UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September~~June 30, ~~2017~~2018



o	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	98-0554932
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

40, avenue Monterey

L-2163 Luxembourg

Grand Duchy of Luxembourg

(Address of principal executive offices) (Zip Code)

(352) 24 69 79 00

(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 þ 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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



Large accelerated filer þo	Accelerated filer oþ
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o
	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided by Section 13(a) of the Exchange Act. 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 þ

As of ~~October~~July 20, ~~2017,~~2018, there were ~~17,904,739~~17,006,516 outstanding shares of the registrant’s shares of beneficial interest (excluding ~~7,508,009~~8,406,232 shares held as treasury stock).

Table of Contents

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

FORM 10-Q



			Page
PART I — Financial Information

	Item 1	Interim Condensed Consolidated Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations and Comprehensive Income	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	2829

	Item 3	Quantitative and Qualitative Disclosures about Market Risk	45

	Item 4	Controls and Procedures	46

PART II — Other Information

	Item 1	Legal Proceedings	47

	Item 1A	Risk Factors	47

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	48

	Item 6	Exhibits	49

SIGNATURES			50

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)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017

ASSETS
Current assets:
Cash and cash equivalents	$	114,123		$	149,294		$	84,569		$	105,006
Available for sale securities	46,044			45,754
Investment in equity securities							43,185			49,153
Accounts receivable, net	63,177			87,821			45,426			52,740
Prepaid expenses and other current assets	59,880			42,608			70,009			64,742
Total current assets	283,224			325,477			243,189			271,641

Premises and equipment, net	80,823			103,473			58,820			73,273
Goodwill	86,283			86,283			86,283			86,283
Intangible assets, net	128,289			155,432			105,374			120,065
Deferred tax assets, net	7,214			7,292			305,056			303,707
Other assets	10,568			11,255			11,174			10,195

Total assets	$	596,401		$	689,212		$	809,896		$	865,164

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	83,352		$	83,135		$	67,646		$	84,400
Accrued litigation settlement	—			32,000
Current portion of long-term debt	5,945			5,945			41,200			5,945
Deferred revenue	9,746			8,797			19,131			9,802
Other current liabilities	10,982			19,061			5,889			9,414
Total current liabilities	110,025			148,938			133,866			109,561

Long-term debt, less current portion	414,431			467,600			354,332			403,336
Other non-current liabilities	7,796			10,480			9,407			12,282

Commitments, contingencies and regulatory matters (Note 20)
Commitments, contingencies and regulatory matters (Note 19)

Equity:
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 17,905 outstanding as of September 30, 2017; 25,413 shares authorized and issued and 18,774 outstanding as of December 31, 2016)	25,413			25,413
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 17,027 outstanding as of June 30, 2018; 100,000 shares authorized, 25,413 shares issued and 17,418 outstanding as of December 31, 2017)							25,413			25,413
Additional paid-in capital	111,457			107,288			116,586			112,475
Retained earnings	342,111			333,786			596,268			626,600
Accumulated other comprehensive loss	(1,533		)	(1,745		)
Treasury stock, at cost (7,508 shares as of September 30, 2017 and 6,639 shares as of December 31, 2016)	(414,668		)	(403,953		)
Accumulated other comprehensive income							—			733
Treasury stock, at cost (8,386 shares as of June 30, 2018 and 7,995 shares as of December 31, 2017)							(427,380		)	(426,609		)
Altisource equity	62,780			60,789			310,887			338,612

Non-controlling interests	1,369			1,405			1,404			1,373
Total equity	64,149			62,194			312,291			339,985

Total liabilities and equity	$	596,401		$	689,212		$	809,896		$	865,164

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per share data)


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017

Revenue	$	234,979		$	252,745		$	726,147		$	758,676		$	218,556		$	250,685		$	415,994		$	491,168
Cost of revenue	174,898			174,002			538,244			517,236			163,206			185,393			310,400			363,346

Gross profit	60,081			78,743			187,903			241,440			55,350			65,292			105,594			127,822
Selling, general and administrative expenses	46,622			53,886			146,793			161,709			42,924			52,470			86,048			100,171

Income from operations	13,459			24,857			41,110			79,731			12,426			12,822			19,546			27,651
Other income (expense), net:
Interest expense	(5,599		)	(5,952		)	(16,862		)	(18,481		)	(7,027		)	(5,465		)	(12,890		)	(11,263		)
Unrealized gain (loss) on investment in equity securities (Note 3)													1,533			—			(5,968		)	—
Other income (expense), net	2,497			(109		)	8,015			2,608			(3,861		)	4,803			(2,589		)	5,518
Total other income (expense), net	(3,102		)	(6,061		)	(8,847		)	(15,873		)	(9,355		)	(662		)	(21,447		)	(5,745		)

Income before income taxes and non-controlling interests	10,357			18,796			32,263			63,858
Income tax provision	(2,591		)	(7,324		)	(7,615		)	(12,808		)
Income (loss) before income taxes and non-controlling interests													3,071			12,160			(1,901		)	21,906
Income tax (provision) benefit													(816		)	(2,438		)	549			(5,024		)

Net income	7,766			11,472			24,648			51,050
Net income (loss)													2,255			9,722			(1,352		)	16,882
Net income attributable to non-controlling interests	(805		)	(883		)	(2,107		)	(1,973		)	(687		)	(687		)	(1,212		)	(1,302		)

Net income attributable to Altisource	$	6,961		$	10,589		$	22,541		$	49,077
Net income (loss) attributable to Altisource													$	1,568		$	9,035		$	(2,564	)	$	15,580

Earnings per share:
Earnings (loss) per share:
Basic	$	0.39		$	0.57		$	1.23		$	2.63		$	0.09		$	0.49		$	(0.15	)	$	0.84
Diluted	$	0.38		$	0.54		$	1.20		$	2.49		$	0.09		$	0.48		$	(0.15	)	$	0.82

Weighted average shares outstanding:
Basic	18,023			18,715			18,337			18,669			17,142			18,335			17,260			18,497
Diluted	18,429			19,568			18,854			19,738			17,553			18,836			17,260			19,069

Comprehensive income:
Net income	$	7,766		$	11,472		$	24,648		$	51,050
Comprehensive income (loss):
Net income (loss)													$	2,255		$	9,722		$	(1,352	)	$	16,882
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of income tax benefit (provision) of $2,054, $(2,070), $(78), $889, respectively	(5,530		)	5,016			212			(2,156		)
Reclassification of unrealized gain on investment in equity securities, net of income tax provision of $200, to retained earnings from the cumulative effect of an accounting change (Note 1)													—			—			(733		)	—
Unrealized (loss) gain on investment in equity securities, net of income tax benefit (provision) of $0, $2,593, $0, $(2,132)													—			(6,981		)	—			5,742

Comprehensive income, net of tax	2,236			16,488			24,860			48,894
Comprehensive income (loss), net of tax													2,255			2,741			(2,085		)	22,624
Comprehensive income attributable to non-controlling interests	(805		)	(883		)	(2,107		)	(1,973		)	(687		)	(687		)	(1,212		)	(1,302		)

Comprehensive income attributable to Altisource	$	1,431		$	15,605		$	22,753		$	46,921
Comprehensive income (loss) attributable to Altisource													$	1,568		$	2,054		$	(3,297	)	$	21,322

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)


	Altisource Equity																				Altisource Equity
	Common stock			Additional paid-in capital		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock, at cost			Non-controlling interests			Total			Common stock			Additional paid-in capital		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock, at cost			Non-controlling interests			Total
	Shares																				Shares

Balance, December 31, 2015	25,413	$	25,413	$	96,321	$	369,270		$	—		$	(440,026	)	$	1,292		$	52,270
Comprehensive income:
Net income	—	—		—		49,077			—			—			1,973			51,050
Other comprehensive loss, net of tax	—	—		—		—			(2,156		)	—			—			(2,156		)
Distributions to non-controlling interest holders	—	—		—		—			—			—			(1,637		)	(1,637		)
Share-based compensation expense	—	—		4,692		—			—			—			—			4,692
Exercise of stock options and issuance of restricted shares	—	—		—		(58,912		)	—			67,788			—			8,876
Repurchase of shares	—	—		—		—			—			(34,321		)	—			(34,321		)
Balance, December 31, 2016																					25,413	$	25,413	$	107,288	$	333,786		$	(1,745	)	$	(403,953	)	$	1,405		$	62,194

Balance, September 30, 2016	25,413	$	25,413	$	101,013	$	359,435		$	(2,156	)	$	(406,559	)	$	1,628		$	78,774

Balance, December 31, 2016	25,413	$	25,413	$	107,288	$	333,786		$	(1,745	)	$	(403,953	)	$	1,405		$	62,194
Comprehensive income:
Net income	—	—		—		22,541			—			—			2,107			24,648			—	—		—		15,580			—			—			1,302			16,882
Other comprehensive income, net of tax	—	—		—		—			212			—			—			212			—	—		—		—			5,742			—			—			5,742
Distributions to non-controlling interest holders	—	—		—		—			—			—			(2,143		)	(2,143		)	—	—		—		—			—			—			(1,056		)	(1,056		)
Share-based compensation expense	—	—		3,237		—			—			—			—			3,237			—	—		1,858		—			—			—			—			1,858
Cumulative effect of an accounting change (Note 1)	—	—		932		(932		)	—			—			—			—
Cumulative effect of an accounting change (Note 13)																					—	—		932		(932		)	—			—			—			—
Exercise of stock options and issuance of restricted shares	—	—		—		(11,787		)	—			13,871			—			2,084			—	—		—		(5,014		)	—			5,779			—			765
Treasury shares withheld for the payment of tax on restricted share issuances	—	—		—		(1,497		)	—			409			—			(1,088		)	—	—		—		(1,494		)	—			405			—			(1,089		)
Repurchase of shares	—	—		—		—			—			(24,995		)	—			(24,995		)	—	—		—		—			—			(18,573		)	—			(18,573		)

Balance, September 30, 2017	25,413	$	25,413	$	111,457	$	342,111		$	(1,533	)	$	(414,668	)	$	1,369		$	64,149
Balance, June 30, 2017																					25,413	$	25,413	$	110,078	$	341,926		$	3,997		$	(416,342	)	$	1,651		$	66,723

Balance, December 31, 2017																					25,413	$	25,413	$	112,475	$	626,600		$	733		$	(426,609	)	$	1,373		$	339,985

Net (loss) income																					—	—		—		(2,564		)	—			—			1,212			(1,352		)
Distributions to non-controlling interest holders																					—	—		—		—			—			—			(1,181		)	(1,181		)
Share-based compensation expense																					—	—		4,111		—			—			—			—			4,111
Cumulative effect of accounting changes (Note 1)																					—	—		—		(9,715		)	(733		)	—			—			(10,448		)
Exercise of stock options and issuance of restricted shares																					—	—		—		(17,237		)	—			19,944			—			2,707
Treasury shares withheld for the payment of tax on restricted share issuances and stock option exercises																					—	—		—		(816		)	—			406			—			(410		)
Repurchase of shares																					—	—		—		—			—			(21,121		)	—			(21,121		)

Balance, June 30, 2018																					25,413	$	25,413	$	116,586	$	596,268		$	—		$	(427,380	)	$	1,404		$	312,291

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in ~~thousands)~~

thousands)


	Nine months ended September 30,						Six months ended June 30,
	2017			2016			2018			2017

Cash flows from operating activities:
Net income	$	24,648		$	51,050
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							$	(1,352	)	$	16,882
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	27,411			27,521			17,049			18,895
Amortization of intangible assets	27,143			36,432			14,691			18,539
Change in the fair value of acquisition related contingent consideration	24			(1,174		)	—			16
Unrealized loss on investment in equity securities							5,968			—
Share-based compensation expense	3,237			4,692			4,111			1,858
Bad debt expense	3,101			763			1,503			2,890
Gain on early extinguishment of debt	(5,419		)	(5,464		)	—			(3,937		)
Amortization of debt discount	225			307			298			156
Amortization of debt issuance costs	625			850			502			433
Deferred income taxes	—			17			(1,349		)	—
Loss on disposal of fixed assets	2,776			30			558			2,798
Loss on debt refinancing (Note 10)							4,434			—
Changes in operating assets and liabilities:
Accounts receivable	21,543			3,505			6,923			11,954
Prepaid expenses and other current assets	(17,272		)	(10,167		)	(5,267		)	(6,811		)
Other assets	760			496			967			523
Accounts payable and accrued expenses	165			7,005			(17,152		)	(10,637		)
Other current and non-current liabilities	(41,838		)	(9,828		)	(8,631		)	(41,042		)
Net cash provided by operating activities	47,129			106,035			23,253			12,517

Cash flows from investing activities:
Additions to premises and equipment	(7,485		)	(16,525		)	(2,756		)	(5,658		)
Acquisition of businesses, net of cash acquired	—			(9,617		)
Purchase of available for sale securities	—			(48,219		)
Change in restricted cash	(73		)	—
Other investing activities	—			266
Net cash used in investing activities	(7,558		)	(74,095		)	(2,756		)	(5,658		)

Cash flows from financing activities:
Repayment and repurchases of long-term debt	(48,600		)	(49,237		)
Proceeds from issuance of long-term debt							407,880			—
Repayments and repurchases of long-term debt							(421,821		)	(24,766		)
Debt issuance costs							(5,042		)	—
Proceeds from stock option exercises	2,084			8,876			2,707			765
Purchase of treasury shares	(24,995		)	(34,321		)	(21,121		)	(15,531		)
Distributions to non-controlling interests	(2,143		)	(1,637		)	(1,181		)	(1,056		)
Payment of tax withholding on issuance of restricted shares	(1,088		)	—
Payment of tax withholding on issuance of restricted shares and stock option exercises							(410		)	(1,089		)
Net cash used in financing activities	(74,742		)	(76,319		)	(38,988		)	(41,677		)

Net decrease in cash and cash equivalents	(35,171		)	(44,379		)
Cash and cash equivalents at the beginning of the period	149,294			179,327
Net decrease in cash, cash equivalents and restricted cash							(18,491		)	(34,818		)
Cash, cash equivalents and restricted cash at the beginning of the period							108,843			153,421

Cash and cash equivalents at the end of the period	$	114,123		$	134,948
Cash, cash equivalents and restricted cash at the end of the period							$	90,352		$	118,603

Supplemental cash flow information:
Interest paid	$	16,203		$	17,244		$	11,540		$	10,787
Income taxes paid, net	15,445			14,178			2,865			12,668

Non-cash investing and financing activities:
Increase in payables for purchases of premises and equipment	$	52		$	2,458
Increase (decrease) in payables for purchases of premises and equipment							$	398		$	(378	)
Increase in payables for purchases of treasury shares							—			3,042

See accompanying notes to condensed consolidated financial statements.

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,” the “Company,” “we,” “us” or “our”), is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing ~~market.~~markets we serve.

~~Altisource Portfolio Solutions S.A. is organized under the laws of Luxembourg and is~~We are publicly traded on the NASDAQ Global Select Market under the symbol “ASPS.” We are organized under the laws of the Grand Duchy of Luxembourg.

Basis of Accounting and 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 footnotes 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 those estimates. Intercompany transactions and accounts have been eliminated in consolidation.

Altisource consolidates Best Partners Mortgage Cooperative, Inc., which is managed by The Mortgage Partnership of America, L.L.C. (“MPA”), a wholly-owned subsidiary of Altisource. Best Partners Mortgage Cooperative, Inc. is a mortgage cooperative doing business as Lenders One^® (“Lenders One”). MPA provides services to Lenders One under a management agreement that ends on December 31, 2025 (with renewals for three successive five-year periods at MPA’s option).

The management agreement between MPA and Lenders One, pursuant to which MPA is the management company, 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 the cooperative’s economic performance and the right to receive benefits from the cooperative. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements on a consolidated basis and the interests of the members are reflected as non-controlling interests. As of ~~September~~June 30, 2018, Lenders One had total assets of $4.8 million and total liabilities of $3.1 million. As of December 31, 2017, Lenders One had total assets of $4.6 million and total liabilities of ~~$2.0 million. As of December 31, 2016, Lenders One had total assets of $3.8 million and total liabilities of $1.5~~$3.1 million.

These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, as filed with the SEC on February ~~16, 2017.~~22, 2018.

Fair Value Measurements

Fair value is defined as an exit price, representing the amount that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:

Level 1 — Quoted prices in active markets for identical assets and liabilities

Level 2 — Observable inputs other than quoted prices included in Level 1

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities

~~Table of Content~~

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

Financial assets and financial liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

Table of Content

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Recently Adopted Accounting ~~Pronouncement~~Pronouncements

Revenue from Contracts with Customers

~~The~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~, became effective on January 1, 2017. This standard simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard requires companies to recognize all award-related excess tax benefits and tax deficiencies in the income statement, classify any excess tax benefits as an operating activity in the statement of cash flows, limit tax withholding up to the maximum statutory tax rates in order to continue to apply equity accounting rules and classify cash paid by employers when directly withholding shares for tax withholding purposes as an investing activity in the statement of cash flows. The standard also provides companies with the option of estimating forfeitures or recognizing forfeitures as they occur. In connection with the adoption of this standard, the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures. This policy election resulted in a cumulative effect adjustment of $0.9 million to retained earnings and additional paid-in capital as of January 1, 2017 using the modified retrospective transition method. There were no other significant impacts of the adoption of this standard on the Company’s results of operations and financial position.

~~Future Adoption of New Accounting Pronouncements~~

~~In May 2014, the FASB issued ASU~~ No. 2014-09, Revenue from Contracts with Customers (Topic 606)and during 2016, the FASB issued additional guidance providing clarifications and corrections, including: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, andASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (collectively “Topic 606”). ~~This standard~~Topic 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most ~~current~~prior revenue recognition guidance. ~~The core principle of this~~This new standard isrequires that an entity ~~should~~ recognize revenue ~~to depict~~for the transfer of promised goods or services to ~~customers~~a customer in an amount that reflects the consideration ~~to which~~that the entity expects to ~~be entitled~~receive and consistent with the delivery of the performance obligation described in ~~exchange for those goods or services. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period.~~ the underlying contract with the customer.

The Company ~~plans to adopt ASU No. 2014-09 retrospectively with~~adopted Topic 606 effective January 1, 2018 using the cumulative effect method. As a result of ~~initially applying the new standard recognized on the date of the initial application. The new standard will be effective for~~this adoption, the Company onrecognized an $11.2 million increase in deferred revenue, a $1.1 million increase in unbilled accounts receivable, a $0.3 million increase in other current liabilities and a $10.4 million decrease in retained earnings as of January 1, 2018. ~~Based~~Because the Company adopted Topic 606 retrospectively with a cumulative effect as of January 1, 2018, the comparative results as of December 31, 2017 and for the three and six months ended June 30, 2017 have not been restated and continue to be reported under Accounting Standards Codification Topic 605, Revenue Recognition and SEC Staff Accounting Bulletin Topic 13, Revenue Recognition. The details of the significant changes and quantitative impact of the adoption of Topic 606 are described below. Also see Note 14 for additional information on revenue, including disaggregation of revenue and contract balances.

As a result of the adoption of Topic 606, the Company’s accounting policy for revenue recognition is as follows:

We recognize revenue from the services we provide in accordance with the 5-step process outlined in Topic 606. We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer in an amount that reflects the consideration that we expect to receive. This revenue can be recognized at a point in time or over time. We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenues are recognized. When there is a timing difference between when we invoice customers and when revenues are recognized, we record either a contract asset (unbilled accounts receivable) or a contract liability (deferred revenue or other current liabilities), as appropriate. A description of our principal revenue generating activities by reportable segment are as follows:

Mortgage Market

For the majority of the services we provide, we recognize transactional revenue when the service is provided.

For loan servicing technologies, we recognize revenue based on the ~~Company’s analysis~~number of ~~all sources~~loans on the system, on a per-transaction basis or over the estimated average number of months the loans and real estate owned (“REO”) are on the platform, as applicable. We generally recognize revenue for professional services relating to loan servicing technologies over the contract period. For our loan origination system, we generally recognize revenue over the contract term, beginning on the commencement date of each contract. For foreclosure trustee services, we recognize revenue over the period during which we perform the related services, with full recognition upon completion and/or recording the related foreclosure deed. For loan disbursement processing services, we recognize revenue over the period during which we perform the processing services with full recognition upon completion of the disbursements. We use judgment to determine the period over which we recognize revenue for certain of these services. For mortgage charge-off collections performed on behalf of our clients, we recognize revenue as a percentage of amounts collected following collection from ~~customers for~~ the ~~nine months ended September 30, 2017,~~borrowers.

For real estate brokerage and auction services, we recognize revenue on a net basis as we perform services as an agent without assuming the ~~Company estimates that less than 3%~~risks and rewards of ~~consolidated~~ownership of the asset and the commission earned on the sale is a fixed percentage or amount.

Reimbursable expenses revenue, primarily related to ~~software development professional~~our property preservation and inspection services, ~~would likely be deferred~~real estate sales and our foreclosure trustee services businesses, is included in revenue with an equal amount recognized in cost of revenue. These amounts are recognized on a gross basis, principally because generally we have control over selection of vendors and the vendor relationship is with us, rather than with our customers.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Real Estate Market

For the majority of the services we provide, we recognize transactional revenue when the service is provided.

For our renovation services, revenue is recognized over ~~future periods under~~ the ~~new standard.~~ period of the construction activity, based on the estimated percentage of completion of the projects. We use judgment to determine the period over which we recognize revenue for certain of these services. For real estate brokerage and auction services, we recognize revenue on a net basis as we perform services as an agent without assuming the risks and rewards of ownership of the asset and the commission earned on the sale is a fixed percentage or amount. For the buy-renovate-lease-sell business, we recognize revenue associated with our sales of short-term investments in real estate on a gross basis as we assume the risks and rewards of ownership of the asset.

Reimbursable expenses revenue, primarily related to our real estate sales business, is included in revenue with an equal offsetting expense recognized in cost of revenue. These amounts are recognized on a gross basis, principally because generally we have control over selection of vendors and the vendor relationship is with us, rather than with our customers.

Other Businesses, Corporate and Eliminations

For the majority of the services we provide, we recognize transactional revenue when the service is provided. We generally earn fees for our post-charge-off consumer debt collection services as a percentage of the amount we collect on delinquent consumer receivables and recognize revenue following collection from the borrowers. We provide customer relationship management services for which we typically earn and recognize revenue on a per-person, per-call or per-minute basis as the related services are performed.

For the information technology (“IT”) infrastructure services we provide to Ocwen Financial Corporation (“Ocwen”), Front Yard Residential Corporation (“RESI”) and Altisource Asset Management Corporation (“AAMC”), we recognize revenue primarily based on the number of users of the applicable systems, fixed fees and the number and type of licensed platforms. We recognize revenue associated with implementation services upon completion and maintenance services ratably over the related service period.

The ~~Company will continue to analyze~~following table summarizes the impact of ~~this guidance and refine~~adopting Topic 606 on the ~~estimated~~Company’s condensed consolidated balance sheet as of June 30, 2018:



	Impact of the adoption of Topic 606
(in thousands)	As reported		Adjustments			Balances without adoption of Topic 606

Accounts receivable, net	$	45,426	$	642		$	46,068
Total current assets	243,189		642			243,831
Total assets	809,896		642			810,538

Other current liabilities	5,889		(217		)	5,672
Deferred revenue	19,131		(9,100		)	10,031
Total current liabilities	133,866		(9,317		)	124,549

Deferred revenue, non-current	41		1,160			1,201

Retained earnings	596,268		8,799			605,067
Altisource equity	310,887		8,799			319,686
Total equity	312,291		8,799			321,090
Total liabilities and equity	809,896		642			810,538

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

The following table summarizes the impact of adopting Topic 606 on ~~its results~~the Company’s condensed consolidated statement of operations and ~~financial position.~~comprehensive income for the three months ended June 30, 2018:



	Impact of the adoption of Topic 606
(in thousands)	As reported			Adjustments			Balances without adoption of Topic 606

Revenue	$	218,556		$	(1,203	)	$	217,353
Cost of revenue	163,206			662			163,868
Gross profit	55,350			(1,865		)	53,485
Income from operations	12,426			(1,865		)	10,561
Income before income taxes and non-controlling interests	3,071			(1,865		)	1,206
Income tax provision	(816		)	544			(272		)
Net income	2,255			(1,321		)	934
Net income attributable to Altisource	1,568			(1,321		)	247

The following table summarizes the impact of adopting Topic 606 on the Company’s condensed consolidated statement of operations and comprehensive income for the six months ended June 30, 2018:



	Impact of the adoption of Topic 606
(in thousands)	As reported			Adjustments			Balances without adoption of Topic 606

Revenue	$	415,994		$	(791	)	$	415,203
Cost of revenue	310,400			1,459			311,859
Gross profit	105,594			(2,250		)	103,344
Income from operations	19,546			(2,250		)	17,296
Loss before income taxes and non-controlling interests	(1,901		)	(2,250		)	(4,151		)
Income tax benefit	549			650			1,199
Net loss	(1,352		)	(1,600		)	(2,952		)
Net loss attributable to Altisource	(2,564		)	(1,600		)	(4,164		)

The adoption of Topic 606 did not have any impact on net cash flows used in operating, financing or investing activities on the Company’s condensed consolidated statement of cash flows for the six months ended June 30, 2018.

Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This standard ~~will require~~requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. It also amends certain financial statement presentation and disclosure requirements associated with the fair value of financial instruments. This standard ~~will be~~was effective for ~~annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early~~the Company on January 1, 2018. The adoption ~~is not permitted. Based on the Company’s analysis~~ of this ~~guidance, upon adoption of ASU No. 2016-01 the Company will reflect changes~~standard resulted in a cumulative effect adjustment to increase retained earnings and decrease accumulated other comprehensive income by $0.7 million on January 1, 2018. Changes in the fair value of ~~its available for sale securities~~the Company’s investment in ~~income. These changes~~RESI subsequent to January 1, 2018, as well as any equity investments acquired in ~~fair value are currently reflected in other comprehensive income. The Company will adopt ASU No. 2016-01 with a cumulative effect adjustment to~~ the ~~balance sheet as of the beginning of the year of adoption. The Company currently has one investment that~~future, will be ~~impacted by this standard, its investment~~reflected as a component of net income in ~~Altisource Residential Corporation (“RESI”) (see Note 4). As of September 30, 2017 and December 31, 2016,~~ the ~~unrealized loss in accumulated other comprehensive loss related to the RESI investment was $1.5 million and $1.7 million, respectively.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~. This standard introduces a new lessee model that brings substantially all leases on the balance sheet. The standard will require companies to recognize lease assets and lease liabilities on their balance sheets and disclose key information about leasing arrangements in their financial statements. This standard will be effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period. Early application of this standard is permitted. The Company is currently evaluating the impact of this guidance on its resultsCompany’s consolidated statements of operations and financial position. Based on the Company’s preliminary analysis of its lease arrangements as of September 30, 2017 where the Company is a lessee, less than $25.0 million, primarily related to office leases, would be recorded as right-of-use assets andcomprehensive income.

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

lease liabilities on the Company’s balance sheet under the new standard. The Company will continue to analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.

~~In March 2016, the FASB issued ASU No. 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~. This standard clarifies guidance on principal versus agent considerations in connection with revenue recognition. When another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606), as described above.~~

~~In April 2016, the FASB issued ASU No. 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing~~. This standard provides guidance on identifying performance obligations in a contract with a customer and clarifying several licensing considerations, including whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time) and guidance on sales-based and usage-based royalties. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606), as described above.~~

~~In May 2016, the FASB issued ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients~~. This standard addresses collectability, sales taxes and other similar taxes collected from customers, non-cash consideration, contract modifications at transition and completed contracts at transition. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606), as described above.~~Other Recently Adopted Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This standard ~~will be~~was effective for ~~annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The~~the Company ~~currently does not expect~~on January 1, 2018, and the adoption of this guidance todid not have ~~a material~~any effect on ~~its~~the Company’s condensed consolidated statement of cash flows.

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Notes to Condensed Consolidated Financial Statements (Continued)

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard ~~will require~~requires that companies recognize the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs. ~~Current~~Previous guidance ~~prohibits~~prohibited companies from recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This standard ~~will be~~was effective for ~~annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of this standard is permitted. The~~the Company ~~currently does not expect~~on January 1, 2018, and the adoption of this guidance todid not have ~~a material~~any effect on ~~its~~the Company’s results of operations and financial position.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This standard ~~will require~~requires that companies include restricted cash and restricted cash equivalents in their cash and cash equivalent balances in the statement of cash flows. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard ~~will be~~was effective for ~~annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early~~the Company on January 1, 2018, and was adopted using the retrospective transition method, as required by the standard. The adoption of this standard ~~is permitted. The Company currently does not expect~~resulted in the ~~adoption~~classification of ~~this guidance to have a material effect on its statement~~the Company’s restricted cash with cash and cash equivalents reported in the Company’s condensed consolidated statements of cash flows. As a result, the Company included $5.8 million, $3.8 million, $4.4 million and $4.1 million of ~~September~~restricted cash with cash and cash equivalents in its condensed consolidated statements of cash flows as of June 30, 2018, December 31, 2017, June 30, 2017 and December 31, 2016, ~~restricted cash was $4.2 million and $4.1 million,~~ respectively.

~~In December 2016, the FASB issued ASU No. 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The FASB issued 13 technical corrections and improvements to ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, including providing optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. The amendments in this standard also expand the information that is required to be disclosed when an entity applies one of the optional exemptions. This standard will be effective for annual periods beginning after December 15, 2017, including interim

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its results of operations and financial position in connection with its adoption of ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606), as described above.~~

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This standard clarifies the definition of a business and provides a screen to determine if a set of inputs, processes and outputs is a business. The screen requires that when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the assets acquired would not be a business. Under the new guidance, in order to be considered a business, an acquisition must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. In addition, the standard narrows the definition of the term “output” so that it is consistent with how it is described in Topic 606. This standard was effective for the Company on January 1, 2018, and the adoption of this guidance did not have any effect on the Company’s results of operations and financial position.

In February 2017, the FASB issued ASU No. ~~2014-09,~~2017-05, ~~Revenue~~Other Income-Gains and Losses from ~~Contracts~~the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This standard was issued to clarify the scope of Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with ~~Customers~~noncustomers. This standard was effective for the Company on January 1, 2018, and the adoption of this guidance did not have any effect on the Company’s results of operations and financial position.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic ~~606)~~718): Scope of Modification Accounting. This standard provides guidance about which changes to the terms or conditions of a share-based payment award require the application of modification accounting. This standard requires companies to continue to apply modification accounting, unless the fair value, vesting conditions and classification of an award all do not change as a result of the modification. This standard was effective for the Company on January 1, 2018, and the adoption of this guidance did not have any effect on the Company’s results of operations and financial position.

Future Adoption of New Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard introduces a new lessee model that brings substantially all leases on the balance sheet. This standard will require companies to recognize lease assets and lease liabilities on their balance sheets and disclose key information about leasing arrangements in their financial statements. This standard will be effective for annual periods beginning after December 15, ~~2017,~~2018, including interim periods within that reporting period. Early application of this standard is permitted. The Company ~~does not expect~~is currently evaluating the ~~adoption~~impact of this guidance on its results of operations and financial position. Based on the Company’s preliminary analysis of arrangements where the Company is a lessee, we estimate that the new standard, if implemented as of June 30, 2018, would result in approximately $17.6 million right-of-use assets and lease liabilities on the Company’s condensed consolidated balance sheet as of June 30, 2018. The Company will continue to ~~have a material effect~~analyze the impact of this guidance and refine the estimated impact on its results of operations and financial position.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard will simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Current guidance requires that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This standard will require companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period, and will be applied prospectively. Early adoption of this standard is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.

~~In February 2017, the FASB issued ASU No. 2017-05,~~ Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~. This standard was issued to clarify the scope of Subtopic 610-20,~~ ~~Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets~~, and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, although not prior to annual periods beginning after December 15, 2016. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.

~~In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~. This standard provides guidance about which changes to the terms or conditions of a share-based payment award require the application of modification accounting. This standard will require companies to continue to apply modification accounting, unless the fair value, vesting conditions and classification of an award all do not change as a result of the modification. This standard will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this standard better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedging results. This standard will be effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period. Early application is permitted. The Company currently does not expect the adoption of this guidance to have a material effect on its results of operations and financial position.

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

NOTE 2 — CUSTOMER CONCENTRATION

During the three and six months ended June 30, 2018, Ocwen ~~Financial Corporation (“Ocwen”) is~~was our largest ~~customer.~~customer, accounting for 51% of our total revenue for the six months ended June 30, 2018 (50% of our revenue for the second quarter of 2018). Ocwen is a residential mortgage loan servicer of mortgage servicing rights (“MSRs”) it owns, including those MSRs in which others have an economic interest, and a subservicer of MSRs owned by others. Ocwen purchases certain mortgage services and technology services from us under the terms of master services agreements and amendments thereto (collectively, the “Ocwen ~~Service~~Services Agreements”) with terms extending through August 2025. Certain of the Ocwen Service Agreements ~~among other things,~~ contain a “most favored nation” provision and also grant the parties the right to renegotiate ~~pricing.~~pricing, among other things. Certain of the Ocwen Service Agreements also prohibit Ocwen from establishing fee-based businesses that would directly or indirectly compete with Altisource’s services with respect to the Homeward Residential, Inc. and Residential Capital, LLC ~~servicing~~loan portfolios acquired by Ocwen in December 2012 and February 2013, respectively. ~~In addition,~~ Ocwen also purchases certain origination services from Altisource under an agreement that continues until January ~~23,~~ 2019, but which is subject to a 90 day termination right by Ocwen.

Ocwen has disclosed that on July 23, 2017 it entered into a master agreement and a transfer agreement with New Residential Investment Corp. (individually, together with one or more of its subsidiaries, or one or more of its subsidiaries individually, “NRZ”) to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s remaining interests in Ocwen’s non-government-sponsored enterprise (“non-GSE”) mortgage servicing rights (“MSRs”) and subservicing relating to approximately $110 billion in unpaid principal balance as of June 30, 2017. On August 28, 2017, the Company entered into a Cooperative Brokerage Agreement and related letter agreement with NRZ. As a result, we expect that over time NRZ would become our largest customer, potentially representing more than 50% of our revenues.

Revenue from Ocwen primarily consists of revenue earned ~~directly from Ocwen and revenue earned~~ from the ~~loans~~loan portfolios serviced by Ocwen when Ocwen designates us as the service ~~provider.~~provider and revenue earned directly from Ocwen. For the six months ended June 30, 2018 and 2017, we generated revenue from Ocwen of $210.8 million and $285.6 million, respectively ($108.8 million and $144.2 million for the second quarter of 2018 and 2017, respectively). Revenue from Ocwen as a percentage of segment and consolidated revenue was as follows:

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016

Mortgage Market 68 % 65 % 68 % 65 %
Real Estate Market 1 % — % 1 % — %
Other Businesses, Corporate and Eliminations 7 % 25 % 11 % 24 %
Consolidated revenue 58 % 56 % 58 % 56 %

For the nine months ended September 30, 2017 and 2016, we generated revenue from Ocwen of $422.1 million and $422.2 million, respectively ($136.4 million and $141.6 million for the third quarter of 2017 and 2016, respectively). Services provided to Ocwen during such periods and reported in the Mortgage Market segment included real estate asset management and sales, residential property valuation, trustee management services, property preservation and inspection services, insurance services, mortgage charge-off collections and certain software applications. Services provided to Ocwen and reported in the Real Estate Market segment included rental property management. Services provided to Ocwen and reported as Other Businesses, Corporate and Eliminations included information technology (“IT”) infrastructure management. As of September 30, 2017, accounts receivable from Ocwen totaled $23.7 million, $18.9 million of which was billed and $4.8 million of which was unbilled. As of December 31, 2016, accounts receivable from Ocwen totaled $26.2 million, $15.8 million of which was billed and $10.4 million of which was unbilled.



	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017

Mortgage Market	60	%	68	%	60	%	68	%
Real Estate Market	1	%	1	%	1	%	1	%
Other Businesses, Corporate and Eliminations	9	%	11	%	9	%	13	%
Consolidated revenue	50	%	58	%	51	%	58	%

We earn additional revenue related to the loan portfolios serviced by Ocwen when a party other than Ocwen or ~~NRZ~~the MSR owner selects Altisource as the service provider. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, we recognized revenue of ~~$118.0~~$26.2 million and ~~$146.0~~$82.9 million, respectively ($~~35.1~~11.0 million and ~~$48.0~~$41.2 million for the ~~third~~second quarter of ~~2017~~2018 and ~~2016,~~2017, respectively), related to the loan portfolios serviced by Ocwen when a party other than Ocwen or ~~NRZ~~the MSR owner selected Altisource as the service provider. These amounts are not included in deriving revenue from Ocwen as a percentage of revenue in the table above.

~~We earned revenue~~As of June 30, 2018, accounts receivable from Ocwen totaled $16.5 million, $12.2 million of which was billed and $4.3 million of which was unbilled. As of December 31, 2017, accounts receivable from Ocwen totaled $18.9 million, $13.6 million of which was billed and $5.3 million of which was unbilled.

As of March 31, 2018, New Residential Investment Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “NRZ”) owned Ocwen-serviced MSRs and rights to MSRs (the “Subject MSRs”) with underlying unpaid principal balances (“UPB”) of $98.3 billion. As of March 31, 2018, Ocwen serviced and subserviced MSRs with underlying UPB of $173.4 billion. As previously disclosed, in July 2017, Ocwen and NRZ entered into agreements to convert NRZ’s economic rights to the Subject MSRs into fully-owned MSRs in exchange for payments from NRZ ~~of $0.8 million related~~ to ~~the MSRs transferred by~~ Ocwen ~~to NRZ in the third quarter of 2017. We earned additional revenue of $1.0 million in the third quarter of 2017 related to the MSRs transferred by Ocwen to NRZ~~ when ~~a party other than NRZ selects Altisource as the service provider.~~

~~NOTE 3— ACQUISITION~~

~~Granite Acquisition~~

On July 29, 2016, we acquired certain assets and assumed certain liabilities of Granite Loan Management of Delaware, LLC (“Granite”) for $9.5 million in cash. Granite provides residential and commercial loan disbursement processing, risk mitigationsuch

Table of Content

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Subject MSRs were transferred. The transfers are subject to certain third party consents. Ocwen disclosed that under these agreements, Ocwen would subservice the transferred Subject MSRs for an initial term of five years, and ~~construction inspection~~the agreements provided for the conversion of the existing arrangements into a more traditional subservicing arrangement.

In January 2018, Ocwen disclosed that it and NRZ entered into new agreements to accelerate the implementation of certain parts of their July 2017 arrangement in order to achieve the intent of the July 2017 agreements sooner while Ocwen continues the process of obtaining the third party consents necessary to transfer the Subject MSRs to NRZ.

On August 28, 2017, Altisource, through its licensed subsidiaries, entered into a Cooperative Brokerage Agreement, as amended, and related letter agreement (collectively, the “Brokerage Agreement”) with NRZ which extends through August 2025. Under this agreement and related amendments, Altisource remains the exclusive provider of brokerage services for REO associated with the Subject MSRs when Ocwen transfers such MSRs to ~~lenders.~~ NRZ or when NRZ acquires both an additional economic interest in such Subject MSRs and the right to designate the broker for REO properties in such portfolios. The ~~Granite acquisition~~Brokerage Agreement provides that Altisource is the exclusive provider of brokerage services for REO associated with the Subject MSRs, irrespective of the sub-servicer. NRZ’s brokerage subsidiary receives a cooperative brokerage commission on the sale of certain REO properties from these portfolios subject to certain exceptions.

For the three and six months ended June 30, 2018, we earned revenue from NRZ of $8.9 million and $19.2 million, respectively, following the transfer of certain of the Subject MSRs from Ocwen to NRZ (the “Transferred MSRs”) (no comparative amounts in 2017). For the three and six months ended June 30, 2018, we earned additional revenue of $26.7 million and $42.8 million relating to the Transferred MSRs when a party other than NRZ selects Altisource as the service provider (no comparative amounts in 2017).

On August 28, 2017, Altisource and NRZ also entered into a non-binding Letter of Intent, as amended, to enter into a Services Agreement (the “Services LOI”), setting forth the terms pursuant to which Altisource would remain the exclusive service provider of fee-based services for the Subject MSRs through August 2025. The Services LOI was amended to continue through August 31, 2018.

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

We anticipate that revenue from NRZ will increase over time and revenue from Ocwen will decrease. As Subject MSRs continue to transfer from Ocwen to NRZ and following the anticipated execution of the Services Agreement, we expect that NRZ will become our largest customer. Had all of the Subject MSRs been transferred to NRZ and the Brokerage Agreement and the Services Agreement with NRZ been in place as of January 1, 2018, we estimate that approximately 48% of our revenue for the six months ended June 30, 2018 would have been related to NRZ. There can be no assurance that the parties will reach an agreement with respect to the ~~Company’s results of operations or financial position.~~

~~The final allocation~~terms of the ~~purchase price is as follows:~~

(in thousands)

Accounts receivable, net $ 1,024
Prepaid expenses 22
Other assets 25
Premises and equipment, net 299
Non-compete agreements 100
Trademarks and trade names 100
Customer relationships 3,400
Goodwill 4,827
9,797
Accounts payable and accrued expenses (57 )
Other current liabilities (192 )

Purchase price $ 9,548
Services Agreement or that a Services Agreement will be entered into on a timely basis or at all.

NOTE 43 — ~~AVAILABLE FOR SALE~~INVESTMENT IN EQUITY SECURITIES

During ~~the nine months ended September 30,~~ 2016, we purchased 4.1 million shares of RESI common stock for $48.2 million. This investment is ~~classified as available for sale and~~ reflected in the condensed consolidated balance sheets at a fair value ~~at the respective balance sheet dates ($46.0~~of $43.2 million as of ~~September~~June 30, ~~2017~~2018 and ~~$45.8~~$49.2 million as of December 31, ~~2016). Unrealized gains~~2017. During the three and ~~losses~~six months ended June 30, 2018, we recognized an unrealized gain (loss) of $1.5 million and $(6.0) million, respectively, on ~~available for sale securities are~~our investment in RESI in other income (expense), net in the condensed consolidated statements of operations and comprehensive income as a result of a change in the market value of RESI common shares. During the three and six months ended June 30, 2017, an unrealized gain (loss) on our investment in RESI of $(7.0) million and $5.7 million, respectively, net of income tax expense (benefit), was reflected in other comprehensive income ~~unless there is an impairment that is other than temporary. In the event that a decline in market value is other than temporary, we would record a charge to earnings and a new cost basis~~ in the ~~investment would be established.~~condensed consolidated statements of operations and comprehensive income (see Note 1 for additional information on the adoption of the new accounting standard on investments in equity securities). During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, we earned dividends of ~~$1.9~~$1.2 million ~~and $1.0 million, respectively~~in each period related to this investment ($0.6 million ~~for~~in both the ~~third~~second quarter of ~~2017~~2018 and ~~no comparative amount for the third quarter~~2017).

Table of ~~2016), related~~Content

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to this investment. In addition, during the nine months ended September 30, 2016, we incurred expenses of $3.4 million (no comparative amounts in 2017 and the third quarter of 2016) related to this investment.Condensed Consolidated Financial Statements (Continued)

NOTE 54 — ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consists of the following:


(in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017

Billed	$	48,108		$	58,392		$	39,313		$	40,787
Unbilled	23,951			39,853			17,446			22,532
	72,059			98,245
Subtotal							56,759			63,319
Less: Allowance for doubtful accounts	(8,882		)	(10,424		)	(11,333		)	(10,579		)

Total	$	63,177		$	87,821		$	45,426		$	52,740

Unbilled ~~receivables~~accounts receivable consist primarily of certain real estate asset management and sales services for which we generally recognize revenue when the service is provided but collect upon closing of the sale, and ~~default management~~foreclosure trustee services, for which we generally recognize revenues over the service delivery period but bill following completion of the service. We also include amounts in unbilled ~~receivables~~accounts receivable that are earned during a month and billed in the following month.

~~Table of Content~~

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

NOTE 65 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017

Short-term investments in real estate	$	24,644	$	13,025	$	35,289	$	29,405
Maintenance agreements, current portion					4,961		8,014
Income taxes receivable	13,219		5,186		11,396		9,227
Prepaid expenses	7,712		6,919		7,501		7,898
Maintenance agreements, current portion	4,658		6,590
Litigation settlement insurance recovery	—		4,000
Other current assets	9,647		6,888		10,862		10,198

Total	$	59,880	$	42,608	$	70,009	$	64,742

NOTE 76 — PREMISES AND EQUIPMENT, NET

Premises and equipment, net consists of the following:


(in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017

Computer hardware and software	$	175,512		$	164,877		$	182,606		$	179,567
Leasehold improvements							32,658			33,417
Furniture and fixtures							13,695			14,092
Office equipment and other	12,077			20,188			8,887			9,388
Furniture and fixtures	13,826			13,997
Leasehold improvements	33,570			33,808
	234,985			232,870			237,846			236,464
Less: Accumulated depreciation and amortization	(154,162		)	(129,397		)	(179,026		)	(163,191		)

Total	$	80,823		$	103,473		$	58,820		$	73,273

Depreciation and amortization expense totaled ~~$27.4~~$17.0 million and ~~$27.5~~$18.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively ($~~8.5~~8.3 million and ~~$9.2~~$8.9 million for the ~~third~~second quarter of 2018 and 2017, respectively), and ~~2016, respectively). These expenses are~~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 and comprehensive income.

~~NOTE 8 — GOODWILL AND INTANGIBLE ASSETS, NET~~

~~Goodwill~~

~~The following is a summary of goodwill by segment:~~

(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Total

Balance as of September 30, 2017 and December 31, 2016 $ 73,259
$ 10,056
$ 2,968
$ 86,283

Table of Content

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The following is a summary of goodwill by segment:



(in thousands)	Mortgage Market		Real Estate Market		Other Businesses, Corporate and Eliminations		Total

Balance as of June 30, 2018 and December 31, 2017	$	73,259	$	10,056	$	2,968	$	86,283

Intangible ~~assets,~~Assets, net

Intangible assets, net consist of the following:


	Weighted average estimated useful life (in years)		Gross carrying amount								Accumulated amortization								Net book value							Weighted average estimated useful life (in years)		Gross carrying amount						Accumulated amortization								Net book value
(in thousands)		September 30, 2017				December 31, 2016				September 30, 2017				December 31, 2016				September 30, 2017				December 31, 2016					June 30, 2018			December 31, 2017			June 30, 2018				December 31, 2017				June 30, 2018			December 31, 2017

Definite lived intangible assets:
Trademarks and trade names		13		$	15,354			$	15,354			$	(8,630	)		$	(7,724	)		$	6,724			$	7,630
Customer related intangible assets	10		277,828				277,828				(181,019		)		(156,980		)		96,809				120,848			10		$	273,172		$	277,828		$	(196,315	)		$	(188,258	)		$	76,857		$	89,570
Operating agreement	20		35,000				35,000				(13,424		)		(12,104		)		21,576				22,896			20		35,000			35,000			(14,748		)		(13,865		)		20,252			21,135
Trademarks and trade names																										14		12,554			15,354			(6,480		)		(8,881		)		6,074			6,473
Non-compete agreements	4		1,560				1,560				(799		)		(507		)		761				1,053			4		1,230			1,560			(872		)		(897		)		358			663
Intellectual property	10		300				300				(108		)		(85		)		192				215			10		300			300			(130		)		(115		)		170			185
Other intangible assets	5		3,745				3,745				(1,518		)		(955		)		2,227				2,790			5		3,745			3,745			(2,082		)		(1,706		)		1,663			2,039

Total			$	333,787			$	333,787			$	(205,498	)		$	(178,355	)		$	128,289			$	155,432				$	326,001		$	333,787		$	(220,627	)		$	(213,722	)		$	105,374		$	120,065

Amortization expense for definite lived intangible assets was ~~$27.1~~$14.7 million and ~~$36.4~~$18.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively ($~~8.6~~7.5 million and ~~$11.5~~$9.4 million for the ~~third~~second quarter of ~~2017~~2018 and ~~2016,~~2017, respectively). Anticipated annual definite lived intangible asset amortization ~~for 2017 through~~is $25.7 million in 2018, $20.6 million in 2019, $17.9 million in 2020, $13.4 million in 2021 ~~is $34.6~~and $7.3 million ~~$26.2 million, $21.8 million, $18.2 million and $12.3 million, respectively.~~in 2022.

NOTE 98 — OTHER ASSETS

Other assets consist of the following:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017

Security deposits	$	5,164	$	5,508	$	4,807	$	5,304
Restricted cash	4,200		4,127		5,783		3,837
Maintenance agreements, non-current portion	503		853
Other	701		767		584		1,054

Total	$	10,568	$	11,255	$	11,174	$	10,195

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

~~Accounts payable and accrued expenses consist of the following:~~

(in thousands) September 30,
2017 December 31,
2016

Accounts payable $ 12,251
$ 8,787
Accrued salaries and benefits 42,312
47,614
Accrued expenses - general 28,789
26,426
Income taxes payable —
308

Total $ 83,352
$ 83,135

Table of Content

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 9 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable and accrued expenses consist of the following:



(in thousands)	June 30, 2018		December 31, 2017

Accounts payable	$	13,781	$	15,682
Accrued expenses - general	26,343		27,268
Accrued salaries and benefits	27,062		41,363
Income taxes payable	460		87

Total	$	67,646	$	84,400

Other current liabilities consist of the following:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017

Unfunded cash account balances	$	5,054	$	7,137	$	3,147	$	5,900
Other	5,928		11,924		2,742		3,514

Total	$	10,982	$	19,061	$	5,889	$	9,414

NOTE 1110 — LONG-TERM DEBT

Long-term debt consists of the following:


(in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017

Senior secured term loan	$	425,067		$	479,653
Term loans							$	403,760		$	413,581
Less: Debt issuance costs, net	(3,445		)	(4,486		)	(4,317		)	(3,158		)
Less: Unamortized discount, net	(1,246		)	(1,622		)	(3,911		)	(1,142		)
Net long-term debt	420,376			473,545			395,532			409,281
Less: Current portion	(5,945		)	(5,945		)	(41,200		)	(5,945		)

Long-term debt, less current portion	$	414,431		$	467,600		$	354,332		$	403,336

On ~~November 27, 2012, Altisource Solutions S.à r.l., a wholly-owned subsidiary of~~April 3, 2018, Altisource Portfolio Solutions S.A., and its wholly-owned subsidiary, Altisource S.à r.l. entered into a ~~senior secured term loan~~credit agreement (the “Credit Agreement”) with ~~Bank of America, N.A.~~Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and certain lenders. Under the Credit Agreement, Altisource borrowed $412.0 million in the form of Term B Loans and obtained a $15.0 million revolving credit facility. The Term B Loans mature in April 2024 and the revolving credit facility matures in April 2023. Altisource Portfolio Solutions S.A. and certain subsidiaries are guarantors of the term loan and the revolving credit facility (collectively, the “Guarantors”). ~~We subsequently entered into three amendments~~

Proceeds from the Term B Loans were used to repay the Company’s prior senior secured term loan, ~~agreement to increase~~which had an outstanding balance of $412.1 million as of April 3, 2018. In connection with the ~~principal amount~~refinancing, we recognized a loss of $4.4 million from the ~~senior secured term loan~~write-off of unamortized debt issuance costs and among other changes, re-establish the $200.0 million incremental term loan facility accordion, lower the interest rate, extend the maturity date by approximately one year and increase the maximum amount of Restricted Junior Payments (as defineddebt discount in the ~~senior secured term loan agreement;~~second quarter of 2018. This loss was included in other ~~capitalized terms, unless defined herein, are defined~~income (expense), net in the ~~senior secured term loan agreement).~~condensed consolidated statements of operations and comprehensive income.

~~After giving effect to the third amendment entered into on August 1, 2014, the term loan~~The Term B Loans must be repaid in ~~equal~~ consecutive quarterly principal installments ~~of $1.5~~with $24.7 million due in 2018, $41.2 million due in 2019, $25.7 million due in 2020 and $12.4 million due annually thereafter, with the balance due at maturity. During the three months ended June 30, 2018, the Company repaid $8.2 million of the Term B Loans. All amounts outstanding under the ~~senior secured term loan agreement~~Term B Loans will become due on the earlier of (i) ~~December 9, 2020~~April 3, 2024, and (ii) the date on which the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders (as defined in the Credit Agreement; other capitalized terms, unless defined herein, are defined in the Credit Agreement) or as otherwise provided in the ~~senior secured term loan agreement~~Credit Agreement upon the occurrence of any event of ~~default under the senior secured term loan agreement.~~default.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

In addition to the scheduled principal payments, subject to certain exceptions, the ~~term loan is~~Term B Loans are subject to mandatory prepayment upon issuances of debt, casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if the leverage ratio is greater than 3.00 to 1.00, as calculated in accordance with the provisions of the ~~senior secured term loan agreement~~Credit Agreement (the percentage increases if the leverage ratio exceeds 3.50 to 1.00). Certain mandatory prepayments reduce future contractual amortization payments by an amount equal to the mandatory prepayment. No mandatory prepayments were owed for the ~~nine~~three months ended ~~September~~June 30, ~~2017.~~2018.

~~During~~Altisource may incur incremental indebtedness under the ~~nine months ended September 30, 2017, we repurchased portions of our senior secured term loan with~~Credit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate ~~par value of $50.1~~incremental principal amount not to exceed $125.0 million, at a weighted average discount of 12.2%, recognizing a net gain of $5.4 million on the early extinguishment of debt (repurchased aggregate par value of $24.1 million at a weighted average discount of 7.5%, recognizing a net gain of $1.5 million on the early extinguishment of debt for the third quarter of 2017). During the nine months ended September 30, 2016, we repurchased portions of our senior secured term loan with an aggregate par value of $51.0 million at a weighted average discount of 13.2%, recognizing a net gain of $5.5 million on the early extinguishment of debt (no repurchasessubject to certain conditions set forth in the ~~third quarter~~Credit Agreement, including a sublimit of ~~2016).~~$80.0 million with respect to incremental revolving credit commitments. The lenders have no obligation to provide any incremental indebtedness.

