What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-11 compared with 2020-03-05 · 236 added, 211 removed, 341 unchanged (57% of the section changed)

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

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

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

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

Mortgage Market and Real Estate Market .

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

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

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

We classify revenue in three categories:

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In evaluating our performance, we focus on service revenue.

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

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

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

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Lenders One is a mortgage cooperative managed, but not owned, by Altisource.

Lenders One is included in revenue and reduced from net income to arrive at net income attributable to Altisource.

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 one of the premier providers of mortgage and real estate marketplaces and related services to a broad and diversified customer base.

The real estate and mortgage marketplaces represent large markets.

We believe our scale and suite of offerings to these large markets provide us with competitive advantages that could support our growth.

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

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

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

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

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 Ocwen, GSEs, NRZ, several large bank and non-bank servicers

and asset managers.

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

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

We have a customer base that includes GSEs, asset managers, and several large bank and non-bank servicers including Ocwen and NRZ.

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

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

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

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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 Lenders One cooperative mortgage bankers and mid-size and larger bank and non-bank loan originators.

We believe our suite of services and technologies positions us to grow our relationships with our existing customer base by providing additional products, services and solutions to these customers.

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

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

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

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

Our earlier stage business consists of Pointillist, Inc.

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

COVID-19 Pandemic Impacts

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Share Repurchase Program

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

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

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

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

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

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

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

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

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

Ocwen Related Matters

During the year ended December 31, 2019 , Ocwen was our largest customer, accounting for 56% of our total revenue for the year ended December 31, 2019 .

During the year ended December 31, 2020, Ocwen was our largest customer, accounting for 54% of our total revenue.

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

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

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

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

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

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

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Ocwen has disclosed that NRZ is its largest client.

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

In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to the Subject MSRs and under which Ocwen will subservice

mortgage loans underlying the MSRs for an initial term of five years.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Altisource believes

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

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

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

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

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

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

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

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

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

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

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

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

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

Factors Affecting Comparability

The following items may impact the comparability of our results:

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

The following items impact the comparability of our results:

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

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

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

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

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

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

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

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

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

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

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

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

Ocwen also communicated to Altisource in the fourth quarter of 2020 that the same investor instructed Ocwen to use a provider for default valuations and certain default title services

other than Altisource on properties associated with such certain MSRs and commenced moving these referrals to other service providers in the fourth quarter of 2020.

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

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

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

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

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

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

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

• In August 2018, Altisource initiated Project Catalyst, a project intended to optimize its operations and reduce costs to better align its cost structure with its anticipated revenues and improve its operating margins (finalized in 2020).

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

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

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

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

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

For the years ended December 31, 2019, 2018 and 2017, service revenue from the Financial Services Business was $33.4 million, $64.1 million and $61.9 million, respectively.

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

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

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

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

• In February 2019, Altisource and Ocwen entered into agreements that, among other things, facilitated Ocwen’s transition from REALServicing and related technologies to another mortgage servicing software platform.

The transition was completed during 2019.

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

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

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

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

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

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

For the years ended December 31, 2019, 2018 and 2017, service revenue from Owners.com was $7.1 million, $8.6 million and $4.7 million, respectively.

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

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

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

Effective January 1, 2018, the Company adopted a new accounting standard on financial assets and financial liabilities, which requires certain equity investments to be measured at fair value with changes in fair value recognized in net income.

Previously, changes in the fair value of the Company’s available for sale securities were included in comprehensive

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

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

In November 2018, the Company announced its plans to sell its short-term investments in real estate and exit the Company’s BRS business and recognized a $(2.6) million write-off of goodwill attributable to the BRS business in 2018.

In 2019, the Company sold its remaining short-term investments in real estate (“BRS Inventory”).

For the years ended December 31, 2019, 2018 and 2017, service revenue from BRS was $42.5 million, $61.2 million and $32.2 million, respectively.

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

The transition was completed during 2019.

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

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

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

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

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

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

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

Based on the Company’s analysis, it currently anticipates the future costs relating to Project Catalyst to be in the range of approximately $10 million to $13 million .

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

• On June 21, 2018, the United States Supreme Court rendered a 5-4 majority decision in South Dakota v.

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

Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on

goods and services provided to purchasers in the state, overturning certain existing court precedent.

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

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

During the third quarter of 2019, we recognized a net reimbursement from clients of $1.7 million of sales taxes.

