UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| (Mark One) | |||||
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2020
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 1-34354
(Exact name of registrant as specified in its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(352 ) 27 61 49 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 | Trading Symbol | Name of each exchange on which registered | ||||||||||||
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.
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, a smaller reporting company, or an emerging growth company. See 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 ☐ | |||||
Non-accelerated filer ☐ | Smaller reporting company | ||||
Emerging growth company | |||||
Indicate by check mark whether the registrant obtained an internal control over financial reporting (“ICFR”) auditor attestation. Yes ☑ No 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 Act). Yes ☐ No ☑
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2020 was $168,425,446 based on the closing share price as quoted on the NASDAQ Global Select Market on that day and the assumption that all directors and executive officers of the Company are affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.
As of March 5, 2021, there were 15,746,525 outstanding shares of the registrant’s common stock (excluding 9,666,223 shares held as treasury stock).
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
FORM 10-K
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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, together with its subsidiaries.
ITEM 1. BUSINESS
The Company
Altisource® 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.
We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The Company operates with one reportable segment (total Company). Our principal revenue generating activities are as follows:
Core Businesses
Field Services
•Property preservation and inspection services and vendor management oversight software-as-a-service (“SaaS”) platform
Marketplace
•Hubzu® online real estate auction platform, real estate auction, real estate brokerage and asset management
•Equator®, a SaaS-based technology to manage real estate owned (“REO”), short sales, foreclosure, bankruptcy and eviction processes
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Mortgage and Real Estate Solutions
•Mortgage loan fulfillment, certification and certification insurance services and technologies
•Title insurance (as an agent) and settlement services
•Real estate valuation services
•Residential and commercial construction inspection and risk mitigation services
•Management of the Best Partners Mortgage Cooperative, Inc., doing business as Lenders One® (“Lenders One”), mortgage banking cooperative
•Foreclosure trustee services
•Business services
Other Businesses
Earlier Stage Business
•Pointillist® customer journey analytics platform
Other
•Commercial loan servicing technology
•Financial Services business, including post-charge-off consumer debt, mortgage charge-off collection services and customer relationship management services (sold on July 1, 2019)
•Buy-Renovate-Lease-Sell (“BRS”) business (wound down in 2019)
•Residential loan servicing technologies, document management platform and information technology infrastructure management services (wound down in 2019 following Ocwen Financial Corporation’s (together with its subsidiaries, “Ocwen”) transition to another servicing platform)
•Owners.com® technology-enabled real estate brokerage and provider of related mortgage brokerage and title services (discontinued in the fourth quarter of 2019)
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 and sales of short-term investments in real estate (wound down in 2019). 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. Lenders One is a mortgage cooperative managed, but not owned, by Altisource. The Lenders One members’ earnings are included in revenue and reduced from net income to arrive at net income attributable to Altisource.
2020 Highlights
Corporate and Financial
•Ended 2020 with $58.3 million of cash and cash equivalents
•Ended 2020 with $188.9 million of net debt
•Sold the Company’s remaining 3.5 million Front Yard Residential Corporation (“RESI”) shares for net proceeds of $46.6 million and used the net proceeds to repay a portion of our Senior Secured Term Loan
Business Highlights
•The Company’s 2020 financial performance was negatively impacted by:
◦Temporary servicer and government COVID-19 related measures to provide financial support to borrowers (i.e., foreclosure and eviction moratoriums and borrower forbearance plans), partially offset by growth in our origination business
◦One of Ocwen’s MSR investors directed it to transition field services, title and valuation referrals to that investor’s captive vendors; we believe the transition of these referrals is largely complete
•Service revenue from customers other than Ocwen, New Residential Investment Corp. (“NRZ”) and RESI grew by 9% in 2020 compared to 2019; this reflects 47% growth from our origination business, excluding our construction risk mitigation business that was impacted by the pandemic, partially offset by the negative impact of COVID-19 on our default business
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•The Company’s customer base continues to develop and grow increasing the potential backlog of default related business which we anticipate will begin to be available to us in 2022 when we forecast that the default market returns to a more normal operating environment
•The Company has a robust unweighted sales pipeline of approximately $220 million
•To address lower revenue in the default business, the Company aggressively reduced cash costs and simplified the organization; cash costs (other than outside fees and services, severance and fourth quarter 2020 bonus accrual reversals) were $12 million lower in the fourth quarter 2020 compared to the fourth quarter 2019
Customers
Overview
Our customers include large financial institutions, government-sponsored enterprises (“GSEs”), banks, asset managers, servicers, investors, originators and correspondent lenders and mortgage bankers.
Customer Concentration
Ocwen
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 year ended December 31, 2020, Ocwen was our largest customer, accounting for 54% of our total revenue. Ocwen purchases certain mortgage services from us under the terms of services agreements and amendments thereto (collectively, the “Ocwen Services Agreements”) with terms extending through August 2025. Certain of the Ocwen Services Agreements contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing, among other things.
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 years ended December 31, 2020, 2019 and 2018, we recognized revenue from Ocwen of $197.8 million, $362.7 million and $437.4 million, respectively. Revenue from Ocwen as a percentage of consolidated revenue was 54%, 56% and 52% for the years ended December 31, 2020, 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 years ended December 31, 2020, 2019 and 2018, we recognized revenue of $23.8 million, $37.5 million and $47.1 million, respectively, related to the portfolios serviced by Ocwen when a party other than Ocwen or the MSR owner selected Altisource as the service provider. These amounts are not included in deriving revenue from Ocwen and revenue from Ocwen as a percentage of revenue discussed above.
In February 2019, Altisource and Ocwen entered into agreements that, among other things, facilitated Ocwen’s transition from REALServicing® and related technologies to another mortgage servicing software platform, establish a process for Ocwen to review and approve the assignment of one or more of our agreements to potential buyers of Altisource’s business lines, requiring Ocwen to use Altisource as service provider for certain service referrals totaling an amount equal to 100% of the applicable service referrals on certain portfolios plus an amount equal to not less than 90% of applicable service referrals from certain other portfolios (determined on a service by service basis), subject to certain additional restrictions and limitations, and affirm Altisource’s role as a strategic service provider to Ocwen through August 2025. In connection with these agreements, Altisource expressly preserved and did not waive any of its existing contractual rights relating to service referrals, other than with respect to Ocwen transitioning from the REALServicing and related technologies. If Altisource fails certain performance standards for specified periods of time, then Ocwen may terminate Altisource as a provider for the applicable service(s), subject to certain limitations and Altisource’s right to cure. Ocwen’s transition to another mortgage servicing platform was completed during 2019.
During the second quarter of 2020, Ocwen informed us that an MSR investor instructed Ocwen to use a field services provider other than Altisource on properties associated with certain MSRs. Based upon the impacted portfolios to date and the designated service provider, Altisource believes that Ocwen received these directions from NRZ. We believe Ocwen commenced using another field services provider for these properties in July 2020 and continued to transition services during the third quarter of 2020. We believe that the transition to the replacement field service provider was largely completed as of September 30, 2020. We estimate that $70.1 million, $150.2 million and $171.0 million of service revenue from Ocwen for the years ended December 31, 2020, 2019 and 2018, respectively, was derived from Field Services referrals from the NRZ portfolios. Ocwen also communicated to Altisource in the fourth quarter of 2020 that the same investor instructed Ocwen to
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use a provider for default valuations and certain default title services other than Altisource on properties associated with such certain MSRs and commenced moving these referrals to other service providers in the fourth quarter of 2020. We anticipate that the transition of such default valuations and title services will continue during the course of 2021. We estimate that $18.2 million, $33.2 million and $40.1 million of service revenue from Ocwen for the years ended December 31, 2020, 2019 and 2018, respectively, was derived from default valuations and title services referrals from the NRZ portfolios. Altisource believes that any action taken by Ocwen to redirect these service referrals breaches Altisource's agreement with Ocwen. We are currently in discussions with Ocwen to address this matter, and have reserved all of our rights with respect to this matter.
To address the reduction in revenue, Altisource is undertaking several measures to further reduce its cost structure and strengthen its operations.
As of December 31, 2020, accounts receivable from Ocwen totaled $5.9 million, $5.1 million of which was billed and $0.8 million of which was unbilled. As of December 31, 2019, accounts receivable from Ocwen totaled $19.1 million, $15.7 million of which was billed and $3.4 million of which was unbilled.
NRZ
NRZ is a real estate investment trust that invests in and manages investments primarily related to residential real estate, including MSRs and excess MSRs.
Ocwen has disclosed that NRZ is its largest client. As of December 31, 2020, NRZ MSRs or rights to MSRs relating to approximately 36% of loans serviced and subserviced by Ocwen (measured in unpaid principal balance (“UPB”)). In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to certain of its MSRs (the “Subject MSRs”) and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years, subject to early termination rights.
On August 28, 2017, Altisource, through its licensed subsidiaries, entered into a Cooperative Brokerage Agreement, as amended, and related letter agreement (collectively, the “Brokerage Agreement”) with NRZ which extends through August 2025. Under this agreement and related amendments, Altisource remains the exclusive provider of brokerage services for REO associated with the Subject MSRs, irrespective of the subservicer, subject to certain limitations. NRZ’s brokerage subsidiary receives a cooperative brokerage commission on the sale of REO properties from these portfolios subject to certain exceptions.
The Brokerage Agreement may be terminated by NRZ upon the occurrence of certain specified events. Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that there is significant uncertainty about Altisource’s ability to continue as a going concern, failure to maintain a specified level of cash and an unapproved change of control.
For the years ended December 31, 2020, 2019 and 2018, we recognized revenue from NRZ of $8.6 million, $12.5 million and $28.7 million, respectively, under the Brokerage Agreement. For the years ended December 31, 2020, 2019 and 2018, we recognized additional revenue of $35.1 million, $60.0 million and $83.6 million, respectively, relating to the Subject MSRs when a party other than NRZ selects Altisource as the service provider.
Other
Our services are provided to customers predominantly located in the United States.
Sales and Marketing
Our enterprise sales and marketing team has 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, GSEs, buyers and sellers of homes for investment use and financial services firms.
Our primary sales and marketing focus areas are to:
•Expand relationships with existing customers by cross-selling additional services and growing the volume of existing services we provide. We believe our customer relationships represent meaningful growth opportunities for us; and
•Develop new customer relationships by leveraging our comprehensive suite of services, performance and controls. We believe there are meaningful growth opportunities to sell our suite of services to new customers.
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Given the highly regulated nature of the industries that we serve and the comprehensive purchasing process that our institutional customers and prospects follow, the time and effort we spend in expanding relationships or winning new relationships is significant. For example, it can often take more than one year from the request for proposal or qualified lead stage to the selection of Altisource as a service provider. Furthermore, following the selection of Altisource, it is not unusual for it to take an additional six to twelve months or more to negotiate the services agreement(s), complete the implementation procedures and begin receiving referrals.
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, 2020, we have been awarded two patents that expire in 2023, one patent that expires in 2024, eight patents that expire in 2025, three patents that expire in 2026, two patents that expire in 2029, one patent that expires in 2030 and one patent that expires in 2036. In addition, we have registered 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 the 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 mortgage information, real property 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, we use this data in connection with the delivery of our services, including combining it with proprietary data we generate to further enhance data and metrics in connection with our services.
Market and Competition
We sell our suite of services to mortgage servicers, mortgage originators, GSEs, buyers and sellers of homes for 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, consumer confidence and, in 2020, the global COVID-19 pandemic.
