ALTISOURCE PORTFOLIO SOLUTIONS S.A. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm 55 Consolidated Balance Sheets as of December 31, 2020 and 2019 59 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020, 2019 and 2018 60 Consolidated Statements of Equity for the years ended December 31, 2020, 2019 and 2018 61 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 62 Notes to Consolidated Financial Statements 63 54 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Altisource Portfolio Solutions S.A.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Altisource Portfolio Solutions S.A. 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 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 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 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. (“NRZ”) is its largest client. 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 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 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. 55 Table of Contents Basis for Opinion 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 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 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; 56 Table of Contents • 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. We have served as the Company’s auditor since 2016. March 11, 2021 Clearwater, Florida 57 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Altisource Portfolio Solutions S.A.: Opinion on Internal Control Over Financial Reporting We have audited Altisource Portfolio Solutions S.A. and subsidiaries’ (the “Company”) 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 (“COSO”). 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, 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 The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Mayer Hoffman McCann P.C. March 11, 2021 Clearwater, Florida 58 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Consolidated Balance Sheets (in thousands, except per share data) December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 58,263 $ 82,741 Accounts receivable, net 22,413 43,615 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 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 5,398 10,763 Other assets 9,850 10,810 Total assets $ 265,685 $ 394,256 LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued expenses $ 56,779 $ 67,671 Deferred revenue 5,461 5,183 Other current liabilities 9,305 14,724 Total current liabilities 71,545 87,578 Long-term debt 242,656 287,882 Deferred tax liabilities, net 8,801 9,137 Other non-current liabilities 25,239 31,016 Commitments, contingencies and regulatory matters (Note 25) Equity (deficit): Common stock ($ 1.00 par value; 100,000 shares authorized, 25,413 issued and 15,664 outstanding as of December 31, 2020; 15,454 outstanding as of December 31, 2019) 25,413 25,413 Additional paid-in capital 141,473 133,669 Retained earnings 190,383 272,026 Treasury stock, at cost ( 9,749 shares as of December 31, 2020 and 9,959 shares as of December 31, 2019) ( 441,034 ) ( 453,934 ) Altisource deficit ( 83,765 ) ( 22,826 ) Non-controlling interests 1,209 1,469 Total deficit ( 82,556 ) ( 21,357 ) Total liabilities and deficit $ 265,685 $ 394,256 See accompanying notes to consolidated financial statements . 59 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. 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 — ( 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 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 ) (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 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: 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 — — ( 733 ) 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 attributable to Altisource $ ( 67,156 ) $ ( 307,969 ) $ ( 6,115 ) See accompanying notes to consolidated financial statements . 60 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Consolidated Statements of Equity (in thousands) Altisource Equity (Deficit) Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost Non-controlling interests Total Shares Balance, January 1, 2018 25,413 $ 25,413 $ 112,475 $ 626,600 $ 733 $ ( 426,609 ) $ 1,373 $ 339,985 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 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 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 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 ) Share-based compensation expense — — 7,804 — — — — 7,804 Exercise of stock options and issuance of restricted share units and restricted shares — — — ( 9,548 ) — 9,548 — — 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 ) Balance, December 31, 2020 25,413 $ 25,413 $ 141,473 $ 190,383 $ — $ ( 441,034 ) $ 1,209 $ ( 82,556 ) See accompanying notes to consolidated financial statements . 61 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Consolidated Statements of Cash Flows (in thousands) For the years ended December 31, 2020 2019 2018 Cash flows from 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 Amortization of right-of-use assets under operating leases 10,245 11,769 — Amortization of intangible assets 14,720 19,021 28,412 Unrealized (gain) loss on investment in equity securities ( 4,004 ) ( 14,431 ) 12,972 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 Amortization of debt discount 666 666 717 Amortization of debt issuance costs 730 736 965 Deferred income taxes 5,033 307,339 ( 5,791 ) Loss on disposal of fixed assets 461 750 727 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): Accounts receivable 14,973 ( 12,207 ) 14,556 Short-term investments in real estate — 39,873 ( 10,468 ) 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 Current and non-current operating lease liabilities ( 10,599 ) ( 12,738 ) — Other current and non-current liabilities 297 ( 4,661 ) ( 16,742 ) 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 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 investing activities 47,224 44,887 11,084 Cash flows from financing activities: Proceeds from issuance of long-term debt — — 407,880 Repayments and repurchases of long-term debt ( 46,622 ) ( 44,996 ) ( 486,759 ) Debt issuance costs — — ( 5,042 ) Proceeds from stock option exercises — 400 3,644 Purchase of treasury shares — ( 19,995 ) ( 40,362 ) Distributions to non-controlling interests ( 1,101 ) ( 2,752 ) ( 2,819 ) Payments of tax withholding on issuance of restricted share units and restricted shares ( 1,587 ) ( 1,695 ) ( 825 ) Net cash used in financing activities ( 49,310 ) ( 69,038 ) ( 124,283 ) 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 Cash, cash equivalents and restricted cash at the end of the period $ 62,096 $ 86,583 $ 64,046 Supplemental cash flow information: Interest paid $ 15,697 $ 20,856 $ 24,123 Income taxes paid, net 2,061 2,688 7,136 Acquisition of right-of-use assets with operating lease liabilities 1,075 13,775 — Reduction of right-of-use assets from operating lease modifications or reassessments ( 1,691 ) ( 5,844 ) — Non-cash investing and financing activities: Net increase (decrease) in payables for purchases of premises and equipment $ 139 $ ( 101 ) $ ( 32 ) See accompanying notes to consolidated financial statements. 