UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

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

Commission File Number 1-34354

 

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Luxembourg		Not applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2, rue Jean Bertholet
L-1233 Luxembourg
Grand Duchy of Luxembourg
(Address of principal executive offices) (Zip Code)

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 o No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

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

As of November 1, 2009, there were 24,050,036 outstanding shares of the registrant’s shares of beneficial interest.

 

 

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-Q

		Page
PART I — Financial Information
Item 1 Interim Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statement of Stockholders’ Equity			3
Condensed Consolidated Statements of Cash Flows			4
Notes to Condensed Consolidated Financial Statements
Note 1 — Description of Business, Basis of Separation and Presentation			5
Note 2 — New Accounting Pronouncements			7
Note 3 — Related Party Transactions			8
Note 4 — Line of Credit and Other Secured Borrowings			9
Note 5 — Facility Closure Costs			9
Note 6 — Stock-Based Compensations			10
Note 7 — Pro Forma Earnings Per Share			11
Note 8 — Business Segments			12
Note 9 — Commitments and Contingencies			15
Note 10 — Subsequent Events			16
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations (see Table of Contents at front of section)			17
Item 3 Quantitative and Qualitative Disclosures about Market Risk			35
Item 4 Controls and Procedures			35
PART II — Other Information
Item 1 Legal Proceedings			36
Item 1A Risk Factors			36
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3 Defaults Upon Senior Securities			36
Item 4 Submission of Matters to a Vote of Security Holders			36
Item 5 Other Information			36
Item 6 Exhibits			36
SIGNATURES			37
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION

Item 1.		Interim Condensed Consolidated Financial Statements

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

		September 30,				December 31,
		2009				2008
ASSETS
Current assets:
Cash		$	24,710			$	6,988
Accounts receivable, net			17,887				9,077
Prepaid expenses and other current assets			2,516				3,021
Deferred tax assets, net			485				268
Total current assets			45,598				19,354
Premises and equipment, net			8,903				9,304
Intangible assets, net			34,387				36,391
Goodwill			8,812				11,540
Other assets			665				86
Total assets		$	98,365			$	76,675
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued expenses		$	7,004			$	4,767
Capital lease obligations — current			888				916
Line of credit and other secured borrowings (Note 4)			—				1,123
Other current liabilities			10,909				6,213
Total current liabilities			18,801				13,019
Capital lease obligations — non-current			46				440
Deferred tax liability, net			1,473				2,670
Other non-current liabilities			733				—
Commitments and contingencies (Note 9)
Shareholders’ and Invested Equity:
Common stock; ($1.00 par value; 100,000 shares authorized; 24,050 issued and outstanding in 2009; EUR 25 par value, 263 shares authorized, issued and outstanding in 2008)			24,050				6,059
Retained earnings			5,792				—
Additional paid-in-capital			47,470				—
Invested equity			—				54,487
Total shareholders’ equity			77,312				60,546
Total liabilities and equity		$	98,365			$	76,675

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenue		$	54,064			$	38,007			$	146,486			$	121,423
Cost of revenue			33,453				28,927				91,805				88,636
Gross profit			20,611				9,080				54,681				32,787
Selling, general and administrative expenses			11,065				7,142				27,216				21,285
Income from operations			9,546				1,938				27,465				11,502
Other income (expense), net
Interest income			4				—				4				14
Interest expense			(195	)			(608	)			(1,605	)			(1,945	)
Other, net (Note 9)			2,737				(19	)			2,756				(12	)
Total other income (expense), net			2,546				(627	)			1,155				(1,943	)
Income before income taxes			12,092				1,311				28,620				9,559
Income tax provision			(3,448	)			(368	)			(8,522	)			(2,683	)
Net income		$	8,644			$	943			$	20,098			$	6,876
Earnings per share(1):
Basic		$	0.36			$	0.04			$	0.84			$	0.29
Diluted		$	0.36			$	0.04			$	0.83			$	0.29
Weighted average shares outstanding(1):
Basic			24,050				24,050				24,050				24,050
Diluted			24,303				24,050				24,303				24,050
Transactions with related parties included above:
Revenue		$	23,214			$	13,472			$	62,549			$	44,716
Selling, general and administrative expenses		$	522			$	1,501			$	4,308			$	4,571
Interest expense		$	193			$	532			$	1,290			$	1,698

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

		Invested				Common Stock								Retained				Additional								Comprehensive
		Equity				Shares								Earnings				Paid-in-Capital				Total				Income
January 1, 2009		$	54,487				263			$	6,059			$	—			$	—			$	60,546			$	—
Share issuance due to conversion to a Luxembourg societé anonyme			(3,283	)			9,079				3,283				—				—				—				—
Net income for pre-separation period			14,306				—				—				—				—				14,306				—
Distributions to Ocwen			(3,332	)			—				—				—				—				(3,332	)			—
Consummation of spin-off transaction and distribution to common stock			(62,178	)			14,708				14,708				—				47,470				—				—
Net income for post-separation period			—				—				—				5,792				—				5,792				5,792
September 30, 2009		$	—				24,050			$	24,050			$	5,792			$	47,470			$	77,312			$	5,792

