ and competitors’ frequent introduction of new services and evolving industry standards and government regulation. We are currently in the process of, and from time to time will be, developing and introducing new technologies and improvements to existing technologies. Our future success will be significantly affected by our ability to complete our current efforts and in the future enhance, primarily through use of automation, econometrics and behavioral science principles, our services and develop and introduce new services that address the increasingly sophisticated needs of our customers and their customers. These initiatives carry the risks associated with any new service development effort, including cost overruns, delays in delivery and performance effectiveness. There can be no assurance that we will be successful in developing, marketing and selling new and improved technologies and services. In addition, we may experience difficulties that could delay or prevent the successful development, introduction and marketing of these services. Finally, our services and their enhancements may not adequately meet the demands of the marketplace or governmental authorities and achieve market acceptance. Any of these results could have a negative impact on our financial condition and results of operations and our ability to maintain and grow our operations.
Our growth objectives are dependent on the timing and market acceptance of our new service offerings.
Our ability to grow may be adversely affected by difficulties or delays in service development or the inability to gain market acceptance of new services to existing and new customers. There are no guarantees that new services will prove to be commercially successful.
Some of our businesses are dependent on the trend toward outsourcing.
Our continued growth at historical rates for some of our businesses is dependent on the industry trend toward outsourced services. There can be no assurance this trend will continue as organizations may elect to perform such services themselves or may be prevented from outsourcing services. A significant change in this trend could have an adverse effect on our continued growth.
Acquisitions to accelerate growth initiatives involve potential risks.
During 2016, we acquired Granite Loan Management of Delaware, LLC (“Granite”). During 2015, we acquired CastleLine Holdings, LLC and its subsidiaries (“CastleLine”) and GoldenGator, LLC (doing business as RentRange) (“RentRange”), REIsmart, LLC (doing business as Investability) (“Investability”) and Onit Solutions, LLC, a support company for RentRange and Investability (collectively “RentRange and Investability”). During 2014, we acquired certain assets and assumed certain liabilities of Mortgage Builder Software, Inc. (“Mortgage Builder”) and acquired certain assets and assumed certain liabilities of Owners Advantage, LLC (“Owners”).
When we acquire new businesses, we may face a number of integration risks, including a loss of focus on our daily operations, the need for additional management, constraints on operating resources, constraints on financial resources from integration and system conversion costs and the inability to maintain key pre-acquisition relationships with customers, suppliers and employees. In addition, any acquisition may result in the incurrence of additional amortization expense of related intangible assets, which could reduce our profitability.
In the future, we may consider acquisitions of other businesses that could complement our business, offer us greater access in our current markets or offer us greater access and expertise in other asset types and markets that are related to ours but we do not currently serve. Our ability to pursue additional acquisitions in the future is dependent on our access to sufficient capital (equity and/or debt) to fund the acquisition and subsequent integration. We may not be able to secure adequate capital as needed on terms that are acceptable to us, or at all, and our ability to secure such capital through debt financing is limited by our current debt agreements. Our failure to effectively pursue or integrate acquisitions, and such acquisitions themselves, may have an adverse effect on our financial condition or results of operations.

16

Table of Contents



Risks Related to International Business
Our international operations subject us to additional risks which could have an adverse effect on our results of operations.
We have attempted to control our operating expenses by utilizing lower cost labor in foreign countries such as India, the Philippines and Uruguay. As of December 31, 2016 , 6,629 of our employees were based in India, the Philippines and Uruguay. These countries are subject to relatively higher degrees of political and social instability and may lack the infrastructure to withstand political unrest or natural disasters. The occurrence of natural disasters or political or economic instability in these countries could interfere with work performed by these labor sources, or could result in our having to replace or reduce these labor sources. Such disruptions could decrease efficiency, increase our costs and have an adverse effect on our financial condition or results of operations.
Furthermore, the practice of utilizing labor based in foreign countries has come under increased scrutiny in the United States. Governmental authorities could seek to impose financial costs or restrictions on foreign companies providing services to customers in the United States. Governmental authorities may attempt to prohibit or otherwise discourage our United States-based customers from sourcing services from foreign companies and, as a result, some of our customers may require us to use labor based in the United States or cease doing business with Altisource. In addition, some of our customers may require us to use labor based in the United States for other reasons. To the extent that we are required to use labor based in the United States, we may not be able to pass on the increased costs of higher-priced United States-based labor to our customers, which ultimately could have an adverse effect on our results of operations.
The FCPA and other applicable anti-corruption laws and regulations prohibit certain types of payments by our employees, vendors and agents. Any violation of the applicable anti-corruption laws or regulations by us, our subsidiaries or our local agents, could expose us to significant penalties, fines, settlements, costs and consent orders that may curtail or restrict our business as it is currently conducted and could have an adverse effect on our financial condition or results of operations.
Weakness of the United States dollar in relation to the currencies used in these foreign countries may also reduce the savings achievable through this strategy and could have an adverse effect on our financial condition or our results of operations.
Altisource is a Luxembourg company and it may be difficult to obtain and enforce judgments against it or its directors and executive officers.
Altisource is a public limited liability company organized under the laws of, and headquartered in, Luxembourg. As a result, Luxembourg law and the articles of incorporation govern the rights of shareholders. The rights of shareholders under Luxembourg law may differ from the rights of shareholders of companies incorporated in other jurisdictions. A significant portion of the assets of Altisource are owned outside of the United States. It may be difficult for investors to obtain and enforce, in the United States, judgments obtained in United States courts against Altisource or its directors based on the civil liability provisions of the United States securities laws or to enforce, in Luxembourg, judgments obtained in other jurisdictions including the United States.
A significant change of the Luxembourg tax regime or of its interpretation by the Luxembourg tax authorities or others could adversely affect our results of operations.
Altisource generally has a lower effective tax rate than some of its competitors. The Company received a tax ruling from the Luxembourg tax authority, which expires in 2019 unless extended or renewed. It is possible that changes in Luxembourg’s administrative taxation practices or applicable regulations may cause an increase in our effective tax rate. In addition, the European Commission (“EC”) has initiated investigations into several EU member states, including Luxembourg, to determine whether these EU member states have provided tax advantages to companies on a basis not allowed by the EU. While the EC’s investigations continue, it has concluded that certain companies in certain EU member states, including Luxembourg, have been provided such tax advantages. The EC is requiring these EU member states to recover from certain companies the prior year tax benefits they received. These EU member states have the ability to appeal the decision. Changes in the manner in which we are taxed or a challenge in the manner in which we have been taxed could have an adverse effect on our financial condition and results of operations.
A significant change of the United States tax code that results in the reduction of the United States corporate tax rate or changes in our consolidated effective income tax rate could adversely affect our results of operations.
A significant change in the United States tax code that results in the reduction of the United States corporate tax rate could reduce the effective tax rate of some of our competitors. A reduction in the effective tax rate of some of our competitors may put us at a competitive disadvantage. Such disadvantage could have an adverse effect on our financial condition and results of operations.

