Notes to Condensed Consolidated Financial Statements
NOTE 1
—
ORGANIZATION AND BASIS OF PRESENTATION
Description of Business
Altisource Portfolio Solutions S.A., together with its subsidiaries (which may be referred to as “Altisource,” the “Company,” “we,” “us” or “our”), is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing market.
Altisource Portfolio Solutions S.A. was formed under the laws of Luxembourg and is publicly traded on the NASDAQ Global Select Market under the symbol “ASPS.”
Basis of Accounting and Presentation
The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the interim data includes all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented. The preparation of interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our interim condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Intercompany transactions and accounts have been eliminated in consolidation.
Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization, which changed the way our chief operating decision maker manages our businesses, allocates resources and evaluates performance. We now report our operations through
two
new reportable segments: Mortgage Market and Real Estate Market. In addition, we report Other Businesses, Corporate and Eliminations separately. Prior to the January 1, 2017 change in reportable segments, our reportable segments were Mortgage Services, Financial Services and Technology Services. Prior year comparable period segment disclosures have been restated to conform to the current year presentation. See
Note 21
for a description of our business segments.
Altisource consolidates a cooperative entity which is managed by The Mortgage Partnership of America, L.L.C. (“MPA”), a wholly-owned subsidiary of Altisource, Best Partners Mortgage Cooperative, Inc., a mortgage cooperative doing business as Lenders One
®
(“Lenders One”). MPA provides services to Lenders One under a management agreement that ends on December 31, 2025 (with renewals for three successive five-year periods at MPA’s option).
The management agreement between MPA and Lenders One, pursuant to which MPA is the management company, represents a variable interest in a variable interest entity. MPA is the primary beneficiary of Lenders One as it has the power to direct the activities that most significantly impact the cooperative’s economic performance and the right to receive benefits from the cooperative. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements on a consolidated basis and the interests of the members are reflected as non-controlling interests. As of
June 30, 2017
, Lenders One had total assets of
$3.5 million
and total liabilities of
$0.9 million
. As of
December 31, 2016
, Lenders One had total assets of
$3.8 million
and total liabilities of
$1.5 million
.
These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
, as filed with the SEC on
February 16, 2017
.
Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:
Level 1
—
Quoted prices in active markets for identical assets and liabilities
Level 2
—
Observable inputs other than quoted prices included in Level 1
Level 3
—
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
Financial assets and financial liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
Recently Adopted Accounting Pronouncement
The Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, became effective on January 1, 2017. This standard simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard requires companies to recognize all award-related excess tax benefits and tax deficiencies in the income statement, classify any excess tax benefits as an operating activity in the statement of cash flows, limit tax withholding up to the maximum statutory tax rates in order to continue to apply equity accounting rules and classify cash paid by employers when directly withholding shares for tax withholding purposes as an investing activity in the statement of cash flows. The standard also provides companies with the option of estimating forfeitures or recognizing forfeitures as they occur. In connection with the adoption of this standard, the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures. This policy election resulted in a cumulative effect adjustment of
$0.9 million
to retained earnings and additional paid-in capital as of January 1, 2017 using the modified retrospective transition method. There were no other significant impacts of the adoption of this standard on the Company’s results of operations and financial position.
Future Adoption of New Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This standard establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of this new standard is an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company is currently evaluating the impact of this guidance on its results of operations and financial position. Based on the Company’s analysis of all sources of revenue from customers for the
six months ended
June 30, 2017
, the Company estimated that less than
4%
of consolidated revenue, primarily related to software development professional services, would likely be deferred and recognized over future periods under the new standard. The Company will continue to analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. This standard will require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. It also amends certain financial statement presentation and disclosure requirements associated with the fair value of financial instruments. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted. Based on the Company’s preliminary analysis of this guidance, upon adoption of ASU No. 2016-01 the Company will reflect changes in the fair value of its available for sale securities in income. These changes in fair value are currently reflected in other comprehensive income. The Company will continue to analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. This standard introduces a new lessee model that brings substantially all leases on the balance sheet. The standard will require companies to recognize lease assets and lease liabilities on their balance sheets and disclose key information about leasing arrangements in their financial statements. This standard will be effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period. Early application of this standard is permitted. The Company is currently evaluating the impact of this guidance on its results of operations and financial position. Based on the Company’s preliminary analysis of its lease arrangements as of
June 30, 2017
where the Company is a lessee, less than
$30.0 million
, primarily related to office leases, would be recorded as right-of-use assets and lease liabilities on the Company’s balance sheet under the new standard. The Company will continue to analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
In March 2016, the FASB issued ASU No. 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
. This standard clarifies guidance on principal versus agent considerations in connection with revenue recognition. When another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, as described above.
In April 2016, the FASB issued ASU No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
. This standard provides guidance on identifying performance obligations in a contract with a customer and clarifying several licensing considerations, including whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time) and guidance on sales-based and usage-based royalties. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, as described above.
In May 2016, the FASB issued ASU No. 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
. This standard addresses collectability, sales taxes and other similar taxes collected from customers, non-cash consideration, contract modifications at transition and completed contracts at transition. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, as described above.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. This standard addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its statement of cash flows.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
This standard will require that companies recognize the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs. Current guidance prohibits companies from recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. This standard will require that companies include restricted cash and restricted cash equivalents in their cash and cash equivalent balances in the statement of cash flows. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its statement of cash flows. As of
June 30, 2017
and
December 31, 2016
, restricted cash was
$4.4 million
and
$4.1 million
, respectively.
In December 2016, the FASB issued ASU No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
. The FASB issued 13 technical corrections and improvements to ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, including providing optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. The amendments in this standard also expand the information that is required to be disclosed when an entity applies one of the optional exemptions. This standard will be effective for annual periods beginning after December 15, 2017, including interim
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, as described above.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business.
This standard clarifies the definition of a business and provides a screen to determine if a set of inputs, processes and outputs is a business. The screen requires that when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the assets acquired would not be a business. Under the new guidance, in order to be considered a business, an acquisition must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. In addition, the standard narrows the definition of the term “output” so that it is consistent with how it is described in ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606).
This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
This standard will simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Current guidance requires that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This standard will require companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period, and will be applied prospectively. Early adoption of this standard is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05,
Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
. This standard was issued to clarify the scope of Subtopic 610-20,
Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets
, and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.
In May 2017, the FASB issued ASU No. 2017-09, C
ompensation—Stock Compensation (Topic 718): Scope of Modification Accounting
. This standard provides guidance about which changes to the terms or conditions of a share-based payment award require the application of modification accounting. This standard will require companies to continue to apply modification accounting, unless the fair value, vesting conditions and classification of an award all do not change as a result of the modification. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.
