UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x ~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2013

o ~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-34354

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

(Exact name of Registrant as specified in its Charter)

Luxembourg		Not applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

291, Route d’Arlon

L-1150 Luxembourg

Grand Duchy of Luxembourg

(Address of principal executive offices) (Zip Code)

+352 2469 7900

Registrant’s telephone number

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o ~~(Do~~ (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of ~~April~~July 19, 2013, there were ~~23,176,918~~22,994,405 outstanding shares of the registrant’s shares of beneficial interest (excluding ~~2,235,830~~2,418,343 shares held as treasury stock).

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-Q

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PART I. FINANCIAL INFORMATION

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

									June 30,			December 31,
		March 31, 2013			December 31, 2012				2013			2012

ASSETS	ASSETS							ASSETS
Current assets:
Cash and cash equivalents		$	77,303		$	105,502			$	177,805		$	105,502
Accounts receivable, net		109,238			88,955				99,316			88,955
Prepaid expenses and other current assets		21,760			7,618				20,185			7,618
Deferred tax assets, net		1,775			1,775				1,775			1,775
Total current assets		210,076			203,850				299,081			203,850

Premises and equipment, net		53,344			50,399				57,204			50,399
Deferred tax assets, net		4,073			4,073				4,073			4,073
Intangible assets, net		135,774			56,586				252,747			56,586
Goodwill		14,915			14,915				14,915			14,915
Investment in Correspondent One		—			12,729				—			12,729
Loan to Ocwen		—			75,000				—			75,000
Other assets		13,250			11,674				15,113			11,674

Total assets		$	431,432		$	429,226			$	643,133		$	429,226

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	57,704		$	58,976			$	63,789		$	58,976
Current portion of long-term debt		2,000			2,000				4,000			2,000
Current portion of capital lease obligations		57			233				—			233
Other current liabilities		7,185			10,423				8,915			10,423
Total current liabilities		66,946			71,632				76,704			71,632

Long-term debt, less current portion		195,622			196,027				393,679			196,027
Other non-current liabilities		1,703			1,738				1,340			1,738

Commitments and contingencies (Note 17)

Equity:
Common stock ($1.00 par value; 100,000 shares authorized; (25,413 issued and 23,177 outstanding as of March 31, 2013; 25,413 issued and 23,427 outstanding as of December 31, 2012)		25,413			25,413
Common stock ($1.00 par value; 100,000 shares authorized; 25,413 issued and 22,995 outstanding as of June 30, 2013; 25,413 issued and 23,427 outstanding as of December 31, 2012)									25,413			25,413
Additional paid-in-capital		88,297			86,873				88,392			86,873
Retained earnings		151,441			124,127				178,937			124,127
Treasury stock, at cost (2,236 shares as of March 31, 2013 and 1,986 shares as of December 31, 2012)		(99,291		)	(77,954		)
Treasury stock, at cost (2,418 shares as of June 30, 2013 and 1,986 shares as of December 31, 2012)									(122,974		)	(77,954		)
Altisource equity		165,860			158,459				169,768			158,459

Non-controlling interests		1,301			1,370				1,642			1,370
Total equity		167,161			159,829				171,410			159,829

Total liabilities and equity		$	431,432		$	429,226			$	643,133		$	429,226

See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

							Three months ended						Six months ended
	Three months ended March 31,						June 30,						June 30,
	2013			2012			2013			2012			2013			2012

Revenue	$	148,827		$	139,066		$	186,110		$	144,205		$	334,937		$	283,271
Cost of revenue	96,962			91,760			116,972			92,738			213,934			184,498

Gross profit	51,865			47,306			69,138			51,467			121,003			98,773
Selling, general and administrative expenses	18,680			17,015			29,828			19,018			48,508			36,033

Income from operations	33,185			30,291			39,310			32,449			72,495			62,740
Other income (expense), net:
Interest expense	(3,212		)	(15		)	(4,902		)	(14		)	(8,114		)	(29		)
Other income (expense), net	705			(336		)	77			(307		)	782			(643		)
Total other income (expense), net	(2,507		)	(351		)	(4,825		)	(321		)	(7,332		)	(672		)

Income before income taxes and non-controlling interests	30,678			29,940			34,485			32,128			65,163			62,068
Income tax provision	(2,151		)	(2,819		)	(2,417		)	(2,776		)	(4,568		)	(5,595		)

Net income	28,527			27,121			32,068			29,352			60,595			56,473
Net income attributable to non-controlling interests	(1,009		)	(1,892		)	(1,137		)	(1,271		)	(2,146		)	(3,163		)

Net income attributable to Altisource	$	27,518		$	25,229		$	30,931		$	28,081		$	58,449		$	53,310

Earnings per share:
Basic	$	1.18		$	1.08		$	1.34		$	1.20		$	2.51		$	2.28
Diluted	$	1.10		$	1.02		$	1.25		$	1.13		$	2.34		$	2.15

Weighted average shares outstanding:
Basic	23,374			23,381			23,161			23,316			23,267			23,353
Diluted	25,058			24,844			24,823			24,846			24,940			24,850

Transactions with related parties included above:
Revenue	$	90,098		$	82,780		$	121,234		$	88,153		$	211,332		$	170,933
Selling, general and administrative expenses	673			574			740			606			1,413			1,180
Other income	773			—			—			—			773			—

See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

	Altisource Equity																		Altisource Equity
	Common stock			Additional paid-in capital			Retained earnings			Treasury stock, at cost			Non- controlling interests			Total			Common stock			Additional paid-in capital		Retained earnings			Treasury stock, at cost			Non- controlling interests			Total

Balance, December 31, 2011	25,413	$	25,413	$	83,229		$	126,161		$	(72,048	)	$	3,188		$	165,943		25,413	$	25,413	$	83,229	$	126,161		$	(72,048	)	$	3,188		$	165,943
Net income	—	—		—			25,229			—			1,892			27,121			—	—		—		53,310			—			3,163			56,473
Contributions from non-controlling interest holders	—	—		—			—			—			11			11			—	—		—		—			—			24			24
Distributions to non-controlling interest holders	—	—		—			—			—			(2,083		)	(2,083		)	—	—		—		—			—			(4,830		)	(4,830		)
Share-based compensation expense	—	—		(184		)	—			—			—			(184		)	—	—		892		—			—			—			892
Exercise of stock options	—	—		—			(4,364		)	6,341			—			1,977			—	—		—		(4,397		)	6,415			—			2,018
Repurchase of shares	—	—		—			—			(16,781		)	—			(16,781		)	—	—		—		—			(16,781		)	—			(16,781		)
Balance, March 31, 2012	25,413	$	25,413	$	83,045		$	147,026		$	(82,488	)	$	3,008		$	176,004
Balance, June 30, 2012																			25,413	$	25,413	$	84,121	$	175,074		$	(82,414	)	$	1,545		$	203,739

Balance, December 31, 2012	25,413	$	25,413	$	86,873		$	124,127		$	(77,954	)	$	1,370		$	159,829		25,413	$	25,413	$	86,873	$	124,127		$	(77,954	)	$	1,370		$	159,829
Net income	—	—		—			27,518			—			1,009			28,527			—	—		—		58,449			—			2,146			60,595
Contributions from non-controlling interest holders	—	—		—			—			—			12			12			—	—		—		—			—			15			15
Distributions to non-controlling interest holders	—	—		—			—			—			(1,090		)	(1,090		)	—	—		—		—			—			(1,889		)	(1,889		)
Share-based compensation expense	—	—		1,424			—			—			—			1,424			—	—		1,519		—			—			—			1,519
Exercise of stock options	—	—		—			(204		)	660			—			456			—	—		—		(3,639		)	6,553			—			2,914
Repurchase of shares	—	—		—			—			(21,997		)	—			(21,997		)	—	—		—		—			(51,573		)	—			(51,573		)
Balance, March 31, 2013	25,413	$	25,413	$	88,297		$	151,441		$	(99,291	)	$	1,301		$	167,161
Balance, June 30, 2013																			25,413	$	25,413	$	88,392	$	178,937		$	(122,974	)	$	1,642		$	171,410

See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

							Six months ended
	Three months ended March 31,						June 30,
	2013			2012			2013			2012
Cash flows from operating activities:
Net income	$	28,527		$	27,121		$	60,595		$	56,473
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,724			2,279			9,306			5,200
Amortization of intangible assets	1,200			1,340			10,237			2,632
Share-based compensation expense	1,424			(184		)	1,519			892
Equity in losses of affiliate	176			324			122			579
Bad debt expense	224			649			452			852
Amortization of debt discount	95			—			152			—
Amortization of debt issuance costs	215			—			451			—
Loss on sale or disposal of fixed assets	—			394			926			366
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(12,968		)	(10,956		)	(10,813		)	(19,168		)
Prepaid expenses and other current assets	(1,147		)	(377		)	(3,009		)	(743		)
Other assets	(1,741		)	684			(1,440		)	876
Accounts payable and accrued expenses	(7,805		)	2,930			917			5,873
Other current and non-current liabilities	(3,368		)	3,568			(1,947		)	217
Net cash provided by operating activities	9,556			27,772			67,468			54,049

Cash flows from investing activities:
Additions to premises and equipment	(6,960		)	(16,154		)	(13,397		)	(21,128		)
Acquisition of business, net of cash acquired	(82,450		)	—			(215,700		)	—
Investment in equity affiliate	(50		)	—			(50		)	—
Repayment of loan to Ocwen	75,000			—
Proceeds from sale of equity affiliate							12,648			—
Proceeds from loan to Ocwen							75,000			—
Net cash used in investing activities	(14,460		)	(16,154		)	(141,499		)	(21,128		)

Cash flows from financing activities:
Proceeds from issuance of long-term debt							201,000			—
Repayment of long-term debt	(500		)	—			(1,500		)	—
Debt issuance costs							(2,400		)	—
Principal payments on capital lease obligations	(176		)	(201		)	(233		)	(318		)
Proceeds from stock option exercises	456			1,977			2,914			2,018
Purchase of treasury stock	(21,997		)	(16,781		)	(51,573		)	(16,781		)
Contributions from non-controlling interests	12			11			15			24
Distributions to non-controlling interests	(1,090		)	(2,083		)	(1,889		)	(4,830		)
Net cash used in financing activities	(23,295		)	(17,077		)
Net cash provided by (used in) financing activities							146,334			(19,887		)

Decrease in cash and cash equivalents	(28,199		)	(5,459		)
Increase in cash and cash equivalents							72,303			13,034
Cash and cash equivalents at the beginning of the period	105,502			32,125			105,502			32,125
Cash and cash equivalents at the end of the period	$	77,303		$	26,666		$	177,805		$	45,159

Supplemental cash flow information
Interest paid	$	2,799		$	15		$	7,562		$	28
Income taxes paid, net	402			694			1,165			1,255

Non-cash investing and financing activities
Amortization of tax-deductible goodwill	$	—		$	842		$	—		$	1,684
Premises and equipment purchased on account	700			—			891			—

See accompanying notes to condensed consolidated financial statements.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Description of Business

Altisource Portfolio Solutions S.A., together with its subsidiaries (which may be referred to as ~~Altisource™,~~“Altisource,” the ~~Company, we, us~~“Company,” “we,” “us” or ~~our)~~“our”), is a global provider of outsourcing and software services focused on high-value, technology-enabled ~~knowledge-based~~ solutions principally related to real estate and mortgage portfolio management, asset recovery and customer relationship management.

We are incorporated under the laws of Luxembourg and are publicly traded on the NASDAQ Global Select market under the symbol “ASPS.”

We conduct our operations through three reporting segments: Mortgage Services, Financial Services and Technology Services. In addition, we report our corporate related expenditures and eliminations as a separate segment (see Note 18 for a description of our business segments).

Basis of Presentation

The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, the interim data includes all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented. The preparation of interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our interim condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All significant intercompany and inter-segment transactions and accounts have been eliminated in consolidation.

The Mortgage Partnership of America, L.L.C. (“MPA”), a ~~wholly owned~~wholly-owned subsidiary of Altisource®, is the manager of a national alliance of community mortgage bankers, correspondent lenders and suppliers of mortgage products and services that is referred to as the Lenders One® Mortgage Cooperative (“Lenders One”). The management agreement between MPA and Lenders One, pursuant to which MPA is the management company of Lenders One, represents a variable interest in a variable interest entity. MPA is the primary beneficiary of Lenders One as it has the power to direct the activities that most significantly impact Lenders One’s economic performance and the obligation to absorb losses or the right to receive benefits from Lenders One. As a result, Lenders One is presented in the accompanying interim condensed consolidated financial statements on a consolidated basis with the interests of the members reflected as non-controlling interests. As of ~~March 31,~~June 30, 2013, Lenders One had total assets of ~~$1.7~~$3.1 million and liabilities of ~~$0.4~~$1.4 million. As of December 31, 2012, Lenders One had total assets of $2.3 million and liabilities of $1.0 million.

These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our Form 10-K for the year ended December 31, 2012, filed with the SEC on February 13, 2013, which contains a summary of our significant accounting policies. Certain footnote detail in the Form 10-K is omitted from the information included herein.

Fair Value of Financial Instruments

Our financial instruments primarily include cash and cash equivalents, ~~accounts receivable,~~ restricted cash ~~accounts payable and accrued expenses~~ and long-term debt. The carrying amount of cash and cash equivalents ~~accounts receivable,~~and restricted cash ~~and accounts payable and accrued expenses~~ are carried at amounts that approximate their fair value due to the short-term nature of these instruments. The fair value was determined by level 1 of the three level hierarchy established by the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, using quoted prices in active markets for identical assets. The carrying amount of the long-term debt approximates fair value due to the variable interest rate. The fair value was determined by level 2 of the three level hierarchy in ASC Topic 820 using inputs other than quoted prices that are observable, either directly or indirectly.

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NOTE 2 — TRANSACTIONS WITH RELATED PARTIES

Ocwen®

Ocwen Financial Corporation, together with its subsidiaries (“Ocwen”), is our largest customer. Ocwen is contractually obligated to purchase certain mortgage services and technology services from us through August ~~2025.~~2025 under the terms of a master services agreement and amendments to the master services agreement (collectively, the “Service Agreements”). In connection with our

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acquisition from Ocwen of the fee-based businesses of Homeward Residential, Inc. (“Homeward”) ~~from Ocwen~~that closed on March 29, 2013 ~~(see Note 3)~~ and the ~~agreement we entered into on April 12, 2013 to establish additional terms~~acquisition from Ocwen related to ~~our agreements with Ocwen in connection with Ocwen’s acquisition of~~ the fee-based businesses of Residential Capital, LLC (“ResCap”) that closed on April 12, 2013 (see Note ~~19)~~3), our ~~agreements~~Service Agreements with Ocwen were amended to extend the term from 2020 to ~~August~~ 2025. Further, as part of the amendments, we ~~will be~~are the exclusive provider of services to Ocwen with respect to the Homeward and ResCap servicing portfolios, and Ocwen ~~will~~agreed not to establish similar fee-based businesses that would directly or indirectly compete with Altisource’s services with respect to the Homeward and ResCap businesses. We settle amounts with Ocwen on a daily, weekly or monthly basis depending upon the nature of the service and when the service is provided.

Related party revenue consists of revenue earned directly from Ocwen and ~~its subsidiaries and~~ revenue earned from the loans serviced by Ocwen ~~or its subsidiaries~~ when Ocwen ~~determines~~designates us as the service provider. We earn additional revenue on the portfolios serviced by Ocwen ~~or its subsidiaries~~ that are not considered related party revenue when a party other than Ocwen selects the service provider. ~~As a percentage of each of our segment~~Related party revenue ~~and~~ as a percentage of segment and consolidated ~~revenue, related party~~ revenue was as ~~follows for the three months ended March 31:~~follows:

					Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012		2013		2012

Mortgage Services	68	%	69	%	70	%	70	%	69	%	70	%
Technology Services	50	%	39	%	54	%	40	%	52	%	40	%
Financial Services	<1	%	<1	%	29	%	<1	%	17	%	<1	%
Consolidated revenue	61	%	60	%	65	%	61	%	63	%	60	%

We record revenue we earn from Ocwen under various long-term servicing contracts at rates we believe to be market rates as they are consistent with one or more of the following: the fees we charge to other customers for comparable services, the fees Ocwen pays to other service providers, fees commensurate with market surveys prepared by unaffiliated firms and fees charged by our competitors.

Support Services

We have support services agreements with Ocwen. These services include such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning and compliance. Payment for the services provided is ~~based~~ on the fully-allocated cost of providing the service based on an estimate of the time and expense of providing the service. For the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012, we billed Ocwen ~~$0.6~~$1.2 million and ~~$0.8~~$1.4 million, respectively ($0.6 million for the second quarter of 2013 and 2012), and Ocwen billed us ~~$0.7~~$1.4 million and $1.2 million, respectively ($0.7 million and $0.6 million ~~respectively,~~for the second quarter of 2013 and 2012, respectively) for services provided under these agreements. These amounts are reflected as a component of selling, general and administrative expenses in the condensed consolidated statements of operations.

Unsecured Term Loan

On December 27, 2012, we entered into a senior unsecured term loan agreement with Ocwen under which we loaned $75.0 million to Ocwen. Payments of interest were due quarterly at a rate per annum equal to the Eurodollar Rate (as defined in the agreement) plus 6.75%, provided that the Eurodollar Rate shall at no time be less than 1.50%. On February 15, 2013, Ocwen repaid the outstanding principal amount of $75.0 million, plus all accrued and unpaid ~~interest.~~interest and the term loan was terminated. Interest income related to this loan was $0.8 million for the ~~three~~six months ended ~~March 31, 2013.~~June 30, 2013 (no comparative amounts for 2012).

Transactions Related to Fee-Based Businesses

On January 31, 2013, we entered into non-binding letters of intent with Ocwen to acquire certain fee-based businesses associated with Ocwen’s acquisitions of the Homeward and the ResCap servicing portfolios. Ocwen acquired the Homeward servicing portfolio on December 27, 2012 and the ResCap servicing portfolio on February 15, 2013. Altisource acquired the Homeward fee-based businesses from Ocwen on March 29, 2013 (see Note 3)~~, and~~. Altisource entered into an agreement with Ocwen on April 12, 2013 to establish additional terms related to our services in connection with ~~Ocwen’s acquisition of~~ the ResCap fee-based businesses (see Note ~~19)~~3).

