e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended September 30, 2010
    OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-34354
 
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
(Exact name of Registrant as specified in its Charter)
 
     
Luxembourg   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)
+352 2469 7900
Registrant’s telephone number
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 (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 September 30, 2010, there were 25,412,748 outstanding shares of the registrant’s shares of beneficial interest.
 
 

 


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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
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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)
                 
    September 30,     December 31,  
    2010     2009  
ASSETS
               
 
               
Current Assets:
               
Cash and Cash Equivalents
  $ 23,037     $ 30,456  
Accounts Receivable, net
    46,772       30,497  
Prepaid Expenses and Other Current Assets
    4,689       2,904  
Deferred Tax Assets, net
    3,532       1,546  
 
           
Total Current Assets
    78,030       65,403  
 
               
Restricted Cash
    779        
Premises and Equipment, net
    16,157       11,408  
Intangible Assets, net
    73,230       33,719  
Goodwill
    15,380       9,324  
Other Non-current Assets
    4,331       702  
 
           
 
               
Total Assets
  $ 187,907     $ 120,556  
 
           
 
               
LIABILITIES AND EQUITY
               
 
               
Current Liabilities:
               
Accounts Payable and Accrued Expenses
  $ 26,960     $ 24,192  
Capital Lease Obligations — Current
    804       536  
Other Current Liabilities
    6,718       5,939  
 
           
Total Current Liabilities
    34,482       30,667  
 
               
Capital Lease Obligations — Non-current
    1,008       128  
Deferred Tax Liability, net
    1,219       2,769  
Other Non-current Liabilities
    3,400       644  
 
               
Commitment and Contingencies (Note 16)
               
 
               
Equity:
               
Common Stock ($1.00 par value; 100,000 shares authorized; 25,413 shares issued and 25,327 outstanding in 2010; 24,145 shares issued and outstanding in 2009)
    25,413       24,145  
Retained Earnings
    44,150       11,665  
Additional Paid-in Capital
    78,321       50,538  
Treasury Stock, at cost ($1.00 par value; 86 shares in 2010)
    (2,311 )        
 
           
Altisource Equity
    145,573       86,348  
 
               
Non-controlling Interests
    2,225        
 
           
 
               
Total Equity
    147,798       86,348  
 
           
 
               
Total Liabilities and Equity
  $ 187,907     $ 120,556  
 
           
See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Revenue
  $ 77,580     $ 54,064     $ 209,901     $ 146,486  
Cost of Revenue
    48,647       33,453       131,749       91,805  
 
                       
 
                               
Gross Profit
    28,933       20,611       78,152       54,681  
Selling, General and Administrative Expenses
    14,996       11,065       40,168       27,216  
 
                       
 
                               
Income from Operations
    13,937       9,546       37,984       27,465  
Other Income (Expense), net
    698       2,546       666       1,155  
 
                       
 
                               
Income Before Income Taxes and Non-controlling Interests
    14,635       12,092       38,650       28,620  
Income Tax Provision
    (2,751 )     (3,448 )     (2,029 )     (8,522 )
 
                       
 
                               
Net Income
    11,884       8,644       36,621       20,098  
 
                               
Net Income Attributable to Non-controlling Interests
    (2,052 )           (4,136 )      
 
                       
 
                               
Net Income Attributable to Altisource
  $ 9,832     $ 8,644     $ 32,485     $ 20,098  
 
                       
 
                               
Earnings Per Share
                               
Basic
  $ 0.39     $ 0.36     $ 1.30     $ 0.84  
 
                       
Diluted
  $ 0.37     $ 0.36     $ 1.24     $ 0.83  
 
                       
 
                               
Weighted Average Shares Outstanding
                               
Basic
    25,318       24,050       25,080       24,050  
Diluted
    26,544       24,303       26,168       24,303  
 
                               
Transactions with Related Parties included above:
                               
Revenue
  $ 39,459     $ 26,035     $ 104,494     $ 67,222  
 
                       
Selling, General and Administrative Expenses
  $ 223     $ 522     $ 811     $ 4,308  
 
                       
Interest Expense
  $     $ 193     $     $ 1,290  
 
                       
See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(in thousands)
                                                                 
                            Additional     Treasury                      
                    Retained     Paid-in     Stock, at     Non-controlling             Comprehensive  
    Common Stock     Earnings     Capital     Cost     Interests     Total     Income  
Balance, December 31, 2009
    24,145     $ 24,145     $ 11,665     $ 50,538     $     $     $ 86,348          
Net Income
                32,485                   4,136       36,621     $ 36,621  
Acquisition of The Mortgage Partnership of America, L.L.C.
    959       959             22,941             3,268       27,168        
Contributions from Non-controlling Interest Holders
                                  28       28        
Distributions to Non-controlling Interest Holders
                                  (5,207 )     (5,207 )      
Share-based Compensation Expense
                      2,134                   2,134        
Exercise of Stock Options
    298       298             2,708                   3,006        
Delivery of Vested Restricted Stock
    11       11                               11        
Repurchase of Shares
                            (2,311 )           (2,311 )      
 
                                               
Balance, September 30, 2010
    25,413     $ 25,413     $ 44,150     $ 78,321     $ (2,311 )   $ 2,225     $ 147,798     $ 36,621  
 
                                               
See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                 
    Nine Months Ended  
    September 30,  
    2010     2009  
Cash flows from Operating Activities:
               
Net Income
  $ 36,621     $ 20,098  
Reconciling Items:
               
Depreciation and Amortization
    5,015       4,188  
Amortization of Intangible Assets
    4,089       2,004  
Share-based Compensation Expense
    2,134        
Deferred Income Taxes
    (1,040 )     (1,414 )
Changes in Operating Assets and Liabilities, net of MPA Acquisition:
               
Accounts Receivable
    (13,031 )     (8,810 )
Prepaid Expenses and Other Current Assets
    (1,464 )     505  
Other Assets
    (2,594 )     (579 )
Accounts Payable and Accrued Expenses
    1,422       2,237  
Other Current and Non-current Liabilities
    2,109       8,157  
 
           
 
               
Net Cash Flow from Operating Activities
    33,261       26,386  
 
           
 
               
Cash flows from Investing Activities:
               
Additions to Premises and Equipment, net
    (8,135 )     (3,787 )
Acquisition of Business, net of Cash Acquired
    (26,830 )      
Change in Restricted Cash
    (779 )      
 
           
 
               
Net Cash Flow from Investing Activities
    (35,744 )     (3,787 )
 
           
 
               
Cash flows from Financing Activities:
               
Principal Payments on Capital Lease Obligations
    (463 )     (422 )
Payments of Line of Credit
          (1,123 )
Proceeds from Stock Option Exercises
    3,017        
Purchase of Treasury Stock
    (2,311 )      
Contributions from Non-controlling Interests
    28        
Distributions to Non-controlling Interests
    (5,207 )      
Net Distribution to Parent
          (3,332 )
 
           
 
               
Net Cash Flow from Financing Activities
    (4,936 )     (4,877 )
 
           
 
               
Net (Decrease) Increase in Cash and Cash Equivalents
    (7,419 )     17,722  
Cash and Cash Equivalents at the Beginning of the Year
    30,456       6,988  
 
           
Cash and Cash Equivalents at the End of the Period
  $ 23,037     $ 24,710  
 
           
 
               
Supplemental Cash Flow Information
               
Interest Paid
  $     $ 25  
Income Taxes Paid
  $ 1,724     $ 534  
 
               
Non-Cash Investing and Financing Activities
               
Shares Issued in Connection with MPA Acquisition
  $ 23,900     $  
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.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
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, we provide 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 Missouri limited liability company to serve as 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 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 shareholders 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.
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 and nine months ended September 30, 2009 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 that entire 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.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Prior to our acquisition of MPA, 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 provide its Members with education and training along with revenue enhancing, cost reducing and market share expanding opportunities. For providing these services MPA receives payment from Lenders One, and in some instances the vendors, 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. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements on a consolidated basis with the interests of the Members reflected as Non-controlling Interest on the Condensed Consolidated Balance Sheets. At September 30, 2010, Lenders One had total assets of $6.2 million and liabilities of $0.2 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 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, Restricted Cash, Accounts Receivable, net and Accounts Payable and Accrued Expenses at September 30, 2010 and December 31, 2009, are carried at amounts that approximate their fair value due to the short-term nature of these amounts.
In addition, we entered into a put option arrangement with some of the predecessor owners of MPA in conjunction with the acquisition. 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 on the acquisition date at $1.3 million by utilizing a Black-Scholes option pricing model (see Note 3). The fair value calculation is deemed to be a Level 3 calculation. The fair value of the put at September 30, 2010 of $0.8 million was valued using the following assumptions:
         
    Assumptions  
Risk-free Interest Rate
    0.19% — 0.96 %
Expected Stock Price Volatility
    35% — 58 %
Expected Dividend Yield
     
Expected Option Life (in years)
    0.5 — 3.5  
Contractual Life (in years)
     
Fair Value
  $ 0.01 — $3.88  

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
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.
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 settle amounts with Ocwen on a daily, weekly or monthly basis based upon the nature of the services and when the service is completed.
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 and nine months ended September 30:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Mortgage Services
    65 %     72 %     66 %     73 %
Technology Products
    36 %     41 %     36 %     45 %
Financial Services
    <1 %     <1 %     <1 %     <1 %
Consolidated Revenues
    51 %     48 %     50 %     46 %
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
The condensed consolidated financial statements for the three and nine months ended September 30, 2009 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 department whichever is most appropriate given the nature of the expense. Total corporate costs allocated to the Company, were $4.3 million for the nine months ended September 30, 2009 ($0.5 million for the 2009 third quarter). 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 entity.
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 under which services in such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics,

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
treasury, accounting, tax, risk management, legal, strategic planning, compliance and other areas are provided to the counterparty for up to two years from the Separation Date. For the nine months ended September 30, 2010, Altisource billed Ocwen $1.2 million ($0.5 million for the third quarter), and Ocwen billed Altisource $0.8 million ($0.2 million for the third quarter) 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 September 30, 2010 consisted of more than 170 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
    835  
 
     
 
       
Total Consideration
  $ 55,024  
 
     
The common stock consisted of 959,085 shares of Altisource’s common stock valued at $24.92 per share based on the closing price of Altisource common stock on February 11, 2010. A portion of which (314,135 shares) will be held in escrow two years from the closing date of the acquisition 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 fair value of the put was initially established at the date of acquisition ($1.3 million) 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  

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The preliminary allocation of the purchase price is as follows:
         
(in thousands)      
Cash
  $ 2,170  
Accounts Receivable
    4,279  
Prepaid Expenses and Other Current Assets
    321  
Premises and Equipment
    18  
Identifiable Intangible Assets
    43,600  
Goodwill
    10,218  
 
     
 
    60,606  
Accounts Payable and Accrued Expenses
    (2,176 )
Other Current Liabilities
    (138 )
Non-controlling Interests
    (3,268 )
 
     
Total Purchase Price
  $ 55,024  
 
     
During the second quarter of 2010, Altisource finalized its calculation of the Working Capital Adjustment within the 90 day period allocated by the purchase contract. The value was revised from $2.1 million to $0.8 million resulting in an offsetting decrease to Goodwill. The payment of the Working Capital Adjustment was made during the third quarter.
Management has assigned the following lives to identified assets acquired as a result of the acquisition:
         
    Estimated Life  
    (in Years)  
Premises and Equipment
    2 — 5  
Management Agreement (1)
    15  
Trademarks (1)
    15  
Non-compete (1)
    4  
Goodwill
  Indefinite
 
(1)   The identifiable assets are subject to amortization on a straight-line basis as this best approximates the benefit period related to these assets.
The goodwill arising from the acquisition, which was assigned to our Mortgage Services segment, consists of various components principally in-place workforce and anticipated revenue synergies given MPA’s market presence and future enhancements to our services including the development of origination services. All goodwill and intangible assets related to the acquisition of MPA 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 Altisource from the date of acquisition through September 30, 2010, included in the Company’s Condensed Consolidated Statements of Operations, are as follows.
                 