NOTE 2
—
CUSTOMER CONCENTRATION
Ocwen Financial Corporation (“Ocwen”) is our largest customer. Ocwen purchases certain mortgage services and technology services from us under the terms of master services agreements and amendments thereto (collectively, the “Ocwen Service Agreements”) with terms extending through August 2025. Certain of the Ocwen Service Agreements, among other things, contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing. Certain of the Ocwen Service Agreements also prohibit Ocwen from establishing fee-based businesses that would directly or indirectly compete with Altisource’s services with respect to the Homeward Residential, Inc. and Residential Capital, LLC servicing portfolios acquired by Ocwen in December 2012 and February 2013, respectively. In addition, Ocwen purchases certain origination services from Altisource under an agreement that continues until January 23, 2019, but which is subject to a 90 day termination right by Ocwen.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
Revenue from Ocwen primarily consists of revenue earned directly from Ocwen and revenue earned from the loans serviced by Ocwen when Ocwen designates us as the service provider. Revenue from Ocwen as a percentage of segment and consolidated revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Mortgage Market
|
|
68
|
%
|
|
64
|
%
|
|
68
|
%
|
|
65
|
%
|
Real Estate Market
|
|
1
|
%
|
|
—
|
%
|
|
1
|
%
|
|
1
|
%
|
Other Businesses, Corporate and Eliminations
|
|
11
|
%
|
|
22
|
%
|
|
13
|
%
|
|
23
|
%
|
Consolidated revenue
|
|
58
|
%
|
|
55
|
%
|
|
58
|
%
|
|
55
|
%
|
For the
six months ended June 30, 2017
and
2016
, we generated revenue from Ocwen of
$285.6 million
and
$280.7 million
, respectively (
$144.2 million
and
$140.5 million
for the
second quarter
of
2017
and
2016
, respectively). Services provided to Ocwen during such periods and reported in the Mortgage Market segment included real estate asset management and sales, residential property valuation, trustee management services, property preservation and inspection services, insurance services, mortgage charge-off collections and software applications. Services provided to Ocwen and reported in the Real Estate Market segment included rental property management. Services provided to Ocwen and reported as Other Businesses, Corporate and Eliminations included information technology (“IT”) infrastructure management. As of
June 30, 2017
, accounts receivable from Ocwen totaled
$23.8 million
,
$18.1 million
of which was billed and
$5.7 million
of which was unbilled. As of
December 31, 2016
, accounts receivable from Ocwen totaled
$26.2 million
,
$15.8 million
of which was billed and
$10.4 million
of which was unbilled.
We earn additional revenue related to the portfolios serviced by Ocwen when a party other than Ocwen selects Altisource as the service provider. For the
six months ended June 30, 2017
and
2016
, we recognized revenue of
$82.9 million
and
$98.0 million
, respectively (
$41.2 million
and
$51.3 million
for the
second quarter
of
2017
and
2016
, respectively), related to the portfolios serviced by Ocwen when a party other than Ocwen selected Altisource as the service provider. These amounts are not included in deriving revenue from Ocwen as a percentage of revenue in the table above.
NOTE 3
—
ACQUISITION
Granite Acquisition
On
July 29, 2016
, we acquired certain assets and assumed certain liabilities of
Granite Loan Management of Delaware, LLC
(“Granite”) for
$9.5 million
in cash. Granite provides residential and commercial loan disbursement processing, risk mitigation and construction inspection services to lenders.
The Granite acquisition is not material in relation to the Company’s results of operations or financial position.
The final allocation of the purchase price is as follows:
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
1,024
|
|
Prepaid expenses
|
|
22
|
|
Other assets
|
|
25
|
|
Premises and equipment, net
|
|
299
|
|
Non-compete agreements
|
|
100
|
|
Trademarks and trade names
|
|
100
|
|
Customer relationships
|
|
3,400
|
|
Goodwill
|
|
4,827
|
|
|
|
9,797
|
|
Accounts payable and accrued expenses
|
|
(57
|
)
|
Other current liabilities
|
|
(192
|
)
|
|
|
|
Purchase price
|
|
$
|
9,548
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
NOTE 4
—
AVAILABLE FOR SALE SECURITIES
During the
six
months ended
June 30, 2016
, we purchased
4.1 million
shares of Altisource Residential Corporation (“Residential”) common stock for
$48.2 million
. This investment is classified as available for sale and reflected in the condensed consolidated balance sheets at fair value at the respective balance sheet dates (
$53.6 million
as of
June 30, 2017
and
$45.8 million
as of
December 31, 2016
). Unrealized gains and losses on available for sale securities are reflected in other comprehensive income, unless there is an impairment that is other than temporary. In the event that a decline in market value is other than temporary, we would record a charge to earnings and a new cost basis in the investment would be established. During the
six
months ended
June 30, 2017
and
2016
, we earned dividends of
$1.2 million
and
$1.0 million
, respectively (
$0.6 million
and
$1.0 million
for the
second quarter
of
2017
and
2016
, respectively), related to this investment. In addition, during the
six
months ended
June 30, 2016
, we incurred expenses of
$3.4 million
(
no
comparative amount in
2017
) related to this investment.
NOTE 5
—
ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Billed
|
|
$
|
53,703
|
|
|
$
|
58,392
|
|
Unbilled
|
|
31,242
|
|
|
39,853
|
|
|
|
84,945
|
|
|
98,245
|
|
Less: Allowance for doubtful accounts
|
|
(11,968
|
)
|
|
(10,424
|
)
|
|
|
|
|
|
Total
|
|
$
|
72,977
|
|
|
$
|
87,821
|
|
Unbilled receivables consist primarily of certain real estate asset management and sales services for which we generally recognize revenue when the service is provided but collect upon closing of the sale, and default management services, for which we generally recognize revenues over the service delivery period but bill following completion of the service. We also include amounts in unbilled receivables that are earned during a month and billed in the following month.
NOTE 6
—
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Maintenance agreements, current portion
|
|
$
|
6,008
|
|
|
$
|
6,590
|
|
Short-term investments in real estate
|
|
15,114
|
|
|
13,025
|
|
Income taxes receivable
|
|
13,054
|
|
|
5,186
|
|
Prepaid expenses
|
|
7,950
|
|
|
6,919
|
|
Litigation settlement insurance recovery
|
|
—
|
|
|
4,000
|
|
Other current assets
|
|
7,293
|
|
|
6,888
|
|
|
|
|
|
|
Total
|
|
$
|
49,419
|
|
|
$
|
42,608
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
NOTE 7
—
PREMISES AND EQUIPMENT, NET
Premises and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Computer hardware and software
|
|
$
|
172,535
|
|
|
$
|
164,877
|
|
Office equipment and other
|
|
13,279
|
|
|
20,188
|
|
Furniture and fixtures
|
|
13,895
|
|
|
13,997
|
|
Leasehold improvements
|
|
33,019
|
|
|
33,808
|
|
|
|
232,728
|
|
|
232,870
|
|
Less: accumulated depreciation and amortization
|
|
(145,668
|
)
|
—
|
|
(129,397
|
)
|
|
|
|
|
|
Total
|
|
$
|
87,060
|
|
|
$
|
103,473
|
|
Depreciation and amortization expense amounted to
$18.9 million
and
$18.3 million
for the
six
months ended
June 30, 2017
and
2016
, respectively (
$8.9 million
and
$9.1 million
for the
second quarter
of
2017
and
2016
, respectively), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations and comprehensive income.
