Edgar Filing: Altisource Portfolio Solutions S.A.

Form 10-Q

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 June 30, 2011


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

291, route d’Arlon
L-1150 Luxembourg
Grand Duchy of Luxembourg
(Address of principal executive offices) (Zip Code)

+352 2469 7900
Registrant’s telephone number

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 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 or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):


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

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 July 15, 2011, there were 24,505,125 outstanding shares of the registrant’s shares of beneficial interest (excluding 907,623 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

Condensed Consolidated Balance Sheets		3

Condensed Consolidated Statements of Operations		4

Condensed Consolidated Statements of Equity		5

Condensed Consolidated Statements of Cash Flows		6

Notes to Condensed Consolidated Financial Statements

Note 1 — Organization and Basis of Presentation		7

Note 2 — Transactions with Related Parties		8

Note 3 — Accounts Receivable, Net		9

Note 4 — Prepaid Expenses and Other Current Assets		10

Note 5 — Premises and Equipment, Net		10

Note 6 — Goodwill and Intangible, Net		10

Note 7 — Accounts Payable, Accrued Expenses and Other Current Liabilities		12

Note 8 — Equity Based Compensation		13

Note 9 — Cost of Revenue		15

Note 10 — Selling, General and Administrative Expenses		15

Note 11 — Other Income (Expense), Net		16

Note 12 — Earnings Per Share		16

Note 13 — Commitments and Contingencies		16

Note 14 — Segment Reporting		17

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3 Quantitative and Qualitative Disclosures about Market Risk		38

Item 4 Controls and Procedures		38

PART II — Other Information

Item 1 Legal Proceedings		39

Item 1A Risk Factors		39

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		39

Item 3 Defaults Upon Senior Securities		39

Item 4 (Removed and Reserved)		39

Item 5 Other Information		39

Item 6 Exhibits		40

SIGNATURES

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION


Item 1.		Interim Condensed Consolidated Financial Statements (Unaudited)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, Except per Share Data)


	June 30,			December 31,
	2011			2010

ASSETS

Current Assets:
Cash and Cash Equivalents	$	35,032		$	22,134
Accounts Receivable, net		52,495			53,495
Prepaid Expenses and Other Current Assets		4,405			13,076
Deferred Tax Assets, net		633			551

Total Current Assets		92,565			89,256

Restricted Cash		1,222			1,045
Premises and Equipment, net		16,814			17,493
Deferred Tax Assets, net		490			1,206
Intangible Assets, net		69,269			72,428
Goodwill		12,537			11,836
Investment in Equity Affiliate		3,328			—
Other Non-current Assets		6,824			4,536


Total Assets	$	203,049		$	197,800


LIABILITIES AND EQUITY

Current Liabilities:
Accounts Payable and Accrued Expenses	$	27,625		$	35,384
Capital Lease Obligations — Current		651			680
Other Current Liabilities		3,574			5,616

Total Current Liabilities		31,850			41,680

Capital Lease Obligations — Non-current		541			852
Other Non-current Liabilities		2,782			3,370

Commitment and Contingencies (Note 13)

Equity:
Common Stock ($1.00 par value; 100,000 shares authorized; 25,413 shares issued and 24,586 outstanding in 2011; 25,413 shares issued and 24,881 outstanding in 2010)		25,413			25,413
Retained Earnings		84,744			58,546
Additional Paid-in Capital		80,676			79,297
Treasury Stock, at cost ($1.00 par value; 827 and 532 shares in 2011 and 2010, respectively)		(24,442	)		(14,418	)

Altisource Equity		166,391			148,838

Non-controlling Interests		1,485			3,060

Total Equity		167,876			151,898


Total Liabilities and Equity	$	203,049		$	197,800

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, Except Per Share Data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010

Revenue	$	93,268		$	71,348		$	181,938		$	132,321
Cost of Revenue		63,097			44,375			118,046			83,729


Gross Profit		30,171			26,973			63,892			48,592
Selling, General and Administrative Expenses		13,904			12,476			30,158			24,545


Income from Operations		16,267			14,497			33,734			24,047

Other Income (Expense), net		270			40			614			(32	)


Income Before Income Taxes and Non-controlling Interests		16,537			14,537			34,348			24,015
Income Tax (Provision) Benefit		(1,847	)		3,107			(3,534	)		722


Net Income		14,690			17,644			30,814			24,737

Net Income Attributable to Non-controlling Interests		(1,305	)		(1,297	)		(2,604	)		(2,084	)


Net Income Attributable to Altisource	$	13,385		$	16,347		$	28,210		$	22,653


Earnings Per Share:
Basic	$	0.54		$	0.65		$	1.14		$	0.91

Diluted	$	0.52		$	0.62		$	1.09		$	0.87


Weighted Average Shares Outstanding:
Basic		24,625			25,226			24,734			24,960

Diluted		25,773			26,247			25,851			25,965


Transactions with Related Parties Included Above:
Revenue	$	53,694		$	35,784		$	102,484		$	65,035
Selling, General and Administrative Expenses	$	455		$	264		$	846		$	588

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)


	Altisource Equity												Non-
					Retained			Additional		Treasury			controlling						Comprehensive
	Common Stock				Earnings			Paid-in Capital		Stock, at Cost			Interests			Total			Income

Balance, December 31, 2009		24,145	$	24,145	$	11,665		$	50,538	$	—		$	—		$	86,348
Net Income		—		—		22,653			—		—			2,084			24,737		$	24,737
Acquisition of MPA		959		959		—			22,941		—			3,268			27,168			—
Contributions from Non-controlling Interest Holders		—		—		—			—		—			18			18			—
Distributions to Non-controlling Interest Holders		—		—		—			—		—			(3,896	)		(3,896	)		—
Share-based Compensation Expense		—		—		—			973		—			—			973			—
Exercise of Stock Options		127		127		—			1,150		—			—			1,277			—


Balance, June 30, 2010		25,231	$	25,231	$	34,318		$	75,602	$	—		$	1,474		$	136,625		$	24,737


Balance, December 31, 2010		25,413	$	25,413	$	58,546		$	79,297	$	(14,418	)	$	3,060		$	151,898
Net Income		—		—		28,210			—		—			2,604			30,814		$	30,814
Contributions from Non-controlling Interest Holders		—		—		—			—		—			14			14			—
Distributions to Non-controlling Interest Holders		—		—		—			—		—			(4,193	)		(4,193	)		—
Share-based Compensation Expense		—		—		—			1,379		—			—			1,379			—
Exercise of Stock Options		—		—		(2,012	)		—		2,522			—			510			—
Repurchase of Shares		—		—		—			—		(12,546	)		—			(12,546	)		—

Balance, June 30, 2011		25,413	$	25,413	$	84,744		$	80,676	$	(24,442	)	$	1,485		$	167,876		$	30,814

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Six Months Ended
	June 30,
	2011			2010

Cash flows from Operating Activities:
Net Income	$	30,814		$	24,737
Reconciling Items:
Depreciation and Amortization		4,114			3,211
Amortization of Intangible Assets		2,613			2,639
Share-based Compensation Expense		1,379			973
Bad Debt Expense		684			706
Deferred Income Taxes		634			1,065
Changes in Operating Assets and Liabilities, net of Acquisitions:
Accounts Receivable		424			(4,514	)
Prepaid Expenses and Other Current Assets		6,590			(211	)
Other Assets		(2,288	)		(2,643	)
Accounts Payable and Accrued Expenses		(4,172	)		(3,488	)
Other Current and Non-current Liabilities		(2,630	)		1,867


Net Cash Flow from Operating Activities		38,162			24,342


Cash flows from Investing Activities:
Additions to Premises and Equipment		(3,419	)		(5,234	)
Acquisition of Business, net of Cash Acquired		(1,785	)		(25,462	)
Investment in Equity Affiliate		(3,328	)		—
Change in Restricted Cash		(177	)		(355	)


Net Cash Flow from Investing Activities		(8,709	)		(31,051	)


Cash flows from Financing Activities:
Principal Payments on Capital Lease Obligations		(340	)		(306	)
Proceeds from Stock Option Exercises		510			1,277
Purchase of Treasury Stock		(12,546	)		—
Contributions from Non-controlling Interests		14			18
Distributions to Non-controlling Interests		(4,193	)		(3,896	)


Net Cash Flow from Financing Activities		(16,555	)		(2,907	)


Net Increase (Decrease) in Cash and Cash Equivalents		12,898			(9,616	)
Cash and Cash Equivalents at the Beginning of the Year		22,134			30,456


Cash and Cash Equivalents at the End of the Period	$	35,032		$	20,840


Supplemental Cash Flow Information
Interest Paid	$	46		$	—
Income Taxes (Received) Paid, net	$	(3,342	)	$	31

Non-Cash Investing and Financing Activities
Shares issued in Connection with Acquisition	$	—		$	23,900
Reduction in Income Tax Payable from Tax Amortizable Goodwill	$	1,076		$	—

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

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

We are publicly traded on the NASDAQ Global Select market under the symbol ASPS. We were incorporated under the laws of Luxembourg on November 4, 1999 as Ocwen Luxembourg S.à r.l., renamed Altisource Portfolio Solutions S.à r.l. on May 12, 2009 and converted into Altisource Portfolio Solutions S.A. on June 5, 2009. We became a publicly traded company as of August 10, 2009 (the “Separation”). Prior to the Separation, our businesses were wholly-owned subsidiaries of Ocwen Financial Corporation (“Ocwen”).

We conduct our operations through three reporting segments: Mortgage Services, Financial Services and Technology Services. In addition, we report our corporate related expenditures as a separate segment (see Note 14 for a description of our business segments).

Basis of Presentation

Our condensed consolidated financial statements include the assets and liabilities, revenues and expenses directly attributable to our operations. All significant inter-company and inter-segment transactions and accounts have been eliminated upon consolidation. Certain amounts disclosed in prior period statements have been reclassified to conform to the current period presentation.