62 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements NOTE 1 — ORGANIZATION Description of Business Altisource Portfolio Solutions S.A., together with its subsidiaries (which may be referred to as “Altisource,” the “Company,” “we,” “us” or “our”), is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing markets we serve. The Company operates with one reportable segment (total Company). NOTE 2 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting and Presentation The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany transactions and accounts have been eliminated in consolidation. Principles of Consolidation The financial statements include the accounts of the Company, its wholly-owned subsidiaries and those entities in which we have a variable interest and are the primary beneficiary. Altisource consolidates Best Partners Mortgage Cooperative, Inc., which is managed by The Mortgage Partnership of America, L.L.C. (“MPA”), a wholly-owned subsidiary of Altisource. Best Partners Mortgage Cooperative, Inc. is a mortgage cooperative doing business as Lenders One ® (“Lenders One”). MPA provides services to Lenders One under a management agreement that ends on December 31, 2025 (with renewals for three successive five-year periods at MPA’s option). The management agreement between MPA and Lenders One, pursuant to which MPA is the management company, represents a variable interest in a variable interest entity. MPA is the primary beneficiary of Lenders One as it has the power to direct the activities that most significantly impact the cooperative’s economic performance and the right to receive benefits from the cooperative. As a result, Lenders One is presented in the accompanying consolidated financial statements on a consolidated basis and the interests of the members are reflected as non-controlling interests. As of December 31, 2020, Lenders One had total assets of $ 2.3 million and total liabilities of $ 0.1 million. As of December 31, 2019, Lenders One had total assets of $ 1.6 million and total liabilities of $ 0.3 million. In 2019, Altisource created Pointillist, Inc. (“Pointillist”) and contributed the Pointillist ® customer journey analytics business and $ 8.5 million to it. Pointillist is owned by Altisource and management of Pointillist. 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. Pointillist is presented in the accompanying consolidated financial statements on a consolidated basis and the portion of Pointillist owned by Pointillist management is reported as non-controlling interests. Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, determining share-based compensation, income taxes, collectability of receivables, valuation of acquired intangibles and goodwill, depreciable lives and valuation of fixed assets and contingencies. Actual results could differ materially from those estimates. Cash and Cash Equivalents We classify all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash equivalents. Accounts Receivable, Net 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. 63 Table of Contents 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 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. We capitalize expenditures for significant improvements and new equipment and depreciate the assets over the shorter of the capitalized asset’s life or the life of the lease. We review premises and equipment for impairment following events or changes in circumstances that indicate the carrying amount of an asset or asset group may not be recoverable. We measure recoverability of assets to be held and used by comparing the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, we recognize an impairment charge for the amount that the carrying value of the asset or asset group exceeds the fair value of the asset or asset group. Computer software includes the fair value of software acquired in business combinations, capitalized software development costs and purchased software. Capitalized software development and purchased software are recorded at cost and amortized using the straight-line method over their estimated useful lives. Software acquired in business combinations is recorded at fair value and amortized using the straight-line method over its estimated useful life. Business Combinations We account for acquisitions using the purchase method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations . The purchase price of an acquisition is allocated to the assets acquired and liabilities assumed using their fair value as of the acquisition date. Goodwill Goodwill represents the excess cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. 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 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 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. The discounted cash flow method is based on the present value of projected cash flows. Forecasts of future cash flows are based on our estimate of future sales and operating expenses, based primarily on estimated pricing, sales volumes, market segment share, cost trends and general economic conditions. The estimated cash flows are discounted using a rate that represents our weighted average cost of capital. The market comparisons include an analysis of revenue and earnings multiples of guideline public companies compared to the Company. Intangible Assets, Net Identified intangible assets consist primarily of customer related intangible assets, operating agreements, trademarks and trade names and other intangible assets. Identifiable intangible assets acquired in business combinations are recorded based on their fair values at the date of acquisition. We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any arrangements, the history of the asset, our long-term strategy for use of the asset and other economic factors. 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. 64 Table of Contents 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. When facts and circumstances indicate that the carrying value of intangible assets determined to have definite lives may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of cash flows of discrete intangible assets generally consistent with models utilized for internal planning purposes. If the sum of the undiscounted expected future cash flows is less than the carrying value, we recognize an impairment to the extent the carrying amount exceeds fair value. Long-Term Debt Long-term debt is reported net of applicable discount or premium and net of debt issuance costs. The debt discount or premium and debt issuance costs are amortized to interest expense through maturity of the related debt using the effective interest method. Fair Value Measurements Fair value is defined as an exit price, representing the amount that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows: Level 1 — Quoted prices in active markets for identical assets and liabilities Level 2 — Observable inputs other than quoted prices included in Level 1 Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities. Financial assets and financial liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. Functional Currency The currency of the primary economic environment in which our operations are conducted is the United States dollar. Therefore, the United States dollar has been determined to be our functional and reporting currency. 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 loss as income or expenses, as appropriate. Defined Contribution 401(k) Plan Some of our employees currently participate in a defined contribution 401(k) plan under which we may make matching contributions equal to a discretionary percentage determined by us. 