The ~~term loan bears~~Term B Loans bear interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate. Adjusted Eurodollar Rate term loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Adjusted Eurodollar Rate for ~~the applicable~~a three month interest period and (y) 1.00% plus (ii) ~~a 3.50% margin.~~4.00%. Base Rate term loans bear interest at a rate per annum equal to the sum of (i) the greater of (x) the Base Rate and (y) 2.00% plus (ii) ~~a 2.50% margin.~~3.00%. The interest rate at ~~September~~June 30, ~~2017~~2018 was ~~4.74%~~6.33%.

~~Term loan payments are~~Loans under the revolving credit facility bear interest at rates based upon, at our option, the Adjusted Eurodollar Rate or the Base Rate. Adjusted Eurodollar Rate revolving loans bear interest at a rate per annum equal to the sum of (i) the Adjusted Eurodollar Rate for a three month interest period plus (ii) 4.00%. Base Rate revolving loans bear interest at a rate per annum equal to the sum of (i) the Base Rate plus (ii) 3.00%. The unused commitment fee is 0.50%. There were no borrowings outstanding under the revolving credit facility as of June 30, 2018.

The payment of all amounts owing by Altisource under the Credit Agreement is guaranteed by the Guarantors and ~~are~~is secured by a pledge of all equity interests of certain subsidiaries of Altisource, as well as a lien on substantially all of the assets of Altisource ~~Solutions~~ S.à r.l. and the Guarantors, subject to certain exceptions.

~~Table of Content~~

~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

The ~~senior secured term loan agreement~~Credit Agreement includes covenants that restrict or limit, among other things, our ability, ~~to: create~~subject to certain exceptions and baskets, to incur indebtedness; incur liens ~~and encumbrances; incur additional indebtedness;~~on our assets; sell, transfer or dispose of assets; make Restricted Junior Payments including share repurchases, dividends and repayment of junior indebtedness; ~~change lines~~make investments; dispose of ~~business;~~equity interests of any Material Subsidiaries; engage in a line of business substantially different than existing businesses and businesses reasonably related, complimentary or ancillary thereto; amend material debt agreements or other material contracts; engage in certain transactions with affiliates; enter into sale/leaseback transactions; grant negative pledges or agree to such other restrictions relating to subsidiary dividends and distributions; make changes to our fiscal ~~year~~year; and engage in mergers and ~~consolidations.~~consolidations; and to the extent any Revolving Credit Loans are outstanding on the last day of a fiscal quarter, permit the Total Leverage Ratio to be greater than 3.50:1.00 as of the last day of such fiscal quarter, subject to a customary cure provision (the “Revolving Financial Covenant”).

The ~~senior secured term loan agreement~~Credit Agreement contains certain events of default including (i) failure to pay principal when due or interest or any other amount owing on any other obligation under the ~~senior secured term loan agreement~~Credit Agreement within five days of becoming due, (ii) material incorrectness of representations and warranties when made, (iii) breach of certain other covenants, subject to cure periods described in the Credit Agreement, (iv) a breach of the Revolving Financial Covenant, subject to a customary cure provision and not an Event of Default with respect to the Term Loans unless and until the Required Revolving Lenders accelerate the Revolving Credit Loans, (v) failure to pay principal or interest on any other debt that equals or exceeds $40.0 million when due, ~~(v)~~(vi) default on any other debt that equals or exceeds $40.0 million that causes, or gives the holder or holders of such debt the ability to cause, an acceleration of such debt, ~~(vi)~~(vii) occurrence of a Change of Control, ~~(vii)~~(viii) bankruptcy and insolvency events, ~~(viii)~~(ix) entry by a court of one or more judgments against us in an amount in excess of $40.0 million that remain unbonded, undischarged or unstayed for a certain number of days after the entry thereof, ~~(ix)~~(x) the occurrence of certain ERISA events and (x) the failure of certain Loan Documents to be in full force and effect. If any event of default occurs and is not cured within applicable grace periods set forth in the ~~senior secured term loan agreement~~Credit Agreement or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.

AsAt June 30, 2018, debt issuance costs were $4.3 million, net of ~~September 30,~~$0.2 million of accumulated amortization. At December 31, 2017, debt issuance costs related to the prior term loans were ~~$3.4~~$3.2 million, net of ~~$6.8 million of accumulated amortization. As of December 31, 2016, debt issuance costs were $4.5 million, net of $5.8~~$7.1 million of accumulated amortization.

In the second quarter of 2017, we repurchased portions of our prior senior secured term loan with an aggregate par value of $26.0 million at a weighted average discount of 16.5%, recognizing a net gain of $3.9 million on the early extinguishment of debt (no comparative amounts in 2018). The net gain was included in other income (expense), net in the condensed consolidated statements of operations and comprehensive income.

Table of Content

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 1211 — OTHER NON-CURRENT LIABILITIES

Other non-current liabilities consist of the following:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017

Income tax liabilities					$	5,605	$	5,955
Deferred revenue	$	3,369	$	5,680	41		2,101
Other non-current liabilities	4,427		4,800		3,761		4,226

Total	$	7,796	$	10,480	$	9,407	$	12,282

NOTE 1312 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

The following table presents the carrying amount and estimated fair value of financial instruments and certain liabilities measured at fair value as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The following fair values are estimated using market information and what the Company believes to be appropriate valuation methodologies under GAAP:


	September 30, 2017								December 31, 2016								June 30, 2018								December 31, 2017
(in thousands)	Carrying amount		Fair value						Carrying amount		Fair value						Carrying amount		Fair value						Carrying amount		Fair value
			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3				Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	114,123	$	114,123	$	—	$	—	$	149,294	$	149,294	$	—	$	—	$	84,569	$	84,569	$	—	$	—	$	105,006	$	105,006	$	—	$	—
Restricted cash	4,200		4,200		—		—		4,127		4,127		—		—		5,783		5,783		—		—		3,837		3,837		—		—
Available for sale securities	46,044		46,044		—		—		45,754		45,754		—		—
Investment in equity securities																	43,185		43,185		—		—		49,153		49,153		—		—

Liabilities:
Acquisition contingent consideration	401		—		—		401		376		—		—		376
Long-term debt	425,067		—		399,563		—		479,653		—		474,856		—		403,760		—		401,067		—		413,581		—		407,377		—

Fair Value Measurements on a Recurring Basis

Cash and cash equivalents and restricted cash are carried at amounts that approximate their fair values due to the highly liquid nature of these instruments and were measured using Level 1 inputs.

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~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

~~Available for sale~~Investment in equity securities ~~are~~is carried at fair value and ~~consist~~consists of 4.1 million shares of RESI common stock. ~~Available for sale~~The investment in equity securities ~~are~~is measured using Level 1 inputs as ~~these securities have~~this security has a quoted ~~prices~~price in an active ~~markets.~~market.

The fair value of our long-term debt is based on quoted market prices. Based on the frequency of trading, we do not believe that there is an active market for our debt. Therefore, the quoted prices are considered Level 2 inputs.

~~In accordance with ASC Topic 805,~~ ~~Business Combinations~~, liabilities for contingent consideration are reflected at fair value and adjusted each reporting period with the change in fair value recognized in earnings. Liabilities for acquisition related contingent consideration were recorded in connection with acquisitions in prior years. We measure the liabilities for acquisition related contingent consideration using Level 3 inputs as they are determined based on the present value of future estimated payments, which include sensitivities pertaining to discount rates and financial projections.

There were no transfers between different levels during the periods presented.

Concentrations of Credit Risk

Financial instruments that subject us to concentrations of credit risk primarily consist of cash and cash equivalents and accounts receivable. Our policy is to deposit our cash and cash equivalents with larger, highly rated financial institutions. The Company derives ~~the largest portion~~approximately 50% of its revenues from Ocwen (see Note 2 for additional information on Ocwen revenues and accounts receivable balance). The Company mitigates its concentrations of credit risk with respect to accounts receivable by actively monitoring past due accounts and the economic status of larger customers, if known.

NOTE 1413 — SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Share Repurchase Program

On May ~~17, 2017,~~15, 2018, our shareholders approved the renewal of the share repurchase program previously approved by the shareholders on May ~~18, 2016,~~17, 2017, which replaced the previous share repurchase program. ~~Under the program, we~~We are authorized to purchase up to ~~4.6~~4.3 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval, at a minimum price of $1.00 per share and a maximum price of $500.00 per share, for a period of five years from the date of approval. Under the existing and prior programs, we purchased 1.1 million shares of common stock at an average price of $22.48 per share during the nine months ended September 30, 2017 and 1.3 million shares at an average price of $26.94 per share during the nine months ended September 30, 2016 (0.3 million shares at an average price of $23.48 per share for the third quarter of 2017 and 0.5 million shares at an average price of $28.68 per share for the third quarter of 2016). As of ~~September~~

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

June 30, ~~2017,~~2018, approximately ~~3.9~~4.2 million shares of common stock remain available for repurchase under the program. ~~Our senior secured term loan~~We purchased 0.8 million shares of common stock at an average price of $27.39 per share during the six months ended June 30, 2018 and 0.8 million shares at an average price of $22.15 per share during the six months ended June 30, 2017 (0.4 million shares at an average price of $27.14 per share for the second quarter of 2018 and 0.4 million shares at an average price of $19.17 per share for the second quarter of 2017). Luxembourg law limits share repurchases to the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings, less the value of shares repurchased. As of June 30, 2018, we can repurchase up to approximately $142 million of our common stock under Luxembourg law. The Credit Agreement also limits the amount we can spend on share repurchases, which was approximately ~~$403~~$456 million as of ~~September~~June 30, ~~2017,~~2018, and may prevent repurchases in certain circumstances.

Share-Based Compensation

We issue share-based awards in the form of stock options, restricted shares and restricted ~~shares~~share units for certain employees, officers and directors. We ~~recorded~~recognized share-based compensation expense of ~~$3.2~~$4.1 million and ~~$4.7~~$1.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively ($~~1.4~~1.9 million and ~~$1.1~~$1.2 million for the ~~third~~second quarter of ~~2017~~2018 and ~~2016,~~2017, respectively). As of ~~September~~June 30, ~~2017,~~2018, estimated unrecognized compensation costs related to share-based awards amounted to ~~$9.4~~$14.5 million, which we expect to recognize over a weighted average remaining requisite service period of approximately ~~2.15~~2.12 years.

In connection with the January 1, 2017 adoption of ~~FASB~~ ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ~~(see Note 1)~~, the Company made an accounting policy election to account for forfeitures in compensation expense as they occur, rather than continuing to apply the Company’s previous policy of estimating forfeitures. Prior to this accounting change, share-based compensation expense for stock options and restricted shares was ~~recorded~~recognized net of estimated forfeiture rates ranging from 0% to 40%. This policy election resulted in a cumulative effect adjustment of $0.9 million to retained earnings and additional paid-in capital as of January 1, 2017 using the modified retrospective transition method.

Stock Options

Stock option grants are composed of a combination of service-based, market-based and performance-based options.

Service-Based Options. These options generally vest over three or four years with equal annual vesting and expire on the earlier of ten years after the date of grant or following termination of service. A total of ~~736~~575 thousand service-based awards were outstanding as of ~~September~~June 30, ~~2017.~~2018.

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~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

Market-Based Options. These option grants generally have two components, each of which vests only upon the achievement of certain criteria. The first component, which we refer to as “ordinary performance” grants, generally 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. The remaining third of the market-based options, which we refer to as “extraordinary performance” grants, generally 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. Market-based awards vest in three or four year installments with the first installment vesting upon the achievement of the criteria and the remaining installments vesting thereafter in equal annual installments. Market-based options generally expire on the earlier of ten years after the date of grant or following termination of service, unless the performance criteria is met prior to termination of service or in the final three years of the option term, in which case vesting will generally continue in accordance with the provisions of the award agreement. A total of ~~935~~684 thousand market-based awards were outstanding as of ~~September~~June 30, ~~2017.~~2018.

Performance-Based Options. These option grants generally begin to vest upon the achievement of certain specific financial measures. Generally, the awards begin vesting if the performance criteria are achieved; ~~one-third~~one-fourth vest on each anniversary of the grant date. For certain other financial measures, awards cliff-vest upon the achievement of the specific performance during the period from ~~2017~~2018 through 2021. The award of performance-based options is adjusted based on the level of achievement specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in ~~70%~~50% to ~~150%~~200% of the option grants, depending upon performance achieved. If the performance criteria achieved is below a certain threshold, the award is canceled. The options expire on the earlier of ten years after the date of grant or following termination of service. There were ~~126~~282 thousand performance-based awards outstanding as of ~~September~~June 30, ~~2017.~~2018.

The Company granted ~~216~~272 thousand stock options (at a weighted average exercise price of ~~$34.07~~$25.06 per share) and ~~143~~129 thousand stock options (at a weighted average exercise price of ~~$29.22~~$39.13 per share) during the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ respectively.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

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

~~Nine~~Six months ended
~~September~~June 30, ~~2017~~2018

~~Nine~~Six months ended
~~September~~June 30, ~~2016~~2017

Black-Scholes

Binomial

Black-Scholes

Binomial

Risk-free interest rate (%)

~~1.89 -~~2.66 – 2.98

1.64 – 2.83

2.06 – 2.29

0.77 -– 2.38

~~1.25 - 1.89~~

~~0.23 - 1.97~~

Expected stock price volatility (%)

70.31 – 71.86

71.81 – 71.86

61.49 ~~- 71.31~~– 66.68

66.68 ~~- 71.31~~

~~59.75 - 62.14~~

~~59.76 - 62.14~~

Expected dividend yield

—

Expected option life (in years)

6.00 ~~- 7.50~~– 6.25

~~2.55 -~~2.56 – 4.32

6.00 ~~- 6.25~~– 7.50

~~4.54 - 4.88~~3.53 – 3.85

Fair value

$~~13.57 -~~16.17 – $19.06

$14.67 – $18.28

$23.91 – $24.80

$~~11.94 -~~23.54 – $24.30

~~$11.15 - $18.60~~

~~$11.06 - $19.27~~

We determined the expected option life of all service-based stock option grants using the simplified method. We use the simplified method because we believe that our historical data does not provide a reasonable basis upon which to estimate expected option life.

The following table summarizes the weighted average grant date fair value of stock options granted per share, the total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the ~~period~~periods presented:

Nine months ended September 30,
(in thousands, except per share amounts) 2017 2016

Weighted average grant date fair value of stock options granted per share $ 20.95
$ 16.85
Intrinsic value of options exercised 2,524
17,280
Grant date fair value of stock options that vested 2,063
2,372

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~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)



	Six months ended June 30,
(in thousands, except per share amounts)	2018		2017

Weighted average grant date fair value of stock options granted per share	$	16.27	$	24.23
Intrinsic value of options exercised	4,393		875
Grant date fair value of stock options that vested	1,334		1,693

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

Outstanding at December 31, 2016	1,996,509		$	25.98	5.32	$	15,942
Outstanding at December 31, 2017								1,745,906		$	28.20	4.96	$	10,202
Granted	216,430		34.07					271,876		25.06
Exercised	(192,378	)	10.83					(295,752	)	9.48
Forfeited	(222,920	)	31.21					(180,578	)	33.91

Outstanding at September 30, 2017	1,797,641		27.93		5.14	8,413
Outstanding at June 30, 2018								1,541,452		30.56		5.76	5,235

Exercisable at September 30, 2017	1,170,148		22.56		3.48	7,723
Exercisable at June 30, 2018								921,627		27.03		3.96	5,132

During the second quarter of 2018, the Company modified the performance thresholds that are required to be met in order for vesting to occur for 263 thousand stock options granted to 16 employees in the first quarter of 2018. The award modification did not change the inputs into the valuation model or the Company’s assessment of the probability of vesting as of the effective date of the modifications. Consequently, no incremental compensation expense was required as a result of this modification.

Other Share-Based Awards

The Company’s other share-based and similar types of awards are composed of restricted shares and, ~~through August 29, 2016, Equity Appreciation Rights (“EAR”).~~beginning in 2018, restricted share units. The restricted shares and restricted share units are composed of a combination of service-based awards and performance-based awards.

Service-Based Awards. These awards generally vest over one to four years with ~~either~~vesting in equal annual ~~cliff-vesting,~~installments, vesting of all of the restricted shares at the end of the vesting period or vesting beginning after two years of service. A total of ~~272~~475 thousand service-based awards were outstanding as of ~~September~~June 30, ~~2017.~~2018.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Performance-Based Awards. These awards generally begin to vest upon the achievement of certain specific financial measures. Generally, the awards begin vesting if the performance criteria are achieved; one-third vest on each anniversary of the grant date. The ~~award~~number of performance-based restricted shares ~~is adjusted~~that may vest will be based on the level of achievement, as specified in the award agreements. If the performance criteria achieved is above threshold performance levels, participants have the opportunity to vest in 80% to 150% of the restricted share award, depending on performance level achieved. If the performance criteria achieved is below a certain threshold, the award is canceled. A total of 42two thousand performance-based awards were outstanding as of ~~September~~June 30, ~~2017.~~2018.

The Company granted ~~189~~305 thousand restricted shares and restricted share units (at a weighted average grant date fair value of ~~$30.94~~$25.23 per share) during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

The following table summarizes the activity related to our restricted ~~shares:~~shares and restricted share units:



	Number of restricted shares

Outstanding at December 31, ~~2016~~2017	~~231,730~~356,509
Granted	~~188,622~~305,282
Issued	(~~49,538~~88,043	)
Forfeited/canceled	(~~56,575~~96,853	)

Outstanding at ~~September~~June 30, ~~2017~~2018	~~314,239~~476,895

~~Effective August 29, 2016, the EAR plans were terminated.~~

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

NOTE 1514 — REVENUE

Revenue includes service revenue, reimbursable expenses and non-controlling interests. Service revenue consists of amounts attributable to our fee-based services and sales of short-term investments in real estate. Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup. Non-controlling interests represent the earnings of Lenders One, a consolidated entity that is a mortgage cooperative managed, but not owned, by ~~Altisource, and~~Altisource. Lenders One is included in revenue and reduced from net income to arrive at net income attributable to Altisource (see Note 1).

The components of revenue were as follows:


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
(in thousands)	2017		2016		2017		2016		2018		2017		2018		2017

Service revenue	$	224,308	$	239,782	$	692,254	$	715,386	$	208,861	$	238,107	$	397,627	$	467,946
Reimbursable expenses	9,866		12,080		31,786		41,317		9,008		11,891		17,155		21,920
Non-controlling interests	805		883		2,107		1,973		687		687		1,212		1,302

Total	$	234,979	$	252,745	$	726,147	$	758,676	$	218,556	$	250,685	$	415,994	$	491,168

As discussed in Note 1, the Company adopted Topic 606 effective January 1, 2018 using the cumulative effect method.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

Disaggregation of Revenue

Disaggregation of total revenues by segment and major source is as follows:



	Three months ended June 30, 2018
(in thousands)	Revenue recognized when services are performed or assets are sold		Revenue related to technology platforms and professional services		Reimbursable expenses revenue		Total revenue

Mortgage Market:
Servicer Solutions	$	139,084	$	18,525	$	8,460	$	166,069
Origination Solutions	10,243		2,292		58		12,593
Total Mortgage Market	149,327		20,817		8,518		178,662

Real Estate Market:
Consumer Real Estate Solutions	2,312		—		—		2,312
Real Estate Investor Solutions	21,352		—		481		21,833
Total Real Estate Market	23,664		—		481		24,145

Other Businesses, Corporate and Eliminations	14,215		1,525		9		15,749
Total revenue	$	187,206	$	22,342	$	9,008	$	218,556



	Six months ended June 30, 2018
(in thousands)	Revenue recognized when services are performed or assets are sold		Revenue related to technology platforms and professional services		Reimbursable expenses revenue		Total revenue

Mortgage Market:
Servicer Solutions	$	268,620	$	36,798	$	16,062	$	321,480
Origination Solutions	19,428		4,978		114		24,520
Total Mortgage Market	288,048		41,776		16,176		346,000

Real Estate Market:
Consumer Real Estate Solutions	3,717		—		2		3,719
Real Estate Investor Solutions	34,750		—		956		35,706
Total Real Estate Market	38,467		—		958		39,425

Other Businesses, Corporate and Eliminations	27,647		2,901		21		30,569
Total revenue	$	354,162	$	44,677	$	17,155	$	415,994

Contract Balances

Our contract assets consist of unbilled accounts receivable (see Note 4). Our contract liabilities consist of current deferred revenue as reported on the condensed consolidated balance sheets and non-current deferred revenue (see Note 11). Revenue recognized that was included in the contract liability at the beginning of the period, including amounts added to the contract liability as part of the cumulative effect of the adopting Topic 606, was $5.4 million and $11.3 million for the three and six months ended June 30, 2018, respectively.

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 1615 — 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, cost of real estate sold, reimbursable expenses, technology and telecommunications costs as well as depreciation and amortization of operating assets. The components of cost of revenue were as follows:


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
(in thousands)	2017		2016		2017		2016		2018		2017		2018		2017

Compensation and benefits	$	60,332	$	66,357	$	186,090	$	201,193	$	54,769	$	62,666	$	109,635	$	125,758
Outside fees and services	83,670		77,445		250,883		222,574		68,879		86,255		133,977		167,214
Cost of real estate sold	4,411		—		16,461		—		13,320		7,114		16,499		12,049
Technology and telecommunications									10,852		10,941		20,303		22,292
Reimbursable expenses	9,866		12,080		31,786		41,317		9,008		11,891		17,155		21,920
Technology and telecommunications	10,389		11,502		32,681		32,145
Depreciation and amortization	6,230		6,618		20,343		20,007		6,378		6,526		12,831		14,113

Total	$	174,898	$	174,002	$	538,244	$	517,236	$	163,206	$	185,393	$	310,400	$	363,346

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~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)

NOTE 1716 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses include payroll and employee benefits associated with personnel employed in executive, finance, law, compliance, human resources, vendor management, facilities, risk management, sales and marketing roles. This category also includes professional fees, occupancy costs, ~~professional fees,~~ marketing costs, depreciation and amortization of non-operating assets and other expenses. The components of selling, general and administrative expenses were as follows:


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
(in thousands)	2017		2016		2017		2016		2018		2017		2018		2017

Compensation and benefits	$	15,068	$	14,145	$	43,115	$	42,460	$	12,197	$	15,541	$	25,766	$	28,047
Occupancy related costs	8,536		8,903		28,347		26,785		7,189		9,538		15,623		19,811
Amortization of intangible assets	8,604		11,465		27,143		36,432		7,544		9,393		14,691		18,539
Marketing costs									3,978		3,697		7,585		7,966
Professional services	3,886		4,097		11,983		17,533		4,328		4,367		7,554		8,097
Marketing costs	3,992		9,275		11,958		21,438
Depreciation and amortization	2,286		2,557		7,068		7,514		1,950		2,361		4,218		4,782
Other	4,250		3,444		17,179		9,547		5,738		7,573		10,611		12,929

Total	$	46,622	$	53,886	$	146,793	$	161,709	$	42,924	$	52,470	$	86,048	$	100,171

NOTE 1817 — OTHER INCOME (EXPENSE), NET

Other income (expense), net consists of the following:


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
(in thousands)	2017		2016			2017		2016			2018			2017		2018			2017

Loss on debt refinancing											$	(4,434	)	$	—	$	(4,434	)	$	—
Gain on early extinguishment of debt	$	1,482	$	—		$	5,419	$	5,464		—			3,937		—			3,937
Expenses related to the purchase of available for sale securities	—		—			—		(3,356		)
Interest income	27		11			169		28			100			44		231			142
Other, net	988		(120		)	2,427		472			473			822		1,614			1,439

Total	$	2,497	$	(109	)	$	8,015	$	2,608		$	(3,861	)	$	4,803	$	(2,589	)	$	5,518

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ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Notes to Condensed Consolidated Financial Statements (Continued)

NOTE 1918 — 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 using the treasury stock method.

Basic and diluted EPS are calculated as follows:

Three months ended
September 30, Nine months ended
September 30,
(in thousands, except per share data) 2017 2016 2017 2016

Net income attributable to Altisource $ 6,961
$ 10,589
$ 22,541
$ 49,077

Weighted average common shares outstanding, basic 18,023
18,715
18,337
18,669
Dilutive effect of stock options and restricted shares 406
853
517
1,069

Weighted average common shares outstanding, diluted 18,429
19,568
18,854
19,738

Earnings per share:
Basic $ 0.39
$ 0.57
$ 1.23
$ 2.63

Diluted $ 0.38
$ 0.54
$ 1.20
$ 2.49

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~~ALTISOURCE PORTFOLIO SOLUTIONS S.A.~~

~~Notes to Condensed Consolidated Financial Statements (Continued~~)



	Three months ended June 30,				Six months ended June 30,
(in thousands, except per share data)	2018		2017		2018			2017

Net income (loss) attributable to Altisource	$	1,568	$	9,035	$	(2,564	)	$	15,580

Weighted average common shares outstanding, basic	17,142		18,335		17,260			18,497
Dilutive effect of stock options, restricted shares and restricted share units	411		501		—			572

Weighted average common shares outstanding, diluted	17,553		18,836		17,260			19,069

Earnings (loss) per share:
Basic	$	0.09	$	0.49	$	(0.15	)	$	0.84
Diluted	$	0.09	$	0.48	$	(0.15	)	$	0.82

For the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016, 0.5~~0.3 million options and 0.4 million options, respectively ~~that were anti-dilutive have been excluded from the computation of diluted EPS (0.9~~(0.3 million options and 0.4 million options for the ~~third~~second quarter of 2018 and 2017, ~~and 2016,~~ respectively)~~. These options~~, were ~~anti-dilutive and~~ excluded from the computation of diluted EPS because they were anti-dilutive since their exercise price was greater than the average market price of our common stock. Also excluded from the computation of diluted EPS ~~are~~for the six months ended June 30, 2018 and 2017 were 0.5 million options, restricted shares and restricted share units and 0.3 million options and restricted shares, ~~and 0.4~~respectively (0.5 million options, ~~for the nine months ended September 30, 2017~~restricted shares and ~~2016, respectively (0.4~~restricted share units and 0.3 million options and restricted shares ~~and 0.4 million options~~ for the ~~third~~second quarter of ~~2017~~2018 and ~~2016,~~2017, respectively), which begin to vest upon the achievement of certain market criteria related to our common stock price, performance criteria and an annualized rate of return to shareholders that have not yet been met. Furthermore, as a result of the net loss attributable to Altisource for the six months ended June 30, 2018, 0.5 million options, restricted shares and restricted share units were excluded from the computation of diluted EPS for the six months ended June 30, 2018, as their impact was anti-dilutive.

NOTE 2019 — COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS

We record a liability for contingencies if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For proceedings where the reasonable estimate of loss is a range, we record a best estimate of loss within the range.

Litigation

We are currently involved in legal actions in the course of our business, some of which seek monetary damages. We do not believe that the outcome of these proceedings, both individually and in the aggregate, will have a material impact on our financial condition, results of operations or cash flows.

