What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-11 compared with 2020-03-05 · 489 added, 400 removed, 824 unchanged (52% of the section changed)

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Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended

Consolidated Statements of Operations and Comprehensive Loss for the years ended

December 31, 2020, 2019 and 2018

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and subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows for the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2021 expressed an unqualified opinion.

Adoption of New Accounting Standards

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as a result of the adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases, effective January 1, 2019, under the modified retrospective transition approach.

As discussed in Note 18 to the consolidated financial statements, the Company changed its method of accounting for revenue from contracts with customers as a result of the adoption of ASC Topic 606, Revenue from Contracts with Customers, effective January 1, 2018, under the modified retrospective method.

As discussed in Note 25 to the financial statements, the Company changed its method of accounting for leases as a result of the adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases , effective January 1, 2019, under the modified retrospective transition approach.

Emphasis of Concentration of Revenue and Uncertainties

As discussed in Note 3 to the consolidated financial statements, Ocwen Financial Corporation (“Ocwen”) is the Company’s largest customer.

Ocwen purchases certain mortgage services and technology services from the Company under agreements with terms extending through August 2025.

As discussed in Note 3 to the financial statements, Ocwen Financial Corporation (“Ocwen”) is the Company’s largest customer.

Ocwen purchases certain mortgage services from the Company under the terms of services agreements with terms extending through August 2025.

Ocwen has disclosed that New Residential Investment Corp.

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In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to certain mortgage servicing rights (“MSRs”) and under which Ocwen will subservice mortgage loans underlying these MSRs for an initial term of five years.

As discussed in Note 25 to the consolidated financial statements, Ocwen has been and is subject to a number of federal and state regulatory matters and is subject to other challenges and uncertainties that could have significant adverse effects on Ocwen’s business.

Note 25 also discusses the potential implications of these uncertainties to the Company including the loss of Ocwen as a customer, the termination of Ocwen’s subservicing agreement with NRZ, or a reduction in the number or volume of services Ocwen purchases from the Company.

As discussed in Note 25 to the financial statements, NRZ can terminate its sub-servicing agreement with Ocwen in exchange for the payment of a termination fee.

During the second quarter of 2020, Ocwen informed the Company that an MSR investor instructed Ocwen to use a field services provider other than the Company on properties associated with certain MSRs.

Ocwen also communicated to the Company in the fourth quarter of 2020 that the same investor instructed Ocwen to use a provider for default valuations and certain title services other than the Company on properties associated with certain MSRs and commenced moving these referrals to other providers in the fourth quarter of 2020.

Ocwen has disclosed that it is subject to a number of regulatory matters and may become subject to future adverse regulatory or other actions.

The existence or outcome of Ocwen regulatory matters or the termination of the NRZ sub-servicing agreement with Ocwen may have significant adverse effects on Ocwen’s business and/or the Company’s continuing relationship with Ocwen.

Note 25 also discusses potential events that could further significantly reduce the Company’s revenue.

Opinion on the Supplemental Information

The schedule listed in the index at Item 15 of the Form 10-K has been subjected to audit procedures performed in conjunction with the audit of the Company’s consolidated financial statements.

The schedule listed in the index at Item 15 of the Form 10-K is the responsibility of the Company’s management.

Our audit procedures included determining whether the schedule listed in the index at Item 15 of the Form 10-K reconciles to the consolidated financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the schedule listed in the index at Item 15 of the Form 10-K.

In forming our opinion on the schedule listed in the index at Item 15 of the Form 10-K, we evaluated whether the schedule listed in the index at Item 15 of the Form 10-K, including its form and content, is presented in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the schedule listed in the index at Item 15 of the Form 10-K is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.

The Schedule II - Valuation and Qualifying Accounts schedule listed in the index at Item 15 of the Form 10-K (the “valuation and qualifying accounts schedule”) has been subjected to audit procedures performed in conjunction with the audit of the Company’s financial statements.

The valuation and qualifying accounts schedule is the responsibility of the Company’s management.

Our audit procedures included determining whether the valuation and qualifying accounts schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the valuation and qualifying accounts schedule.

In forming our opinion on the valuation and qualifying accounts schedule, we evaluated whether the valuation and qualifying accounts schedule, including its form and content, is presented in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the valuation and qualifying accounts schedule is fairly stated, in all material respects, in relation to the financial statements as a whole.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Income Taxes

As described further in Note 2 and Note 22 to the financial statements, the Company is subject to income taxes in Luxembourg, as well as in the United States and a number of other foreign jurisdictions.

The application of tax laws to the Company’s operations can be complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities.

Significant judgment is required in the application of tax laws to each of the different jurisdictions to determine the consolidated income tax expense.

The application of different tax laws also requires judgment in evaluating tax positions including evaluating uncertainties under ASC Topic 740, Income Taxes , and complexities in determining the recoverability of deferred tax assets in both domestic and foreign jurisdictions, based on the weight of positive and negative evidence, which includes anticipated future reversals of deferred tax liabilities, projections of future taxable income, and tax planning strategies.

We identified the evaluation of the accounting for income taxes as a critical audit matter.

The principal considerations for our determination that auditing income taxes is a critical audit matter included:

(i) the specialized expertise and experience necessary in evaluating the completeness and valuation of the foreign tax provisions primarily due to the Company’s multinational presence in numerous foreign jurisdictions with varying complexity in tax laws and regulations;

(ii) the subjective auditor judgment involved in evaluating the transfer pricing methodology and existence of the uncertain tax positions;

(iii) the complex auditor judgment involved in evaluating the valuation of the Company’s identified uncertain tax positions;

and (iv) the complex auditor judgment involved in evaluating the various forms of available positive and negative evidence regarding the recoverability of deferred tax assets, specifically due to the Company’s multinational presence.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of certain internal controls over the Company’s income tax reporting process, including controls related to the identification and application of tax laws in different jurisdictions, the recoverability of deferred tax assets, and the identification and evaluation of significant assumptions used in determining the assessment of uncertain tax positions;

• Obtaining an understanding of the Company’s overall legal entity structure by reading and evaluating the Company’s organizational charts and associated documentation, including legal documents;

• Testing the income tax provision in each significant taxable jurisdiction, including performing procedures designed to test the completeness and accuracy of the permanent and temporary differences by obtaining an understanding of the tax laws applicable in the respective jurisdiction and evaluating communications with tax advisors and governmental taxing authorities, accounting records, tax returns, and other evidential documentation, including assessing the completeness and accuracy of the underlying data used by the Company in its calculations;

• Evaluating and testing the appropriateness of the methods and assumptions used in developing the Company’s estimate of the recoverability of its deferred tax assets and the identification and assessment of the valuation of uncertain tax positions in each of its taxable jurisdictions, including the determination of whether the methods were consistent with the requirements of U.S.

GAAP, whether the data was appropriately used, and whether the significant assumptions were reasonable and appropriately applied within the methods.

In addition, we involved domestic and international tax professionals with specialized skills and knowledge who assisted in (1) obtaining an understanding of the tax laws in each respective jurisdiction;

(2) assessing tax positions and transfer pricing studies;

and (3) evaluating the Company’s interpretation of tax law and its assessment and measurement of certain tax uncertainties and expected outcomes by interpreting tax laws and evaluating and reading advice obtained from the Company’s external specialists as well as correspondence with governmental taxing authorities.

/s/ Mayer Hoffman McCann P.C.

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in 2013 Internal Control - Integrated Framework issued by the COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets and related consolidated statements of operations and comprehensive income (loss), consolidated statement of equity, cash flows and financial statement schedule as of December 31, 2019 and 2018 and for the three years in the period ended December 31, 2019 of the Company, and our report dated March 5, 2020, expressed an unqualified opinion on those financial statements and included explanatory paragraphs regarding the Company’s change in method of accounting for leases as a result of Accounting Standards Codification (“ASC”) Topic 842, Leases, effective January 1, 2019, and revenue from contracts from customers as a result of ASC Topic 606, Revenue from Contracts with Customers , effective January 1, 2018, and an emphasis of matter paragraph regarding concentration of revenue with Ocwen Financial Corporation (“Ocwen”) and uncertainties faced by Ocwen.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets and related consolidated statements of operations and comprehensive income (loss), consolidated statement of equity, cash flows and financial statement schedule as of December 31, 2020 and 2019 and for the three years in the period ended December 31, 2020 of the Company, and our report dated March 11, 2021, expressed an unqualified opinion on those financial statements and included an explanatory paragraph related to the change in the method of accounting for leases as a result of Accounting Standards Codification Topic 842, Leases , effective January 1, 2019, and an emphasis of matter paragraph regarding concentration of revenue and uncertainties with Ocwen Financial Corporation (“Ocwen”) and uncertainties faced by Ocwen.

Basis for Opinion

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Cash and cash equivalents $ 58,263 $ 82,741

Investment in equity securities (Note 5)

Accounts receivable, net 22,413 43,615

Short-term investments in real estate (Note 8)

Prepaid expenses and other current assets 19,479 15,214

Investment in equity securities — 42,618

Total current assets 100,155 184,188

Premises and equipment, net (Note 9)

Right-of-use assets under operating leases (Notes 2 and 10)

Premises and equipment, net 11,894 24,526

Right-of-use assets under operating leases 18,213 29,074

Goodwill 73,849 73,849

Intangible assets, net 46,326 61,046

Deferred tax assets, net (Note 22)

Deferred tax assets, net 5,398 10,763

Other assets 9,850 10,810

Total assets $ 265,685 $ 394,256

LIABILITIES AND EQUITY

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Deferred revenue 5,461 5,183

Other current liabilities (Notes 2 and 13)

Other current liabilities 9,305 14,724

Total current liabilities 71,545 87,578

Long-term debt 242,656 287,882

Other non-current liabilities (Notes 2 and 15)

Deferred tax liabilities, net 8,801 9,137

Other non-current liabilities 25,239 31,016

Commitments, contingencies and regulatory matters (Note 25)

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15,454 outstanding as of December 31, 2019)

25,413 25,413

Additional paid-in capital 141,473 133,669

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Treasury stock, at cost ( 9,749 shares as of December 31, 2020 and 9,959 shares as of December 31, 2019)

Altisource equity (deficit)

( 441,034 ) ( 453,934 )

Altisource deficit ( 83,765 ) ( 22,826 )

Non-controlling interests 1,209 1,469

Total equity (deficit)

Total liabilities and equity (deficit)

Total deficit ( 82,556 ) ( 21,357 )

Total liabilities and deficit $ 265,685 $ 394,256

See accompanying notes to consolidated financial statements .

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Consolidated Statements of Operations and Comprehensive Income (Loss)

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

For the years ended December 31,

2020 2019 2018

Revenue $ 365,547 $ 648,651 $ 838,202

Cost of revenue 305,194 493,256 622,165

Gross profit 60,353 155,395 216,037

Operating expenses (income):

Selling, general and administrative expenses 92,736 141,076 175,670

Gain on sale of businesses (Note 4)

Restructuring charges (Note 24)

Income from operations

Gain on sale of businesses — ( 17,814 ) ( 13,688 )

Restructuring charges 11,972 14,080 11,560

(Loss) income from operations ( 44,355 ) 18,053 42,495

Other income (expense), net:

Interest expense ( 17,730 ) ( 21,393 ) ( 26,254 )

Unrealized gain (loss) on investment in equity securities (Note 5)

Unrealized gain (loss) on investment in equity securities 4,004 14,431 ( 12,972 )

Other income (expense), net 375 1,348 ( 1,870 )

Total other income (expense), net ( 13,351 ) ( 5,614 ) ( 41,096 )

Income before income taxes and non-controlling interests

Income tax (provision) benefit

Net (loss) income

(Loss) income before income taxes and non-controlling interests ( 57,706 ) 12,439 1,399

Income tax provision ( 8,609 ) ( 318,296 ) ( 4,098 )

Net loss ( 66,315 ) ( 305,857 ) ( 2,699 )

Net income attributable to non-controlling interests ( 841 ) ( 2,112 ) ( 2,683 )

Net (loss) income attributable to Altisource

(Loss) earnings per share:

Net loss attributable to Altisource $ ( 67,156 ) $ ( 307,969 ) $ ( 5,382 )

Loss per share:

Basic $ ( 4.31 ) $ ( 19.26 ) $ ( 0.32 )

Diluted $ ( 4.31 ) $ ( 19.26 ) $ ( 0.32 )

Weighted average shares outstanding:

Comprehensive (loss) income:

Net (loss) income

Other comprehensive (loss) income, net of tax:

Reclassification of unrealized gain on investment in equity securities, net of income tax provision of $200, to retained earnings from the cumulative effect of an accounting change ( Note 5 )

Unrealized gain on investment in equity securities, net of income tax provision of $0, $0, $(921)

Comprehensive (loss) income, net of tax

Basic 15,598 15,991 17,073

Diluted 15,598 15,991 17,073

Comprehensive loss:

Net loss $ ( 66,315 ) $ ( 305,857 ) $ ( 2,699 )

Other comprehensive loss, net of tax:

Reclassification of unrealized gain on investment in equity securities, net of income tax provision of $ 200 , to retained earnings from the cumulative effect of an accounting change

Comprehensive loss, net of tax ( 66,315 ) ( 305,857 ) ( 3,432 )

Comprehensive income attributable to non-controlling interests ( 841 ) ( 2,112 ) ( 2,683 )

Comprehensive (loss) income attributable to Altisource

Comprehensive loss attributable to Altisource $ ( 67,156 ) $ ( 307,969 ) $ ( 6,115 )

See accompanying notes to consolidated financial statements .

