10-Q 1 c19705e10vq.htm FORM 10-Q Form 10-Q
Table of Contents

 
 
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 June 30, 2011
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
(State or other jurisdiction of incorporation or organization)
  Not applicable
(I.R.S. Employer Identification No.)
291, route d’Arlon
L-1150 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 þ No o
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 þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of July 15, 2011, there were 24,505,125 outstanding shares of the registrant’s shares of beneficial interest (excluding 907,623 shares held as treasury stock).
 
 

 

 


 

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
FORM 10-Q
         
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 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 

 


Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.  
Interim Condensed Consolidated Financial Statements (Unaudited)
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, Except per Share Data)
                 
    June 30,     December 31,  
    2011     2010  
 
ASSETS
 
 
               
Current Assets:
               
Cash and Cash Equivalents
  $ 35,032     $ 22,134  
Accounts Receivable, net
    52,495       53,495  
Prepaid Expenses and Other Current Assets
    4,405       13,076  
Deferred Tax Assets, net
    633       551  
 
           
Total Current Assets
    92,565       89,256  
 
               
Restricted Cash
    1,222       1,045  
Premises and Equipment, net
    16,814       17,493  
Deferred Tax Assets, net
    490       1,206  
Intangible Assets, net
    69,269       72,428  
Goodwill
    12,537       11,836  
Investment in Equity Affiliate
    3,328        
Other Non-current Assets
    6,824       4,536  
 
           
 
               
Total Assets
  $ 203,049     $ 197,800  
 
           
 
               
LIABILITIES AND EQUITY
 
 
               
Current Liabilities:
               
Accounts Payable and Accrued Expenses
  $ 27,625     $ 35,384  
Capital Lease Obligations — Current
    651       680  
Other Current Liabilities
    3,574       5,616  
 
           
Total Current Liabilities
    31,850       41,680  
 
               
Capital Lease Obligations — Non-current
    541       852  
Other Non-current Liabilities
    2,782       3,370  
 
               
Commitment and Contingencies (Note 13)
               
 
               
Equity:
               
Common Stock ($1.00 par value; 100,000 shares authorized; 25,413 shares issued and 24,586 outstanding in 2011; 25,413 shares issued and 24,881 outstanding in 2010)
    25,413       25,413  
Retained Earnings
    84,744       58,546  
Additional Paid-in Capital
    80,676       79,297  
Treasury Stock, at cost ($1.00 par value; 827 and 532 shares in 2011 and 2010, respectively)
    (24,442 )     (14,418 )
 
           
Altisource Equity
    166,391       148,838  
 
               
Non-controlling Interests
    1,485       3,060  
 
           
Total Equity
    167,876       151,898  
 
           
 
               
Total Liabilities and Equity
  $ 203,049     $ 197,800  
 
           
See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, Except Per Share Data)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
 
                               
Revenue
  $ 93,268     $ 71,348     $ 181,938     $ 132,321  
Cost of Revenue
    63,097       44,375       118,046       83,729  
 
                       
 
                               
Gross Profit
    30,171       26,973       63,892       48,592  
Selling, General and Administrative Expenses
    13,904       12,476       30,158       24,545  
 
                       
 
                               
Income from Operations
    16,267       14,497       33,734       24,047  
 
                               
Other Income (Expense), net
    270       40       614       (32 )
 
                       
 
                               
Income Before Income Taxes and Non-controlling Interests
    16,537       14,537       34,348       24,015  
Income Tax (Provision) Benefit
    (1,847 )     3,107       (3,534 )     722  
 
                       
 
                               
Net Income
    14,690       17,644       30,814       24,737  
 
                               
Net Income Attributable to Non-controlling Interests
    (1,305 )     (1,297 )     (2,604 )     (2,084 )
 
                       
 
                               
Net Income Attributable to Altisource
  $ 13,385     $ 16,347     $ 28,210     $ 22,653  
 
                       
 
                               
Earnings Per Share:
                               
Basic
  $ 0.54     $ 0.65     $ 1.14     $ 0.91  
 
                       
Diluted
  $ 0.52     $ 0.62     $ 1.09     $ 0.87  
 
                       
 
                               
Weighted Average Shares Outstanding:
                               
Basic
    24,625       25,226       24,734       24,960  
 
                       
Diluted
    25,773       26,247       25,851       25,965  
 
                       
 
                               
Transactions with Related Parties Included Above:
                               
Revenue
  $ 53,694     $ 35,784     $ 102,484     $ 65,035  
Selling, General and Administrative Expenses
  $ 455     $ 264     $ 846     $ 588  
See accompanying notes to condensed consolidated financial statements.

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)
                                                                 
    Altisource Equity     Non-                
                    Retained     Additional     Treasury     controlling             Comprehensive  
    Common Stock     Earnings     Paid-in Capital     Stock, at Cost     Interests     Total     Income  
 
                                                               
Balance, December 31, 2009
  24,145     $ 24,145     $ 11,665     $ 50,538     $     $     $ 86,348          
Net Income
                22,653                   2,084       24,737     $ 24,737  
Acquisition of MPA
    959       959             22,941             3,268       27,168        
Contributions from Non-controlling Interest Holders
                                  18       18        
Distributions to Non-controlling Interest Holders
                                  (3,896 )     (3,896 )      
Share-based Compensation Expense
                      973                   973        
Exercise of Stock Options
    127       127             1,150                   1,277        
 
                                               
 
                                                               
Balance, June 30, 2010
  25,231     $ 25,231     $ 34,318     $ 75,602     $     $ 1,474     $ 136,625     $ 24,737  
 
                                               
 
                                                               
Balance, December 31, 2010
  25,413     $ 25,413     $ 58,546     $ 79,297     $ (14,418 )   $ 3,060     $ 151,898          
Net Income
                28,210                   2,604       30,814     $ 30,814  
Contributions from Non-controlling Interest Holders
                                  14       14        
Distributions to Non-controlling Interest Holders
                                  (4,193 )     (4,193 )      
Share-based Compensation Expense
                      1,379                   1,379        
Exercise of Stock Options
                (2,012 )           2,522             510        
Repurchase of Shares
                            (12,546 )           (12,546 )      
 
                                               
Balance, June 30, 2011
  25,413     $ 25,413     $ 84,744     $ 80,676     $ (24,442 )   $ 1,485     $ 167,876     $ 30,814  
 
                                               
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)
                 
    Six Months Ended  
    June 30,  
    2011     2010  
 
               
Cash flows from Operating Activities:
               
Net Income
  $ 30,814     $ 24,737  
Reconciling Items:
               
Depreciation and Amortization
    4,114       3,211  
Amortization of Intangible Assets
    2,613       2,639  
Share-based Compensation Expense
    1,379       973  
Bad Debt Expense
    684       706  
Deferred Income Taxes
    634       1,065  
Changes in Operating Assets and Liabilities, net of Acquisitions:
               
Accounts Receivable
    424       (4,514 )
Prepaid Expenses and Other Current Assets
    6,590       (211 )
Other Assets
    (2,288 )     (2,643 )
Accounts Payable and Accrued Expenses
    (4,172 )     (3,488 )
Other Current and Non-current Liabilities
    (2,630 )     1,867  
 
           
 
               
Net Cash Flow from Operating Activities
    38,162       24,342  
 
           
 
               
Cash flows from Investing Activities:
               
Additions to Premises and Equipment
    (3,419 )     (5,234 )
Acquisition of Business, net of Cash Acquired
    (1,785 )     (25,462 )
Investment in Equity Affiliate
    (3,328 )      
Change in Restricted Cash
    (177 )     (355 )
 
           
 
               
Net Cash Flow from Investing Activities
    (8,709 )     (31,051 )
 
           
 
               
Cash flows from Financing Activities:
               
Principal Payments on Capital Lease Obligations
    (340 )     (306 )
Proceeds from Stock Option Exercises
    510       1,277  
Purchase of Treasury Stock
    (12,546 )      
Contributions from Non-controlling Interests
    14       18  
Distributions to Non-controlling Interests
    (4,193 )     (3,896 )
 
           
 
               
Net Cash Flow from Financing Activities
    (16,555 )     (2,907 )
 
           
 
               
Net Increase (Decrease) in Cash and Cash Equivalents
    12,898       (9,616 )
Cash and Cash Equivalents at the Beginning of the Year
    22,134       30,456  
 
           
 
               
Cash and Cash Equivalents at the End of the Period
  $ 35,032     $ 20,840  
 
           
 
               
Supplemental Cash Flow Information
               
Interest Paid
  $ 46     $  
Income Taxes (Received) Paid, net
  $ (3,342 )   $ 31  
 
               
Non-Cash Investing and Financing Activities
               
Shares issued in Connection with Acquisition
  $     $ 23,900  
Reduction in Income Tax Payable from Tax Amortizable Goodwill
  $ 1,076     $  
See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

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, technology-enabled, knowledge-based solutions principally related to real estate and mortgage portfolio management, asset recovery and customer relationship management.
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 (the “Separation”). Prior to the Separation, our businesses were wholly-owned subsidiaries of Ocwen Financial Corporation (“Ocwen”).
We conduct our operations through three reporting segments: Mortgage Services, Financial Services and Technology Services. In addition, we report our corporate related expenditures as a separate segment (see Note 14 for a description of our business segments).
Basis of Presentation
Our condensed consolidated financial statements include the assets and liabilities, revenues and expenses directly attributable to our operations. All significant inter-company and inter-segment transactions and accounts have been eliminated upon consolidation. Certain amounts disclosed in prior period statements have been reclassified to conform to the current period presentation.
In February 2010, we acquired the Mortgage Partnership of American, L.L.C. (“MPA”), the manager of a national alliance of community mortgage bankers, correspondent lenders and suppliers of mortgage products and services that does business as Lenders One Mortgage Cooperative (“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 it is the primary beneficiary of Lenders One as it has the power to direct the activities that most significantly impact Lenders One’s economic performance and the obligation to absorb losses or the right to receive benefits from Lenders One. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements on a consolidated basis with the interests of the members reflected as Non-controlling Interest on the Condensed Consolidated Balance Sheets. At June 30, 2011, Lenders One had total assets of $5.4 million and liabilities of $0.1 million.
We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented have been included. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our Form 10-K for the year ended December 31, 2010, filed with the SEC on February 18, 2011, 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.
Investment in Equity Affiliate
We utilize the equity method to account for investments in equity securities where we have the ability to exercise significant influence over operating and financial policies of the investee. We include a proportionate share of earnings and/or losses of equity method investees in equity income (loss), net in the condensed consolidated statements of operations.
As of June 30, 2011 our only significant equity investment was a 50% stake in Correspondent One S.A. (“Correspondent One”) which was still in the formation process. Correspondent One facilitates the purchase of conforming and government guaranteed residential mortgages from approved mortgage originators. In July, we fulfilled our committed funding obligations and have provided a total of $15.0 million to Correspondent One. Our ownership was reduced below 50% due to investments by certain Lenders One members. For the six months ended June 30, 2011, Correspondent One has minimal impact to our Condensed Consolidated Statements of Operations. Beginning in the third quarter of 2011, Correspondent One will partner with Ocwen and members of Lenders One to provide additional avenues for members to sell loans beyond Lenders One’s preferred investor arrangements and the members own network of loan buyers.