NOTE 8
—
GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The following is a summary of goodwill by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Mortgage Market
|
|
Real Estate Market
|
|
Other Businesses, Corporate and Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2017 and December 31, 2016
|
|
$
|
73,259
|
|
|
$
|
10,056
|
|
|
$
|
2,968
|
|
|
$
|
86,283
|
|
Intangible assets, net
Intangible assets, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average estimated useful life
(in years)
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net book value
|
(in thousands)
|
|
|
June 30,
2017
|
|
December 31,
2016
|
|
June 30,
2017
|
|
December 31,
2016
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
13
|
|
$
|
15,354
|
|
|
$
|
15,354
|
|
|
$
|
(8,328
|
)
|
|
$
|
(7,724
|
)
|
|
$
|
7,026
|
|
|
$
|
7,630
|
|
Customer related intangible assets
|
|
10
|
|
277,828
|
|
|
277,828
|
|
|
(173,452
|
)
|
|
(156,980
|
)
|
|
104,376
|
|
|
120,848
|
|
Operating agreement
|
|
20
|
|
35,000
|
|
|
35,000
|
|
|
(12,982
|
)
|
|
(12,104
|
)
|
|
22,018
|
|
|
22,896
|
|
Non-compete agreements
|
|
4
|
|
1,560
|
|
|
1,560
|
|
|
(702
|
)
|
|
(507
|
)
|
|
858
|
|
|
1,053
|
|
Intellectual property
|
|
10
|
|
300
|
|
|
300
|
|
|
(100
|
)
|
|
(85
|
)
|
|
200
|
|
|
215
|
|
Other intangible assets
|
|
5
|
|
3,745
|
|
|
3,745
|
|
|
(1,330
|
)
|
|
(955
|
)
|
|
2,415
|
|
|
2,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
333,787
|
|
|
$
|
333,787
|
|
|
$
|
(196,894
|
)
|
|
$
|
(178,355
|
)
|
|
$
|
136,893
|
|
|
$
|
155,432
|
|
Amortization expense for definite lived intangible assets was
$18.5 million
and
$25.0 million
for the
six
months ended
June 30, 2017
and
2016
, respectively (
$9.4 million
and
$12.8 million
for the
second quarter
of
2017
and
2016
, respectively). Expected annual definite lived intangible asset amortization for
2017
through
2021
is
$33.8 million
,
$26.2 million
,
$21.8 million
,
$18.2 million
and
$13.3 million
, respectively.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
NOTE 9
—
OTHER ASSETS
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Security deposits
|
|
$
|
5,135
|
|
|
$
|
5,508
|
|
Maintenance agreements, non-current portion
|
|
666
|
|
|
853
|
|
Restricted cash
|
|
4,398
|
|
|
4,127
|
|
Other
|
|
804
|
|
|
767
|
|
|
|
|
|
|
Total
|
|
$
|
11,003
|
|
|
$
|
11,255
|
|
NOTE 10
—
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Accounts payable
|
|
$
|
11,168
|
|
|
$
|
8,787
|
|
Accrued expenses - general
|
|
30,552
|
|
|
26,426
|
|
Accrued salaries and benefits
|
|
33,442
|
|
|
47,614
|
|
Income taxes payable
|
|
—
|
|
|
308
|
|
|
|
|
|
|
Total
|
|
$
|
75,162
|
|
|
$
|
83,135
|
|
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Unfunded cash account balances
|
|
$
|
2,475
|
|
|
$
|
7,137
|
|
Other
|
|
8,045
|
|
|
11,924
|
|
|
|
|
|
|
Total
|
|
$
|
10,520
|
|
|
$
|
19,061
|
|
NOTE 11
—
LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Senior secured term loan
|
|
$
|
450,648
|
|
|
$
|
479,653
|
|
Less: debt issuance costs, net
|
|
(3,831
|
)
|
|
(4,486
|
)
|
Less: unamortized discount, net
|
|
(1,386
|
)
|
|
(1,622
|
)
|
Net long-term debt
|
|
445,431
|
|
|
473,545
|
|
Less: current portion
|
|
(5,945
|
)
|
|
(5,945
|
)
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
439,486
|
|
|
$
|
467,600
|
|
On November 27, 2012, Altisource Solutions S.à r.l., a wholly-owned subsidiary of Altisource Portfolio Solutions S.A., entered into a senior secured term loan agreement with Bank of America, N.A., as administrative agent, and certain lenders. Altisource Portfolio Solutions S.A. and certain subsidiaries are guarantors of the term loan (collectively, the “Guarantors”). We subsequently entered into three amendments to the senior secured term loan agreement to increase the principal amount of the senior secured term loan and, among other changes, re-establish the
$200.0 million
incremental term loan facility accordion, lower the interest rate, extend the maturity date by approximately one year and increase the maximum amount of Restricted Junior Payments (as
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
defined in the senior secured term loan agreement; other capitalized terms, unless defined herein, are defined in the senior secured term loan agreement).
After giving effect to the third amendment entered into on August 1, 2014, the term loan must be repaid in equal consecutive quarterly principal installments of
$1.5 million
, with the balance due at maturity. All amounts outstanding under the senior secured term loan agreement will become due on the earlier of (i) December 9, 2020 and (ii) the date on which the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders or as otherwise provided in the senior secured term loan agreement upon the occurrence of any event of default under the senior secured term loan agreement.
In addition to the scheduled principal payments, subject to certain exceptions, the term loan is subject to mandatory prepayment upon issuances of debt, casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if the leverage ratio is greater than
3.00
to
1.00
, as calculated in accordance with the provisions of the senior secured term loan agreement (the percentage increases if the leverage ratio exceeds
3.50
to
1.00
).
No
mandatory prepayments were owed for the
six
months ended
June 30, 2017
.
In the
second quarter
of
2017
, we repurchased portions of our senior secured term loan with an aggregate par value of
$26.0 million
at a weighted average discount of
16.5%
, recognizing a net gain of
$3.9 million
on the early extinguishment of debt. In the
second quarter
of
2016
, we repurchased portions of our senior secured term loan with an aggregate par value of
$51.0 million
at a weighted average discount of
13.2%
, recognizing a net gain of
$5.5 million
on the early extinguishment of debt. The net gains were included in other income (expense), net in the condensed consolidated statements of operations and comprehensive income.
The term loan bears interest at rates based upon, at our option, the
Adjusted Eurodollar Rate
or the
Base Rate
.
Adjusted Eurodollar Rate
loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the
Adjusted Eurodollar Rate
for the applicable interest period and (y)
1.00%
plus (ii) a
3.50%
margin.
Base Rate
loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the
Base Rate
and (y)
2.00%
plus (ii) a
2.50%
margin. The interest rate at
June 30, 2017
was
4.72%
.
Term loan payments are guaranteed by the Guarantors and are secured by a pledge of all equity interests of certain subsidiaries as well as a lien on substantially all of the assets of Altisource Solutions S.à r.l. and the Guarantors, subject to certain exceptions.
The senior secured term loan agreement includes covenants that restrict or limit, among other things, our ability to: create liens and encumbrances; incur additional indebtedness; sell, transfer or dispose of assets; make Restricted Junior Payments including share repurchases, dividends and repayment of junior indebtedness; change lines of business; amend material debt agreements or other material contracts; engage in certain transactions with affiliates; enter into sale/leaseback transactions; grant negative pledges or agree to such other restrictions relating to subsidiary dividends and distributions; make changes to our fiscal year and engage in mergers and consolidations.
The senior secured term loan agreement contains certain events of default, including (i) failure to pay principal when due or interest or any other amount owing on any other obligation under the senior secured term loan agreement within
five
days of becoming due, (ii) material incorrectness of representations and warranties when made, (iii) breach of covenants, (iv) failure to pay principal or interest on any other debt that equals or exceeds
$40.0 million
when due, (v) default on any other debt that equals or exceeds
$40.0 million
that causes, or gives the holder or holders of such debt the ability to cause, an acceleration of such debt, (vi) occurrence of a Change of Control, (vii) bankruptcy and insolvency events, (viii) entry by a court of one or more judgments against us in an amount in excess of
$40.0 million
that remain unbonded, undischarged or unstayed for a certain number of days after the entry thereof, (ix) the occurrence of certain ERISA events and (x) the failure of certain Loan Documents to be in full force and effect. If any event of default occurs and is not cured within applicable grace periods set forth in the senior secured term loan agreement or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.
