What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-03 compared with 2021-03-11 · 230 added, 318 removed, 259 unchanged (68% of the section changed)

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Results of Operations.

This section, beginning on page 45, provides an analysis of our consolidated results of operations for the three years ended December 31, 2020.

This section, beginning on page 31, provides an analysis of our consolidated results of operations for the two years ended December 31, 2021.

Liquidity and Capital Resources .

This section, beginning on page 51, provides an analysis of our cash flows for the three years ended December 31, 2020.

This section, beginning on page 36, provides an analysis of our cash flows for the two years ended December 31, 2021.

We also discuss restrictions on cash movements, future commitments and capital resources.

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Other Matters.

This section, beginning on page 56, provides a discussion of off-balance sheet arrangements to the extent they exist.

In addition, we provide a tabular discussion of contractual obligations, discuss any significant commitments or contingencies and customer concentration.

This section, beginning on page 41, provides a discussion of customer concentration.

We are an integrated service provider and marketplace for the real estate and mortgage industries.

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In evaluating our performance, we focus on service revenue.

Service revenue consists of amounts attributable to our fee-based services and sales of short-term investments in real estate (wound down in 2019).

Service revenue consists of amounts attributable to our fee-based services.

Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin.

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Strategy and Core Businesses

We are focused on becoming the premier provider of mortgage and real estate marketplaces and related services to a broad and diversified customer base of residential loan investors and servicers, and originators.

We are focused on becoming the premier provider of mortgage and real estate marketplaces and related technology enabled solutions to a broad and diversified customer base of residential loan investors, servicers, and originators.

The real estate and mortgage marketplaces represent very large markets, and we believe our scale and suite of offerings provide us with competitive advantages that could support our growth.

Through our offerings that support residential loan investors and servicers, we provide a suite of services and technologies intended to meet their growing and evolving needs.

As we navigate the COVID-19 pandemic and its impacts on our business, we continue to evaluate our strategy and core businesses and seek to position our businesses to provide long term value to our shareholders.

Through our offerings that support residential loan investors and servicers, we provide a suite of solutions and technologies intended to meet their growing and evolving needs.

We are focused on growing referrals from our existing customer base and attracting new customers to our offerings.

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We believe we are one of only a few providers with a broad suite of servicer solutions, nationwide coverage and scalability.

Further, we believe we are well positioned to gain market share from existing and new customers in the event delinquency rates rise, or customers and prospects consolidate to larger, full-service providers or outsource services that have historically been performed in-house.

We also provide services to loan originators (or other similar mortgage market participants) in originating, buying and selling residential mortgages.

We provide a suite of services and technologies to meet the evolving and growing needs of lenders, mortgage purchasers and securitizers.

We are focused on growing referrals from our existing customer base and attracting new customers to our offerings.

We have a customer base that includes the Lenders One cooperative mortgage bankers and mid-size and larger bank and non-bank loan originators.

We believe our suite of services, technologies and unique access to the members of the Lenders One mortgage cooperative position us to grow our relationships with our existing customer base by providing additional products, services and solutions to these customers.

Further, we believe we are well positioned to gain market share from existing and new customers in the event origination volumes rise, or customers and prospects consolidate to larger, full-service providers or outsource services that have historically been performed in-house.

Our earlier stage business consists of Pointillist, Inc.

(“Pointillist”).

The Pointillist business was developed by Altisource through our consumer analytics capabilities.

Further, we believe we are well positioned to gain market share from existing and new customers in the event delinquency rates remain elevated following the expiration of the foreclosure moratoriums and forbearance plans, or customers and prospects consolidate to larger, full-service providers or outsource services that have historically been performed in-house.

We also provide services to mortgage loan originators (or other similar mortgage market participants).

We provide a suite of solutions and technologies to meet the evolving and growing needs of lenders, mortgage purchasers and securitizers.

We are focused on growing business from our existing customer base, attracting new customers to our offerings and developing new offerings.

We have a customer base that includes the Lenders One cooperative members, which includes independent mortgage bankers, credit unions, and banks, as well as bank and non-bank loan originators.

We believe our suite of services, technologies and unique access to the members of the Lenders One mortgage cooperative position us to grow our relationships with our existing customer base by growing membership of Lenders One, increasing member adoption of existing solutions and developing and cross-selling new offerings.

Further, we believe we are well positioned to gain market share from existing and new customers as customers and prospects consolidate to larger, full-service providers or outsource services that have historically been performed in-house.

Our earlier stage business consists of Pointillist, a majority owned subsidiary of Altisource.

We developed the Pointillist business through our consumer analytics capabilities.

We believe the Pointillist business is a potentially disruptive SaaS-based platform which provides unique customer journey analytics at scale and enables customers to engage through our intelligent platform.

During 2019, we created Pointillist as a separate legal entity to position it for accelerated growth and outside investment and contributed the Pointillist 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 an option, but no ongoing obligation, to participate in future funding of Pointillist.

We previously reported the results of Owners.com as an earlier stage business.

In October 2019, the Company announced its plans to wind down and close the Owners.com business, which was completed by December 31, 2019.

On May 27, 2021, Pointillist issued $1.3 million in principal of convertible notes to related parties with a maturity date of January 1, 2023.

The notes bore interest at a rate of 7% per annum.

The principal and unpaid accrued interest then outstanding under the notes (1) would automatically convert to Pointillist equity at the earlier of the time Pointillist receives proceeds of $5.0 million or more from the sale of its equity or January 1, 2023, or (2) are repaid in cash or converted into Pointillist common stock equity based on a $13.1 million Pointillist valuation (at the Lenders’ option) in the event of a corporate transaction or initial public offering of Pointillist.

On October 6, 2021, the shareholders of Pointillist, entered into a definitive Stock Purchase Agreement to sell all of the equity interests in Pointillist to Genesys for $150.0 million.

The Purchase Price consisted of (1) an up-front payment of $144.5 million, subject to certain adjustments, (2) $0.5 million deposited into the Working Capital Escrow, with excess amounts remaining after satisfying such deficits (if any) being paid to the sellers, and (3) $5.0 million deposited into an escrow account to satisfy certain Genesys indemnification claims that may arise on or prior to the first anniversary of the sale closing and, at Genesys’ election, any working capital deficits that exceed the Working Capital Escrow, with the balance to be paid to the sellers thereafter.

The transaction closed on December 1, 2021 and the notes were converted to Pointillist equity in connection with the transaction.

On a fully diluted basis, we owned approximately 69% of the equity of Pointillist.

After working capital and other applicable adjustments, we received approximately $106.0 million from the sale of its Pointillist equity and the collection of outstanding receivables, with $102.2 million received at closing, approximately $0.3 million deposited into the Working Capital Escrow and approximately $3.5 million deposited into the Indemnification Escrow.

We recognized a pre-tax and after-tax gain of $88.9 million from the sale.

COVID-19 Pandemic Impacts

In response to the COVID-19 pandemic, various governmental entities and servicers implemented unprecedented foreclosure and eviction moratoriums and forbearance programs to help mitigate the impact to borrowers and renters.

Additionally, at various times throughout 2020, certain jurisdictions in the United States placed restrictions on non-essential services and travel.

As a result of these measures, foreclosure initiations were 84% lower for April through December 2020 compared to the same period in 2019 despite 271% growth in the number of delinquent mortgages in December 2020 compared to March 2020 (according to data from a recent Black Knight report).

The decline in foreclosure initiations resulted in significantly lower REO referrals and negatively impacted virtually all of the default related services performed on delinquent loans, loans in foreclosure and REO.

With the expectation that the foreclosure and eviction moratoriums will be extended through at least September 2021, we anticipate that default related referrals will remain severely depressed throughout 2021.

At the same time, to reduce interest rates, the Federal Reserve lowered the target for the federal funds rate to 0% to 0.25% and bought billions of dollars of mortgage backed securities on the secondary market.

As a result of the lower interest rate environment, 2020 mortgage originations were 59% higher than 2019 (according to the Mortgage Bankers Association) driving higher demand for origination related services.

The higher demand for origination related services is anticipated to continue into 2021.