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

		Nine Months Ended
		September 30,
		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	20,098			$	6,876
Reconciling items:
Depreciation and amortization			4,188				6,047
Amortization of intangible assets			2,004				1,924
Deferred income taxes, net			(1,414	)			—
Changes in operating assets and liabilities:
Accounts receivables, net			(8,810	)			3,763
Prepaid expenses and other current assets			505				308
Other assets			(579	)			19
Accounts payable and accrued expenses			2,237				(2,770	)
Other current liabilities			8,157				1,724
Net cash flow from operating activities			26,386				17,891
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to premises and equipment, net			(3,787	)			(1,413	)
Net cash flow from investing activities			(3,787	)			(1,413	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of short-term borrowings			—				(147	)
Principal payments on capital lease obligations			(422	)			(1,452	)
Borrowings from line of credit			—				15,731
Payments of line of credit			(1,123	)			(11,456	)
Net change in investment from Ocwen			(3,332	)			(20,118	)
Net cash flow from financing activities			(4,877	)			(17,442	)
Net increase (decrease) in cash and cash equivalents			17,722				(964	)
Cash and cash equivalents at the beginning of the period			6,988				5,688
Cash and cash equivalents at the end of the period		$	24,710			$	4,724
Supplemental Cash Flow Information:
Interest paid		$	25			$	79
Income taxes paid, net		$	534			$	81
Non-cash investing and financing activities:
Increase in common stock due to the Company’s conversion to a Luxembourg société anonyme		$	3,283			$	—

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — Description of Business, Basis of Separation and Presentation

A. Description of Business

Altisource Portfolio Solutions S.A. (“Altisource” or the “Company”), together with its subsidiaries’ is a provider of services focused on high value, knowledge-based functions principally related to real estate and mortgage portfolio management, asset recovery and customer relationship management. Utilizing integrated technology that includes decision models and behavioral based scripting engines, the Company provides solutions that improve clients’ performance and maximizes their returns. Altisource is publicly traded on the NASDAQ Global Select market under the symbol ASPS. Altisource was incorporated under the laws of Luxembourg on November 4, 1999 as Ocwen Luxembourg S.àr.l., renamed Altisource Portfolio Solutions S.à r.l. on May 12, 2009 and converted into Altisource Portfolio Solutions S.A. on June 5, 2009 (the “Conversion”). As part of the Conversion, we also changed the par value of equity from EUR 25 to $1.00 per share. Altisource became a publicly traded company as of August 10, 2009, see “Separation” below. Except as otherwise indicated or unless the context otherwise requires, “Altisource,” “we,” “us,” “our” and the “Company” refer to Altisource Portfolio Solutions S.A., a Luxembourg société anonyme, or public limited company, and its subsidiaries.

We conduct our operations through three reporting segments: Mortgage Services, Financial Services and Technology Products. In addition, we report our corporate related expenditures as a separate segment (see Note 8 for a description of our business segments).

B. Separation

On August 10, 2009 (the “Separation Date”), Altisource became a stand-alone public company in connection with our separation from Ocwen Financial Corporation (“Ocwen”) (the “Separation”). Prior to the Separation, the Company was a wholly-owned subsidiary of Ocwen and acquired all of its initial businesses, including Altisource Portfolio Solutions, Inc. (formerly NCI Holdings, Inc); Nationwide Credit, Inc. (“NCI”); Premium Title Services, Inc.; REALHome Services and Solutions, Inc.; Portfolio Management Outsourcing Solutions, LLC; and Western Progressive Trustee LLC, from Ocwen.

On the Separation Date, Ocwen distributed all of the Altisource common stock to Ocwen’s shareholders (the “Distribution”). Ocwen’s stockholders received one share of Altisource common stock for every three shares of Ocwen common stock held as of August 4, 2009 (the “Record Date”). In addition, holders of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024 received one share of Altisource common stock deemed held on an as if converted basis. For such notes, the conversion ratio of 82.1693 shares of Ocwen common stock for every $1,000 in aggregate principal amount of notes held on the Record Date was calculated first and then we applied the distribution ratio of one share of Altisource common stock for every three shares of Ocwen common stock on an as converted basis to determine the number of shares each note holder received.

In connection with the Separation, Altisource and Ocwen entered into various agreements that address the allocation of assets and liabilities between them and that define their relationship after the Separation including a separation agreement, a tax matters agreement, an employee matters agreement, an intellectual property agreement, a data center and disaster recovery agreement, a technology products services agreement, a transition services agreement and certain long-term servicing contracts (collectively, the “Agreements”) (See Note 3).

C. Basis of Presentation

The accompanying condensed consolidated financial statements present the historical results of operations, assets and liabilities attributable to the Altisource businesses. The assets and liabilities of Altisource have been accounted for at the historical values carried by Ocwen prior to the Separation and were assigned to Altisource pursuant to the terms of the Separation Agreement. The indebtedness of Ocwen, other than certain capital lease obligations and indebtedness specific to NCI, was not transferred to Altisource and remains the indebtedness of Ocwen. Prior to the Separation, Ocwen centrally managed the cash flows generated from the Company’s various businesses. The Invested equity balance included as a component of Shareholders’ Equity in the Company’s Condensed Consolidated Balance Sheet up to the Separation Date includes accumulated earnings of the Company as well as receivables/payables due to/from Ocwen resulting from cash transfers and intercompany activity. Interest was not charged or credited on amounts due to/from Ocwen.

For periods prior to the Separation Date, these condensed consolidated financial statements include allocations of expenses from Ocwen for corporate functions including insurance, employee benefit plan expense and allocations for certain centralized administration costs for executive management, treasury, real estate, accounting, auditing, tax, risk management, internal audit, human resources and benefits administration. We determined these allocations using proportional cost allocation methods including the use of relevant operating profit,

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

fixed assets, sales and payroll measurements. Specifically, personnel and all associated costs, including compensation, benefits, occupancy and other costs, are allocated based on the estimated percentage of time spent by the individual in the various departments. External costs such as audit fees, legal fees, business insurance and other are allocated based on a combination of the sales, fixed assets and operating profits of the department, whichever is most appropriate given the nature of the expense. Management believes such allocations are reasonable; however, they may not be indicative of the actual expense that would have been incurred had the Company been operating as an independent company for the periods presented. Total corporate costs allocated to the Company, excluding separation costs, were $4.3 million for the period ended August 9, 2009, including $0.5 million during the third quarter. The charges for these functions are included primarily in “Selling, general and administrative expenses” in the condensed consolidated statements of operations. In addition, Ocwen had allocated interest expense to us based upon our portion of assets to Ocwen’s total assets which is reflected as “Interest expense” in the condensed consolidated statements of operations. There have been no allocations of expenses charged to us since the Separation Date.

The condensed consolidated financial statements also do not necessarily reflect what the Company’s condensed consolidated results of operations, financial position and cash flows would have been had the Company operated as an independent company during the entire periods presented. For instance, as an independent public company, Altisource expects to incur costs in excess of those allocated by Ocwen for maintaining a separate Board of Directors, obtaining a separate audit, relocating certain executive management and hiring additional personnel.

We have prepared our condensed consolidated financial statements 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 SEC Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete condensed consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented have been included. The preparation of 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 condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our Registration Statement filed with the SEC on May 13, 2009, as amended (the “Form 10”), which contains a summary of our significant accounting policies. Certain footnote detail is also omitted from the condensed consolidated financial statements unless there is a material change from the information included in the Form 10.

D. Accounting Pronouncements Adopted

During 2009, the following accounting pronouncements were adopted which did not result in a material change to our results of operations, financial position or cash flows. New accounting pronouncements pending adoption that could impact future presentation or results are described further below.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued guidance on business combinations (originally issued as Statement of Financial Accounting Standards (“SFAS”) No. 141(R) and now referred to as Accounting Standards Codification (“ASC”) 805) providing additional guidance on the accounting for business combinations. The guidance requires the acquiring entity in a business combination to recognize the full fair value of assets, liabilities, contractual contingencies and contingent consideration obtained in the transaction (whether for a full or partial acquisition); establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. This guidance, included in ASC 805, was amended further by FASB Staff Position (“FSP”) no. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” that was issued in April 2009. The FSP requires that contingences acquired in a business combination be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. The FSP also requires that an acquirer disclose information that enables users of its financial statements to evaluate the nature and financial effects of a business combination that occurs either during the current reporting period or after the reporting period but before the financial statements are issued. The adoption of ASC 805 and the related FSP on January 1, 2009 did not have an impact on our condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In December 2007, the FASB issued guidance on noncontrolling interests in consolidated financial statements (originally issued as SFAS No. 160 and now referred to as ASC 810) providing new guidance on the accounting and financial statement presentation for non-controlling (minority) interests. Specifically, this statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements separate from the invested equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. The statement clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, when a subsidiary is deconsolidated, this statement requires that a parent recognize a gain or loss in net income based on the fair value of the entire entity, irrespective of any retained ownership, on the deconsolidation date. Such a gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. The adoption of ASC 810 on January 1, 2009 did not have an impact on our condensed consolidated balance sheets or statements of operations.

In May 2009, the FASB issued guidance on subsequent events (originally issued as SFAS No. 165 and now referred to as ASC 855). The guidance is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The guidance is effective for interim or annual financial periods ending after June 15, 2009. We adopted the guidance effective with the issuance of our June 30, 2009 financial statements. The adoption did not result in changes in the subsequent events that we report, either through recognition or disclosure, in our condensed consolidated financial statements.

In June 2009, the FASB issued guidance on the Accounting Standards Codification and the hierarchy of generally accepted accounting principles (issued as SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 ) which established the FASB Standards Accounting Codification (“Codification”) as the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities, and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification will supersede all the existing non-SEC accounting and reporting standards upon its effective date and subsequently, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. This guidance also replaces the prior guidance regarding the GAAP hierarchy, given that once in effect, the guidance within the Codification will carry the same level of authority. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted the guidance effective with the issuance of our September 30, 2009 financial statements. As the guidance is limited to disclosure in the condensed consolidated financial statements and the manner in which we refer to GAAP authoritative literature there was no material impact on our condensed consolidated financial statements.

E. Foreign Currency Translation

The accompanying financial statements are reported in U.S. dollars. Where the functional currency is not the U.S. dollar, we translate assets and liabilities of foreign entities into U.S. dollars at the current rate of exchange existing at the balance sheet date and revenues and expenses at average monthly rates. We include the resulting translation adjustments as a component of invested equity prior to the Separation Date and as a component of accumulated other comprehensive income subsequent to the Separation Date. Where the functional currency of a foreign entity is the U.S. dollar, re-measurement adjustments are included in the results of operations. Such foreign currency transaction adjustments were not material for any period presented.

F. Fair Value of Financial Instruments

Our financial instruments consist primarily of cash, accounts receivable, accounts payable and debt obligations. The carrying amount of cash, cash equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values due to the short-term maturity of these instruments.

NOTE 2 — Accounting Pronouncements to be Adopted

In June 2009, the FASB issued guidance on accounting for transfers of financial assets (originally issued as SFAS No. 166 and now referred to as ASC 860-20). ASC 860-20 revises the criteria for the recognition of asset sales, particularly with respect to securitizations, and eliminates the concept of “Qualifying Special Purpose Entities” (“QSPEs”).

In June 2009, the FASB amended ASC 810 which provides guidance variable interest entities (“VIEs”) (issued as SFAS No. 167, Amendments to FASB Interpretation No. 46(R)). The amendments will significantly affect the overall consolidation analysis, changing the approach taken by companies in identifying which entities are VIEs and in determining which party is deemed the primary beneficiary. The guidance requires continuous assessment of an entity’s involvement with such VIEs.

Both ASC 860-20 and ASC 810 are effective for our financial statements beginning January 1, 2010. We are currently evaluating the impact the adoption will have on our condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 — Related Party Transactions

Ocwen remains Altisource’s largest customer. For the nine months ended September 30, 2009, Ocwen or services derived from Ocwen’s loan servicing portfolio, represented 65.9% of revenues for Mortgage Services, 45.0% for Technology Products, 0.1% for Financial Services or 42.7% of total Altisource revenues. We consider certain services to be derived from Ocwen’s loan servicing portfolio rather than provided to Ocwen because such services are charged to the mortgagee and/or the investor and are not expenses to Ocwen. Ocwen is contractually obligated to purchase services from us; however, Ocwen is not restricted from redeveloping these services.

