ALTISOURCE PORTFOLIO SOLUTIONS S.A. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is a supplement to the accompanying consolidated financial statements and is intended to provide a reader of our financial statements with a narrative from the perspective of management on our businesses, current developments, financial condition, results of operations and liquidity. Significant sections of the MD&A are as follows: Overview. This section, beginning below, provides a description of recent developments we believe are important in understanding our results of operations and financial condition as well as understanding anticipated future trends. It also provides a brief description of significant transactions and events that affect the comparability of financial results and a discussion of the progress being made on our strategic initiatives. Consolidated Results of Operations. This section, beginning on page 35 , provides an analysis of our consolidated results of operations for the two years ended December 31, 2022 and 2021. Segment Results of Operations. This section, beginning on page 39 , provides analysis of our business segments’ results of operations for the years ended December 31, 2022 and 2021. Liquidity and Capital Resources . This section, beginning on page 46 , provides an analysis of our cash flows for the two years ended December 31, 2022 and 2021. We also discuss restrictions on cash movements, future commitments and capital resources. Critical Accounting Policies, Estimates and Recent Accounting Pronouncements. This section, beginning on page 49 , identifies those accounting principles we believe are most important to our financial results and that require significant judgment and estimates on the part of management in application. We provide all of our significant accounting policies in Note 2 to the accompanying consolidated financial statements. Other Matters. This section, beginning on page 51 , provides a discussion of customer concentration. OVERVIEW Our Business We are an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing markets we serve. Effective January 1, 2022, our reportable segments changed as a result of a change in the way our Chief Executive Officer (our chief operating decision maker) manages our businesses, allocates resources and evaluates performance, and the related changes in our internal organization. We now report our operations through two reportable segments: Servicer and Real Estate and Origination . In addition, we report Corporate and Others separately. Prior to the January 1, 2022 change in reportable segments, the Company operated with one reportable segment (total Company). Prior year comparable period segment disclosures have been restated to conform to the current year presentation. The Servicer and Real Estate segment provides loan servicers and real estate investors with solutions and technologies that span the mortgage and real estate lifecycle. Within the Servicer and Real Estate segment we provide: Solutions Our Solutions business includes property preservation and inspection services, title insurance (as an agent) and settlement services, real estate valuation services, foreclosure trustee services, and residential and commercial construction inspection and risk mitigation services. Marketplace Our Marketplace business includes the Hubzu online real estate auction platform and real estate auction, real estate brokerage and asset management services. Technology and SaaS Products Our Technology and SaaS Products business includes Equator (a SaaS-based technology to manage REO, short sales, foreclosure, bankruptcy and eviction processes), Vendorly Invoice (a vendor invoicing and payment system), 30 Table of Contents RentRange (a single family rental data, analytics and rent-based valuation solution), REALSynergy (a commercial loan servicing platform), and NestRange (an automated valuation model and analytics solution). The Origination segment provides originators with solutions and technologies that span the mortgage origination lifecycle. Within the Origination segment we provide: Solutions Our Solutions business includes title insurance (as an agent) and settlement services, real estate valuation services, and loan fulfillment, certification and certification insurance services. Lenders One Our Lenders One business includes management services provided to the Best Partners Mortgage Cooperative, Inc., doing business as Lenders One, and certain loan manufacturing and capital markets services provided to the members of the Lenders One cooperative. Technology and SaaS Products Our Technology and SaaS Products business includes Vendorly Monitor (a vendor management platform), LOLA (a marketplace to order services and a tool to automate components of the loan manufacturing process), TrelixAI (technology to manage the workflow and automate components of the loan fulfillment, pre and post-close quality control and service transfer processes), ADMS (a document management and data analytics delivery platform), and automated valuation technology. Corporate and Others includes Pointillist (sold on December 1, 2021), interest expense and costs related to corporate functions including executive, infrastructure and certain technology groups, finance, law, compliance, human resources, vendor management, facilities and risk management. We classify revenue in three categories: service revenue, revenue from reimbursable expenses and non-controlling interests. In evaluating our performance, we focus on service revenue. 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. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup. Non-controlling interests represent the earnings of Lenders One. Lenders One is a mortgage cooperative managed, but not owned, by Altisource. The Lenders One members’ earnings are included in revenue and reduced from net income to arrive at net income attributable to Altisource. Strategy and Core Businesses 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 real estate and 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. 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 customers and stakeholders. Each of our business segments provides Altisource the potential to grow and diversify our customer and revenue base. We believe these business segments address very large markets and directly leverage our core competencies and distinct competitive advantages. Our business segments and strategic initiatives follow: Servicer and Real Estate: Through our offerings that support residential real estate and 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. We have a customer base that includes GSEs, asset managers, and several large bank and non-bank servicers including Ocwen and Rithm. 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 as they consolidate to larger, full-service providers or outsource services that have historically been performed in-house. 31 Table of Contents Origination: Through our offerings that support 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 look to Lenders One to help them improve their profitability and better compete. Corporate and Others includes Pointillist (sold on December 1, 2021), interest expense and costs related to corporate functions including executive, infrastructure and certain technology groups, finance, law, compliance, human resources, vendor management, facilities, risk management and eliminations between reportable segments. We developed the Pointillist business through our consumer analytics capabilities. 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. 