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Acquisitions
In April 2011, we acquired Springhouse, LLC (“Springhouse”) an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the members of Lenders One, and real estate asset managers. See Note 6 for additional information.
Foreign Currency Translation
Our reporting currency is the U.S. dollar. Other foreign currency assets and liabilities that are considered monetary items are translated at exchange rates in effect at the balance sheet date. Foreign currency revenues and expenses are translated at transaction date exchange rates. These exchange gains and losses are included in the determination of net income.
Fair Value of Financial Instruments
The fair value of financial instruments, which primarily include Cash and Cash Equivalents, Accounts Receivable, net, Restricted Cash and Accounts Payable and Accrued Expenses at June 30, 2011 and December 31, 2010, are carried at amounts that approximate their fair value due to the short-term nature of these amounts.
Additionally, a put option arrangement was issued to the predecessor owners of MPA. The arrangement, which expires in February 2014, allows the holders to put a portion of the Altisource shares issued as consideration to Altisource at a predetermined price. The fair value calculation is deemed to be a Level 3 calculation. The fair value of the put option at June 30, 2011 of $0.2 million was valued using the following assumptions:
         
    Assumptions  
 
       
Risk-free Interest Rate
    0.19% – 0.810 %
Expected Stock Price Volatility
    23% – 44 %
Expected Dividend Yield
     
Expected Option Life (in years)
    0.75 – 2.75  
Contractual Life (in years)
     
Fair Value
  $0.0 – $1.14  
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. Any changes in value are 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 date of Separation, Ocwen is contractually obligated to purchase certain Mortgage Services and Technology Services from us under service agreements. These agreements extend for eight years from the Separation, 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.

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
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 six months ended June 30:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
 
                               
Mortgage Services
    74 %     73 %     74 %     75 %
Technology Products
    38 %     36 %     38 %     37 %
Financial Services
    1 %     <1 %     <1 %     <1 %
Consolidated Revenue
    58 %     50 %     56 %     49 %
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 charged by our competitors. As of January 1, 2011, we modified our pricing for IT Infrastructure Services within our Technology Services segment from a rate card model primarily based on headcount to a fully loaded costs plus mark-up methodology.
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, treasury, accounting, risk management, legal, strategic planning, compliance and other areas are provided to the counterparty for up to two years from the date of Separation. For the six months ended June 30, 2011 and 2010, Altisource billed Ocwen $0.9 million and $0.8 million respectively ($0.5 million and $0.4 million for the second quarter of 2011 and 2010, respectively), and Ocwen billed Altisource $0.8 million and $0.6 respectively ($0.5 million and $0.3 million for the second quarter of 2011 and 2010, respectively) 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 — ACCOUNTS RECEIVABLE, NET
Accounts Receivable, net consists of the following:
                 
    June 30,     December 31,  
(in thousands)   2011     2010  
 
               
Third-party Accounts Receivable
  $ 15,371     $ 19,039  
Unbilled Fees
    35,791       32,055  
Receivable from Ocwen
    2,941       3,950  
Other Receivables
    919       583  
 
           
 
    55,022       55,627  
Allowance for Doubtful Accounts
    (2,527 )     (2,132 )
 
           
 
               
Total
  $ 52,495     $ 53,495  
 
           
Unbilled Fees consist primarily of Asset Management and Default Management Services for which we recognize revenues over the service delivery period but bill following completion of the service.

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid Expenses and Other Current Assets consist of the following:
                 
    June 30,     December 31,  
(in thousands)   2011     2010  
 
               
Prepaid Expenses
  $ 3,463     $ 5,134  
Income Tax Receivable
          7,327  
Other Current Assets
    942       615  
 
           
 
               
Total
  $ 4,405     $ 13,076  
 
           
NOTE 5 — PREMISES AND EQUIPMENT, NET
Premises and Equipment, net which includes amounts recorded under capital leases, consists of the following:
                 
    June 30,     December 31,  
(in thousands)   2011     2010  
 
               
Computer Hardware and Software
  $ 34,492     $ 32,931  
Office Equipment and Other
    10,477       9,717  
Furniture and Fixtures
    2,346       2,226  
Leasehold Improvements
    5,495       4,501  
 
           
 
  $ 52,810     $ 49,375  
Less: Accumulated Depreciation and Amortization
    (35,996 )     (31,882 )
 
           
 
               
Total
  $ 16,814     $ 17,493  
 
           
Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $4.1 million and $3.2 million for the six months ended June 30, 2011 and 2010, respectively ($2.2 million and $1.7 million for the second quarter of 2011 and 2010, 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.
NOTE 6 — GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The following is a summary showing the balance of goodwill by segment:
                         
    Mortgage     Technology        
(in thousands)   Services     Services     Total  
 
                       
Balance, December 31, 2010
  $ 10,218     $ 1,618     $ 11,836  
Acquisition of Springhouse
    701             701  
 
                 
 
Balance, June 30, 2011
  $ 10,919     $ 1,618     $ 12,537  
 
                 

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Springhouse Acquisition
In April 2011, we acquired Springhouse an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the members of Lenders One, and real estate asset managers.
Consideration for the transaction consisted of the amounts provided in the table below. The working capital amount is subject to additional revision in the third quarter which is not expected to be material:
         
(in thousands)   Consideration  
 
       
Cash
  $ 1,900  
Non-compete agreement
    100  
Working Capital Adjustment
    (215 )
 
     
Total Consideration
  $ 1,785  
 
     
A summary of the preliminary allocation of the purchase consideration based on estimates of fair value of the assets acquired and the liabilities assumed is follows:
         
(in thousands)        
 
Accounts Receivable
  $ 108  
Premises and Equipment
    16  
Identifiable Intangible Assets
    1,180  
Goodwill
    701  
 
     
 
    2,005  
Accounts Payable and Accrued Expenses
    (220 )
 
     
Total Purchase Price
  $ 1,785  
 
     
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  
Trademarks(1)
    4  
Customer Lists(1)
    6  
Non-compete(1)
    2  
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 Springhouse acquisition assigned to our Mortgage Services segment relates principally to in-place workforce and our ability to go to market more quickly with a retail origination appraisal business. All goodwill and intangible assets related to the acquisition are expected to be amortizable and deductible for income tax purposes.
The results of operations of Springhouse has been included in our consolidated results from the acquisition date. The acquisition did not have a material effect on our financial position, results of operations or cash flows.

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Acquisition-related transaction costs are included in Selling, General and Administrative Expenses in the Consolidated Statements of Operations.
Intangible Assets, Net
Intangible Assets, net consists of the following:
                                                         
    Weighted                    
    Average                    
    Estimated     Gross Carrying Amount     Accumulated Amortization     Net Book Value  
    Useful Life     June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
(dollars in thousands)   (Years)     2011     2010     2011     2010     2011     2010  
 
Definite-lived Intangible Assets
                                                       
Trademarks
    16     $ 10,614     $ 10,200     $ 2,836     $ 2,346     $ 7,778     $ 7,854  
Customer Lists
    19       38,366       37,700       10,202 (a)     7,447       28,164       30,253  
Operating Agreement
    20       35,000       35,000       2,535       1,604       32,465       33,396  
Non-compete Agreement
    4       1,300       1,200       438       275       862       925  
 
                                           
 
                                                       
Total Intangible Assets
          $ 85,280     $ 84,100     $ 16,011     $ 11,672     $ 69,269     $ 72,428  
 
                                           
     
(a)  
Prior to our acquisition of Nationwide Credit, Inc. (“NCI”) in 2007, NCI completed an acquisition which created tax-deductible goodwill that amortizes for tax purposes over time. When we acquired NCI in 2007, we recorded a lesser amount of goodwill for financial reporting purposes than what had previously been recorded at NCI for tax purposes. This difference between the amount of goodwill recorded for financial reporting purposes and the amount recorded for taxes is referred to as “Component 2” goodwill and it resulted in our recording periodic reductions first to our book goodwill balance in our consolidated financial statements. As our book goodwill balance was fully written off at December 31, 2010, we continue to amortize the remaining Component 2 goodwill for U.S. tax purposes by reducing certain intangible assets by the remaining tax benefits of the Component 2 goodwill as they are realized in our tax returns. The amount amortized was $1.7 million for the six months ended June 30, 2011. The balance of Component 2 goodwill remaining was $8.5 million as of June 30, 2011 which should generate $5.1 million of reductions of intangible assets when the benefit can be realized for U.S. tax purposes.
Amortization expense for definite lived intangible assets was $2.6 million and $2.6 million for the six months ended June 30, 2011 and 2010, respectively ($1.3 million and $1.5 million for the second quarter of 2011 and 2010, respectively). Amortization expense is estimated to be $5.3 million for 2011, $5.0 million for 2012, $4.8 million for 2013, $4.5 million for 2014 and $4.4 million for 2015.
NOTE 7 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts Payable and Accrued Expenses consists of the following:
                 