    Three Months Ended     Nine Months Ended  
(in thousands)   September 30, 2010     September 30, 2010  
Revenue
  $ 5,585     $ 11,412  
Net Income Attributable to Altisource
    1,768       1,812  
Acquisition-related transaction costs are included in Selling, General and Administrative and Expenses in the Condensed Consolidated Statements of Operations.

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
The following tables present the unaudited pro forma Revenue, Net Income Attributable to Altisource and Diluted Earnings Per Share as if the acquisition of MPA had occurred at the beginning of the period presented.
                 
    Nine Months Ended  
    September 30, 2010  
(in thousands, except per share amounts)   As Reported     Pro Forma  
Revenue
  $ 209,901     $ 211,545  
Net Income Attributable to Altisource
    32,485       32,357  
Earnings Per Share — Diluted
    1.24       1.24  
                                 
    Three Months Ended     Nine Months Ended  
    September 30, 2009     September 30, 2009  
(in thousands, except per share amounts)   As Reported     Pro Forma     As Reported     Pro Forma  
Revenue
  $ 54,064     $ 59,755     $ 146,486     $ 162,459  
Net Income Attributable to Altisource
    8,644       10,077       20,098       24,104  
Earnings Per Share — Diluted
    0.36       0.40       0.83       0.95  
NOTE 4 — ACCOUNTS RECEIVABLE, NET
Accounts Receivable, net consists of the following:
                 
    September 30,     December 31,  
(in thousands)   2010     2009  
Third-party Accounts Receivable
  $ 15,942     $ 11,638  
Unbilled Fees
    28,816       9,073  
Receivable from Ocwen
    2,556       10,066  
Other Receivables
    1,100       416  
 
           
 
    48,414       31,193  
Allowance for Doubtful Accounts
    (1,642 )     (696 )
 
           
 
               
Total
  $ 46,772     $ 30,497  
 
           
Unbilled Fees consist primarily of Asset Management and Default Management Services for which we recognize revenues over the service delivery period but bill at completion of the service.
One of our customers in the Financial Services segment accounted for 17% of consolidated revenue in the nine months ended September 30, 2010. Another customer accounted for 10% of consolidated revenue in both the Mortgage Services and Technology Products segments in the nine months ended September 30, 2010.

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid Expenses and Other Current Assets consist of the following:
                 
    September 30,     December 31,  
(in thousands)   2010     2009  
Prepaid Expenses
  $ 2,513     $ 1,471  
Other Current Assets
    2,176       1,433  
 
           
 
               
Total
  $ 4,689     $ 2,904  
 
           
NOTE 6 — PREMISES AND EQUIPMENT, NET
Premises and Equipment, net which include amounts recorded under capital leases, consists of the following:
                 
    September 30,     December 31,  
(in thousands)   2010     2009  
Computer Hardware and Software
  $ 30,135     $ 23,591  
Office Equipment and Other
    9,411       9,203  
Furniture and Fixtures
    2,168       2,663  
Leasehold Improvements
    4,201       3,441  
 
           
 
    45,915       38,898  
Less: Accumulated Depreciation and Amortization
    (29,758 )     (27,490 )
 
           
 
               
Total
  $ 16,157     $ 11,408  
 
           
Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $5.0 million and $4.2 million for the nine months ended September 30, 2010 and 2009 respectively ($1.8 million and $1.4 million for the third quarter of 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 period ended September 30, 2010 are summarized below:
                                 
(in thousands)   Mortgage
Services
    Financial
Services
    Technology
Products
    Total  
Balance, December 31, 2009
  $     $ 7,706     $ 1,618     $ 9,324  
Acquisition of MPA
    10,218                   10,218  
Component 2 Amortization
          (4,162 )           (4,162 )
 
                       
Total
  $ 10,218     $ 3,544     $ 1,618     $ 15,380  
 
                       
 
                               

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Intangible Assets, Net
Intangible Assets, net consists of the following:
                                                         
      Weighted
Average 
    Gross Carrying Amount     Accumulated Amortization     Net Book Value  
    Estimated                                       
    Useful Life     September 30,     December 31,     September 30,     December 31,     September 30,     December 31,  
(dollars in thousands)   (Years)     2010     2009     2010     2009     2010     2009  
Definite-lived Intangible Assets
                                                       
Trademarks
    12     $ 10,200     $ 2,800     $ 2,196     $ 1,447     $ 8,004     $ 1,353  
Customer Lists
    19       37,700       37,700       6,919       5,334       30,781       32,366  
Operating Agreement
    15       35,000             1,555             33,445        
Non-compete Agreements
    4       1,200             200             1,000        
 
                                           
 
                                                       
Total Intangible Assets
          $ 84,100     $ 40,500     $ 10,870     $ 6,781     $ 73,230     $ 33,719  
 
                                           
Amortization expense for definite lived intangible assets was $4.1 million and $2.0 million for the nine months ended September 30, 2010 and 2009, respectively ($1.4 million and $0.7 million for the third quarter ended 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.
NOTE 8 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts Payable and Accrued Expenses consists of the following:
                 
    September 30,     December 31,  
(in thousands)   2010     2009  
Accounts Payable
  $ 2,821     $ 1,114  
Income Taxes Payable, Net
    4,762       4,853  
Payable to Ocwen
    805       2,716  
Accrued Expenses — General
    9,317       8,373  
Accrued Salaries and Benefits
    9,255       7,136  
 
           
 
               
Total
  $ 26,960     $ 24,192  
 
           
Other Current Liabilities consists of the following:
                 
    September 30,     December 31,  
(in thousands)   2010     2009  
Mortgage Charge-Off and Deficiency Collections
  $ 18     $ 2,458  
Deferred Revenue
    3,125       989  
Facility Closure Cost Accrual, Current Portion
    209       272  
Other
    3,366       2,220  
 
           
 
               
Total
  $ 6,718     $ 5,939  
 
           

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
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 nine months ended September 30, 2010:
         
(in thousands)   Lease Costs  
Balance, December 31, 2009
  $ 916  
Payments
    (204 )
 
     
Balance, September 30, 2010
    712  
Less: Long-Term Portion
    503  
 
     
 
       
Facility Closure Cost Accrual, Current Portion
  $ 209  
 
     
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 certain 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 $2.1 million for the nine months ended September 30, 2010 ($1.2 million for the quarter). The compensation expense is included in Selling, General and Administrative Expenses in the accompany Condensed Consolidated Statements of Operations.
During the nine months ended September 30, 2010, the Company granted 0.9 million stock options with exercise prices ranging between $22.00 and $25.00 per share depending on the grant date. 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 three 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 the stock price 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
    2.82% — 3.20 %     0.02% — 3.66 %
Expected Stock Price Volatility
    48 %     52 %
Expected Dividend Yield
           
Expected Option Life (in years)
    7        
Contractual Life (in years)
          10  
Fair Value
  $ 11.71 — $13.00     $10.05 and $12.35
As of September 30, 2010, estimated unrecognized compensation costs related to share-based payments amounted to $9.4 million which we expect to recognize over a weighted-average remaining requisite service period of approximately 3.5 years.

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
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
    907,500       23.54                  
Exercised
    (298,166 )     10.08                  
Forfeited
    (209,042 )     12.24                  
 
                             
Outstanding at September 30, 2010
    3,590,931       13.21       7.4     $ 64,401  
 
                           
 
                               
Exercisable at September 30, 2010
    1,175,296     $ 9.79       5.3     $ 25,087  
 
                           
Restricted Shares
The following table summarizes activity of our restricted shares
                 
            Weighted  
            Average  
    Restricted     Grant Date  
    Shares     Fair Value  
Outstanding at December 31, 2009
    3,236     $ 18.00  
Granted
           
Forfeited
           
Vested
    (3,236 )   $ 18.00  
 
             
Outstanding at September 30, 2010
           
 
             
Stock Repurchase Authorization
On May 19, 2010, our shareholders authorized us to purchase up to 3,784,618 shares of our common stock in the open market. During the third quarter of 2010, we purchased 86,098 shares of our common stock on the open market at an average price of $26.81, leaving 3,698,520 shares still available for purchase. Subsequently, during October 2010, we purchased an additional 65,317 shares. As of October 25, 2010, we have repurchased a total of 151,415 shares at an average share price of $26.39.
NOTE 10 — COST OF REVENUE
Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to provision of services, reimbursable expenses, 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 September 30, 2010 and 2009:

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(in thousands)   2010     2009     2010     2009  
Compensation and Benefits
  $ 15,828     $ 13,735     $ 45,518     $ 39,612  
Outside Fees and Services
    15,311       10,550       41,092       31,502  
Reimbursable Expenses
    13,369       5,680       33,040       9,009  
Technology and Communications
    4,139       3,488       12,099       11,682  
 
                       
 
                               
Total
  $ 48,647     $ 33,453     $ 131,749     $ 91,805  
 
                       
NOTE 11 — 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, consumer behavior, internal audit 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 September 30, 2010 and 2009:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(in thousands)   2010     2009     2010     2009  
Compensation and Benefits
  $ 5,251     $ 521     $ 13,256     $ 4,307  
Professional Services
    1,812       4,158       5,869       7,514  
Occupancy Related Costs
    4,733       1,976       10,845       6,086  
Amortization of Intangible Assets
    1,450       668       4,089       2,004  
Other
    1,750       3,742       6,109       7,305  
 
