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.

(Exact name of Registrant as specified in its Charter)

Luxembourg (State or other jurisdiction of incorporation or organization)		Not applicable (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 þ      No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 (as defined in Rule 12b-2 of the Exchange Act):

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

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 April 30, 2010, there were 25,227,551 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			3
				Condensed Consolidated Statements of Operations			4
				Condensed Consolidated Statement of Equity			5
				Condensed Consolidated Statements of Cash Flows			6
				Notes to Condensed Consolidated Financial Statements
				Note 1 — Organization and Basis of Presentation			7
				Note 2 — Transactions with Related Parties			9
				Note 3 — Acquisition of MPA			10
				Note 4 — Accounts Receivable, Net			12
				Note 5 — Prepaid Expenses and Other Current Assets			12
				Note 6— Premises and Equipment, net			12
				Note 7 — Goodwill and Intangible, net			13
				Note 8 — Accounts Payable, Accrued Expenses and Other Current Liabilities			14
				Note 9 — Equity Based Compensation			14
				Note 10 — Commitments and Contingencies			15
				Note 11 — Earnings Per Share			16
				Note 12— Cost of Revenue			17
				Note 13 — Selling, General and Administrative Expenses			17
				Note 14 — Other Income (Expense), Net			17
				Note 15 — Segment Reporting			18
		Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations (see Table of Contents at front of section)			19
		Item 3		Quantitative and Qualitative Disclosures about Market Risk			36
		Item 4		Controls and Procedures			36
PART II — Other Information
		Item 1		Legal Proceedings			37
		Item 1A		Risk Factors			37
		Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			37
		Item 3		Defaults Upon Senior Securities			37
		Item 4		(Removed and Reserved)			37
		Item 5		Other Information			37
		Item 6		Exhibits			37
SIGNATURES
EX-31.1
EX-31.2
EX-32.1

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 amounts)

		March 31,				December 31,
		2010				2009
ASSETS
Current Assets:
Cash and Cash Equivalents		$	19,620			$	30,456
Accounts Receivable, net			29,649				30,497
Prepaid Expenses and Other Current Assets			3,630				2,904
Deferred Tax Assets, net			1,356				1,546
Total Current Assets			54,255				65,403
Premises and Equipment, net			13,516				11,408
Intangible Assets, net			76,130				33,719
Goodwill			19,505				9,324
Other Non-current Assets			1,692				702
Total Assets		$	165,098			$	120,556
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses		$	33,398			$	24,192
Capital Lease Obligations — Current			521				536
Other Current Liabilities			6,538				5,939
Total current liabilities			40,457				30,667
Capital Lease Obligations — Non-current			—				128
Deferred Tax Liabilities, net			3,130				2,769
Other Non-current Liabilities			1,933				644
Commitments and Contingencies (Note 10)
Equity:
Common Stock; ($1.00 par value; 100,000 shares authorized; 25,205 shares issued and outstanding in 2010; 24,145 shares issued and outstanding in 2009)			25,205				24,145
Retained Earnings			17,972				11,665
Additional Paid-in-Capital			74,764				50,538
Altisource Equity			117,941				86,348
Non-controlling Interests			1,637				—
Total Equity			119,578				86,348
Total Liabilities and Equity		$	165,098			$	120,556

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

		Three Months Ended
		March 31,
		2010				2009
Revenue		$	60,974			$	42,619
Cost of Revenue			38,390				28,003
Gross Profit			22,584				14,616
Selling, General and Administrative Expenses			13,033				7,478
Income from Operations			9,551				7,138
Other (Income) Expense, net			(72	)			(619	)
Income Before Income Taxes and Non-controlling Interests			9,479				6,519
Income Tax Provision			(2,385	)			(2,080	)
Net Income			7,094				4,439
Net Income Attributable to Non-controlling Interests			(787	)			—
Net Income Attributable to Altisource		$	6,307			$	4,439
Earnings Per Share:
Basic		$	0.26			$	0.18
Diluted		$	0.25			$	0.18
Weighted Average Shares Outstanding:
Basic			24,690				24,050
Diluted			25,663				24,050
Transactions with Related Parties included above:
Revenue		$	28,736			$	18,723
Selling, General and Administrative Expenses		$	324			$	1,943
Interest Expense		$	—			$	569

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)

														Additional Paid-in				Non-Controlling
		Common Stock								Retained Earnings				Capital				Interests				Total				Comprehensive Income
Balance, December 31, 2009			24,145			$	24,145			$	11,665			$	50,538			$	—			$	86,348
Net Income			—				—				6,307				—				787				7,094			$	6,307
Acquisition of MPA			959				959				—				22,941				3,268				27,168				—
Contributions from Non-controlling Interest Holders			—				—				—				—				2				2				—
Distributions to Non-controlling Interest Holders			—				—				—				—				(2,420	)			(2,420	)			—
Share-based compensation			—				—				—				271				—				271				—
Exercise of stock options			101				101				—				1,014				—				1,115				—
Balance, March 31, 2010			25,205			$	25,205			$	17,972			$	74,764			$	1,637			$	119,578			$	6,307