    June 30,     December 31,  
(in thousands)   2011     2010  
 
               
Accounts Payable
  $ 2,840     $ 5,960  
Accrued Expenses — General
    10,206       11,189  
Accrued Salaries and Benefits
    11,267       12,010  
Income Taxes Payable
    733       3,807  
Payable to Ocwen
    2,579       2,418  
 
           
 
               
Total
  $ 27,625     $ 35,384  
 
           

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Other Current Liabilities consists of the following:
                 
    June 30,     December 31,  
(in thousands)   2011     2010  
 
               
Deferred Revenue
  $ 1,637     $ 2,542  
Facility Closure Cost Accrual, Current Portion
    127       253  
Other
    1,810       2,821  
 
           
 
               
Total
  $ 3,574     $ 5,616  
 
           
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 six months ended June 30, 2011:
         
(in thousands)   Lease Costs  
 
       
Balance, December 31, 2010
  $ 672  
Payments
    (138 )
 
     
Balance, June 30, 2011
    534  
Less: Long-Term Portion
    407  
 
     
 
       
Facility Closure Cost Accrual, Current Portion
  $ 127  
 
     
We do not expect additional significant costs related to the closure of these facilities.
NOTE 8 — 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. We recorded total stock compensation expense of $1.4 million and $1.0 million for the six months ended June 30, 2011 and 2010, respectively ($0.6 million and $0.7 million for the second quarter of 2011 and 2010, respectively). The compensation expense is principally included in Selling, General and Administrative Expenses in the accompany Condensed Consolidated Statements of Operations.
Below is a summary of the different types of stock-based awards issued under our stock plans:
Stock Options
Service-based Options. These options are granted at fair market value on the date of grant. The options generally vest over four years with equal annual cliff-vesting and expire on the earlier of 10 years after the date of grant or following termination of service. A total of 1.1 million service-based awards were outstanding at June 30, 2011.
Market-based Options. These option grants have two components each of which vest 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 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, which we refer to internally as “extraordinary performance” grants, begins to vest if the stock price realizes a compounded annual gain of at least 25% over the exercise price, so long as it is at least triple the exercise price. The vesting schedule for all market-based awards is 25% upon achievement of the criteria and the remaining 75% in three equal annual installments. A total of 2.2 million market-based awards were outstanding at June 30, 2011.

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
During the six months ended June 30, 2011, the Company granted 0.1 million stock options. The options have an average exercise price of $29.99 per share.
The fair value of the service-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:
                                 
    June 30, 2011     June 30, 2010  
    Black-Scholes     Binominal     Black-Scholes     Binominal  
 
                               
Risk-free Interest Rate
    2.20 %     0.03%–3.18 %     2.82 %     0.17%–3.36 %
Expected Stock Price Volatility
    48 %     55.9 %     48 %     51.5 %
Expected Dividend Yield
                       
Expected Option Life (in years)
    6.25             7        
Contractual Life (in years)
          14             14  
Fair Value
  $ 16.55     $18.09 and $18.76     $ 13.00     $10.50 and $12.35  
The following table summarizes the weighted-average fair value of stock options granted, and the total intrinsic value of stock options exercised:
                 
    June 30  
(in thousands, except per share amounts)   2011     2010  
 
               
Weighted-Average Fair Value at Date of Grant Per Share
  $ 16.03     $ 11.58  
Intrinsic Value of Options Exercised
  $ 2,855     $ 1,827  
Fair Value of Options Vested
  $ 788     $ 131  
Stock-based compensation expense is recorded net of estimated forfeiture rates ranging from 1% to 3%.
As of June 30, 2011, estimated unrecognized compensation costs related to share-based payments amounted to $7.0 million which we expect to recognize over a weighted-average remaining requisite service period of approximately 3.1 years.
The following table summarizes activity of our stock options:
                                 
                    Weighted        
            Weighted     Average        
            Average     Contractual     Aggregate  
    Number of     Exercise     Term     Intrinsic Value  
    Options     Price     (in years)     (in thousands)  
 
                               
Outstanding at December 31, 2010
    3,451,613     $ 13.46       7.3     $ 52,641  
 
                           
Granted
    85,000       29.99                  
Exercised
    (157,256 )     12.76                  
Forfeited
    (138,750 )     24.92                  
 
                           
Outstanding at June 30, 2011
    3,240,607     $ 13.44       7.1     $ 75,715  
 
                       
 
                               
Exercisable at June 30, 2011
    1,373,219     $ 10.21       6.0     $ 36,509  
 
                       

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
Stock Repurchase Authorization
On May 19, 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market. From authorization through June 30, 2011, we have purchased 1.0 million shares of our common stock on the open market at an average price of $28.51, leaving 2.8 million shares still available for purchase.
NOTE 9 — 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 June 30, 2011 and 2010:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(in thousands)   2011     2010     2011     2010  
 
                               
Compensation and Benefits
  $ 19,959     $ 15,691     $ 36,799     $ 29,690  
Outside Fees and Services
    17,532       13,321       35,693       25,781  
Expense Reimbursements
    19,459       11,141       35,100       19,671  
Technology and Communications
    4,557       2,692       7,535       5,647  
Depreciation and Amortization
    1,590       1,530       2,919       2,940  
 
                       
 
                               
Total
  $ 63,097     $ 44,375     $ 118,046     $ 83,729  
 
                       
NOTE 10 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses include payroll for personnel employed in executive, sales, marketing, human resources and finance roles. This category also includes occupancy costs, professional fees, depreciation and amortization on non-operating assets. The components of Selling, General and Administrative Expenses were as follows for the periods ended June 30, 2011 and 2010:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(in thousands)   2011     2010     2011     2010  
 
Compensation and Benefits
  $ 5,825     $ 3,965     $ 11,745     $ 8,005  
Professional Services
    1,055       1,761       3,157       4,057  
Occupancy Related Costs
    4,062       3,600       7,559       5,841  
Amortization of Intangible Assets
    1,340       1,450       2,613       2,639  
Depreciation and Amortization
    586       159       1,196       271  
Other
    1,036       1,541       3,888       3,732  
 
                       
 
                               
Total
  $ 13,904     $ 12,476     $ 30,158     $ 24,545  
 
                       

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
NOTE 11 — OTHER INCOME (EXPENSE), NET
Other Income (Expense), net consists of the following:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(in thousands)   2011     2010     2011     2010  
 
                               
Interest Income
  $ 17     $ 3     $ 22     $ 12  
Interest Expense
    (24 )     (23 )     (47 )     (51 )
Change in Fair Value of Put Option
    225             582        
Other, net
    52       60       57       7  
 
                       
 
                               
Total
  $ 270     $ 40     $ 614     $ (32 )
 
                       
NOTE 12 — 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.
Basic and diluted earnings per share for the three and six months ended June 30, 2011 and 2010 are calculated as follows:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(in thousands)   2011     2010     2011     2010  
 
                               
Net Income Attributable to Altisource
  $ 13,385     $ 16,347     $ 28,210     $ 22,653  
 
                       
 
Weighted-Average Common Shares Outstanding, Basic
    24,625       25,226       24,734       24,960  
Dilutive Effect of Stock Options
    1,148       1,018       1,117       1,002  
Dilutive Effect of Restricted Shares
          3             3  
 
                       
Weighted-Average Common Shares Outstanding, Diluted
    25,773       26,247       25,851       25,965  
 
                       
 
                               
Earnings Per Share
                               
Basic
  $ 0.54     $ 0.65     $ 1.14     $ 0.91  
 
                       
Diluted
  $ 0.52     $ 0.62     $ 1.09     $ 0.87  
 
                       
For the three and six months ended June 30, 2011, an immaterial amount of options that were anti-dilutive have been excluded from the computation of diluted EPS (0.2 million for the three and six month ended June 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 for each of the three and six months ended June 30, 2011 and 2010 are 0.6 and 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 13 — COMMITMENTS AND CONTINGENCIES
Litigation
The Company is from time to time involved in legal proceedings arising in the ordinary course of business. We record a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For proceedings where a range of loss is determined, we record a best estimate of loss within the range. When legal proceedings are material we disclose the nature of the litigation and to the extent possible the estimate of loss or range of loss. In the opinion of management, after consultation with legal counsel and considering insurance coverage where applicable, the outcome of current legal proceedings both individually and in the aggregate will not have a material impact on the Company’s financial condition, results of operations or cash flows.

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
NOTE 14 — 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 that we use to evaluate operating performance and to assess the allocation of our resources by our Chief Executive Officer.
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 Services consists of modular, comprehensive integrated technological solutions for loan servicing, vendor management and invoice presentment and payment as well as providing infrastructure support. In addition, our Corporate Items and Eliminations segment includes eliminations of transactions between the reporting segments and this segment also includes costs recognized by us related to corporate support functions such as finance, legal, human resources, six sigma and quality assurances.
In 2011, we reorganized our reporting structure in that certain services that were originally part of the Mortgage Services Segment are now classified as part of Financial Services. Prior periods have been recast to conform with the current year presentation.
Financial information for our segments is as follows:
                                         
    Three Months Ended June 30, 2011  
                            Corporate        
    Mortgage     Financial     Technology     Items and     Consolidated  
(in thousands)   Services     Services     Services     Eliminations     Altisource  
 
                                       
Revenue
  $ 65,507     $ 17,983     $ 13,572     $ (3,794 )   $ 93,268  
Cost of Revenue
    43,544       13,574       9,334       (3,355 )     63,097  
 
                             
Gross Profit
    21,963       4,409       4,238       (439 )     30,171  
Selling, General and Administrative Expenses
    2,853       3,502       1,537       6,012       13,904  
 
                             
Income (Loss) from Operations
    19,110       907       2,701       (6,451 )     16,267  
Other Income (Expense), net
    258       (7 )     (12 )     31       270  
 
                             
Income (Loss) Before Income Taxes
  $ 19,368     $ 900     $ 2,689     $ (6,420 )   $ 16,537  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 48,473     $ 118     $ 5,103     $     $ 53,694  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 455     $ 455  
 
                             

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
                                         
    Six Months Ended June 30, 2011  
                            Corporate        
    Mortgage     Financial     Technology     Items and     Consolidated  
(in thousands)   Services     Services     Services     Eliminations     Altisource  
 
