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 markets we serve.
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. Certain prior year amounts have been reclassified to conform to the current year presentation.
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 June 30, 2020, Lenders One had total assets of $2.4 million and total liabilities of $0.6 million. As of December 31, 2019, Lenders One had total assets of $1.6 million and total liabilities of $0.3 million.
In 2019, Altisource created Pointillist, Inc. (“Pointillist”) and contributed the Pointillist® customer journey analytics business and $8.5 million to it. Pointillist is owned by Altisource and management of Pointillist. Management of Pointillist owns a non-controlling interest representing 12.1% of the outstanding equity of Pointillist. Additional equity shares of Pointillist are available for issuance to management and board members of Pointillist. Altisource has no ongoing obligation to provide future funding to Pointillist. Pointillist is presented in the accompanying condensed consolidated financial statements on a consolidated basis and the portion of Pointillist owned by Pointillist management is reported as non-controlling interests.
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, 2019, as filed with the SEC on March 5, 2020.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
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
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.
Recently Adopted Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard simplified the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Prior guidance required 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 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 requires 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. The Company adopted this standard effective January 1, 2020 and is applied prospectively. Adoption of this new standard did not have any impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard modified certain disclosure requirements such as the valuation processes for Level 3 fair value measurements. This standard also requires new disclosures such as the disclosure of certain assumptions used to develop significant unobservable inputs for Level 3 fair value measurements. The Company adopted this standard effective January 1, 2020 and is applied prospectively. Adoption of this new standard did not have any impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This standard aligns the requirements for capitalizing implementation costs in a hosting arrangement service contract with the existing guidance for capitalizing implementation costs incurred for an internal-use software license. This standard also requires capitalizing or expensing implementation costs based on the nature of the costs and the project stage during which they are incurred and establishes additional disclosure requirements. The Company adopted this standard effective January 1, 2020 and is applied prospectively. Adoption of this new standard did not have any impact on the Company’s condensed consolidated financial statements.
Future Adoption of New Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is part of the FASB’s initiative to reduce complexity in accounting standards by instituting several simplifying provisions and removing several exceptions pertaining to income tax accounting. This standard will be effective for annual periods beginning after December 15, 2020, including interim periods within that reporting period. Early adoption of this standard is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This standard provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR. This standard is effective from the period from March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a topic or an industry subtopic, the standard must be applied prospectively for all eligible contract modifications for that topic or industry subtopic. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.
NOTE 2 — CUSTOMER CONCENTRATION
Ocwen
Ocwen Financial Corporation (together with its subsidiaries, “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.
During the three and six months ended June 30, 2020, Ocwen was our largest customer, accounting for 61% of our total revenue for the six months ended June 30, 2020 (60% of our revenue for the second quarter of 2020). Ocwen purchases certain mortgage services from us under the terms of services agreements and amendments thereto (collectively, the “Ocwen Services Agreements”) with terms extending through August 2025. Certain of the Ocwen Services Agreements contain a “most favored nation” provision and also grant the parties the right to renegotiate pricing, among other things.
In February 2019, Altisource and Ocwen entered into agreements that, among other things, facilitated Ocwen’s transition from REALServicing and related technologies to another mortgage servicing software platform, establish a process for Ocwen to review and approve the assignment of one or more of our agreements to potential buyers of Altisource’s business lines, requiring Ocwen to use Altisource as service provider for certain service referrals totaling an amount equal to 100% of the applicable service referrals on certain portfolios plus an amount equal to not less than 90% of applicable service referrals from certain other portfolios (determined on a service by service basis), subject to certain additional restrictions and limitations, and affirm Altisource’s role as a strategic service provider to Ocwen through August 2025. In connection with these agreements, Altisource expressly preserved and did not waive any of its existing contractual rights relating to service referrals, other than with respect to Ocwen transitioning from the REALServicing and related technologies. If Altisource fails certain performance standards for specified periods of time, then Ocwen may terminate Altisource as a provider for the applicable service(s), subject to certain limitations and Altisource’s right to cure. Ocwen’s transition to another mortgage servicing platform was completed during 2019.
Revenue from Ocwen primarily consists of revenue earned from the loan portfolios serviced and subserviced by Ocwen when Ocwen engages us as the service provider, and revenue earned directly from Ocwen, pursuant to the Ocwen Services Agreements. For the six months ended June 30, 2020 and 2019, we recognized revenue from Ocwen of $131.6 million and $185.2 million, respectively ($57.4 million and $87.0 million for the second quarter of 2020 and 2019, respectively). Revenue from Ocwen as a percentage of consolidated revenue was 61% and 51% for the six months ended June 30, 2020 and 2019, respectively (60% and 44% for the second quarter of 2020 and 2019, respectively).
We earn additional revenue related to the portfolios serviced and subserviced by Ocwen when a party other than Ocwen or the MSR owner selects Altisource as the service provider. For the six months ended June 30, 2020 and 2019, we recognized revenue of $12.8 million and $20.3 million, respectively ($5.0 million and $9.2 million for the second quarter of 2020 and 2019, respectively), related to the portfolios serviced by Ocwen when a party other than Ocwen or the MSR owner selected Altisource as the service provider. These amounts are not included in deriving revenue from Ocwen and revenue from Ocwen as a percentage of revenue discussed above.