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Altisource Equity (Deficit)

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss)

Treasury stock, at cost

Non-controlling interests

Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost Non-controlling interests Total

Balance, January 1, 2018 25,413 $ 25,413 $ 112,475 $ 626,600 $ 733 $ ( 426,609 ) $ 1,373 $ 339,985

Comprehensive income:

Other comprehensive income, net of tax

Net loss — — — ( 5,382 ) — — 2,683 ( 2,699 )

Distributions to non-controlling interest holders — — — — — — ( 2,819 ) ( 2,819 )

Share-based compensation expense — — 10,192 — — — — 10,192

Cumulative effect of an accounting change (Note 17)

Cumulative effect of an accounting change (Note 5 and 18) — — — ( 9,715 ) ( 733 ) — — ( 10,448 )

Exercise of stock options and issuance of restricted shares — — — ( 19,245 ) — 22,889 — 3,644

Treasury shares withheld for the payment of tax on restricted share issuances

Treasury shares withheld for the payment of tax on restricted share issuances and stock option exercises — — — ( 1,603 ) — 778 — ( 825 )

Repurchase of shares — — — — — ( 40,362 ) — ( 40,362 )

Balance, December 31, 2018 25,413 25,413 122,667 590,655 — ( 443,304 ) 1,237 296,668

Net loss — — — ( 307,969 ) — — 2,112 ( 305,857 )

Distributions to non-controlling interest holders

— — — — — — ( 2,752 ) ( 2,752 )

Share-based compensation expense — — 11,002 — — — 872 11,874

Cumulative effect of accounting changes (Notes 5 and 18)

Exercise of stock options and issuance of restricted shares

Exercise of stock options and issuance of restricted share units and restricted shares — — — ( 7,222 ) — 7,622 — 400

Treasury shares withheld for the payment of tax on restricted share issuances and stock option exercises

— — — ( 3,438 ) — 1,743 — ( 1,695 )

Repurchase of shares

— — — — — ( 19,995 ) — ( 19,995 )

Balance, December 31, 2019 25,413 25,413 133,669 272,026 — ( 453,934 ) 1,469 ( 21,357 )

Net loss — — — ( 67,156 ) — — 841 ( 66,315 )

Distributions to non-controlling interest holders — — — — — — ( 1,101 ) ( 1,101 )

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Treasury shares withheld for the payment of tax on restricted share unit and restricted share issuances and stock option exercises — — — ( 4,939 ) — 3,352 — ( 1,587 )

Repurchase of shares

Balance, December 31, 2020 25,413 $ 25,413 $ 141,473 $ 190,383 $ — $ ( 441,034 ) $ 1,209 $ ( 82,556 )

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For the years ended December 31,

2020 2019 2018

Cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net loss $ ( 66,315 ) $ ( 305,857 ) $ ( 2,699 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization 14,890 18,509 30,799

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Unrealized (gain) loss on investment in equity securities ( 4,004 ) ( 14,431 ) 12,972

Change in the fair value of acquisition related contingent consideration

Goodwill and intangible assets write-off from business exits (Note 11)

Goodwill and intangible assets write-off from business exits — 5,900 2,640

Share-based compensation expense 7,804 11,874 10,192

Bad debt expense 2,229 720 2,830

Gain on early extinguishment of debt

Amortization of debt discount 666 666 717

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Loss on disposal of fixed assets 461 750 727

Gain on sale of businesses (Note 4)

Loss on debt refinancing (Note 14)

Gain on sale of businesses — ( 17,814 ) ( 13,688 )

Loss on debt refinancing — — 4.434

Changes in operating assets and liabilities (excludes effect of sale of businesses):

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Prepaid expenses and other current assets ( 4,140 ) 13,628 4,617

Other assets 947 ( 132 ) 2,278

Accounts payable and accrued expenses ( 10,338 ) ( 16,257 ) 1,651

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Other current and non-current liabilities 297 ( 4,661 ) ( 16,742 )

Net cash provided by operating activities

Net cash (used in) provided by operating activities ( 22,401 ) 46,688 68,402

Cash flows from investing activities:

Additions to premises and equipment ( 2,705 ) ( 2,161 ) ( 3,916 )

Proceeds from the sale of businesses (Note 4)

Proceeds received from sale of equity securities 46,622 7,994 —

Proceeds from the sale of businesses 3,307 38,632 15,000

Other investing activities — 422 —

Net cash provided by (used in) investing activities

Net cash provided by investing activities 47,224 44,887 11,084

Cash flows from financing activities:

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Net cash used in financing activities ( 49,310 ) ( 69,038 ) ( 124,283 )

Net increase (decrease) in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash ( 24,487 ) 22,537 ( 44,797 )

Cash, cash equivalents and restricted cash at the beginning of the period 86,583 64,046 108,843

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Non-cash investing and financing activities:

Net decrease in payables for purchases of premises and equipment

Net increase (decrease) in payables for purchases of premises and equipment $ 139 $ ( 101 ) $ ( 32 )

See accompanying notes to consolidated financial statements.

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Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing markets we serve.

Effective January 1, 2019, the Company reorganized its internal reporting structure in connection with Project Catalyst, a project initiated in August 2018 to optimize our operations and reduce costs to better align our cost structure with our anticipated revenues and improve our operating margins (see Note 24).

The internal reorganization included, among other changes, the replacement of segment presidents with a chief operating officer, who is responsible for products, services and operations for the Company’s Mortgage Market and Real Estate Market businesses, reporting to our Chairman and Chief Executive Officer (our chief operating decision maker) who manages our businesses, regularly reviews operating results and profitability, allocates resources and evaluates performance on a consolidated basis.

Prior to January 1, 2019, the Company reported our operations through two reportable segments:

Mortgage Market and Real Estate Market .

In addition, we reported Other Businesses, Corporate and Eliminations separately.

The prior years’ presentation has been reclassified to conform to the current year presentation.

The Company operates with one reportable segment (total Company).

NOTE 2 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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As of December 31, 2019, Lenders One had total assets of $ 1.6 million and total liabilities of $ 0.3 million.

In September 2019, Altisource announced the creation of Pointillist, Inc.

In 2019, Altisource created Pointillist, Inc.

(“Pointillist”) and contributed the Pointillist ® customer journey analytics business and $ 8.5 million to it.

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Management of Pointillist owns a non-controlling interest representing 12.1 % of the outstanding equity of Pointillist.

Additional equity shares of Pointillist are available for issuance to management and board members of Pointillist.

Altisource has no ongoing obligation to provide future funding to Pointillist.

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Actual results could differ materially from those estimates.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Cash and Cash Equivalents

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Accounts Receivable, Net

Accounts receivable are presented net of an allowance for doubtful accounts that represents an amount that we estimate to be uncollectible.

We have estimated the allowance for doubtful accounts based on our historical write-offs, our analysis of past due accounts based on the contractual terms of the receivables and our assessment of the economic status of our customers, if known.

Accounts receivable are presented net of an allowance for expected credit losses.

We monitor and estimate the allowance for credit losses based on our historical write-offs, historical collections, our analysis of past due accounts based on the contractual terms of the receivables, relevant market and industry reports and our assessment of the economic status of our customers, if known.

The carrying value of accounts receivable, net, approximates fair value.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Premises and Equipment, Net

We report premises and equipment, net at cost or estimated fair value at acquisition for premises and equipment recorded in connection with a business combination and depreciate these assets over their estimated useful lives using the straight-line method as follows:

Furniture and fixtures

Office equipment

Computer hardware

Computer software

Leasehold improvements

Shorter of useful life, 10 years or the term of the lease

Furniture and fixtures 5 years

Office equipment 5 years

Computer hardware 3 - 5 years

Computer software 3 - 7 years

Leasehold improvements Shorter of useful life, 10 years or the term of the lease

Maintenance and repair costs are expensed as incurred.

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We evaluate goodwill for impairment annually during the fourth quarter or more frequently when an event occurs or circumstances change in a manner that indicates the carrying value may not be recoverable.

We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether we need to perform the quantitative two-step goodwill impairment test.

Only if we determine, based on qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying value will we calculate the fair value of the reporting unit.

We would then test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting unit.

If the fair value is determined to be less than the book value, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value.

We would then test goodwill for impairment by comparing the fair value of the reporting unit with its carrying amount.

If the fair value is determined to be less than its carrying amount, we recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

We estimate the fair value of the reporting unit using discounted cash flows and market comparisons.

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The market comparisons include an analysis of revenue and earnings multiples of guideline public companies compared to the Company.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Intangible Assets, Net

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We amortize intangible assets that we deem to have definite lives in proportion to actual and expected customer revenues or on a straight-line basis over their useful lives, generally ranging from 4 to 20 years.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

We perform tests for impairment if conditions exist that indicate the carrying value may not be recoverable.

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Non-United States dollar transactions and balances have been measured in United States dollars in accordance with ASC Topic 830, Foreign Currency Matters .

All transaction gains and losses from the measurement of monetary balance sheet items denominated in non-United States dollar currencies are reflected in the consolidated statements of operations and comprehensive income (loss) as income or expenses, as appropriate.

Defined Contribution 401(k) Plan

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We recorded expenses of $ 0.6 million, $ 0.9 million and $ 1.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to our discretionary contributions.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Revenue Recognition

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• Reimbursable expenses revenue related to our property preservation and inspection services is included in revenue with an equal amount recognized in cost of revenue.

These amounts are recognized on a gross basis, principally because generally we have control over selection of vendors and the vendor relationships are with us, rather than with our customers.

These amounts are recognized on a gross basis, principally

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

because generally we have control over selection of vendors and the vendor relationships are with us, rather than with our customers.

• For the real estate auction platform, real estate auction and real estate brokerage services, we recognize revenue on a net basis (i.e., the commission on the sale) as we perform services as an agent without assuming the risks and rewards of ownership of the asset and the commission earned on the sale is a fixed percentage or amount.

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We generally recognized revenue from professional services over the contract period.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

• For short-term investments in real estate (wind down completed in 2019, see Note 8), we recognized revenue associated with our sales of short-term investments in real estate on a gross basis (i.e., the selling price of the property) as we assumed the risks and rewards of ownership of the asset.

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The Company has made an accounting policy election to account for forfeitures in compensation expense as they occur.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

We record income taxes in accordance with ASC Topic 740, Income Taxes (“ASC Topic 740”).

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Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) and in July 2018, the FASB issued ASU No.

2018-10, Codification Improvements to Topic 842, Leases and ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements (collectively “Topic 842”).

Topic 842 introduces a new lessee model that brings substantially all leases on the balance sheet.

This standard requires lessees to recognize lease assets and lease liabilities on their balance sheets and disclose key information about leasing arrangements in their financial statements.

The Company adopted Topic 842 effective January 1, 2019 using the modified retrospective transition approach.

In addition, the Company elected the practical expedients permitted under the transition guidance within the new standard, including allowing the Company to carry forward its historical lease classification, using hindsight to determine the lease term for existing leases, combining fixed lease and non-lease components and excluding short-term leases.

Adoption of this new standard resulted in the recognition of $42.1 million of right-of-use assets in right-of-use assets under operating leases, $45.5 million of operating lease liabilities ( $16.7 million in other current liabilities and $28.8 million in other non-current liabilities) and reduced accrued rent and lease incentives of $3.4 million in accounts payable and accrued expenses and other non-current liabilities on the accompanying consolidated balance sheets.

Future Adoption of New Accounting Pronouncements

In January 2017, the FASB issued ASU No.

In January 2017, the FASB issued Accounting Standards Update (“ASU”) No.

2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

This standard will simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

impairment test.

Current guidance requires that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

This standard will require companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount.

This standard simplified the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.

Prior guidance required that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

This updated standard requires companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period, and will be applied prospectively.

Early adoption of this standard is permitted.

The Company currently does not expect the adoption of this guidance to have an impact on its consolidated financial statements.

Furthermore, adoption of this standard as of December 31, 2019 would not have had any impact on the Company’s consolidated financial statements.

The Company adopted this standard effective January 1, 2020 and has applied it prospectively.

