Altisource Portfolio Solutions S.A.(ASPS) - 2024 Q3 - Quarterly Report

PART I — Financial Information This section presents Altisource Portfolio Solutions S.A.'s unaudited interim condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) This section presents Altisource Portfolio Solutions S.A.'s unaudited interim condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of equity (deficit), and cash flows, along with detailed notes explaining accounting policies, customer concentrations, asset and liability breakdowns, debt structures, equity changes, revenue disaggregation, and segment performance Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and deficit as of September 30, 2024, and December 31, 2023 | ASSETS (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $28,339 | $32,522 | | Accounts receivable, net | $14,241 | $11,682 | | Total current assets | $50,824 | $55,540 | | Goodwill | $55,960 | $55,960 | | Intangible assets, net | $22,738 | $26,548 | | Total assets | $144,503 | $154,858 | | LIABILITIES AND DEFICIT (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Accounts payable and accrued expenses | $32,500 | $30,088 | | Current portion of long-term debt | $226,708 | — | | Total current liabilities | $265,379 | $35,760 | | Long-term debt | — | $215,615 | | Total deficit | $(148,686) | $(125,055) |\ | Total liabilities and deficit | $144,503 | $154,858 | Condensed Consolidated Statements of Operations and Comprehensive Loss This section outlines the company's financial performance, including revenue, gross profit, operating income, and net loss for the three and nine months ended September 30, 2024 and 2023 | (in thousands, except per share data) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $40,531 | $36,213 | $119,121 | $110,909 | | Cost of revenue | $28,461 | $29,024 | $82,030 | $89,684 | | Gross profit | $12,070 | $7,189 | $37,091 | $21,225 | | Income (loss) from operations | $1,105 | $(3,545) | $2,640 | $(13,944) | | Net loss attributable to Altisource | $(9,362) | $(11,342) | $(26,867) | $(43,139) | | Basic Loss per share | $(0.33) | $(0.51) | $(0.94) | $(2.10) | Condensed Consolidated Statements of Equity (Deficit) This section details changes in the company's equity (deficit) over the nine months ended September 30, 2024, including net loss, share-based compensation, and warrant exercises | (in thousands) | Balance, Dec 31, 2023 | Net loss | Share-based compensation expense | Exercise of warrants, net of costs | Issuance of restricted share units and restricted shares | Treasury shares withheld for tax | Balance, Sep 30, 2024 | | :------------- | :-------------------- | :------- | :------------------------------- | :--------------------------------- | :------------------------------------------------------- | :------------------------------- | :-------------------- | | Common stock | $29,963 | — | — | — | — | — | $29,963 | | Add. paid-in capital | $177,278 | — | $3,072 | $(418) | — | — | $180,776 | | Accumulated deficit | $(180,162) | $(26,867)| — | $(3,893) | $(24,577) | $(12,046) | $(247,545) | | Treasury stock | $(152,749) | — | — | $6,249 | $24,577 | $21,793 | $(112,580) | | Non-controlling interests | $615 | $136 | — | — | — | — | $700 | | Total deficit | $(125,055) | $(26,731)| $3,072 | $1,938 | — | $9,747 | $(148,686) | Condensed Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2024 and 2023 | (in thousands) | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,624) | $(17,595) | | Net cash (used in) provided by financing activities | $(566) | $3,169 | | Net decrease in cash, cash equivalents and restricted cash | $(4,190) | $(14,426) | | Cash, cash equivalents and restricted cash at the end of the period | $31,226 | $39,847 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the interim condensed consolidated financial statements NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION This note describes Altisource's business, reporting segments, accounting principles, and the impact of new accounting pronouncements - Altisource Portfolio Solutions S.A. is an integrated service provider and marketplace for the real estate and mortgage industries, publicly traded on NASDAQ under 'ASPS' and organized under Luxembourg law[17] - The Company operates through two reportable segments: Servicer and Real Estate, and Origination, with Corporate and Others reported separately[17] - The interim financial statements are prepared in accordance with GAAP for interim information and SEC Regulation S-X, and should be read with the 2023 Annual Report on Form 10-K[18][20] - Altisource consolidates Lenders One, a mortgage cooperative, as its primary beneficiary due to control over significant activities and right to benefits[19] - New accounting pronouncements ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) will be effective for annual periods beginning after December 15, 2023, and December 15, 2024, respectively, with the Company currently evaluating their impact[23][24] NOTE 2 — CUSTOMER CONCENTRATION This note details significant customer relationships, particularly with Onity Group Inc. and Rithm Capital Corp., and their impact on revenue and receivables - Onity Group Inc. was Altisource's largest customer, accounting