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asps-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-34354

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

(Exact name of registrant as specified in its Charter)


Luxembourg			98-0554932
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

33, Boulevard Prince Henri

L-1724 Luxembourg

Grand Duchy of Luxembourg

(Address of principal executive offices)

(352) 27 61 49 00

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $1.00 par value

ASPS

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☑

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of October 28, 2022, there were 16,123,433 outstanding shares of the registrant’s common stock (excluding 9,289,315 shares held as treasury stock).

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-Q


			Page
PART I — Financial Information

	Item 1	Interim Condensed Consolidated Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations and Comprehensive Loss	4
		Condensed Consolidated Statements of Equity	5
		Condensed Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

	Item 3	Quantitative and Qualitative Disclosures about Market Risk	49

	Item 4	Controls and Procedures	49

PART II — Other Information

	Item 1	Legal Proceedings	50

	Item 1A	Risk Factors	50

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	50

	Item 6	Exhibits	51

SIGNATURES			52

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	September 30, 2022		December 31, 2021

ASSETS
Current assets:
Cash and cash equivalents	$	63,812	$	98,132

Accounts receivable, net	14,335		18,008
Prepaid expenses and other current assets	21,704		21,864
Total current assets	99,851		138,004

Premises and equipment, net	4,970		6,873
Right-of-use assets under operating leases	5,965		7,594
Goodwill	55,960		55,960
Intangible assets, net	33,010		36,859
Deferred tax assets, net	6,023		6,386
Other assets	5,503		6,132

Total assets	$	211,282	$	257,808

LIABILITIES AND DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	41,456	$	46,535

Deferred revenue	4,050		4,342
Other current liabilities	3,095		3,870
Total current liabilities	48,601		54,747

Long-term debt	244,844		243,637
Deferred tax liabilities, net	8,849		9,028

Other non-current liabilities	17,508		19,266

Commitments, contingencies and regulatory matters (Note 21)

Equity (deficit):
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 16,117 outstanding as of September 30, 2022; 15,911 outstanding as of December 31, 2021)	25,413		25,413
Additional paid-in capital	148,197		144,298
Retained earnings	131,124		186,592
Treasury stock, at cost (9,296 shares as of September 30, 2022 and 9,502 shares as of December 31, 2021)	(414,102)		(426,445)
Altisource deficit	(109,368)		(70,142)

Non-controlling interests	848		1,272
Total deficit	(108,520)		(68,870)

Total liabilities and deficit	$	211,282	$	257,808

See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

Revenue	$	38,380	$	43,243	$	118,317	$	139,749
Cost of revenue	34,387		40,667		104,611		134,862

Gross profit	3,993		2,576		13,706		4,887


Selling, general and administrative expenses	14,556		16,604		43,055		52,046



Loss from operations	(10,563)		(14,028)		(29,349)		(47,159)
Other income (expense), net:
Interest expense	(4,349)		(3,755)		(11,439)		(10,672)

Other income (expense), net	459		(115)		1,392		791
Total other income (expense), net	(3,890)		(3,870)		(10,047)		(9,881)

Loss before income taxes and non-controlling interests	(14,453)		(17,898)		(39,396)		(57,040)
Income tax benefit (provision)	197		(430)		(2,210)		(1,857)

Net loss	(14,256)		(18,328)		(41,606)		(58,897)
Net (income) loss attributable to non-controlling interests	(133)		59		(468)		151

Net loss attributable to Altisource	$	(14,389)	$	(18,269)	$	(42,074)	$	(58,746)

Loss per share:
Basic	$	(0.89)	$	(1.15)	$	(2.62)	$	(3.71)
Diluted	$	(0.89)	$	(1.15)	$	(2.62)	$	(3.71)

Weighted average shares outstanding:
Basic	16,087		15,831		16,051		15,816
Diluted	16,087		15,831		16,051		15,816

Comprehensive loss:

Comprehensive loss, net of tax	$	(14,256)	$	(18,328)	$	(41,606)	$	(58,897)
Comprehensive (income) loss attributable to non-controlling interests	(133)		59		(468)		151