With the exception of certain Technology Product revenues during the quarter ended March 31, 2008, we record revenues we earn from Ocwen at rates we believe to be market rates as they are consistent with one or more of the following: the fees we charge to other customers for comparable services; the rates Ocwen pays to other service providers; fees commensurate with market surveys prepared by unaffiliated firms; and prices being charged by our competitors. These rates are materially consistent with the rates we charge Ocwen under the various long-term servicing contracts into which we entered into connection with the Separation. For certain technology product revenues earned prior to March 31, 2008, we historically charged Ocwen cost versus market rates. The change to market rates resulted in revenues of approximately $0.7 million more in the first quarter of 2009 than we would have recorded under our former cost-based method.

Altisource currently provides Ocwen and its subsidiaries with the following services:

Allocation of Corporate Costs

For periods prior to the Separation Date, these condensed consolidated financial statements include allocations of expenses from Ocwen for corporate functions including insurance, employee benefit plan expense and allocations for certain centralized administration costs for executive management, treasury, real estate, accounting, auditing, tax, risk management, internal audit, human resources and benefits administration. We determined these allocations using proportional cost allocation methods including the use of relevant operating profit, fixed assets, sales and payroll measurements. Specifically, personnel and all associated costs, including compensation, benefits, occupancy and other costs, are allocated based on the estimated percentage of time spent by the individual in the various departments. External costs such as audit fees, legal fees, business insurance and other are allocated based on a combination of the sales, fixed assets and operating profits of the department, whichever is most appropriate given the nature of the expense. Total corporate costs allocated to the Company, excluding separation costs, were $4.3 million for the period ended August 9, 2009, including $0.5 million during the third quarter. The charges for these functions are included primarily in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations. In addition, Ocwen had allocated interest expense to us based upon our portion of assets to Ocwen’s total assets which is reflected as “Interest expense” in the Condensed Consolidated Statements of Operations. However, these amounts may not be representative of the costs necessary for the Company to operate as a separate standalone company.

Separation Related Expenditures

We have recognized $3.4 million of Separation related expenses for the nine months ended September 30, 2009, including $1.5 million during the third quarter, representing primarily professional fees and other costs associated with establishing the Company as a stand-alone entity. Prior to the second quarter of 2009, all previous costs in connection with the Separation were recognized by Ocwen.

Separation Related Agreements

In connection with the Separation, Altisource and Ocwen entered into a separation agreement and various ancillary agreements that complete the separation of our business from Ocwen. The agreements were prepared before the Separation and reflect agreements between affiliated parties. The primary agreements (collectively, the “Agreements”) are as follows:

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Separation Agreement - provides for, among other things, the principal corporate transactions required to effect the Separation and certain other agreements relating to the continuing relationship between Ocwen and us after the Separation.

Transition Services Agreement - provides to each other services in such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other areas where we, and Ocwen, may need transitional assistance and support following the Separation. During the third quarter, the impact of transition services was immaterial as the cost of services received was offset by the cost of services provided to Ocwen.

Tax Matters Agreement - sets out each party’s rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local or foreign taxes for periods before and after the Separation and related matters such as the filing of tax returns and the conduct of Internal Revenue Service and other audits.

Employee Matters Agreement - provides for the transition of employee benefit plans and programs sponsored by Ocwen for employees of the component services business and any employees of the corporate office that we hire.

Services Agreement — we will provide to Ocwen certain services in connection with the Ocwen business following the Separation.

Technology Products Services Agreement — we will provide to Ocwen certain Technology Products services in connection with the Ocwen business following the Separation.

Intellectual Property Agreement — governed the transfer of intellectual property assets specified therein to us.

Data Center and Disaster Recovery Agreement — we will provide to Ocwen certain data center and disaster recovery services in connection with the Ocwen business following the Separation.

NOTE 4 — Line of Credit and Other Secured Borrowings

The table below provides the components of debt as of the dates presented:

		September 30,				December 31,
(in thousands)		2009				2008
Line of credit maturing July 2011		$	—			$	1,123
Less: current portion of line of credit and other secured borrowings			—				(1,123	)
Long term portion		$	—			$	—

In July 2008, NCI entered into a revolving secured credit agreement with a financial institution that provided for borrowings of up to $10,000 through July 2011. All borrowings outstanding on December 31, 2008 were floating rate advances with an interest rate of 2.25%. Substantially all of NCI’s assets, which comprise substantially all of the assets in our Financial Services segment, were pledged as collateral for this credit agreement. On June 23, 2009, we terminated the agreement at which time there were no borrowings outstanding on the line of credit since we repaid the balance in full in January 2009.

NOTE 5 — Facility Closure Costs

In the third quarter of 2009, the Company accrued $2.3 million in facility closure costs (included in other current and other non-current liabilities in the Condensed Consolidated Balance Sheet and in selling, general and administrative expenses in the Condensed Consolidated Statement of Operations), primarily consisting of lease exit costs (expected to be paid through 2014) and severance, for closure of facilities in Miramar, Florida and Victoria, British Columbia, Canada. The facility closures were in connection with the Company’s effort to reduce compensation costs by reducing the overall number of collectors as well as redistributing collectors to less expensive locations. The following table summarizes the activity for severance and other charges, all recorded in our Financial Services segment, for the quarter ended September 30, 2009:

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

						Termination
		Lease				benefits and
(dollars in thousands)		costs				other				Total
Balance at January 1, 2009		$	—			$	—			$	—
Additions charged to operations (in third quarter)			1,110				1,194				2,304
Payments			(79	)			(425	)			(504	)
Balance at September 30, 2009		$	1,031			$	769			$	1,800

We do not expect additional significant costs related to the closure of these facilities.