for 43% of total revenue for the three months ended September 30, 2024, and 44% for the nine months ended September 30, 2024[25] | Revenue from Onity (in millions) | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :------------------------------- | :------ | :------ | :------- | :------- | | Total Revenue | $17.6 | $15.7 | $52.6 | $47.3 | - Accounts receivable from Onity increased to $3.9 million as of September 30, 2024, from $3.4 million as of December 31, 2023[28] - Rithm Capital Corp. is a significant client of Onity, with approximately 14% of loans serviced by Onity and 64% of delinquent loans related to Rithm MSRs as of June 30, 2024[29] | Revenue from Rithm (in millions) | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :------------------------------- | :------ | :------ | :------- | :------- | | Under Brokerage Agreement | $0.5 | $0.7 | $1.8 | $2.3 | | Related to Subject MSRs | $2.5 | $3.2 | $8.6 | $10.1 | NOTE 3 — ACCOUNTS RECEIVABLE, NET This note provides a breakdown of accounts receivable, including billed and unbilled amounts, and the allowance for credit losses | (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------ | :----------- | :----------- | | Billed | $10,548 | $9,826 | | Unbilled | $7,179 | $4,979 | | Less: Allowance for credit losses | $(3,486) | $(3,123) | | Total | $14,241 | $11,682 | - Unbilled accounts receivable primarily relate to real estate asset management, REO and foreclosure sales, title and closing services, and property renovation services, where revenue is recognized upon service provision but billed later[31] | Allowance for expected credit losses (in thousands) | Balance at Beginning of Period | Additions Charged to Expenses | Deductions | Balance at End of Period | | :-------------------------------------------------- | :----------------------------- | :---------------------------- | :--------- | :----------------------- | | Three months ended Sep 30, 2024 | $3,421 | $226 | $(161) | $3,486 | | Nine months ended Sep 30, 2024 | $3,123 | $776 | $(413) | $3,486 | NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS This note details the components of prepaid expenses and other current assets, including indemnity escrow receivable and income taxes receivable | (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :---------------------------------------- | :----------- | :----------- | | Indemnity escrow receivable from Pointillist sale | $3,160 | $3,201 | | Prepaid expenses | $2,207 | $3,722 | | Income taxes receivable | $965 | $325 | | Other current assets | $578 | $2,738 | | Total | $8,244 | $11,336 | NOTE 5 — PREMISES AND EQUIPMENT, NET This note presents the net book value of premises and equipment, along with depreciation and amortization expenses, broken down by asset type and country | (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------------------- | :----------- | :----------- | | Computer hardware and software | $46,078 | $46,519 | | Less: Accumulated depreciation and amortization | $(45,975) | $(45,940) | | Total | $901 | $1,709 | - Depreciation and amortization expense for premises and equipment was $0.8 million for the nine months ended September 30, 2024, a decrease from $1.9 million in the same period of 2023[36] | Premises and equipment, net by country (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :---------------------------------------------------- | :----------- | :----------- | | Luxembourg | $671 | $1,131 | | India | $199 | $492 | | United States | $31 | $64 | | Uruguay | — | $22 | | Total | $901 | $1,709 | NOTE 6 — RIGHT-OF-USE ASSETS UNDER OPERATING LEASES, NET This note details the net right-of-use assets under operating leases and associated amortization expenses | (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :--------------------------------------- | :----------- | :----------- | | Right-of-use assets under operating leases | $6,132 | $7,242 | | Less: Accumulated amortization | $(3,588) | $(3,863) | | Total | $2,544 | $3,379 | - Amortization of operating leases was $1.2 million for the nine months ended September 30, 2024, a decrease from $1.4 million in the same period of 2023[38] NOTE 7 — GOODWILL AND INTANGIBLE ASSETS, NET This note provides a breakdown of goodwill by segment and definite-lived intangible assets, including amortization expenses and future forecasts | Goodwill by segment (in thousands) | Sep 30, 2024 & Dec 31, 2023 | | :------------------------------- | :-------------------------- | | Servicer and Real Estate | $30,681 | | Origination | $25,279 | | Total | $55,960 | | Intangible Assets, net (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Customer related intangible assets | $11,431 | $13,651 | | Operating agreement | $9,334 | $10,646 | | Trademarks and trade names | $1,973 | $2,251 | | Total | $22,738 | $26,548 | - Amortization expense for definite-lived intangible assets was $3.8 million for the nine months ended September 30, 2024, slightly down from $3.9 million in the prior year[40] - Forecasted annual definite-lived intangible asset amortization expense is $5.1 million for 2024 and 2025, gradually decreasing to $4.4 million by 2028[40] NOTE 8 — OTHER ASSETS This note lists other non-current assets, including restricted