Comprehensive loss attributable to Altisource	$	(14,389)	$	(18,269)	$	(42,074)	$	(58,746)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)


	Altisource Equity (Deficit)
	Common stock			Additional paid-in capital		Retained earnings		Treasury stock, at cost		Non-controlling interests		Total
	Shares

Balance, December 31, 2020	25,413	$	25,413	$	141,473	$	190,383	$	(441,034)	$	1,209	$	(82,556)

Net loss	—	—		—		(22,002)		—		87		(21,915)
Distributions to non-controlling interest holders	—	—		—		—		—		(1,395)		(1,395)
Share-based compensation expense	—	—		1,438		—		—		—		1,438
Issuance of restricted share units and restricted shares	—	—		—		(5,905)		5,905		—		—
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(3,586)		2,756		—		(830)

Balance, March 31, 2021	25,413	$	25,413	$	142,911	$	158,890	$	(432,373)	$	(99)	$	(105,258)

Net loss	—	—		—		(18,475)		—		(179)		(18,654)
Distributions to non-controlling interest holders	—	—		—		—		—		(356)		(356)
Share-based compensation expense	—	—		641		—		—		—		641

Issuance of restricted share units and restricted shares	—	—		—		(4,574)		4,574		—		—
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(571)		474		—		(97)

Balance, June 30, 2021	25,413	$	25,413	$	143,552	$	135,270	$	(427,325)	$	(634)	$	(123,724)

Net loss	—	—		—		(18,269)		—		(59)		(18,328)
Distributions to non-controlling interest holders	—	—		—		—		—		(53)		(53)
Share-based compensation expense	—	—		431		—		—		—		431
Issuance of restricted share units and restricted shares	—	—		—		(84)		84		—		—
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(36)		27		—		(9)

Balance, September 30, 2021	25,413	$	25,413	$	143,983	$	116,881	$	(427,214)	$	(746)	$	(141,683)

See accompanying notes to condensed consolidated financial statements.

Table of Contents


	Altisource Equity (Deficit)
	Common stock			Additional paid-in capital		Retained earnings		Treasury stock, at cost		Non-controlling interests		Total
	Shares
Balance, December 31, 2021	25,413	$	25,413	$	144,298	$	186,592	$	(426,445)	$	1,272	$	(68,870)

Net loss	—	—		—		(12,190)		—		161		(12,029)
Distributions to non-controlling interest holders	—	—		—		—		—		(264)		(264)
Share-based compensation expense	—	—		1,290		—		—		—		1,290


Issuance of restricted share units and restricted shares	—	—		—		(6,560)		6,560		—		—
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(4,046)		3,032		—		(1,014)

Balance, March 31, 2022	25,413	$	25,413	$	145,588	$	163,796	$	(416,853)	$	1,169	$	(80,887)

Net loss	—	—		—		(15,495)		—		174		(15,321)

Distributions to non-controlling interest holders	—	—		—		—		—		(486)		(486)
Share-based compensation expense	—	—		1,289		—		—		—		1,289


Issuance of restricted share units and restricted shares	—	—		—		(2,384)		2,384		—		—
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(38)		29		—		(9)


Balance, June 30, 2022	25,413	$	25,413	$	146,877	$	145,879	$	(414,440)	$	857	$	(95,414)

Net loss	—	—		—		(14,389)		—		133		(14,256)
Distributions to non-controlling interest holders	—	—		—		—		—		(142)		(142)
Share-based compensation expense	—	—		1,320		—		—		—		1,320
Issuance of restricted share units and restricted shares	—	—		—		(260)		260		—		—
Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances	—	—		—		(106)		78		—		(28)

Balance, September 30, 2022	25,413	$	25,413	$	148,197	$	131,124	$	(414,102)	$	848	$	(108,520)

See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Nine months ended September 30,
	2022		2021

Cash flows from operating activities:
Net loss	$	(41,606)	$	(58,897)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,700		3,479
Amortization of right-of-use assets under operating leases	2,254		6,340
Amortization of intangible assets	3,849		8,183