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. Revenue Recognition We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer in an amount that reflects the consideration that we expect to receive. This revenue can be recognized at a point in time or over time. We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenues are recognized. When there is a timing difference between when we invoice customers and when revenues are recognized, we record either a contract asset (unbilled accounts receivable) or a contract liability (deferred revenue or other current liabilities), as appropriate. Descriptions of our principal revenue generating activities are as follows: Core Businesses Field Services • For property preservation and inspection services and payment management technologies, we recognize transactional revenue when the service is provided. • For vendor management transactions and our vendor management oversight software-as-a-service (“SaaS”) platform, we recognize revenue over the period during which we perform the services. • 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 65 Table of Contents 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. Marketplace • 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. • For SaaS based technology to manage real estate owned (“REO”), short sales, foreclosure, bankruptcy and eviction processes, we recognize revenue over the estimated average number of months the REO are on the platform. We generally recognize revenue for professional services over the contract period. • Reimbursable expenses revenue related to our real estate sales 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. Mortgage and Real Estate Solutions • For the majority of the services we provide, we recognize transactional revenue when the service is provided. • For loan disbursement processing services, we recognize revenue over the period during which we perform the processing services with full recognition upon completion of the disbursements. For foreclosure trustee services, we recognize revenue over the period during which we perform the related services, with full recognition upon completion and/or recording the related foreclosure deed. We use judgment to determine the period over which we recognize revenue for certain of these services. • Reimbursable expenses revenue related to our title and foreclosure trustee services businesses 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. Other Businesses Earlier Stage Business • For our customer journey analytics platform, we recognize revenue primarily based on subscription fees. We recognize revenue associated with implementation services and maintenance services ratably over the contract term. Other • For our Financial Services business (sold on July 1, 2019, see Note 4), we generally earned fees for our post-charge-off consumer debt collection services as a percentage of the amount we collected on delinquent consumer receivables and recognized revenue following collection from the borrowers. For mortgage charge-off collections performed on behalf of our clients, we recognized revenue as a percentage of amounts collected following collection from the borrowers. We provided customer relationship management services for which we typically earned and recognized revenue on a per-person, per-call or per-minute basis as the related services were performed. • For loan servicing technologies, we recognized revenue based on the number of loans on the system. We generally recognized revenue from professional services over the contract period. • 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. • For our consumer real estate brokerage (discontinued in the fourth quarter of 2019, see Note 8), we recognized revenue on a net basis (i.e., the commission on the sale) as we performed services as an agent without assuming the risks and rewards of ownership of the asset and the commission earned on the sale was a fixed percentage or amount. Share-Based Compensation Share-based compensation is accounted for under the provisions of ASC Topic 718, Compensation - Stock Compensation (“ASC Topic 718”). Under ASC Topic 718, the cost of services received in exchange for an award of equity instruments is generally measured based on the grant date fair value of the award. Share-based awards that do not require future service are expensed immediately. Share-based awards that require future service are recognized over the relevant service period. The Company has made an accounting policy election to account for forfeitures in compensation expense as they occur. 66 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) Income Taxes We record income taxes in accordance with ASC Topic 740, Income Taxes (“ASC Topic 740”). We account for certain income and expense items differently for financial reporting purposes and income tax purposes. We recognize deferred income tax assets and liabilities for these differences between the financial reporting basis and the tax basis of our assets and liabilities as well as expected benefits of utilizing net operating loss and credit carryforwards. The most significant temporary differences relate to accrued compensation, amortization, loss carryforwards and valuation allowances. We measure deferred income tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we anticipate recovery or settlement of those temporary differences. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions including evaluating uncertainties under ASC Topic 740. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our results of operations. Earnings Per Share We compute earnings per share in accordance with ASC Topic 260, Earnings Per Share . Basic net income per share is computed by dividing net income attributable to Altisource by the weighted average number of shares of common stock outstanding for the period. Diluted net income per share reflects the assumed conversion of all dilutive securities using the treasury stock method. Recently Adopted Accounting Pronouncements 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 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. 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. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement . 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. 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. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) . This standard aligns the requirements for capitalizing implementation costs in a hosting arrangement service contract with the existing guidance for capitalizing implementation costs incurred for an internal-use software license. 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. 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 67 Table of Contents 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. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . This standard is part of the FASB’s initiative to reduce complexity in accounting standards by instituting several simplifying provisions and removing several exceptions pertaining to income tax accounting. This standard will be effective for annual periods beginning after December 15, 2020, including interim periods within that reporting period. Early adoption of this standard is permitted. 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): Scope . 