Item 1. Business
ITEM 1. BUSINESS
The Company
Altisource ® is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing markets we serve.
We are publicly traded on the NASDAQ Global Select Market under the symbol “ASPS.” We are organized under the laws of the Grand Duchy of Luxembourg.
We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Reportable Segments
Our reportable segments are as follows:
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 software-as-a-service (“SaaS”) Products
Our Technology and SaaS Products business includes Equator ® (a SaaS-based technology to manage real estate owned (“REO”), short sales, foreclosure, bankruptcy and eviction processes), Vendorly Invoice (a vendor invoicing and payment system), RentRange ® (a single and multi-family rental data, analytics and rent-based valuation solution), REALSynergy ® (a commercial loan servicing platform), and NestRange TM (an automated residential valuation model and analytics solution).
3
Table of Contents
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 ® (“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), Lenders One Loan Automation (“LOLA”) (a marketplace to order services and a tool to automate components of the loan manufacturing process), TrelixAI TM (technology to manage the workflow and automate components of the loan fulfillment, pre and post-close quality control and service transfer processes), and ADMS (a document management and data analytics delivery platform).
Corporate and Others includes 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 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.
2023 Highlights
Company, Corporate and Financial :
• Improved total Company loss from operations by $16.4 million in 2023 compared to 2022 by (1) improving operating income as a percentage of service revenue in the Servicer and Real Estate and Origination segments (together, “Business Segments”) to 19.1% in 2023 from 13.2% in 2022, and (2) reducing Corporate and Others operating loss as a percentage of total Company service revenue to (31.4)% in 2023 from (36.1)% in 2022, primarily through efficiency initiatives and cost savings measures
• Amended the senior secured term loans (“SSTL”) and revolving credit facility to, among other things, extend the maturity dates to April 2025, with options to extend both to April 2026, subject to certain terms and conditions
• Generated $38.8 million in net proceeds from the sale of common stock and used $30 million to partially repay the SSTL
• Ended the year with $32.5 million of cash and cash equivalents, $15.0 million available under a revolving credit facility and $191.6 million of net debt
Business Segments :
• In the face of serious market headwinds for both Business Segments, service revenue in the Servicer and Real Estate segment was only down 4% and service revenue in the Origination segment outperformed the overall market with a decline of 11% compared to a 36% decline in industrywide residential origination volume
• Improved income from operations in the Business Segments by $7.0 million to $26.1 million, representing 19.1% of service revenue, in 2023 compared to $19.0 million, representing 13.2% of service revenue, in 2022, primarily through efficiency and cost cutting initiatives
• Ended 2023 with a weighted average sales pipeline between $43 million and $53 million of potential estimated revenue on a stabilized basis based upon forecasted probability of closing (comprised of between $27 million and $33 million in the Servicer and Real Estate segment and between $16 million and $20 million in the Origination segment)
4
Table of Contents
• Generated 2023 sales wins which we estimate represent potential annualized revenue on a stabilized basis of $58.4 million for the Servicer and Real Estate segment and $10.3 million for the Origination segment
Industry :
• Industrywide foreclosure initiations were 4% lower in 2023 compared to 2022 (and 31% lower than the same pre-COVID-19 period in 2019)
• Industrywide foreclosure sales were 8% higher in 2023 compared to 2022 (and 46% lower than the same pre-COVID-19 period in 2019)
• Industrywide early-stage mortgage delinquencies (30-days late) increased by 15% and borrowers who have missed two payments (60-days past due) increased by 16% in December 2023 compared to December 2022
• Industrywide mortgage origination volume decreased by 36% in 2023 compared to 2022
• Industrywide seriously delinquent mortgage rate (90+ day past due and loans in foreclosure) decreased to 1.3% in December 2023 compared to 1.6% in December 2022
Customers
Overview
Our customers include large financial institutions, government-sponsored enterprises (“GSEs”), banks, asset managers, servicers, investors, property management firms, real estate brokerages, insurance companies, mortgage bankers, originators, correspondent and private money lenders.
Customer Concentration
Ocwen
Ocwen Financial Corporation (together with its subsidiaries, “Ocwen”) is a residential mortgage loan servicer of mortgage servicing rights (“MSRs”) it owns, including those MSRs in which others have an economic interest, and a subservicer of loans owned by others.