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

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

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

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

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

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

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

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

For the years ended December 31, 2018 and 2017, service revenue from the rental property management business was $4.2 million and $5.5 million, respectively.

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

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

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

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

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In connection with the refinancing, we recognized a loss of $(4.4) million from the write-off of unamortized debt issuance costs and debt discount for the year ended December 31, 2018.

The comparative average interest rates under the Credit Agreement for the Term B Loans

and the prior credit agreement were 6.4%, 6.0% and 4.6% for the years ended December 31, 2019, 2018 and 2017, respectively.

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

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

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

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

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

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

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

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

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

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

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

The effective income tax rate for the year ended December 31, 2017 was (780.9)% , impacted by three significant items.

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

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

as the surviving entity.

Altisource Holdings S.à r.l.

was subsequently renamed Altisource S.à r.l.

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

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

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

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

RESULTS OF OPERATIONS

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

(in thousands, except per share data)

% Increase (decrease)

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

Service revenue $ 347,313 (44) $ 621,866 (23) $ 805,480

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Cost of Revenue 305,194 (38) 493,256 (21) 622,165

Gross profit 60,353 (61) 155,395 (28) 216,037

Operating expenses (income):

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Restructuring charges 11,972 (15) 14,080 22 11,560

Income from operations

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

Other income (expense), net:

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Total other income (expense), net (13,351) 138 (5,614) (86) (41,096)

Income before income taxes and non-controlling interests

Income tax (provision) benefit

Net (loss) income

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

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

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

Net income attributable to non-controlling interests (841) (60) (2,112) (21) (2,683)

Net (loss) income attributable to Altisource

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

Gross profit/service revenue 17 % 25 % 27 %

Income from operations/service revenue

(Loss) earnings per share:

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

Loss per share:

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

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

Weighted average shares outstanding:

Basic 15,598 (2) 15,991 (6) 17,073

Diluted 15,598 (2) 15,991 (6) 17,073

_____________________________________

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

(in thousands, except per share data)

% Increase (decrease)

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

Non-GAAP Financial Measures (1)

Adjusted net income attributable to Altisource

Adjusted diluted earnings per share

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

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

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

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

(in thousands, except per share data)

% Increase (decrease)

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

Service revenue:

Field Services $ 157,100 (42) $ 271,924 (8) $ 296,343

Marketplace 82,189 (35) 127,093 (32) 186,620

Mortgage and Real Estate Solutions 103,906 (11) 116,194 (10) 128,926

Earlier Stage Business

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

Other 1,875 (98) 105,104 (46) 193,298

Total service revenue 347,313 (44) 621,866 (23) 805,480

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Field Services 4,344 (53) 9,290 (56) 21,083

Marketplace 8,331 (23) 10,819 183 3,817

Mortgage and Real Estate Solutions 3,610 (7) 3,873 (21) 4,900

Other — (100) 190 (21) 239

Total reimbursable expenses 16,285 (33) 24,172 (20) 30,039

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N/M — not meaningful.

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

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

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

The Company believes that the lower REO conversion rates are temporary and anticipates returning to historical conversion rates during the first half of 2020.

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

In addition, Other service revenue declined from the July 1, 2019 sale of the Financial Services Business, lower REALServicing revenue from Ocwen’s second quarter 2019 migration to another servicing system and from the discontinuation of the BRS business.

We recognized service revenue of $805.5 million for the year ended December 31, 2018 , a 10% decrease compared to the year ended December 31, 2017 .

The decreases in Field Services, Marketplace and Mortgage and Real Estate Solutions were driven by the reduction in the size of Ocwen’s portfolio and number of delinquent loans in its portfolio resulting from loan repayments, loan modifications, short sales, REO sales and other forms of resolution and RESI’s smaller portfolio of non-performing loans and

REO, as RESI continues to sell off this portfolio and focus on directly acquiring, renovating and managing rental homes.

These decreases were partially offset by growth in home sale revenue in the BRS and renovation management businesses.

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

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

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

We recognized reimbursable expense revenue of $24.2 million for the year ended December 31, 2019, a 20% decrease compared to the year ended December 31, 2018.

The decrease in reimbursable expense revenue for the for the year ended December 31, 2019 was primarily for the reasons discussed in service revenue above, partially offset by an increase in reimbursable expense revenue for Marketplace related to new early stage disposition services performed.