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Three Months Ended
		March 31,
		2010				2009
Cash Flows from Operating Activities:
Net Income		$	7,094			$	4,439
Reconciling Items:
Depreciation and Amortization			1,523				1,435
Amortization of Intangible Assets			1,189				637
Deferred Income Taxes			551				153
Share-based Compensation Expense			271				—
Changes in Operating Assets and Liabilities, net of Acquisition:
Accounts Receivable			5,127				(642	)
Prepaid Expenses and Other Current Assets			(405	)			511
Other Assets			(990	)			—
Accounts Payable and Accrued Expenses			4,863				(4,502	)
Other Current and Non-current Liabilities			462				(541	)
Net Cash Flow from Operating Activities			19,685				1,490
Cash Flows from Investing Activities:
Additions to Premises and Equipment, net			(3,613	)			(771	)
Acquisition of Business, net of cash acquired			(25,462	)			—
Net Cash Flow from Investing Activities			(29,075	)			(771	)
Cash Flows from Financing Activities:
Principal Payments on Capital Lease Obligations			(143	)			(231	)
Payments of Line of Credit			—				(1,123	)
Proceeds from Stock Option Exercises			1,115				—
Contributions from Non-controlling Interests			2				—
Distributions to Non-controlling Interests			(2,420	)			—
Net Distribution to Ocwen			—				(1,104	)
Net Cash Flow from Financing Activities			(1,446	)			(2,458	)
Net Decrease in Cash and Cash Equivalents			(10,836	)			(1,739	)
Cash and Cash Equivalents at the Beginning of the Period			30,456				6,988
Cash and Cash Equivalents at the End of the Period		$	19,620			$	5,249
Supplemental Cash Flow Information:
Interest Paid		$	—			$	9
Income Taxes Paid		$	25			$	171
Non-cash Investing and Financing Activities:
Shares issued in connection with acquisition		$	23,900			$	—
Reduction in Income Tax Payable from Tax Amortizable Goodwill		$	—			$	906

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

     Altisource Portfolio Solutions S.A. (which may be referred to as Altisource, the Company, we, us or our), 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.

     We are publicly traded on the NASDAQ Global Select market under the symbol ASPS. We were incorporated under the laws of Luxembourg on November 4, 1999 as Ocwen Luxembourg S.à.r.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. We became a publicly traded company as of August 10, 2009, see “Separation” below.

     In February 2010, we acquired all of the outstanding membership interests of The Mortgage Partnership of America, L.L.C. (“MPA”). MPA was formed as a Delaware limited liability company with the purpose of being the manager of Best Partners Mortgage Cooperative, Inc. (“BPMC”) doing business as Lenders One Mortgage Cooperative (“Lenders One”). Lenders One is a national alliance of independent mortgage bankers (“Members”) that provides its Members with education and training along with revenue enhancing, cost reducing, and market share expanding opportunities (see Note 3).

     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 15 for a description of our business segments).

Separation

     On August 10, 2009 (the “Separation Date”), we became a stand-alone public company in connection with our separation from Ocwen Financial Corporation (“Ocwen”) (the “Separation”). Prior to the Separation, our businesses were wholly-owned subsidiaries of 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, we entered into various agreements with Ocwen that define our 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”).

Basis of Presentation

     Our historical financial statements include the assets and liabilities (accounted for at the historical values carried by Ocwen prior to the Separation), revenues and expenses directly attributable to our operations. Beginning August 10, 2009, after our assets and liabilities were formally contributed by Ocwen pursuant to the terms of a separation agreement, our financial statements have been presented on a consolidated basis for financial reporting purposes. Our condensed consolidated financial statements include the assets and liabilities, revenues and expenses directly attributable to our operations. All significant inter-company and inter-segment transactions and accounts have been eliminated upon consolidation. Certain amounts disclosed in prior period statements have been reclassified to conform to the current period presentation.

     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 (See Note 2).

     The condensed consolidated financial statements for the three months ended March 31, 2009 also do not necessarily reflect what the Company’s condensed consolidated results of operations, financial position and cash flows would have been had

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

the Company operated as an independent company during that period. For instance, as an independent public company, we 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.