As of
June 30, 2017
, debt issuance costs were
$3.8 million
, net of
$6.4 million
of accumulated amortization. As of
December 31, 2016
, debt issuance costs were
$4.5 million
, net of
$5.8 million
of accumulated amortization.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
NOTE 12
—
OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Deferred revenue
|
|
$
|
4,276
|
|
|
$
|
5,680
|
|
Other non-current liabilities
|
|
4,630
|
|
|
4,800
|
|
|
|
|
|
|
Total
|
|
$
|
8,906
|
|
|
$
|
10,480
|
|
NOTE 13
—
FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
The following table presents the carrying amount and estimated fair value of financial instruments held by the Company and acquisition contingent consideration liabilities as of
June 30, 2017
and
December 31, 2016
. The following fair values are estimated using market information and what the Company believes to be appropriate valuation methodologies under GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
(in thousands)
|
|
Carrying amount
|
|
Fair value
|
|
Carrying amount
|
|
Fair value
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
114,205
|
|
|
$
|
114,205
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
149,294
|
|
|
$
|
149,294
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
|
4,398
|
|
|
4,398
|
|
|
—
|
|
|
—
|
|
|
4,127
|
|
|
4,127
|
|
|
—
|
|
|
—
|
|
Available for sale securities
|
|
53,628
|
|
|
53,628
|
|
|
—
|
|
|
—
|
|
|
45,754
|
|
|
45,754
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition contingent consideration
|
|
393
|
|
|
—
|
|
|
—
|
|
|
393
|
|
|
376
|
|
|
—
|
|
|
—
|
|
|
376
|
|
Long-term debt
|
|
450,648
|
|
|
—
|
|
|
392,064
|
|
|
—
|
|
|
479,653
|
|
|
—
|
|
|
474,856
|
|
|
—
|
|
Fair Value Measurements on a Recurring Basis
Cash and cash equivalents and restricted cash are carried at amounts that approximate their fair value due to the highly liquid nature of these instruments and were measured using Level 1 inputs.
Available for sale securities are carried at fair value and consist of
4.1 million
shares of Residential common stock. Available for sale securities are measured using Level 1 inputs as these securities have quoted prices in active markets.
The fair value of our long-term debt is based on quoted market prices. Based on the frequency of trading, we do not believe that there is an active market for our debt. Therefore, the quoted prices are considered Level 2 inputs.
In accordance with ASC Topic 805,
Business Combinations
, liabilities for contingent consideration are reflected at fair value and adjusted each reporting period with the change in fair value recognized in earnings. Liabilities for acquisition related contingent consideration were recorded in connection with acquisitions in prior years. We measure the liabilities for acquisition related contingent consideration using Level 3 inputs as they are determined based on the present value of future estimated payments, which include sensitivities pertaining to discount rates and financial projections.
There were no transfers between different levels during the periods presented.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk primarily consist of cash and cash equivalents and accounts receivable. Our policy is to deposit our cash and cash equivalents with larger, highly rated financial institutions. The Company derives the largest portion of its revenues from Ocwen (see
Note 2
for additional information on Ocwen revenues and accounts receivable balance). The Company mitigates its concentrations of credit risk with respect to accounts receivable by actively monitoring past due accounts and the economic status of customers, if known.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
NOTE 14
—
SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
Share Repurchase Program
On
May 17, 2017
, our shareholders approved the renewal of the share repurchase program originally approved by the shareholders on
May 18, 2016
, which replaced the previous share repurchase program. Under the program, we are authorized to purchase up to
4.6 million
shares of our common stock, based on a limit of
25%
of the outstanding shares of common stock on the date of approval at a minimum price of
$1.00
per share and a maximum price of
$500.00
per share, for a period of
five
years from the date of approval. Under the existing and prior programs, we purchased
0.8 million
shares of common stock at an average price of
$22.15
per share during the
six
months ended
June 30, 2017
and
0.8 million
shares at an average price of
$25.79
per share during the
six
months ended
June 30, 2016
(
0.4 million
shares at an average price of
$19.17
per share for the
second quarter
of
2017
and
0.3 million
shares at an average price of
$26.74
per share for the
second quarter
of
2016
). As of
June 30, 2017
, approximately
4.2 million
shares of common stock remain available for repurchase under the program. Our senior secured term loan limits the amount we can spend on share repurchases, which was approximately
$347 million
as of
June 30, 2017
, and may prevent repurchases in certain circumstances.
Share-Based Compensation
We issue share-based awards in the form of stock options and restricted shares for certain employees, officers and directors. We recorded share-based compensation expense of
$1.9 million
and
$3.6 million
for the
six
months ended
June 30, 2017
and
2016
, respectively (
$1.2 million
and
$1.7 million
for the
second quarter
of 2017 and 2016, respectively). As of
June 30, 2017
, estimated unrecognized compensation costs related to share-based awards amounted to
$9.2 million
, which we expect to recognize over a weighted average remaining requisite service period of approximately
2.15 years
.
In connection with the January 1, 2017 adoption of FASB ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(see
Note 1
), the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures. Prior to this accounting change, share-based compensation expense for stock options and restricted shares was recorded net of estimated forfeiture rates ranging from
0%
to
40%
.
Stock Options
Stock option grants are composed of a combination of service-based, market-based and performance-based options.
Service-Based Options.
These options generally vest over
three
or
four years
with equal annual cliff-vesting and expire on the earlier of
ten years
after the date of grant or following termination of service. A total of
792 thousand
service-based awards were outstanding as of
June 30, 2017
.
Market-Based Options
. These option grants generally have
two
components, each of which vests only upon the achievement of certain criteria. The first component, which we refer to internally as “ordinary performance” grants, consists of two-thirds of the market-based grant and begins to vest if the stock price is at least double the exercise price, as long as the stock price realizes a compounded annual gain of at least
20%
over the exercise price. The remaining third of the market-based options, which we refer to internally as “extraordinary performance” grants, begins to vest if the stock price is at least triple the exercise price, as long as the stock price realizes a compounded annual gain of at least
25%
over the exercise price. Market-based awards vest in
three
or
four
year installments with the first installment vesting upon the achievement of the criteria and the remaining installments vesting thereafter in annual installments. Market-based options generally expire on the earlier of
ten
years after the date of grant or following termination of service, unless the performance criteria is met prior to termination of service or in the final
three
years of the option term, in which case vesting will generally continue in accordance with the provisions of the award agreement. A total of
945 thousand
market-based awards were outstanding as of
June 30, 2017
.
Performance-Based Options.
These option grants begin to vest upon the achievement of certain specific financial measures. Generally,
one-third
of the awards vest upon the achievement of the performance criteria and
one-third
vest on each anniversary of the grant date, or for certain other financial measures cliff-vest upon the achievement of the specific performance during the period from
2017
through
2021
. The award of performance-based options is adjusted based on the level of achievement specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in
70%
to
150%
of the option grants, depending upon performance achieved. If the performance criteria achieved is below a certain threshold, the award is canceled. The options expire on the earlier of
ten years
after the date of grant or following termination of service. There were
126 thousand
performance-based awards outstanding as of
June 30, 2017
.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
The Company granted
129 thousand
stock options (at a weighted average exercise price of
$39.13
per share) and
94 thousand
stock options (at a weighted average exercise price of
$27.43
per share) during the
six
months ended
June 30, 2017
and
2016
, respectively.