In February 2010, we acquired the Mortgage Partnership of American, L.L.C. (“MPA”), the manager of a national alliance of community mortgage bankers, correspondent lenders and suppliers of mortgage products and services that does business as Lenders One Mortgage Cooperative (“Lenders One”). The Management Agreement between MPA and Lenders One, pursuant to which MPA is the management company of Lenders One, represents a variable interest in a variable interest entity. MPA determined it is the primary beneficiary of Lenders One as it has the power to direct the activities that most significantly impact Lenders One’s economic performance and the obligation to absorb losses or the right to receive benefits from Lenders One. As a result, Lenders One is presented in the accompanying condensed consolidated financial statements on a consolidated basis with the interests of the members reflected as Non-controlling Interest on the Condensed Consolidated Balance Sheets. At June 30, 2011, Lenders One had total assets of $5.4 million and liabilities of $0.1 million.

We have prepared our condensed consolidated financial statements 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 SEC Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary to fairly state the results for the interim periods presented have been included. The preparation of 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 condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our Form 10-K for the year ended December 31, 2010, filed with the SEC on February 18, 2011, which contains a summary of our significant accounting policies. Certain footnote detail is also omitted from the condensed consolidated financial statements unless there is a material change from the information included in the Form 10-K.

Investment in Equity Affiliate

We utilize the equity method to account for investments in equity securities where we have the ability to exercise significant influence over operating and financial policies of the investee. We include a proportionate share of earnings and/or losses of equity method investees in equity income (loss), net in the condensed consolidated statements of operations.

As of June 30, 2011 our only significant equity investment was a 50% stake in Correspondent One S.A. (“Correspondent One”) which was still in the formation process. Correspondent One facilitates the purchase of conforming and government guaranteed residential mortgages from approved mortgage originators. In July, we fulfilled our committed funding obligations and have provided a total of $15.0 million to Correspondent One. Our ownership was reduced below 50% due to investments by certain Lenders One members. For the six months ended June 30, 2011, Correspondent One has minimal impact to our Condensed Consolidated Statements of Operations. Beginning in the third quarter of 2011, Correspondent One will partner with Ocwen and members of Lenders One to provide additional avenues for members to sell loans beyond Lenders One’s preferred investor arrangements and the members own network of loan buyers.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Acquisitions

In April 2011, we acquired Springhouse, LLC (“Springhouse”) an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the members of Lenders One, and real estate asset managers. See Note 6 for additional information.

Foreign Currency Translation

Our reporting currency is the U.S. dollar. Other foreign currency assets and liabilities that are considered monetary items are translated at exchange rates in effect at the balance sheet date. Foreign currency revenues and expenses are translated at transaction date exchange rates. These exchange gains and losses are included in the determination of net income.

Fair Value of Financial Instruments

The fair value of financial instruments, which primarily include Cash and Cash Equivalents, Accounts Receivable, net, Restricted Cash and Accounts Payable and Accrued Expenses at June 30, 2011 and December 31, 2010, are carried at amounts that approximate their fair value due to the short-term nature of these amounts.

Additionally, a put option arrangement was issued to the predecessor owners of MPA. The arrangement, which expires in February 2014, allows the holders to put a portion of the Altisource shares issued as consideration to Altisource at a predetermined price. The fair value calculation is deemed to be a Level 3 calculation. The fair value of the put option at June 30, 2011 of $0.2 million was valued using the following assumptions:


	Assumptions

Risk-free Interest Rate		0.19% – 0.810	%
Expected Stock Price Volatility		23% – 44	%
Expected Dividend Yield		—
Expected Option Life (in years)		0.75 – 2.75
Contractual Life (in years)		—
Fair Value		$0.0 – $1.14

The put option agreement is a written derivative valued similar to stock options and is included within Other Non-current Liabilities on the Condensed Consolidated Balance Sheet. The fair value of the put option agreements will be determined each quarter until such puts are either exercised or forfeited. Any changes in value are included as a component of Other Income (Expense), net in the Condensed Consolidated Statements of Operations.

NOTE 2 — TRANSACTIONS WITH RELATED PARTIES

Ocwen remains our largest customer. Following the date of Separation, Ocwen is contractually obligated to purchase certain Mortgage Services and Technology Services from us under service agreements. These agreements extend for eight years from the Separation, subject to termination under certain provisions. Ocwen is not restricted from redeveloping these services. We settle amounts with Ocwen on a daily, weekly or monthly basis based upon the nature of the services and when the service is completed.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Ocwen, or services derived from Ocwen’s loan servicing portfolio, as a percentage of each of our segment revenues and as a percentage of consolidated revenues was as follows for the three and six months ended June 30:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010

Mortgage Services		74	%		73	%		74	%		75	%
Technology Products		38	%		36	%		38	%		37	%
Financial Services		1	%		<1	%		<1	%		<1	%
Consolidated Revenue		58	%		50	%		56	%		49	%

We record revenues we earn from Ocwen under the various long-term servicing contracts at rates we believe to be market rates as they are consistent with one or more of the following: the fees we charge to other customers for comparable services; the rates Ocwen pays to other service providers; fees commensurate with market surveys prepared by unaffiliated firms; and prices charged by our competitors. As of January 1, 2011, we modified our pricing for IT Infrastructure Services within our Technology Services segment from a rate card model primarily based on headcount to a fully loaded costs plus mark-up methodology.

Transition Services

In connection with the Separation, Altisource and Ocwen entered into a Transition Services agreement under which services in such areas as human resources, vendor management, corporate services, six sigma, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other areas are provided to the counterparty for up to two years from the date of Separation. For the six months ended June 30, 2011 and 2010, Altisource billed Ocwen $0.9 million and $0.8 million respectively ($0.5 million and $0.4 million for the second quarter of 2011 and 2010, respectively), and Ocwen billed Altisource $0.8 million and $0.6 respectively ($0.5 million and $0.3 million for the second quarter of 2011 and 2010, respectively) for services provided under this agreement. These amounts are reflected as a component of Selling, General and Administrative Expenses in the Condensed Consolidated Statements of Operations.

NOTE 3 — ACCOUNTS RECEIVABLE, NET

Accounts Receivable, net consists of the following:


	June 30,			December 31,
(in thousands)	2011			2010

Third-party Accounts Receivable	$	15,371		$	19,039
Unbilled Fees		35,791			32,055
Receivable from Ocwen		2,941			3,950
Other Receivables		919			583

		55,022			55,627
Allowance for Doubtful Accounts		(2,527	)		(2,132	)


Total	$	52,495		$	53,495

Unbilled Fees consist primarily of Asset Management and Default Management Services for which we recognize revenues over the service delivery period but bill following completion of the service.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid Expenses and Other Current Assets consist of the following:


	June 30,		December 31,
(in thousands)	2011		2010

Prepaid Expenses	$	3,463	$	5,134
Income Tax Receivable		—		7,327
Other Current Assets		942		615


Total	$	4,405	$	13,076

NOTE 5 — PREMISES AND EQUIPMENT, NET

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


	June 30,			December 31,
(in thousands)	2011			2010

Computer Hardware and Software	$	34,492		$	32,931
Office Equipment and Other		10,477			9,717
Furniture and Fixtures		2,346			2,226
Leasehold Improvements		5,495			4,501

	$	52,810		$	49,375
Less: Accumulated Depreciation and Amortization		(35,996	)		(31,882	)


Total	$	16,814		$	17,493

Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $4.1 million and $3.2 million for the six months ended June 30, 2011 and 2010, respectively ($2.2 million and $1.7 million for the second quarter of 2011 and 2010, respectively), and is included in Cost of Revenue for operating assets and in Selling, General and Administrative Expenses for non-operating assets in the accompanying Condensed Consolidated Statements of Operations.

NOTE 6 — GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The following is a summary showing the balance of goodwill by segment:


	Mortgage		Technology
(in thousands)	Services		Services		Total

Balance, December 31, 2010	$	10,218	$	1,618	$	11,836
Acquisition of Springhouse		701		—		701


Balance, June 30, 2011	$	10,919	$	1,618	$	12,537

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Springhouse Acquisition

In April 2011, we acquired Springhouse an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the members of Lenders One, and real estate asset managers.

Consideration for the transaction consisted of the amounts provided in the table below. The working capital amount is subject to additional revision in the third quarter which is not expected to be material:


(in thousands)	Consideration

Cash	$	1,900
Non-compete agreement		100
Working Capital Adjustment		(215	)

Total Consideration	$	1,785

A summary of the preliminary allocation of the purchase consideration based on estimates of fair value of the assets acquired and the liabilities assumed is follows:


(in thousands)

Accounts Receivable	$	108
Premises and Equipment		16
Identifiable Intangible Assets		1,180
Goodwill		701

		2,005
Accounts Payable and Accrued Expenses		(220	)

Total Purchase Price	$	1,785

Management has assigned the following lives to identified assets acquired as a result of the acquisition:


	Estimated Life
	(in Years)

Premises and Equipment		2 – 5
Trademarks⁽¹⁾		4
Customer Lists⁽¹⁾		6
Non-compete⁽¹⁾		2
Goodwill	Indefinite


⁽¹⁾		The identifiable assets are subject to amortization on a straight-line basis as this best approximates the benefit period related to these assets.

The goodwill arising from the Springhouse acquisition assigned to our Mortgage Services segment relates principally to in-place workforce and our ability to go to market more quickly with a retail origination appraisal business. All goodwill and intangible assets related to the acquisition are expected to be amortizable and deductible for income tax purposes.

The results of operations of Springhouse has been included in our consolidated results from the acquisition date. The acquisition did not have a material effect on our financial position, results of operations or cash flows.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Acquisition-related transaction costs are included in Selling, General and Administrative Expenses in the Consolidated Statements of Operations.