     Prior to our acquisition, MPA and Lenders One entered into a management agreement that ends on December 31, 2025. MPA was formed to act on behalf of Lenders One and its Members principally to negotiate favorable terms on products and services. For providing these services MPA receives payment from Lenders One based upon the benefits achieved for the Members. The management agreement provides MPA with broad powers such as recruiting members for Lenders One, collection of fees and other obligations from Members of Lenders One, processing of all rebates owed to Lenders One, day-to-day operation of Lenders One and negotiation of contracts with vendors including signing contracts on behalf of Lenders One.

     The Management Agreement between MPA and Lenders One, pursuant to which MPA is the management company of Lenders One, represents a variable interest in a variable interest entity. MPA determined that they are the primary beneficiary of Lenders One as they have the power to direct the activities that most significantly impact Lenders One’s economic performance and the obligation to absorb losses or the right to receive benefits from Lenders One. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements as of March 31, 2010 on a consolidated basis with the interests of the Members reflected as Non-controlling Interest on the Condensed Consolidated Balance Sheets. At March 31, 2010, Lenders One had total assets of $3.5 million and liabilities of $0.1 million.

     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 Form 10-K filed with the SEC on March 17, 2010, 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-K.

Foreign Currency Translation

     Our reporting currency is the U.S. dollar. Other foreign currency assets and liabilities that are considered monetary items are translated at exchange rates in effect at the balance sheet date. Foreign currency revenues and expenses are translated at transaction date exchange rates. These exchange gains and losses are included in the determination of net income.

Fair Value of Financial Instruments

     The fair value of financial instruments, which primarily include Cash and Cash Equivalents, Accounts Receivable and Accounts Payable and Accrued Expenses at March 31, 2010 and December 31, 2009 are carried at amounts that approximate their fair value due to the short-term nature of these amounts.

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

     Additionally, a put option arrangement was issued to the predecessor owners of MPA in conjunction with the acquisition (see Note 3). The arrangement allows the holders to put a portion of the Altisource shares issued as consideration to Altisource at a predetermined price. Altisource calculated the fair value of this put option arrangement of $1.3 million by utilizing a Black-Scholes option pricing model. The fair value calculation is deemed to be a Level 2 calculation under the guidelines set forth under FASB ASC 820, Fair Value Measurements and Disclosures. The fair value of the put was valued using the following assumptions:

		Assumptions
Risk-free Interest Rate			0.345% - 1.914%
Expected Stock Price Volatility			40% - 55%
Expected Dividend Yield			—
Expected Option Life (in years)			1-4
Contractual Life (in years)			—
Fair Value		$	0.74 - $3.90

     The put option agreement is a written derivative valued similar to stock options and is included within “Other Non-current Liabilities” on the Condensed Consolidated Balance Sheet. The fair value of the put option agreements will be determined each quarter until such puts are either exercised or forfeited with any changes in value included as a component of “Other Income (Expense), net” in the Condensed Consolidated Statements of Operations. There were no significant changes to the fair value from its valuation at the acquisition date through the end of the quarter.

NOTE 2 — TRANSACTIONS WITH RELATED PARTIES

     Ocwen remains our largest customer. Following the Separation, Ocwen is contractually obligated to purchase certain Mortgage Services and Technology Products from us under service agreements. These agreements extend for eight years from the Separation Date, subject to termination under certain provisions; Ocwen is not restricted from redeveloping these services. We have agreed with Ocwen to settle intercompany amounts on a weekly basis beginning in 2010.

     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, or services derived from Ocwen’s loan servicing portfolio, as a percentage of each of our segment revenues and as a percentage of consolidated revenues was as follows for the three months ended March 31:

		Three Months Ended
		March 31,
		2010				2009
Mortgage Services			66	%			75	%
Technology Products			37				51
Financial Services			< 1				< 1
Consolidated Revenues			47	%			44	%

     We record revenues we earn from Ocwen under the various long-term servicing contracts 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.

Allocation of Corporate Costs

     For the three months ended March 31, 2009, 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. Ocwen 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, were 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 were allocated based on a combination of the sales, fixed assets and operating profits of the

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

department whichever is most appropriate given the nature of the expense. Total corporate costs allocated to the Company, were $1.9 million for the three months ended March 31, 2009. The charges for these functions are included primarily in Selling, General and Administrative Expenses 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.

     In addition, prior to the Separation, Ocwen had allocated interest expense to us based upon our portion of assets to Ocwen’s total assets which is included in “Other Income (Expense) Net” in the Condensed Consolidated Statements of Operations.

Transition Services

     In connection with the Separation, Altisource and Ocwen entered into a transition services agreement that 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. For the quarter ended March 31, 2010, Altisource billed Ocwen $0.4 million and Ocwen billed Altisource $0.3 million for services provided under this agreement. These amounts are reflected as a component of Selling, General and Administrative expenses in the Condensed Consolidated Statements of Operations.

NOTE 3 — ACQUISITION OF MPA

     In February 2010, we acquired all of the outstanding membership interests of MPA pursuant to a Purchase and Sale Agreement. MPA serves as the manager of Lenders One, a national alliance of independent mortgage bankers. The alliance was established in 2000 and as of December 31, 2009 consists of more than 155 members.

     Consideration for the transaction consisted of cash, common stock and put option agreements:

(in thousands)		Consideration
Cash		$	29,000
Common Stock			23,900
Put Option Agreements at Fair Value			1,289
Working Capital Adjustment			2,166
Total Consideration		$	56,355

     The common stock consisted of 959,085 shares of Altisource’s common stock valued at $24.92 per share (based on the last closing price of Altisource common stock on February 11, 2010), a portion of which (314,135 shares) will be held in escrow to secure MPA’s indemnification obligations under the Purchase and Sale Agreement. In addition, we entered into three put option agreements with certain of the sellers whereby each seller has the right, with respect to an aggregate of 0.5 million shares of our common stock, to put up to 25% of eligible shares each year for a total of four years at a price equal to $16.84 per share. The working capital adjustment included above is an estimate that is expected to be trued-up and paid within the second quarter of 2010.

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

     The preliminary allocation of the purchase price is estimated as follows:

(in thousands)
Cash		$	3,538
Accounts Receivable			4,279
Prepaid Expenses and Other Current Assets			321
Premises and Equipment			18
Identifiable Intangible Assets			43,600
Goodwill			10,181
			61,937
Accounts Payable and Accrued Expenses			(2,176	)
Other Current Liabilities			(138	)
Non-controlling Interests			(3,268	)
Allocation of Purchase Price		$	56,355

     Management continues to evaluate the allocation of purchase price associated with the acquisition. Management has also tentatively assigned the following lives to identified assets acquired as a result of the acquisition (we expect to conclude on the fair value of assets and associated lives during 2010):

		Estimated Life
		(in Years)
Premises and Equipment			2-5
Management Agreement			15
Trademarks			15
Non-compete			4
Goodwill		Indefinite

     The goodwill arising from the acquisition, which was assigned to our Mortgage Services segment, consists of various components primarily including in-place workforce and anticipated revenue synergies given MPA’s market presence and future enhancements to our services. All goodwill and intangible assets related to the acquisition of the MPA assets are expected to be amortizable and deductible for income tax purposes.

     We entered into employee agreements with certain key employees of MPA who also received the majority of our shares issued in connection with the acquisition.

     Revenue and Net Income Attributable to Non-controlling Interests from MPA of $2.3 million and $0.8 million, respectively, are included in the Company’s Condensed Consolidated Statements of Operations. Acquisition transaction costs are included in Selling, General and Administrative and Expenses in the Condensed Consolidated Statements of Operations.

     The following tables present the unaudited pro forma Condensed and Consolidated Results of Operations as if the acquisition of MPA had occurred at the beginning of the period presented.

		Three Months Ended
		March 31, 2010
		As Reported				Pro Forma
Revenue		$	60,974			$	62,618
Net Income Attributable to Altisource			6,307				6,179
Earnings Per Share – Diluted			0.25				0.24

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

		Three Months Ended
		March 31, 2009
		As Reported				Pro Forma
Revenue		$	42,619			$	47,023
Net Income Attributable to Altisource			4,439				5,751
Earnings Per Share – Diluted			0.18				0.24

NOTE 4 —ACCOUNTS RECEIVABLE, NET

     Accounts Receivable, net consists of the following:

		March 31,				December 31,
(in thousands)		2010				2009
Third-party Accounts Receivable		$	12,741			$	11,638
Unbilled Fees			16,177				9,073
Receivable from Ocwen			1,217				10,066
Other Receivables			632				416
			30,767				31,193
Allowance for Doubtful Accounts			(1,118	)			(696	)
Total		$	29,649			$	30,497

     One of our customers in the Financial Services segment accounted for 11% and 23% of consolidated revenues in the three months ended March 31, 2010 and 2009, respectively. No single customer accounted for more than 10% of accounts receivable at March 31, 2010.

NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

     Prepaid Expenses and Other Current Assets consists of the following:

		March 31,				December 31,
(in thousands)		2010				2009
Prepaid Expenses		$	1,888			$	1,471
Other Current Assets			1,742				1,433
Total		$	3,630			$	2,904

NOTE 6 — PREMISES AND EQUIPMENT, NET

     Premises and Equipment, net which include amounts recorded under capital leases, consists of the following:

		March 31,				December 31,
(in thousands)		2010				2009
Computer Hardware and Software		$	24,801			$	23,591
Office Equipment and Other			11,552				9,203
Furniture and Fixtures			2,731				2,663
Leasehold Improvements			3,441				3,441
			42,525				38,898
Less: Accumulated Depreciation and Amortization			(29,009	)			(27,490	)
Total		$	13,516			$	11,408

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

     Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $1.5 million and $1.4 million for the three months ended March 31, 2010 and 2009, respectively, and is included in Cost of Revenue for operating assets and in Selling, General and Administrative expense for non-operating assets in the accompanying Condensed Consolidated Statements of Operations.

NOTE 7— GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

     Changes in Goodwill during the year ended March 31, 2010 and December 31, 2009 are summarized below:

		Mortgage				Financial				Technology
(in thousands)		Services				Services				Products				Total
Balance, December 31, 2009		$	—			$	7,706			$	1,618			$	9,324
Acquisition of MPA			10,181				—				—				10,181
Total		$	10,181			$	7,706			$	1,618			$	19,505

Intangible Assets, Net

     Intangible Assets, net consists of the following:

		Weighted
		Average
		Estimated
		Useful				Gross Carrying Amount								Accumulated Amortization								Net Book Value
		Life				March 31,				December 31,				March 31,				December 31,				March 31,				December 31,
		(Years)				2010				2009				2010				2009				2010				2009
Definite-lived Intangible Assets
Trademarks			12			$	10,200			$	2,800			$	1,669			$	1,447			$	8,531			$	1,353
Customer Lists			19				37,700				37,700				5,862				5,334				31,838				32,366
Operating Agreement			15				35,000				—				389				—				34,611				—
Non-compete Agreement			4				1,200				—				50				—				1,150				—
Total Intangible Assets						$	84,100			$	40,500			$	7,970			$	6,781			$	76,130			$	33,719

     Amortization expense for definite lived intangible assets was $1.2 million and $0.6 million for the three months ended March 31, 2010 and 2009, respectively. Amortization expense is expected to be $5.4 million, $5.6 million, $5.3 million, $5.1 million and $4.8 million for the years 2010 through 2014.

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

NOTE 8 —ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accounts Payable and Accrued Expenses consists of the following:

		March 31,				December 31,
(in thousands)		2010				2009
Accounts Payable		$	2,292			$	1,114
Income Taxes Payable, net			6,663				4,853
Payable to Ocwen			3,202				2,716
Accrued Expenses — General			15,221				8,373
Accrued Salaries and Benefits			6,020				7,136
Total		$	33,398			$	24,192

Other Current Liabilities consists of the following:

		March 31,				December 31,
(in thousands)		2010				2009
Mortgage Charge-Off and Deficiency Collections		$	2,474			$	2,458
Deferred Revenue			1,412				989
Facility Closure Cost Accrual, current portion			189				272
Other			2,463				2,220
Total		$	6,538			$	5,939

Facility Closure Costs

     During 2009, we accrued facility closure costs (included in other current and other non-current liabilities in the Condensed Consolidated Balance Sheet) primarily consisting of lease exit costs (expected to be paid through 2014) and severance for the closure of two facilities. The following table summarizes the activity, all recorded in our Financial Services segment, for the three months ended March 31, 2010:

		Lease
(in thousands)		costs
Balance at January 1, 2010		$	916
Payments			(83	)
Balance at March 31, 2010			833
Less: Long-Term Portion			(644	)
Facility Closure Cost Accrual, current portion		$	189

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

NOTE 9 —EQUITY BASED COMPENSATION

     We provide stock-based awards as a form of compensation for employees and officers. We have issued stock-based awards in the form of stock options and restricted stock units. We recorded total stock compensation expense of $0.3 million for the three months ended March 31, 2010. The compensation expense is included in Selling, General and Administrative Expenses in the accompany Condensed Consolidated Statements of Operations.

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

     During the three months ended March 31, 2010, the Company granted 0.4 million stock options. The options have an exercise price of $21.94 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 three 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 three 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:

		Black-Scholes				Binomial
Risk-free Interest Rate			1.90	%			0.02 — 3.66	%
Expected Stock Price Volatility			36	%			24 — 41	%
Expected Dividend Yield			—				—
Expected Option Life (in years)			5				—
Contractual Life (in years)			—				10
Fair Value		$	6.80			$7.35 and $8.48

     As of March 31, 2010, estimated unrecognized compensation costs related to share-based payments amounted to $4.2 million which we expect to recognize over a weighted-average remaining requisite service period of approximately 3.6 years.

     The following table summarizes activity of our stock options:

										Weighted
						Weighted				Average
						Average				Contractual				Aggregate
		Number of				Exercise				Term				Intrinsic Value
		Options				Price				(in years)				(in thousands)
Outstanding at December 31, 2009			3,190,639			$	9.90
Granted			407,500				21.94
Exercised			(100,853	)			10.53
Outstanding at March 31, 2010			3,497,286			$	11.29				7.6			$	38,864
Exercisable at March 31, 2010			1,066,355			$	9.78				5.4			$	13,453

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Litigation

     The Company is from time to time involved in legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the outcome of such matters will not have a material impact on the Company’s financial condition, results of operations or cash flows.

Tax Matters Agreement

     The Distribution was intended to be 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 the expected tax treatments not be upheld

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

upon review or audit to the extent related to our operating results. As of March 31, 2010, the Company does not believe it has a material obligation under this indemnity.

NOTE 11 — EARNINGS PER SHARE

     Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities. On August 10, 2009, the Distribution by Ocwen was completed to the Ocwen stockholders of one share of Altisource common stock for every 3 shares of Ocwen common stock held as of August 4, 2009. 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 August 4, 2009 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. As a result on August 10, 2009, the Company had 24,050,340 shares of common stock outstanding, and this share amount is being utilized for the calculation of basic EPS for all periods presented prior to the date of the Distribution.

     Basic and diluted earnings per share for the three months ended March 31, 2010 and 2009 are calculated as follows:

		Three Months Ended												Three Months Ended
		March 31, 2010												March 31, 2009
						Weighted Ave.												Weighted Ave.
(in thousands, except per share amounts)		Income				Shares				Per Share				Income				Shares				Per Share
Basic		$	6,307				24,690			$	0.26			$	4,439				24,050			$	0.18
Effect of Dilutive Securities:
Stock Options			—				970								—				—
Restricted Stock			—				3								—				—
Diluted		$	6,307				25,663			$	0.25			$	4,439				24,050			$	0.18

     An average of 509,376 options that were anti-dilutive have been excluded from the computation of diluted EPS for the three months ended March 31, 2010. These options were anti-dilutive because their exercise price was greater than the average market price of our stock. Also excluded from the computation of diluted EPS are 985,682 options granted for shares that are issuable upon the achievement of certain market and performance criteria related to our stock price and an annualized rate of return to investors that have not been met at this point.

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

NOTE 12 — COST OF REVENUE

     Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service roles; fees paid to external providers related to provision of services, reimbursable expenses and technology and telephony expenses as well as depreciation and amortization of operating assets. The components of cost of revenue were as follows for the periods ended March 31, 2010 and 2009:

		Three Months Ended
		March 31,
(in thousands)		2010				2009
Compensation and Benefits		$	13,999			$	13,074
Outside Fees and Services			12,460				9,598
Expense Reimbursements			7,882				1,006
Technology and Communications			4,049				4,325
Total		$	38,390			$	28,003

NOTE 13 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses include payroll, employee benefits, occupancy and other costs associated with personnel employed in executive, sales, marketing, human resources and finance roles. This category also includes professional fees, depreciation and amortization on non-operating assets. The components of selling, general and administrative expenses were as follows for the periods ended March 31, 2010 and 2009:

		Three Months Ended
		March 31,
(in thousands)		2010				2009
Compensation and Benefits		$	4,040			$	1,943
Professional Services			2,944				827
Occupancy Related Costs			2,353				2,135
Amortization of Intangible Assets			1,189				637
Other			2,507				1,935
Total		$	13,033			$	7,478

NOTE 14 — OTHER INCOME (EXPENSE), NET

     Other Income (Expense), net consists of the following:

		Three Months Ended
		March 31,
(in thousands)		2010				2009
Interest Income		$	9			$	—
Interest Expense			(28	)			(614	)
Other, net			(53	)			(5	)
Total		$	(72	)		$	(619	)

     Through the date of Separation, Interest Expense included an interest charge from Ocwen which represented an allocation of Ocwen’s total interest expense calculated based on our assets in comparison to Ocwen’s total assets. This charge was $0.6 million for the three months ending March 31, 2009. Subsequent to the date of Separation, we are no longer subject to the interest charge from Ocwen.

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

NOTE 15 — SEGMENT REPORTING

     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.

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

     We classify our businesses into three reportable segments. Mortgage Services consists of mortgage portfolio management services that span the mortgage lifecycle. Financial Services principally consists of unsecured asset recovery and customer relationship management. Technology Products consists of modular, comprehensive integrated technological solutions for loan servicing, vendor management and invoice presentment. In addition, our Corporate Items and Eliminations segment prior to the Separation Date includes eliminations of transactions between the reporting segments as well as expenditures recognized by us related to the Separation. Subsequent to the Separation Date, in addition to the previously mentioned items, this segment also includes costs recognized by us related to corporate support functions such as finance, legal, human resources and consumer behavior.

Financial information for our segments is as follows:

		Three Months Ended March 31, 2010
														Corporate
		Mortgage				Financial				Technology				Items &				Consolidated
(in thousands)		Services				Services				Products				Eliminations (1)				Altisource
Revenue		$	36,795			$	15,633			$	11,974			$	(3,428	)		$	60,974
Cost of Revenue			22,984				12,187				6,647				(3,428	)			38,390
Gross Profit			13,811				3,446				5,327				—				22,584
Selling, General and Administrative			2,778				4,413				1,106				4,736				13,033
Income (Loss) from Operations			11,033				(967	)			4,221				(4,736	)			9,551
Other Income (Expense), net			3				(16	)			(12	)			(47	)			(72	)
Income (Loss) Before Income Taxes		$	11,036			$	(983	)		$	4,209			$	(4,783	)		$	9,479
Transactions with Related Parties:
Revenue		$	24,247			$	51			$	4,438			$	—			$	28,736
Selling, General and Administrative Expenses		$	—			$	—			$	—			$	324			$	324

		Three Months Ended March 31, 2009
														Corporate
		Mortgage				Financial				Technology				Items &				Consolidated
(in thousands)		Services				Services				Products				Eliminations (1)				Altisource
Revenue		$	17,700			$	17,318			$	10,573			$	(2,972	)		$	42,619
Cost of Revenue			10,411				14,069				6,495				(2,972	)			28,003
Gross Profit			7,289				3,249				4,078				—				14,616
Selling, General and Administrative			1,718				4,082				1,678				—				7,478
Income (Loss) from Operations			5,571				(833	)			2,400				—				7,138
Other Expense, net			(13	)			(468	)			(138	)			—				(619	)
Income (Loss) Before Income Taxes		$	5,558			$	(1,301	)		$	2,262			$	—			$	6,519
Transactions with Related Parties:
Revenue		$	13,312			$	16			$	5,395			$	—			$	18,723
Selling, General and Administrative Expenses		$	1,128			$	188			$	627			$	—			$	1,943
Interest Expense		$	12			$	458			$	99			$	—			$	569

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 condensed consolidated financial statements and the accompanying notes and with our Registration Statement on Form 10-Q as filed with the Securities and Exchange Commission on March 17, 2010.

This MD&A contains forward-looking statements; please see page 35 for more information. Significant components of the MD&A section include:

		Page
SECTION 1 — Overview			20
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			21
The consolidated results of operations section provides an analysis of our results on a consolidated basis for the three months ending March 31, 2010 and 2009. When helpful in explaining trends, we also discuss sequential results. Significant subsections within this section are as follows:
Summary Consolidated Results			21
Revenue			21
Cost of Revenue			22
Selling, General and Administrative Expenses			23
EBITDA			24
Income Taxes			25
SECTION 3 — Segment Results of Operations			25
The segment results of operations section provides an analysis of our results on a reportable operating segment basis for the three months ending March 31, 2010 and 2009. We discuss known trends and uncertainties. When helpful in explaining trends, we also discuss sequential results. Significant subsections within this section are as follows:
Mortgage Services			27
Financial Services			30
Technology Products			31
SECTION 4 — Liquidity and Capital Resources			33
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			33
Cash Flows			33
Liquidity Requirements after March 31, 2010			34
Capital Resources			34
Commitments and Contingencies			34
SECTION 5 — Critical Accounting Policies			34
SECTION 6 — Other Matters			34
The other matters section provides a discussion of related party transactions and provisions of the various separation related agreements with Ocwen.
SECTION 7 — Forward Looking Statements			35

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, we provide solutions that improve clients’ performance and maximize their returns.

     Our objective is to become a global knowledge process provider focused on the entire mortgage services lifecycle and credit to cash lifecycle management spaces. We intend to achieve this objective by executing on our strategies of penetrating existing customers, acquiring new customers, continuing to focus on increasing quality and reducing costs and investing in new service offerings.

A. Separation

     On August 10, 2009, Altisource became a stand-alone public company in connection with our Separation from Ocwen. In connection with the Separation, Altisource and Ocwen entered into Agreements that address the allocation of assets and liabilities between them and that define their relationship after the Separation. 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. Total corporate costs allocated to the Company were $1.9 million for the three months ended March 31, 2009. 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. Other than transition servicers, there have been no allocations of Ocwen expenses charged to us since the Separation Date.

     In February 2010, we acquired all of the outstanding membership interests of MPA. MPA was formed as a Delaware limited liability company with the purpose of managing BPMC which operates as Lenders One. Lenders One is a national alliance of independent mortgage bankers that provides its Members with education and training along with revenue enhancing, cost reducing and market share expanding opportunities. The results of operations of BPMC are consolidated under the variable interest model.