Regulatory Matters

Periodically, we are subject to audits, examinations and investigations by federal, state and local governmental authorities and receive subpoenas, civil investigative demands or other requests for information from such governmental authorities in connection with their regulatory or investigative authority. We are currently responding to such inquiries from governmental authorities relating to certain aspects of our business. We believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with these inquiries.

As previously disclosed, ~~Altisource~~the Company received a Notice and Opportunity to Respond and Advise (“NORA”) letter on November 10, 2016 from the Consumer Financial Protection Bureau (“CFPB”) indicating that the CFPB iswas considering a potential enforcement action against Altisource relating to an alleged violation of federal law ~~that primarily concerns~~focused on the REALServicing^® platform and certain other technology services provided to ~~Ocwen.~~Ocwen, including claims related to the features, functioning and support of such technology. The NORA ~~letter~~process provides the recipient an opportunity to present its positions to the CFPB before an enforcement action is

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recommended or commenced. On December 5, 2016, we provided a written response to the NORA letter setting forth the legal, policy and factual reasons why we believe an enforcement action is not warranted. ~~We are committed to resolving any potential concerns~~By letter dated April 3, 2018, the CFPB informed the Company that the investigation of the ~~CFPB. If~~Company has been completed and the staff of the CFPB’s Office of Enforcement currently does not intend to recommend that the CFPB ~~were to bring an~~take enforcement action, ~~against us,~~and further that the ~~resolution~~Company is relieved of ~~such action could have a material adverse impact on our business, reputation, financial condition and results of operations. However, we believe it is premature~~the document-retention obligations pursuant to ~~predict~~ the ~~potential outcome or to estimate any potential financial impact in connection with any potential CFPB enforcement action.~~civil investigative process.

Ocwen Related Matters

As discussed in Note 2, during the three and six months ended June 30, 2018, Ocwen iswas our largest ~~customer. Ocwen disclosed that, on July 23, 2017, it entered into a master agreement and a transfer agreement with NRZ to undertake certain actions to facilitate~~customer, accounting for 51% of our total revenue for the ~~transfer of Ocwen’s remaining interests in approximately $110 billion in unpaid principal balance (as of~~six months ended June 30, 2017) of its non-government-sponsored enterprise (“non-GSE”) mortgage servicing rights (the “Subject MSRs”) to NRZ. As of June 30, 2017, the Subject MSRs represented approximately 78% of Ocwen’s non-GSE MSRs. In the event the required third party consents are not obtained by July 23, 2018 or an earlier date agreed to by Ocwen and NRZ, the applicable Subject MSRs may (i) become subject to a new agreement to be negotiated between Ocwen and NRZ, (ii) be acquired by Ocwen, or, if Ocwen does not desire or is otherwise unable to purchase, sold to one or more third parties, or (iii) remain subject to their existing agreements. Ocwen also disclosed that it entered into a five year subservicing agreement with NRZ pursuant to which Ocwen will subservice the mortgage loans related to the Subject MSRs that are transferred to NRZ. In addition, Ocwen disclosed that during the five year subservicing agreement term, NRZ may terminate the subservicing agreement for convenience, subject to Ocwen’s right to receive a termination fee and proper notice.

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

commission on the sale of certain real estate owned (“REO”) properties from these portfolios. In addition, Altisource and RHSS entered into a letter agreement with NRZ which provides for NRZ to directly appoint RHSS (or another real estate brokerage subsidiary designated by Altisource) to perform the real estate brokerage services with respect to REO properties in the Ocwen Portfolio, subject to certain specified exceptions, in the event that NRZ’s brokerage subsidiary does not refer real estate listings from the Ocwen Portfolio to RHSS. In this case, the designated Altisource brokerage subsidiary would retain the full seller’s brokerage commission. The Brokerage Agreement and the letter agreement are effective through August 31, 2025 unless earlier terminated in accordance with their respective terms. Contemporaneously with the execution of the Brokerage Agreement, Altisource Solutions S.à r.l. executed a non-binding letter of intent (“LOI”) with NRZ to enter into a Services Agreement, setting forth the terms pursuant to which Altisource Solutions S.à r.l. would remain the exclusive service provider of fee-based services on the Ocwen Transferred Portfolio through August 2025, irrespective of the subservicer. The LOI provides for the parties to negotiate in good faith toward the execution of a Services Agreement within 30 days from the date of the LOI. This term was automatically extended by a further 30 days by the parties, pursuant to the terms of the LOI, as the parties continued to negotiate in good faith toward the completion and execution of a Services Agreement (such period, including as extended, the “Standstill Period”). Furthermore, as a result of continuing good faith negotiations on a Services Agreement, effective as of October 23, 2017, the parties amended the LOI to extend the term of the LOI and Standstill Period to November 30, 2017. This term will be automatically extended until January 12, 2018 if the parties are still negotiating the terms of the Services Agreement in good faith as of November 30, 2017. Pursuant to the LOI, the parties intend to negotiate all of the definitive and binding terms of the Services Agreement. RHSS has the right to terminate the Brokerage Agreement upon 90 days’ notice (which period may be shortened by NRZ) if a services agreement is not signed between Altisource and NRZ during the Standstill Period. The Brokerage Agreement may otherwise only be terminated upon the occurrence of certain specified events. NRZ has agreed that, during such notice period and/or the Standstill Period, it will not replace or reduce the role of Altisource as a service provider with respect to the Ocwen Transferred Portfolio.

Following the execution of the Services Agreement and the transfer of the Subject MSRs from Ocwen to NRZ, we anticipate that revenue from NRZ would increase and revenue from Ocwen would decrease. As MSRs continue to transfer from Ocwen to NRZ, we anticipate that NRZ will become our largest customer. Had NRZ acquired all of the Subject MSRs and our agreements with NRZ were in place as of the beginning of the year, we estimate that approximately 50%(50% of our revenue ~~would have been related to NRZ. There can be no assurance that~~for the ~~parties will reach an agreement with respect to~~second quarter of 2018). Additionally, 6% of our revenue for the ~~terms~~six months ended June 30, 2018 (5% of our revenue for the ~~Services Agreement~~second quarter of 2018) was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or ~~that a Services Agreement will be entered into on a timely basis or at all.~~the MSR owner selected Altisource as the service provider.

Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, cease and desist orders, consent orders, inquiries, subpoenas, civil investigative demand, requests for information and other actions and is subject to pending legal proceedings, ~~that have or could result in adverse regulatory or other actions~~some of which include claims against ~~Ocwen.~~Ocwen for substantial monetary damages. For example, on May 15, 2017, Ocwen disclosed that on April 20, 2017, the CFPB and the State of Florida filed separate complaints in the United States District Court for the Southern District of Florida against Ocwen alleging violations of Federal consumer financial law and, in the case of Florida, Florida statutes. As another example, on May 15, 2017, Ocwen also disclosed that on April 28, 2017, the Commonwealth of Massachusetts filed a lawsuit against Ocwen in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to Ocwen’s servicing business, including lender-placed insurance and property preservation fees. Ocwen disclosed that the complaints seek to obtain permanent injunctive relief, consumer redress, refunds, restitution, disgorgement, damages, civil penalties, costs and fees and other relief. In addition, Ocwen disclosed that a number of states publicly announced or otherwise undertook various administrative actions against Ocwen related to alleged violations of applicable laws and regulations related to servicing residential mortgages. Certain of the allegations in the complaints and certain of the state administrative actions assert that Ocwen’s use of certain Altisource services was a contributing factor to Ocwen’s purported violations. Ocwen disclosed that the state administrative actions announced or undertaken purportedly seek sanctions and various injunctive reliefs which may include restrictions on Ocwen obtaining additional mortgage servicing rights, continuing mortgage servicing or debt collection activities, originating or funding loans, initiating foreclosuresThe forgoing or other limitations or restrictions on Ocwen’s business operations or licenses in certain of these states. Ocwen announced in several Form 8-K filings that it reached settlements with mortgage and banking regulatory agencies from certain of the states, the District of Columbia and state attorneys general that took regulatory actions against it on April 20, 2017 or shortly thereafter. Ocwen disclosed that, as part of these settlements, Ocwen will not acquire any new residential mortgage servicing rights until April 30, 2018 and will develop a plan of action and milestones regarding its transition from the servicing system it currently uses, REALServicing^®~~, to an alternative servicing system and will not board any new loans onto the REALServicing system, as well as other key provisions. All of the forgoing~~ matters could result in, and in some cases, have resulted in, adverse regulatory or other actions against Ocwen. ~~While not all inclusive, other~~Previous regulatory actions ~~to date have included~~against Ocwen resulted in subjecting Ocwen to independent oversight of its operations and placing certain restrictions on its ability to acquire servicing rights.

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)

rights relating to this matter for a period of 90 days from the date of the letter. In addition, Ocwen has disclosed that during this period, Ginnie Mae has asked Ocwen to provide certain information regarding the cease and desist orders and certain information regarding Ocwen’s business plan, financials results and operations and Ocwen also stated that it continues to operate as a Ginnie Mae issuer in all respects and continues to participate in Ginnie Mae issuing of mortgaged-backed securities and home equity conversion loan pools in the ordinary course. Ocwen also disclosed that adverse actions by Ginnie Mae could materially and adversely impact Ocwen’s business, including if Ginnie Mae were to terminate Ocwen as an issuer or servicer of Ginnie Mae securities.

Ocwen may become subject to future federal and state regulatory investigations, cease and desist orders, consent orders, inquiries, subpoenas, civil investigative demands, requests for information, ~~and~~other matters or legal proceedings, any of which could also result in adverse regulatory or other actions against Ocwen.

The foregoing may have significant adverse effects on Ocwen’s business and/or our continuing relationship with Ocwen. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services (including ~~information technology~~IT and software services), it may be required to seek changes to its existing pricing structure with us, it may lose its non-GSE servicing rights or subservicing arrangements or may lose one or more of its state servicing or origination licenses. Additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in Ocwen’s business that could require it to sell assets or change its business operations. Any or all of these effects could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers.

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

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

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

Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio

~~Altisource fails to be retained as a service provider~~

The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue

~~Additionally, Ocwen has stated, including in connection with resolving several state administrative actions discussed above, that it plans~~Altisource otherwise fails to ~~transition from REALServicing to another mortgage servicing software platform. We anticipate that such~~be retained as a transition could be a multi-year project and Altisource would support Ocwen through such a transition. We do not anticipate that a servicing technology transition would impact the other services we provide to Ocwen. For the nine months ended September 30, 2017 and 2016, service revenue from REALServicing was $20.1 million and $25.7 million, respectively ($6.7 million and $8.2 million for the third quarter of 2017 and 2016, respectively). We estimate, with respect to income before income tax, that the REALServicing business currently operates at break-even.provider

Management cannot predict the outcome of these matters or the amount of any impact they may have on Altisource. However, in the event these matters materially negatively impact Altisource, we believe the variable nature of our cost structure would allow us to realign our cost structure in line with remaining revenue. Furthermore, in the event of a significant reduction in the volume of services purchased or ~~loans~~loan portfolios serviced by Ocwen (such as a transfer of Ocwen’s remaining servicing rights to a successor servicer), we believe the impact to Altisource could occur over an extended period of time. During this period, we believe that we will continue to generate revenue from all or a portion of Ocwen’s ~~portfolio.~~loan portfolios.

~~Additionally, our~~

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Notes to Condensed Consolidated Financial Statements (Continued)

Our Servicer Solutions, Origination Solutions, Consumer Real Estate Solutions and Real Estate Investor Solutions businesses are focused on diversifying and growing our revenue and customer base and we have a sales and marketing strategy to support these businesses.

Management believes our plans, together with current liquidity and cash flows from operations, would be sufficient to meet our working capital, capital expenditures, debt service and other cash needs. However, there can be no assurance that our plans will be successful or our operations will be profitable.

Additionally, Ocwen has notified us, disclosed in its filings and stated in connection with resolving several state administrative actions discussed above, that it plans to transition from REALServicing to another mortgage servicing software platform. Furthermore, Ocwen disclosed in its filings that its pending acquisition of PHH Corporation is expected to accelerate its transition to a new servicing platform. Altisource is supporting Ocwen through this transition. We do not anticipate that a servicing technology transition would materially impact the other services we provide to Ocwen. For the six months ended June 30, 2018 and 2017, service revenue from REALServicing was $11.9 million and $13.4 million, respectively ($5.4 million and $6.3 million for the second quarter of 2018 and 2017, respectively).

In addition to the above, as of March 31, 2018, NRZ owned the Subject MSRs with underlying UPB of $98.3 billion. As of March 31, 2018, Ocwen serviced and subserviced MSRs with underlying UPB of $173.4 billion. As previously disclosed, in July 2017, Ocwen and NRZ entered into agreements to convert NRZ’s economic rights to the Subject MSRs into fully-owned MSRs in exchange for payments from NRZ to Ocwen when such Subject MSRs were transferred. The transfers are subject to certain third party consents. Ocwen disclosed that under these agreements, Ocwen would subservice the transferred Subject MSRs for an initial term of five years, and the agreements provided for the conversion of the existing arrangements into a more traditional subservicing arrangement.

On August 28, 2017, Altisource, through its licensed subsidiaries, entered into the Brokerage Agreement with NRZ which extends through August 2025. Under this agreement and related amendments, Altisource remains the exclusive provider of brokerage services for REO associated with the Subject MSRs when Ocwen transfers such MSRs to NRZ or when NRZ acquires both an additional economic interest in such Subject MSRs and the right to designate the broker for REO properties in such portfolios. The Brokerage Agreement provides that Altisource is the exclusive provider of brokerage services for REO associated with the Subject MSRs, irrespective of the sub-servicer. NRZ’s brokerage subsidiary receives a cooperative brokerage commission on the sale of certain REO properties from these portfolios subject to certain exceptions.

On August 28, 2017, Altisource and NRZ also entered into the Services LOI, setting forth the terms pursuant to which Altisource would remain the exclusive service provider of fee-based services for the Subject MSRs through August 2025. The Services LOI was amended to continue through August 31, 2018.

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

We anticipate that revenue from NRZ will increase over time and revenue from Ocwen will decrease. As Subject MSRs continue to transfer from Ocwen to NRZ and following the anticipated execution of the Services Agreement, we expect that NRZ will become our largest customer. Had all of the Subject MSRs been transferred to NRZ and the Brokerage Agreement and the Services Agreement with NRZ been in place as of January 1, 2018, we estimate that approximately 48% of our revenue for the six months ended June 30, 2018 would have been related to NRZ. There can be no assurance that the parties will reach an agreement with respect to the terms of the Services Agreement or that a Services Agreement will be entered into on a timely basis or at all.

Escrow and Trust Balances

We hold customers’ assets in escrow and trust accounts at various financial institutions pending completion of certain real estate activities. We also hold cash in trust accounts at various financial institutions where contractual obligations mandate maintaining dedicated bank accounts for our ~~collections business.~~asset recovery management business’s collections. These amounts are held in escrow and trust ~~accounts for limited periods of~~

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Notes to Condensed Consolidated Financial Statements (Continued)

accounts for limited periods of time and are not included in the condensed consolidated balance sheets. Amounts held in escrow and trust accounts were ~~$39.2~~$20.8 million and ~~$64.1~~$35.1 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

NOTE 2120 — 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 (our chief operating decision maker) to evaluate operating performance and to assess the allocation of our resources.

Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization, which changed the way our chief operating decision maker manages our businesses, allocates resources and evaluates performance. We ~~now~~ report our operations through two ~~new~~ reportable segments: Mortgage Market and Real Estate Market. In addition, we report Other Businesses, Corporate and Eliminations separately. ~~Prior to the January 1, 2017 change in reportable segments, our reportable segments were~~ ~~Mortgage Services~~, ~~Financial Services~~ ~~and~~ ~~Technology Services. The former~~ ~~Mortgage Services~~ ~~segment was separated into the~~ ~~Mortgage Market~~ ~~and~~ ~~Real Estate Market~~ ~~segments (as described below). Furthermore, certain of the software services business units that were formerly in the~~ ~~Technology Services~~ ~~segment and the mortgage charge-off collections business that was formerly in the~~ ~~Financial Services~~ ~~segment are now included in the~~ ~~Mortgage Market~~. ~~Other Businesses, Corporate and Eliminations~~ ~~includes the other business that were formerly in the~~ ~~Financial Services~~ ~~segment as well as IT infrastructure management services formerly in the~~ ~~Technology Services~~ ~~segment. Prior year comparable period segment disclosures have been restated to conform to the current year presentation.~~

The Mortgage Market segment provides loan servicers and originators with marketplaces, ~~and~~ services and ~~a portfolio of software, data analytics and information~~ technologies that span the mortgage lifecycle. The Real Estate Market segment provides real estate consumers and rental property investors ~~and real estate consumers~~ with marketplaces ~~products~~ and services that span the real estate lifecycle. In addition, the Other Businesses, Corporate and Eliminations segment includes businesses that provide ~~asset recovery management~~post-charge-off consumer debt collection services primarily to debt originators (e.g., credit card, auto lending and retail credit), customer relationship management services primarily to the utility, insurance and hotel industries and IT infrastructure management services. Other Businesses, Corporate and Eliminations also includes interest expense and costs related to corporate support functions including executive, finance, law, compliance, human resources, vendor management, facilities, risk management, and sales and marketing costs not allocated to the business units as well as eliminations between the reportable segments.

Financial information for our segments is as follows:


	Three months ended September 30, 2017											Three months ended June 30, 2018
(in thousands)	Mortgage Market		Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource			Mortgage Market			Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue	$	199,262	$	22,121		$	13,596		$	234,979		$	178,662		$	24,145		$	15,749		$	218,556
Cost of revenue	137,466		23,497			13,935			174,898			115,329			28,191			19,686			163,206
Gross profit (loss)	61,796		(1,376		)	(339		)	60,081			63,333			(4,046		)	(3,937		)	55,350
Selling, general and administrative expenses	28,006		4,208			14,408			46,622			20,604			5,180			17,140			42,924
Income (loss) from operations	33,790		(5,584		)	(14,747		)	13,459			42,729			(9,226		)	(21,077		)	12,426
Total other income (expense), net	26		—			(3,128		)	(3,102		)	(4		)	12			(9,363		)	(9,355		)

Income (loss) before income taxes and non-controlling interests	$	33,816	$	(5,584	)	$	(17,875	)	$	10,357		$	42,725		$	(9,214	)	$	(30,440	)	$	3,071



	Three months ended June 30, 2017
(in thousands)	Mortgage Market		Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue	$	210,195	$	25,130		$	15,360		$	250,685
Cost of revenue	144,326		26,844			14,223			185,393
Gross profit (loss)	65,869		(1,714		)	1,137			65,292
Selling, general and administrative expenses	29,805		5,551			17,114			52,470
Income (loss) from operations	36,064		(7,265		)	(15,977		)	12,822
Total other income (expense), net	102		—			(764		)	(662		)

Income (loss) before income taxes and non-controlling interests	$	36,166	$	(7,265	)	$	(16,741	)	$	12,160

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Notes to Condensed Consolidated Financial Statements (Continued)


	Three months ended September 30, 2016											Six months ended June 30, 2018
(in thousands)	Mortgage Market		Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource			Mortgage Market		Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue	$	211,821	$	21,516		$	19,408		$	252,745		$	346,000	$	39,425		$	30,569		$	415,994
Cost of revenue	138,646		16,634			18,722			174,002			226,402		46,745			37,253			310,400
Gross profit	73,175		4,882			686			78,743
Gross profit (loss)												119,598		(7,320		)	(6,684		)	105,594
Selling, general and administrative expenses	29,903		6,961			17,022			53,886			43,978		9,298			32,772			86,048
Income (loss) from operations	43,272		(2,079		)	(16,336		)	24,857			75,620		(16,618		)	(39,456		)	19,546
Total other income (expense), net	10		—			(6,071		)	(6,061		)	12		14			(21,473		)	(21,447		)

Income (loss) before income taxes and non-controlling interests	$	43,282	$	(2,079	)	$	(22,407	)	$	18,796		$	75,632	$	(16,604	)	$	(60,929	)	$	(1,901	)


	Nine months ended September 30, 2017											Six months ended June 30, 2017
(in thousands)	Mortgage Market		Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource			Mortgage Market		Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue	$	614,180	$	67,314		$	44,653		$	726,147		$	414,918	$	45,193		$	31,057		$	491,168
Cost of revenue	421,942		72,484			43,818			538,244			284,476		48,987			29,883			363,346
Gross profit (loss)	192,238		(5,170		)	835			187,903			130,442		(3,794		)	1,174			127,822
Selling, general and administrative expenses	86,493		14,084			46,216			146,793			58,487		9,876			31,808			100,171
Income (loss) from operations	105,745		(19,254		)	(45,381		)	41,110			71,955		(13,670		)	(30,634		)	27,651
Total other income (expense), net	138		—			(8,985		)	(8,847		)	112		—			(5,857		)	(5,745		)

Income (loss) before income taxes and non-controlling interests	$	105,883	$	(19,254	)	$	(54,366	)	$	32,263		$	72,067	$	(13,670	)	$	(36,491	)	$	21,906

Nine months ended September 30, 2016
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue $ 626,522
$ 70,229
$ 61,925
$ 758,676
Cost of revenue 408,412
47,946
60,878
517,236
Gross profit 218,110
22,283
1,047
241,440
Selling, general and administrative expenses 90,498
18,755
52,456
161,709
Income (loss) from operations 127,612
3,528
(51,409 ) 79,731
Total other income (expense), net 144
—
(16,017 ) (15,873 )

Income (loss) before income taxes and
non-controlling interests $ 127,756
$ 3,528
$ (67,426 ) $ 63,858

(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Total assets:

September 30, 2017 $ 311,423
$ 63,067
$ 221,911
$ 596,401
December 31, 2016 347,067
47,863
294,282
689,212

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~~Notes to Condensed Consolidated Financial Statements (Continued~~)



(in thousands)	Mortgage Market		Real Estate Market		Other Businesses, Corporate and Eliminations		Consolidated Altisource

Total assets:
June 30, 2018	$	265,463	$	85,080	$	459,353	$	809,896
December 31, 2017	304,346		64,624		496,194		865,164

Our services are primarily provided to customers located in the United States. Premises and equipment, net consist of the following, by country:

(in thousands) September 30,
2017 December 31,
2016

United States $ 51,900
$ 71,418
India 9,657
14,006
Luxembourg 17,117
14,791
Philippines 1,981
3,027
Uruguay 168
231

Total $ 80,823
$ 103,473

~~NOTE 22 — SUBSEQUENT EVENT~~

As discussed in Note 20, as a result of continuing good faith negotiations on a Services Agreement, effective as of October 23, 2017, the Company and NRZ amended the LOI to extend the term of the LOI and Standstill Period to November 30, 2017. This term will be automatically extended until January 12, 2018 if the parties are still negotiating the terms of the Services Agreement in good faith as of November 30, 2017. The parties continue to work toward executing a Services Agreement.



(in thousands)	June 30, 2018		December 31, 2017

United States	$	34,597	$	46,268
Luxembourg	16,708		16,688
India	5,575		8,136
Philippines	1,848		2,038
Uruguay	92		143

Total	$	58,820	$	73,273

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

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is a supplement to the accompanying interim condensed consolidated financial statements and 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, ~~2016~~2017 filed with the Securities and Exchange Commission (“SEC”) on February ~~16, 2017.~~22, 2018.

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, including executing on our strategic initiatives;

assumptions about our ability to improve margins;

assumptions regarding the impact of seasonality;

estimates regarding 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” in Part II, Item 1A of this Form 10-Q and the “Risk Factors” section of our Form 10-K for the year ended December 31, ~~2016~~2017 and include the following:

~~if, as a result of difficulties faced by~~our ability to retain Ocwen Financial Corporation (“Ocwen”)~~, we were to lose Ocwen~~ as a customer or ~~there is a significant reduction in~~our ability to receive the anticipated volume of ~~services they purchase~~referrals from ~~us;~~Ocwen;

~~if we are unable~~our ability to reach agreement with New Residential Investment Corp. (individually, together with one or more of its subsidiaries, or one or more of its subsidiaries individually, “NRZ”) on a Services Agreement or if the ~~Collective~~possibility of termination of the Cooperative Brokerage Agreement, as amended, and related letter agreement ~~are terminated;~~(collectively, the “Brokerage Agreement”);

the contractual provisions in certain of our agreements or contracts that we may enter into in the future may cause a termination event or event of default if a change in control was deemed to have occurred if, among other things, a shareholder group is formed;

our ability to execute on our strategic ~~initiatives;~~businesses;

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

the level of loan delinquencies and charge-offs;

the level of origination volume;

technology failures;

the outsourcing trends;

our ability to raise debt;

our ability to retain our directors, executive officers and key personnel;

our ability to integrate acquired businesses;

our ability to comply with, and burdens imposed by, governmental regulations and policies and any changes in such regulations and policies; and

significant changes in the Luxembourg tax regime or interpretations of the Luxembourg tax regime.

We caution ~~you~~the reader 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 “Altisource,” the “Company,” “we,” “us” or “our” we mean Altisource Portfolio Solutions S.A., a Luxembourg société anonyme, or public limited liability company, and its subsidiaries.

We are an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing ~~market.~~markets we serve.

~~Effective January 1, 2017, our~~Our reportable segments ~~changed~~are as a result of changes in our internal organization, which changed the way our Chief Executive Officer (our chief operating decision maker) manages our businesses, allocates resources and evaluates performance. We now report our operations through two new reportable segments: ~~Mortgage Market~~ ~~and~~ ~~Real Estate Market. In addition, we report~~ ~~Other Businesses, Corporate and Eliminations~~ ~~separately. Prior to the January 1, 2017 change in reportable segments, our reportable segments were~~ ~~Mortgage Services, Financial Services~~ ~~and~~ ~~Technology Services. Prior year comparable period segment disclosures have been restated to conform to the current year presentation.~~follows:

Mortgage Market: Provides loan servicers and originators with marketplaces, services and technologies that span the mortgage lifecycle. Within the Mortgage Market segment, we provide:

Servicer Solutions - the solutions, services and technologies typically used or licensed primarily by residential loan servicers.



	• Property preservation and inspection services		~~• Residential and commercial loan servicing technologies~~
	• Real estate brokerage and auction services		~~• Vendor management, marketplace transaction management and payment management platforms~~
	• Title insurance (agent and related services) and settlement services
			~~• Document management platform~~
	• Appraisal management services, ~~and~~valuation data, broker and non-broker valuation services • Foreclosure trustee services • Residential and commercial loan servicing technologies		• Vendor management, marketplace transaction management and payment management technologies • Document management platform • Default services (real estate owned (“REO”), foreclosure, bankruptcy, eviction) technologies

	~~• Foreclosure trustee services~~		• Mortgage charge-off collections
	~~• Non-legal processing and related services for and under the supervision of foreclosure, bankruptcy and eviction attorneys~~		• Residential and commercial ~~loan disbursement processing,~~construction inspection and risk mitigation ~~and construction inspection~~ services

Origination Solutions - the solutions, services and technologies typically used or licensed by loan originators (or other similar mortgage market participants) in originating, buying and ~~buying~~selling residential mortgages.



• Title insurance (agent and related services) and settlement services • Appraisal management services, valuation data, broker and non-broker valuation services • Fulfillment services • Loan origination system		• Document management platform • Certified loan insurance, certification services and ~~certification~~
	mortgage fraud insurance • Vendor management oversight platform
~~• Appraisal management services and broker and non-broker valuation services~~		• Mortgage banker cooperative ~~Best Partners Mortgage Cooperative, Inc., doing business as Lenders One~~^® ~~(“Lenders One”)~~management
~~• Fulfillment services~~
~~• Loan origination system~~		• Mortgage trading platform
~~• Document management platform~~

Real Estate Market: Provides real estate consumers and rental property investors with marketplaces and services that span the real estate lifecycle. Within the Real Estate Market segment, we provide:

Consumer Real Estate Solutions - the solutions, services and technologies typically used by home buyers and sellers to handle key aspects of buying and selling a ~~home.~~residence.



• Real estate brokerage		~~• Mortgage brokerage~~
doing business as Owners.com^® • Title insurance (agent and related services) and settlement services		• Mortgage brokerage • Homeowners insurance

Real Estate Investor Solutions - the solutions, services and technologies used by buyers and sellers of single-family investment homes.



	• Property preservation and inspection services		~~• Buy-renovate-sell~~
	• Real estate brokerage and auction services		~~• Renovation services~~
	• Data solutions		~~• Property management services~~
	• Title insurance (agent and related services) and settlement services		• Buy-renovate-lease-sell • Renovation services • Property management services • Appraisal management services, ~~and~~valuation data, broker and non-broker valuation services

Other Businesses, Corporate and Eliminations: ~~Our~~ ~~Other Businesses, Corporate and Eliminations~~ ~~segment includes~~Includes certain ~~non-core~~ancillary businesses, interest expense and unallocated costs related to corporate support functions. The businesses in this segment include post-charge-off consumer debt collection services, customer relationship management services and information technology (“IT”) infrastructure management services. Interest expense relates

to the Company’s senior secured term loan and corporate support functions include executive, finance, law, compliance, human resources, vendor management, facilities, risk management and sales and marketing costs not allocated to the business units. This segment also includes eliminations of transactions between the reportable segments.

We classify revenue in three categories: service revenue, revenue from reimbursable expenses and non-controlling interests. In evaluating our performance, we focus on service revenue. Service revenue consists of amounts attributable to our fee-based services and sales of short-term investments in real estate. Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup. Non-controlling interests represent the earnings of Best Partners Mortgage Cooperative, Inc., doing business as Lenders ~~One.~~One^® (“Lenders One”). Lenders One is a mortgage cooperative managed, but not owned, by ~~Altisource and~~Altisource. Lenders One is included in revenue and reduced from net income to arrive at net income attributable to Altisource.

~~Share Repurchase Program~~

On May 17, 2017, our shareholders approved the renewal of the share repurchase program previously approved by the shareholders on May 18, 2016, which replaced the previous share repurchase program. Under the program, we are authorized to purchase up to 4.6 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval at a minimum price of $1.00 per share and a maximum price of $500.00 per share, for a period of five years from the date of approval. Under the existing and prior programs, we purchased 1.1 million shares of common stock at an average price of $22.48 per share during the nine months ended September 30, 2017 and 1.3 million shares at an average price of $26.94 per share during the nine months ended September 30, 2016 (0.3 million shares at an average price of $23.48 per share for the third quarter of 2017 and 0.5 million shares at an average price of $28.68 per share for the third quarter of 2016). As of September 30, 2017, approximately 3.9 million shares of common stock remain available for repurchase under the program. Our senior secured term loan limits the amount we can spend on share repurchases, which was approximately $403 million as of September 30, 2017, and may prevent repurchases in certain circumstances.

Strategy and Growth Businesses

We are focused on becoming one of the premier providers of mortgage and real estate marketplaces and related services to a broad and diversified customer ~~base while continuing to strengthen our compliance management system.~~base. Within the mortgage and real estate market segments, we facilitate transactions and provide products, solutions and services related to home sales, home purchases, home rentals, home maintenance, mortgage ~~origination~~originations and mortgage servicing.

Each of our strategic businesses provides Altisource the potential to grow and diversify our customer and revenue base. We believe these businesses operate in very large markets and directly leverage our core competencies and distinct competitive advantages. A further description of our four strategic businesses follows.

Servicer Solutions:

Through this business, we provide a suite of services and technologies to meet the evolving and growing needs of loan servicers. We are focused on growing referrals from our existing customer base, expanding the service and proprietary technology offerings to our customer base, and attracting new customers to our offerings. We have a customer base that includes Ocwen, a government-sponsored enterprise (“GSE”), NRZ, several ~~top ten~~large bank ~~servicers~~ and non-bank servicers and asset managers. ~~Even as loan delinquencies return to historical norms, we believe there is a very large addressable market for our offerings.~~ We believe we are one of only a few providers with a broad suite of servicer solutions, nationwide coverage and demonstrated scalability. Further,

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

Origination Solutions:

Through this business, we provide a suite of services and technologies to meet the evolving and growing needs of ~~loan originators~~lenders, mortgage purchasers and ~~correspondents.~~securitizers. We are focused on growing referrals from our existing customer base, expanding the service and proprietary technology offerings to our customer base, and attracting new customers to our offerings. We have a customer base that includes the Lenders One cooperative mortgage bankers, the Mortgage Builder^® loan origination system customers and mid-size and larger bank and non-bank loan originators. We believe our suite of services and technologies ~~positions~~position us to grow our relationships with our existing customer base by providing additional products, services and solutions to these customers. Further, we believe we are well positioned to attract new customers as prospects consolidate to larger, full-service providers and outsource services that have historically been performed in-house.

Consumer Real Estate Solutions:

Through this business, we provide real estate buyers and sellers with a technology enabled real estate brokerage and ~~related~~integrated services ~~that handle key aspects of~~to support them in buying and selling a home. Our offerings include local real estate agent services and loan brokerage as well as closing and title services. We are focused on ~~developing~~continuing to develop this business by capitalizing on ~~our core competencies~~Altisource’s experience in ~~realty services and~~ online real estate marketing and ~~offering consumers right-sized commission structures, smart digital tools and personalized service from local real estate agents.~~loan origination services as well as on more recently developed agile execution competencies.

Real Estate Investor Solutions:

Through this business, we provide a suite of services and technologies to support buyers and sellers of single-family investment ~~homes.~~homes, including our purchase, renovation, leasing and sale of short-term investments in real estate. We are focused on growing referrals from our existing customer base, expanding the service and proprietary technology offerings to our customer base, and attracting new customers to our offerings. We have a customer base that includes ~~Altisource~~Front Yard Residential Corporation (“RESI”) and other institutional and smaller single-family rental investors. The single-family rental market is large, geographically distributed and has fragmented ownership. We believe our acquisition, renovation, property management, leasing and disposition platform provides a strong value proposition for institutional and retail investors and positions us well for growth.

There can be no assurance that growth from some or all of our strategic businesses will be successful or our operations will be profitable.

Share Repurchase Program

On May 15, 2018, our shareholders approved the renewal of the share repurchase program previously approved by the shareholders on May 17, 2017, which replaced the previous share repurchase program. We are authorized to purchase up to 4.3 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval, at a minimum price of $1.00 per share and a maximum price of $500.00 per share, for a period of five years from the date of approval. As of June 30, 2018, approximately 4.2 million shares of common stock remain available for repurchase under the program. We purchased 0.8 million shares of common stock at an average price of $27.39 per share during the six months ended June 30, 2018 and 0.8 million shares at an average price of $22.15 per share during the six months ended June 30, 2017 (0.4 million shares at an average price of $27.14 per share for the second quarter of 2018 and 0.4 million shares at an average price of $19.17 per share for the second quarter of 2017). Luxembourg law limits share repurchases to the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings, less the value of shares repurchased. As of June 30, 2018, we can repurchase up to approximately $142 million of our common stock under Luxembourg law. The credit agreement (“Credit Agreement”) with Morgan Stanley Senior Funding, Inc. limits the amount we can spend on share repurchases, which was approximately $456 million as of June 30, 2018, and may prevent repurchases in certain circumstances.

Ocwen Related Matters

~~Revenue from~~During the three and six months ended June 30, 2018, Ocwen ~~represented 58%~~was our largest customer, accounting for 51% of our total revenue for the six months ended June 30, 2018 (50% of our revenue for the ~~nine months ended September 30, 2017 (58%~~second quarter of 2018). Additionally, 6% of our revenue for the ~~third quarter of 2017). Additionally, 16%~~six months ended June 30, 2018 (5% of our revenue for the ~~nine months ended September 30, 2017 (15% of our revenue for the third~~second quarter of ~~2017)~~2018) was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or ~~NRZ~~the mortgage servicing rights (“MSRs”) owner selected Altisource as the service provider.

Ocwen disclosed that, on July 23, 2017, it entered into a master agreement and a transfer agreement with NRZ to undertake certain actions to facilitate the transfer of Ocwen’s remaining interests in approximately $110 billion in unpaid principal balance (as of June 30, 2017) of its non-government-sponsored enterprise (“non-GSE”) mortgage servicing rights (the “Subject MSRs”) to NRZ. As of June 30, 2017, the Subject MSRs represented approximately 78% of Ocwen’s non-GSE MSRs. In the event the required third party consents are not obtained by July 23, 2018 or an earlier date agreed to by Ocwen and NRZ, the applicable Subject MSRs may (i) become subject to a new agreement to be negotiated between Ocwen and NRZ, (ii) be acquired by Ocwen, or, if Ocwen does not desire or is otherwise unable to purchase, sold to one or more third parties, or (iii) remain subject to their existing agreements. Ocwen also disclosed that it entered into a five year subservicing agreement with NRZ pursuant to which Ocwen will subservice the mortgage loans related to the Subject MSRs that are transferred to NRZ. In addition, Ocwen disclosed that during the five year subservicing agreement term, NRZ may terminate the subservicing agreement for convenience, subject to Ocwen’s right to receive a termination fee and proper notice.

As disclosed in our report on Form 8-K filed on August 28, 2017, REALHome Services and Solutions, Inc. and REALHome Services and Solutions - CT, Inc. (collectively, “RHSS”), two licensed real estate brokerage subsidiaries of the Company, entered into a Cooperative Brokerage Agreement (the “Brokerage Agreement”) with a licensed real estate brokerage subsidiary of NRZ pursuant to which RHSS will be the exclusive provider, irrespective of the subservicer, of real estate brokerage services for portfolios associated with Subject MSRs that are transferred to NRZ (the “Ocwen Transferred Portfolio”) and with respect to approximately $6 billion of non-Ocwen serviced non-GSE portfolios. NRZ’s brokerage subsidiary will receive a cooperative brokerage commission on the sale of certain REO properties from these portfolios. In addition, Altisource and RHSS entered into a letter agreement with NRZ which provides for NRZ to directly appoint RHSS (or another real estate brokerage subsidiary designated by Altisource) to perform the real estate brokerage services with respect to REO properties in the Ocwen Portfolio, subject to

certain specified exceptions, in the event that NRZ’s brokerage subsidiary does not refer real estate listings from the Ocwen Portfolio to RHSS. In this case, the designated Altisource brokerage subsidiary would retain the full seller’s brokerage commission. The Brokerage Agreement and the letter agreement are effective through August 31, 2025 unless earlier terminated in accordance with their respective terms. Contemporaneously with the execution of the Brokerage Agreement, Altisource Solutions S.à r.l. executed a non-binding letter of intent (“LOI”) with NRZ to enter into a Services Agreement, setting forth the terms pursuant to which Altisource Solutions S.à r.l. would remain the exclusive service provider of fee-based services on the Ocwen Transferred Portfolio through August 2025, irrespective of the subservicer. The LOI provides for the parties to negotiate in good faith toward the execution of a Services Agreement within 30 days from the date of the LOI. This term was automatically extended by a further 30 days by the parties, pursuant to the terms of the LOI, as the parties continued to negotiate in good faith toward the completion and execution of a Services Agreement (such period, including as extended, the “Standstill Period”). Furthermore, as a result of continuing good faith negotiations on a Services Agreement, effective as of October 23, 2017, the parties amended the LOI to extend the term of the LOI and Standstill Period to November 30, 2017. This term will be automatically extended until January 12, 2018 if the parties are still negotiating the terms of the Services Agreement in good faith as of November 30, 2017. Pursuant to the LOI, the parties intend to negotiate all of the definitive and binding terms of the Services Agreement. RHSS has the right to terminate the Brokerage Agreement upon 90 days’ notice (which period may be shortened by NRZ) if a services agreement is not signed between Altisource and NRZ during the Standstill Period. The Brokerage Agreement may otherwise only be terminated upon the occurrence of certain specified events. NRZ has agreed that, during such notice period and/or the Standstill Period, it will not replace or reduce the role of Altisource as a service provider with respect to the Ocwen Transferred Portfolio.

Following the execution of the Services Agreement and the transfer of the Subject MSRs from Ocwen to NRZ, we anticipate that revenue from NRZ would increase and revenue from Ocwen would decrease. As mortgage servicing rights (“MSRs”) continue to transfer from Ocwen to NRZ, we anticipate that NRZ will become our largest customer. Had NRZ acquired all of the Subject MSRs and our agreements with NRZ were in place as of the beginning of the year, we estimate that approximately 50% of our revenue would have been related to NRZ. There can be no assurance that the parties will reach an agreement with respect to the terms of the Services Agreement or that a Services Agreement will be entered into on a timely basis or at all.

Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, cease and desist orders, consent orders, inquiries, subpoenas, civil investigative demand, requests for information and other actions and is subject to pending legal proceedings, ~~that have or could result in adverse regulatory or other actions~~some of which include claims against ~~Ocwen.~~Ocwen for substantial monetary damages. For example, on May 15, 2017, Ocwen disclosed that on April 20, 2017, the Consumer Financial Protection Bureau (“CFPB”) and the State of Florida filed separate complaints in the United States District Court for the Southern District of Florida against Ocwen alleging violations of Federal consumer financial law and, in the case of Florida, Florida statutes. As another example, on May 15, 2017, Ocwen also disclosed that on April 28, 2017, the Commonwealth of Massachusetts filed a lawsuit against Ocwen in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to Ocwen’s servicing business, including lender-placed insurance and property preservation fees. Ocwen disclosed that the complaints seek to obtain permanent injunctive relief, consumer redress, refunds, restitution, disgorgement, damages, civil penalties, costs and fees and other relief. In addition, Ocwen disclosed that a number of states publicly announced or otherwise undertook various administrative actions against Ocwen related to alleged violations of applicable laws and regulations related to servicing residential mortgages. Certain of the allegations in the complaints and certain of the state administrative actions assert that Ocwen’s use of certain Altisource services was a contributing factor to Ocwen’s purported violations. Ocwen disclosed that the state administrative actions announced or undertaken purportedly seek sanctions and various injunctive reliefs which may include restrictions on Ocwen obtaining additional mortgage servicing rights, continuing mortgage servicing or debt collection activities, originating or funding loans, initiating foreclosuresThe forgoing or other limitations or restrictions on Ocwen’s business operations or licenses in certain of these states. Ocwen announced in several Form 8-K filings that it reached settlements with mortgage and banking regulatory agencies from certain of the states, the District of Columbia and state attorneys general that took regulatory actions against it on April 20, 2017 or shortly thereafter. Ocwen disclosed that, as part of these settlements, Ocwen will not acquire any new residential mortgage servicing rights until April 30, 2018 and will develop a plan of action and milestones regarding its transition from the servicing system it currently uses, REALServicing^®~~, to an alternative servicing system and will not board any new loans onto the REALServicing system, as well as other key provisions. All of the forgoing~~ matters could result in, and in some cases, have resulted in, adverse regulatory or other actions against Ocwen. ~~While not all inclusive, other~~Previous regulatory actions ~~to date have included~~against Ocwen resulted in subjecting Ocwen to independent oversight of its operations and placing certain restrictions on its ability to acquire servicing rights.

In addition ~~in August 2017, Ocwen disclosed in its second quarter 2017 SEC Form 10-Q that it received a letter from Ginnie Mae that~~to the ~~state regulators’ cease and desist orders discussed~~ above, create a material change in Ocwen’s business status under Ginnie Mae’s MBS Guide and that Ginnie Mae has accordingly declared an event of default under guaranty agreements between Ginnie Mae and Ocwen. Ocwen further disclosed that in the letter it received, Ginnie Mae notified Ocwen that it will refrain from immediately exercising any rights relating to this matter for a period of 90 days from the date of the letter. In addition, Ocwen has disclosed that during this period, Ginnie Mae has asked Ocwen to provide certain information regarding the cease and desist orders and certain information regarding Ocwen’s business plan, financial results and operations and Ocwen also stated that it continues to

operate as a Ginnie Mae issuer in all respects and continues to participate in Ginnie Mae issuing of mortgage-backed securities and home equity conversion loan pools in the ordinary course. Ocwen also disclosed that adverse actions by Ginnie Mae could materially and adversely impact Ocwen’s business, including if Ginnie Mae were to terminate Ocwen as an issuer or servicer of Ginnie Mae securities.

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

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

Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio

~~Altisource fails to be retained as a service provider~~

The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue

~~Additionally, our~~Our Servicer Solutions, Origination Solutions, Consumer Real Estate Solutions and Real Estate Investor Solutions businesses are focused on diversifying and growing our revenue and customer base and we have a sales and marketing strategy to support these businesses.

In addition to the above, as of March 31, 2018, NRZ owned Ocwen-serviced MSRs and rights to MSRs (the “Subject MSRs”) with underlying unpaid principal balances (“UPB”) of $98.3 billion. As of March 31, 2018, Ocwen serviced and subserviced MSRs with underlying UPB of $173.4 billion. As previously disclosed, in July 2017, Ocwen and NRZ entered into agreements to convert NRZ’s economic rights to the Subject MSRs into fully-owned MSRs in exchange for payments from NRZ to Ocwen when such Subject MSRs were transferred. The transfers are subject to certain third party consents. Ocwen disclosed that under these agreements, Ocwen would subservice the transferred Subject MSRs for an initial term of five years, and the agreements provided for the conversion of the existing arrangements into a more traditional subservicing arrangement.

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

We anticipate that revenue from NRZ will increase over time and revenue from Ocwen will decrease. As Subject MSRs continue to transfer from Ocwen to NRZ and following the anticipated execution of the Services Agreement, we expect that NRZ will become our largest customer. Had all of the Subject MSRs been transferred to NRZ and the Brokerage Agreement and the Services Agreement with NRZ were in place as of January 1, 2018, we estimate that approximately 48% of our revenue for the six months ended June 30, 2018 would have been related to NRZ. There can be no assurance that the parties will reach an agreement with respect to the terms of the Services Agreement or that a Services Agreement will be entered into on a timely basis or at all.

Factors Affecting Comparability

The following items may impact the comparability of our results:

The average number of loans serviced by Ocwen on REALServicing (including those MSRs owned by NRZ and subserviced by Ocwen) was approximately 1.1 million for the six months ended June 30, 2018 compared to 1.3 million for the ~~nine~~six months ended ~~September~~June 30, 2017, ~~compared to 1.5 million for the nine months ended September 30, 2016,~~ a decrease of 13% ~~(1.2~~(1.1 million for the ~~third~~second quarter of 2018 and 1.3 million for the second quarter of 2017, ~~and 1.4 million for the third quarter of 2016,~~ a decrease of ~~12%~~13%). The average number of delinquent non-GSE loans serviced by Ocwen on REALServicing was ~~182~~approximately 162 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~224~~184 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, a decrease of ~~19% (178~~12% (153 thousand for the ~~third~~second quarter of 2018 and 177 thousand for the second quarter of 2017, ~~and 211 thousand for the third quarter of 2016,~~ a decrease of ~~16%~~14%).

On April 3, 2018, Altisource and its wholly-owned subsidiary, Altisource S.à r.l., entered into the Credit Agreement, pursuant to which, among other things, Altisource borrowed $412.0 million in the form of Term B Loans. Proceeds from the Term B Loans were used to repay the Company’s prior senior secured term loan. The interest rate of the Term B Loans during the second quarter of 2018 was 6.31%. The ~~number~~comparative interest rates under the Credit agreement and the prior credit agreement were 5.71% and 4.51% for the six months ended June 30, 2018 and 2017, respectively (4.51% for the second quarter of ~~loans transferred by Ocwen~~2017). In connection with the refinancing, we recognized a loss of $4.4 million from the write-off of the unamortized debt issuance costs and debt discount in the second quarter of 2018 (no comparative amounts in 2017).

Effective January 1, 2018, the Company adopted Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires certain equity investments to ~~NRZ and serviced by NRZ was 0.1~~be measured at fair value with changes in fair value recognized in net income. Previously, changes in the fair value of the Company’s available for sale securities were included in comprehensive income. For the six months ended June 30, 2018, we recognized an unrealized loss from our investment in RESI common shares of $6.0 million (unrealized gain of $1.5 million for the ~~nine~~second quarter of 2018). During the six months ended ~~September~~June 30, 2017, ~~and~~comprehensive income included an unrealized gain from our investment in RESI common shares of $5.7 million, net of a $2.1 million income tax provision (unrealized loss of $7.0 million, net of a $2.6 million income tax benefit for the ~~third~~second quarter of ~~2017.~~2017). See Note 1 to the condensed consolidated financial statements for additional information on the adoption of the new accounting standard on investments in equity securities.

~~During~~In the ~~nine months ended September 30,~~second quarter of 2017, we repurchased portions of our senior secured term loan with an aggregate par value of ~~$50.1~~$26.0 million at a weighted average discount of ~~12.2%~~16.5%, recognizing a net gain of $5.4 million on the early extinguishment of debt (repurchased aggregate par value of $24.1 million at a weighted average discount of 7.5%, recognizing a net gain of $1.5 million on the early extinguishment of debt for the third quarter of 2017). During the nine months ended September 30, 2016, we repurchased portions of our senior secured term loan with an aggregate par value of $51.0 million at a weighted average discount of 13.2%, recognizing a net gain of $5.5$3.9 million on the early extinguishment of debt (no ~~repurchases in the third quarter of 2016).~~

~~During the nine months ended September 30, 2016, we purchased 4.1 million shares of RESI common stock for $48.2 million (no~~ comparative amounts in ~~2017)~~2018). During the nine months ended September 30, 2017 and 2016, we earned dividends of $1.9 million and $1.0 million, respectively ($0.6 million for the third quarter of 2017 and no comparative amount for the third quarter of 2016), related to this investment. In addition, during the nine months ended September 30, 2016, we incurred expenses of $3.4 million related to this investment (no comparative amounts in 2017 and the third quarter of 2016).

~~On July 29, 2016, we acquired certain assets and assumed certain liabilities of Granite Loan Management of Delaware, LLC (“Granite”) for $9.5 million.~~

The effective income tax rate increased to 23.6% for the nine months ended September 30, 2017 from 20.1% for the nine months ended September 30, 2016 (decreased to 25.0% for the third quarter of 2017 from 39.0% for the third quarter of 2016). The effective income tax rate increase for the nine months ended September 30, 2017 was primarily due to changes in the expected mix of taxable income across the jurisdictions in which we operate. The lower effective income tax rate for the third quarter of 2017 was primarily the result of adjustments made in the third quarter of 2016 to true-up the tax provision from prior quarters. This was partially offset by higher pretax income in the third quarter of 2016, which, as discussed above, changed the mix of taxable income across the jurisdictions in which we operate.

CONSOLIDATED RESULTS OF OPERATIONS

Summary Consolidated Results

The following is a discussion of our consolidated results of operations for the periods indicated. For a more detailed discussion of the factors that affected the results of our business segments in these periods, see “Segment Results of Operations” below.

The following table sets forth information regarding our results of operations:


	Three months ended September 30,								Nine months ended September 30,								Three months ended June 30,								Six months ended June 30,
(in thousands, except per share data)	2017			2016			% Increase (decrease)		2017			2016			% Increase (decrease)		2018			2017			% Increase (decrease)		2018			2017			% Increase (decrease)

Service revenue
Mortgage Market	$	189,615		$	199,176		(5	)	$	583,002		$	584,740		—		$	169,457		$	198,414		(15	)	$	328,612		$	393,387		(16	)
Real Estate Market	21,113			21,231			(1	)	64,649			68,805			(6	)	23,664			24,347			(3	)	38,467			43,536			(12	)
Other Businesses, Corporate and Eliminations	13,580			19,375			(30	)	44,603			61,841			(28	)	15,740			15,346			3		30,548			31,023			(2	)
Total service revenue	224,308			239,782			(6	)	692,254			715,386			(3	)	208,861			238,107			(12	)	397,627			467,946			(15	)
Reimbursable expenses	9,866			12,080			(18	)	31,786			41,317			(23	)	9,008			11,891			(24	)	17,155			21,920			(22	)
Non-controlling interests	805			883			(9	)	2,107			1,973			7		687			687			—		1,212			1,302			(7	)
Total revenue	234,979			252,745			(7	)	726,147			758,676			(4	)	218,556			250,685			(13	)	415,994			491,168			(15	)
Cost of revenue	174,898			174,002			1		538,244			517,236			4		163,206			185,393			(12	)	310,400			363,346			(15	)
Gross profit	60,081			78,743			(24	)	187,903			241,440			(22	)	55,350			65,292			(15	)	105,594			127,822			(17	)
Selling, general and administrative expenses	46,622			53,886			(13	)	146,793			161,709			(9	)	42,924			52,470			(18	)	86,048			100,171			(14	)
Income from operations	13,459			24,857			(46	)	41,110			79,731			(48	)	12,426			12,822			(3	)	19,546			27,651			(29	)
Other income (expense), net:
Interest expense	(5,599		)	(5,952		)	(6	)	(16,862		)	(18,481		)	(9	)	(7,027		)	(5,465		)	29		(12,890		)	(11,263		)	14
Unrealized gain (loss) on investments in equity securities																	1,533			—			N/M		(5,968		)	—			N/M
Other income (expense), net	2,497			(109		)	N/M		8,015			2,608			207		(3,861		)	4,803			(180	)	(2,589		)	5,518			(147	)
Total other income (expense), net	(3,102		)	(6,061		)	(49	)	(8,847		)	(15,873		)	(44	)	(9,355		)	(662		)	N/M		(21,447		)	(5,745		)	273

Income before income taxes and non-controlling interests	10,357			18,796			(45	)	32,263			63,858			(49	)
Income tax provision	(2,591		)	(7,324		)	(65	)	(7,615		)	(12,808		)	(41	)
Income (loss) before income taxes and non-controlling interests																	3,071			12,160			(75	)	(1,901		)	21,906			(109	)
Income tax (provision) benefit																	(816		)	(2,438		)	(67	)	549			(5,024		)	(111	)

Net income	7,766			11,472			(32	)	24,648			51,050			(52	)
Net income (loss)																	2,255			9,722			(77	)	(1,352		)	16,882			(108	)
Net income attributable to non-controlling interests	(805		)	(883		)	(9	)	(2,107		)	(1,973		)	7		(687		)	(687		)	—		(1,212		)	(1,302		)	(7	)

Net income attributable to Altisource	$	6,961		$	10,589		(34	)	$	22,541		$	49,077		(54	)
Net income (loss) attributable to Altisource																	$	1,568		$	9,035		(83	)	$	(2,564	)	$	15,580		(116	)

Margins:
Gross profit/service revenue	27		%	33		%			27		%	34		%			27		%	27		%			27		%	27		%
Income from operations/service revenue	6		%	10		%			6		%	11		%			6		%	5		%			5		%	6		%

Earnings per share:
Earnings (loss) per share:
Basic	$	0.39		$	0.57		(32	)	$	1.23		$	2.63		(53	)	$	0.09		$	0.49		(82	)	$	(0.15	)	$	0.84		(118	)
Diluted	$	0.38		$	0.54		(30	)	$	1.20		$	2.49		(52	)	$	0.09		$	0.48		(81	)	$	(0.15	)	$	0.82		(118	)

N/M — not meaningful.