17

Table of Contents



Our consolidated effective income tax rate for financial reporting purposes may change periodically due to changes in enacted tax rates, fluctuations in the mix of income earned from our domestic and international operations and our ability to utilize net operating loss and tax credit carryforwards.
Risks Related to Our Employees
Our success depends on our directors, executive officers and key personnel.
Our success is dependent on the efforts and abilities of our directors, executive officers and other key employees, many of whom have significant experience in the real estate and mortgage, financial services and technology industries. In particular, we are dependent on the services of our Board of Directors and key executives at our corporate headquarters and personnel at each of our segments. The loss of the services of any of these directors, executives or key personnel, for any reason, could have an adverse effect upon our business, financial condition and results of operations.
Our inability to attract and retain skilled employees may adversely impact our business.
Our business is labor intensive and places significant importance on our ability to recruit, train and retain skilled employees. Additionally, demand for qualified technical and software professionals conversant in certain technologies may exceed supply as new and additional skills are required to keep pace with evolving computer technology. Our ability to locate and train employees is critical to achieving our growth objective. Our inability to attract and retain skilled employees or an increase in wages or other costs of attracting, training or retaining skilled employees could have an adverse effect on our business, financial condition and results of operations.
Risks Related to Our Relationships
We could have conflicts of interest with Ocwen, Residential, AAMC and certain members of our management, which may be resolved in a manner adverse to us.
We have significant business relationships with and provide services to Ocwen and Residential. We also provide certain services to AAMC. Our largest shareholder, William C. Erbey, owns or controls common stock in each of Altisource, Ocwen, Residential and AAMC, Residential’s external manager. As of December 31, 2016, Mr. Erbey owned or controlled approximately 32% of the common stock of Altisource, approximately 14% of the common stock of Ocwen, approximately 4% of the common stock of Residential and approximately 40% of the common stock of AAMC. Certain members of our management have equity interests in Ocwen, Residential and/or AAMC. Certain of the independent members of our Board of Directors also have equity interests in Residential and/or AAMC as a result of the distribution of shares of these companies to our shareholders at the time of their separation from Altisource or otherwise. Such ownership interests could create, or appear to create, potential conflicts of interest with respect to matters potentially or actually involving or affecting us and Ocwen, Residential and AAMC, as the case may be.
We believe we have practices designed to manage potential conflicts with respect to our dealings with Ocwen, Residential and AAMC, including a management review process of the terms of material transactions with these companies and review and approval of such transactions by our Audit Committee, which is comprised of independent directors. There can be no assurance that we will always be able to implement such measures or that such measures will be effective, that we will be able to manage or resolve all potential conflicts with these companies, and, even if we do, that the resolution will be no less favorable to us than if we were dealing with a third party that has none of the connections we have with these companies.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.

18

Table of Contents



ITEM 2.
PROPERTIES
Our principal executive offices are located in leased office space in Luxembourg, Grand Duchy of Luxembourg. A summary of our principal leased office space as of December 31, 2016 and the segments primarily occupying each location is as follows:
 
 
Mortgage Services
 
Financial Services
 
Technology Services
 
Corporate and Support Services
 
 
 
 
 
 
 
 
 
Luxembourg
 
X
 
X
 
X
 
X
 
 
 
 
 
 
 
 
 
United States
 
 
 
 
 
 
 
 
Atlanta, GA
 
X
 
X
 
X
 
X
Boston, MA
 
 
 
 
 
X
 
X
Denver, CO
 
X
 
 
 
 
 
 
Endicott, NY
 
 
 
X
 
 
 
 
Fort Washington, PA
 
 
 
X
 
X
 
 
Irvine, CA
 
 
 
 
 
X
 
 
Los Angeles, CA
 
 
 
 
 
X
 
 
Plano, TX
 
X
 
 
 
X
 
X
Sacramento, CA
 
 
 
X
 
 
 
 
Southfield, MI
 
 
 
 
 
X
 
 
St. Louis, MO
 
X
 
 
 
 
 
 
Tempe, AZ
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
Montevideo, Uruguay
 
X
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
Pasay City, Philippines
 
X
 
X
 
X
 
X
 
 
 
 
 
 
 
 
 
India
 
 
 
 
 
 
 
 
Bangalore
 
X
 
X
 
X
 
X
Mumbai
 
X
 
X
 
X
 
X
We do not own any office facilities. We consider these facilities to be suitable and currently adequate for the management and operations of our businesses.
ITEM 3.
LEGAL PROCEEDINGS
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, 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

19

Table of Contents



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. 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, 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. will pay a total of $32 million in cash, a portion of which will be 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. The proposed order dismissing the action without prejudice is currently pending with the Court. Altisource Portfolio Solutions S.A. denies all claims of wrongdoing or liability in connection with the Moncavage action.
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.
Our businesses are also subject to extensive regulation which may result in regulatory proceedings or actions against us. For further information, see Item 1A of Part I, “ Risk Factors ” above and Note 23 to the consolidated financial statements.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.