While we cannot predict the duration of the pandemic and future governmental measures, we anticipate that revenue from our default related businesses will continue to be under significant pressure throughout 2021 with referrals being impacted by the extension of the foreclosure and eviction moratoriums and forbearance plans, and Ocwen’s transition of field services, valuation and title referrals associated with certain investor's MSRs to the investor's captive service provider (see Ocwen Related Matters below).

Furthermore, we anticipate that our Marketplace and Field Services businesses will continue to be negatively impacted by low REO referrals and lower REO inventory at the beginning of 2021 compared to the beginning of 2020.

We further anticipate that our origination related business will continue to experience growth from a strong originations market, new customer wins and, more recently, new product launches.

However, due to the relative size of Altisource’s default related businesses compared to its origination related businesses, we anticipate that Altisource’s total service revenue will decline in 2021 compared to 2020.

To address the lower anticipated revenue, Altisource is working to (1) reduce our cost structure, (2) maintain the infrastructure to deliver default related services for our customer base and support the anticipated surge in demand following the expiration of the moratoriums and forbearance plans, and (3) accelerate the growth of our originations related businesses.

We anticipate that demand for default related services will begin to return in late 2021 and into 2022.

We anticipate that the volume of referrals will be significantly higher driven by much higher delinquency rates than before the pandemic began.

We currently anticipate that the default related business should stabilize in 2023 when certain post-forbearance plan foreclosures become REO.

We further anticipate that our originations related business will continue to grow from new customer wins and product expansion with our originations customers.

In response to the COVID-19 pandemic, various governmental entities and servicers implemented unprecedented foreclosure and eviction moratoriums, forbearance programs and loss mitigation measures to help mitigate the impact to borrowers and renters.

As a result of these measures and other related actions, industry-wide foreclosure initiations were 89% and 67% lower for the years ended December 31, 2021 and 2020, compared to the same period in 2019, respectively (with such foreclosure initiations representing 3%, 38% and 96% of seriously delinquent loans as of the beginning of the year in 2021, 2020 and 2019, respectively).

The decline in foreclosure initiations resulted in significantly lower REO referrals to Altisource and negatively impacted virtually all of Altisource’s default related services performed on delinquent loans, loans in foreclosure and REO.

At the same time, beginning in the first half of 2020 the Federal Reserve lowered the target for the federal funds rate to 0% to 0.25% and bought billions of dollars of mortgage backed securities on the secondary market to reduce interest rates.

As a result of the lower interest rate environment, mortgage originations were 77% and 82% higher for the years ended December 31, 2021 and 2020 compared to 2019, respectively (according to the Mortgage Bankers Association) driving higher demand for origination related services.

We cannot predict the duration of the pandemic and future governmental measures.

The Federal government’s foreclosure and eviction moratoriums expired at the end of July 2021.

The CFPB’s rules on temporary loss mitigation measures essentially prohibited foreclosure initiations until January 1, 2022 other than a few exceptions, including for those loans that were 120 days or more delinquent prior to the pandemic.

Based on these events, we believe the demand for our Default business will grow in 2022 after the expiration of the CFPB’s temporary loss mitigation rules, and stabilize during 2023 when we anticipate foreclosures commenced after the expiration of the foreclosure moratoriums, forbearance plans and temporary loss mitigation rules become REO and are sold.

We further anticipate that despite the forecasted decline in origination volumes in 2022 compared to 2021, our origination business will continue to grow from new customer wins, and cross selling existing and new offerings to customers.

During 2021, to address lower revenue, Altisource worked to (1) reduce our cost structure, (2) maintain the infrastructure to deliver default related services for our customer base and support the anticipated increase in demand following the expiration of the moratoriums and forbearance plans, (3) accelerate the growth of our originations businesses, and (4) generate cash.

Share Repurchase Program

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As of December 31, 2021, 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.

There were no purchases of shares of common stock during the years ended December 31, 2021 and 2020.

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

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As of December 31, 2021, we can repurchase up to approximately $80 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.

Our senior secured term loan agreement also limits the amount we can spend on share repurchases, which limit was approximately $437 million as of December 31, 2021, and may prevent repurchases in certain circumstances, including if our leverage ratio exceeds 3.50 to 1.00.

Ocwen Related Matters

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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.

Existing or future similar matters could result in adverse regulatory or other actions against Ocwen.

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).

As of December 31, 2021, approximately 21% of loans serviced and subserviced by Ocwen (measured in UPB) were related to NRZ MSRs or rights to MSRs.

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.

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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.

Based upon the impacted portfolios 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 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 estimate that $0.5 million and $70.1 million of service revenue from Ocwen for the years ended December 31, 2021 and 2020, respectively, was derived from Field Services referrals from the NRZ portfolios.

We anticipate that the transition of such default valuations and title services will continue during the course of 2022.

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.

We estimate that $2.9 million and $18.2 million of service revenue from Ocwen for the years ended December 31, 2021 and 2020,

respectively, was derived from default valuations and title services referrals from the NRZ portfolios.

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

On May 5, 2021 we entered into an Agreement with Ocwen pursuant to which the terms of certain services agreements between us and Ocwen were extended from August 2025 through August 2030 and the scope of solutions we provide to Ocwen was expanded to include, among other things, the opportunity for the Company to provide first and second chance foreclosure auctions on Government Loans, and title services on FHA and Veterans Affairs loans, subject to a process to confirm Altisource’s ability to meet reasonable performance requirements, which process is continuing.

The Agreement established a framework for us to expand the foreclosure trustee solutions we provide to Ocwen in additional states, and, as mutually agreed upon by the parties, to deliver reverse mortgage related solutions to Ocwen, subject to negotiation of appropriate statements of work or other agreements, a process to confirm Altisource’s ability to meet reasonable performance requirements, and technical integrations, as may be applicable.

The Agreement further resolved the contractual dispute between the parties related to Ocwen’s transfer to NRZ the rights to designate service providers other than Altisource, including mutual releases with respect to such dispute.

The Agreement also addressed Ocwen’s rights in the event of certain change of control or sale of a business transactions by us on or after September 1, 2028.

Since the date of the Agreement, Ocwen has transitioned over 2,300 of its foreclosure auction inventory on Government Loans to us and increased our percentage of field services referrals on its Government Loans.

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, sells or transfers a significant portion of its servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider

• The contractual relationship between Ocwen and NRZ changes significantly, including Ocwen’s sub-servicing arrangement with NRZ expiring without renewal, 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

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The following items impact the comparability of our results:

• The Company’s financial performance for the year ended December 31, 2020 in its default related services businesses was negatively impacted by the COVID-19 pandemic.

Governmental, and in some instances, servicer measures to provide support to borrowers, including foreclosure and eviction moratoriums and forbearance programs, reduced referral volumes and inflows of REO.

Further, COVID-19 pandemic related governmental restrictions and changing vendor and consumer behavior also impacted revenue.

This impact was partially offset by stronger performance from the Company’s origination related businesses that benefited from lower interest rates for the year ended December 31, 2020.

Across the Company’s three core businesses, service revenue from customers other than Ocwen, NRZ and RESI for the year ended December 31, 2020 grew by 9% compared to the year ended December 31, 2019, despite the COVID-19 pandemic impacts the Company began facing late in the first quarter of 2020.

Compared to the year ended December 31, 2019, the increase is primarily from growth in our customer base and market share expansion.

Service revenue from the origination businesses such as loan fulfillment, loan certification, title, settlement and valuation services in Mortgage and Real Estate Solutions, excluding our construction risk mitigation business that was impacted by the pandemic, grew by 47% for the year ended December 31, 2020 compared to 2019.

In the Marketplace and Field Services businesses, revenue from customers other than Ocwen and NRZ was relatively flat and the decline in service revenue was primarily driven by lower revenue from Ocwen’s declining servicing portfolio and the impact of the COVID-19 pandemic.

• The Company’s financial performance in its default businesses was negatively impacted by the COVID-19 pandemic for the year ended December 31, 2021.

Governmental, and in some instances servicer, measures to provide support to borrowers, including foreclosure and eviction moratoriums, forbearance programs, and loss mitigation measures, reduced referral volumes and inflows of REO.

COVID-19 pandemic related governmental restrictions and changing vendor and consumer behavior also impacted financial performance.