Intangible Assets, Net

Intangible Assets, net consists of the following:


	Weighted
	Average
	Estimated		Gross Carrying Amount				Accumulated Amortization					Net Book Value
	Useful Life		June 30,		December 31,		June 30,			December 31,		June 30,		December 31,
(dollars in thousands)	(Years)		2011		2010		2011			2010		2011		2010

Definite-lived Intangible Assets
Trademarks		16	$	10,614	$	10,200	$	2,836		$	2,346	$	7,778	$	7,854
Customer Lists		19		38,366		37,700		10,202	(a)		7,447		28,164		30,253
Operating Agreement		20		35,000		35,000		2,535			1,604		32,465		33,396
Non-compete Agreement		4		1,300		1,200		438			275		862		925


Total Intangible Assets			$	85,280	$	84,100	$	16,011		$	11,672	$	69,269	$	72,428


(a)		Prior to our acquisition of Nationwide Credit, Inc. (“NCI”) in 2007, NCI completed an acquisition which created tax-deductible goodwill that amortizes for tax purposes over time. When we acquired NCI in 2007, we recorded a lesser amount of goodwill for financial reporting purposes than what had previously been recorded at NCI for tax purposes. This difference between the amount of goodwill recorded for financial reporting purposes and the amount recorded for taxes is referred to as “Component 2” goodwill and it resulted in our recording periodic reductions first to our book goodwill balance in our consolidated financial statements. As our book goodwill balance was fully written off at December 31, 2010, we continue to amortize the remaining Component 2 goodwill for U.S. tax purposes by reducing certain intangible assets by the remaining tax benefits of the Component 2 goodwill as they are realized in our tax returns. The amount amortized was $1.7 million for the six months ended June 30, 2011. The balance of Component 2 goodwill remaining was $8.5 million as of June 30, 2011 which should generate $5.1 million of reductions of intangible assets when the benefit can be realized for U.S. tax purposes.

Amortization expense for definite lived intangible assets was $2.6 million and $2.6 million for the six months ended June 30, 2011 and 2010, respectively ($1.3 million and $1.5 million for the second quarter of 2011 and 2010, respectively). Amortization expense is estimated to be $5.3 million for 2011, $5.0 million for 2012, $4.8 million for 2013, $4.5 million for 2014 and $4.4 million for 2015.

NOTE 7 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts Payable and Accrued Expenses consists of the following:


	June 30,		December 31,
(in thousands)	2011		2010

Accounts Payable	$	2,840	$	5,960
Accrued Expenses — General		10,206		11,189
Accrued Salaries and Benefits		11,267		12,010
Income Taxes Payable		733		3,807
Payable to Ocwen		2,579		2,418


Total	$	27,625	$	35,384

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Other Current Liabilities consists of the following:


	June 30,		December 31,
(in thousands)	2011		2010

Deferred Revenue	$	1,637	$	2,542
Facility Closure Cost Accrual, Current Portion		127		253
Other		1,810		2,821


Total	$	3,574	$	5,616

Facility Closure Costs

During 2009, we accrued facility closure costs (included in Other Current and Other Non-Current liabilities in the Condensed Consolidated Balance Sheet) primarily consisting of lease exit costs (expected to be paid through 2014) and severance for the closure of two facilities. The following table summarizes the activity, all recorded in our Financial Services segment, for the six months ended June 30, 2011:


(in thousands)	Lease Costs

Balance, December 31, 2010	$	672
Payments		(138	)

Balance, June 30, 2011		534
Less: Long-Term Portion		407


Facility Closure Cost Accrual, Current Portion	$	127

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

NOTE 8 — EQUITY BASED COMPENSATION

We provide stock-based awards as a form of compensation for certain employees and officers. We have issued stock-based awards in the form of stock options. We recorded total stock compensation expense of $1.4 million and $1.0 million for the six months ended June 30, 2011 and 2010, respectively ($0.6 million and $0.7 million for the second quarter of 2011 and 2010, respectively). The compensation expense is principally included in Selling, General and Administrative Expenses in the accompany Condensed Consolidated Statements of Operations.

Below is a summary of the different types of stock-based awards issued under our stock plans:

Stock Options

Service-based Options. These options are granted at fair market value on the date of grant. The options generally vest over four years with equal annual cliff-vesting and expire on the earlier of 10 years after the date of grant or following termination of service. A total of 1.1 million service-based awards were outstanding at June 30, 2011.

Market-based Options. These option grants have two components each of which vest only upon the achievement of certain criteria. The first component, which we refer to internally as “ordinary performance” grants, consists of two-thirds of the market-based grant and begins to vest if the stock price realizes a compounded annual gain of at least 20% over the exercise price, so long as the stock price is at least double the exercise price. The remaining third of the market-based options, which we refer to internally as “extraordinary performance” grants, begins to vest if the stock price realizes a compounded annual gain of at least 25% over the exercise price, so long as it is at least triple the exercise price. The vesting schedule for all market-based awards is 25% upon achievement of the criteria and the remaining 75% in three equal annual installments. A total of 2.2 million market-based awards were outstanding at June 30, 2011.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

During the six months ended June 30, 2011, the Company granted 0.1 million stock options. The options have an average exercise price of $29.99 per share.

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


	June 30, 2011						June 30, 2010
	Black-Scholes			Binominal			Black-Scholes			Binominal

Risk-free Interest Rate		2.20	%		0.03%–3.18	%		2.82	%		0.17%–3.36	%
Expected Stock Price Volatility		48	%		55.9	%		48	%		51.5	%
Expected Dividend Yield		—			—			—			—
Expected Option Life (in years)		6.25			—			7			—
Contractual Life (in years)		—			14			—			14
Fair Value	$	16.55		$18.09 and $18.76			$	13.00		$10.50 and $12.35

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


	June 30
(in thousands, except per share amounts)	2011		2010

Weighted-Average Fair Value at Date of Grant Per Share	$	16.03	$	11.58
Intrinsic Value of Options Exercised	$	2,855	$	1,827
Fair Value of Options Vested	$	788	$	131

Stock-based compensation expense is recorded net of estimated forfeiture rates ranging from 1% to 3%.

As of June 30, 2011, estimated unrecognized compensation costs related to share-based payments amounted to $7.0 million which we expect to recognize over a weighted-average remaining requisite service period of approximately 3.1 years.

The following table summarizes activity of our stock options:


						Weighted
				Weighted		Average
				Average		Contractual		Aggregate
	Number of			Exercise		Term		Intrinsic Value
	Options			Price		(in years)		(in thousands)

Outstanding at December 31, 2010		3,451,613		$	13.46		7.3	$	52,641

Granted		85,000			29.99
Exercised		(157,256	)		12.76
Forfeited		(138,750	)		24.92

Outstanding at June 30, 2011		3,240,607		$	13.44		7.1	$	75,715


Exercisable at June 30, 2011		1,373,219		$	10.21		6.0	$	36,509

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

Stock Repurchase Authorization

On May 19, 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market. From authorization through June 30, 2011, we have purchased 1.0 million shares of our common stock on the open market at an average price of $28.51, leaving 2.8 million shares still available for purchase.

NOTE 9 — 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 provision of services, reimbursable expenses, technology and telephony expenses as well as depreciation and amortization of operating assets. The components of Cost of Revenue were as follows for the periods ended June 30, 2011 and 2010:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2011		2010		2011		2010

Compensation and Benefits	$	19,959	$	15,691	$	36,799	$	29,690
Outside Fees and Services		17,532		13,321		35,693		25,781
Expense Reimbursements		19,459		11,141		35,100		19,671
Technology and Communications		4,557		2,692		7,535		5,647
Depreciation and Amortization		1,590		1,530		2,919		2,940


Total	$	63,097	$	44,375	$	118,046	$	83,729

NOTE 10 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, General and Administrative Expenses include payroll for personnel employed in executive, sales, marketing, human resources and finance roles. This category also includes occupancy costs, professional fees, depreciation and amortization on non-operating assets. The components of Selling, General and Administrative Expenses were as follows for the periods ended June 30, 2011 and 2010:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2011		2010		2011		2010

Compensation and Benefits	$	5,825	$	3,965	$	11,745	$	8,005
Professional Services		1,055		1,761		3,157		4,057
Occupancy Related Costs		4,062		3,600		7,559		5,841
Amortization of Intangible Assets		1,340		1,450		2,613		2,639
Depreciation and Amortization		586		159		1,196		271
Other		1,036		1,541		3,888		3,732


Total	$	13,904	$	12,476	$	30,158	$	24,545

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

NOTE 11 — OTHER INCOME (EXPENSE), NET

Other Income (Expense), net consists of the following:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2011			2010			2011			2010

Interest Income	$	17		$	3		$	22		$	12
Interest Expense		(24	)		(23	)		(47	)		(51	)
Change in Fair Value of Put Option		225			—			582			—
Other, net		52			60			57			7


Total	$	270		$	40		$	614		$	(32	)

NOTE 12 — EARNINGS PER SHARE

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

Basic and diluted earnings per share for the three and six months ended June 30, 2011 and 2010 are calculated as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2011		2010		2011		2010

Net Income Attributable to Altisource	$	13,385	$	16,347	$	28,210	$	22,653


Weighted-Average Common Shares Outstanding, Basic		24,625		25,226		24,734		24,960
Dilutive Effect of Stock Options		1,148		1,018		1,117		1,002
Dilutive Effect of Restricted Shares		—		3		—		3

Weighted-Average Common Shares Outstanding, Diluted		25,773		26,247		25,851		25,965


Earnings Per Share
Basic	$	0.54	$	0.65	$	1.14	$	0.91

Diluted	$	0.52	$	0.62	$	1.09	$	0.87

For the three and six months ended June 30, 2011, an immaterial amount of options that were anti-dilutive have been excluded from the computation of diluted EPS (0.2 million for the three and six month ended June 30, 2010). These options were anti-dilutive because their exercise price was greater than the average market price of our stock. Also excluded from the computation of diluted EPS for each of the three and six months ended June 30, 2011 and 2010 are 0.6 and 0.7 million options granted for shares that are issuable upon the achievement of certain market and performance criteria related to our stock price and an annualized rate of return to investors that have not been met at this point.

NOTE 13 — COMMITMENTS AND CONTINGENCIES

Litigation

The Company is from time to time involved in legal proceedings arising in the ordinary course of business. We record a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For proceedings where a range of loss is determined, we record a best estimate of loss within the range. When legal proceedings are material we disclose the nature of the litigation and to the extent possible the estimate of loss or range of loss. In the opinion of management, after consultation with legal counsel and considering insurance coverage where applicable, the outcome of current legal proceedings both individually and in the aggregate will not have a material impact on the Company’s financial condition, results of operations or cash flows.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)

NOTE 14 — 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 that we use to evaluate operating performance and to assess the allocation of our resources by our Chief Executive Officer.