During the year ended December 31, 2023, Ocwen was our largest customer, accounting for 44% of our total revenue. Ocwen purchases certain mortgage services from us under the terms of services agreements and amendments thereto (collectively, the “Ocwen Services Agreements”) with terms extending through August 2030. Certain of the Ocwen Services Agreements contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing, among other things.
Revenue from Ocwen primarily consists of revenue earned from the loan portfolios serviced and subserviced by Ocwen when Ocwen engages us as the service provider, and revenue earned directly from Ocwen, pursuant to the Ocwen Services Agreements. For the years ended December 31, 2023 and 2022, we recognized revenue from Ocwen of $63.2 million and $63.5 million, respectively. Revenue from Ocwen as a percentage of segment and consolidated revenue was as follows:
2023 2022
Servicer and Real Estate 55 % 53 %
Origination — % — %
Corporate and Others — % — %
Consolidated revenue 44 % 41 %
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 the years ended December 31, 2023 and 2022, we recognized $9.2 million and $9.5 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.
As of December 31, 2023, accounts receivable from Ocwen totaled $3.4 million, $2.2 million of which was billed and $1.2 million of which was unbilled. 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.
5
Table of Contents
Rithm
Rithm Capital Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “Rithm”) (formerly New Residential Investment Corp.) is an asset manager focused on the real estate and financial services industries.
Ocwen has disclosed that Rithm is a significant client of Ocwen’s. As of December 31, 2023, Ocwen reported that approximately 16% of loans serviced and subserviced by Ocwen (measured in unpaid principal balance (“UPB”)) and approximately 67% of all delinquent loans that Ocwen services were related to Rithm MSRs or rights to MSRs (the “Subject 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, 2023 and 2022, we recognized revenue from Rithm of $2.8 million and $3.2 million, respectively, under the Brokerage Agreement. For the years ended December 31, 2023 and 2022, we recognized additional revenue of $12.6 million and $13.0 million, respectively, relating to the Subject MSRs when a party other than Rithm selects Altisource as the service provider.
Other
Our services are provided to customers predominantly located in the United States.
Sales and Marketing
We believe our sales and marketing team has extensive relationship management and industry experience. These individuals cultivate and maintain relationships throughout the industry sectors we serve. We sell our suite of services to mortgage servicers, mortgage originators, GSEs, buyers and sellers of homes for investment use and financial services firms.
Our primary sales and marketing focus areas are to:
• Expand relationships with existing customers by cross-selling additional services and growing the volume of existing services we provide. We believe our customer relationships represent meaningful growth opportunities for us.
• Develop new customer relationships by leveraging our comprehensive suite of services, performance and controls. We believe there are meaningful growth opportunities to sell our suite of services to new customers.
Given the highly regulated nature of the industries we serve, and the comprehensive purchasing process that our institutional customers and prospects follow, the time and effort we spend in expanding relationships or winning new relationships is significant. For example, it can often take more than one year from the request for proposal or qualified lead stage to the selection of Altisource as a service provider. Furthermore, following the selection of Altisource, it is not unusual for it to take an additional six to twelve months or more to negotiate the services agreement(s), complete the implementation procedures and begin receiving referrals.
Intellectual Property and Data
We rely on a combination of contractual restrictions, internal security practices, patents, trademarks and copyrights to establish and protect our trade secrets, intellectual property, software, technology and expertise. We also own or, as we deem necessary and appropriate, have obtained licenses from third parties to intellectual property relating to our services, processes and businesses. These intellectual property rights are important factors in the success of our businesses.
As of December 31, 2023, we have been awarded five patents that expire in 2025, one patent that expires in 2026, one patent that expires in 2027, one patent that expires in 2029, one patent that expires in 2030. In addition, we have registered trademarks in a number of jurisdictions including the United States, the European Union (“EU”), India and five other jurisdictions. These trademarks generally can be renewed indefinitely, provided they are being used in commerce.
We actively protect our rights and intend to continue our policy of taking the measures we deem reasonable and necessary to develop and protect our patents, trademarks, copyrights, trade secrets and other intellectual property rights.