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 Cloud Services, Inc. (“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 our 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. Altisource received the Working Capital Escrow in May 2022. The Indemnification Escrow funds have not yet been received. During the year ended December 31, 2022, the Company recognized a loss of $(0.2) million based on estimated losses from claims expected to be made against the Indemnification Escrow account. During the year ended December 31, 2021, the Company recognized a pre-tax and after-tax gain of $88.9 million from the sale of Pointillist. COVID-19 Pandemic Impacts In response to the COVID-19 pandemic, beginning in March 2020, 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, industrywide foreclosure initiations were 88% lower in 2021, compared to 2019, and foreclosure sales were 76% lower. The Federal government’s foreclosure moratorium expired on July 1, 2021 and the CFPB’s temporary loss mitigation measures expired on December 31, 2021. Despite the expiration of such governmental measures, we believe servicers are proceeding slowly with foreclosure initiations for borrowers in default. Industrywide foreclosure initiations were 368% higher in 2022 compared to 2021, although still 45% lower than the pre-COVID-19 period in 2019. Industrywide foreclosure sales were 39% higher in 2022 compared to 2021, although still 67% lower than the pre-COVID-19 period in 2019. The decline in foreclosure initiations and foreclosure sales throughout the pandemic, partially offset by the restart of the default market, significantly decreased default related referrals to Altisource and continues to negatively impact virtually all of Altisource’s default related services revenue. We cannot predict the duration of the pandemic and future governmental and industry measures. Based on the expirations of the Federal government’s foreclosure and eviction moratoriums and the CFPB’s rules on temporary loss mitigation measures, we believe the demand for our Default business will grow. We estimate that in today’s environment it typically takes on average two years to convert foreclosure initiations to foreclosure sales and six months to market and sell the REO. Due to this timing, we anticipate that our later stage foreclosure auction and REO asset management services will not fully benefit from the early 2022 higher foreclosure initiations until late 2023 or early 2024. 32 Table of Contents During 2021 and 2022, to address lower revenue, we 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 and CFPB’s rules on temporary loss mitigation measures, (3) grow Lenders One membership, launch new solutions and increase customer adoption of our solutions to accelerate the growth of our origination business, and (4) generate cash from the 2021 sale of Pointillist. Share Repurchase Program On May 15, 2018, our shareholders approved the renewal and replacement of the share repurchase program previously approved by the shareholders on May 17, 2017. Under the program, we are authorized to purchase up to 4.3 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval, at a minimum price of $1.00 per share and a maximum price of $500.00 per share, for a period of five years from the date of approval. As of December 31, 2022, 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 years ended December 31, 2022 and 2021. Luxembourg law limits share repurchases to the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings, less the value of shares repurchased. As of December 31, 2022, we can repurchase up to approximately $69 million of our common stock under Luxembourg law. Under the Amended Credit Agreement, we are not permitted to repurchase shares except for limited circumstances. Ocwen Related Matters During the year ended December 31, 2022, Ocwen was our largest customer, accounting for 41% of our total revenue. Additionally, 6% of our revenue for the year ended December 31, 2022 was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or the MSR owner selected Altisource as the service provider. Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions and is subject to pending and threatened legal proceedings, some of which include claims against Ocwen for substantial monetary damages. 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 Rithm is its largest client. As of December 31, 2022, approximately 17% of loans serviced and subserviced by Ocwen (measured in UPB) were related to Rithm MSRs or rights to MSRs. The existence or outcome of Ocwen regulatory matters or the termination of the Rithm sub-servicing agreement with Ocwen may have significant adverse effects on Ocwen’s business. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services, it may be required to seek changes to its existing pricing structure with us, it may lose its non-GSE servicing rights or subservicing arrangements or may lose one or more of its state servicing or origination licenses. Additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in Ocwen’s business that could require it to sell assets or change its business operations. Any or all of these effects and others could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers. If any of the following events occurred, Altisource’s revenue could be 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 a significant reduction in the volume of services they purchase from us • Ocwen loses, sells or transfers a significant portion of its GSE or Federal Housing Administration servicing rights or subservicing arrangements or remaining other servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider • The contractual relationship between Ocwen and Rithm changes significantly, including Ocwen’s sub-servicing arrangement with Rithm 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 33 Table of Contents • The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue • Altisource otherwise fails to be retained as a service provider. Management cannot predict whether any of these events will occur or the amount of any impact they may have on Altisource. We are seeking to diversify and grow our revenue and customer base and we have a sales and marketing strategy to support these efforts. Moreover, in the event one or more of these events materially negatively impact Altisource, we believe the variable nature of our cost structure would allow us to realign our cost structure to address some of the impact to revenue and that current liquidity would be sufficient to meet our working capital, capital expenditures, debt service and other cash needs. There can be no assurance that our plans will be successful or our operations will be profitable. Factors Affecting Comparability The following items impact the comparability of our results: • Industrywide foreclosure initiations were 368% higher in 2022, compared to 2021 (although still 45% lower than the pre-COVID-19 period in 2019), as the foreclosure market is beginning to recover following expiration of the Federal government’s foreclosure moratorium on July 31, 2021 and the CFPB’s temporary loss mitigation measures on December 31, 2021 • Industrywide foreclosure sales were 39% higher in 2022, compared to 2021 (although still 67% lower than the same pre-COVID-19 period in 2019) • On December 1, 2021, the equity interests of Pointillist, a majority owned subsidiary of Altisource, were sold for $150.0 million. 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 (loss) gain of $(0.2) million and $88.9 million from the sale for the years ended December 31, 2022 and 2021, respectively. For the year ended December 31 2021, service revenue from Pointillist was $4.8 million (no comparative amount for the year ended December 31, 2022) • During the year ended December 31, 2021, 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 • The Company recognized an income tax provision of $5.3 million for the year ended December 31, 2022. The income tax provision for the year ended December 31, 2022 was driven by income tax expense on transfer pricing income from India, no tax benefit on the pretax loss from our Luxembourg operating company, uncertain tax positions and anticipated withholdings tax on current year earnings in India. • The Company recognized an income tax provision of $3.2 million for the year ended December 31, 2021. 