Adoption of this new standard did not have any impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.

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Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement .

This standard modifies certain disclosure requirements such as the valuation processes for Level 3 fair value measurements.

This standard modified certain disclosure requirements such as the valuation processes for Level 3 fair value measurements.

This standard also requires new disclosures such as the disclosure of certain assumptions used to develop significant unobservable inputs for Level 3 fair value measurements.

This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period.

Early adoption of either the entire standard or only the provisions that eliminate or modify requirements is permitted.

The Company currently does not expect the adoption of this guidance to have an impact on its consolidated financial statements.

The Company adopted this standard effective January 1, 2020 and has applied it prospectively.

Adoption of this new standard did not have any impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.

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This standard also requires capitalizing or expensing implementation costs based on the nature of the costs and the project stage during which they are incurred and establishes additional disclosure requirements.

This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period.

Early adoption of this standard is permitted.

The Company currently plans to adopt the standard prospectively and is currently evaluating the impact this guidance may have on its consolidated financial statements.

The Company adopted this standard effective January 1, 2020 and has applied it prospectively.

Adoption of this new standard did not have any impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses ( Topic 326 ):

Measurement of Credit Losses on Financial Instruments .

This ASU and its related amendments (collectively, the "Credit Loss Standard") introduced the current expected credit losses (“CECL”) methodology for the measurement of credit losses on financial assets measured at

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

amortized cost basis, replacing the previous incurred loss methodology.

The CECL model applies to financial assets measured at amortized cost, including trade and other receivables, net, investments in leases, loans receivable held-to-maturity securities and off-balance sheet exposures.

The Credit Loss Standard requires consideration of a broader range of information to estimate expected credit losses, including historical information and current conditions through a reasonable forecast period.

The Credit Loss Standard requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the expected increase or decrease of expected credit losses that have taken place during the period, which may result in earlier recognition of certain losses.

The Company adopted this standard effective January 1, 2020 utilizing a modified retrospective approach, which did not have any impact on the Company’s consolidated financial statements (See Note 6).

Future Adoption of New Accounting Pronouncements

In December 2019, the FASB issued ASU No.

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The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848):

This standard applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

This standard provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR.

This standard is effective from the period from March 12, 2020 through December 31, 2022.

An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.

Once elected for a topic or an industry subtopic, the standard must be applied prospectively for all eligible contract modifications for that topic or industry subtopic.

The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.

NOTE 3 — CUSTOMER CONCENTRATION

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Certain of the Ocwen Services Agreements contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing, among other things.

In February 2019, Altisource and Ocwen entered into agreements that, among other things, facilitate Ocwen’s transition from REALServicing and related technologies to another mortgage servicing software platform, establish a process for Ocwen to review and approve the assignment of one or more of our agreements to potential buyers of Altisource’s business lines, requiring Ocwen to use Altisource as service provider for certain service referrals totaling an amount equal to 100% of the applicable service referrals on certain portfolios plus an amount equal to not less than 90% of applicable service referrals from certain other portfolios (determined on a service by service basis), subject to certain additional restrictions and limitations, and affirm Altisource’s role as a strategic service provider to Ocwen through August 2025.

In connection with these agreements, Altisource expressly preserved and did not waive any of its existing contractual rights relating to service referrals, other than with respect to Ocwen transitioning from the REALServicing and related technologies.

If Altisource fails certain performance standards for specified periods of time, then Ocwen may terminate Altisource as a provider for the applicable service(s), subject to certain limitations and Altisource’s right to cure.

Ocwen’s transition to another mortgage servicing platform was completed during 2019.

We are not experiencing a

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

significant impact of the servicing technology transition on the other services we provide to Ocwen, other than what we believe is a temporary impact on default related referral volume and REO inventory conversion rates from Ocwen’s transition to another servicing system.

We believe the REO conversion rates will return to historical levels during the first half of 2020.

For the years ended December 31, 2019 , 2018 and 2017 , service revenue from REALServicing and related technologies was $14.1 million , $35.1 million and $37.2 million , respectively.

Revenue from Ocwen primarily consists of revenue earned from the loan portfolios serviced and subserviced by Ocwen when Ocwen engages us as the service provider, and revenue earned directly from Ocwen, pursuant to the Ocwen Services Agreements.

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These amounts are not included in deriving revenue from Ocwen and revenue from Ocwen as a percentage of revenue discussed above.

In February 2019, Altisource and Ocwen entered into agreements that, among other things, facilitated Ocwen’s transition from REALServicing ® and related technologies to another mortgage servicing software platform, establish a process for Ocwen to review and approve the assignment of one or more of our agreements to potential buyers of Altisource’s business lines, requiring Ocwen to use Altisource as service provider for certain service referrals totaling an amount equal to 100 % of the

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

applicable service referrals on certain portfolios plus an amount equal to not less than 90 % of applicable service referrals from certain other portfolios (determined on a service by service basis), subject to certain additional restrictions and limitations, and affirm Altisource’s role as a strategic service provider to Ocwen through August 2025.

Ocwen’s transition to another mortgage servicing platform was completed during 2019.

During the second quarter of 2020, Ocwen informed us that an MSR investor instructed Ocwen to use a field services provider other than Altisource on properties associated with certain MSRs.

Based upon the impacted portfolios to date and the designated service provider, Altisource believes that Ocwen received these directions from New Residential Investment Corp.

(individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “NRZ”).

We believe Ocwen commenced using another field services provider for these properties in July 2020 and continued to transition services during the third quarter of 2020.

We believe that the transition to the replacement field service provider was largely completed as of September 30, 2020.

We estimate that $ 70.1 million, $ 150.2 million and $ 171.0 million of service revenue from Ocwen for the years ended December 31, 2020, 2019 and 2018, respectively, was derived from Field Services referrals from the NRZ portfolios.

Ocwen also communicated to Altisource in the fourth quarter of 2020 that the same investor instructed Ocwen to use a provider for default valuations and certain default title services other than Altisource on properties associated with such certain MSRs and commenced moving these referrals to other service providers in the fourth quarter of 2020.

We anticipate that the transition of such default valuations and title services will continue during the course of 2021.

We estimate that $ 18.2 million, $ 33.2 million and $ 40.1 million of service revenue from Ocwen for the years ended December 31, 2020, 2019 and 2018, respectively, was derived from default valuations and title services referrals from the NRZ portfolios.

Altisource believes that any action taken by Ocwen to redirect these service referrals breaches Altisource's agreement with Ocwen.

We are currently in discussions with Ocwen to address this matter, and have reserved all of our rights with respect to this matter.

To address the reduction in revenue, Altisource is undertaking several measures to further reduce its cost structure and strengthen its operations.

As of December 31, 2020, accounts receivable from Ocwen totaled $ 5.9 million, $ 5.1 million of which was billed and $ 0.8 million of which was unbilled.

As of December 31, 2019, accounts receivable from Ocwen totaled $ 19.1 million, $ 15.7 million of which was billed and $ 3.4 million of which was unbilled.

New Residential Investment Corp.

(individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “NRZ”) is a real estate investment trust that invests in and manages investments primarily related to residential real estate, including MSRs and excess MSRs.

NRZ is a real estate investment trust that invests in and manages investments primarily related to residential real estate, including MSRs and excess MSRs.

Ocwen has disclosed that NRZ is its largest client.

As of December 31, 2019, NRZ owned MSRs or rights to MSRs relating to approximately 56% of loans serviced and subserviced by Ocwen (measured in unpaid principal balance (“UPB”)).

In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to certain of its MSRs (the “Subject MSRs”) and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years.

As of December 31, 2020, NRZ MSRs or rights to MSRs relating to approximately 36 % of loans serviced and subserviced by Ocwen (measured in unpaid principal balance (“UPB”)).

In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to certain of its MSRs (the “Subject MSRs”) and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years , subject to early termination rights.

On August 28, 2017, Altisource, through its licensed subsidiaries, entered into a Cooperative Brokerage Agreement, as amended, and related letter agreement (collectively, the “Brokerage Agreement”) with NRZ which extends through August 2025.

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NRZ’s brokerage subsidiary receives a cooperative brokerage commission on the sale of REO properties from these portfolios subject to certain exceptions.

The Brokerage Agreement can, at Altisource’s discretion, be terminated by Altisource if a services agreement is not signed by Altisource and NRZ.

A services agreement has not been signed.

The parties continue to operate under the Brokerage Agreement.

The Brokerage Agreement may otherwise only be terminated upon the occurrence of certain specified events.

The Brokerage Agreement may be terminated by NRZ upon the occurrence of certain specified events.

Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that there is significant uncertainty about Altisource’s ability to continue as a going concern, failure to maintain a specified level of cash and an unapproved change of control.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

For the years ended December 31, 2020, 2019 and 2018, we recognized revenue from NRZ of $ 8.6 million, $ 12.5 million and $ 28.7 million, respectively, under the Brokerage Agreement.

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Financial Services Business

On July 1, 2019, Altisource sold its Financial Services business, consisting of its post-charge-off consumer debt and mortgage charge-off collection services and customer relationship management services (the “Financial Services Business”) to Transworld

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

(“TSI”) for $ 44.0 million consisting of an up-front payment of $ 40.0 million, subject to a working capital adjustment (finalized during 2019) and transaction costs upon closing of the sale, and an additional $ 4.0 million payment on the one year anniversary of the sale closing.

In connection with the sale, we recognized a $ 17.8 million pretax gain on sale for the year ended December 31, 2019.

The parties also entered into a transition services agreement to provide for the management and orderly transition of certain services and technologies to TSI for periods ranging from 2 months to 13 months .

These services include support for information technology systems and infrastructure, facilities management, finance, compliance and human resources functions and are charged to TSI on a fixed fee or hourly basis.

On July 17, 2019, Altisource used $37.0 million of the net up-front payment to repay a portion of its senior secured term loan.

On July 1, 2020, the Company received net proceeds of $ 3.3 million representing TSI’s final installment payment less certain amounts owed to TSI.

These services included support for information technology systems and infrastructure, facilities management, finance, compliance and human resources functions and were charged to TSI on a fixed fee or hourly basis.

As of December 31, 2020 , all of the transition services and technologies have been fully transitioned to TSI.

Rental Property Management Business

In August 2018, Altisource entered into an amendment to its agreements with Front Yard Residential Corporation (“RESI”) to sell Altisource’s rental property management business to RESI and permit RESI to internalize certain services that had been provided by Altisource.

These services were historically provided under an agreement between RESI and Altisource, in which Altisource was the sole provider of rental property management services to RESI through December 2027, subject to certain exceptions.

The proceeds from the transaction totaled $ 18.0 million, payable in two installments.

The first installment of $ 15.0 million was received on the closing date of August 8, 2018.

The second installment of $3.0 million will be received on the earlier of a RESI change of control or on August 8, 2023 (see Note 5 for a discussion of the February 17, 2020 RESI merger and resulting potential change of control of RESI).

The present value of the second installment is included in other assets in the accompanying consolidated balance sheets and has a discounted value of $2.4 million and $2.2 million as of December 31, 2019 and December 31, 2018, respectively.

In connection with the sale of the rental property management business, the Company recognized a pretax gain of $13.7 million for the year ended December 31, 2018 in the accompanying consolidated statements of operations and comprehensive income (loss).

The second installment of $ 3.0 million is to be received on the earlier of a RESI change of control or on August 8, 2023.

On October 19, 2020, RESI announced that it had entered into a definitive merger agreement to sell RESI.

The merger closed on January 11, 2021 and the Company subsequently received the $ 3.0 million payment.

The present value of the second installment is included in other assets in the accompanying consolidated balance sheets at a discounted value of $ 2.5 million and $ 2.4 million as of December 31, 2020 and 2019, respectively.

NOTE 5 — INVESTMENT IN EQUITY SECURITIES

During 2016, we purchased 4.1 million shares of RESI common stock.

This investment is reflected in the accompanying consolidated balance sheets at fair value and changes in fair value are included in other income (expense), net in the accompanying consolidated statements of operations and comprehensive income (loss).

As of December 31, 2019 and 2018 , we held 3.5 million and 4.1 million shares, respectively, of RESI common stock.

As of December 31, 2019 and 2018 , the fair value of our investment was $42.6 million and $36.2 million , respectively.

During the years ended December 31, 2019 and 2018 , we recognized an unrealized gain (loss) from the change in fair value of $14.4 million and $(13.0) million , respectively, in the consolidated statements of operations and comprehensive income (loss).

During the year ended December 31, 2017, we recognized an unrealized gain on our investment in RESI of $2.5 million , net of income tax provision, in other comprehensive income in the consolidated statements of operations and comprehensive income (loss).

As of December 31, 2019, we held 3.5 million shares of RESI common stock ( no comparative amount as of December 31, 2020).

