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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-34354
 
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Exact name of Registrant as specified in its Charter)
 
Luxembourg
98-0554932
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
40, avenue Monterey
L-2163 Luxembourg
Grand Duchy of Luxembourg
(Address of principal executive offices) (Zip Code)
(352) 24 69 79 00
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $1.00 par value
 
ASPS
 
NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o 
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of July 19, 2019, there were 15,998,899 shares of the registrant’s common stock outstanding (excluding 9,413,849 shares held as treasury stock).
 

Table of Contents

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-Q

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
85,379

 
$
58,294

Investment in equity securities (Note 4)
43,730

 
36,181

Accounts receivable, net
44,247

 
36,466

Short-term investments in real estate (Note 7)
414

 
39,873

Assets held for sale (Note 3)
35,656

 
—

Prepaid expenses and other current assets
23,633

 
30,720

Total current assets
233,059

 
201,534

 
 
 
 
Premises and equipment, net (Notes 1 and 8)
59,980

 
45,631

Goodwill
79,009

 
81,387

Intangible assets, net
68,616

 
91,653

Deferred tax assets, net
293,287

 
309,089

Other assets
9,920

 
12,406

 
 
 
 
Total assets
$
743,871

 
$
741,700

 
 
 
 
LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
63,791

 
$
87,240

Current portion of long-term debt
6,502

 
—

Deferred revenue
5,590

 
10,108

Liabilities held for sale (Note 3)
14,850

 
—

Other current liabilities (Notes 1 and 11)
20,410

 
7,030

Total current liabilities
111,143

 
104,378

 
 
 
 
Long-term debt, less current portion
319,854

 
331,476

Other non-current liabilities (Notes 1 and 13)
27,002

 
9,178

 
 
 
 
Commitments, contingencies and regulatory matters (Note 23)


 


 
 
 
 
Equity:
 
 
 
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 16,079 outstanding as of June 30, 2019; 16,276 outstanding as of December 31, 2018)
25,413

 
25,413

Additional paid-in capital
128,120

 
122,667

Retained earnings
574,040

 
590,655

Treasury stock, at cost (9,334 shares as of June 30, 2019 and 9,137 shares as of
December 31, 2018)
(443,480
)
 
(443,304
)
Altisource equity
284,093

 
295,431

 
 
 
 
Non-controlling interests
1,779

 
1,237

Total equity
285,872

 
296,668

 
 
 
 
Total liabilities and equity
$
743,871

 
$
741,700


See accompanying notes to condensed consolidated financial statements.

3
Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Revenue
 
$
196,535

 
$
218,556

 
$
366,470

 
$
415,994

Cost of revenue
 
152,641

 
163,206

 
276,745

 
310,400

 
 
 
 
 
 
 
 
 
Gross profit
 
43,894

 
55,350

 
89,725

 
105,594

Operating expenses:
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
35,851

 
42,924

 
77,091

 
86,048

Restructuring charges (Note 22)
 
1,899

 
—

 
6,319

 
—

 
 
 
 
 
 
 
 
 
Income from operations
 
6,144

 
12,426

 
6,315

 
19,546

Other income (expense), net:
 
 
 
 
 
 
 
 
Interest expense
 
(6,550
)
 
(7,027
)
 
(13,299
)
 
(12,890
)
Unrealized gain (loss) on investment in equity securities (Note 4)
 
11,787

 
1,533

 
14,025

 
(5,968
)
Other income (expense), net
 
528

 
(3,861
)
 
902

 
(2,589
)
Total other income (expense), net
 
5,765

 
(9,355
)
 
1,628

 
(21,447
)
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes and non-controlling interests
 
11,909

 
3,071

 
7,943

 
(1,901
)
Income tax (provision) benefit
 
(16,513
)
 
(816
)
 
(15,291
)
 
549

 
 
 
 
 
 
 
 
 
Net (loss) income
 
(4,604
)
 
2,255

 
(7,348
)
 
(1,352
)
Net income attributable to non-controlling interests
 
(1,240
)
 
(687
)
 
(1,680
)
 
(1,212
)
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to Altisource
 
$
(5,844
)
 
$
1,568

 
$
(9,028
)
 
$
(2,564
)
 
 
 
 
 
 
 
 
 
(Loss) earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.36
)
 
$
0.09

 
$
(0.56
)
 
$
(0.15
)
Diluted
 
$
(0.36
)
 
$
0.09

 
$
(0.56
)
 
$
(0.15
)
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
16,214

 
17,142

 
16,253

 
17,260

Diluted
 
16,214

 
17,553

 
16,253

 
17,260

 
 
 
 
 
 
 
 
 
Comprehensive (loss) income:
 
 
 
 
 
 
 
 
Net (loss) income
 
$
(4,604
)
 
$
2,255

 
$
(7,348
)
 
$
(1,352
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
Reclassification of unrealized gain on investment in equity securities,
net of income tax provision of $200, to retained earnings from the
cumulative effect of an accounting change
 
—

 
—

 
—

 
(733
)
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income, net of tax
 
(4,604
)
 
2,255

 
(7,348
)
 
(2,085
)
Comprehensive income attributable to non-controlling interests
 
(1,240
)
 
(687
)
 
(1,680
)
 
(1,212
)
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income attributable to Altisource
 
$
(5,844
)
 
$
1,568

 
$
(9,028
)
 
$
(3,297
)

See accompanying notes to condensed consolidated financial statements.

4
Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
 
Altisource Equity
 
 
 
 
 
Common stock
 
Additional paid-in capital
 
Retained earnings
 
Accumulated other comprehensive income (loss)
 
Treasury stock, at cost
 
Non-controlling interests
 
Total
 
Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
25,413

 
$
25,413

 
$
112,475

 
$
626,600

 
$
733

 
$
(426,609
)
 
$
1,373

 
$
339,985

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
—

 
—

 
—

 
(4,132
)
 
—

 
—

 
525

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

 
—

 
—

 
—

 
—

 
—

 
(672
)
 
(672
)
Share-based compensation expense
—

 
—

 
2,201

 
—

 
—

 
—

 
—

 
2,201

Cumulative effect of accounting changes
—

 
—

 
—

 
(9,715
)
 
(733
)
 
—

 
—

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

 
—

 
—

 
(12,500
)
 
—

 
15,117

 
—

 
2,617

Repurchase of shares
—

 
—

 
—

 
—

 
—

 
(9,994
)
 
—

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

 
25,413

 
114,676

 
600,253

 
—

 
(421,486
)
 