The decrease in reimbursable expense revenue for the year ended December 31, 2018 was primarily a result of a reduction in the size of Ocwen’s portfolio and number of delinquent loans in its portfolio resulting from loan repayments, loan modifications, short sales, REO sales and other forms of resolution, as discussed in service revenue above.

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

Certain of our revenues can be impacted by seasonality.

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

(in thousands)

% Increase (decrease)

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

Compensation and benefits $ 94,365 (30) $ 135,502 (32) $ 200,486

Outside fees and services 146,322 (39) 240,796 (14) 278,380

Cost of real estate sold

Technology and telecommunications 35,912 (1) 36,302 (13) 41,588

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Depreciation and amortization 12,310 (10) 13,721 (43) 24,013

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

Total $ 305,194 (38) $ 493,256 (21) $ 622,165

We recognized cost of revenue of $305.2 million for the year ended December 31, 2020, a 38% decrease compared to the year ended December 31, 2019.

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

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

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

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

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

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

In addition, depreciation and amortization was lower from the completion of the depreciation periods of certain premises and equipment and the reduction in capital expenditures, and the decrease in reimbursable expenses was consistent with the decrease in reimbursable expense revenue discussed in the revenue section above.

We recognized cost of revenue of $622.2 million for the year ended December 31, 2018 , an 11% decrease compared to the year ended December 31, 2017 .

The decrease was primarily driven by lower service revenue from Ocwen’s portfolio, and related cost reduction initiatives and early benefits of Project Catalyst, partially offset by an increase in cost of real estate sold in the BRS business.

The decrease in outside fees and services was driven by lower property preservation and inspection orders in Field Services from the reduction in the size of Ocwen’s portfolio, as discussed in the revenue section above.

The decline in compensation and benefits in certain of our businesses resulted from lower headcount consistent with the revenue decline from the Ocwen and RESI portfolios and from the implementation of efficiency initiatives and early benefits of Project Catalyst.

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

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

The increase in cost of real estate sold was due to growth in BRS home sale transactions.

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

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

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

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

Gross profit decreased to $155.4 million, representing 25% of service revenue, for the year ended December 31, 2019 compared to $216.0 million, representing 27% of service revenue, for the year ended December 31, 2018.

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

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

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

Gross profit decreased to $216.0 million , representing 27% of service revenue, for the year ended December 31, 2018 compared to $242.3 million , representing 27% of service revenue, for the year ended December 31, 2017 .

Gross profit as a percentage of service revenue in 2018 was consistent with 2017, as the revenue declines were generally offset by lower cost of revenue, as discussed above.

Selling, General and Administrative Expenses

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

(in thousands)

% Increase (decrease)

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

Compensation and benefits $ 35,521 (29) $ 49,875 (2) $ 51,043

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Depreciation and amortization 2,580 (46) 4,788 (29) 6,786

Other 5,783 (62) 15,163 (44) 26,921

Selling, general and administrative expenses $ 92,736 (34) $ 141,076 (20) $ 175,670

SG&A for the year ended December 31, 2020 of $92.7 million decreased by 34% compared to the year ended December 31, 2019.

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

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

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

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

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

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

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

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

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

The decrease in amortization of intangible assets was driven by lower revenue generated by the Homeward Residential, Inc.

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

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

SG&A for the year ended December 31, 2018 of $175.7 million decreased by 9% compared to the year ended December 31, 2017 .

The decrease was primarily driven by lower compensation and benefits, as we reduced headcount from the implementation of efficiency initiatives and early benefits of Project Catalyst, and by lower amortization of intangible assets, due to lower revenue generated by the Homeward and ResCap portfolios consistent with the reduction in the size of Ocwen’s portfolio, discussed in the revenue section above.

Decreases in SG&A were also due to lower occupancy related costs, driven by initiatives to reduce our facilities footprint in 2017 and 2018.

These decreases were partially offset by increases in Other from a $6.2 million contingent loss accrual for sales tax exposure in the United States and an increase in professional services, from increased legal and professional services costs in connection with certain legal and regulatory matters.

Other Operating Expenses (Income)

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

(in thousands)

% Increase (decrease)

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

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

Restructuring charges 11,972 (15) 14,080 22 11,560

Other operating income, net

N/M — not meaningful.