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Correspondent One™® and HLSS™

In July 2011, we acquired an equity interest in Correspondent One S.A. (“Correspondent One”) (see Note 8). WeCorrespondent One purchases closed conforming and government guaranteed residential mortgages from approved mortgage bankers. On March 31, 2013, we sold our 49% interest in Correspondent One to Ocwen for $12.6 million. Under a support services agreement, we provided Correspondent One certain finance, human resources, legal support, facilities, technology, vendor management and risk management services. For the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012, we billed Correspondent One less than $0.1 million for each ~~period, under a services agreement. On March 31, 2013, we sold our 49% interest in Correspondent One to~~

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~~Ocwen for $12.6 million and recorded a current asset of $12.6 million. We received $12.6 million from Ocwen on April 2, 2013.~~period. We also ~~provide~~provided certain origination related services to Correspondent One. We earned revenue of $0.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013 for these services (no comparative amount in 2012).

Home Loan Servicing Solutions, Ltd. (“HLSS”) is a ~~public~~publicly traded company whose primary objective is the acquisition of mortgage servicing rights and advances. In connection with the February 2012 HLSS initial public offering and subsequent thereto, HLSS acquired mortgage servicing related assets from Ocwen. Our Chairman is also the Chairman of HLSS. WeUnder a support services agreement, we provide HLSS certain finance, human resources and legal support services. For the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012, we billed HLSS $0.3 million and $0.2 million, respectively ($0.1 million for the second quarter of 2013 and ~~less than $0.1 million, respectively, under a services agreement.~~2012).

These amounts are reflected as a component of selling, general and administrative expenses in the condensed consolidated statements of operations.

Residential and AAMC

Altisource Residential Corporation (“Residential”) and Altisource Asset Management Corporation (“AAMC”) were established, capitalized and their equity was distributed to our shareholders on December 21, 2012 and are each separate ~~public~~publicly traded companies (the “Separation of the Residential Asset Businesses”). Residential is focused on the single family rental market, acquiring single family properties through the purchase of distressed mortgage loan portfolios. AAMC is an asset management company providing portfolio management and corporate governance services to Residential. Our Chairman is also the Chairman of Residential and AAMC. For purposes of governing certain ongoing relationships between Altisource, Residential and AAMC after the Separation of the Residential Asset Businesses, and to provide for an orderly transition, we entered into certain agreements with Residential and AAMC.

~~Residential and AAMC have entered the growing residential single family rental market.~~ We have agreements to provide ~~certain services to~~ Residential ~~and/or AAMC related to~~with renovation management, lease management and property management services. In addition, we have agreements with Residential and AAMC to provide support services such as finance, human resources, legal support, facilities, technology, vendor management and risk ~~management pursuant to a Master Services Agreement and a Support Services Agreement. In addition,~~management. Further, we have separate agreements for certain services related to income tax matters, trademark licenses and technology products and ~~services are described in separate agreements.~~services. For the ~~three~~six months ended ~~March 31,~~June 30, 2013, we billed Residential ~~less than $0.1~~$0.2 million, and we billed AAMC $0.2 million ($0.2 million for Residential and less than $0.1 million ~~under these agreements (no~~for AAMC for the second quarter of 2013 and no comparative amounts in 2012)., under these agreements.

NOTE 3 — ACQUISITIONS

Homeward Fee-Based Businesses

On March 29, 2013, we acquired certain fee-based businesses associated with Ocwen’s acquisition of Homeward. As part of the acquisition, Ocwen agreed not to develop similar fee-based businesses that would directly or indirectly compete with services provided by Altisource relative to the Homeward servicing portfolio. Additionally, the terms of ~~certain service agreements between Altisource and Ocwen~~the Service Agreements were amended to extend the term from 2020 to ~~August~~ 2025 (see Note 2). We paid $87.0 million, subject to a working capital and net income adjustment within 90 days, subsequently extended for an additional 60 days, for the Homeward fee-based businesses. From the acquisition date through June 30, 2013, we have recorded revenue of $33.9 million and pre-tax income of $8.9 million related to these businesses.

Management has ~~prepared a~~adjusted the preliminary purchase price allocation and assigned associated asset lives based upon information that has become available ~~information at~~since the ~~time of closing. This preliminary~~acquisition date. The purchase price allocation and assessment of asset lives will continue to be revised as additional information about the fair value of assets and liabilities becomes ~~available but will not exceed~~available. Such assessment must be completed within 12 months from the acquisition date.

~~The preliminary allocation of the purchase price is estimated as follows:~~

(in thousands)

Cash

$
4,500

Accounts receivable

7,221

Receivable from Ocwen

318

Prepaid expenses and other current assets

347

Premises and equipment

9

Customer relationship

80,388

92,783

Accounts payable and accrued expenses

(3,352
)
Payable to Ocwen

(2,481
)
Purchase price

$
86,950

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The preliminary adjusted allocation of the purchase price is estimated as follows:

(in thousands)

Due from Ocwen	$	9,558
Premises and equipment	2,749
Customer relationship	77,648
	89,955
Accounts payable and accrued expenses	(3,005		)
Purchase price	$	86,950

~~(in thousands)~~		Estimated life (in years)

Premises and equipment		2 - 5
Customer relationship		7

ResCap Fee-Based Businesses

On April 12, 2013, we entered into an agreement with Ocwen to establish additional terms related to the existing servicing arrangements between Altisource and Ocwen in connection with certain mortgage servicing platform assets of ResCap (the “ResCap Business”). The Service Agreements provide that (i) Altisource will be the exclusive provider, except as prohibited by applicable law, to Ocwen of certain services related to the ResCap Business, (ii) Ocwen will not establish similar fee-based businesses that would directly or indirectly compete with Altisource’s services as they relate to the ResCap Business and (iii) Ocwen will market and promote the utilization of Altisource’s services to their various third party relationships. Additionally, the parties agreed to use commercially reasonable best efforts to ensure that the loans associated with the ResCap Business are boarded onto Altisource’s mortgage servicing platform. We paid $128.8 million ($80.0 million on April 12, 2013 and $48.8 million on May 10, 2013) for the ResCap fee-based businesses. From the acquisition date through June 30, 2013, we have recorded revenue of $7.8 million and pre-tax income of $1.8 million related to these businesses.

We acquired no tangible assets and assumed no liabilities in connection with the acquisition. However, certain employees as well as practices and processes developed to support the ResCap servicing portfolio were components of the transaction. We accounted for this transaction as a business combination in accordance with ASC Topic 805, Business Combinations.

Management has prepared a preliminary purchase price allocation and assigned associated asset lives based upon available information at the time of the agreement and through the date of filing. This preliminary allocation and assessment of asset lives will be revised as additional information about the fair value of assets and liabilities becomes available. Such assessment must be completed within 12 months from the acquisition date. The agreement consideration of $128.8 million was fully allocated to the customer relationship intangible asset with an estimated average useful life of 7 years.

The following tables present the unaudited pro forma condensed consolidated results of operations as if the ~~acquisition~~Homeward and ResCap Business transactions had occurred at the beginning of the periods presented.

	Three months ended March 31, 2013				Six months ended June 30, 2013
(in thousands, except per share amounts)	As reported		Pro forma		As reported		Pro forma
Revenue	$	148,827	$	170,485	$	334,937	$	368,428
Net income attributable to Altisource	27,518		32,815		58,449		64,980
Earnings per share — diluted	1.10		1.31		2.34		2.61

Three months ended
March 31, 2012

(in thousands, except per share amounts)

As reported

Pro forma

Revenue

$
139,066

$
163,695

Net income attributable to Altisource

25,229

32,868

Earnings per share — diluted

1.02

1.32

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	Six months ended June 30, 2012
(in thousands, except per share amounts)	As reported		Pro forma
Revenue	$	283,271	$	356,196
Net income attributable to Altisource	53,310		67,963
Earnings per share — diluted	2.15		2.73

	Three months ended June 30, 2012
(in thousands, except per share amounts)	As reported		Pro forma
Revenue	$	144,205	$	180,668
Net income attributable to Altisource	28,081		35,437
Earnings per share — diluted	1.13		1.43

The unaudited pro forma information presents the combined operating results of Altisource and ~~Homeward.~~the Homeward and ResCap Business transactions. The Homeward and ResCap Business operating results were derived from ~~its~~their historical financial statements for the most comparable periods available. The results prior to the acquisition ~~date~~dates have been adjusted to include the pro forma impact of the adjustment of amortization of the acquired intangible ~~asset~~assets based on the preliminary purchase price ~~allocation,~~allocations, the adjustment of interest expense reflecting the portion of our ~~$200.0~~$200 million senior secured term loan, ~~(the “Senior Secured Term Loan”)~~increased to $400 million on May 7, 2013, used in the Homeward ~~acquisition~~and ResCap Business transactions (i.e., the pro forma impact of borrowing ~~$87.0~~$215.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2012) and to reflect the impact of income taxes on the pro forma adjustments utilizing Altisource’s effective income tax rate in each period presented.

The unaudited pro forma results are presented for illustrative purposes only and do not reflect additional revenue opportunities, the realization of any potential cost savings and any related integration costs. ~~It is management’s intent to transition the majority of the Homeward fee-based businesses to Altisource’s platform.~~ Certain revenue opportunities and cost savings may result from the ~~transaction~~transactions and the conversion to the Altisource model; however, there can be no assurance that these revenue opportunities and cost savings will be achieved. These pro forma results do not purport to be indicative of the results that would have actually been obtained if the ~~transaction~~transactions occurred as of the beginning of each of the periods presented, nor does the pro forma data intend to be a projection of results that may be obtained in the future.

~~Table of Contents~~

NOTE 4 — ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consists of the following:

	March 31,			December 31,			June 30,			December 31,
(in thousands)	2013			2012			2013			2012

Billed
Non-related parties	$	35,987		$	25,950		$	29,274		$	25,950
Ocwen	32,898			19,817			18,909			19,817
Correspondent One	—			27			—			27
HLSS	142			163			66			163
AAMC	209			14			546			14
Residential	12			—			75			—
Other receivables	404			353			1,908			353
	69,652			46,324			50,778			46,324
Unbilled
Non-related parties	33,844			39,496			38,330			39,496
Ocwen	9,243			6,377			13,940			6,377
Correspondent One	—			32			—			32
	112,739			92,229			103,048			92,229
Allowance for doubtful accounts	(3,501		)	(3,274		)	(3,732		)	(3,274		)

Total	$	109,238		$	88,955		$	99,316		$	88,955

Unbilled fees consist primarily of asset management and default management services for which we recognize revenues over the service delivery period but bill following completion of the service.

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NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

March 31,

December 31,

(in thousands)

2013

2012

Maintenance agreements, current portion

$
5,457

$
3,636

Income taxes receivable

—

1,814

Prepaid expenses

2,954

1,640

Cash held for clients

594

447

Due from Ocwen on sale of Correspondent One

12,648

—

Other current assets

107

81

Total

$
21,760

$
7,618

~~Table of Contents~~

	June 30,		December 31,
(in thousands)	2013		2012

Maintenance agreements, current portion	$	4,833	$	3,636
Income taxes receivable	2,970		1,814
Prepaid expenses	2,674		1,640
Due from Ocwen	9,558		—
Other current assets	150		528

Total	$	20,185	$	7,618

NOTE 6 — PREMISES AND EQUIPMENT, NET

Premises and equipment, net, which includes amounts recorded under capital leases, consists of the following:

	March 31,			December 31,			June 30,			December 31,
(in thousands)	2013			2012			2013			2012

Computer hardware and software	$	74,211		$	68,329		$	77,766		$	68,329
Office equipment and other	14,386			15,592			18,391			15,592
Furniture and fixtures	5,692			5,344			6,086			5,344
Leasehold improvements	15,570			12,982			16,034			12,982
	109,859			102,247			118,277			102,247
Less: Accumulated depreciation and amortization	(56,515		)	(51,848		)	(61,073		)	(51,848		)

Total	$	53,344		$	50,399		$	57,204		$	50,399

Depreciation and amortization expense, inclusive of capital leases, amounted to ~~$4.7~~$9.3 million and ~~$2.3~~$5.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012, respectively ($4.6 million and $2.9 million for the second quarter of 2013 and 2012, respectively), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations.

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

There were no changes in goodwill during the ~~three~~six months ended ~~March 31,~~June 30, 2013. The following is a summary of goodwill by segment:

	Mortgage		Financial		Technology				Mortgage		Financial		Technology
(in thousands)	Services		Services		Services		Total		Services		Services		Services		Total

Balance, March 31, 2013 and December 31, 2012	$	10,919	$	2,378	$	1,618	$	14,915
Balance, June 30, 2013 and December 31, 2012									$	10,919	$	2,378	$	1,618	$	14,915

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Intangible Assets, Net

Intangible assets, net consist of the following:

Weighted
average
estimated

Gross carrying amount

Accumulated amortization

Net book value

useful life

March 31,

December 31,

March 31,

December 31,

March 31,

December 31,

(dollars in thousands)

(years)

2013

2012

2013

2012

2013

2012

Definite-lived intangible assets

Trademarks

16

$
10,614

$
10,614

$
(4,179
)
$
(4,060
)
$
6,435

$
6,554

Customer-related intangible assets

11

118,754

38,366

(19,123
)
(18,567
)
99,631

19,799

Operating agreement

20

35,000

35,000

(5,542
)
(5,104
)
29,458

29,896

Non-compete agreement

4

1,300

1,300

(1,050
)
(963
)
250

337

Total

$
165,668

$
85,280

$
(29,894
)
$
(28,694
)
$
135,774

$
56,586

~~Table of Contents~~

	Weighted
	average
	estimated	Gross carrying amount				Accumulated amortization						Net book value
	useful life	June 30,		December 31,		June 30,			December 31,			June 30,		December 31,
(dollars in thousands)	(years)	2013		2012		2013			2012			2013		2012

Definite-lived intangible assets
Trademarks	16	$	10,614	$	10,614	$	(4,298	)	$	(4,060	)	$	6,316	$	6,554
Customer-related intangible assets	9	244,764		38,366		(27,529		)	(18,567		)	217,235		19,799
Operating agreement	20	35,000		35,000		(5,979		)	(5,104		)	29,021		29,896
Non-compete agreement	4	1,300		1,300		(1,125		)	(963		)	175		337

Total		$	291,678	$	85,280	$	(38,931	)	$	(28,694	)	$	252,747	$	56,586

Amortization expense for definite lived intangible assets was ~~$1.2~~$10.2 million and $2.6 million for the six months ended June 30, 2013 and 2012, respectively ($9.0 million and $1.3 million for the ~~three months ended March 31,~~second quarter of 2013 and 2012, ~~respectively.~~respectively). Expected annual definite lived intangible asset amortization for 2013 through 2017 is ~~$16.3~~$28.3 million, ~~$24.2~~$44.8 million, ~~$19.5~~$40.7 million, ~~$16.1~~$33.4 million and ~~$13.3~~$26.6 million, respectively, including preliminary amounts associated with the Homeward ~~acquisition~~and ResCap fee-based business transactions (see Note 3).

NOTE 8 — INVESTMENT IN EQUITY AFFILIATE

Correspondent One purchases closed conforming and government guaranteed residential mortgages from approved mortgage bankers. ~~Correspondent One provides members of Lenders One additional avenues to sell loans beyond Lenders One’s preferred investor arrangements and the members’ own network of loan buyers.~~ Prior to the sale of our interest in Correspondent One to Ocwen on March 31, 2013 (see Note 2), we had significant influence over the general operations of Correspondent One consistent with our 49% ownership level, and therefore, accounted for our investment under the equity method. ~~We had no funding commitments to~~On March 31, 2013, we sold our 49% interest in Correspondent One ~~as of March 31, 2013.~~to Ocwen for $12.6 million.

Our net loss on this investment using the equity method was ~~$0.2~~$0.1 million and $0.6 million for the six months ended June 30, 2013 and 2012, respectively ($0.1 million gain and $0.3 million loss for the ~~three months ended March 31,~~second quarter of 2013 and 2012, ~~respectively.~~respectively).

NOTE 9 — OTHER ASSETS

Other assets consist of the following:

	March 31,		December 31,		June 30,		December 31,
(in thousands)	2013		2012		2013		2012

Security deposits, net	$	6,279	$	5,019	$	6,289	$	5,019
Debt issuance costs, net	4,230		4,260		6,394		4,260
Maintenance agreements, non-current portion	2,363		1,614		2,093		1,614
Unbilled fees	—		423
Restricted cash	158		158		158		158
Other	220		200		179		623

Total	$	13,250	$	11,674	$	15,113	$	11,674

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NOTE 10 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable and accrued expenses consist of the following:

March 31,

December 31,

(in thousands)

2013

2012

Accounts payable

$
10,128

$
5,079

Accrued expenses - general

19,161

16,528

Accrued salaries and benefits

13,553

19,613

Income taxes payable

8,606

8,750

Payable to Ocwen

6,248

8,865

Payable to AAMC

8

141

Total

$
57,704

$
58,976

~~Table of Contents~~

	June 30,		December 31,
(in thousands)	2013		2012

Accounts payable	$	6,518	$	5,079
Accrued expenses - general	18,969		16,528
Accrued salaries and benefits	20,750		19,613
Income taxes payable	13,135		8,750
Payable to Ocwen	4,414		8,865
Payable to AAMC	3		141

Total	$	63,789	$	58,976

Other current liabilities consist of the following:

	March 31,		December 31,		June 30,		December 31,
(in thousands)	2013		2012		2013		2012

Deferred revenue	$	1,519	$	2,482	$	1,694	$	2,482
Facility closure cost accrual, current portion	139		138		125		138
Collections due to clients	594		447
Book overdrafts	2,857		5,229		5,213		5,229
Other	2,076		2,127		1,883		2,574

Total	$	7,185	$	10,423	$	8,915	$	10,423

Facility Closure Costs

During 2009, we accrued facility closure costs (included in other current and other non-current liabilities in the condensed consolidated balance sheets) primarily consisting of lease exit costs (expected to be paid through 2014) and severance related to the closure of two facilities. The following table summarizes the activity, all recorded in our Financial Services segment, for the ~~three~~six months ended ~~March 31,~~June 30, 2013:

(in thousands)	Lease Costs			Lease Costs

Balance, December 31, 2012	$	294		$	294
Payments	(60		)	(112		)
Balance, March 31, 2013	234
Balance, June 30, 2013				182
Less: Long-term portion	(95		)	(57		)

Facility closure cost accrual, current portion	$	139		$	125

We do not expect significant additional costs related to the closure of these facilities.