1,226

 
320,082

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
1,568

 
—

 
—

 
687

 
2,255

Distributions to non-controlling interest holders
—

 
—

 
—

 
—

 
—

 
—

 
(509
)
 
(509
)
Share-based compensation expense
—

 
—

 
1,910

 
—

 
—

 
—

 
—

 
1,910

Exercise of stock options and issuance of restricted share units and restricted shares
—

 
—

 
—

 
(4,737
)
 
—

 
4,827

 
—

 
90

Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances and stock option exercises
—

 
—

 
—

 
(816
)
 
—

 
406

 
—

 
(410
)
Repurchase of shares
—

 
—

 
—

 
—

 
—

 
(11,127
)
 
—

 
(11,127
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2018
25,413

 
$
25,413

 
$
116,586

 
$
596,268

 
$
—

 
$
(427,380
)
 
$
1,404

 
$
312,291

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
25,413

 
$
25,413

 
$
122,667

 
$
590,655

 
$
—

 
$
(443,304
)
 
$
1,237

 
$
296,668

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
—

 
—

 
—

 
(3,184
)
 
—

 
—

 
440

 
(2,744
)
Distributions to non-controlling interest holders
—

 
—

 
—

 
—

 
—

 
—

 
(620
)
 
(620
)
Share-based compensation expense
—

 
—

 
2,621

 
—

 
—

 
—

 
—

 
2,621

Exercise of stock options and issuance of restricted share units and restricted shares
—

 
—

 
—

 
(1,549
)
 
—

 
1,577

 
—

 
28

Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances and stock option exercises
—

 
—

 
—

 
(1,163
)
 
—

 
578

 
—

 
(585
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2019
25,413

 
25,413

 
125,288

 
584,759

 
—

 
(441,149
)
 
1,057

 
295,368

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
—

 
—

 
—

 
(5,844
)
 
—

 
—

 
1,240

 
(4,604
)
Distributions to non-controlling interest holders
—

 
—

 
—

 
—

 
—

 
—

 
(518
)
 
(518
)
Share-based compensation expense
—

 
—

 
2,832

 
—

 
—

 
—

 
—

 
2,832

Exercise of stock options and issuance of restricted share units and restricted shares
—

 
—

 
—

 
(3,473
)
 
—

 
3,680

 
—

 
207

Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances and stock option exercises
—

 
—

 
—

 
(1,402
)
 
—

 
689

 
—

 
(713
)
Repurchase of shares
—

 
—

 
—

 
—

 
—

 
(6,700
)
 
—

 
(6,700
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2019
25,413

 
$
25,413

 
$
128,120

 
$
574,040

 
$
—

 
$
(443,480
)
 
$
1,779

 
$
285,872

See accompanying notes to condensed consolidated financial statements.

5
Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six months ended
 June 30,
 
2019
 
2018
 
 
 
 
Cash flows from operating activities:
 

 
 

Net loss
$
(7,348
)
 
$
(1,352
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Depreciation and amortization
17,315

 
17,049

Amortization of intangible assets
12,191

 
14,691

Unrealized (gain) loss on investment in equity securities
(14,025
)
 
5,968

Share-based compensation expense
5,453

 
4,111

Bad debt expense
131

 
1,503

Amortization of debt discount
327

 
298

Amortization of debt issuance costs
363

 
502

Deferred income taxes
15,846

 
(1,349
)
Loss on disposal of fixed assets
908

 
558

Loss on debt refinancing (Note 12)
—

 
4,434

Changes in operating assets and liabilities (excludes assets and
liabilities held for sale, see Note 3):
 

 
 

Accounts receivable
(15,789
)
 
6,923

Short-term investments in real estate
39,459

 
(5,884
)
Prepaid expenses and other current assets
5,239

 
617

Other assets
(511
)
 
967

Accounts payable and accrued expenses
(16,587
)
 
(17,152
)
Other current and non-current liabilities
(9,816
)
 
(8,631
)
Net cash provided by operating activities
33,156

 
23,253

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to premises and equipment
(934
)
 
(2,756
)
Proceeds received from sale of equity securities
6,476

 
—

Other
1,087

 
—

Net cash provided by (used in) investing activities
6,629

 
(2,756
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from issuance of long-term debt
—

 
407,880

Repayments and repurchases of long-term debt
(5,810
)
 
(421,821
)
Debt issuance costs
—

 
(5,042
)
Proceeds from stock option exercises
235

 
2,707

Purchase of treasury shares
(6,700
)
 
(21,121
)
Distributions to non-controlling interests
(1,138
)
 
(1,181
)
Payments of tax withholding on issuance of restricted share units and restricted shares
(1,298
)
 
(410
)
Net cash used in financing activities
(14,711
)
 
(38,988
)
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
25,074

 
(18,491
)
Cash, cash equivalents and restricted cash at the beginning of the period
64,046

 
108,843

 
 
 
 
Cash, cash equivalents and restricted cash at the end of the period
$
89,120

 
$
90,352

 
 
 


Supplemental cash flow information:
 

 
 

Interest paid
$
11,279

 
$
11,540

Income taxes (received) paid, net
(27
)
 
2,865

 
 
 
 
Non-cash investing and financing activities:
 

 
 

Net (decrease) increase in payables for purchases of premises and equipment
$
(25
)
 
$
398

Acquisition of right-to-use assets with lease obligations
6,200

 
—

Reduction of lease obligations from lease terminations and amendments
(3,409
)
 
—

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION
Description of Business
Altisource Portfolio Solutions S.A., together with its subsidiaries (which may be referred to as “Altisource,” the “Company,” “we,” “us” or “our”), is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing markets we serve.
We are publicly traded on the NASDAQ Global Select Market under the symbol “ASPS.” We are organized under the laws of the Grand Duchy of Luxembourg.
Basis of Accounting and Presentation
The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the interim data includes all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented. The preparation of interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our interim condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Intercompany transactions and accounts have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.
Effective January 1, 2019, the Company reorganized its internal reporting structure in connection with Project Catalyst, a project initiated in August 2018 to optimize our operations and reduce costs to better align our cost structure with our anticipated revenues and improve our operating margins (see Note 22). The internal reorganization included, among other changes, the replacement of segment presidents with a chief operating officer, who is responsible for products, services and operations for the Company’s Mortgage Market and Real Estate Market businesses, reporting to our Chairman and Chief Executive Officer (our chief operating decision maker) who manages our businesses, regularly reviews operating results and profitability, allocates resources and evaluates performance on a consolidated basis. Prior to January 1, 2019, the Company reported our operations through two reportable segments: Mortgage Market and Real Estate Market. In addition, we reported Other Businesses, Corporate and Eliminations separately. The prior year presentation has been reclassified to conform to the current year presentation.
Altisource consolidates Best Partners Mortgage Cooperative, Inc., which is managed by The Mortgage Partnership of America, L.L.C. (“MPA”), a wholly-owned subsidiary of Altisource. Best Partners Mortgage Cooperative, Inc. is a mortgage cooperative doing business as Lenders One® (“Lenders One”). MPA provides services to Lenders One under a management agreement that ends on December 31, 2025 (with renewals for three successive five-year periods at MPA’s option).
The management agreement between MPA and Lenders One, pursuant to which MPA is the management company, represents a variable interest in a variable interest entity. MPA is the primary beneficiary of Lenders One as it has the power to direct the activities that most significantly impact the cooperative’s economic performance and the right to receive benefits from the cooperative. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements on a consolidated basis and the interests of the members are reflected as non-controlling interests. As of June 30, 2019, Lenders One had total assets of $3.2 million and total liabilities of $1.6 million. As of December 31, 2018, Lenders One had total assets of $2.7 million and total liabilities of $1.3 million.
These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 26, 2019.