These impacts were partially offset by stronger performance from the Company’s origination businesses that benefited from lower interest rates, customer wins and new offerings for the year ended December 31, 2021 compared to 2020.

Across the Company’s three core businesses, service revenue from customers other than Ocwen, NRZ and Front Yard Residential Corporation (“RESI”) for the year ended December 31, 2021 decreased by 5% compared to 2020.

Compared to the year ended December 31, 2020, the decrease is primarily from a 64% decline in our default business, partially offset by a 11% growth in our origination businesses.

Service revenue from our default and other business was $107.2 million and $290.9 million for the years

ended December 31, 2021 and 2020, respectively, and service revenue from our origination business was $58.0 million and $52.3 million for the years ended December 31, 2021 and 2020, respectively.

• On October 6, 2021, the shareholders of Pointillist, a majority owned subsidiary of Altisource, entered into a definitive Stock Purchase Agreement to sell all of the equity interests in Pointillist to Genesys for $150.0 million.

The transaction closed on December 1, 2021.

On a fully diluted basis, Altisource owned approximately 69% of the equity of Pointillist.

After working capital and other applicable adjustments, Altisource received approximately $106.0 million from the sale of its Pointillist equity and the collection of outstanding receivables, with $102.2 million received at closing, approximately $0.3 million deposited into the Working Capital Escrow and approximately $3.5 million deposited into the Indemnification Escrow.

We recognized a pre-tax and after-tax gain of $88.9 million from the sale.

For the year ended December 31, 2021 and 2020, service revenue from Pointillist was $4.8 million and $2.2 million, respectively.

• Altisource used approximately $20.0 million of the proceeds from the sale of its equity interest in Pointillist to repay the outstanding balance on its revolving line of credit.

This revolving line of credit remains available to Altisource according to its terms.

• 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.

Based upon the impacted portfolios 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.

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 2022.

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

• During the years ended December 31, 2020, 2019 and 2018 we recognized an unrealized gain (loss) of $4.0 million, $14.4 million and $(13.0) million, respectively, from the change in fair value on our investment in RESI in other income (expense), net in the consolidated statements of operations and comprehensive loss from a change in the market value of RESI common shares.

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

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

Between October 19, 2020 and November 23, 2020, the Company sold all of its remaining 3.5 million shares for net proceeds of $46.6 million.

We estimate that $2.9 million and $18.2 million of service revenue from Ocwen for the years ended December 31, 2021 and 2020, respectively, was derived from default valuations and title services referrals from the NRZ portfolios.

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

• During the year ended December 31, 2020 we recognized an unrealized gain of $4.0 million from the change in fair value on our investment in RESI in other income (expense), net in the consolidated statements of operations and comprehensive income (loss) from a change in the market value of RESI common shares (no comparative amount for the year ended December 31, 2021).

In 2020, the Company sold all of its remaining 3.5 million shares of RESI for net proceeds of $46.6 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.

• 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.

During the year ended December 31, 2020, Altisource incurred $12.0 million of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan (no comparative amount for the year ended December 31, 2021).

• 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 upfront 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.

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

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

For the years ended December 31, 2019 and 2018, service revenue from the Financial Services Business was $33.4 million and $64.1 million, respectively (no comparative amounts for the year ended December 31, 2020).

• 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.

The transition was completed during 2019.

For the years ended December 31, 2019 and 2018, service revenue from REALServicing and related technologies was $14.1 million and $35.1 million, respectively (no comparative amounts for the year ended December 31, 2020).

• In November 2018, the Company announced its plans to sell its short-term investments in real estate (“BRS Inventory”) and exit the Company’s BRS business.

For the years ended December 31, 2019 and 2018, service revenue from BRS was $42.5 million and $61.2 million, respectively (no comparative amounts for the year ended December 31, 2020).

In anticipation of receiving the majority of the proceeds from the sale of the BRS Inventory in 2019, the Company repaid $49.9 million of its senior secured term loan in the fourth quarter of 2018.

• In October 2019, the Company announced its plans to wind down and close the Owners.com business, which was completed by December 31, 2019.

In connection with the wind down of the Owners.com business, the Company recognized a write-off of $5.9 million of goodwill and intangible assets in 2019 as well as wind down and severance costs.

For the years ended December 31, 2019 and 2018, service revenue from Owners.com was $7.1 million and $8.6 million, respectively (no comparative amounts for the year ended December 31, 2020).

• Effective January 1, 2019, the Company implemented a new accounting standard on leases which required the recognition of operating leases by companies as operating lease liabilities on their balance sheets and also required the recognition of right-of-use assets.

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 by $3.4 million in accounts payable and accrued liabilities and other non-current liabilities on the accompanying consolidated balance sheets.

• 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 certain existing court precedent.

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

The Company recognized a $(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 (“SG&A”) 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.

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

The Company recognized a $13.7 million pretax gain on the sale of this business during the year ended December 31, 2018 in the consolidated statements of operations and comprehensive income (loss) in connection with this transaction.

For the year ended December 31, 2018, service revenue from the rental property management business was $4.2 million (no comparative amounts for the years ended December 31, 2019 and 2020).

In addition, the Company used the proceeds received from the sale of the rental property management business to RESI to repay $15.0 million of the Term B Loans in 2018.

• On April 3, 2018, Altisource and its wholly-owned subsidiary, Altisource S.à r.l.

entered into the Credit Agreement, pursuant to which, among other things, Altisource borrowed $412.0 million in the form of Term B Loans.

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

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 for the year ended December 31, 2018.

The comparative average interest rates under the Credit Agreement for the Term B Loans and the prior credit agreement were 5.3%, 6.4% and 6.0% for the years ended December 31, 2020, 2019 and 2018, respectively.

• The Company recognized an income tax provision of $3.2 million for the year ended December 31, 2021.

The income tax provision on losses before income taxes and non-controlling interests for the year ended December 31, 2020 was primarily driven by income in our US and other foreign operations from transfer pricing on services provided to our Luxembourg operating company, no tax benefit on the pretax losses from our Luxembourg operating company for the year ended December 31, 2020 and tax expense on unrepatriated earnings in India, partially offset by lower transfer pricing rates due to the COVID-19 pandemic.

• The Company recognized an income tax provision of $318.3 million for the year ended December 31, 2019, which included an increase in the valuation allowance in connection with Luxembourg net operating loss (“NOL”) carryforward of $291.5 million, the impact of a decrease in the Luxembourg statutory income tax rate on deferred taxes of $14.0 million and foreign income tax reserves of $5.6 million.

The resulting effective tax rate differs from Luxembourg statutory income tax rate of 24.9% principally as a result of the increase in the valuation allowance, the impact of the decrease in the Luxembourg statutory income tax rate on deferred taxes and foreign income tax reserves discussed above and the jurisdictional mix of income before income taxes and non-controlling interest.

Certain of the Company’s India subsidiaries generated taxable income based on cost plus transfer pricing to our Luxembourg subsidiary for their services and certain US and Luxembourg subsidiaries generated taxable losses that did not result in a tax benefit due to a valuation allowance applied to the tax benefit.

• The Company’s effective income tax rate for the year ended December 31, 2018 was 292.9%, which differs from the Luxembourg statutory income tax rate of 26.0%.

In 2018, the Company’s effective income tax rate was unusually high because certain of the Company’s India and United States subsidiaries generated taxable income based on cost plus transfer pricing to our Luxembourg subsidiary for their services and the Luxembourg subsidiary incurred a taxable loss.

As these jurisdictions have different effective income tax rates (i.e., India has a higher effective income tax rate than Luxembourg), and because of a $1.6 million foreign income tax reserve (and related interest), the Company recognized consolidated income tax expense that was greater than income before income taxes and non-controlling interest.

The income tax provision for the year ended December 31, 2021 was driven by no income tax provision on the gain on sale of Pointillist, income tax on transfer pricing income from India, no tax benefit on the pretax loss from our Luxembourg operating company and Pointillist, uncertain tax position and tax on unrepatriated earnings in India.

• The Company recognized an income tax provision of $8.6 million for the year ended December 31, 2020.

year ended December 31, 2020 and tax expense on unrepatriated earnings in India, partially offset by lower transfer pricing rates due to the COVID-19 pandemic.