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 Ocwen Ocwen Financial Corporation (together with its subsidiaries, “Ocwen”) is a residential mortgage loan servicer of mortgage servicing rights (“MSRs”) it owns, including those MSRs in which others have an economic interest, and a subservicer of MSRs owned by others. During the year ended December 31, 2020, Ocwen was our largest customer, accounting for 54 % of our total revenue. Ocwen purchases certain mortgage services from us under the terms of services agreements and amendments thereto (collectively, the “Ocwen Services Agreements”) with terms extending through August 2025. 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. 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. For the years ended December 31, 2020, 2019 and 2018, we recognized revenue from Ocwen of $ 197.8 million, $ 362.7 million and $ 437.4 million, respectively. Revenue from Ocwen as a percentage of consolidated revenue was 54 %, 56 % and 52 % for the years ended December 31, 2020, 2019 and 2018, respectively. We earn additional revenue related to the portfolios serviced and subserviced by Ocwen when a party other than Ocwen or the MSR owner selects Altisource as the service provider. For the years ended December 31, 2020, 2019 and 2018, we recognized revenue of $ 23.8 million, $ 37.5 million and $ 47.1 million, respectively, related to the portfolios serviced by Ocwen when a party other than Ocwen or the MSR owner selected Altisource as the service provider. 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 68 Table of Contents 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. 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. 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. NRZ 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, 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. Under this agreement and related amendments, Altisource remains the exclusive provider of brokerage services for REO associated with the Subject MSRs, irrespective of the subservicer, subject to certain limitations. 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 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. 69 Table of Contents 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. For the years ended December 31, 2020, 2019 and 2018, we recognized additional revenue of $ 35.1 million, $ 60.0 million and $ 83.6 million, respectively, relating to the Subject MSRs when a party other than NRZ selects Altisource as the service provider. NOTE 4 — SALE OF BUSINESSES 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 Systems Inc. (“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. 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. 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, subject to additional 3 month extensions. 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. 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 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 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. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities , that required equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This standard was effective for the Company on January 1, 2018. 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 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. 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. 70 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) NOTE 6 — ACCOUNTS RECEIVABLE, NET Accounts receivable, net consists of the following as of December 31: (in thousands) 2020 2019 Billed $ 19,703 $ 35,921 Unbilled 8,291 12,166 27,994 48,087 Less: 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. 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 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. 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. 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. 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 Prepaid expenses and other current assets consist of the following as of December 31: (in thousands) 2020 2019 Maintenance agreements, current portion $ 2,513 $ 1,923 Income taxes receivable 7,053 5,098 Prepaid expenses 4,812 3,924 Other current assets 5,101 4,269 Total $ 19,479 $ 15,214 71 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) NOTE 8 — DISCONTINUATION OF LINES OF BUSINESS Owners.com In October 2019, the Company announced its plans to wind down and close the Owners.com business, which was completed by December 31, 2019. Owners.com was a technology-enabled real estate brokerage and provider of related mortgage brokerage and title services. Owners.com was not material in relation to the Company’s results of operations or financial position. In connection with the wind down of Owners.com, the Company wrote off $ 5.2 million of goodwill and $ 0.7 million of intangible assets (see Note 11). In addition, wind down expenses were included in the Project Catalyst restructuring charges (see Note 24). Buy-Renovate-Lease-Sell On November 26, 2018, the Company announced its plans to sell its short-term investments in real estate (“BRS Inventory”) and discontinue the Company’s Buy-Renovate-Lease-Sell (“BRS”) business. Altisource’s BRS business focused on buying, renovating, leasing and selling single-family homes to real estate investors. The BRS business was not material in relation to the Company’s results of operations or financial position. The Company completed the sale of the BRS Inventory during the year ended December 31, 2019. NOTE 9 — PREMISES AND EQUIPMENT, NET Premises and equipment, net consists of the following as of December 31: (in thousands) 2020 2019 Computer hardware and software $ 52,837 $ 144,608 Leasehold improvements 14,792 23,800 Furniture and fixtures 5,882 8,775 Office equipment and other 1,817 4,004 75,328 181,187 Less: Accumulated depreciation and amortization ( 63,434 ) ( 156,661 ) 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: (in thousands) 2020 2019 United States $ 5,530 $ 13,426 Luxembourg 5,451 10,295 India 822 671 Uruguay 91 39 Philippines — 95 Total $ 11,894 $ 24,526 72 Table of Contents 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, net consists of the following as of December 31: (in thousands) 2020 2019 Right-of-use assets under operating leases $ 31,932 $ 39,729 Less: Accumulated amortization ( 13,719 ) ( 10,655 ) 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 Goodwill Changes in goodwill during the years ended December 31, 2020 and 2019 are summarized below: (in thousands) Total Balance as of January 1, 2019 $ 81,387 Disposition (1) ( 2,378 ) Write-off (2) ( 5,160 ) Balance as of December 31, 2020 and 2019 $ 73,849 ______________________________________ (1) During 2019, the Company sold the Financial Services Business (see Note 4) which had $ 2.4 million of goodwill attributed to it. (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). Intangible Assets, Net Intangible assets, net consist of the following as of December 31: Weighted average estimated useful life (in years) Gross carrying amount Accumulated amortization Net book value (in thousands) 2020 2019 2020 2019 2020 2019 Definite lived intangible assets: Customer related intangible assets 9 $ 214,973 $ 214,973 $ ( 187,923 ) $ ( 176,043 ) $ 27,050 $ 38,930 Operating agreement 20 35,000 35,000 ( 19,126 ) ( 17,376 ) 15,874 17,624 Trademarks and trade names 16 9,709 9,709 ( 6,307 ) ( 5,893 ) 3,402 3,816 Non-compete agreements 4 