7
Table of Content
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:
Level 1 — Quoted prices in active markets for identical assets and liabilities
Level 2 — Observable inputs other than quoted prices included in Level 1
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.
Financial assets and financial liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
Recently Adopted Accounting Pronouncement
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) and in July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (collectively “Topic 842”). Topic 842 introduces a new lessee model that brings substantially all leases on the balance sheet. This standard requires lessees to recognize lease assets and lease liabilities on their balance sheets and disclose key information about leasing arrangements in their financial statements. The Company adopted Topic 842 effective January 1, 2019 using the modified retrospective transition approach. In addition, the Company elected the practical expedients permitted under the transition guidance within the new standard, including allowing the Company to carry forward its historical lease classification, using hindsight to determine the lease term for existing leases, combining fixed lease and non-lease components and excluding short-term leases. Adoption of this new standard resulted in the recognition of $42.1 million of right-to-use assets in premises and equipment, net, $45.5 million of lease obligation liabilities ($16.7 million in other current liabilities and $28.8 million in other non-current liabilities) and reduced accrued rent and lease incentives of $3.4 million in accounts payable and accrued expenses and other non-current liabilities on the accompanying condensed consolidated balance sheets.
Future Adoption of New Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard will simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Current guidance requires that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This standard will require companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period, and will be applied prospectively. Early adoption of this standard is permitted. The Company is currently evaluating the impact this guidance may have on its condensed consolidated financial statements; however, adoption of this standard as of June 30, 2019 would not have had any impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard modifies certain disclosure requirements such as the valuation processes for Level 3 fair value measurements. This standard also requires new disclosures such as the disclosure of certain assumptions used to develop significant unobservable inputs for Level 3 fair value measurements. This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption of either the entire standard or only the provisions that eliminate or modify requirements is permitted. The Company currently does not expect the adoption of this guidance to have an impact on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This standard aligns the requirements for capitalizing implementation costs in a hosting arrangement service contract with the existing guidance for capitalizing implementation costs incurred for an internal-use software license. This standard also requires capitalizing or expensing implementation costs based on the nature of the costs

8
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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)

and the project stage during which they are incurred and establishes additional disclosure requirements. This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company currently plans to adopt the standard prospectively and is currently evaluating the impact this guidance may have on its condensed consolidated financial statements.
NOTE 2 — CUSTOMER CONCENTRATION
Ocwen
Ocwen Financial Corporation (“Ocwen”) is a residential mortgage loan servicer of mortgage servicing rights (“MSRs”) it owns, including those MSRs in which others have an economic interest, and a subservicer of MSRs owned by others.
During the three and six months ended June 30, 2019, Ocwen was our largest customer, accounting for 51% of our total revenue for the six months ended June 30, 2019 (44% of our revenue for the second quarter of 2019). Ocwen purchases certain mortgage services and technology services from us under the terms of services agreements and amendments thereto (collectively, the “Ocwen Services Agreements”) with terms extending through August 2025. Certain of the Ocwen Services Agreements contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing, among other things.
Revenue from Ocwen primarily consists of revenue earned from the loan portfolios serviced and subserviced by Ocwen when Ocwen engages us as the service provider, and revenue earned directly from Ocwen, pursuant to the Ocwen Services Agreements. For the six months ended June 30, 2019 and 2018, we recognized revenue from Ocwen of $185.2 million and $210.8 million, respectively ($87.0 million and $108.8 million for the second quarter of 2019 and 2018, respectively). Revenue from Ocwen as a percentage of consolidated revenue was 51% for both the six months ended June 30, 2019 and 2018 (44% and 50% for the second quarter of 2019 and 2018, respectively).
We earn additional revenue related to the portfolios serviced and subserviced by Ocwen when a party other than Ocwen or the MSR owner selects Altisource as the service provider. For the six months ended June 30, 2019 and 2018, we recognized revenue of $20.3 million and $26.2 million, respectively ($9.2 million and $11.0 million for the second quarter of 2019 and 2018, respectively), related to the portfolios serviced by Ocwen when a party other than Ocwen or the MSR owner selected Altisource as the service provider. These amounts are not included in deriving revenue from Ocwen and revenue from Ocwen as a percentage of revenue above.
As of June 30, 2019, accounts receivable from Ocwen totaled $28.1 million, $24.1 million of which was billed and $4.0 million of which was unbilled. As of December 31, 2018, accounts receivable from Ocwen totaled $15.2 million, $11.6 million of which was billed and $3.6 million of which was unbilled.
As of February 22, 2019, Altisource and Ocwen entered into agreements that, among other things, facilitate Ocwen’s transition from REALServicing® and related technologies to another mortgage servicing software platform, establish a process for Ocwen to review and approve the assignment of one or more of our agreements to potential buyers of Altisource’s business lines, permit Ocwen to use service providers other than Altisource for up to 10% of referrals from certain portfolios (determined on a service-by-service basis), subject to certain restrictions, and affirms Altisource’s role as a strategic service provider to Ocwen through August 2025. If Altisource fails certain performance standards for specified periods of time, then Ocwen may terminate Altisource as a provider for the applicable service(s), subject to certain limitations and Altisource’s right to cure. We do not anticipate that the servicing technology transition will materially impact the other services we provide to Ocwen. For the six months ended June 30, 2019 and 2018, service revenue from REALServicing and related technologies was $11.3 million and $17.5 million, respectively ($3.1 million and $7.9 million for the second quarter of 2019 and 2018, respectively).
NRZ
New Residential Investment Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “NRZ”) is a real estate investment trust that invests in and manages investments primarily related to residential real estate, including MSRs and excess MSRs.
Ocwen has disclosed that NRZ is its largest client. As of March 31, 2019, NRZ owned MSRs or rights to MSRs relating to approximately 50% of loans serviced and subserviced by Ocwen (measured in unpaid principal balances (“UPB”)). In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to certain of its MSRs (the “Subject MSRs”) and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years.
On August 28, 2017, Altisource, through its licensed subsidiaries, entered into a Cooperative Brokerage Agreement, as amended, and related letter agreement (collectively, the “Brokerage Agreement”) with NRZ which extends through August 2025. Under