RESULTS OF OPERATIONS

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The following table sets forth information on our consolidated results of operations for the years ended December 31:

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

(in thousands, except per share data) 2021 % Increase (decrease) 2020

Service revenue $ 170,613 (51) $ 347,313

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Gross profit 7,087 (88) 60,353

Operating expenses (income):

Operating expense (income):

Selling, general and administrative expenses 67,049 (28) 92,736

Gain on sale of businesses — (100) (17,814) 30 (13,688)

Gain on sale of businesses (88,930) N/M —

Restructuring charges — (100) 11,972

(Loss) income from operations (44,355) (346) 18,053 (58) 42,495

Income (loss) from operations 28,968 165 (44,355)

Other income (expense), net:

Interest expense (14,547) (18) (17,730)

Unrealized gain (loss) on investment in equity securities 4,004 (72) 14,431 211 (12,972)

Other income (expense), net 375 (72) 1,348 172 (1,870)

Unrealized gain on investment in equity securities — (100) 4,004

Other income, net 864 130 375

Total other income (expense), net (13,683) (2) (13,351)

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

Income tax provision (8,609) (97) (318,296) N/M (4,098)

Net loss (66,315) (78) (305,857) N/M (2,699)

Income (loss) before income taxes and non-controlling interests 15,285 126 (57,706)

Income tax provision (3,232) (62) (8,609)

Net income (loss) 12,053 118 (66,315)

Net income attributable to non-controlling interests (241) (71) (841)

Net loss attributable to Altisource $ (67,156) (78) $ (307,969) N/M $ (5,382)

Net income (loss) attributable to Altisource $ 11,812 118 $ (67,156)

Gross profit/service revenue 4 % 17 %

(Loss) income from operations/service revenue (13) % 3 % 5 %

Loss per share:

Basic $ (4.31) (78) $ (19.26) N/M $ (0.32)

Diluted $ (4.31) (78) $ (19.26) N/M $ (0.32)

Income (loss) from operations/service revenue 17 % (13) %

Earnings (loss) per share:

Basic $ 0.75 117 $ (4.31)

Diluted $ 0.74 117 $ (4.31)

Weighted average shares outstanding:

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N/M — not meaningful.

Certain non-GAAP financial measures for the years ended December 31:

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

Non-GAAP Financial Measures (1)

Adjusted net (loss) income attributable to Altisource $ (29,121) (234) $ 21,802 (49) $ 42,609

Adjusted diluted (loss) earnings per share $ (1.87) (240) $ 1.34 (45) $ 2.43

Adjusted EBITDA $ 10,243 (86) $ 70,800 (40) $ 118,279

_____________________________________

(1) These are non-GAAP measures that are defined and reconciled to the corresponding GAAP measures on pages 28 to 33.

Revenue by line of business consists of the following for the years ended December 31:

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

(in thousands, except per share data) 2021 % Increase (decrease) 2020

Service revenue:

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Mortgage and Real Estate Solutions 83,627 (20) 103,906

Earlier Stage Business 2,243 45 1,551 N/M 293

Earlier Stage Business 4,821 115 2,243

Other 633 (66) 1,875

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Mortgage and Real Estate Solutions 2,615 (28) 3,610

Other — (100) 190 (21) 239

Total reimbursable expenses 6,555 (60) 16,285

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N/M — not meaningful.

2020 service revenue of $347.3 million was 44% lower than 2019 primarily from COVID-19 pandemic related foreclosure and eviction moratoriums and borrower forbearance plans, an MSR investor’s instructions to Ocwen to transition field services, title and valuation referrals historically provided to Altisource to the MSR investor’s captive vendors, a higher percentage of a customer’s homes sold at the foreclosure auction (this reduces our REO auction, brokerage, field services and title service revenue) and the 2019 sale, discontinuation and exit from certain businesses, partially offset by an increase in revenue from customers other than Ocwen, NRZ and RESI.

We recognized service revenue of $621.9 million for the year ended December 31, 2019, a 23% decrease compared to the year ended December 31, 2018.

Field Services, Marketplace and Mortgage and Real Estate Solutions were negatively impacted during 2019 by the reduction in the size of Ocwen’s portfolio and number of delinquent loans, NRZ’s more aggressive sale of homes at foreclosure auctions (which reduces our REO auction, brokerage, field services and title referral service revenue), RESI’s smaller portfolio of non-performing loans and REO and the temporary impact that Ocwen’s transition to another servicing system had on Ocwen and NRZ default related referral volume and Ocwen and NRZ REO inventory conversion rates.

The Company estimates that revenue was approximately $7.2 million lower in the year ended December 31, 2019 because of lower REO inventory conversion rates related to Ocwen’s transition to a new servicing system.

These decreases were partially offset by an increase in Field Services and Mortgage and Real Estate Solutions revenue from higher volumes of orders and services from customers other than Ocwen, NRZ and RESI.

In addition, Other service revenue declined from the July 1, 2019

sale of the Financial Services Business, lower REALServicing revenue from Ocwen’s second quarter 2019 migration to another servicing system and from the discontinuation of the BRS business.

We recognized reimbursable expense revenue of $16.3 million for the year ended December 31, 2020, a 33% decrease compared to the year ended December 31, 2019.

2021 service revenue of $170.6 million was 51% lower than 2020 primarily from COVID-19 pandemic related foreclosure and eviction moratoriums and borrower forbearance plans, and an MSR investor’s 2020 instructions to Ocwen to transition field services, title and valuation referrals historically provided to Altisource to the MSR investor’s captive vendors.

The decrease for the year ended December 31, 2021 was partially offset by an increase in revenue from our origination business of 11%, from higher origination related volumes driven by a lower interest rate environment, customer wins and new offerings.

We recognized reimbursable expense revenue of $6.6 million for the year ended December 31, 2021, a 60% decrease compared to the year ended December 31, 2020.

The decreases in reimbursable expense revenue for the years ended December 31, 2020 and 2019 were primarily for the reasons discussed in service revenue above, partially offset by increases in reimbursable expense revenue for a new early stage disposition service offering (cash for keys program and evictions) initiated in June 2019 in Marketplace and, for the year ended December 2020, an increase in certain title and foreclosure trustee volumes in Mortgage and Real Estate Solutions.

The decreases in reimbursable expense revenue for the year ended December 31, 2021 was consistent with the decline in service revenue discussed above.

Certain of our revenues can be impacted by seasonality.

More specifically, revenues from property sales, loan originations and certain property preservation services in Field Services typically tend to be at their lowest level during the fall and winter months and at their highest level during the spring and summer months.

However, as a result of the pandemic and related measures, the seasonal impact to revenue may not follow historical patterns.

Cost of Revenue and Gross Profit

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 and depreciation and amortization of operating assets.

Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service, operations and technology roles, fees paid to external providers related to the provision of services, reimbursable expenses, technology and telecommunications costs and depreciation and amortization of operating assets.

Cost of revenue consists of the following for the years ended December 31:

(in thousands) 2020 % Increase (decrease) 2019 % Increase (decrease) 2018

(in thousands) 2021 % Increase (decrease) 2020

Compensation and benefits $ 69,990 (26) $ 94,365

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Depreciation and amortization 3,162 (74) 12,310

Cost of real estate sold — (100) 42,763 (10) 47,659

Total $ 171,366 (44) $ 305,194

We recognized cost of revenue of $171.4 million for the year ended December 31, 2021, a 44% decrease compared to the year ended December 31, 2020.

The decreases in compensation and benefits, outside fees and services and cost of real estate sold were primarily driven by lower service revenue in Field Services and Marketplace businesses, the July 1, 2019 sale of the Financial Services Business, the discontinuation of the BRS business and the wind down of Owners.com, discussed in the revenue section above.

Compensation and benefits also decreased due to lower headcount and temporary reductions in compensation in connection with cash cost savings measures initiated in the second quarter of 2020 in response to the COVID-19 pandemic related decreases in service revenue discussed in the revenue section above and as a result of the Project Catalyst reorganization.

The decreases in reimbursable expenses were consistent with the changes in reimbursable expense revenue discussed in the revenue section above.