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. 34 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS The following is a discussion of our consolidated results of operations for the years ended December 31, 2022 and 2021. For a more detailed discussion of the factors that affected the results of our business segments in these periods, see “Segment Results of Operations” below. The following table sets forth information on our consolidated results of operations for the years ended December 31: (in thousands, except per share data) 2022 % Increase (decrease) 2021 Service revenue Servicer and Real Estate $ 112,132 4 $ 107,790 Originations 32,364 (44) 58,002 Corporate and Others — (100) 4,821 Service revenue 144,496 (15) 170,613 Reimbursable expenses 8,039 23 6,555 Non-controlling interests 585 (54) 1,285 Total revenue 153,120 (14) 178,453 Cost of revenue 131,305 (23) 171,366 Gross profit 21,815 208 7,087 Operating expense (income): Selling, general and administrative expenses 54,755 (18) 67,049 Loss (gain) on sale of business 242 100 (88,930) (Loss) income from operations (33,182) (215) 28,968 Other income (expense), net: Interest expense (16,639) 14 (14,547) Other income, net 2,254 161 864 Total other income (expense), net (14,385) (5) (13,683) (Loss) income before income taxes and non-controlling interests (47,567) (411) 15,285 Income tax provision (5,266) 63 (3,232) Net (loss) income (52,833) N/M 12,053 Net income attributable to non-controlling interests (585) 143 (241) Net (loss) income attributable to Altisource $ (53,418) N/M $ 11,812 Margins: Gross profit/service revenue 15 % 4 % Income (loss) from operations/service revenue (23) % 17 % (Loss) earnings per share: Basic $ (3.32) N/M $ 0.75 Diluted $ (3.32) N/M $ 0.74 Weighted average shares outstanding: Basic 16,070 1 15,839 Diluted 16,070 — 16,063 _____________________________________ N/M — not meaningful. 35 Table of Contents Revenue We recognized service revenue of $144.5 million for the year ended December 31, 2022, a 15% decrease compared to the year ended December 31, 2021. The increase in service revenue in the Servicer and Real Estate segment for the year ended December 31, 2022 was primarily driven by increases across all our Solutions, Marketplace and Technology and SaaS Products businesses as the default market continues to recover. The increase in the Solutions business was driven by revenue growth in all of the businesses except for Field Services. Revenue in the Solutions businesses grew as the default market continues to recover. Revenue in the Field Services declined due to fewer preservation referrals per property. Revenue in the other Solutions businesses grew as the default market began to recover following the expiration of the pandemic related borrower relief measures. The increase in the Marketplace business was driven by a higher number of homes sold, partially offset by lower average sales prices and lower average commission rate from a higher percentage of foreclosure auctions. The increase in the Technology and SaaS Products business was from higher professional services revenue in the Equator business. The decrease in service revenue in the Origination segment for the year ended December 31, 2022 was primarily driven by the overall market decline in mortgage origination. The decline in Lenders One revenue was lower than the overall market decline as we gained traction with our solutions that are designed to help our members save money. The decline in the Solutions business revenue was greater than the overall market decline as customers transitioned services in-house to retain their employees in some of our Solutions businesses and a greater percentage of revenue in some of these businesses was derived from refinance transactions which declined faster than the market. The decrease in service revenue in Corporate and Other was from the December 2021 Pointillist sale. We recognized reimbursable expense revenue of $8.0 million for the year ended December 31, 2022, a 23% increase compared to the year ended December 31, 2021. The increase in reimbursable expense revenue for the year ended December 31, 2022 was largely due to a higher volume of asset resolution and asset management activities. 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, operations and technology roles, fees paid to external providers related to the provision of services, reimbursable expenses, technology and telecommunications costs as well as depreciation and amortization of operating assets. Cost of revenue consists of the following for the years ended December 31: (in thousands) 2022 % Increase (decrease) 2021 Compensation and benefits $ 48,064 (31) $ 69,990 Outside fees and services 55,979 (16) 66,386 Technology and telecommunications 16,937 (33) 25,273 Reimbursable expenses 8,039 23 6,555 Depreciation and amortization 2,286 (28) 3,162 Total $ 131,305 (23) $ 171,366 We recognized cost of revenue of $131.3 million for the year ended December 31, 2022, a 23% decrease compared to the year ended December 31, 2021. Compensation and benefits for the year ended December 31, 2022 decreased primarily due to cash cost savings measures taken in 2021, the December 2021 sale of Pointillist and from lower service revenue in the Origination segment. Outside fees and services for the year ended December 31, 2022 decreased primarily from lower service revenue in the Origination segment, as discussed in the revenue section above, and from lower Field Services revenue in the Solutions business of the Servicer and Real Estate segment. In addition, the increases in reimbursable expenses were consistent with the changes in reimbursable expense revenue discussed in the revenue section above. Gross profit increased to $21.8 million, representing 15% of service revenue, for the year ended December 31, 2022 compared to $7.1 million, representing 4% of service revenue, for the year ended December 31, 2021. Gross profit as a percentage of service revenue for the year ended December 31, 2022 increased compared to the year ended December 31, 2021 primarily due 36 Table of Contents to revenue mix with higher revenue from the higher margin businesses in Servicer and Real Estate, the December 1, 2021 Pointillist sale, our COVID-19 cash cost savings measures and lower incentive payments as well as the payment of incentive payments in stock as opposed to cash, partially offset by lower gross profit margin in the Origination business from lower revenue. Selling, General and Administrative Expenses 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) 2022 % Increase (decrease) 2021 Compensation and benefits $ 22,973 (19) $ 28,367 Occupancy related costs 5,000 (46) 9,332 Amortization of intangible assets 5,129 (46) 9,467 Professional services 11,595 14 10,163 Marketing costs 3,107 44 2,157 Depreciation and amortization 1,154 (19) 1,430 Other 5,797 (5) 6,133 Selling, general and administrative expenses $ 54,755 (18) $ 67,049 SG&A for the year ended December 31, 2022 of $54.8 million decreased by 18% compared to the year ended December 31, 2021. The decrease was primarily driven by lower compensation and benefits, occupancy related costs and amortization of intangible assets. Compensation and benefits for the year ended December 31, 2022 decreased primarily due to cash cost savings initiatives and lower incentive payments as well as the payment of incentive payments in stock as opposed to cash. Occupancy related costs for the year ended December 31, 2022 decreased primarily from facility consolidation initiatives. Amortization of intangible assets for the year ended December 31, 2022 decreased from the completion of the amortization period of certain intangible assets during 2021. The decreases for year ended December 31, 2022 were partially offset by increases in marketing costs from Lenders One convention activities that were cancelled in the first quarter of 2021 due to the pandemic. Other Operating Income On December 1, 2021, Altisource sold its equity interest in Pointillist (see subsection Strategy and Core Businesses in MD&A Overview for more details). 