As of December 31, 2019 and 2018, the fair value of our investment was $ 42.6 million and $ 36.2 million, respectively ( no comparative amount as of December 31, 2020).

During the years ended December 31, 2020, 2019 and 2018, we recognized an unrealized gain (loss) from the change in fair value of $ 4.0 million, $ 14.4 million and $( 13.0 ) million, respectively, in the consolidated statements of operations and comprehensive loss.

In January 2016, the FASB issued ASU No.

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The adoption of this standard resulted in a cumulative effect adjustment to increase retained earnings and decrease accumulated other comprehensive income by $ 0.7 million, net of income tax provision, on January 1, 2018.

The unrealized gain for year ended December 31, 2019 included a $2.0 million net gain, recognized on RESI shares sold during the period.

The unrealized gain for years ended December 31, 2020 and 2019 included $ 4.1 million and $ 2.0 million of net gains recognized on RESI shares sold during the period, respectively ( no comparative amount for the year ended December 31, 2018).

During the years ended December 31, 2020, 2019 and 2018, we earned dividends of $ 0.5 million, $ 1.7 million and $ 2.5 million, respectively, related to this investment.

Pursuant to the agreement between Altisource and RESI to sell the rental property management business to RESI (see Note 4 for additional information), Altisource was subject to a lock-up period with respect to the sale or transfer of the shares of common stock of RESI owned by Altisource (the “Shares”) through December 31, 2018 .

In addition, during each quarter of 2019, Altisource was permitted to sell or transfer no more than 25% of the Shares, subject to certain exceptions.

In May 2019, the Company began selling its investment in RESI common stock.

During the year ended December 31, 2020, the Company sold all of its remaining 3.5 million shares for net proceeds of $ 46.6 million.

During the year ended December 31, 2019, the Company sold 0.7 million shares for net proceeds of $ 8.0 million.

As required by our senior secured term loan agreement, the Company used the net proceeds to repay a portion of its senior secured term loan.

On February 17, 2020, RESI entered into a merger agreement to be acquired by affiliates of Amherst Single Family Residential Partners VI, LP (“Amherst”) for $12.50 in cash per share.

Also on February 17, 2020, the Company entered into a Voting and Support Agreement with an affiliate of Amherst pursuant to which the Company agreed, among other things and subject to the terms and conditions of the Voting and Support Agreement, to vote its shares in favor of the merger.

Concurrently with the execution of the Voting and Support Agreement, the Company entered into a side letter with RESI pursuant to which RESI agreed, among

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

other things and subject to the terms and conditions of the side letter, to reimburse the Company for:

(a) certain out-of-pocket legal fees and legal expenses should the Company or its officers, directors, employees or other representatives (collectively, the “Indemnified Parties”) incur such costs or expenses in connection with any stockholder’s claims or proceedings against RESI or derivatively on behalf of RESI, in which the Indemnified Parties or their representatives are named parties, with respect to any of the merger agreement, the Voting and Support Agreement, the merger or other transactions contemplated thereby;

and (b) any amounts for which the Indemnified Parties are found liable or are required to pay pursuant to any settlement or other voluntary disposition with respect to any such proceeding.

NOTE 6 — ACCOUNTS RECEIVABLE, NET

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(in thousands) 2020 2019

Allowance for doubtful accounts

Billed $ 19,703 $ 35,921

Unbilled 8,291 12,166

27,994 48,087

Allowance for credit losses ( 5,581 ) ( 4,472 )

Total $ 22,413 $ 43,615

Unbilled accounts receivable consist primarily of certain real estate asset management, REO sales, title and closing services for which we generally recognize revenue when the service is provided but collect upon closing of the sale, and foreclosure trustee services, for which we generally recognize revenues over the service delivery period but bill following completion of the service.

We also include amounts in unbilled accounts receivable that are earned during a month and billed in the following month.

Bad debt expense amounted to $0.7 million , $2.8 million and $5.1 million for the years ended December 31, 2019 , 2018 and 2017 , respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The Company adopted this standard effective January 1, 2020 utilizing a modified retrospective approach, which did not have any impact on the Company’s consolidated financial statements.

We are exposed to credit losses through our sales of products and services to our customers which are recorded as Accounts Receivable, net on the Company’s consolidated financial statements.

Estimated credit losses are written off in the period in which the financial asset is no longer collectible.

There can be no assurance that actual results will not differ from estimates or that consideration of these factors in the future will not result in an increase or decrease to our allowance for credit losses.

Prior to January 1, 2020, our allowance for credit losses represents an amount that we estimate to be uncollectible.

Bad debt expense amounted to $ 2.2 million, $ 0.7 million and $ 2.8 million for the years ended December 31, 2020, 2019 and 2018, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.

NOTE 7 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

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Other current assets 5,101 4,269

Total $ 19,479 $ 15,214

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

NOTE 8 — DISCONTINUATION OF LINES OF BUSINESS

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The BRS business was not material in relation to the Company’s results of operations or financial position.

In anticipation of receiving the majority of the proceeds from the sale of the BRS

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Inventory in 2019, the Company repaid $49.9 million of its senior secured term loan in the fourth quarter of 2018.

The Company completed the sale of the BRS Inventory during the year ended December 31, 2019.

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Office equipment and other 1,817 4,004

75,328 181,187

Accumulated depreciation and amortization ( 63,434 ) ( 156,661 )

Depreciation and amortization expense amounted to $18.5 million , $30.8 million and $36.4 million for the years ended December 31, 2019 , 2018 and 2017 , respectively, and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the consolidated statements of operations and comprehensive income (loss).

Total $ 11,894 $ 24,526

Depreciation and amortization expense amounted to $ 14.9 million, $ 18.5 million and $ 30.8 million for the years ended December 31, 2020, 2019 and 2018, respectively, and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the consolidated statements of operations and comprehensive loss.

Premises and equipment, net consist of the following, by country, as of December 31:

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United States $ 5,530 $ 13,426

Luxembourg 5,451 10,295

India 822 671

Uruguay 91 39

Philippines — 95

Total $ 11,894 $ 24,526

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

NOTE 10 — RIGHT-OF-USE ASSETS UNDER OPERATING LEASES, NET

Right-of-use assets under operating leases consist of the following as of December 31 :

Right-of-use assets under operating leases, net consists of the following as of December 31:

(in thousands) 2020 2019

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Accumulated amortization ( 13,719 ) ( 10,655 )

The Company adopted Topic 842 effective January 1, 2019, which resulted in the recognition of $42.1 million of right-of-use assets upon adoption for operating leases, primarily for office space (see Note 2 ).

Amortization of operating leases was $11.8 million for the year ended December 31, 2019 ( no comparative amounts for the years ended December 31, 2018 and 2017 ), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the consolidated statements of operations and comprehensive income (loss).

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Total $ 18,213 $ 29,074

Amortization of operating leases was $ 10.2 million and $ 11.8 million for the years ended December 31, 2020 and 2019, respectively ( no comparative amount for the year ended December 31, 2018), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the consolidated statements of operations and comprehensive loss.

NOTE 11 — GOODWILL AND INTANGIBLE ASSETS, NET

Changes in goodwill during the years ended December 31, 2020 and 2019 are summarized below:

(in thousands)

(in thousands) Total

Balance as of January 1, 2019 $ 81,387

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Write-off (2)

Balance as of December 31, 2018

Disposition (1)

Write-off (2)

Balance as of December 31, 2019

Balance as of December 31, 2020 and 2019 $ 73,849

______________________________________

During 2018, goodwill was reduced by $2.3 million in connection with the sale of the rental property management business to RESI (see Note 4 ).

(1) During 2019, the Company sold the Financial Services Business (see Note 4) which had $ 2.4 million of goodwill attributed to it.

During 2018, we recorded a $2.6 million write-off of goodwill attributable to the BRS business, as a result of our decision to discontinue the BRS business in the fourth quarter of 2018 (see Note 8 ).

(2) During 2019, we recorded a $ 5.2 million write-off of goodwill attributable to the Owners.com business, as a result of our decision to wind down and close the business (see Note 8).

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Weighted average estimated useful life (in years)

Gross carrying amount

Accumulated amortization

Net book value

Gross carrying amount Accumulated amortization Net book value

(in thousands) 2020 2019 2020 2019 2020 2019

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Other intangible assets 5 1,800 3,745 ( 1,800 ) ( 3,209 ) — 536

Amortization expense for definite lived intangible assets was $19.0 million , $28.4 million and $35.4 million for the years ended December 31, 2019 , 2018 and 2017 , respectively .

Expected annual definite lived intangible asset amortization expense for 2020 through 2024 is $13.5 million , $10.6 million , $5.2 million , $5.1 million and $5.1 million , respectively.

Total $ 262,712 $ 264,957 $ ( 216,386 ) $ ( 203,911 ) $ 46,326 $ 61,046

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Amortization expense for definite lived intangible assets was $ 14.7 million, $ 19.0 million and $ 28.4 million for the years ended December 31, 2020, 2019 and 2018, respectively .

Expected annual definite lived intangible asset amortization expense for 2021 through 2025 is $ 9.5 million, $ 5.1 million, $ 5.1 million, $ 5.1 million and $ 5.1 million, respectively.

NOTE 12 — OTHER ASSETS

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Restricted cash 3,833 3,842

Other 3,601 3,495

Total $ 9,850 $ 10,810

NOTE 13 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

5 unchanged sentences

Income taxes payable 4,334 1,700

Total $ 56,779 $ 67,671

Other current liabilities consist of the following as of December 31:

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Operating lease liabilities $ 7,609 $ 11,398

Unfunded cash account balances

Other 1,696 3,326

Total $ 9,305 $ 14,724

NOTE 14 — LONG-TERM DEBT

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Long-term debt $ 242,656 $ 287,882

On April 3, 2018, Altisource Portfolio Solutions S.A.

Altisource Portfolio Solutions S.A.

and its wholly-owned subsidiary, Altisource S.à r.l.

entered into a credit agreement (the “Credit Agreement”) with Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and certain lenders.

entered into a credit agreement (the “Credit Agreement”) in April 2018 with Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and certain lenders.

Under the Credit Agreement, Altisource borrowed $ 412.0 million in the form of Term B Loans and obtained a $ 15.0 million revolving credit facility.

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In connection with the refinancing, we recognized a loss of $ 4.4 million from the write-off of unamortized debt issuance costs and debt discount in the second quarter of 2018.

This loss was included in other income (expense), net in the consolidated statements of operations and comprehensive income (loss).

This loss was included in other income (expense), net in the consolidated statements of operations and comprehensive loss.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

There are no mandatory repayments of the Term B Loans due until March 2023, when $1.3 million is due to be repaid.

Thereafter, the Term B Loans must be repaid in consecutive quarterly principal installments of $3.1 million , with the balance due at maturity.

During 2019, the Company used net proceeds of $37.0 million from the sale of the Financial Services Business to TSI (see Note 4 ) to repay a portion of the senior secured term loan.

Also during 2019, the Company sold 0.7 million RESI shares for net proceeds of $8.0 million and used the net proceeds to repay a portion of the senior secured term loan.

There are no mandatory repayments of the Term B Loans due until April 2024, when the balance is due at maturity.

During 2020 and 2019, the Company sold 3.5 million and 0.7 million, respectively, RESI shares for net proceeds of $ 46.6 million and $ 8.0 million, respectively, and used the net proceeds to repay a portion of the senior secured term loan (see Note 5).

Also during 2019, the Company used net proceeds of $ 37.0 million from the sale of the Financial Services Business (see Note 4) to repay a portion of the senior secured term loan.

In addition, the Company repaid $ 49.9 million of the Term B Loans in the fourth quarter of 2018 from proceeds from the sale certain of the BRS Inventory received during December 2018 and in anticipation of receiving additional proceeds during the first half of 2019 (see Note 8).

Also during 2018, the Company used the proceeds received from the sale of the rental property management business to RESI (see Note 4 ) to repay $15.0 million of the Term B Loans.

Also during 2018, the Company used the proceeds received from the sale of the rental property management business (see Note 4) to repay $ 15.0 million of the Term B Loans.

These repayments were applied to contractual amortization payments in the direct order of maturity.

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other capitalized terms, unless defined herein, are defined in the Credit Agreement) or as otherwise provided in the Credit Agreement upon the occurrence of any event of default.

During 2017 , we repurchased portions of our senior secured term loan with an aggregate par value of $60.1 million at a weighted average discount of 10.7% , recognizing a net gain of $5.6 million on the early extinguishment of debt.

There were no similar repurchases in 2019 and 2018 .

This net gain is included in other income (expense), net in the consolidated statements of operations and comprehensive income (loss) (see Note 21 ).

In addition to the scheduled principal payments, subject to certain exceptions, the Term B Loans are subject to mandatory prepayment upon issuances of debt, certain casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if our leverage ratio is greater than 3.00 to 1.00 , as calculated in accordance with the provisions of the Credit Agreement (the percentage increases if the leverage ratio exceeds 3.50 to 1.00 ).