We recognized cost of revenue of $493.3 million for the year ended December 31, 2019, a 21% decrease compared to the year ended December 31, 2018.

The decrease was primarily driven by lower revenue in Field Services, Marketplace and Mortgage and Real Estate Solutions businesses and the July 1, 2019 sale of the Financial Services Business.

Compensation and benefits decreased at a greater percentage than the decline in service revenue due to lower headcount as a result of the Project Catalyst reorganization and the transfer of certain employees to SG&A functions in connection with the Project Catalyst reorganization.

Depreciation and amortization was lower from the completion of the depreciation periods of certain premises and equipment and the reduction in capital expenditures.

The decrease in reimbursable expenses was consistent with the decrease in reimbursable expense revenue discussed in the revenue section above.

Gross profit decreased to $60.4 million, representing 17% of service revenue, for the year ended December 31, 2020 compared to $155.4 million, representing 25% of service revenue, for the year ended December 31, 2019.

Gross profit as a percentage of service revenue in 2020 decreased compared to 2019, primarily due to revenue mix with lower revenue from the higher margin Marketplace business, lower gross margin in the Field Services business, the impact of the July 1, 2019 sale of the Financial Services Business and higher revenue from the 2019 sale of the BRS Inventory that resulted in a $1.8 million loss.

These decreases were partially offset by our COVID-19 pandemic cost savings measures, Project Catalyst cost reduction initiatives.

The decrease in outside fees and services was primarily driven by lower service revenue in the Field Services, Marketplace and Mortgage and Real Estate Solutions businesses, discussed in the revenue section above.

Compensation and benefits decreased primarily due to cash cost savings measures taken in 2020 in response to the COVID-19 related decrease in service revenue and reduction in revenue from Ocwen discussed in the revenue section above.

The Company also continued to reduce employee costs in the year ended December 31, 2021 as a result of the extension of the expiration of foreclosure moratoriums and forbearance plans.

In addition, depreciation and amortization was lower from the completion of the depreciation periods of certain premises and equipment and the reduction in capital expenditures.

The decrease in reimbursable expenses was consistent with the changes in reimbursable expense revenue discussed in the revenue section above.

Gross profit decreased to $7.1 million, representing 4% of service revenue, for the year ended December 31, 2021 compared to $60.4 million, representing 17% of service revenue, for the year ended December 31, 2020.

Gross profit as a percentage of service revenue in 2019 decreased compared to 2018, primarily due to revenue mix with lower revenue from the higher margin Marketplace business.

The revenue mix change was partially impacted by Ocwen's servicing system transition, as discussed above.

Absent the transition, we believe we would have had substantially higher Hubzu sale conversion rates generating more revenue at higher margins.

These decreases were partially offset by our Project Catalyst cost reduction initiatives.

Gross profit as a percentage of service revenue in 2021 decreased compared to 2020, primarily due to revenue mix with lower revenue from the higher margin Marketplace businesses and lower gross profit margin in the Field Services business.

These decreases were partially offset by our COVID-19 cash cost savings measures.

Selling, General and Administrative Expenses

SG&A includes payroll for personnel employed in executive, sales and marketing, finance, law, compliance, human resources, vendor management, facilities and risk management roles.

Selling, general and administrative (“SG&A”) expenses includes payroll for personnel employed in executive, sales and marketing, finance, technology, 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.

SG&A expenses consist of the following for the years ended December 31:

(in thousands) 2020 % Increase (decrease) 2019 % Increase (decrease) 2018

(in thousands) 2021 % Increase (decrease) 2020

Compensation and benefits $ 28,367 (20) $ 35,521

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SG&A for the year ended December 31, 2021 of $67.0 million decreased by 28% compared to the year ended December 31, 2020.

The decreases were primarily driven by lower compensation and benefits, occupancy related costs, marketing costs and Other expenses.

Compensation and benefits decreased as we reduced headcount and temporarily reduced compensation as part of our COVID-19 pandemic cost savings measures and Project Catalyst cost reduction initiatives.

The decrease in occupancy related costs primarily resulted from the July 1, 2019 sale of the Financial Services Business and facility consolidation initiatives.

The decrease in marketing costs was primarily driven by the wind down of Owners.com in the fourth quarter of 2019.

Other expenses decreased primarily due to lower travel and entertainment costs driven by lower headcount and COVID-19 pandemic travel restrictions, billings to TSI for transition services and higher net sales tax loss reimbursements, partially offset by higher bad debt expense.

In addition, the decrease in amortization of intangible assets for the year ended December 31, 2020 was driven by the completion of the amortization period of certain intangible assets during 2019, the July 1, 2019 sale of the Financial Services Business and lower revenue generated from the Homeward Residential, Inc.

(“Homeward”) and Residential Capital, LLC (“ResCap”) portfolios (revenue-based amortization) consistent with the reduction in the size of Ocwen’s portfolio, discussed in the revenue section above.

SG&A for the year ended December 31, 2019 of $141.1 million decreased by 20% compared to the year ended December 31, 2018.

The decrease was primarily driven by lower amortization of intangible assets and Other expenses.

The decrease in amortization of intangible assets was driven by lower revenue generated by the Homeward and ResCap portfolios consistent with the reduction in the size of Ocwen’s portfolio, discussed in the revenue section above, and the July 1, 2019 sale of the Financial Services Business.

Other expenses decreased primarily due to a $6.2 million contingent loss accrual for sales tax exposure in the United States recognized in 2018, lower travel and entertainment costs driven by lower headcount and lower bad debt expense.

The decrease was primarily driven by lower compensation and benefits, occupancy related costs and amortization of intangible assets.

Compensation and benefits decreased primarily due to cash cost savings measures taken in 2020 and 2021 in response to the COVID-19 related decrease in service revenue and reduction in revenue from Ocwen discussed in the revenue section above.

The decreases in occupancy related costs primarily resulted from facility consolidation initiatives.

The decrease in amortization of intangible assets was driven by the completion of the amortization period of certain intangible assets during 2021 and 2020.

In addition, the decrease in marketing costs were primarily driven by COVID-19 cost savings measures and the decline in revenue.

Other Operating Expenses (Income)

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Other operating expenses (income) consist of the following for the years ended December 31:

(in thousands) 2020 % Increase (decrease) 2019 % Increase (decrease) 2018

Gain on sale of businesses $ — (100) $ (17,814) 30 $ (13,688)

(in thousands) 2021 % Increase (decrease) 2020

Gain on sale of businesses $ (88,930) N/M $ —

Restructuring charges — (100) 11,972

Other operating expenses (income), net $ 11,972 421 $ (3,734) 75 $ (2,128)

On July 1, 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 (finalized in 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.

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.

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

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

In connection with the sale, we recognized a $13.7 million pretax gain on sale for the year ended December 31, 2018.

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.

Other operating (income) expenses, net $ (88,930) N/M $ 11,972

N/M — not meaningful.

On December 1, 2021, Altisource sold its equity interest in Pointillist (see subsection Strategy and Core Businesses in MD&A Overview for more details).

We recognized a pre-tax and after-tax gain of $88.9 million from the sale.

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, we 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.

Income from Operations

Income from operations decreased to a loss of $(44.4) million, representing (13)% of service revenue, for the year ended December 31, 2020 compared to $18.1 million, representing 3% of service revenue, for the year ended December 31, 2019.

Income from operations as a percentage of service revenue decreased for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily as a result of lower gross profit and a higher gain on the sale of business during the year ended December 31, 2019, partially offset by lower SG&A expenses, as discussed above.

Income from operations decreased to $18.1 million, representing 3% of service revenue, for the year ended December 31, 2019 compared to $42.5 million, representing 5% of service revenue, for the year ended December 31, 2018.

Income from operations as a percentage of service revenue decreased primarily as a result of lower gross margins and higher restructuring costs, partially offset by lower SG&A expenses, as discussed above.

The effect of the higher gain on sale of businesses was largely offset by higher restructuring charges for the year ended December 31, 2019, as discussed above.

Because Ocwen is our largest customer, declines in service revenue from Ocwen and the changes in mix of revenue from Ocwen have had a negative impact on our operating income.

During the year ended December 31, 2020 we incurred $12.0 million (no comparative amount for the year ended December 31, 2021), of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan.