1,230 1,230 ( 1,230 ) ( 1,215 ) — 15 Intellectual property — — 300 — ( 175 ) — 125 Other intangible assets 5 1,800 3,745 ( 1,800 ) ( 3,209 ) — 536 Total $ 262,712 $ 264,957 $ ( 216,386 ) $ ( 203,911 ) $ 46,326 $ 61,046 73 Table of Contents 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 Other assets consist of the following as of December 31: (in thousands) 2020 2019 Security deposits $ 2,416 $ 3,473 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 Accounts payable and accrued expenses consist of the following as of December 31: (in thousands) 2020 2019 Accounts payable $ 16,797 $ 22,431 Accrued expenses - general 24,422 24,558 Accrued salaries and benefits 11,226 18,982 Income taxes payable 4,334 1,700 Total $ 56,779 $ 67,671 Other current liabilities consist of the following as of December 31: (in thousands) 2020 2019 Operating lease liabilities $ 7,609 $ 11,398 Other 1,696 3,326 Total $ 9,305 $ 14,724 NOTE 14 — LONG-TERM DEBT Long-term debt consists of the following as of December 31: (in thousands) 2020 2019 Senior secured term loans $ 247,204 $ 293,826 Less: Debt issuance costs, net ( 2,389 ) ( 3,119 ) Less: Unamortized discount, net ( 2,159 ) ( 2,825 ) Long-term debt $ 242,656 $ 287,882 Altisource Portfolio Solutions S.A. and its wholly-owned subsidiary, Altisource S.à r.l. 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. The Term B Loans mature in April 2024 and the revolving credit facility matures in April 2023. Altisource Portfolio Solutions S.A. and certain subsidiaries are guarantors of the term loan and the revolving credit facility (collectively, the “Guarantors”). Proceeds from the Term B Loans were used to repay the Company’s prior senior secured term loan, which had an outstanding balance of $ 412.1 million as of April 3, 2018. 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 loss. 74 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) 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 (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. All amounts outstanding under the Term B Loans will become due on the earlier of (i) April 3, 2024, and (ii) the date on which the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders (as defined in the Credit Agreement; 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. 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. The Term B Loans bear interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate. Adjusted Eurodollar Rate term loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Adjusted Eurodollar Rate for a three month interest period and (y) 1.00 % plus (ii) 4.00 %. Base Rate term loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Base Rate and (y) 2.00 % plus (ii) 3.00 %. The interest rate as of December 31, 2020 was 5.00 %. Loans under the revolving credit facility bear interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate. Adjusted Eurodollar Rate revolving loans bear interest at a rate per annum equal to the sum of (i) the Adjusted Eurodollar Rate for a three month interest period plus (ii) 4.00 %. Base Rate revolving loans bear interest at a rate per annum equal to the sum of (i) the Base Rate plus (ii) 3.00 %. 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. The payment of all amounts owing by Altisource under the Credit Agreement is guaranteed by the Guarantors and is secured by a pledge of all equity interests of certain subsidiaries of Altisource, as well as a lien on substantially all of the assets of Altisource S.à r.l. and the Guarantors, subject to certain exceptions. The Credit Agreement includes covenants that restrict or limit, among other things, our ability, subject to certain exceptions and baskets, to incur indebtedness; incur liens on our assets; sell, transfer or dispose of assets; make Restricted Junior Payments including share repurchases, dividends and repayment of junior indebtedness; make investments; dispose of equity interests of any Material Subsidiaries; engage in a line of business substantially different than existing businesses and businesses reasonably related, complimentary or ancillary thereto; amend material debt agreements or other material contracts; engage in certain transactions with affiliates; enter into sale/leaseback transactions; grant negative pledges or agree to such other restrictions relating to subsidiary dividends and distributions; make changes to our fiscal year; and engage in mergers and consolidations; 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 75 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) 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. As of December 31, 2020, debt issuance costs were $ 2.4 million, net of $ 2.2 million of accumulated amortization. As of December 31, 2019, debt issuance costs were $ 3.1 million, net of $ 1.4 million of accumulated amortization. Interest expense on the senior secured term loans, including amortization of debt issuance costs and the net debt discount, totaled $ 17.7 million, $ 21.4 million and $ 26.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. Maturities of our long-term debt are as follows: (in thousands) Maturities 2021 $ — 2022 — 2023 — 2024 247,204 $ 247,204 NOTE 15 — OTHER NON-CURRENT LIABILITIES Other non-current liabilities consist of the following as of December 31: (in thousands) 2020 2019 Operating lease liabilities $ 12,281 $ 19,707 Income tax liabilities 12,414 10,935 Deferred revenue 504 88 Other non-current liabilities 40 286 Total $ 25,239 $ 31,016 76 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) NOTE 16 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS The following table presents the carrying amount and estimated fair value of financial instruments and certain liabilities measured at fair value as of December 31, 2020 and 2019. The following fair values are estimated using market information and what the Company believes to be appropriate valuation methodologies under GAAP: 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 Assets: Cash and cash equivalents $ 58,263 $ 58,263 $ — $ — $ 82,741 $ 82,741 $ — $ — Restricted cash 3,833 3,833 — — 3,842 3,842 — — Investment in equity securities — — — — 42,618 42,618 — — Long-term receivable 2,531 — — 2,531 2,371 — — 2,371 Liabilities: Senior secured term loan 247,204 — 201,472 — 293,826 — 277,666 — 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 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. The fair value of our senior secured term loan is based on quoted market prices. Based on the frequency of trading, we do not believe that there is an active market for our debt. Therefore, the quoted prices are considered Level 2 inputs. In 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. There were no transfers between different levels during the periods presented. Concentrations of Credit Risk Financial instruments that subject us to concentrations of credit risk primarily consist of cash and cash equivalents and accounts receivable. Our policy is to deposit our cash and cash equivalents with larger, highly rated financial institutions. The Company 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 Common Stock 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. 