Certain mandatory prepayments reduce future contractual amortization payments in direct order of maturity by an amount equal to the mandatory prepayment.

Altisource may incur incremental indebtedness under the Credit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate incremental principal amount not to exceed $125.0 million , subject to certain conditions set forth in the Credit Agreement, including a sublimit of $80.0 million with respect to incremental revolving credit commitments.

In addition to the scheduled principal payments, subject to certain exceptions, the Term B Loans are subject to mandatory prepayment upon issuances of debt, certain casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if our leverage ratio as of each year-end computation date is greater than 3.00 to 1.00, as calculated in accordance with the provisions of the Credit Agreement (the percentage increases if our leverage ratio exceeds 3.50 to 1.00).

Our leverage ratio exceeded 3.50 to 1.00 during the year ended December 31, 2020.

However, because the Company did not generate any Consolidated Excess Cash Flow in 2020, no amounts are due under this provision.

Altisource may incur incremental indebtedness under the Credit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate incremental principal amount not to exceed $ 125.0 million, subject to certain conditions set forth in the Credit Agreement, including a sublimit of $ 80.0 million with respect to incremental revolving credit commitments and, after giving effect to the incremental borrowing, the Company’s leverage ratio does not exceed 3.00 to 1.00.

Our leverage ratio exceeded 3.00 to 1.00 during the year ended December 31, 2020.

The lenders have no obligation to provide any incremental indebtedness.

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The unused commitment fee is 0.50 %.

Borrowings under the revolving credit facility are not permitted if our leverage ratio exceeds 3.50 to 1.00.

Our leverage ratio exceeded 3.50 to 1.00 during the year ended December 31, 2020.

There were no borrowings outstanding under the revolving credit facility as of December 31, 2020.

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and engage in mergers and consolidations;

and to the extent any Revolving Credit Loans are outstanding on the last day of a fiscal quarter, permit the Total Leverage Ratio to be greater than 3.50 :

1.00 as of the last day of such fiscal quarter, subject to a customary cure provision (the “Revolving Financial Covenant”).

The Credit Agreement contains certain events of default including (i) failure to pay principal when due or interest or any other amount owing on any other obligation under the Credit Agreement within five days of becoming due, (ii) material incorrectness of representations and warranties when made, (iii) breach of certain other covenants, subject to cure periods described in the Credit Agreement, (iv) a breach of the Revolving Financial Covenant, subject to a customary cure provision and not an Event of Default with respect to the Term Loans unless and until the Required Revolving Lenders accelerate the Revolving Credit Loans, (v) failure

and to the extent any Revolving Credit Loans are outstanding on the last day of a fiscal quarter, permit the Total Leverage Ratio to be greater than 3.50 :1.00 as of the last day of such fiscal quarter, subject to a customary cure provision (the “Revolving Financial Covenant”).

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

to pay principal or interest on any other debt that equals or exceeds $40.0 million when due, (vi) default on any other debt that equals or exceeds $40.0 million that causes, or gives the holder or holders of such debt the ability to cause, an acceleration of such debt, (vii) occurrence of a Change of Control, (viii) bankruptcy and insolvency events, (ix) entry by a court of one or more judgments against us in an amount in excess of $40.0 million that remain unbonded, undischarged or unstayed for a certain number of days after the entry thereof, (x) the occurrence of certain ERISA events and (xi) the failure of certain Loan Documents to be in full force and effect.

Credit Agreement, (iv) a breach of the Revolving Financial Covenant, subject to a customary cure provision and not an Event of Default with respect to the Term Loans unless and until the Required Revolving Lenders accelerate the Revolving Credit Loans, (v) failure to pay principal or interest on any other debt that equals or exceeds $ 40.0 million when due, (vi) default on any other debt that equals or exceeds $ 40.0 million that causes, or gives the holder or holders of such debt the ability to cause, an acceleration of such debt, (vii) occurrence of a Change of Control, (viii) bankruptcy and insolvency events, (ix) entry by a court of one or more judgments against us in an amount in excess of $ 40.0 million that remain unbonded, undischarged or unstayed for a certain number of days after the entry thereof, (x) the occurrence of certain ERISA events and (xi) the failure of certain Loan Documents to be in full force and effect.

If any event of default occurs and is not cured within applicable grace periods set forth in the Credit Agreement or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.

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Maturities of our long-term debt are as follows:

(in thousands)

(in thousands) Maturities

NOTE 15 — OTHER NON-CURRENT LIABILITIES

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Other non-current liabilities 40 286

Total $ 25,239 $ 31,016

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

NOTE 16 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

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The following fair values are estimated using market information and what the Company believes to be appropriate valuation methodologies under GAAP:

December 31, 2019

December 31, 2018

(in thousands)

Carrying amount

December 31, 2020 December 31, 2019

(in thousands) Carrying amount Fair value Carrying amount Fair value

Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Cash and cash equivalents $ 58,263 $ 58,263 $ — $ — $ 82,741 $ 82,741 $ — $ —

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Investment in equity securities — — — — 42,618 42,618 — —

Long-term receivable (Note 4)

Long-term receivable 2,531 — — 2,531 2,371 — — 2,371

Senior secured term loan 247,204 — 201,472 — 293,826 — 277,666 —

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Fair Value Measurements on a Recurring Basis

Cash and cash equivalents and restricted cash are carried at amounts that approximate their fair values due to the highly liquid nature of these instruments and were measured using Level 1 inputs.

Investment in equity securities is carried at fair value and consists of 3.5 million and 4.1 million shares of RESI common stock as of December 31, 2019 and 2018 , respectively.

Investment in equity securities is carried at fair value and consists of 3.5 million shares of RESI common stock as of December 31, 2019 ( no comparative amount as of December 31, 2020).

The investment in equity securities is measured using Level 1 inputs as these securities have quoted prices in active markets.

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Therefore, the quoted prices are considered Level 2 inputs.

In connection with the sale of the rental property management business in August 2018, Altisource will receive $3.0 million on the earlier of a RESI change of control or on August 8, 2023 (see Note 4 for additional information).

In connection with the sale of the rental property management business in August 2018, Altisource is to receive $ 3.0 million on the earlier of a RESI change of control or on August 8, 2023.

On October 19, 2020, RESI announced that it had entered into a definitive merger agreement to sell RESI.

The merger closed on January 11, 2021 and the Company subsequently received the $ 3.0 million payment (See Note 4 for additional information).

We measure long-term receivables without a stated interest rate based on the present value of the future payments.

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Our policy is to deposit our cash and cash equivalents with larger, highly rated financial institutions.

The Company derives over 50% of its revenues from Ocwen (see Note 3 for additional information on Ocwen revenues and accounts receivable balance).

The Company derived 54 % of its revenues from Ocwen for the year ended December 31, 2020 (see Note 3 for additional information on Ocwen revenues and accounts receivable balance).

The Company strives to mitigate its concentrations of credit risk with respect to accounts receivable by actively monitoring past due accounts and the economic status of larger customers, if known.

NOTE 17 — SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

As of December 31, 2019 , we had 100.0 million shares authorized, 25.4 million shares issued and 15.5 million shares of common stock outstanding.

As of December 31, 2020, we had 100.0 million shares authorized, 25.4 million issued and 15.7 million shares of common stock outstanding.

As of December 31, 2019, we had 100.0 million shares authorized, 25.4 million shares issued and 15.5 million shares of common stock outstanding.

The holders of shares of Altisource common stock generally are entitled to one vote for each share on all matters voted on by shareholders, and the holders of such shares generally will possess all voting power.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Equity Incentive Plan

7 unchanged sentences

As of December 31, 2020, approximately 2.4 million shares of common stock remain available for repurchase under the program.

We purchased 1.0 million shares of common stock at an average price of $20.33 per share during the year ended December 31, 2019 , 1.6 million shares at an average price of $25.53 per share during the year ended December 31, 2018 and 1.6 million shares at an average price of $23.84 per share during the year ended December 31, 2017 .

There were no purchases of shares of common stock during the year ended December 31, 2020.

We purchased 1.0 million shares at an average price of $ 20.33 per share during the year ended December 31, 2019 and 1.6 million shares at an average price of $ 25.53 per share during the year ended December 31, 2018.

Luxembourg law limits share repurchases to the balance of Altisource Portfolio Solutions S.A.

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As of December 31, 2020, we can repurchase up to approximately $ 91 million of our common stock under Luxembourg law.

Our Credit Agreement also limits the amount we can spend on share repurchases, which limit was approximately $463 million as of December 31, 2019 , and may prevent repurchases in certain circumstances.

Our Credit Agreement also limits the amount we can spend on share repurchases, which limit was approximately $ 430 million as of December 31, 2020, and may prevent repurchases in certain circumstances, including if our leverage ratio exceeds 3.50 to 1.00.

Our leverage ratio exceeded 3.50 to 1.00 during the year ended December 31, 2020.

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 $11.9 million , $10.2 million and $4.3 million for the years

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

ended December 31, 2019 , 2018 and 2017 , respectively.

We recognized share-based compensation expense of $ 7.8 million, $ 11.9 million and $ 10.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, estimated unrecognized compensation costs related to share-based awards amounted to $ 6.6 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 1.48 years.

In connection with the January 1, 2017 adoption of ASU No.

2016-09, the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures.

Prior to this accounting change, share-based compensation expense for stock options and restricted shares was recorded net of estimated forfeiture rates ranging from 0% to 40% .

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

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There were 446 thousand performance-based options outstanding as of December 31, 2020.

There were no stock options granted during 2019 .

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

There were no stock options granted during 2020 and 2019.

Outstanding stock options increased by 228 thousand in February 2019 in connection with the determination of the level of achievement for certain performance-based options granted in 2018.

The Company granted 277 thousand stock options (at a weighted average exercise price of $25.15 per share) and 244 thousand stock options (at a weighted average exercise price of $33.28 per share) during the years ended December 31, 2018 and 2017 , respectively.

The Company granted 277 thousand stock options (at a weighted average exercise price of $ 25.15 per share) during the year ended December 31, 2018.

The fair values of the service-based options and performance-based options are 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 for the years ended December 31:

Black-Scholes

Black-Scholes Binomial

Risk-free interest rate (%) 2.66 – 3.10

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71.36 – 71.86

61.49 – 71.52

66.68 – 71.52

Expected dividend yield —

Expected option life (in years) 6.00 – 6.25

$16.17 – $19.68

$14.67 – $20.26

$13.57 – $24.80

Fair value $ 16.17 – $ 19.68

$ 14.67 – $ 20.26

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

We determined the expected option life of all service-based stock option grants using the simplified method, determined based on the graded vesting term plus the contractual term of the options, divided by two.

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

Number of options

Weighted average exercise price

Weighted average contractual term (in years)

Number of options Weighted average exercise price Weighted average contractual term (in years)

Aggregate intrinsic value (in thousands)

Outstanding as of December 31, 2019 1,468,046 $ 29.19 4.60 $ 94

Performance criteria achieved

Forfeited ( 568,132 ) 24.00

Outstanding as of December 31, 2020 899,914 32.47 5.63 —

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Consequently, no incremental compensation expense was required as a result of this modification.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2020:

Options outstanding

Options exercisable

Options outstanding Options exercisable

Exercise price range (1)

Weighted average remaining contractual life (in years)

Weighted average exercise price

Weighted average remaining contractual life (in years)

Number Weighted average remaining contractual life (in years)

Weighted average exercise price Number Weighted average remaining contractual life (in years)

Weighted average exercise price

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$ 60.01 — $ 70.00

58,500 1.19 60.76 43,875 1.19 60.76

$ 80.01 — $ 90.00

25,000 3.60 86.69 6,250 3.60 86.69

$ 90.01 — $ 100.00

45,000 3.18 95.67 11,250 3.18 95.67

899,914 557,620

______________________________________

(1) These options contain market-based and performance-based components as described above.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

The following table summarizes the market prices necessary in order for the market-based options to begin to vest:

Market-based options

Vesting price

Ordinary performance

Extraordinary performance

Vesting price Ordinary performance Extraordinary performance

$ 50.01 — $ 60.00

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$ 180.01 — $ 190.00

Over $ 190.00

15,000 17,500

Total 83,374 67,724

Weighted average share price $ 55.14 $ 50.67

1 unchanged sentence

The Company’s other share-based and similar types of awards are composed of restricted shares and restricted share units.

The restricted shares and restricted share units are composed of a combination of service-based awards and performance-based awards.

The restricted shares and restricted share units are composed of a combination of service-based awards, performance-based awards and market-based awards.

Service-Based Awards.

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A total of 403 thousand service-based awards were outstanding as of December 31, 2020.