cash, surety bond collateral, and security deposits | (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :------------------- | :----------- | :----------- | | Restricted cash | $2,864 | $2,871 | | Surety bond collateral | $2,000 | $2,000 | | Security deposits | $339 | $397 | | Other | $1,365 | $1,462 | | Total | $6,568 | $6,730 | NOTE 9 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES This note details current liabilities, including accounts payable, accrued expenses, and other current liabilities, along with information on the revolving loan agreement | Accounts payable and accrued expenses (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :--------------------------------------------------- | :----------- | :----------- | | Accounts payable | $15,616 | $15,275 | | Accrued expenses - general | $9,263 | $8,637 | | Accrued salaries and benefits | $5,127 | $5,048 | | Income taxes payable | $2,494 | $1,128 | | Total | $32,500 | $30,088 | | Other current liabilities (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------- | :----------- | :----------- | | Operating lease liabilities | $1,502 | $1,570 | | Revolving loan agreement | $250 | — | | Other | $650 | $907 | | Total | $2,402 | $2,477 | - Altisource Solutions, Inc. entered into a revolving loan agreement with related party AAMC on June 3, 2024, allowing borrowing up to $1.0 million (potentially $3.0 million), maturing June 3, 2025, with a 12.00% cash interest rate and 0.25% unused commitment fee[44][45] - As of September 30, 2024, $250 thousand was outstanding under the Revolving Loan Agreement[46] NOTE 10 — LONG-TERM DEBT This note outlines the company's long-term debt structure, including senior secured term loans, interest rates, covenants, and related party debt | (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------------------------- | :----------- | :----------- | | Senior secured term loans | $230,590 | $224,085 | | Less: Debt issuance and amendment costs, net | $(1,521) | $(3,318) | | Less: Unamortized discount, net | $(2,361) | $(5,152) | | Net long-term debt | $226,708 | $215,615 | | Less: Current portion of long-term debt | $(226,708) | — | | Total long-term debt, less current portion | — | $215,615 | - The Senior Secured Term Loans (SSTL) mature on April 30, 2025, with an option to extend to April 30, 2026, if Aggregate Paydowns were $30 million or more, conditioned on a 2% PIK extension fee[49] - The SSTL interest rate as of September 30, 2024, including a 3.75% PIK component, was 14.18%[52][53] - The Amended Credit Agreement contains covenants restricting Altisource's ability to incur debt, liens, sell assets, make restricted payments, and engage in certain transactions[55] - Deer Park Road Management Company, LP, a related party, owns approximately 16% of Altisource's common stock and $41.7 million of its debt as of September 30, 2024[57] - The Amended Revolver with STS Master Fund, Ltd. (managed by Deer Park) provides a maximum borrowing of $15.0 million, bearing 10.00% cash interest and 3.00% PIK, with no outstanding debt as of September 30, 2024[60][61][63] NOTE 11 — WARRANTS This note describes the warrants issued to lenders, including their terms, exercise activity, and accounting treatment - Lenders under the Amended Credit Agreement received warrants to purchase 1,612,705 shares of Altisource common stock, reduced from an initial 3,223,851 shares due to $30 million in Aggregate Paydowns[64] | Warrant Shares Activity | Number of Warrant Shares | | :---------------------- | :----------------------- | | Outstanding as of Dec 31, 2023 | 1,612,705 | | Exercised | (96,808) | | Outstanding as of Sep 30, 2024 | 1,515,897 | - The warrants have an exercise price of $0.01 per share, are exercisable on a cashless basis from February 14, 2024, and automatically exercise on May 22, 2027, if not previously exercised or terminated[64] - Initially recognized as a warrant liability and re-measured at fair value, the warrants were reclassified to equity on September 18, 2023, after the number of shares became fixed[66] - A gain on changes in fair value of warrant liability of $1.1 million was recorded for the nine months ended September 30, 2023[67] NOTE 12 — OTHER NON-CURRENT LIABILITIES This note lists other non-current liabilities, including income tax liabilities and operating lease liabilities | (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :---------------------------- | :----------- | :----------- | | Income tax liabilities | $17,450 | $17,506 | | Operating lease liabilities | $1,140 | $1,950 | | Deferred revenue | — | $9 | | Other non-current liabilities | $116 | $45 | | Total | $18,706 | $19,510 | NOTE 13 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS This note details the fair value measurements of financial instruments, categorizing them by input levels and discussing credit risk concentrations | (in thousands) | Carrying amount (Sep 30, 2024) | Fair Value (Sep 30, 2024) Level 1 | Fair Value (Sep 30, 2024) Level 2 | Fair Value (Sep 30, 2024) Level 3 | | :------------------------ | :----------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cash and cash equivalents | $28,339 | $28,339 | — | — | | Restricted cash | $2,887 | $2,887 | — | — | | Short-term