20

Table of Contents



PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the NASDAQ Global Select Market under the symbol “ASPS.” The following table sets forth the high and low close of day sales prices for our common stock, for the periods indicated, as reported by the NASDAQ Global Select Market:
 
 
2016
Quarter ended
 
Low
 
High
 
 
 
 
 
March 31
 
$
19.16

 
$
35.69

June 30
 
24.21

 
31.29

September 30
 
23.20

 
33.90

December 31
 
24.09

 
32.91


 
 
2015
Quarter ended
 
Low
 
High
 
 
 
 
 
March 31
 
$
12.48

 
$
34.17

June 30
 
13.26

 
32.15

September 30
 
23.33

 
39.54

December 31
 
22.93

 
33.08

The number of holders of record of our common stock as of February 10, 2017 was 67 . The number of beneficial shareholders is substantially greater than the number of holders as a large portion of our common stock is held through brokerage firms.
Dividends
We have not historically declared or paid cash dividends on our common stock. Under Luxembourg law, shareholders need to approve or ratify dividends. Such approval typically occurs during a company’s annual meeting of shareholders, immediately after the approval of the accounts. Luxembourg law also limits our ability to pay dividends, including statutory reporting requirements and dividend amount limitations based on annual net income and net income carried forward, less any amounts placed in reserve. The provisions of our senior secured term loan agreement, as amended, limit, among other things, our ability to pay dividends.

21

Table of Contents



Stock Performance Graph
The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the S&P 500 Index and the NASDAQ Composite Index for the five year period ending on December 31, 2016 . The graph assumes an investment of $100 at the beginning of this period and does not include the effects of the post-distribution values of Residential and AAMC, which were distributed to Altisource shareholders in December 2012. The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
ASPS-123120_CHARTX27416A03.JPG
 
 
12/31/11
 
6/30/12
 
12/31/12
 
6/30/13
 
12/31/13
 
6/30/14
 
12/31/14
 
6/30/15
 
12/31/15
 
6/30/16
 
12/31/16
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Altisource
 
$
100.00

 
$
145.93

 
$
172.68

 
$
187.92

 
$
316.12

 
$
228.34

 
$
67.34

 
$
61.36

 
$
55.42

 
$
55.48

 
$
52.99

S&P 500 Index
 
100.00

 
108.31

 
113.41

 
127.73

 
146.98

 
155.87

 
163.72

 
164.05

 
162.53

 
166.89

 
178.02

NASDAQ Composite Index
 
100.00

 
112.66

 
115.91

 
130.64

 
160.32

 
169.21

 
181.80

 
191.42

 
192.21

 
185.89

 
206.63

Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item is incorporated herein by reference to our definitive proxy statement in connection with our 2017 annual meeting of shareholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.
Issuer Purchases of Equity Securities
On May 18, 2016 , our shareholders approved a new share repurchase program which replaced the previous share repurchase program. Under the new 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 1.4 million shares of common stock at an average price of $26.81 per share during the year ended December 31, 2016 , 2.1 million shares at an average price of $27.60 per share during the year ended December 31, 2015 and 2.5

22

Table of Contents



million shares at an average price of $103.67 per share during the year ended December 31, 2014 . As of December 31, 2016 , approximately 3.9 million shares of common stock remain available for repurchase under the new program. Our senior secured term loan limits the amount we can spend on share repurchases and may prevent repurchases in certain circumstances. As of December 31, 2016 , approximately $395 million was available to repurchase shares of our common stock under our senior secured term loan.
The following table presents information related to the repurchases of our equity securities during the three months ended December 31, 2016 :
Period
 
Total number of shares purchased (1)
 
Weighted average price paid per share
 
Total number of shares purchased as part of publicly announced plans or programs (2)
 
Maximum number of shares that may yet be purchased under the plans or programs (2)
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
October 1 — 31, 2016
 
9,180

 
$
27.19

 
9,180

 
4,003,287

November 1 — 30, 2016
 
121,300

 
25.45

 
121,300

 
3,881,987

December 1 — 31, 2016
 

 

 

 
3,881,987

 
 
 
 
 
 
 
 
 
 
 
130,480

 
$
25.57

 
130,480

 
3,881,987

______________________________________
(1)  
May include shares withheld from employees to satisfy tax withholding obligations that arose from the exercise of stock options.
(2)  
On May 18, 2016 , our shareholders authorized a new share repurchase program that replaced the prior program and authorizes us to purchase up to 4.6 million shares of our common stock in the open market.

23

Table of Contents



ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial data as of and for the years ended December 31, 2016 , 2015 , 2014 , 2013 and 2012 has been derived from our audited consolidated financial statements. The historical results presented below may not be indicative of our future performance.
The selected consolidated financial data should be read in conjunction with the information contained in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto in Item 8 of Part II, “Financial Statements and Supplementary Data.”
 