Beginning in 2019, service-based restricted share units were awarded as a component of most employees’ annual incentive compensation rather than cash.

Beginning in 2019, service-based restricted share units were awarded as a component of most employees’ annual incentive compensation.

Performance-Based Awards.

These awards generally will vest if certain specific financial measures are achieved;

one-third vests on each anniversary of the grant date or cliff-vest on the third anniversary of the grant date.

These awards generally vest if certain specific financial measures are achieved;

generally one-third vests on each anniversary of the grant date or the awards cliff-vest on the third anniversary of the grant date.

The number of performance-based restricted shares and restricted share units that may vest will be based on the level of achievement, as specified in the award agreements.

If the performance criteria achieved is above certain financial performance levels and Altisource’s share performance is above certain established criteria, participants have the opportunity to vest in up to 225% of the restricted share unit award for certain awards, depending on performance achieved.

If the performance criteria achieved is below a certain threshold, the award is canceled.

If the performance criteria achieved is above certain financial performance levels, participants have the opportunity to vest in up to 150 % of the restricted share unit award for certain awards.

If the performance criteria achieved is below a certain thresholds, the award is canceled.

A total of 213 thousand performance-based awards were outstanding as of December 31, 2020.

Market-Based Awards.

50 % of these awards generally vest if certain specific market conditions are achieved over a 30 -day period and the remaining 50 % of these awards generally vest on the one year anniversary of the initial vesting.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Company estimates the grant date fair value of these awards using a lattice (binomial) model.

A total of 194 thousand market-based awards were outstanding as of December 31, 2020.

Performance-Based and Market-Based Awards.

These awards generally vest if certain specific financial measures are achieved and if certain specific market conditions are achieved.

If the performance criteria achieved is above certain financial performance levels and Altisource’s share performance is above certain established criteria, participants have the opportunity to vest in up to 300 % of the restricted share unit award for certain awards.

If the performance criteria or the market criteria is below certain thresholds, the award is canceled.

The Company estimates the grant date fair value of these awards using a Monte Carlo simulation model.

A total of 69 thousand performance-based and market-based awards were outstanding as of December 31, 2020.

The Company granted 609 thousand restricted share units (at a weighted average grant date fair value of $ 13.47 per share) during the year ended December 31, 2020.

These grants include 82 thousand performance-based awards that include both a performance condition and a market condition, and 194 thousand market-based awards for the year ended December 31, 2020.

The Company granted 68 thousand performance-based awards that include both a performance condition and a market condition for the year ended December 31, 2019 ( no comparative amounts for the year ended December 31, 2018).

There were no market-based awards granted for the years ended December 31, 2019 and 2018.

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

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Outstanding as of December 31, 2019 636,146

Granted 608,695

Issued ( 210,556 )

Forfeited/canceled ( 155,764 )

Outstanding as of December 31, 2020 878,521

The following assumptions were used to determine the fair values for the performance-based awards that include both a performance condition and a market condition, and fair values for market-based awards as of the grant date for the years ended December 31:

Monte Carlo Binomial Monte Carlo Binomial

Risk-free interest rate (%) 2.47 0.09 – 0.27

Expected stock price volatility (%) 17.72 80.36 58.90 —

Expected dividend yield — — — —

Expected life (in years) 3 2 3 0

Fair value $ — $ 12.58 $ 20.54 $ —

In 2018, the Company modified the vesting condition to remove the requirement that a certain employee be employed by the Company in order for the restricted shares to vest for 31 thousand restricted shares granted in the fourth quarter of 2017 and the first quarter of 2018.

The award modification did not change the inputs into the valuation model or the Company’s assessment of

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

the probability of vesting as of the effective date of the modifications.

The award modification did not change the inputs into the valuation model or the Company’s assessment of the probability of vesting as of the effective date of the modifications.

Consequently, no incremental compensation expense was required as a result of this modification.

1 unchanged sentence

The fair value of the Pointillist shares of $ 0.9 million was recognized as share-based compensation expense for the year ended December 31, 2019.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

NOTE 18 — REVENUE

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Non-controlling interests represent the earnings of Lenders One, a consolidated entity that is a mortgage cooperative managed, but not owned, by Altisource.

Lenders One is included in revenue and reduced from net income to arrive at net income attributable to Altisource (see Note 2 ).

The Lenders One members’ earnings are included in revenue and reduced from net income to arrive at net income attributable to Altisource (see Note 2).

Our services are provided to customers located in the United States.

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Non-controlling interests 1,949 2,613 2,683

Total $ 365,547 $ 648,651 $ 838,202

The Company adopted ASU No.

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As a result of this adoption, the Company recognized an $ 11.2 million increase in deferred revenue, a $ 1.1 million increase in unbilled accounts receivable, a $ 0.3 million increase in other current liabilities and a $ 10.4 million decrease in retained earnings as of January 1, 2018.

Because the Company adopted Topic 606 retrospectively with a cumulative effect as of January 1, 2018, the comparative results as of and for the year ended December 31, 2017 have not been restated and continue to be reported under ASC Topic 605, Revenue Recognition and SEC Staff Accounting Bulletin Topic 13, Revenue Recognition .

Disaggregation of Revenue

Disaggregation of total revenues by major source is as follows:

(in thousands)

Revenue recognized when services are performed or assets are sold

Revenue related to technology platforms and professional services

Reimbursable expenses revenue

Total revenue

(in thousands) Revenue recognized when services are performed or assets are sold Revenue related to technology platforms and professional services Reimbursable expenses revenue Total revenue

For the year ended December 31, 2020 $ 332,084 $ 17,178 $ 16,285 $ 365,547

For the year ended December 31, 2019 579,929 44,550 24,172 648,651

For the year ended December 31, 2018 719,739 88,424 30,039 838,202

Contract Balances

Our contract assets consist of unbilled accounts receivable (see Note 6).

Our contract liabilities consist of current deferred revenue as reported on the accompanying consolidated balance sheets and non-current deferred revenue (see Note 15 ).

Revenue recognized that was included in the contract liability at the beginning of the period, including amounts added to the contract liability as part of the cumulative effect of adopting Topic 606 was $9.8 million and $20.6 million for the years ended December 31, 2019 and 2018, respectively.

Our contract liabilities consist of current deferred revenue and other non-current liabilities as reported on the accompanying consolidated balance sheets.

Revenue recognized that was included in the contract liability at the beginning of the period was $ 4.8 million, $ 9.8 million and $ 20.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

6 unchanged sentences

Outside fees and services 146,322 240,796 278,380

Cost of real estate sold

Technology and telecommunications 35,912 36,302 41,588

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Depreciation and amortization 12,310 13,721 24,013

Cost of real estate sold — 42,763 47,659

Total $ 305,194 $ 493,256 $ 622,165

NOTE 20 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

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Depreciation and amortization 2,580 4,788 6,786

Other 5,783 15,163 26,921

Total $ 92,736 $ 141,076 $ 175,670

NOTE 21 — OTHER INCOME (EXPENSE), NET

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Loss on debt refinancing — — ( 4,434 )

Gain on early extinguishment of debt

Other, net 261 1,006 1,824

Total $ 375 $ 1,348 $ ( 1,870 )

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

5 unchanged sentences

Foreign - U.S.

( 13,243 ) ( 12,602 ) 8,398

Foreign - non-U.S.

6,359 16,122 15,514

Total $ ( 57,705 ) $ 12,439 $ 1,399

The income tax (provision) benefit consists of the following for the years ended December 31:

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Foreign - U.S.

federal 4,992 187 ( 1,838 )

Foreign - U.S.

state ( 322 ) ( 174 ) ( 336 )

Foreign - non-U.S.

( 6,088 ) ( 10,970 ) ( 7,440 )

$ ( 3,576 ) $ ( 10,957 ) $ ( 9,889 )

Domestic - Luxembourg $ 224 $ ( 308,657 ) $ 4,927

Foreign - U.S.

federal ( 2,808 ) 329 291

Foreign - U.S.

state ( 465 ) 341 ( 134 )

Foreign - non-U.S.

( 1,984 ) 648 707

$ ( 5,033 ) $ ( 307,339 ) $ 5,791

Income tax (provision) benefit $ ( 8,609 ) $ ( 318,296 ) $ ( 4,098 )

In June 2010, the Company received a tax ruling regarding the treatment of certain intangibles that existed for determining the Company’s taxable income, which was scheduled to expire in 2019 unless extended, renewed or terminated by the Company.

On December 27, 2017, two of the Company’s wholly-owned subsidiaries, Altisource Solutions S.à r.l.

and Altisource Holdings S.à r.l., merged, with Altisource Holdings S.à r.l.

as the surviving entity.

Altisource Holdings S.à r.l.

was subsequently renamed Altisource S.à r.l.

The merger is part of a larger subsidiary restructuring plan designed to simplify the Company’s corporate structure, allow it to operate more efficiently and reduce administrative costs.

For Luxembourg tax purposes, the merger was recognized at fair value and generated a net operating loss (“NOL”) of $1.3 billion , with a 17 year life, and generated a deferred tax asset of $342.6 million as of December 31, 2017, before a valuation allowance of $41.6 million .

This deferred tax asset was partially offset by the impact of other changes in U.S.

and Luxembourg income tax rates of $6.3 million and an increase in certain foreign income tax reserves (and related interest) of $10.5 million for the year ended December 31, 2017.

The Company’s June 2010 tax ruling was terminated in connection with the merger of the Company’s Luxembourg subsidiaries.

In determining whether a valuation allowance is needed on a deferred tax asset, extensive analysis is required, including an assessment of the likelihood of sufficient future taxable income.

When there is a cumulative pretax loss for financial reporting for the current and two preceding years (i.e., a three year cumulative loss), this is a significant element of negative evidence that would be difficult to overcome on a more likely than not or any other basis, based on the guidance in ASC Topic 740.

The Company’s Luxembourg entities recognized a cumulative loss before income taxes for the three year period ended December 31, 2019.

Consequently, the Company recognized a full valuation allowance of $291.5 million and an increase in the income tax provision related to the Luxembourg net deferred assets.

In addition, Luxembourg reduced its corporate tax rate from 26.01% to 24.94% during 2019, resulting in a reduction in the Luxembourg net deferred tax assets and an increase in the Company’s income tax provision of $14.0 million .

We operate under tax holidays in certain geographies in India and Uruguay.

The Philippines tax holiday expired on June 30, 2019.

The India tax holidays are effective through March 2020.

We operate under a tax holiday in Uruguay.

The Philippines and India tax holidays expired on June 30, 2019 and March 31, 2019 with the election of the reduced income tax rate, respectively.

We operate in a Uruguay free trade zone that provides an indefinite future tax benefit.

The tax holidays are conditioned upon our meeting certain employment and investment thresholds.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

of these tax holidays decreased foreign taxes by $0.3 million ( $0.02 per diluted share), $0.7 million ( $0.04 per diluted share) and $0.9 million ( $0.05 per diluted share) for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The tax holiday is conditioned upon our meeting certain employment and investment thresholds.

The impact of these tax holidays decreased foreign taxes by $ 0.1 million ($ 0.01 per diluted share), $ 0.3 million ($ 0.02 per diluted share) and $ 0.7 million ($ 0.04 per diluted share) for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company accounts for certain income and expense items differently for financial reporting purposes and income tax purposes.

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We measure deferred income tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

A summary of the tax effects of the temporary differences is as follows for the years ended December 31:

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Intangible assets ( 8,133 ) ( 8,325 )

Depreciation ( 441 ) ( 302 )

Other non-U.S.

deferred tax liability ( 7 ) ( 998 )

Other ( 736 ) —

368,824 357,185

Valuation allowance ( 372,227 ) ( 355,559 )

Non-current deferred tax assets, net

Non-current deferred tax (liabilities) assets, net $ ( 3,403 ) $ 1,626

A valuation allowance is provided when it is deemed more likely than not that some portion or all of a deferred tax asset will not be realized.

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Therefore, the net increase in valuation allowance of $308.8 million during 2019 is primarily related to the portion of the Luxembourg NOL that we project will not be utilized prior to expiration.

We have not recognized deferred taxes on cumulative earnings of non-Luxembourg affiliates as we have chosen to indefinitely reinvest these earnings, except for the Philippines.

Taxes of $0.9 million were provided on the Philippines earnings.

Therefore, the Company recorded a valuation allowance of $ 372.2 million and $ 355.6 million for the year ending December 31, 2020 and 2019, respectively.

Previously, the Company has not recognized deferred taxes on cumulative earnings of non-Luxembourg affiliates.

In 2019 with the sale of the NCI business and the impending closure of the Philippines, taxes of $ 0.9 million were provided on the Philippines earnings.

In 2020, the Company recognized income tax expense on $ 68 million of accumulated earnings in India that had previously been considered indefinitely reinvested.

The Company also recognized income tax expense on 2020 earnings in India.