The fair values of the service-based options and performance-based options were determined using the Black-Scholes option pricing model and the fair values of the market-based options were determined using a lattice (binomial) model. The following assumptions were used to determine the fair values as of the grant date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2017
|
|
Six months ended
June 30, 2016
|
|
|
Black-Scholes
|
|
Binomial
|
|
Black-Scholes
|
|
Binomial
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate (%)
|
|
2.06 - 2.29
|
|
|
0.77 - 2.38
|
|
|
1.25 - 1.89
|
|
|
0.23 - 1.97
|
|
Expected stock price volatility (%)
|
|
61.49 - 66.68
|
|
|
66.68
|
|
|
59.75 - 62.14
|
|
|
59.76 - 62.14
|
|
Expected dividend yield
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expected option life (in years)
|
|
6.00 - 7.50
|
|
|
3.53 - 3.85
|
|
|
6.00 - 6.25
|
|
|
4.54 - 4.88
|
|
Fair value
|
|
$23.91 - $24.80
|
|
|
$23.54 - $24.30
|
|
|
$11.15 - $17.09
|
|
|
$11.06 - $17.58
|
|
We determined the expected option life of all service-based stock option grants using the simplified method. We use the simplified method because we believe that our historical data does not provide a reasonable basis upon which to estimate expected option life.
The following table summarizes the weighted average grant date fair value of stock options granted per share, the total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the period presented:
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
(in thousands, except per share amounts)
|
|
2017
|
|
2016
|
|
|
|
|
|
Weighted average grant date fair value of stock options granted per share
|
|
$
|
24.23
|
|
|
$
|
15.81
|
|
Intrinsic value of options exercised
|
|
875
|
|
|
1,002
|
|
Grant date fair value of stock options that vested
|
|
1,693
|
|
|
2,010
|
|
The following table summarizes the activity related to our stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options
|
|
Weighted average exercise price
|
|
Weighted average contractual term
(in years
)
|
|
Aggregate intrinsic value
(
in thousands)
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
1,996,509
|
|
|
$
|
25.98
|
|
|
5.32
|
|
$
|
15,942
|
|
Granted
|
128,630
|
|
|
39.13
|
|
|
|
|
|
Exercised
|
(62,232
|
)
|
|
12.29
|
|
|
|
|
|
|
Forfeited
|
(200,316
|
)
|
|
29.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
1,862,591
|
|
|
26.99
|
|
|
4.87
|
|
9,075
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2017
|
1,286,618
|
|
|
21.56
|
|
|
3.40
|
|
6,257
|
|
Other Share-Based Awards
The Company’s other share-based and similar types of awards are composed of restricted shares and, through August 29, 2016, Equity Appreciation Rights (“EAR”). Effective August 29, 2016, the EAR plans were terminated.
The restricted shares are composed of a combination of service-based awards and performance-based awards. Service-based awards generally vest over
one
to
four
years with either annual cliff-vesting, vesting of all of the restricted shares at the end of the vesting period or vesting beginning after
two
years of service. A total of
221 thousand
service-based awards were outstanding as of
June 30, 2017
. Performance-based awards generally begin to vest upon the achievement of certain specific financial measures. Generally,
one-third
of the awards vest upon the achievement of the performance criteria and
one-third
vest on each anniversary of the grant date. The award of performance-based restricted shares is adjusted based on the level of achievement specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
to vest in
80%
to
150%
of the restricted share award, depending on performance achieved. If the performance criteria achieved is below a certain threshold, the award is canceled. A total of
39 thousand
performance-based awards were outstanding as of
June 30, 2017
. The Company granted
121 thousand
restricted shares (at a weighted average price of
$33.65
per share) during the
six months ended June 30, 2017
.
The following table summarizes the activity related to our restricted shares:
|
|
|
|
|
Number of restricted shares
|
|
|
Outstanding at December 31, 2016
|
231,730
|
|
Granted
|
120,842
|
|
Issued
|
(35,672
|
)
|
Forfeited/canceled
|
(56,511
|
)
|
|
|
Outstanding at June 30, 2017
|
260,389
|
|
NOTE 15
—
REVENUE
Revenue includes service revenue, reimbursable expenses and non-controlling interests. Service revenue consists of amounts attributable to our fee-based services and sales of short-term investments in real estate. Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup. Non-controlling interests represent the earnings of Lenders One, a consolidated entity not owned by Altisource, and is included in revenue and reduced from net income to arrive at net income attributable to Altisource (see
Note 1
). The components of revenue were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Service revenue
|
|
$
|
238,107
|
|
|
$
|
241,324
|
|
|
$
|
467,946
|
|
|
$
|
475,604
|
|
Reimbursable expenses
|
|
11,891
|
|
|
13,783
|
|
|
21,920
|
|
|
29,237
|
|
Non-controlling interests
|
|
687
|
|
|
692
|
|
|
1,302
|
|
|
1,090
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
250,685
|
|
|
$
|
255,799
|
|
|
$
|
491,168
|
|
|
$
|
505,931
|
|
NOTE 16
—
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 the provision of services and the cost of sales of short-term investments in real estate, reimbursable expenses, technology and telecommunications costs as well as depreciation and amortization of operating assets. The components of cost of revenue were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
62,666
|
|
|
$
|
69,773
|
|
|
$
|
125,758
|
|
|
$
|
134,836
|
|
Outside fees and services
|
|
93,369
|
|
|
73,326
|
|
|
179,263
|
|
|
145,129
|
|
Reimbursable expenses
|
|
11,891
|
|
|
13,783
|
|
|
21,920
|
|
|
29,237
|
|
Technology and telecommunications
|
|
10,941
|
|
|
10,703
|
|
|
22,292
|
|
|
20,643
|
|
Depreciation and amortization
|
|
6,526
|
|
|
6,786
|
|
|
14,113
|
|
|
13,389
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
185,393
|
|
|
$
|
174,371
|
|
|
$
|
363,346
|
|
|
$
|
343,234
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
NOTE 17
—
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include payroll and employee benefits associated with personnel employed in executive, finance, law, compliance, human resources, vendor management, facilities, risk management, sales and marketing roles. This category also includes occupancy costs, professional fees, marketing costs, depreciation and amortization of non-operating assets and other expenses. The components of selling, general and administrative expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
15,541
|
|
|
$
|
14,324
|
|
|
$
|
28,047
|
|
|
$
|
28,315
|
|
Occupancy related costs
|
|
9,538
|
|
|
8,799
|
|
|
19,811
|
|
|
17,882
|
|
Amortization of intangible assets
|
|
9,393
|
|
|
12,756
|
|
|
18,539
|
|
|
24,967
|
|
Professional services
|
|
4,367
|
|
|
6,696
|
|
|
8,097
|
|
|
13,436
|
|
Marketing costs
|
|
3,697
|
|
|
5,671
|
|
|
7,966
|
|
|
12,163
|
|
Depreciation and amortization
|
|
2,361
|
|
|
2,352
|
|
|
4,782
|
|
|
4,957
|
|
Other
|
|
7,573
|
|
|
3,609
|
|
|
12,929
|
|
|
6,103
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,470
|
|
|
$
|
54,207
|
|
|
$
|
100,171
|
|
|
$
|
107,823
|
|
NOTE 18
—
OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Gain on early extinguishment of debt
|
|
$
|
3,937
|
|
|
$
|
5,464
|
|
|
$
|
3,937
|
|
|
$
|
5,464
|
|
Expenses related to the purchase of available for sale securities
|
|
—
|
|
|
(3,356
|
)
|
|
—
|
|
|
(3,356
|
)
|
Interest income
|
|
44
|
|
|
6
|
|
|
142
|
|
|
17
|
|
Other, net
|
|
822
|
|
|
630
|
|
|
1,439
|
|
|
592
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,803
|
|
|
$
|
2,744
|
|
|
$
|
5,518
|
|
|
$
|
2,717
|
|
NOTE 19
—
EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities using the treasury stock method.