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

this agreement and related amendments, Altisource remains the exclusive provider of brokerage services for real estate owned (“REO”) associated with the Subject MSRs, irrespective of the subservicer, subject to certain limitations. NRZ’s brokerage subsidiary receives a cooperative brokerage commission on the sale of REO properties from these portfolios subject to certain exceptions.
The Brokerage Agreement can, at Altisource’s discretion, be terminated by Altisource if a services agreement is not signed by Altisource and NRZ. The Brokerage Agreement may otherwise only be terminated upon the occurrence of certain specified events. Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that there is significant uncertainty about Altisource’s ability to continue as a going concern, failure to maintain a specified level of cash and an unapproved change of control.
For the six months ended June 30, 2019 and 2018, we recognized revenue from NRZ of $7.0 million and $19.2 million, respectively ($3.0 million and $8.9 million for the second quarter of 2019 and 2018, respectively), under the Brokerage Agreement. For the six months ended June 30, 2019 and 2018, we recognized additional revenue of $34.1 million and $42.8 million, respectively ($16.4 million and $26.7 million for the second quarter of 2019 and 2018, respectively), relating to the Subject MSRs when a party other than NRZ selects Altisource as the service provider.
NOTE 3 — SALE OF BUSINESSES AND ASSETS AND LIABILITIES HELD FOR SALE
Rental Property Management Business
In August 2018, Altisource entered into an amendment to its agreements with Front Yard Residential Corporation (“RESI”) to sell Altisource’s rental property management business to RESI and permit RESI to internalize certain services that had been provided by Altisource. These services were historically provided under an agreement between RESI and Altisource, in which Altisource was the sole provider of rental property management services to RESI through December 2027, subject to certain exceptions. The proceeds from the transaction totaled $18.0 million, payable in two installments. The first installment of $15.0 million was received on the closing date of August 8, 2018. The second installment of $3.0 million will be received on the earlier of a RESI change of control or on August 8, 2023. The second installment was recorded as a long-term receivable in other assets in the accompanying condensed consolidated balance sheets and has a discounted value of $2.3 million and $2.2 million as of June 30, 2019 and December 31, 2018, respectively.
Financial Services Business
On March 28, 2019, Altisource entered into a definitive agreement to sell its Financial Services business, consisting of its post-charge-off consumer debt and mortgage charge-off collection services and customer relationship management services (the “Financial Services Business”) to Transworld Systems Inc. (“TSI”) for $44.0 million consisting of an up-front payment of $40.0 million, subject to a working capital adjustment and transaction costs upon closing of the sale, and an additional $4.0 million payment on the one year anniversary of the sale closing. The sale of the Financial Services Business to TSI closed on July 1, 2019 (see Note 24). In connection with the transaction, the parties also entered into a transition services agreement to provide for the management and orderly transition of certain services and technologies to TSI for periods ranging from 2 months to 13 months. These services include support for information technology systems and infrastructure, facilities management, finance, compliance and human resources functions and will be charged to TSI on a fixed fee or hourly basis.

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

As a result of entering into a definitive agreement to sell the Financial Services Business, the assets and liabilities of the Financial Services Business are reported as assets held for sale and liabilities held for sale in the accompanying condensed consolidated balance sheets as of June 30, 2019, and consist of the following:
(in thousands)
 
June 30,
2019
 
 
 
Accounts receivable, net
 
$
7,404

Prepaid expenses and other current assets
 
1,581

Premises and equipment, net
 
12,506

Goodwill
 
2,378

Intangible assets, net
 
10,846

Other assets
 
941

 
 
 
Total assets held for sale
 
$
35,656

 
 
 
Accounts payable and accrued expenses
 
$
4,792

Other current liabilities
 
2,632

Other non-current liabilities
 
7,426

 
 
 
Total liabilities held for sale
 
$
14,850

NOTE 4 — INVESTMENT IN EQUITY SECURITIES
During 2016, we purchased 4.1 million shares of RESI common stock. This investment is reflected in the accompanying condensed consolidated balance sheets at fair value and changes in fair value are included in other income (expense), net in the accompanying condensed consolidated statements of operations and comprehensive income (loss). As of June 30, 2019 and December 31, 2018, we held 3.6 million and 4.1 million shares, respectively, of RESI common stock. As of June 30, 2019 and December 31, 2018, the fair value of our investment was $43.7 million and $36.2 million, respectively. During the six months ended June 30, 2019 and 2018, we recognized an unrealized gain (loss) from the change in fair value of $14.0 million and $(6.0) million, respectively ($11.8 million and $1.5 million for the second quarter of 2019 and 2018, respectively). The unrealized gains for the three and six months ended June 30, 2019 included $1.2 million and $1.5 million, respectively, of net gains recognized on RESI shares sold during the second quarter of 2019. During the six months ended June 30, 2019 and 2018, we earned dividends of $1.2 million, in each period ($0.5 million and $0.6 million for the second quarter of 2019 and 2018, respectively), related to this investment.
Pursuant to the agreement between Altisource and RESI to sell the rental property management business to RESI (see Note 3 for additional information), Altisource was subject to a lock-up period with respect to the sale or transfer of the shares of common stock of RESI owned by Altisource (the “Shares”) through December 31, 2018. In addition, during each quarter of 2019, Altisource is permitted to sell or transfer no more than 25% of the Shares, provided that any Shares not sold in the applicable quarter will increase the amount that may be sold in the subsequent quarters by 50% of the unsold permitted amount. Thereafter, all transfer restrictions will expire and any remaining Shares will be freely transferable. Notwithstanding these restrictions, Altisource retains the right to sell or transfer the Shares at any time: (i) where Altisource has a good faith belief that its or its affiliates’ liquidity should be increased and the sale is necessary to achieve such an increase; (ii) where the proceeds of sales will be used to finance a strategic acquisition transaction; (iii) in privately negotiated block transactions with unrelated third parties or a similar transaction; or (iv) where RESI is the subject of a tender offer that is reasonably likely to result in a change of control or where RESI undergoes a change of control. In May 2019, the Company began selling its investment in RESI common stock. During the three and six months ended June 30, 2019, the Company sold 0.6 million shares for net proceeds of $6.5 million. As required by the senior secured term loan agreement, the Company is using the net proceeds to repay a portion of its senior secured term loan.