During the second quarter of 2020, Ocwen informed us that an investor had instructed Ocwen to use a field services provider other than Altisource on properties associated with certain MSRs. They indicated that they were instructed to begin the transition in July 2020, and that the transition should be completed in a few months. We believe Ocwen commenced using another field services provider for these properties in July 2020. Based upon the impacted portfolios to date and the designated service provider, Altisource believes that Ocwen received these directions from NRZ, but Ocwen has not confirmed this belief. The timing to complete the transition to the replacement field service provider has not been defined, but we anticipate that there will be an impact to revenue and earnings from the transfer of field services that may be material in future periods. We estimate that $58.2 million and
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
$77.5 million of service revenue from Ocwen for the six months ended June 30, 2020 and 2019, respectively ($27.4 million and $35.1 million for the second quarter of 2020 and 2019, respectively) was derived from Field Services referrals from the NRZ owned portfolios. Without providing the timing or specific services impacted, Ocwen also communicated to Altisource that the same investor plans to direct them to transition certain other default related service referrals to other providers. We estimate that revenue from these certain other default related services represented approximately $20.6 million and $22.5 million of service revenue from Ocwen for the six months ended June 30, 2020 and 2019, respectively ($9.0 million and $10.5 million for the second quarter of 2020 and 2019, respectively). Altisource believes that any action taken by Ocwen to redirect these service referrals breaches Altisource's agreement with Ocwen. We are currently in discussions with Ocwen to address this matter, and have reserved all of our rights with respect to this matter.
To address the potential reduction in revenue, Altisource is taking additional measures to reduce its cost structure and strengthen its operations.
As of June 30, 2020, accounts receivable from Ocwen totaled $16.3 million, $14.7 million of which was billed and $1.6 million of which was unbilled. As of December 31, 2019, accounts receivable from Ocwen totaled $19.1 million, $15.7 million of which was billed and $3.4 million of which was unbilled.
NRZ
New Residential Investment Corp. (individually, together with one or more of its subsidiaries or one or more of its subsidiaries individually, “NRZ”) is a real estate investment trust that invests in and manages investments primarily related to residential real estate, including MSRs and excess MSRs.
Ocwen has disclosed that NRZ is its largest client. As of June 30, 2020, NRZ owned MSRs or rights to MSRs relating to approximately 53% of loans serviced and subserviced by Ocwen (measured in unpaid principal balance (“UPB”)). In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to certain of its MSRs (the “Subject MSRs”) and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years, subject to early termination rights.
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 real estate owned (“REO”) associated with the Subject MSRs, irrespective of the subservicer, subject to certain limitations. NRZ’s brokerage subsidiary receives a cooperative brokerage commission on the sale of REO properties from these portfolios subject to certain exceptions.
The Brokerage Agreement may be terminated by NRZ upon the occurrence of certain specified events. Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that there is significant uncertainty about Altisource’s ability to continue as a going concern, failure to maintain a specified level of cash and an unapproved change of control.
For the six months ended June 30, 2020 and 2019, we recognized revenue from NRZ of $4.6 million and $7.0 million, respectively ($1.9 million and $3.0 million for the second quarter of 2020 and 2019, respectively), under the Brokerage Agreement. For the six months ended June 30, 2020 and 2019, we recognized additional revenue of $19.1 million and $34.1 million, respectively ($7.1 million and $16.4 million for the second quarter of 2020 and 2019, respectively), relating to the Subject MSRs when a party other than NRZ selects Altisource as the service provider.
NOTE 3 — SALE OF THE FINANCIAL SERVICES BUSINESS
On July 1, 2019, Altisource sold its Financial Services business, consisting of its post-charge-off consumer debt and mortgage charge-off collection services and customer relationship management services (the “Financial Services Business”) to Transworld Systems Inc. (“TSI”) for $44.0 million consisting of an up-front payment of $40.0 million, subject to a working capital adjustment (finalized during 2019) and transaction costs upon closing of the sale, and an additional $4.0 million payment on the one year anniversary of the sale closing, which was received on July 1, 2020. The parties also entered into a transition services agreement to provide for the management and orderly transition of certain services and technologies to TSI for periods ranging from 2 months to 13 months, subject to additional 3 month extensions. These services include support for information technology systems and
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
infrastructure, facilities management, finance, compliance and human resources functions and are charged to TSI on a fixed fee or hourly basis. As of July 1, 2020, nearly all of the transition services and technologies have been fully transitioned to TSI.
NOTE 4 — INVESTMENT IN EQUITY SECURITIES
During 2016, we purchased 4.1 million shares of Front Yard Residential Corporation (“RESI”) common stock. This investment is reflected in the accompanying condensed consolidated balance sheets at fair value and changes in fair value are included in other income (expense), net in the accompanying condensed consolidated statements of operations and comprehensive loss. As of June 30, 2020 and December 31, 2019, we held 3.5 million shares of RESI common stock. As of June 30, 2020 and December 31, 2019, the fair value of our investment was $30.0 million and $42.6 million, respectively. During the six months ended June 30, 2020 and 2019, we recognized an unrealized (loss) gain from the change in fair value of $(12.6) million and $14.0 million, respectively ($(11.2) million and $11.8 million for the second quarter of 2020 and 2019, respectively). The unrealized gains for the three and six months ended June 30, 2019 included $1.2 million and $1.5 million, respectively, of net gains recognized on RESI shares sold during the second quarter of 2019. During the six months ended June 30, 2020 and 2019, we earned dividends of $0.5 million and $1.2 million, respectively (no comparative amount for the second quarter of 2020 and $0.5 million for the second quarter of 2019), related to this investment.
In May 2019, the Company began selling its investment in RESI common stock. During the three and six months ended June 30, 2019, the Company sold 0.6 million shares for net proceeds of approximately $6.5 million (no comparative amount for the three and six months ended June 30, 2020). As required by the senior secured term loan agreement, the Company used the net proceeds to repay a portion of its senior secured term loan.