 
For the years ended December 31,
(in thousands, except per share data)
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
997,303

 
$
1,051,466

 
$
1,078,916

 
$
768,357

 
$
568,360

Cost of revenue
 
690,045

 
687,327

 
707,180

 
492,480

 
366,201

Gross profit
 
307,258

 
364,139

 
371,736

 
275,877

 
202,159

Selling, general and administrative expenses
 
214,155

 
220,868

 
201,733

 
113,810

 
74,712

Litigation settlement loss, net of $4,000
   insurance recovery
 
28,000

 

 

 

 

Impairment losses
 

 
71,785

 
37,473

 

 

Change in the fair value of Equator ®  Earn Out
 

 
(7,591
)
 
(37,924
)
 

 

Income from operations
 
65,103

 
79,077

 
170,454

 
162,067

 
127,447

Other income (expense), net:
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(24,412
)
 
(28,208
)
 
(23,363
)
 
(20,291
)
 
(1,210
)
Other income (expense), net
 
3,630

 
2,191

 
174

 
557

 
(1,588
)
Total other income (expense), net
 
(20,782
)
 
(26,017
)
 
(23,189
)
 
(19,734
)
 
(2,798
)
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes and non-controlling interests
 
44,321

 
53,060

 
147,265

 
142,333

 
124,649

Income tax provision
 
(12,935
)
 
(8,260
)
 
(10,178
)
 
(8,540
)
 
(8,738
)
 
 
 
 
 
 
 
 
 
 
 
Net income
 
31,386

 
44,800

 
137,087

 
133,793

 
115,911

Net income attributable to non-controlling interests
 
(2,693
)
 
(3,202
)
 
(2,603
)
 
(3,820
)
 
(5,284
)
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Altisource
 
$
28,693

 
$
41,598

 
$
134,484

 
$
129,973

 
$
110,627

 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
1.53

 
$
2.13

 
$
6.22

 
$
5.63

 
$
4.74

Diluted
 
$
1.46

 
$
2.02

 
$
5.69

 
$
5.19

 
$
4.43

 
 
 
 
 
 
 
 
 
 
 
Transactions with related parties included above:
 
 
 
 
 
 
 
 
 
 
Revenue
 
$

 
N/A (1)

 
$
666,800

 
$
502,087

 
$
338,227

Cost of revenue
 

 
N/A (1)

 
38,610

 
19,983

 
13,469

Selling, general and administrative expenses
 

 
N/A (1)

 
(268
)
 
569

 
(542
)
Other income
 

 
N/A (1)

 

 
773

 
86

 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Financial Measures (2)
 
 
 
 
 
 
 
 
 
 
Adjusted net income attributable to Altisource
 
$
90,095

 
$
143,475

 
$
169,141

 
$
156,458

 
$
115,304

Adjusted diluted earnings per share
 
$
4.59

 
$
6.96

 
$
7.16

 
$
6.25

 
$
4.62

______________________________________
(1)  
Through January 16, 2015, William C. Erbey served as our Chairman as well as the Executive Chairman of Ocwen and Chairman of each of HLSS, Residential and AAMC. Effective January 16, 2015, Mr. Erbey stepped down as the Executive Chairman of Ocwen and Chairman of each of Altisource, HLSS, Residential and AAMC and is no longer a member of the Board of Directors of any of these companies. Consequently, as of January 16, 2015, these companies are no longer related parties of Altisource, as defined by Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 850, Related Party Disclosures . The disclosures in the table above are limited to the periods that each of Ocwen, HLSS, Residential and AAMC were related parties of Altisource and are not reflective of current activities with these former related parties. See Note 4 to the consolidated financial statements for more details and financial information for the period from January 1, 2015 to January 16, 2015.
(2)  
Theses are non-GAAP measures that are defined and reconciled to the corresponding GAAP measures on pages 25 and 26 .

24

Table of Contents



 
 
December 31,
(in thousands)
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
149,294

 
$
179,327

 
$
161,361

 
$
130,324

 
$
105,502

Available for sale securities
 
45,754

 

 

 

 

Accounts receivable, net
 
87,821

 
105,023

 
112,183

 
104,787

 
88,955

Premises and equipment, net
 
103,473

 
119,121

 
127,759

 
87,252

 
50,399

Goodwill
 
86,283

 
82,801

 
90,851

 
99,414

 
14,915

Intangible assets, net
 
155,432

 
197,003

 
245,246

 
276,162

 
56,586

Loan to Ocwen
 

 

 

 

 
75,000

Total assets
 
689,212

 
721,798

 
780,122

 
723,365

 
424,966

Long-term debt, net (including current portion)
 
473,545

 
528,178

 
580,515

 
388,569

 
193,767

Capital lease obligations
 

 

 

 

 
233

Total liabilities
 
627,018

 
669,528

 
738,679

 
565,624

 
265,137

Significant events affecting our historical earnings trends from 2014 through 2016 , including acquisitions, are described in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
NON-GAAP MEASURES
Adjusted net income attributable to Altisource and adjusted diluted earnings per share, which are presented in the following tables and elsewhere in this Annual Report on Form 10-K, are non-GAAP measures used by management, existing shareholders, potential shareholders and other users of our financial information to measure Altisource’s performance and do not purport to be alternatives to net income or diluted earnings per share as measures of Altisource’s performance. We believe these measures are useful to management, existing shareholders, potential shareholders and other users of our financial information in evaluating operating profitability more on a continuing cost basis as they exclude amortization expense related to acquisitions that occurred in prior periods as well as the effect of more significant non-recurring items from earnings. We believe these measures are also useful in evaluating the effectiveness of our operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. Furthermore, we believe the exclusion of more significant non-recurring items enables comparability to prior period performance and trend analysis.
It is management’s intent to provide non-GAAP financial information to enhance the understanding of Altisource’s GAAP financial information, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies.
Adjusted net income attributable to Altisource is calculated by adding intangible asset amortization expense (net of tax) plus litigation settlement loss, net of insurance recovery (net of tax), plus impairment losses (net of tax) and deducting gains associated with reductions of the Equator, LLC (“Equator”) related contingent consideration (“Equator Earn Out”) (net of tax) from GAAP net income attributable to Altisource. Adjusted diluted earnings per share is calculated by dividing net income attributable to Altisource plus intangible asset amortization expense (net of tax), plus litigation settlement loss, net of insurance recovery (net of tax), plus impairment losses (net of tax) less gains associated with reductions of the Equator Earn Out (net of tax) by the weighted average number of diluted shares.