Revenue

We recognized service revenue of ~~$692.3~~$397.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, a 3%15% decrease compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~224.3~~208.9 million for the ~~third~~second quarter of ~~2017,~~2018, a 6%12% decrease compared to the ~~third~~second quarter of ~~2016)~~2017). The decreases in service revenue for the nine months ended September 30, 2017 and the third quarter of 2017 were primarily from lower service revenue in our customer relationship management and IT infrastructure services businesses in the Other Businesses, Corporate and Eliminations segment, the normal runoff of Ocwen’s portfolio in the Mortgage Market segment were primarily a result of the reduction in the size of Ocwen’s portfolio and number of delinquent loans in its portfolio resulting from loan repayments, loan modifications, short sales, REO sales and other forms of resolution, partially offset by service revenue growth in the non-Ocwen property preservation and inspection business. The decreases in service revenue in the Real Estate Market segment were primarily driven by RESI’s smaller

portfolio of non-performing loans and REO, partially offset by growth in the number of homes sold in the buy-renovate-lease-sell business, particularly in the second quarter of 2018 compared to the second quarter of 2017, as well as growth in the renovation management and Consumer Real Estate Solutions businesses.

We recognized reimbursable expense revenue of $17.2 million for the six months ended June 30, 2018, a 22% decrease compared to the six months ended June 30, 2017 ($9.0 million for the second quarter of 2018, a 24% decrease compared to the second quarter of 2017). The decreases in reimbursable expense revenue in the Mortgage Market segment were primarily a result of the reduction in the size of Ocwen’s portfolio and number of delinquent loans in its portfolio resulting from loan repayments, loan modifications, short sales, REO sales and other forms of resolution. The decrease in reimbursable expense revenue in the Real Estate Market segment was primarily from RESI’s smaller portfolio of non-performing loans and REO in the Real Estate Market. Customer relationship management revenue declined primarily because during 2016 we severed relationships with certain clients that were not profitable to us and we experienced a

reduction in volume from the transition of services from one customer to another. IT infrastructure services revenue declined from the transition of resources supporting Ocwen’s technology infrastructure to Ocwen. These decreases were largely offset by growth in referrals of certain higher fee property preservation services and growth in home sales revenue in the buy-renovate-sell business, which began operations in the second half of 2016. Reimbursable expenses revenue declined from a 2015 change in the pricing and billing model for preservation services on new Ocwen REO referrals that resulted in certain services that were historically reimbursable expenses revenue becoming service revenue.businesses.

Certain of our revenues are impacted by seasonality. More specifically, revenues from property sales, loan originations and certain property preservation services typically tend to be at their lowest level during the fall and winter months and at their highest level during the spring and summer months. In addition, revenue in the asset recovery management business tends to be higher in the first quarter, as borrowers may utilize tax refunds and bonuses to pay debts, and generally declines throughout the rest of the year.

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, ~~and the~~ cost of real estate sold, reimbursable expenses, technology and telecommunications costs, and depreciation and amortization of operating assets.

Cost of revenue consisted of the following:

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 60,332
$ 66,357
(9 ) $ 186,090
$ 201,193
(8 )
Outside fees and services 83,670
77,445
8
250,883
222,574
13
Cost of real estate sold 4,411
—
N/M
16,461
—
N/M
Reimbursable expenses 9,866
12,080
(18 ) 31,786
41,317
(23 )
Technology and telecommunications 10,389
11,502
(10 ) 32,681
32,145
2
Depreciation and amortization 6,230
6,618
(6 ) 20,343
20,007
2

Cost of revenue $ 174,898
$ 174,002
1
$ 538,244
$ 517,236
4

~~N/M — not meaningful.~~



	Three months ended June 30,						Six months ended June 30,
(in thousands)	2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Compensation and benefits	$	54,769	$	62,666	(13	)	$	109,635	$	125,758	(13	)
Outside fees and services	68,879		86,255		(20	)	133,977		167,214		(20	)
Cost of real estate sold	13,320		7,114		87		16,499		12,049		37
Technology and telecommunications	10,852		10,941		(1	)	20,303		22,292		(9	)
Reimbursable expenses	9,008		11,891		(24	)	17,155		21,920		(22	)
Depreciation and amortization	6,378		6,526		(2	)	12,831		14,113		(9	)

Cost of revenue	$	163,206	$	185,393	(12	)	$	310,400	$	363,346	(15	)

Cost of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 of ~~$538.2~~$310.4 million ~~increased 4%~~decreased 15% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~174.9~~163.2 million for the ~~third~~second quarter of ~~2017,~~2018, a ~~1% increase~~12% decrease compared to the ~~third~~second quarter of ~~2016)~~2017). The ~~increases~~decreases in cost of revenue were primarily driven by ~~higher~~lower outside fees and services, and cost of real estate sold, partially offset by decreases in compensation and benefits and reimbursable expenses. Outside fees and services increased in the Mortgage Market due to growth in referrals of certain higher cost property preservation services in the Servicer Solutions business, partially offset by lower costs related to RESI’s smaller portfolio of non-performing loans and REO in the Real Estate Investor Solutions business. The increases in cost of real estate sold were the result of properties sold in connection with our buy-renovate-sell program, which began operations in the second half of 2016.

~~Compensation and benefits declined in the Mortgage Market in the Servicer Solutions business as we reduced headcount levels in certain businesses,~~ consistent with the ~~decline~~decrease in Mortgage Market and Real Estate Market service revenue discussed in the revenue section ~~above~~above. Compensation and ~~benefited~~benefits declined in certain of our businesses as we reduced headcount in anticipation of the revenue decline from the Ocwen and RESI portfolios and from the implementation of efficiency initiatives. ~~In the Other Businesses, Corporate and Eliminations segment, compensation and benefits decreased~~The decrease in ~~connection~~reimbursable expenses was consistent with the ~~transition of resources supporting Ocwen’s technology infrastructure to Ocwen and lower headcount levels in our customer relationship management business from a~~ decrease in ~~client relationships, as~~reimbursable expenses revenue discussed in the revenue section above. InThese decreases were partially offset by an increase in cost of real estate sold in the Real Estate Market ~~compensation and benefits increased~~segment due to higher transaction volumes, particularly in the ~~Consumer Real Estate Solutions business~~second quarter of 2018 compared to ~~support growth~~the second quarter of ~~this business, partially offset by lower headcount levels in the Real Estate Investor Solutions business driven by lower customer volumes in certain business units.~~

~~Reimbursable expenses declined in the Mortgage Market’s Servicer Solutions business primarily~~2017, as ~~a result of the change in the pricing and billing model~~ discussed in the revenue section above.

Gross profit decreased to ~~$187.9~~$105.6 million, representing 27% of service revenue, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$241.4 million, representing 34% of service revenue, for the nine months ended September 30, 2016 (decreased to $60.1~~$127.8 million, representing 27% of service revenue, for the ~~third quarter of~~six months ended June 30, 2017 ~~compared~~(decreased to ~~$78.7~~$55.4 million, representing ~~33%~~27% of service revenue, for the ~~third~~second quarter of ~~2016)~~2018 compared to $65.3 million, representing 27% of service revenue, for the second quarter of 2017). Gross profit as a percentage of service revenue ~~decreased primarily due~~for the three and six months ended June 30, 2018 was largely flat compared to ~~revenue~~

~~mix~~the three and ~~investments in our growth businesses. Revenue mix changed from growth in~~six months ended June 30, 2017, as the revenue declines were generally offset by lower ~~margin property preservation and buy-renovate-sell businesses and declines in other higher margin businesses.~~cost of revenue, as discussed above.

Selling, General and Administrative Expenses

Selling, general and ~~administrative~~administration expenses (“SG&A”) include payroll for personnel employed in executive, finance, law, compliance, human resources, vendor management, facilities, risk management, sales and marketing roles. This category also includes professional fees, occupancy ~~related~~ costs, ~~amortization of intangible assets, professional services,~~ marketing costs, ~~and~~ depreciation and amortization of non-operating assets and other expenses.

SG&A ~~expense~~expenses consisted of the following:


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2017		2016		% Increase (decrease)		2017		2016		% Increase (decrease)		2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Compensation and benefits	$	15,068	$	14,145	7		$	43,115	$	42,460	2		$	12,197	$	15,541	(22	)	$	25,766	$	28,047	(8	)
Occupancy related costs	8,536		8,903		(4	)	28,347		26,785		6		7,189		9,538		(25	)	15,623		19,811		(21	)
Amortization of intangible assets	8,604		11,465		(25	)	27,143		36,432		(25	)	7,544		9,393		(20	)	14,691		18,539		(21	)
Marketing costs													3,978		3,697		8		7,585		7,966		(5	)
Professional services	3,886		4,097		(5	)	11,983		17,533		(32	)	4,328		4,367		(1	)	7,554		8,097		(7	)
Marketing costs	3,992		9,275		(57	)	11,958		21,438		(44	)
Depreciation and amortization	2,286		2,557		(11	)	7,068		7,514		(6	)	1,950		2,361		(17	)	4,218		4,782		(12	)
Other	4,250		3,444		23		17,179		9,547		80		5,738		7,573		(24	)	10,611		12,929		(18	)

Selling, general and administrative expenses	$	46,622	$	53,886	(13	)	$	146,793	$	161,709	(9	)	$	42,924	$	52,470	(18	)	$	86,048	$	100,171	(14	)

SG&A for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 of ~~$146.8~~$86.0 million decreased 9%14% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~46.6~~42.9 million for the ~~third~~second quarter of ~~2017, a 13%~~2018, an 18% decrease compared to the ~~third~~second quarter of ~~2016)~~2017). The decreases in SG&A were primarily due to lower ~~marketing~~compensation and benefits in certain of our businesses as we reduced headcount from the implementation of efficiency initiatives. In addition, decreases in SG&A were due to lower occupancy costs, driven by ~~initial non-recurring Owners.com market launch costs incurred during~~ the ~~nine months ended September 30, 2016, the reduction in Owners.com recurring marketing spending as the business unit focuses on improving the lead to closing conversion rate~~subleasing of certain office facilities, and lower amortization of intangible assets, driven by ~~an increase in total projected~~lower revenue ~~to be~~ generated by the Homeward Residential, Inc. (“Homeward”) and Residential Capital, LLC (“ResCap”) portfolios ~~over~~(revenue-based amortization) in the ~~lives of these portfolios (revenue-based amortization). In addition, professional services legal costs were lower for the nine months ended September 30, 2017 in connection~~Mortgage Market segment, consistent with the ~~resolution of, and~~ reduction in ~~activities related to, several litigation and regulatory matters.~~the size of Ocwen’s portfolio discussed in the revenue section above. The ~~decrease~~decreases in SG&A ~~for~~were also due to the ~~nine months ended September 30, 2017 was partially offset by~~decrease in other from unfavorable loss accrual adjustments of $2.7 million ~~relating to facility closures and litigation related costs in other SG&A~~recorded in the second quarter of 2017 (no comparative ~~amount for the nine months ended September 30, 2016). In addition, the decreases~~amounts in SG&A for the nine month ended September 30, 2017 were partially offset by a $3.0 million favorable loss accrual adjustment in other SG&A in the nine months ended September 30, 2016 (no comparative amounts for the nine months ended September 30, 2017 and the third quarter of 2017 and 2016)2018).

Income from Operations

Income from operations decreased to ~~$41.1~~$19.5 million, representing 5% of service revenue, for the six months ended June 30, 2018 compared to $27.7 million, representing 6% of service revenue, for the ~~nine~~six months ended ~~September~~June 30, 2017 ~~compared to $79.7 million, representing 11% of service revenue, for the nine months ended September 30, 2016~~ (decreased to ~~$13.5~~$12.4 million, representing 6% of service revenue, for the ~~third~~second quarter of ~~2017~~2018 compared to ~~$24.9~~$12.8 million, representing ~~10%~~5% of service revenue, for the ~~third~~second quarter of ~~2016)~~2017). ~~The decrease in operating~~Operating income as a percentage of service revenue for the three and six months ended June 30, 2018 was largely flat compared to the ~~result of~~three and six months ended June 30, 2017, as the ~~decrease in gross profit margin, partially~~revenue declines were generally offset by lower cost of revenue and SG~~&A expenses, as discussed above.~~&A.

Other Income (Expense), net

Other income (expense), net principally includes interest expense and other non-operating gains and losses. Interest expense was $16.9 million for the nine months ended September 30, 2017, a decrease of $1.6 million compared to the nine months ended September 30, 2016 ($5.6 million for the third quarter of 2017, a decrease of $0.4 million compared to the third quarter of 2016)Effective January 1, 2018, other income (expense), primarily due to the 2017 and 2016 repurchases of portions of our senior secured term loan with an aggregate par value of $101.1 million, partially offset by an increase in the senior secured term loan interest rate from 4.50% as of December 31, 2016 and 4.72% as of June 30, 2017 to 4.74% as of September 30, 2017. Other non-operatingnet includes unrealized gains and ~~losses primarily represent gains~~(losses) on ~~the early extinguishment of debt and income and expenses related to~~ our investment in RESI ~~common stock.~~(see Factors Affecting Comparability above).

~~During~~Other income (expense), net for the ~~nine~~six months ended ~~September~~June 30, 2018 of $(21.4) million compares to $(5.7) million for the six months ended June 30, 2017 ~~we repurchased portions~~($(9.4) million for the second quarter of 2018 and $(0.7) million for the second quarter of 2017). The increase in other expenses, net for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was primarily due to an unrealized loss of $6.0 million on our investment in RESI in 2018, the $4.4 million loss on debt refinancing during the second quarter of 2018 and higher interest expense for the second quarter of 2018 from a higher interest rate on the Credit Agreement compared to the prior senior secured term ~~loan with an aggregate par value of $50.1 million at a weighted average discount of 12.2%, recognizing~~loan. In addition, we recorded a net gain of ~~$5.4~~$3.9 million on the early extinguishment of debt ~~(repurchased aggregate par value~~in the second quarter of ~~$24.1 million at a weighted average discount~~2017. The increase in other expenses, net for the second quarter of ~~7.5%, recognizing a~~2018 was primarily due to the loss on debt refinancing, higher interest expense and the net gain ~~of $1.5 million~~ on the early extinguishment of debt, ~~for the third quarter of 2017). During the nine months ended September 30, 2016, we repurchased portions of our senior secured term loan with~~as discussed above, partially offset by an ~~aggregate par value of $51.0 million at a weighted average discount of 13.2%, recognizing a net~~unrealized gain of ~~$5.5~~$1.5 million on ~~the early extinguishment of debt (no repurchases in the third quarter of 2016).~~

During the nine months ended September 30, 2017 and 2016, we earned dividends of $1.9 million and $1.0 million, respectively ($0.6 million for the third quarter of 2017 and no comparative amount for the third quarter of 2016) related to our investment in ~~RESI. In addition, during~~RESI for the ~~nine months ended September 30, 2016, we incurred expenses of $3.4 million related to this investment (no comparative amounts in 2017 and the third~~second quarter of ~~2016).~~2018.

Income Tax ~~Provision~~Benefit (Provision)

We recognized an income tax ~~provision~~benefit of ~~$7.6~~$0.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$12.8~~an income tax provision of $5.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016 ($2.6~~2017 (income tax provision of $0.8 million and ~~$7.3~~$2.4 million for the ~~third~~second quarter of ~~2017~~2018 and ~~2016,~~2017, respectively). Our effective tax rate was ~~23.6%~~28.9% and ~~20.1%~~22.9% for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, respectively (26.6% and ~~September 30, 2016, respectively (25.0% and 39.0%~~20.0% for the ~~third~~second quarter of ~~2017~~2018 and ~~2016,~~2017, respectively). Our effective tax rates differ from the Luxembourg statutory tax rate of 26.0% and 27.1% in 2018 and ~~29.2% in~~ 2017, ~~and 2016,~~ respectively, primarily due to ~~the effect of certain deductions in Luxembourg and~~ the mix of income and losses with varying tax rates in multiple taxing ~~jurisdictions. The higher~~jurisdictions and, for the three and six months ended June 30, 2017, the effect of certain deductions in Luxembourg. Our effective income tax rate ~~for the nine months ended September 30, 2017 was primarily the result of lower pretax income, which changed the mix of taxable income across the jurisdictions~~can vary due to changes in which we operate. The lower effective income tax rate for the third quarter of 2017 was primarily the result of adjustments made in the third quarter of 2016 to true-up the tax provision from prior quarters. This was partially offset by higher pretax income in the third quarter of 2016, which, as discussed above, changed the mix of taxable income across the jurisdictions in which we operate.

SEGMENT RESULTS OF OPERATIONS

Effective January 1, 2017, our reportable segments changed as a result of changes in our internal organization, which changed the way our Chief Executive Officer (our chief operating decision maker) manages our businesses, allocates resources and evaluates performance. We now report our operations through two new reportable segments: ~~Mortgage Market~~ ~~and~~ ~~Real Estate Market. In addition, we report~~ ~~Other Businesses, Corporate and Eliminations~~ ~~separately. Prior to the January 1, 2017 change in reportable segments, our reportable segments were~~ ~~Mortgage Services~~, ~~Financial Services~~ ~~and~~ ~~Technology Services. The former~~ ~~Mortgage Services~~ ~~segment was separated into the~~ ~~Mortgage Market~~ ~~and~~ ~~Real Estate Market~~ ~~segments (see Overview - Our Business). Furthermore, certain of the software services business units that were formerly in the~~ ~~Technology Services~~ ~~segment and the mortgage charge-off collections business that was formerly in the~~ ~~Financial Services~~ ~~segment are now included in the~~ ~~Mortgage Market~~. ~~Other Businesses, Corporate and Eliminations~~ ~~includes the asset recovery management services and customer relationship management services that were formerly in the~~ ~~Financial Services~~ ~~segment as well as IT infrastructure management services formerly in the~~ ~~Technology Services~~ ~~segment (see Overview - Our Business). Prior year comparable period segment disclosures have been restated to conform to the current year presentation.~~

The following section provides a discussion of pretax results of operations of our business segments. Transactions between segments are accounted for as third party arrangements for purposes of presenting segment results of ~~operations and eliminated in consolidation.~~operations.

Financial information for our segments was as follows:


	Three months ended September 30, 2017												Three months ended June 30, 2018
(in thousands)	Mortgage Market			Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource			Mortgage Market			Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue
Service revenue	$	189,615		$	21,113		$	13,580		$	224,308		$	169,457		$	23,664		$	15,740		$	208,861
Reimbursable expenses	8,842			1,008			16			9,866			8,518			481			9			9,008
Non-controlling interests	805			—			—			805			687			—			—			687
	199,262			22,121			13,596			234,979			178,662			24,145			15,749			218,556
Cost of revenue	137,466			23,497			13,935			174,898			115,329			28,191			19,686			163,206
Gross profit (loss)	61,796			(1,376		)	(339		)	60,081			63,333			(4,046		)	(3,937		)	55,350
Selling, general and administrative expenses	28,006			4,208			14,408			46,622			20,604			5,180			17,140			42,924
Income (loss) from operations	33,790			(5,584		)	(14,747		)	13,459			42,729			(9,226		)	(21,077		)	12,426
Total other income (expense), net	26			—			(3,128		)	(3,102		)	(4		)	12			(9,363		)	(9,355		)

Income (loss) before income taxes and non-controlling interests	$	33,816		$	(5,584	)	$	(17,875	)	$	10,357		$	42,725		$	(9,214	)	$	(30,440	)	$	3,071

Margins:
Gross profit (loss)/service revenue	33		%	(7		)%	(2		)%	27		%	37		%	(17		)%	(25		)%	27		%
Income (loss) from operations/service revenue	18		%	(26		)%	(109		)%	6		%	25		%	(39		)%	(134		)%	6		%


	Three months ended September 30, 2016												Three months ended June 30, 2017
(in thousands)	Mortgage Market			Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource			Mortgage Market			Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue
Service revenue	$	199,176		$	21,231		$	19,375		$	239,782		$	198,414		$	24,347		$	15,346		$	238,107
Reimbursable expenses	11,762			285			33			12,080			11,094			783			14			11,891
Non-controlling interests	883			—			—			883			687			—			—			687
	211,821			21,516			19,408			252,745			210,195			25,130			15,360			250,685
Cost of revenue	138,646			16,634			18,722			174,002			144,326			26,844			14,223			185,393
Gross profit	73,175			4,882			686			78,743
Gross profit (loss)													65,869			(1,714		)	1,137			65,292
Selling, general and administrative expenses	29,903			6,961			17,022			53,886			29,805			5,551			17,114			52,470
Income (loss) from operations	43,272			(2,079		)	(16,336		)	24,857			36,064			(7,265		)	(15,977		)	12,822
Total other income (expense), net	10			—			(6,071		)	(6,061		)	102			—			(764		)	(662		)

Income (loss) before income taxes and non-controlling interests	$	43,282		$	(2,079	)	$	(22,407	)	$	18,796		$	36,166		$	(7,265	)	$	(16,741	)	$	12,160

Margins:
Gross profit/service revenue	37		%	23		%	4		%	33		%
Gross profit (loss)/service revenue													33		%	(7		)%	7		%	27		%
Income (loss) from operations/service revenue	22		%	(10		)%	(84		)%	10		%	18		%	(30		)%	(104		)%	5		%



	Six months ended June 30, 2018
(in thousands)	Mortgage Market			Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue
Service revenue	$	328,612		$	38,467		$	30,548		$	397,627
Reimbursable expenses	16,176			958			21			17,155
Non-controlling interests	1,212			—			—			1,212
	346,000			39,425			30,569			415,994
Cost of revenue	226,402			46,745			37,253			310,400
Gross profit (loss)	119,598			(7,320		)	(6,684		)	105,594
Selling, general and administrative expenses	43,978			9,298			32,772			86,048
Income (loss) from operations	75,620			(16,618		)	(39,456		)	19,546
Total other income (expense), net	12			14			(21,473		)	(21,447		)

Income (loss) before income taxes and non-controlling interests	$	75,632		$	(16,604	)	$	(60,929	)	$	(1,901	)

Margins:
Gross profit (loss)/service revenue	36		%	(19		)%	(22		)%	27		%
Income (loss) from operations/service revenue	23		%	(43		)%	(129		)%	5		%

Nine months ended September 30, 2017
(in thousands) Mortgage Market Real Estate Market Other Businesses, Corporate and Eliminations Consolidated Altisource

Revenue

Service revenue $ 583,002
$ 64,649
$ 44,603
$ 692,254
Reimbursable expenses 29,071
2,665
50
31,786
Non-controlling interests 2,107
—
—
2,107
614,180
67,314
44,653
726,147
Cost of revenue 421,942
72,484
43,818
538,244
Gross profit (loss) 192,238
(5,170 ) 835
187,903
Selling, general and administrative expenses 86,493
14,084
46,216
146,793
Income (loss) from operations 105,745
(19,254 ) (45,381 ) 41,110
Total other income (expense), net 138
—
(8,985 ) (8,847 )

Income (loss) before income taxes and
non-controlling interests $ 105,883
$ (19,254 ) $ (54,366 ) $ 32,263

Margins:

Gross profit (loss)/service revenue 33 % (8 )% 2 % 27 %
Income (loss) from operations/service revenue 18 % (30 )% (102 )% 6 %


	Nine months ended September 30, 2016												Six months ended June 30, 2017
(in thousands)	Mortgage Market			Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource			Mortgage Market			Real Estate Market			Other Businesses, Corporate and Eliminations			Consolidated Altisource

Revenue
Service revenue	$	584,740		$	68,805		$	61,841		$	715,386		$	393,387		$	43,536		$	31,023		$	467,946
Reimbursable expenses	39,809			1,424			84			41,317			20,229			1,657			34			21,920
Non-controlling interests	1,973			—			—			1,973			1,302			—			—			1,302
	626,522			70,229			61,925			758,676			414,918			45,193			31,057			491,168
Cost of revenue	408,412			47,946			60,878			517,236			284,476			48,987			29,883			363,346
Gross profit	218,110			22,283			1,047			241,440
Gross profit (loss)													130,442			(3,794		)	1,174			127,822
Selling, general and administrative expenses	90,498			18,755			52,456			161,709			58,487			9,876			31,808			100,171
Income (loss) from operations	127,612			3,528			(51,409		)	79,731			71,955			(13,670		)	(30,634		)	27,651
Total other income (expense), net	144			—			(16,017		)	(15,873		)	112			—			(5,857		)	(5,745		)

Income (loss) before income taxes and non-controlling interests	$	127,756		$	3,528		$	(67,426	)	$	63,858		$	72,067		$	(13,670	)	$	(36,491	)	$	21,906

Margins:
Gross profit/service revenue	37		%	32		%	2		%	34		%
Gross profit (loss)/service revenue													33		%	(9		)%	4		%	27		%
Income (loss) from operations/service revenue	22		%	5		%	(83		)%	11		%	18		%	(31		)%	(99		)%	6		%

Mortgage Market

Revenue

Revenue by business unit was as follows:


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2017		2016		% Increase (decrease)		2017		2016		% Increase (decrease)		2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Service revenue:
Servicer Solutions	$	176,258	$	183,804	(4	)	$	545,447	$	546,736	—		$	157,609	$	185,756	(15	)	$	305,418	$	369,189	(17	)
Origination Solutions	13,357		15,372		(13	)	37,555		38,004		(1	)	11,848		12,658		(6	)	23,194		24,198		(4	)
Total service revenue	189,615		199,176		(5	)	583,002		584,740		—		169,457		198,414		(15	)	328,612		393,387		(16	)

Reimbursable expenses:
Servicer Solutions	8,803		11,684		(25	)	28,854		39,632		(27	)	8,460		11,015		(23	)	16,062		20,051		(20	)
Origination Solutions	39		78		(50	)	217		177		23		58		79		(27	)	114		178		(36	)
Total reimbursable expenses	8,842		11,762		(25	)	29,071		39,809		(27	)	8,518		11,094		(23	)	16,176		20,229		(20	)

Non-controlling interests	805		883		(9	)	2,107		1,973		7		687		687		—		1,212		1,302		(7	)

Total revenue	$	199,262	$	211,821	(6	)	$	614,180	$	626,522	(2	)	$	178,662	$	210,195	(15	)	$	346,000	$	414,918	(17	)

We recognized service revenue of ~~$583.0~~$328.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, a ~~less than 1%~~16% decrease compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~189.6~~169.5 million for the ~~third~~second quarter of ~~2017,~~2018, a 5%15% decrease compared to the ~~third~~second quarter of ~~2016)~~2017). ~~Service~~We also recognized reimbursable expense revenue of $16.2 million for the ~~nine~~six months ended ~~September~~June 30, 2018, a 20% decrease compared to the six months ended June 30, 2017 ~~declined~~($8.5 million for the second quarter of 2018, a 23% decrease compared to the second quarter of 2017). The decreases in service revenue and reimbursable expense revenue were primarily as a result of the ~~normal run-off~~reduction in the size of Ocwen’s portfolio and number of delinquent loans in its portfolio resulting from loan ~~servicing portfolio~~repayments, loan modifications, short sales, REO sales and other forms of resolution in the Servicer Solutions business. This decline was almost entirely offset by growth in referrals of certain higher fee property preservation services, a change in 2015 in the pricing and billing model for preservation services on new Ocwen REO referrals that resulted in certain services thatThese decreases were historically reimbursable expenses revenue becoming service revenue, the acquisition of Granite in July 2016 and growth in non-Ocwen service revenues from new and existing customers in the Servicer Solutions business. Service revenue for the third quarter of 2017 declined primarily as a result of the normal run-off of Ocwen’s loan servicing portfolio in the Servicer Solutions business. This decline was partially offset by growth in ~~referrals of certain higher fee~~the non-Ocwen property preservation ~~services, a change in 2015 in the pricing~~ and ~~billing model for preservation services as discussed above and growth in non-Ocwen service revenues from new and existing customers in the Servicer Solutions~~inspection business.