                                       
Revenue
  $ 125,214     $ 37,476     $ 26,288     $ (7,040 )   $ 181,938  
Cost of Revenue
    80,564       27,062       16,779       (6,359 )     118,046  
 
                             
Gross Profit
    44,650       10,414       9,509       (681 )     63,892  
Selling, General and Administrative Expenses
    7,436       7,962       2,733       12,027       30,158  
 
                             
Income (Loss) from Operations
    37,214       2,452       6,776       (12,708 )     33,734  
Other Expense, net
    623       (18 )     (27 )     36       614  
 
                             
Income (Loss) Before Income Taxes
  $ 37,837     $ 2,434     $ 6,749     $ (12,672 )   $ 34,348  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 92,283     $ 147     $ 10,054     $     $ 102,484  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 846     $ 846  
 
                             
                                         
    Three Months Ended June 30, 2010  
                            Corporate        
    Mortgage     Financial     Technology     Items and     Consolidated  
(in thousands)   Services     Services     Services     Eliminations     Altisource  
 
                                       
Revenue
  $ 42,665     $ 19,891     $ 12,485     $ (3,693 )   $ 71,348  
Cost of Revenue
    26,912       14,176       6,669       (3,382 )     44,375  
 
                             
Gross Profit
    15,753       5,715       5,816       (311 )     26,973  
Selling, General and Administrative Expenses
    3,484       4,062       1,324       3,606       12,476  
 
                             
Income (Loss) from Operations
    12,269       1,653       4,492       (3,917 )     14,497  
Other Income (Expense), net
    (41 )     (13 )     (9 )     103       40  
 
                             
Income (Loss) Before Income Taxes
  $ 12,228     $ 1,640     $ 4,483     $ (3,814 )   $ 14,537  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 31,222     $ 25     $ 4,537     $     $ 35,784  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 264     $ 264  
 
                             

 

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)
                                         
    Six Months Ended June 30, 2010  
                            Corporate        
    Mortgage     Financial     Technology     Items and     Consolidated  
(in thousands)   Services     Services     Services     Eliminations     Altisource  
 
                                       
Revenue
  $ 75,047     $ 39,936     $ 24,459     $ (7,121 )   $ 132,321  
Cost of Revenue
    48,205       28,702       13,316       (6,494 )     83,729  
 
                             
Gross Profit
    26,842       11,234       11,143       (627 )     48,592  
Selling, General and Administrative Expenses
    5,927       8,162       2,430       8,026       24,545  
 
                             
Income (Loss) from Operations
    20,915       3,072       8,713       (8,653 )     24,047  
Other Expense, net
    (38 )     (29 )     (21 )     56       (32 )
 
                             
Income (Loss) Before Income Taxes
  $ 20,877     $ 3,043     $ 8,692     $ (8,597 )   $ 24,015  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 55,984     $ 76     $ 8,975     $     $ 65,035  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 588     $ 588  
 
                             

 

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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis of results of operations (“MD&A”) is a supplement to the accompanying consolidated financial statements and provides additional information on our businesses, current developments, financial condition, cash flows and results of operations. Significant sections of the MD&A are as follows:
Overview. This section, beginning on page 21, provides a description of recent developments we believe are important in understanding the results of operations and financial condition or in understanding anticipated future trends.
Consolidated Results of Operations. This section, beginning on page 22, provides an analysis of our consolidated results of operations for the three and six months ended June 30, 2011 and 2010. In addition, a brief description is provided of significant transactions and events that affect the comparability of results being analyzed.
Segment Results of Operations. This section, beginning on page 26, provides an analysis of each business segment for the three and six months ended June 30, 2011 and 2010 as well as our Corporate segment. In addition, we discuss significant transactions, events and trends that may affect the comparability of the results being analyzed.
Liquidity and Capital Resources. This section, beginning on page 36, provides an analysis of our cash flows for the six months ended June 30, 2011 and 2010. We also discuss restrictions on cash movements, future commitments and capital resources.
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;
 
   
assumptions regarding the impact of seasonality;
 
   
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 the “Risk Factors” section of our Form 10-K for the year ended December 31, 2010 and include the following:
   
our ability to retain and expand our existing customers and attract new customers; and
   
governmental regulations, taxes and policies.
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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OVERVIEW
Our Business
We are a provider of services focused on high-value, technology-enabled, knowledge-based solutions principally related to mortgage and real estate portfolio management, asset recovery and customer relationship management.
We classify our business into three reportable segments:
Mortgage Services: Consists of services that span the mortgage lifecycle and are typically outsourced by loan servicers and originators. In 2011, we reorganized our reporting structure in that certain services originally part of Component Services and Other in this segment are now classified as part of Customer Relationship Management in our Financial Services segment. Following this change, Component Service and Other was renamed Origination Management Services. Origination Management Services includes MPA, our legacy contract underwriting business and our origination fulfillment operations currently under development. Prior periods have been recast to conform to the current year presentation.
Financial Services: Consists primarily of unsecured asset recovery and customer relationship management. As discussed above, Customer Relationship Management now includes certain services that were originally recorded as part of Mortgage Services.
Technology Services: Consists of modular, comprehensive integrated technological solutions for loan servicing, vendor management, invoice presentment and payment as well as providing infrastructure support.
Stock Repurchase Plan
In May 2010, our shareholders authorized us to purchase 15% of our outstanding share capital, or 3.8 million shares of common stock, in the open market. From authorization through June 30, 2011, we have purchased 1.0 million shares of common stock on the open market at an average price of $28.51, leaving 2.8 million shares available for purchase under the program.
Springhouse, LLC
In April 2011, we acquired Springhouse, an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the members of Lenders One, and real estate asset managers.
Factors Affecting Comparability
The following additional items may impact the comparability of our results:
   
In February 2010, we acquired all of the outstanding membership interest of MPA which was formed with the purpose of managing Lenders One (see Note 1 to the condensed consolidated financial statements). The results of operations of Lenders One have been consolidated under the variable interest model since the acquisition date; and
   
Effective January 2011, we modified our pricing for IT Infrastructure Services within our Technology Services segment from a rate card model primarily based on headcount to a fully loaded cost plus mark-up methodology. This new model applies to the infrastructure amounts charged to Ocwen as well as internal allocations of infrastructure cost. The impact of this change is discussed further in the Technology Services segment.

 

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CONSOLIDATED RESULTS OF OPERATIONS
Summary Consolidated Results
Following is a discussion of our consolidated results of operations for the periods indicated. In evaluating performance, we neutralize the impact of pass-through items for which we earn no margin by excluding reimbursable expenses and non-controlling interests where appropriate and calculating all margins based upon Service Revenue.
The following table sets forth information regarding our results of operations for the periods ended June 30, 2011 and 2010:
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands, except per share amounts)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Service Revenue
  $ 72,504     $ 58,910       23     $ 144,234     $ 110,566       30  
Reimbursable Expenses
    19,459       11,141       75       35,100       19,671       78  
Cooperative Non-controlling Interest
    1,305       1,297       1       2,604       2,084       25  
 
                                       
 
                                               
Total Revenue
    93,268       71,348       31       181,938       132,321       37  
 
                                               
Cost of Revenue
    63,097       44,375       (42 )     118,046       83,729       (41 )
 
                                       
 
                                               
Gross Profit
    30,171       26,973       12       63,892       48,592       31  
 
                                               
Gross Profit/Service Revenue
    42 %     46 %             44 %     44 %        
 
                                               
Selling, General and Administrative Expenses
    13,904       12,476       (11 )     30,158       24,545       (23 )
 
                                       
 
                                               
Income from Operations
    16,267       14,497       12       33,734       24,047       40  
 
                                               
Income from Operations/Service Revenue
    22 %     25 %             23 %     22 %        
 
                                               
Other Expense, net
    270       40       N/M       614       (32 )     N/M  
 
                                       
Income Before Income Taxes and Non-controlling Interests
    16,537       14,537       14       34,348       24,015       43  
Income Tax (Provision) Benefit
    (1,847 )     3,107       (159 )     (3,534 )     722       N/M  
 
                                       
 
                                               
Net Income
    14,690       17,644       (17 )     30,814       24,737       25  
 
                                               
Net Income Attributable to Non-controlling Interests
    (1,305 )     (1,297 )     (1 )     (2,604 )     (2,084 )     (25 )
 
                                       
Net Income Attributable to Altisource
  $ 13,385     $ 16,347       (18 )   $ 28,210     $ 22,653       25  
 
                                       
 
                                               
Earnings Per Share
                                               
Basic
  $ 0.54     $ 0.65       (17 )   $ 1.14     $ 0.91       25  
 
                                       
Diluted
  $ 0.52     $ 0.62       (16 )   $ 1.09     $ 0.87       25  
 
                                       
 
                                               
Transactions with Related Parties:
                                               
Revenue
  $ 53,694     $ 35,784       50     $ 102,484     $ 65,035       58  
 
                                       
Selling, General and Administrative Expenses
  $ 455     $ 264       72     $ 846     $ 588       44  
 
                                       
N/M — not meaningful.
We recognized $144.2 million of Service Revenue for the six months ended June 30, 2011, a 30% increase over the same period in 2010. We sequentially grew Service Revenue in the second quarter through higher sales of real estate owned (REO) properties, due to seasonality and expansion of the title insurance business. Sequential growth in Service Revenue was constrained by Financial Services due to seasonality as well as completion of temporary assignment in the first quarter, and by Mortgage Services due to decreased foreclosure referrals which resulted in reduced title search and default management services revenues.
For the third quarter, we expect modest growth in Service Revenue facilitated by seasonally strong REO sales and continued growth of the title insurance operations. For the fourth quarter, we expect substantially greater growth in Service Revenue assuming Ocwen concludes its acquisition of the Litton platform and the Company’s continued roll-out of our title insurance services.