     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.

Factors Affecting Comparability

     In addition to the items noted within the Basis of Presentation section presented above, the following additional item may impact the comparability of our results:

—

$0.5 million increase in Mortgage Services revenues due to our semi-annual review of the time it takes to sell REO properties which impacts the timing over which we recognize property preservation revenues.

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

SECTION 2 — CONSOLIDATED RESULTS OF OPERATIONS

Summary Consolidated Results

     Following is a discussion of our consolidated results of operations for the periods indicated. The following table sets forth information regarding our results of operations for the periods ended March 31, 2010 and 2009:

		Three Months Ended March 31,
										$				%
(in thousands)		2010				2009				Change				Change
Revenue		$	60,974			$	42,619				18,355				43
Cost of Revenue			38,390				28,003				10,387				37
Gross Profit			22,584				14,616				7,968				55
Selling, General and Administrative Expenses			13,033				7,478				5,555				74
Income from Operations			9,551				7,138				2,413				34
Other Expense, net			(72	)			(619	)			547				88
Income Before Income Taxes and Non-controlling Interests			9,479				6,519				2,960				45
Income Tax Provision			(2,385	)			(2,080	)			(305	)			(15	)
Net Income			7,094				4,439				2,655				60
Net Income Attributable to Non-controlling Interests			(787	)			—				(787	)			N/M
Net Income Attributable to Altisource		$	6,307			$	4,439				1,868				42
Transactions with Related Parties:
Revenue		$	28,736			$	18,723				10,013				54
Selling, General and Administrative Expenses		$	324			$	1,943				(1,619	)			(83	)
Interest Expense		$	—			$	569				(569	)			N/M

Revenue

     The following table presents our revenues for the periods ended March 31, 2010 and 2009:

		Three Months Ended March 31,
										$				%
(in thousands)		2010				2009				Change				Change
Mortgage Services		$	36,795			$	17,700				19,095				108
Financial Services			15,633				17,318				(1,685	)			(10	)
Technology Products			11,974				10,573				1,401				13
Eliminations			(3,428	)			(2,972	)			(456	)			15
Total Revenues		$	60,974			$	42,619				18,355				43
Transactions with Related Parties:
Mortgage Services		$	24,247			$	13,312				10,935				82
Financial Services		$	51			$	16				35				219
Technology Products		$	4,438			$	5,395				(957	)			(18	)

     Revenues for the three months ended March 31, 2010 increased to $61.0 million, a 43% increase over the comparable three months for 2009. In addition, we achieved a 8% sequential increase in revenues despite a decline in Financial Services revenues and a decline in foreclosure starts in January and February.

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

     At the end of the first quarter, we achieved a significant milestone by completing our national rollout of property preservation services. As of March 31^st we had over 7,500 properties under management with respect to property preservation as compared to approximately 3,000 at year-end. In addition, we obtained national coverage of our REO disposition services and as of March 31^st, had over 4,800 properties listed with REO brokers compared to approximately 3,500 at year end. The last significant piece of our national default-oriented services rollout includes the geographic expansion of default management services and title agency services. We are still on target to complete the rollout during the remainder of 2010 to the extent the timing is within our control.

     The acquisition of MPA added approximately $2.3 million of revenue.

     Our revenues are seasonal. More specifically, Financial Services revenues tend to be highest in the first quarter and generally declines throughout the year. Mortgage Services revenue is impacted by REO sales which tend to be at their lowest level during winter months and highest during summer months.

     During 2010, we believe that we will be able to continue to grow our revenues when compared to prior periods for several reasons:

	•		Continued geographic expansion of our Mortgage Services products capturing a greater share of revenues related to loans serviced by Ocwen;
	•		Expansion of Ocwen’s residential loan portfolio including the $9.7 billion increase in unpaid principal balance boarded in November 2009 and the $6.9 billion increase in unpaid principal balance boarded in May 2010;
	•		Inclusion of MPA since the February 2010 acquisition date; and
	•		Greater penetration of existing Financial Services clients.

Cost of Revenue

     Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service roles; fees paid to external providers related to provision of services, reimbursable expenses and technology and telephony expenses as well as depreciation and amortization of operating assets. The components of cost of revenue were as follows for the periods ended March 31, 2010 and 2009:

		Three Months Ended March 31,
										$				%
(in thousands)		2010				2009				Change				Change
Compensation and Benefits		$	13,999			$	13,074				925				7
Outside Fees and Services			12,460				9,598				2,862				30
Expense Reimbursements			7,882				1,006				6,876				N/M
Technology and Communications			4,049				4,325				(276	)			(6	)
Total Cost of Revenue		$	38,390			$	28,003				10,387				37
Gross Margin Percentage			37	%			34	%