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NOTE 11 — LONG-TERM DEBT

Long-term debt consists of the following:

	March 31,			December 31,			June 30,			December 31,
(in thousands)	2013			2012			2013			2012

Senior Secured Term Loan	$	199,500		$	200,000
Less: Unamortized discount	(1,878		)	(1,973		)
Senior secured term loan							$	398,500		$	200,000
Less: Unamortized discount, net							(821		)	(1,973		)
Net long-term debt	197,622			198,027			397,679			198,027
Less: Current portion	(2,000		)	(2,000		)	(4,000		)	(2,000		)

Long-term debt, less current portion	$	195,622		$	196,027		$	393,679		$	196,027

~~Legal~~On November 27, 2012, we entered into a senior secured term loan agreement with Bank of America, N.A., as administrative agent, and certain lenders, pursuant to which we borrowed $200 million. The senior secured term loan was issued with a 1.0% original issue discount ($2.0 million), resulting in net proceeds of $198.0 million (the “Initial Proceeds”), with the Company and certain wholly-owned subsidiaries acting as guarantors (collectively, the “Guarantors”).

On May 7, 2013, we amended the senior secured term loan agreement to increase the principal amount of the senior secured term loan by $200 million (the “Incremental Term Loan”), which was issued with a $1.0 million original issue premium, resulting in gross proceeds to the Company of $201.0 million.

The Incremental Term Loan must be repaid in equal consecutive quarterly principal installments of 0.25% of the initial principal amount, with the balance due at maturity, commencing on June 28, 2013. The aggregate amount of each quarterly scheduled principal installment of the term loans, including the Incremental Term Loan, is equal to approximately $1.0 million. All amounts outstanding under the senior secured term loan agreement will become due on the earlier of (i) November 27, 2019, being the seventh anniversary of the closing date of the senior secured term loan agreement or (ii) the date on which the loans are declared to be due and owed by the administrative agent at the request (or with the consent) of the lenders upon the occurrence of any event of default under the senior secured term loan agreement.

The Incremental Term Loan was used to fund the remainder of the Company’s previously announced transaction with Ocwen related to the ResCap servicing portfolio (see Note 3), with the remainder to be used for stock repurchases and for general corporate purposes, including potential acquisitions. Additionally, the Incremental Term Loan was used to pay certain fees, commissions and expenses in connection with the Incremental Term Loan. The Company paid legal fees and other ~~direct expenses relating~~costs associated with the Incremental Term Loan of $2.4 million, which were recorded as debt issuance costs in other assets in the accompanying condensed consolidated balance sheets.

Additionally, the Incremental Term Loan modified the senior secured term loan agreement to, among other changes, provide for an additional $200 million incremental term loan facility accordion and increase the maximum amount of Restricted Payments (as defined in the senior secured term loan) that may be made by us, including increasing the amount of Company share repurchases permitted.

All of the term loans outstanding bear interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate (each as defined in the senior secured term loan agreement). Eurodollar Rate loans bear interest at a rate per annum equal to the ~~Senior Secured Term Loan were capitalized.~~ sum of (i) the greater of (x) the Adjusted Eurodollar Rate for the applicable interest period and (y) 1.25% plus (ii) a 4.50% margin. Base Rate loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Base Rate and (y) 2.25% plus (ii) a 3.50% margin. The interest rate at June 30, 2013 was 5.75%.

Payments under the senior secured term loan agreement are guaranteed by the Guarantors and are secured by a pledge of all equity interests of certain subsidiaries, as well as a lien on substantially all of the assets of Altisource Solutions S.à r.l., a wholly-owned subsidiary of Altisource, and the Guarantors, subject to certain exceptions.

At ~~March 31,~~June 30, 2013, ~~total~~ debt issuance costs were ~~$4.2~~$6.4 million, net of ~~$0.3~~$0.5 million of accumulated amortization. At December 31, 2012, ~~total~~ debt issuance costs were $4.3 million, net of $0.1 million of accumulated amortization. Debt issuance costs are included in other assets in the accompanying condensed consolidated balance sheets.

Interest expense on the Senior Secured Term Loan, including amortization of debt issuance costs and the debt discount, totaled $3.2 million for the three months ended March 31, 2013 (no comparative amount in 2012). The interest rate at March 31, 2013 was 5.75%.

1415

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NOTE 12 — EQUITY AND SHARE-BASED COMPENSATION

Stock Repurchase Plan

In May 2012, our shareholders approved a stock repurchase program, which replaced the previous stock repurchase program. Under the plan, we are authorized to purchase up to 3.5 million shares of our common stock in the open market in addition to amounts previously purchased under the prior plan. From authorization of the prior plan in May 2010 through ~~March 31,~~June 30, 2013, we have purchased approximately ~~2.8~~3.1 million shares of our common stock in the open market at an average price of ~~$41.76~~$47.04 per share. We purchased ~~0.3~~0.6 million shares of common stock (at an average price of ~~$82.58~~$89.01 per share) ~~during the three months ended March 31, 2013~~ and 0.3 million shares of common stock (at an average price of $63.25 per share) during the ~~three~~six months ended ~~March 31, 2012. There are 3.2~~June 30, 2013 and 2012, respectively (0.3 million shares at an average price of $94.49 per share for the second quarter of 2013 and no comparative amounts in the second quarter of 2012). 2.9 million shares of common stock ~~remaining~~remain available for repurchase under the plan. Luxembourg law limits share repurchases to approximately the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings less shares repurchased. ~~At March 31,~~As of June 30, 2013, approximately ~~$40.0~~$40 million was available to repurchase our common stock under Luxembourg law. Our ~~Senior Secured Term Loan agreement~~$200 million senior secured term loan, increased to $400 million on May 7, 2013, also limits our ability to repurchase our common stock, which will limit the amount we can spend on share repurchases in any year and may prevent repurchases in certain circumstances. As of ~~March 31,~~June 30, 2013, ~~there~~approximately $80 million was ~~no capacity~~ available to repurchase our common stock under our ~~Senior Secured Term Loan agreement.~~senior secured term loan.

Share-Based Compensation

We issue share-based awards in the form of stock options and certain other equity-based awards for certain employees and officers. We recorded share-based compensation expense of ~~$1.4~~$1.5 million and $0.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013 and ~~$(0.2)~~2012, respectively ($0.1 million and $1.1 million for the ~~three~~second quarter of 2013 and 2012, respectively). The amount for the six months ended ~~March 31, 2012. The amount in~~June 30, 2012 includes the reversal of $0.8 million of share-based compensation expense related to the departure of an executive officer in March 2012.

Outstanding share-based compensation currently consists primarily of stock option grants that are a combination of service-based and market-based options.

Service-based Options. These options are granted at fair value on the date of grant. The options generally vest over four years with equal annual cliff-vesting and expire on the earlier of 10 years after the date of grant or following termination of service. A total of 0.9 million service-based awards were outstanding at ~~March 31,~~June 30, 2013.

Market-based Options. These option grants have two components each of which vest only upon the achievement of certain criteria. The first component, which we refer to internally as “ordinary performance” grants, consists of two-thirds of the market-based grant and begins to vest if the stock price is at least double the exercise price, as long as the stock price realizes a compounded annual gain of at least 20% over ~~the exercise price, as long as the stock price is at least double~~ the exercise price. The remaining third of the market-based options, which we refer to internally as “extraordinary performance” grants, begins to vest if the stock price is at least triple the exercise price, as long as the stock price realizes a compounded annual gain of at least 25% over ~~the exercise price, as long as it is at least triple~~ the exercise price. The vesting schedule for all market-based awards is 25% upon achievement of the criteria and the remaining 75% in three equal annual installments. A total of ~~2.2~~2.0 million market-based awards were outstanding at ~~March 31,~~June 30, 2013.

The Company granted less than 0.1 million stock options (at a weighted average exercise price of ~~$88.56~~$90.75 per share) ~~during the three months ended March 31, 2013~~ and 0.2 million stock options (at a weighted average exercise price of ~~$63.32~~$63.14 per share) during the ~~three~~six months ended ~~March 31, 2012.~~June 30, 2013 and 2012, respectively.

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The fair value of the service-based options was determined using the Black-Scholes option pricing model, and a lattice (binomial) model was used to determine the fair value of the market-based options, using the following assumptions as of the grant date:

Three months ended March 31, 2013

Three months ended March 31, 2012

Black-Scholes

Binomial

Black-Scholes

Binomial

Risk-free interest rate

1.02%–1.13%

0.08%–2.02%

1.16% – 1.17%

0.09% – 2.04%

Expected stock price volatility

36.35%–36.50%

36.40%–36.50%

34.62% – 34.65%

34.50% – 34.60%

Expected dividend yield

—

—

—

—

Expected option life (in years)

6.25

—

6.25

—

Contractual life (in years)

—

14

—

14

Fair value

$31.33–$34.74

$16.12–$30.34

$22.74 – $22.80

$11.65 – $17.27

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	Six months ended June 30, 2013		Six months ended June 30, 2012
	Black-Scholes	Binomial	Black-Scholes	Binomial

Risk-free interest rate	1.02%–1.13%	0.01%–2.02%	0.97% – 1.17%	0.08% – 2.04%
Expected stock price volatility	36.35%–36.76%	36.40%–36.80%	34.22% – 34.65%	34.20% – 34.60%
Expected dividend yield	—	—	—	—
Expected option life (in years)	6.25	—	6.25	—
Contractual life (in years)	—	14	—	14

Fair value	$31.33–$35.77	$16.12–$31.15	$19.25 – $22.80	$11.65 – $17.27

The following table summarizes the weighted-average fair value of stock options granted, the total intrinsic value of stock options exercised and the fair value of options vested:

	Three months ended March 31,				Six months ended June 30,
(in thousands, except per share amounts)	2013		2012		2013		2012

Weighted-average fair value at grant date per share	$	25.22	$	17.23	$	25.83	$	16.86
Intrinsic value of options exercised	918		8,242		9,625		8,339
Fair value of options vested	838		275		1,475		973

Share-based compensation expense is recorded net of estimated forfeiture rates ranging from 1% to 10%.

As of ~~March 31,~~June 30, 2013, estimated unrecognized compensation costs related to share-based payments amounted to ~~$4.2~~$2.7 million, which we expect to recognize over a weighted-average remaining requisite service period of approximately ~~2.3~~2.6 years.

The following table summarizes the activity related to our stock options:

Number of
options

Weighted
average
exercise
price

Weighted
average
contractual
term
(in years)

Aggregate
intrinsic value
(in thousands)

Outstanding at December 31, 2012

3,058,309

$
17.69

6.1

$
211,072

Granted

30,000

88.56

Exercised

(16,450
)
27.73

Forfeited

—

—

Outstanding at March 31, 2013

3,071,859

18.32

5.9

159,433

Exercisable at March 31, 2013

2,261,878

12.20

5.3

130,326

~~Restricted Shares in AAMC~~

Prior to the separation of AAMC, certain Altisource employees were granted 0.1 million restricted AAMC shares. The restricted shares will vest in three tranches, subject to the achievement of the following performance hurdles:

	Number of options		Weighted average exercise price		Weighted average contractual term (in years)	Aggregate intrinsic value (in thousands)

Outstanding at December 31, 2012	3,058,309		$	17.69	6.1	$	211,072
Granted	45,000		90.75
Exercised	(142,977	)	20.38
Forfeited	(102,875	)	62.27
Outstanding at June 30, 2013	2,857,457		17.09		5.5	220,622

Exercisable at June 30, 2013	2,320,557		11.89		5.1	191,243

·25% of the grant will vest in accordance with the vesting schedule set forth below if the market value of AAMC common stock meets all three of the following conditions: (i) the market value is at least equal to $250 million; (ii) the market value has realized a compounded annual gain of at least 20% over the market value on the date of the grant; and (iii) the market value is at least double the market value on the date of the grant;

·50% of the grant will vest in accordance with the vesting schedule set forth below if the market value of AAMC common stock meets all three of the following conditions: (i) the market value is at least equal to $500 million; (ii) the market value has realized a compounded annual gain of at least 22.5% over the market value on the date of the grant; and (iii) the market value is at least triple the market value on the date of the grant; and

·25% of the grant will vest in accordance with the vesting schedule set forth below if the market value of AAMC common stock meets all three of the following conditions: (i) the market value is at least equal to $750 million; (ii) the market value has realized a compounded annual gain of at least 25% over the market value on the date of the grant; and (iii) the market value is at least quadruple the market value on the date of the grant.

After the performance hurdles for a tranche have been achieved, 25% of the restricted shares in that tranche will vest on each of the first four anniversaries of the date that the performance hurdles for that tranche were met.

If an award recipient’s service with Altisource is terminated prior to full vesting of the restricted shares, then the award recipient will forfeit all unvested restricted shares except that if (i) an award recipient’s service is terminated without cause or due to death or disability and (ii) the performance hurdles for a tranche have already been achieved or are achieved within 90 days of termination, unvested restricted stock for the corresponding tranche will continue to vest according to the above vesting schedule.

~~Expense related to these restricted shares for the three months ended March 31, 2013 was less than $0.1 million.~~

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NOTE 13 — COST OF REVENUE

Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to the provision of services, reimbursable expenses, technology and telecommunications expenses as well as depreciation and amortization of operating assets. The components of cost of revenue were as ~~follows for the three months ended March 31:~~follows:

					Three months ended				Six months ended
					June 30,				June 30,
(in thousands)	2013		2012		2013		2012		2013		2012

Compensation and benefits	$	32,579	$	27,485	$	36,744	$	27,989	$	69,323	$	55,474
Outside fees and services	34,895		28,653		46,345		31,757		81,240		60,410
Reimbursable expenses	20,266		28,706		23,299		24,814		43,565		53,520
Technology and telecommunications	5,491		5,124		7,060		5,866		12,551		10,990
Depreciation and amortization	3,731		1,792		3,524		2,312		7,255		4,104

Total	$	96,962	$	91,760	$	116,972	$	92,738	$	213,934	$	184,498

NOTE 14 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses include payroll for personnel employed in executive, finance, legal, human resources, vendor management, risk and six sigma roles. This category also includes occupancy costs, professional fees and depreciation and amortization on non-operating assets. The components of selling, general and administrative expenses were as ~~follows for the three months ended March 31:~~follows:

					Three months ended				Six months ended
					June 30,				June 30,
(in thousands)	2013		2012		2013		2012		2013		2012

Compensation and benefits	$	5,457	$	4,383	$	6,609	$	6,400	$	12,066	$	10,783
Professional services	1,632		1,655		1,384		1,806		3,016		3,461
Occupancy related costs	6,576		6,509		7,957		6,158		14,533		12,667
Amortization of intangible assets	1,200		1,340		9,037		1,292		10,237		2,632
Depreciation and amortization	993		487		1,058		609		2,051		1,096
Other	2,822		2,641		3,783		2,753		6,605		5,394

Total	$	18,680	$	17,015	$	29,828	$	19,018	$	48,508	$	36,033

NOTE 15 — OTHER INCOME (EXPENSE), NET

Other income (expense), net consists of the ~~following for the three months ended March 31:~~following:

							Three months ended						Six months ended
							June 30,						June 30,
(in thousands)	2013			2012			2013			2012			2013			2012

Equity loss in affiliate	$	(176	)	$	(324	)
Equity gain (loss) in affiliate							$	54		$	(255	)	$	(122	)	$	(579	)
Interest expense	(3,212		)	(15		)	(4,902		)	(14		)	(8,114		)	(29		)
Interest income	856			16			11			10			867			26
Other, net	25			(28		)	12			(62		)	37			(90		)

Total	$	(2,507	)	$	(351	)	$	(4,825	)	$	(321	)	$	(7,332	)	$	(672	)

Equity loss in affiliate represents our proportional share of the losses in Correspondent One (see Note 8). The equity gain in affiliate represents the gain on sale of Correspondent One (see Note 2).

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NOTE 16 — EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive ~~securities.~~securities using the treasury stock method.

Basic and diluted EPS are calculated as ~~follows for the~~ ~~three months ended March 31:~~follows:

					Three months ended				Six months ended
					June 30,				June 30,
(in thousands, except per share data)	2013		2012		2013		2012		2013		2012

Net income attributable to Altisource	$	27,518	$	25,229	$	30,931	$	28,081	$	58,449	$	53,310

Weighted-average common shares outstanding, basic	23,374		23,381		23,161		23,316		23,267		23,353
Dilutive effect of stock options	1,684		1,463		1,662		1,530		1,673		1,497

Weighted-average common shares outstanding, diluted	25,058		24,844		24,823		24,846		24,940		24,850

Earnings per share
Basic	$	1.18	$	1.08	$	1.34	$	1.20	$	2.51	$	2.28
Diluted	$	1.10	$	1.02	$	1.25	$	1.13	$	2.34	$	2.15

For the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012, 0.1 million and less than 0.1 million options, respectively (less than 0.1 million for the second quarter of 2013 and 2012), that were anti-dilutive have been excluded from the computation of diluted EPS. These options were anti-dilutive because their exercise price was greater than the average market price of our common stock. Also excluded from the computation of diluted EPS for the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012 are 0.1 million and ~~0.4~~0.3 million options, respectively (0.1 million and 0.3 million for the second quarter of 2013 and 2012, respectively), granted for shares that are issuable upon the achievement of certain market and performance criteria related to our common stock price and an annualized rate of return to investors that have not been met.

NOTE 17 — COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, we are involved in legal proceedings arising in the ordinary course of business. We record a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For proceedings where a range of loss is determined, we record a best estimate of loss within the range.

When legal proceedings are material, we disclose the nature of the litigation, and to the extent possible, the estimate of loss or range of loss. In the opinion of management, after consultation with legal counsel and considering insurance coverage where applicable, the outcome of current legal proceedings, both individually and in the aggregate, will not have a material impact on our financial condition, results of operations or cash flows.