 

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Income before income tax attributable to Altisource grew in both periods over the comparable periods in 2010 principally as a result of the development of mortgage and real estate portfolio management services and the growth of Ocwen’s servicing portfolio. Sequentially, income before income tax attributable to Altisource declined $1.3 million due to increased investments in personnel and technology to support our growth initiatives, initial investments in infrastructure to support the acquisition by Ocwen of the Litton portfolio and the seasonal decline in Financial Services revenue.
For the third quarter, we expect initiatives to support the Litton portfolio and investment in technology will limit margin expansion. We continuously undertake process improvement initiatives focused on margin enhancement of fully deployed services and we believe implementation of business process management software, deployment of next generation REALSuite software and leveraging of fixed costs on higher referral volume will facilitate continued growth in margins over the longer term.
Revenue
The following table presents our Revenue for the periods ended June 30, 2011 and 2010:
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands, except per share amounts)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Mortgage Services:
                                               
Service Revenue
  $ 45,513     $ 31,001       47     $ 88,853     $ 54,714       62  
Reimbursable Expenses
    18,689       10,367       80       33,757       18,249       85  
 
                                               
Cooperative Non-controlling Interest
    1,305       1,297       1       2,604       2,084       25  
 
                                       
 
                                               
Mortgage Services — Total Revenue
    65,507       42,665       54       125,214       75,047       67  
 
                                               
Financial Services:
                                               
Service Revenue
    17,213       19,117       (10 )     36,133       38,514       (6 )
Reimbursable Expenses
    770       774       (1 )     1,343       1,422       (6 )
 
                                       
Financial Services — Total Revenue
    17,983       19,891       (10 )     37,476       39,936       (6 )
 
                                               
Technology Services
    13,572       12,485       9       26,288       24,459       8  
 
                                               
Eliminations
    (3,794 )     (3,693 )     3       (7,040 )     (7,121 )     1  
 
                                       
Total Revenue
  $ 93,268     $ 71,348       31     $ 181,938     $ 132,321       37  
 
                                       
 
                                               
Transactions with Related Parties:
                                               
Mortgage Services
    48,473       31,222       55       92,283       55,984       65  
Financial Services
    118       25       N/M       147       76       93  
Technology Services
    5,103       4,537       13       10,054       8,975       12  
N/M — not meaningful.
In evaluating our performance, we utilize Service Revenue which consists of amounts attributable to our fee based services. Reimbursable Expenses and Cooperative Non-controlling Interests are pass-through items for which we earn no margin. 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.
Growth in Service Revenue for the period presented was due to the development of mortgage and real estate portfolio management services across our national platform. Our Mortgage Services and Technology Services segments also benefited from the growth in loans serviced by Ocwen during this period. Financial Services revenue declined in both periods compared due to a decline in revenues from one of the segment’s largest customers. The decline was in part as a result of the client shifting work to our global delivery platform. This resulted in lower revenue although higher margins.
Sequentially, Service Revenue increased $0.8 million compared to the first quarter 2011 led by the Mortgage Services and Technology Services segment. Increases in the Mortgage Services segment were driven principally by the increased sales of REO properties and the growth of insured title services partially offset by decline in services dependent upon foreclosure referrals. The Technology Services segment continued to benefit from the growth in Ocwen’s loan portfolio. The Service Revenue for Financial Services segment decreased principally due to higher seasonal collections in the first quarter 2011 and the continued transfer of work to our global delivery platform.
Our revenues are seasonal. More specifically, Financial Services revenue tends to be higher in the first quarter and generally declines throughout the year. Mortgage Services revenue is impacted by REO sales which tend to be at their lowest level during fall and winter months and highest during spring and summer months.

 

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Cost of Revenue
Cost of Revenue principally includes payroll and employee benefits associated with personnel employed in customer service roles, fees paid to external providers related to the 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 June 30, 2011 and 2010:
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Compensation and Benefits
  $ 19,959     $ 15,691       (27 )   $ 36,799     $ 29,690       (24 )
Outside Fees and Services
    17,532       13,321       (32 )     35,693       25,781       (38 )
Reimbursable Expenses
    19,459       11,141       (75 )     35,100       19,671       (78 )
Technology and Communications
    4,577       2,692       (69 )     7,535       5,647       (33 )
Depreciation and Amortization
    1,590       1,530       (4 )     2,919       2,940       1  
 
                                       
Cost of Revenue
  $ 63,097     $ 44,375       (42 )   $ 118,046     $ 83,729       (41 )
 
                                       
 
                                               
Gross Profit Percentage:
                                               
Gross Profit/Service Revenue
    42 %     46 %             44 %     44 %        
 
                                       
For the six months ended June 30, 2011, our gross margin percentage was flat. Our margins have remained fairly stable although we have and continue to make significant investments in personnel and technology to support our growth plans. Sequentially, our margins declined as we increased our investments in personnel to support the development of our insured title services and origination services as well as increases in technology costs due to the initial implementation of our business process software and higher software license costs given our continued growth.
When compared to the prior year periods, the substantial increase in Cost of Revenue is consistent with the growth in our Mortgage Services segment as we expanded our mortgage and real estate portfolio management services. In addition, increased volumes attributable to the growth in Ocwen’s portfolio caused increases at both our Mortgage Services and Technology Services segment. This was partially offset by a decline in Cost of Revenue for our Financial Services segment as we continue to manage costs.
Compensation and Benefits costs for the quarter ended June 30, 2011 increased sequentially as a result of the addition of personnel principally to support the development of our title agency and origination services related to mortgage portfolio management, the expected growth in referrals from Ocwen and personnel to develop our next generation of REALSuite technologies. We expect compensation and benefit costs to continue to increase in the third quarter as we ramp up our personnel to support the expected boarding of the Litton portfolio by Ocwen.
Outside Fees and Services for the quarter ended June 30, 2011 were essentially flat when compared to first quarter 2011.
Technology and Communication costs increased sequentially for the quarter ended June 30, 2011 due to continued investment in personnel and licenses as a result of the growth in personnel to support existing and new services.

 

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Selling, General and Administrative Expenses
Selling, General and Administrative Expenses include payroll, employee benefits, occupancy and other costs associated with personnel employed in executive, sales, marketing, human resources and finance roles. This category also includes professional fees, depreciation and amortization on non-operating assets. The components of Selling, General and Administrative Expenses were as follows for the periods ended June 30, 2011 and 2010:
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Compensation and Benefits
  $ 5,825     $ 3,965       (47 )   $ 11,745     $ 8,005       (47 )
Professional Services
    1,055       1,761       40       3,157       4,057       22  
Occupancy Related Costs
    4,062       3,600       (13 )     7,559       5,841       (29 )
Amortization of Intangible Assets
    1,340       1,450       8       2,613       2,639       1  
Depreciation and Amortization
    586       159       N/M     1,196       271       N/M
Other
    1,036       1,541       33     3,888       3,732       (4 )
 
                                       
Total Selling, General and Administrative Expenses
  $ 13,904     $ 12,476       (11 )   $ 30,158     $ 24,545       (23 )
 
                                       
 
                                               
Operating Percentage:
                                               
Income from Operation/Service Revenue
    22 %     25 %             23 %     22 %        
 
                                       
N/M — not meaningful.
Our operating margin percentage was 23% for the six months ended June 30, 2011 and compares favorably to the same period in the prior year but reflects a sequential decline in margins in the second quarter 2011 when compared to the first quarter.
Compensation and Benefits increased in both periods compared to the same periods in 2010 as we built out our support functions such as accounting, legal and human resources as well as added to the executive ranks of our segments to support the continued growth.
Professional Services fees have generally been declining as we have worked to reduce our external legal costs through increased compliance and by reducing costs paid to external advisors with respect to legal advice. In addition, consulting costs related to accounting and tax support decreased as we have hired additional staff in these functions. Lastly, the first half of 2010 included professional costs associated with the acquisition of MPA.
Occupancy Related Costs increased in both periods as compared to the same periods in 2010 due to the growth in our business. As of June 30, 2011, we had over 5,800 employees worldwide compared to approximately 3,900 at year end.
Income Before Income Tax
The following table presents income before income tax including the amount attributable to Altisource by segment:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(in thousands)   2011     2010     2011     2010  
 
                               
Mortgage Services:
                               
Income Before Income Taxes
  $ 19,368     $ 12,228     $ 37,837     $ 20,877  
Non-controlling Interests
    (1,305 )     (1,297 )     (2,604 )     (2,084 )
 
                       
Income Before Income Taxes Attributable to Altisource
  $ 18,063     $ 10,931     $ 35,233     $ 18,793  
As Percent of Service Revenue
    40 %     35 %     40 %     34 %
 
                               
Financial Services:
                               
Income Before Income Taxes
  $ 900     $ 1,640     $ 2,434     $ 3,043  
As Percent of Service Revenue
    5 %     9 %     7 %     8 %
 
                               
Technology Services:
                               
Income Before Income Taxes
  $ 2,689     $ 4,483     $ 6,749     $ 8,692  
As percent of Revenue
    20 %     36 %     26 %     36 %
 
Corporate:
                               
Income Before Income Taxes
    (6,420 )     (3,814 )     (12,672 )     (8,597 )
 
                               
Consolidated:
                               
Income Before Income Taxes
  $ 16,537     $ 14,537     $ 34,348     $ 24,015  
Non-controlling Interests
    (1,305 )     (1,297 )     (2,604 )     (2,084 )
 
                       
Income Before Income Taxes Attributable to Altisource
  $ 15,232     $ 13,240     $ 31,744     $ 21,931  
As percent of Service Revenue
    21 %     22 %     22 %     20 %

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On a consolidated basis, income before income tax attributable to Altisource grew in both periods over the comparable periods in 2010 principally as a result of the development of mortgage and real estate portfolio management services and the growth of Ocwen’s servicing portfolio. Sequentially, income before income taxes attributable to Altisource declined $1.3 million due to our increased investments in personnel and technology to support our growth initiatives including our next generation of REALSuite technologies, initial investments in infrastructure to support the acquisition by Ocwen of the Litton portfolio and the seasonal decline in Financial Services revenue.
Income Tax Provision
The Company recognized an income tax provision of $3.5 million for the six months ended June 30, 2011 representing an effective tax rate of 10.3%. The income tax provision computed by applying the Luxembourg statutory tax rate of 28.8% differs from the effective tax rate primarily because of the effect of the favorable tax ruling as well as the mix of income and losses in multiple taxing jurisdictions. The Company received 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 was retroactive to the date of Separation. As a result of the ruling, the Company recognized a $3.4 million credit attributable to 2009 as well as adjusted the year to date tax provision to the new effective tax rate of 12.5% in the second quarter 2010 which resulted in a credit of $0.7 million for the six months ended June 30, 2010.
SEGMENT RESULTS OF OPERATIONS
The following section provides a discussion of pretax results of operations of our business segments for the three and six months ended June 30, 2011 and 2010. 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 REALSuite applications from our Technology Service 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.
Financial information for our segments is as follows:
                                         
    Three Months Ended June 30, 2011  
                            Corporate        
    Mortgage     Financial     Technology     Items and     Consolidated  
(in thousands)   Services     Services     Services     Eliminations     Altisource  
 
                                       
Revenue
  $ 65,507     $ 17,983     $ 13,572     $ (3,794 )   $ 93,268  
Cost of Revenue
    43,544       13,574       9,334       (3,355 )     63,097  
 
                             
Gross Profit
    21,963       4,409       4,238       (439 )     30,171  
Selling, General and Administrative Expenses
    2,853       3,502       1,537       6,012       13,904  
 
                             
Income (Loss) from Operations
    19,110       907       2,701       (6,451 )     16,267  
Other Income (Expense), net
    258       (7 )     (12 )     31       270  
 
                             
Income (Loss) Before Income Taxes
  $ 19,368     $ 900     $ 2,689     $ (6,420 )   $ 16,537  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 48,473     $ 118     $ 5,103     $     $ 53,694  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 455     $ 455  
 
                             

 

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    Three Months Ended June 30, 2010  
                            Corporate        
    Mortgage     Financial     Technology     Items and     Consolidated  
(in thousands)   Services     Services     Services     Eliminations     Altisource  
 
                                       
Revenue
  $ 42,665     $ 19,891     $ 12,485     $ (3,693 )   $ 71,348  
Cost of Revenue
    26,912       14,176       6,669       (3,382 )     44,375  
 
                             
Gross Profit
    15,753       5,715       5,816       (311 )     26,973  
Selling, General and Administrative Expenses
    3,484       4,062       1,324       3,606       12,476  
 
                             
Income (Loss) from Operations
    12,269       1,653       4,492       (3,917 )     14,497  
Other Income (Expense), net
    (41 )     (13 )     (9 )     103       40  
 
                             
Income (Loss) Before Income Taxes
  $ 12,228     $ 1,640     $ 4,483     $ (3,814 )   $ 14,537  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 31,222     $ 25     $ 4,537     $     $ 35,784  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 264     $ 264  
 
                             
                                         
    Six Months Ended June 30, 2011  
                            Corporate        
    Mortgage     Financial     Technology     Items and     Consolidated  
(in thousands)   Services     Services     Services     Eliminations     Altisource  
 
                                       
Revenue
  $ 125,214     $ 37,476     $ 26,288     $ (7,040 )   $ 181,938  
Cost of Revenue
    80,564       27,062       16,779       (6,359 )     118,046  
 
                             
Gross Profit
    44,650       10,414       9,509       (681 )     63,892  
Selling, General and Administrative Expenses
    7,436       7,962       2,733       12,027       30,158  
 
                             
Income (Loss) from Operations
    37,214       2,452       6,776       (12,708 )     33,734  
Other Income (Expense), net
    623       (18 )     (27 )     36       614  
 
                             
Income (Loss) Before Income Taxes
  $ 37,837     $ 2,434     $ 6,749     $ (12,672 )   $ 34,348  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 92,283     $ 147     $ 10,054     $     $ 102,484  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 846     $ 846  
 
                             
                                         
    Six Months Ended June 30, 2010  
                            Corporate        
    Mortgage     Financial     Technology     Items and     Consolidated  
(in thousands)   Services     Services     Services     Eliminations     Altisource  
 
                                       
Revenue
  $ 75,047     $ 39,936     $ 24,459     $ (7,121 )   $ 132,321  
Cost of Revenue
    48,205       28,702       13,316       (6,494 )     83,729  
 
                             
Gross Profit
    26,842       11,234       11,143       (627 )     48,592  
Selling, General and Administrative Expenses
    5,927       8,162       2,430       8,026       24,545  
 
                             
Income (Loss) from Operations
    20,915       3,072       8,713       (8,653 )     24,047  
Other Income (Expense), net
    (38 )     (29 )     (21 )     56       (32 )
 
                             
Income (Loss) Before Income Taxes
  $ 20,877     $ 3,043     $ 8,692     $ (8,597 )   $ 24,015  
 
                             
 
                                       
Transactions with Related Parties:
                                       
Revenue
  $ 55,984     $ 76     $ 8,975     $     $ 65,035  
 
                             
Selling, General and Administrative Expenses
  $     $     $     $ 588     $ 588  
 
                             

 

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Mortgage Services
The following table presents our results of operations for our Mortgage Services segment for the three and six months ending June 30:
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Service Revenue
  $ 45,513     $ 31,001       47     $ 88,853     $ 54,714       62  
Reimbursable Expenses
    18,689       10,367       80       33,757       18,249       85  
Cooperative Non-controlling Interest
    1,305       1,297       1       2,604       2,084       25  
 
                                       
Total Revenue
    65,507       42,665       54       125,214       75,047       67  
Cost of Revenue
    43,544       26,912       (62 )     80,564       48,205       (67 )
 
                                       
Gross Profit
    21,963       15,753       39       44,650       26,842       66  
 
                                               
Gross Profit/Service Revenue
    48 %     51 %             50 %     49 %        
 
                                               
Selling, General and Administrative Expenses
    2,853       3,484       18       7,436       5,927       (26 )
 
                                       
Income from Operations
  $ 19,110     $ 12,269       56     $ 37,214     $ 20,915       80  
 
                                       
 
                                               
Income from Operations/Service Revenue
    42 %     40 %             42 %     38 %        
 
                                               
Transactions with Related Parties Included Above:
                                               
Revenue
  $ 48,473     $ 31,222       55     $ 92,283     $ 55,984       65  
 
                                       
N/M — not meaningful.
Our Mortgage Services segment continues to be the primary driver of growth for both year to date and second quarter results. As previously discussed, in 2011 we reorganized our reporting structure in that certain services that were originally part of Component Services and Other are now classified as part of Customer Relationship Management in our Financial Services segment.
Through July 2011, we fulfilled our funding requirements and have provided $15.0 million in total to Correspondent One. Correspondent One is expected to partner with Ocwen and members of Lenders One to provide additional avenues for members to sell loans beyond Lenders One’s preferred investor arrangements and the members own network of loan buyers. We anticipate this will result in improved capital markets execution for the members and facilitate the sale of our services to the members.
The growth in Mortgage Services was due to the development of mortgage and real estate portfolio services and growth in the loan portfolio serviced by Ocwen. On average, Ocwen serviced 466,353 loans for the six months ended June 30, 2011 compared to 359,146 for the six months ended June 30, 2010. The growth in loans was principally driven by Ocwen’s acquisition of the HomEq portfolio which boarded in September 2010. Assuming Ocwen completes the acquisition of the Litton portfolio, we expect Ocwen to board at least an additional 200,000 loans principally impacting our results beginning in the fourth quarter.
Sequentially, Service Revenue increased $2.2 million or 5%. This growth was driven by our new insured title agency operations and seasonally improving REO brokerage commissions. These increases were partially offset by a decline in our title search and default management services operations which are dependent upon foreclosure referrals. We expect to continue to ramp up the title insurance agency and, to a lesser extent, our origination services through the balance of the year.
Although we believe the development of origination services is important to balancing our service offerings, it will require a significant investment in personnel, technology and management to ensure we can perform these services in-line with customer expectations. When appropriate, we will consider small complementary acquisitions similar in nature to the recent acquisition of Springhouse to facilitate the growth of origination services. Although we will continue to leverage our global delivery model and our experience with technological based solutions, econometrics and behavioral science, these investments could limit our ability to significantly expand Mortgage Services margins, calculated based upon Service Revenue, during 2011.

 

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Revenue
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Service Revenue:
                                               
Asset Management Services
  $ 14,535     $ 8,754       66     $ 26,841     $ 14,721       82  
Origination Management Services
    4,027       3,397       19       8,313       5,886       41  
Residential Property Valuation
    10,185       7,576       34       20,069       14,156       42  
Closing and Title Services
    10,111       6,091       66       19,492       11,344       72  
Default Management Services
    6,655       5,183       28       14,138       8,607       64  
 
                                   
Total Service Revenue
    45,513       31,001       47       88,853       54,714       62  
 
                                               
Reimbursable Expenses:
                                               
Asset Management Services
    17,764       9,759       82       31,645       17,128       85  
Default Management Services
    925       535       73       2,112       1,048       102  
Closing and Title Services
          73       (100 )           73       (100 )
 
                                       
Total Reimbursable Expenses
    18,689       10,367       80       33,757       18,249       85  
 
                                               
Non-controlling Interests:
    1,305       1,297       1       2,604       2,084       25  
 
                                       
Total Revenue
  $ 65,507     $ 42,665       54     $ 125,214     $ 75,047       67  
 
                                       
 
                                               
Transactions with Related Parties:
                                               
Asset Management Services
  $ 32,260     $ 18,470       75     $ 58,486     $ 31,849       84  
Residential Property Valuation
    9,543       7,438       28       19,200       13,453       43  
Closing and Title Services
    3,832       3,562       8       8,583       7,390       16  
Default Management Services
    2,838       1,752       62       6,014       3,292       83  
 
                                       
Total
  $ 48,473     $ 31,222       55     $ 92,283     $ 55,984       65  
 
                                       
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 loan portfolio serviced by Ocwen. In addition to our relationship with Ocwen, we have longstanding relationships with some of the leading capital markets firms, commercial banks, hedge funds, insurance companies, credit unions and lending institutions.
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 coverage nationally for REO dispositions. The completion of the national network of our services, coupled with the increase in Ocwen’s loan portfolio, are the reasons for the significant growth compared to the prior year period. Sequentially, Service Revenue for this segment increased primarily as a result of the increase in REO properties sold due to the seasonal nature of home sales when compared to first quarter 2011.
Origination Management Services. Origination Management Services includes MPA and our developing fulfillment business. The increase year over year is principally due to the inclusion of MPA’s results for an entire period in 2011 as compared to a partial period in 2010 from the date of acquisition. Sequentially, Revenue declined as a result of a reduction in the volume of loans sold through preferred investor agreements as well as a general decline in the loan origination market which, although expected, impacted MPA’s results. For the six months ended June 30, 2011, MPA added 18 members (12 members in the second quarter) and as of June 30, 2011 had 190 members.
Residential Property Valuation. The increase in both year to date and second quarter as compared to the same periods in the prior year was as a result of Ocwen’s residential loan portfolio growth. Sequentially, Revenue increased slightly principally due to our acquisition of Springhouse.
Closing and Title Services. During 2010, we began to roll out our title agency business in key markets. In December 2010, we obtained agency status in California. During 2011, we are focused on increasing our referral capture rate in our operational states and rolling out insured title services nationwide, similar to what we accomplished with our title search and asset management businesses in 2010. The continued focus on completing the rollout drove the year over year increase. Sequentially, Revenue increased as we continue to expand our insured title agency offerings sufficient enough to offset declines in default title search.
Default Management Services. We provide non-legal back-office support for foreclosure, bankruptcy and eviction attorneys as well as foreclosure trustee services. The increase in both periods as compared to the same periods in 2010 was a result of our continued rollout of a national platform as well as Ocwen’s servicing portfolio growth. Sequentially, we saw a decrease in Revenue primarily due to a decrease in foreclosure referrals to the attorneys we provide services to and our trustee business.

 

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Cost of Revenue
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Expenditures
  $ 11,005     $ 7,183       (53 )   $ 19,282     $ 12,056       (60 )
Outside Fees and Services
    13,850       9,362       (48 )     27,525       17,900       (54 )
Reimbursable Expenses
    18,689       10,367       (80 )     33,757       18,249       (85 )
 
                                       
 
                                               
Cost of Revenue
  $ 43,544     $ 26,912       (62 )   $ 80,564     $ 48,205       (67 )
 
                                       
Gross Margin Percentage:
                                               
Gross Profit / Service Revenue
    48 %     51 %             50 %     49 %        
Expenditures, which consists primarily of compensation and technology costs, increased in both periods as compared to the same periods in 2010 due to the growth in default oriented mortgage services. Sequentially, expenditures increased principally as a result of employee costs to support the roll-out of our title agency operations, development of origination services and hiring of employees to support expected growth. We would expect expenditures to continue to increase in the third quarter as we prepare for the anticipated referrals from the boarding of the Litton portfolio by Ocwen.
Outside fees and services increased over the prior year period due to the increase in default oriented services for the periods presented. Sequentially, outside fees and services was essentially flat. We anticipate outside fees and services to increase in the third quarter as we expand our retail valuation and title agency offerings.
Several factors impact our gross margins from period to period including seasonality, the mix of services delivered, timing of investments in new services and the timing of when loans are boarded by our customers. Sequentially, our gross margin decreased principally as a result of increased compensation and technology costs, particularly related to our title agency and origination services under development.
Selling, General and Administrative Expenses
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Total Selling, General and Administrative Expenses
  $ 2,853     $ 3,484       18     $ 7,436     $ 5,927       (26 )
 
                                       
Operating Percentage:
                                               
Income from Operations/Service Revenue
    42 %   40 %           42 %   38 %        
 
                                       
Selling, General and Administrative Expenses increased over both periods principally due to the exponential growth in the segment which required investments in facilities, technology and other general and administrative costs. Sequentially, Selling, General and Administrative Expenses declined as a result of reduced reserves for bad debt, reversal of stock compensation expense due to the departure of certain executives and lower expenses for professional services. As this segment continues to grow, we should see continued leverage resulting in increased margins.

 

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Financial Services
The following table presents our results of operations for our Financial Services segment for the three and six months ending June 30:
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Service Revenue
  $ 17,213     $ 19,117       (10 )   $ 36,133     $ 38,514     $ (6 )
Reimbursable Expenses
    770       774       (1 )     1,343       1,422       (6 )
 
                                   
Total Revenue
    17,983       19,891       (10 )     37,476       39,936       (6 )
 
                                               
Cost of Revenue
    13,574       14,176       4       27,062       28,702       6  
 
                                       
Gross Profit
    4,409       5,715       (23 )     10,414       11,234       (7 )
 
                                               
Gross Profit/Service Revenue
    26 %     30 %             29 %     29 %        
Selling, General and Administrative Expenses
    3,502       4,062       14       7,962       8,162       3  
 
                                   
Income from Operations
  $ 907     $ 1,653       (45 )   $ 2,452     $ 3,072       (20 )
 
                                       
 
                                               
Income from Operations/Service Revenue
    5 %     9 %             7 %     8 %        
 
                                               
Transactions with Related Parties Above:
                                               
Revenue
  $ 118     $ 25       N/M     $ 147     $ 76       93  
 
                                       
N/M — not meaningful.
As discussed above, Customer Relationship Management now includes certain services that were originally recorded as part of Mortgage Services.
Financial Services revenue declined in both periods as compared to the same periods in 2010 due to a decline in Revenue from one of the segment’s largest customers. The decline was in part a result of the client shifting work to the Company’s global delivery platform which resulted in lower revenue although at higher margins. This decline was partially offset by growth in new asset recovery management accounts and growth in customer relationship management revenues. Sequentially, Revenue declined $1.5 million, or 8%, primarily due to the seasonality of collections which are usually higher in the first quarter and a short-term customer relationship management assignment that was completed in the first quarter.
Our new leadership team is focused on disciplined floor management and cost containment as well as improving the analytics to determine which accounts to contact, what offer to make and what to say. In addition, we are focused on delivering more services over our global delivery platform, expanding our quality initiatives and investing in new technology. We expect limited revenue growth in this segment and instead will be focused on the performance of our collectors, which should facilitate future margin improvement.
In July 2011, we purchased the assembled workforce of a sub-contractor in India for $2.4 million that performed asset recovery services. For the periods presented, the costs paid to the sub-contractor were included as a component of Outside Fees and Services. In future periods, the costs will be recorded as employee costs, technology or occupancy which will result in some movement between Cost of Revenue and Selling, General and Administrative Expense categories.

 

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Revenue
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Service Revenue:
                                               
Asset Recovery Management
  $ 9,538     $ 11,801       (19 )   $ 20,442     $ 23,973       (15 )
Customer Relationship Management
    7,675       7,316       5       15,691       14,541       8  
 
                                           
Total Service Revenue
    17,213       19,117       (10 )     36,133       38,514       6  
 
                                           
 
                                               
Reimbursable Expenses:
                                               
Asset Recovery Management
    770       774       (1 )     1,343       1,422       (6 )
 
                                       
Total Reimbursable Expenses
    770       774       (1 )     1,343       1,422       (6 )
 
                                       
 
                                               
Total Revenue
  $ 17,983     $ 19,891       (10 )   $ 37,476     $ 39,936       (6 )
 
                                       
 
                                               
Transactions with Related Parties:
                                               
Asset Recovery Management
  $ 118     $ 25       N/M     $ 147     $ 76       93  
N/M — not meaningful.
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 revenue associated with contingency collections declined in both periods when compared to the same periods in 2010 due to a decline in revenue from one of the segment’s largest customers. The decline was in part a result of the client shifting work to the Company’s global delivery platform which resulted in lower revenue although generally at higher margins. In general, we have seen improved performance of our collectors which we believe will translate into better placements in the future should such performance continue.
Customer Relationship Management. Our revenue associated with customer relationship management increased in both periods as compared to the same periods in 2010 as a result of increased services to two key customers. Sequentially, Revenue decreased due to a temporary increase in staffing during the first quarter for one of our customers.
Cost of Revenue
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Expenditures
  $ 8,788     $ 9,431       7     $ 17,806     $ 19,398       8  
Outside Fees and Services
    4,016       3,971       (1 )     7,913       7,882       N/M  
Reimbursable Expenses
    770       774       1       1,343       1,422       6  
 
                                       
 
                                               
Cost of Revenue
  $ 13,574     $ 14,176       4     $ 27,062     $ 28,702       6  
 
                                       
 
                                               
Gross Margin Percentage:
                                               
Gross Profit/Service Revenue
    26 %     30 %             29 %     29 %        
 
                                       
N/M — not meaningful.
Our gross margin declined sequentially to 26% as a result of the decrease in revenue as Cost of Revenue was essentially flat for the first and second quarter of 2011. When compared to the prior year, expenditures declined principally as a result of lower employee costs as we expanded the use of our global delivery footprint.

 

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Selling, General and Administrative Expenses
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Total Selling, General and Administrative Expenses
  $ 3,502     $ 4,062       14     $ 7,962     $ 8,162       3  
 
                                       
 
                                               
Operating Percentage:
                                               
Income from Operations/Service Revenue
    5 %     9 %             7 %     8 %        
 
                                       
Selling, General and Administrative Expenses decreased compared to the prior year principally as a result of reduced legal costs. Sequentially, Selling, General and Administrative Expenses declined when compared to the first quarter as a result of decreased legal expenses and a release of reserves associated with a vendor matter satisfactorily resolved.
Technology Services
The following table presents our results of operations for our Technology Services segment for the three and six months ending June 30:
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
Revenue
  $ 13,572     $ 12,485       9     $ 26,288     $ 24,459       8  
Cost of Revenue
    9,334       6,669       (40 )     16,779       13,316       (26 )
 
                                       
Gross Profit
    4,238       5,816       (27 )     9,509       11,143       (15 )
 
                                               
Gross Profit/Service Revenue
    31 %     47 %             36 %     46 %        
Selling, General and Administrative Expenses
    1,537       1,324       (16 )     2,733       2,430       (13 )
 
                                   
Income from Operations
  $ 2,701     $ 4,492       (40 )   $ 6,776     $ 8,713       (22 )
 
                                       
 
                                               
Income from Operations/Service Revenue
    20 %     36 %             26 %     36 %        
 
                                               
Transactions with Related Parties Above:
                                               
Revenue
  $ 5,103     $ 4,537       13     $ 10,054     $ 8,975       12  
 
                                       
The primary focus of the Technology Services segment today is to support the growth of Mortgage Services and Ocwen. In addition, Technology Services is assisting in the cost reduction and quality initiatives on-going within the Financial Services segment. In 2011, we intend to expend significant resources, principally personnel costs and external consulting costs to accomplish three key objectives:
   
The re-architecture and enhancement of our REALSuite of services;
   
The deployment of business process management and business intelligence reporting systems to more effectively manage our operations; and
   
The development and early stage incubation of technology solutions principally based on patented technologies.
Effective January 1, 2011, we modified our pricing for IT Infrastructure Services within our Technology Services segment from a model based principally on headcount to a fully loaded costs plus mark-up methodology. This new model applies to the infrastructure amounts charged to Ocwen as well as internal allocations of infrastructure costs.