Basic and diluted EPS are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands, except per share data)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Net income attributable to Altisource
|
|
$
|
9,035
|
|
|
$
|
19,994
|
|
|
$
|
15,580
|
|
|
$
|
38,488
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
18,335
|
|
|
18,437
|
|
|
18,497
|
|
|
18,646
|
|
Dilutive effect of stock options and restricted shares
|
|
501
|
|
|
1,167
|
|
|
572
|
|
|
1,176
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
18,836
|
|
|
19,604
|
|
|
19,069
|
|
|
19,822
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.49
|
|
|
$
|
1.08
|
|
|
$
|
0.84
|
|
|
$
|
2.06
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.48
|
|
|
$
|
1.02
|
|
|
$
|
0.82
|
|
|
$
|
1.94
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
For the
six
months ended
June 30, 2017
and
2016
,
0.4 million
options and
0.4 million
options, respectively, that were anti-dilutive have been excluded from the computation of diluted EPS (
0.4 million
options and
0.4 million
options for the
second quarter
of
2017
and
2016
, respectively). These options were anti-dilutive and excluded from the computation of diluted EPS because their exercise price was greater than the average market price of our common stock. Also excluded from the computation of diluted EPS are
0.3 million
options and restricted shares and
0.4 million
options for the
six
months ended
June 30, 2017
and
2016
, respectively (
0.3 million
options and restricted shares and
0.4 million
options for the
second quarter
of
2017
and
2016
, respectively), which begin to vest upon the achievement of certain market criteria related to our common stock price, performance criteria and an annualized rate of return to shareholders that have not yet been met.
NOTE 20
—
COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS
Litigation
From time to time, we are involved in legal and administrative proceedings arising in the course of our business. We record a liability for these matters if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For proceedings where the reasonable estimate of loss is a range, we record a best estimate of loss within the range.
On September 8, 2014, the West Palm Beach Firefighters’ Pension Fund filed a putative securities class action suit against Altisource Portfolio Solutions S.A. and certain of its current or former officers and directors in the United States District Court for the Southern District of Florida alleging violations of the Securities Exchange Act of 1934 and Rule 10b-5 with regard to disclosures concerning pricing and transactions with related parties that allegedly inflated Altisource Portfolio Solutions S.A. share prices. The Court subsequently appointed the Pension Fund for the International Union of Painters and Allied Trades District Council 35 and the Annuity Fund for the International Union of Painters and Allied Trades District Council 35 as Lead Plaintiffs. On January 30, 2015, Lead Plaintiffs filed an amended class action complaint which added Ocwen Financial Corporation as a defendant, and seeks a determination that the action may be maintained as a class action on behalf of purchasers of Altisource Portfolio Solutions S.A. securities between April 25, 2013 and December 21, 2014 and an unspecified amount of damages. Altisource Portfolio Solutions S.A. moved to dismiss the suit on March 23, 2015. On September 4, 2015, the Court granted the defendants’ motion to dismiss, finding that the Lead Plaintiffs’ amended complaint failed to state a claim as to any of the defendants, but permitting the Lead Plaintiffs to file another amended complaint. Lead Plaintiffs subsequently filed second and third amended complaints with substantially similar claims and theories. Altisource Portfolio Solutions S.A. moved to dismiss the third amended complaint on October 22, 2015. On December 22, 2015, the Court issued an order dismissing with prejudice all claims against Ocwen Financial Corporation and certain claims against Altisource Portfolio Solutions S.A. and the officer and director defendants, but denying the motion to dismiss as to other claims. On December 19, 2016, the Court granted Lead Plaintiffs leave to file the fourth amended complaint, and Lead Plaintiffs filed the fourth amended complaint on December 28, 2016. On January 6, 2017, Defendants filed a motion to strike certain matters from the fourth amended complaint and a motion to dismiss certain claims pled in the fourth amended complaint. Before the Court ruled on Defendants’ motions, the parties notified the Court on January 19, 2017 of their agreement to settle the action, subject to Court approval and other customary terms and conditions described in the settlement stipulation filed with the Court, including rights of the parties to terminate the settlement under certain conditions. On February 10, 2017, the Court entered an order preliminarily approving the settlement, certifying a settlement class, approving the form and content of notice of the settlement to class members, establishing procedures for shareholders to request exclusion from the class or object to the settlement, and setting a hearing for May 30, 2017 to determine whether the settlement should be approved and the case dismissed with prejudice. Following the May 30, 2017 hearing, the Court entered an Order and Final Judgment dated May 30, 2017, approving the settlement and dismissing the case with prejudice. Under the settlement, Altisource Portfolio Solutions S.A. paid a total of $32 million in cash, $4 million of which was funded by insurance proceeds, to a settlement fund to resolve all claims asserted and which could have been asserted on behalf of investors who purchased or otherwise acquired Altisource Portfolio Solutions S.A. stock between April 25, 2013 and December 21, 2014. The settlement provides that Altisource Portfolio Solutions S.A. and the officer and director defendants deny all claims of wrongdoing or liability.
In addition to the matter referenced above, we are involved in legal actions in the course of our business, some of which seek monetary damages. We do not believe that the outcome of these proceedings, both individually and in the aggregate, will have a material impact on our financial condition, results of operations or cash flows.
Regulatory Matters
Periodically, we are subject to audits, examinations and investigations by federal, state and local governmental authorities and receive subpoenas, civil investigative demands or other requests for information from such governmental authorities in connection with their regulatory or investigative authority. We are currently responding to such inquiries from governmental authorities
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
relating to certain aspects of our business. We believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with these inquiries.
As previously disclosed, Altisource received a Notice and Opportunity to Respond and Advise (“NORA”) letter on November 10, 2016 from the Consumer Financial Protection Bureau (“CFPB”) indicating that the CFPB is considering a potential enforcement action against Altisource relating to an alleged violation of federal law that primarily concerns certain technology services provided to Ocwen. The NORA letter provides the recipient an opportunity to present its positions to the CFPB before an enforcement action is recommended or commenced. On December 5, 2016, we provided a written response to the NORA letter setting forth the legal, policy and factual reasons why we believe an enforcement action is not warranted. We are committed to resolving any potential concerns of the CFPB. If the CFPB were to bring an enforcement action against us, the resolution of such action could have a material adverse impact on our business, reputation, financial condition and results of operations. However, we believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with any potential CFPB enforcement action.
Ocwen Related Matters
Ocwen is our largest customer and
58%
of our revenue for the
six
months ended
June 30, 2017
(
58%
of our revenue for the
second quarter
of
2017
) was from Ocwen. Additionally,
17%
of our revenue for the
six
months ended
June 30, 2017
(
16%
of our revenue for the
second quarter
of
2017
) was earned on the portfolios serviced by Ocwen, when a party other than Ocwen selected Altisource as the service provider.
Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, requests for information and other actions and is subject to pending legal proceedings that have or could result in adverse regulatory or other actions against Ocwen. For example, on April 20, 2017, the CFPB and the State of Florida filed separate complaints in the United States District Court for the Southern District of Florida against Ocwen alleging violations of Federal consumer financial law and, in the case of Florida, Florida statutes. As another example, on April 28, 2017, the Commonwealth of Massachusetts filed a lawsuit against Ocwen in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to Ocwen’s servicing business, including lender-placed insurance and property preservation fees. The complaints seek to obtain permanent injunctive relief, consumer redress, refunds, restitution, disgorgement, damages, civil penalties, costs and fees and other relief. In addition, a number of states publicly announced or otherwise undertook various administrative actions against Ocwen related to alleged violations of applicable laws and regulations related to servicing residential mortgages. Certain of the allegations in the complaints and certain of the state administrative actions assert that Ocwen’s use of certain Altisource services was a contributing factor to Ocwen’s purported violations. The state administrative actions announced or undertaken purportedly seek sanctions and various injunctive reliefs which may include restrictions on Ocwen obtaining additional mortgage servicing rights, continuing mortgage servicing or debt collection activities, originating or funding loans, initiating foreclosures or other limitations or restrictions on Ocwen’s business operations or licenses in certain of these states. All of the forgoing matters could result in adverse regulatory or other actions against Ocwen. While not all inclusive, other regulatory actions to date have included subjecting Ocwen to independent oversight of its operations and placing certain restrictions on its ability to acquire servicing rights. Ocwen may become subject to future federal and state regulatory investigations, inquiries, requests for information and legal proceedings, any of which could also result in adverse regulatory or other actions against Ocwen.
As of June 30, 2017, New Residential Investment Corp. (together with its subsidiaries, “
NRZ
”) owned the rights to approximately
78%
of Ocwen’s non-government-sponsored enterprise (“non-GSE”) mortgage servicing rights (the “Subject MSRs”). Under agreements between
NRZ
and Ocwen (the “Existing Agreements”),
NRZ
has the right (not necessarily the obligation or ability) to transfer servicing away from Ocwen if Ocwen does not maintain certain minimum servicer ratings.
Ocwen has disclosed that, on July 23, 2017, it entered into a master agreement and a transfer agreement with NRZ to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s remaining interests in the Subject MSRs. These actions include the parties cooperating to obtain any third party consents required to transfer the Subject MSRs to NRZ and, upon obtaining the required third party consents and the transfer of the applicable Subject MSRs to NRZ, NRZ will pay a lump sum restructuring fee to Ocwen in exchange for Ocwen forgoing payments under NRZ’s Existing Agreements with Ocwen. These lump sum restructuring fees may total up to approximately $400 million in the aggregate if all of the Subject MSRs are transferred to NRZ. In the event the required third party consents are not obtained by July 23, 2018 or an earlier date agreed to by Ocwen and NRZ, the applicable Subject MSRs may (i) become subject to a new agreement to be negotiated between Ocwen and NRZ, (ii) be acquired by Ocwen, or, if Ocwen does not desire or is otherwise unable to purchase, sold to one or more third parties, or (iii) remain subject to the Existing Agreements. Additionally, NRZ agreed to a standstill through January 23, 2019, subject to limited exceptions, on exercising certain of its rights under the Existing Agreements to replace Ocwen as servicer of certain Subject MSRs in the event of a termination event resulting from a servicer rating downgrade.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
Ocwen also disclosed that it entered into a five year subservicing agreement with NRZ pursuant to which Ocwen will subservice the mortgage loans related to the Subject MSRs that are transferred to NRZ. In addition, Ocwen disclosed that during the five year subservicing agreement term, NRZ may terminate the subservicing agreement for convenience, subject to Ocwen’s right to receive a termination fee and proper notice.
The foregoing may have significant adverse effects on Ocwen’s business and/or our continuing relationship with Ocwen. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services (including information technology and software services), it may be required to seek changes to its existing pricing structure with us, it may lose its non-GSE servicing rights or subservicing arrangements or may lose one or more of its state servicing or origination licenses. Additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in Ocwen’s business that could require it to sell assets or change its business operations. Any or all of these effects could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers.
If any of the following events occurred, Altisource’s revenue would be significantly lower and our results of operations could be materially adversely affected, including from the possible impairment or write-off of goodwill, intangible assets, property and equipment, other assets and accounts receivable:
|
|
•
|
Altisource loses Ocwen as a customer or there is a significant reduction in the volume of services they purchase from us
|
|
|
•
|
Ocwen loses, sells or transfers a significant portion or all of its non-GSE servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider
|
|
|
•
|
Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio
|
|
|
•
|
Altisource fails to be retained as a service provider
|
|
|
•
|
The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue
|
Additionally, Ocwen has stated that it plans to transition from REALServicing to another mortgage servicing software platform. We anticipate that such a transition would be a multi-year project and Altisource would support Ocwen through such a transition. We do not anticipate that a servicing technology transition would impact the other services we provide to Ocwen. For the
six
months ended
June 30, 2017
and
2016
, service revenue from REALServicing was
$13.4 million
and
$17.5 million
, respectively (
$6.3 million
and
$7.6 million
for the
second quarter
of
2017
and
2016
, respectively). We estimate that income before income tax from the REALServicing business currently operates at approximately break-even.
Management cannot predict the outcome of these matters or the impact they may have on Altisource. However, in the event these matters materially negatively impact Altisource, we believe the variable nature of our cost structure would allow us to realign our cost structure in line with remaining revenue. Furthermore, in the event of a significant reduction in the volume of services purchased or loans serviced by Ocwen, we believe the impact to Altisource could occur over an extended period of time.
In this regard, we have a plan that we believe would allow us to efficiently execute on this realignment. We believe that transfers of Ocwen’s servicing rights to a successor servicer(s) would take an extended period of time because of the approval required from many parties, including regulators, rating agencies, residential mortgage-backed securities trustees, lenders and others. During this period of time, we believe we would continue to generate revenue from the services we provide to the to be transferred portfolio. Additionally, we have several strategic initiatives that focus on diversifying and growing our revenue and customer base. Our major strategic initiatives include growing our:
|
|
•
|
Servicer Solutions business
|
|
|
•
|
Origination Solutions business
|
|
|
•
|
Consumer Real Estate Solutions business
|
|
|
•
|
Real Estate Investor Solutions business
|
We have a sales and marketing strategy to support these initiatives.
Management believes our plans, together with current liquidity and cash flows from operations would be sufficient to meet our working capital, capital expenditures, debt service and other cash needs. However, there can be no assurance that our plans will be successful or our operations will be profitable.
Escrow and Trust Balances
We hold customers’ assets in escrow and trust accounts at various financial institutions pending completion of certain real estate activities. We also hold cash in trust accounts at various financial institutions where contractual obligations mandate maintaining
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
dedicated bank accounts for our collections business. These amounts are held in escrow and trust accounts for limited periods of time and are not included in the condensed consolidated balance sheets. Amounts held in escrow and trust accounts were
$39.1 million
and
$64.1 million
at
June 30, 2017
and
December 31, 2016
, respectively.