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

NOTE 5 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
(in thousands)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
Billed
 
$
39,130

 
$
35,590

Unbilled
 
14,382

 
11,759


 
53,512

 
47,349

Less: Allowance for doubtful accounts
 
(9,265
)
 
(10,883
)
 
 
 
 
 
Total
 
$
44,247

 
$
36,466

Unbilled accounts receivable consist primarily of certain real estate asset management, REO sales, title and closing services for which we generally recognize revenue when the service is provided but collect upon closing of the sale, and foreclosure trustee services, for which we generally recognize revenues over the service delivery period but bill following completion of the service. We also include amounts in unbilled accounts receivable that are earned during a month and billed in the following month.
NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
(in thousands)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
Maintenance agreements, current portion
 
$
2,435

 
$
5,600

Income taxes receivable
 
8,229

 
7,940

Prepaid expenses
 
4,767

 
7,484

Other current assets
 
8,202

 
9,696

 
 
 
 
 
Total
 
$
23,633

 
$
30,720

NOTE 7 — DISCONTINUATION OF THE BUY-RENOVATE-LEASE-SELL BUSINESS

On November 26, 2018, the Company announced its plans to sell its short-term investments in real estate (“BRS Inventory”) and discontinue the Company’s Buy-Renovate-Lease-Sell (“BRS”) business. Altisource’s BRS business focused on buying, renovating, leasing and selling single-family homes to real estate investors. The BRS business is not material in relation to the Company’s results of operations or financial position. In anticipation of receiving the majority of the proceeds from the sale of the BRS Inventory in 2019, the Company repaid $49.9 million of its senior secured term loan in the fourth quarter of 2018.
On June 28, 2019, the Company sold the majority of the BRS Inventory to Lafayette Real Estate for $38.9 million. Following this and previous sales, only two homes with a value of $0.4 million remain to be sold. In connection with the sale of the majority of the BRS Inventory, the Company incurred a $1.8 million loss including closing costs.


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

NOTE 8 — PREMISES AND EQUIPMENT, NET
Premises and equipment, net consists of the following:
(in thousands)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
Computer hardware and software
 
$
169,684

 
$
182,215

Office equipment and other
 
4,006

 
7,384

Furniture and fixtures
 
9,710

 
13,313

Leasehold improvements
 
24,178

 
29,781

 
 
207,578

 
232,693

Less: Accumulated depreciation and amortization
 
(175,861
)
 
(187,062
)
Net
 
31,717

 
45,631

 
 
 
 
 
Right-to-use assets under operating leases
 
34,503

 
—

Less: Accumulated depreciation and amortization
 
(6,240
)
 
—

Net right-to-use assets
 
28,263

 
—

 
 
 
 
 
Total premises and equipment, net
 
$
59,980

 
$
45,631

Depreciation and amortization expense totaled $17.3 million and $17.0 million for the six months ended June 30, 2019 and 2018, respectively ($7.9 million and $8.3 million for the second quarter of 2019 and 2018, respectively), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations and comprehensive income (loss).
Premises and equipment, net consist of the following, by country:
(in thousands)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
United States
 
$
27,879

 
$
25,693

India
 
16,269

 
3,154

Luxembourg
 
14,503

 
14,975

Philippines
 
1,094

 
1,754

Other
 
235

 
55

 
 
 
 
 
Total
 
$
59,980

 
$
45,631


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

NOTE 9 — GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The change in goodwill during the six months ended June 30, 2019 is as follows:
(in thousands)
 
Total
 
 
 
Balance as of December 31, 2018
 
$
81,387

Reclassification to assets held for sale (Note 3)
 
(2,378
)
 
 
 
Balance as of June 30, 2019
 
$
79,009


Intangible Assets, net
Intangible assets, net consist of the following:
 
 
Weighted average estimated useful life
(in years)
 
Gross carrying amount
 
Accumulated amortization
 
Net book value
(in thousands)
 
 
June 30,
2019
 
December 31,
2018
 
June 30,
2019
 
December 31,
2018
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Definite lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer related intangible assets
 
9
 
$
214,973

 
$
273,172

 
$
(170,756
)
 
$
(207,639
)
 
$
44,217

 
$
65,533

Operating agreement
 
20
 
35,000

 
35,000

 
(16,501
)
 
(15,632
)
 
18,499

 
19,368

Trademarks and trade names
 
15
 
11,140

 
11,349

 
(6,342
)
 
(6,244
)
 
4,798

 
5,105

Non-compete agreements
 
4
 
1,230

 
1,230

 
(1,180
)
 
(1,026
)
 
50

 
204

Intellectual property
 
10
 
300

 
300

 
(160
)
 
(145
)
 
140

 
155

Other intangible assets
 
5
 
3,745

 
3,745

 
(2,833
)
 
(2,457
)
 
912

 
1,288

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
$
266,388

 
$
324,796

 
$
(197,772
)
 
$
(233,143
)
 
$
68,616

 
$
91,653

Amortization expense for definite lived intangible assets was $12.2 million and $14.7 million for six months ended June 30, 2019 and 2018, respectively ($3.5 million and $7.5 million for the second quarter of 2019 and 2018, respectively). Expected annual definite lived intangible asset amortization expense for 2019 through 2023 is $19.4 million, $13.3 million, $10.8 million, $5.3 million and $5.3 million, respectively.
NOTE 10 — OTHER ASSETS
Other assets consist of the following:
(in thousands)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
Security deposits
 
$
3,779

 
$
3,972

Restricted cash
 
3,741

 
5,752

Other
 
2,400

 
2,682

 
 
 
 
 
Total
 
$
9,920

 
$
12,406


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

NOTE 11 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable and accrued expenses consist of the following:
(in thousands)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
Accounts payable
 
$
24,819

 
$
27,853

Accrued expenses - general
 
20,856

 
27,866

Accrued salaries and benefits
 
18,116

 
31,356

Income taxes payable
 
—

 
165

 
 
 
 
 
Total
 
$
63,791

 
$
87,240

Other current liabilities consist of the following:
(in thousands)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
Unfunded cash account balances
 