25

Table of Contents



Reconciliations of the non-GAAP measures to the corresponding GAAP measures are set forth in the following table:
 
 
For the years ended December 31,
(in thousands, except per share data)
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Altisource
 
$
28,693

 
$
41,598

 
$
134,484

 
$
129,973

 
$
110,627

 
 
 
 
 
 
 
 
 
 
 
Intangible asset amortization expense, net of tax
 
36,819

 
38,187

 
35,076

 
26,485

 
4,677

Net litigation settlement loss, net of tax
 
24,583

 

 

 

 

Impairment loss, net of tax
 

 
70,630

 
34,884

 

 

Gain on Equator Earn Out, net of tax
 

 
(6,940
)
 
(35,303
)
 

 

 
 
 
 
 
 
 
 
 
 
 
Adjusted net income attributable to Altisource
 
$
90,095

 
$
143,475

 
$
169,141

 
$
156,458

 
$
115,304

 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
1.46

 
$
2.02

 
$
5.69

 
$
5.19

 
$
4.43

 
 
 
 
 
 
 
 
 
 
 
Intangible asset amortization expense, net of tax, per diluted share
 
1.88

 
1.85

 
1.48

 
1.06

 
0.19

Net litigation settlement loss, net of tax, per diluted share
 
1.25

 

 

 

 

Impairment loss, net of tax, per diluted share
 

 
3.43

 
1.48

 

 

Gain on Equator Earn Out, net of tax, per diluted share
 

 
(0.34
)
 
(1.49
)
 

 

 
 
 
 
 
 
 
 
 
 
 
Adjusted diluted earnings per share
 
$
4.59

 
$
6.96

 
$
7.16

 
$
6.25

 
$
4.62

 
 
 
 
 
 
 
 
 
 
 
Calculation of the impact of intangible asset amortization expense, net of tax
 
 
 
 
 
 
 
 
 
 
Intangible asset amortization expense
 
$
47,576

 
$
41,135

 
$
37,680

 
$
28,176

 
$
5,030

Tax benefit from intangible asset amortization
 
(10,757
)
 
(2,948
)
 
(2,604
)
 
(1,691
)
 
(353
)
Intangible asset amortization expense, net of tax
 
36,819

 
38,187

 
35,076

 
26,485

 
4,677

Diluted share count
 
19,612

 
20,619

 
23,634

 
25,053

 
24,962

 
 
 
 
 
 
 
 
 
 
 
Intangible asset amortization expense, net of tax,
   per diluted share
 
$
1.88

 
$
1.85

 
$
1.48

 
$
1.06

 
$
0.19

 
 
 
 
 
 
 
 
 
 
 
Calculation of the impact of net litigation settlement loss,
   net of tax
 
 
 
 
 
 
 
 
 
 
Net litigation settlement loss
 
$
28,000

 
$

 
$

 
$

 
$

Tax benefit from net litigation settlement loss
 
(3,417
)
 

 

 

 

Net litigation settlement loss, net of tax
 
24,583

 

 

 

 

Diluted share count
 
19,612

 
20,619

 
23,634

 
25,053

 
24,962

 
 
 
 
 
 
 
 
 
 
 
Net litigation settlement loss, net of tax, per diluted share
 
$
1.25

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Calculation of the impact of impairment loss, net of tax
 
 
 
 
 
 
 
 
 
 
Impairment loss
 
$

 
$
71,785

 
$
37,473

 
$

 
$

Tax benefit from impairment loss
 

 
(1,155
)
 
(2,589
)
 

 

Impairment loss, net of tax
 

 
70,630

 
34,884

 

 

Diluted share count
 
19,612

 
20,619

 
23,634

 
25,053

 
24,962

 
 
 
 
 
 
 
 
 
 
 
Impairment loss, net of tax, per diluted share
 
$

 
$
3.43

 
$
1.48

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Calculation of gain on Equator Earn Out, net of tax
 
 
 
 
 
 
 
 
 
 
Gain on Equator Earn Out
 
$

 
$
(7,591
)
 
$
(37,924
)
 
$

 
$

Tax provision from the gain on Equator Earn Out
 

 
651

 
2,621

 

 

Gain on Equator Earn Out, net of tax
 

 
(6,940
)
 
(35,303
)
 

 

Diluted share count
 
19,612

 
20,619

 
23,634

 
25,053

 
24,962

 
 
 
 
 
 
 
 
 
 
 
Gain on Equator Earn Out, net of tax, per diluted share
 
$

 
$
(0.34
)
 
$
(1.49
)
 
$

 
$


26

Table of Contents



ITEM 7.
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 consolidated financial statements and is intended to provide a reader of our financial statements with a narrative from the perspective of management on our businesses, current developments, financial condition, results of operations and liquidity. Significant sections of the MD&A are as follows:
Overview. This section, beginning below, provides a description of recent developments we believe are important in understanding our results of operations and financial condition as well as understanding anticipated future trends. It also provides a brief description of significant transactions and events that affect the comparability of financial results and a discussion of the progress being made on our strategic initiatives.
Consolidated Results of Operations. This section, beginning on page 31, provides an analysis of our consolidated results of operations for the three years ended December 31, 2016 .
Segment Results of Operations. This section, beginning on page 36, provides an analysis of each business segment for the three years ended December 31, 2016 as well as Corporate Items and Eliminations. In addition, we discuss significant transactions, events and trends that may affect the comparability of the results being analyzed.
Liquidity and Capital Resources . This section, beginning on page 46, provides an analysis of our cash flows for the three years ended December 31, 2016 . We also discuss restrictions on cash movements, future commitments and capital resources.
Critical Accounting Policies, Estimates and Recent Accounting Pronouncements. This section, beginning on page 49, identifies those accounting principles we believe are most important to our financial results and that require significant judgment and estimates on the part of management in application. We provide all of our significant accounting policies in Note 2 to the accompanying consolidated financial statements.
Other Matters. This section, beginning on page 51, provides a discussion of off-balance sheet arrangements to the extent they exist. In addition, we provide a tabular discussion of contractual obligations, discuss any significant commitments or contingencies and customer concentration.
OVERVIEW
Our Business
We are a premier marketplace and transaction solutions provider for the real estate, mortgage and consumer debt industries. Altisource’s proprietary business processes, vendor and electronic payment management software and behavioral science-based analytics improve outcomes for marketplace participants.
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 to evaluate operating performance and to assess the allocation of our resources.
We classify our businesses into three reportable segments. The Mortgage Services segment provides loan servicers, originators, rental property investors and real estate consumers with products, services and technologies that span the mortgage and real estate lifecycle. The Financial Services segment provides collection services primarily to debt originators and servicers (e.g., credit card, auto lending, retail credit and mortgage) and customer relationship management services primarily to the utility, insurance and hotel industries. The Technology Services segment provides software and data analytics solutions that support the management of mortgage and real estate activities and marketplace transactions across the mortgage and real estate lifecycles and IT infrastructure management services. In addition, Corporate Items and Eliminations include eliminations of transactions between reportable segments, 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. Corporate items and Eliminations also include the cost of certain facilities.
We classify revenue in three categories: service revenue, revenue from reimbursable expenses and non-controlling interests. In evaluating our performance, we focus on service revenue. Service revenue consists of amounts attributable to our fee-based services. 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.

27

Table of Contents



We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Strategy and Growth Initiatives
Altisource provides a suite of mortgage, real estate and consumer debt services, leveraging our technology platform and global operations. Altisource is focused on becoming one of the premier providers of mortgage and real estate marketplaces and related services to a broad and diversified customer base. Within the mortgage and real estate markets, we facilitate transactions and provide products, solutions and services related to home sales, home purchases, home rentals, home maintenance, mortgage origination and mortgage servicing.
Strategically, we are focused on (1) our four key business initiatives discussed below, (2) continuing to strengthen our compliance management system and (3) maintaining strong performance and relationships with our strategic customers.
Each of our four key business initiatives positions Altisource to grow and diversify our customer and revenue base. We believe these initiatives address very large markets and directly leverage our core competencies and distinct competitive advantages. Our four strategic initiatives and a brief description of each follow:
Mortgage market:
Grow our Servicer Solutions business (the products, services and technologies typically used or licensed by loan servicers): We are focused on growing referrals from our existing customer base, expanding the service and proprietary technology offerings to our customer base, and attracting new customers to our offerings. We have a strong and growing customer base that includes Ocwen, a GSE and several top ten bank servicers. Even as loan delinquencies return to historical norms, we believe there is a very large addressable market for our offerings. We believe we are one of only a few providers with a broad suite of servicer solutions, nationwide coverage and demonstrated scalability. We believe we are well positioned to gain market share as customers consolidate to larger, full-service providers and outsource services that have historically been performed in-house.
Grow our Origination Solutions business (the products, services, solutions and technologies typically used or licensed by loan originators or other similar mortgage market participants): We are focused on continuing to build an industry leading, fully-integrated origination solutions platform leveraging our industry expertise and proprietary technologies. We have a strong customer base that includes Lenders One members and Mortgage Builder ® , Trelix™ and CastleLine ® customers. Our platform allows us to enhance our relationships with our existing customer base by providing additional products, services and solutions to these customers as well as attract new customers. We believe we are well positioned to grow and gain market share as customers continue to utilize larger, full-service providers to outsource services and solutions and to outsource solutions that had historically been performed in-house.
Real estate market:
Grow our Consumer Real Estate Solutions business (a marketplace that connects home buyers and home sellers and offers the related services) primarily through Owners.com: Capitalizing on our core competencies in realty services and online real estate marketing, we have entered the consumer market by targeting the growing segment of consumers utilizing technology enabled real estate brokerages. This customer segment wants to self-manage part of the realty process, but often wants support and still needs brokerage services to complete the transaction. Through our Owners.com brand, we are empowering consumers to perform certain tasks on their own such as searching for properties and listing and showing their own homes for sale, while offering support and the necessary realty services to complete the transaction with the potential for significant savings. We believe our offering and compelling savings value proposition is being well received by our target market and we are well positioned to become a market leader of technology enabled consumer real estate brokerages.
Grow our Real Estate Investor Solutions business (a marketplace that connects home buyers and home sellers of single-family-rental homes and offers the related services to buy, renovate, manage and sell homes): We are focused on supporting the growth of our existing customers, expanding the offerings to our customer base and attracting new customers to our offerings. The single-family-rental market is large, geographically distributed with fragmented ownership. We believe our nationwide acquisition, renovation, property management, leasing and dispositions platform provides a strong value proposition for institutional and retail investors and positions us well for long term growth.
There can be no assurance that growth from our strategic initiatives will be successful or our operations will be profitable.
Share Repurchase Program
On May 18, 2016 , our shareholders approved a new share repurchase program which replaced the previous share repurchase program. Under the new program, we are authorized to purchase up to 4.6 million shares of our common stock, based on a limit

28

Table of Contents



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 1.4 million shares of common stock at an average price of $26.81 per share during the year ended December 31, 2016 , 2.1 million shares at an average price of $27.60 per share during the year ended December 31, 2015 and 2.5 million shares at an average price of $103.67 per share during the year ended December 31, 2014 . As of December 31, 2016 , approximately 3.9 million shares of common stock remain available for repurchase under the new program. Our senior secured term loan limits the amount we can spend on share repurchases and may prevent repurchases in certain circumstances. As of December 31, 2016 , approximately $395 million was available to repurchase shares of our common stock under our senior secured term loan.
Factors Affecting Comparability
The following items may impact the comparability of our results:
The average number of loans serviced by Ocwen on REALServicing ® was 1.5 million for the year ended December 31, 2016 compared to 2.0 million and 2.2 million for the years ended December 31, 2015 and 2014 , respectively. The average number of delinquent non-GSE loans serviced by Ocwen on REALServicing was 219 thousand for the year ended December 31, 2016 compared to 279 thousand and 352 thousand for the years ended December 31, 2015 and 2014 , respectively;
In the fourth quarter of 2016, we recorded a litigation settlement loss of $28.0 million , net of a $4.0 million insurance recovery, related to an agreed settlement of a class action lawsuit, subject to final court approval;
During the years ended December 31, 2016 and 2015, we repurchased portions of our senior secured term loan with aggregate par values of $51.0 million (at a weighted average discount of 13.2% ) and $49.0 million (at a weighted average discount of 10.3% ), respectively, recognizing net gains on the early extinguishment of debt of $5.5 million and $3.8 million , respectively (no comparative amounts in 2014);
During the year ended December 31, 2016 , we purchased 4.1 million shares of Residential common stock for $48.2 million , incurred expenses of $3.4 million and earned dividends of $2.3 million related to this investment (no comparative amounts in 2015);
In the fourth quarter of 2015, we recorded non-cash impairment losses of $71.8 million in our Technology Services segment primarily driven by the Company’s projected Technology Services revenue from Ocwen and investment in technologies provided to Ocwen;
On July 29, 2016, we acquired certain assets and assumed certain liabilities of Granite for $9.5 million ;
On October 9, 2015, we acquired RentRange and Investability for $24.8 million composed of $17.5 million in cash at closing and 247 thousand shares of restricted common stock of the Company with a value of $7.3 million as of the closing date;
On July 17, 2015, we acquired CastleLine for $33.4 million . The purchase consideration was composed of $12.3 million of cash at closing, $10.5 million of cash payable over four years from the acquisition date and 495 thousand shares of restricted common stock of the Company with a value of $14.4 million as of the closing date. Of the cash payable following acquisition, $3.8 million is contingent on certain future employment conditions of certain of the sellers, and therefore excluded from the purchase price;
In 2015, we paid the former owners of Equator $0.5 million to extinguish any liability for the Equator Earn Out. In connection with this settlement, we reduced the liability for the Equator Earn Out to $0 and recognized a $7.6 million increase in earnings;
During 2015, we recognized a loss on the sale of equity securities of HLSS, net of dividends received, of $1.9 million;
Effective March 31, 2015, we terminated the Data Access and Services Agreement with Ocwen (“Data Access Agreement”);
On November 21, 2014, we acquired Owners for a purchase price of $19.8 million ;
In the fourth quarter of 2014, we discontinued our lender placed insurance brokerage line of business;
On September 12, 2014, we acquired Mortgage Builder for an initial purchase price of $15.7 million ;
On August 1, 2014, we amended our senior secured term loan agreement and increased our borrowings by $200.0 million to $594.5 million ;
Bad debt expense was higher in 2014, driven primarily from the default management services business. A change in many of our default management services customers’ business models and fourth quarter 2014 discussions with these customers led us to believe that a portion of the accounts receivable balance was no longer collectible; and

29

Table of Contents



The effective income tax rates for the years ended December 31, 2016 , 2015 and 2014 were 29.2% , 15.6% and 6.9% , respectively. The variability in the effective income tax rate is primarily from changes in the mix of taxable income across the jurisdictions in which we operate.

30

Table of Contents



CONSOLIDATED RESULTS OF OPERATIONS
Summary Consolidated Results
Following is a discussion of our consolidated results of operations for the years ended December 31, 2016 , 2015 and 2014 . For a more detailed discussion of the factors that affected the results of our business segments in these periods, see “ Segment Results of Operations ” below.
The following table sets forth information on our results of operations for the years ended December 31:
(in thousands, except per share data)
2016
 
% Increase (decrease)
 
2015
 
% Increase (decrease)
 
2014
 
 
 
 
 
 
 
 
 
 
Service revenue
 
 
 
 
 
 
 
 
 
Mortgage Services
$
749,944

 
11

 
$
676,222

 
4

 
$
653,093

Financial Services
74,243

 
(16
)
 
88,328

 
(10
)
 
98,312

Technology Services
160,101

 
(26
)
 
215,482

 
(5
)
 
227,300

Eliminations
(41,689
)
 
7

 
(39,112
)
 
(2
)
 
(40,026
)
Total service revenue
942,599

 

 
940,920

 

 
938,679

Reimbursable expenses
52,011

 
(52
)
 
107,344

 
(22
)
 
137,634

Non-controlling interests
2,693

 
(16
)
 
3,202

 
23

 
2,603

Total revenue
997,303

 
(5
)
 
1,051,466

 
(3
)
 
1,078,916

Cost of revenue
690,045

 

 
687,327

 
(3
)
 
707,180

Gross profit
307,258

 
(16
)
 
364,139

 
(2
)
 
371,736

Selling, general and administrative expenses
214,155

 
(3
)
 
220,868

 
9

 
201,733

Litigation settlement loss, net of $4,000
   insurance recovery
28,000

 
N/M

 

 
N/M

 

Impairment losses

 
(100
)
 
71,785

 
92

 
37,473

Change in the fair value of Equator Earn Out

 
(100
)
 
(7,591
)
 
(80
)
 
(37,924
)
Income from operations
65,103

 
(18
)
 
79,077

 
(54
)
 
170,454

Other income (expense), net:
 
 
 
 
 
 
 
 
 
Interest expense
(24,412
)
 
(13
)
 
(28,208
)
 
21

 
(23,363
)
Other income (expense), net
3,630

 
66

 
2,191

 
N/M

 
174

Total other income (expense), net
(20,782
)
 
(20
)
 
(26,017
)
 
12

 
(23,189
)
 
 
 
 
 
 
 
 
 
 
Income before income taxes and non-controlling interests
44,321

 
(16
)
 
53,060

 
(64
)
 
147,265

Income tax provision
(12,935
)
 
57

 
(8,260
)
 
(19
)
 
(10,178
)
 
 
 
 
 
 
 
 
 
 
Net income
31,386

 
(30
)
 
44,800

 
(67
)
 
137,087

Net income attributable to non-controlling interests
(2,693
)
 
(16
)
 
(3,202
)
 
23

 
(2,603
)
 
 
 
 
 
 
 
 
 
 
Net income attributable to Altisource
$
28,693

 
(31
)
 
$
41,598

 
(69
)
 
$
134,484

 
 
 
 
 
 
 
 
 
 
Margins:
 
 
 
 
 
 
 
 
 
Gross profit/service revenue
33
%
 
 

 
39
%
 
 
 
40
%
Income from operations/service revenue
7
%
 
 

 
8
%
 
 
 
18
%
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
1.53

 
(28
)
 
$
2.13

 
(66
)
 
$
6.22

Diluted
$
1.46

 
(28
)
 
$
2.02

 
(64
)
 
$
5.69

 
 
 
 
 
 
 
 
 
 
Non-GAAP Financial Measures (1)
 
 
 
 
 
 
 
 
 
Adjusted net income attributable to Altisource
$
90,095

 
(37
)
 
$
143,475

 
(15
)
 
$
169,141

Adjusted diluted earnings per share
$
4.59

 
(34
)
 
$
6.96

 
(3
)
 
$
7.16

______________________________________
(1)  
These are non-GAAP measures that are defined and reconciled to the corresponding GAAP measures on pages 25 and 26 .
N/M — not meaningful.

31




Revenue
We recognized service revenue of $942.6 million , $940.9 million and $938.7 million for the years ended December 31, 2016 , 2015 and 2014 , respectively. The increase in service revenue for the year ended December 31, 2016 was primarily driven by revenue growth in the Mortgage Services segment from an early 2015 change in the pricing and billing model for preservation services on new Ocwen REO referrals that resulted in certain services that were historically reimbursable expenses revenue becoming service revenue and increased volumes of higher value property preservation referrals. This increase was partially offset by lower service revenue in the Technology Services and Financial Services segments. Service revenue in the Technology Services segment declined from lower rates charged to Ocwen for certain software services, decreases in IT infrastructure services, which are typically billed on a cost plus basis, and a decline in the number of loans on REALServicing. During the fourth quarter of 2015, we began transitioning resources supporting Ocwen’s technology infrastructure to Ocwen as a part of the previously announced separation of technology infrastructure. These transitions continued throughout 2016. Service revenue in the Financial Services segment declined from lower customer relationship management business as we have severed relationships with and reduced the volume of services provided to certain clients that were not profitable to us, and we experienced a reduction in volume from the transition of services provided to one customer to another.
The increase in service revenue for 2015 compared to 2014 was primarily due to revenue expansion in the asset management services businesses primarily from growth in both the number of non-Ocwen and Ocwen REO properties sold on Hubzu ® , increased volumes of property preservation services for Residential, higher revenue from software development and a full year of revenue from the September 2014 acquisition of Mortgage Builder. In addition, in early 2015, the pricing model to Ocwen for REO preservation services within asset management services changed, as described above. These increases were largely offset by the discontinuation of the lender placed insurance brokerage line of business in the fourth quarter of 2014, lower Equator revenue from the full amortization of acquisition related deferred revenue in 2014, fewer property valuation services referrals, decreased property inspection volumes, lower mortgage charge-off collections and a decrease in IT infrastructure services.
Certain of our revenues are impacted by seasonality. More specifically, revenues from property sales, originations and lawn maintenance in our Mortgage Services segment tend to be at their lowest level during the fall and winter months and at their highest level during the spring and summer months. Financial Services’ asset recovery management revenue tends to be higher in the first quarter, as borrowers may utilize tax refunds and bonuses to pay debts, and generally declines throughout the rest of the year.
Cost of Revenue and Gross Profit
Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to the provision of services, reimbursable expenses, technology and telecommunications costs and depreciation and amortization of operating assets.
Cost of revenue consists of the following for the years ended December 31:
(in thousands)
 
2016
 
% Increase (decrease)
 
2015
 
% Increase (decrease)
 
2014
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
 
$
264,796

 
1