                       
 
                               
Total
  $ 14,996     $ 11,065     $ 40,168     $ 27,216  
 
                       
NOTE 12 — OTHER INCOME (EXPENSE), NET
Other Income (Expense), net consists of the following:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(in thousands)   2010     2009     2010     2009  
Interest Expense, net
  $ (26 )   $ (192 )   $ (65 )   $ (1,601 )
Other, net
    724       2,738       731       2,756  
 
                       
 
                               
Total
  $ 698     $ 2,546     $ 666     $ 1,155  
 
                       
Through the date of Separation, Interest Expense (net) 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 $1.3 million for the nine months ending September 30, 2009 ($0.2 million for the third quarter). Subsequent to the date of Separation, we are no longer subject to the interest charge from Ocwen.
NOTE 13 — INCOME TAXES
For periods prior to the Separation Date, we are included in Ocwen’s tax returns. Our responsibility with respect to these periods is governed by a tax sharing agreement. In accordance with this agreement, U.S. income taxes were allocated as if they had been calculated on a separate company basis except that benefits for any net operating losses will be provided to the extent such loss is

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
utilized in the consolidated U.S. federal tax return. The provision for income taxes prior to the Separation Date has been determined on a pro-forma basis as if we had filed separate income taxes under our current structure for the periods presented.
The Company revised its estimated effective tax rate related to 2010 operations for the full year to 12.5% in the second quarter of 2010. The revised estimate was due to the receipt of a favorable ruling in June 2010 regarding the treatment of certain intangibles that exist for purposes of determining the Company’s taxable income. The ruling is retroactive to the Separation Date. As a result of the ruling, the Company recognized a $3.4 million credit attributable to 2009 in the second quarter 2010 which is not included in the estimate of the full year effective tax rate. Income tax provision on income before income tax differs from amounts that would be computed by applying the Luxembourg federal corporate income tax rate of 28.6% primarily because of the effect of enacted tax statutes in multiple jurisdictions, the treatment of intangibles for tax purposes and differing tax rates outside of Luxembourg. This ruling did not have a material impact on our deferred tax assets or liabilities.
The Distribution was intended to be a tax-free transaction under Section 355 of the Internal Revenue Code (the “Code”). To the extent Ocwen recognizes tax under Section 355 of the Code, Altisource has agreed to indemnify Ocwen. We do not believe we have a material obligation under this indemnity as separately Ocwen recognized substantially all of the gain it has in the assets that comprise Altisource as a result of the restructuring in accordance with other provisions of the Code.
NOTE 14 — 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.
Basic and diluted earnings per share for the three and nine months ended September 30, 2010 and 2009 are calculated as follows:
                                                 
            Three Months Ended                     Three Months Ended        
            September 30, 2010                     September 30, 2009        
            Weighted                     Weighted        
            Ave.                     Ave.        
(in thousands, except per share amounts)   Income     Shares     Per Share     Income     Shares     Per Share  
Basic
  $ 9,832       25,318     $ 0.39     $ 8,644       24,050     $ 0.36  
 
                                           
Effect of Dilutive Securities:
                                               
Stock Options
          1,226                     253          
 
                                   
Diluted
  $ 9,832       26,544     $ 0.37     $ 8,644       24,303     $ 0.36  
 
                                   
 
            Nine Months Ended                     Nine Months Ended        
            September 30, 2010                     September 30, 2009        
            Weighted                     Weighted        
            Ave.                     Ave.        
(in thousands, except per share amounts)   Income     Shares     Per Share     Income     Shares     Per Share  
Basic
  $ 32,485       25,080     $ 1.30     $ 20,098       24,050     $ 0.84  
 
                                           
Effect of Dilutive Securities:
                                               
Stock Options
          1,085                     253          
Restricted Stock
          3                              
 
                                   
Diluted
  $ 32,485       26,168     $ 1.24     $ 20,098       24,303     $ 0.83  
 
                                   

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
A total of 0.2 million options that were anti-dilutive have been excluded from the computation of diluted EPS for the three and nine months ended September 30, 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 in both 2010 periods are 0.7 million 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.
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 as well as providing infrastructure support. 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.

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Financial information for our segments is as follows:
                                         
    Three Months Ended September 30, 2010  
                            Corporate Items and     Consolidated  
(in thousands)   Mortgage Services     Financial Services     Technology Products     Eliminations(1)     Altisource  
Revenue
  $ 53,933     $ 14,529     $ 12,963     $ (3,845 )   $ 77,580  
Cost of Revenue
    33,119       12,134       7,239       (3,845 )     48,647  
 
                             
Gross Profit
    20,814       2,395       5,724             28,933  
Selling, General and Administrative Expenses
    4,187       4,404       1,610       4,795       14,996  
 
                             
Income (Loss) from Operations
    16,627       (2,009 )     4,114       (4,795 )     13,937  
Other Income (Expense), net
    687       (9 )     (24 )     44       698  
 
                             
Income (Loss) Before Income Taxes
  $ 17,314     $ (2,018 )   $ 4,090     $ (4,751 )   $ 14,635  
 
                             
 
                                       
Transactions with Related Parties Included Above:
                                       
Revenue
  $ 34,765     $ 34     $ 4,660     $     $ 39,459  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 223     $ 223  
 
                             
                                         
    Nine Months Ended September 30, 2010  
                            Corporate Items and     Consolidated  
(in thousands)   Mortgage Services     Financial Services     Technology Products     Eliminations(1)     Altisource  
Revenue
  $ 137,803     $ 45,642     $ 37,422     $ (10,966 )   $ 209,901  
Cost of Revenue
    84,622       37,538       20,555       (10,966 )     131,749  
 
                             
Gross Profit
    53,181       8,104       16,867             78,152  
Selling, General and Administrative Expenses
    10,683       11,997       4,040       13,448       40,168  
 
                             
Income (Loss) from Operations
    42,498       (3,893 )     12,827       (13,448 )     37,984  
Other Income (Expense), net
    649       (38 )     (45 )     100       666  
 
                             
Income (Loss) Before Income Taxes
  $ 43,147     $ (3,931 )   $ 12,782     $ (13,348 )   $ 38,650  
 
                             
 
                                       
Transactions with Related Parties Included Above:
                                       
Revenue
  $ 90,749     $ 110     $ 13,635     $     $ 104,494  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 811     $ 811  
 
                             

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
                                         
    Three Months Ended September 30, 2009  
                            Corporate Items and     Consolidated  
(in thousands)   Mortgage Services     Financial Services     Technology 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 Expenses
    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 (Expense), net
    52       2,469       (51 )     76       2,546  
 
                             
Income (Loss) Before Income Taxes
  $ 10,693     $ (1,131 )   $ 5,734     $ (3,204 )   $ 12,092  
 
                             
 
                                       
Transactions with Related Parties Included Above:
                                       
Revenue
  $ 20,963     $ 28     $ 5,044     $     $ 26,035  
 
                             
Selling, General and Administrative Expenses
  $ 531     $ 85     $ 294     $ (388 )   $ 522  
 
                             
Interest Expense
  $ 7     $ 147     $ 39     $     $ 193  
 
                             
                                         
    Nine Months Ended September 30, 2009  
                            Corporate Items and     Consolidated  
(in thousands)   Mortgage Services     Financial Services     Technology 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 Expenses
    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 (Expense), net
    29       1,354       (304 )     76       1,155  
 
                             
Income (Loss) Before Income Taxes
  $ 24,935     $ (4,168 )   $ 12,907     $ (5,054 )   $ 28,620  
 
                             
 
                                       
Transactions with Related Parties Included Above:
                                       
Revenue
  $ 51,355     $ 66     $ 15,801     $     $ 67,222  
 
                             
Selling, General and Administrative Expenses
  $ 2,712     $ 467     $ 1,517     $ (388 )   $ 4,308  
 
                             
Interest Expense
  $ 30     $ 1,029     $ 231     $     $ 1,290  
 
                             
 
(1)   Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REAL products from our Technology Products segment to our other two segments. Generally, we reflect these charges within technology and communication in the segment receiving the services, except for consulting services, which we reflect in professional services.

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
NOTE 16 — 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 any such current matters will not have a material impact on the Company’s financial condition, results of operations or cash flows.

- 22 -


 

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. 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 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 17, 2010.
This MD&A contains forward-looking statements; please see Section 7 of this Item 2 for more information. Significant components of the MD&A section include:
     
    Page
  24
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.
   
 
   
  25
The consolidated results of operations section provides an analysis of our results on a consolidated basis for the three and nine months ending September 30, 2010 and 2009. When helpful in explaining trends, we also discuss sequential results. Significant subsections within this section are as follows:
   
 
   
  25
  26
  27
  28
  28
  29
 
   
  29
The segment results of operations section provides an analysis of our results on a reportable operating segment basis for the three and nine months ending September 30, 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:
   
 
   
  34
  37
  40
 
   
  42
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:
   
 
   
  42
  42
  43
  43
  43
 
   
  43
 
   
  43
The other matters section provides a discussion of related party transactions and provisions of the various separation related agreements with Ocwen.
   
 
   
  44
 EX-31.1
 EX-31.2
 EX-32.1

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Table of Contents

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 initially 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, 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 $4.3 million for the nine months ended September 30, 2009 ($0.5 million in 2009 for 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. Other than transition services, 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 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 since the acquisition date.
For periods prior to the Separation, 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 entirety of the periods presented. For instance, as an independent public company, Altisource incurs costs in excess of those previously 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:
    During 2010, to further align the interests of management with shareholders, we expanded our use of equity compensation. For the nine months ended September 30, 2010, we have recognized $2.1 million ($1.2 million in the third quarter) of equity compensation expense as compared to $0.3 million for the full year ending December 31, 2009. As a result of the share price doubling as compared to the grant price during June 2010, performance criteria were met for certain option grants which triggered vesting of the award and acceleration in the expense recognition of these grants. This contributed to the increase in equity compensation expense in the third quarter of 2010;
    During the nine months ended September 30, 2009, we recognized $3.4 million ($1.5 million during the third quarter) of one-time costs in anticipation of the Separation from Ocwen; and
 
    During the nine months ended September 30, 2009, we recognized $2.3 million in facility closure costs in Selling, General and Administrative Expenses and a $2.3 million litigation settlement gain in Other Income (both of which were recorded in the third quarter) in our Financial Services segment.