The markets to provide services for mortgage servicers and mortgage originators are highly competitive and generally consist of national companies, in-house providers and a large number of regional and local providers. We typically compete based upon product and service awareness and offerings, product performance 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 investment are highly competitive and generally consist of several national companies, a large number of regional and local providers and start-up companies. We typically compete based upon product and service awareness and offerings, product performance and service delivery, ease of transacting, price and personal service.
Our competitors may have greater financial resources, brand recognition, alternative or disruptive products and technology and other competitive advantages. We cannot determine our market share with certainty, but believe for mortgage servicers we have a modest share of the market, and for the others we have a relatively small market share.
Human Capital:
Every day at Altisource, our global team across four different continents works together to provide industry-leading services and solutions to our clients. We consider our diverse workforce as a key differentiator for our business. The following sections describe some of the key elements of one of our greatest assets, our human capital.
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Culture
We function by a set of core values communicated to our employees by management and available on our website. The following core values, which are regularly referenced in our employee communications, guide the conduct of Altisource and its employees:
•Act With Integrity - Exhibit unwavering integrity, compliance and ethical conduct at all times
•Energize People - Enable exceptional people to inspire their teams and drive results
•Empower Innovation - Reward the relentless creation of innovative and compliant solutions to achieve our mission and generate value for our customers
•Exceed Customer Expectations - Deliver best-in-class results and customer service
•Win as a Team - Embrace the passion, energy and power of our global teams to win as “One-Altisource”
•Enrich Communities - Create positive impacts for the communities where we live and serve
We adjusted our social and environmental engagement efforts in 2020 in response to the difficulties presented by COVID-19 pandemic. We undertook many successful community support initiatives including our participation in the “National Wreaths Across America” and the “Toys for Tots” programs to give presents to children across the United States, food donations to soup kitchens in Uruguay and providing “Happiness Kits” to underprivileged children in India.
We also sought to play our part in addressing climate change. During 2020, we continued with programs to reduce waste, and paper, energy and water consumption. In 2021 we intend to continue to assess our real estate portfolio, telecommuting and transport programs to further reduce our impact on the environment, including as employees potentially return from remote work arrangements.
Workforce and Diversity
Given the nature of our business, our global workforce consists of various diverse talent groups. The majority of our employees support our mortgage default-related and originations services. We also have a significant number of technology employees developing and maintaining our technology enabled solutions. In the United States, in addition to supporting operations, a number of our employees fill roles that require professional licenses and work in the product, sales and marketing, and corporate functions. The India workforce primarily comprises the operations teams supporting operations, technology, and corporate functions, while Uruguay supports several of the corporate functions. The executive management team is mostly based out of Luxembourg, our headquarters.
As of December 31, 2020, we employed 2,726 employees across four continents:
•North America, United States: 697 employees
◦50% female / 50% male
•Asia, India: 1,945 employees
◦30% female / 70% male
•South America, Uruguay: 74 employees
◦69% female / 31% male
•Europe, Luxembourg: 10 employees
◦40% female / 60% male
In the United States, 50% of the workforce self-identifies as members of an ethnic minority group. We believe that our globally diverse, inclusive, and collaborative workforce makes us a more innovative and creative company. We are an equal opportunity employer and prohibit any form of unlawful discrimination or harassment. At Altisource, everyone is valued and appreciated for their distinct contributions to the growth and sustainability of our business.
Hiring Practices
At Altisource, we believe in hiring the best talent, empowering our people and encouraging them to deliver their best. Globally our recruiting conversion rate (initial screening to hire) is approximately 5%. Our hiring process comprises of a mix of assessments and interviews, which help us hire the best candidates who are likely to succeed in our organization. In 2020, we added 922 talented professionals to our global workforce. We also place a strong emphasis on internal development and promotion, as well as encouraging mobility within our internal talent. In 2020, 27% of our open positions were filled internally.
We leverage social and networking platforms to identify and engage with key talent for critical and senior positions. We use Altisource talent communities where we can engage inquiring candidates to share information about our Company and accept profiles for future opportunities. For our entry level roles, where we hire in volumes, we often run campaigns on job portals,
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engage with universities, use career-service platforms and host virtual or walk-in interviews. We may adjust our talent acquisition strategies according to the cultural and social norms of the applicable geographies in which we operate.
People Practices
Our people practices aim to develop our workforce and retain high performers. We maintain various touchpoints along the employee life cycle to support our employees and improve their experiences. At an overall level in 2020, we successfully retained 72% of our workforce, which included the retention of 85% of employees deemed high performers. However, our originations business witnessed significantly higher turnover in 2020 compared to the Companywide average, primarily driven by a highly competitive employment market for experienced originations professionals in the United States and India. Our human resources team partnered with the business to implement measures designed to improve retention rates and develop a steady talent pipeline to meet business requirements for the origination businesses.
We also developed processes in 2020 to adapt to remote working arrangements, including efforts aimed at maintaining employee engagement. We emphasized virtual engagement activities through the year, created virtual recognition forums for our employees and are currently working on further improving our employee experience in a remote environment.
We emphasize employee development and training. Each of our employees invested on average 40 hours in training in 2020, generally including a mix of functional, compliance and behavioral learning programs. We believe that our structured training programs help our employees to acquire and maintain the skills necessary to be effective in their roles. A key focus area for 2021 is to help our employees to improve their work performance in a remote work environment.
We also conduct regular talent review and succession planning exercises that help us identify and develop key talent and to create plans to mitigate potential succession gaps. In 2020, we conducted a detailed succession planning exercise covering several critical roles.
Compensation and Benefits
Our compensation practices strive to attract, retain, motivate, and reward employees to drive performance.
We generally position our compensation levels to the mid-point of the market; however, we may adjust our compensation above the mid-point in response to applicable market conditions or to attract critical resources as may be needed. In 2020, owing to high demand for residential mortgage originations skills, we implemented significant increases in compensation for origination roles in an effort to maintain market competitiveness.
Incentives are a key component of our compensation structure. The incentive plans vary for different businesses and help us drive performance. Our incentive structure primarily comprises of:
•Annual incentives for most of the employees in a managerial role, linked to tangible annual scorecards which are comprised of defined financial goals specific to the Company and/or their respective businesses as well as the employees’ individual performance against pre-established metrics
•Quarterly or annual incentive plan for our sales employees, linked to defined performance and long-term value add metrics
•Monthly or quarterly incentives for our associates in operations, mainly linked to defined production, productivity, quality and compliance metrics
Most of the employees in managerial roles receive a part of their annual incentive in Restricted Stock Units (“RSUs”). The composition of the incentives is determined by the Compensation Committee of our Board of Directors, with the equity component generally constituting between 25% and 40% of the total value of the incentive, depending on the level of the employee, with the Compensation Committee retaining the discretion to increase the equity component up to 100% of the value of the incentive. Employees at senior levels generally receive a larger portion of their incentives in equity. We believe that this methodology helps align the interests of our management level employees with the interests of our shareholders on long term value creation.
Apart from our annual incentive plans, we also employ long-term incentive plans for certain senior executives. Our long-term incentives are primarily comprised of:
•Service-based awards to encourage retention, linked to achieving minimum performance goals. These awards generally vest over three to four year periods with vesting in equal annual installments.
•Performance-Based Awards. These awards generally vest if certain specific financial measures are achieved; generally one-third vests on each anniversary of the grant date or the awards cliff-vest on the third anniversary of the
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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, participants have the opportunity to vest in up to 150% of the restricted share unit award for certain awards. If the performance criteria achieved is below a certain thresholds, the award is canceled.
•Performance-Based and Market-Based Awards. These awards generally vest if certain specific financial measures are achieved and if certain specific market conditions are achieved (i.e., Total Shareholder Return (“TSR”) compared against the Russell 3000 stock market index). If the performance criteria achieved is above certain financial performance levels and Altisource’s share performance is above certain established criteria, participants have the opportunity to vest in up to 300% of the restricted share unit award for certain awards. If the performance criteria or the market criteria is below certain thresholds, the award is canceled. We believe that the design of the performance-based award and market-based award, incentivizes the leadership team to focus on the long-term value creation for shareholders and other stakeholders.
Our employee benefit programs are customized for each geography. We regularly benchmark our plans to remain competitive.
Impact of COVID-19 Pandemic
Employee health and well-being is critical for us and we are committed to supporting our employees through the COVID-19 pandemic. As part of this support, we ensure our employees in the United States and India have health coverage to help address medical costs related to the treatment of COVID-19. Our employees in other countries are covered by their local applicable social security or health programs. We also provide time off to those employees who are diagnosed with the virus.
Driven by health considerations, as well as local regulations, we temporarily converted most of our workforce to remote out-of-office work arrangements beginning in March 2020. As of December 31, 2020, most of our workforce continued to work remotely, except for a small number of employees who work at our facilities due to client requirements or other requirements related to their job duties.
To provide a safe working environment for our employees who continue to work from our facilities in the United States, we introduced safety measures in line with the United States Centers for Disease Control (CDC) and Prevention guidelines. For our employees who continue to work from our facilities in India, we defined safety measures in line with the guidelines provided by the regulatory bodies of the central and state governments and the local municipal corporations. We intend to continue reviewing our safety measures and recommendations from the relevant authorities as we consider the return of employees to our facilities.
We believe the remote workforce model has allowed us to continue operations without interruption or a significant impact to productivity. We expect the current remote workforce model to continue for most employees until the threat of the COVID-19 pandemic is substantially reduced. As the COVID-19 pandemic progresses, we will continue to assess its impact on our operations and may adjust our working model to respond to changing circumstances.
We undertook several workforce related initiatives in 2020 in response to declines in our default-related businesses as a result of the COVID-19 pandemic and one of the investors of our largest customer instructing our customer to redirect certain referral from us to the investor’s captive service provider. These cost reduction measures included workforce reductions across our operations, employee furloughs and temporary compensation reductions for most of our United States and Luxembourg employees, senior management and independent directors. As of December 31, 2020, our workforce was 17% lower than our workforce as of January 1, 2020. Our workforce compensation was reinstated between June and October, with the compensation of senior management being reinstated in October. The cash compensation of our independent directors remains reduced to 80% of the pre-reduction compensation.
We provided notice of further workforce reductions in February 2021 in response to certain measures and announcements from the federal government regarding the extension and expansion of the national foreclosure and eviction moratoriums, and the anticipated continued impact to our default related businesses. This reduction will impact approximately 8% of our global workforce through the first two quarters of 2021.
Seasonality
Certain of our revenues can be impacted by seasonality. More specifically, revenues from property sales, loan originations and certain property preservation services in Field Services typically tend to be at their lowest level during the fall and winter months and at their highest level during the spring and summer months.