We classify our businesses into three reportable segments. Mortgage Services consists of mortgage portfolio management services that span the mortgage lifecycle. Financial Services principally consists of unsecured asset recovery and customer relationship management. Technology Services consists of modular, comprehensive integrated technological solutions for loan servicing, vendor management and invoice presentment and payment as well as providing infrastructure support. In addition, our Corporate Items and Eliminations segment includes eliminations of transactions between the reporting segments and this segment also includes costs recognized by us related to corporate support functions such as finance, legal, human resources, six sigma and quality assurances.

In 2011, we reorganized our reporting structure in that certain services that were originally part of the Mortgage Services Segment are now classified as part of Financial Services. Prior periods have been recast to conform with the current year presentation.

Financial information for our segments is as follows:


	Three Months Ended June 30, 2011
									Corporate
	Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services		Services			Services			Eliminations			Altisource

Revenue	$	65,507	$	17,983		$	13,572		$	(3,794	)	$	93,268
Cost of Revenue		43,544		13,574			9,334			(3,355	)		63,097

Gross Profit		21,963		4,409			4,238			(439	)		30,171
Selling, General and Administrative Expenses		2,853		3,502			1,537			6,012			13,904

Income (Loss) from Operations		19,110		907			2,701			(6,451	)		16,267
Other Income (Expense), net		258		(7	)		(12	)		31			270

Income (Loss) Before Income Taxes	$	19,368	$	900		$	2,689		$	(6,420	)	$	16,537


Transactions with Related Parties:
Revenue	$	48,473	$	118		$	5,103		$	—		$	53,694

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	455		$	455

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)


	Six Months Ended June 30, 2011
									Corporate
	Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services		Services			Services			Eliminations			Altisource

Revenue	$	125,214	$	37,476		$	26,288		$	(7,040	)	$	181,938
Cost of Revenue		80,564		27,062			16,779			(6,359	)		118,046

Gross Profit		44,650		10,414			9,509			(681	)		63,892
Selling, General and Administrative Expenses		7,436		7,962			2,733			12,027			30,158

Income (Loss) from Operations		37,214		2,452			6,776			(12,708	)		33,734
Other Expense, net		623		(18	)		(27	)		36			614

Income (Loss) Before Income Taxes	$	37,837	$	2,434		$	6,749		$	(12,672	)	$	34,348


Transactions with Related Parties:
Revenue	$	92,283	$	147		$	10,054		$	—		$	102,484

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	846		$	846


	Three Months Ended June 30, 2010
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue	$	42,665		$	19,891		$	12,485		$	(3,693	)	$	71,348
Cost of Revenue		26,912			14,176			6,669			(3,382	)		44,375

Gross Profit		15,753			5,715			5,816			(311	)		26,973
Selling, General and Administrative Expenses		3,484			4,062			1,324			3,606			12,476

Income (Loss) from Operations		12,269			1,653			4,492			(3,917	)		14,497
Other Income (Expense), net		(41	)		(13	)		(9	)		103			40

Income (Loss) Before Income Taxes	$	12,228		$	1,640		$	4,483		$	(3,814	)	$	14,537


Transactions with Related Parties:
Revenue	$	31,222		$	25		$	4,537		$	—		$	35,784

Selling, General and Administrative Expenses	$	—		$	—		$	—		$	264		$	264

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
Notes to Condensed Consolidated Financial Statements
(continued)


	Six Months Ended June 30, 2010
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue	$	75,047		$	39,936		$	24,459		$	(7,121	)	$	132,321
Cost of Revenue		48,205			28,702			13,316			(6,494	)		83,729

Gross Profit		26,842			11,234			11,143			(627	)		48,592
Selling, General and Administrative Expenses		5,927			8,162			2,430			8,026			24,545

Income (Loss) from Operations		20,915			3,072			8,713			(8,653	)		24,047
Other Expense, net		(38	)		(29	)		(21	)		56			(32	)

Income (Loss) Before Income Taxes	$	20,877		$	3,043		$	8,692		$	(8,597	)	$	24,015


Transactions with Related Parties:
Revenue	$	55,984		$	76		$	8,975		$	—		$	65,035

Selling, General and Administrative Expenses	$	—		$	—		$	—		$	588		$	588

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of results of operations (“MD&A”) is a supplement to the accompanying consolidated financial statements and provides additional information on our businesses, current developments, financial condition, cash flows and results of operations. Significant sections of the MD&A are as follows:

Overview. This section, beginning on page 21, provides a description of recent developments we believe are important in understanding the results of operations and financial condition or in understanding anticipated future trends.

Consolidated Results of Operations. This section, beginning on page 22, provides an analysis of our consolidated results of operations for the three and six months ended June 30, 2011 and 2010. In addition, a brief description is provided of significant transactions and events that affect the comparability of results being analyzed.

Segment Results of Operations. This section, beginning on page 26, provides an analysis of each business segment for the three and six months ended June 30, 2011 and 2010 as well as our Corporate segment. In addition, we discuss significant transactions, events and trends that may affect the comparability of the results being analyzed.

Liquidity and Capital Resources. This section, beginning on page 36, provides an analysis of our cash flows for the six months ended June 30, 2011 and 2010. We also discuss restrictions on cash movements, future commitments and capital resources.

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements that relate to, among other things, our future financial and operating results. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms and other comparable terminology including, but not limited to, the following:

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

	•		assumptions about our ability to grow our business;

	•		assumptions about our ability to reduce our cost structure;

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

	•		assumptions regarding the impact of seasonality;

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

	•		estimates regarding our reserves and valuations.

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. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section of our Form 10-K for the year ended December 31, 2010 and include the following:

•

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

•

governmental regulations, taxes and policies.

We caution you not to place undue reliance on these forward-looking statements which 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 change in events, conditions or circumstances on which any such statement is based.

OVERVIEW

Our Business

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

We classify our business into three reportable segments:

Mortgage Services: Consists of services that span the mortgage lifecycle and are typically outsourced by loan servicers and originators. In 2011, we reorganized our reporting structure in that certain services originally part of Component Services and Other in this segment are now classified as part of Customer Relationship Management in our Financial Services segment. Following this change, Component Service and Other was renamed Origination Management Services. Origination Management Services includes MPA, our legacy contract underwriting business and our origination fulfillment operations currently under development. Prior periods have been recast to conform to the current year presentation.

Financial Services: Consists primarily of unsecured asset recovery and customer relationship management. As discussed above, Customer Relationship Management now includes certain services that were originally recorded as part of Mortgage Services.

Technology Services: Consists of modular, comprehensive integrated technological solutions for loan servicing, vendor management, invoice presentment and payment as well as providing infrastructure support.

Stock Repurchase Plan

In May 2010, our shareholders authorized us to purchase 15% of our outstanding share capital, or 3.8 million shares of common stock, in the open market. From authorization through June 30, 2011, we have purchased 1.0 million shares of common stock on the open market at an average price of $28.51, leaving 2.8 million shares available for purchase under the program.

Springhouse, LLC

In April 2011, we acquired Springhouse, an appraisal management company that utilizes a nationwide panel of appraisers to provide real estate appraisals principally to mortgage originators, including the members of Lenders One, and real estate asset managers.

Factors Affecting Comparability

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

•

In February 2010, we acquired all of the outstanding membership interest of MPA which was formed with the purpose of managing Lenders One (see Note 1 to the condensed consolidated financial statements). The results of operations of Lenders One have been consolidated under the variable interest model since the acquisition date; and

•

Effective January 2011, we modified our pricing for IT Infrastructure Services within our Technology Services segment from a rate card model primarily based on headcount to a fully loaded cost plus mark-up methodology. This new model applies to the infrastructure amounts charged to Ocwen as well as internal allocations of infrastructure cost. The impact of this change is discussed further in the Technology Services segment.

CONSOLIDATED RESULTS OF OPERATIONS

Summary Consolidated Results

Following is a discussion of our consolidated results of operations for the periods indicated. In evaluating performance, we neutralize the impact of pass-through items for which we earn no margin by excluding reimbursable expenses and non-controlling interests where appropriate and calculating all margins based upon Service Revenue.

The following table sets forth information regarding our results of operations for the periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands, except per share amounts)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Service Revenue	$	72,504		$	58,910			23		$	144,234		$	110,566			30
Reimbursable Expenses		19,459			11,141			75			35,100			19,671			78
Cooperative Non-controlling Interest		1,305			1,297			1			2,604			2,084			25


Total Revenue		93,268			71,348			31			181,938			132,321			37

Cost of Revenue		63,097			44,375			(42	)		118,046			83,729			(41	)


Gross Profit		30,171			26,973			12			63,892			48,592			31

Gross Profit/Service Revenue		42	%		46	%					44	%		44	%

Selling, General and Administrative Expenses		13,904			12,476			(11	)		30,158			24,545			(23	)


Income from Operations		16,267			14,497			12			33,734			24,047			40

Income from Operations/Service Revenue		22	%		25	%					23	%		22	%

Other Expense, net		270			40			N/M			614			(32	)		N/M

Income Before Income Taxes and Non-controlling Interests		16,537			14,537			14			34,348			24,015			43
Income Tax (Provision) Benefit		(1,847	)		3,107			(159	)		(3,534	)		722			N/M


Net Income		14,690			17,644			(17	)		30,814			24,737			25

Net Income Attributable to Non-controlling Interests		(1,305	)		(1,297	)		(1	)		(2,604	)		(2,084	)		(25	)

Net Income Attributable to Altisource	$	13,385		$	16,347			(18	)	$	28,210		$	22,653			25


Earnings Per Share
Basic	$	0.54		$	0.65			(17	)	$	1.14		$	0.91			25

Diluted	$	0.52		$	0.62			(16	)	$	1.09		$	0.87			25


Transactions with Related Parties:
Revenue	$	53,694		$	35,784			50		$	102,484		$	65,035			58

Selling, General and Administrative Expenses	$	455		$	264			72		$	846		$	588			44

N/M — not meaningful.