On February 17, 2020, RESI entered into a merger agreement to be acquired by affiliates of Amherst Single Family Residential Partners VI, LP (“Amherst”) for $12.50 in cash per share. On May 4, 2020, RESI announced the termination of the merger agreement.
NOTE 5 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Billed
|
|
$
|
30,850
|
|
|
$
|
35,921
|
|
|
Unbilled
|
|
9,800
|
|
|
12,166
|
|
|
|
|
40,650
|
|
|
48,087
|
|
|
Less: Allowance for credit losses
|
|
(5,313
|
)
|
|
(4,472
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,337
|
|
|
$
|
43,615
|
|
Unbilled accounts receivable consist primarily of certain real estate asset management, REO sales, title and closing services for which we generally recognize revenue when the service is provided but collect upon closing of the sale, and 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 accounts receivable that are earned during a month and billed in the following month.
NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Income taxes receivable
|
|
$
|
2,572
|
|
|
$
|
5,098
|
|
|
Maintenance agreements, current portion
|
|
1,340
|
|
|
1,923
|
|
|
Prepaid expenses
|
|
5,439
|
|
|
3,924
|
|
|
Other current assets
|
|
4,806
|
|
|
4,269
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,157
|
|
|
$
|
15,214
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 7 — DISCONTINUATION OF LINES OF BUSINESS
Owners.com
In October 2019, the Company announced its plans to wind down and close the Owners.com business, which was completed by December 31, 2019. Owners.com was a technology-enabled real estate brokerage and provider of related mortgage brokerage and title services. Owners.com was not material in relation to the Company’s results of operations or financial position. Wind down expenses were included in the Project Catalyst restructuring charges (see Note 23).
Buy-Renovate-Lease-Sell
On November 26, 2018, the Company announced its plans to sell its short-term investments in real estate (“BRS Inventory”) and discontinue the Company’s Buy-Renovate-Lease-Sell (“BRS”) business. Altisource’s BRS business focused on buying, renovating, leasing and selling single-family homes to real estate investors. The BRS business was not material in relation to the Company’s results of operations or financial position. The Company completed the sale of the BRS Inventory during the year ended December 31, 2019.
NOTE 8 — PREMISES AND EQUIPMENT, NET
Premises and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Computer hardware and software
|
|
$
|
129,966
|
|
|
$
|
144,608
|
|
|
Leasehold improvements
|
|
21,807
|
|
|
23,800
|
|
|
Furniture and fixtures
|
|
7,269
|
|
|
8,775
|
|
|
Office equipment and other
|
|
3,798
|
|
|
4,004
|
|
|
|
|
162,840
|
|
|
181,187
|
|
|
Less: Accumulated depreciation and amortization
|
|
(144,179
|
)
|
|
(156,661
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,661
|
|
|
$
|
24,526
|
|
Depreciation and amortization expense amounted to $7.7 million and $10.5 million for the six months ended June 30, 2020 and 2019, respectively ($3.6 million and $4.9 million for the second quarter of 2020 and 2019, respectively), and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations and comprehensive loss.
Premises and equipment, net consist of the following, by country:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
United States
|
|
$
|
9,779
|
|
|
$
|
13,426
|
|
|
Luxembourg
|
|
7,660
|
|
|
10,295
|
|
|
India
|
|
1,030
|
|
|
671
|
|
|
Uruguay
|
|
115
|
|
|
39
|
|
|
Philippines
|
|
77
|
|
|
95
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,661
|
|
|
$
|
24,526
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 9 — RIGHT-OF-USE ASSETS UNDER OPERATING LEASES, NET
Right-of-use assets under operating leases, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Right-of-use assets under operating leases
|
|
$
|
38,685
|
|
|
$
|
39,729
|
|
|
Less: Accumulated amortization
|
|
(15,842
|
)
|
|
(10,655
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,843
|
|
|
$
|
29,074
|
|
Amortization of operating leases was $5.5 million and $6.8 million for the six months ended June 30, 2020 and 2019, respectively, ($2.8 million and $3.1 million for the second quarter of 2020 and 2019, respectively) and is included in cost of revenue for operating assets and in selling, general and administrative expenses for non-operating assets in the accompanying condensed consolidated statements of operations and comprehensive loss.