$
6,060

 
$
4,932

Lease obligation liabilities
 
12,255

 
—

Other
 
2,095

 
2,098

 
 
 
 
 
Total
 
$
20,410

 
$
7,030

NOTE 12 — LONG-TERM DEBT
Long-term debt consists of the following:
(in thousands)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
Senior secured term loans
 
$
333,012

 
$
338,822

Less: Debt issuance costs, net
 
(3,492
)
 
(3,855
)
Less: Unamortized discount, net
 
(3,164
)
 
(3,491
)
Net long-term debt
 
326,356

 
331,476

Less: Current portion
 
(6,502
)
 
—

 
 
 
 
 
Long-term debt, less current portion
 
$
319,854

 
$
331,476

On April 3, 2018, Altisource Portfolio Solutions S.A. and its wholly-owned subsidiary, Altisource S.à r.l. entered into a credit agreement (the “Credit Agreement”) with Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and certain lenders. Under the Credit Agreement, Altisource borrowed $412.0 million in the form of Term B Loans and obtained a $15.0 million revolving credit facility. The Term B Loans mature in April 2024 and the revolving credit facility matures in April 2023. Altisource Portfolio Solutions S.A. and certain subsidiaries are guarantors of the term loan and the revolving credit facility (collectively, the “Guarantors”).
Proceeds from the Term B Loans were used to repay the Company’s prior senior secured term loan, which had an outstanding balance of $412.1 million as of April 3, 2018. In connection with the refinancing, we recognized a loss of $4.4 million from the write-off of unamortized debt issuance costs and debt discount in the second quarter of 2018.
There are no mandatory repayments of the Term B Loans due until March 2020, when $3.4 million is due to be repaid. Thereafter, the Term B Loans must be repaid in consecutive quarterly principal installments of $3.1 million, with the balance due at maturity. All amounts outstanding under the Term B Loans will become due on the earlier of (i) April 3, 2024, and (ii) the date on which the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders (as defined in the Credit Agreement; other capitalized terms, unless defined herein, are defined in the Credit Agreement) or as otherwise provided in the Credit Agreement upon the occurrence of any event of default.
In addition to the scheduled principal payments, subject to certain exceptions, the Term B Loans are subject to mandatory prepayment upon issuances of debt, certain casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated

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Notes to Condensed Consolidated Financial Statements (Continued)

Excess Cash Flow if the leverage ratio is greater than 3.00 to 1.00, as calculated in accordance with the provisions of the Credit Agreement (the percentage increases if the leverage ratio exceeds 3.50 to 1.00). Certain mandatory prepayments reduce future contractual amortization payments in direct order of maturity by an amount equal to the mandatory prepayment.
On July 1, 2019, Altisource closed the sale of the Financial Services Business to TSI and received a $40.0 million up-front payment less adjustments for working capital and transaction costs (see Note 24). On July 17, 2019, Altisource used $37.0 million to repay a portion of the senior secured term loan.
Altisource may incur incremental indebtedness under the Credit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate incremental principal amount not to exceed $125.0 million, subject to certain conditions set forth in the Credit Agreement, including a sublimit of $80.0 million with respect to incremental revolving credit commitments. The lenders have no obligation to provide any incremental indebtedness.
The Term B Loans bear interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate. Adjusted Eurodollar Rate term loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Adjusted Eurodollar Rate for a three month interest period and (y) 1.00% plus (ii) 4.00%. Base Rate term loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Base Rate and (y) 2.00% plus (ii) 3.00%. The interest rate as of June 30, 2019 was 6.33%.
Loans under the revolving credit facility bear interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate. Adjusted Eurodollar Rate revolving loans bear interest at a rate per annum equal to the sum of (i) the Adjusted Eurodollar Rate for a three month interest period plus (ii) 4.00%. Base Rate revolving loans bear interest at a rate per annum equal to the sum of (i) the Base Rate plus (ii) 3.00%. The unused commitment fee is 0.50%. There were no borrowings outstanding under the revolving credit facility as of June 30, 2019.
The payment of all amounts owing by Altisource under the Credit Agreement is guaranteed by the Guarantors and is secured by a pledge of all equity interests of certain subsidiaries of Altisource, as well as a lien on substantially all of the assets of Altisource S.à r.l. and the Guarantors, subject to certain exceptions.
The Credit Agreement includes covenants that restrict or limit, among other things, our ability, subject to certain exceptions and baskets, to incur indebtedness; incur liens on our assets; sell, transfer or dispose of assets; make Restricted Junior Payments including share repurchases, dividends and repayment of junior indebtedness; make investments; dispose of equity interests of any Material Subsidiaries; engage in a line of business substantially different than existing businesses and businesses reasonably related, complimentary or ancillary thereto; amend material debt agreements or other material contracts; engage in certain transactions with affiliates; enter into sale/leaseback transactions; grant negative pledges or agree to such other restrictions relating to subsidiary dividends and distributions; make changes to our fiscal year; and engage in mergers and consolidations; and to the extent any Revolving Credit Loans are outstanding on the last day of a fiscal quarter, permit the Total Leverage Ratio to be greater than 3.50:1.00 as of the last day of such fiscal quarter, subject to a customary cure provision (the “Revolving Financial Covenant”).
The Credit Agreement contains certain events of default including (i) failure to pay principal when due or interest or any other amount owing on any other obligation under the Credit Agreement within five days of becoming due, (ii) material incorrectness of representations and warranties when made, (iii) breach of certain other covenants, subject to cure periods described in the Credit Agreement, (iv) a breach of the Revolving Financial Covenant, subject to a customary cure provision and not an Event of Default with respect to the Term Loans unless and until the Required Revolving Lenders accelerate the Revolving Credit Loans, (v) failure to pay principal or interest on any other debt that equals or exceeds $40.0 million when due, (vi) default on any other debt that equals or exceeds $40.0 million that causes, or gives the holder or holders of such debt the ability to cause, an acceleration of such debt, (vii) occurrence of a Change of Control, (viii) bankruptcy and insolvency events, (ix) entry by a court of one or more judgments against us in an amount in excess of $40.0 million that remain unbonded, undischarged or unstayed for a certain number of days after the entry thereof, (x) the occurrence of certain ERISA events and (xi) the failure of certain Loan Documents to be in full force and effect. If any event of default occurs and is not cured within applicable grace periods set forth in the Credit Agreement or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.
As of June 30, 2019, debt issuance costs were $3.5 million, net of $1.1 million of accumulated amortization. As of December 31, 2018, debt issuance costs were $3.9 million, net of $0.7 million of accumulated amortization.