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

On July 1, 2019, we sold the Financial Services Business to TSI for $44.0 million consisting of an up-front payment of $40.0 million, subject to a working capital adjustment (finalized in 2019) and transaction costs upon closing of the sale, and an additional $4.0 million payment on the one year anniversary of the sale closing.

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

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

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

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

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

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

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

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

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

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

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

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

Income from Operations

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

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

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

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

Income from operations decreased to $42.5 million , representing 5% of service revenue, for the year ended December 31, 2018 compared to $49.7 million , representing 6% of service revenue, for the year ended December 31, 2017 .

Income from operations as a percentage of service revenue decreased slightly in 2018 compared to 2017, as SG&A did not decrease at the same rate as service revenue, driven by the sales tax accrual, as discussed above.

The effect of the gain on sale of business was largely offset by restructuring charges.

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

Other Income (Expense), net

Other income (expense), net principally includes interest expense and other non-operating gains and losses.

For the years ended December 31, 2019 and 2018, other income (expense), net also includes an unrealized gain (loss) on our investment in RESI (see Factors Affecting Comparability above for additional information).

Other income (expense), net principally includes interest expense, unrealized gain (loss) on our investment in RESI common shares and other non-operating gains and losses.

Other income (expense), net was $(13.4) million for the year ended December 31, 2020 compared to $(5.6) million for the year ended December 31, 2019.

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

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

The increase in other expense was partially offset by lower interest expense during the year ended December 31, 2020.

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

2020 and 2019 and lower interest rates.

For the year ended December 31, 2020, the interest rate of the senior secured term loan was 5.3% compared to 6.4% for the year ended December 31, 2019.

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

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

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

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

Other income (expense), net for the year ended December 31, 2018 of $(41.1) million increased by 187% compared to the year ended December 31, 2017 .

The increase in expenses in 2018 was primarily due to a $(13.0) million unrealized loss on our investment in RESI, a $(4.4) million loss on debt refinancing and higher interest expense from higher average interest rates on the Credit Agreement, partially offset by lower average debt balances as a result of debt repayments and repurchases in the current and prior years.

The increase in 2018 expenses was also from a net gain on the early extinguishment of debt recognized in 2017.

The comparative average interest rates under the Credit Agreement for the Term B Loans and the prior credit agreement were 6.0% and 4.6% for the years ended December 31, 2018 and 2017, respectively.

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

Income Tax (Provision) Benefit

We recognized an income tax (provision) benefit of $(318.3) million , $(4.1) million and $276.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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

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

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

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The effective income tax rate for the year ended December 31, 2017 was impacted by three significant items.

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

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

as the surviving entity.

Altisource Holdings S.à r.l.

was subsequently renamed Altisource S.à r.l.

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity is cash flow from operations and cash on hand.

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 the COVID-19 pandemic and an MSR investor’s instructions to Ocwen to transition field services, valuation and title services to the investor's captive service providers, revenue has declined significantly.

The lower revenue, partially offset by cost savings initiatives, resulted in negative operating cash flow from operations for the year ended December 31, 2020.

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

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

We seek to deploy cash generated in a disciplined manner.

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

We use cash for repayments of our long-term debt, capital investments and seek to use cash from time to time to repurchase shares of our common stock.

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

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

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

Credit Agreement

On April 3, 2018, Altisource entered into the Credit Agreement pursuant to which Altisource borrowed $412.0 million in the form of Term B Loans and obtained a $15.0 million revolving credit facility.

In April 3, 2018, Altisource entered into the Credit Agreement pursuant to which Altisource borrowed $412.0 million in the form of Term B Loans and obtained a $15.0 million revolving credit facility.

The Term B Loans mature in April 2024 and the revolving credit facility matures in April 2023.

Proceeds from the Term B Loans were used to repay the Company’s prior senior secured term loan, which had an outstanding balance of $412.1 million as of April 3, 2018.

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

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

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

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

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

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

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

All amounts outstanding under the Term B Loans will become due on the earlier of (i) April 3, 2024, and (ii) the date on which the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders (as defined in the Credit Agreement;

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

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

Certain mandatory prepayments reduce future contractual amortization payments by an amount equal to the mandatory prepayment.

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

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

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

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

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

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

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

The lenders have no obligation to provide any incremental indebtedness.