The Company continues to remain indefinitely reinvested in all other non-Luxembourg earning not previously discussed.

The other non-Luxembourg earnings reinvested as of December 31, 2020 were approximately $ 13.8 million, which if distributed would result in additional tax due totaling approximately $ 0.5 million.

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federal, state and foreign net operating losses compared to $ 338.4 million as of December 31, 2019.

As of December 31, 2019 and 2018 , a valuation allowance of $337.7 million and $45.0 million , respectively, has been established related to Luxembourg NOLs and a valuation allowance of $0.6 million and $1.5 million , respectively, has been established related to state NOLs.

As of December 31, 2020 and 2019, a valuation allowance of $ 349.8 million and $ 337.7 million, respectively, has been established related to Luxembourg net operating loss (“NOL”), a valuation allowance of $ 0.8 million and $ 0.5 million, respectively, has been established related to state NOLs and a valuation allowance of $ 2.4 million and $ 0.1 million, respectively, has been established related to U.S.

federal NOLs.

The gross amount of net operating losses available for carryover to future years is approximately $ 1,415.9 million as of December 31, 2020 and approximately $ 1,355.4 million as of December 31, 2019.

These losses are scheduled to expire between the years 2023 and 2040.

As of December 31, 2018 , $7.4 million of our NOLs are subject to Section 382 of the Internal Revenue Code which limits the application of these NOLs against federal taxable income to approximately $1.3 million per year.

The remaining NOLs subject to the Section 382 limitation were included in the sale of the Financial Services Business on July 1, 2019.

As part of the sale of the Financial Services Business, a capital loss deferred tax assets of $9.6 million was created in the U.S.

The deferred tax asset created from the sale of the Financial Services Business was adjusted to reflect the final capital loss balance of $ 10.4 million in the U.S.

Because it is not more likely than not the Company will have sufficient taxable income of the appropriate character (a capital gain) in the carryforward period, a full valuation allowance has been established related to the capital loss.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

On September 20, 2019, the corporate income tax rate in India lowered from 34.94% to 25.17% retroactive to April 1, 2019.

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future.

As of December 31, 2020, the amount recorded related to remeasurement of our deferred tax balance was $ 1.4 million.

On April 25, 2019, the Luxembourg Parliament voted to approve the 2019 Budget Law.

The new legislation reduced the overall effective corporate income tax rate from 26.01% to 24.94% for accounting periods beginning on or after January 1,

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 24.94 %.

As of December 31, 2019, the amount recorded related to remeasurement of our deferred tax balance was $ 14.0 million.

On December 22, 2017, the Jobs Act was enacted, which reforms corporate tax legislation in the United States and related laws.

One of the provisions of the new tax law reduces the U.S.

federal corporate tax rate from 35.0% to 21.0% .

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21.0% .

As of December 31, 2018, the amount recorded related to the remeasurement of our deferred tax balance was $(0.2) million .

In addition, the Company had a deferred tax asset of $ 0.9 million and $ 0.6 million as of December 31, 2020 and 2019, respectively, relating to state tax credits.

The state tax credit carryforward is scheduled to expire with the filing of state income tax returns for the tax years 2019 through 2028.

Income tax computed by applying the Luxembourg statutory rate differs from income tax computed at the effective tax rate primarily from differences between the Luxembourg statutory and foreign statutory tax rates applied to entities in different jurisdictions, shown in the tax rate reconciliation table below as tax rate differences on foreign earnings, increases in uncertain tax positions, state taxes, remeasurement of deferred taxes related to tax rate changes, recognition of net operating losses created by the December 27, 2017 legal entity merger (see above), an increase in unrecognized tax benefits and a valuation allowance against deferred tax assets the Company believes it is more likely than not will not be realized.

Some of the state tax credit carryforwards have an indefinite carryforward period.

The Company is taking advantage of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act signed into law on March 27, 2020 by utilizing a five year carryback of the full net operating loss generated in the U.S.

The CARES Act allows a five year carryback of the $ 14.8 million net operating loss generated in the U.S.

The effective tax rate differs from the Luxembourg statutory tax rate due to tax rate differences on foreign earnings, increases in uncertain tax positions, state taxes, remeasurement of deferred tax assets related to tax rate changes, a decrease in unrecognized tax benefits and a valuation allowance against deferred tax assets the Company believes it is more likely than not will not be realized

The following table reconciles the Luxembourg statutory tax rate to our effective tax rate for the years ended December 31:

2020 2019 2018

Statutory tax rate 24.94 % 24.94 % 26.01 %

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State tax expense ( 1.25 ) ( 1.63 ) 28.58

Tax credits 0.10 — —

Uncertain tax positions ( 2.94 ) 39.60 114.18

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Tax rate differences on foreign earnings ( 6.62 ) 28.75 73.11

Other 3.04 7.85 7.96

Effective tax rate ( 14.92 ) % 2,558.86 % 292.92 %

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As of December 31, 2020 and 2019, the Company had recorded accrued interest and penalties related to unrecognized tax benefits of $ 4.6 million and $ 3.7 million, respectively.

NOTE 23 — LOSS PER SHARE

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted loss per share reflects the assumed conversion of all dilutive securities using the treasury stock method.

Diluted net loss per share excludes all dilutive securities because their impact would be anti-dilutive, as described below.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

NOTE 23 — EARNINGS PER SHARE

Basic (loss) earnings per share is computed by dividing net (loss) income available to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted earnings per share reflects the assumed conversion of all dilutive securities using the treasury stock method.

Diluted net loss per share excludes all dilutive securities because their impact would be anti-dilutive, as described below.

Basic and diluted (loss) earnings per share are calculated as follows for the years ended December 31 :

Basic and diluted loss per share are calculated as follows for the years ended December 31:

(in thousands, except per share data) 2020 2019 2018

Net (loss) income attributable to Altisource

Net loss attributable to Altisource $ ( 67,156 ) $ ( 307,969 ) $ ( 5,382 )

Weighted average common shares outstanding, basic 15,598 15,991 17,073

Dilutive effect of stock options, restricted shares and

restricted share units

Weighted average common shares outstanding, diluted 15,598 15,991 17,073

(Loss) earnings per share:

For the years ended December 31, 2019 , 2018 and 2017 , 1.6 million , 1.2 million and 0.8 million , respectively, stock options, restricted shares and restricted share units were excluded from the computation of diluted (loss) earnings per share, as a result of the following:

As a result of the net loss attributable to Altisource for the years ended December 31, 2019 and 2018 , 0.3 million and 0.5 million stock options, restricted shares and restricted share units were excluded from the computation of diluted loss per share, as their impacts were anti-dilutive

For the years ended December 31, 2019 , 2018 and 2017 , 0.5 million , 0.3 million and 0.5 million , respectively, stock options were anti-dilutive and have been excluded from the computation of diluted (loss) earnings per share because their exercise price was greater than the average market price of our common stock

For the years ended December 31, 2019 , 2018 and 2017 , 0.8 million , 0.5 million and 0.4 million , respectively, stock options, restricted shares and restricted share units, which begin to vest upon the achievement of certain market criteria related to our common stock price, performance criteria and an annualized rate of return to shareholders that have not yet been met have been excluded from the computation of diluted (loss) earnings per share.

Loss per share:

Basic $ ( 4.31 ) $ ( 19.26 ) $ ( 0.32 )

Diluted $ ( 4.31 ) $ ( 19.26 ) $ ( 0.32 )

For the years ended December 31, 2020, 2019 and 2018, 1.6 million, 1.6 million and 1.2 million, respectively, stock options, restricted shares and restricted share units were excluded from the computation of loss per share, as a result of the following:

• As a result of the net loss attributable to Altisource for the years ended December 31, 2020, 2019 and 2018, 0.2 million, 0.3 million and 0.5 million, respectively, stock options, restricted shares and restricted share units in each period were excluded from the computation of diluted loss per share, as their impacts were anti-dilutive

• For the years ended December 31, 2020, 2019 and 2018, 0.5 million, 0.5 million and 0.3 million, respectively, stock options were anti-dilutive and have been excluded from the computation of diluted loss per share because their exercise price was greater than the average market price of our common stock

• For the years ended December 31, 2020, 2019 and 2018, 0.9 million, 0.8 million and 0.5 million, respectively, stock options, restricted shares and restricted share units, which begin to vest upon the achievement of certain market criteria related to our common stock price, performance criteria and an annualized rate of return to shareholders that have not yet been met in each period have been excluded from the computation of diluted loss per share.

NOTE 24 — RESTRUCTURING CHARGES

In August 2018, Altisource initiated Project Catalyst, a project intended to optimize its operations and reduce costs to better align its cost structure with its anticipated revenues and improve its operating margins.

During the years ended December 31, 2019 and 2018 , Altisource incurred $14.1 million and $11.6 million , respectively, of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan.

We expect to incur additional severance costs, professional services fees, technology costs and facility consolidation costs in connection with this internal reorganization, automation and other technology related activities and will expense those costs as incurred.

Based on our analysis, we currently anticipate the future costs relating to Project Catalyst to be in the range of approximately $10 million to $13 million .

During the years ended December 31, 2020, 2019 and 2018, Altisource incurred $ 12.0 million, $ 14.1 million and $ 11.6 million, respectively, of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan.

NOTE 25 — COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS

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We do not believe that the outcome of these proceedings, both individually and in the aggregate, will have a material impact on our financial condition, results of operations or cash flows.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Regulatory Matters

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Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning existing court precedent.

During the year ended December 31, 2019, the Company completed the analysis of its services for potential exposure to sales tax in various jurisdictions in the United States.

The Company recognized a $0.3 million and $6.2 million net loss for the years ended December 31, 2019 and 2018, respectively in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

During the year ended December 31, 2019, we recognized a net reimbursement from clients of $1.7 million of sales taxes previously accrued and paid.

During the year ended December 31, 2019,

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

the Company completed the analysis of its services for potential exposure to sales tax in various jurisdictions in the United States.

The Company recognized a $( 2.7 ) million loss reimbursement, $ 0.3 million and $ 6.2 million net loss for the years ended December 31, 2020, 2019 and 2018, respectively, in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss.

The Company began invoicing, collecting and remitting sales tax in applicable jurisdictions in 2019.

The Company is also in the process of seeking additional reimbursements for sales tax payments from clients;

however, there can be no assurance that the Company will be successful in collecting some or all of such additional reimbursements.

Future changes in our estimated sales tax exposure could result in a material adjustment to our consolidated financial statements, which would impact our financial condition and results of operations.

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Additionally, 7 % of our revenue for the year ended December 31, 2020 was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or the MSR owner selected Altisource as the service provider.

Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions and is subject to pending legal proceedings, some of which include claims against Ocwen for substantial monetary damages.

In addition to monetary damages, various complaints have sought to obtain permanent injunctive relief, consumer redress, refunds, restitution, disgorgement, civil penalties, costs and fees and other relief.

Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions and is subject to pending and threatened legal proceedings, some of which include claims against Ocwen for substantial monetary damages.

In addition to monetary damages, various complaints have sought to obtain injunctive relief, consumer redress, refunds, restitution, disgorgement, civil penalties, costs and fees and other relief.

Existing or future similar matters could result in, and in some cases, have resulted in, adverse regulatory or other actions against Ocwen.

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Ocwen has disclosed that NRZ is its largest client.

As of December 31, 2019 , NRZ owned MSRs or rights to MSRs relating to approximately 56% of loans serviced and subserviced by Ocwen (measured in UPB).

In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to the Subject MSRs and under which Ocwen will subservice mortgage loans underlying the Subject MSRs for an initial term of five years.

As of December 31, 2020, NRZ MSRs or rights to MSRs relating to approximately 36 % of loans serviced and subserviced by Ocwen (measured in UPB).

In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to the Subject MSRs and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years .

NRZ can terminate its sub-servicing agreement with Ocwen in exchange for the payment of a termination fee.

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Any or all of these effects and others could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers.

During the second quarter of 2020, Ocwen informed us that an MSR investor instructed Ocwen to use a field services provider other than Altisource on properties associated with certain MSRs.

Based upon the impacted portfolios to date and the designated service provider, Altisource believes that Ocwen received these directions from NRZ.

We believe Ocwen commenced using another field services provider for these properties in July 2020 and continued to transition services during the third quarter of 2020.

We believe that the transition to the replacement field service provider was largely completed as of September 30, 2020.

We estimate that $ 70.1 million, $ 150.2 million and $ 171.0 million of service revenue from Ocwen for the year ended December 31, 2020, 2019 and 2018, respectively, was derived from Field Services referrals from the NRZ portfolios.

We anticipate that the transition of such default valuations and title services will continue during the course of 2021.

We estimate that $ 18.2 million, $ 33.2 million and $ 40.1 million of service revenue from Ocwen for the year ended December 31, 2020, 2019 and 2018, respectively, was derived from default valuations and title services referrals from the NRZ portfolios.