Escrow Balances

We hold customers’ assets in escrow at various financial institutions pending completion of certain real estate activities. These amounts are held in escrow for limited periods of time, generally consisting of a few days and are not included in the condensed consolidated balance sheets. Amounts held in escrow were ~~$42.1~~$48.7 million and $47.2 million as of ~~March 31,~~June 30, 2013 and December 31, 2012, respectively.

NOTE 18 — SEGMENT REPORTING

Our business segments are based upon our organizational structure, which focuses primarily on the services offered, and are consistent with the internal reporting used by our Chief Executive Officer to evaluate operating performance and to assess the allocation of our resources.

We classify our businesses into three reportable segments. The Mortgage Services segment provides services that span the mortgage and real estate lifecycle and are typically outsourced by loan servicers, loan originators and investors in single family

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homes. The Financial Services segment provides collection and customer relationship management services primarily to debt originators and servicers (e.g., credit card, auto lending, retail credit ~~mortgages)~~and mortgage) and the utility and insurance industries. The Technology Services segment principally consists of our REALSuiteTM software applications as well as our information technology ~~(“IT”)~~

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infrastructure services. The REALSuite platform provides a fully integrated set of software applications and technologies that manage the end-to-end lifecycle for residential and commercial mortgage loan servicing including the automated management and payment of a distributed network of vendors. In addition, our Corporate Items and Eliminations segment includes eliminations of transactions between the reporting segments and costs related to corporate support functions including executive, finance, legal, human resources, vendor management, risk and six sigma.

Financial information for our segments is as follows:

	Three months ended March 31, 2013														Three months ended June 30, 2013
									Corporate														Corporate
	Mortgage			Financial			Technology		Items and			Consolidated			Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services		Eliminations			Altisource			Services		Services			Services			Eliminations			Altisource

Revenue	$	117,448		$	16,336		$	20,231	$	(5,188	)	$	148,827		$	144,210	$	23,072		$	24,783		$	(5,955	)	$	186,110
Cost of revenue	72,369			12,026			17,112		(4,545		)	96,962			89,078		13,807			19,407			(5,320		)	116,972
Gross profit	45,079			4,310			3,119		(643		)	51,865			55,132		9,265			5,376			(635		)	69,138
Selling, general and administrative expenses	5,458			2,850			1,865		8,507			18,680			12,590		3,534			3,028			10,676			29,828
Income from operations	39,621			1,460			1,254		(9,150		)	33,185			42,542		5,731			2,348			(11,311		)	39,310
Other income (expense), net	(173		)	(3		)	4		(2,335		)	(2,507		)	61		(5		)	(1		)	(4,880		)	(4,825		)
Income before income taxes and non-controlling interests	$	39,448		$	1,457		$	1,258	$	(11,485	)	$	30,678		$	42,603	$	5,726		$	2,347		$	(16,191	)	$	34,485

Three months ended March 31, 2012

Corporate

Mortgage

Financial

Technology

Items and

Consolidated

(in thousands)

Services

Services

Services

Eliminations

Altisource

Revenue

$
109,661

$
18,016

$
17,022

$
(5,633
)
$
139,066

Cost of revenue

73,039

12,333

11,466

(5,078
)
91,760

Gross profit

36,622

5,683

5,556

(555
)
47,306

Selling, general and administrative expenses

5,691

3,830

1,849

5,645

17,015

Income from operations

30,931

1,853

3,707

(6,200
)
30,291

Other expense, net

(321
)
(14
)
(11
)
(5
)
(351
)
Income before income taxes and non-controlling interests

$
30,610

$
1,839

$
3,696

$
(6,205
)
$
29,940

	Three months ended June 30, 2012
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue	$	115,903		$	16,239		$	17,886		$	(5,823	)	$	144,205
Cost of revenue	73,156			11,663			13,214			(5,295		)	92,738
Gross profit	42,747			4,576			4,672			(528		)	51,467
Selling, general and administrative expenses	5,612			3,604			1,819			7,983			19,018
Income from operations	37,135			972			2,853			(8,511		)	32,449
Other expense, net	(246		)	(2		)	(6		)	(67		)	(321		)
Income before income taxes and non-controlling interests	$	36,889		$	970		$	2,847		$	(8,578	)	$	32,128

~~NOTE 19 — SUBSEQUENT EVENT~~

On April 12, 2013, we entered into an agreement with Ocwen to establish additional terms related to the existing servicing arrangements between Altisource and Ocwen in connection with Ocwen’s acquisition of certain mortgage servicing platform assets of ResCap. In exchange for $128.8 million to be paid by Altisource to Ocwen, Altisource will be the exclusive provider of certain services related to the ResCap servicing portfolio. We paid $80.0 million at closing and the remaining $48.8 million will be paid in monthly installments for up to five months following the closing. We acquired no tangible assets and assumed no liabilities in connection with the agreement. However, certain employees as well as practices and processes developed to support the ResCap servicing portfolio are components of the transaction. We anticipate the transaction will be accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standards Codification section 805, ~~Business Combinations~~~~. We have not completed a preliminary price allocation since the transaction was recently completed.~~

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	Six months ended June 30, 2013
									Corporate
	Mortgage			Financial			Technology		Items and			Consolidated
(in thousands)	Services			Services			Services		Eliminations			Altisource

Revenue	$	261,658		$	39,408		$	45,014	$	(11,143	)	$	334,937
Cost of revenue	161,447			25,833			36,519		(9,865		)	213,934
Gross profit	100,211			13,575			8,495		(1,278		)	121,003
Selling, general and administrative expenses	18,048			6,384			4,893		19,183			48,508
Income from operations	82,163			7,191			3,602		(20,461		)	72,495
Other income (expense), net	(112		)	(8		)	3		(7,215		)	(7,332		)
Income before income taxes and non-controlling interests	$	82,051		$	7,183		$	3,605	$	(27,676	)	$	65,163

	Six months ended June 30, 2012
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue	$	225,564		$	34,255		$	34,908		$	(11,456	)	$	283,271
Cost of revenue	146,195			23,996			24,680			(10,373		)	184,498
Gross profit	79,369			10,259			10,228			(1,083		)	98,773
Selling, general and administrative expenses	11,303			7,434			3,668			13,628			36,033
Income from operations	68,066			2,825			6,560			(14,711		)	62,740
Other expense, net	(567		)	(16		)	(17		)	(72		)	(672		)
Income before income taxes and non-controlling interests	$	67,499		$	2,809		$	6,543		$	(14,783	)	$	62,068

							Corporate
	Mortgage		Financial		Technology		Items and		Consolidated
(in thousands)	Services		Services		Services		Eliminations		Altisource

Total assets:
June 30, 2013	$	316,648	$	56,322	$	113,794	$	156,369	$	643,133
December 31, 2012	132,924		37,782		64,570		193,950		429,226

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations.

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our businesses, current developments, financial condition, results of operations and liquidity. Our MD&A should be read in conjunction with our Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (“SEC”) on February 13, 2013.

FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-Q regarding anticipated financial outcomes, business and market conditions, outlook and other similar statements related to Altisource’s future financial and operational performance are “forward looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of terminology such as “anticipate,” “intend,” “expect,” “may,” “could,” “should,” “would,” “plan,” “estimate,” “believe,” “predict,” “potential” or “continue” or the negative of these terms and other comparable terminology. Forward-looking statements are not guarantees of future performance and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. The following are examples of such items and are not intended to be all inclusive:

· assumptions related to the sources of liquidity and the adequacy of financial resources;

· assumptions about our ability to grow our business;

· assumptions about our ability to improve margins;

· expectations regarding collection rates and placements in our Financial Services segment;

· assumptions regarding the impact of seasonality;

· estimates regarding the calculation of our effective tax rate; and

· estimates regarding our reserves and valuations.

Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section of our Form 10-K for the year ended December 31, 2012 and include the following:

· our ability to retain our existing customers, expand relationships and attract new customers;

· the level of loan delinquencies;

· the level of origination volume;

· technology failures;

· ~~our business is dependent on~~ the trend toward outsourcing;

· our ability to raise debt;

· ~~success is dependent on~~our ability to retain our directors, executive officers and key personnel; and

· our ability to comply with and burdens imposed by changes in governmental regulations, taxes and policies.

We caution you not to place undue reliance on these forward-looking statements as they reflect our view only as of the date of this report. We are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

OVERVIEW

Our business

When we refer to “we,” “us,” “our,” “the Company” or “Altisource” we mean Altisource Portfolio Solutions S.A., a Luxembourg société anonyme, or public limited company, and its wholly-owned subsidiaries.

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We, through our subsidiaries, are a global provider of ~~fee-based~~outsourcing and services focused on high-value, technology-enabled ~~knowledge-based~~ solutions principally related to mortgage and real estate portfolio management, asset recovery and customer relationship management.

We classify our business into the following three reportable segments:

Mortgage Services: Provides services that span the mortgage and real estate lifecycle and are typically outsourced by loan servicers, originators and investors in single family homes. We provide these services primarily for loan portfolios serviced by Ocwen Financial Corporation and its subsidiaries (“Ocwen”). We also have longstanding relationships with some of the leading capital markets firms, commercial banks, hedge funds, insurance companies and mortgage bankers. Within the Mortgage Services segment, we provide the following services:

Asset management — Asset management services principally include property preservation, property inspection, real estate owned (“REO”) asset management, our consumer real estate portal and REO brokerage ~~operations.~~services. In connection with the spin-off of Altisource Residential Corporation (“Residential”) and Altisource Asset Management Corporation (“AAMC”), we also ~~plan to~~ provide property management, lease management and renovation management services for single family rental properties.

Residential property valuation — Residential property valuation services principally include traditional appraisal products through our licensed appraisal management company and alternative valuation products primarily through our network of real estate professionals. We generally provide these services for loan servicers, mortgage bankers and ~~mortgage bankers.~~investors in single family homes.

Closing and insurance services — Closing and insurance services principally include an array of title search, closing, title agency and insurance related services, including document preparation, pre-foreclosure and REO title searches, escrow and title insurance, program management and insurance brokerage services applicable to residential loan servicers. We also ~~began providing~~provide closing and title agency services for loan originations.

Default management services — Default management services principally include foreclosure trustee services for loan servicers and non-legal processing and related services for and under the supervision of foreclosure, bankruptcy and eviction attorneys.

Origination management services — Origination management services principally include the operations of Mortgage Partnership of America, L.L.C. (“MPA”) and our contract underwriting and quality control businesses. MPA serves as the manager of Best Partners Mortgage Cooperative, Inc. (“BPMC”), which is referred to as the Lenders One Mortgage Cooperative (“Lenders One”), a national alliance of independent mortgage bankers that provides its members with education and training along with revenue enhancing, cost reducing and market share expanding opportunities. We provide other origination related services in the residential property valuation ~~business.~~and closing and insurance services businesses. In addition, some of the origination related reseller businesses, including the flood certification business, are included in the Technology Services REALSuite business.

Financial Services: Provides collection and customer relationship management services primarily to debt originators and servicers (e.g., credit card, auto lending, retail credit ~~mortgages)~~and mortgage) and the utility and insurance industries. Within the Financial Services segment, we provide the following services:

Asset recovery management — Asset recovery management principally includes post-charge-off ~~consumer~~ debt collection services on a contingency fee basis.

Customer relationship management — Customer relationship management includes customer care and early stage collections services as well as insurance and claims processing, call center services and analytical support.

Technology Services: Comprises our REALSuite of software applications as well as our information technology (“IT”) infrastructure services. We currently provide our IT infrastructure services to Ocwen, Home Loan Servicing Solutions (“HLSS”), Correspondent One S.A. (“Correspondent One”), Residential, AAMC and ourselves. The REALSuite platform provides a fully integrated set of software applications and technologies that manage the end-to-end lifecycle for residential and commercial mortgage loan servicing including the automated management and payment of a distributed network of vendors. A brief description of the key REALSuite software products is below:

REALServicing® — An enterprise residential mortgage loan servicing product that offers an efficient and effective platform for loan servicing including default administration. This technology solution features automated workflows, a dialogue engine and robust reporting capabilities. The solution spans the loan servicing lifecycle from loan boarding to satisfaction including all collections, payment processing and reporting. We also offer our REALSynergy® enterprise commercial loan servicing system.

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REALTrans® — A patented electronic business-to-business exchange that automates and simplifies the ordering, tracking and fulfilling of vendor provided services principally related to mortgages. This technology solution, whether web-based or integrated into a servicing system, connects multiple service providers through a single platform and forms an efficient method for managing a large scale network of vendors.

REALRemit® — A patented electronic invoicing and payment system that provides vendors with the ability to submit invoices electronically for payment and to have invoice payments deposited directly to their respective bank accounts.

REALDoc® — A correspondence management platform that automates document generation, distribution, archival and retrieval. It is capable of integrating with all commercially available servicing, origination and process management applications.

Corporate Items and Eliminations: Includes costs related to corporate support functions including executive, finance, legal, human resources, vendor management, risk and six sigma and also includes eliminations of transactions between the reporting segments. Corporate items and eliminations also include the cost of facilities until 40% of the facilities are occupied by the business units.

We classify revenue in three categories: (i) service revenue, (ii) revenue from reimbursable expenses and (iii) non-controlling interests. In evaluating our performance, we focus on service revenue, which consists of amounts attributable to our fee-based services. Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services, but we pass such costs directly on to our customers without any additional markup. Non-controlling interests represent the earnings of Lenders One, a consolidated entity not owned by Altisource, and are included in revenue and reduced from net income to arrive at net income attributable to Altisource.

Stock repurchase plan

In May 2012, our shareholders approved a stock repurchase program, which replaced the previous stock repurchase program. Under the plan, we are authorized to purchase up to 3.5 million shares of our common stock in the open market in addition to amounts previously purchased under the prior plan. From authorization of the prior plan in May 2010 through ~~March 31,~~June 30, 2013, we have purchased approximately ~~2.8~~3.1 million shares of our common stock in the open market at an average price of ~~$41.76~~$47.04 per share. We purchased ~~0.3~~0.6 million shares of common stock (at an average price of ~~$82.58~~$89.01 per share) ~~during the three months ended March 31, 2013~~ and 0.3 million shares of common stock (at an average price of $63.25 per share) during the ~~three~~six months ended ~~March 31, 2012. There are 3.2~~June 30, 2013 and 2012, respectively (0.3 million shares at an average price of $94.49 per share for the second quarter of 2013 and no comparative amounts in the second quarter of 2012). 2.9 million shares of common stock ~~remaining~~remain available for repurchase under the plan. Luxembourg law limits share repurchases to approximately the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings less shares repurchased. ~~At March 31,~~As of June 30, 2013, approximately ~~$40.0~~$40 million was available to repurchase our common stock under Luxembourg law. Our ~~$200.0~~$200 million senior secured term loan, ~~(the “Senior Secured Term Loan”) agreement~~increased to $400 million on May 7, 2013, also limits our ability to repurchase our common stock, which will limit the amount we can spend on share repurchases in any year and may prevent repurchases in certain circumstances. As of ~~March 31,~~June 30, 2013, ~~there~~approximately $80 million was ~~no capacity~~ available to repurchase our common stock under our ~~Senior Secured Term Loan agreement.~~senior secured term loan.

Growth initiatives

We believe there are significant growth opportunities for Altisource. Our 2013 strategic growth initiatives are:

· maintaining and growing our services provided to Ocwen as it continues to grow its residential loan servicing portfolio;

· growing our origination related services by providing services to the members of Lenders One and Ocwen’s origination platform;

· deploying the ~~Hubzu™~~Hubzu® consumer real estate portal to the distressed and non-distressed home sales market;

· providing property management, lease management and renovation management services for single family home rentals; and

· growing the Financial Services segment’s revenue and earnings.

Services provided to Ocwen - On June 13, 2013, Ocwen entered into a mortgage servicing rights purchase and sale agreement with OneWest Bank, FSB (“OneWest”) to purchase mortgage servicing rights with approximately $78 billion in unpaid principal balance, representing approximately 307,000 loans as of June 30, 2013. As of June 30, 2013, between 25% and 30% of the non-Government-

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Sponsored Enterprise (“non-GSE”) loans and between 20% and 25% of the Government-Sponsored Enterprise (“GSE”) loans in the portfolio were delinquent. We expect this acquisition will drive meaningful default and technology related revenue growth to Altisource.

We believe Ocwen’s ~~anticipated~~ servicing portfolio growth will continue to provide a meaningful contribution to our revenue even as delinquency rates decline. Delinquencies are not going to go away. According to Moody’s CreditForecast.com, even pre-financial crisis, non-Government-Sponsored Enterprise (“non-GSE”) delinquency rates averaged 6.7%. AsIn time, delinquencies and the opportunities for Ocwen to acquire the servicing on large non-performing loan portfolios should return to a more normal ~~level, we may experience a flattening in our revenue in the short term. In the long term, however, the~~level. The expansion of our other services, and the redeployment of the operating cash generated from our businesses, should provide for on-going growth.

We continue to develop new services to complement our current offerings. ~~For example, in~~In our Mortgage Services segment, we ~~are developing new default related services, like mortgage modification insurance,~~recently developed short sale offerings. Our initial rollout of the short sale program is complete and was limited to non-Home Affordable Foreclosure Alternatives (“HAFA”) program short sales in seven states. In July 2013, we added 28 additional states and expect to expand over the next month our services to include both HAFA and

~~Table~~ non-HAFA short sales. We expect our short sale revenue stream to grow throughout the second half of ~~Contents~~

~~mortgage charge-off collections. We believe these services will not only accelerate our growth but will also help~~the year as we gain a greater share of Ocwen ~~extend its performance leadership.~~approved short sales. During the first half of 2013, Ocwen processed approximately 1,150 first lien short sales on average per month.