We recognized $144.2 million of Service Revenue for the six months ended June 30, 2011, a 30% increase over the same period in 2010. We sequentially grew Service Revenue in the second quarter through higher sales of real estate owned (REO) properties, due to seasonality and expansion of the title insurance business. Sequential growth in Service Revenue was constrained by Financial Services due to seasonality as well as completion of temporary assignment in the first quarter, and by Mortgage Services due to decreased foreclosure referrals which resulted in reduced title search and default management services revenues.

For the third quarter, we expect modest growth in Service Revenue facilitated by seasonally strong REO sales and continued growth of the title insurance operations. For the fourth quarter, we expect substantially greater growth in Service Revenue assuming Ocwen concludes its acquisition of the Litton platform and the Company’s continued roll-out of our title insurance services.

Income before income tax attributable to Altisource grew in both periods over the comparable periods in 2010 principally as a result of the development of mortgage and real estate portfolio management services and the growth of Ocwen’s servicing portfolio. Sequentially, income before income tax attributable to Altisource declined $1.3 million due to increased investments in personnel and technology to support our growth initiatives, initial investments in infrastructure to support the acquisition by Ocwen of the Litton portfolio and the seasonal decline in Financial Services revenue.

For the third quarter, we expect initiatives to support the Litton portfolio and investment in technology will limit margin expansion. We continuously undertake process improvement initiatives focused on margin enhancement of fully deployed services and we believe implementation of business process management software, deployment of next generation REALSuite software and leveraging of fixed costs on higher referral volume will facilitate continued growth in margins over the longer term.

Revenue

The following table presents our Revenue for the periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands, except per share amounts)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Mortgage Services:
Service Revenue	$	45,513		$	31,001			47		$	88,853		$	54,714			62
Reimbursable Expenses		18,689			10,367			80			33,757			18,249			85

Cooperative Non-controlling Interest		1,305			1,297			1			2,604			2,084			25


Mortgage Services — Total Revenue		65,507			42,665			54			125,214			75,047			67

Financial Services:
Service Revenue		17,213			19,117			(10	)		36,133			38,514			(6	)
Reimbursable Expenses		770			774			(1	)		1,343			1,422			(6	)

Financial Services — Total Revenue		17,983			19,891			(10	)		37,476			39,936			(6	)

Technology Services		13,572			12,485			9			26,288			24,459			8

Eliminations		(3,794	)		(3,693	)		3			(7,040	)		(7,121	)		1

Total Revenue	$	93,268		$	71,348			31		$	181,938		$	132,321			37


Transactions with Related Parties:
Mortgage Services		48,473			31,222			55			92,283			55,984			65
Financial Services		118			25			N/M			147			76			93
Technology Services		5,103			4,537			13			10,054			8,975			12

N/M — not meaningful.

In evaluating our performance, we utilize Service Revenue which consists of amounts attributable to our fee based services. Reimbursable Expenses and Cooperative Non-controlling Interests are pass-through items for which we earn no margin. Reimbursable Expenses consists of amounts that we incur on behalf of our customers in performing our fee based services, but we pass such costs directly on to our customers without any additional markup. Cooperative Non-controlling Interests is attributable to the members of Lenders One.

Growth in Service Revenue for the period presented was due to the development of mortgage and real estate portfolio management services across our national platform. Our Mortgage Services and Technology Services segments also benefited from the growth in loans serviced by Ocwen during this period. Financial Services revenue declined in both periods compared due to a decline in revenues from one of the segment’s largest customers. The decline was in part as a result of the client shifting work to our global delivery platform. This resulted in lower revenue although higher margins.

Sequentially, Service Revenue increased $0.8 million compared to the first quarter 2011 led by the Mortgage Services and Technology Services segment. Increases in the Mortgage Services segment were driven principally by the increased sales of REO properties and the growth of insured title services partially offset by decline in services dependent upon foreclosure referrals. The Technology Services segment continued to benefit from the growth in Ocwen’s loan portfolio. The Service Revenue for Financial Services segment decreased principally due to higher seasonal collections in the first quarter 2011 and the continued transfer of work to our global delivery platform.

Our revenues are seasonal. More specifically, Financial Services revenue tends to be higher in the first quarter and generally declines throughout the year. Mortgage Services revenue is impacted by REO sales which tend to be at their lowest level during fall and winter months and highest during spring and summer months.

Cost of Revenue

Cost of Revenue principally includes payroll and employee benefits associated with personnel employed in customer service roles, fees paid to external providers related to the provision of services, reimbursable expenses, technology and telephony expenses as well as depreciation and amortization of operating assets. The components of Cost of Revenue were as follows for the periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Compensation and Benefits	$	19,959		$	15,691			(27	)	$	36,799		$	29,690			(24	)
Outside Fees and Services		17,532			13,321			(32	)		35,693			25,781			(38	)
Reimbursable Expenses		19,459			11,141			(75	)		35,100			19,671			(78	)
Technology and Communications		4,577			2,692			(69	)		7,535			5,647			(33	)
Depreciation and Amortization		1,590			1,530			(4	)		2,919			2,940			1

Cost of Revenue	$	63,097		$	44,375			(42	)	$	118,046		$	83,729			(41	)


Gross Profit Percentage:
Gross Profit/Service Revenue		42	%		46	%					44	%		44	%

For the six months ended June 30, 2011, our gross margin percentage was flat. Our margins have remained fairly stable although we have and continue to make significant investments in personnel and technology to support our growth plans. Sequentially, our margins declined as we increased our investments in personnel to support the development of our insured title services and origination services as well as increases in technology costs due to the initial implementation of our business process software and higher software license costs given our continued growth.

When compared to the prior year periods, the substantial increase in Cost of Revenue is consistent with the growth in our Mortgage Services segment as we expanded our mortgage and real estate portfolio management services. In addition, increased volumes attributable to the growth in Ocwen’s portfolio caused increases at both our Mortgage Services and Technology Services segment. This was partially offset by a decline in Cost of Revenue for our Financial Services segment as we continue to manage costs.

Compensation and Benefits costs for the quarter ended June 30, 2011 increased sequentially as a result of the addition of personnel principally to support the development of our title agency and origination services related to mortgage portfolio management, the expected growth in referrals from Ocwen and personnel to develop our next generation of REALSuite technologies. We expect compensation and benefit costs to continue to increase in the third quarter as we ramp up our personnel to support the expected boarding of the Litton portfolio by Ocwen.

Outside Fees and Services for the quarter ended June 30, 2011 were essentially flat when compared to first quarter 2011.

Technology and Communication costs increased sequentially for the quarter ended June 30, 2011 due to continued investment in personnel and licenses as a result of the growth in personnel to support existing and new services.

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses include payroll, employee benefits, occupancy and other costs associated with personnel employed in executive, sales, marketing, human resources and finance roles. This category also includes professional fees, depreciation and amortization on non-operating assets. The components of Selling, General and Administrative Expenses were as follows for the periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Compensation and Benefits	$	5,825		$	3,965			(47	)	$	11,745		$	8,005			(47	)
Professional Services		1,055			1,761			40			3,157			4,057			22
Occupancy Related Costs		4,062			3,600			(13	)		7,559			5,841			(29	)
Amortization of Intangible Assets		1,340			1,450			8			2,613			2,639			1
Depreciation and Amortization		586			159			N/M			1,196			271			N/M
Other		1,036			1,541			33			3,888			3,732			(4	)

Total Selling, General and Administrative Expenses	$	13,904		$	12,476			(11	)	$	30,158		$	24,545			(23	)


Operating Percentage:
Income from Operation/Service Revenue		22	%		25	%					23	%		22	%

N/M — not meaningful.

Our operating margin percentage was 23% for the six months ended June 30, 2011 and compares favorably to the same period in the prior year but reflects a sequential decline in margins in the second quarter 2011 when compared to the first quarter.

Compensation and Benefits increased in both periods compared to the same periods in 2010 as we built out our support functions such as accounting, legal and human resources as well as added to the executive ranks of our segments to support the continued growth.

Professional Services fees have generally been declining as we have worked to reduce our external legal costs through increased compliance and by reducing costs paid to external advisors with respect to legal advice. In addition, consulting costs related to accounting and tax support decreased as we have hired additional staff in these functions. Lastly, the first half of 2010 included professional costs associated with the acquisition of MPA.

Occupancy Related Costs increased in both periods as compared to the same periods in 2010 due to the growth in our business. As of June 30, 2011, we had over 5,800 employees worldwide compared to approximately 3,900 at year end.

Income Before Income Tax

The following table presents income before income tax including the amount attributable to Altisource by segment:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2011			2010			2011			2010

Mortgage Services:
Income Before Income Taxes	$	19,368		$	12,228		$	37,837		$	20,877
Non-controlling Interests		(1,305	)		(1,297	)		(2,604	)		(2,084	)

Income Before Income Taxes Attributable to Altisource	$	18,063		$	10,931		$	35,233		$	18,793
As Percent of Service Revenue		40	%		35	%		40	%		34	%

Financial Services:
Income Before Income Taxes	$	900		$	1,640		$	2,434		$	3,043
As Percent of Service Revenue		5	%		9	%		7	%		8	%

Technology Services:
Income Before Income Taxes	$	2,689		$	4,483		$	6,749		$	8,692
As percent of Revenue		20	%		36	%		26	%		36	%

Corporate:
Income Before Income Taxes		(6,420	)		(3,814	)		(12,672	)		(8,597	)

Consolidated:
Income Before Income Taxes	$	16,537		$	14,537		$	34,348		$	24,015
Non-controlling Interests		(1,305	)		(1,297	)		(2,604	)		(2,084	)

Income Before Income Taxes Attributable to Altisource	$	15,232		$	13,240		$	31,744		$	21,931
As percent of Service Revenue		21	%		22	%		22	%		20	%

On a consolidated basis, income before income tax attributable to Altisource grew in both periods over the comparable periods in 2010 principally as a result of the development of mortgage and real estate portfolio management services and the growth of Ocwen’s servicing portfolio. Sequentially, income before income taxes attributable to Altisource declined $1.3 million due to our increased investments in personnel and technology to support our growth initiatives including our next generation of REALSuite technologies, initial investments in infrastructure to support the acquisition by Ocwen of the Litton portfolio and the seasonal decline in Financial Services revenue.

