SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Share Repurchase Program

On May 17, 2017, our shareholders approved the renewal of the share repurchase program previously approved by the shareholders on May 18, 2016, which replaced the previous share repurchase program. We are authorized to purchase up to 4.6 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval, at a minimum price of $1.00 per share and a maximum price of $500.00 per share, for a period of five years from the date of approval. As of March 31, 2018, approximately 3.1 million shares of common stock remain available for repurchase under the program. We purchased 0.4 million shares of common stock at an average price of $27.67 per share during the three months ended March 31, 2018 and 0.4 million shares at an average price of $25.10 per share during the three months ended March 31, 2017. Luxembourg law limits share repurchases to the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings, less the value of shares repurchased. As of March 31, 2018, we can repurchase up to approximately $141 million of our common stock under Luxembourg law. Our senior secured term loan limited the amount we could have spent on share repurchases, which was approximately $464 million as of March 31, 2018, and may have prevented repurchases in certain circumstances. The new credit agreement retains this amount available for share repurchases and other restricted payments. See Note 21 for additional information on the new credit agreement.

Share-Based Compensation

We issue share-based awards in the form of stock options, restricted shares and restricted share units for certain employees, officers and directors. We recognized share-based compensation expense of $2.2 million and $0.7 million for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, estimated unrecognized compensation costs related to share-based awards amounted to $16.9 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 2.28 years.

In connection with the January 1, 2017 adoption of ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures. Prior to this accounting change, share-based compensation expense for stock options and restricted shares was recognized net of estimated forfeiture rates ranging from 0% to 40%. This policy election resulted in a cumulative effect adjustment of $0.9 million to retained earnings and additional paid-in capital as of January 1, 2017 using the modified retrospective transition method.

Stock Options

Stock option grants are composed of a combination of service-based, market-based and performance-based options.

Service-Based Options. These options generally vest over three or four years with equal annual vesting and expire on the earlier of ten years after the date of grant or following termination of service. A total of 611 thousand service-based awards were outstanding as of March 31, 2018.

Market-Based Options. These option grants generally have two components, each of which vests only upon the achievement of certain criteria. The first component, which we refer to as “ordinary performance” grants, generally consists of two-thirds of the market-based grant and begins to vest if the stock price is at least double the exercise price, as long as the stock price realizes a compounded annual gain of at least 20% over the exercise price. The remaining third of the market-based options, which we refer to as “extraordinary performance” grants, generally begins to vest if the stock price is at least triple the exercise price, as long as the stock price realizes a compounded annual gain of at least 25% over the exercise price. Market-based awards vest in three or four year installments with the first installment vesting upon the achievement of the criteria and the remaining installments vesting thereafter in equal annual installments. Market-based options generally expire on the earlier of ten years after the date of grant or following termination of service, unless the performance criteria is met prior to termination of service or in the final three years of the option term, in which case vesting will generally continue in accordance with the provisions of the award agreement. A total of 707 thousand market-based awards were outstanding as of March 31, 2018.

Performance-Based Options. These option grants generally begin to vest upon the achievement of certain specific financial measures. Generally, the awards begin vesting if the performance criteria are achieved; one-fourth vest on each anniversary of the grant date. For certain other financial measures, awards cliff-vest upon the achievement of the specific performance during the period from 2018 through 2021. The award of performance-based options is adjusted based on the level of achievement specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in 50% to 200% of the option grants, depending upon performance achieved. If the performance criteria achieved is below a certain threshold, the award is canceled. The options expire on the earlier of ten years after the date of grant or following termination of service. There were 306 thousand performance-based awards outstanding as of March 31, 2018.

The Company granted 261 thousand stock options (at a weighted average exercise price of $24.95 per share) during the three months ended March 31, 2018. There were no stock option grants during the three months ended March 31, 2017.

The fair values of the service-based options and performance-based options were determined using the Black-Scholes option pricing model and the fair values of the market-based options were determined using a lattice (binomial) model. The following assumptions were used to determine the fair values as of the grant date:



	Three months ended March 31, 2018
	Black-Scholes	Binomial

Risk-free interest rate (%)	2.66 – 2.70	1.65 – 2.77
Expected stock price volatility (%)	70.31 – 71.81	71.81
Expected dividend yield	—	—
Expected option life (in years)	6.00 – 6.25	2.56 – 4.32
Fair value	$16.17 – $17.15	$15.58 – $18.28

We determined the expected option life of all service-based stock option grants using the simplified method. We use the simplified method because we believe that our historical data does not provide a reasonable basis upon which to estimate expected option life.

The following table summarizes the weighted average grant date fair value of stock options granted per share, the total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the period presented:



	Three months ended March 31,
(in thousands, except per share amounts)	2018		2017

Weighted average grant date fair value of stock options granted per share	$	16.20	$	—
Intrinsic value of options exercised	4,320		868
Grant date fair value of stock options that vested	23		89

The following table summarizes the activity related to our stock options:



	Number of options		Weighted average exercise price		Weighted average contractual term (in years)	Aggregate intrinsic value (in thousands)

Outstanding at December 31, 2017	1,745,906		$	28.20	4.96	$	10,202
Granted	260,697		24.95
Exercised	(286,252	)	9.14
Forfeited	(96,734	)	36.35

Outstanding at March 31, 2018	1,623,617		30.55		6.09	3,999

Exercisable at March 31, 2018	841,472		27.81		3.95	2,817

Other Share-Based Awards

The Company’s other share-based and similar types of awards are composed of restricted shares and, beginning in 2018, restricted share units. The restricted shares and restricted share units are composed of a combination of service-based awards and performance-based awards.

Service-Based Awards. These awards generally vest over one to four years with vesting in equal annual installments, vesting of all of the restricted shares at the end of the vesting period or vesting beginning after two years of service. A total of 565 thousand service-based awards were outstanding as of March 31, 2018.

Performance-Based Awards. These awards generally begin to vest upon the achievement of certain specific financial measures. Generally, the awards begin vesting if the performance criteria are achieved; one-third vest on each anniversary of the grant date. The number of performance-based restricted shares that may vest will be based on the level of achievement, as specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in 80% to 150% of the restricted share award, depending on performance level achieved. If the performance criteria achieved is below a certain threshold, the award is canceled. A total of two thousand performance-based awards were outstanding as of March 31, 2018.

The Company granted 255 thousand restricted shares and restricted share units (at a weighted average grant date fair value of $24.54 per share) during the three months ended March 31, 2018.

The following table summarizes the activity related to our restricted shares and restricted share units:



	Number of restricted shares

Outstanding at December 31, 2017	356,509
Granted	254,619
Forfeited/canceled	(43,697	)

Outstanding at March 31, 2018	567,431