77 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) Equity Incentive Plan Our 2009 Equity Incentive Plan (the “Plan”) provides for various types of equity awards, including stock options, stock appreciation rights, stock purchase rights, restricted shares, restricted share units and other awards, or a combination of any of the above. Under the Plan, we may grant up to 6.7 million Altisource share-based awards to officers, directors, employees and to employees of our affiliates. As of December 31, 2020, 1.0 million share-based awards were available for future grant under the Plan. Expired and forfeited awards are available for reissuance. Share Repurchase Program On May 15, 2018, our shareholders approved the renewal and replacement of the share repurchase program previously approved by the shareholders on May 17, 2017. Under the program, we are authorized to purchase up to 4.3 million shares of our common stock, based on a limit of 25 % of the outstanding shares of common stock on the date of approval, at a minimum price of $ 1.00 per share and a maximum price of $ 500.00 per share, for a period of five years from the date of approval. As of December 31, 2020, approximately 2.4 million shares of common stock remain available for repurchase under the program. 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. (unconsolidated parent company) retained earnings, less the value of shares repurchased. 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 $ 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 $ 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. Stock Options Stock option grants are composed of a combination of service-based, market-based and performance-based options. Service-Based Options. These options generally vest over three or four years with equal annual vesting and generally expire on the earlier of ten years after the date of grant or following termination of service. A total of 253 thousand service-based options were outstanding as of December 31, 2020. Market-Based Options . These option grants generally have two components, each of which vests only upon the achievement of certain criteria. The first component, which we refer to as “ordinary performance” grants, generally consists of two-thirds of the market-based grant and begins to vest if the stock price is at least double the exercise price, as long as the stock price realizes a compounded annual gain of at least 20 % over the exercise price. The remaining third of the market-based options, which we refer to as “extraordinary performance” grants, generally begins to vest if the stock price is at least triple the exercise price, as long as the stock price realizes a compounded annual gain of at least 25 % over the exercise price. Market-based options vest in three or four year installments with the first installment vesting upon the achievement of the criteria and the remaining installments vesting thereafter in equal annual installments. Market-based options generally expire on the earlier of ten years after the date of grant or following termination of service, unless the performance criteria is met prior to termination of service or in the final three years of the option term, in which case vesting will generally continue in accordance with the provisions of the award agreement. A total of 201 thousand market-based options were outstanding as of December 31, 2020. Performance-Based Options. These option grants generally will vest if certain specific financial measures are achieved; one-fourth vests on each anniversary of the grant date. For certain other financial measures, options cliff-vest upon the achievement of the specific performance during the period from 2019 through 2021. The award of performance-based options is adjusted based on the level of achievement specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in 50 % to 200 % of the option grants, depending upon performance achieved. If the performance criteria achieved is below a certain threshold, the options are canceled. The options generally expire on the earlier of ten years after the date of grant or following termination of service. There were 446 thousand performance-based options outstanding as of December 31, 2020. 78 Table of Contents 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) 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: 2018 Black-Scholes Binomial Risk-free interest rate (%) 2.66 – 3.10 1.64 – 3.22 Expected stock price volatility (%) 70.31 – 71.86 71.36 – 71.86 Expected dividend yield — — Expected option life (in years) 6.00 – 6.25 2.56 – 4.33 Fair value $ 16.17 – $ 19.68 $ 14.67 – $ 20.26 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. We use the simplified method because we believe that our historical data does not provide a reasonable basis upon which to estimate expected option life. The following table summarizes the weighted average grant date fair value of stock options granted per share, the total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the years ended December 31: (in thousands, except per share data) 2020 2019 2018 Weighted average grant date fair value of stock options granted per share $ — $ — $ 16.31 Intrinsic value of options exercised — 54 4,609 Grant date fair value of stock options that vested 2,730 3,053 1,760 The following table summarizes the activity related to our stock options: Number of options Weighted average exercise price Weighted average contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding as of December 31, 2019 1,468,046 $ 29.19 4.60 $ 94 Forfeited ( 568,132 ) 24.00 Outstanding as of December 31, 2020 899,914 32.47 5.63 — Exercisable as of December 31, 2020 557,620 28.69 5.45 — In 2018, the Company modified the performance thresholds that are required to be met in order for vesting to occur for 263 thousand stock options granted to 16 employees during the year ended December 31, 2018. 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. 79 Table of Contents 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 Exercise price range (1) Number Weighted average remaining contractual life (in years) Weighted average exercise price Number Weighted average remaining contractual life (in years) Weighted average exercise price $ 10.01 — $ 20.00 154,200 4.29 $ 18.79 150,038 4.29 $ 18.79 $ 20.01 — $ 30.00 548,348 6.18 25.19 324,937 5.77 25.19 $ 30.01 — $ 40.00 68,866 6.08 33.32 21,270 5.59 33.32 $ 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. 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 $ 50.01 — $ 60.00 36,726 4,162 $ 60.01 — $ 70.00 11,648 6,250 $ 70.01 — $ 80.00 — 11,500 $ 80.01 — $ 90.00 — 7,362 $ 90.01 — $ 100.00 — 5,325 $ 100.01 — $ 110.00 — 1,000 $ 170.01 — $ 180.00 12,500 — $ 180.01 — $ 190.00 7,500 14,625 Over $ 190.00 15,000 17,500 Total 83,374 67,724 Weighted average share price $ 55.14 $ 50.67 Other Share-Based Awards 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, performance-based awards and market-based awards. Service-Based Awards. These awards generally vest over two to four year periods with (a) vesting in equal annual installments, or (b) vesting of all of the restricted shares and restricted share units at the end of the vesting period. 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. Performance-Based Awards. 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, 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. The 80 Table of Contents 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: Number of restricted shares and restricted share units 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: 2020 2019 Monte Carlo Binomial Monte Carlo Binomial Risk-free interest rate (%) 2.47 0.09 – 0.27 2.47 — 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 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. During the year ended December 31, 2019, Pointillist issued 1.1 million shares of its common stock, or 12.1 % of Pointillist equity to Pointillist management in exchange for their services. 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. 81 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) NOTE 18 — REVENUE We classify revenue in three categories: service revenue, revenue from reimbursable expenses and non-controlling interests. Service revenue consists of amounts attributable to our fee-based services and sales of short-term investments in real estate. Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup. Non-controlling interests represent the earnings of Lenders One, a consolidated entity that is a mortgage cooperative managed, but not owned, by Altisource. 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. The components of revenue were as follows for the years ended December 31: (in thousands) 2020 2019 2018 Service revenue $ 347,313 $ 621,866 $ 805,480 Reimbursable expenses 16,285 24,172 30,039 Non-controlling interests 1,949 2,613 2,683 Total $ 365,547 $ 648,651 $ 838,202 The Company adopted ASU No. 2014-09, Revenue from Contracts from Customers (Topic 606) , and related interpretations (“Topic 606”), effective January 1, 2018 retrospectively with the cumulative effect recognized on the date of initial application (the modified retrospective approach) for all contracts. 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. 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 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 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. 82 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) NOTE 19 — COST OF REVENUE Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to the provision of services, cost of real estate sold, reimbursable expenses, technology and telecommunications costs as well as depreciation and amortization of operating assets. The components of cost of revenue were as follows for the years ended December 31: (in thousands) 2020 2019 2018 Compensation and benefits $ 94,365 $ 135,502 $ 200,486 Outside fees and services 146,322 240,796 278,380 Technology and telecommunications 35,912 36,302 41,588 Reimbursable expenses 16,285 24,172 30,039 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 Selling, general and administrative expenses include payroll and employee benefits associated with personnel employed in executive, sales and marketing, finance, law, compliance, human resources, vendor management, facilities and risk management roles. This category also includes professional services fees, occupancy costs, marketing costs, depreciation and amortization of non-operating assets and other expenses. The components of selling, general and administrative expenses were as follows for the years ended December 31: (in thousands) 2020 2019 2018 Compensation and benefits $ 35,521 $ 49,875 $ 51,043 Occupancy related costs 19,363 26,042 30,851 Amortization of intangible assets 14,720 19,021 28,412 Professional services 11,444 14,975 16,950 Marketing costs 3,325 11,212 14,707 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 Other income (expense), net consists of the following for the years ended December 31: (in thousands) 2020 2019 2018 Interest income $ 114 $ 342 $ 740 Loss on debt refinancing — — ( 4,434 ) Other, net 261 1,006 1,824 Total $ 375 $ 1,348 $ ( 1,870 ) 83 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) NOTE 22 — INCOME TAXES The components of income before income taxes and non-controlling interests consist of the following for the years ended December 31: (in thousands) 2020 2019 2018 Domestic - Luxembourg $ ( 50,821 ) $ 8,919 $ ( 22,513 ) 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: (in thousands) 2020 2019 2018 Current: Domestic - Luxembourg $ ( 2,158 ) $ — $ ( 275 ) 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 ) Deferred: 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 ) 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 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. We recognize deferred income tax assets and liabilities for these differences between the financial reporting basis and the tax basis of our assets and liabilities as well as expected benefits of utilizing net operating loss and credit carryforwards. 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. 84 Table of Contents 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: (in thousands) 2020 2019 Non-current deferred tax assets: Net operating loss carryforwards $ 353,358 $ 338,403 U.S. federal and state tax credits 242 189 Other non-U.S. deferred tax assets 11,327 13,980 Share-based compensation 1,658 2,010 Accrued expenses 1,205 2,691 Unrealized losses 10,351 9,011 Other — 526 Non-current deferred tax liabilities: 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 (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. In determining whether a valuation allowance is needed requires an extensive analysis of positive and negative evidence regarding realization of the deferred tax assets and, inherent in that, 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. 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. The Company had a deferred tax asset of $ 353.4 million as of December 31, 2020 relating to Luxembourg, U.S. federal, state and foreign net operating losses compared to $ 338.4 million as of December 31, 2019. 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. 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. 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, 85 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) 2019. 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. 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. 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. in 2020. The CARES Act allows a five year carryback of the $ 14.8 million net operating loss generated in the U.S. in 2020 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 % Change in valuation allowance ( 29.79 ) 2,526.53 43.08 State tax expense ( 1.25 ) ( 1.63 ) 28.58 Tax credits 0.10 — — Uncertain tax positions ( 2.94 ) 39.60 114.18 Unrecognized tax loss — ( 67.18 ) — Income tax rate change ( 2.40 ) — — 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 % The Company follows ASC Topic 740 which clarifies the accounting and disclosure for uncertainty in tax positions. We analyzed our tax filing positions in the domestic and foreign tax jurisdictions where we are required to file income tax returns as well as for all open tax years subject to audit in these jurisdictions. The Company has open tax years in the United States (2017 through 2019), India (2011 through 2019) and Luxembourg (2014 through 2018). The following table summarizes changes in unrecognized tax benefits during the years ended December 31: (in thousands) 2020 2019 Amount of unrecognized tax benefits as of the beginning of the year $ 9,767 $ 9,687 Decreases as a result of tax positions taken in a prior period ( 2,591 ) ( 192 ) Increases as a result of tax positions taken in a prior period 767 22 Increases as a result of tax positions taken in the current period 598 250 Amount of unrecognized tax benefits as of the end of the year $ 8,541 $ 9,767 The total amount of unrecognized tax benefits including interest and penalties that, if recognized, would affect the effective tax rate is $ 13.2 million and $ 13.5 million as of December 31, 2020 and 2019, respectively. The Company recognizes interest, if any, related to unrecognized tax benefits as a component of income tax expense. 