In addition, we may make use of data in connection with certain of our services. This data generally relates to mortgage information, real property information and consumer information. We gather this data from a variety of third party sources, including from governmental entities and, subject to licensed usage rights, we use this data in connection with the delivery of
6
Table of Contents
certain of our services, including combining it with proprietary data we generate to further enhance data and metrics in connection with our services.
Market and Competition
We sell our suite of services to mortgage servicers, mortgage originators, GSEs, buyers and sellers of homes for investment use and financial services firms. The mortgage and real estate markets are very large and are influenced by macroeconomic factors such as credit availability, interest rates, home prices, inflation, unemployment rates, consumer confidence, natural disasters and pandemics, and responses to such factors.
The markets for services provided to mortgage servicers and mortgage originators are highly competitive and generally consist of national companies, in-house providers and a large number of regional and local providers. We typically compete based upon product and service awareness and offerings, product performance and service delivery, quality and control environment, technology integration and support, national coverage, price, financial strength, reputation and customer service.
The markets for services provided to buyers and sellers of home for investment are highly competitive and generally consist of several national companies, a large number of regional and local providers and start-up companies. We typically compete based upon product and service awareness and offerings, product performance and service delivery, national coverage, ease of transacting, price, quality and control environment, technology integration and support, customer service and personal service.
Our competitors may have greater financial resources, brand recognition, alternative or disruptive products and technology and other competitive advantages. We cannot determine our market share with certainty, but believe for mortgage servicers we have a modest share of the market, and for the others we have a relatively small market share.
Public offerings of Common Stock
On February 14, 2023, Altisource closed on an underwritten public offering to sell 4,550,000 shares of its common stock, at a price of $5.00 per share, generating net proceeds of $20.5 million, after deducting the underwriting discounts and commissions and other offering expenses.
On September 7, 2023, Altisource closed on an underwritten public offering to sell 5,590,277 shares of its common stock, at a price of $3.60 per share, generating net proceeds of $18.4 million, after deducting the underwriting discounts and commissions and other offering expenses.
Term Loan Amendment
On February 9, 2023, we executed Amendment No. 2 (the “Second Amendment”) to the Credit Agreement effective February 14, 2023 (as amended by the Second Amendment, the “Amended Credit Agreement”).
The following is a summary of certain key terms of the Second Amendment and the Amended Credit Agreement.
• The maturity date of the term loans under the Amended Credit Agreement is April 30, 2025
• If the amount of par paydown that we make on the term loans (excluding amortization and other required payments) in the aggregate using proceeds from issuances of equity interest or from junior indebtedness prior to February 14, 2024 ("Aggregate Paydowns”) is equal to or greater than $30 million, then (subject to the representations and warranties being true and correct as of such date and there being no default or event of default being in existence as of such date) the maturity date of the term loans may be extended to April 30, 2026, at our option subject to Company's payment of a 2% payment-in-kind extension fee.
• The principal amortization of the term loans under the Amended Credit Agreement is 1.00% per year through April 30, 2025 and, if the maturity date is extended, 1% per month during the 12 month extension period.
• The interest rate on the term loans will initially be Secured Overnight Financing Rate (“SOFR”) plus 5.00% per annum payable in cash plus 5.00% per annum payable in kind (“PIK”). The PIK component of the interest rate is subject to adjustment based on the amount of Aggregate Paydowns as set forth in the table below:
7
Table of Contents
Aggregate Paydowns
PIK Component of Interest Rate
Less than $20 million 5.00%
$20 million+ but less than below 4.50%
$30 million+ but less than below 3.75%
$40 million+ but less than below 3.50%
$45 million+ but less than below 3.00%
$50 million+ but less than below 2.50%
$55 million+ but less than below 2.00%
$60 million+ but less than below 1.00%
$65 million+ but less than below 0.50%
$70 million+ 0.00%
• If, as of the end of any calendar quarter, (i) our amount of unencumbered cash and cash equivalents on a consolidated basis plus (ii) the undrawn commitment amount under our revolving credit facility is, or is forecast as of the end of the immediately subsequent calendar quarter to be, less than $35 million, then up to 2.00% in interest otherwise payable in cash in the following quarter may be paid in kind at our election
• The lenders under the Amended Credit Agreement received warrants (the “Warrants”) to purchase 3,223,851 shares of Altisource common stock (the “Warrant Shares”). The number of Warrant Shares is subject to reduction based on the amount of Aggregate Paydowns as set forth in the table below.