Share-based compensation expense	3,899		2,510
Bad debt expense	578		1,268

Amortization of debt discount	495		499
Amortization of debt issuance costs	712		623
Deferred income taxes	(329)		8
Loss on disposal of fixed assets	1		117
Other non-cash items	—		137


Changes in operating assets and liabilities:
Accounts receivable	3,095		1,846

Prepaid expenses and other current assets	160		598
Other assets	363		1,439
Accounts payable and accrued expenses	(5,014)		(2,738)
Current and non-current operating lease liabilities	(2,444)		(6,958)
Other current and non-current liabilities	(1,006)		413
Net cash used in operating activities	(32,293)		(41,133)

Cash flows from investing activities:
Additions to premises and equipment	(863)		(1,125)
Proceeds from the sale of business	346		3,000

Net cash (used in) provided by investing activities	(517)		1,875

Cash flows from financing activities:
Proceeds from revolving credit facility	—		20,000
Debt issuance costs	—		(531)
Proceeds from convertible debt payable to related parties (Note 1)	—		1,200
Distributions to non-controlling interests	(892)		(1,804)
Payments of tax withholding on issuance of restricted share units and restricted shares	(1,051)		(936)
Net cash (used in) provided by financing activities	(1,943)		17,929

Net decrease in cash, cash equivalents and restricted cash	(34,753)		(21,329)
Cash, cash equivalents and restricted cash at the beginning of the period	102,149		62,096

Cash, cash equivalents and restricted cash at the end of the period	$	67,396	$	40,767

Supplemental cash flow information:
Interest paid	$	10,167	$	9,373
Income taxes paid, net	2,556		2,736
Acquisition of right-of-use assets with operating lease liabilities	797		6,976
Reduction of right-of-use assets from operating lease modifications or reassessments	(172)		(5,665)

Non-cash investing and financing activities:
Net decrease in payables for purchases of premises and equipment	$	(65)	$	(47)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets and the unaudited consolidated statements of cash flows:
	September 30, 2022		September 30, 2021

Cash and cash equivalents	$	63,812	$	36,492
Restricted cash	3,584		4,275
Total cash, cash equivalents and restricted cash reported in the statements of cash flows	$	67,396	$	40,767

See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Description of Business

Altisource Portfolio Solutions S.A., together with its subsidiaries (which may be referred to as “Altisource,” the “Company,” “we,” “us” or “our”), is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing markets we serve.

We are publicly traded on the NASDAQ Global Select Market under the symbol “ASPS.” We are organized under the laws of the Grand Duchy of Luxembourg.

Basis of Accounting and Presentation

The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the interim data includes all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented. The preparation of interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our interim condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Intercompany transactions and accounts have been eliminated in consolidation.

Effective January 1, 2022, our reportable segments changed as a result of a change in the way our Chief Executive Officer (our chief operating decision maker) manages our businesses, allocates resources and evaluates performance, and the related changes in our internal organization. We now report our operations through two reportable segments: Servicer and Real Estate and Origination. In addition, we report Corporate and Others separately. Prior to the January 1, 2022 change in reportable segments, the Company operated with one reportable segment (total Company). Prior year comparable period segment disclosures have been restated to conform to the current year presentation. See Note 22 for a description of our business segments.

Altisource consolidates Best Partners Mortgage Cooperative, Inc., which is managed by The Mortgage Partnership of America, L.L.C. (“MPA”), a wholly-owned subsidiary of Altisource. Best Partners Mortgage Cooperative, Inc. is a mortgage cooperative doing business as Lenders One® (“Lenders One”). MPA provides services to Lenders One under a management agreement that ends on December 31, 2025 (with renewals for three successive five-year periods at MPA’s option).

The management agreement between MPA and Lenders One, pursuant to which MPA is the management company, represents a variable interest in a variable interest entity. MPA is the primary beneficiary of Lenders One as it has the power to direct the activities that most significantly impact the cooperative’s economic performance and the right to receive benefits from the cooperative. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements on a consolidated basis and the interests of the members are reflected as non-controlling interests. As of September 30, 2022, Lenders One had total assets of $1.1 million and total liabilities of $0.8 million. As of December 31, 2021, Lenders One had total assets of $2.2 million and total liabilities of $1.4 million.

In 2019, Altisource created Pointillist, Inc. (“Pointillist”) and contributed the Pointillist® customer journey analytics business and $8.5 million to it. On May 27, 2021, Pointillist issued $1.3 million in principal of convertible notes to related parties with a maturity date of January 1, 2023. The notes bore interest at a rate of 7% per annum. The principal and unpaid accrued interest then outstanding under the notes (1) would automatically convert to Pointillist equity at the earlier of the time Pointillist receives proceeds of $5.0 million or more from the sale of its equity or January 1, 2023, or (2) are repaid in cash or converted into Pointillist common stock equity based on a $13.1 million Pointillist valuation (at the Lenders’ option) in the event of a corporate transaction or initial public offering of Pointillist. On December 1, 2021, the notes were converted to Pointillist equity and Altisource and other shareholders of Pointillist sold all of the equity interests in Pointillist (See Note 3 for additional information). Prior to the sale, Pointillist was owned by Altisource and management of Pointillist, with management of Pointillist owning a non-controlling interest representing 12.1% of the outstanding equity of Pointillist. Through December 1, 2021, Pointillist is presented in the accompanying condensed consolidated financial statements on a consolidated basis and the portion of Pointillist owned by Pointillist management is reported as non-controlling interests.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 3, 2022.

Fair Value Measurements

Fair value is defined as an exit price, representing the amount that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:

Level 1 — Quoted prices in active markets for identical assets and liabilities

Level 2 — Observable inputs other than quoted prices included in Level 1

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities

Financial assets and financial liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

Future Adoption of New Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. This standard applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This standard provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR. This standard is effective from the period from March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a topic or an industry subtopic, the standard must be applied prospectively for all eligible contract modifications for that topic or industry subtopic. The Company is currently evaluating the impact this guidance may have on its condensed consolidated financial statements.

NOTE 2 — CUSTOMER CONCENTRATION

Ocwen

Ocwen Financial Corporation (together with its subsidiaries, “Ocwen”) is a residential mortgage loan servicer of mortgage servicing rights (“MSRs”) it owns, including those MSRs in which others have an economic interest, and a subservicer of MSRs owned by others.

During the three and nine months ended September 30, 2022, Ocwen was our largest customer, accounting for 40% of our total revenue for the nine months ended September 30, 2022 (45% of our revenue for the third quarter of 2022). 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 2030. 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 nine months ended September 30, 2022 and 2021, we recognized revenue from Ocwen of $47.2 million and $44.7 million, respectively ($17.2 million and $13.6 million for the third quarter of 2022 and 2021, respectively). Revenue from Ocwen as a percentage of segment and consolidated revenue was as follows:

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

Servicer and Real Estate	56	%	51	%	52	%	50	%
Origination	—	%	—	%	—	%	—	%
Corporate and Others	—	%	—	%	—	%	1	%
Consolidated revenue	45	%	31	%	40	%	32	%

We earn additional revenue related to the portfolios serviced and subserviced by Ocwen when a party other than Ocwen or the MSR owner selects Altisource as the service provider. For the nine months ended September 30, 2022 and 2021, we recognized revenue of $7.3 million and $7.4 million, respectively ($2.2 million and $1.9 million for the third quarter of 2022 and 2021, respectively), of such revenue. These amounts are not included in deriving revenue from Ocwen and revenue from Ocwen as a percentage of revenue discussed above.

As of September 30, 2022, accounts receivable from Ocwen totaled $4.9 million, $4.3 million of which was billed and $0.6 million of which was unbilled. As of December 31, 2021, accounts receivable from Ocwen totaled $3.0 million, $2.8 million of which was billed and $0.2 million of which was unbilled.