Income (Loss) from Operations

Income from operations increased to $29.0 million, representing 17% of service revenue, for the year ended December 31, 2021 compared to a loss from operations of $(44.4) million, representing (13)% of service revenue, for the year ended December 31, 2020.

Income from operations as a percentage of service revenue increased for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily as a result of the gain on sale of business recognized during the year ended December 31, 2021, lower SG&A expenses and restructuring charges, partially offset by lower gross profit margins, as discussed above.

Other Income (Expense), net

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Other income (expense), net was $(13.7) million for the year ended December 31, 2021 compared to $(13.4) million for the year ended December 31, 2020.

The increase in other expense for the year ended December 31, 2020 was primarily driven by a $4.0 million unrealized gain on our investment in RESI common shares in 2020 compared to $14.4 million in 2019.

The increase in other expense for the year ended December 31, 2021 was primarily driven by a $4.0 million unrealized gain on our investment in RESI common shares in 2020 (no comparative amount in 2021).

The increase in other expense was partially offset by lower interest expense during the year ended December 31, 2021.

Interest expense decreased primarily due to lower average outstanding balances of the senior secured term loan as a result of repayments during

2020 and 2019 and lower interest rates.

Interest expense decreased primarily due to lower average outstanding balances of the senior secured term loan as a result of repayments during 2020 and lower interest rates.

For the year ended December 31, 2021, the interest rate of the senior secured term loan was 5.0% compared to 5.3% for the year ended December 31, 2020.

Other income (expense), net for the year ended December 31, 2019 of $(5.6) million decreased by 86% compared to the year ended December 31, 2018.

The decrease in other expense for the year ended December 31, 2019 was primarily driven by a $14.4 million unrealized gain on our investment in RESI in 2019 compared to a $(13.0) million unrealized loss on our investment in RESI in 2018.

In addition, on April 3, 2018, Altisource and its wholly-owned subsidiary, Altisource S.à r.l.

entered into the Credit Agreement, pursuant to which, among other things, Altisource borrowed $412.0 million in the form of Term B Loans.

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

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 for the year ended December 31, 2018.

Interest expense was lower for the year ended December 31, 2019 primarily due to lower average outstanding balances of the senior secured term loan as a result of repayments.

Income Tax (Provision) Benefit

We recognized an income tax provision of $8.6 million, $318.3 million and $4.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company recognized an income tax provision of $8.6 million for the year ended December 31, 2020.

The Company recognized an income tax provision of $318.3 million for the year ended December 31, 2019, which included an increase in the valuation allowance in connection with the Luxembourg NOL carryforward of $291.5 million, the impact of a decrease in the Luxembourg statutory income tax rate on deferred taxes of $14.0 million and foreign income tax reserves of $5.6 million.

The resulting effective tax rate differs from the Luxembourg statutory income tax rate of 24.9% principally as a result of the increase in valuation allowance, the impact of the decrease in the Luxembourg statutory income tax rate on deferred taxes and foreign income tax reserves discussed above and the jurisdictional mix of income before income taxes and non-controlling interests.

The Company’s effective income tax rate for the year ended December 31, 2018 was 292.9%, which differed from the Luxembourg statutory income tax rate of 26.0%.

Income Tax Provision

We recognized an income tax provision of $3.2 million and $8.6 million for the years ended December 31, 2021 and 2020, respectively.

ended December 31, 2020 and tax expense on unrepatriated earnings in India, partially offset by lower transfer pricing rates due to the COVID-19 pandemic.

LIQUIDITY AND CAPITAL RESOURCES

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The lower revenue, partially offset by cost savings initiatives, resulted in negative operating cash flow from operations for the year ended December 31, 2021.

To address our current operating environment, we plan to continue our cost reduction initiatives to reduce cash burn.

We anticipate that referral volumes from delinquent mortgages will increase following the expiration of the foreclosure moratoriums.

To increase our liquidity we entered into a $20 million revolving credit facility during the second quarter of 2021.

In addition, Altisource’s December 1, 2021 sale of its equity interest in Pointillist increased our liquidity.

The Pointillist sale generated approximately $106.0 million in cash, with $102.2 million received at closing, approximately $0.3 million deposited into the Working Capital Escrow and approximately $3.5 million deposited into the Indemnification Escrow.

Finally, we believe the anticipated 2022 growth in our origination and default businesses along with our reduced cost structure should help reduce negative operating cash flow.

We seek to deploy cash generated in a disciplined manner.

Principally, we intend to use cash to develop and grow complementary services and businesses that we believe will generate attractive margins in line with our core capabilities and strategy.

We use cash for repayments of our long-term debt and capital investments.

We anticipate that we may use cash from time to time to repurchase shares of our common stock.

In addition, we consider and evaluate business acquisitions, dispositions, closures or other similar actions from time to time that are aligned with our strategy.

Principally, we intend to use cash to develop and grow complementary services and businesses that we believe will generate attractive margins in line with our core capabilities and strategy and fund negative operating cash flow.

We also use cash for repayments of our long-term debt and capital investments.

In addition, from time to time we consider and evaluate business acquisitions, dispositions, closures or other similar actions that are aligned with our strategy.

Credit Agreement

In April 3, 2018, Altisource entered into the Credit Agreement pursuant to which 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.

As of December 31, 2020, $247.2 million of the Term B Loans were outstanding.

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

There are no mandatory repayments of the Term B Loans due until maturity in April 2024.

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

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

entered into a credit agreement (the “Credit Agreement”) pursuant to which 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.

We terminated the revolving credit facility on December 1, 2021.

As of December 31, 2021, the principal balance of the Term B Loans was $247.2 million.

There are no mandatory repayments of the Term B Loans due until maturity in April 2024, except as otherwise described herein and in the Credit Agreement.

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;

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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.

The interest rate on the Term B Loans as of December 31, 2020 was 5.00%.

The interest rate on the Term B Loans as of December 31, 2021 was 5.00%, representing 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%.

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

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

The lenders have no obligation to provide any incremental indebtedness.

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In the event we require additional liquidity, our ability to obtain it may be limited by the Credit Agreement.

Credit Facility

On June 22, 2021 Altisource S.à r.l, a subsidiary of Altisource Portfolio Solutions S.A., entered into a revolving credit facility with a related party, STS.

STS is an investment fund managed by Deer Park Road Management Company, LP.

Deer Park Road Management Company, LP owns approximately 24% of Altisource’s common stock as of December 31, 2021 and its Chief Investment Officer and managing partner is a member of Altisource’s Board of Directors.

Under the terms of the Credit Facility, STS will make loans to Altisource from time to time, in amounts requested by Altisource and Altisource may voluntarily prepay all or any portion of the outstanding loans at any time.

The Credit Facility provides Altisource the ability to borrow a maximum amount of $20.0 million through June 22, 2022, $15.0 million through June 22, 2023, and $10.0 million until the end of the term.

Amounts that are repaid may be re-borrowed in accordance with the limitations set forth below.

Outstanding amounts borrowed pursuant to the Credit Facility will amortize over the three-year term as follows:

on June 22, 2022, the difference between the then outstanding balance above $15.0 million and $15.0 million, will be due and payable by Altisource;

on June 22, 2023, the difference between the then outstanding balance above $10.0 million and $10.0 million, will be due and payable by Altisource;

and on June 22, 2024, the then outstanding balance of the loan will be due and payable by Altisource.

Borrowings under the Credit Facility bear interest of 9.00% per annum and are payable quarterly on the last business day of each March, June, September and December, commencing on September 30, 2021.

In connection with the Credit Facility, Altisource is required to pay customary fees, including an upfront fee equal to $0.5 million at the initial extension of credit pursuant to the facility, an unused line fee of 0.5% and, an early termination fee in the event of a refinancing transaction.

Altisource’s obligations under the Credit Facility are secured by a lien on all equity in Altisource’s subsidiary incorporated in India, Altisource Business Solutions Private Limited, pursuant to a pledge agreement entered into by Altisource Asia Holdings Ltd I, a wholly owned subsidiary Altisource.

The Credit Facility contains additional representations, warranties, covenants, terms and conditions customary for transactions of this type, that restrict or limit, among other things, our ability to use the proceeds of credit only for general corporate purposes.