Aggregate Paydowns
Warrant Shares
Less than $20 million 3,223,851
$20 million+ but less than below 2,578,743
$30 million+ 1,612,705
• The exercise price per share of common stock under each Warrant is equal to $0.01. The Warrants may be exercised at any time on and after February 14, 2024 and prior to their expiration date. The Warrants are exercisable on a cashless basis and are subject to customary anti-dilution provisions. The Warrants, if not previously exercised or terminated, will be automatically exercised on May 22, 2027. The Warrants are subject to a lock-up agreement, subject to customary exceptions, ending on February 16, 2024
• The lenders under the Amended Credit Agreement were paid an amendment fee equal to 1.0%, substantially all of which was paid in cash at closing
• Various of the affirmative and negative covenants, mandatory prepayments, events of default and other terms to which we are subject under the Amended Credit Agreement have been modified including in many cases to be more restrictive or to reduce certain permissions previously available to us
• Based on the $30 million of Aggregate Paydowns made by Company during the year ended December 31, 2023, the maturity date may be extended to April 30, 2026 at the Company's option (subject to conditions described above), the PIK component of the interest rate decreased to 3.75%, the number of Warrant Shares decreased to 1,612,705 and there is no contractual amortization due until the April 30, 2025 maturity date. If the maturity date is extended to April 30, 2026, the Company is required to make mandatory repayments of $5.2 million in the first quarter of 2026 with the remaining balance due at the April 2026 maturity
• As of December 31, 2023 the outstanding amount of our SSTL was $224.1 million.
Revolver Amendment
On February 9, 2023, we entered into Amendment No. 1 (the “First Revolver Amendment”) to our revolving credit facility (the “Revolver”) effective February 14, 2023. The First Revolver Amendment establishes the credit available under our revolving credit facility at $15 million, extends the facility termination and maturity date to coincide with the maturity date of the term loans under the Amended Credit Agreement, and increases the interest rate under our revolving credit facility to 10% per annum payable in cash and 3% per annum PIK. A usage fee of $0.75 million will be payable upon the initial drawing under our revolving credit facility following the effectiveness of the First Revolver Amendment. Our revolving credit facility is secured by a first-priority lien on substantially all of our assets, which lien will be pari passu with liens securing the term loans under the Amended Credit Agreement, and our revolving credit facility will continue to be guaranteed by Altisource and substantially all of our material subsidiaries. As of December 31, 2023, there are no outstanding amounts under the First Revolver Amendment and the First Amendment Revolver has never been drawn.
8
Table of Contents
Employees
As of December 31, 2023, we had the following number of employees:
United States India Uruguay Luxembourg Consolidated Altisource
Total employees 187 810 66 8 1,071
Seasonality
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 COVID-19 pandemic and related measures and the rapid rise in mortgage interest rates, the seasonal impact to revenue may not follow historical patterns.