Income Tax Provision

The Company recognized an income tax provision of $3.5 million for the six months ended June 30, 2011 representing an effective tax rate of 10.3%. The income tax provision computed by applying the Luxembourg statutory tax rate of 28.8% differs from the effective tax rate primarily because of the effect of the favorable tax ruling as well as the mix of income and losses in multiple taxing jurisdictions. The Company received a favorable ruling in June 2010 regarding the treatment of certain intangibles that exist for purposes of determining the Company’s taxable income. The ruling was retroactive to the date of Separation. As a result of the ruling, the Company recognized a $3.4 million credit attributable to 2009 as well as adjusted the year to date tax provision to the new effective tax rate of 12.5% in the second quarter 2010 which resulted in a credit of $0.7 million for the six months ended June 30, 2010.

SEGMENT RESULTS OF OPERATIONS

The following section provides a discussion of pretax results of operations of our business segments for the three and six months ended June 30, 2011 and 2010. Transactions between segments are accounted for as third-party arrangements for purposes of presenting Segment Results of Operations. Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REALSuite applications from our Technology Service segment to our other two segments. Generally, we reflect these charges within technology and communication in the segment receiving the services, except for consulting services, which we reflect in professional services.

Financial information for our segments is as follows:


	Three Months Ended June 30, 2011
									Corporate
	Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services		Services			Services			Eliminations			Altisource

Revenue	$	65,507	$	17,983		$	13,572		$	(3,794	)	$	93,268
Cost of Revenue		43,544		13,574			9,334			(3,355	)		63,097

Gross Profit		21,963		4,409			4,238			(439	)		30,171
Selling, General and Administrative Expenses		2,853		3,502			1,537			6,012			13,904

Income (Loss) from Operations		19,110		907			2,701			(6,451	)		16,267
Other Income (Expense), net		258		(7	)		(12	)		31			270

Income (Loss) Before Income Taxes	$	19,368	$	900		$	2,689		$	(6,420	)	$	16,537


Transactions with Related Parties:
Revenue	$	48,473	$	118		$	5,103		$	—		$	53,694

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	455		$	455


	Three Months Ended June 30, 2010
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue	$	42,665		$	19,891		$	12,485		$	(3,693	)	$	71,348
Cost of Revenue		26,912			14,176			6,669			(3,382	)		44,375

Gross Profit		15,753			5,715			5,816			(311	)		26,973
Selling, General and Administrative Expenses		3,484			4,062			1,324			3,606			12,476

Income (Loss) from Operations		12,269			1,653			4,492			(3,917	)		14,497
Other Income (Expense), net		(41	)		(13	)		(9	)		103			40

Income (Loss) Before Income Taxes	$	12,228		$	1,640		$	4,483		$	(3,814	)	$	14,537


Transactions with Related Parties:
Revenue	$	31,222		$	25		$	4,537		$	—		$	35,784

Selling, General and Administrative Expenses	$	—		$	—		$	—		$	264		$	264


	Six Months Ended June 30, 2011
									Corporate
	Mortgage		Financial			Technology			Items and			Consolidated
(in thousands)	Services		Services			Services			Eliminations			Altisource

Revenue	$	125,214	$	37,476		$	26,288		$	(7,040	)	$	181,938
Cost of Revenue		80,564		27,062			16,779			(6,359	)		118,046

Gross Profit		44,650		10,414			9,509			(681	)		63,892
Selling, General and Administrative Expenses		7,436		7,962			2,733			12,027			30,158

Income (Loss) from Operations		37,214		2,452			6,776			(12,708	)		33,734
Other Income (Expense), net		623		(18	)		(27	)		36			614

Income (Loss) Before Income Taxes	$	37,837	$	2,434		$	6,749		$	(12,672	)	$	34,348


Transactions with Related Parties:
Revenue	$	92,283	$	147		$	10,054		$	—		$	102,484

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	846		$	846


	Six Months Ended June 30, 2010
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue	$	75,047		$	39,936		$	24,459		$	(7,121	)	$	132,321
Cost of Revenue		48,205			28,702			13,316			(6,494	)		83,729

Gross Profit		26,842			11,234			11,143			(627	)		48,592
Selling, General and Administrative Expenses		5,927			8,162			2,430			8,026			24,545

Income (Loss) from Operations		20,915			3,072			8,713			(8,653	)		24,047
Other Income (Expense), net		(38	)		(29	)		(21	)		56			(32	)

Income (Loss) Before Income Taxes	$	20,877		$	3,043		$	8,692		$	(8,597	)	$	24,015


Transactions with Related Parties:
Revenue	$	55,984		$	76		$	8,975		$	—		$	65,035

Selling, General and Administrative Expenses	$	—		$	—		$	—		$	588		$	588

Mortgage Services

The following table presents our results of operations for our Mortgage Services segment for the three and six months ending June 30:


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Service Revenue	$	45,513		$	31,001			47		$	88,853		$	54,714			62
Reimbursable Expenses		18,689			10,367			80			33,757			18,249			85
Cooperative Non-controlling Interest		1,305			1,297			1			2,604			2,084			25

Total Revenue		65,507			42,665			54			125,214			75,047			67
Cost of Revenue		43,544			26,912			(62	)		80,564			48,205			(67	)

Gross Profit		21,963			15,753			39			44,650			26,842			66

Gross Profit/Service Revenue		48	%		51	%					50	%		49	%

Selling, General and Administrative Expenses		2,853			3,484			18			7,436			5,927			(26	)

Income from Operations	$	19,110		$	12,269			56		$	37,214		$	20,915			80


Income from Operations/Service Revenue		42	%		40	%					42	%		38	%

Transactions with Related Parties Included Above:
Revenue	$	48,473		$	31,222			55		$	92,283		$	55,984			65

N/M — not meaningful.

Our Mortgage Services segment continues to be the primary driver of growth for both year to date and second quarter results. As previously discussed, in 2011 we reorganized our reporting structure in that certain services that were originally part of Component Services and Other are now classified as part of Customer Relationship Management in our Financial Services segment.

Through July 2011, we fulfilled our funding requirements and have provided $15.0 million in total to Correspondent One. Correspondent One is expected to partner with Ocwen and members of Lenders One to provide additional avenues for members to sell loans beyond Lenders One’s preferred investor arrangements and the members own network of loan buyers. We anticipate this will result in improved capital markets execution for the members and facilitate the sale of our services to the members.

The growth in Mortgage Services was due to the development of mortgage and real estate portfolio services and growth in the loan portfolio serviced by Ocwen. On average, Ocwen serviced 466,353 loans for the six months ended June 30, 2011 compared to 359,146 for the six months ended June 30, 2010. The growth in loans was principally driven by Ocwen’s acquisition of the HomEq portfolio which boarded in September 2010. Assuming Ocwen completes the acquisition of the Litton portfolio, we expect Ocwen to board at least an additional 200,000 loans principally impacting our results beginning in the fourth quarter.

Sequentially, Service Revenue increased $2.2 million or 5%. This growth was driven by our new insured title agency operations and seasonally improving REO brokerage commissions. These increases were partially offset by a decline in our title search and default management services operations which are dependent upon foreclosure referrals. We expect to continue to ramp up the title insurance agency and, to a lesser extent, our origination services through the balance of the year.

Although we believe the development of origination services is important to balancing our service offerings, it will require a significant investment in personnel, technology and management to ensure we can perform these services in-line with customer expectations. When appropriate, we will consider small complementary acquisitions similar in nature to the recent acquisition of Springhouse to facilitate the growth of origination services. Although we will continue to leverage our global delivery model and our experience with technological based solutions, econometrics and behavioral science, these investments could limit our ability to significantly expand Mortgage Services margins, calculated based upon Service Revenue, during 2011.

Revenue


	Three Months Ended June 30,							Six Months Ended June 30,
					%							%
(in thousands)	2011		2010		Better/(worse)			2011		2010		Better/(worse)

Service Revenue:
Asset Management Services	$	14,535	$	8,754		66		$	26,841	$	14,721		82
Origination Management Services		4,027		3,397		19			8,313		5,886		41
Residential Property Valuation		10,185		7,576		34			20,069		14,156		42
Closing and Title Services		10,111		6,091		66			19,492		11,344		72
Default Management Services		6,655		5,183		28			14,138		8,607		64

Total Service Revenue		45,513		31,001		47			88,853		54,714		62

Reimbursable Expenses:
Asset Management Services		17,764		9,759		82			31,645		17,128		85
Default Management Services		925		535		73			2,112		1,048		102
Closing and Title Services		—		73		(100	)		—		73		(100	)

Total Reimbursable Expenses		18,689		10,367		80			33,757		18,249		85

Non-controlling Interests:		1,305		1,297		1			2,604		2,084		25

Total Revenue	$	65,507	$	42,665		54		$	125,214	$	75,047		67


Transactions with Related Parties:
Asset Management Services	$	32,260	$	18,470		75		$	58,486	$	31,849		84
Residential Property Valuation		9,543		7,438		28			19,200		13,453		43
Closing and Title Services		3,832		3,562		8			8,583		7,390		16
Default Management Services		2,838		1,752		62			6,014		3,292		83

Total	$	48,473	$	31,222		55		$	92,283	$	55,984		65

N/M — not meaningful.

In our Mortgage Services segment, we generate the majority of our Revenue by providing outsourced services that span the lifecycle of a mortgage loan primarily for Ocwen or with respect to the loan portfolio serviced by Ocwen. In addition to our relationship with Ocwen, we have longstanding relationships with some of the leading capital markets firms, commercial banks, hedge funds, insurance companies, credit unions and lending institutions.

Asset Management Services. Asset Management Services principally include property preservation, property inspection, REO asset management and REO brokerage. In the first quarter of 2010, we completed our national network for property preservation services and, including our real estate broker referral network, have coverage nationally for REO dispositions. The completion of the national network of our services, coupled with the increase in Ocwen’s loan portfolio, are the reasons for the significant growth compared to the prior year period. Sequentially, Service Revenue for this segment increased primarily as a result of the increase in REO properties sold due to the seasonal nature of home sales when compared to first quarter 2011.