receivable | $3,160 | — | — | $3,160 | | Revolving loan agreement | $250 | — | — | $250 | | Senior secured term loan | $230,590 | — | $123,366 | — | - Cash and cash equivalents and restricted cash are measured using Level 1 inputs, while the Senior Secured Term Loan uses Level 2 inputs based on quoted market prices, and the Revolving Loan Agreement and short-term receivables use Level 3 inputs[71][72] - The Company faces credit risk concentrations from cash deposits with highly rated financial institutions and accounts receivable, with Onity accounting for 43-44% of total revenue[73] NOTE 14 — SHAREHOLDERS' EQUITY AND SHARE-BASED COMPENSATION This note covers share repurchase programs, equity offerings, share-based compensation expense, and activity for stock options and restricted shares - Shareholders approved a renewal of the share repurchase program on May 16, 2023, authorizing the purchase of up to 3.1 million shares (15% of outstanding shares) at $1.00-$25.00 per share over five years[74] - As of September 30, 2024, approximately 3.1 million shares remain available for repurchase, with no purchases made during the nine months ended September 30, 2024 and 2023[74] - Altisource completed public offerings of common stock, generating net proceeds of $20.5 million in February 2023 and $18.4 million in September 2023[75] - Share-based compensation expense was $3.9 million for both the nine months ended September 30, 2024 and 2023[76] - As of September 30, 2024, unrecognized compensation costs for share-based awards totaled $1.9 million, expected to be recognized over approximately 1.02 years[76] | Stock Options Activity | Number of options | Weighted average exercise price | | :--------------------------- | :---------------- | :------------------------------ | | Outstanding as of Dec 31, 2023 | 739,189 | $27.04 | | Forfeited | (27,500) | $81.44 | | Outstanding as of Sep 30, 2024 | 711,689 | $24.94 | | Exercisable as of Sep 30, 2024 | 543,200 | $24.34 | | Restricted Shares and Units Activity | Number of restricted shares and restricted share units | | :----------------------------------- | :----------------------------------------------------- | | Outstanding as of Dec 31, 2023 | 1,262,742 | | Granted | 1,637,880 | | Issued | (578,325) | | Forfeited/canceled | (319,708) | | Outstanding as of Sep 30, 2024 | 2,002,589 | NOTE 15 — REVENUE This note disaggregates revenue by service type and segment, providing details on service revenue, reimbursable expenses, and contract liabilities | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Service revenue | $38,150 | $34,112 | $111,904 | $104,356 | | Reimbursable expenses | $2,321 | $2,039 | $7,081 | $6,398 | | Non-controlling interests | $60 | $62 | $136 | $155 | | Total | $40,531 | $36,213 | $119,121 | $110,909 | | Disaggregation of Revenue by Segment (Q3 2024, in thousands) | Revenue when services are performed or assets are sold | Revenue related to technology platforms and professional services | Reimbursable expenses revenue | Total revenue | | :------------------------------------------- | :----------------------------------------------------- | :---------------------------------------------------------------- | :---------------------------- | :------------ | | Servicer and Real Estate | $27,467 | $2,922 | $2,160 | $32,549 | | Origination | $7,654 | $167 | $161 | $7,982 | | Total revenue | $35,121 | $3,089 | $2,321 | $40,531 | - Revenue recognized from contract liabilities at the beginning of the period was $2.7 million for the nine months ended September 30, 2024, and $3.3 million for the same period in 2023[96] NOTE 16 — COST OF REVENUE This note breaks down the cost of revenue by category, highlighting changes and related party transactions | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Outside fees and services | $15,534 | $13,659 | $44,301 | $42,810 | | Compensation and benefits | $7,457 | $9,090 | $21,913 | $28,072 | | Technology and telecommunications | $3,026 | $3,786 | $8,256 | $11,048 | | Reimbursable expenses | $2,321 | $2,039 | $7,081 | $6,398 | | Depreciation and amortization | $123 | $450 | $479 | $1,356 | | Total | $28,461 | $29,024 | $82,030 | $89,684 | - Cost of revenue decreased by 9% to $82.0 million for the nine months ended September 30, 2024, primarily due to lower compensation, benefits, technology, and telecommunications costs[97] - The Company recognized $0.7 million in cost of revenue from related party Aldridge Pite for the nine months ended September 30, 2024[98] NOTE 17 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES This note details selling, general, and administrative expenses by category, explaining key drivers of changes | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Compensation and benefits | $4,413 | $4,906 | $14,765 | $16,312 | | Professional services | $2,547 | $1,897 | $7,160 | $5,743 | | Amortization of intangible assets | $1,270 | $1,352 | $3,810 | $3,912 | | Occupancy related costs | $801 | $1,266 | $2,776 | $3,924 | | Marketing costs | $489 | $440 | $1,536 | $1,381 | | Depreciation and amortization | $99 | $129 | $315 | $577 | | Other | $1,346 | $744 | $4,089 | $3,320 | | Total | $10,965 | $10,734 | $34,451 | $35,169 | - Selling, general and administrative expenses decreased by 2% to $34.5 million for the nine months ended September 30, 2024, primarily due to lower compensation, benefits, and occupancy costs, partially offset by higher professional services[99] NOTE 18 — OTHER INCOME (EXPENSE), NET This note presents other income and expense items, including interest income and other net amounts | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interest income (expense) | $319 | $262 | $748 | $1,011 | | Other, net | $43 | $145 | $1,395 | $1,346 | | Total | $362 | $407 | $2,143 | $2,357 | NOTE 19 — INCOME TAXES This note details the income tax provision, primarily driven by transfer pricing income from India and the United States - The income tax provision was $2.2 million for the nine months ended September 30, 2024, compared to $2.6 million in the prior year, primarily driven by income tax expense on transfer pricing income from India and the United States[101] NOTE 20 — LOSS PER SHARE This note presents basic and diluted loss per share calculations, including the impact of warrants and other share-based awards | (in thousands, except per share data) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss attributable to Altisource | $(9,362) | $(11,342) | $(26,867) | $(43,139) | | Weighted average common shares outstanding, basic | 28,672 | 22,181 | 28,469 | 20,538 | | Basic Loss per share | $(0.33) | $(0.51) | $(0.94) | $(2.10) | | Diluted Loss per share | $(0.33) | $(0.51) | $(0.94) | $(2.10) | - Penny warrants (1.5 million) for both periods were included in the calculation of weighted average basic and diluted loss per share for the nine months ended September 30, 2024 and 2023[102] - Approximately 2.3 million stock options, restricted shares, and restricted share units were excluded from diluted EPS computation for the nine months ended September 30, 2024, due to their anti-dilutive effect or unmet vesting criteria[103] NOTE 21 — COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS This note discusses legal actions, regulatory inquiries, and their potential financial impact, along with lease information and customer escrow amounts - The Company is involved in legal actions and regulatory inquiries, but currently believes their outcome will not materially impact financial condition, results of operations, or cash flows[106][107] - Onity, the largest customer, faces ongoing regulatory examinations and legal proceedings, which could significantly impact Altisource's revenue if Onity's business is adversely affected or its relationship with Altisource changes[108][109][111][112] - Sublease income increased to $0.5 million for the nine months ended September 30, 2024, from $0.1 million in the prior year[114] | Lease Information (Nine months ended Sep 30) | 2024 | 2023 | | :------------------------------------------- | :------- | :------- | | Weighted average remaining lease term (years) | 2.07 | 2.51 | | Weighted average discount rate | 7.77 % | 5.93 % | | Operating Lease Obligations (in thousands) | Amount | | :--------------------------------------- | :----- | | 2024 | $400 | | 2025 | $1,527 | | 2026 | $742 | | 2027 | $104 | | 2028 | $104 | | 2029 | $52 | | Total lease payments | $2,929 | | Present value of lease liabilities | $2,642 | - Amounts held in escrow and other accounts for customers were $19.0 million as of September 30, 2024, down from $21.6 million as of December 31, 2023[117] NOTE 22 — SEGMENT REPORTING This note provides financial data disaggregated by the Servicer and Real Estate, Origination, and Corporate and Others segments, including revenue, gross profit, operating income, and total assets - Altisource operates through two reportable segments: Servicer and Real Estate, and Origination, with Corporate and Others reported separately[118] | (in thousands) | Servicer and Real Estate | Origination | Corporate and Others | Consolidated Altisource | | :------------- | :----------------------- | :---------- | :------------------- | :---------------------- | | Q3 2024 | | | | | | Revenue | $32,549 | $7,982 | — | $40,531 | | Gross profit (loss) | $12,040 | $1,670 | $(1,640) | $12,070 | | Income (loss) from operations | $8,846 | $345 | $(8,086) | $1,105 | | YTD 2024 | | | | | | Revenue | $95,175 | $23,946 | — | $119,121 | | Gross profit (loss) | $36,818 | $5,145 | $(4,872) | $37,091 | | Income (loss) from operations | $28,131 | $115 | $(25,606) | $2,640 | | Total Assets | | | | | | Sep 30, 2024 | $56,465 | $48,342 | $39,696 | $144,503 | | Dec 31, 2023 | $57,535 | $50,431 | $46,892 | $154,858 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Altisource's financial condition, operational results, and liquidity, highlighting key business segments, strategic initiatives, and factors affecting comparability. It details consolidated and segment-specific financial performance, including revenue, cost of revenue, gross profit, and operating income, along with an analysis of liquidity and capital resources FORWARD-LOOKING STATEMENTS This section highlights the inherent uncertainties and risks associated with forward-looking statements in the report, including market conditions and customer relationships - The report contains forward-looking statements regarding future events, performance, and financial condition, based on expectations and subject to risks and uncertainties[125] - Key risks include the timing of default-related referrals, ability to retain major customers like Onity and Rithm, compliance with agreements, execution of strategic plans, and changes in regulations or market conditions[126][128] OVERVIEW This section provides a general description of Altisource's business, operating segments, strategic focus, and key factors influencing its financial performance and risks - Altisource is an integrated service provider and marketplace for the real estate and mortgage industries, operating through Servicer and Real Estate, and Origination segments[130] - The Servicer and Real Estate segment offers property preservation, title insurance, valuation, foreclosure trustee, and renovation services, along with the Hubzu auction platform and Equator SaaS technology[130][131] - The Origination segment provides title insurance, valuation, loan fulfillment, and management services to Lenders One cooperative members, including Vendorly Monitor and TrelixAI technologies[131][133] - The Company's strategy focuses on becoming a premier provider of mortgage and real estate marketplaces and technology-enabled solutions, leveraging scale and offerings for growth and diversification[135][136][137] - COVID-19 pandemic impacts continue to affect the business, with lower foreclosure initiations and sales, though demand for Default business is expected to grow[139][140] - Onity remains the largest customer, contributing 43-44% of total revenue, but regulatory matters and potential changes in its relationships pose significant risks to Altisource's revenue[143][144][145][146][147] - Factors affecting comparability include lower industrywide foreclosure initiations (down 7% YTD 2024 vs 2023) and sales (down 14% YTD 2024 vs 2023), increased mortgage origination volume (up 1% YTD 2024 vs 2023), and higher interest rates on senior secured term loans (14.18% YTD 2024 vs 12.44% YTD 2023)[148] CONSOLIDATED RESULTS OF OPERATIONS This section analyzes Altisource's overall financial performance, including revenue, gross profit, operating income, and net loss, for the three and nine months ended September 30, 2024 and 2023 | (in thousands, except per share data) | Three months ended Sep 30, 2024 | % Increase (decrease) | Nine months ended Sep 30, 2024 | % Increase (decrease) | | :------------------------------------ | :------------------------------ | :-------------------- | :----------------------------- | :-------------------- | | Total service revenue | $38,150 | 12% | $111,904 | 7% | | Total revenue | $40,531 | 12% | $119,121 | 7% | | Cost of revenue | $28,461 | (2)% | $82,030 | (9)% | | Gross profit | $12,070 | 68% | $37,091 | 75% | | Selling, general and administrative expenses | $10,965 | 2% | $34,451 | (2)% | | Income (loss) from operations | $1,105 | 131% | $2,640 | 119% | | Net loss attributable to Altisource | $(9,362) | 17% | $(26,867) | 38% | | Basic Loss per share | $(0.33) | 35% | $(0.94) | 55% | - Service revenue increased by 7% to $111.9 million for the nine months ended September 30, 2024, driven by growth in both Servicer and Real Estate (field services, property renovation, foreclosure trustee) and Origination (reseller products) segments[150] - Gross profit increased by 75% to $37.1 million for the nine months ended September 30, 2024, with gross profit as a percentage of service revenue improving to 33% from 20% in the prior year, due to margin expansion and lower corporate costs[154] - Income from operations improved significantly to $2.6 million (2% of service revenue) for the nine months ended September 30, 2024, compared to a loss of $(13.9) million (-13% of service revenue) in the prior year[156] - Other income (expense), net was $(27.1) million for the nine months ended September 30, 2024, primarily due to higher interest expense and the absence of a prior-year gain on warrant liability fair value change[157] - The income tax provision was $2.2 million for the nine months ended September 30, 2024, mainly from transfer pricing income in India and the United States[158] SEGMENT RESULTS OF OPERATIONS This section provides a detailed analysis of the financial performance for each of Altisource's reportable segments: Servicer and Real Estate, Origination, and Corporate and Others Servicer and Real Estate This section analyzes the revenue, cost of revenue, gross profit, and operating income for the Servicer and Real Estate segment | (in thousands) | Nine months ended Sep 30, 2024 | % Increase (decrease) | | :------------- | :----------------------------- | :-------------------- | | Service revenue | $88,495 | 8% | | Reimbursable expenses | $6,680 | 13% | | Total revenue | $95,175 | 9% | | Cost of revenue | $58,357 | 4% | | Gross profit | $36,818 | 17% | | Selling, general and administrative expenses | $8,687 | 26% | | Income from operations | $28,131 | 15% | - Service revenue growth was driven by field services, property renovation, and foreclosure trustee businesses, partially offset by fewer home sales in the Marketplace business[166] - Gross profit as a percentage of service revenue increased to 42% for the nine months ended