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Table of Contents

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 September 30, 2010 and 2009:
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands, except per share amounts)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Service Revenue
  $ 62,159     $ 48,384       13,775       28     $ 172,725     $ 137,477       35,248       26  
Reimbursable Expenses
    13,369       5,680       7,689       135       33,040       9,009       24,031       N/M  
Cooperative Non-controlling Interest
    2,052             2,052       N/M       4,136             4,136       N/M  
 
                                                       
Total Revenue
    77,580       54,064       23,516       44       209,901       146,486       63,415       43  
 
                                                               
Cost of Revenue
    35,278       27,773       7,505       27       98,709       82,796       15,913       19  
Reimbursable Expenses
    13,369       5,680       7,689       135       33,040       9,009       24,031       N/M  
 
                                                       
 
                                                               
Gross Profit
    28,933       20,611       8,322       40       78,152       54,681       23,471       43  
 
                                                               
Selling, General and Administrative Expenses
    14,996       11,065       3,931       36       40,168       27,216       12,952       48  
 
                                                       
 
                                                               
Income from Operations
    13,937       9,546       4,391       46       37,984       27,465       10,519       38  
 
                                                               
Other Income (Expense), net
    698       2,546       (1,848 )     (73 )     666       1,155       (489 )     (42 )
 
                                                       
 
                                                               
Income Before Income Taxes and Non-controlling Interests
    14,635       12,092       2,543       21       38,650       28,620       10,030       35  
Income Tax Benefit (Provision)
    (2,751 )     (3,448 )     697       20       (2,029 )     (8,522 )     6,493       76  
 
                                                       
 
                                                               
Net Income
    11,884       8,644       3,240       37       36,621       20,098       16,523       82  
 
                                                               
Net Income Attributable to Non-controlling Interests
    (2,052 )           (2,052 )     N/M       (4,136 )           (4,136 )     N/M  
 
                                                       
 
                                                               
Net Income Attributable to Altisource
  $ 9,832     $ 8,644       1,188       14     $ 32,485     $ 20,098       12,387       62  
 
                                                       
 
                                                               
Earnings Per Share
                                                               
Basic
  $ 0.39     $ 0.36                     $ 1.30     $ 0.84                  
 
                                                       
Diluted
  $ 0.37     $ 0.36                     $ 1.24     $ 0.83                  
 
                                                       
 
                                                               
Transactions with Related Parties:
                                                               
Revenue
  $ 39,459     $ 26,035       13,424       52     $ 104,494     $ 67,222       37,272       55  
 
                                                       
Selling, General and Administrative Expenses
  $ 223     $ 522       (299 )     (57 )   $ 811     $ 4,308       (3,497 )     (81 )
 
                                                       
Interest Expense
  $     $ 193       (193 )     (100 )   $     $ 1,290       (1,290 )     (100 )
 
                                                       
 
N/M   — not meaningful.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Revenue
The following table presents our revenues for the periods ended September 30, 2010 and 2009:
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Mortgage Services:
                                                               
Service Revenue:
  $ 39,319     $ 23,461       15,858       68     $ 102,856     $ 61,852       41,004       66  
Reimbursable Expenses
    12,562       5,680       6,882       121       30,811       9,009       21,802       242  
Cooperative Non-controlling Interest
    2,052             2,052       N/M       4,136             4,136       N/M  
 
                                                       
Mortgage Services — Total Revenue
    53,933       29,141       24,792       85       137,803       70,861       66,942       95  
 
                                                               
Financial Services:
                                                               
Service Revenue:
    13,722       15,837       (2,115 )     (13 )     43,413       49,624       (6,211 )     (13 )
Reimbursable Expenses
    807             807       N/M       2,229             2,229       N/M  
 
                                                       
Financial Services — Total Revenue
    14,529       15,837       (1,308 )     (8 )     45,642       49,624       (3,982 )     (8 )
 
                                                               
Technology Products
    12,963       12,451       512       4       37,422       35,133       2,289       7  
 
                                                         
 
                                                               
Eliminations
    (3,845 )     (3,365 )     (480 )     (14 )     (10,966 )     (9,132 )     (1,834 )     (20 )
 
                                                       
 
                                                               
Total Revenue
  $ 77,580     $ 54,064       23,516       44     $ 209,901     $ 146,486       63,415       43  
 
                                                       
 
                                                               
Transactions with Related Parties:
                                                               
 
                                                               
Mortgage Services
  $ 34,765     $ 20,963       13,802       66     $ 90,749     $ 51,355       39,394       77  
 
                                                       
 
                                                               
Financial Services
  $ 34     $ 28       6       22     $ 110     $ 66       44       67  
 
                                                       
 
                                                               
Technology Products
  $ 4,660     $ 5,044       (384 )     (8 )   $ 13,635     $ 15,801       (2,166 )     (14 )
 
                                                       
 
N/M   — not meaningful.
Service Revenue consists of amounts attributable to our fee based services. Reimbursable Expenses consists of amounts that we incur on behalf of our customers in performing our fee based services, but we pass such costs directly on to our customers without any additional markup. Cooperative Non-controlling Interests is attributable to the Members of Lenders One.
We have continued to grow both Total Revenue and Service Revenue in our Mortgage Services segment primarily driven by the development and execution of default oriented mortgage services over an expanding national delivery platform. Our acquisition of MPA has also contributed to the increase from the prior year. Our largest customer, Ocwen, recently expanded its residential loan portfolio to almost 500,000 loans as of September 30, 2010 with its acquisition of the HomEq residential loan portfolio of approximately 130,000 loans. Due to the timing of the HomEq referrals received from Ocwen, the impact of Ocwen’s acquisition had a limited impact to Altisource’s revenues for the third quarter.
With respect to our Financial Services segment, contributing factors to the general decline in revenues include reduced placements from our largest customer for this segment partially offset by placements from other customers. In addition, we continue to build out a global delivery platform for collections which sometimes results in lower revenues per account although at higher margins.
Technology Products revenues have generally increased as Ocwen has increased its residential loan portfolio and headcount resulting in additional fees.
Our revenues are seasonal. More specifically, Financial Services revenue tends to be higher in the first half of the year, particularly the first quarter, as borrowers may utilize tax refunds to pay debts. Mortgage Services revenue is impacted by Real Estate Owned (“REO”) sales which tend to be at their lowest level during winter months and highest during summer months.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Cost of Revenue
Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to provision of services, reimbursable expenses, 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 September 30, 2010 and 2009:
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Compensation and Benefits
  $ 15,828     $ 13,735       2,093       15     $ 45,518     $ 39,612       5,906       15  
Outside Fees and Services
    15,311       10,550       4,761       45       41,092       31,502       9,590       30  
Reimbursable Expenses
    13,369       5,680       7,689       135       33,040       9,009       24,031       N/M  
Technology and Communications
    4,139       3,488       651       19       12,099       11,682       417       4  
 
                                                       
 
                                                               
Cost of Revenue
  $ 48,647     $ 33,453       15,194       45     $ 131,749     $ 91,805       39,944       44  
 
                                                       
 
                                                               
Gross Margin Percentage:
                                                               
 
                                                               
Cost of Revenue / Total Revenue
    37 %     38 %                     37 %     37 %                
 
                                                       
 
Cost of Revenue less Reimbursable Expenses / Service Revenue
    47 %     43 %                     45 %     40 %                
 
                                                       
 
N/M   — not meaningful.
In evaluating the performance of our segments, we generally neutralize the impact of pass-through items for which we earn no margin by excluding reimbursable expenses from Cost of Revenue and computing gross margin based upon Service Revenue.
On a consolidated basis, our gross margins based on Service Revenue for the nine months ended September 30, 2010 increased as a result of the composition of revenues being more weighted towards the higher margin Mortgage Services segment, the recent acquisition of MPA and our ability to efficiently scale our operations as our referral base grows.
Compensation and benefits costs have grown year to date as we scaled to support the national rollout of services and in anticipation of the growth in Ocwen’s residential loan portfolio. Sequentially, compensation and benefit costs have remained relatively flat. In addition, for periods subsequent to the Separation Date, we treat compensation costs associated with segment executive management and segment marketing activities as a component of Selling, General and Administrative Expenses.
Outside fees and services primarily increased in our Mortgage Services segment consistent with greater revenues. Outside fees and services also increased when compared to the prior year in our Financial Services segment as we increased our use of external collectors. In the third quarter, outside fees and services for Financial Services began to decline slightly as we transitioned more work from external collectors to employees.
Technology and communication costs increased in both periods related to costs associated with the new data center. In addition, in the third quarter technology and communications costs increased as a result of the addition of new facilities and the expansion of bandwidth at existing facilities to handle the increased demands expected in the fourth quarter.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
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, consumer behavior, internal audit 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 September 30, 2010 and 2009:
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Compensation and Benefits
  $ 5,251     $ 521       4,730       N/M     $ 13,256     $ 4,307       8,949       208  
Professional Services
    1,812       4,158       (2,346 )     (56 )     5,869       7,514       (1,645 )     (22 )
Occupancy Related Costs
    4,733       1,976       2,757       140       10,845       6,086       4,759       78  
Amortization of Intangible Assets
    1,450       668       782       117       4,089       2,004       2,085       104  
Other
    1,750       3,742       (1,992 )     (53 )     6,109       7,305       (1,196 )     (16 )
 
                                                       
 
                                                               
Total Selling, General and Administrative Expenses
  $ 14,996     $ 11,065       3,931       36     $ 40,168     $ 27,216       12,952       48  
 
                                                       
 
                                                               
Operating Percentage:
                                                               
 
Operating Income / Total Revenue
    18 %     18 %                     18 %     19 %                
 
                                                       
 
Operating Income / Service Revenue
    22 %     20 %                     22 %     20 %                
 
                                                       
 
N/M   — not meaningful.
Similar to gross margins, we evaluate operating margins by comparing Operating Income over Service Revenue to neutralize the impact of pass-through items for which we earn no margin.
When calculated based on Service Revenue, our operating margins for the three and nine months ended September 30, 2010 improved slightly when compared to the similar prior year period.
Compensation and Benefits has increased from the prior year primarily as a result of the cost of being a separate public company and the need to have separate support functions such as accounting, legal and human resources as well as to the previously mentioned reclassification of certain executive and marketing related compensation costs from cost of revenues. In addition, equity compensation for senior executives is recognized within Selling, General and Administrative Expenses.
Costs associated with Professional Services have increased over the prior year after we consider the impact of 2009 one-time costs of $3.4 million year to date ($1.5 million for the third quarter) related to the Separation and $2.3 million year to date (all recorded in the third quarter) related to facility closure costs in our Financial Services segment. The increase in Professional Services is primarily attributable to costs associated with being a separate public company including increased audit and legal fees as well as insurance.
Occupancy Related Costs increased in 2010 primarily as a result of our expansion of services which led to new leased facilities in India and the United States. The year to date increase was partially offset by decreases associated with lease facility closures in Financial Services in the third quarter of 2009.
Amortization of Intangible Assets increased as a result of the intangibles acquired in connection with the acquisition of MPA (see Notes 3 and 7 to the condensed consolidated financial statements).
EBITDA
Altisource evaluates performance based on several factors of which a 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