 

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Revenue
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Service Revenue:
                                               
REALSuite
  $ 8,275     $ 7,565       9     $ 16,431     $ 14,551       13  
IT Infrastructure Services
    5,297       4,920       8     9,857       9,908       (1 )
 
                                       
Total Revenue
  $ 13,572     $ 12,485       9     $ 26,288     $ 24,459       8  
 
                                       
 
                                               
Transactions with Related Parties:
                                               
REALSuite
  $ 3,008     $ 2,653       13     $ 6,013     $ 5,208       16  
IT Infrastructure Services
    2,095       1,884       11       4,041       3,767       7  
 
                                       
Revenue
  $ 5,103     $ 4,537       13     $ 10,054     $ 8,975       12  
 
                                       
REALSuite. Our REALSuite revenue is primarily driven by our REALServicing® product which is our comprehensive residential loan servicing platform. The primary driver for the growth in revenue is the increase in Ocwen’s residential loan portfolio.
IT Infrastructure Services. Our IT infrastructure services revenue declined when compared to the comparable period in 2010 almost entirely due to our change in pricing for infrastructure services. Sequentially, revenue increased given the increased headcount both internally and at Ocwen. The mark-ups are based upon economic studies performed generally consistent with our transfer pricing methodology.
Cost of Revenue
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Cost of Revenue
  $ 9,334     $ 6,669       (40 )   $ 16,779     $ 13,316       (26 )
 
                                       
Gross Margin Percentage:
                                               
Gross Profit / Total Revenue
    31 %     47 %             36 %     46 %        
Our gross margin declined to 36% for the six months ended June 30, 2011 as we now report our Consumer Analytics group within Technology Services during 2011. Our Consumer Analytics group seeks to expand our use of behavioral sciences by building proprietary algorithms and psychologically-optimized communications through a customized technology platform. In addition, we have seen an increase in licensing fees given the increase in personnel both at Ocwen and Altisource.
Selling, General and Administrative Expenses
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Total Selling, General and Administrative Expenses
  $ 1,537     $ 1,324       (16 )   $ 2,733     $ 2,430       (13 )
 
                                       
Operating Percentage:
                                               
Operating Income / Total Revenue
    20 %     36 %             26 %     36 %        
Selling, General and Administrative Expenses increased slightly primarily due to higher occupancy charges. Margins principally decreased as a result of the increase in Cost of Revenue as previously described.

 

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Corporate
Our Corporate Segment includes costs recognized by us related to corporate support functions such as finance, legal, human resources, compliance and quality assurance.
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                    %                     %  
(in thousands)   2011     2010     Better/(worse)     2011     2010     Better/(worse)  
 
                                               
Total Selling, General and Administrative Expenses
  $ 6,012     $ 3,606       (67 )   $ 12,027     $ 8,026       (50 )
 
                                       
Corporate costs rose throughout 2010 as we invested in staff to support our growing operations.
During 2011, we hired additional resources principally focused on legal, compliance and quality assurance. In addition, lease costs increased related to the build out of new facilities to support the growth we expect from Ocwen’s acquisition of the Litton portfolio. Typically we include new leases costs within Corporate until the facility is put into use at which time the prospective lease cost is included within the appropriate segment. Lastly, we continue to invest in an enterprise resource planning system that we expect will increase the quality of our support functions and over time reduce costs. When compared to the first quarter, corporate costs were flat.

 

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LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We seek to deploy excess cash generated 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 complementary companies that fit our strategic objectives. Finally, given the tax inefficiency of dividends, the low returns earned on cash held and our current belief to pursue a limited number of acquisitions, we believe one of the best ways to return value to shareholders is a stock repurchase program.
In May, 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market. Through June 30, 2011, we purchased 1.0 million shares of our common stock on the open market at an average price of $28.51, leaving 2.8 million shares still available for purchase.
Cash Flows
The following table presents our cash flows for the six months ended June 30:
                         
    Six Months Ended June 30,  
                    %  
(dollars in thousands)   2011     2010     Better/(worse)  
 
                       
Net Income Adjusted for Non-Cash Items
  $ 40,238     $ 33,331       21  
Working Capital
    (2,076 )     (8,989 )     77  
 
                   
Cash Flow from Operating Activities
    38,162       24,342       57  
Cash Flow from Investing Activities
    (8,709 )     (31,051 )     72  
Cash Flow from Financing Activities
    (16,555 )     (2,907 )     N/M  
 
                   
Net Change in Cash
    12,898       (9,616 )     234  
Cash at Beginning of Period
    22,134       30,456       (27 )
 
                   
Cash at End of Period
  $ 35,032     $ 20,840       68  
 
                   
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. In 2011, we generated $38.2 million in positive cash flow from operations or approximately $0.26 per every dollar of Service Revenue. This primarily reflects our profitability adjusted for non-cash items in the period as a result of our year-over-year growth in mortgage related services partially offset by an increase in working capital requirements.
Cash Flow from Investing Activities
During the six months ended June 30, 2011, we invested approximately $3.3 million in Correspondent One to facilitate the establishment of this business. In addition, in the second quarter 2011, we acquired Springhouse for $1.8 million. We currently expect capital expenditures in 2011 to be higher than 2010 levels as we ramp up our development costs related to REALSuite. Our current estimate of capital expenditures for the full year is $16 to $18 million. Our cash flow from investing activities in 2010 includes the acquisition of MPA for which the purchase consideration included $29.0 million in cash.
Cash Flow from Financing Activities
Cash flow from financing activities in 2011 primarily includes activity associated with stock option exercises, share repurchases and payments to non-controlling interests as a result of the acquisition of MPA. We utilized significantly more cash in 2011 from financing activities as a result of our stock repurchase program.
Liquidity Requirements after June 30, 2011
In July 2011, we paid $12.0 million to fund our remaining commitment to Correspondent One and a net amount of $0.7 million to a sub-contractor to terminate the existing arrangement and acquire an in-place workforce of approximately 600 persons. During the third quarter, we expect to distribute $1.3 million to the Lenders One members representing non-controlling interests.

 

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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 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.
Contractual Obligation, Commitments and Contingencies
For the six months ended June 30, 2011, there were no significant changes to our contractual obligations from those identified in our Form 10-K for the fiscal year ended December 31, 2010, other than those which occur in the normal course of business (primarily the addition of operating leases due to our growth). See also Note 13 to the condensed consolidated financial statements for additional information on commitments and contingencies.
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, revenue 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 Form 10-K for the year ended December 31, 2010. Such policies have not changed during the quarter ended June 30, 2011.
OTHER MATTERS
Related Party — Ocwen
For the six months ended June 30, 2011, approximately $92.3 million of the Mortgage Services ($48.5 million for the second quarter), $0.1 million ($0.1 million for the second quarter) of the Financial Services and $10.1 million ($5.1 million for the second quarter) of the Technology Service segment revenue 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 a Transition Services agreement under which services in such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other areas are provided to the counterparty for up to two years from the date of Separation. For the six months ended June 30, 2011 and 2010, Altisource billed Ocwen $0.9 million and $0.8 million respectively ($0.5 million and $0.4 million for the second quarter of 2011 and 2010, respectively), and Ocwen billed Altisource $0.8 million and $0.6 respectively ($0.5 million and $0.3 million for the second quarter of 2011 and 2010, respectively) 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.

 

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Item 3.  
Quantitative and Qualitative Disclosures about Market Risk.
Our financial market risk consists primarily of foreign currency exchange risk. We are exposed to foreign currency exchange rate risk in connection with our investment in non-U.S. dollar functional currency operations, which are very limited, to the extent that our foreign exchange 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 June 30, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — OTHER INFORMATION
Item 1.  
Legal Proceedings.
We are subject to routine litigation and administrative proceedings arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel and considering insurance coverage where applicable, the outcome of current legal proceedings both individually and in the aggregate will not have a material impact on the Company’s financial condition, results of operations or cash flows.
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 Form 10-K for the year ended December 31, 2010.
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 June 30, 2011:
                                 
                    Total number     Maximum  
                    of shares     number  
                    purchased as     of shares that  
                    part of     may  
                    publicly     yet be  
    Total     Weighted     announced     purchased  
    number of     average     plans     under the  
    shares     price paid     or     plans or  
Period   purchased     per share     programs(1)     programs  
 
                               
Common shares(1):
                               
April 1 — 30, 2011
    32,334     $ 30.68       32,334       2,864,374  
May 1 — 31, 2011
    119,841       32.83       119,841       2,744,533  
June 1 — 30, 2011
                      2,744,533  
 
                       
 
                               
Total common shares
    152,175     $ 32.37       152,175       2,744,533  
 
                       
     
(1)  
In the second quarter of 2010, our shareholders authorized us to purchase up to 3.8 million 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

 

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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)
       
 
  101    
Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, is formatted in XBRL interactive data files: (i) Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010; (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010; (iii) Condensed Consolidated Statements of Equity for the six months ended June 30, 2011 and 2010; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010; and (iv) Notes to Condensed Consolidated Financial Statements (As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Act of 1934)

 

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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: July 28, 2011  By:   /s/ Robert D. Stiles    
    Robert D. Stiles   
    Chief Financial Officer
(On behalf of the Registrant and
as its principal financial officer)