~~The decreases in reimbursable expenses revenue were primarily due to the change in 2015 in the pricing and billing model for preservation services on new Ocwen REO referrals described above.~~

Certain of our Mortgage Market businesses are impacted by seasonality. Revenues from property sales, loan originations and certain property preservation services are generally lowest during the fall and winter months and highest during the spring and summer months.

Cost of Revenue and Gross Profit

Cost of revenue consisted of the following:


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2017		2016		% Increase (decrease)		2017		2016		% Increase (decrease)		2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Compensation and benefits	$	41,475	$	44,876	(8	)	$	126,153	$	134,693	(6	)	$	33,659	$	41,923	(20	)	$	68,625	$	84,678	(19	)
Outside fees and services	74,902		70,506		6		228,982		199,737		15		62,232		78,710		(21	)	119,793		154,080		(22	)
Reimbursable expenses	8,842		11,762		(25	)	29,071		39,809		(27	)	8,518		11,094		(23	)	16,176		20,229		(20	)
Technology and telecommunications	7,708		7,372		5		23,589		21,795		8		6,344		7,709		(18	)	12,690		15,881		(20	)
Depreciation and amortization	4,539		4,130		10		14,147		12,378		14		4,576		4,890		(6	)	9,118		9,608		(5	)

Cost of revenue	$	137,466	$	138,646	(1	)	$	421,942	$	408,412	3		$	115,329	$	144,326	(20	)	$	226,402	$	284,476	(20	)

Cost of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 of ~~$421.9~~$226.4 million ~~increased~~decreased by 3%20% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~137.5~~115.3 million for the ~~third~~second quarter of ~~2017,~~2018, a 1%20% decrease compared to the ~~third~~second quarter of ~~2016)~~2017). The ~~increase~~decreases in cost of revenue ~~for the nine months ended September 30, 2017 was~~were primarily driven by ~~higher outside fees~~lower service revenue and ~~services, partially offset~~cost reduction initiatives. Additionally, the decrease in compensation and benefits and the decrease in technology and telecommunications costs were driven by ~~decreases~~the redeployment of certain technology resources to our Other Businesses, Corporate and Eliminations for the development of enterprise-wide technology initiatives. The decrease in reimbursable expenses ~~and compensation and benefits. Outside fees and services increased due to growth in referrals of certain higher cost property preservation services in the Servicer Solutions business,~~was consistent with the ~~growth~~decrease in ~~service~~reimbursable expenses revenue discussed in the revenue section ~~above, particularly during the first half of 2017. Reimbursable expenses declined primarily as a result of the change in billing discussed in the revenue section~~ above. Compensation and benefits declined in certain of the Servicer Solutions businesses as we reduced headcount levels in certain businesses, consistent with the decline in service revenue discussed in the revenue section above and benefited from efficiency initiatives. The decrease in cost of revenue for the third quarter of 2017 was primarily due to a decrease in compensation and benefits in certain of the Servicer Solutions businesses and reimbursable expenses, partially offset by an increase in outside fees and services, consistent with the service revenue discussion above.

Gross profit decreased to ~~$192.2~~$119.6 million, representing 36% of service revenue, for the six months ended June 30, 2018 compared to $130.4 million, representing 33% of service revenue, for the ~~nine~~six months ended ~~September~~June 30, 2017 ~~compared~~(decreased to ~~$218.1~~$63.3 million, representing 37% of service revenue for the ~~nine months ended September 30, 2016 (decreased~~second quarter of 2018, compared to ~~$61.8~~$65.9 million, representing 33% of service revenue for the ~~third~~second quarter of ~~2017, compared to $73.2 million, representing 37% of service revenue for the third quarter of 2016)~~2017). Gross profit as a percentage of service revenue ~~declined~~increased primarily due to service revenue mix from ~~growth in the~~fewer lower margin property preservation ~~services and declines~~referrals related to the reduction in ~~other higher margin businesses.~~the size of Ocwen’s portfolio, as discussed above. Our margins can vary substantially depending upon service revenue mix.

Selling, General and Administrative Expenses ~~and Income from Operations~~

SG&A expenses consisted of the following:


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2017		2016		% Increase (decrease)		2017		2016		% Increase (decrease)		2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Compensation and benefits	$	6,292	$	5,492	15		$	17,393	$	16,368	6		$	3,112	$	5,947	(48	)	$	7,969	$	11,101	(28	)
Occupancy related costs	5,648		4,997		13		17,687		15,187		16		3,924		6,823		(42	)	9,178		12,039		(24	)
Amortization of intangible assets	7,975		10,761		(26	)	25,119		34,179		(27	)	6,618		8,709		(24	)	13,137		17,144		(23	)
Professional services	2,319		2,186		6		7,018		9,314		(25	)	1,825		2,469		(26	)	3,271		4,699		(30	)
Marketing costs	2,170		3,443		(37	)	6,405		7,859		(19	)	1,603		1,763		(9	)	3,331		4,235		(21	)
Depreciation and amortization	1,012		1,053		(4	)	2,881		2,964		(3	)	678		1,006		(33	)	1,574		1,869		(16	)
Other	2,590		1,971		31		9,990		4,627		116		2,844		3,088		(8	)	5,518		7,400		(25	)

Selling, general and administrative expenses	$	28,006	$	29,903	(6	)	$	86,493	$	90,498	(4	)	$	20,604	$	29,805	(31	)	$	43,978	$	58,487	(25	)

SG&A for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 of ~~$86.5~~$44.0 million decreased by 4%25% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~28.0~~20.6 million for the ~~third~~second quarter of ~~2017,~~2018, a 6%31% decrease compared to the ~~third~~second quarter of ~~2016)~~2017). The decreases in SG&A were primarily ~~driven by~~due to lower amortization of intangible assets, driven by ~~an increase in total projected~~lower revenue ~~to be~~ generated by the Homeward and ResCap portfolios ~~over~~(revenue-based amortization), consistent with the ~~lives~~reduction in the size of ~~these portfolios (revenue-based amortization).~~Ocwen’s portfolio discussed in the revenue section above. Compensation and benefits decreased due to lower cost allocations driven by declining revenues, as discussed in the revenue section above, and the implementation of efficiency initiatives. In addition, lower occupancy costs were driven by initiatives to reduce our facilities footprint. For the six months ended June 30, 2018, legal costs in professional services ~~legal costs were lower for the nine months ended September 30, 2017~~decreased in connection with the resolution of, and reduction in activities related to, ~~several~~ litigation and regulatory matters. The decreases in SG&A for the nine months ended September 30, 2017 were partially offset by a $3.0 million favorable loss accrual adjustment in other SG&A in the nine months ended September 30, 2016 (no comparative amounts for the nine months ended September 30, 2017 and the third quarter of 2017 and 2016).

Income from Operations

Income from operations ~~decreased~~increased to ~~$105.7~~$75.6 million, representing 23% of service revenue, for the six months ended June 30, 2018 compared to $72.0 million, representing 18% of service revenue, for the ~~nine~~six months ended ~~September~~June 30, 2017 ~~compared~~(increased to ~~$127.6~~$42.7 million, representing ~~22%~~25% of service revenue for the ~~nine months ended September 30, 2016 (decreased~~second quarter of 2018, compared to ~~$33.8~~$36.1 million, representing 18% of service revenue for the ~~third~~second quarter of ~~2017, compared to $43.3 million, representing 22% of service revenue for the third quarter of 2016)~~2017). The ~~decreases~~increases in operating income as a percentage of service revenue were primarily the result of ~~lower~~higher gross profit margins ~~from the decrease in revenue, partially offset by~~and lower SG&A, as discussed above.

Real Estate Market

Revenue

Revenue by business unit was as follows:


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2017		2016		% Increase (decrease)		2017		2016		% Increase (decrease)		2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Service revenue:
Consumer Real Estate Solutions	$	1,441	$	213	N/M		$	3,440	$	732	N/M		$	2,312	$	1,290	79		$	3,717	$	1,999	86
Real Estate Investor Solutions	19,672		21,018		(6	)	61,209		68,073		(10	)	21,352		23,057		(7	)	34,750		41,537		(16	)
Total service revenue	21,113		21,231		(1	)	64,649		68,805		(6	)	23,664		24,347		(3	)	38,467		43,536		(12	)

Reimbursable expenses:
Consumer Real Estate Solutions													—		—		—		2		—		N/M
Real Estate Investor Solutions	1,008		285		254		2,665		1,424		87		481		783		(39	)	956		1,657		(42	)
Total reimbursable expenses	1,008		285		254		2,665		1,424		87		481		783		(39	)	958		1,657		(42	)

Total revenue	$	22,121	$	21,516	3		$	67,314	$	70,229	(4	)	$	24,145	$	25,130	(4	)	$	39,425	$	45,193	(13	)

N/M — not meaningful.

We recognized service revenue of ~~$64.6~~$38.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, a 6%12% decrease compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~21.1~~23.7 million for the ~~third~~second quarter of ~~2017,~~2018, a 1%3% decrease compared to the ~~third~~second quarter of ~~2016)~~2017). The decreases in service revenue were primarily ~~due to RESI’s lower property preservation referrals and REO sales~~driven by a decline in revenues in the Real Estate Investor Solutions business from RESI’s smaller portfolio of non-performing loans and REO, as RESI continues ~~its transition from buying non-performing loans~~ to sell off this portfolio and instead focuses on directly acquiring, renovating and managing rental homes. These decreases were partially offset by ~~growth~~increases in ~~home sales revenue~~the buy-renovate-lease-sell business in ~~our buy-renovate-sell program in the~~ Real Estate Investor Solutions, ~~business, which began operations~~particularly in the second ~~half~~quarter of ~~2016,~~2018 compared to the second quarter of 2017, due to a higher number of homes sold and growth in the renovation management business in Real Estate Investor Solutions. Additionally, the net decreases in Real Estate Investor Solutions were partially offset by increases in the Consumer Real Estate Solutions business from higher transaction ~~volumes.~~volumes and unit revenue in 2018.

Certain of our Real Estate Market businesses are impacted by seasonality. Revenues from property sales and certain property preservation services are generally lowest during the fall and winter months and highest during the spring and summer months.

Cost of Revenue and Gross ~~Profit (Loss)~~Loss

Cost of revenue consisted of the following:

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 8,777
$ 8,173
7
$ 28,167
$ 21,335
32
Outside fees and services 7,865
6,229
26
19,249
20,751
(7 )
Cost of real estate sold 4,411
—
N/M
16,461
—
N/M
Reimbursable expenses 1,008
285
254
2,665
1,424
87
Technology and telecommunications 1,203
1,766
(32 ) 4,659
3,874
20
Depreciation and amortization 233
181
29
1,283
562
128

Cost of revenue $ 23,497
$ 16,634
41
$ 72,484
$ 47,946
51

~~N/M — not meaningful.~~



	Three months ended June 30,						Six months ended June 30,
(in thousands)	2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Compensation and benefits	$	7,530	$	10,148	(26	)	$	14,532	$	19,390	(25	)
Outside fees and services	5,791		6,669		(13	)	12,660		11,385		11
Cost of real estate sold	13,320		7,114		87		16,499		12,049		37
Reimbursable expenses	481		783		(39	)	958		1,657		(42	)
Technology and telecommunications	867		1,734		(50	)	1,710		3,456		(51	)
Depreciation and amortization	202		396		(49	)	386		1,050		(63	)

Cost of revenue	$	28,191	$	26,844	5		$	46,745	$	48,987	(5	)

Cost of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 of ~~$72.5~~$46.7 million ~~increased~~decreased by ~~51%~~5% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~23.5~~28.2 million for the ~~third~~second quarter of ~~2017,~~2018, a ~~41%~~5% increase compared to the ~~third~~second quarter of ~~2016)~~2017). The ~~increases~~decrease in cost of revenue ~~were~~for the six months ended June 30, 2018 was primarily driven by lower compensation and benefits, which declined in certain of the Real Estate Investor Solutions businesses as we reduced headcount in anticipation of the decreases in revenue volumes from RESI’s portfolio discussed in the revenue section above, and a decrease in technology and telecommunications expense due to ~~increased~~ the reduction in headcount and transaction volumes. These decreases were partially offset by an increase in the

cost of real estate sold, particularly in the second quarter of 2018 compared to the second quarter of 2017, in connection with our buy-renovate-lease-sell program in the Real Estate Investor Solutions business, from real estate sold in connection with our buy-renovate-sell program, partially offset by lower property preservation referrals. Compensation and benefits increased in the Consumer Real Estate Solutions businessdue to support growth of this business, partially offset by lower headcount levels in the Real Estate Investor Solutions business driven by lower customer volumes in certain business units, consistent with the decline in service revenue discussed in the revenue section above.higher transaction volumes.

Gross ~~profit decreased~~loss increased to ~~a loss of $5.2~~$(7.3) million, representing ~~(8)~~(19)% of service revenue, for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, compared to ~~gross profit of $22.3~~$(3.8) million, representing ~~32%~~(9)% of service revenue, for the ~~nine~~six months ended ~~September~~June 30, ~~2016 (decreased~~2017 (loss of $(4.0) million, representing (17)% of service revenue for the second quarter of 2018, compared to a loss of ~~$1.4~~$(1.7) million, representing (7)% of service revenue for the ~~third~~second quarter of ~~2017, compared to gross~~

~~profit of $4.9 million, representing 23%~~2017). Gross loss as a percent of service revenue ~~for the third quarter of 2016). Gross profit declined~~increased primarily as a result of ~~growth of~~service revenue mix from fewer higher margin REO sales and higher revenues in the lower margin ~~buy-renovate-sell program and lower brokerage commissions from higher margin REO sales.~~buy-renovate-lease-sell program. Our margins can vary substantially depending upon service revenue mix.

Selling, General and Administrative Expenses ~~and Income (Loss) from Operations~~

SG&A expenses consisted of the following:

Three months ended September 30, Nine months ended September 30,
(in thousands) 2017 2016 % Increase (decrease) 2017 2016 % Increase (decrease)

Compensation and benefits $ 732
$ 541
35
$ 2,469
$ 1,451
70
Occupancy related costs 631
615
3
2,353
1,681
40
Amortization of intangible assets 211
204
3
633
752
(16 )
Professional services 339
368
(8 ) 974
972
—
Marketing costs 1,786
5,751
(69 ) 5,390
13,231
(59 )
Depreciation and amortization 180
92
96
561
342
64
Other 329
(610 ) 154
1,704
326
N/M

Selling, general and administrative expenses $ 4,208
$ 6,961
(40 ) $ 14,084
$ 18,755
(25 )

~~N/M — not meaningful.~~



	Three months ended June 30,						Six months ended June 30,
(in thousands)	2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Compensation and benefits	$	908	$	1,138	(20	)	$	1,617	$	1,737	(7	)
Occupancy related costs	441		1,050		(58	)	1,012		1,722		(41	)
Amortization of intangible assets	508		211		141		719		422		70
Professional services	212		312		(32	)	370		635		(42	)
Marketing costs	2,301		1,880		22		4,095		3,604		14
Depreciation and amortization	132		225		(41	)	259		381		(32	)
Other	678		735		(8	)	1,226		1,375		(11	)

Selling, general and administrative expenses	$	5,180	$	5,551	(7	)	$	9,298	$	9,876	(6	)

SG&A for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 of ~~$14.1~~$9.3 million decreased by ~~25%~~6% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~4.2~~5.2 million for the ~~third~~second quarter of ~~2017,~~2018, a ~~40%~~7% decrease compared to the ~~third~~second quarter of ~~2016)~~2017). The decreases in SG&A were primarily ~~the result of~~driven by lower facility costs from initiatives to reduce our facilities footprint, partially offset by higher marketing costs ~~as a result~~in Consumer Real Estate Solutions to support our anticipated growth of initial non-recurring Owners.com market launch costs incurred in 2016 and the reduction in Owners.com recurring marketing spending as the business unit focuses on improving the lead to closing conversion rate.this business.

~~Income~~Loss from Operations

Loss from operations ~~decreased~~increased to ~~a loss from operations of $19.3~~$(16.6) million ~~representing (30)% of service revenue,~~ for the ~~nine~~six months ended ~~September~~June 30, 2017 compared to income from operations of $3.5 million, representing 5% of service revenue, for the nine months ended September 30, 2016 (loss from operations of $5.6 million, representing (26)% of service revenue for the third quarter of 2017,2018 compared to a loss from operations of ~~$2.1~~$(13.7) million ~~representing (10)% of service revenue~~ for the ~~third~~six months ended June 30, 2017 (loss from operations of $(9.2) million for the second quarter of ~~2016)~~2018 compared to loss from operations of $(7.3) million for the second quarter of 2017). The ~~decrease~~increases in ~~operating income as a percentage of service revenue~~loss from operations was primarily the result of lower gross profit margins, partially offset by lower SG&A, as discussed above.

Other Businesses, Corporate and Eliminations

Revenue

Revenue by business unit was as follows:


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2017		2016		% Increase (decrease)		2017		2016		% Increase (decrease)		2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Service revenue:
Customer relationship management	$	6,822	$	8,777	(22	)	$	21,682	$	29,052	(25	)	$	7,246	$	7,503	(3	)	$	13,639	$	14,860	(8	)
Asset recovery management	5,743		5,849		(2	)	17,940		18,609		(4	)	6,969		6,120		14		14,008		12,197		15
IT infrastructure services	1,015		4,749		(79	)	4,981		14,180		(65	)	1,525		1,723		(11	)	2,901		3,966		(27	)
Total service revenue	13,580		19,375		(30	)	44,603		61,841		(28	)	15,740		15,346		3		30,548		31,023		(2	)

Reimbursable expenses:
Asset recovery management	16		33		(52	)	50		84		(40	)	9		14		(36	)	21		34		(38	)
Total reimbursable expenses	16		33		(52	)	50		84		(40	)	9		14		(36	)	21		34		(38	)

Total revenue	$	13,596	$	19,408	(30	)	$	44,653	$	61,925	(28	)	$	15,749	$	15,360	3		$	30,569	$	31,057	(2	)

We recognized service revenue of ~~$44.6~~$30.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, a ~~28%~~2% decrease compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~13.6~~15.7 million for the ~~third~~second quarter of ~~2017,~~2018, a ~~30% decrease~~3% increase compared to the ~~third~~second quarter of ~~2016)~~2017). The ~~decreases were~~decrease in service revenue for the six months ended June 30, 2018 was primarily due to a decline in customer relationship management services from lower transaction volumes from a customer that expanded its vendor network and a decline in IT infrastructure services ~~which are typically~~(typically billed on a cost plus ~~basis, due to~~basis), which was driven by the continuing transition of resources supporting Ocwen’s technology infrastructure from Altisource to Ocwen. ~~In addition,~~These decreases were partially offset by an increase in asset recovery management service revenue from growth in collection referral volumes. For the second quarter of 2018, the increase in service revenue was due to an increase in asset recovery management services, partially offset by decreases in customer relationship management ~~revenues were lower~~services and IT infrastructure services, as ~~we severed relationships with certain clients that were not profitable and we experienced a reduction in volume from the transition of services from one customer to another.~~discussed above.

Certain of our other businesses are impacted by seasonality. Revenue in the asset recovery management business tends to be higher in the first quarter, as borrowers may utilize tax refunds and bonuses to pay debts, and generally declines throughout the remainder of the year.

Cost of Revenue and Gross Profit (Loss)

Cost of revenue consisted of the following:


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2017		2016		% Increase (decrease)		2017		2016		% Increase (decrease)		2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Compensation and benefits	$	10,080	$	13,308	(24	)	$	31,770	$	45,165	(30	)	$	13,580	$	10,595	28		$	26,478	$	21,690	22
Outside fees and services	903		710		27		2,652		2,086		27		856		876		(2	)	1,524		1,749		(13	)
Reimbursable expenses	16		33		(52	)	50		84		(40	)	9		14		(36	)	21		34		(38	)
Technology and telecommunications	1,478		2,364		(37	)	4,433		6,476		(32	)	3,641		1,498		143		5,903		2,955		100
Depreciation and amortization	1,458		2,307		(37	)	4,913		7,067		(30	)	1,600		1,240		29		3,327		3,455		(4	)

Cost of revenue	$	13,935	$	18,722	(26	)	$	43,818	$	60,878	(28	)	$	19,686	$	14,223	38		$	37,253	$	29,883	25

Cost of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 of ~~$43.8~~$37.3 million ~~decreased~~increased by ~~28%~~25% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~13.9~~19.7 million for the ~~third~~second quarter of ~~2017,~~2018, a ~~26% decrease~~38% increase compared to the ~~third~~second quarter of ~~2016)~~2017). The ~~decreases~~increases in cost of revenue were primarily due to ~~a decrease~~increases in compensation and benefits ~~associated with~~and technology and telecommunications costs, driven by the ~~transition~~redeployment of certain technology resources ~~supporting Ocwen’s~~from the Mortgage Market segment to Other Businesses, Corporate and Eliminations for the development of enterprise-wide technology ~~infrastructure to Ocwen and reduced headcount levels in our customer relationship management business from a decrease in client relationships, as discussed in the revenue section above.~~initiatives.

Gross profit (loss) decreased to $0.8 million, representing 2% of service revenue, for the nine months ended September 30, 2017 compared to $1.0 million, representing 2% of service revenue, for the nine months ended September 30, 2016 (decrease toa gross loss of ~~$0.3~~$(6.7) million, representing ~~(2)~~(22)% of service revenue, for the ~~third quarter of 2017,~~six months ended June 30, 2018, compared to a gross profit of ~~$0.7~~$1.2 million, representing 4% of service revenue, for the ~~third~~six months ended June 30, 2017 (decreased to a gross loss of $(3.9) million, representing (25)% of service revenue for the second quarter of ~~2016)~~2018, compared to gross profit of $1.1 million, representing 7% of service revenue for the second quarter of 2017). Gross profit as a percentage of service revenue decreased due to the ~~decrease~~increase in ~~IT infrastructure~~cost of revenue, due to the redeployment of certain technology resources from the Mortgage Market segment to Other Businesses, Corporate and ~~customer relationship management revenue, largely offset by a reduction in compensation and benefits.~~Eliminations for the development of enterprise-wide technology initiatives, as described above.

Selling, General and Administrative Expenses ~~Loss from Operations and Other Expenses, net~~

SG&A in Other Businesses, Corporate and Eliminations include SG&A ~~expenses~~ of the customer relationship management, asset recovery management and IT infrastructure services ~~business.~~businesses. It also includes costs related to corporate support functions not allocated to the Mortgage Market and Real Estate Market segments.

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

~~Other~~ Businesses, Corporate and Eliminations also include eliminations of transactions between the reportable segments.

SG&A ~~expenses~~ consisted of the following:


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2017		2016		% Increase (decrease)		2017		2016		% Increase (decrease)		2018		2017		% Increase (decrease)		2018		2017		% Increase (decrease)

Compensation and benefits	$	8,044	$	8,112	(1	)	$	23,253	$	24,641	(6	)	$	8,177	$	8,456	(3	)	$	16,180	$	15,209	6
Occupancy related costs	2,257		3,291		(31	)	8,307		9,917		(16	)	2,824		1,665		70		5,433		6,050		(10	)
Amortization of intangible assets	418		500		(16	)	1,391		1,501		(7	)	418		473		(12	)	835		973		(14	)
Professional services	1,228		1,543		(20	)	3,991		7,247		(45	)	2,291		1,586		44		3,913		2,763		42
Marketing costs	36		81		(56	)	163		348		(53	)	74		54		37		159		127		25
Depreciation and amortization	1,094		1,412		(23	)	3,626		4,208		(14	)	1,140		1,130		1		2,385		2,532		(6	)
Other	1,331		2,083		(36	)	5,485		4,594		19		2,216		3,750		(41	)	3,867		4,154		(7	)

Selling, general and administrative expenses	14,408		17,022		(15	)	46,216		52,456		(12	)	$	17,140	$	17,114	—		$	32,772	$	31,808	3

Other expenses, net	3,128		6,071		(48	)	8,985		16,017		(44	)

Total corporate costs	$	17,536	$	23,093	(24	)	$	55,201	$	68,473	(19	)

SG&A for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 of ~~$46.2~~$32.8 million ~~decreased~~increased by ~~12%~~3% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~14.4~~17.1 million for the ~~third~~second quarter of ~~2017, a 15% decrease compared to~~2018, which is consistent with the ~~third~~second quarter of ~~2016)~~2017). The ~~decrease~~increase in SG&A for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was primarily driven by an increase in professional services, due to ~~lower professional services~~increased legal costs in connection with ~~the resolution of, and reduction in activities related to, several~~certain legal and regulatory matters, and ~~lower occupancy costs driven by subleasing certain office facilities during~~an increase in compensation and benefits from higher share-based compensation. The higher SG&A for the ~~fourth~~second quarter of ~~2016~~2018 was from higher professional services due to legal costs in connection with certain legal and regulatory matters and higher occupancy related costs in connection with the ~~first half~~redeployment of ~~2017, partially~~certain technology resources from the Mortgage Market segment to Other Businesses, Corporate and Eliminations for the development of enterprise-wide technology initiatives, offset by the decrease in other from unfavorable loss accrual adjustments of $2.7 million ~~related to facility closures and litigation related costs in other SG&A~~recorded in the ~~first half of 2017. The decrease in SG&A for the third~~second quarter of 2017 ~~was primarily due to lower occupancy costs, as discussed above.~~(no comparative amounts in 2018).

Loss from Operations

Loss from operations ~~decreased~~increased to ~~$45.4~~$(39.5) million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to a loss of ~~$51.4~~$(30.6) million for the ~~nine~~six months ended ~~September~~June 30, ~~2016 (decreased to $14.7~~2017 ($(21.1) million for the ~~third~~second quarter of ~~2017~~2018 compared to a loss of ~~$16.3~~$(16.0) million for the ~~third~~second quarter of ~~2016)~~2017). The ~~decreases~~increase in ~~loss from operations~~operating losses were primarily driven by ~~decreases~~the decrease in ~~SG&A,~~gross profit, as discussed above.

Other ~~expenses,~~Income (Expense), Net

Other income (expense), net principally includes interest expense and other non-operating gains and losses. ~~For~~Effective January 1, 2018, other income (expense), net includes unrealized gains and (losses) on our investment in RESI (see Factors Affecting Comparability above).

Other income (expense), net for the ~~nine~~six months ended ~~September~~June 30, 2018 of $(21.5) million compares to $(5.9) million for the six months ended June 30, 2017 ($(9.4) million for the second quarter of 2018 and $(0.8) million for the second quarter of 2017). The increase in other expenses, net ~~of $9.0 million decreased by 44%~~for the six months ended June 30, 2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016 ($3.1~~2017 was primarily due to an unrealized loss of $6.0 million on our investment in RESI in 2018, the $4.4 million loss on debt refinancing during the second quarter of 2018 and higher interest expense for the ~~third~~second quarter of ~~2017, decreased by 48%~~2018 from a higher interest rate on the Credit Agreement compared to the third quarter of 2016) due to lower interest expense in 2017 and non-recurring expenses incurred in the first half of 2016, relating to our investment in RESI. In addition, other expenses, net decreased for the third quarter of 2017 from increased gains on the early extinguishment of debt and income related to our investment in RESI.

Interest expense was $16.9 million for the nine months ended September 30, 2017, a decrease of $1.6 million compared to the nine months ended September 30, 2016 ($5.6 million for the third quarter of 2017, a decrease of $0.4 million compared to the third quarter of 2016), primarily due to the 2017 and 2016 repurchases of portions of ourprior senior secured term loan with an aggregate par value of $101.1 million, partially offset by an increase in the senior secured term loan interest rate from 4.50% as of December 31, 2016 and 4.72% as of June 30, 2017 to 4.74% as of September 30, 2017.

~~During the nine months ended September 30, 2017,~~loan. In addition, we ~~repurchased portions of our senior secured term loan with an aggregate par value of $50.1 million at a weighted average discount of 12.2%, recognizing~~recorded a net gain of ~~$5.4~~$3.9 million on the early extinguishment of debt ~~(repurchased aggregate par value~~in the second quarter of ~~$24.1 million at a weighted average discount~~2017. The increase in other expenses, net for the second quarter of ~~7.5%, recognizing a~~2018 was primarily due to the loss on debt refinancing, higher interest expense and the net gain ~~of $1.5 million~~ on the early extinguishment of debt, ~~for the third quarter of 2017). During the nine months ended September 30, 2016, we repurchased portions of our senior secured term loan with~~as discussed above, partially offset by an ~~aggregate par value of $51.0 million at a weighted average discount of 13.2%, recognizing a net~~unrealized gain of ~~$5.5~~$1.5 million on ~~the early extinguishment of debt (no repurchases in the third quarter of 2016).~~

During the nine months ended 2017 and 2016, we earned dividends of $1.9 million and $1.0 million, respectively ($0.6 million for the third quarter of 2017 and no comparative amount for the third quarter of 2016) related to our investment in ~~RESI. In addition, during~~RESI for the ~~nine months ended September 30, 2016, we incurred expenses of $3.4 million related to this investment (no comparative amounts in 2017 and the third~~second quarter of ~~2016).~~2018.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our primary source of liquidity is cash ~~flows~~flow from operations. We seek to deploy cash generated in a disciplined manner. Principally, we intend to use cash to develop and grow complementary services and businesses that we believe will generate attractive margins in line with our core capabilities and strategy. We use cash for scheduled repayments of our ~~senior secured term loan~~long-term debt and seek to use cash from time to time to repurchase shares of our common stock and repurchase portions of our ~~senior secured term loan.~~debt. In addition, we consider and evaluate business acquisitions that may arise from time to time that are aligned with our strategy.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we used ~~$48.6 million~~net proceeds from the Term B Loans and operating cash to repay ~~and repurchase portions of~~ the prior senior secured term loan and repaid $13.9 million of borrowings ($~~23.8~~12.5 million for the ~~third~~second quarter of ~~2017) and $25.0~~2018). In addition, we used $21.1 million to repurchase shares of our common stock ($~~9.5~~11.1 million for the ~~third~~second quarter of ~~2017)~~2018).

~~Senior Secured Term Loan~~Credit Agreement

On ~~November 27, 2012,~~April 3, 2018, Altisource ~~Solutions S.à r.l., a wholly-owned subsidiary of Altisource Portfolio Solutions S.A.,~~ entered into the Credit Agreement pursuant to which Altisource borrowed $412.0 million in the form of Term B Loans and obtained a $15.0 million revolving credit facility. The Term B Loans mature in April 2024 and the revolving credit facility matures in April 2023.

Proceeds from the Term B Loans were used to repay the Company’s prior senior secured term loan, ~~agreement with Bank~~which had an outstanding balance of ~~America, N.A.,~~$412.1 million as ~~administrative agent, and certain lenders. Altisource Portfolio Solutions S.A. and certain subsidiaries are guarantors~~of April 3, 2018. As of June 30, 2018, $403.8 million of the ~~term loan. We subsequently entered into three amendments to~~Term B Loans were outstanding and $413.6 million was outstanding under the senior secured term loan agreement to increase the principal amount of the senior secured term loan and, among other changes, re-establish the $200.0 million incremental term loan facility accordion, lower the interest rate, extend the maturity date by approximately one year and increase the maximum amount of Restricted Junior Payments (as defined in the senior secured term loan agreement; other capitalized terms, unless defined herein, are defined in the senior secured term loan agreement). The lenders of theprior senior secured term loan as ~~amended, have~~of December 31, 2017. There were no ~~obligation to provide any such additional debt under the accordion provision. As of September 30, 2017, $425.1 million was~~borrowings outstanding under the ~~senior secured term loan agreement, as amended, compared to $479.7 million~~revolving credit facility as of ~~December 31, 2016.~~June 30, 2018.

~~After giving effect to the third amendment entered into on August 1, 2014, the term loan~~The Term B Loans must be repaid in ~~equal~~ consecutive quarterly principal installments ~~of $1.5~~with $24.7 million due in 2018, $41.2 million due in 2019, $25.7 million due in 2020 and $12.4 million due annually thereafter, with the balance due at maturity. All amounts outstanding under the ~~senior secured term loan agreement~~Term B Loans will become due on the earlier of (i) ~~December 9, 2020~~April 3, 2024, and (ii) the date on which the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders (as defined in the Credit Agreement; other capitalized terms, unless defined herein, are defined in the Credit Agreement) or as otherwise provided in the ~~senior secured term loan agreement~~Credit Agreement upon the occurrence of any event of ~~default under~~default.

In addition to the ~~senior secured term loan agreement. However,~~scheduled principal payments, subject to certain exceptions, the Term B Loans are subject to mandatory prepayment upon issuances of debt, casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if the leverage ratio ~~exceeds~~is greater than 3.00 to 1.00, as calculated in accordance with the provisions of the ~~senior secured term loan agreement, a percentage of cash flows must be used to repay principal~~Credit Agreement (the percentage increases if the leverage ratio exceeds 3.50 to 1.00). Certain mandatory prepayments reduce future contractual amortization payments by an amount equal to the mandatory prepayment. No mandatory prepayments were ~~required~~owed for the ~~nine~~three months ended ~~September~~June 30, ~~2017.~~ 2018.

The interest rate on the Term B Loans as of ~~September~~June 30, ~~2017~~2018 was ~~4.74%~~6.33%.

The ~~debt~~Credit Agreement includes covenants ~~in the senior secured term loan agreement~~that restrict or limit, among other things, our ability, subject to certain exceptions and baskets, to incur additional debt, pay dividends and repurchase shares of our common stock. In the event we require additional liquidity, our ability to obtain it may be limited by the ~~senior secured term loan.~~Credit Agreement.

Cash Flows

The following table presents our cash flows for the ~~nine~~six months ended ~~September~~June 30:

(in thousands) 2017 2016 % Increase (decrease)

Net income adjusted for non-cash items $ 83,771
$ 115,024
(27 )
Changes in operating assets and liabilities (36,642 ) (8,989 ) N/M
Net cash provided by operating activities 47,129
106,035
(56 )
Net cash used in investing activities (7,558 ) (74,095 ) 90
Net cash used in financing activities (74,742 ) (76,319 ) 2
Net decrease in cash and cash equivalents (35,171 ) (44,379 ) 21
Cash and cash equivalents at the beginning of the period 149,294
179,327
(17 )

Cash and cash equivalents at the end of the period $ 114,123
$ 134,948
(15 )

~~N/M — not meaningful.~~



(in thousands)	2018			2017			% Increase (decrease)

Net (loss) income adjusted for non-cash items	$	46,413		$	58,530		(21	)
Changes in operating assets and liabilities	(23,160		)	(46,013		)	50
Cash flows provided by operating activities	23,253			12,517			86
Cash flows used in investing activities	(2,756		)	(5,658		)	51
Cash flows used in financing activities	(38,988		)	(41,677		)	6
Net decrease in cash, cash equivalents and restricted cash	(18,491		)	(34,818		)	47
Cash, cash equivalents and restricted cash at the beginning of the period	108,843			153,421			(29	)

Cash, cash equivalents and restricted cash at the end of the period	$	90,352		$	118,603		(24	)

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. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, cash flows provided by operating activities were ~~$47.1~~$23.3 million, or ~~$0.07~~approximately $0.06 for every dollar of service revenue ($~~34.6 million, or $0.15~~0.15 for every dollar of service revenue for the ~~third~~second quarter of ~~2017)~~2018), compared to cash flows ~~generated from~~provided by operating activities of ~~$106.0~~$12.5 million, or ~~$0.15~~approximately $0.03 for every dollar of service revenue, for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 ($~~36.6 million, or $0.15~~0.13 for every dollar of service revenue for the ~~third~~second quarter of ~~2016)~~2017). The ~~decrease~~improvement in cash flows from operations for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, was primarily due to a decrease in cash used for changes in operating assets and liabilities, principally driven by the $28.0 million net payment ~~for~~in the ~~previously~~prior year period of an accrued litigation ~~settlement, an $11.6 million increase in short-term investments in real estate and~~settlement. This improvement was partially offset by lower net income, ~~partially offset by higher collections~~adjusted for non-cash items, of ~~accounts receivable, primarily driven by timing~~$12.1 million, a decrease of ~~collections.~~21% compared to the six months ended June 30, 2017.

Operating cash flows can be negatively impacted because of the nature of some of our services and the mix of services provided. Certain services are performed immediately following or shortly after the referral, but the collection of the receivable does not occur until a specific event occurs (e.g., the foreclosure is complete, the REO asset is sold, etc.). Furthermore, lower margin services generate lower income and cash flows from operations. In addition, annual incentive compensation bonuses are typically paid during the first quarter of each year. Consequently, our cash flows from operations may be negatively impacted when comparing one interim period to another.

Cash Flows from Investing Activities

Cash flows from investing activities for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 consisted of cash used for additions to premises and ~~2016 primarily included capital expenditures and purchases and sales~~equipment of ~~available for sale securities. For the nine months ended September 30, 2017 and 2016, we used $7.5~~$2.8 million and ~~$16.5~~$5.7 million, respectively, ~~for capital expenditures~~ primarily related to investments in the development of certain software applications, IT infrastructure and facility build-outs. The decrease in capital expenditures primarily related to the completion of several software development projects and facility build-outs in 2016. In addition, during the nine months ended September 30, 2016, we purchased 4.1 million shares of RESI common stock for $48.2 million including brokers’ commissions and acquired Granite for $9.6 million, prior to a $0.1 million purchase price adjustment (no comparative amounts in 2017).improvements.

Cash Flows from Financing Activities

Cash flows from financing activities for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ primarily ~~included activities~~consisted of cash flows associated with ~~share~~debt issuances, repayments, repurchases and debt ~~repayments and repurchases,~~issuance costs. In addition, financing activities include the purchase of treasury shares, proceeds from stock option exercises, ~~and payments~~distributions to non-controlling ~~interests.~~interests and the payment of tax withholdings on issuance of restricted shares and stock option exercises. During the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016,~~2018, we used ~~$25.0~~net cash of $19.0 million to refinance and reduce our debt from the issuance of long-term debt, the costs to issue long-term debt, and prepayments and repurchases of long-term debt, compared to $24.8 million of repurchases and repayments of long-term debt for the six months ended June 30, 2017. In addition, during the six months ended June 30, 2018 and 2017, we used $21.1 million and ~~$34.3~~$15.5 million, respectively, to repurchase our common stock. ~~In addition, during~~During the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ we used $48.6 million and $49.2 million, respectively, to repurchase portions of our senior secured term loan and make scheduled repayments of our senior secured term loan. During the nine months ended September 30, 2017 and 2016,received proceeds from stock option exercises ~~provided proceeds~~ of ~~$2.1~~$2.7 million and ~~$8.9~~$0.8 million, ~~respectively. During the nine months ended September 30, 2017~~respectively, and ~~2016, we~~ distributed ~~$2.1~~$1.2 million and ~~$1.6~~$1.1 million, respectively, to non-controlling interests. Also during the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, we made payments of $0.4 million and $1.1 million, respectively, to satisfy employee tax withholding obligations on the issuance of restricted ~~shares.~~shares and stock option exercises. These payments were made to tax authorities, at the employees’ direction, to satisfy the employees’ tax obligations rather than issuing a portion of vested restricted shares to employees.

Liquidity Requirements after ~~September~~June 30, ~~2017~~2018

~~On September 12, 2014, we acquired certain assets~~Our primary future liquidity obligations pertain to long-term debt repayments and ~~assumed certain liabilities of Mortgage Builder Software, Inc. (“Mortgage Builder”). The Mortgage Builder purchase agreement provides for~~interest expense under the ~~payment of up~~Credit Agreement (see Liquidity section above) and distributions to $7.0 million in potential additional consideration based on Adjusted Revenue (as defined in the purchase agreement). As of September 30, 2017, we have recorded $0.4 million of potential additional consideration related to the Mortgage Builder acquisition. The amount ultimately paid will depend on Mortgage Builder’s Adjusted Revenue in the last of the three consecutive 12-month periods following acquisition, which concludes during the fourth quarter of 2017.

On July 17, 2015, we acquired CastleLine Holdings, LLC and its subsidiaries. A portion of the purchase consideration totaling $10.5 million is payable to the sellers over four years from the acquisition date, including $3.8 million to be paid to certain of the sellers that is contingent on future employment. As of September 30, 2017, we have paid $8.0 million of the up to $10.5 million that is payable over four years from the acquisition date and $1.3 million of the $3.8 million purchase consideration that is contingent on future employment.

Lenders One members. During the next 12 months, we expect to make mandatory repayments of $41.2 million and pay $24.7 million of interest expense (assuming the current interest rate) under the Credit Agreement and distribute approximately ~~$2.5~~$2.6 million to the Lenders One members representing non-controlling ~~interest, make mandatory repayments of $5.9 million of the senior secured term loan and pay $20.0 million of interest expense under the senior secured term loan agreement.~~interests.

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

Contractual Obligations, Commitments and Contingencies

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, there were no significant changes to our contractual obligations from those identified in our Form 10-K for the fiscal year ended December 31, ~~2016,~~2017, other than those that occur in the normal course of business. See Note 2019 to the condensed consolidated financial statements.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENT

We prepare our interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. In applying many of these accounting principles, we need to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses in our 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 judgments, however, are often subjective. Actual results may be negatively affected 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.

See Note 1 to the condensed consolidated financial statements for the Company’s critical accounting policy for revenue recognition. Our other critical accounting policies are described in the MD&A section of our Form 10-K for the year ended December 31, ~~2016~~2017 filed with the SEC on February ~~16, 2017. Those~~22, 2018. With the exception of the changes to our revenue recognition policy referenced above, there have been no material changes to our critical accounting policies ~~have not changed~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

Recently Adopted and Future Adoption of New Accounting Pronouncements

See Note 1 to the condensed consolidated financial statements for a discussion of recently issued accounting pronouncements, including pronouncements that were adopted in the ~~future adoption of new accounting pronouncements.~~current period.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

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

Interest Rate Risk

As of ~~September~~June 30, ~~2017,~~2018, the interest rate charged on the ~~senior secured term loan~~new Term B Loan was ~~4.74%~~6.33%. The interest rate iswas calculated based on the Adjusted Eurodollar Rate (as defined in the ~~senior secured term loan agreement)~~Credit Agreement) with a minimum floor of 1.00% plus ~~3.50%~~4.00%.

Based on the principal amount outstanding at ~~September~~June 30, ~~2017,~~2018, a one percentage point increase or decrease in the Eurodollar Rate would ~~increase~~have increased or decreased our annual interest expense by approximately ~~$4.3~~$4.0 million, based on the ~~September~~June 30, ~~2017~~2018 Adjusted Eurodollar Rate. ~~There would be a $1.0 million decrease in our annual interest expense if there was a one percentage point decrease in the Eurodollar Rate.~~

Currency Exchange Risk

We are exposed to currency risk from potential changes in currency values of our non-United States dollar denominated expenses, assets, liabilities and cash flows. Our most significant currency exposure relates to the Indian rupee. Based on expenses incurred in Indian rupees during the ~~third~~second quarter of ~~2017,~~2018, a one percentage point increase or decrease in value of the Indian rupee in relation to the United States dollar would increase or decrease our annual expenses by approximately ~~$1.1~~$0.9 million.

Item 4. Controls and Procedures


a)	Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of ~~September~~June 30, ~~2017,~~2018, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based on this evaluation, such officers have concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~2018.


b)	Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter ended ~~September~~June 30, ~~2017,~~2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

Regulatory Matters

As previously disclosed, ~~Altisource~~the Company received a Notice and Opportunity to Respond and Advise (“NORA”) letter on November 10, 2016 from the CFPB indicating that the CFPB iswas considering a potential enforcement action against Altisource relating to an alleged violation of federal law ~~that primarily concerns~~focused on REALServicing and certain other technology services provided to ~~Ocwen.~~Ocwen, including claims related to the features, functioning and support of such technology. The NORA ~~letter~~process provides the recipient an opportunity to present its positions to the CFPB before an enforcement action is recommended or commenced. On December 5, 2016, we provided a written response to the NORA letter setting forth the legal, policy and factual reasons why we believe an enforcement action is not warranted. ~~We are committed to resolving any potential concerns~~By letter dated April 3, 2018, the CFPB informed the Company that the investigation of the ~~CFPB. If~~Company has been completed and the staff of the CFPB’s Office of Enforcement currently does not intend to recommend that the CFPB ~~were to bring an~~take enforcement action, ~~against us,~~and further that the ~~resolution~~Company is relieved of ~~such action could have a material adverse impact on our business, reputation, financial condition and results of operations. However, we believe it is premature~~the document-retention obligations pursuant to ~~predict~~ the ~~potential outcome or to estimate any potential financial impact in connection with any potential CFPB enforcement action.~~civil investigative process.

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, ~~2016~~2017 filed with the SEC on February ~~16, 2017,~~22, 2018, except as follows:

WeUnder certain material agreements that we are ~~negotiating~~currently a ~~Services Agreement~~party to or may enter into in the future, the formation by shareholders of Altisource of a “group” (as that term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)) with ~~NRZ~~ownership of Altisource capital stock exceeding a defined percentage may give rise to ~~provide certain-fee based services~~a termination event or an event of default, which could result in a material adverse impact on the ~~Ocwen Transferred Portfolio. If we are not able to reach an agreement with respect to the terms of the Services Agreement, our business and~~Company’s future revenue, results of operations ~~could be affected.~~and financial position.

~~We executed~~Under certain of the Company’s material agreements, such as its senior secured term loan agreement, a ~~non-binding LOI, as amended, with NRZ to enter into a Services Agreement, setting forth the terms pursuant to which Altisource Solutions S.à r.l.~~change of control would be ~~the exclusive service provider of certain fee-based services with respect~~deemed to ~~the Ocwen Transferred Portfolio through August 2025. If we are not able to reach an agreement with respect to the terms~~occur if, among other things, a “group” (as that term is used in Sections 13(d) and 14(d) of the ~~Services~~Exchange Act) is formed by shareholders holding beneficial ownership of a defined percentage of the combined voting power and/or economic interest of the Company’s capital stock. The Company’s Brokerage Agreement and our role as a service provider with respect to the Ocwen Transferred Portfolio is replaced or reduced, our revenue could be lower and our results of operations could be materially adversely affected.

~~We have entered into a Brokerage Agreement~~(as amended) with NRZ’s licensed brokerage subsidiary ~~with respect to the Ocwen Transferred Portfolio. If the Brokerage Agreement is terminated, our business and results of operations could be affected.~~

~~We have entered into~~contains a Brokerage Agreement with NRZ’s licensed brokerage subsidiary, and in a related letter agreement with NRZ, to provide real estate brokerage services on the Ocwen Transferred Portfolio and with respect to approximately $6 billion of non-Ocwen serviced non-GSE portfolios. The Brokerage Agreementsimilar provision, and the ~~letter agreement are effective through August 31, 2025 but~~Company may ~~be terminated early upon certain termination events (including by us if we are not able to~~ enter into material agreements in the future that contain similar provisions. The formation of a ~~Services Agreement with NRZ), some~~“group” could occur without the involvement of ~~which are not subject to~~or input by the Company, and such a ~~cure period.~~change of control could constitute a termination event or an event of default under these agreements. If any ~~one~~ of these ~~termination events occurs and~~agreements were terminated, or if the ~~Brokerage Agreement~~event of default is ~~terminated,~~not waived, this could have a material adverse impact on ~~our~~the Company’s future revenue,~~and~~ results of ~~operations.~~operations and financial position.

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

The following table presents information related to our repurchases of our equity securities during the three months ended ~~September~~June 30, ~~2017:~~2018:

Period Total number of shares purchased Weighted average price paid per share
Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾

Maximum number of shares that may yet be purchased under the plans or programs⁽¹⁾

Common stock:
July 1 – 31, 2017 —
$ —
—
4,219,665
August 1 – 31, 2017 22,200
22.46
22,200
4,197,465
September 1 – 30, 2017 250,920
23.57
250,920
3,946,545

273,120
$ 23.48
273,120
3,946,545



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⁽²⁾

Common stock:
April 1 – 30, 2018	219,200	$	26.04	219,200	2,843,019
May 1 – 31, 2018	168,500	28.20		168,500	4,199,600
June 1 – 30, 2018	21,854	30.03		21,854	4,177,746

	409,554	$	27.14	409,554	4,177,746


⁽¹⁾	In addition to the repurchases included in the table above, 19,472 common shares were withheld from employees to satisfy tax withholding obligations that arose from the vesting of restricted shares and stock option exercises.


⁽²⁾	On May ~~17, 2017,~~15, 2018, our shareholders approved the renewal of the share repurchase program originally approved by the shareholders on May ~~18, 2016,~~17, 2017, which replaced the previous share repurchase program and authorizes us to purchase up to ~~4.6~~4.3 million shares of our common stock in the open market, subject to certain parameters.

Item 6. Exhibits



Exhibit Number	Exhibit Description
~~3.1~~10.1 *†		~~Amended and Restated Articles~~Form of ~~Incorporation of Altisource Portfolio Solutions S.A. (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed on August 9, 2017)~~Non-Qualified Stock Option Award Agreement (2018 Performance-Based Stock Options)

~~10.1~~10.2	†	~~Form of Non-Qualified Stock Option Award~~Credit Agreement, ~~(2017 Performance-Based Stock Options)~~dated April 3, 2018 among Altisource S.à r.l. and Altisource Portfolio Solutions S.A., Morgan Stanley Senior Funding, Inc., as Administrative Agent and Collateral Agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on April ~~13, 2017)~~4, 2018)

~~10.2~~	†	~~Form of Non-Qualified Stock Option Award Agreement (Service Revenue Stock Options) (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on April 13, 2017)~~

10.3 *	†	~~Form of Restricted Stock Award Agreement (2017 Performance-Based Restricted Shares) (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on April 13, 2017)~~

~~10.4~~	†	~~Form of Restricted Stock Award Agreement (Service-Based Restricted Shares) (incorporated by reference~~Amendment No. 1 to ~~Exhibit 10.4 of the Company’s Form 8-K filed on April 13, 2017)~~

~~10.5~~	*†	~~Employment~~Credit Agreement dated ~~August 3, 2017 between~~as of June 27, 2018 among Altisource ~~Solutions~~ S.à r.l. and ~~Indroneel Chatterjee~~

~~10.6~~	*†	~~Non-Qualified Stock Option Award Agreement between~~Altisource Portfolio Solutions S.A., Morgan Stanley Senior Funding, Inc., as Administrative Agent and Collateral Agent, and the ~~Company and Indroneel Chatterjee dated as of October 5, 2017~~

~~10.7~~	*†	~~Restricted Stock Award Agreement between the Company and Indroneel Chatterjee dated as of October 5, 2017~~

~~10.8~~	**	~~Cooperative Brokerage Agreement, dated as of August 28, 2017, between REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and New Residential Sales Corp.~~

~~10.9~~	**	Letter Agreement, dated as of August 28, 2017, between New Residential Investment Corp., New Residential Mortgage LLC, REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and Altisource Solutions S.à r.l.Lenders party thereto

31.1*	*	Section 302 Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)

31.2*	*	Section 302 Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)

32.1*	*	Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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 ~~September~~June 30, ~~2017~~2018 is formatted in XBRL interactive data files: (i) Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016;~~2017; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; (iii) Condensed Consolidated Statements of Equity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; and (v) Notes to Condensed Consolidated Financial Statements.

______________________________________
*	Filed herewith.
†	Denotes a management contract or compensatory ~~arrangement~~
*	~~Filed herewith~~
**	Filed herewith. Portions of this exhibit have been redacted pursuant to a request for confidential treatment. The non-public information has been filed separately with the Securities and Exchange Commission.arrangement.

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:	~~October~~July 26, ~~2017~~2018	By:	/s/ William B. Shepro
			William B. Shepro
			Director and Chief Executive Officer
			(Principal Executive Officer)


Date:	~~October~~July 26, ~~2017~~2018	By:	/s/ Michelle D. Esterman
			Michelle D. Esterman
			Executive Vice President, Finance
			(Principal Accounting Officer)



(in thousands)

Accounts receivable, net	$	1,024
Prepaid expenses	22
Other assets	25
Premises and equipment, net	299
Non-compete agreements	100
Trademarks and trade names	100
Customer relationships	3,400
Goodwill	4,827
	9,797
Accounts payable and accrued expenses	(57		)
Other current liabilities	(192		)

Purchase price	$	9,548



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

Common stock:
July 1 – 31, 2017	—	$	—	—	4,219,665
August 1 – 31, 2017	22,200	22.46		22,200	4,197,465
September 1 – 30, 2017	250,920	23.57		250,920	3,946,545

	273,120	$	23.48	273,120	3,946,545