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. 86 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) 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 attributable to Altisource $ ( 67,156 ) $ ( 307,969 ) $ ( 5,382 ) Weighted average common shares outstanding, basic 15,598 15,991 17,073 Weighted average common shares outstanding, diluted 15,598 15,991 17,073 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 (finalized in 2020). 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 We record a liability for contingencies if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For proceedings where the reasonable estimate of loss is a range, we record a best estimate of loss within the range. Litigation We are currently involved in legal actions in the course of our business, some of which seek monetary damages. We do not believe that the outcome of these proceedings, both individually and in the aggregate, will have a material impact on our financial condition, results of operations or cash flows. Regulatory Matters Periodically, we are subject to audits, examinations and investigations by federal, state and local governmental authorities and receive subpoenas, civil investigative demands or other requests for information from such governmental authorities in connection with their regulatory or investigative authority. We are currently responding to such inquiries from governmental authorities relating to certain aspects of our business. We believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with these inquiries. Sales Taxes On June 21, 2018, the United States Supreme Court rendered a 5-4 majority decision in South Dakota v. 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, 87 Table of Contents 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. 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. Ocwen Related Matters As discussed in Note 3, during the year ended December 31, 2020, Ocwen was our largest customer, accounting for 54 % of our total revenue. 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 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. Previous regulatory actions against Ocwen have subjected Ocwen to independent oversight of its operations and placed certain restrictions on its ability to acquire servicing rights. In addition to the above, Ocwen may become subject to future adverse regulatory or other actions. Ocwen has disclosed that NRZ is its largest client. 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. 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 our continuing relationship with Ocwen. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services, it may be required to seek changes to its existing pricing structure with us, it may lose its non-government-sponsored enterprise (“GSE”) servicing rights or subservicing arrangements or may lose one or more of its state servicing or origination licenses. Additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in Ocwen’s business that could require it to sell assets or change its business operations. Any or all of these effects 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. 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 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. 88 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) 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 • Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio • The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue • Altisource otherwise fails to be retained as a service provider Management cannot predict whether any of these events will occur or the amount of any impact they may have on Altisource. 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. Leases 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. 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. We lease certain premises and equipment, primarily consisting of office space and information technology equipment. 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. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. We sublease certain office space to third parties. 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 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 . As of December 31, 2020, we entered into a five year lease for additional office space which has not yet commenced. 89 Table of Contents 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: 2020 2019 Weighted average remaining lease term (in years) 3.18 3.23 Weighted average discount rate 7.01 % 7.11 % Our lease activity was as follows for the years ended December 31: (in thousands) 2020 2019 Operating lease costs: Selling, general and administrative expense $ 9,712 $ 10,698 Cost of revenue 1,919 2,757 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 2021 $ 8,268 2022 5,765 2023 4,671 2024 2,901 2025 599 Total lease payments 22,204 Less: interest ( 2,314 ) Present value of lease liabilities $ 19,890 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 We hold customers’ assets in escrow accounts at various financial institutions pending completion of certain real estate activities. These amounts are held in escrow accounts for limited periods of time and are not included in the consolidated balance sheets. Amounts held in escrow accounts were $ 20.0 million and $ 12.3 million as of December 31, 2020 and 2019, respectively. 90 Table of Contents ALTISOURCE PORTFOLIO SOLUTIONS S.A. Notes to Consolidated Financial Statements ( Continued ) NOTE 26 — QUARTERLY FINANCIAL DATA (UNAUDITED) The following tables contain selected unaudited statement of operations information for each quarter of 2020 and 2019. The following information reflects all recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. Our business can be affected by seasonality. 2020 quarter ended (1)(2)(3)(4)(5)(6) (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: 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) 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 ) Net (loss) income ( 2,744 ) ( 4,604 ) 7,576 ( 306,085 ) Net (loss) income attributable to Altisource ( 3,184 ) ( 5,844 ) 7,165 ( 306,106 ) (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 ______________________________________ (1) The sum of quarterly amounts, including per share amounts, may not equal amounts reported for year-to-date periods. 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. See Note 22. (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 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. See Note 5. (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, 91 Table of Contents 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. 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. See Note 25. (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. See Note 4. (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. In November 2018, we announced our plans to sell the BRS Inventory and discontinue the BRS business. During the second quarter of 2019, we recognized a loss on the sale of the BRS Inventory of $ 1.8 million. See Note 8. 92 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.