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Government Regulation
Our business and the business of our customers are or may be 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 Securities and Exchange Commission (“SEC”), the Department of Housing and Urban Development (“HUD”), various federal and state banking, financial and consumer regulators and the state and local agencies that license or oversee certain of our auction, real estate brokerage, mortgage and debt collection services, trustee services, mortgage origination underwriter and broker services, property management services and insurance services. We also must comply with a number of federal, state and local laws, which may include, among others:
•the Americans with Disabilities Act (“ADA”);
•the Bank Secrecy Act;
•the California Consumer Privacy Act (“CCPA”);
•the California Homeowner Bill of Rights (“CHBR”);
•the California Privacy Rights Act;
•the Controlling the Assault of Non-Solicited Pornography And Marketing Act (“CAN-SPAM”);
•the Equal Credit Opportunity Act (“ECOA”);
•the Fair and Accurate Credit Transactions Act (“FACTA”);
•the Fair Credit Reporting Act (“FCRA”);
•the Fair Housing Act;
•the Federal Trade Commission Act (“FTC Act”);
•the Gramm-Leach-Bliley Act (“GLBA”);
•the Home Affordable Refinance Program (“HARP”);
•the Home Mortgage Disclosure Act (“HMDA”);
•the Home Ownership and Equity Protection Act (“HOEPA”);
•the National Housing Act;
•the New York Real Property Actions and Proceedings Law (“RPAPL”);
•the Real Estate Settlement Procedures Act (“RESPA”);
•the Secure and Fair Enforcement for Mortgage Licensing (“SAFE”) Act;
•the Servicemembers Civil Relief Act (“SCRA”);
•the Telephone Consumer Protection Act (“TCPA”);
•the Truth in Lending Act (“TILA”); and
•Unfair, Deceptive or Abusive Acts and Practices statutes (“UDAAP”).
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.
In addition to federal and state laws regarding privacy and data security, we are also subject to data protection laws in the countries in which we operate. Additionally, certain of our entities are or may be subject to the EU General Data Protection Regulation (“GDPR”).
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 or the failure of our customers or vendors 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 that may curtail or restrict the business as it is currently conducted and could have a material adverse effect on our financial condition or results of operations.
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Furthermore, certain of our services are provided at the direction of, 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 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, mortgage broker, valuation provider, appraisal management company, asset manager, property inspection and preservation provider, title insurance agent, insurance broker and underwriter, real estate broker, auctioneer and foreclosure trustee in a number of jurisdictions. Our employees and subsidiaries may be required to be licensed by or registered with various jurisdictions for the particular type of service sold or provided and to participate in regular continuing education programs. Periodically, we are subject to audits, examinations and investigations by federal, state and local governmental authorities and receive subpoenas, civil investigative demands or other requests for information from such governmental authorities in connection with their regulatory or investigative authority. Due to the inherent uncertainty of such actions, it is often difficult to predict the potential outcome or estimate any potential financial impact in connection with any such inquiries.
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 on the SEC’s website at www.sec.gov.
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 address the most materials risks, of which we are currently aware but are not the only ones we face. Therefore, the following risk factors should not be considered a complete list of potential risks that we may face.
Any risk factor described in this Annual Report on Form 10-K or in any of our other SEC filings, or any risk not currently known to us or that we currently anticipate to be immaterial may, by itself, or together with other factors, materially adversely affect our business, reputation, prospects, competitive position, liquidity, results of operations, capital position or financial condition, including by materially increasing our expenses or decreasing our revenues, which could result in material losses. If any of these risks occur, the trading price of our common stock could decline, and investors could lose all or part of their investment.
While insurance coverage may be applicable to help address certain risks that may crystalize, recovery pursuant to our insurance policies may not be available, and available insurance may be insufficient to compensate for damages, expenses, fines, penalties, and other losses we may incur as a result of these and other risks.
In this ITEM 1A, unless the context otherwise clearly indicates, references to our “services” include any services, products or solutions provided, or made available, by us.
Risks Related to the COVID-19 Pandemic
We face certain risks related to the COVID-19 pandemic and the measures taken to prevent its spread. The COVID-19 pandemic continues to have a profound impact on our business, our customers, the industries in which we operate, and the societies and economies in which we conduct our business and operations. We anticipate that we will continue to experience the impacts of the COVID-19 pandemic through at least the 2021 calendar year and beyond. The extent and duration of the impact of the COVID-19 pandemic and governmental, mortgage servicer, mortgage investor and societal responses will depend on future developments, including the duration and severity of the pandemic, which remain highly uncertain. As a result, it is difficult to predict the impact on our business. Further, as a result of interruptions caused by the pandemic and responses to the pandemic by our customers’, various governmental bodies and mortgage investors:
•We may not be able to maintain a stable workforce or operate our workforce and facilities in an efficient or productive manner as we respond to changes caused by the COVID-19 pandemic, restrictions on services or work that may be performed, restrictions on workforce reductions, facility closures or remote work arrangements, or mandates from
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governments or public health authorities, particularly with respect to our services that require travel or an on-site presence.
•The demand for our services and our vendors’ ability to provide services in a timely and cost-effective fashion may be negatively impacted, which could result in a reduction in our revenue and/or an increase in our costs. For example, foreclosure and REO referrals may be impacted by foreclosure and eviction moratoriums. In addition, certain of our field services offerings may be precluded by government orders limiting the performance of non-essential services or become difficult to fulfill due to our field vendors’ reluctance to perform services, especially services that are not clearly specified by authorities as essential or those that present the potential for human contact.
•We may need to seek alternate vendors or suppliers as existing vendors and suppliers may be unable to timely and cost effectively provide services. This may disrupt our operations, negatively impact our ability to provide services, and may be more expensive. If we are not able to obtain or contract with alternate vendors or suppliers our operations would be negatively impacted. In addition, our customers or consumers may be unwilling to interact with our employees or vendors, or visit properties related to our services, which may impact our ability to provide such services.
Volatile or uncertain economic conditions caused by the COVID-19 pandemic, or its consequences, have and may continue to affect our customers and the markets we serve, causing customers to reduce, defer or eliminate spending on our services.
Our compliance with work from home, business closure, shelter in place and other similar regulations may impose additional costs on us and could negatively impact our control environment or create additional risks for our business, including increasing our risk for cybersecurity breaches or failures.
We have transitioned a significant portion of our workforce to work remotely to protect the health and safety of our workforce and customers and, in certain instances, in response to government actions. We are not able to anticipate the potential duration of remote work arrangements necessitated by the COVID-19 pandemic. We may incur significant costs associated with such work arrangements. Further, our business continuity plans in the face of remote working and other adjustments to business may not be sufficient to address business interruptions or a global pandemic of COVID-19's scale and magnitude, or may not be implemented on a timely or error free basis in response to changes, resulting in negative operational impacts and errors.
Employing a remote work environment could decrease employee productivity, including due to a lower level of employee oversight, distraction caused by the pandemic and its impact on daily life, employee health conditions or illnesses, employees acting as caregivers, disruption due to home schooling and child care obligations, use of slower residential Internet connections, the instability, inadequacy or unavailability of our network, or unstable electrical services or unreliable Internet access. We also may face increased data privacy and security risks resulting from the use of non-Altisource networks to access information and to provide services. Additional risks to our systems and data, and customer, vendor and/or borrower data are presented by increased phishing activities targeting employees, vendors and counterparties in transactions, the possibility of attacks on our systems or systems of employees working remotely as well as by decreased supervision or monitoring of employees. Remote work arrangements could also negatively impact certain controls, such as our financial reporting systems, internal control over financial reporting and disclosure controls and procedures. If we do face a reduction in productivity, data privacy or cybersecurity failures or breaches, or issues with our controls, we may incur additional costs to address such issues and our financial condition and results may be adversely impacted.
We may be subject to legal claims from customers, employees and other third parties as a result of the response to COVID-19, including contractual breach claims and personal injury claims.
Interruptions caused by the pandemic and our, our customers’ and various governmental bodies’ responses to the pandemic could adversely impact our ability to comply with various legal and contractual obligations, including service level agreements and performance standards in our revenue agreements, restoration obligations in our leases, and obligations to perform or use services in pre-approved locations, whether as a result of an inability to staff personnel for certain services in appropriate locations or as a result of compliance with various imposed regulations. Some of our agreements may not contain force majeure clauses or similar provisions that would sufficiently excuse any non-performance due to the pandemic. Accordingly, counterparties to these contracts may assert that we have breached these contracts and caused damages. Even if our agreements contain force majeure clauses or similar provisions, our customers may dispute that such provisions are applicable to excuse our failures to perform. In such cases, we could face additional costs, penalties, fee reductions, an exercise of termination rights, legal claims and liabilities.
Further, we could face legal claims from employees, contractors, vendors, borrowers or other individuals who claim to have been exposed to and contracted the COVID-19 virus as a result of our failure to comply with legal or hygiene requirements related to COVID-19 in the provision of our services.
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If we face claims under contracts or claims from employees, contractors, vendors, borrowers or others our insurance coverage may not be applicable to, or sufficient to cover, all claims, costs, and damages we incur, which would result in us bearing these costs.
The COVID-19 pandemic and its ramifications could further aggravate, accelerate, or precipitate any of the risk factors discussed below.
Risks Related to Our Business and Operations
We earn the majority of our revenue in connection with providing services to two customers.
The majority of our revenue is earned from providing services to Ocwen and NRZ. If either party substantially reduces the scope or volume of services acquired from us, or otherwise ceases using us as a vendor, it would negatively impact our business. In addition, providing services to these customers affords us the opportunity to provide certain services to third parties. For example, we may have the opportunity to earn commissions or fees from, or we may be able to provide on-line auction services, title insurance and escrow services, or other services to, buyers on certain real estate transactions, and the loss of these customers would also result in the loss of these additional revenue streams.
Customer concentration exposes us to concentrated credit risk, as a significant portion of our accounts receivable may be from one or both of these customers.
If the characteristics of the portfolios of properties on which we provide services for either of these customers were to significantly change, for example to become more rural or lower value, this could impact the type and volume of services that we provide, increase our costs of doing business, or reduce the value of commissions or fees we earn.
Our business concentration or relationships with these two customers may be viewed as a risk or otherwise negatively by other customers or potential customers, impeding our efforts to retain customers or obtain new customers.
Changes that reduce or limit the use of online default real estate auctions or otherwise reduce the volume or rate of success of such auctions can negatively impact our auction marketplace, real estate brokerage and related default services.
Governmental, GSE, servicer or investor actions or action by others that restrict online real estate auctions (foreclosure and REO), or direct the use of auction providers other than us, could negatively impact demand for our auction marketplace, real estate brokerage and related services, and negatively impact our ability to meet certain contractual performance metrics, including those related to aging of assets, time on market and sale price compared to valuation. If we fail to satisfy applicable performance metrics or perform in a manner satisfactory to our customers, such customers may reduce the services they acquire from us or otherwise terminate us as a provider.
We entered into a Cooperative Brokerage Agreement with NRZ’s licensed brokerage subsidiary. If the agreement is terminated, or if there is a significant reduction in the volume of services that we provide pursuant to such agreement, our business and results of operations could be adversely affected.
On August 28, 2017, Altisource, through its licensed subsidiaries, entered into the Brokerage Agreement with NRZ which extends through August 2025. Under this agreement and related amendments, Altisource is the exclusive provider of brokerage services for REO associated with the certain MSRs, irrespective of the subservicer, as long as NRZ owns such MSRs. The Brokerage Agreement may be terminated by NRZ upon the occurrence of certain specified events. Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that there is significant uncertainty about Altisource’s ability to continue as a going concern, failure to maintain a specified level of cash and an unapproved change of control. If any one of these termination events occurs and the Brokerage Agreement is terminated, this could have an adverse impact on business and results of operations.
In addition, NRZ operational changes or other actions that reduce the number of properties converting to REO status could: (i) reduce the volume of services that we provide on the applicable MSRs pursuant to our agreements with Ocwen, and (ii) reduce the volume of services that we provide pursuant to the Brokerage Agreement.