NOTE 21
—
SEGMENT REPORTING
Our business segments are based upon our organizational structure, which focuses primarily on the services offered, and are consistent with the internal reporting used by our Chief Executive Officer (our Chief Operating Decision Maker) to evaluate operating performance and to assess the allocation of our resources.
Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization, which changed the way our chief operating decision maker manages our businesses, allocates resources and evaluates performance. We now report our operations through
two
new reportable segments:
Mortgage Market
and
Real Estate Market
. In addition, we report
Other Businesses, Corporate and Eliminations
separately. Prior to the January 1, 2017 change in reportable segments, our reportable segments were
Mortgage Services
,
Financial Services
and
Technology Services
. The former
Mortgage Services
segment was separated into the
Mortgage Market
and
Real Estate Market
segments (as described below). Furthermore, certain of the software services business units that were formerly in the
Technology Services
segment and the mortgage charge-off collections business that was formerly in the
Financial Services
segment are now included in the
Mortgage Market
.
Other Businesses, Corporate and Eliminations
includes the other business that were formerly in the
Financial Services
segment as well as IT infrastructure management services formerly in the
Technology Services
segment. Prior year comparable period segment disclosures have been restated to conform to the current year presentation.
The
Mortgage Market
segment provides loan servicers and originators with marketplaces and services and a portfolio of software, data analytics and information technologies that span the mortgage lifecycle. The
Real Estate Market
segment provides rental property investors and real estate consumers with marketplaces, products and services that span the real estate lifecycle. In addition, the
Other Businesses, Corporate and Eliminations
segment includes businesses that provide asset recovery management collection services primarily to debt originators (e.g., credit card, auto lending and retail credit), customer relationship management services primarily to the utility, insurance and hotel industries and IT infrastructure management services.
Other Businesses, Corporate and Eliminations
also includes interest expense and costs related to corporate support functions including executive, finance, law, compliance, human resources, vendor management, facilities, risk management, and sales and marketing costs not allocated to the business units as well as eliminations between the reportable segments.
Financial information for our segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017
|
(in thousands)
|
|
Mortgage Market
|
|
Real Estate Market
|
|
Other Businesses, Corporate and Eliminations
|
|
Consolidated Altisource
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
210,195
|
|
|
$
|
25,130
|
|
|
$
|
15,360
|
|
|
$
|
250,685
|
|
Cost of revenue
|
|
144,326
|
|
|
26,844
|
|
|
14,223
|
|
|
185,393
|
|
Gross profit (loss)
|
|
65,869
|
|
|
(1,714
|
)
|
|
1,137
|
|
|
65,292
|
|
Selling, general and administrative expenses
|
|
29,805
|
|
|
5,551
|
|
|
17,114
|
|
|
52,470
|
|
Income (loss) from operations
|
|
36,064
|
|
|
(7,265
|
)
|
|
(15,977
|
)
|
|
12,822
|
|
Total other income (expense), net
|
|
102
|
|
|
—
|
|
|
(764
|
)
|
|
(662
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and
non-controlling interests
|
|
$
|
36,166
|
|
|
$
|
(7,265
|
)
|
|
$
|
(16,741
|
)
|
|
$
|
12,160
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
|
(in thousands)
|
|
Mortgage Market
|
|
Real Estate Market
|
|
Other Businesses, Corporate and Eliminations
|
|
Consolidated Altisource
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
211,300
|
|
|
$
|
24,804
|
|
|
$
|
19,695
|
|
|
$
|
255,799
|
|
Cost of revenue
|
|
135,723
|
|
|
16,854
|
|
|
21,794
|
|
|
174,371
|
|
Gross profit (loss)
|
|
75,577
|
|
|
7,950
|
|
|
(2,099
|
)
|
|
81,428
|
|
Selling, general and administrative expenses
|
|
31,141
|
|
|
5,620
|
|
|
17,446
|
|
|
54,207
|
|
Income (loss) from operations
|
|
44,436
|
|
|
2,330
|
|
|
(19,545
|
)
|
|
27,221
|
|
Total other income (expense), net
|
|
74
|
|
|
4
|
|
|
(3,322
|
)
|
|
(3,244
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and
non-controlling interests
|
|
$
|
44,510
|
|
|
$
|
2,334
|
|
|
$
|
(22,867
|
)
|
|
$
|
23,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017
|
(in thousands)
|
|
Mortgage Market
|
|
Real Estate Market
|
|
Other Businesses, Corporate and Eliminations
|
|
Consolidated Altisource
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
414,918
|
|
|
$
|
45,193
|
|
|
$
|
31,057
|
|
|
$
|
491,168
|
|
Cost of revenue
|
|
284,476
|
|
|
48,987
|
|
|
29,883
|
|
|
363,346
|
|
Gross profit (loss)
|
|
130,442
|
|
|
(3,794
|
)
|
|
1,174
|
|
|
127,822
|
|
Selling, general and administrative expenses
|
|
58,487
|
|
|
9,876
|
|
|
31,808
|
|
|
100,171
|
|
Income (loss) from operations
|
|
71,955
|
|
|
(13,670
|
)
|
|
(30,634
|
)
|
|
27,651
|
|
Total other income (expense), net
|
|
112
|
|
|
—
|
|
|
(5,857
|
)
|
|
(5,745
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and
non-controlling interests
|
|
$
|
72,067
|
|
|
$
|
(13,670
|
)
|
|
$
|
(36,491
|
)
|
|
$
|
21,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
|
(in thousands)
|
|
Mortgage Market
|
|
Real Estate Market
|
|
Other Businesses, Corporate and Eliminations
|
|
Consolidated Altisource
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
414,701
|
|
|
$
|
48,713
|
|
|
$
|
42,517
|
|
|
$
|
505,931
|
|
Cost of revenue
|
|
269,766
|
|
|
31,312
|
|
|
42,156
|
|
|
343,234
|
|
Gross profit
|
|
144,935
|
|
|
17,401
|
|
|
361
|
|
|
162,697
|
|
Selling, general and administrative expenses
|
|
60,595
|
|
|
11,794
|
|
|
35,434
|
|
|
107,823
|
|
Income (loss) from operations
|
|
84,340
|
|
|
5,607
|
|
|
(35,073
|
)
|
|
54,874
|
|
Total other income (expense), net
|
|
134
|
|
|
—
|
|
|
(9,946
|
)
|
|
(9,812
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and
non-controlling interests
|
|
$
|
84,474
|
|
|
$
|
5,607
|
|
|
$
|
(45,019
|
)
|
|
$
|
45,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Mortgage Market
|
|
Real Estate Market
|
|
Other Businesses, Corporate and Eliminations
|
|
Consolidated Altisource
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
$
|
308,501
|
|
|
$
|
43,370
|
|
|
$
|
264,757
|
|
|
$
|
616,628
|
|
December 31, 2016
|
|
347,067
|
|
|
47,863
|
|
|
294,282
|
|
|
689,212
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (
Continued
)
Our services are provided to customers primarily located in the United States. Premises and equipment, net consist of the following, by country:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
United States
|
|
$
|
57,030
|
|
|
$
|
71,418
|
|
India
|
|
10,743
|
|
|
14,006
|
|
Luxembourg
|
|
16,793
|
|
|
14,791
|
|
Philippines
|
|
2,299
|
|
|
3,027
|
|
Uruguay
|
|
195
|
|
|
231
|
|
|
|
|
|
|
Total
|
|
$
|
87,060
|
|
|
$
|
103,473
|
|