September 30, 2024, due to price increases and efficiency initiatives, despite a shift in revenue mix[168] - SG&A expenses increased by 26% for the nine months ended September 30, 2024, primarily due to higher professional services (accruals for indemnity claims) and bad debt expense, partially offset by lower compensation and benefits[170] Origination This section analyzes the revenue, cost of revenue, gross profit, and operating income for the Origination segment | (in thousands) | Nine months ended Sep 30, 2024 | % Increase (decrease) | | :------------- | :----------------------------- | :-------------------- | | Service revenue | $23,409 | 3% | | Reimbursable expenses | $401 | (17)% | | Total revenue | $23,946 | 2% | | Cost of revenue | $18,801 | (17)% | | Gross profit | $5,145 | 549% | | Selling, general and administrative expenses | $5,030 | (14)% | | Income (loss) from operations | $115 | 102% | - Service revenue increased by 3% for the nine months ended September 30, 2024, primarily driven by growth in reseller products within the Lenders One business[173] - Cost of revenue decreased by 17% for the nine months ended September 30, 2024, mainly due to alignment of compensation and benefits with lower origination volume and a change in revenue mix[174] - Gross profit as a percentage of service revenue significantly increased to 22% for the nine months ended September 30, 2024, from 3% in the prior year, due to efficiency initiatives, cost savings, and price increases[175] - SG&A expenses decreased by 14% for the nine months ended September 30, 2024, primarily due to lower professional services (legal costs) and compensation and benefits[177] Corporate and Others This section analyzes the cost of revenue, SG&A expenses, and other income (expense) for the Corporate and Others segment | (in thousands) | Nine months ended Sep 30, 2024 | % Increase (decrease) | | :------------------------------ | :----------------------------- | :-------------------- | | Cost of revenue | $4,872 | (56)% | | Selling, general and administrative expenses | $20,734 | (7)% | | Total other income (expense), net | $(27,195) | 3% | - Cost of revenue decreased by 56% for the nine months ended September 30, 2024, primarily due to efficiency initiatives and cost savings in compensation, benefits, technology, and telecommunications[179] - SG&A expenses decreased by 7% for the nine months ended September 30, 2024, driven by lower occupancy-related costs and compensation and benefits[181] - Other income (expense), net was $(27.1) million for the nine months ended September 30, 2024, mainly due to higher interest expense on the amended SSTL and the absence of a prior-year gain on warrant liability[182] LIQUIDITY AND CAPITAL RESOURCES This section discusses Altisource's sources and uses of cash, debt obligations, and capital structure, including future cash commitments - Primary liquidity sources include cash flow from operations, business sales, equity sales, and cash on hand, but negative operating cash flow persists due to lower revenue, partially offset by cost savings[183] - The Senior Secured Term Loans (SSTL) have an outstanding principal balance of $230.6 million as of September 30, 2024, maturing April 30, 2025, with a potential extension to April 30, 2026, subject to conditions[191][186] - The Amended Revolver provides up to $15.0 million in borrowing capacity, with no outstanding debt as of September 30, 2024[193][195] - A Revolving Loan Agreement with AAMC provides up to $1.0 million (potentially $3.0 million) for residential real estate renovation services, with $250 thousand outstanding as of September 30, 2024[196][197] | Cash Flows (in thousands) | Nine months ended Sep 30, 2024 | % Increase (decrease) | | :------------------------ | :----------------------------- | :-------------------- | | Net cash used in operating activities | $(3,624) | (79)% | | Net cash (used in) provided by financing activities | $(566) | (118)% | | Net decrease in cash, cash equivalents and restricted cash | $(4,190) | (71)% | | Cash, cash equivalents and restricted cash at the end of the period | $31,226 | (22)% | - The improvement in cash used in operating activities was driven by an $18.4 million improvement in net loss adjusted for non-cash items, partially offset by a $4.4 million decrease in cash from working capital[200] | Future Uses of Cash (in thousands) | Total | 2024 Payments | Due by Period 2025-2026 | 2027-2029 | | :------------------------------- | :-------- | :------------ | :---------------------- | :-------- | | Senior secured term loans | $235,741 | — | $235,741 | — | | Revolving loan agreement | $250 | — | $250 | — | | Interest expense payments | $13,329 | $5,718 | $7,611 | — | | Lease payments | $2,929 | $400 | $2,269 | $260 | | Total | $252,249 | $6,118 | $245,871 | $260 | - Off-balance sheet arrangements include $19.0 million in customer assets held in escrow and other accounts as of September 30, 2024[204] CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS This section outlines the critical accounting policies and estimates used in preparing the financial statements and notes any recent accounting pronouncements - The Company's interim condensed consolidated financial statements are prepared in accordance with GAAP, requiring management to make subjective assumptions, estimates, and judgments[206] - There have been no material changes to critical accounting policies during the nine months ended September 30, 2024[207] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section outlines Altisource's exposure to financial market risks, primarily focusing on interest rate and foreign currency exchange rate fluctuations, and quantifies their potential impact on the Company's financial performance Market Risk This section identifies the primary financial market risks faced by Altisource, including interest rate and foreign currency exchange rate risk - Altisource's financial market risk primarily consists of interest rate and foreign currency exchange rate risk[208] Interest Rate Risk This section quantifies the potential impact of interest rate fluctuations on the company's annual interest expense - A one percentage point increase in SOFR above the minimum floor would increase annual interest expense by approximately $2.3 million, based on the SSTL principal outstanding as of September 30, 2024[209] Currency Exchange Risk This section identifies the most significant foreign currency exposure and quantifies its potential impact on annual expenses - The most significant currency exposure is to the Indian rupee; a one percentage point change in its value against the U.S. dollar would impact annual expenses by approximately $0.1 million[210] Item 4. Controls and Procedures This section confirms the effectiveness of Altisource's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter ended September 30, 2024 Evaluation of Disclosure Controls and Procedures This section states management's conclusion regarding the effectiveness of the company's disclosure controls and procedures - Management concluded that Altisource's disclosure controls and procedures were effective as of September 30, 2024[212] Internal Control over Financial Reporting This section reports on any changes in internal control over financial reporting during the quarter - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2024, that materially affected or are reasonably likely to materially affect it[213] PART II — Other Information This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and controls Item 1. Legal Proceedings This section addresses Altisource's involvement in legal actions and regulatory inquiries, stating that while such proceedings exist, their outcomes are not expected to have a material impact on the Company's financial condition, results of operations, or cash flows Litigation This section discusses the company's involvement in legal actions and the expected immaterial impact on its financial position - The Company is involved in legal actions, mostly seeking monetary damages, but believes their outcome will not materially impact its financial condition, results of operations, or cash flows[216] Regulatory Matters This section addresses governmental inquiries and the company's current assessment of their potential impact - Altisource is responding to governmental inquiries related to certain business aspects but believes it's premature to predict the outcome or financial impact[217] Item 1A. Risk Factors This section confirms that there have been no material changes to the risk factors previously disclosed in the Company's Form 10-K for the year ended December 31, 2023 - No material changes to risk factors have occurred since the Form 10-K filing for the year ended December 31, 2023[218] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's share repurchase program, which had no purchases during the quarter, and reports the issuance of Restricted Share Units (RSUs) as equity compensation in an unregistered private placement - No common stock purchases were made under the share repurchase program during the three months ended September 30, 2024, with 3.1 million shares remaining available[219] - 33,610 common shares were withheld from employees to satisfy tax withholding obligations on restricted shares during the three months ended September 30, 2024[219] - On February 20, 2024, 232,580 Restricted Share Units (RSUs) were issued as equity compensation to officers in an unregistered private placement[220] Item 5. Other Information This section reports that no directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2024 Director and Officer Trading Arrangements This section confirms no changes in Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers during the quarter - No director or officer adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2024[221] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, interactive data files, and the cover page interactive data file - Exhibits include Section 302 and 906 Certifications, and Inline XBRL interactive data files for financial statements and notes[223] SIGNATURES This section contains the signature of Altisource Portfolio Solutions S.A.'s Chief Financial Officer, Michelle D. Esterman, certifying the filing of the report on October 24, 2024 - The report was signed by Michelle D. Esterman, Chief Financial Officer, on behalf of Altisource Portfolio Solutions S.A. on October 24, 2024[225]