Government Regulation
Our business and the business of our customers are or may be subject to extensive scrutiny and regulation by federal, state and local governmental authorities including the Federal Trade Commission (“FTC”), the CFPB, the Securities and Exchange Commission (“SEC”), the Department of Housing and Urban Development (“HUD”), the Treasury Department, various federal and state banking, financial and consumer regulators and the state and local agencies that license or oversee certain of our auction, real estate brokerage, title insurance agency, appraisal management, valuation, property preservation and inspection, mortgage and debt collection, trustee, mortgage origination underwriter and broker, property and asset management, insurance and credit report reselling services. We also must comply with a number of federal, state and local laws, which may include, among others:
• the Americans with Disabilities Act (“ADA”);
• the Bank Secrecy Act;
• the California Homeowner Bill of Rights (“CHBR”);
• the Controlling the Assault of Non-Solicited Pornography And Marketing Act (“CAN-SPAM”);
• the Equal Credit Opportunity Act (“ECOA”);
• the Fair and Accurate Credit Transactions Act (“FACTA”);
• the Fair Credit Reporting Act (“FCRA”);
• the Fair Housing Act;
• the Federal Trade Commission Act (“FTC Act”);
• the Gramm-Leach-Bliley Act (“GLBA”);
• the Home Affordable Refinance Program (“HARP”);
• the Home Mortgage Disclosure Act (“HMDA”);
• the Home Ownership and Equity Protection Act (“HOEPA”);
• the National Housing Act;
• the New York Real Property Actions and Proceedings Law (“RPAPL”);
• the Real Estate Settlement Procedures Act (“RESPA”);
• the Secure and Fair Enforcement for Mortgage Licensing (“SAFE”) Act;
• the Servicemembers Civil Relief Act (“SCRA”);
• the Telephone Consumer Protection Act (“TCPA”);
• the Truth in Lending Act (“TILA”); and
• Unfair, Deceptive or Abusive Acts and Practices statutes (“UDAAP”); and
• Applicable state laws addressing consumer data privacy, use or disclosure.
We are also subject to the requirements of the Foreign Corrupt Practices Act (“FCPA”) and comparable foreign laws due to our activities in foreign jurisdictions.
In addition to federal and state laws regarding privacy and data security, we are also subject to data protection laws in the countries in which we operate. Additionally, certain of our entities are or may be subject to the EU General Data Protection Regulation (“GDPR”).
Legal requirements can and do change as statutes and regulations are enacted, promulgated or amended. One such enacted regulation is the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The Dodd-Frank Act is extensive and includes reform of the regulation and supervision of financial institutions, as well as the regulation of derivatives, capital market activities and consumer financial services. The Dodd-Frank Act, among other things, created the CFPB, a
9
Table of Contents
federal entity responsible for regulating consumer financial services and products. Title XIV of the Dodd-Frank Act contains the Mortgage Reform and Anti-Predatory Lending Act (“Mortgage Act”). The Mortgage Act imposes a number of additional requirements on lenders and servicers of residential mortgage loans by amending and expanding certain existing regulations. The interpretation or enforcement by regulatory authorities of applicable laws and regulations also may change over time. In addition, the creation of new regulatory authorities or changes in the regulatory authorities overseeing applicable laws and regulations may also result in changing interpretation or enforcement of such laws or regulations.
Our failure or the failure of our customers or vendors to comply with applicable laws or regulations or changing interpretation of such laws or regulations could subject the Company to criminal or civil liability, significant penalties, fines, settlements, costs and consent orders affecting us or our customers that may curtail or restrict the business as it is currently conducted and could have a material adverse effect on our financial condition or results of operations.
Furthermore, certain of our services are provided at the direction of, and pursuant to, the identified requirements of our customers. The failure of our customers to properly identify or account for regulatory requirements applicable to such services could expose us to significant penalties, fines, settlements, costs and consent orders that could have an adverse effect on our financial condition or results of operations.
We are subject to licensing and regulation as a provider of certain services including, among others, auction, real estate brokerage, title insurance agency, appraisal management, valuation, property preservation and inspection, mortgage and debt collection, trustee, mortgage origination underwriter and broker, property and asset management, insurance and credit report reselling services in a number of jurisdictions. Our employees and subsidiaries may be required to be licensed by or registered with various jurisdictions for the particular type of service sold or provided and to participate in regular continuing education programs. Periodically, we are subject to audits, examinations and investigations by federal, state and local governmental authorities and receive subpoenas, civil investigative demands or other requests for information from such governmental authorities in connection with their regulatory or investigative authority. Due to the inherent uncertainty of such actions, it is often difficult to predict the potential outcome or estimate any potential financial impact in connection with any such inquiries.
Available Information
We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information with the SEC. These filings are available to the public on the SEC’s website at www.sec.gov .
Our principal Internet address is www.altisource.com and we encourage investors to use it as a way to easily find information about us. We promptly make the reports we file or furnish with the SEC, corporate governance information (including our Code of Business Conduct and Ethics), select press releases and other related information available on this website. The contents of our website are available for informational purposes only and shall not be deemed incorporated by reference in this report.