RITM

Rithm Capital Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “RITM”) (formerly New Residential Investment Corp., or “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 RITM is its largest client. As of June 30, 2022, approximately 18% of loans serviced and subserviced by Ocwen (measured in unpaid principal balance (“UPB”)) were related to RITM MSRs or rights to MSRs (the “Subject MSRs”).

RITM purchases brokerage services for real estate owned (“REO”) exclusively from us, irrespective of the subservicer, subject to certain limitations, for certain MSRs set forth in and pursuant to the terms of a Cooperative Brokerage Agreement, as amended, and related letter agreement (collectively, the “Brokerage Agreement”) with terms extending through August 2025.

For the nine months ended September 30, 2022 and 2021, we recognized revenue from RITM of $2.6 million and $2.4 million, respectively ($0.8 million and $0.7 million for the third quarter of 2022 and 2021, respectively), under the Brokerage Agreement. For the nine months ended September 30, 2022 and 2021, we recognized additional revenue of $10.4 million and $10.9 million, respectively ($3.0 million and $3.4 million for the third quarter of 2022 and 2021, respectively), relating to the Subject MSRs when a party other than RITM selects Altisource as the service provider.

NOTE 3 — SALE OF BUSINESSES

Pointillist Business

On October 6, 2021, Altisource and other shareholders of Pointillist entered into a definitive Stock Purchase Agreement (as amended, the “SPA”) to sell all of the equity interests in Pointillist to Genesys Cloud Services, Inc. (“Genesys”) for $150.0 million (the “Purchase Price”) (the “Transaction”). The Purchase Price consisted of (1) an up-front payment of $144.5 million, subject to certain adjustments, (2) $0.5 million deposited into an escrow account to be used to satisfy potential deficits between estimated closing date working capital and actual closing date working capital (the “Working Capital Escrow”), with excess amounts remaining after satisfying such deficits (if any) being paid to the sellers, and (3) $5.0 million deposited into an escrow account to satisfy certain Genesys indemnification claims that may arise on or prior to the first anniversary of the sale closing and, at Genesys’ election, any working capital deficits that exceed the Working Capital Escrow (the “Indemnification Escrow”), with the balance to be paid to the sellers thereafter. The Transaction closed on December 1, 2021. On a fully diluted basis, Altisource owned approximately 69% of the equity of Pointillist. After working capital and other applicable adjustments, Altisource received approximately $106.0 million from the sale of its Pointillist equity and the collection of outstanding receivables, with $102.2 million received at closing, approximately $0.3 million deposited into the Working Capital Escrow and approximately $3.5 million deposited into the Indemnification Escrow. The Working Capital Escrow was received in May 2022. The present value of the amounts in escrow is included in other current assets in the accompanying condensed consolidated balance sheets at a discounted value of $3.4 million and $3.6 million as of September 30, 2022 and December 31, 2021, respectively.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Rental Property Management Business

In August 2018, Altisource entered into an amendment to its agreements with Front Yard Residential Corporation (“RESI”) to sell Altisource’s rental property management business to RESI and permit RESI to internalize certain services that had been provided by Altisource. The proceeds from the transaction totaled $18.0 million, payable in two installments. The first installment of $15.0 million was received in August 2018 and the second installment of $3.0 million was received in January 2021.

NOTE 4 — ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consists of the following:


(in thousands)	September 30, 2022		December 31, 2021

Billed	$	13,384	$	17,907
Unbilled	5,432		5,398
	18,816		23,305
Less: Allowance for credit losses	(4,481)		(5,297)

Total	$	14,335	$	18,008

Unbilled accounts receivable consist primarily of certain real estate asset management, REO sales, title and closing services for which we generally recognize revenue when the service is provided but collect upon closing of the sale, and foreclosure trustee services, for which we generally recognize revenues over the service delivery period but bill following completion of the service. We also include amounts in unbilled accounts receivable that are earned during a month and billed in the following month.

We are exposed to credit losses through our sales of products and services to our customers which are recorded as accounts receivable, net on the Company’s condensed consolidated financial statements. We monitor and estimate the allowance for credit losses based on our historical write-offs, historical collections, our analysis of past due accounts based on the contractual terms of the receivables, relevant market and industry reports and our assessment of the economic status of our customers, if known. Estimated credit losses are written off in the period in which the financial asset is determined to be no longer collectible. There can be no assurance that actual results will not differ from estimates or that consideration of these factors in the future will not result in an increase or decrease to our allowance for credit losses.

Changes in the allowance for expected credit losses consist of the following:


			Additions
(in thousands)	Balance at Beginning of Period		Charged to Expenses		Deductions Note (1)		Balance at End of Period

Allowance for expected credit losses:

Nine months ended September 30, 2022	$	5,297	$	578	$	1,394	$	4,481
Twelve months ended December 31, 2021	5,581		1,354		1,638		5,297

______________________________________

(1) Amounts written off as uncollectible or transferred to other accounts or utilized.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:


(in thousands)	September 30, 2022		December 31, 2021

Income taxes receivable	$	6,214	$	8,403
Maintenance agreements, current portion	1,794		1,717
Prepaid expenses	3,614		2,865
Surety bond collateral	4,000		2,000
Other current assets	6,082		6,879

Total	$	21,704	$	21,864

NOTE 6 — PREMISES AND EQUIPMENT, NET

Premises and equipment, net consists of the following:


(in thousands)	September 30, 2022		December 31, 2021

Computer hardware and software	$	49,339	$	50,452
Leasehold improvements	5,848		5,927
Furniture and fixtures	3,840		4,441
Office equipment and other	440		811

	59,467		61,631
Less: Accumulated depreciation and amortization	(54,497)		(54,758)

Total	$	4,970	$	6,873

Depreciation and amortization expense amounted to $2.7 million and $3.5 million for the nine months ended September 30, 2022 and 2021, respectively ($0.9 million and $1.1 million for the third quarter of 2022 and 2021, respectively), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations and comprehensive loss.

NOTE 7 — RIGHT-OF-USE ASSETS UNDER OPERATING LEASES, NET

Right-of-use assets under operating leases, net consists of the following:


(in thousands)	September 30, 2022		December 31, 2021

Right-of-use assets under operating leases	$	12,529	$	19,595
Less: Accumulated amortization	(6,564)		(12,001)

Total	$	5,965	$	7,594

Amortization of operating leases was $2.3 million and $6.3 million for the nine months ended September 30, 2022 and 2021, respectively ($0.5 million and $1.8 million for the third quarter of 2022 and 2021, respectively), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations and comprehensive loss.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 8 — GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The following is a summary of goodwill by segment:


(in thousands)	Servicer and Real Estate		Origination		Corporate and Others		Total







Balance as of September 30, 2022 and December 31, 2021	$	30,681	$	25,279	$	—	$	55,960

We determined that each reportable segment represents a reporting unit. Goodwill was allocated to each reporting unit based on the relative fair value of each of our reporting units.

Intangible Assets, net

Intangible assets, net consist of the following:


	Weighted average estimated useful life (in years)	Gross carrying amount				Accumulated amortization				Net book value
(in thousands)		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021

Definite lived intangible assets:
Customer related intangible assets	9	$	214,307	$	214,307	$	(196,844)	$	(194,594)	$	17,463	$	19,713
Operating agreement	20	35,000		35,000		(22,166)		(20,854)		12,834		14,146
Trademarks and trade names	16	9,709		9,709		(6,996)		(6,709)		2,713		3,000



Total		$	259,016	$	259,016	$	(226,006)	$	(222,157)	$	33,010	$	36,859

Amortization expense for definite lived intangible assets was $3.8 million and $8.2 million for the nine months ended September 30, 2022 and 2021, respectively ($1.3 million and $2.7 million for the third quarter of 2022 and 2021, respectively). Forecasted annual definite lived intangible asset amortization expense for 2022 through 2026 is $5.1 million, $5.1 million, $5.1