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

NOTE 13 — OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
(in thousands)
 
June 30,
2019
 
December 31,
2018
 
 
 
 
 
Lease obligation liabilities
 
$
19,350

 
$
—

Income tax liabilities
 
7,151

 
7,069

Deferred revenue
 
78

 
19

Other non-current liabilities
 
423

 
2,090

 
 
 
 
 
Total
 
$
27,002

 
$
9,178

NOTE 14 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
The following table presents the carrying amount and estimated fair value of financial instruments and certain liabilities measured at fair value as of June 30, 2019 and December 31, 2018. The following fair values are estimated using market information and what the Company believes to be appropriate valuation methodologies under GAAP:
 
 
June 30, 2019
 
December 31, 2018
(in thousands)
 
Carrying amount
 
Fair value
 
Carrying amount
 
Fair value
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
85,379

 
$
85,379

 
$
—

 
$
—

 
$
58,294

 
$
58,294

 
$
—

 
$
—

Restricted cash
 
3,741

 
3,741

 
—

 
—

 
5,752

 
5,752

 
—

 
—

Investment in equity securities
 
43,730

 
43,730

 
—

 
—

 
36,181

 
36,181

 
—

 
—

Long-term receivable (Note 3)
 
2,295

 
—

 
—

 
2,295

 
2,221

 
—

 
—

 
2,221

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior secured term loan
 
333,012

 
—

 
328,433

 
—

 
338,822

 
—

 
330,351

 
—

Fair Value Measurements on a Recurring Basis
Cash and cash equivalents and restricted cash are carried at amounts that approximate their fair values due to the highly liquid nature of these instruments and were measured using Level 1 inputs.
Investment in equity securities is carried at fair value and consists of 3.6 million and 4.1 million shares of RESI common stock as of June 30, 2019 and December 31, 2018, respectively. The investment in equity securities is measured using Level 1 inputs as these securities have quoted prices in active markets.
The fair value of our senior secured term loan is based on quoted market prices. Based on the frequency of trading, we do not believe that there is an active market for our debt. Therefore, the quoted prices are considered Level 2 inputs.
In connection with the sale of the rental property management business in August 2018, Altisource will receive $3.0 million on the earlier of a RESI change of control or on August 8, 2023 (see Note 3 for additional information). We measure long-term receivables without a stated interest rate based on the present value of the future payments.
There were no transfers between different levels during the periods presented.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk primarily consist of cash and cash equivalents and accounts receivable. Our policy is to deposit our cash and cash equivalents with larger, highly rated financial institutions. The Company derives over 50% of its revenues from Ocwen (see Note 2 for additional information on Ocwen revenues and accounts receivable balance). The Company mitigates its concentrations of credit risk with respect to accounts receivable by actively monitoring past due accounts and the economic status of larger customers, if known.

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

NOTE 15 — SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
Share Repurchase Program
On May 15, 2018, our shareholders approved the renewal and replacement of the share repurchase program previously approved by the shareholders on May 17, 2017. Under the program, we are authorized to purchase up to 4.3 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval, at a minimum price of $1.00 per share and a maximum price of $500.00 per share, for a period of five years from the date of approval. As of June 30, 2019, approximately 3.1 million shares of common stock remain available for repurchase under the program. We purchased 0.3 million shares of common stock at an average price of $21.89 per share during the six months ended June 30, 2019 and 0.8 million shares at an average price of $27.39 per share during the six months ended June 30, 2018 (0.3 million shares at an average price of $21.89 per share for the second quarter of 2019 and 0.4 million shares at an average price of $27.14 per share for the second quarter of 2018). Luxembourg law limits share repurchases to the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings, less the value of shares repurchased. As of June 30, 2019, we can repurchase up to approximately $105 million of our common stock under Luxembourg law. Our Credit Agreement also limits the amount we can spend on share repurchases, which was approximately $467 million as of June 30, 2019, and may prevent repurchases in certain circumstances.
Share-Based Compensation
We issue share-based awards in the form of stock options, restricted shares and restricted share units for certain employees, officers and directors. We recognized share-based compensation expense of $5.5 million and $4.1 million for the six months ended June 30, 2019 and 2018, respectively ($2.8 million and $1.9 million for the second quarter of 2019 and 2018, respectively). As of June 30, 2019, estimated unrecognized compensation costs related to share-based awards amounted to $14.6 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 1.72 years.
Stock Options
Stock option grants are composed of a combination of service-based, market-based and performance-based options.
Service-Based Options. These options generally vest over three or four years with equal annual vesting and expire on the earlier of ten years after the date of grant or following termination of service. A total of 460 thousand service-based options were outstanding as of June 30, 2019.
Market-Based Options. These option grants generally have two components, each of which vests only upon the achievement of certain criteria. The first component, which we refer to as “ordinary performance” grants, generally consists of two-thirds of the market-based grant and begins to vest if the stock price is at least double the exercise price, as long as the stock price realizes a compounded annual gain of at least 20% over the exercise price. The remaining third of the market-based options, which we refer to as “extraordinary performance” grants, generally begins to vest if the stock price is at least triple the exercise price, as long as the stock price realizes a compounded annual gain of at least 25% over the exercise price. Market-based options vest in three or four year installments with the first installment vesting upon the achievement of the criteria and the remaining installments vesting thereafter in equal annual installments. Market-based options generally expire on the earlier of ten years after the date of grant or following termination of service, unless the performance criteria is met prior to termination of service or in the final three years of the option term, in which case vesting will generally continue in accordance with the provisions of the award agreement. A total of 600 thousand market-based options were outstanding as of June 30, 2019.
Performance-Based Options. These option grants generally begin to vest upon the achievement of certain specific financial measures. Generally, the options begin vesting if the performance criteria are achieved; one-fourth vests on each anniversary of the grant date. For certain other financial measures, options cliff-vest upon the achievement of the specific performance during the period from 2019 through 2021. The award of performance-based options is adjusted based on the level of achievement specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in 50% to 200% of the option grants, depending upon performance achieved. If the performance criteria achieved is below a certain threshold, the options are canceled. The options expire on the earlier of ten years after the date of grant or following termination of service. There were 503 thousand performance-based options outstanding as of June 30, 2019.
There were no stock option grants during the six months ended June 30, 2019. Outstanding stock options increased by 228 thousand in February 2019 in connection with the determination of the level of achievement for certain performance-based options granted in 2018. During the six months ended June 30, 2018, 272 thousand stock options (at a weighted average exercise price of $25.06 per share) were granted.