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

(in thousands)

% Increase (decrease)

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

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

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

Cash flows provided by operating activities

Cash flows provided by (used in) investing activities

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

Cash flows provided by investing activities 47,224 5 44,887 305 11,084

Cash flows used in financing activities (49,310) 29 (69,038) 44 (124,283)

Net increase (decrease) in cash, cash equ ivalents and restricted cash

Cash, cash equivalents and restricted cash at the beginn ing of the period

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

Cash, cash equivalents and restricted cash at the beginning of the period 86,583 35 64,046 (41) 108,843

Cash, cash equivalents and restricted cash at the end of the period $ 62,096 (28) $ 86,583 35 $ 64,046

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

For the year ended December 31, 2019 , cash flows provided by operating activities were $46.7 million , or approximately $0.08 for every dollar of service revenue, compared to cash flows provided by operating activities of $68.4 million , or approximately $0.08 for every dollar of service revenue, for the year ended December 31, 2018 and $66.1 million of cash flows from operating activities, or approximately $0.07 for every dollar of service revenue, for the year ended December 31, 2017 .

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

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

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

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

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

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

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

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

The increase in cash flows from operations in 2018 compared to 2017 was primarily due to a decrease in cash used for changes in operating assets and liabilities, largely offset by a $21.3 million decrease in net income, adjusted for non-cash items compared to the year ended December 31, 2018.

The decrease in net income, adjusted for non-cash items, was primarily driven by lower gross profit in 2018 as a result of decreasing service revenues, which were partially offset by corresponding reductions in expenses.

The decrease in cash used for changes in operating assets and liabilities was principally driven by the $28.0 million net payment in 2017 of an accrued litigation settlement, a decrease in prepaid maintenance and income taxes receivable and a lower increase in short-term investments in real estate.

These decreases were partially offset by a lower decrease in accounts receivable for the year ended December 31, 2018 due to service revenue mix and the timing of collections.

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

Certain services are performed immediately following or shortly after the referral, but the collection of the receivable does not occur until a specific event occurs (e.g., the foreclosure is complete, the REO asset is sold, etc.).

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

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

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

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

Cash flows provided by (used in) investing activities were $44.9 million , $11.1 million and $(10.3)

million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

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

In addition, in 2019, we sold 0.7 million shares of RESI stock for net proceeds of $8.0 million .

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

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

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

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

The decreases in additions to premises and equipment in 2019 and 2018 primarily related to the completion of several software development projects prior to 2018.

Cash Flows from Financing Activities

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

We used $(45.0) million in 2019 for repayments of long-term debt, largely from proceeds from the sale of the Financial Services Business and RESI common shares, $(84.0) million in 2018 to refinance and reduce our debt, including debt issuance costs and repayments, and $(59.8) million in 2017 for repurchases and repayments of long-term debt.

We received proceeds from stock option exercises of $0.4 million , $3.6 million and $2.4 million for the years ended December 31, 2019 , 2018 and 2017, respectively.

We also used $(20.0) million , $(40.4) million and $(39.0) million to repurchase shares of our common stock for the years ended December 31, 2019 , 2018 and 2017, respectively.

We distributed $(2.8) million to non-controlling interests in each of the years ended December 31, 2019 , 2018 and 2017 .

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

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

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

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

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

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During the next 12 months, we expect to pay $12.4 million of interest expense (assuming no further principal repayments and the December 31, 2020 interest rate) under the Credit Agreement and make lease payments of $8.3 million.

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

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

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

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

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

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

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Payments due by period

(in thousands)

Less than 1 year

More than 5 years

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

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

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40,239 12,360 24,720 3,159 —

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

______________________________________

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

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

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

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

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

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

If Altisource fails certain performance

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

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

We are not experiencing a significant impact of the servicing technology transition on the other services we provide to Ocwen, other than what we believe is a temporary impact on default related referral volume and REO inventory conversion rates from Ocwen’s transition to another servicing system.

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

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

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

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

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

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

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

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

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

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

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

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Ocwen has disclosed that NRZ is its largest client.

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

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

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

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

Under this agreement and related amendments, Altisource remains the exclusive provider of brokerage services for REO associated with the Subject MSRs, irrespective of the subservicer, subject to certain limitations.

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

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

A services agreement has not been signed.

The parties continue to operate under the Brokerage Agreement.

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis