Altisource Portfolio Solutions S.A.(ASPS) - 2025 Q2 - Quarterly Report

PART I — Financial Information This section presents Altisource's unaudited interim financial statements and management's discussion of financial condition and results 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, equity, and cash flows, along with detailed notes explaining accounting policies, significant transactions, and financial instrument details for the periods ended June 30, 2025 and December 31, 2024 Condensed Consolidated Balance Sheets This statement provides a snapshot of Altisource's assets, liabilities, and deficit at specific points in time, highlighting changes in financial position Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Cash and cash equivalents | $29,985 | $29,811 | | Accounts receivable, net | $18,442 | $15,050 | | Total current assets | $53,930 | $51,101 | | Total assets | $142,941 | $143,606 | | LIABILITIES AND DEFICIT (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Accounts payable and accrued expenses | $31,991 | $33,512 | | Current portion of long-term debt | $1,225 | $230,544 | | Total current liabilities | $40,124 | $271,273 | | Long-term debt | $192,641 | $— | | Total deficit | $(101,930) | $(156,711) | | Total liabilities and deficit | $142,941 | $143,606 | - Total assets slightly decreased from $143.6 million at December 31, 2024, to $142.9 million at June 30, 2025. Current liabilities significantly decreased from $271.3 million to $40.1 million, primarily due to the reclassification of long-term debt[8] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This statement details Altisource's revenues, expenses, and net income or loss over specific reporting periods, reflecting operational performance Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share data) | (in thousands, except per share data) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $43,288 | $39,121 | $86,727 | $78,590 | | Gross profit | $13,027 | $12,717 | $26,352 | $25,021 | | Income from operations | $3,231 | $2,083 | $6,476 | $1,535 | | Interest expense | $(2,615) | $(9,788) | $(7,553) | $(19,317) | | Income tax benefit (provision) | $16,471 | $(706) | $15,729 | $(1,428) | | Net income (loss) attributable to Altisource | $16,582 | $(8,307) | $11,238 | $(17,505) | | Basic EPS | $1.51 | $(2.33) | $1.22 | $(4.94) | | Diluted EPS | $1.48 | $(2.33) | $1.19 | $(4.94) | - Altisource reported a significant turnaround, moving from a net loss attributable to Altisource of $(8.3) million in Q2 2024 to a net income of $16.6 million in Q2 2025. For the six months, net income attributable to Altisource improved from a loss of $(17.5) million in 2024 to a gain of $11.2 million in 2025. This was largely driven by a substantial income tax benefit of $16.5 million in Q2 2025 and reduced interest expense[10] Condensed Consolidated Statements of Equity (Deficit) This statement tracks changes in Altisource's total deficit, common stock, and additional paid-in capital over time Condensed Consolidated Statements of Equity (Deficit) (in thousands) | (in thousands) | December 31, 2024 | March 31, 2025 | June 30, 2025 | | :--------------- | :---------------- | :------------- | :------------ | | Common stock | $37 | $110 | $110 | | Additional paid-in capital | $211,523 | $254,723 | $255,228 | | Accumulated deficit | $(259,977) | $(363,082) | $(352,608) | | Treasury stock, at cost | $(108,959) | $(11,516) | $(5,419) | | Non controlling interests | $665 | $736 | $759 | | Total deficit | $(156,711) | $(119,029) | $(101,930) | - Total deficit significantly improved from $(156.7) million at December 31, 2024, to $(101.9) million at June 30, 2025. This improvement was primarily driven by a $42.2 million issuance of common stock and a $57.5 million exercise of warrants, net of costs, which reduced the accumulated deficit and treasury stock[14] Condensed Consolidated Statements of Cash Flows This statement summarizes Altisource's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(5,278) | $(2,057) | | Net cash used in investing activities | $(28) | $— | | Net cash provided by (used in) financing activities | $5,469 | $(773) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $163 | $(2,830) | | Cash, cash equivalents and restricted cash at the end of the period | $32,863 | $32,586 | - Net cash used in operating activities increased to $(5.3) million for the six months ended June 30, 2025, from $(2.1) million in the prior year. However, net cash provided by financing activities significantly improved to $5.5 million in 2025, compared to $(0.8) million used in 2024, primarily due to proceeds from the Super Senior Facility and equity issuance[17][259] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the interim condensed consolidated financial statements NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION Altisource Portfolio Solutions S.A. is an integrated service provider and marketplace for the real estate and mortgage industries, operating through two segments: Servicer and Real Estate, and Origination. The interim financial statements are prepared under GAAP, and all share and per share amounts have been retroactively adjusted for a 1-for-8 share consolidation effective May 28, 2025 - Altisource operates as an integrated service provider and marketplace for the real estate and mortgage industries, with two reportable segments: Servicer and Real Estate, and Origination[22][23] - A 1-for-8 share consolidation (reverse stock split) was effected on May 28, 2025, reducing outstanding shares from 88,129,766 to 11,016,220, with all share and per share amounts retroactively adjusted[27][28] - The Company adopted ASU 2023-09, 'Improvements to Income Tax Disclosures,' effective January 1, 2025, with no material impact on financial statements[31] NOTE 2 — CUSTOMER CONCENTRATION Onity Group Inc. remains Altisource's largest customer, accounting for 43% and 44% of total revenue for the three and six months ended June 30, 2025, respectively. Rithm Capital Corp. is a significant client of Onity, with a substantial portion of delinquent loans serviced by Onity related to Rithm MSRs, and Rithm exclusively purchases REO brokerage services from Altisource Revenue Concentration by Customer | Customer | Three months ended June 30, 2025 | Six months ended June 30, 2025 | | :------- | :------------------------------- | :----------------------------- | | Onity | 43% of total revenue | 44% of total revenue | - Revenue from Onity for the six months ended June 30, 2025, was $37.8 million, an increase from $34.9 million in the prior year period[35] - Rithm Capital Corp. is a major servicing client of Onity, with approximately 58% of all delinquent loans serviced by Onity related to Rithm MSRs as of March 31, 2025. Rithm exclusively purchases REO brokerage services from Altisource[41][42] - Accounts receivable from Onity increased to $5.7 million as of June 30, 2025, from $4.4 million as of December 31, 2024[39] NOTE 3 — ACCOUNTS RECEIVABLE, NET Net accounts receivable increased to $18.4 million as of June 30, 2025, from $15.1 million at December 31, 2024, driven by an increase in both billed and unbilled receivables, partially offset by a decrease in the allowance for credit losses Accounts Receivable, Net (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Billed | $13,206 | $12,169 | | Unbilled | $7,811 | $6,005 | | Total | $21,017 | $18,174 | | Less: Allowance for credit losses | $(2,575) | $(3,124) | | Total net | $18,442 | $15,050 | - The allowance for expected credit losses decreased from $3.1 million at December 31, 2024, to $2.6 million at June 30, 2025, reflecting a net subtraction of $0.5 million for the six months ended June 30, 2025[44][48] NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets decreased to $5.5 million at June 30, 2025, from $6.2 million at December 31, 2024, primarily due to a reduction in prepaid expenses and income taxes receivable Prepaid Expenses and Other Current Assets (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Prepaid expenses | $3,076 | $3,620 | | Income taxes receivable | $522 | $1,043 | | Total | $5,503 | $6,240 | NOTE 5 — PREMISES AND EQUIPMENT, NET Net premises and equipment decreased to $0.4 million at June 30, 2025, from $0.7 million at December 31, 2024, primarily due to accumulated depreciation and amortization. The majority of these assets are located in Luxembourg Premises and Equipment, Net (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Total net | $366 | $701 | - Depreciation and amortization expense for premises and equipment was $0.4 million for the six months ended June 30, 2025, down from $0.6 million in the prior year period[53] Premises and Equipment by Location (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Luxembourg | $328 | $554 | | India | $24 | $124 | | United States | $11 | $23 | | Uruguay | $3 | $— | | Total | $366 | $701 | NOTE 6 — RIGHT-OF-USE ASSETS UNDER OPERATING LEASES, NET Net right-of-use assets under operating leases decreased to $1.6 million at June 30, 2025, from $2.2 million at December 31, 2024, due to accumulated amortization Right-of-Use Assets, Net (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Total net | $1,612 | $2,243 | - Amortization of operating leases was $0.5 million for the six months ended June 30, 2025, compared to $0.8 million for the same period in 2024[55] NOTE 7 — GOODWILL AND INTANGIBLE ASSETS, NET Goodwill remained stable at $56.0 million, primarily allocated to the Servicer and Real Estate and Origination segments. Net intangible assets decreased to $18.9 million at June 30, 2025, from $21.5 million at December 31, 2024, due to ongoing amortization Goodwill by Segment (in thousands) | Goodwill by Segment (in thousands) | June 30, 2025 & December 31, 2024 | | :--------------------------------- | :-------------------------------- | | Servicer and Real Estate | $30,681 | | Origination | $25,279 | | Total | $55,960 | Intangible Assets, Net (in thousands) | Intangible Assets, net (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Customer related intangible assets | $9,211 | $10,691 | | Operating agreement | $8,021 | $8,896 | | Trademarks and trade names | $1,696 | $1,881 | | Total | $18,928 | $21,468 | - Amortization expense for definite-lived intangible assets was $2.5 million for both the six months ended June 30, 2025, and 2024[59] NOTE 8 — OTHER ASSETS Other assets remained stable at $6.5 million at June 30, 2025, with restricted cash and surety bond collateral being the largest components Other Assets (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Restricted cash | $2,855 | $2,866 | | Surety bond collateral | $2,000 | $2,000 | | Total | $6,513 | $6,504 | NOTE 9 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accounts payable and accrued expenses decreased to $32.0 million at June 30, 2025, from $33.5 million at December 31, 2024, primarily due to a reduction in accounts payable. Other current liabilities increased slightly to $3.5 million, including a $1.0 million outstanding balance on a revolving loan agreement with AAMC, which was renewed until June 3, 2026 Accounts Payable and Accrued Expenses (in thousands) | Accounts Payable and Accrued Expenses (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Accounts payable | $13,406 | $17,887 | | Accrued expenses - general | $10,130 | $9,591 | | Accrued salaries and benefits | $6,523 | $5,022 | | Income taxes payable | $1,932 | $1,012 | | Total | $31,991 | $33,512 | Other Current Liabilities (in thousands) | Other Current Liabilities (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Operating lease liabilities | $1,452 | $1,495 | | Revolving loan agreement | $999 | $992 | | Other | $1,056 | $751 | | Total | $3,507 | $3,238 | - The Revolving Loan Agreement with AAMC, with an outstanding balance of $1.0 million, was renewed to mature on June 3, 2026, bearing an interest rate of 12.00% per annum[64][66][67] NOTE 10 — LONG-TERM DEBT Long-term debt significantly changed due to a Debt Exchange Transaction on February 19, 2025, where $232.8 million of Senior Secured Term Loans (SSTL) were exchanged for a $160.0 million New Facility and 7.3 million shares of common stock. This transaction was accounted for as a troubled debt restructuring. Additionally, a new $12.5 million Super Senior Credit Facility was established. The Revolver with STS was terminated Long-term Debt (in thousands) | Long-term Debt (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Senior secured term loans | $159,725 | $232,800 | | Super senior term loan | $12,469 | $— | | Total principal debt | $172,194 | $232,800 | | Long-term debt, net | $193,866 | $230,544 | | Less: Current maturities | $(1,225) | $(230,544) | | Total long-term debt | $192,641 | $— | - On February 19, 2025, Altisource completed a Debt Exchange Transaction, converting $232.8 million of SSTL into a $160.0 million New Facility (comprising a $110.0 million interest-bearing loan and a $50.0 million non-interest-bearing exit fee) and 7.3 million shares of common stock. This was accounted for as a troubled debt restructuring[70][71][73] - A new $12.5 million Super Senior Credit Facility was established on February 19, 2025, maturing on February 19, 2029, to fund transaction costs and for general corporate purposes[87] - The New Facility and Super Senior Facility both bear interest at SOFR plus 6.50% (with a 3.50% SOFR floor) payable in cash, with the interest rate as of June 30, 2025, being 10.90%[77][95] - The $15.0 million Revolver with STS Master Fund, Ltd. was terminated on February 19, 2025, with no outstanding borrowings as of June 30, 2025[97] NOTE 11 — WARRANTS All Penny Warrants, which allowed purchase at $0.01 per share, were exercised and are no longer outstanding as of June 30, 2025. The Company distributed 70.5 million Stakeholder Warrants on April 3, 2025, exercisable for approximately 14.3 million shares at $9.5998 per share, split evenly between cash exercise and net settle types, and are classified as equity - All 189,483 Penny Warrants outstanding as of December 31, 2024, were exercised by June 30, 2025, at an exercise price of $0.01 per share[100] - On April 3, 2025, 70.5 million Stakeholder Warrants were distributed, exercisable for approximately 14.3 million shares of common stock at $9.5998 per share. These warrants are split into Cash Exercise Stakeholder Warrants (expiring April 2, 2029) and Net Settle Stakeholder Warrants (expiring April 30, 2032)[101][102][107] Stakeholder Warrant Fair Value Inputs | Stakeholder Warrant Type | Risk-free interest rate (%) | Expected stock price volatility (%) | Expected option life (in years) | Fair value per Stakeholder Warrant | | :----------------------- | :-------------------------- | :---------------------------------- | :------------------------------ | :------------------------------- | | Cash Exercise Stakeholder Warrants | 4.29 % | 57.50 % | 4.12 | $0.47 | | Net Settle Stakeholder Warrants | 4.42 % | 57.50 % | 7.19 | $0.68 | - The Stakeholder Warrants are classified as equity under ASC 815 Derivatives and Hedging, resulting in a $40.5 million increase and subsequent reduction in Additional paid-in capital, with a net zero impact on the Condensed Consolidated Statements of Equity (Deficit)[106] NOTE 12 — OTHER NON-CURRENT LIABILITIES Other non-current liabilities significantly decreased to $3.0 million at June 30, 2025, from $20.0 million at December 31, 2024, primarily due to a substantial reduction in income tax liabilities Other Non-Current Liabilities (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Income tax liabilities | $2,661 | $19,068 | | Operating lease liabilities | $226 | $831 | | Deferred revenue | $56 | $— | | Other non-current liabilities | $65 | $117 | | Total | $3,008 | $20,016 | - The reduction in income tax liabilities is discussed further in Note 19[108] NOTE 13 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS Financial instruments are measured using a three-tier hierarchy. Cash and cash equivalents are Level 1, the senior secured term loan is Level 2, and the Super Senior term loan and Revolving Loan Agreement are Level 3. The Company is exposed to credit risk primarily through cash and accounts receivable, with Onity being a significant concentration Financial Instruments Fair Value (in thousands) | Financial Instrument (in thousands) | Carrying amount (June 30, 2025) | Fair value (June 30, 2025) | Fair value Level | | :---------------------------------- | :------------------------------ | :------------------------- | :--------------- | | Cash and cash equivalents | $29,985 | $29,985 | Level 1 | | Restricted cash | $2,878 | $2,878 | Level 1 | | Senior secured term loan | $184,333 | $156,531 | Level 2 | | Super senior term loan | $12,469 | $12,469 | Level 3 | | Revolving loan agreement | $1,000 | $1,000 | Level 3 | - Onity accounted for 43% and 44% of total revenue for the three and six months ended June 30, 2025, respectively, representing a significant concentration of credit risk[113] NOTE 14 — SHAREHOLDERS' EQUITY AND SHARE-BASED COMPENSATION Shareholders approved an increase in authorized shares to 250 million and a decrease in par value to $0.01. The Company issued 7.3 million common shares to lenders in connection with the Debt Exchange Transaction, subject to a lock-up period. Share-based compensation expense was $1.8 million for the six months ended June 30, 2025, with various types of stock options and restricted share awards outstanding - Shareholders approved increasing authorized shares to 250 million and decreasing par value to $0.01. Additionally, 7.3 million common shares were issued to lenders as part of the Debt Exchange Transaction, subject to a lock-up until September 17, 2025, or a change of control event[114][115] - Share-based compensation expense was $1.8 million for the six months ended June 30, 2025, a decrease from $3.1 million in the prior year period. Unrecognized compensation costs amounted to $5.6 million, expected to be recognized over 1.52 years[117] Stock Options Activity | Stock Options Activity | Outstanding as of Dec 31, 2024 | Forfeited | Outstanding as of Jun 30, 2025 | | :--------------------- | :----------------------------- | :-------- | :----------------------------- | | Number of options | 85,008 | (41,860) | 43,148 | | Weighted average exercise price | $174.02 | $156.12 | $191.43 | Restricted Shares and RSUs Activity | Restricted Shares and RSUs Activity | Outstanding as of Dec 31, 2024 | Granted | Issued | Forfeited/canceled | Outstanding as of Jun 30, 2025 | | :---------------------------------- | :----------------------------- | :-------- | :-------- | :----------------- | :----------------------------- | | Number of awards | 249,562 | 959,493 | (107,966) | (68,809) | 1,032,280 | NOTE 15 — REVENUE Total revenue increased by 10% to $86.7 million for the six months ended June 30, 2025, driven by growth in both Servicer and Real Estate and Origination segments. Service revenue, the primary focus, increased by 11% to $81.7 million. Revenue is disaggregated into service revenue, reimbursable expenses, and non-controlling interests, with recognition occurring both over time and at a point in time Revenue by Category (in thousands) | Revenue Category (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service revenue | $40,787 | $36,863 | $81,682 | $73,754 | | Reimbursable expenses | $2,425 | $2,223 | $4,896 | $4,760 | | Non-controlling interests | $76 | $35 | $149 | $76 | | Total | $43,288 | $39,121 | $86,727 | $78,590 | - Service revenue increased by 11% for both the three and six months ended June 30, 2025, compared to the prior year periods, driven by growth in Property Renovation Services and Foreclosure Trustee businesses in the Servicer and Real Estate segment, and reseller products and loan fulfillment services in the Origination segment[212] Revenue Recognition Timing (in thousands) | Revenue Recognition Timing (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Over-time revenue recognition | $9,499 | $6,374 | $20,243 | $12,769 | | Point-in-time revenue recognition | $31,288 | $30,489 | $61,439 | $60,985 | | Total service revenue | $40,787 | $36,863 | $81,682 | $73,754 | - Unfulfilled renovation orders amounted to $3.4 million as of June 30, 2025, with the majority expected to be recognized as revenue in Q3 2025[135] NOTE 16 — COST OF REVENUE Cost of revenue increased by 13% to $60.4 million for the six months ended June 30, 2025, primarily due to higher outside fees and services, and technology and telecommunications costs, driven by service revenue growth Cost of Revenue Components (in thousands) | Cost of Revenue Components (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Outside fees and services | $17,475 | $14,321 | $34,496 | $28,767 | | Compensation and benefits | $7,340 | $7,343 | $14,859 | $14,456 | | Technology and telecommunications | $2,903 | $2,344 | $5,885 | $5,230 | | Reimbursable expenses | $2,425 | $2,223 | $4,896 | $4,760 | | Depreciation and amortization | $118 | $173 | $239 | $356 | | Total | $30,261 | $26,404 | $60,375 | $53,569 | - Outside fees and services increased by 20% for the six months ended June 30, 2025, driven by growth in Property Renovation Services, Foreclosure Trustee businesses, and higher preservation services[140][215] - Cost of revenue related to services received from Aldridge Pite, a related party, was $0.5 million for the six months ended June 30, 2025[141] NOTE 17 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative (SG&A) expenses decreased by 15% to $19.9 million for the six months ended June 30, 2025, primarily due to lower professional services and other expenses, including reduced costs related to legacy indemnification accruals and bad debt SG&A Components (in thousands) | SG&A Components (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Compensation and benefits | $5,008 | $4,510 | $9,905 | $10,352 | | Professional services | $808 | $2,082 | $2,428 | $4,613 | | Amortization of intangible assets | $1,270 | $1,270 | $2,540 | $2,540 | | Occupancy related costs | $866 | $1,050 | $1,666 | $1,975 | | Marketing costs | $599 | $539 | $1,126 | $1,047 | | Depreciation and amortization | $60 | $103 | $124 | $216 | | Other | $1,185 | $1,080 | $2,087 | $2,743 | | Total | $9,796 | $10,634 | $19,876 | $23,486 | - Professional services decreased by 47% for the six months ended June 30, 2025, primarily due to lower costs related to legacy indemnification accruals[143][219] - Other SG&A expenses decreased by 24% for the six months ended June 30, 2025, mainly due to lower bad debt expense[143][219] NOTE 18 — OTHER INCOME (EXPENSE), NET Total other income (expense), net, improved to $(10.8) million for the six months ended June 30, 2025, from $(17.5) million in the prior year, primarily driven by significantly lower interest expense, partially offset by higher debt exchange transaction expenses Other Income (Expense), Net (in thousands) | (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income (expense) | $198 | $206 | $391 | $429 | | Other, net | $(155) | $(67) | $(204) | $1,352 | | Total | $43 | $139 | $187 | $1,781 | - Interest expense decreased by 61% to $(7.6) million for the six months ended June 30, 2025, compared to $(19.3) million in the prior year, due to reduced outstanding debt and a lower interest rate following the Debt Exchange Transaction[10][222] - Debt exchange transaction expenses of $(3.5) million were recognized for the six months ended June 30, 2025, with no comparable expense in the prior year[10][222] NOTE 19 — INCOME TAXES The Company recognized a significant income tax benefit of $15.7 million for the six months ended June 30, 2025, compared to a provision of $(1.4) million in the prior year. This benefit was primarily driven by a $9.6 million reversal of uncertain tax positions related to India and a $9.0 million reversal of related accrued interest, following management's conclusion that certain India tax positions were more likely than not to be sustained Income Tax Benefit (Provision) (in thousands) | Income Tax (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax benefit (provision) | $16,471 | $(706) | $15,729 | $(1,428) | - The income tax benefit for the six months ended June 30, 2025, was primarily due to a $9.6 million reversal of the reserve for uncertain tax positions related to India and a $9.0 million reversal of related accrued interest, based on current quarter developments[145][150] Unrecognized Tax Benefits (in thousands) | Unrecognized Tax Benefits (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Amount of unrecognized tax benefit as of the end of the period | $2,108 | $10,183 | | Total amount of unrecognized tax benefits including interest and penalties | $2,800 | $19,200 | NOTE 20 — EARNINGS (LOSS) PER SHARE Basic earnings per share (EPS) significantly improved to $1.51 for the three months ended June 30, 2025, from a loss of $(2.33) in the prior year, and to $1.22 for the six months ended June 30, 2025, from a loss of $(4.94) in the prior year. This improvement is largely due to the net income turnaround and an increase in weighted average shares outstanding Earnings (Loss) Per Share | EPS (per share data) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | $1.51 | $(2.33) | $1.22 | $(4.94) | | Diluted | $1.48 | $(2.33) | $1.19 | $(4.94) | Weighted Average Shares Outstanding (in thousands) | Weighted Average Shares Outstanding (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | 10,966 | 3,569 | 9,178 | 3,546 | | Diluted | 11,206 | 3,569 | 9,439 | 3,546 | - Stock options, restricted shares, RSUs, and Stakeholder Warrants were excluded from diluted EPS computation in certain periods due to their anti-dilutive impact or unmet market/performance criteria[155][164] NOTE 21 — COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS Altisource is involved in various legal actions and regulatory inquiries, but currently believes their outcomes will not materially impact financial condition. Significant risks are tied to Onity, its largest customer, including potential adverse regulatory actions against Onity or changes in its contractual relationships, which could severely reduce Altisource's revenue. Lease liabilities mature through 2029, and escrow balances increased to $41.2 million - The Company is involved in legal actions and regulatory inquiries, but currently believes their outcomes will not have a material impact on its financial condition, results of operations, or cash flows[158][159] - Onity, Altisource's largest customer, is subject to ongoing regulatory examinations and legal proceedings. Adverse outcomes for Onity, including loss of servicing rights or changes in contractual terms, could significantly reduce Altisource's revenue and materially adversely affect its operations[161][163][166][169] Lease Liabilities Maturities (in thousands) | Lease Liabilities Maturities (in thousands) | Operating lease obligations | | :---------------------------------------- | :-------------------------- | | 2025 | $799 | | 2026 | $774 | | 2027 | $108 | | 2028 | $104 | | 2029 | $52 | | Total lease payments | $1,837 | - Amounts held in escrow and other accounts increased to $41.2 million as of June 30, 2025, from $24.9 million at December 31, 2024[172] NOTE 22 — SEGMENT REPORTING Altisource operates through two reportable segments: Servicer and Real Estate, and Origination, plus Corporate and Others. For the six months ended June 30, 2025, Servicer and Real Estate generated $69.4 million in revenue and $22.2 million in income before taxes, while Origination generated $17.4 million in revenue and $0.5 million in income before taxes. Corporate and Others reported a loss of $(27.0) million - Altisource's operations are divided into two reportable segments: Servicer and Real Estate (providing solutions for loan servicers and real estate investors) and Origination (providing solutions for mortgage loan originators), with Corporate and Others reported separately[173][174] Segment Financials (Six months ended June 30, 2025, in thousands) | Segment Financials (Six months ended June 30, 2025, in thousands) | Revenue | Income (loss) before income taxes and non-controlling interests | | :------------------------------------------------ | :------ | :------------------------------------------------------------ | | Servicer and Real Estate | $69,355 | $22,200 | | Origination | $17,372 | $480 | | Corporate and Others | $— | $(27,022) | | Consolidated Altisource | $86,727 | $(4,342) | Segment Total Assets (in thousands) | Segment Total Assets (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :------------ | :---------------- | | Servicer and Real Estate | $60,383 | $58,000 | | Origination | $47,167 | $47,251 | | Corporate and Others | $35,391 | $38,355 | | Consolidated Altisource | $142,941 | $143,606 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Altisource's business, financial condition, results of operations, and liquidity for the periods presented. It highlights the company's strategic focus on real estate and mortgage marketplaces, discusses the impact of market trends, and details the consolidated and segment-specific financial performance, including significant improvements in net income and changes in debt structure FORWARD-LOOKING STATEMENTS This section outlines the inherent uncertainties and risks associated with future-oriented statements in the report - The report contains forward-looking statements based on expectations about future events, performance, and financial condition, which are subject to various assumptions, risks, and uncertainties[186] - Key risk factors include changes in residential mortgage delinquencies and foreclosures, ability to retain major customers like Onity and Rithm, compliance with material agreements, execution of strategic plans, regulatory changes, technology incidents, and tax regulation changes[187][188] OVERVIEW Altisource is an integrated service provider for the real estate and mortgage industries, operating through Servicer and Real Estate, and Origination segments. The company's strategy focuses on growing market share and diversifying its customer base, particularly in anticipation of increased demand in the default market. Significant customer concentration with Onity and Rithm poses risks, and recent financial comparability is affected by industry trends, a major debt exchange, and a substantial income tax benefit - Altisource is an integrated service provider and marketplace for the real estate and mortgage industries, with segments including Servicer and Real Estate (Solutions, Marketplace, Technology & SaaS Products) and Origination (Lenders One, Solutions, Technology & SaaS Products)[189][190][191][192][193] - The company's strategy is to become the premier provider of mortgage and real estate marketplaces and technology-enabled solutions, focusing on gaining market share, launching new solutions, and growing its customer base in both segments[195][196][197] - Despite historically low delinquency and foreclosure rates, Altisource anticipates growth in demand for its Default business and has launched residential renovation and commercial real estate auction businesses[199][201][202] - Onity remains the largest customer, accounting for 43-44% of total revenue. Risks include potential adverse regulatory actions against Onity or changes in its sub-servicing agreements with Rithm, which could significantly impact Altisource's revenue[204][207][208] - Key factors affecting comparability include a 22% increase in industrywide foreclosure initiations (YoY), a 14% increase in mortgage origination volume (YoY), the February 2025 Debt Exchange Transaction, and a $15.7 million income tax benefit for the six months ended June 30, 2025[209] CONSOLIDATED RESULTS OF OPERATIONS Altisource experienced a significant financial turnaround, reporting net income attributable to Altisource of $16.6 million for Q2 2025 and $11.2 million for the six months ended June 30, 2025, compared to losses in the prior year periods. This was driven by an 11% increase in total service revenue, a 61% reduction in interest expense due to debt restructuring, and a substantial income tax benefit from the reversal of uncertain tax positions Consolidated Results of Operations (in thousands, except per share data) | (in thousands, except per share data) | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :------------------------------------ | :------ | :------ | :------------- | :------ | :------ | :------------- | | Total service revenue | $40,787 | $36,863 | 11% | $81,682 | $73,754 | 11% | | Total revenue | $43,288 | $39,121 | 11% | $86,727 | $78,590 | 10% | | Gross profit | $13,027 | $12,717 | 2% | $26,352 | $25,021 | 5% | | Income from operations | $3,231 | $2,083 | 55% | $6,476 | $1,535 | 322% | | Interest expense | $(2,615)| $(9,788)| (73)% | $(7,553)| $(19,317)| (61)% | | Income tax benefit (provision) | $16,471 | $(706) | N/M | $15,729 | $(1,428)| N/M | | Net income (loss) attributable to Altisource | $16,582 | $(8,307)| 300% | $11,238 | $(17,505)| 164% | | Basic EPS | $1.51 | $(2.33) | 165% | $1.22 | $(4.94) | 125% | - Service revenue growth was driven by higher revenue in both the Servicer and Real Estate segment (Property Renovation Services, Foreclosure Trustee businesses) and the Origination segment (reseller products, loan fulfillment services)[212] - Gross profit as a percentage of service revenue decreased from 34% to 32% for both the three and six months ended June 30, 2025, primarily due to a change in revenue mix towards lower-margin Property Renovations Services and Lenders One businesses[216][217] - Selling, general and administrative (SG&A) expenses decreased by 15% for the six months ended June 30, 2025, mainly due to lower professional services (legacy indemnification accruals) and other expenses (bad debt expense)[219] SEGMENT RESULTS OF OPERATIONS Segment results show the Servicer and Real Estate segment's service revenue increased by 12% to $64.8 million for H1 2025, driven by property renovation and foreclosure trustee services, though gross profit margin declined due to revenue mix. The Origination segment's service revenue grew 8% to $16.9 million, with improved gross profit margins from scale benefits. Corporate and Others saw reduced costs but remained a net loss contributor Servicer and Real Estate This segment's service revenue grew by 12% for H1 2025, driven by property renovation and foreclosure trustee services, despite a gross profit margin decline Servicer and Real Estate Revenue (in thousands) | Servicer and Real Estate Revenue (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :---------------------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Solutions | $23,215 | $19,198 | 21% | $47,114 | $38,456 | 23% | | Marketplace | $6,429 | $7,333 | (12)% | $13,017 | $14,509 | (10)% | | Technology and SaaS Products | $2,308 | $2,494 | (7)% | $4,686 | $5,141 | (9)% | | Total service revenue | $31,952 | $29,025 | 10% | $64,817 | $58,106 | 12% | - Service revenue increased by 12% for the six months ended June 30, 2025, driven by growth in Property Renovation Services and Foreclosure Trustee businesses, partially offset by fewer home sales in the Marketplace business[231] - Gross profit as a percentage of service revenue decreased from 43% to 40% for the six months ended June 30, 2025, primarily due to a revenue mix shift towards lower-margin Property Renovations Services[235] - SG&A expenses decreased by 39% for the six months ended June 30, 2025, mainly due to lower professional services costs from a settlement related to a legacy matter[237] Origination This segment's service revenue increased by 8% for H1 2025, with improved gross profit margins from scale benefits Origination Revenue (in thousands) | Origination Revenue (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :--------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Lenders One | $6,873 | $6,270 | 10% | $13,227 | $12,743 | 4% | | Solutions | $1,762 | $1,409 | 25% | $3,261 | $2,591 | 26% | | Technology and SaaS Products | $200 | $159 | 26% | $377 | $314 | 20% | | Total service revenue | $8,835 | $7,838 | 13% | $16,865 | $15,648 | 8% | - Service revenue increased by 8% for the six months ended June 30, 2025, driven by growth in reseller products in the Lenders One business and higher volumes in loan fulfillment services[240] - Gross profit as a percentage of service revenue increased from 22% to 23% for the six months ended June 30, 2025, due to margin expansion in Lenders One and loan fulfillment services from scale benefits[242][243] - Income from operations improved to $0.5 million (3% of service revenue) for H1 2025, from a loss of $(0.2) million ((1% of service revenue)) in H1 2024, driven by higher gross profit margins and lower SG&A expenses[245] Corporate and Others This segment experienced reduced cost of revenue and SG&A expenses, but remained a net loss contributor - Cost of revenue for Corporate and Others decreased by 2% for the six months ended June 30, 2025, primarily due to lower depreciation and amortization[246] - SG&A expenses decreased by 8% for the six months ended June 30, 2025, driven by lower professional services (reduced accruals for legal matters) and lower share-based compensation[247] - Other income (expense), net, improved to $(10.8) million for the six months ended June 30, 2025, from $(17.5) million in the prior year, primarily due to lower interest expense following the Debt Exchange Transaction, partially offset by higher debt exchange transaction expenses[249] LIQUIDITY AND CAPITAL RESOURCES Altisource's liquidity is primarily from cash flow, asset sales, and equity. Operating cash flow remained negative at $(5.3) million for H1 2025, but financing activities provided $5.5 million, leading to a net cash increase. The company's future liquidity obligations include significant debt amortization and interest payments, which it plans to fund through existing cash and operating activities - Primary liquidity sources include cash flow from operations, proceeds from business sales, equity sales, and cash on hand. The company aims to improve operating cash flow through reduced interest expense, revenue growth from renovation business, anticipated default market improvement, and cost structure reduction[250][251] Cash Flows (in thousands) | Cash Flows (in thousands) | H1 2025 | H1 2024 | % Change | | :------------------------ | :------ | :------ | :------- | | Net cash used in operating activities | $(5,278)| $(2,057)| (157)% | | Net cash used in investing activities | $(28) | $— | N/M | | Net cash provided by (used in) financing activities | $5,469 | $(773) | N/M | | Net increase (decrease) in cash, cash equivalents and restricted cash | $163 | $(2,830)| (106)% | | Cash, cash equivalents and restricted cash at the end of the period | $32,863 | $32,586 | 1% | - Net cash used in operating activities increased to $(5.3) million for H1 2025, driven by higher use of cash for accounts receivable and lower non-cash interest expense and share-based compensation, partially offset by higher income before taxes[258] - Net cash provided by financing activities was $5.5 million for H1 2025, primarily from $11.3 million in proceeds from the Super Senior Credit Facility, offset by debt issuance costs and equity issuance costs[259] Future Uses of Cash (in thousands) | Future Uses of Cash (in thousands) | Total | 2025 | 2026-2027 | 2028-2029 | | :--------------------------------- | :------ | :------ | :-------- | :-------- | | New Facility | $6,293 | $550 | $2,200 | $3,543 | | Super Senior Facility | $12,469 | $63 | $250 | $12,156 | | Revolving Loan Agreement | $1,000 | $— | $1,000 | $— | | Interest payments | $58,821 | $6,863 | $26,799 | $25,159 | | Lease payments | $1,837 | $799 | $882 | $156 | | Total | $80,420 | $8,275 | $31,131 | $41,014 | CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS This section confirms no material changes to critical accounting policies and discusses recent accounting pronouncements - There have been no material changes to the Company's critical accounting policies during the six months ended June 30, 2025[268] - The Company adopted ASU 2023-09, 'Improvements to Income Tax Disclosures,' effective January 1, 2025, with no material impact. It is currently evaluating ASU 2024-03, 'Expense Disaggregation Disclosures,' effective for annual periods beginning after December 15, 2026[31][32][269] Item 3. Quantitative and Qualitative Disclosures about Market Risk Altisource's primary financial market risks are interest rate risk and foreign currency exchange rate risk. A one percentage point increase in SOFR would increase annual interest expense by approximately $1.2 million, and a one percentage point change in the Indian rupee's value against the USD would impact annual expenses by approximately $0.3 million - A one percentage point increase in the Secured Overnight Financing Rate (SOFR) would increase annual interest expense by approximately $1.2 million, and a one percentage point decrease would reduce it by the same amount[271] - The Company's most significant currency exposure is to the Indian rupee. A one percentage point change in the Indian rupee's value against the United States dollar would increase or decrease annual expenses by approximately $0.3 million[272] Item 4. Controls and Procedures As of June 30, 2025, Altisource's management concluded that its disclosure controls and procedures were effective. There were no material changes in internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[274] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[275] PART II — Other Information This section covers legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings Altisource is involved in various legal actions and regulatory inquiries, but management believes the outcome of these proceedings will not have a material impact on the Company's financial condition, results of operations, or cash flows. The Company records liabilities for contingencies when an unfavorable outcome is probable and estimable - The Company is currently involved in legal actions, most seeking monetary damages, but believes their outcome will not materially impact its financial condition, results of operations, or cash flows[277] - Altisource is responding to inquiries from governmental authorities regarding certain business aspects, but it is premature to predict the outcome or estimate potential financial impact[278] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, or its Quarterly Report on Form 10-Q for the quarter ended March 31, 2025. The previously disclosed risks continue to be relevant - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for 2024 or the Quarterly Report on Form 10-Q for Q1 2025[279] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No common stock was purchased under the share repurchase program during Q2 2025, though 0.4 million shares remain available for repurchase. However, 41,462 common shares were withheld from employees to satisfy tax withholding obligations related to restricted share vesting. Additionally, 29,072 RSUs were issued as equity compensation in a private placement in February 2024 - No common stock was purchased under the share repurchase program during the three months ended June 30, 2025. Approximately 0.4 million shares remain available for repurchase under the program, but repurchases are restricted under the New Facility and Super Senior Facility[280] - During Q2 2025, 41,462 common shares were withheld from employees to satisfy tax withholding obligations from restricted share vesting[280] - On February 20, 2024, 29,072 RSUs were issued as equity compensation to senior management as unregistered securities in a private placement[281] Item 5. Other Information No directors or officers of the Company adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No director or officer adopted, mod