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

The fair values of the service-based options and performance-based options are determined using the Black-Scholes option pricing model and the fair values of the market-based options were determined using a lattice (binomial) model. The following assumptions were used to determine the fair values as of the grant date:
 
 
 
 
Six months ended June 30, 2018
 
 

 

 
Black-Scholes
 
Binomial
 
 
 
 
 
 
 
 
 
Risk-free interest rate (%)
 

 

 
2.66 – 2.98

 
1.64 – 2.83

Expected stock price volatility (%)
 

 

 
70.31 – 71.86

 
71.81 – 71.86

Expected dividend yield
 

 

 
—

 
—

Expected option life (in years)
 

 

 
6.00 – 6.25

 
2.56 – 4.32

Fair value
 

 

 
$16.17 – $19.06

 
$14.67 – $18.28

We determined the expected option life of all service-based stock option grants using the simplified method. We use the simplified method because we believe that our historical data does not provide a reasonable basis upon which to estimate expected option life.
The following table summarizes the weighted average grant date fair value of stock options granted per share, the total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the periods presented:
 
 
Six months ended June 30,
(in thousands, except per share amounts)
 
2019
 
2018
 
 
 
 
 
Weighted average grant date fair value of stock options granted per share
 
$
—

 
$
16.27

Intrinsic value of options exercised
 
34

 
4,393

Grant date fair value of stock options that vested
 
2,752

 
1,334

The following table summarizes the activity related to our stock options:
 
Number of options
 
Weighted average exercise price
 
Weighted average contractual term (in years)
 
Aggregate intrinsic value (in thousands)
 
 
 
 
 
 
 
 
Outstanding as of December 31, 2018
1,440,566

 
$
30.78

 
5.04
 
$
945

Performance criteria achieved
227,849

 
24.98

 
 
 
 
Exercised
(12,500
)
 
18.79

 
 
 
 

Forfeited
(93,210
)
 
46.27

 
 
 
 

 
 
 
 
 
 
 
 
Outstanding as of June 30, 2019
1,562,705

 
29.11

 
4.93
 
172

 
 
 
 
 
 
 
 
Exercisable as of June 30, 2019
990,130

 
26.51

 
3.30
 
166

Other Share-Based Awards
The Company’s other share-based and similar types of awards are composed of restricted shares and, beginning in 2018, restricted share units. The restricted shares and restricted share units are composed of a combination of service-based awards and performance-based awards.
Service-Based Awards. These awards generally vest over two to four year periods with (a) vesting in equal annual installments, or (b) vesting of all of the restricted shares and restricted share units at the end of the vesting period. In addition, certain awards begin to vest after two years of service. A total of 546 thousand service-based awards were outstanding as of June 30, 2019.
Performance-Based Awards. These awards generally begin to vest upon the achievement of certain specific financial measures. Generally, the awards begin vesting if the performance criteria are achieved; one-third vests on each anniversary of the grant date or cliff-vest on the third anniversary of the grant date. The number of performance-based restricted shares and restricted share units that may vest will be based on the level of achievement, as specified in the award agreements. If the performance criteria achieved is above certain financial performance levels and Altisource’s share performance is above certain established

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

criteria, participants have the opportunity to vest in up to 225% of the restricted share unit award for certain awards, depending on performance achieved. If the performance criteria achieved is below a certain threshold, the award is canceled. A total of 150 thousand performance-based awards were outstanding as of June 30, 2019.
The Company granted 393 thousand restricted share units (at a weighted average grant date fair value of $24.86 per share) during the six months ended June 30, 2019.
The following table summarizes the activity related to our restricted shares and restricted share units:

Number of restricted shares and restricted share units
 
 
Outstanding as of December 31, 2018
485,806

Granted
392,579

Issued
(96,432
)
Forfeited/canceled
(85,793
)
 
 
Outstanding as of June 30, 2019
696,160

NOTE 16 — REVENUE
We classify revenue in three categories: service revenue, revenue from reimbursable expenses and non-controlling interests. Service revenue consists of amounts attributable to our fee-based services and sales of short-term investments in real estate. Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup. Non-controlling interests represent the earnings of Lenders One, a consolidated entity that is a mortgage cooperative managed, but not owned, by Altisource. Lenders One is included in revenue and reduced from net income to arrive at net income attributable to Altisource (see Note 1). Our services are primarily provided to customers located in the United States. The components of revenue were as follows:
 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
(in thousands)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Service revenue
 
$
190,520

 
$
208,861

 
$
355,519

 
$
397,627

Reimbursable expenses
 
4,775

 
9,008

 
9,271

 
17,155

Non-controlling interests
 
1,240

 
687

 
1,680

 
1,212

 
 
 
 
 
 
 
 
 
Total
 
$
196,535

 
$
218,556

 
$
366,470

 
$
415,994

Disaggregation of Revenue
Disaggregation of total revenues by major source is as follows:
(in thousands)
 
Revenue recognized when services are performed or assets are sold
 
Revenue related to technology platforms and professional services
 
Reimbursable expenses revenue
 
Total revenue
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2019
 
$
178,949

 
$
12,811

 
$
4,775

 
$
196,535

Three months ended June 30, 2018
 
187,206

 
22,342

 
9,008

 
218,556

 
 
 
 
 
 
 
 
 
Six months ended June 30, 2019
 
326,704

 
30,495

 
9,271

 
366,470

Six months ended June 30, 2018
 
354,162

 
44,677

 
17,155

 
415,994

Contract Balances
Our contract assets consist of unbilled accounts receivable (see Note 5). Our contract liabilities consist of current deferred revenue as reported on the accompanying condensed consolidated balance sheets and non-current deferred revenue (see Note 13). Revenue

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

recognized that was included in the contract liability at the beginning of the period, including amounts added to the contract liability as part of the cumulative effect of adopting Topic 606, was $8.6 million and $11.3 million for the six months ended June 30, 2019 and 2018, respectively ($3.7 million and $5.4 million for the second quarter of 2019 and 2018, respectively).
NOTE 17 — COST OF REVENUE
Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to the provision of services, cost of real estate sold, reimbursable expenses, technology and telecommunications costs as well as depreciation and amortization of operating assets. The components of cost of revenue were as follows:
 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
(in thousands)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Compensation and benefits
 
$
36,806

 
$
54,769

 
$
78,174

 
$
109,635

Outside fees and services
 
58,588

 
68,879

 
121,169

 
133,977

Cost of real estate sold
 
40,276

 
13,320

 
42,370

 
16,499