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
in analyzing and assessing our overall business performance since we utilize this information 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.
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Income Before Income Taxes
  $ 14,635     $ 12,092       2,543       21     $ 38,650     $ 28,620       10,030       35  
Interest, net
    26       191       (165 )     (86 )     65       1,601       (1,536 )     (96 )
Depreciation and Amortization
    1,804       1,395       409       29       5,015       4,188       827       20  
Amortization of Intangibles
    1,450       668       782       117       4,089       2,004       2,085       104  
Net Income Attributable to Non-controlling Interests
    (2,052 )           (2,052 )     N/M       (4,136 )           (4,136 )     N/M  
 
                                                       
 
                                                               
EBITDA(1)
  $ 15,863     $ 14,346       1,517       11     $ 43,683     $ 36,413       7,270       20  
 
                                                       
 
                                                               
EBITDA Margin:
                                                               
EBITDA / Total Revenue
    20 %     27 %                     21 %     25 %                
 
                                                       
 
                                                               
EBITDA / Service Revenue
    26 %     30 %                     25 %     26 %                
 
                                                       
 
(1)   See “SECTION 3 — SEGMENT RESULTS OF OPERATIONS” below for a reconciliation of the most directly comparable GAAP measure to EBITDA.
N/M — not meaningful.
We evaluate EBITDA margins against Service Revenue internally to neutralize the impact of pass-through items for which we earn no margin.
EBITDA margins based on Service Revenue declined year to date principally due to a decline in performance of Financial Services and scaling our operations to support the national rollout of services and the anticipated growth in Ocwen’s residential loan portfolio. In addition, during 2010, to further align the interests of management with shareholders, we expanded our use of equity compensation. For the nine months ended September 30, 2010, we have recognized $2.2 million ($1.2 million in the third quarter) of equity compensation expense as compared to $0.3 million for the full year ending December 31, 2009. We expect EBITDA as a percent of service revenue to improve in the fourth quarter as we begin to more fully realize the benefit of Ocwen’s acquisition of the residential loan portfolio of HomEq and leverage our larger operational structure.
Income Taxes
For the third quarter Altisource’s effective tax rate was 18.8%, which is higher than our estimated effective tax rate for the full year due to permanent differences recognized in the quarter. The year to date effective tax rate is 5.2% which includes the impact of credits recognized in the second quarter associated with 2009. Income tax provision on income before income tax differs from amounts that would be computed by applying the Luxembourg federal corporate income tax rate of 28.6% primarily because of the effect of enacted tax statutes in multiple jurisdictions, the treatment of intangibles for tax purposes and differing tax rates outside of Luxembourg.
SECTION 3 — SEGMENT RESULTS OF OPERATIONS
The following section provides a discussion of pre-tax results of operations of our business segments for the periods ended September 30, 2010 and 2009. Transactions between segments are accounted for as third-party arrangements for purposes of presenting segment results of operations. Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REAL products from our Technology Products segment to our other two segments. Generally, we reflect these charges within technology and communication in the segment receiving the services, except for consulting services, which we reflect in professional services.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Financial information for our segments is as follows:
                                         
    Three Months Ended September 30, 2010  
    Mortgage     Financial     Technology     Corporate
Items and
    Consolidated  
(in thousands)   Services     Services     Products     Eliminations(1)     Altisource  
Revenue
  $ 53,933     $ 14,529     $ 12,963     $ (3,845 )   $ 77,580  
Cost of Revenue
    33,119       12,134       7,239       (3,845 )     48,647  
 
                             
Gross Profit
    20,814       2,395       5,724             28,933  
Selling, General and Administrative Expenses
    4,187       4,404       1,610       4,795       14,996  
 
                             
Income (Loss) from Operations
    16,627       (2,009 )     4,114       (4,795 )     13,937  
Other Income (Expense), net
    687       (9 )     (24 )     44       698  
 
                             
Income (Loss) Before Income Taxes and Non-Controlling Interests
  $ 17,314     $ (2,018 )   $ 4,090     $ (4,751 )   $ 14,635  
 
                             
 
                                       
Reconciliation to EBITDA
                                       
Income (Loss) Before Income Taxes and Non-Controlling Interests
  $ 17,314     $ (2,018 )   $ 4,090     $ (4,751 )   $ 14,635  
Interest, net
    (3 )     13       23       (7 )     26  
Depreciation and Amortization(2)
    74       478       1,140       112       1,804  
Amortization of Intangibles
    781       669                   1,450  
Net Income Attributable to Non-controlling Interests
    (2,052 )                       (2,052 )
 
                             
EBITDA
  $ 16,114     $ (858 )   $ 5,253     $ (4,646 )   $ 15,863  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 34,765     $ 34     $ 4,660     $     $ 39,459  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 223     $ 223  
 
                             

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
                                         
    Three Months Ended September 30, 2009  
                            Corporate        
    Mortgage     Financial     Technology     Items and     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 Expenses
    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 (Expense), net
    52       2,469       (51 )     76       2,546  
 
                             
Income (Loss) Before Income Taxes and Non-Controlling Interests
  $ 10,693     $ (1,131 )   $ 5,734     $ (3,204 )   $ 12,092  
 
                             
 
                                       
Reconciliation to EBITDA
                                       
Income (Loss) Before Income Taxes and Non-Controlling Interests
  $ 10,693     $ (1,131 )   $ 5,734     $ (3,204 )   $ 12,092  
Interest, net
    7       146       53       (15 )     191  
Depreciation and Amortization(2)
    19       609       758       9       1,395  
Amortization of Intangibles
          668                   668  
 
                             
EBITDA
  $ 10,719     $ 292     $ 6,545     $ (3,210 )   $ 14,346  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 20,963     $ 28     $ 5,044     $     $ 26,035  
 
                             
Selling, General and Administrative Expenses
  $ 531     $ 85     $ 294     $ (388 )   $ 522  
 
                             
Interest Expense
  $ 7     $ 147     $ 39     $     $ 193  
 
                             

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
                                         
    Nine Months Ended September 30, 2010  
                            Corporate        
    Mortgage     Financial     Technology     Items and     Consolidated  
(in thousands)   Services     Services     Products     Eliminations(1)     Altisource  
Revenue
  $ 137,803     $ 45,642     $ 37,422     $ (10,966 )   $ 209,901  
Cost of Revenue
    84,622       37,538       20,555       (10,966 )     131,749  
 
                             
Gross Profit
    53,181       8,104       16,867             78,152  
Selling, General and Administrative Expenses
    10,683       11,997       4,040       13,448       40,168  
 
                             
Income (Loss) from Operations
    42,498       (3,893 )     12,827       (13,448 )     37,984  
Other Income (Expense), net
    649       (38 )     (45 )     100       666  
 
                             
Income (Loss) Before Income Taxes and Non-controlling Interests
  $ 43,147     $ (3,931 )   $ 12,782     $ (13,348 )   $ 38,650  
 
                             
 
                                       
Reconciliation to EBITDA
                                       
Income (Loss) Before Income Taxes and Non-controlling Interests
  $ 43,147     $ (3,931 )   $ 12,782     $ (13,348 )   $ 38,650  
Interest, net
    (8 )     43       44       (14 )     65  
Depreciation and Amortization(2)
    193       1,479       3,043       300       5,015  
Amortization of Intangibles
    2,084       2,005                   4,089  
Net Income Attributable to Non-controlling Interests
    (4,136 )                       (4,136 )
 
                             
EBITDA
  $ 41,280     $ (404 )   $ 15,869     $ (13,062 )   $ 43,683  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 90,749     $ 110     $ 13,635     $     $ 104,494  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 811     $ 811  
 
                             
Interest Expense
  $     $     $     $     $  
 
                             

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
                                         
    Nine Months Ended September 30, 2009  
                            Corporate        
    Mortgage     Financial     Technology     Items and     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 Expenses
    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 (Expense), net
    29       1,354       (304 )     76       1,155  
 
                             
Income (Loss) Before Income Taxes and Non-controlling Interests
  $ 24,935     $ (4,168 )   $ 12,907     $ (5,054 )   $ 28,620  
 
                             
 
                                       
Reconciliation to EBITDA
                                       
Income (Loss) Before Income Taxes and Non-controlling Interests
  $ 24,935     $ (4,168 )   $ 12,907     $ (5,054 )   $ 28,620  
Interest, net
    28       1,286       302       (15 )     1,601  
Depreciation and Amortization(2)
    22       1,898       2,259       9       4,188  
Amortization of Intangibles
          2,004                   2,004  
 
                             
EBITDA
  $ 24,985     $ 1,020     $ 15,468     $ (5,060 )   $ 36,413  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 51,355     $ 66     $ 15,801     $     $ 67,222  
 
                             
Selling, General and Administrative Expenses
  $ 2,712     $ 467     $ 1,517     $ (388 )   $ 4,308  
 
                             
Interest Expense
  $ 30     $ 1,029     $ 231     $     $ 1,290  
 
                             
 
(1)   Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REAL products from our Technology Products segment to our other two segments. Generally, we reflect these charges within technology and communication in the segment receiving the services, except for consulting services which we reflect in professional services.
 
(2)   Includes depreciation and amortization of $1.0 million and $1.6 million for the nine months ended September 30, 2010 and 2009 ($0.5 million for the quarter ended September 30, 2009), for assets reflected in the Technology Products segment but utilized by the Financial Services segment.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Mortgage Services
The following table presents our results of operations for our Mortgage Services segment for the three and nine months ending September 30:
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Service Revenue
  $ 39,319     $ 23,461       15,858       68     $ 102,856     $ 61,852       41,004       66  
Reimbursable Expenses
    12,562       5,680       6,882       121       30,811       9,009       21,802       242  
Cooperative Non-controlling Interest
    2,052             2,052       N/M       4,136             4,136       N/M  
 
                                                       
 
                                                               
Total Revenue
    53,933       29,141       24,792       85       137,803       70,861       66,942       95  
 
                                                               
Cost of Revenue
    33,119       17,262       15,857       92       84,622       41,042       43,580       106  
 
                                                       
 
    20,814       11,879       8,935       75       53,181       29,819       23,362       78  
Gross Profit
                                                               
Selling, General and Administrative Expenses
    4,187       1,238       2,949       238       10,683       4,913       5,770       117  
 
                                                       
 
                                                               
Income from Operations
  $ 16,627     $ 10,641       5,986       56     $ 42,498     $ 24,906       17,592       71  
 
                                                       
 
                                                               
EBITDA(1)
  $ 16,114     $ 10,719       5,395       50     $ 41,280     $ 24,985       16,295       65  
 
                                                       
 
                                                               
Transactions with Related Parties Above:
                                                               
Revenue
  $ 34,765     $ 20,963       13,802       66     $ 90,749     $ 51,355       39,394       77  
 
                                                       
Selling, General and Administrative Expenses
          531       (531 )     N/M             2,712       (2,712 )     N/M  
 
                                                       
Interest Expense
  $     $ 7       (7 )     N/M     $     $ 30       (30 )     N/M  
 
                                                       
 
(1)   See above for a reconciliation of the most directly comparable GAAP measure to EBITDA.
N/M — not meaningful.
Service Revenue for our Mortgage Services segment has consistently grown for the periods presented primarily as a result of our development and rollout of default oriented Mortgage Services over our expanding national delivery platform, the growth in Ocwen’s residential loan portfolio and the acquisition of MPA in February 2010. Ocwen’s acquisition of the HomEq residential loan portfolio had limited impact to our revenues for the third quarter since we generally did not receive referrals until very late in September.
Altisource continues to expand its default services. As of September 30, 2010, we:
    Provide REO brokerage disposition services on over 8,500 properties (compared to approximately 5,700 properties as of June 30, 2010); and
    Managed property preservation services nationally for over 13,500 properties (compared to over 10,200 properties as of June 30, 2010).
In addition, we announced during the first quarter call that we had finalized a confidential agreement to provide asset management services to a potentially significant customer. We began performing services for this client in September and expect to begin revenue recognition in the fourth quarter.
Members United and Acquisition MPA
We are committed to providing a full suite of mortgage services in 2011 to assist mortgage originators including valuation, title, fulfillment and flood certification services. Through our acquisition of MPA and the recently signed agreement with Members United Corporate Federal Credit Union (“Members United”), we have preferred access to over 2,000 diverse financial institutions which we believe constitutes 7% of the total origination market. In addition, for members of MPA we believe that over time we can work with Ocwen and other partners to provide additional avenues to sell loans beyond the current preferred investor

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
arrangements resulting in improved capital markets execution. We expect this will facilitate the sale of our services to the members.
MPA and its consolidated subsidiary contributed $11.4 million of revenue, including $4.1 million attributable to non-controlling interests, and $3.9 million of EBITDA since the February 2010 acquisition date. This revenue and EBITDA was a sequential improvement and was substantially in line with our internal projections which included a forecasted decline in origination volumes during 2010. We expect this decline to be somewhat mitigated given the accelerated pace of new members joining the cooperative. Through September 30, 2010, MPA has over 170 Members.
Revenue
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Revenue:
                                                               
Asset Management Services
  $ 22,349     $ 10,570       11,779       111     $ 54,198     $ 19,417       34,781       179  
Component Services and Other
    11,264       5,198       6,066       117       28,057       13,601       14,456       106  
Residential Property Valuation
    8,796       6,233       2,563       41       22,952       20,268       2,684       13  
Closing and Title Services
    6,461       4,334       2,127       49       17,878       12,924       4,954       38  
Default Management Services
    5,063       2,806       2,257       80       14,718       4,651       10,067       216  
Total Revenue
  $ 53,933     $ 29,141       24,792       85     $ 137,803     $ 70,861       66,942       95  
 
                                                       
 
                                                               
Transactions with Related Parties:
                                                               
Asset Management Services
    21,250       10,570       10,680       101       53,099       19,417       33,682       174  
Residential Property Valuation
    8,729       6,000       2,729       46       22,182       19,613       2,569       13  
Closing and Title Services
    3,428       3,235       193       6       10,818       10,370       448       4  
Default Management Services
    1,358       1,158       200       17       4,650       1,955       2,695       138  
 
                                                       
Total
  $ 34,765     $ 20,963       13,802       66     $ 90,749     $ 51,355       39,394       77  
 
                                                       
 
                                                               
Reimbursable Expenses:
                                                               
Asset Management Services
    11,899       5,191       6,708       129       29,027       8,337       20,690       248  
Default Management Services
    561       489       72       15       1,609       672       937       139  
Closing and Title Services
    102             102       N/M       175             175       N/M  
Total
  $ 12,562     $ 5,680       6,882       121     $ 30,811     $ 9,009       21,802       242  
 
                                                       
 
N/M — not meaningful
In our Mortgage Services segment, we generate the majority of our revenue by providing outsourced services that span the lifecycle of a mortgage loan primarily for Ocwen or with respect to the residential loan portfolio serviced by Ocwen. In addition to our relationship with Ocwen, we have relationships with some of the leading capital markets firms, commercial banks, hedge funds, insurance companies, credit unions and lending institutions. We provide products that enhance their ability to make informed investment decisions and manage their core operations. With the acquisition of MPA in February 2010 and our strategic marketing agreement with Members United, we took a significant step in our evolution to become a full service provider in the mortgage services vertical and gained increased access to a growing group of mid-tier mortgage bankers and credit unions.
Asset Management Services. Asset management services principally include property preservation, property inspection, REO asset management and REO brokerage. In the first quarter of 2010, we completed our national network for property preservation services and, including our real estate broker referral network, have national coverage for REO dispositions. The increase in revenue has mostly been driven by our property preservation services to date; however, the increase in REO brokerage referrals should ultimately drive additional revenues as we dispose of these properties on behalf of our clients.
Component Services and Other. The increase in component services year over year is due to an expanded relationship with an existing customer beginning in the second quarter of 2009 and the inclusion of MPA’s results.
Residential Property Valuation. As one of the more mature services in our portfolio, residential property valuations are subject to market conditions. During the third quarter of 2010, we saw a sequential increase in revenues as a result of Ocwen’s residential loan portfolio growth, including the HomEq portfolio, resulting in the ordering of more valuations, particularly broker price opinions. We expect to see this increased level of referrals to continue during the fourth quarter.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Closing and Title Services. This business includes legacy services such as pre-foreclosure title services as well as an expanded array of title services that were rolled out during 2010 and 2009 principally around REO purchase transactions. During 2010, we are focused on rolling out our title agency business in key markets which we believe will drive significant revenue growth in 2011 at attractive margins. We expect to obtain agency status in California in the fourth quarter.
Default Management Services. This group includes support services whereby we provide non-legal back-office support for foreclosure, bankruptcy and eviction attorneys as well as non-judicial foreclosure services in California and Nevada through our trustee company Western Progressive, LLC. We do not execute or notarize any foreclosure affidavits. During the third quarter, we experienced a slight sequential decline in revenue. This decline since the second quarter was principally caused by the timing of referrals which were more heavily weighted towards the end of September (resulting in less revenue being recognized in the quarter) and the elongation of the time it takes to process foreclosures which resulted in us extending the period over which we recognize revenue for some states.
Cost of Revenue
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Expenditures
  $ 20,557       11,582       8,975       77       53,811       32,033       21,778       68  
Reimbursable Expenses
    12,562       5,680       6,882       121       30,811       9,009       21,802       242  
 
                                                       
 
                                                               
Cost of Revenue
  $ 33,119     $ 17,262       15,857       92     $ 84,622     $ 41,042       43,580       106  
 
                                                       
 
                                                               
Gross Margin Percentage:
                                                               
 
                                                               
Cost of Revenue / Total Revenue
    39 %     41 %                     39 %     42 %                
 
                                                       
Cost of Revenue less Reimbursable Expenses / Service Revenue
    48 %     51 %                     48 %     48 %                
 
                                                       
Primarily during the second and third quarter, we began scaling our operations to support the national rollout of services and in anticipation of the growth in Ocwen’s residential loan portfolio. These costs have principally included increased compensation and benefit and technology costs. Due to the number of persons we were hiring as well as training time, it was necessary to hire these resources several months prior to the completion of Ocwen’s acquisition of the HomEq residential loan portfolio. We expect to begin utilizing these expanded operations to generate additional revenue in the fourth quarter and throughout 2011.
Selling, General and Administrative Expenses
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Total Selling, General and Administrative Expenses
  $ 4,187     $ 1,238       2,949       238     $ 10,683     $ 4,913       5,770       117  
 
                                                       
 
                                                               
Operating Percentage:
                                                               
Operating Income / Total Revenue
    31 %     37 %                     31 %     35 %                
 
                                                       
Operating Income / Service Revenue
    42 %     45 %                     41 %     40 %                
 
                                                       
Selling, General and Administrative Expenses increased principally as a result of the classification of certain compensation and benefit costs related to segment management and marketing previously being captured either in Cost of Revenue or as a component of the Corporate segment now being captured in Selling, General and Administrative Expenses. In addition, professional services fees such as those associated with the external audit have increased as a result of being a public company. Such costs are allocated to the segments based upon expected hours to be incurred per segment by the vendor.
Our operating margins for the nine months ended September 30, 2010 based on Service Revenue remained relatively flat as the significant additional facility costs as a result of scaling our operations were substantially offset by revenue growth.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
EBITDA
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
EBITDA
  $ 16,114     $ 10,719       5,395       50     $ 41,280     $ 24,985       16,295       65  
 
                                                       
 
                                                               
EBITDA Margin:
                                                               
EBITDA / Total Revenue
    30 %     37 %                     30 %     35 %                
 
                                                       
 
                                                               
EBITDA / Service Revenue
    41 %     46 %                     40 %     40 %                
 
                                                       
Mortgage Services EBITDA growth in both periods was predominantly driven by the expansion of our national footprint and the increase in Ocwen’s residential loan portfolio in November 2009 and May 2010. Mortgage Services EBITDA margins calculated based upon Service Revenue remained consistent with the second quarter.
Financial Services
The following table presents our results of operations for our Financial Services segment for the three and nine months ending September 30:
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Service Revenue
  $ 13,722       15,837       (2,115 )     (13 )   $ 43,413       49,624       (6,211 )     (13 )
Reimbursable Expenses
    807             807             2,229             2,229        
 
                                               
Total Revenue
    14,529       15,837       (1,308 )     (8 )     45,642       49,624       (3,982 )     (8 )
 
                                               
 
                                                               
Cost of Revenue
    12,134       12,635       (501 )     (4 )     37,538       40,514       (2,976 )     (7 )
 
                                                       
 
                                                               
Gross Profit
    2,395       3,202       (807 )     (25 )     8,104       9,110       (1,006 )     (11 )
 
                                                               
Selling, General and Administrative Expenses
    4,404       6,802       (2,398 )     (35 )     11,997       14,632       (2,635 )     (18 )
 
                                                       
 
                                                               
Loss from Operations
    (2,009 )     (3,600 )     1,591       44       (3,893 )     (5,522 )     1,629       30  
 
                                                       
 
                                                               
EBITDA(1)
  $ (858 )   $ 292       (1,150 )     N/M     $ (404 )   $ 1,020       (1,424 )     (140 )
 
                                                       
 
                                                               
Transactions with Related Parties Above:
                                                               
Revenue
  $ 34     $ 28       6       21     $ 110     $ 66       44       67  
 
                                                       
Selling, General and Administrative Expenses
  $     $ 85       (85 )     N/M     $     $ 467       (467 )     N/M  
 
                                                       
Interest Expense
  $     $ 147       (147 )     N/M     $     $ 1,029       (1,029 )     N/M  
 
                                                       
 
(1)   See above for a reconciliation of the most directly comparable GAAP measure to EBITDA.
N/M — not meaningful.
Financial Services revenue declined both for the quarter and year to date when compared to the prior year. Sequentially, revenues declined $1.0 million due to decreased placements from our largest customer. We were able to partially offset this decline by increased placements from a customer we began servicing in 2009 as well as growth in revenue from other customers.
Our strategy for 2010 continues to be focused on improving margins principally via improving revenue per collector, expanding our quality initiatives and investing in new technology. In addition, in the fourth quarter of 2010, we named a new President for the segment.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Revenue
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Revenue:
                                                               
Asset Recovery Management
  $ 11,542     $ 12,180       (638 )     (5 )   $ 36,937     $ 39,419       (2,482 )     (6 )
Customer Relationship Management
    2,987       3,657       (670 )     (18 )     8,705       10,205       (1,500 )     (15 )
 
                                                       
 
                                                               
Total Revenue
  $ 14,529     $ 15,837       (1,308 )     (8 )   $ 45,642     $ 49,624       (3,982 )     (8 )
 
                                                       
 
                                                               
Transactions with Related Parties:
                                                               
Asset Recovery Management
  $ 34     $ 28       6       21     $ 110     $ 66       44       67  
 
                                                       
In our Financial Services segment, we generate the majority of our revenue from asset recovery management fees we earn for collecting amounts due to our customers and from fees we earn for performing customer relationship management for our customers.
Asset Recovery Management. Our revenues associated with contingency collections declined in both periods principally due to lower placements and a shift in placements to operations that provide lower per collector revenue, but higher margin.
Customer Relationship Management. Our revenues associated with customer relationship management declined over both periods as we sought to wind down our relationship with one customer due to unsatisfactory margins as well as due to the seasonal nature of the business. In the third quarter, we expanded our relationship with another customer.
Cost of Revenue
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Expenditures
  $ 11,327     $ 12,635       (1,308 )     (104 )   $ 35,309     $ 40,514       (5,205 )     (13 )
Reimbursable Expenses
    807             807       N/M       2,229             2,229       N/M  
 
                                                       
 
                                                               
Cost of Revenue
  $ 12,134     $ 12,635       (501 )     (4 )   $ 37,538     $ 40,514       (2,976 )     (7 )
 
                                                       
 
                                                               
Gross Margin Percentage:
                                                               
 
                                                               
Cost of Revenue / Total Revenue
    16 %     20 %                     18 %     18 %                
 
                                                       
 
                                                               
Cost of Revenue less Reimbursable Expenses / Service Revenue
    17 %     20 %                     19 %     18 %                
 
                                                       
 
N/M — not meaningful.
Our Cost of Revenues, net of reimbursable expenses, decreased principally due to a reduction in compensation and benefits as a result of a lower number of collectors and reduced commissions. In addition, we continue to seek ways to reduce technology and communication costs for this segment.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Selling, General and Administrative Expenses
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Total Selling, General and Administrative Expenses
  $ 4,404     $ 6,802       (2,398 )     (35 )   $ 11,997     $ 14,632       (2,635 )     (18 )
 
                                                       
 
                                                               
Operating Percentage:
                                                               
 
                                                               
Operating Income / Total Revenue
    (14) %     (23) %                     (9) %     (11) %                
 
                                                       
 
                                                               
Operating Income / Service Revenue
    (15) %     (23) %                     (9) %     (11) %                
 
                                                       
During the nine months ended September 30, 2009, we recognized $2.3 million (all recorded in the third quarter) in facility closure costs. Excluding these costs, Selling, General and Administrative Expenses in both 2010 periods were consistent with the comparative 2009 periods.
EBITDA
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
EBITDA
  $ (858 )   $ 292       (1,150 )     N/M     $ (404 )   $ 1,020       (1,424 )     (140 )
 
                                                       
 
                                                               
EBITDA Margin:
                                                               
EBITDA / Total Revenue
    (6) %     2 %                     (1) %     2 %                
 
                                                       
Financial Services EBITDA declined $1.2 million year over year despite a revenue decline of $4.0 million which reflects the cost savings initiatives we undertook in the second half of 2009 and the wind-down of business from a lower margin customer relationship management client in 2010. Sequentially EBITDA declined in part due to the seasonality of the business as well as the previously mentioned decline in placements. The facility closure costs discussed above were offset by a litigation settlement of $2.3 million awarded to us during the third quarter of 2009.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
Technology Products
The following table presents our results of operations for our Technology Products segment for the three and nine months ending September 30:
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Revenue
  $ 12,963     $ 12,451       512       4     $ 37,422     $ 35,133       2,289       7  
Cost of Revenue
    7,239       5,582       1,657       30       20,555       18,042       2,513       14  
 
                                                       
 
                                                               
Gross Profit
    5,724       6,869       (1,145 )     (17 )     16,867       17,091       (224 )     (1 )
 
                                                               
Selling, General and Administrative Expenses
    1,610       1,084       526       49       4,040       3,880       160       4  
 
                                                       
 
                                                               
Income from Operations
  $ 4,114     $ 5,785       (1,671 )     (29 )   $ 12,827     $ 13,211       (384 )     (3 )
 
                                                       
 
                                                               
EBITDA(1)
  $ 5,253     $ 6,545       (1,292 )     (20 )   $ 15,869     $ 15,468       401       3  
 
                                                       
 
                                                               
Transactions with Related Parties Above:
                                                               
Revenue
  $ 4,660     $ 5,044       (384 )     (8 )   $ 13,635     $ 15,801       (2,166 )     (14 )
 
                                                       
Selling, General and Administrative Expenses
  $     $ 294       (294 )     N/M     $     $ 1,517       (1,517 )     N/M  
 
                                                       
Interest Expense
  $     $ 39       (39 )     N/M     $     $ 231       (231 )     N/M  
 
                                                       
 
(1)   See “above for a reconciliation of the most directly comparable GAAP measure to EBITDA.
 
N/M   — not meaningful.
The primary focus of the Technology Products segment continues to be supporting the growth of Mortgage Services and Ocwen as well as the cost reduction and quality initiatives on-going within the Financial Services segment. During the first quarter, we re-organized the management team of Technology Products by naming a new President for the segment. We are focused on enhancing our development and infrastructure capabilities to support both our expansion efforts and those of Ocwen. In addition, we remain focused on the longer-term commercialization of our service offerings to expand their applicability to a broader audience.
Revenue
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Revenue:
                                                               
REALSuite
  $ 7,864     $ 6,822       1,042       15     $ 22,415     $ 18,478       3,937       21  
IT Infrastructure Services
    5,099       5,629       (530 )     (9 )     15,007       16,655       (1,648 )     (10 )
 
                                                       
Total Revenue
  $ 12,963     $ 12,451       512       4     $ 37,422     $ 35,133       2,289       7  
 
                                                       
 
                                                               
Transactions with Related Parties:
                                                               
REALSuite
  $ 2,744     $ 2,445       299       12     $ 7,952     $ 7,281       671       9  
IT Infrastructure Services
    1,916       2,599       (683 )     (26 )     5,683       8,520       (2,837 )     (33 )
 
                                                       
Total
  $ 4,660     $ 5,044       (384 )     (8 )   $ 13,635     $ 15,801       (2,166 )     (14 )
 
                                                       
Beginning with the second quarter of 2009, we began generating the majority of our revenue within this segment from our REALSuite of services, and we expect this trend to continue for the foreseeable future.
REALSuite. Our REALSuite revenue is primarily driven by REALServicing® which is our comprehensive residential loan servicing platform. Increases in both year-to-date and quarterly revenues were driven by increases in REALServicing

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
attributable to an expanded agreement with a non-related third party customer and the growth in Ocwen’s residential loan portfolio.
IT Infrastructure Services. Our IT infrastructure services revenues declined when compared to the comparable periods in 2009 primarily due to lower intercompany billings (which we eliminate in consolidation but include in our segment presentation) and reduced charges to Ocwen. Sequentially, Revenue increased slightly as Ocwen expanded their operations to support the acquisition of the HomEq residential loan portfolio.
Cost of Revenue
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Cost of Revenue
  $ 7,239     $ 5, 582       1,657       30     $ 20,555     $ 18,042       2,513       14  
 
                                                       
 
                                                               
Gross Margin Percentage:
                                                               
 
                                                               
Cost of Revenue / Total Revenue
    44 %     55 %                     45 %     49 %                
 
                                                       
Cost of Revenue margins decreased both year to date and in the third quarter as a result of an increase in compensation and benefits as we added personnel to enhance our service capabilities, support our growth and commercialize our products. In addition, in the third quarter, technology and communications costs increased both as a result of the addition of new facilities and the expansion of bandwidth at existing facilities to handle the increased demands expected in the fourth quarter.
Selling, General and Administrative Expenses
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Total Selling, General and Administrative Expenses
  $ 1,610     $ 1,084       526       49     $ 4,040     $ 3,880       160       4  
 
                                                       
 
                                                               
Operating Percentage:
                                                               
 
                                                               
Operating Income / Total Revenue
    32 %     46 %                     34 %     38 %                
 
                                                       
Selling, General and Administrative Expenses increased both year to date and in the third quarter as a result of increased occupancy charges associated with the new data center. Sequentially, Selling, General and Administrative Expenses increased primarily as a result of costs incurred in preparing for the HomEq transaction.
EBITDA
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
EBITDA
  $ 5,253     $ 6,545       (1,292 )     (20 )   $ 15,869     $ 15,468       401       3  
 
                                                       
 
                                                               
EBITDA Margin:
                                                               
EBITDA / Total Revenue
    41 %     53 %                     42 %     44 %                
 
                                                       
Technology Products EBITDA increased year over year but declined quarter over quarter. Sequentially, margins decreased as higher revenues were more than offset by increased compensation and occupancy costs associated with the new data center as described above. The Company is increasing expenditures in technology software and hardware to support its commercialization efforts, Ocwen’s growing servicing portfolio and Altisource’s growth.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
SECTION 4 — LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We believe that we have the ability to generate more than sufficient cash from our current operations for the next twelve months to meet anticipated cash requirements. Anticipated cash requirements principally include operational expenditures such as compensation and benefits, working capital requirements and spending for capital expenditures.
We generate significant excess cash that we will seek to deploy in a disciplined manner. Principally, we will continue to invest in compelling services that we believe will generate high margins. In addition, we may seek to acquire a limited number of companies that fit our strategic objectives. Finally, given the tax inefficiency of dividends, the low returns earned on cash held and our desire to only perform a limited number of acquisitions, we believe one of the best ways to return value to shareholders is a share repurchase program. On May 19, 2010, our shareholders authorized us to purchase up to 3,784,618 shares of our common stock in the open market. During the third quarter of 2010, we purchased 86,098 shares of our common stock on the open market at an average price of $26.81, leaving 3,698,520 shares still available for purchase. Subsequently, during October, we purchased an additional 65,317 shares. As of October 25, 2010, we have repurchased a total of 151,415 shares at an average share price of $26.39.
Cash Flows
The following table presents our cash flows for the nine months ended September 30:
                                 
    Nine Months Ended September 30,  
(in thousands)   2010     2009     $ Change     % Change  
Net Income Adjusted for Non-cash Items
  $ 46,819     $ 24,876       21,943       88  
Working Capital
    (13,558 )     1,510       (15,068 )     N/M  
 
                           
Cash Flow from Operating Activities
    33,261       26,386       6,875       26  
Cash Flow from Investing Activities
    (35,744 )     (3,787 )     (31,957 )     N/M  
Cash Flow from Financing Activities
    (4,936 )     (4,877 )     (59 )     (1 )
 
                           
Net Change in Cash
    (7,419 )     17,722       (25,141 )     (142 )
Cash at Beginning of Period
    30,456       6,988       23,468       N/M  
 
                           
Cash at End of Period
  $ 23,037     $ 24,710       (1,673 )     (7 )
 
                           
 
N/M   — not meaningful.
Cash Flow from Operating Activities
Cash flow from operating activities consists of two components: (i) net income adjusted for depreciation, amortization and certain other non-cash items and (ii) working capital. For the nine months ended September 30, 2010, we generated $33.3 million in positive cash flow from operations which reflects our increased profitability adjusted for non-cash items as our businesses have expanded. Our working capital requirements increased significantly during the third quarter as a result of our expanded Asset Management and Default Management services within our Mortgage Services segment and the increase in associated referrals.
Cash Flow from Investing Activities
The largest use of cash flow for investing activities was the acquisition of MPA in February 2010 for which the purchase consideration included $29.0 million in cash. In addition, we saw an increase in purchases of premises and equipment and technology to support our expansion of operations and in anticipated growth in Ocwen’s residential loan portfolio.
Cash Flow from Financing Activities
During 2010, cash flow from financing activities primarily includes activity associated with stock option exercises, share repurchases and payments to non-controlling interest owners as a result of the acquisition of MPA. Prior to our Separation from Ocwen, we participated in a centralized cash management program with Ocwen. We made a significant amount of our cash disbursements through centralized payable systems which were operated by Ocwen, and a significant amount of our cash receipts

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
were received by us and transferred to centralized accounts maintained by Ocwen. There were no formal financing arrangements with Ocwen. Prior to the Separation we recorded all cash receipts and disbursement activity between Ocwen and us through invested equity in the Condensed Consolidated Balance Sheets and as net distributions in the Condensed Consolidated Statements of Equity and Cash Flows because we considered such amounts to have been distributed to Ocwen.
Liquidity Requirements after September 30, 2010
Between October 1 and October 25, 2010, we repurchased 65,317 shares at a total cost of $1.7 million.
During the fourth quarter 2010, we expect to distribute $2.1 million to non-controlling interests.
Management is not aware of any other trends or events, commitments or uncertainties which have not otherwise been disclosed that will or are likely to impact liquidity in a material way.
Capital Resources
Given our ability to generate cash flow which is sufficient to fund both current operations as well as expansion activities, we require very limited capital. Were we to need additional capital, we believe we have adequate access to both debt and equity capital markets.
Commitments and Contingencies
For details of these transactions, see Note 16 to the condensed consolidated financial statements.
SECTION 5 — CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States. In applying many of these accounting principles, we need to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our condensed consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective. Actual results may be affected negatively based on changing circumstances. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.
Our critical accounting policies are described in the MD&A section in our 2009 Form 10-K. Such policies have not changed during 2010.
SECTION 6 — OTHER MATTERS
Related Party — Ocwen
For the nine months ended September 30, 2010, approximately $90.7 million of the Mortgage Services, $0.1 million of the Financial Services and $13.6 million of the Technology Products segment revenues were from services provided to Ocwen or sales derived from Ocwen’s loan servicing portfolio. Services provided to Ocwen included residential property valuation, real estate asset management and sales, trustee management services, property inspection and preservation, closing and title services, charge-off second mortgage collections, core technology back office support and multiple business technologies including our REALSuite of products. We provided all services at rates we believe to be comparable to market rates.
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 4 to our 2009 Form 10-K). For the nine months ended September 30, 2010, Altisource billed Ocwen $1.2 million ($0.5 million for the third quarter), and Ocwen billed Altisource $0.8 million ($0.2 million for the third quarter) for services provided under the Transition Services Agreement. These amounts are reflected as a component of Selling, General and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

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Table of Contents

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

(continued)
SECTION 7 — FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements that relate to, among other things, our future financial and operating results. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms and other comparable terminology including, but not limited to, the following:
    assumptions related to the sources of liquidity and the adequacy of financial resources;
 
    assumptions about our ability to grow our business;
 
    assumptions about our ability to reduce our cost structure;
 
    expectations regarding collection rates and placements in our Financial Services segment;
 
    estimates regarding the calculation of our effective tax rate; and
 
    estimates regarding our reserves and valuations.
Forward-looking statements are not guarantees of future performance and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the risks discussed in “Risk Factors” in our Registration Statement on Form 10 and the following:
    our ability to retain existing customers and attract new customers;
 
    general economic and market conditions;
 
    governmental regulations, taxes and policies; and
 
    availability of adequate and timely sources of liquidity.
We caution you not to place undue reliance on these forward-looking statements which reflect our view only as of the date of this report. We are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any such statement is based.

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Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our financial market risk consists primarily of foreign currency exchange risk.
Foreign Currency Exchange Risk
We consider the US Dollar to be our functional currency worldwide and the majority of our servicing agreements are denominated in US Dollars. Where required locally, we incur certain costs, primarily lease and payroll costs, in local currencies which include the Euro and Indian Rupee. Costs incurred in local currencies expose us to foreign exchange rate fluctuations to the extent our foreign positions remain un-hedged.
Item 4. Controls and Procedures.
a)   Evaluation of Disclosure Controls and Procedures
 
    Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on such evaluation, such officers have concluded that our disclosure controls and procedures as of the end of the period covered by this quarterly report were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
b)   Internal Control over Financial Reporting
 
    There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ending September 30, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to routine litigation and administrative proceedings arising in the ordinary course of business.
Item 1A. Risk Factors.
As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our 2009 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Equity Securities purchased by us
The following table presents information related to our repurchases of our equity securities during the three months ended September 30, 2010:
                                 
                    Total number        
                    of shares        
                    purchased as     Maximum number  
    Total     Weighted     part of publicly     of shares that may  
    number of     average     announced plans     yet be purchased  
    shares     price paid     or     under the  
Period   purchased     per share     programs(1)     plans or programs  
Common shares(1):
                               
July 1 — 31, 2010
        $             3,784,618  
August 1 — 31, 2010
                      3,784,618  
September 1 — 30, 2010
    86,098       26.81       86,098       3,698,520  
 
                       
Total common shares
    86,098     $ 26.81       86,098       3,698,520  
 
                       
 
(1)   In the second quarter of 2010, our shareholders authorized us to purchase up to 3,784,618 shares of our common stock in the open market.
Item 3. Defaults upon Senior Securities. None
Item 4. (Removed and Reserved)
Item 5. Other Information. None
Item 6. Exhibits.
31.1   Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
31.2   Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
32.1   Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

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Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  ALTISOURCE PORTFOLIO SOLUTIONS S.A.
                          (Registrant)
 
 
Date: October 28, 2010  By:   /s/ Robert D. Stiles    
    Robert D. Stiles   
    Chief Financial Officer
(On behalf of the Registrant and as its principal financial officer) 
 

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exv31w1
         
Exhibit 31.1
CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, William B. Shepro, hereby certify that:
  1.   I have reviewed this quarterly report on Form 10-Q for the period ending September 30, 2010 of Altisource Portfolio Solutions S.A.:
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
      a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
      b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
      c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
      d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
         
     
Date: October 28, 2010  By:   /s/ William B. Shepro    
    William B. Shepro   
    Director and Chief Executive Officer
(Principal Executive Officer) 
 

 

exv31w2
         
Exhibit 31.2
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Robert D. Stiles, hereby certify that:
  1.   I have reviewed this quarterly report on Form 10-Q for the period ending September 30, 2010 of Altisource Portfolio Solutions S.A.:
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
      a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
      b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
      c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
      d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
         
     
Date: October 28, 2010  By:   /s/ Robert D. Stiles    
    Robert D. Stiles   
    Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) 
 

 

exv32w1
         
Exhibit 32.1
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(UNITED STATES CODE, TITLE 18, CHAPTER 63, SECTION 1350)
ACCOMPANYING QUARTERLY REPORT ON FORM 10-Q OF
ALTISOURCE PORTFOLIO SOLUTIONS S.A. FOR THE QUARTER ENDED
SEPTEMBER 30, 2010
In connection with the Quarterly Report on Form 10-Q of Altisource Portfolio Solutions S.A. for the quarterly period ending September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), William B. Shepro, as Chief Executive Officer of our Company, and Robert D. Stiles, as Chief Financial Officer of our Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
  (1)   The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
 
  (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of our Company.
         
By: 
/s/ William B. Shepro   By:  /s/ Robert D. Stiles
 
       
 
William B. Shepro
Director and Chief Executive Officer
(Principal Executive Officer)
October 28, 2010
    Robert D. Stiles
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
October 28, 2010