The Credit Facility 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 Facility within three business days of becoming due, (ii) failure to perform or observe any material provisions of the Credit Documents to be performed or complied with, (iii) material incorrectness of representations and warranties when made, (iv) 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, (v) 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, (vi) occurrence of a Change of Control, (vii) bankruptcy and insolvency events.

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

As of December 31, 2021, there was no outstanding debt under the Credit Facility.

The following table presents our cash flows for the years ended December 31:

(in thousands) 2020 % Increase (decrease) 2019 % Increase (decrease) 2018

Net (loss) income adjusted for non-cash items $ (13,541) (135) $ 39,182 (46) $ 72,510

Changes in operating assets and liabilities (8,860) (218) 7,506 283 (4,108)

Cash flows (used in) provided by operating activities (22,401) (148) 46,688 (32) 68,402

(in thousands) 2021 % Increase (decrease) 2020

Cash flows used in operating activities $ (60,405) (170) $ (22,401)

Cash flows provided by investing activities 102,762 118 47,224

Cash flows used in financing activities (2,304) 95 (49,310)

Net (decrease) increase in cash, cash equivalents and restricted cash (24,487) (209) 22,537 150 (44,797)

Net increase (decrease) in cash, cash equivalents and restricted cash 40,053 264 (24,487)

Cash, cash equivalents and restricted cash at the beginning of the period 62,096 (28) 86,583

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Cash flows from operating activities generally consist of the cash effects of transactions and events that enter into the determination of net income.

For the year ended December 31, 2020, cash flows used in operating activities were $(22.4) million, or approximately $(0.06) for every dollar of service revenue, compared to cash flows provided by operating activities of $46.7 million, or approximately $0.08 for every dollar of service revenue, for the year ended December 31, 2019 and $68.4 million of cash flows from operating activities, or approximately $0.08 for every dollar of service revenue, for the year ended December 31, 2018.

During the year ended December 31, 2020, the decrease in cash provided by operating activities was driven by a $52.7 million increase in net loss, adjusted for non-cash items, and lower cash provided by changes in operating assets and liabilities of $16.4 million.

The increase in net loss, adjusted for non-cash items, was primarily due to lower gross profit during the year ended December 31, 2020 from lower service revenue driven by the COVID-19 pandemic, reduced customer volumes and the July 1, 2019 sale of the Financial Services Business, partially offset by decreases in expenses as a result of COVID-19 pandemic cash cost savings measures, the Project Catalyst cost reduction initiatives and lower SG&A expenses.

The decrease in cash provided by changes in operating assets and liabilities was primarily driven by a decrease in short-term investments in real estate of $39.9 million during the year ended December 31, 2019 related to the sale of the majority of the remaining BRS Inventory.

The decrease in cash provided by changes in operating assets and liabilities was largely offset by a decrease in accounts receivable of $15.0 million for the year ended December 31, 2020 compared to an increase in accounts receivable of $12.2 million during the year ended December 31, 2019, largely driven by the timing of collections, a decrease in cash used for changes in operating assets and liabilities driven by $6.9 million of payments of sales tax accruals during the first quarter of 2019 and lower cash payments for annual incentive compensation bonuses in the first quarter of 2020 by $7.3 million.

During 2019, accounts receivable increased in part as a result of delays in receiving payments from Ocwen in connection with Ocwen’s transition to another mortgage servicing software platform.

The decrease in cash provided by operating activities for the year ended December 31, 2019 was driven by a decline in net income, adjusted for non-cash items of $33.3 million.

The decrease in net income, adjusted for non-cash items, was partially driven by lower gross profit during the year ended December 31, 2019 from lower service revenue and the Project Catalyst restructuring charges, partially offset by lower SG&A costs and decreases in expenses as a result of the Project Catalyst cost reduction initiatives.

The decrease in cash provided by operating activities was partially offset by cash provided by operating activities related to changes in operating assets and liabilities of $11.6 million.

The changes in operating assets and liabilities were driven by the decrease in short-term investments in real estate of $39.9 million in 2019 related to the sale of the remaining BRS Inventory, compared to an increase in short-term investments in real estate of $10.5 million in 2018.

This increase in cash from operating activities was partially offset by an increase of $12.2 million in accounts receivable in 2019, compared to a decrease in accounts receivable of $14.6 million in 2018, largely driven by the timing of collections.

During 2019, accounts receivable increased in part as a result of delays in receiving payments from Ocwen in connection with Ocwen’s transition to another mortgage servicing software platform.

In addition, the decrease in accounts payable and accrued liabilities of $16.3 million in 2019 decreased cash from operating activities, largely driven by the timing of payments, and a $6.9 million payment of sales tax accruals in 2019.

For the year ended December 31, 2021, cash flows used in operating activities were $(60.4) million, or approximately $(0.35) for every dollar of service revenue, compared to cash flows used in operating activities of $(22.4) million, or approximately $(0.06) for every dollar of service revenue, for the year ended December 31, 2020.

During the year ended December 31, 2021, the increase in cash used in operating activities was primarily driven by a $10.6 million increase in net loss excluding the gain on sale of business and a $26.3 million decrease in non-cash depreciation, amortization of intangibles, stock based compensation and deferred income tax expenses.

The increase in net loss excluding the gain on sale of business was primarily due to lower gross profit during the year ended December 31, 2021 from lower service revenue driven by the COVID-19 pandemic and the loss of certain services relating to one of Ocwen’s subservicing customers, partially offset by decreases in expenses as a result of COVID-19 cash cost savings measures, the Project Catalyst cost reduction initiatives and lower SG&A expenses.

Operating cash flows can be negatively impacted because of the nature of some of our services and the mix of services provided.

Certain services are performed immediately following or shortly after the referral, but the collection of the receivable

does not occur until a specific event occurs (e.g., the foreclosure is complete, the REO asset is sold, etc.).

Certain services are performed immediately following or shortly after the referral,

but the collection of the receivable does not occur until a specific event occurs (e.g., the foreclosure is complete, the REO asset is sold, etc.).

Furthermore, lower margin services generate lower income and cash flows from operations.

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Cash flows from investing activities generally include additions to premises and equipment, acquisitions and sales of businesses, and sales of equity securities.

Cash flows provided by investing activities were $47.2 million, $44.9 million and $11.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Cash flows from investing activities included $3.3 million and $38.6 million in proceeds from the sale of the Financial Services Business for 2020 and 2019, respectively, and, in 2018, $15.0 million in proceeds from the sale of the rental property management business to RESI.

In addition, we sold 3.5 million and 0.7 million shares of RESI stock for net proceeds of $46.6 million and $8.0 million for 2020 and 2019, respectively.

We used $2.7 million, $2.2 million and $3.9 million for the years ended December 31, 2020, 2019 and 2018, respectively, for additions to premises and equipment primarily related to investments in the development of certain software applications, IT infrastructure and facility improvements.

Cash flows provided by investing activities were $102.8 million and $47.2 million for the years ended December 31, 2021 and 2020, respectively.

The change in cash provided by investing activities was primarily driven by $104.1 million in proceeds from the sale of businesses for the year ended December 31, 2021, including $101.1 million from the sale of equity in Pointillist and $3.0 million in connection with the second installment from the August 2018 sale of the rental property management business to RESI, compared to $3.3 million in proceeds from the sale of the Financial Services Business for 2020.

We used $1.4 million and $2.7 million for the years ended December 31, 2021 and 2020, respectively, for additions to premises and equipment primarily related to investments in the development of certain software applications and facility improvements.

In addition, we sold 3.5 million shares of RESI stock for net proceeds of $46.6 million during the year ended December 31, 2020.

Cash Flows from Financing Activities

Cash flows from financing activities primarily include activities associated with long-term debt issuances, debt repayments, debt issuance costs, proceeds from stock option exercises, the purchase of treasury shares, distributions to non-controlling interests and payments of tax withholdings on issuance of restricted share units and restricted shares.

Cash flows used in financing activities were $(49.3) million, $(69.0) million and $(124.3) million for the years ended December 31, 2020, 2019 and 2018, respectively.