With respect to Ocwen’s servicing portfolio growth, the Mortgage Services segment is almost fully staffed to support the anticipated ~~near doubling~~65% increase in the number of ~~the~~ non-GSE loans on REALServicing by the fourth quarter of 2013 compared to the second quarter of 2013. This growth is expected based on Ocwen’s ~~acquisition~~acquisitions of the Homeward Residential, Inc. (“Homeward”) ~~servicing platform and Ocwen’s acquisition of the Residential Capital, LLC (“ResCap”) and the~~, ResCap, Ally Financial Inc. (“Ally”) and OneWest servicing rights. We ~~accomplished our first~~expect Ocwen to board 619,000 non-GSE loans on REALServicing in the second half of 2013. Of the 619,000 non-GSE loans, approximately 470,000 ResCap loans will be boarded in the third quarter of 2013 ~~results with only modest benefit~~and 149,000 OneWest loans will be boarded in the fourth quarter of 2013. With respect to the GSE loans, we anticipate Ocwen will board 1.2 million GSE loans, which are between 5% and 10% delinquent, from the Homeward, ~~servicing portfolio and no benefit from the~~ ResCap, OneWest and Ally ~~servicing portfolios. This bolsters our confidence that our default businesses’ operating margins will increase by approximately seven percentage points by year-end 2013, even after amortizing~~portfolios through the ~~intangible assets associated with the Homeward and ResCap transactions.~~first half of 2014.

Mortgage origination related services— In the first quarter of 2013, the members of Lenders One originated approximately $53.0 billion of loans representing approximately 11.1% of the United States residential origination market. As the manager of the cooperative, we leverage the size of Lenders One, 252 members strong as of March 31, 2013, to help the members obtain better execution on the sale of closed loans with third parties and to achieve lower costs onTo grow our mortgage origination related ~~services.~~

services, we are focused on expanding the mortgage services platform to provide the services typically outsourced by a mortgage loan originator. We ~~are just beginning~~intend to ~~roll out many of our~~do this by providing services to Ocwen’s origination platform and by providing services to the members of Lenders One as well as Ocwen’s origination operation to leverage our vendor network, technology, scale, global workforce and lower sales costs. We believe our growth will continue irrespective of the overall volume of originations in the U.S. market. With the potential slowdown in origination volume and declining origination margins, Lenders One members ~~are beginning to focus on the cost side~~and their estimated 11% share of the year-to-date 2013 residential loan origination market. We believe we can enhance the profitability ~~equation,~~ and ~~we believe that this will serve us well. We are currently providing~~competitive position of the Lenders One members and Ocwen’s origination ~~related services to~~platform through the members at a lower cost to help them save money. Given the expected decline in origination volume, we are also working on establishing relationships with investors to provide additional sales channels for our members. These products could include jumbo, reverse and non-prime mortgage loans.retention of Altisource as their service provider.

Our service revenue from origination related services was ~~$10.8~~$21.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013 ($16.4 million for the six months ended June 30, 2012), an increase of ~~33%~~34% over the ~~first~~six months ended June 30, 2012. During the second quarter of ~~2012, outpacing the growth of the other Mortgage Services segment businesses. This is reflective of Lenders One membership growth, origination volume growth and~~2013, we signed an increasing number of the Lenders One members retaining Altisource to provide them with origination related services. As of March 31, 2013, Lenders One membership increased to 252 members compared to 241 members as of December 31, 2012, and the number of signedadditional 15 master services agreements ~~for origination related services~~ with the members ~~increased from 158 to 165 from December 31, 2012 to March 31, 2013.~~of Lenders One. As a result, over 72% of the members have now signed master service agreements with Altisource.

Hubzu— - We continue to focus on ~~deploying~~expanding the Hubzu online real estate transaction website to the distressed and non-distressed home sales market as we believe there are opportunities to benefit from a shifting consumer preference for online transacting. Hubzu provides an automated, transparent and integrated online solution for buying and selling real estate and, eventually, related services. We have demonstrated that homeowners will purchase their homes on Hubzu. We believe over 50% of homes acquired through Hubzu in 2012 were purchased for personal use. ~~To develop~~

Our efforts to grow Hubzu ~~as a marketplace for non-distressed home sales,~~in 2013 are centered on two key growth efforts. The first effort is focused on marketing Hubzu to other servicers and financial institutions to sell their REO and short sale properties. In this regard, we ~~not only want homeowners to purchase their homes~~are in contract negotiations with 4 prospects and are engaged in dialogue with others.

Our second effort is focused on ~~Hubzu, but also for homeowners~~attracting real estate agents and ~~their agents~~brokers to list ~~their~~non-distressed homes for sale on Hubzu. Today, we are focused on attracting real estate brokers and agents to list their homes for sale on Hubzu, and in time, we will target individual homeowners to use our real estate brokerage to list their homes for sale as well. Over $40.0 billion per year is spent on real estate brokerage commissions in the United States, according to REAL ~~Trends~~, Inc. If we capture just a small percentage of this incredibly large market, we can substantially accelerate our growth. For the three months ended March 31, 2013, we sold more than 5,500 homes, and our revenue has grown to $14.6 million, compared to $10.7 million inIn the first quarter of ~~2012 (Hubzu is part of our asset management services business in our Mortgage Services segment).~~

~~Our~~ 2013, efforts to grow Hubzu are centered on offering Hubzu to other servicers and asset managers to sell their REO and providing Hubzu to individual listing agents and brokers for their distressed and non-distressed home sales, including short sales. In this regard, we are making progress in our sales conversations with servicers and asset management companies to add them to our marketplace and further extend our leadership position in online home sales. Additionally, to lay the foundation for a broader entry into the non-distressed home sale market, we recently completed a successful pilot of Hubzu’s ~~direct~~direct-to-broker program. During the second quarter, we made technology enhancements based on the feedback we received from the pilot. These enhancements included providing brokers and agents with easier capacity to ~~broker program. By~~upload both individual and bulk home listings to Hubzu and robust dashboard and reporting functionality. The technology went live in early July 2013. The early signs point to strong market acceptance of our direct-to-broker product. Since the ~~end~~launch of ~~April,~~the program in early July 2013, over 700 properties have been listed on Hubzu ~~will be available to all licensed real estate~~by independent agents and ~~brokers.~~

Inbrokers — the ~~medium to longer term, we intend to explore the possibility~~vast majority of distributing our ownership interest in the Hubzu business creating, a new public company. The consumer real estate portal has many of the same characteristics as some of the other publicly-traded real estate related technology companies. Similar to these companies, we believe that we can create greater shareholder value with Hubzu operating as a separate stand-alone company. As a stand-alone company, Hubzu would have a singularly focused management team, and the performance of the business would be easier to compare with like companies. With regard to Hubzu, there is no certainty at this time that a separation will occur. Further, the consummation of any spin-off or similar transaction will be subject to our reaching satisfactory conclusions with our financial, tax and legal advisors on all applicable issues and the receipt of any necessary approvals.

~~Table of Contents~~which are non-distressed.

Property management, lease management and renovation management services— In 2012, we enhanced our property management, lease management and renovation management capabilities to position us to provide services to the single family rental market. In the fourth quarter of 2012, we entered intoWe have a 15-year ~~service~~ agreement ~~with Residential~~through 2027 to ~~be its~~act as the exclusive provider of property management, lease management and renovation management ~~services.~~services to Residential. In time, we also intend to offer our services to other single family property owners. Altisource’s property management, lease management and renovation management business is fully operational and prepared to scale as Residential ~~began acquiring~~continues to grow. During the second quarter, Residential raised $309.5 million of equity and entered into agreements to acquire two pools of non-performing loans ~~in the first quarter~~with a total unpaid principal balance of ~~2013 and as of April 5, 2013 owned 1,410 loans,~~$470 million. Currently, substantially all of ~~which were non-performing.~~Residential’s assets are non-performing loans. As these non-performing loans move through the ~~foreclosure~~resolution process and as Residential continues to acquire assets, we expect the number of rental assets and our revenue to grow accordingly. ~~In time, we also intend to offer our services to other single family property owners.~~

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Financial Services segment — This segment includes our receivables management and customer relationship management businesses. We are focused on ~~transitioning~~growing the profitability of the Financial Services ~~business from a low growth, lower margin business into a modest growth and higher margin~~ business by expanding our higher margin customer relationship management and ~~charged-off~~charge-off mortgage businesses. In this regard, we began providing services for a new customer relationship business management client in the ~~first~~second quarter of 2013 and ~~expect to start~~continued providing services to ~~another~~the new ~~client early in the third quarter. In addition, we continued to expand our relationship with two existing~~ customer relationship management ~~clients.~~client we added in the first quarter of 2013. With respect to the ~~charged-off~~charge-off mortgage business, we expanded our capabilities with the ResCap fee-based business and in ~~April we executed a services agreement with Ocwen to perform~~the second quarter of 2013 began providing these services to the ResCap loans and ~~have begun~~a greater portion of the other loans in the Ocwen portfolio. Compared to ~~receive additional referrals.~~the first quarter of 2013, service revenue grew 42% in the second quarter of 2013 and operating income as a percentage of service revenue improved from 9% to 25%. Income before taxes and non-controlling interests was $5.7 million for the second quarter of 2013, an increase of 293% from the first quarter of 2013.

Factors affecting comparability

The following additional items may impact the comparability of our results:

· The average number of loans serviced by Ocwen on REALServicing totaled 0.9 million loans for the ~~three~~six months ended ~~March 31,~~June 30, 2013 compared to 0.7 million loans for the six months ended June 30, 2012 (1.0 million loans for the three months ended ~~March 31, 2012.~~June 30, 2013 and 0.8 million loans for the three months ended June 30, 2012). The average number of delinquent non-GSE loans serviced by Ocwen on REALServicing totaled ~~234,000~~263,000 loans for the ~~three~~six months ended ~~March 31,~~June 30, 2013, compared to ~~192,000~~203,000 loans for the ~~three~~six months ended ~~March 31,~~June 30, 2012. During the ~~first quarter of~~six months ended June 30, 2013, ~~and through April 1, 2013,~~Ocwen boarded all of the Homeward non-GSE loans on REALServicing and none of the ResCap loans were ~~boarded on REALServicing.~~boarded. We anticipate ~~boarding~~Ocwen to board the ResCap non-GSE loans on REALServicing before the end of the third quarter of 2013. We also expect Ocwen to board ~~all~~the Homeward, ResCap, OneWest and ~~ResCap~~Ally GSE loans on REALServicing induring the first ~~quarter~~half of 2014;

· In November 2012, we borrowed ~~$200.0~~$200 million under a ~~Senior Secured Term Loan agreement.~~senior secured term loan agreement, increased to $400 million on May 7, 2013. Interest expense, including amortization of debt issuance costs and debt discount, totaled ~~$3.2~~$8.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013 and $4.9 million in the second quarter of 2013 (no comparative ~~amount for the three months ended March 31,~~amounts in 2012);

· We repurchased ~~0.3~~0.6 million shares of our common stock under our stock repurchase program ~~in each of~~for the ~~three~~six months ended ~~March 31,~~June 30, 2013 compared to 0.3 million shares for the six months ended June 30, 2012 (0.3 million shares for the second quarter of 2013 and ~~2012;~~none for the second quarter of 2012);

· ~~On March 29,~~In connection with our 2013 ~~we acquired certain~~ fee-based ~~businesses from~~business transactions with Ocwen ~~for $87.0 million~~ related to ~~Ocwen’s recent acquisition~~Homeward and ResCap, we recorded customer relationship intangible assets of ~~Homeward, subject~~$206.4 million. Intangible asset amortization expense relating to ~~a working capital~~these transactions totaled $7.9 million for the second quarter and ~~net income adjustment to be determined within 90 days of the closing;~~six months ended June 30, 2013 (no comparative amounts in 2012); and

· On December 27, 2012, we loaned Ocwen $75.0 million that earned interest at 6.75%. The loan was repaid on February 15, 2013.

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CONSOLIDATED RESULTS OF OPERATIONS

Summary Consolidated Results

Following is a discussion of our consolidated results of operations for the periods indicated.

The following table sets forth information regarding our results of ~~operations for the three months ended March 31:~~operations:

									Three months ended June 30,								Six months ended June 30,
							% Increase								% Increase								% Increase
(dollars in thousands, except per share data)	2013			2012			/ (decrease)		2013			2012			(decrease)		2013			2012			(decrease)

Service revenue
Mortgage Services	$	96,377		$	79,320		22		$	119,887		$	89,999		33		$	216,264		$	169,319		28
Financial Services	16,132			17,760			(9	)	22,959			16,057			43		39,091			33,817			16
Technology Services	20,231			17,022			19		24,783			17,886			39		45,014			34,908			29
Eliminations	(5,188		)	(5,633		)	8		(5,955		)	(5,823		)	(2	)	(11,143		)	(11,456		)	3
	127,552			108,469			18		161,674			118,119			37		289,226			226,588			28
Reimbursable expenses	20,266			28,705			(29	)	23,299			24,815			(6	)	43,565			53,520			(19	)
Non-controlling interests	1,009			1,892			(47	)	1,137			1,271			(11	)	2,146			3,163			(32	)
Total revenue	148,827			139,066			7		186,110			144,205			29		334,937			283,271			18
Cost of revenue	96,962			91,760			6		116,972			92,738			26		213,934			184,498			16
Gross profit	51,865			47,306			10		69,138			51,467			34		121,003			98,773			23
Selling, general and administrative expenses	18,680			17,015			10		29,828			19,018			57		48,508			36,033			35
Income from operations	33,185			30,291			10		39,310			32,449			21		72,495			62,740			16
Other income (expense), net:
Interest expense	(3,212		)	(15		)	N/M		(4,902		)	(14		)	N/M		(8,114		)	(29		)	N/M
Other income (expense), net	705			(336		)	N/M		77			(307		)	125		782			(643		)	222
Total other income (expense), net	(2,507		)	(351		)	N/M		(4,825		)	(321		)	N/M		(7,332		)	(672		)	N/M
Income before income taxes and non-controlling interests	30,678			29,940			2		34,485			32,128			7		65,163			62,068			5
Income tax provision	(2,151		)	(2,819		)	24		(2,417		)	(2,776		)	13		(4,568		)	(5,595		)	18
Net income	28,527			27,121			5		32,068			29,352			9		60,595			56,473			7
Net income attributable to non-controlling interests	(1,009		)	(1,892		)	47		(1,137		)	(1,271		)	11		(2,146		)	(3,163		)	32
Net income attributable to Altisource	$	27,518		$	25,229		9		$	30,931		$	28,081		10		$	58,449		$	53,310		10

Margins:
Gross profit/service revenue	41		%	44		%			43		%	44		%			42		%	44		%
Income from operations/service revenue	26		%	28		%			24		%	27		%			25		%	28		%

Earnings per share:
Basic	$	1.18		$	1.08		9		$	1.34		$	1.20		12		$	2.51		$	2.28		10
Diluted	$	1.10		$	1.02		8		$	1.25		$	1.13		11		$	2.34		$	2.15		9

N/M — not meaningful.

Revenue

We recognized service revenue of ~~$127.6~~$289.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013, ~~an 18%~~a 28% increase when compared to the ~~three~~six months ended ~~March 31, 2012.~~June 30, 2012 ($161.7 million for the second quarter of 2013, a 37% increase over the second quarter of 2012). The continued growth in service revenue was driven by Ocwen’s ~~servicing~~Homeward acquisition along with expansion of the Financial Services segment. The Homeward non-GSE portfolio ~~growth and growth in the average number of delinquent loans serviced by Ocwen~~was boarded on REALServicing infrom January 1, 2013 through April 1, 2013. We anticipate that the ~~three months ended March 31, 2013 compared to~~ResCap non-GSE portfolio will be boarded on REALServicing before the ~~three months ended March 31, 2012, coupled with our ongoing~~end of the third quarter of 2013. Financial Services’ growth was primarily from the mortgage collection services on the ResCap and Ocwen portfolios and the growth of the customer relationship management business as a result of customer expansion ~~of mortgage~~ and ~~real estate portfolio management services.~~new customer wins. Service revenue growth was also driven by an increase in origination related services provided to Lenders One members and growth in the Financial Services segment’s customer relationship management business. Partially offsetting our service revenue growth was a decline in Financial Services segment revenue in our asset recovery management business. This business was impacted primarily by lower credit card charge-off placements, as credit card delinquencies remain at 18-year lows, according to a report by the American Bankers Association.members.

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The ~~decrease~~decreases in revenue from reimbursable expenses isare due primarily to lower REO property preservation orders and utility payments, with a corresponding decrease in cost of revenue, resulting from lower average REO inventory for the ~~three~~six months ended ~~March 31,~~June 30, 2013 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2012.

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Our revenues are impacted by seasonality. More specifically, the Financial Services segment’s asset recovery revenue tends to be higher in the first quarter and generally declines throughout the year. Mortgage Services revenue is impacted by REO sales, which tend to be at their lowest level during the fall and winter months and highest during the spring and summer months. We believe that customer growth is likely to offset the typical impact of seasonality.

Cost of Revenue and Gross Profit

Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles, fees paid to external providers related to the provision of services, reimbursable expenses, technology and telecommunications expenses and depreciation and amortization of operating assets.

We recognized cost of revenue of ~~$97.0 million and $91.8~~$213.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013, ~~and~~a 16% increase when compared to the six months ended June 30, 2012 ~~respectively.~~($117.0 million for the second quarter of 2013, a 26% increase over the second quarter of 2012). The increase in cost of revenue is directly attributable to compensation, technology and vendor costs associated with the growth in Ocwen’s servicing portfolio, including its acquisition of the Homeward ~~and ResCap portfolios,~~portfolio, and higher costs in our Technology Services segment as we continue to invest in the development of our next generation technology and technology infrastructure to support our growth. Additionally, we incurred costs for excess staff we are carrying in the Mortgage Services segment to support the anticipated 65% increase in the number of non-GSE loans on REALServicing by the fourth quarter of 2013 compared to the second quarter of 2013. These cost increases were partially offset by lower reimbursable expenses discussed above.

Gross profit increased from ~~$47.3~~$98.8 million, representing 44% of service revenue, for the ~~three~~six months ended ~~March 31,~~June 30, 2012 to ~~$51.9~~$121.0 million, representing ~~41%~~42% of service revenue, for the ~~three~~six months ended ~~March 31, 2013.~~June 30, 2013 (an increase from $51.5 million, representing 44% of service revenue, for the second quarter of 2012 to $69.1 million, representing 43% of service revenue for the second quarter of 2013). The ~~increase~~decrease in gross profit margin was driven by revenue mix. We experienced higher growth ~~and margin expansion~~ in the ~~Mortgage Services segment, even after incurring~~lower margin property inspection and preservation services from the early referrals from the Homeward portfolio, partially offset by expansion of the higher margin mortgage charge-off business. Gross profit margins were also impacted by the carrying costs to support Mortgage Services’ anticipated growth ~~partially offset by~~and higher costs in our Technology Services segment as we continue to invest in the development of our next generation technology to support our growth initiatives. Gross profit margins in the Mortgage Services segment improved from 46% for the three months ended March 31, 2012 to 47% for the three months ended March 31, 2013 primarily from workforce and vendor efficiencies. The higher Technology Services costs offset the improved gross profit margins in our Mortgage Services segment, resulting in a decline in our consolidated gross profit margin. Our gross profit margins can vary significantly from period to period. The most significant factors that contribute to margin variability include the mix of services delivered, timing of investments in new services, hiring of staff in advance of new business and the timing of when loans are boarded by our customers.

Selling, General and Administrative Expenses and Income from Operations

Selling, general and administrative expenses (“SG&A”) include payroll for personnel employed in executive, finance, legal, human resources, vendor management, risk and six sigma roles. This category also includes occupancy costs, professional fees, depreciation and amortization on non-operating assets.

We recognized SG&A of ~~$18.7~~$48.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013, a ~~10%~~35% increase when compared to the ~~three~~six months ended ~~March 31,~~June 30, 2012 as($29.8 million for the second quarter of 2013, a 57% increase over the second quarter of 2012). This increase is primarily driven by higher amortization of intangible assets recorded in connection with the Homeward and ResCap transactions of $7.9 million for the second quarter and six months ended June 30, 2013 (no comparative amounts in 2012). In addition, we are expanding some of our corporate functions to support Altisource’s growth. On a consolidated basis, income from operations as a percentage of service revenue declined from 28% for the ~~three~~six months ended ~~March 31,~~June 30, 2012 to ~~26%~~25% for the ~~three~~six months ended ~~March 31,~~June 30, 2013 (24% for the second quarter of 2013 and 27% for the second quarter of 2012) as a result of lower gross margins and the increase of SG&A as a percentage of service revenue for the reasons mentioned ~~above, partially offset by the slower growth of SG&A compared to service revenue.~~above.

Other Income (Expense), net

Other income (expense), net principally includes interest expense, interest income and equity loss in affiliate. Interest expense for the ~~three~~six months ended ~~March 31,~~June 30, 2013 increased by ~~$3.2~~$8.1 million ($4.9 million for the second quarter of 2013) from the ~~$200.0~~$200 million ~~Senior Secured Term Loan~~senior secured term loan borrowed in the fourth quarter of 2012 and increased to $400 million on May 7, 2013 (no comparative ~~amount~~amounts in 2012). ~~Interest~~The higher interest expense was partially offset by $0.8 million of interest income ~~of $0.9 million~~recognized in the six months ended June 30, 2013 (no comparative amounts in 2012) from a $75.0 million loan to Ocwen. Ocwen repaid the loan in ~~the fourth quarter~~February 2013.

Table of ~~2012 partially offset the higher interest expense (no comparative amount in 2012).~~Contents

Income Tax Provision

We recognized an income tax provision of ~~$2.2~~$4.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013 and $2.4 million for the second quarter of 2013. ~~The~~Altisource’s effective tax rate differs from the Luxembourg statutory tax rate of 28.8% primarily because of the effect of a favorable tax ruling in Luxembourg and the mix of income and losses in multiple tax jurisdictions. Our effective tax rate for the ~~three~~six months ended ~~March 31,~~June 30, 2013 was 7.0% compared to ~~9.4%~~9.0% for the ~~three~~six months ended ~~March 31, 2012.~~June 30, 2012 (7.0% and 8.6% for the second quarter of 2013 and 2012, respectively). The lower effective tax ~~rate~~rates in 2013 isare due to higher relative taxable income in the current year in tax jurisdictions with a lower tax rate. Our consolidated effective income tax rate for financial reporting purposes may change periodically due to changes in enacted tax rates, fluctuations in the mix of income earned from our domestic and international operations, which may be subject to differing tax rates, and our ability to utilize net operating loss and tax credit carryforwards.

~~Table of Contents~~

SEGMENT RESULTS OF OPERATIONS

The following section provides a discussion of pretax results of operations of our business segments for the three and six months ended ~~March 31,~~June 30, 2013 and 2012. Transactions between segments are accounted for as third party arrangements for purposes of presenting ~~Segment Results~~segment results of ~~Operations.~~operations. Intercompany transactions primarily consist of IT infrastructure services and charges for the use of certain REALSuite applications from our Technology Services segment to our other two segments. Generally, we reflect these charges within technology and telecommunications in the segment receiving the services, except for consulting services, which we reflect in ~~professional~~outside fees and services. Certain prior year amounts have been reclassified to conform to the current period presentation.

~~Financial information for our segments is as follows:~~

Three months ended March 31, 2013

Corporate

Mortgage

Financial

Technology

Items and

Consolidated

(dollars in thousands)

Services

Services

Services

Eliminations

Altisource

Revenue

Service revenue

$
96,377

$
16,132

$
20,231

$
(5,188
)
$
127,552

Reimbursable expenses

20,062

204

—

—

20,266

Non-controlling interests

1,009

—

—

—

1,009

117,448

16,336

20,231

(5,188
)
148,827

Cost of revenue

72,369

12,026

17,112

(4,545
)
96,962

Gross profit

45,079

4,310

3,119

(643
)
51,865

Selling, general and administrative expenses

5,458

2,850

1,865

8,507

18,680

Income from operations

39,621

1,460

1,254

(9,150
)
33,185

Other income (expense), net

(173
)
(3
)
4

(2,335
)
(2,507
)
Income before income taxes and non-controlling interests

$
39,448

$
1,457

$
1,258

$
(11,485
)
$
30,678

Margins:

Gross profit/service revenue

47
%
27
%
15
%
N/M

41
%
Income from operations/service revenue

41
%
9
%
6
%
N/M

26
%

Transactions with related parties:

Revenue

$
79,875

$
39

$
10,184

$
—

$
90,098

Selling, general and administrative expenses

29

—

—

644

673

Interest income

—

—

—

773

773

~~N/M — not meaningful.~~

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Table of Contents

Three months ended March 31, 2012

Corporate

Mortgage

Financial

Technology

Items and

Consolidated

(dollars in thousands)

Services

Services

Services

Eliminations

Altisource

Revenue

Service revenue

$
79,320

$
17,760

$
17,022

$
(5,633
)
$
108,469

Reimbursable expenses

28,449

256

—

—

28,705

Non-controlling interests

1,892

—

—

—

1,892

109,661

18,016

17,022

(5,633
)
139,066

Cost of revenue

73,039

12,333

11,466

(5,078
)
91,760

Gross profit

36,622

5,683

5,556

(555
)
47,306

Selling, general and administrative expenses

5,691

3,830

1,849

5,645

17,015

Income from operations

30,931

1,853

3,707

(6,200
)
30,291

Other expense, net

(321
)
(14
)
(11
)
(5
)
(351
)
Income before income taxes and non-controlling interests

$
30,610

$
1,839

$
3,696

$
(6,205
)
$
29,940

Margins:

Gross profit/service revenue

46
%
32
%
33
%
N/M

44
%
Income from operations/service revenue

39
%
10
%
22
%
N/M

28
%

Transactions with related parties:

Revenue

$
76,085

$
68

$
6,627

$
—

$
82,780

Selling, general and administrative expenses

—

—

—

574

574

Financial information for our segments is as follows:

	Three months ended June 30, 2013
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(dollars in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue
Service revenue	$	119,887		$	22,959		$	24,783		$	(5,955	)	$	161,674
Reimbursable expenses	23,186			113			—			—			23,299
Non-controlling interests	1,137			—			—			—			1,137
	144,210			23,072			24,783			(5,955		)	186,110
Cost of revenue	89,078			13,807			19,407			(5,320		)	116,972
Gross profit	55,132			9,265			5,376			(635		)	69,138
Selling, general and administrative expenses	12,590			3,534			3,028			10,676			29,828
Income from operations	42,542			5,731			2,348			(11,311		)	39,310
Other income (expense), net	61			(5		)	(1		)	(4,880		)	(4,825		)
Income before income taxes and non-controlling interests	$	42,603		$	5,726		$	2,347		$	(16,191	)	$	34,485

Margins:
Gross profit/service revenue	46		%	40		%	22		%	N/M			43		%
Income from operations/service revenue	35		%	25		%	9		%	N/M			24		%

Transactions with related parties:
Revenue	$	101,252		$	6,683		$	13,299		$	—		$	121,234
Selling, general and administrative expenses	29			—			—			711			740

N/M — not meaningful.

	Three months ended June 30, 2012
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(dollars in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue
Service revenue	$	89,999		$	16,057		$	17,886		$	(5,823	)	$	118,119
Reimbursable expenses	24,633			182			—			—			24,815
Non-controlling interests	1,271			—			—			—			1,271
	115,903			16,239			17,886			(5,823		)	144,205
Cost of revenue	73,156			11,663			13,214			(5,295		)	92,738
Gross profit	42,747			4,576			4,672			(528		)	51,467
Selling, general and administrative expenses	5,612			3,604			1,819			7,983			19,018
Income from operations	37,135			972			2,853			(8,511		)	32,449
Other expense, net	(246		)	(2		)	(6		)	(67		)	(321		)
Income before income taxes and non-controlling interests	$	36,889		$	970		$	2,847		$	(8,578	)	$	32,128

Margins:
Gross profit/service revenue	47		%	28		%	26		%	N/M			44		%
Income from operations/service revenue	41		%	6		%	16		%	N/M			27		%

Transactions with related parties:
Revenue	$	80,878		$	50		$	7,225		$	—		$	88,153
Selling, general and administrative expenses	—			—			—			606			606

N/M — not meaningful.

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	Six months ended June 30, 2013
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(dollars in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue
Service revenue	$	216,264		$	39,091		$	45,014		$	(11,143	)	$	289,226
Reimbursable expenses	43,248			317			—			—			43,565
Non-controlling interests	2,146			—			—			—			2,146
	261,658			39,408			45,014			(11,143		)	334,937
Cost of revenue	161,447			25,833			36,519			(9,865		)	213,934
Gross profit	100,211			13,575			8,495			(1,278		)	121,003
Selling, general and administrative expenses	18,048			6,384			4,893			19,183			48,508
Income from operations	82,163			7,191			3,602			(20,461		)	72,495
Other income (expense), net	(112		)	(8		)	3			(7,215		)	(7,332		)
Income before income taxes and non-controlling interests	$	82,051		$	7,183		$	3,605		$	(27,676	)	$	65,163

Margins:
Gross profit/service revenue	46		%	35		%	19		%	N/M			42		%
Income from operations/service revenue	38		%	18		%	8		%	N/M			25		%

Transactions with related parties:
Revenue	$	181,127		$	6,722		$	23,483		$	—		$	211,332
Selling, general and administrative expenses	58			—			—			1,355			1,413
Interest income	—			—			—			773			773

N/M — not meaningful.

	Six months ended June 30, 2012
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(dollars in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue
Service revenue	$	169,319		$	33,817		$	34,908		$	(11,456	)	$	226,588
Reimbursable expenses	53,082			438			—			—			53,520
Non-controlling interests	3,163			—			—			—			3,163
	225,564			34,255			34,908			(11,456		)	283,271
Cost of revenue	146,195			23,996			24,680			(10,373		)	184,498
Gross profit	79,369			10,259			10,228			(1,083		)	98,773
Selling, general and administrative expenses	11,303			7,434			3,668			13,628			36,033
Income from operations	68,066			2,825			6,560			(14,711		)	62,740
Other expense, net	(567		)	(16		)	(17		)	(72		)	(672		)
Income before income taxes and non-controlling interests	$	67,499		$	2,809		$	6,543		$	(14,783	)	$	62,068

Margins:
Gross profit/service revenue	47		%	30		%	29		%	N/M			44		%
Income from operations/service revenue	40		%	8		%	19		%	N/M			28		%

Transactions with related parties:
Revenue	$	156,963		$	118		$	13,852		$	—		$	170,933
Selling, general and administrative expenses	—			—			—			1,180			1,180

N/M — not meaningful.

Table of Contents

Mortgage Services

Revenue

Revenue by service line was as ~~follows for the three months ended March 31:~~follows:

							Three months ended June 30,							Six months ended June 30,
					% Increase							% Increase						% Increase
(in thousands)	2013		2012		/ (decrease)		2013			2012		(decrease)		2013		2012		(decrease)

Service revenue:
Asset management services	$	31,369	$	21,141	48		$	46,747		$	27,995	67		$	78,116	$	49,136	59
Closing and insurance services	22,547		21,770		4		26,827			21,420		25		49,374		43,190		14
Residential property valuation	22,811		18,959		20		26,028			22,469		16		48,839		41,428		18
Default management services	10,970		11,104		(1	)	11,888			12,170		(2	)	22,858		23,274		(2	)
Origination management services	8,680		6,346		37		8,397			5,945		41		17,077		12,291		39
Total service revenue	96,377		79,320		22		119,887			89,999		33		216,264		169,319		28

Reimbursable expenses:
Asset management services	19,400		27,920		(31	)	22,157			23,940		(7	)	41,557		51,860		(20	)
Default management services	428		335		28		610		��	650		(6	)	1,038		985		5
Closing and insurance services	143		194		(26	)	378			43		N/M		521		237		120
Origination management services	91		—		N/M		41			—		N/M		132		—		N/M
Total reimbursable expenses	20,062		28,449		(29	)	23,186			24,633		(6	)	43,248		53,082		(19	)

Non-controlling interests	1,009		1,892		(47	)	1,137			1,271		(11	)	2,146		3,163		(32	)
Total revenue	$	117,448	$	109,661	7		$	144,210		$	115,903	24		$	261,658	$	225,564	16

Transactions with related parties:
Asset management services	$	44,201	$	46,976	(6	)	$	62,052		$	47,195	31		$	106,253	$	94,171	13
Residential property valuation	21,596		17,496		23		24,770			20,762		19		46,366		38,258		21
Closing and insurance services	9,492		9,115		4		9,828			9,751		1		19,320		18,866		2
Default management services	4,352		2,498		74		4,252			3,170		34		8,604		5,668		52
Origination management services	234		—		N/M		350			—		N/M		584		—		N/M
Total	$	79,875	$	76,085	5		$	101,252		$	80,878	25		$	181,127	$	156,963	15

N/M — not meaningful.

Revenue growth in all of the business lines, except default management services and origination management services, primarily reflects ~~the increase in~~ Ocwen’s Homeward servicing platform acquisitions. The Homeward non-GSE portfolio ~~and the number of delinquent loans serviced by Ocwen. A portion of the~~was boarded on REALServicing from January 1, 2013 through April 1, 2013. The growth in asset management services is primarily from a higher ~~capture rate of REO sales through~~property inspection and preservation services from early referrals from the ~~time-limit bidding process, resulting in a higher percentage commission and an increase in the average REO sales price.~~Homeward portfolio. The growth in the closing and insurance services business was negatively impacted by the decline in the number of REO sales from the first quarter of 2012 to the first quarter of 2013 as we worked through our REO inventory. While we received limited benefit fromand residential property valuation businesses also reflects Ocwen’s acquisition of the Homeward servicing platform and no benefit from Ocwen’s acquisition of the ResCap servicing platform in the first quarter, with these recent acquisitions, we expect the REO inventory to be replenished.larger loan portfolio. Default management services revenue was lower as one of Ocwen’s subservicing customers has placed a temporary moratorium on the foreclosure of its loans and the requirements under the “Making Homes Affordable” program limits servicers’ ability to initiate a foreclosure while pursuing other avenues of resolution.

The higher origination management services revenue is ~~from~~driven by the growth of Lenders One and the incremental roll-out of new origination related services to the ~~members.~~members and Ocwen. For the ~~three~~six months ended ~~March 31,~~June 30, 2013, the Lenders One membership grew to ~~252~~249 members, a net increase of 2717 members from ~~March 31,~~June 30, 2012.

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Cost of Revenue and Gross Profit

Cost of revenue consists of the ~~following for the~~ ~~three months ended March 31:~~following:

							Three months ended June 30,						Six months ended June 30,
					% Increase						% Increase						% Increase
(in thousands)	2013		2012		/ (decrease)		2013		2012		(decrease)		2013		2012		(decrease)

Compensation and benefits	$	14,606	$	13,438	9		$	16,093	$	13,395	20		$	30,699	$	26,833	14
Outside fees and services	33,237		26,577		25		44,757		29,974		49		77,994		56,551		38
Reimbursable expenses	20,062		28,449		(29	)	23,186		24,633		(6	)	43,248		53,082		(19	)
Technology and telecommunications	4,120		4,312		(4	)	4,605		4,853		(5	)	8,725		9,165		(5	)
Depreciation and amortization	344		263		31		437		301		45		781		564		38

Cost of revenue	$	72,369	$	73,039	(1	)	$	89,078	$	73,156	22		$	161,447	$	146,195	10

Cost of revenue ~~decreased~~increased during the ~~three~~second quarter and six months ended ~~March 31,~~June 30, 2013 ~~from lower reimbursable expenses, offset by~~primarily due to higher outside fees and services and compensation and benefits. Outside fees and services increased in line with the increase in service revenue, ~~while compensation~~particularly the increase in property inspection and preservation orders. Compensation and benefits grew at a slower pace as we began to experience the benefit of our workforce efficiency initiatives on higher referral volumes even after incurring carrying costs to support Mortgage Services’ anticipated growth.

Gross profit as a percentage of service revenue ~~increased~~decreased to 46% for the six months ended June 30, 2013 from 47% for the ~~three~~six months ended ~~March 31,~~June 30, 2012 (a decrease to 46% in the second quarter of 2013 from ~~46% for~~47% in the ~~three months ended March 31, 2012.~~second quarter of 2012). The most significant factors impacting gross profit ~~as a percent~~margins were the increase of ~~service revenue were the~~lower margin property preservation and property inspection orders, partially offset by decreased compensation and benefits costs as a percentage of service revenue from process ~~efficiencies and a slightly lower level of technology expenses even after incurring carrying costs to support Mortgage Services’ anticipated growth.~~efficiencies. Although we have been able to generally maintain our margins in a period of accelerated growth, we anticipate we will ~~reduce~~improve margins by reducing employee and vendor costs as a percent of service revenue through our workforce efficiency initiatives, displacing vendors with internal personnel at a lower cost and ~~deployment of~~deploying vendor, process and payment management technologies.

Our margins can vary substantially depending upon when servicing rights are acquired by Ocwen. Typically, compensation and benefits will increase in anticipation of an acquisition as we hire and train personnel to deliver services in advance of the actual boarding of loans. Subsequently, as new loans are boarded, for the first couple of months ~~post boarding,~~post-boarding, we tend to deliver an elevated level of valuations and ~~pre-foreclosure~~property inspection and preservation services for which we incur substantially more outside fees and ~~services when compared to asset management~~ services.

Selling, General and Administrative Expenses and Income from Operations

SG&A ~~decreased on an absolute basis in~~increased during the ~~first three~~second quarter and six months ofended June 30, 2013 principally due to ~~lower bad debt expense.~~the amortization of intangible assets recorded in connection with the Homeward and ResCap transactions of $6.0 million (no comparative amounts in 2012). Income from operations as a percentage of service revenue ~~increased from 39%~~decreased to 38% for the ~~three~~six months ended ~~March 31, 2012 to 41%~~June 30, 2013 from 40% for the ~~three~~six months ended ~~March 31,~~June 30, 2012 (a decrease to 35% in the second quarter of 2013 from 41% in the second quarter of 2012) due to the ~~higher~~lower gross profit margins and ~~lower SG&A discussed above.~~higher amortization expense.

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Table of Contents

Financial Services

Revenue

Revenue by service line was as ~~follows for the three months ended March 31:~~follows:

							Three months ended June 30,						Six months ended June 30,
					% Increase						% Increase						% Increase
(in thousands)	2013		2012		/ (decrease)		2013		2012		(decrease)		2013		2012		(decrease)

Service revenue:
Asset recovery management	$	5,952	$	9,150	(35	)	$	12,172	$	7,475	63		$	18,124	$	16,625	9
Customer relationship management	10,180		8,610		18		10,787		8,582		26		20,967		17,192		22
Total service revenue	16,132		17,760		(9	)	22,959		16,057		43		39,091		33,817		16

Reimbursable expenses:
Asset recovery management	204		256		(20	)	113		182		(38	)	317		438		(28	)
Total reimbursable expenses	204		256		(20	)	113		182		(38	)	317		438		(28	)

Total revenue	$	16,336	$	18,016	(9	)	$	23,072	$	16,239	42		$	39,408	$	34,255	15

Transactions with related parties included above:
Asset recovery management	$	39	$	68	(43	)	$	6,683	$	50	N/M		$	6,722	$	118	N/M

N/M — not meaningful.

Financial Services revenue ~~declined~~increased during the second quarter and six months ended June 30, 2013 due to increased charge-off mortgage collections and growth in customer relationship management from the addition of one new client in the first quarter of 2013 ~~due to a decline~~and one new client in ~~revenue from asset recovery management services.~~the second quarter of 2013. The ~~decline was primarily due to~~increases were partially offset by lower credit card charge-off ~~placements. Partially offsetting this decline, we experienced growth in customer relationship management for the first quarter of 2013~~placements due to 23-year record low charge-offs. With respect to the ~~addition~~charge-off mortgage business, we expanded our capabilities in connection with the ResCap fee-based business transaction, and in the second quarter began providing these services to the ResCap loans serviced by Ocwen and a portion of ~~a new customer as well as growth~~the other loans in ~~revenues from existing customers.~~the Ocwen portfolio.

Financial Services’ asset recovery management revenue tends to be higher in the first quarter as borrowers utilize tax refunds and bonuses to pay debts.

Cost of Revenue and Gross Profit

Cost of revenue consists of the ~~following for~~following:

	Three months ended June 30,						Six months ended June 30,
					% Increase						% Increase
(in thousands)	2013		2012		(decrease)		2013		2012		(decrease)

Compensation and benefits	$	10,507	$	8,021	31		$	19,410	$	16,378	19
Outside fees and services	1,151		1,422		(19	)	2,371		3,249		(27	)
Reimbursable expenses	113		182		(38	)	317		438		(28	)
Technology and telecommunications	1,811		1,861		(3	)	3,278		3,728		(12	)
Depreciation and amortization	225		177		27		457		203		125

Cost of revenue	$	13,807	$	11,663	18		$	25,833	$	23,996	8

Compensation and benefits increased during the ~~three~~second quarter and six months ended ~~March 31:~~

% Increase

(in thousands)

2013

2012

/ (decrease)

Compensation and benefits

$
8,903

$
8,357

7

Outside fees and services

1,220

1,827

(33
)
Reimbursable expenses

204

256

(20
)
Technology and telecommunications

1,467

1,867

(21
)
Depreciation and amortization

232

26

N/M

Cost of revenue

$
12,026

$
12,333

(2
)

~~N/M — not meaningful.~~

~~Cost of revenue as a percentage of service revenue increased over the periods presented~~June 30, 2013 primarily ~~because the anticipated credit card~~due to higher mortgage charge-off ~~referral volume did not materialize. In addition, our~~and customer relationship management headcount ~~increased~~ in ~~anticipation of~~connection with new business. These increases were partially offset by lower outside fees and services as we continually evaluate our cost structure in our asset recovery management business in connection with lower credit card charge-off placements. We principally try to manage our cost structure through a

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reduction in compensation and benefit costs ~~both~~ through a reduction in overall headcount as well as expanding our use of our global workforce.

Gross profit as a percentage of service revenue ~~declined~~increased to ~~27%~~35% for the ~~three~~six months ended ~~March 31,~~June 30, 2013 compared to ~~32%~~30% for the ~~three~~six months ended ~~March 31,~~June 30, 2012 (40% for the second quarter of 2013 compared to 28% for the second quarter of 2012) due to ~~lower~~the revenue mix in the asset recovery management business ~~from a decline~~and growth in ~~total placements as a result of lower credit card delinquencies without a corresponding reduction in costs. We are focused on~~

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~~transitioning~~ the ~~Financial Services business from a low growth, lower margin business into a modest growth and higher margin business by expanding our~~ higher margin customer relationship management ~~and charged-off mortgage businesses. In this regard, we began providing services for a~~business from new customer relationship management client in the first quarter and expect to start providing services to another new client early in the third quarter. In addition, we continued to expand our relationship with two existing customer relationship management clients. With respect to the charged-off mortgage business, in April 2013 we executed a services agreement with Ocwen to perform these services and have begun to receive referrals.customers.

Selling, General and Administrative Expenses and Income from Operations

SG&A decreased in the ~~first~~second quarter ofand six months ended June 30, 2013 principally from lower administrative employee-related costs, partially offset by higher amortization of intangible assets recorded in connection with the ResCap transaction of $1.3 million for the second quarter and ~~from lower depreciation and amortization related to assets no longer utilized by this segment.~~six months ended June 30, 2013.

Income from operations as a percentage of service revenue for the ~~three~~six months ended ~~March 31,~~June 30, 2013 ~~decreased from~~increased to 18% compared to 8% for the ~~comparable~~six months ended June 30, 2012 ~~period~~(25% for the second quarter of 2013 compared to 6% for the second quarter of 2012) due to ~~lower~~higher gross margins ~~partially offset by~~and decreased SG&A, as described above.

Technology Services

Revenue

Revenue by service line was as ~~follows for the three months ended March 31:~~follows:

						Three months ended June 30,					Six months ended June 30,
					% Increase					% Increase					% Increase
(in thousands)	2013		2012		/ (decrease)	2013		2012		(decrease)	2013		2012		(decrease)

Revenue:
REALSuite	$	12,973	$	10,138	28	$	15,325	$	10,540	45	$	28,298	$	20,678	37
IT infrastructure services	7,258		6,884		5	9,458		7,346		29	16,716		14,230		17
Total revenue	$	20,231	$	17,022	19	$	24,783	$	17,886	39	$	45,014	$	34,908	29

Transactions with related parties included above:
REALSuite	$	7,198	$	3,887	85	$	8,736	$	4,132	111	$	15,934	$	8,019	99
IT infrastructure services	2,986		2,740		9	4,563		3,093		48	7,549		5,833		29
Total	$	10,184	$	6,627	54	$	13,299	$	7,225	84	$	23,483	$	13,852	70

The increase in REALSuite revenue in the ~~first~~second quarter ofand six months ended June 30, 2013 is primarily attributable to licensing revenue ~~from our new image processing platform,~~relating to REALDoc, the growth in Ocwen’s residential loan servicing portfolio on REALServicing and an increase in flood certification services to Lenders One members.

IT infrastructure services revenue also increased in the ~~first~~second quarter ofand six months ended June 30, 2013. IT infrastructure services are billed on a cost plus basis. As such, the increase in cost to support headcount growth inat both ~~companies~~Ocwen and Altisource resulted in a corresponding increase in revenue in the Technology Services segment.

The services provided to our other segments are eliminated in consolidation but are included as revenue in the Technology Services segment and as technology and telecommunications expense, a component of ~~technology and communications expense~~cost of revenue, in our other segments for segment presentation purposes.

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Cost of Revenue and Gross Profit

Cost of revenue consists of the ~~following for the three months ended March 31:~~following:

						Three months ended June 30,					Six months ended June 30,
					% Increase					% Increase					% Increase
(in thousands)	2013		2012		/ (decrease)	2013		2012		(decrease)	2013		2012		(decrease)

Compensation and benefits	$	9,070	$	5,690	59	$	10,144	$	6,572	54	$	19,214	$	12,262	57
Outside fees and services	507		303		67	508		415		22	1,015		718		41
Technology and telecommunications	4,381		3,970		10	5,892		4,393		34	10,273		8,363		23
Depreciation and amortization	3,154		1,503		110	2,863		1,834		56	6,017		3,337		80

Cost of revenue	$	17,112	$	11,466	49	$	19,407	$	13,214	47	$	36,519	$	24,680	48

Cost of revenue increased in the ~~first~~second quarter ofand six months ended June 30, 2013 due to the increase in personnel and the hiring of more expensive personnel to support the development of our next generation REALSuite software, ~~and increased~~higher technology and communications costs from the addition of new facilities and headcount and the expansion of bandwidth at existing facilities. We expect cost of revenue in the Technology Services segment to increase as we continue to invest in personnel to support our development and growth initiatives. Depreciation and amortization increased in the ~~first~~second quarter ofand six months ended June 30, 2013 primarily as a result of our 2012 investment in a disaster recovery center.

Outside fees and services increased in the ~~first~~second quarter ofand six months ended June 30, 2013, ~~associated with~~primarily as a result of the increase in flood certification services provided as described in the revenue section above.

Gross profit ~~margin~~margins declined in the ~~three~~second quarter and six months ended ~~March 31,~~June 30, 2013, as compared to ~~March 31,~~the second quarter and six months ended June 30, 2012, ~~as we experienced faster growth in lower margin IT infrastructure services, and margins declined in our higher margin technology services~~ as we continue to invest in the development of our next generation technologies.

We are investing in the development of our next generation technologies to support our continued expansion. In 2014, we expect technology expenditures to reach a stable level.

Selling, General and Administrative Expenses and Income from Operations

SG&A ~~remained flat~~increased in the ~~first~~second quarter and six months ended June 30, 2013 principally due to higher administrative employee costs, increased depreciation and amortization and higher amortization of intangible assets recorded in connection with the Homeward and ResCap transactions of $0.5 million for the second quarter and six months ended June 30, 2013 ~~compared to the first quarter of 2012. The decline~~(no comparative amounts in ~~the gross profit margin resulted in a decrease in income~~2012).

Income from operations as a percentage of service revenue ~~from 22%~~ for the ~~three~~six months ended ~~March 31, 2012~~June 30, 2013 decreased to 6%8% compared to 19% for the ~~three~~six months ended ~~March 31, 2013.~~June 30, 2012 (9% for the second quarter of 2013 compared to 16% for the second quarter of 2012) due to lower gross margins and higher SG&A as described above.

Corporate Items and Eliminations

Our Corporate segment includes costs related to corporate support functions including executive, finance, legal, human resources, vendor management, risk and six sigma. It also includes eliminations of transactions between the business segments.

Corporate costs increased in the ~~three~~second quarter and six months ended ~~March 31,~~June 30, 2013, compared to the ~~three months ended March 31, 2012. The increase was~~similar periods of the prior year, primarily due to higher compensation and employee-related costs, depreciation and amortization and lease costs. We incurred higher compensation and employee-related costs as we are expanding certain corporate functions in 2013 to support our continued growth. The higher depreciation and amortization and lease costs relate to the build out of new facilities to support our continued expansion. We reflect initial lease costs in our corporate segment until the facilities are 40% occupied by the business units, at which time the cost is reflected in the respective segment’s financial statements. In 2014, we expect our overhead expenditures to ~~stabilize.~~reach a stable level.

Corporate expenses also include interest expense, interest income and equity loss in affiliate. Interest expense for the ~~three~~six months ended ~~March 31,~~June 30, 2013 increased by ~~$3.2~~$8.1 million ($4.9 million for the second quarter of 2013) from the ~~$200.0~~$200 million ~~Senior Secured Term Loan~~senior secured term loan borrowed in the fourth quarter of 2012 and increased to $400 million on May 7, 2013 (no comparative ~~amount~~amounts in

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2012). ~~Partially offsetting the higher interest expense, we~~We recognized interest income of ~~$0.9~~$0.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013 (no comparative amounts in 2012) from a fourth quarter 2012 $75.0 million loan to Ocwen. Ocwen repaid the loan in ~~the fourth quarter of 2012 (no comparative amount in 2012).~~February 2013.

The amount of intercompany revenue eliminated ~~upon~~in consolidation ~~decreased~~was consistent in the ~~first~~second quarter and six months ended June 30, 2013 compared to the similar periods of ~~2013 due to lower IT infrastructure charges billed to other business segments.~~the prior year. These intercompany transactions primarily consisted of IT infrastructure services as well as charges for the use of certain REALSuite applications from our Technology Service segment to our other two business segments. While the expenses are recognized in the Mortgage Services and Financial Services segments above, the elimination of these expenses are reflected in Corporate items and eliminations.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our primary source of liquidity is cash flow from operations. We seek to deploy excess cash generated in a disciplined manner. Principally, we intend to use excess cash to develop complementary services and businesses that we believe will generate attractive margins in line with our core capabilities. Further, we ~~plan to evaluate~~are evaluating potential acquisitions that align with our vision and accelerate the achievement of our strategic objectives. ~~Any~~We also intend to use excess cash ~~may be used to repay our Senior Secured Term Loan (as described below) and~~ to repurchase shares of our ~~stock.~~

~~On January 31, 2013, we entered into non-binding letters of intent with Ocwen to acquire certain fee-based businesses associated with Ocwen’s acquisitions of the Homeward~~stock and the ResCap servicing portfolios. The fee-based business acquisition related to Ocwen’s acquisition of the Homeward servicing portfolio and the agreement we entered into with respect to the ResCap servicing portfolio are strategically valuable as they will help us maintainrepay amounts outstanding under our business model with Ocwen, expand our footprint and provide significant revenue and earnings growth. On March 29, 2013, we acquired the fee-based businesses from Ocwen related to Ocwen’s recent acquisition of Homeward for $87.0 million, subject to a working capital and net income adjustment to be determined within 90 days of the closing.senior secured term loan (as described below).

Senior Secured Term Loan

On November 27, 2012, we entered into a seven-year ~~Senior Secured Term Loan~~senior secured term loan agreement with Bank of America, N.A. as administrative agent, pursuant to which we borrowed ~~$200.0~~$200 million. On May 7, 2013, we amended the senior secured term loan agreement to increase the principal amount of the senior secured term loan by $200 million (to $400 million) and provide additional share repurchase capacity. Under the terms of the ~~Senior Secured Term Loan~~senior secured term loan, as amended, we have the ability to borrow an additional ~~$200.0~~$200 million under an accordion provision.

The ~~Senior Secured Term Loan~~senior secured term loan must be repaid in equal consecutive quarterly principal installments ~~commencing on March 29, 2013, equal to~~of 0.25% of the initial principal ~~amount of such loans with final payment of all~~ amounts outstanding ~~plus accrued and unpaid interest,~~on the borrowing dates, with the balance due on November 27, 2019. However, if leverage ratios, as defined in the ~~Senior Secured Term Loan~~senior secured term loan agreement, exceed a defined threshold, a percentage of cash flow must be used to repay principal. Interest payments are due monthly. The interest rate as of ~~March 31,~~June 30, 2013 was 5.75%.

The debt covenants in the ~~Senior Secured Term Loan~~senior secured term loan agreement limit, among other things, our ability to incur additional debt and repurchase stock. In the event we ~~needed~~require additional liquidity, our ability to obtain it may be limited by the ~~Senior Secured Term Loan.~~senior secured term loan.

Cash Flows

The following table presents our cash flows for the ~~three~~six months ended ~~March 31:~~June 30:

							% Increase
(dollars in thousands)	2013			2012			(decrease)

Net income adjusted for non-cash items	$	83,760		$	66,994		25
Working capital	(16,292		)	(12,945		)	(26	)
Cash flow from operating activities	67,468			54,049			25
Cash flow from investing activities	(141,499		)	(21,128		)	N/M
Cash flow from financing activities	146,334			(19,887		)	N/M
Net change in cash	72,303			13,034			N/M
Cash and cash equivalents at beginning of period	105,502			32,125			228
Cash and cash equivalents at end of period	$	177,805		$	45,159		N/M

% Increase

(dollars in thousands)

2013

2012

/ (decrease)

Net income adjusted for non-cash items

$
36,585

$
31,923

15

Working capital

(27,029
)
(4,151
)
N/M

Cash flow from operating activities

9,556

27,772

(66
)
Cash flow from investing activities

(14,460
)
(16,154
)
10

Cash flow from financing activities

(23,295
)
(17,077
)
(36
)
Net change in cash

(28,199
)
(5,459
)
N/M

Cash and cash equivalents at beginning of period

105,502

32,125

228

Cash and cash equivalents at end of period

$
77,303

$
26,666

190

N/M — not meaningful.