Origination Management Services. Origination Management Services includes MPA and our developing fulfillment business. The increase year over year is principally due to the inclusion of MPA’s results for an entire period in 2011 as compared to a partial period in 2010 from the date of acquisition. Sequentially, Revenue declined as a result of a reduction in the volume of loans sold through preferred investor agreements as well as a general decline in the loan origination market which, although expected, impacted MPA’s results. For the six months ended June 30, 2011, MPA added 18 members (12 members in the second quarter) and as of June 30, 2011 had 190 members.

Residential Property Valuation. The increase in both year to date and second quarter as compared to the same periods in the prior year was as a result of Ocwen’s residential loan portfolio growth. Sequentially, Revenue increased slightly principally due to our acquisition of Springhouse.

Closing and Title Services. During 2010, we began to roll out our title agency business in key markets. In December 2010, we obtained agency status in California. During 2011, we are focused on increasing our referral capture rate in our operational states and rolling out insured title services nationwide, similar to what we accomplished with our title search and asset management businesses in 2010. The continued focus on completing the rollout drove the year over year increase. Sequentially, Revenue increased as we continue to expand our insured title agency offerings sufficient enough to offset declines in default title search.

Default Management Services. We provide non-legal back-office support for foreclosure, bankruptcy and eviction attorneys as well as foreclosure trustee services. The increase in both periods as compared to the same periods in 2010 was a result of our continued rollout of a national platform as well as Ocwen’s servicing portfolio growth. Sequentially, we saw a decrease in Revenue primarily due to a decrease in foreclosure referrals to the attorneys we provide services to and our trustee business.

Cost of Revenue


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Expenditures	$	11,005		$	7,183			(53	)	$	19,282		$	12,056			(60	)
Outside Fees and Services		13,850			9,362			(48	)		27,525			17,900			(54	)
Reimbursable Expenses		18,689			10,367			(80	)		33,757			18,249			(85	)


Cost of Revenue	$	43,544		$	26,912			(62	)	$	80,564		$	48,205			(67	)

Gross Margin Percentage:
Gross Profit / Service Revenue		48	%		51	%					50	%		49	%

Expenditures, which consists primarily of compensation and technology costs, increased in both periods as compared to the same periods in 2010 due to the growth in default oriented mortgage services. Sequentially, expenditures increased principally as a result of employee costs to support the roll-out of our title agency operations, development of origination services and hiring of employees to support expected growth. We would expect expenditures to continue to increase in the third quarter as we prepare for the anticipated referrals from the boarding of the Litton portfolio by Ocwen.

Outside fees and services increased over the prior year period due to the increase in default oriented services for the periods presented. Sequentially, outside fees and services was essentially flat. We anticipate outside fees and services to increase in the third quarter as we expand our retail valuation and title agency offerings.

Several factors impact our gross margins from period to period including seasonality, the mix of services delivered, timing of investments in new services and the timing of when loans are boarded by our customers. Sequentially, our gross margin decreased principally as a result of increased compensation and technology costs, particularly related to our title agency and origination services under development.

Selling, General and Administrative Expenses


	Three Months Ended June 30,								Six Months Ended June 30,
							%								%
(in thousands)	2011			2010			Better/(worse)		2011			2010			Better/(worse)

Total Selling, General and Administrative Expenses	$	2,853		$	3,484			18	$	7,436		$	5,927			(26	)

Operating Percentage:
Income from Operations/Service Revenue		42	%		40	%				42	%		38	%

Selling, General and Administrative Expenses increased over both periods principally due to the exponential growth in the segment which required investments in facilities, technology and other general and administrative costs. Sequentially, Selling, General and Administrative Expenses declined as a result of reduced reserves for bad debt, reversal of stock compensation expense due to the departure of certain executives and lower expenses for professional services. As this segment continues to grow, we should see continued leverage resulting in increased margins.

Financial Services

The following table presents our results of operations for our Financial Services segment for the three and six months ending June 30:


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Service Revenue	$	17,213		$	19,117			(10	)	$	36,133		$	38,514		$	(6	)
Reimbursable Expenses		770			774			(1	)		1,343			1,422			(6	)

Total Revenue		17,983			19,891			(10	)		37,476			39,936			(6	)

Cost of Revenue		13,574			14,176			4			27,062			28,702			6

Gross Profit		4,409			5,715			(23	)		10,414			11,234			(7	)

Gross Profit/Service Revenue		26	%		30	%					29	%		29	%
Selling, General and Administrative Expenses		3,502			4,062			14			7,962			8,162			3

Income from Operations	$	907		$	1,653			(45	)	$	2,452		$	3,072			(20	)


Income from Operations/Service Revenue		5	%		9	%					7	%		8	%

Transactions with Related Parties Above:
Revenue	$	118		$	25			N/M		$	147		$	76			93

N/M — not meaningful.

As discussed above, Customer Relationship Management now includes certain services that were originally recorded as part of Mortgage Services.

Financial Services revenue declined in both periods as compared to the same periods in 2010 due to a decline in Revenue from one of the segment’s largest customers. The decline was in part a result of the client shifting work to the Company’s global delivery platform which resulted in lower revenue although at higher margins. This decline was partially offset by growth in new asset recovery management accounts and growth in customer relationship management revenues. Sequentially, Revenue declined $1.5 million, or 8%, primarily due to the seasonality of collections which are usually higher in the first quarter and a short-term customer relationship management assignment that was completed in the first quarter.

Our new leadership team is focused on disciplined floor management and cost containment as well as improving the analytics to determine which accounts to contact, what offer to make and what to say. In addition, we are focused on delivering more services over our global delivery platform, expanding our quality initiatives and investing in new technology. We expect limited revenue growth in this segment and instead will be focused on the performance of our collectors, which should facilitate future margin improvement.

In July 2011, we purchased the assembled workforce of a sub-contractor in India for $2.4 million that performed asset recovery services. For the periods presented, the costs paid to the sub-contractor were included as a component of Outside Fees and Services. In future periods, the costs will be recorded as employee costs, technology or occupancy which will result in some movement between Cost of Revenue and Selling, General and Administrative Expense categories.

Revenue


	Three Months Ended June 30,							Six Months Ended June 30,
					%							%
(in thousands)	2011		2010		Better/(worse)			2011		2010		Better/(worse)

Service Revenue:
Asset Recovery Management	$	9,538	$	11,801		(19	)	$	20,442	$	23,973		(15	)
Customer Relationship Management		7,675		7,316		5			15,691		14,541		8

Total Service Revenue		17,213		19,117		(10	)		36,133		38,514		6


Reimbursable Expenses:
Asset Recovery Management		770		774		(1	)		1,343		1,422		(6	)

Total Reimbursable Expenses		770		774		(1	)		1,343		1,422		(6	)


Total Revenue	$	17,983	$	19,891		(10	)	$	37,476	$	39,936		(6	)


Transactions with Related Parties:
Asset Recovery Management	$	118	$	25		N/M		$	147	$	76		93

N/M — not meaningful.

In our Financial Services segment, we generate the majority of our revenue from asset recovery management fees we earn for collecting amounts due to our customers and from fees we earn for performing customer relationship management for our customers.

Asset Recovery Management. Our revenue associated with contingency collections declined in both periods when compared to the same periods in 2010 due to a decline in revenue from one of the segment’s largest customers. The decline was in part a result of the client shifting work to the Company’s global delivery platform which resulted in lower revenue although generally at higher margins. In general, we have seen improved performance of our collectors which we believe will translate into better placements in the future should such performance continue.

Customer Relationship Management. Our revenue associated with customer relationship management increased in both periods as compared to the same periods in 2010 as a result of increased services to two key customers. Sequentially, Revenue decreased due to a temporary increase in staffing during the first quarter for one of our customers.

Cost of Revenue


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Expenditures	$	8,788		$	9,431			7		$	17,806		$	19,398			8
Outside Fees and Services		4,016			3,971			(1	)		7,913			7,882			N/M
Reimbursable Expenses		770			774			1			1,343			1,422			6


Cost of Revenue	$	13,574		$	14,176			4		$	27,062		$	28,702			6


Gross Margin Percentage:
Gross Profit/Service Revenue		26	%		30	%					29	%		29	%

N/M — not meaningful.

Our gross margin declined sequentially to 26% as a result of the decrease in revenue as Cost of Revenue was essentially flat for the first and second quarter of 2011. When compared to the prior year, expenditures declined principally as a result of lower employee costs as we expanded the use of our global delivery footprint.

Selling, General and Administrative Expenses


	Three Months Ended June 30,								Six Months Ended June 30,
							%								%
(in thousands)	2011			2010			Better/(worse)		2011			2010			Better/(worse)

Total Selling, General and Administrative Expenses	$	3,502		$	4,062			14	$	7,962		$	8,162			3


Operating Percentage:
Income from Operations/Service Revenue		5	%		9	%				7	%		8	%

Selling, General and Administrative Expenses decreased compared to the prior year principally as a result of reduced legal costs. Sequentially, Selling, General and Administrative Expenses declined when compared to the first quarter as a result of decreased legal expenses and a release of reserves associated with a vendor matter satisfactorily resolved.

Technology Services

The following table presents our results of operations for our Technology Services segment for the three and six months ending June 30:


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Revenue	$	13,572		$	12,485			9		$	26,288		$	24,459			8
Cost of Revenue		9,334			6,669			(40	)		16,779			13,316			(26	)

Gross Profit		4,238			5,816			(27	)		9,509			11,143			(15	)

Gross Profit/Service Revenue		31	%		47	%					36	%		46	%
Selling, General and Administrative Expenses		1,537			1,324			(16	)		2,733			2,430			(13	)

Income from Operations	$	2,701		$	4,492			(40	)	$	6,776		$	8,713			(22	)


Income from Operations/Service Revenue		20	%		36	%					26	%		36	%

Transactions with Related Parties Above:
Revenue	$	5,103		$	4,537			13		$	10,054		$	8,975			12

The primary focus of the Technology Services segment today is to support the growth of Mortgage Services and Ocwen. In addition, Technology Services is assisting in the cost reduction and quality initiatives on-going within the Financial Services segment. In 2011, we intend to expend significant resources, principally personnel costs and external consulting costs to accomplish three key objectives:

•

The re-architecture and enhancement of our REALSuite of services;

•

The deployment of business process management and business intelligence reporting systems to more effectively manage our operations; and

•

The development and early stage incubation of technology solutions principally based on patented technologies.

Effective January 1, 2011, we modified our pricing for IT Infrastructure Services within our Technology Services segment from a model based principally on headcount to a fully loaded costs plus mark-up methodology. This new model applies to the infrastructure amounts charged to Ocwen as well as internal allocations of infrastructure costs.

Revenue


	Three Months Ended June 30,						Six Months Ended June 30,
					%						%
(in thousands)	2011		2010		Better/(worse)		2011		2010		Better/(worse)

Service Revenue:
REALSuite	$	8,275	$	7,565		9	$	16,431	$	14,551		13
IT Infrastructure Services		5,297		4,920		8		9,857		9,908		(1	)

Total Revenue	$	13,572	$	12,485		9	$	26,288	$	24,459		8


Transactions with Related Parties:
REALSuite	$	3,008	$	2,653		13	$	6,013	$	5,208		16
IT Infrastructure Services		2,095		1,884		11		4,041		3,767		7

Revenue	$	5,103	$	4,537		13	$	10,054	$	8,975		12

REALSuite. Our REALSuite revenue is primarily driven by our REALServicing^® product which is our comprehensive residential loan servicing platform. The primary driver for the growth in revenue is the increase in Ocwen’s residential loan portfolio.

IT Infrastructure Services. Our IT infrastructure services revenue declined when compared to the comparable period in 2010 almost entirely due to our change in pricing for infrastructure services. Sequentially, revenue increased given the increased headcount both internally and at Ocwen. The mark-ups are based upon economic studies performed generally consistent with our transfer pricing methodology.

Cost of Revenue


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Cost of Revenue	$	9,334		$	6,669			(40	)	$	16,779		$	13,316			(26	)

Gross Margin Percentage:
Gross Profit / Total Revenue		31	%		47	%					36	%		46	%

Our gross margin declined to 36% for the six months ended June 30, 2011 as we now report our Consumer Analytics group within Technology Services during 2011. Our Consumer Analytics group seeks to expand our use of behavioral sciences by building proprietary algorithms and psychologically-optimized communications through a customized technology platform. In addition, we have seen an increase in licensing fees given the increase in personnel both at Ocwen and Altisource.

Selling, General and Administrative Expenses


	Three Months Ended June 30,									Six Months Ended June 30,
							%									%
(in thousands)	2011			2010			Better/(worse)			2011			2010			Better/(worse)

Total Selling, General and Administrative Expenses	$	1,537		$	1,324			(16	)	$	2,733		$	2,430			(13	)

Operating Percentage:
Operating Income / Total Revenue		20	%		36	%					26	%		36	%

Selling, General and Administrative Expenses increased slightly primarily due to higher occupancy charges. Margins principally decreased as a result of the increase in Cost of Revenue as previously described.

Corporate

Our Corporate Segment includes costs recognized by us related to corporate support functions such as finance, legal, human resources, compliance and quality assurance.


	Three Months Ended June 30,							Six Months Ended June 30,
					%							%
(in thousands)	2011		2010		Better/(worse)			2011		2010		Better/(worse)

Total Selling, General and Administrative Expenses	$	6,012	$	3,606		(67	)	$	12,027	$	8,026		(50	)

Corporate costs rose throughout 2010 as we invested in staff to support our growing operations.

During 2011, we hired additional resources principally focused on legal, compliance and quality assurance. In addition, lease costs increased related to the build out of new facilities to support the growth we expect from Ocwen’s acquisition of the Litton portfolio. Typically we include new leases costs within Corporate until the facility is put into use at which time the prospective lease cost is included within the appropriate segment. Lastly, we continue to invest in an enterprise resource planning system that we expect will increase the quality of our support functions and over time reduce costs. When compared to the first quarter, corporate costs were flat.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We seek to deploy excess cash generated in a disciplined manner. Principally, we will continue to invest in compelling services that we believe will generate high margins. In addition, we may seek to acquire a limited number of complementary companies that fit our strategic objectives. Finally, given the tax inefficiency of dividends, the low returns earned on cash held and our current belief to pursue a limited number of acquisitions, we believe one of the best ways to return value to shareholders is a stock repurchase program.

In May, 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market. Through June 30, 2011, we purchased 1.0 million shares of our common stock on the open market at an average price of $28.51, leaving 2.8 million shares still available for purchase.

Cash Flows

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


	Six Months Ended June 30,
							%
(dollars in thousands)	2011			2010			Better/(worse)

Net Income Adjusted for Non-Cash Items	$	40,238		$	33,331			21
Working Capital		(2,076	)		(8,989	)		77

Cash Flow from Operating Activities		38,162			24,342			57
Cash Flow from Investing Activities		(8,709	)		(31,051	)		72
Cash Flow from Financing Activities		(16,555	)		(2,907	)		N/M

Net Change in Cash		12,898			(9,616	)		234
Cash at Beginning of Period		22,134			30,456			(27	)

Cash at End of Period	$	35,032		$	20,840			68

N/M — Not meaningful.

Cash Flow from Operating Activities

Cash flow from operating activities consists of two components: (i) net income adjusted for depreciation, amortization and certain other non-cash items and (ii) working capital. In 2011, we generated $38.2 million in positive cash flow from operations or approximately $0.26 per every dollar of Service Revenue. This primarily reflects our profitability adjusted for non-cash items in the period as a result of our year-over-year growth in mortgage related services partially offset by an increase in working capital requirements.

Cash Flow from Investing Activities

During the six months ended June 30, 2011, we invested approximately $3.3 million in Correspondent One to facilitate the establishment of this business. In addition, in the second quarter 2011, we acquired Springhouse for $1.8 million. We currently expect capital expenditures in 2011 to be higher than 2010 levels as we ramp up our development costs related to REALSuite. Our current estimate of capital expenditures for the full year is $16 to $18 million. Our cash flow from investing activities in 2010 includes the acquisition of MPA for which the purchase consideration included $29.0 million in cash.

Cash Flow from Financing Activities

Cash flow from financing activities in 2011 primarily includes activity associated with stock option exercises, share repurchases and payments to non-controlling interests as a result of the acquisition of MPA. We utilized significantly more cash in 2011 from financing activities as a result of our stock repurchase program.

Liquidity Requirements after June 30, 2011

In July 2011, we paid $12.0 million to fund our remaining commitment to Correspondent One and a net amount of $0.7 million to a sub-contractor to terminate the existing arrangement and acquire an in-place workforce of approximately 600 persons. During the third quarter, we expect to distribute $1.3 million to the Lenders One members representing non-controlling interests.

Management is not aware of any other trends or events, commitments or uncertainties which have not otherwise been disclosed that will or are likely to impact liquidity in a material way.

Capital Resources

Given our ability to generate cash flow which is sufficient to fund current operations as well as expansion activities, we require very limited capital. Were we to need additional capital, we believe we have adequate access to both debt and equity capital markets.

Contractual Obligation, Commitments and Contingencies

For the six months ended June 30, 2011, there were no significant changes to our contractual obligations from those identified in our Form 10-K for the fiscal year ended December 31, 2010, other than those which occur in the normal course of business (primarily the addition of operating leases due to our growth). See also Note 13 to the condensed consolidated financial statements for additional information on commitments and contingencies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

Our critical accounting policies are described in the MD&A section in our Form 10-K for the year ended December 31, 2010. Such policies have not changed during the quarter ended June 30, 2011.

OTHER MATTERS

Related Party — Ocwen

For the six months ended June 30, 2011, approximately $92.3 million of the Mortgage Services ($48.5 million for the second quarter), $0.1 million ($0.1 million for the second quarter) of the Financial Services and $10.1 million ($5.1 million for the second quarter) of the Technology Service segment revenue were from services provided to Ocwen or sales derived from Ocwen’s loan servicing portfolio. Services provided to Ocwen included residential property valuation, real estate asset management and sales, trustee management services, property inspection and preservation, closing and title services, charge-off second mortgage collections, core technology back office support and multiple business technologies including our REALSuite of products. We provided all services at rates we believe to be comparable to market rates.


Item 3.		Quantitative and Qualitative Disclosures about Market Risk.

Our financial market risk consists primarily of foreign currency exchange risk. We are exposed to foreign currency exchange rate risk in connection with our investment in non-U.S. dollar functional currency operations, which are very limited, to the extent that our foreign exchange positions remain un-hedged.


Item 4.		Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ending June 30, 2011, 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.

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


Item 1A.		Risk Factors.

As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Form 10-K for the year ended December 31, 2010.


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

Equity Securities purchased by us

The following table presents information related to our repurchases of our equity securities during the three months ended June 30, 2011:

Total number

Maximum

of shares

number

purchased as

of shares that

part of

may

publicly

yet be

Total

Weighted

announced

purchased

number of

average

plans

under the

price paid

plans or

Period

purchased

per share

programs⁽¹⁾

programs

Common shares^(1):

April 1 — 30, 2011

32,334

30.68

32,334

2,864,374

May 1 — 31, 2011

119,841

32.83

119,841

2,744,533

June 1 — 30, 2011

—

2,744,533

Total common shares

152,175

32.37

152,175

2,744,533


⁽¹⁾		In the second quarter of 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market.


Item 3.		Defaults upon Senior Securities. None


Item 4.		(Removed and Reserved)


Item 5.		Other Information. None


Item 6.		Exhibits.


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

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

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

	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 June 30, 2011, is formatted in XBRL interactive data files: (i) Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010; (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010; (iii) Condensed Consolidated Statements of Equity for the six months ended June 30, 2011 and 2010; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010; and (iv) Notes to Condensed Consolidated Financial Statements (As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Act of 1934)

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: July 28, 2011	By:	/s/ Robert D. Stiles
		Robert D. Stiles
		Chief Financial Officer (On behalf of the Registrant and as its principal financial officer)