NOTE 10 — GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
Goodwill consists of the following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total
|
|
|
|
|
|
Balance as of June 30, 2020 and December 31, 2019
|
|
$
|
73,849
|
|
Intangible Assets, net
Intangible assets, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average estimated useful life
(in years)
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net book value
|
|
(in thousands)
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
June 30,
2020
|
|
December 31,
2019
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related intangible assets
|
|
9
|
|
$
|
214,973
|
|
|
$
|
214,973
|
|
|
$
|
(181,367
|
)
|
|
$
|
(176,043
|
)
|
|
$
|
33,606
|
|
|
$
|
38,930
|
|
|
Operating agreement
|
|
20
|
|
35,000
|
|
|
35,000
|
|
|
(18,251
|
)
|
|
(17,376
|
)
|
|
16,749
|
|
|
17,624
|
|
|
Trademarks and trade names
|
|
16
|
|
9,709
|
|
|
9,709
|
|
|
(6,099
|
)
|
|
(5,893
|
)
|
|
3,610
|
|
|
3,816
|
|
|
Non-compete agreements
|
|
4
|
|
1,230
|
|
|
1,230
|
|
|
(1,228
|
)
|
|
(1,215
|
)
|
|
2
|
|
|
15
|
|
|
Intellectual property
|
|
—
|
|
—
|
|
|
300
|
|
|
—
|
|
|
(175
|
)
|
|
—
|
|
|
125
|
|
|
Other intangible assets
|
|
5
|
|
1,800
|
|
|
3,745
|
|
|
(1,770
|
)
|
|
(3,209
|
)
|
|
30
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
262,712
|
|
|
$
|
264,957
|
|
|
$
|
(208,715
|
)
|
|
$
|
(203,911
|
)
|
|
$
|
53,997
|
|
|
$
|
61,046
|
|
Amortization expense for definite lived intangible assets was $7.0 million and $12.2 million for six months ended June 30, 2020 and 2019, respectively ($2.8 million and $3.5 million for the second quarter of 2020 and 2019, respectively). Expected annual definite lived intangible asset amortization expense for 2020 through 2024 is $13.7 million, $10.5 million, $5.1 million, $5.1 million and $5.1 million, respectively.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 11 — OTHER ASSETS
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Restricted cash
|
|
$
|
3,816
|
|
|
$
|
3,842
|
|
|
Security deposits
|
|
2,777
|
|
|
3,473
|
|
|
Deferred tax assets, net
|
|
1,126
|
|
|
1,626
|
|
|
Other
|
|
3,562
|
|
|
3,495
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,281
|
|
|
$
|
12,436
|
|
NOTE 12 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
20,926
|
|
|
$
|
22,431
|
|
|
Accrued expenses - general
|
|
21,422
|
|
|
24,558
|
|
|
Accrued salaries and benefits
|
|
15,704
|
|
|
18,982
|
|
|
Income taxes payable
|
|
3,354
|
|
|
1,700
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61,406
|
|
|
$
|
67,671
|
|
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
$
|
9,300
|
|
|
$
|
11,398
|
|
|
Other
|
|
2,691
|
|
|
3,326
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,991
|
|
|
$
|
14,724
|
|
NOTE 13 — LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Senior secured term loans
|
|
$
|
293,826
|
|
|
$
|
293,826
|
|
|
Less: Debt issuance costs, net
|
|
(2,753
|
)
|
|
(3,119
|
)
|
|
Less: Unamortized discount, net
|
|
(2,492
|
)
|
|
(2,825
|
)
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
288,581
|
|
|
$
|
287,882
|
|
Altisource Portfolio Solutions S.A. and its wholly-owned subsidiary, Altisource S.à r.l. entered into a credit agreement (the “Credit Agreement”) in April 2018 with 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”).
There are no mandatory repayments of the Term B Loans due until March 2023, when $1.3 million is due to be repaid. Thereafter, the Term B Loans must be repaid in consecutive quarterly principal installments of $3.1 million, with the balance due at maturity. All amounts outstanding under the Term B Loans will become due on the earlier of (i) April 3, 2024, and (ii) the date on which
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders (as defined in the Credit Agreement; other capitalized terms, unless defined herein, are defined in the Credit Agreement) or as otherwise provided in the Credit Agreement upon the occurrence of any event of default.
In addition to the scheduled principal payments, subject to certain exceptions, the Term B Loans are subject to mandatory prepayment upon issuances of debt, certain casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if our leverage ratio is greater than 3.00 to 1.00, as calculated in accordance with the provisions of the Credit Agreement (the percentage increases if our leverage ratio exceeds 3.50 to 1.00). Certain mandatory prepayments reduce future contractual amortization payments in direct order of maturity by an amount equal to the mandatory prepayment.
Altisource may incur incremental indebtedness under the Credit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate incremental principal amount not to exceed $125.0 million, subject to certain conditions set forth in the Credit Agreement, including a sublimit of $80.0 million with respect to incremental revolving credit commitments. The lenders have no obligation to provide any incremental indebtedness.
The 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 a three month interest period and (y) 1.00% plus (ii) 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) 3.00%. The interest rate as of June 30, 2020 was 5.00%.
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%. Borrowings under the revolving credit facility are not permitted if our leverage ratio exceeds 3.50 to 1.00. There were no borrowings outstanding under the revolving credit facility as of June 30, 2020.
The payment of all amounts owing by Altisource under the Credit Agreement is guaranteed by the Guarantors and 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 S.à r.l. and the Guarantors, subject to certain exceptions.
The Credit Agreement includes covenants that restrict or limit, among other things, our ability, subject to certain exceptions and baskets, to incur indebtedness; incur liens on our assets; sell, transfer or dispose of assets; make Restricted Junior Payments including share repurchases, dividends and repayment of junior indebtedness; make investments; dispose of 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; and engage in mergers and 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 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 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, (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, (vii) occurrence of a Change of Control, (viii) bankruptcy and insolvency events, (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, (x) the occurrence of certain ERISA events and (xi) 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 Credit Agreement or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.
As of June 30, 2020, debt issuance costs were $2.8 million, net of $1.8 million of accumulated amortization. As of December 31, 2019, debt issuance costs were $3.1 million, net of $1.4 million of accumulated amortization.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 14 — OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
$
|
15,024
|
|
|
$
|
19,707
|
|
|
Income tax liabilities
|
|
10,552
|
|
|
10,935
|
|
|
Other non-current liabilities
|
|
442
|
|
|
374
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,018
|
|
|
$
|
31,016
|
|
NOTE 15 — 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 June 30, 2020 and December 31, 2019. The following fair values are estimated using market information and what the Company believes to be appropriate valuation methodologies under GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
(in thousands)
|
|
Carrying amount
|
|
Fair value
|
|
Carrying amount
|
|
Fair value
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,177
|
|
|
$
|
68,177
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82,741
|
|
|
$
|
82,741
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Restricted cash
|
|
3,816
|
|
|
3,816
|
|
|
—
|
|
|
—
|
|
|
3,842
|
|
|
3,842
|
|
|
—
|
|
|
—
|
|
|
Investment in equity securities
|
|
30,047
|
|
|
30,047
|
|
|
—
|
|
|
—
|
|
|
42,618
|
|
|
42,618
|
|
|
—
|
|
|
—
|
|
|
Long-term receivable
|
|
2,436
|
|
|
—
|
|
|
—
|
|
|
2,436
|
|
|
2,371
|
|
|
—
|
|
|
—
|
|
|
2,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured term loan
|
|
293,826
|
|
|
—
|
|
|
214,493
|
|
|
—
|
|
|
293,826
|
|
|
—
|
|
|
277,666
|
|
|
—
|
|
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.
Investment in equity securities is carried at fair value and consists of 3.5 million shares of RESI common stock as of June 30, 2020 and December 31, 2019. The investment in equity securities is measured using Level 1 inputs as these securities have quoted prices in active markets.
The fair value of our senior secured term loan 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 connection with the sale of the rental property management business in August 2018, Altisource will receive $3.0 million on the earlier of a RESI change of control or on August 8, 2023. We measure long-term receivables without a stated interest rate based on the present value of the future payments.
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 over 50% of its revenue from Ocwen (see Note 2 for additional information on Ocwen revenues and accounts receivable balance). The Company strives to mitigate 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.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 16 — SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
Share Repurchase Program
On May 15, 2018, our shareholders approved the renewal and replacement of the share repurchase program previously approved by the shareholders on May 17, 2017. Under the 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, 2020, approximately 2.4 million shares of common stock remain available for repurchase under the program. There were no purchases of shares of common stock during the six months ended June 30, 2020. We purchased 0.3 million shares of common stock at an average price of $21.89 per share during the three and six months ended June 30, 2019. 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, 2020, we can repurchase up to approximately $94 million of our common stock under Luxembourg law. Our Credit Agreement also limits the amount we can spend on share repurchases, which limit was approximately $448 million as of June 30, 2020, 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 share units for certain employees, officers and directors. We recognized share-based compensation expense of $4.8 million and $5.5 million for the six months ended June 30, 2020 and 2019, respectively ($1.9 million and $2.8 million for the second quarter of 2020 and 2019, respectively). As of June 30, 2020, estimated unrecognized compensation costs related to share-based awards amounted to $8.5 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 1.51 years.
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 generally expire on the earlier of ten years after the date of grant or following termination of service. A total of 280 thousand service-based options were outstanding as of June 30, 2020.
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 options 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 222 thousand market-based options were outstanding as of June 30, 2020.
Performance-Based Options. These option grants generally will vest if certain specific financial measures are achieved; one-fourth vests on each anniversary of the grant date. For certain other financial measures, options cliff-vest upon the achievement of the specific performance during the period from 2019 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 50% to 200% of the option grants, depending upon performance achieved. If the performance criteria achieved is below a certain threshold, the options are canceled. The options generally expire on the earlier of ten years after the date of grant or following termination of service. There were 461 thousand performance-based options outstanding as of June 30, 2020.
There were no stock options granted during the six months ended June 30, 2020 and 2019. Outstanding stock options increased by 228 thousand in February 2019 in connection with the determination of the level of achievement for certain performance-based options granted in 2018.
The fair values of the service-based options and performance-based options are determined using the Black-Scholes option pricing model and the fair values of the market-based options were determined using a lattice (binomial) model.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
We determined the expected option life of all service-based stock option grants using the simplified method, determined based on the graded vesting term plus the contractual term of the options, divided by two. 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 total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
(in thousands, except per share amounts)
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
Intrinsic value of options exercised
|
|
$
|
—
|
|
|
$
|
34
|
|
|
Grant date fair value of stock options that vested
|
|
2,602
|
|
|
2,752
|
|
The following table summarizes the activity related to our stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options
|
|
Weighted average exercise price
|
|
Weighted average contractual term (in years)
|
|
Aggregate intrinsic value (in thousands)
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
1,468,046
|
|
|
$
|
29.19
|
|
|
4.60
|
|
$
|
94
|
|
|
Forfeited/expired
|
(504,911
|
)
|
|
23.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2020
|
963,135
|
|
|
32.07
|
|
|
6.11
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2020
|
589,845
|
|
|
28.52
|
|
|
5.88
|
|
—
|
|
Other Share-Based Awards
The Company’s other share-based and similar types of awards are composed of restricted shares and 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 two to four year periods with (a) vesting in equal annual installments, or (b) vesting of all of the restricted shares and restricted share units at the end of the vesting period. A total of 411 thousand service-based awards were outstanding as of June 30, 2020. Beginning in 2019, service-based restricted share units were awarded as a component of most employees’ annual incentive compensation rather than cash.
Performance-Based Awards. These awards generally vest if certain specific financial measures are achieved; one-third vests on each anniversary of the grant date or cliff-vest on the third anniversary of the grant date. The number of performance-based restricted shares and restricted share units that may vest will be based on the level of achievement as specified in the award agreements. If the performance criteria achieved is above certain financial performance levels and Altisource’s share performance is above certain established criteria, participants have the opportunity to vest in up to 225% of the restricted share unit award for certain awards. If the performance criteria achieved is below certain thresholds, the award is canceled. A total of 265 thousand performance-based awards were outstanding as of June 30, 2020.
The Company granted 349 thousand restricted share units (at a weighted average grant date fair value of $16.26 per share) during the six months ended June 30, 2020.
The following table summarizes the activity related to our restricted shares and restricted share units:
|
|
|
|
|
|
|
|
Number of restricted shares and restricted share units
|
|
|
|
|
Outstanding as of December 31, 2019
|
636,146
|
|
|
Granted
|
349,459
|
|
|
Issued
|
(175,533
|
)
|
|
Forfeited/canceled
|
(133,622
|
)
|
|
|
|
|
Outstanding as of June 30, 2020
|
676,450
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 17 — REVENUE
We classify revenue in three categories: service revenue, revenue from 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. The Lenders One members’ earnings are included in revenue and reduced from net income to arrive at net income attributable to Altisource (see Note 1). Our services are provided to customers located in the United States. The components of revenue were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
|
$
|
91,008
|
|
|
$
|
190,520
|
|
|
$
|
204,184
|
|
|
$
|
355,519
|
|
|
Reimbursable expenses
|
|
3,840
|
|
|
4,775
|
|
|
11,685
|
|
|
9,271
|
|
|
Non-controlling interests
|
|
494
|
|
|
1,240
|
|
|
917
|
|
|
1,680
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
95,342
|
|
|
$
|
196,535
|
|
|
$
|
216,786
|
|
|
$
|
366,470
|
|
Disaggregation of Revenue
Disaggregation of total revenues by major source is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2020
|
|
$
|
87,447
|
|
|
$
|
4,055
|
|
|
$
|
3,840
|
|
|
$
|
95,342
|
|
|
Three months ended June 30, 2019
|
|
178,949
|
|
|
12,811
|
|
|
4,775
|
|
|
196,535
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020
|
|
195,455
|
|
|
9,646
|
|
|
11,685
|
|
|
216,786
|
|
|
Six months ended June 30, 2019
|
|
326,704
|
|
|
30,495
|
|
|
9,271
|
|
|
366,470
|
|
Contract Balances
Our contract assets consist of unbilled accounts receivable (see Note 5). Our contract liabilities consist of current deferred revenue and other non-current liabilities as reported on the accompanying condensed consolidated balance sheets. Revenue recognized that was included in the contract liability at the beginning of the period was $3.8 million and $8.6 million for the six months ended June 30, 2020 and 2019, respectively ($1.3 million and $3.7 million for the second quarter of 2020 and 2019, respectively).
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 18 — 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
June 30,
|
|
Six months ended
June 30,
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
24,913
|
|
|
$
|
36,806
|
|
|
$
|
50,829
|
|
|
$
|
78,174
|
|
|
Outside fees and services
|
|
41,761
|
|
|
58,588
|
|
|
89,901
|
|
|
121,169
|
|
|
Technology and telecommunications
|
|
9,074
|
|
|
9,060
|
|
|
18,306
|
|
|
18,538
|
|
|
Reimbursable expenses
|
|
3,840
|
|
|
4,775
|
|
|
11,685
|
|
|
9,271
|
|
|
Depreciation and amortization
|
|
3,040
|
|
|
3,209
|
|
|
6,488
|
|
|
7,407
|
|
|
Cost of real estate sold
|
|
—
|
|
|
40,276
|
|
|
—
|
|
|
42,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
82,628
|
|
|
$
|
152,714
|
|
|
$
|
177,209
|
|
|
$
|
276,929
|
|
NOTE 19 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include payroll and employee benefits associated with personnel employed in executive, sales and marketing, finance, law, compliance, human resources, vendor management, facilities and risk management roles. This category also includes professional services fees, occupancy costs, 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
June 30,
|
|
Six months ended
June 30,
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
9,307
|
|
|
$
|
15,238
|
|
|
$
|
21,319
|
|
|
$
|
26,591
|
|
|
Occupancy related costs
|
|
5,668
|
|
|
6,921
|
|
|
11,089
|
|
|
14,395
|
|
|
Amortization of intangible assets
|
|
2,840
|
|
|
3,544
|
|
|
7,049
|
|
|
12,191
|
|
|
Professional services
|
|
3,841
|
|
|
3,320
|
|
|
6,476
|
|
|
8,796
|
|
|
Marketing costs
|
|
951
|
|
|
2,989
|
|
|
2,388
|
|
|
5,921
|
|
|
Depreciation and amortization
|
|
544
|
|
|
1,682
|
|
|
1,213
|
|
|
3,115
|
|
|
Other
|
|
1,550
|
|
|
2,822
|
|
|
3,260
|
|
|
7,433
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,701
|
|
|
$
|
36,516
|
|
|
$
|
52,794
|
|
|
$
|
78,442
|
|
NOTE 20 — OTHER (EXPENSE) INCOME, NET
Other (expense) income, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
6
|
|
|
$
|
116
|
|
|
$
|
80
|
|
|
$
|
267
|
|
|
Other, net
|
|
(327
|
)
|
|
412
|
|
|
693
|
|
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(321
|
)
|
|
$
|
528
|
|
|
$
|
773
|
|
|
$
|
902
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 21 — INCOME TAXES
We recognized an income tax provision of $3.5 million and $15.3 million for the six months ended June 30, 2020 and 2019, respectively ($1.1 million and $16.5 million for the second quarter of 2020 and 2019, respectively). The decreases in the income tax provision for the three and six months ended June 30, 2020 were primarily from a $12.3 million reduction in Luxembourg deferred tax assets in connection with a decrease in the Luxembourg statutory income tax rate from 26.0% to 24.9% in the second quarter of 2019. The income tax provisions on losses before income taxes and non-controlling interests for the three and six months ended June 30, 2020 were driven by income tax on transfer pricing income from US and foreign operations other than our Luxembourg operating company and no tax benefit on the pretax losses from our Luxembourg operating company for the three and six months ended June 30, 2020.
NOTE 22 — LOSS PER SHARE
Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share excludes all dilutive securities because their impact would be anti-dilutive, as described below.
Basic and diluted loss per share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
(in thousands, except per share data)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Altisource
|
|
$
|
(35,061
|
)
|
|
$
|
(5,844
|
)
|
|
$
|
(46,711
|
)
|
|
$
|
(9,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
15,601
|
|
|
16,214
|
|
|
15,549
|
|
|
16,253
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
15,601
|
|
|
16,214
|
|
|
15,549
|
|
|
16,253
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.25
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(3.00
|
)
|
|
$
|
(0.56
|
)
|
|
Diluted
|
|
$
|
(2.25
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(3.00
|
)
|
|
$
|
(0.56
|
)
|
For the six months ended June 30, 2020 and 2019, 1.8 million and 1.5 million, respectively (1.5 million for each of the second quarter of 2020 and 2019), stock options, restricted shares and restricted share units were excluded from the computation of loss per share, as a result of the following:
|
|
|
|
•
|
As a result of the net loss attributable to Altisource for the six months ended June 30, 2020 and 2019, 0.2 million and 0.3 million, respectively (0.1 million and 0.3 million for the second quarter of 2020 and 2019, respectively), stock options, restricted shares and restricted share units in each period were excluded from the computation of diluted loss per share, as their impacts were anti-dilutive
|
|
|
|
|
•
|
For the six months ended June 30, 2020 and 2019, 0.6 million and 0.4 million, respectively (0.3 million and 0.5 million for the second quarter of 2020 and 2019, respectively), stock options were anti-dilutive and have been excluded from the computation of diluted loss per share because their exercise price was greater than the average market price of our common stock
|
|
|
|
|
•
|
For the six months ended June 30, 2020 and 2019, 1.0 million and 0.8 million, respectively (1.1 million and 0.7 million for the second quarter of 2020 and 2019, respectively), stock options, restricted shares and restricted share units, 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 in each period have been excluded from the computation of diluted loss per share
|
NOTE 23 — RESTRUCTURING CHARGES
In August 2018, Altisource initiated Project Catalyst, a project intended to optimize its operations and reduce costs to better align its cost structure with its anticipated revenues and improve its operating margins. During the six months ended June 30, 2020 and 2019, Altisource incurred $8.7 million and $6.3 million, respectively ($5.8 million and $1.9 million for the second quarter of 2020 and 2019, respectively), of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan. We expect to incur additional severance costs, professional services fees, technology costs and facility consolidation costs in connection with this internal reorganization, automation and other technology
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
related activities and will expense those costs as incurred. Based on our analysis, we currently anticipate the future costs relating to Project Catalyst to be in the range of approximately $4 million to $7 million.
NOTE 24 — 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.
Sales Taxes
On June 21, 2018, the United States Supreme Court rendered a 5-4 majority decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning existing court precedent. During the six months ended June 30, 2019, the Company completed the analysis of its services for potential exposure to sales tax in various jurisdictions in the United States. The Company recognized a $2.1 million net loss for the six months ended June 30, 2019 in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss (no comparative amount for the six months ended June 30, 2020 and the second quarter of 2020 and 2019). The Company began invoicing, collecting and remitting sales tax in applicable jurisdictions in 2019. The Company is also in the process of seeking additional reimbursements for sales tax payments from clients; however, there can be no assurance that the Company will be successful in collecting some or all of such additional reimbursements. Future changes in our estimated sales tax exposure could result in a material adjustment to our condensed consolidated financial statements, which would impact our financial condition and results of operations.
Ocwen Related Matters
As discussed in Note 2, during the six months ended June 30, 2020, Ocwen was our largest customer, accounting for 61% of our total revenue (60% of our revenue for the second quarter of 2020). Additionally, 6% of our revenue for the six months ended June 30, 2020 (5% of our revenue for the second quarter of 2020) was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or the MSR owner selected Altisource as the service provider.
Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions and is subject to pending legal proceedings, some of which include claims against Ocwen for substantial monetary damages. In addition to monetary damages, various complaints have sought to obtain permanent injunctive relief, consumer redress, refunds, restitution, disgorgement, civil penalties, costs and fees and other relief. Existing or future similar matters could result in, and in some cases, have resulted in, adverse regulatory or other actions against Ocwen. Previous regulatory actions against Ocwen have subjected Ocwen to independent oversight of its operations and placed certain restrictions on its ability to acquire servicing rights. In addition to the above, Ocwen may become subject to future adverse regulatory or other actions.
Ocwen has disclosed that NRZ is its largest client. As of June 30, 2020, NRZ owned MSRs or rights to MSRs relating to approximately 53% of loans serviced and subserviced by Ocwen (measured in UPB). In July 2017 and January 2018, Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to the Subject MSRs and under which Ocwen will subservice mortgage loans underlying the Subject MSRs for an initial term of five years. NRZ can terminate its sub-servicing agreement with Ocwen in exchange for the payment of a termination fee.
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
The existence or outcome of Ocwen regulatory matters or the termination of the NRZ sub-servicing agreement with Ocwen 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, it may be required to seek changes to its existing pricing structure with us, it may lose its non-government-sponsored enterprise (“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 and others could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers.