NOTE 6 — Stock-Based Compensation

A. Equity Incentive Plan

The Company’s 2009 Equity Incentive Plan (“EIP”) provides for various types of equity awards, including stock options, stock appreciation rights, stock purchase rights, restricted shares and other awards, or a combination of any of the above.

Historically, a number of our employees participated in Ocwen’s equity-based compensation plans, generally consisting of restricted stock and stock options to purchase shares of Ocwen common stock (together, the “stock awards”).

At the Separation, all holders of Ocwen stock awards, including employees that remained with Ocwen, received the following:

	•		a new Altisource stock award to acquire the number of shares of Altisource common stock equal to the product of (a) the number of Ocwen stock awards held on the Separation date and (b) the distribution ratio of one share of Altisource common stock for every three shares of Ocwen common stock; and
	•		an adjusted Ocwen award for the same number of shares of Ocwen common stock with a reduced exercise price for stock option awards. Each company will record compensation expense for the stock awards held by its employees even though some of the awards relate to the common stock of the other company. As a result of the Separation, we did not record any incremental compensation expense.

During the quarter ended September 30, 2009, the Company granted 0.1 million stock options principally in connection with employment offers that provided for equity awards at the time of the Separation. The options have an exercise price of $14.15 per share. The vesting schedule for the options has a time-based component, in which 25% of the options vest in equal increments over four years, and a market-based component, in which up to 75% of the options could vest in equal increments over four years commencing upon the achievement of certain performance criteria related to our stock price and the annualized rate of return to investors. Two-thirds of the market-based options would begin to vest over four years if the stock price realizes a compounded annual gain of at least 20% over the exercise price, so long as the stock price is at least double the exercise price. The remaining third of the market-based options would begin to vest over four years if the stock price realizes a 25% gain, so long as it is at least triple the exercise price. The fair value of the time-based options was determined using the Black-Scholes options pricing model while a lattice (binomial) model was used to determine the fair value of the market-based options using the following assumptions as of the grant date:

		Nine Months Ended
		September 30, 2009
		Black-
		Scholes				Binomial
Risk-free interest rate			2.64	%			0.50 — 3.86	%
Expected stock price volatility			39	%			38.0 — 46.0	%
Expected dividend yield			—				—
Expected option life (in years)			5				—
Contractual life (in years)			—				10
Fair value		$	196			$	557

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

B. Compensation Cost Recognized

Presented below is a summary of the compensation cost recognized in the accompanying Condensed Consolidated Statements of Operations:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2009				2008				2009				2008
Recognized in earnings:
Stock options		$	83			$	73			$	248			$	218
Restricted stock			2				17				7				52
Total		$	85			$	90			$	255			$	270

As of September 30, 2009, total unrecognized compensation cost related to the unvested portion of the Company’s stock option awards granted to Altisource employees is approximately $1.9 million and is expected to be recognized over a weighted-average period of 4.6 years.

NOTE 7 — Pro Forma Earnings Per Share

The basic weighted average shares and common stock equivalents are generally computed in accordance with ASC 260 (formerly SFAS No. 128), “Earnings per Share”, using the treasury stock method. Due to the nature and timing of the separation management believes the resulting GAAP earnings per share (“EPS”) - basic and GAAP EPS - diluted measures are not meaningful for the three and nine months ended September 30, 2009 and 2008, and therefore, the calculation has been excluded from the Condensed Consolidated Statements of Operations and the Notes thereto.

Pro forma basic earnings per share (“EPS”) excludes common stock equivalents and is calculated by dividing net income by the pro forma weighted average number of common shares outstanding during the period. Pro forma weighted average shares outstanding — basic, for the three and nine months ended September 30, 2009 is calculated using the 24.1 million common shares issued by Altisource on August 10, 2009, as if the shares had been issued on July 1, 2009 and January 1, 2009, respectively. Pro forma weighted average shares outstanding — basic, for the three and nine months ended September 30, 2008 is calculated using the same number of shares as the pro forma weighted average shares outstanding — basic for the 2009 periods as if the shares had been issued on July 1, 2008 and January 1, 2008, respectively.

Pro forma diluted EPS by is calculated by dividing net income by the pro forma weighted average number of common shares outstanding including the potential dilutive common shares related to outstanding stock options and restricted stock awards. For periods prior to the Separation, the same number of shares is being used for the pro forma basic and pro forma diluted EPS calculations as no Altisource equity awards were outstanding prior to the Separation Date.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following is a reconciliation of the calculation of pro forma basic and diluted EPS for the three and nine months ended September 30:

		Three Months Ended												Nine Months Ended
		September 30, 2009												September 30, 2009
						Weighted												Weighted
						Ave.												Ave.
(in thousands, except per share amounts)		Income				Shares				Per Share				Income				Shares				Per Share
Pro forma basic		$	8,644				24,050			$	0.36			$	20,098				24,050			$	0.84
Effect of dilutive securities:
Stock options (1)			—				253								—				253
Pro forma diluted		$	8,644				24,303			$	0.36			$	20,098				24,303			$	0.83

		Three Months Ended												Nine Months Ended
		September 30, 2008												September 30, 2008
						Weighted												Weighted
						Ave.												Ave.
		Income				Shares				Per Share				Income				Shares				Per Share
Pro forma basic		$	943				24,050			$	0.04			$	6,876				24,050			$	0.29
Effect of dilutive securities:
Stock options (1)			—				—								—				—
Pro forma diluted		$	943			$	24,050			$	0.04			$	6,876			$	24,050			$	0.29

NOTE 8 — Business Segments

Our business segments reflect the internal reporting that we use to evaluate operating performance and to assess the allocation of our resources by our chief executive officer. In connection with our Separation, as a stand-alone public company, Altisource evaluates performance based on several factors, of which the primary financial measure is income before interest, tax, depreciation and amortization (“EBITDA”). We believe that this non-GAAP financial measure is useful to investors and analysts in analyzing and assessing our overall business performance, for making operating decisions, for compensation decisions and for forecasting and planning future periods. While the Company uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance and to provide incremental insight into the underlying factors and trends affecting both the Company’s performance and its cash-generating potential, the Company does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, the Company believes that disclosing non-GAAP financial measures to the readers of its financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance and enables investors to more fully understand trends in its current and future performance.

Our segments are based upon our organizational structure which focuses primarily on the products and services offered.

We conduct our operations through three reporting segments. In addition, we report our corporate related expenditures as a separate segment. A brief description of our business segments are as follows:

Mortgage Services which provides residential mortgage origination and default management services including due diligence, valuation, real estate sales, default processing services, property inspection and preservation services, homeowner outreach, closing and title services and component services (formerly known as knowledge process outsourcing). Mortgage Services supports mortgage originators and servicers, insurance companies, hedge funds and commercial banks. Our services span the lifecycle of a mortgage loan from origination through the disposition of real estate owned properties.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Financial Services which provides asset recovery and customer relationship management services principally to the financial services, consumer products, telecommunications and utilities industries.

Technology Products which consists of products utilized in the mortgage industry including our REAL suite of applications that provide technology products to serve the needs of servicing and origination businesses. Our offerings include residential and commercial loan servicing and loss mitigation software, vendor management software and a patented vouchless payable system and information technology solutions to manage and oversee payments to large-scale vendor networks.

Corporate Items and Eliminations. Through August 9, 2009, this segment includes eliminations of transactions between the other segments as well as expenditures recognized by us related to the Separation. Subsequent to the Separation Date, this segment also includes costs recognized by us related to corporate support functions, such as finance, legal and human resources.

Financial information for our segments is as follows:

		Three Months Ended September 30, 2009
														Corporate
		Mortgage				Financial				Technology				Items &				Consolidated
(in thousands)		Services				Services				Products				Eliminations(1)				Altisource
Revenue		$	29,141			$	15,837			$	12,451			$	(3,365	)		$	54,064
Cost of revenue			17,262				12,635				5,582				(2,026	)			33,453
Gross profit			11,879				3,202				6,869				(1,339	)			20,611
Selling, general and administrative			1,238				6,802				1,084				1,941				11,065
Income (loss) from operations			10,641				(3,600	)			5,785				(3,280	)			9,546
Other income (loss), net			52				2,469				(51	)			76				2,546
Income (loss) before income taxes		$	10,693			$	(1,131	)		$	5,734			$	(3,204	)		$	12,092
Reconciliation to EBITDA
Income (loss) before income taxes		$	10,693			$	(1,131	)		$	5,734			$	(3,204	)		$	12,092
Interest, net			7				146				53				(15	)			191
Depreciation and amortization(2)			19				914				451				9				1,393
Amortization of intangibles			—				668				—				—				668
EBITDA		$	10,719			$	597			$	6,238			$	(3,210	)		$	14,344
Transactions with related parties included above:
Revenue		$	18,141			$	27			$	5,046			$	—			$	23,214
Selling, general and administrative expenses		$	531			$	85			$	294			$	(388	)		$	522
Interest expense		$	7			$	147			$	39			$	—			$	193

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		Nine Months Ended September 30, 2009
														Corporate
		Mortgage				Financial				Technology				Items &				Consolidated
(in thousands)		Services				Services				Products				Eliminations(1)				Altisource
Revenue		$	70,861			$	49,624			$	35,133			$	(9,132	)		$	146,486
Cost of revenue			41,042				40,514				18,042				(7,793	)			91,805
Gross profit			29,819				9,110				17,091				(1,339	)			54,681
Selling, general and administrative			4,913				14,632				3,880				3,791				27,216
Income (loss) from operations			24,906				(5,522	)			13,211				(5,130	)			27,465
Other income (loss), net			29				1,354				(304	)			76				1,155
Income (loss) before income taxes		$	24,935			$	(4,168	)		$	12,907			$	(5,054	)		$	28,620
Reconciliation to EBITDA
Income (loss) before income taxes		$	24,935			$	(4,168	)		$	12,907			$	(5,054	)		$	28,620
Interest, net			30				1,284				302				(15	)			1,601
Depreciation and amortization(2)			20				2,204				1,955				9				4,188
Amortization of intangibles			—				2,004				—				—				2,004
EBITDA		$	24,985			$	1,324			$	15,164			$	(5,060	)		$	36,413
Transactions with related parties included above:
Revenue		$	46,685			$	64			$	15,800			$	—			$	62,549
Selling, general and administrative expenses		$	2,712			$	467			$	1,517			$	(388	)		$	4,308
Interest expense		$	30			$	1,029			$	231			$	—			$	1,290

		Three Months Ended September 30, 2008
														Corporate
		Mortgage				Financial				Technology				Items &				Consolidated
(in thousands)		Services				Services				Products				Eliminations(1)				Altisource
Revenue		$	11,617			$	18,653			$	11,672			$	(3,935	)		$	38,007
Cost of revenue			7,373				17,463				8,026				(3,935	)			28,927
Gross profit			4,244				1,190				3,646				—				9,080
Selling, general and administrative			1,098				4,541				1,503				—				7,142
Income (loss) from operations			3,146				(3,351	)			2,143				—				1,938
Other loss, net			(11	)			(466	)			(150	)			—				(627	)
Income (loss) before income taxes		$	3,135			$	(3,817	)		$	1,993			$	—			$	1,311
Reconciliation to EBITDA
Income (loss) before income taxes		$	3,135			$	(3,817	)		$	1,993			$	—			$	1,311
Interest, net			11				468				129				—				608
Depreciation and amortization(2)			—				1,143				1,139				—				2,282
Amortization of intangibles			—				628				—				—				628
EBITDA		$	3,146			$	(1,578	)		$	3,261			$	—			$	4,829
Transactions with related parties included above:
Revenue		$	8,154			$	—			$	5,318			$	—			$	13,472
Selling, general and administrative expenses		$	871			$	146			$	484			$	—			$	1,501
Interest expense		$	12			$	434			$	86			$	—			$	532

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		Nine Months Ended September 30, 2008
														Corporate
		Mortgage				Financial				Technology				Items &				Consolidated
(in thousands)		Services				Services				Products				Eliminations(1)				Altisource
Revenue		$	40,176			$	57,182			$	34,566			$	(10,501	)		$	121,423
Cost of revenue			26,803				48,730				23,604				(10,501	)			88,636
Gross profit			13,373				8,452				10,962				—				32,787
Selling, general and administrative			3,493				13,411				4,606				(225	)			21,285
Income (loss) from operations			9,880				(4,959	)			6,356				225				11,502
Other loss, net			(48	)			(1,428	)			(242	)			(225	)			(1,943	)
Income (loss) before income taxes		$	9,832			$	(6,387	)		$	6,114			$	—			$	9,559
Reconciliation to EBITDA
Income (loss) before income taxes		$	9,832			$	(6,387	)		$	6,114			$	—			$	9,559
Interest, net			48				1,436				447				—				1,931
Depreciation and amortization(2)			24				2,457				3,566				—				6,047
Amortization of intangibles			—				1,924				—				—				1,924
EBITDA		$	9,904			$	(570	)		$	10,127			$	—			$	19,461
Transactions with related parties included above:
Revenue		$	30,352			$	—			$	14,364			$	—			$	44,716
Selling, general and administrative expenses		$	2,683			$	436			$	1,452			$	—			$	4,571
Interest		$	48			$	1,362			$	288			$	—			$	1,698

														Corporate
		Mortgage				Financial				Technology				Items and				Consolidated
(in thousands)		Services				Services				Products				Eliminations(1)				Altisource
Total Assets:
September 30, 2009		$	6,493			$	55,635			$	12,190			$	24,047			$	98,365
December 31, 2008		$	3,361			$	59,744			$	8,836			$	4,734			$	76,675

NOTE 9 – Commitments and Contingencies

A. Litigation

Noble Systems Corp. We have filed suit against a former equipment vendor seeking revocation of acceptance of the equipment and damages for breaches of implied warranties and related torts. Separately, we are party to a pending arbitration brought by the vendor seeking payment of annual support and maintenance fees for periods subsequent to when we returned the equipment to the vendor. The vendor also is requesting payment of discounts it provided to us purportedly to be a marketing partner for the vendor. In total, the former vendor is seeking damages of approximately $3.1 million. We believe that the vendor’s claims against us are without merit and we intend to defend vigorously against this matter while at the same time pursue our claims against this vendor.

Nationwide Inflection, LLC. In the first quarter of 2009, we received a complaint from Nationwide Inflection, LLC (“Inflection”) related to the release of escrow in connection with the June 2007 acquisition of NCI. Inflection claimed that it had not breached any representations and was entitled to recover all sums in escrow. We responded timely claiming that we had suffered losses in excess of the escrow as a result of breach of contract. Ultimately, during the third quarter, the parties agreed to settle all complaints which resulted in $2.3 million being released to Altisource and recognized as a gain in other income, net in the Condensed Consolidated Statement of Operations. We also received $0.4 million related to interest received on the escrow and reimbursement for expenses incurred in connection

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

with defending ourselves in lawsuits in existence at the time of the acquisition, with an additional $0.3 million in escrow to be released as expenses are incurred.

Altisource is subject to various other pending legal proceedings arising in the ordinary course of business. In our opinion, the resolution of the matter above and those other proceedings will not have a material effect on our financial condition, results of operations or cash flows.

B. Taxation

The Distribution was a tax-free transaction under Section 355 of the Internal Revenue Code (the “Code”). However, Ocwen recognized, and will pay tax on, substantially all of the gain it has in the assets that comprise Altisource as a result of the restructuring. To the extent Ocwen does recognize tax under Section 355 of the Code, Altisource has agreed to indemnify Ocwen. In addition, we have agreed to indemnify Ocwen should expected tax treatments not be upheld upon review or audit to the extent related to our operating results. As of September 30, 2009, the Company does not believe it has a material obligation under this indemnity.

NOTE 10 – Subsequent Events

Management has evaluated and disclosed subsequent events up to and including November 11, 2009, which is the issuance date of the financial statements.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Altisource Portfolio Solutions S.A (“Altisource” or “the Company”). MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying notes and with our Registration Statement on Form 10 as filed with the Securities and Exchange Commission on May 13, 2009, as amended.

This MD&A contains forward-looking statements; please see page 33 for more information. Significant components of the MD&A section include:

		Page
SECTION 1 – Overview			18
The overview section provides a summary of Altisource and our reportable business segments. We also include a discussion of factors affecting our consolidated results of operations as well as items specific to each business group. In addition, we provide a brief description of our basis of presentation for our financial results.
SECTION 2 – Consolidated Results of Operations			19
The consolidated results of operations section provides an analysis of our results on a consolidated basis for the three and nine months ended September 30, 2009, against the comparable prior year periods. Significant subsections within this section are as follows:
Summary Consolidated Results			19
Revenues			19
Cost of Revenue			20
Selling, General and Administrative Expenses			21
Income from Operations and Income Before Income Taxes			22
EBITDA			22
Income Taxes			23
Accounting Changes			23
Inflation			23
SECTION 3 – Segment Results of Operations			23
The segment results of operations section provides an analysis of our results on a reportable operating segment basis for the three and nine months ended June 30, 2009, against the comparable prior year periods. We discuss known trends and uncertainties. Significant subsections within this section are as follows:
Mortgage Services			25
Financial Services			27
Technology Products			29
SECTION 4 – Liquidity and Capital Resources			30
The liquidity and capital resources section provides discussion of our ability to generate adequate amounts of cash to meet our current and future needs. Significant subsections within this section are as follows:
Liquidity			30
Cash Flows			31
Liquidity Requirements after September 30, 2009			32
Capital Resources			32
Commitments and Contingencies			33
SECTION 5 – Other Matters			33
The other matters section provides a discussion of related party transactions and provisions of the various separation related agreements with Ocwen.
SECTION 6 – Forward Looking Statements			33

      

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

SECTION 1 – OVERVIEW

Altisource is a provider of services focused on high value, knowledge-based functions principally related to real estate and mortgage portfolio management, asset recovery and customer relationship management. Utilizing integrated technology that includes decision models and behavioral based scripting engines, the Company provides solutions that improve clients’ performance and maximizes their returns.

We believe our competitive advantage is the ability to manage high value, knowledge-based job functions with our global platform while reducing operating variability. In general, we utilize integrated technology solutions that include enhanced call scripts for our customer service personnel based on psychological principles and decision models. We operate technology platforms that manage large scale distributed networks of vendors. This allows our customers to improve their business processes while reducing costs. Along with expanding our use of integrated technology solutions, a central tenet to our strategy is a focus on selling output or solutions (the number of units we produce or manage on behalf of our client), thereby enabling us to convert operational efficiency gains into higher margins and profitability per employee.

We conduct our operations through three reporting segments: Mortgage Services, Financial Services and Technology Products. In addition, we report our corporate related expenditures as a separate segment (see Note 8 to the condensed consolidated financial statements for a brief description of our business segments).

Significant operating and financial results for our operating groups are discussed under SECTION 3 – SEGMENT RESULTS OF OPERATIONS.

A. Separation

On August 10, 2009 (the “Separation Date”), Altisource became a stand-alone public company in connection with our Separation from Ocwen. In connection with the Separation, Altisource and Ocwen entered into various agreements that address the allocation of assets and liabilities between them and that define their relationship after the Separation including a separation agreement, a tax matters agreement, an employee matters agreement, an intellectual property agreement, a data center and disaster recovery agreement, a transition services agreement and certain long-term servicing contracts (collectively, the “Agreements”). Additional information may be found in Note 1 to the condensed consolidated financial statements.

B. Basis of Presentation

The accompanying condensed consolidated financial statements present the historical results of operations, assets and liabilities attributable to the Altisource businesses. For periods prior to the Separation Date, these condensed consolidated financial statements include allocations of expenses from Ocwen for certain corporate functions including insurance, employee benefit plan expense and allocations for certain centralized administration costs for executive management, treasury, real estate, accounting, auditing, tax, risk management, internal audit, human resources and benefits administration. We determined these allocations using proportional cost allocation methods including the use of relevant operating profit, fixed assets, sales and payroll measurements. Management believes such allocations are reasonable; however, they may not be indicative of the actual expense that would have been incurred had the Company been operating as an independent company for the periods presented. Total corporate costs allocated to the Company, excluding separation costs, were $4.3 million for the period ended August 10, 2009, including $0.5 million during the third quarter. The charges for these functions are included primarily in “Selling, general and administrative expenses” in the condensed consolidated statements of operations. In addition, Ocwen had allocated interest expense to us based upon our portion of assets to Ocwen’s total assets which is reflected as “Interest expense” in the condensed consolidated statements of operations. There have been no allocations of expenses charged to us since the Separation Date.

The condensed consolidated financial statements also do not necessarily reflect what the Company’s consolidated results of operations, financial position and cash flows would have been had the Company operated as an independent company during the entire periods presented. For instance, as an independent public company, Altisource expects to incur costs in excess of those allocated by Ocwen for maintaining a separate Board of Directors, obtaining a separate audit, relocating certain executive management and hiring additional personnel.

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

SECTION 2 – CONSOLIDATED RESULTS OF OPERATIONS

Summary Consolidated Results

The following table summarizes our consolidated operating results for the periods indicated. The transactions with related parties included in this table and throughout this MD&A consist of transactions with Ocwen businesses not included in the Separation or transactions derived from Ocwen’s loan servicing portfolio. We consider certain services to be derived from Ocwen’s loan servicing portfolio rather than provided to Ocwen because such services are charged to the mortgagee and/or the investor and are not expenses to Ocwen.

		Three Months Ended September 30,												Nine Months Ended September 30,
										%												%
(in thousands)		2009				2008				Change				2009				2008				Change
Revenue		$	54,064			$	38,007				42.2	%		$	146,486			$	121,423				20.6	%
Cost of revenue			33,453				28,927				15.6				91,805				88,636				3.6
Gross profit			20,611				9,080				127.0				54,681				32,787				66.8
Selling, general and administrative expenses			11,065				7,142				54.9				27,216				21,285				27.9
Income from operations			9,546				1,938				392.6				27,465				11,502				138.8
Other income (expense), net
Interest income			4				—				N/M				4				14				(71.4	)
Interest expense			(195	)			(608	)			68.0				(1,605	)			(1,945	)			17.5
Other, net			2,737				(19	)			N/M				2,756				(12	)			N/M
Total other income (expense), net			2,546				(627	)			506.1				1,155				(1,943	)			159.4
Income before income taxes			12,092				1,311				822.3				28,620				9,559				199.4
Income tax provision			(3,448	)			(368	)			(837.0	)			(8,522	)			(2,683	)			(217.6	)
Net income		$	8,644			$	943				816.6			$	20,098			$	6,876				192.3	%
Transactions with related parties included above:
Revenue		$	23,214			$	13,472				72.3	%		$	62,549			$	44,716				39.9	%
Selling, general and administrative expenses		$	522			$	1,501				(65.2	)%		$	4,308			$	4,571				(5.8	)%
Interest expense		$	193			$	532				(63.7	)%		$	1,290			$	1,698				(24.0	)%