Technology disruptions, failures, defects or inadequacies, delays or difficulties in implementing software or hardware changes, acts of vandalism or the introduction of harmful code could damage our business operations and increase our costs.
We rely on critical technology to provide certain of our services. We rely on our proprietary technology in our Hubzu real estate marketing, Equator, Trelix Connect, Vendorly and other platforms. We leverage third party technology to provide certain
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of our services, including using third party order management and billing technology in our default businesses, and using third party technology to access data or take actions, such as governmental filings, and externally hosted and managed data centers and operating environments. Disruptions, failures, defects or inadequacies in our technology or third party technology or related services we utilize, delays or errors in developing of our technology, or acts of vandalism, misuse or malicious use of our solutions, system attacks or the introduction of malicious code in technology we utilize, may interrupt or delay our ability to provide products or services to our customers, impact our ability to satisfy performance requirements, or cause the loss, corruption or disclosure of data. We may be a particular target for network hackers or others with malicious intent due to our storage and processing of consumer information as part of providing our services or as a result of operating public-facing technology platforms, including, for example, our Hubzu marketing platform. Any sustained and repeated disruptions in these services may have an adverse impact on our and our customers’ business and results of operations and, in the case of acts of vandalism or introduction of harmful code, could necessitate improvements to our physical and cybersecurity practices that may require an investment of money, time and resources.
Many of our services and processes require effective interoperation with internal and external technology platforms and services, and failures in such interoperation could have a negative impact on our operations and the operations of our customers.
Further, 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, or to interoperate with other systems, which changes and improvements may be unfeasible, unsuccessful, costly or time-consuming to implement or may create disruptions in our provision of services to customers. Our customers may refuse to agree to modifications to technology or infrastructure that we provide to them or that interoperate with the technology or infrastructure we provide to them that we may believe are desirable to improve the reliability, performance, efficiency and/or cost in delivering. Additionally, the improper implementation or use of Altisource technology, such as Equator, by customers could adversely 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 use services, products, data and infrastructure provided by third parties to maintain and grow our businesses.
We rely on certain third parties to provide services, products and solutions including certain data, infrastructure, technology, systems and functionality including a third party hosted and managed data center and operating environment (collectively, “Technologies”) critical to our services, including our Hubzu real estate marketing, Equator, TrelixTM Connect, Vendorly®, RentRange® and other solutions. The failure of such third parties to provide or make available the Technologies in accordance with applicable requirements could negatively impact our ability to provide our services or perform transactions and to meet our obligations. In addition, these third parties could cease providing or reduce the availability, type, details or other aspects of the Technologies, and change the pricing, performance or functionality of the Technologies. If such Technologies become unavailable or too expensive and we are unable to obtain suitable alternatives and efficiently and effectively integrate these alternatives into our service offerings or infrastructure, we could experience service disruptions, increased costs and reduced quality of our services.
The Company’s databases contain our proprietary information, the proprietary information of third parties and personal information of our customers, consumers, vendors and employees. Our failure to comply with applicable information management requirements or best practices, or the unauthorized disclosure of information, could subject us to adverse publicity, investigations, fines, costly government enforcement actions or private litigation and expenses.
As part of our business we collect, store, process, transfer and dispose in tangible and electronic forms customer, consumer, vendor and employee personal information (“PI”). We and our vendors rely on processes that are intended to provide necessary notices regarding the collection, storage, processing and destruction of PI, and to permit subjects to exercise their legal rights concerning their PI in our possession. If those processes are not sufficient, we or our vendors may fail to comply with applicable requirements concerning PI. In addition, we rely on the security of our facilities, networks, databases, systems and processes and, in certain circumstances, third parties, such as vendors, to protect PI. If our controls and those of our customers or vendors are not effective, are outdated or do not exist, or if we fail to detect or respond to attacks or intrusions, unauthorized parties may gain access to our networks or databases or information, or those of our customers or vendors with which we interconnect or share information, and they may be able to steal, publish, delete, or modify PI. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of such PI. Further, our efforts to delete or destroy PI may not be consistent with our disclosed policies or may not be successful, resulting in the theft or unintentional disclosure of PI, including when disposing of media on which PI may be stored. In such circumstances, our business could be harmed and we could be liable to our customers, employees or vendors, or to regulators, consumers or other parties, as well as be subject to notification requirements or regulatory or other actions for breaching applicable 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.
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The insurance underwriting loss limitation methods we use could fail.
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 contract with us or 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.
Under certain material agreements that we are currently a party to or may enter into in the future, the formation by shareholders of Altisource of a “group” with ownership of Altisource capital stock exceeding a defined percentage may give rise to a termination event or an event of default.
Under certain of our material agreements a change of control would be deemed to occur if, among other things, a “group” (as that term is used in Sections 13(d) and 14(d) of the Exchange Act) is formed by shareholders holding beneficial ownership of a defined percentage of the combined voting power or economic interest of our capital stock. The Brokerage Agreement with NRZ’s licensed brokerage subsidiary contains a similar provision, and we may enter into material agreements in the future that contain similar provisions. The formation of a “group” could occur without the involvement of or input by us, and we are not in a position to prevent such an event from occurring. Such a change of control could constitute a termination event or an event of default under these agreements.
We rely on third party vendors for many aspects of our business. If our vendor oversight activities are ineffective, we may fail to meet customer or regulatory requirements. We may face difficulties sourcing required vendors or managing our relationships with third party vendors.
We rely on third party vendors to provide goods and services in relation to many aspects of our operations, including certain providers of web-based services or software as services. Our dependence on these vendors makes our operations vulnerable to the unavailability of such third parties, the pricing and quality of services offered by such third parties, solvency of those 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 customer, we are generally responsible for such performance and could be held accountable by the customer for any failure of performance by our vendors. If our vendor sourcing efforts are not effective or if we are otherwise not able to secure an appropriate supply and quality of vendors and services, or if vendors are prohibited or prevented from performing the services or providing the products for which we contract, including as the result of restrictions imposed by state or local governments or health departments, we may be unable to provide services or compliant services. 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 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 contractually 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.
We make extensive use of contractors in certain of our lines of business. If we are required to reclassify contractors as employees, we may incur fines and penalties and additional costs and taxes.
A significant number of contractors provide services in our operations for whom we do not pay or withhold any federal, state or local employment tax or provide employee benefits. These contractors may be retained by us or retained by vendors providing services to us. There are a number of tests used in determining whether an individual is an employee or a contractor. There can be no assurance that legislative, judicial or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our contractors. Although we believe we have properly classified our contractors, and require our vendors to property classify contractors used in connection with providing services to us, the United States Internal Revenue Service or other United States federal or state authorities or similar authorities of a foreign government may determine that we or our vendors have misclassified our contractors for employment tax or other purposes and, as a result, seek additional taxes from us, require us to pay certain
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compensation or benefits to wrongly classified employees, or attempt to impose fines or penalties. In addition, contractors may assert claims that they are our employees and seek to recover compensation, benefits, damages and penalties from us. If we are required to pay employer taxes, pay backup withholding compensation, benefits, damages or penalties with respect to prior periods with respect to or on behalf of our contractors or those of our vendors, our operating costs will increase.
We could have conflicts of interest with Ocwen, NRZ, and/or certain of our shareholders, members of management, employees and members of our Board of Directors, which may be resolved in a manner adverse to us.
We have significant business relationships with and provide services to Ocwen and to NRZ. Certain members of our management and independent members of our Board of Directors (or entities affiliated with such Board of Directors members) have direct or beneficial equity interests in Ocwen or in NRZ, including in one instance, equity interests in Ocwen (slightly less than 10%) and Altisource (approximately 24%) as well as debt of both of these parties, and equity interests in NRZ (less than 1%). Such interests could create, or appear to create, potential conflicts of interest with respect to matters potentially or actually involving or affecting us and Ocwen or NRZ. There can be no assurance that we will implement measures that will enable us to manage potential conflicts with Ocwen or NRZ. There can be no assurance that any current or future measures that may be implemented to manage potential conflicts will be effective or that we will be able to manage or resolve all potential conflicts with Ocwen or NRZ, and, even if we do, that the resolution will be no less favorable to us than if we were dealing with another third party that has none of the connections we have with Ocwen or NRZ.
Further, certain employees, directors and officers have, and may continue to hold interests in, non-wholly owned subsidiaries. Their ownership of these interests may divert their time and attention away from operating our business and may otherwise create or appear to create potential conflicts of interest with us. There can be no guarantee that we will be able to continue to implement appropriate measures to manage these potential conflicts of interest.
Our success depends on the relevant industry experience and relationships of certain members of our Board of Directors, executive officers and other key personnel.
Our success is dependent on the efforts and abilities of members of our Board of Directors, our executive officers and other key employees, many of whom have significant experience in the real estate and mortgage, financial services and technology industries or play a substantial role in our relationship with certain customers. In particular, we are dependent on the services of members of our Board of Directors and key executives at our corporate headquarters and personnel at each of our lines of business and support groups. In addition, certain members of our Board of Directors, executive officers or other key employees have relationships with certain customers or vendors that facilitate our business and operations. The loss of the services of any of these members of our Board of Directors, executives or key personnel could have an adverse effect on our business and results of operations or relationships with certain customers or vendors.
To maintain our substance and leadership as a Luxembourg company, we seek to convene Board meetings in Luxembourg several times each year and our executive management is largely based in Luxembourg. The travel required by our directors, and current restrictions on and requirements to such travel, to Luxembourg may serve as an impediment to attract and retain directors and director candidates. Our Luxembourg location can also make it difficult to attract and retain executive officers and other senior leadership.
We may face difficulties to attract, motivate and retain skilled employees.
Our business is labor intensive and places significant importance on our ability to recruit, engage, train and retain skilled employees. Additionally, demand for qualified professionals with experience in certain businesses (e.g. residential title, valuation and loan underwriting) or technologies may exceed available supply. Our ability to recruit and train employees is critical to achieving our growth objective. Further, some of our business operations require recruiting and retaining employees with certain professional licenses, particularly in the United States. In 2020, we saw an increase demand for professionals licensed to work in our originations and default business, and significant turnover in that area. Our originations business may continue to encounter significant challenges in attracting and retaining employees as needed to satisfy demand or growth expectations for our services, or to be able to limit compensation related costs to make operations economically viable. We may not be able to attract and retain skilled employees, we may face an increase in wages or other costs of attracting, training or retaining skilled employees.
The presence of our operations in multiple countries subject us to risks endemic to those countries.
We have employees and operations outside of the US in countries such as Luxembourg, India and Uruguay. The occurrence of natural disasters, epidemics or other health emergencies, or political or economic instability impacting these countries could interfere with work performed by these labor sources or could result in us having to replace or reduce these labor sources.
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
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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.
Risks Related to our Growth Strategy
We may be unable to realize sales represented by our awarded business or sales pipeline.
We have significantly expanded the scope of services that we provide to our existing customer base and expanded our customer portfolio with the addition of several new customers. As part of our business and financial planning, we make assumptions about the quantity and timing of services that each of these customers will order from us. In many instances, however, our customers may not be obligated to acquire our services or may only be obligated to acquire our services to the extent the customer can make use of such services. Our volume of sales may not materialize to the extent our customers elect to use providers of services other than us, or if economic or industry conditions exist such that our clients do not require the assumed quantity of services. For example, economic conditions and restrictions instituted by governmental authorities, GSEs, servicers or investors in response to the COVID-19 pandemic may negatively impact the quantity or timing of customer demand for our services despite the existence of an agreement. Our customers may use more than one provider for given services resulting in such customers varying over time the quantity or mix of services acquired from us versus other providers. Even in cases where our customer contracts require minimum purchases by a customer, we may be unable or we may determine that it is unadvisable for us to seek to enforce or collect upon the contractual minimums.
We may fail to adapt our services to changes in technology or in the marketplace related to mortgage servicing or originations, changing requirements of governmental authorities, GSEs and customers. Customers may seek to reduce reliance upon or the number of service providers.
The markets for our services are characterized by constant technological and other changes, our customers’ and competitors’ frequent introduction of new services, and evolving industry standards and government regulations. We are currently in the process of, and from time to time will be, developing and introducing new services and technologies and improvements to existing services. Our future success will be significantly affected by our ability to complete our current efforts and in the future enhance, our services and develop and introduce new services that address the increasingly sophisticated needs of our customers and their customers, as well as our ability to reduce costs by relying on cloud architecture and other infrastructure advancements. These efforts may include implementing new real estate auction and marketing capabilities, as well as technological and other modifications to increase efficiency and flexibility in supplying our default-related and originations services. 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, selling and implementing new and improved services. In addition, we may experience difficulties that could delay or prevent the successful development, introduction and marketing of these services. Our services and their enhancements may also not adequately meet the demands of the marketplace or governmental authorities and achieve market acceptance.
Customers of our default-related services and origination services may seek to reduce the number of service providers employed through vendor consolidation, insourcing (providing the services itself) or by other means. Such changes could reduce the demand for our services or control over the prices we are able to charge for our services.
Acquisitions to accelerate growth initiatives involve potential risks.
Historically, our strategy has included the acquisition of complementary businesses from time to time. In the future, we may consider acquisitions of or merger with 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. Because of the obligations to maintain a minimum cash threshold in the Cooperative Brokerage Agreement and restrictions in our senior secured term loan agreement, we may not be able to secure adequate capital as needed on terms that are acceptable to us, or at all.
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. We may have particular integration risks as we are a Luxembourg-domiciled company, resulting in numerous changes that may need to be made immediately or promptly following closing of such an acquisition. In addition, any acquisition may result in the incurrence of additional amortization expense of related intangible assets, which could reduce our profitability.
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Failure to properly and timely integrate any acquired business may result in our inability to realize the expected value from the acquisition, which can lead us to sell or otherwise dispose of the acquired business at a loss.
Risks Related to our Industry
Changes in the housing or mortgage originations markets could negatively impact demand for our services.
A decrease in sales of residential properties in the United States could reduce the demand for certain of our services provided in connection with the marketing and sale of real estate, including services ancillary to the sale, such as closing services and title insurance services. In addition, reduced demand for residential property could depress the price of sales that do occur, negatively impacting commissions and other fees we receive which are set as a percentage of the property sale price.
Reductions in the volume of residential mortgage originations in the United States could decrease the demand for mortgage originations and mortgage insurance related products, including services provided to members of the Lenders One mortgage cooperative.
A reduction in residential mortgage delinquencies, defaults or foreclosures in the United States can negatively affect demand for certain of our services.
We provide certain services to residential mortgage servicers and subservicers, as well as government sponsored entities, federal agencies and others, to protect, preserve, manage and potentially dispose of properties securing residential mortgage loans, when such loans become delinquent, default, undergo foreclosure or become a REO asset. Rates of residential mortgage delinquencies, defaults and foreclosures can be negatively impacted by numerous factors, including strengthening economic conditions, a reduction in the number of residential mortgages outstanding or a reduction in home ownership levels or by governmental action. National servicing standards, federal and state government scrutiny and regulation, requirements specifying loan loss mitigation, modification and foreclosure procedures, rules instituted by governmental authorities, GSEs, servicers or investors preventing actions related to loan delinquencies and foreclosures, including moratoriums on foreclosures and mortgage payment forbearance plans, such as those implemented in response to the COVID-19 pandemic, among others may reduce the number of mortgage loans entering the foreclosure process and suspend pending foreclosure and eviction actions. If these conditions continue, they would likely negatively impact demand for our default services. The expiration dates of certain of these requirements may be indefinite or extended in the future making it difficult to predict when such requirements may end. Reductions in the rates of residential mortgage delinquencies, defaults, foreclosures and REO would likely reduce demand for our services related to inspecting, maintaining, valuing, marketing and selling such assets.
If faced with an extended period of decline in demand for and revenue from certain of our services as a result of economic conditions or due to government, GSE, servicer or investor restrictions related to loan delinquencies and foreclosures, including moratoriums on foreclosures and mortgage payment forbearance plans, such as those implemented in response to the COVID-19 pandemic, we may be unable to sufficiently adjust our cost structure to avoid losses in our operations that provide such impacted services or to maintain our ability to offer those services in the future. In response to such conditions, we may be required to modify or suspend such operations which could negatively impact our ability to timely respond to an increase in demand for such services or to provide such services in the future, or which could cause us to incur significant expense to restart or scale such services in response to an increase in demand.
Developments that reduce the supply or sale of REO could negatively affect demand for certain of our services and negatively impact our ability to meet certain contractual performance metrics.
Reduction in the supply of REO or sales of REO in the United States could reduce the demand for and volume of certain of our services, including REO asset management, REO property inspection and preservation, real estate brokerage and real estate auction and marketing services, as well as sales of REO, especially in cases where more desirable properties are sold at foreclosure auctions and do not convert to REO. For example, we anticipate that the continuation of foreclosure and eviction moratoriums will reduce the supply of REO we receive from our customers through 2021. The reduction in the supply of REO or sales of REO could also impact our ability to meet certain contractually required service metrics, including those related to aging of assets, time on market and sale price compared to valuation. If we fail to satisfy applicable performance metrics or perform in a manner satisfactory to our customers, such customers may reduce the services they acquire from us or otherwise terminate us as a service provider.
Risks Related to Financing, Our Indebtedness and Capital Structure
If we are unable to generate sufficient cash flow or access the capital markets or our borrowing capacity is reduced, our liquidity and competitive position may be negatively affected.
An extended period of reduced demand for our default-related services or for our higher margin default-related services could negatively impact our cash flow such that we may need to use unrestricted cash on hand to satisfy our obligations, which would
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reduce our cash balance negatively impacting our liquidity. If the limitations on foreclosures and evictions, and the forbearance plans, instituted by governmental authorities, GSEs, servicers or investors in response to the COVID-19 pandemic are extended, this could lengthen the period of reduced demand for our default-related services and continue to negatively impact our higher margin default related services, negatively impacting our liquidity.
In addition, our liquidity could be adversely affected by any inability to access the capital markets, volatility in the capital markets, unforeseen outflows of cash, funding for contingencies and increased regulatory liquidity requirements.
Our ability to borrow money could be limited, or our cost of borrowing could increase, due to volatility in the capital markets, worsening terms on which credit is available or limitations in our senior secured term loan agreements. In addition, reduced revenue or cash flow, or volatility in the markets which we support, could negatively impact our ability to borrow or our ability to continue to satisfy the covenants and terms of our senior secured term loan agreements. If we were to have a covenant default under our loan agreements, we would not be able borrow additional funds under our existing agreements and our lenders could seek to enforce the remedies available to them under our loan agreements. A reduction in our ability to borrow funds to support our operations could also reduce our ability to pursue our business strategy to diversify and grow our customer base.
We have a significant net operating loss recognized by one of our Luxembourg subsidiaries, Altisource S.à r.l. We may not be able to fully utilize this deferred tax asset before the net operating loss expires.
In connection with a merger of two of the Company’s wholly-owned subsidiaries in December 2017, which was recognized at fair value, a net operating loss of $1.3 billion with a 17 year life was generated, creating a deferred tax asset of $342.6 million. During 2019, the Company recognized a full valuation allowance with respect to this deferred tax asset. If Altisource S.à r.l. is unable to generate sufficient pretax income by 2034, the Company may not be able to fully utilize this deferred tax asset. In addition, changes in our structure or operations could prevent us from fully realizing the benefit of such deferred tax asset.
Our primary source of liquidity is cash flows from operations. Our level of debt makes us sensitive to the effects of our declining financial performance and interest rate increases; our level of debt and provisions in our senior secured term loan agreement could limit our ability to react to changes in the economy or our industry.
Our senior secured term loan 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 senior secured term loan is secured by virtually all of our assets and from time to time may trade 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 certain senior secured term loan agreements. Additionally, increases in interest rates above 1% will negatively impact our cash flows as the interest rate on our debt is variable. The provisions of our senior secured term loan agreements 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 consolidated excess cash flow, as specified in the senior secured term loan agreements, to repay debt in the event our net debt less marketable securities to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio, as specified in the senior secured term loan agreements, exceed certain thresholds; and
•placing us at a competitive disadvantage by limiting our ability to invest in our 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, and our ability to take these actions may be limited by the terms of our senior secured term loan. 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, we could be forced to sell assets under unfavorable circumstances to make up for any shortfall in our payment obligations. 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 senior secured term loan 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 and potentially permitting lenders to execute applicable security interests, impacting our future operations or ability to engage in other favorable business activities.
In addition, certain senior secured term loan agreements contain covenants that may limit our flexibility in planning for, or reacting to changes in, our business and our industry, including limitations on incurring additional indebtedness, making investments, adding new product lines, disposing or selling of assets, granting liens and merging or consolidating with other
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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.
Our failure to comply with the covenants or terms contained in our senior secured term loan agreements, including as a result of events beyond our control, could result in an event of default.
Our senior secured term loan agreements require us to comply with various operational, reporting and other covenants or terms including, among other things, limiting us from engaging in certain types of transactions. If we experience an event of default under our senior secured term loan agreements that is not cured or waived, it could result in a going concern uncertainty, which in turn could provide certain of our clients the ability to terminate our agreements, and allows the holders of the defaulted debt to cause all amounts outstanding with respect to that debt to be immediately due and payable or choose to execute on applicable security interests. Our assets or cash flows may not be sufficient to fully repay borrowings under our outstanding senior secured term loan if accelerated upon an event of default and we may not be able to refinance or restructure the payments on the senior secured term loan.
We may be unable to repay the balance of our senior secured term loan upon maturity in April 2024, particularly if cash from operations declines, assets are not readily available for sale or we are unable to refinance on favorable terms or at all.
Our senior secured term loan agreements require us to repay the outstanding balance due in April 2024 ($247.2 million, based on scheduled repayments through the maturity date). If our cash from operations declines, there can be no assurance that our cash balances and other assets readily available for sale would be sufficient to fully repay borrowings under our outstanding senior secured term loan upon maturity in April 2024 or that we will be able to refinance the remaining portion of the debt prior to the due date. If we were to default on the senior secured term loan, our lenders could take action adverse to our interests under the terms of the loan agreement, including seeking to take possession of the applicable collateral. Under such circumstances, if we are not able to agree upon a resolution with our lenders, we might seek applicable legal protections including under bankruptcy law, which in turn could provide certain of our clients the ability to terminate our agreements. If we refinance the loan under less favorable terms, we may be more constrained in our ability to finance and operate our business.
Our failure to maintain the net debt less marketable securities to EBITDA ratio contained in our senior secured term loan agreements could result in required payments to the lenders of a percentage of our excess cash flows.
Our senior secured term loan agreements require us to distribute to our lenders 50% of our consolidated excess cash flows, as specified in the senior secured term loan agreements, if our net debt less marketable securities to EBITDA ratio, as defined in the senior secured term loan agreements, exceed 3.50 to 1.00, and 25% of our consolidated excess cash flows if our net debt less marketable securities 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, pay dividends or take other potentially advantageous actions. There can be no assurance that we will maintain net debt less marketable securities to EBITDA ratio at levels that will not require us to distribute a portion of our excess cash flows to lenders.
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.
As a result of prior investments we have made, we significant goodwill and intangible assets recorded in our financial statements. 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 adversely affect our business and results of operations.
Cash, cash equivalents and escrow funds we hold at financial institutions could be lost and not recoverable.
We hold our cash and cash equivalents at various financial institutions, including customer deposits in escrow accounts 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.
Amounts that are held in escrow accounts for limited periods of time are not included in the accompanying consolidated balance sheets. We may become liable for funds owed to third parties as a result of purposeful misappropriation of cash by employees or others, unintentional mistakes or the failure of one or more of these financial institutions. There is no guarantee
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we would recover the funds deposited, whether through Federal Deposit Insurance Corporation coverage, private insurance or otherwise.
Foreign Exchange
We have operations in India, Luxembourg and Uruguay which may result in us being party to non-United States dollar denominated transactions or incurring obligations in currencies other than the United States dollar, including, for example, payroll, taxes, facilities-related expenses. Weakness of the United States dollar in relation to these applicable currencies (e.g., Euro, Indian rupee, Uruguayan peso) may increase our costs.
Risks Relating to Luxembourg Organization and Ownership of Our Shares
We are a Luxembourg company. The rights of shareholder under Luxembourg law may differ in certain respects from the rights afforded to shareholders of companies organized under laws in other jurisdictions. It may also be difficult to obtain and enforce judgments against us or our directors and executive officers.
We are a public limited liability company organized under the laws of, and headquartered in, Luxembourg. As a result, Luxembourg law and our 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 our assets are owned outside of the United States. It may be difficult for our investors to obtain and enforce, in the United States, judgments obtained in United States courts against us or our 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 challenge of the Luxembourg tax regime or of its interpretation by the Luxembourg tax authorities, or its application of us or our business could negative impact us.
We received and historically operated under a tax ruling from the Luxembourg tax authorities, which would have expired in 2019 unless extended or renewed. In connection with an internal reorganization by the Company during 2017, we no longer operate under this tax ruling. 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 pursuant to tax rulings or otherwise 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.
Risks Relating to Regulation
Our business and the business of our customers are subject to extensive scrutiny and legal requirements. We, or our services, may fail or be perceived as failing to comply with applicable legal requirements.
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, HUD and state and local agencies, including those which license or oversee certain of our auction, real estate brokerage, mortgage services, trustee services, residential mortgage origination services and insurance services. We also must comply with a number of federal, state and local consumer protection laws including, among others, the laws and regulations listed in the Government Regulation section of Item 1 of Part I, “Business” above. We are also subject to various foreign laws and regulations based on our operations or the location of our affiliates as well, including those pertaining to data protection, such as the GDPR. These foreign, federal, state and local 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 or may not be predictable or consistent with our interpretations or expectations. 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.
If governmental authorities impose new or more restrictive requirements or enhanced oversight related to our services, we may be required to increase or decrease our prices, modify our contracts or course of dealing and/or we may incur significant additional costs to comply with such requirements. Additionally, we may be unable to adapt our services to conform to the new laws and regulations.
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. Responding to 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
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in allegations or findings of non-compliance, we could incur significant penalties, fines, settlements, costs and consent orders that may curtail, restrict or otherwise have an adverse effect on our business.
Regulatory inquiries or determinations of failures to comply with applicable requirements could increase our costs and expose us to sanctions which could include limitations on our ability to provide services, or otherwise reduce demand for our services. Furthermore, even if we believe we comply with applicable laws and regulations, we may choose to settle such allegations 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, but such settlements may also result in further claims or create issues for existing and potential customers. Such settlements and additional actions could increase costs, place limitations on our services, and result in a reduction in demand.
From time to time, we may be subject to costly and time-consuming regulatory or legal proceedings that claim legal violations or wrongful conduct, including claims for violations of consumer protection laws, laws concerning PI or third party intellectual property rights. These proceedings may involve regulators, customers, our customers’ clients, vendors, competitors, third parties 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 our existing practices, services processes or technologies that are currently revenue generating. Certain regulations to which we are subject provide for potentially significant penalties such that 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; however, such settlements may also result in further claims or create issues for existing and potential customers. Such proceedings and settlement could increase our costs and expose us to sanctions, including limitations on our ability to provide services, or otherwise reduce demand for our services.
We are subject to licensing and regulation as a provider of certain services. If we fail to maintain our licenses or if our licenses are suspended or terminated, we may not be able to provide certain of our services. In addition, the lack of certain licenses in one or more jurisdictions could cause us to breach applicable contracts.
We are required to have and maintain licenses as a provider of certain product and services including, among others, services as a residential mortgage origination underwriter, valuation provider, appraisal management company, asset manager, property manager, title insurance agent, insurance broker and underwriter, real estate broker, auctioneer and foreclosure trustee in a number of jurisdictions. Our employees and subsidiaries may be required to be licensed by various state or regulatory commissions or bodies for the particular type of product or service provided and to participate in regular continuing education programs. If one or more of our licenses are lost, revoked, expire or limited, or if we fail to maintain or otherwise surrender one or more such license, we may be prohibited from doing business in certain markets. Further, certain of our agreements require that we possess and maintain certain licenses. The failure to hold such licenses may result in us breaching certain agreements, which could cause us to be subject to claims for damages, termination of applicable agreements or unable to obtain inputs required for certain of our services.
A violation by our customers of applicable legal requirements in the selection or use of our services could generate legal liability for us.
Certain of our services are provided at the direction and pursuant to the identified requirements of our customers, including property preservation, inspection, foreclosure and eviction services that are triggered by information provided by our customers. The failure of our customers to properly identify or account for regulatory requirements applicable to the use of our services, in selecting appropriate services for the intended purposes, or in specifying how services are rendered could expose us to significant penalties, fines, litigation, settlements, costs and consent orders.
Certain of our customers are subject to governmental oversight, regulations, orders, judgments or settlements which may impose certain obligations and limitations on their use of our services.
Participants in the industries in which we operate are subject to a high level of oversight and regulation. The failure of our services to meet applicable legal requirements could subject us to civil and criminal liability, loss of licensure, damage to our reputation, 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. Such failures could also cause customers to reduce or cease using our services.
Certain of our customers are subject to vendor oversight requirements. As such, we are subject to oversight by our customers. If we do not meet the standards established by or imposed upon our customers, regulators allege that products or services provided by Altisource fail to meet applicable legal requirements, 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.
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The tax regulations, and the interpretation thereof, in the countries, states and local jurisdictions in which we operate periodically change, which may adversely affect our results due to higher taxes, interest and penalties, or our inability to utilize tax credits available to us.
Certain of our subsidiaries provide services in the United States and several other countries. Those jurisdictions are subject to changing tax environments, which may result in higher operating expenses or taxes and which may introduce uncertainty as to the application of tax laws and regulations to our operations. Furthermore, we may determine that we owe additional taxes or may be required to pay taxes for services provided in prior periods as interpretations of tax laws and regulations are clarified or revised. Changes in laws concerning sales tax, gross recipient tax, dividends, retained earnings, application of operating or other losses, and intercompany transactions and loans, among others, could impact us. We may not be able to raise our prices to customers or pass-through such taxes to our customers or vendors in response to changes, which could adversely affect our results of operations. If we fail to accurately anticipate or apply tax laws and regulations to our operations, we could be subject to liabilities and penalties. We may be unable to take advantage of operating losses or other tax credits to the full extent available or at all due to changes in tax regulations or our results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal executive offices are located in leased office space in Luxembourg, Grand Duchy of Luxembourg. Our principal leased offices in other countries as of December 31, 2020 include four offices in the United States and one office each in India and Uruguay.
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
Litigation
We are currently involved in legal actions in the course of our business, some of which seek monetary damages. We do not believe that the outcome of these proceedings, both individually and in the aggregate, will have a material impact on our financial condition, results of operations or cash flows.
Regulatory Matters
Periodically, we are subject to audits, examinations and investigations by federal, state and local governmental authorities and receive subpoenas, civil investigative demands or other requests for information from such governmental authorities in connection with their regulatory or investigative authority. We are currently responding to such inquiries from governmental authorities relating to certain aspects of our business. We believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with these inquiries.
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 25 to the consolidated financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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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 number of holders of record of our common stock as of March 5, 2021 was 336. We believe 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, but may declare dividends in the future. Under Luxembourg law, shareholders need to approve certain dividends. Such approval typically occurs during a company’s annual meeting of shareholders. Luxembourg law imposes limits on our ability to pay dividends 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, also limit our ability to pay dividends.
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, 2020. The graph assumes an investment of $100 at the beginning of this period. 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.
| 12/31/15 | 6/30/16 | 12/31/16 | 6/30/17 | 12/31/17 | 6/30/18 | 12/31/18 | 6/30/19 | 12/31/19 | 6/30/20 | 12/31/20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Altisource | $ | 100.00 | $ | 100.11 | $ | 95.61 | $ | 78.46 | $ | 100.68 | $ | 104.89 | $ | 80.87 | $ | 70.69 | $ | 69.51 | $ | 53.00 | $ | 46.31 | ||||||||||||||||||||||||||||||||||||||||||||||
| S&P 500 Index | 100.00 | 102.69 | 109.54 | 118.57 | 130.81 | 133.00 | 122.65 | 143.93 | 158.07 | 151.68 | 183.77 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NASDAQ Composite Index | 100.00 | 96.71 | 107.50 | 122.63 | 137.86 | 149.98 | 132.51 | 159.89 | 179.19 | 200.88 | 257.38 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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 2021 annual meeting of shareholders to be filed pursuant to Regulation 14A under the Exchange Act.
Issuer Purchases of Equity Securities
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 December 31, 2020, approximately 2.4 million shares of common stock remain available for repurchase under the program. There were no purchases of shares of common stock during the year ended December 31, 2020. We purchased 1.0 million shares at an average price of $20.33 per share during the year ended December 31, 2019 and 1.6 million shares at an average price of $25.53 per share during the year ended December 31, 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 December 31, 2020, we can repurchase up to approximately $91 million of our common stock under Luxembourg law. Our Credit Agreement also limits the amount we can spend on share repurchases, which limit was approximately $430 million as of December 31, 2020, and may prevent repurchases in certain circumstances, including if our leverage ratio exceeds 3.50 to 1.00. Our leverage ratio exceeded 3.50 to 1.00 during the year ended December 31, 2020.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data as of and for the years ended December 31, 2020, 2019, 2018, 2017 and 2016 has been derived from our audited consolidated financial statements. The historical results 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) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
| Revenue | $ | 365,547 | $ | 648,651 | $ | 838,202 | $ | 942,213 | $ | 997,303 | ||||||||||||||||||||||
| Cost of revenue | 305,194 | 493,256 | 622,165 | 699,865 | 690,045 | |||||||||||||||||||||||||||
| Gross profit | 60,353 | 155,395 | 216,037 | 242,348 | 307,258 | |||||||||||||||||||||||||||
| Operating expenses (income): | ||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 92,736 | 141,076 | 175,670 | 192,642 | 214,155 | |||||||||||||||||||||||||||
| Gain on sale of businesses | — | (17,814) | (13,688) | — | — | |||||||||||||||||||||||||||
| Restructuring charges | 11,972 | 14,080 | 11,560 | — | — | |||||||||||||||||||||||||||
| Litigation settlement loss, net of $4,000 insurance recovery | — | — | — | — | 28,000 | |||||||||||||||||||||||||||
| (Loss) income from operations | (44,355) | 18,053 | 42,495 | 49,706 | 65,103 | |||||||||||||||||||||||||||
| Other income (expense), net: | ||||||||||||||||||||||||||||||||
| Interest expense | (17,730) | (21,393) | (26,254) | (22,253) | (24,412) | |||||||||||||||||||||||||||
Unrealized gain (loss) on investment in equity securities(1) | 4,004 | 14,431 | (12,972) | — | — | |||||||||||||||||||||||||||
| Other income (expense), net | 375 | 1,348 | (1,870) | 7,922 | 3,630 | |||||||||||||||||||||||||||
| Total other income (expense), net | (13,351) | (5,614) | (41,096) | (14,331) | (20,782) | |||||||||||||||||||||||||||
| (Loss) income before income taxes and non-controlling interests | (57,706) | 12,439 | 1,399 | 35,375 | 44,321 | |||||||||||||||||||||||||||
| Income tax (provision) benefit | (8,609) | (318,296) | (4,098) | 276,256 | (12,935) | |||||||||||||||||||||||||||
| Net (loss) income | (66,315) | (305,857) | (2,699) | 311,631 | 31,386 | |||||||||||||||||||||||||||
| Net income attributable to non-controlling interests | (841) | (2,112) | (2,683) | (2,740) | (2,693) | |||||||||||||||||||||||||||
| Net (loss) income attributable to Altisource | $ | (67,156) | $ | (307,969) | $ | (5,382) | $ | 308,891 | $ | 28,693 | ||||||||||||||||||||||
| (Loss) income per share: | ||||||||||||||||||||||||||||||||
| Basic | $ | (4.31) | $ | (19.26) | $ | (0.32) | $ | 16.99 | $ | 1.53 | ||||||||||||||||||||||
| Diluted | $ | (4.31) | $ | (19.26) | $ | (0.32) | $ | 16.53 | $ | 1.46 | ||||||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||
| Basic | 15,598 | 15,991 | 17,073 | 18,183 | 18,696 | |||||||||||||||||||||||||||
| Diluted | 15,598 | 15,991 | 17,073 | 18,692 | 19,612 | |||||||||||||||||||||||||||
| Outstanding shares (at December 31) | 15,664 | 15,454 | 16,276 | 17,418 | 18,774 | |||||||||||||||||||||||||||
Non-GAAP Financial Measures(2) | ||||||||||||||||||||||||||||||||
| Adjusted net (loss) income attributable to Altisource | $ | (29,121) | $ | 21,802 | $ | 42,609 | $ | 55,617 | $ | 94,884 | ||||||||||||||||||||||
| Adjusted diluted (loss) earnings per share | $ | (1.87) | $ | 1.34 | $ | 2.43 | $ | 2.98 | $ | 4.84 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 10,243 | $ | 70,800 | $ | 118,279 | $ | 130,687 | $ | 184,501 | ||||||||||||||||||||||
27
| December 31, | ||||||||||||||||||||||||||||||||
| (in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 58,263 | $ | 82,741 | $ | 58,294 | $ | 105,006 | $ | 149,294 | ||||||||||||||||||||||
| Investment in equity securities | — | 42,618 | 36,181 | 49,153 | 45,754 | |||||||||||||||||||||||||||
| Accounts receivable, net | 22,413 | 43,615 | 36,466 | 52,740 | 87,821 | |||||||||||||||||||||||||||
| Short-term investments in real estate | — | — | 39,873 | 29,405 | 13,025 | |||||||||||||||||||||||||||
| Premises and equipment, net | 11,894 | 24,526 | 45,631 | 73,273 | 103,473 | |||||||||||||||||||||||||||
| Goodwill | 73,849 | 73,849 | 81,387 | 86,283 | 86,283 | |||||||||||||||||||||||||||
| Intangible assets, net | 46,326 | 61,046 | 91,653 | 120,065 | 155,432 | |||||||||||||||||||||||||||
| Total assets | 265,685 | 394,256 | 741,700 | 865,164 | 689,212 | |||||||||||||||||||||||||||
| Long-term debt (including current portion) | 242,656 | 287,882 | 331,476 | 409,281 | 473,545 | |||||||||||||||||||||||||||
| Total liabilities | 348,241 | 415,613 | 445,032 | 525,179 | 627,018 | |||||||||||||||||||||||||||
Net debt less investment in equity securities(2) | 188,941 | 168,467 | 244,347 | 259,422 | 284,605 | |||||||||||||||||||||||||||
_________________________
(1)Effective January 1, 2018, mark-to-market adjustments of our investment in equity securities are reflected in our results of operations in connection with the adoption of a new accounting principle (previously reflected in comprehensive income).
(2) These are non-GAAP measures that are defined and reconciled to the corresponding GAAP measures on pages 28 to 33.
Significant events affecting our historical earnings trends from 2018 through 2020, are described in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
28
NON-GAAP MEASURES
Adjusted net (loss) income attributable to Altisource, adjusted diluted (loss) earnings per share, adjusted earnings before interest, taxes depreciation and amortization (“Adjusted EBITDA”) and net debt less investment in equity securities, which are presented 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. These measures do not purport to be alternatives to net (loss) income attributable to Altisource, diluted (loss) earnings per share and long-term debt, including current portion, 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 and cash flow generation more on the basis of continuing cost and cash flows as they exclude amortization expense related to acquisitions that occurred in prior periods and non-cash share-based compensation expense and/or depreciation expense, financing expense and income taxes, as well as the effect of more significant non-operational items from earnings and long-term debt net of cash on-hand and investment in equity securities. 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-operational 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. The non-GAAP financial information should not be unduly relied upon.
Adjusted net (loss) income attributable to Altisource is calculated by removing intangible asset amortization expense (net of tax), share-based compensation expense (net of tax), restructuring charges (net of tax), Pointillist losses (net of tax), unrealized gain (loss) on investment in equity securities (net of tax), third quarter 2020 cost saving initiatives (net of tax), loss on BRS portfolio sale (net of tax), gain on sale of businesses (net of tax), sales tax net accrual (reimbursements) (net of tax), goodwill and intangible and other assets write-off from business exits (net of tax), write-off of net discount and debt issuance costs from debt refinancing (net of tax), litigation settlement loss, net of insurance recovery (net of tax) and certain income tax related items relating to adjustments to foreign income tax reserves, the Luxembourg deferred tax asset from the Luxembourg subsidiary merger in 2017 and increase in the valuation allowance in 2019 and income tax rate changes in Luxembourg, India and the United States from net (loss) income attributable to Altisource. Adjusted diluted (loss) earnings per share is calculated by dividing net (loss) income attributable to Altisource after removing intangible asset amortization expense (net of tax), share-based compensation expense (net of tax), restructuring charges (net of tax), Pointillist losses (net of tax), unrealized gain (loss) on investment in equity securities (net of tax), third quarter 2020 cost saving initiatives (net of tax), loss on BRS portfolio sale (net of tax), gain on sale of businesses (net of tax), sales tax net accrual (reimbursements) (net of tax), goodwill and intangible and other assets write-off from business exits (net of tax), write-off of net discount and debt issuance costs from debt refinancing (net of tax), litigation settlement loss, net of insurance recovery (net of tax) and certain income tax related items described above by the weighted average number of diluted shares. Adjusted EBITDA is calculated by removing the income tax (provision) benefit, interest expense (net of interest income), depreciation and amortization, intangible asset amortization expense, share-based compensation expense, restructuring charges, Pointillist losses, unrealized gain (loss) on investment in equity securities, third quarter 2020 cost savings initiatives, loss on BRS portfolio sale, sales tax net accrual (reimbursements), goodwill and intangible and other assets write-off from business exits, write-off of net discount and debt issuance costs from debt refinancing, and litigation settlement loss, net of insurance recovery from net (loss) income attributable to Altisource. Net debt less investment in equity securities is calculated as long-term debt, including current portion, less cash and cash equivalents and investment in equity securities.
29
Reconciliations of the non-GAAP measures to the corresponding GAAP measures are set forth in the following tables:
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
| Net (loss) income attributable to Altisource | $ | (67,156) | $ | (307,969) | $ | (5,382) | $ | 308,891 | $ | 28,693 | ||||||||||||||||||||||
Intangible asset amortization expense, net of tax | 14,650 | 14,277 | 19,905 | 27,523 | 36,819 | |||||||||||||||||||||||||||
Share-based compensation expense, net of tax | 6,939 | 8,913 | 7,141 | 3,311 | 4,789 | |||||||||||||||||||||||||||
Restructuring charges, net of tax | 10,586 | 10,666 | 8,966 | — | — | |||||||||||||||||||||||||||
| Pointillist losses, net of tax | 8,914 | — | — | — | — | |||||||||||||||||||||||||||
Unrealized (gain) loss on investment in equity securities, net of tax | (4,004) | (10,832) | 9,598 | — | — | |||||||||||||||||||||||||||
| Third quarter 2020 cost savings initiatives, net of tax | 565 | — | — | — | — | |||||||||||||||||||||||||||
Loss on BRS portfolio sale, net of tax | — | 1,405 | — | — | — | |||||||||||||||||||||||||||
| Gain on sale of businesses, net of tax | — | (10,642) | (9,341) | — | — | |||||||||||||||||||||||||||
| Sales tax net accrual (reimbursement), net of tax | (2,677) | 233 | 4,608 | — | — | |||||||||||||||||||||||||||
| Goodwill and intangible and other assets write-off from business exits, net of tax | — | 4,578 | 1,953 | — | — | |||||||||||||||||||||||||||
Write-off of net discount and debt issuance costs from debt refinancing, net of tax | — | — | 3,232 | — | — | |||||||||||||||||||||||||||
Certain income tax related items, net | 3,062 | 311,173 | 1,588 | (284,108) | — | |||||||||||||||||||||||||||
| Net litigation settlement loss, net of tax | — | — | 341 | — | 24,583 | |||||||||||||||||||||||||||
| Adjusted net (loss) income attributable to Altisource | $ | (29,121) | $ | 21,802 | $ | 42,609 | $ | 55,617 | $ | 94,884 | ||||||||||||||||||||||
| Diluted (loss) earnings per share | $ | (4.31) | $ | (19.26) | $ | (0.32) | $ | 16.53 | $ | 1.46 | ||||||||||||||||||||||
| Impact of using diluted share count instead of basic share count for a loss per share | — | 0.34 | 0.01 | — | — | |||||||||||||||||||||||||||
Intangible asset amortization expense, net of tax, per diluted share | 0.94 | 0.88 | 1.14 | 1.47 | 1.88 | |||||||||||||||||||||||||||
Share-based compensation expense, net of tax, per diluted share | 0.44 | 0.55 | 0.41 | 0.18 | 0.24 | |||||||||||||||||||||||||||
Restructuring charges, net of tax, per diluted share | 0.68 | 0.66 | 0.51 | — | — | |||||||||||||||||||||||||||
| Pointillist losses, net of tax, per diluted share | 0.57 | — | — | — | — | |||||||||||||||||||||||||||
Unrealized (gain) loss on investment in equity securities, net of tax, per diluted share | (0.26) | (0.67) | 0.55 | — | — | |||||||||||||||||||||||||||
| Third quarter 2020 cost savings initiatives, net of tax, per diluted share | 0.04 | — | — | — | — | |||||||||||||||||||||||||||
Loss on BRS portfolio sale, net of tax, per diluted share | — | 0.09 | — | — | — | |||||||||||||||||||||||||||
| Gain on sale of businesses, net of tax, per diluted share | — | (0.65) | (0.53) | — | — | |||||||||||||||||||||||||||
| Sales tax net accrual (reimbursement) net of tax, per diluted share | (0.17) | 0.01 | 0.26 | — | — | |||||||||||||||||||||||||||
Goodwill and intangible and other assets write-off from business exits, net of tax, per diluted share | — | 0.28 | 0.11 | — | — | |||||||||||||||||||||||||||
Write-off of net discount and debt issuance costs from debt refinancing, net of tax, per diluted share | — | — | 0.18 | — | — | |||||||||||||||||||||||||||
Certain income tax related items, net, per diluted share | 0.20 | 19.12 | 0.09 | (15.20) | — | |||||||||||||||||||||||||||
| Net litigation settlement loss, net of tax, per diluted share | — | — | 0.02 | — | 1.25 | |||||||||||||||||||||||||||
| Adjusted diluted (loss) earnings per share | $ | (1.87) | $ | 1.34 | $ | 2.43 | $ | 2.98 | $ | 4.84 | ||||||||||||||||||||||
30
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
| Calculation of the impact of intangible asset amortization expense, net of tax | ||||||||||||||||||||||||||||||||
| Intangible asset amortization expense | $ | 14,720 | $ | 19,021 | $ | 28,412 | $ | 35,367 | $ | 47,576 | ||||||||||||||||||||||
| Tax benefit from intangible asset amortization | (70) | (4,744) | (8,507) | (7,844) | (10,757) | |||||||||||||||||||||||||||
Intangible asset amortization expense, net of tax | 14,650 | 14,277 | 19,905 | 27,523 | 36,819 | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
Intangible asset amortization expense, net of tax, per diluted share | $ | 0.94 | $ | 0.88 | $ | 1.14 | $ | 1.47 | $ | 1.88 | ||||||||||||||||||||||
| Calculation of the impact of share-based compensation expense, net of tax | ||||||||||||||||||||||||||||||||
| Share-based compensation expense | $ | 7,804 | $ | 11,874 | $ | 10,192 | $ | 4,255 | $ | 6,188 | ||||||||||||||||||||||
| Tax benefit from share-based compensation expense | (865) | (2,961) | (3,051) | (944) | (1,399) | |||||||||||||||||||||||||||
Share-based compensation expense, net of tax | 6,939 | 8,913 | 7,141 | 3,311 | 4,789 | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
Share-based compensation expense, net of tax, per diluted share | $ | 0.44 | $ | 0.55 | $ | 0.41 | $ | 0.18 | $ | 0.24 | ||||||||||||||||||||||
| Calculation of the impact of restructuring charges, net of tax | ||||||||||||||||||||||||||||||||
| Restructuring charges | $ | 11,972 | $ | 14,080 | $ | 11,560 | $ | — | $ | — | ||||||||||||||||||||||
| Tax benefit from restructuring charges | (1,386) | (3,414) | (2,594) | — | — | |||||||||||||||||||||||||||
Restructuring charges, net of tax | 10,586 | 10,666 | 8,966 | — | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
Restructuring charges, net of tax, per diluted share | $ | 0.68 | $ | 0.66 | $ | 0.51 | $ | — | $ | — | ||||||||||||||||||||||
| Calculation of the impact of Pointillist losses, net of tax | ||||||||||||||||||||||||||||||||
| Pointillist losses | $ | 7,999 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
| Tax provision from Pointillist losses | 915 | — | — | — | — | |||||||||||||||||||||||||||
| Pointillist losses, net of tax | 8,914 | — | — | — | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
| Pointillist losses, net of tax, per diluted share | $ | 0.57 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
| Calculation of the impact of the unrealized (gain) loss on investment in equity securities, net of tax | ||||||||||||||||||||||||||||||||
| Unrealized (gain) loss on investment in equity securities | $ | (4,004) | $ | (14,431) | $ | 12,972 | $ | — | $ | — | ||||||||||||||||||||||
| Tax provision (benefit) from the unrealized (gain) loss on investment in equity securities | — | 3,599 | (3,374) | — | — | |||||||||||||||||||||||||||
Unrealized (gain) loss on investment in equity securities, net of tax | (4,004) | (10,832) | 9,598 | — | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
Unrealized (gain) loss on investment in equity securities, net of tax, per diluted share | $ | (0.26) | $ | (0.67) | $ | 0.55 | $ | — | $ | — | ||||||||||||||||||||||
| Calculation of the impact of third quarter 2020 cost savings initiatives, net of tax | ||||||||||||||||||||||||||||||||
| Third quarter 2020 cost savings initiatives | $ | 697 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
| Tax benefit from third quarter 2020 cost savings initiatives | (132) | — | — | — | — | |||||||||||||||||||||||||||
| Third quarter 2020 cost savings initiatives, net of tax | 565 | — | — | — | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
| Third quarter 2020 cost savings initiatives, net of tax, per diluted share | $ | 0.04 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
31
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
| Calculation of the impact of loss on BRS portfolio sale, net of tax | ||||||||||||||||||||||||||||||||
| Loss on BRS portfolio sale | $ | — | $ | 1,770 | $ | — | $ | — | $ | — | ||||||||||||||||||||||
| Tax benefit from loss on BRS portfolio sale | — | (365) | — | — | — | |||||||||||||||||||||||||||
Loss on BRS portfolio sale, net of tax | — | 1,405 | — | — | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
Loss on BRS portfolio sale, net of tax, per diluted share | $ | — | $ | 0.09 | $ | — | $ | — | $ | — | ||||||||||||||||||||||
| Calculation of the impact of gain on sale of businesses, net of tax | ||||||||||||||||||||||||||||||||
| Gain on sale of businesses | $ | — | $ | (17,814) | $ | (13,688) | $ | — | $ | — | ||||||||||||||||||||||
| Tax provision from gain on sale of businesses | — | 7,172 | 4,347 | — | — | |||||||||||||||||||||||||||
| Gain on sale of businesses, net of tax | — | (10,642) | (9,341) | — | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
| Gain on sale of businesses, net of tax, per diluted share | $ | — | $ | (0.65) | $ | (0.53) | $ | — | $ | — | ||||||||||||||||||||||
| Calculation of the impact of sales tax net accrual (reimbursement), net of tax | ||||||||||||||||||||||||||||||||
| Sales tax net accrual (reimbursement) | $ | (2,677) | $ | 311 | $ | 6,228 | $ | — | $ | — | ||||||||||||||||||||||
| Tax benefit from sales tax net accrual (reimbursement) | — | (78) | (1,620) | — | — | |||||||||||||||||||||||||||
| Sales tax net accrual (reimbursement), net of tax | (2,677) | 233 | 4,608 | — | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
| Sales tax net accrual (reimbursement) net of tax, per diluted share | $ | (0.17) | $ | 0.01 | $ | 0.26 | $ | — | $ | — | ||||||||||||||||||||||
| Calculation of the impact of goodwill and intangible and other assets write-off from business exits, net of tax | ||||||||||||||||||||||||||||||||
Goodwill and intangible and other assets write-off from business exits | $ | — | $ | 6,102 | $ | 2,640 | $ | — | $ | — | ||||||||||||||||||||||
| Tax benefit from goodwill and intangible and other assets write-off from business exits | — | (1,524) | (687) | — | — | |||||||||||||||||||||||||||
| Goodwill and intangible and other assets write-off from business exits, net of tax | — | 4,578 | 1,953 | — | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
Goodwill and intangible and other assets write-off from business exits, net of tax, per diluted share | $ | — | $ | 0.28 | $ | 0.11 | $ | — | $ | — | ||||||||||||||||||||||
| Calculation of the impact of the write-off of net discount and debt issuance costs from debt refinancing, net of tax | ||||||||||||||||||||||||||||||||
Write-off of net discount and debt issuance costs from debt refinancing | $ | — | $ | — | $ | 4,434 | $ | — | $ | — | ||||||||||||||||||||||
| Tax benefit from the write-off of net discount and debt issuance costs from debt refinancing | — | — | (1,202) | — | — | |||||||||||||||||||||||||||
Write-off of net discount and debt issuance costs from debt refinancing, net of tax | — | — | 3,232 | — | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
Write-off of net discount and debt issuance costs from debt refinancing, net of tax, per diluted share | $ | — | $ | — | $ | 0.18 | $ | — | $ | — | ||||||||||||||||||||||
32
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
| Certain income tax related items resulting from: | ||||||||||||||||||||||||||||||||
| Luxembourg deferred tax valuation allowance and Luxembourg subsidiaries merger, net | $ | — | $ | 291,484 | $ | — | $ | (300,908) | $ | — | ||||||||||||||||||||||
| Income tax rate changes | 1,384 | 14,040 | — | 6,270 | — | |||||||||||||||||||||||||||
| Foreign income tax reserves | 1,678 | 5,649 | 1,588 | 10,530 | — | |||||||||||||||||||||||||||
Certain income tax related items, net | 3,062 | 311,173 | 1,588 | (284,108) | — | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
Certain income tax related items, net, per diluted share | $ | 0.20 | $ | 19.12 | $ | 0.09 | $ | (15.20) | $ | — | ||||||||||||||||||||||
| Calculation of the impact of net litigation settlement loss, net of tax | ||||||||||||||||||||||||||||||||
| Net litigation settlement loss | $ | — | $ | — | $ | 500 | $ | — | $ | 28,000 | ||||||||||||||||||||||
| Tax benefit from net litigation settlement loss | — | — | (159) | — | (3,417) | |||||||||||||||||||||||||||
| Net litigation settlement loss, net of tax | — | — | 341 | — | 24,583 | |||||||||||||||||||||||||||
| Diluted share count | 15,598 | 16,277 | 17,523 | 18,692 | 19,612 | |||||||||||||||||||||||||||
| Net litigation settlement loss, net of tax, per diluted share | $ | — | $ | — | $ | 0.02 | $ | — | $ | 1.25 | ||||||||||||||||||||||
| Net (loss) income attributable to Altisource | $ | (67,156) | $ | (307,969) | $ | (5,382) | $ | 308,891 | $ | 28,693 | ||||||||||||||||||||||
| Income tax provision (benefit) | 8,609 | 318,296 | 4,098 | (276,256) | 12,935 | |||||||||||||||||||||||||||
Interest expense (net of interest income) | 17,616 | 21,051 | 25,514 | 21,983 | 24,321 | |||||||||||||||||||||||||||
| Depreciation and amortization | 14,890 | 18,509 | 30,799 | 36,447 | 36,788 | |||||||||||||||||||||||||||
| Intangible asset amortization expense | 14,720 | 19,021 | 28,412 | 35,367 | 47,576 | |||||||||||||||||||||||||||
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