During the second quarter of 2020, Ocwen informed us that an investor had instructed Ocwen to use a field services provider other than Altisource on properties associated with certain MSRs. They indicated that they were instructed to begin the transition in July 2020, and that the transition should be completed in a few months. We believe Ocwen commenced using another field services provider for these properties in July 2020. Based upon the impacted portfolios to date and the designated service provider, Altisource believes that Ocwen received these directions from NRZ, but Ocwen has not confirmed this belief. The timing to complete the transition to the replacement field service provider has not been defined, but we anticipate that there will be an impact to revenue and earnings from the transfer of field services that may be material in future periods. We estimate that $58.2 million and $77.5 million of service revenue from Ocwen for the six months ended June 30, 2020 and 2019, respectively ($27.4 million and $35.1 million for the second quarter of 2020 and 2019, respectively) was derived from Field Services referrals from the NRZ owned portfolios. Without providing the timing or specific services impacted, Ocwen also communicated to Altisource that the same investor plans to direct them to transition certain other default related service referrals to other providers. We estimate that revenue from these certain other default related services represented approximately $20.6 million and $22.5 million of service revenue from Ocwen for the six months ended June 30, 2020 and 2019, respectively ($9.0 million and $10.5 million for the second quarter of 2020 and 2019, respectively). Altisource believes that any action taken by Ocwen to redirect these service referrals breaches Altisource's agreement with Ocwen. We are currently in discussions with Ocwen to address this matter, and have reserved all of our rights with respect to this matter.
To address the potential reduction in revenue, Altisource is taking additional measures to reduce its cost structure and strengthen its operations.
In addition to expected reductions in our revenue from the Field Services referrals transition, if any of the following events occurred, Altisource’s revenue could be further significantly reduced and our results of operations could be materially adversely affected, including from the possible impairment or write-off of goodwill, intangible assets, property and equipment, other assets and accounts receivable:
|
|
|
|
•
|
Altisource loses Ocwen as a customer or there is an additional significant reduction in the volume of services they purchase from us
|
|
|
|
|
•
|
Ocwen loses, sells or transfers a significant portion of its GSE and Federal Housing Administration servicing rights or subservicing arrangements or remaining non-GSE servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider
|
|
|
|
|
•
|
The contractual relationship between Ocwen and NRZ changes significantly and this change results in a change in our status as a provider of services related to the Subject MSRs
|
|
|
|
|
•
|
Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio
|
|
|
|
|
•
|
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
|
|
|
|
|
•
|
Altisource otherwise fails to be retained as a service provider
|
Management cannot predict whether any of these events will occur or the amount of any impact they may have on Altisource. However, we are focused on diversifying and growing our revenue and customer base and we have a sales and marketing strategy to support these efforts. Moreover, in the event one or more of these events materially negatively impact Altisource, we believe the variable nature of our cost structure would allow us to realign our cost structure in line with remaining revenue and that current liquidity and cash flows from operations would be sufficient to meet our working capital, capital expenditures, debt service and other cash needs. There can be no assurance that our plans will be successful or our operations will be profitable.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and in July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (collectively “Topic 842”). Topic 842 introduced a new lessee model that brings substantially all leases on the balance sheet. The Company
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
adopted Topic 842 effective January 1, 2019 using the modified retrospective transition approach. In addition, the Company elected the practical expedients permitted under the transition guidance within the new standard, including allowing the Company to carry forward its historical lease classification, using hindsight to determine the lease term for existing leases, combining fixed lease and non-lease components and excluding short-term leases. Adoption of this new standard resulted in the recognition of $42.1 million of right-of-use assets in right-of-use assets under operating leases, $45.5 million of operating lease liabilities ($16.7 million in other current liabilities and $28.8 million in other non-current liabilities) and reduced accrued rent and lease incentives of $3.4 million in accounts payable and accrued expenses and other non-current liabilities on the accompanying condensed consolidated balance sheets.
We lease certain premises and equipment, primarily consisting of office space and information technology equipment. Certain of our leases include options to renew at our discretion or terminate leases early, and these options are considered in our determination of the expected lease term. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. We sublease certain office space to third parties. Sublease income was $0.7 million and $0.8 million for the six months ended June 30, 2020 and 2019, respectively ($0.4 million and $0.5 million for the second quarter of 2020 and 2019, respectively). The amortization period of right-of-use assets are generally limited by the expected lease term. Our leases generally have expected lease terms at adoption of one to six years.
Information about our lease terms and our discount rate assumption is as follows:
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2020
|
|
|
|
|
|
Weighted average remaining lease term (in years)
|
|
3.37
|
|
|
Weighted average discount rate
|
|
6.99
|
%
|
Our lease activity during the period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease costs:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
$
|
2,529
|
|
|
$
|
3,050
|
|
|
$
|
4,810
|
|
|
$
|
6,616
|
|
|
Cost of revenue
|
|
635
|
|
|
743
|
|
|
1,269
|
|
|
1,712
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities for amounts included in the measurement of lease liabilities
|
|
$
|
3,447
|
|
|
$
|
3,720
|
|
|
$
|
6,758
|
|
|
$
|
8,457
|
|
|
Short-term (less than one year) lease costs
|
|
1,222
|
|
|
1,152
|
|
|
2,427
|
|
|
2,309
|
|
Maturities of our lease liabilities as of June 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Operating lease obligations
|
|
|
|
|
|
2020
|
|
$
|
5,652
|
|
|
2021
|
|
8,056
|
|
|
2022
|
|
5,630
|
|
|
2023
|
|
4,582
|
|
|
2024
|
|
2,863
|
|
|
Thereafter
|
|
599
|
|
|
Total lease payments
|
|
27,382
|
|
|
Less: interest
|
|
(3,058
|
)
|
|
|
|
|
|
Present value of lease liabilities
|
|
$
|
24,324
|
|
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements (Continued)
Escrow Balances
We hold customers’ assets in escrow accounts at various financial institutions pending completion of certain real estate activities. These amounts are held in escrow accounts for limited periods of time and are not included in the accompanying condensed consolidated balance sheets. Amounts held in escrow accounts were $42.7 million and $12.3 million as of June 30, 2020 and December 31, 2019, respectively.