Altisource believes that any action taken by Ocwen to redirect these service referrals breaches Altisource's agreement with Ocwen.

We are currently in discussions with Ocwen to address this matter, and have reserved all of our rights with respect to this matter.

To address the reduction in revenue, Altisource is undertaking several measures to further reduce its cost structure and strengthen its operations.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

If any of the following events occurred, Altisource’s revenue could be significantly lower and our results of operations could be materially adversely affected, including from the possible impairment or write-off of goodwill, intangible assets, property and equipment, other assets and accounts receivable:

Altisource loses Ocwen as a customer or there is a significant reduction in the volume of services they purchase from us

We could also be impacted if Ocwen loses, sells or transfers a significant portion of its GSE and Federal Housing Administration servicing rights or subservicing arrangements or remaining non-GSE servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider

In addition to expected reductions in our revenue from the transition of referrals for default related services previously identified, if any of the following events occurred, Altisource’s revenue could be further significantly reduced and our results of operations could be materially adversely affected, including from the possible impairment or write-off of goodwill, intangible assets, property and equipment, other assets and accounts receivable:

• Altisource loses Ocwen as a customer or there is an additional significant reduction in the volume of services they purchase from us

• Ocwen loses, sells or transfers a significant portion of its GSE servicing rights or subservicing arrangements or remaining non-GSE servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider

• The contractual relationship between Ocwen and NRZ changes significantly and this change results in a change in our status as a provider of services related to the Subject MSRs

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Management cannot predict whether any of these events will occur or the amount of any impact they may have on Altisource.

However, in the event one or more of these events materially negatively impact Altisource, we believe the variable nature of our cost structure would allow us to realign our cost structure in line with remaining revenue and that current liquidity and cash flows from operations, would be sufficient to meet our working capital, capital expenditures, debt service and other cash needs.

However, we are focused on diversifying and growing our revenue and customer base and we have a sales and marketing strategy to support these efforts.

Moreover, in the event one or more of these events materially negatively impact Altisource, we believe the variable nature of our cost structure would allow us to realign our cost structure to address some of the impact to revenue and that current liquidity would be sufficient to meet our working capital, capital expenditures, debt service and other cash needs.

There can be no assurance that our plans will be successful or our operations will be profitable.

We are also focused on diversifying and growing our revenue and customer base and we have a sales and marketing strategy to support these efforts.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) and in July 2018, the FASB issued ASU No.

2018-10, Codification Improvements to Topic 842, Leases and ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements (collectively “Topic 842”).

Topic 842 introduced a new lessee model that brings substantially all leases on the balance sheet.

The Company adopted Topic 842 effective January 1, 2019 using the modified retrospective transition approach.

Adoption of this new standard resulted in the recognition of $ 42.1 million of right-of-use assets in right-of-use assets under operating leases, $ 45.5 million of operating lease liabilities ($ 16.7 million in other current liabilities and $ 28.8 million in other non-current liabilities) and reduced accrued rent and lease incentives of $ 3.4 million in accounts payable and accrued expenses and other non-current liabilities on the accompanying consolidated balance sheets.

We lease certain premises and equipment, primarily consisting of office space and information technology equipment.

Effective January 1, 2019, we adopted the provisions of Topic 842, resulting in recognition of $42.1 million of right-of-use assets in right-of-use-assets under operating leases and $45.5 million of operating lease liabilities (see Note 2).

Certain of our leases include options to renew at our discretion or terminate leases early, and these options are considered in our determination of the expected lease term.

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Sublease income was $ 1.4 million, $ 1.7 million and $ 1.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The amortization period of right-of-use assets are generally limited by the expected lease term.

The amortization periods of right-of-use assets are generally limited by the expected lease term.

Our leases generally have expected lease terms at adoption of one to six years .

Information about our lease terms and our discount rate assumption is as follows:

As of December 31, 2019

As of December 31, 2020, we entered into a five year lease for additional office space which has not yet commenced.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Information about our lease terms and our discount rate assumption is as follows as of December 31:

Weighted average remaining lease term (in years) 3.18 3.23

Weighted average discount rate 7.01 % 7.11 %

Our lease activity during the year ended December 31, 2019 is as follows:

Our lease activity was as follows for the years ended December 31:

(in thousands) 2020 2019

2 unchanged sentences

Cost of revenue 1,919 2,757

Cash used in operating activities for amounts included in the measurement

of lease liabilities

Short-term (less than one year) lease costs

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Cash used in operating activities for amounts included in the measurement of lease liabilities $ 13,113 $ 15,446

Short-term (twelve months or less) lease costs 3,797 4,999

Maturities of our lease liabilities as of December 31, 2020 are as follows:

(in thousands)

Operating lease obligations

(in thousands) Operating lease obligations

Total lease payments 22,204

Less interest

interest ( 2,314 )

Present value of lease liabilities $ 19,890

We have executed four standby letters of credit totaling $1.0 million related to four office leases that are secured by restricted cash balances.

We have executed three standby letters of credit totaling $ 0.8 million related to three office leases that are secured by restricted cash balances.

Escrow Balances

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Amounts held in escrow accounts were $ 20.0 million and $ 12.3 million as of December 31, 2020 and 2019, respectively.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

NOTE 26 — QUARTERLY FINANCIAL DATA (UNAUDITED)

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2020 quarter ended (1)(2)(3)(4)(5)(6)

(in thousands, except per share data)

September 30,

(Loss) income before income taxes and non-controlling interests

Net (loss) income

Net (loss) income attributable to Altisource

(Loss) earnings per share:

(in thousands, except per share data) March 31, June 30, September 30, December 31,

Revenue $ 121,444 $ 95,342 $ 88,795 $ 59,966

Gross profit 26,863 12,714 16,225 4,551

Loss before income taxes and non-controlling interests ( 9,124 ) ( 33,747 ) ( 11,140 ) ( 3,695 )

Net loss ( 11,545 ) ( 34,864 ) ( 12,897 ) ( 7,009 )

Net loss attributable to Altisource ( 11,650 ) ( 35,061 ) ( 13,237 ) ( 7,208 )

Loss per share:

Basic $ ( 0.75 ) $ ( 2.25 ) $ ( 0.85 ) $ ( 0.46 )

Diluted $ ( 0.75 ) $ ( 2.25 ) $ ( 0.85 ) $ ( 0.46 )

Weighted average shares outstanding:

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

Basic 15,497 15,601 15,637 15,657

Diluted 15,497 15,601 15,637 15,657

2019 quarter ended (1)(2)(3)(4)(5)(7)(8)

(in thousands, except per share data)

September 30,

(in thousands, except per share data) March 31, June 30, September 30, December 31,

Revenue $ 169,935 $ 196,535 $ 141,493 $ 140,688

Gross profit 45,720 43,821 30,771 35,083

(Loss) income before income taxes and non-controlling interests ( 3,966 ) 11,909 12,955 ( 8,459 )

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(Loss) earnings per share:

Basic $ ( 0.20 ) $ ( 0.36 ) $ 0.45 $ ( 19.66 )

Diluted $ ( 0.20 ) $ ( 0.36 ) $ 0.44 $ ( 19.66 )

Weighted average shares outstanding:

Basic 16,292 16,214 15,897 15,568

Diluted 16,292 16,214 16,151 15,568

______________________________________

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This is due to the effects of rounding and changes in the number of weighted average shares outstanding for each period.

(2) The income tax provisions on losses before income taxes and non-controlling interests for each quarter of 2020 were primarily driven by the income in our US and other foreign operations from transfer pricing on services provided to our Luxembourg operating company and no tax benefit on pretax losses from our Luxembourg operating company.

During the fourth quarter of 2019, we recognized net income tax provision of $ 318.3 million, which included an increase in the valuation allowance in connection with the Luxembourg net operating loss carryforward of $ 291.5 million, the impact of a decrease in the Luxembourg statutory income tax rate on deferred taxes of $ 1.7 million and foreign income tax reserves of $ 5.6 million.

During the second quarter of 2019, we recognized $ 12.3 million as a result of the change in the Luxembourg statutory income tax rate on deferred taxes.

In addition, during the third quarter of 2018, we recognized foreign income tax reserves of $1.6 million .

See Note 22 .

In July 2019, we sold the Financial Services business to TSI for $44.0 million consisting of an up-front payment of $40.0 million , subject to a working capital adjustment and transaction costs upon closing of the sale, and an additional $4.0 million payment on the one year anniversary of the sale closing.

We recognized a $17.6 million pretax gain on sale in the third quarter of 2019 and a working capital true-up gain of an additional $0.3 million in the fourth quarter of 2019.

In August 2018, we sold our rental property management business to RESI for total transaction proceeds of $18.0 million , $15.0 million of which was received on the closing date of August 8, 2018 and $3.0 million of which will be received on the earlier of a RESI change of control or August 8, 2023.

We recognized a $13.7 million pretax gain on the sale of this business in the third quarter of 2018.

(3) During the first quarter of 2020, second quarter of 2020, third quarter of 2020 and fourth quarter of 2020, we recognized unrealized (losses) gains from our investment in RESI common shares of $( 1.3 ) million, $( 11.2 ) million, $ 0.1 million and $ 16.4 million, respectively.

During the first quarter of 2018, second quarter of 2018, third quarter of 2018 and fourth quarter of 2018, we recognized unrealized (losses) gains from our investment in RESI common shares of $(7.5) million , $1.5 million , $1.8 million and $(8.8) million , respectively.

During the first quarter of 2019, second quarter of 2019, third quarter of 2019 and fourth quarter of 2019, we recognized unrealized gains (losses) from our investment in RESI common shares of $ 2.2 million, $ 11.8 million, $( 2.3 ) million and $ 2.7 million, respectively.

(4) In August 2018, we initiated Project Catalyst, a restructuring plan intended to optimize our operations and reduce costs to align our cost structure with our anticipated revenues and improve our operating margins.

During the first quarter of 2020,

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

second quarter of 2020, third quarter of 2020 and fourth quarter of 2020, we recognized $ 2.9 million, $ 5.8 million, $ 2.2 million and $ 1.1 million, respectively, of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the restructuring plan.

During the first quarter of 2019, second quarter of 2019, third quarter of 2019 and fourth quarter of 2019, we recognized $ 4.4 million, $ 1.9 million, $ 2.8 million and $ 5.0 million, respectively, of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the restructuring plan.

During the third quarter of 2018 and fourth quarter of 2018 we recognized $3.4 million and $8.1 million , respectively, of severance costs, professional services fees and facility consolidation costs related to the restructuring plan.

See Note 24 .

(5) In connection with a United States Supreme Court decision in June 2018, we analyzed our services for potential exposure to sales tax in various jurisdictions in the United States and recognized a net loss reimbursement of $( 0.6 ) million and $( 2.1 ) million for the third and fourth quarter of 2020, respectively.

In addition, we recognized a net (loss reimbursement) loss of $ 2.1 million and $( 1.7 ) million in the first and third quarter of 2019, respectively.

(6) During the third quarter of 2020 we recognized $ 0.7 million of severance in connection with cost savings initiatives (no comparable amounts in 2019).

(7) In July 2019, we sold the Financial Services Business to TSI for $ 44.0 million consisting of an up-front payment of $ 40.0 million, subject to a working capital adjustment and transaction costs upon closing of the sale, and an additional $ 4.0 million payment on the one year anniversary of the sale closing.

We recognized a $ 17.6 million pretax gain on sale in the third quarter of 2019 and a working capital true-up gain of an additional $ 0.3 million in the fourth quarter of 2019.

(8) In connection with the wind down of Owners.com, we wrote off $ 5.2 million of goodwill and $ 0.7 million of intangible assets during the fourth quarter of 2019.

1 unchanged sentence

During the second quarter of 2019, we recognized a loss on the sale of the BRS Inventory of $ 1.8 million.

We recognized a write-off of goodwill related to our plan to discontinue the BRS business of $2.6 million during the fourth quarter of 2018.

In connection with a United States Supreme Court decision in June 2018, we analyzed our services for potential exposure to sales tax in various jurisdictions in the United States and recognized an estimated probable loss of $5.9 million and $0.4 million during the third quarter of 2018 and fourth quarter of 2018, respectively.

In addition, we recognized and additional loss of $2.1 million during the first quarter of 2019 and recognized a net reimbursement from clients of $1.7 million in the third quarter of 2019.

See Note 25 .

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Consolidated Financial Statements ( Continued )

In April 2018, we entered into the Credit Agreement, pursuant to which, among other things, we borrowed $412 million in the form of Term B Loans.

Proceeds from the Term B Loans were used to repay our prior senior secured term loan.

In connection with the refinancing, we recognized a loss of $4.4 million from the write-off of the unamortized debt issuance costs and debt discount in the second quarter of 2018.

See Note 14 .

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data