Cash Flows from Operating Activities

Cash flows from operating activities generally consist of the cash effects of transactions and events that enter into the determination of net income. In the ~~three~~six months ended ~~March 31,~~June 30, 2013, we generated ~~$9.6~~$67.5 million of positive cash flows from operations, or approximately ~~$0.07~~$0.23 per every dollar of service revenue compared to ~~$27.8~~$54.0 million of positive cash flows from operations or approximately ~~$0.26~~$0.24 per every dollar of service revenue in the ~~three~~six months ended ~~March 31,~~June 30, 2012. The ~~decreases~~increase in cash ~~flows from operating activities and cash flows~~ from operations ~~per dollar of service revenue are primarily due to timing of converting working capital into cash, partially offset~~on an absolute basis is principally driven by the increase in net ~~income. On April 1, 2013, we received $25.0 million~~income, after adding back depreciation and

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amortization, including amortization of intangible assets. The decrease in ~~connection with a significant receivable collection. Including this collection,~~operating cash ~~flows from operating activities would have been $34.5 million, or approximately $0.27~~ per ~~every~~ dollar of service revenue ~~in 2013.~~is from the timing of converting working capital to cash.

~~Furthermore, in~~In periods of growth, operating cash flows per service revenue dollar can be negatively impacted because of the nature of some of our services. Certain services are performed immediately following or shortly after the referral, but the collection of the receivable does not occur until a specific event occurs (i.e., the foreclosure is complete, the REO asset is sold, etc.). As we continue to grow, our receivables will also grow and our cash flows from operations may be negatively impacted when comparing one interim period to another.

Cash Flows from Investing Activities

On March 29, 2013, we acquired the Homeward fee-based business from Ocwen for $87.0 million ($82.5 million excluding cash acquired of $4.5 million). On February 15, 2013, Ocwen repaid the $75.0 million loan that was borrowed in December 2012. Capital expenditures of $7.0 million and $16.2 million for the three months ended March 31, 2013 and 2012, respectively, related to facility build-outs and investments in infrastructure and the next generation of our REALSuite of products. The prior year period also included investments in a disaster recovery center.

~~Cash Flows from Financing Activities~~

Cash flows from financing activities in the three months ended March 31, 2013 and 2012 primarily include activity associated with share repurchases, stock option exercises and payments to non-controlling interests. We spent $22.0 million and $16.8 million to repurchase our common stock in the first three months of 2013 and 2012, respectively. Partially offsetting this use of cash was an increase in proceeds from stock option exercises of $0.5 million and $2.0 million for the three months ended March 31, 2013 and 2012, respectively. In March 2013, we repaid $0.5 million of the borrowings under the Senior Secured Term Loan.

~~Liquidity Requirements after March 31, 2013~~

million. On April 12, 2013, we entered into an agreement with Ocwen to establish additional terms related to the existing servicing arrangements between Altisource and Ocwen in connection with Ocwen’s acquisition of ~~the ResCap fee-based businesses. In exchange for $128.8 million to be~~certain mortgage servicing platform assets of ResCap. The cash consideration paid by Altisource to Ocwen ~~Altisource will be~~under the ~~exclusive provider~~ResCap agreement totaled $128.8 million. On February 15, 2013, Ocwen repaid the $75.0 million loan that was borrowed from us in December 2012. Capital expenditures of ~~certain services~~$13.4 million and $21.1 million for the six months ended June 30, 2013 and 2012, respectively, primarily related to ~~the ResCap servicing portfolio. We paid $80.0 million at closing~~facility build-outs and investments in infrastructure and the ~~remaining $48.8~~next generation of our REALSuite of software applications. The prior year period also included investments in a disaster recovery center. On March 31, 2013, we sold our 49% interest in Correspondent One to Ocwen for $12.6 million.

Cash Flows from Financing Activities

Cash flows from financing activities for the six months ended June 30, 2013 and 2012 primarily include activity associated with debt proceeds, share repurchases, stock option exercises and payments to non-controlling interests. On May 7, 2013, we received $201.0 million ~~will be paid in monthly installments for up to five months following the closing. We acquired no significant tangible assets and assumed no liabilities~~ in connection with amending our senior secured term loan agreement, including a $1.0 million original issue premium. We also incurred debt issuance costs of $2.4 million in connection with this amendment. We spent $51.6 million and $16.8 million to repurchase our common stock for the ~~agreement.~~six months ended June 30, 2013 and 2012, respectively. Stock option exercises provided proceeds of $2.9 million and $2.0 million for the six months ended June 30, 2013 and 2012, respectively. During the six months ended June 30, 2013, we repaid $1.5 million of the borrowings under the senior secured term loan. Contributions to non-controlling interests were $1.9 million and $4.8 million for the six months ended June 30, 2013 and 2012, respectively.

~~We intend to borrow up to $200.0 million in the second quarter of~~Liquidity Requirements after June 30, 2013 under the accordion feature of the Senior Secured Term Loan to fund the remainder of the ResCap transaction, for stock repurchases and for general corporate purposes, including potential acquisitions. At the same time, we also intend to amend the loan agreement to provide additional share repurchase capacity. There can be no assurance that sufficient debt capacity will be available as needed on terms acceptable to the Company.

During the ~~second~~third quarter of 2013, we expect to distribute ~~$1.0~~$1.1 million to the Lenders One members representing non-controlling ~~interests.~~interests and repay $1.0 million of the senior secured term loan.

We believe that we will generate sufficient cash flow to fund operations, capital expenditures and required debt and interest payments as well as repurchase shares of our common stock. If we require additional capital, we believe that we have adequate access to both debt and equity capital markets.

Contractual Obligation, Commitments and Contingencies

For the ~~three~~six months ended ~~March 31,~~June 30, 2013, there were no significant changes to our contractual obligations from those identified in our Form 10-K for the fiscal year ended December 31, 2012, other than the additional $200 million borrowed under our senior secured term loan and those that occur in the normal course of business (primarily the addition of operating leases due to our growth). See also Note 17 to the interim condensed consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States. In applying many of these accounting principles, we need to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenue and expenses in our interim condensed consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective. Actual results may be affected negatively based on changing circumstances. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.

Our critical accounting policies are described in the MD&A section of our Form 10-K for the year ended December 31, 2012 filed with the SEC on February 13, 2013. Those policies have not changed during the ~~three~~six months ended ~~March 31,~~June 30, 2013.

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OTHER MATTERS

Related Parties

Ocwen

For the ~~three~~six months ended ~~March 31,~~June 30, 2013, we generated segment revenue from Ocwen of ~~$79.9~~$181.1 million for Mortgage Services ~~less than $0.1~~($101.2 million for the second quarter of 2013), $6.7 million for Financial Services ($6.7 million for second quarter of 2013) and ~~$10.2~~$23.5 million for Technology ~~Services.~~Services ($13.3 million for the second quarter of 2013). Services provided to Ocwen during ~~such~~these periods included residential property valuation, real estate asset management and sales, trustee management services, property inspection and preservation, closing and insurance services, charge-off mortgage collections, core technology back office support and multiple business technologies including our REALSuite of products. We provided all services at rates we believe to be comparable to market rates.

For the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012, we billed Ocwen ~~$0.6~~$1.2 million and ~~$0.8~~$1.4 million, respectively ($0.6 million for the second quarter of 2013 and 2012), and Ocwen billed us ~~$0.7~~$1.4 million and $1.2 million, respectively ($0.7 million and $0.6 million ~~respectively,~~for the second quarter of 2013 and 2012, respectively) for services provided under the agreements described in Note 2 to the interim condensed consolidated financial statements. These amounts are reflected as a component of selling, general and administrative expenses in the condensed consolidated statements of operations.

On December 27, 2012, we entered into a senior unsecured term loan agreement with Ocwen ~~(the “Ocwen Term Loan”)~~ pursuant to which we loaned $75.0 million to Ocwen. Interest income related to ~~the Ocwen Term Loan~~this loan was ~~$0.8~~$0.8 million for the ~~three~~six months ended ~~March 31, 2013.~~June 30, 2013 (no comparative amounts in 2012). On February 15, 2013, Ocwen repaid the entire outstanding principal amount of ~~the Ocwen Term Loan~~this loan plus all accrued and unpaid ~~interest.~~interest and the term loan was terminated.

Correspondent One and HLSS

For the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012, we billed Correspondent One less than ~~$0.1~~$0.1 million in each ~~period under a services agreement.~~period. For the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012, we billed HLSS $0.3 million and $0.2 million, respectively ($0.1 million for the second quarter of 2013 and ~~less than $0.1 million, respectively, under a services agreement.~~2012). These amounts are reflected as a component of selling, general and administrative expenses in the condensed consolidated statements of operations.

We also ~~provide~~provided certain origination-related services to Correspondent One. We earned revenue of less than ~~$0.1~~$0.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2013 from the provision of these services (no comparative amount in 2012). On March 31, 2013, we sold our 49% interest in Correspondent One to Ocwen for $12.6 million.

Residential and AAMC

For the ~~three~~six months ended ~~March 31,~~June 30, 2013, we billed Residential $0.2 million, and we billed AAMC $0.2 million ($0.2 million for Residential and less than $0.1 million ~~under our services agreements (no~~for AAMC for the second quarter of 2013 and no comparative ~~amount~~amounts in 2012)~~. For the three months ended March 31, 2013, we billed AAMC less than $0.1 million~~, under ~~our~~ services ~~agreements (no comparative amount in 2012).~~agreements. These amounts are reflected as a component of selling, general and administrative expenses in the condensed consolidated statements of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market Risk

Our financial market risk consists primarily of interest rate and foreign currency exchange risk.

Interest Rate Risk

As of ~~March 31,~~June 30, 2013, the interest rate charged on the ~~$200.0 million Senior Secured Term Loan~~senior secured term loan was 5.75%. The interest rate is calculated based on the Adjusted Eurodollar Rate (as defined in the ~~Senior Secured Term Loan~~senior secured term loan agreement) (with a minimum floor of 1.25%) plus 4.5%.

Based on the principal amount outstanding at ~~March 31,~~June 30, 2013, a 1% increase in the Eurodollar rate would not impact our annual interest expense as the Adjusted Eurodollar Rate would remain below the minimum floor rate.

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Foreign Currency Exchange Risk

We are exposed to currency risk from the potential changes in currency values of our foreign currency denominated assets, liabilities and cash flows. Our most significant foreign currency exposures relate to the Euro and Indian Rupee; however, the ~~transactions and~~ balances in Euros and Indian Rupees are immaterial.

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Item 4. Controls and Procedures.

a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and ~~acting Principal~~Chief Financial Officer ~~has~~have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on such evaluation, such ~~officer has~~officers have concluded that our disclosure controls and procedures as of the end of the period covered by this quarterly report were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and ~~acting Principal~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

b) Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~March 31,~~June 30, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we are involved in legal and administrative proceedings arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel and considering insurance coverage where applicable, the outcome of current legal proceedings both individually and in the aggregate will not have a material impact on the Company’s financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Form 10-K for the year ended December 31, 2012 filed with the SEC on February 13, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Equity securities purchased by us:

The following table presents information related to our repurchases of our equity securities during the three months ended ~~March 31,~~June 30, 2013:

Period	Total number of shares purchased(1)	Weighted average price paid per share		Total number of shares purchased as part of publicly announced plans or programs(2)	Maximum number of shares that may yet be purchased under the plans or programs	Total number of shares purchased(1)	Weighted average price paid per share		Total number of shares purchased as part of publicly announced plans or programs(2)	Maximum number of shares that may yet be purchased under the plans or programs

Common stock:
January 1 — 31, 2013	—	$	—	—	3,496,998
February 1 — 28, 2013	—	—		—	3,496,998
March 1 — 31, 2013	266,295	82.58		266,295	3,230,703
April 1 — 30, 2013						—	$	—	—	3,230,703
May 1 — 31, 2013						140,688	93.70		140,688	3,090,015
June 1 — 30, 2013						172,208	95.14		172,208	2,917,807

Total shares of common stock	266,295	$	82.58	266,295	3,230,703	312,896	$	94.49	312,896	2,917,807

(1)Includes shares withheld from employees to satisfy tax withholding obligations that arose from the exercise of stock options.

(2)In May 2012, our shareholders authorized us to purchase up to 3.5 million shares of our common stock in the open market.

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~~Item 6.~~~~Exhibits.~~

~~2.1~~Item 6.	Exhibits.

	2.1	Purchase and Sale Agreement, dated as of March 29, 2013, by and among Altisource Portfolio Solutions, Inc., Altisource Solutions S.à r.l., Ocwen Financial Corporation, Homeward Residential, Inc. and Power Valuation Services, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on April 4, 2013)

~~10.1~~	~~Second~~ 10.1	Amendment No. 1 to ~~Services~~Credit Agreement, dated as of ~~March 29,~~May 7, 2013, ~~by and between Ocwen Financial Corporation and~~among Altisource Solutions S.à r.l., as borrower, Altisource Portfolio Solutions S.A., Bank of America, N.A., as administrative agent and incremental term lender and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on ~~April 4,~~May 13, 2013)

~~10.2~~	Second Amendment to Technology Products Services Agreement, dated as of March 29, 2013, by and between Ocwen Financial Corporation and Altisource Solutions S.à r.l. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on April 4, 2013)

~~10.3~~	Second Amendment to Data Center and Disaster Recovery Services Agreement, dated as of March 29, 2013, by and between Ocwen Financial Corporation and Altisource Solutions S.à r.l. (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on April 4, 2013)

~~10.4~~	Second Amendment to Intellectual Property Agreement, dated as of March 29, 2013, by and between Ocwen Financial Corporation and Altisource Solutions S.à r.l. (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on April 4, 2013)

~~10.5~~	First Amendment to Services Agreement, dated as of March 29, 2013, by and between Ocwen Mortgage Servicing, Inc. and Altisource Solutions S.à r.l. (incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on April 4, 2013)

~~10.6~~	First Amendment to Technology Products Services Agreement, dated as of March 29, 2013, by and between Ocwen Mortgage Servicing, Inc. and Altisource Solutions S.à r.l. (incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K filed on April 4, 2013)

~~10.7~~	First Amendment to Data Center and Disaster Recovery Services Agreement, dated as of March 29, 2013, by and between Ocwen Mortgage Servicing, Inc. and Altisource Solutions S.à r.l. (incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K filed on April 4, 2013)

~~10.8~~	First Amendment to Intellectual Property Agreement, dated as of March 29, 2013, by and between Ocwen Mortgage Servicing, Inc. and Altisource Solutions S.à r.l. (incorporated by reference to Exhibit 10.8 to the Company’s Form 8-K filed on April 4, 2013)

~~10.9~~	Agreement, dated as of April 12, 2013, by and among Altisource Solutions S.à r.l., Ocwen Financial Corporation and Ocwen Mortgage Servicing, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 18, 2013)

31.1	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

~~31.2~~	31.2	Certification by the ~~Principal~~Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

~~32.1~~	32.1	Certification by the Chief Executive Officer and ~~Principal~~Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

~~Table of Contents~~

~~101~~
		101	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended ~~March 31,~~June 30, 2013, is formatted in XBRL interactive data files: (i) Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2013 and December 31, 2012; (ii) Condensed Consolidated Statements of Operations for the three and six months ended ~~March 31,~~June 30, 2013 and 2012; (iii) Condensed Consolidated Statements of Equity for the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012; (iv) Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012; and (v) Notes to Condensed Consolidated Financial Statements (as provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Act of 1934).

4042

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

(Registrant)

Date: ~~April~~July 25, 2013	By:	/s/ ~~William B. Shepro~~Michelle D. Esterman
		~~William B. Shepro~~Michelle D. Esterman
		Chief ~~Executive~~Financial Officer
		(On behalf of the Registrant and as its ~~acting~~ Principal Financial Officer)

4143

			Page
PART I — Financial Information

	Item 1	Interim Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations	4
		Condensed Consolidated Statements of Equity	5
		Condensed Consolidated Statements of Cash Flows	6
		Notes to Condensed Consolidated Financial Statements	7

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2022

	Item 3	Quantitative and Qualitative Disclosures about Market Risk	3639

	Item 4	Controls and Procedures	3740


PART II — Other Information

	Item 1	Legal Proceedings	3841

	Item 1A	Risk Factors	3841

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3841

	Item 6	Exhibits	3942

SIGNATURES				4143

(in thousands)

Cash	$	4,500
Accounts receivable	7,221
Receivable from Ocwen	318
Prepaid expenses and other current assets	347
Premises and equipment	9
Customer relationship	80,388
	92,783
Accounts payable and accrued expenses	(3,352		)
Payable to Ocwen	(2,481		)
Purchase price	$	86,950

	Three months ended March 31, 2012
(in thousands, except per share amounts)	As reported		Pro forma
Revenue	$	139,066	$	163,695
Net income attributable to Altisource	25,229		32,868
Earnings per share — diluted	1.02		1.32

	Weighted average estimated	Gross carrying amount				Accumulated amortization						Net book value
	useful life	March 31,		December 31,		March 31,			December 31,			March 31,		December 31,
(dollars in thousands)	(years)	2013		2012		2013			2012			2013		2012

Definite-lived intangible assets
Trademarks	16	$	10,614	$	10,614	$	(4,179	)	$	(4,060	)	$	6,435	$	6,554
Customer-related intangible assets	11	118,754		38,366		(19,123		)	(18,567		)	99,631		19,799
Operating agreement	20	35,000		35,000		(5,542		)	(5,104		)	29,458		29,896
Non-compete agreement	4	1,300		1,300		(1,050		)	(963		)	250		337

Total		$	165,668	$	85,280	$	(29,894	)	$	(28,694	)	$	135,774	$	56,586

	Three months ended March 31, 2013		Three months ended March 31, 2012
	Black-Scholes	Binomial	Black-Scholes	Binomial

Risk-free interest rate	1.02%–1.13%	0.08%–2.02%	1.16% – 1.17%	0.09% – 2.04%
Expected stock price volatility	36.35%–36.50%	36.40%–36.50%	34.62% – 34.65%	34.50% – 34.60%
Expected dividend yield	—	—	—	—
Expected option life (in years)	6.25	—	6.25	—
Contractual life (in years)	—	14	—	14

Fair value	$31.33–$34.74	$16.12–$30.34	$22.74 – $22.80	$11.65 – $17.27