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. Altisource received the Working Capital Escrow in May 2022. The Indemnification Escrow funds have not yet been received. During the year ended December 31, 2022, the Company recognized a loss of $(0.2) million based on estimated losses from claims expected to be made against the Indemnification Escrow account. During the year ended December 31, 2021, the Company recognized a pre-tax and after-tax gain of $88.9 million from the sale of Pointillist. (Loss) income from operations Loss from operations was $(33.2) million, representing (23)% of service revenue, for the year ended December 31, 2022 compared to income from operations of $29.0 million, representing 17% of service revenue, for the year ended December 31, 2021. (Loss) income from operations as a percentage of service revenue decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily as a result of the gain on sale of business recognized during the year ended December 31, 2021, partially offset by higher 2022 gross profit margins and a greater percentage reduction in 2022 SG&A expenses than the percentage change in revenue, discussed above. Other Income (Expense), net Other income (expense), net principally includes interest expense and other non-operating gains and losses. 37 Table of Contents Other income (expense), net was $(14.4) million for the year ended December 31, 2022 compared to $(13.7) million for the year ended December 31, 2021. The change for the year ended December 31, 2022 is primarily driven by an increase of $(2.1) million in interest expense driven by higher interest rate on our senior secured term loan partially offset by lower average outstanding balance on the Revolver and higher interest income and foreign currency exchange gains. Income Tax Provision We recognized an income tax provision of $5.3 million and $3.2 million for the years ended December 31, 2022 and 2021, respectively. The income tax provision for the year ended December 31, 2022 was driven by income tax expense on transfer pricing income from India, no tax benefit on the pretax loss from our Luxembourg operating company, uncertain tax positions and anticipated withholdings tax on current year earnings in India. 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. 38 Table of Contents SEGMENT RESULTS OF OPERATIONS The following section provides a discussion of pretax results of operations of our business segments. Transactions between segments are accounted for as third party arrangements for purposes of presenting segment results of operations. Financial information for our segments was as follows: For the year ended December 31, 2022 (in thousands) Servicer and Real Estate Origination Corporate and Others Consolidated Altisource Revenue Service revenue $ 112,132 $ 32,364 $ — $ 144,496 Reimbursable expenses 7,529 510 — 8,039 Non-controlling interest — 585 — 585 119,661 33,459 — 153,120 Cost of revenue 81,148 32,052 18,105 131,305 Gross profit (loss) 38,513 1,407 (18,105) 21,815 Selling, general and administrative expenses 12,057 8,825 33,873 54,755 Loss on sale of businesses — — 242 242 Income (loss) from operations 26,456 (7,418) (52,220) (33,182) Total other income (expense), net 4 — (14,389) (14,385) Income (loss) before income taxes and non-controlling interests $ 26,460 $ (7,418) $ (66,609) $ (47,567) Margins: Gross profit (loss) /service revenue 34 % 4 % N/M 15 % Income (loss) from operations/service revenue 24 % (23) % N/M (23) % _____________________________________ N/M — not meaningful. For the year ended December 31, 2021 (in thousands) Servicer and Real Estate Origination Corporate and Others Consolidated Altisource Revenue Service revenue $ 107,790 $ 58,002 $ 4,821 $ 170,613 Reimbursable expenses 5,846 709 — 6,555 Non-controlling interest — 1,285 — 1,285 113,636 59,996 4,821 178,453 Cost of revenue 87,427 49,012 34,927 171,366 Gross profit (loss) 26,209 10,984 (30,106) 7,087 Selling, general and administrative expenses 12,557 5,702 48,790 67,049 Gain on sale of businesses — — (88,930) (88,930) Income from operations 13,652 5,282 10,034 28,968 Total other income (expense), net 8 — (13,691) (13,683) Income (loss) before income taxes and non-controlling interests $ 13,660 $ 5,282 $ (3,657) $ 15,285 Margins: Gross profit (loss) /service revenue 24 % 19 % N/M 4 % Income from operations/service revenue 13 % 9 % 208 % 17 % _____________________________________ N/M — not meaningful. 39 Table of Contents Servicer and Real Estate Revenue Revenue by line of business was as follows for the years ended December 31: (in thousands) 2022 2021 % Increase (decrease) Service revenue: Solutions $ 71,686 $ 69,475 3 Marketplace 29,020 28,009 4 Technology and SaaS Products 11,426 10,306 11 Total service revenue 112,132 107,790 4 Reimbursable expenses: Solutions 3,203 3,364 (5) Marketplace 4,326 2,482 74 Total reimbursable expenses 7,529 5,846 29 Total revenue $ 119,661 $ 113,636 5 We recognized service revenue of $112.1 million for the year ended December 31, 2022, a 4% increase compared to the year ended December 31, 2021. We also recognized reimbursable expense revenue of $7.5 million for the year ended December 31, 2022, a 29% increase compared to the year ended December 31, 2021. The increase in service revenue in the Servicer and Real Estate segment for the year ended December 31, 2022 was primarily driven by increases across all our Solutions, Marketplace and Technology and SaaS Products businesses as the default market continues to recover. The increase in the Solutions business was primarily driven by higher revenues from our other Solutions businesses, partially offset by fewer preservation referrals per property in the Field Services business. Revenue in the other Solutions businesses grew as the default market began to recover following the expiration of the pandemic related borrower relief measures. The increase in the Marketplace business was driven by a higher number of homes sold, partially offset by lower average sales prices and lower average commission rate from a higher percentage of foreclosure auctions. The increase in the Technology and SaaS Products business was from higher professional services revenue in the Equator business. Certain of our Servicer and Real Estate businesses are impacted by seasonality. Revenues from property sales and certain property preservation services are generally lowest during the fall and winter months and highest 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 consisted of the following for the years ended December 31: (in thousands) 2022 2021 % Increase (decrease) Compensation and benefits $ 25,786 $ 29,573 (13) Outside fees and services 40,235 41,860 (4) Technology and telecommunications 6,627 9,066 (27) Reimbursable expenses 7,529 5,846 29 Depreciation and amortization 971 1,082 (10) Cost of revenue $ 81,148 $ 87,427 (7) Cost of revenue for the year ended December 31, 2022 of $81.1 million decreased by 7% compared to the year ended December 31, 2021. The decrease in cost of revenue for the year ended December 31, 2022 is primarily driven by lower compensation and benefits primarily due to cash cost savings initiatives and lower incentive payments as well as the payment of incentive payments in stock as opposed to cash and lower technology and telecommunications. The decrease in technology and telecommunications was driven by a change in the terms of the vendor agreement for property management technologies executed in December 2021 and other cost savings initiatives. In addition, outside fees and services decreased from lower Field 40 Table of Contents Services revenue in the Solutions business, as discussed above. These decreases are partially offset by an increase in reimbursable expenses from a higher volume of asset resolution and asset management activities. Gross profit increased to $38.5 million, representing 34% of service revenue, for the year ended December 31, 2022 compared to $26.2 million, representing 24% of service revenue, for the year ended December 31, 2021. Gross profit as a percentage of service revenue in 2022 increased compared to 2021 due to our COVID-19 cash cost savings and efficiency measures as well as from revenue mix with higher revenue from the other higher margin default solution businesses. Selling, General and Administrative Expenses SG&A expenses consisted of the following for the years ended December 31: (in thousands) 2022 2021 % Increase (decrease) Compensation and benefits $ 2,594 $ 14 N/M Occupancy related costs 931 828 12 Amortization of intangible assets 2,970 7,292 (59) Professional services 2,711 2,473 10 Marketing costs 1,524 697 119 Depreciation and amortization 12 14 (14) Other 1,315 1,239 6 Selling, general and administrative expenses $ 12,057 $ 12,557 (4) _____________________________________ N/M — not meaningful. SG&A for the year ended December 31, 2022 of $12.1 million decreased by 4% compared to the year ended December 31, 2021. The decrease in SG&A for the year ended December 31, 2021 was primarily due to lower amortization of intangible assets driven by the completion of the amortization period of certain intangible assets during 2021. These decreases were partially offset by higher compensation and benefits for the year ended December 31, 2021 from the assignment of sales and marketing employees to the business segments beginning in January 1, 2022 and higher marketing costs from higher participation in convention activities for the Solutions businesses and related Technology and SaaS Products business. Income from Operations Income from operations increased to $26.5 million, representing 24% of service revenue, for the year ended December 31, 2022 compared to $13.7 million, representing 13% of service revenue, for the year ended December 31, 2021. The increase in operating income as a percentage of service revenue for the year ended December 31, 2022 was primarily the result of higher gross profit margins and the percentage reduction in SG&A expenses in excess of the percentage change in revenue, discussed above. 41 Table of Contents Origination Revenue Revenue by business unit was as follows for the years ended December 31: (in thousands) 2022 2021 % Increase (decrease) Service revenue: Solutions $ 11,025 $ 32,745 (66) Lenders One 20,612 24,492 (16) Technology and SaaS Products 727 765 (5) Total service revenue 32,364 58,002 (44) Reimbursable expenses: Solutions 510 709 (28) Total reimbursable expenses 510 709 (28) Non-controlling interest 585 1,285 (54) Total revenue $ 33,459 $ 59,996 (44) We recognized service revenue of $32.4 million for the year ended December 31, 2022, a 44% decrease compared to the year ended December 31, 2021. We also recognized reimbursable expense revenue of $0.5 million for the year ended December 31, 2022, a 28% decrease compared to the year ended December 31, 2021. The decrease in service revenue in the Origination segment for the year ended December 31, 2022 was primarily driven by the overall market decline in mortgage origination. The decline in Lenders One revenue was lower than the overall market decline as we gained traction with selling our solutions that are designed to help our members save money. The decline in the Solutions business revenue was greater than the overall market decline as customers transitioned services in-house to retain their employees in some of our Solutions businesses and a greater percentage of revenue in some of these businesses was derived from refinance transactions which declined faster than the market. Cost of Revenue and Gross Profit Cost of revenue consisted of the following for the years ended December 31: (in thousands) 2022 2021 % Increase (decrease) Compensation and benefits $ 13,955 $ 21,868 (36) Outside fees and services 15,744 24,476 (36) Technology and telecommunications 1,806 1,895 (5) Reimbursable expenses 510 709 (28) Depreciation and amortization 37 64 (42) Cost of revenue $ 32,052 $ 49,012 (35) Cost of revenue for the year ended December 31, 2022 of $32.1 million decreased by 35% compared to the year ended December 31, 2021. The decrease in cost of revenue for the year ended December 31, 2022 was primarily driven by lower compensation and benefits and outside fees and services driven by the decrease in service revenue discussed above. In addition, the decrease in reimbursable expenses for the year ended December 31, 2022 is consistent with the changes in reimbursable expense revenue discussed in the revenue section above. Gross profit decreased to $1.4 million, representing 4% of service revenue, for the year ended December 31, 2022 compared to $11.0 million, representing 19% of service revenue, for the year ended December 31, 2021. Gross profit as a percentage of service revenue decreased primarily as costs did not decline at the same rate that revenue declined. 42 Table of Contents Selling, General and Administrative Expenses SG&A expenses consisted of the following for the years ended December 31: (in thousands) 2022 2021 % Increase (decrease) Compensation and benefits $ 2,887 $ 568 408 Occupancy related costs 543 303 79 Amortization of intangible assets 2,159 2,175 (1) Professional services 815 934 (13) Marketing costs 1,569 617 154 Other 852 1,105 (23) Selling, general and administrative expenses $ 8,825 $ 5,702 55 SG&A for the year ended December 31, 2022 of $8.8 million increased by 55% compared to the year ended December 31, 2021. The increase in SG&A for the year ended December 31, 2022 was primarily due to higher compensation and benefits from the assignment of sales and marketing employees to the business segments beginning in January 1, 2022. In addition, the increase in marketing costs and other for the year ended December 31, 2022 was primarily from Lenders One convention activities that were cancelled in first quarter of 2021 due to the pandemic. (Loss) income from Operations Loss from operations was $(7.4) million, representing (23)% of service revenue, for the year ended December 31, 2022 compared to income from operations of $5.3 million, representing 9% of service revenue, for the year ended December 31, 2021. The decrease in operating (loss) income as a percentage of service revenue for the year ended December 31, 2022 was primarily the result of lower gross profit margins and higher SG&A costs, as discussed above. Corporate and Others Revenue Revenue by business unit was as follows for the years ended December 31: (in thousands) 2022 2021 % Increase (decrease) Service revenue: Pointillist $ — $ 4,821 (100) Total service revenue — 4,821 (100) Total revenue $ — $ 4,821 (100) We recognized service revenue of $4.8 million for the year ended December 31, 2021 (no comparative amount for the year ended December 31, 2022). The decrease in service revenue for the year ended December 31, 2022 was driven by the December 1, 2021 Pointillist sale. 43 Table of Contents Cost of Revenue Cost of revenue consisted of the following for the years ended December 31: (in thousands) 2022 2021 % Increase (decrease) Compensation and benefits $ 8,323 $ 18,549 (55) Outside fees and services — 50 (100) Technology and telecommunications 8,504 14,312 (41) Depreciation and amortization 1,278 2,016 (37) Cost of revenue $ 18,105 $ 34,927 (48) Cost of revenue for the year ended December 31, 2022 of $18.1 million decreased by 48% compared to the year ended December 31, 2021. The decrease in cost of revenue for the year ended December 31, 2022 is primarily driven by lower compensation and benefits due to cash cost savings initiatives and the December 1, 2021 Pointillist sale. In addition, technology and telecommunications decreased due to lower service contract costs as a result of the December 1, 2021, Pointillist sale and cost savings initiatives. Selling, General and Administrative Expenses SG&A in Corporate and Others include costs related to the corporate functions including executive, finance, technology, law, compliance, human resources, vendor management, facilities, risk management and eliminations between reportable segments. SG&A expenses consisted of the following for the years ended December 31: (in thousands) 2022 2021 % Increase (decrease) Compensation and benefits $ 17,492 $ 27,785 (37) Occupancy related costs 3,526 8,201 (57) Professional services 8,069 6,756 19 Marketing costs 14 843 (98) Depreciation and amortization 1,142 1,416 (19) Other 3,630 3,789 (4) Selling, general and administrative expenses $ 33,873 $ 48,790 (31) SG&A for the year ended December 31, 2022 of $33.9 million decreased by 31% compared to the year ended December 31, 2021. Compensation and benefits for the year ended December 31, 2022 decreased primarily due to cash cost savings initiatives, and from the assignment of sales and marketing employees to the business segments beginning in January 1, 2022. In addition, the decrease in occupancy related costs for the year ended December 31, 2022 is primarily from facility consolidation initiatives. Other Operating Income On December 1, 2021, Altisource sold its equity interest in Pointillist (see subsection Strategy and Core Businesses in MD&A Overview for more details). 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. Altisource received the Working Capital Escrow in May 2022. The Indemnification Escrow funds have not yet been received. During the year ended December 31, 2022, the Company recognized a loss of $(0.2) million based on estimated losses from claims expected to be made against the Indemnification Escrow account. During the year ended December 31, 2021, the Company recognized a pre-tax and after-tax gain of $88.9 million from the sale of Pointillist. 44 Table of Contents Other Income (Expense), net Other income (expense), net principally includes interest expense and other non-operating gains and losses. Other income (expense), net was $(14.4) million for the year ended December 31, 2022 compared to $(13.7) million for the year ended December 31, 2021. The change for the year ended December 31, 2022 was primarily driven by an increase of $2.1 million in interest expense driven by higher interest rate on our senior secured term loan partially offset by higher interest income and foreign currency exchange gains. 45 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Liquidity Our primary source of liquidity has historically been cash flow from operations, cash proceeds from sales of businesses and cash on hand. However, due to governmental and market responses to the COVID-19 pandemic, revenue has declined significantly. The lower revenue, partially offset by cost savings initiatives, resulted in negative operating cash flow from operations for the years ended December 31, 2022 and 2021. To increase our liquidity we entered into a $20.0 million revolving credit facility during the second quarter of 2021 ($15.0 million available as of December 31, 2022). 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 received in May 2022, and approximately $3.5 million deposited into the Indemnification Escrow. Finally, we believe our anticipated revenue growth from the return of the default market, on-boarding sales wins, and revenue mix together 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 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 On 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. We terminated the revolving credit facility on December 1, 2021. As of December 31, 2022, the principal balance of the Term B Loans was $247.2 million. The Credit Agreement was amended effective February 14, 2023 (the “Amended Credit Agreement”). The Term B Loans under the Amended Credit Agreement mature in April 2025. The maturity date can be extended by one year, to April 2026, at Altisource’s option if certain par paydowns in the aggregate using proceeds from issuances of equity interest or from junior indebtedness made prior to February 14, 2024 (“Aggregate Paydowns”) total $30 million or more and certain other conditions are satisfied. In February 2023, the Company made payments toward the determination of Aggregate Paydowns of $20 million. The principal amortization of the Term B Loans under the Amended Credit Agreement is 1% per year through April 2025 and, if applicable, 12% per year paid monthly for the year ended April 2026. All amounts outstanding under the Term B Loans will become due on the earlier of (i) the maturity date described above, and (ii) the date on which the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders (as defined in the Credit Agreement; other capitalized terms, unless defined herein, are defined in the Credit Agreement) or as otherwise provided in the Credit Agreement upon the occurrence of any event of default. In addition to the scheduled principal payments, subject to certain exceptions, the Term B Loans are subject to mandatory prepayment upon issuances of debt, certain casualty and condemnation events and sales of assets, as well as 50% of Consolidated Excess Cash Flow, as calculated in accordance with the provisions of the Amended Credit Agreement. The interest rate on the Term B Loans as of December 31, 2022 was 7.67%, 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%. Under the Amended Credit Agreement, the Term B Loans bear interest at rates based upon, at our option, the Secured Overnight Financing Rate (“SOFR”) or the Base Rate. SOFR term loans initially bear interest at a rate per annum equal to SOFR plus 5.00% payable in cash plus 5.00% payable in kind (“PIK”). Base Rate loans initially bear interest at a rate per annum equal to the Base Rate plus 4.00% payable in cash plus 5.00% PIK. Base Rate term loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Base Rate and (y) 2.00% plus (ii) 4.00%. Altisource may incur incremental indebtedness under the Amended Credit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate incremental principal amount not to exceed $50.0 million, subject to certain conditions set forth in the Amended Credit Agreement. The lenders have no obligation to provide any incremental indebtedness. The Credit Agreement includes covenants that restrict or limit, among other things, our ability, subject to certain exceptions and baskets, to incur additional debt, pay dividends and repurchase shares of our common stock. Under the Amended Credit Agreement, we are not permitted to repurchase shares except for limited circumstances. In the event we require additional liquidity, our ability to obtain it may be limited by the Credit Agreement. 46 Table of Contents Revolver 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 Master Fund, Ltd. (“STS”) (the “Revolver”). STS is an investment fund managed by Deer Park. Deer Park owns approximately 24% of Altisource’s common stock as of December 31, 2022 and owns Altisource debt as a lender pursuant to our senior secured term loan agreement, as amended and restated with an effective date of February 14, 2023. Deer Park’s Chief Investment Officer and managing partner was a member of Altisource’s Board of Directors until his resignation on March 1, 2022. The replacement director appointed by the Board of Directors is a current employee of Deer Park. The Revolver was amended effective February 14, 2023 (the “Amended Revolver”). Under the terms of the Amended Revolver, 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 Amended Revolver provides Altisource the ability to borrow a maximum amount of $15.0 million. Amounts that are repaid may be re-borrowed in accordance with the limitations set forth below. The maturity date of the Amended Revolver coincides with the maturity date of the Term B Loans under the Amended Credit Agreement, as it may be extended. The outstanding balance on the Amended Revolver is due and payable on such maturity date. Borrowings under the Amended Revolver bear interest of 10.00% per annum in cash and 3.00% per annum PIK and are payable quarterly on the last business day of each March, June, September and December. In connection with the Amended Revolver, Altisource is required to pay a usage fee equal to $0.75 million at the initial extension of credit pursuant to the Amended Revolver. Altisource’s obligations under the Amended Revolver are secured by first-priority lien on substantially all of the assets of the Company, which lien will be pari passu with liens securing the Term B Loans under the Amended Credit Agreement. The Amended Revolver 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. As of December 31, 2022, there was no outstanding debt under the Revolver. Cash Flows The following table presents our cash flows for the years ended December 31: (in thousands) 2022 % Increase (decrease) 2021 Net Cash used in operating activities $ (44,888) 26 $ (60,405) Net Cash (used in) provided by investing activities (767) (101) 102,762 Net Cash used in financing activities (2,221) 4 (2,304) Net (decrease) increase in cash, cash equivalents and restricted cash (47,876) (220) 40,053 Cash, cash equivalents and restricted cash at the beginning of the period 102,149 65 62,096 Cash, cash equivalents and restricted cash at the end of the period $ 54,273 (47) $ 102,149 Cash Flows from Operating Activities Cash flows from operating activities generally consist of the cash effects of transactions and events that enter into the determination of net (loss) income. For the year ended December 31, 2022, net cash used in operating activities was $(44.9) million, compared to net cash used in operating activities of $(60.4) million for the year ended December 31, 2021. During the year ended December 31, 2022, the increase in cash used in operating activities was driven by a $24.3 million decrease in net loss excluding the gain (loss) on sale of business partially offset by a $1.5 million decrease in non-cash depreciation, amortization of intangibles, stock based compensation expenses and deferred income tax expenses, and a $7.4 million increase in cash used for working capital. The decrease in net loss excluding the gain on sale of business was primarily due to higher gross profit during the year ended December 31, 2022 from revenue mix with higher revenue from the higher margin businesses in Servicer and Real Estate, our cash cost savings measures, the sale of Pointillist and lower SG&A expenses, partially offset by lower gross profit in the Origination business from lower revenue. The increase in cash used for changes in working capital was primarily driven by higher cash payments for annual incentive compensation bonuses in the first quarter of 2022 by $3.7 47 Table of Contents million ($0 accrued as of December 31, 2022) and a fourth quarter of 2022 prepayment of insurance premiums of $2.4 million (prior year was paid in the first quarter of 2022). 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.). Furthermore, lower margin services generate lower income and cash flows from operations. Consequently, our cash flows from operations may be negatively impacted when comparing one period to another. Cash Flows from Investing Activities Cash flows from investing activities generally include additions to premises and equipment, acquisitions and sales of businesses, and sales of equity securities. Net cash (used in) provided by investing activities was $(0.8) million and $102.8 million for the years ended December 31, 2022 and 2021, 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. In addition, we used $0.9 million for the year ended December 31, 2022 compared to $1.4 million in 2021, for additions to premises and equipment primarily related to investments in the development of certain software applications and facility improvements. Cash Flows from Financing Activities 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 and the repayment of debt. Net cash used in financing activities were $(2.2) million and $(2.3) million for the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, we made payments of $(1.1) million and $(1.0) million, respectively, to satisfy employee tax withholding obligations on the issuance of restricted share units and 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 share units and restricted shares to employees. In addition, during the years ended December 31, 2022 and 2021, we distributed $(1.1) million and $(2.0) million, respectively, to non-controlling interests. During the year ended December 31, 2021, we used $(20.0) million 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. During the year ended December 31, 2021, we received proceeds from the issuance of long-term debt of $20.0 million and paid $0.5 million in debt issuance costs in connection with borrowings under the Credit Facility (no comparable amount for the year ended December 31, 2022). During the year ended December 31, 2021, we also received proceeds from the Pointillist convertible notes payable to related parties of $1.2 million (no comparable amount for the year ended December 31, 2022). Future Uses of Cash Our significant future liquidity obligations primarily pertain to the maturity of the Amended Credit Agreement, interest expense under the Amended Credit Agreement (see Liquidity section above), distributions to Lenders One members and operating lease payments on certain of our premises and equipment. Significant future uses of cash include the following: Payments Due by Period (in thousands) Total 2023 2024-2025 2026-2027 Credit Agreement outstanding balance (1) (2) $ 271,293 $ 20,000 $ 251,293 $ — Interest expense payments (3) 54,997 22,899 32,099 — Lease payments 6,415 2,657 3,122 636 Total $ 332,705 $ 45,556 $ 286,514 $ 636 ______________________________________ (1) The outstanding balance of our Amended Credit Agreement of $247.2 million is due on April 30, 2025 and can be extended to April 30, 2026 if Aggregate Paydowns made prior to February 14, 2024 total $30 million or more. The table herein reflects a maturity of April 2025 as the Company has not made Aggregate Paydowns of $30 million or more at the time of this filing. The increase in outstanding balance is from the PIK component of our interest expense and is assumed to be paid in kind. 48 Table of Contents (2) In the first quarter of 2023, the Company made $20 million of payments toward the determination of Aggregate Paydowns. Such amount is reflected in the 2023 column herein. (3) Estimated future interest payments based on the SOFR interest rate as of February 14, 2023, the effective date of the Amended Credit Agreement, and the April 30, 2025 maturity date. Based on the April 30, 2025 maturity date, no interest expense has been included beyond April 30, 2025. We anticipate to fund future liquidity requirements with a combination of existing cash balances, cash anticipated to be generated by operating activities and, if needed, proceeds from the Amended Revolver. For further information, see Note 12, Note 22 and Note 24 to the consolidated financial statements. 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 $13.2 million and $27.5 million as of December 31, 2022 and 2021, respectively. CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and judgments, however, are often subjective. Actual results may be negatively affected based on changing circumstances. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We have identified the critical accounting policies and estimates addressed below. We also have other key accounting policies, which involve the use of assumptions, estimates and judgments that are significant to understanding our results. For additional information, see Note 2 to the consolidated financial statements. Although we believe that our assumptions, estimates and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions. Revenue Recognition We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer in an amount that reflects the consideration that we expect to receive. This revenue can be recognized at a point in time or over time. We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenues are recognized. When there is a timing difference between when we invoice customers and when revenues are recognized, we record either a contract asset (unbilled accounts receivable) or a contract liability (deferred revenue or other current liabilities), as appropriate. Descriptions of our principal revenue generating activities are as follows: Servicer and Real Estate • For property preservation and inspection services and payment management technologies, we recognize transactional revenue when the service is provided. • For vendor management transactions, we recognize revenue over the period during which we perform the services. • For loan disbursement review services, we recognize revenue over the period during which we perform the processing services with full recognition upon completion of the disbursements. • For foreclosure trustee services, we recognize revenue over the period during which we perform the related services, with full recognition upon completion and/or recording the related foreclosure deed. We use judgment to determine the period over which we recognize revenue for certain of these services. • 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. 49 Table of Contents • For SaaS based technology to manage REO, we recognize revenue over the estimated average number of months the REO are on the platform or ratably over the contract period. We generally recognize revenue for professional services as services are provided. • For loan servicing technologies, we recognize revenue based on the number of loans on the system. We generally recognized revenue from professional services over the contract period. • Reimbursable expenses revenue related to property preservation and inspection services, real estate sales, title services and foreclosure trustee services is included in revenue with an equal amount recognized in cost of revenue. These amounts are recognized on a gross basis, principally because generally we have control over selection of vendors and the vendor relationships are with us, rather than with our customers. Origination • For the majority of the services we provide, we recognize transactional revenue when the service is provided. We recognize membership fees from Lender One members ratably over the term of membership. • For vendor management oversight SaaS, we recognize revenue over the period during which we perform the services. Corporate and Others • 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. Goodwill and Identifiable Intangible Assets Goodwill We evaluate goodwill for impairment annually during the fourth quarter or more frequently when an event occurs or circumstances change in a manner that indicates the carrying value may not be recoverable. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether we need to perform the quantitative goodwill impairment test. Only if we determine, based on qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying value will we calculate the fair value of the reporting unit. We estimate the fair value of the reporting units using discounted cash flows and market comparisons. The discounted cash flow method is based on the present value of projected cash flows. Forecasts of future cash flows are based on our estimate of future sales and operating expenses, based primarily on estimated pricing, sales volumes, market segment share, cost trends and general economic conditions. The estimated cash flows are discounted using a rate that represents our 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. Identifiable Intangible Assets Identified intangible assets consist primarily of customer related intangible assets, operating agreements, trademarks and trade names and other intangible assets. We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any arrangements, the history of the asset, our long-term strategy for use of the asset and other economic factors. We amortize intangible assets that we deem to have definite lives in proportion to actual and expected customer revenues or on a straight-line basis over their useful lives, generally ranging from 4 to 20 years. We perform tests for impairment if conditions exist that indicate the carrying value may not be recoverable. When facts and circumstances indicate that the carrying value of intangible assets determined to have definite lives may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of cash flows of discrete intangible assets generally consistent with models utilized for internal planning purposes. If the sum of the undiscounted expected future cash flows is less than the carrying value, we recognize an impairment to the extent the carrying amount exceeds fair value. Income Taxes We record income taxes in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 740, Income Taxes (“ASC Topic 740”). We account for certain income and expense items differently for financial reporting purposes and income tax purposes. We recognize deferred income tax assets and liabilities for these differences between the financial reporting basis and the tax basis of our assets and liabilities as well as expected benefits of utilizing net operating loss and credit carryforwards. The most significant temporary differences relate to accrued compensation, amortization, loss 50 Table of Contents carryforwards and valuation allowances. We measure deferred income tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we anticipate recovery or settlement of those temporary differences. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions including evaluating uncertainties under ASC Topic 740. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our results of operations. Recently Adopted and Future Adoption of New Accounting Pronouncements See Note 2 to the consolidated financial statements for a discussion of the recent adoption of a new accounting pronouncements and the future adoption of new accounting pronouncements. OTHER MATTERS Customer Concentration Ocwen 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, 2022 and 2021, we recognized revenue from Ocwen of $63.5 million and $55.6 million, respectively. Revenue from Ocwen as a percentage of segment and consolidated revenue was as follows: 2022 2021 Servicer and Real Estate 53 % 49 % Origination — % — % Corporate and Others — % — % Consolidated revenue 41 % 31 % We earn additional revenue related to the portfolios serviced and subserviced by Ocwen when a party other than Ocwen or the MSRs owner selects Altisource as the service provider. For both the years ended December 31, 2022 and 2021, we recognized $9.5 million, of such revenue. These amounts are not included in deriving revenue from Ocwen and revenue from Ocwen as a percentage of revenue discussed above. As of December 31, 2022, accounts receivable from Ocwen totaled $4.0 million, $3.2 million of which was billed and $0.8 million of which was unbilled. 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. Rithm Ocwen has disclosed that Rithm is its largest client. As of December 31, 2022, approximately 17% of loans serviced and subserviced by Ocwen (measured in UPB) were related to Rithm MSRs or rights to MSRs. Rithm purchases brokerage services for REO exclusively from us, irrespective of the subservicer, subject to certain limitations, for certain MSRs set forth in and pursuant to the terms of a Cooperative Brokerage Agreement, as amended, and related letter agreement (collectively, the “Brokerage Agreement”) with terms extending through August 2025. For the years ended December 31, 2022 and 2021, we recognized revenue from Rithm of $3.2 million and $3.1 million, respectively, under the Brokerage Agreement. For the years ended December 31, 2022 and 2021, we recognized additional revenue of $13.0 million and $13.6 million, respectively, relating to the Subject MSRs when a party other than Rithm selects Altisource as the service provider. 51 Table of Contents