We used $(46.6) million and $(45.0) million in 2020 and 2019, respectively, for repayments of long-term debt, largely from proceeds from the sale of RESI common shares and the sale of the Financial Services Business, $(84.0) million in 2018 to refinance and reduce our debt, including debt issuance costs and repayments.

We received proceeds from stock option exercises of $0.4 million and $3.6 million for the years ended December 31, 2019 and 2018, respectively (no comparative amount for the year ended December 31, 2020).

We also used $(20.0) million and $(40.4) million to repurchase shares of our common stock for the years ended December 31, 2019 and 2018, respectively (no comparative amount for the year ended December 31, 2020).

We distributed $(1.1) million to non-controlling interests for the years ended December 31, 2020 and $(2.8) million in each of the years ended December 31, 2019 and 2018.

In addition, we made payments of $(1.6) million, $(1.7) million and $(0.8) million for the years ended December 31, 2020, 2019 and 2018, respectively, to satisfy employee tax withholding obligations on the issuance of restricted shares.

Cash flows from financing activities primarily included payments of tax withholdings on issuance of restricted share units and restricted shares, distributions to non-controlling interests, debt repayments and for the year ended December 31, 2021, included proceeds from issuance of debt and debt issuance costs.

Cash flows used in financing activities were $(2.3) million and $(49.3) million for the years ended December 31, 2021 and 2020, respectively.

During the years ended December 31, 2021 and 2020, we used $(20.0) million and $(46.6) million, respectively, for repayments of debt from proceeds from the sale of equity in Pointillist and from proceeds from the sale of RESI common shares as discussed in the cash flows from investing activities section above.

We distributed $(2.0) million and $(1.1) million, to non-controlling interests for the years ended December 31, 2021 and 2020, respectively.

In addition, we made payments of $(1.0) million and $(1.6) million for the years ended December 31, 2021 and 2020, respectively, to satisfy employee tax withholding obligations on the issuance of restricted shares.

These payments were made to tax authorities, at the employees’ direction, to satisfy the employees’ tax obligations rather than issuing a portion of vested restricted shares to employees.

Liquidity Requirements after December 31, 2020

Our significant future liquidity obligations primarily pertain to long-term debt repayments and interest expense under the Credit Agreement (see Liquidity section above), lease payments and distributions to Lenders One members.

During the year ended December 31, 2021, we received proceeds from the issuance of debt of $20.0 million and used $(0.5) million in debt issuance costs in connection with borrowings under the Credit Facility, and received proceeds from the Pointillist convertible notes payable to related parties of $1.2 million (no comparable amounts for the year ended December 31, 2020)

Short-term Liquidity Requirements after December 31, 2021

Our significant future short-term liquidity obligations primarily pertain to interest expense under the Credit Agreement (see Liquidity section above), lease payments and distributions to Lenders One members.

During the next 12 months, we expect to pay $12.4 million of interest expense (assuming no further principal repayments and the December 31, 2021 interest rate) under the Credit Agreement and make lease payments of $3.1 million.

We believe that our existing cash and cash equivalents balances, our anticipated cash flows from operations and availability under our revolving credit facility will be sufficient to meet our liquidity needs, including to fund operating expenses, required interest and lease payments, for the next 12 months.

We believe that our existing cash and cash equivalents balances and available borrowings under the Credit Facility, net of our anticipated cash flows used in operations, will be sufficient to meet our liquidity needs, including required interest and lease payments, for the next 12 months.

Long-term Liquidity Requirements after December 31, 2021

Our significant future long-term liquidity obligations primarily pertain to long-term debt repayments, interest expense under the Credit Agreement (see Liquidity section above) and operating lease payments on certain of our premises and equipment.

The outstanding balance of our Credit Agreement of $247.2 million is due on April 1, 2024.

During 2023 and 2024, we expect to pay $15.5 million of interest expense under the Credit Agreement (estimated future interest payments based on the interest rate as of December 31, 2021 and the April 1, 2024 maturity date).

During 2023 and 2024, we expect to make lease payments of $3.7 million.

During 2025 and 2026 we expect to make lease payments of $1.7 million.

For further information, see Note 13 and Note 24 to the consolidated financial statements.

We expect to fund long-term liquidity requirements with a combination of existing cash balances, cash generated by operating activities and proceeds from the refinancing of our Credit Agreement.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements consist of escrow arrangements.

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 $27.5 million and $20.0 million as of December 31, 2021 and 2020, respectively.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS

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• For vendor management transactions and our vendor management oversight 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.

• For reimbursable expenses related to our property preservation and inspection services, we recognize revenue when the service is provided and recognize an equal amount 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.

• 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 the real estate auction platform, real estate auction and real estate brokerage services, we recognize revenue on a net basis (i.e., the commission we retain 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 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.

• For 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.

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• For the majority of the services we provide, we recognize transactional revenue when the service is provided.

• For title insurance services on real estate closings, we recognize revenue on a gross basis as we assume the responsibilities of the searches conducted and we are the primary obligor in the arrangement.

Underwriting fees related to the issuance of the title policy are recognized separately as outside fees and services.

• 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.

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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.

• For reimbursable expenses related to our title and foreclosure trustee services businesses, we recognize revenue when the service is provided and recognize an equal amount 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.

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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.

• For our Financial Services business (sold on July 1, 2019), 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 our customer journey analytics platform (sold on December 1, 2021), we recognized revenue primarily based on subscription fees.

We recognized revenue associated with implementation services and maintenance services ratably over the contract term.

• 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), 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), 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.

Goodwill and Identifiable Intangible Assets

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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 estimated cash flows are discounted using a rate that represents our estimated weighted average cost of capital.

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

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OTHER MATTERS

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements consist of escrow arrangements.

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.

Contractual Obligations, Commitments and Contingencies

Our long-term contractual obligations generally include our long-term debt and operating lease payments on certain of our premises and equipment.

The following table sets forth information relating to our contractual obligations as of December 31, 2020:

Payments due by period

(in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years

Senior secured term loan $ 247,204 $ — $ — $ 247,204 $ —

Non-cancelable operating lease obligations 22,204 8,268 10,436 3,500 —

Contractual interest payments (1)

40,239 12,360 24,720 3,159 —

Total $ 309,647 $ 20,628 $ 35,156 $ 253,863 $ —

______________________________________

(1) Represents estimated future interest payments on our Credit Agreement based on the interest rate as of December 31, 2020.

For further information, see Note 14 and Note 25 to the consolidated financial statements.

Customer Concentration

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.

For the years ended December 31, 2021 and 2020, we recognized revenue from Ocwen of $55.6 million and $197.8 million, respectively.

Revenue from Ocwen as a percentage of consolidated revenue was 31% and 54% for the years ended December 31, 2021 and 2020, 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.

For the years ended December 31, 2021 and 2020, we recognized $9.5 million and $23.8 million, respectively, of such revenue.

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 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 NRZ.

Based upon the impacted portfolios 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 anticipate that the transition of such default valuations and title services will continue during the course of 2022.

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.

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

expanded to include, among other things, the opportunity for the Company to provide first and second chance foreclosure auctions on Government Loans, and title services on FHA and Veterans Affairs loans, subject to a process to confirm Altisource’s ability to meet reasonable performance requirements, which process is continuing.

The Agreement also addressed Ocwen’s rights in the event of certain change of control or sale of a business transactions by us on or after September 1, 2028.

As of December 31, 2021, accounts receivable from Ocwen totaled $3.0 million, $2.8 million of which was billed and $0.2 million of which was unbilled.

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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).

On August 28, 2017, Altisource, through its licensed subsidiaries, entered into a Cooperative Brokerage Agreement with NRZ which extends through August 2025.

As of December 31, 2021, approximately 21% of loans serviced and subserviced by Ocwen (measured in UPB) were related to NRZ MSRs or rights to MSRs.

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 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 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.

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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.

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.

For the years ended December 31, 2021 and 2020, we recognized revenue from NRZ of $3.1 million and $8.6 million, respectively, under the Brokerage Agreement.

For the years ended December 31, 2021 and 2020, we recognized additional revenue of $13.6 million and $35.1 million, respectively, relating to the Subject MSRs when a party other than NRZ selects Altisource as the service provider.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis