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

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

+352 2469 7900
Registrant’s telephone number

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 October 15, 2011, there were 23,850,249 outstanding shares of the registrant’s shares of beneficial interest (excluding 1,562,499 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 — Acquisitions		9

Note 4 — Accounts Receivable, Net		11

Note 5 — Prepaid Expenses and Other Current Assets		12

Note 6 — Premises and Equipment, Net		12

Note 7 — Goodwill and Intangible Assets, Net		13

Note 8 — Investment in Equity Affiliate		14

Note 9 — Other Non-current Assets		14

Note 10 — Accounts Payable, Accrued Expenses and Other Current Liabilities		15

Note 11 — Stock Based Compensation		16

Note 12 — Cost of Revenue		17

Note 13 — Selling, General and Administrative Expenses		18

Note 14 — Other Income (Expense), Net		18

Note 15 — Earnings Per Share		19

Note 16 — Commitments and Contingencies		19

Note 17 — Segment Reporting		19

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 3 Quantitative and Qualitative Disclosures about Market Risk		42

Item 4 Controls and Procedures		42

PART II — Other Information

Item 1 Legal Proceedings		43

Item 1A Risk Factors		43

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 3 Defaults Upon Senior Securities		43

Item 4 (Removed and Reserved)		43

Item 5 Other Information		43

Item 6 Exhibits		44

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)


	September 30,			December 31,
	2011			2010

ASSETS
Current Assets:
Cash and Cash Equivalents	$	21,250		$	22,134
Accounts Receivable, net		50,239			53,495
Prepaid Expenses and Other Current Assets		6,793			13,076
Deferred Tax Asset, net		2,328			551

Total Current Assets		80,610			89,256

Restricted Cash		1,222			1,045
Premises and Equipment, net		22,626			17,493
Deferred Tax Asset, net		—			1,206
Intangible Assets, net		67,066			72,428
Goodwill		14,915			11,836
Investment in Equity Affiliate		14,645			—
Other Non-current Assets		8,645			4,536

Total Assets	$	209,729		$	197,800


LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses	$	33,697		$	35,384
Capital Lease Obligations — Current		643			680
Other Current Liabilities		8,151			5,616

Total Current Liabilities		42,491			41,680

Capital Lease Obligations — Non-current		345			852
Deferred Tax Liability, net		539			—
Other Non-current Liabilities		2,679			3,370

Commitment and Contingencies

Equity:
Common Stock ($1.00 par value; 100,000 shares authorized; 25,413 shares issued and 23,979 outstanding in 2011; 25,413 shares issued and 24,881 outstanding in 2010)		25,413			25,413
Retained Earnings		100,984			58,546
Additional Paid-in-Capital		81,406			79,297
Treasury Stock, at cost ($1.00 par value; 1,434 and 532 shares in 2011 2010, respectively)		(46,171	)		(14,418	)

Altisource Equity		161,632			148,838

Non-controlling Interests		2,043			3,060

Total Equity		163,675			151,898


Total Liabilities and Equity	$	209,729		$	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						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010

Revenue	$	109,793		$	77,580		$	291,731		$	209,901
Cost of Revenue		73,339			48,913			191,385			132,642


Gross Profit		36,454			28,667			100,346			77,259
Selling, General and Administrative Expenses		15,329			14,730			45,487			39,275


Income from Operations		21,125			13,937			54,859			37,984

Other Income (Expense), net		(320	)		698			294			666


Income Before Income Taxes and Non-controlling Interests		20,805			14,635			55,153			38,650
Income Tax Provision		(1,843	)		(2,751	)		(5,377	)		(2,029	)


Net Income		18,962			11,884			49,776			36,621

Net Income Attributable to Non-controlling Interests		(1,791	)		(2,052	)		(4,395	)		(4,136	)


Net Income Attributable to Altisource	$	17,171		$	9,832		$	45,381		$	32,485


Earnings Per Share:
Basic	$	0.71		$	0.39		$	1.84		$	1.30

Diluted	$	0.67		$	0.37		$	1.76		$	1.24


Weighted Average Shares Outstanding:
Basic		24,341			25,318			24,602			25,080

Diluted		25,489			26,544			25,720			26,168


Transactions with Related Parties Included Above:
Revenue	$	63,827		$	39,459		$	166,311		$	104,494
Selling, General and Administrative Expenses	$	506		$	223		$	1,352		$	811

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		—		—		32,485			—		—			4,136			36,621		$	36,621
Acquisition of MPA		959		959		—			22,941		—			3,268			27,168			—
Contributions from Non-controlling Interest Holders		—		—		—			—		—			28			28			—
Distributions to Non-controlling Interest Holders		—		—		—			—		—			(5,207	)		(5,207	)		—

Share-based Compensation Expense		—		—		—			2,134		—			—			2,134			—
Exercise of Stock Options		298		298		—			2,708		—			—			3,006			—
Delivery of Vested Restricted Stock		11		11		—			—		—			—			11			—
Repurchase of Shares		—		—		—			—		(2,311	)		—			(2,311	)		—

Balance, September 30, 2010		25,413	$	25,413	$	44,150		$	78,321	$	(2,311	)	$	2,225		$	147,798		$	36,621


Balance, December 31, 2010		25,413	$	25,413	$	58,546		$	79,297	$	(14,418	)	$	3,060		$	151,898			—
Net Income		—		—		45,381			—		—			4,395			49,776		$	49,776
Contributions from Non-controlling Interest Holders		—		—		—			—		—			31			31			—
Distributions to Non-controlling Interest Holders		—		—		—			—		—			(5,443	)		(5,443	)		—
Share-based Compensation Expense		—		—		—			2,109		—			—			2,109			—
Exercise of Stock Options		—		—		(2,943	)		—		3,718			—			775			—
Repurchase of Shares		—		—		—			—		(35,471	)		—			(35,471	)		—

Balance, September 30, 2011		25,413	$	25,413	$	100,984		$	81,406	$	(46,171	)	$	2,043		$	163,675		$	49,776

See accompanying notes to condensed consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Nine Months Ended
	September 30,
	2011			2010
Cash Flows from Operating Activities:
Net Income	$	49,776		$	36,621
Reconciling Items:
Depreciation and Amortization		6,174			5,015
Amortization of Intangible Assets		3,952			4,089
Share-based Compensation Expense		2,109			2,134
Equity in Losses of Affiliate		355			—
Bad Debt Expense		999			988
Deferred Income Taxes		(32	)		(1,040	)
Changes in Operating Assets and Liabilities, net of Acquisitions:
Accounts Receivable		2,546			(14,019	)
Prepaid Expenses and Other Current Assets		5,066			(1,464	)
Other Assets		(4,109	)		(2,594	)
Accounts Payable and Accrued Expenses		71			1,422
Other Current and Non-current Liabilities		1,844			2,109


Net Cash Flows from Operating Activities		68,751			33,261


Cash Flows from Investing Activities:
Additions to Premises and Equipment		(11,291	)		(8,135	)
Acquisition of Business, net of Cash Acquired		(2,515	)		(26,830	)
Investment in Equity Affiliate		(15,000	)		—
Change in Restricted Cash		(177	)		(779	)


Net Cash Flows from Investing Activities		(28,983	)		(35,744	)


Cash Flows from Financing Activities:
Principal Payments on Capital Lease Obligations		(544	)		(463	)
Proceeds from Stock Option Exercises		775			3,017
Purchase of Treasury Stock		(35,471	)		(2,311	)
Contributions from Non-controlling Interests		31			28
Distributions to Non-controlling Interests		(5,443	)		(5,207	)


Net Cash Flows from Financing Activities		(40,652	)		(4,936	)


Net Increase (Decrease) in Cash and Cash Equivalents		(884	)		(7,419	)
Cash and Cash Equivalents at the Beginning of the Year		22,134			30,456


Cash and Cash Equivalents at the End of the Period	$	21,250		$	23,037


Supplemental Cash Flow Information
Interest Paid	$	65		$	—
Income Taxes (Received) Paid, net	$	(2,684	)	$	1,724

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

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., together with its subsidiaries, (which may be referred to as Altisource, the Company, we, us or our) 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 by 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 17 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 America, 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 September 30, 2011, Lenders One had total assets of $3.6 million and liabilities of less than $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) in Affiliates, net which is included in Other Income (Expense), net in the Condensed Consolidated Statements of Operations. See Note 8 for additional information.

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 for $1.8 million.

In July 2011, we acquired the assembled workforce of a sub-contractror (“Tracmail”) in India that performed asset recovery services for $2.4 million.

See Note 3 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 September 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 September 30, 2011 of $0.1 million was valued using the following assumptions:


	Assumptions

Risk-free Interest Rate		0.110% – 0.430	%
Expected Stock Price Volatility		25% – 37	%
Expected Dividend Yield		—
Expected Option Life (in years)		0.5 – 2.5
Contractual Life (in years)		—
Fair Value		$0.0 – $0.63

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 nine months ended September 30:


	Three Months Ended						Nine months Ended
	September 30,						September 30,
	2011			2010			2011			2010

Mortgage Services		71	%		70	%		73	%		73	%
Technology Services		38	%		36	%		38	%		36	%
Financial Services		<1	%		<1	%		<1	%		<1	%
Consolidated Revenue		58	%		51	%		57	%		50	%

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. The agreement was subsequently extended in August 2011 for certain services for an additional year. For the nine months ended September 30, 2011 and 2010, Altisource billed Ocwen $1.7 million and $1.2 million respectively ($0.8 million and $0.5 million for the third quarter of 2011 and 2010, respectively), and Ocwen billed Altisource $1.4 million and $0.8 million respectively ($0.5 million and $0.2 million for the third 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 — ACQUISITIONS

The results of operations of the following acquisitions have been included in our consolidated results from the respective acquisition dates. The acquisitions did not have a material effect on our financial position, results of operations or cash flows.

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

Springhouse

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.

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

Consideration for the transaction consisted of the amounts provided in the table below. The working capital amount is subject to additional revision in the fourth 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

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.

Tracmail

In July 2011, we acquired the assembled workforce of a sub-contractror in India that performed asset recovery services. Prior to acquisition, the costs paid to the sub-contractor were included in Outside Fees and Services (included in Cost of Revenue in the Condensed Consolidated Financial Statements).

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

Consideration for the transaction consisted of:


(in thousands)	Consideration

Total Consideration	$	2,378
Obligations Assumed, net		(1,648	)

Cash Consideration, net	$	730

The purchase consideration based on estimates of fair value of the assets acquired and the liabilities assumed is follows:


(in thousands)

Accounts Receivable	$	181
Goodwill		2,378

		2,559
Accounts Payable and Accrued Expenses		(1,829	)

Cash Consideration, net	$	730

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


		Estimated Life
		(in Years)

Goodwill		Indefinite

The goodwill arising from the Tracmail acquisition assigned to our Financial Services segment relates principally to in-place workforce and is expected to be amortizable and deductible for income tax purposes.

NOTE 4 — ACCOUNTS RECEIVABLE, NET

Accounts Receivable, net consists of the following:


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

Third-party Accounts Receivable	$	17,268		$	19,039
Unbilled Fees		30,564			32,055
Receivable from Ocwen		3,881			3,950
Receivable from Correspondent One		55			—
Other Receivables		548			583

		52,316			55,627
Allowance for Doubtful Accounts		(2,077	)		(2,132	)


Total	$	50,239		$	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 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid Expenses and Other Current Assets consist of the following:


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

Prepaid Expenses	$	5,954	$	5,134
Income Tax Receivable		—		7,327
Other Current Assets		839		615


Total	$	6,793	$	13,076

NOTE 6 — PREMISES AND EQUIPMENT, NET

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


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

Computer Hardware and Software	$	37,287		$	32,931
Office Equipment and Other		12,910			9,717
Furniture and Fixtures		3,628			2,226
Leasehold Improvements		6,843			4,501

		60,668			49,375
Less: Accumulated Depreciation and Amortization		(38,042	)		(31,882	)


Total	$	22,626		$	17,493

Depreciation and amortization expense, inclusive of capital lease obligations, amounted to $6.2 million and $5.0 million for the nine months ended September 30, 2011 and 2010, respectively ($2.1 million and $1.8 million for the third 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.

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

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

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


	Mortgage		Financial		Technology
(in thousands)	Services		Services		Services		Total

Balance, December 31, 2010	$	10,218	$	—	$	1,618	$	11,836
Acquisition of Springhouse		701		—		—		701
Acquisition of Tracmail		—		2,378		—		2,378


Balance, September 30, 2011	$	10,919	$	2,378	$	1,618	$	14,915

Intangible Assets, Net

Intangible Assets, net consists of the following:


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

Definite-lived Intangible
Assets
Trademarks		16	$	10,614	$	10,200	$	3,095		$	2,346	$	7,519	$	7,854
Customer Lists		19		38,366		37,700		11,677	(a)		7,447		26,689		30,253
Operating Agreement		20		35,000		35,000		2,917			1,604		32,083		33,396
Non-compete Agreement		4		1,300		1,200		525			275		775		925


Total Intangible Assets			$	85,280	$	84,100	$	18,214		$	11,672	$	67,066	$	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 $2.6 million for the nine months ended September 30, 2011. The balance of Component 2 goodwill remaining was $7.1 million as of September 30, 2011 which should generate $4.3 million of reductions of intangible assets when the benefit can be realized for U.S. tax purposes.

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

Amortization expense for definite lived intangible assets was $4.0 million and $4.1 million for the nine months ended September 30, 2011 and 2010, respectively ($1.3 million and $1.4 million for the third 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 8 — INVESTMENT IN EQUITY AFFILIATE

Correspondent One S.A. (“Correspondent One”) facilitates the purchase of closed conforming and government guaranteed residential mortgages from approved mortgage bankers. Correspondent One provides members of Lenders One additional avenues to sell loans beyond Lenders One’s preferred investor arrangements and the members’ own network of loan buyers. We have significant influence over the general operations of Correspondent One consistent with our 49% ownership level and therefore account for our investment under the equity method. We have no additional funding commitments to Correspondent One.

Correspondent One is in the initial phases of building its operations and therefore is expected to operate at a loss into 2012. The Net loss on this investment using the equity method was $0.4 million for the nine months ended September 30, 2011 (all in the third quarter). The following table presents summarized financial information for Correspondent One which had no revenues as of September 30^th as no loans were sold:


	Nine Months Ended
(in thousands)	September 30, 2011

Net loss	$	(729	)

	September 30, 2011
Current Assets	$	30,239
Current Liabilities		217
Equity		30,022

NOTE 9 — OTHER NON-CURRENT ASSETS

Other Non-Current Assets consists of the following:


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

Security Deposits	$	6,871	$	3,047
Unbilled Fees		1,734		1,449
Other		40		40


Total	$	8,645	$	4,536

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

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

Accounts Payable and Accrued Expenses consists of the following:


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

Accounts Payable	$	3,549	$	5,960
Accrued Expenses — General		12,859		11,189
Accrued Salaries and Benefits		13,278		12,010
Income Taxes Payable		1,685		3,807
Payable to Ocwen		2,326		2,418


Total	$	33,697	$	35,384

Other Current Liabilities consists of the following:


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

Deferred Revenue	$	2,198	$	2,542
Facility Closure Cost Accrual, Current Portion		129		253
Collections Due to Clients		672		726
Other		5,152		2,095


Total	$	8,151	$	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 nine months ended September 30, 2011:


(in thousands)	Lease Costs

Balance, December 31, 2010	$	672
Payments		(181	)

Balance, September 30, 2011		491
Less: Long-Term Portion		362


Facility Closure Cost Accrual, Current Portion	$	129

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

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

NOTE 11 — STOCK BASED COMPENSATION

We have issued stock-based awards in the form of stock options for certain employees and officers. We recorded total stock compensation expense of $2.1 million both for the nine months ended September 30, 2011 and 2010 ($0.7 million and $1.2 million for the third quarter of 2011 and 2010, respectively). The compensation expense is principally included in Selling, General and Administrative Expenses in the accompanying 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 September 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 September 30, 2011.

The Company granted 0.2 million stock options (at an average price of $33.15) and 0.9 million stock options (at an average price of $23.54) during the nine months ended September 30, 2011 and 2010, respectively.

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:


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

Risk-free Interest Rate		1.69%–1.93	%		0.04%–3.03	%		2.82%–3.20	%		0.02%–3.66	%

Expected Stock Price Volatility		48	%		55.70%–55.80	%		48	%		52	%
Expected Dividend Yield		—			—			—			—

Expected Option Life (in years)		6.25			—			7			—
Contractual Life (in years)		—			14			—			10

Fair Value	$	16.33–$17.85		$	16.91–$20.39		$	11.71–$13.00		$	10.05–$12.35

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


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

Weighted-Average Fair Value at Date of Grant Per Share	$	17.66	$	11.60
Intrinsic Value of Options Exercised	$	4,193	$	5,024
Fair Value of Options Vested	$	2,240	$	208

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

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

As of September 30, 2011, estimated unrecognized compensation costs related to share-based payments amounted to $7.7 million which we expect to recognize over a weighted-average remaining requisite service period of approximately 3.2 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		181,000			33.15
Exercised		(206,661	)		11.36
Forfeited		(155,579	)		24.52

Outstanding at September 30, 2011		3,270,373		$	14.15		6.9	$	69,546


Exercisable at September 30, 2011		1,453,964		$	10.27		5.9	$	36,522

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 September 30, 2011, we have purchased 1.7 million shares of our common stock on the open market at an average price of $31.02, leaving 2.1 million shares still available for purchase under the program.

NOTE 12 — 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 September 30, 2011 and 2010:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2011		2010		2011		2010

Compensation and Benefits	$	22,497	$	15,829	$	59,296	$	45,519
Outside Fees and Services		21,528		15,311		57,221		41,092
Expense Reimbursements		21,834		13,369		56,934		33,040
Technology and Communications		5,904		3,198		13,439		8,845
Depreciation and Amortization		1,576		1,206		4,495		4,146


Total	$	73,339	$	48,913	$	191,385	$	132,642

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

NOTE 13 — 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 September 30, 2011 and 2010:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2011		2010		2011		2010

Compensation and Benefits	$	5,530	$	5,250	$	17,275	$	13,255
Professional Services		1,479		1,812		4,636		5,869
Occupancy Related Costs		4,449		4,137		12,008		9,978
Amortization of Intangible Assets		1,339		1,450		3,952		4,089
Depreciation and Amortization		483		598		1,679		869
Other		2,049		1,483		5,937		5,215


Total	$	15,329	$	14,730	$	45,487	$	39,275

NOTE 14 — OTHER INCOME (EXPENSE), NET

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2011			2010			2011			2010

Interest Income	$	5		$	10		$	27		$	22
Interest Expense		(20	)		(36	)		(67	)		(87	)
Change in Fair Value of Put Option		70			538			652			445
Equity Loss in Affiliates, net		(355	)		—			(355	)		—
Other, net		(20	)		186			37			286


Total	$	(320	)	$	698		$	294		$	666

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

NOTE 15 — 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 nine months ended September 30, 2011 and 2010 are calculated as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2011		2010		2011		2010

Net Income Attributable to Altisource	$	17,171	$	9,832	$	45,381	$	32,485

Weighted-Average Common Shares Outstanding, Basic		24,341		25,318		24,602		25,080
Dilutive Effect of Stock Options		1,148		1,226		1,118		1,085
Dilutive Effect of Restricted Shares		—		—		—		3

Weighted-Average Common Shares Outstanding, Diluted		25,489		26,544		25,720		26,168


Earnings Per Share
Basic	$	0.71	$	0.39	$	1.84	$	1.30

Diluted	$	0.67	$	0.37	$	1.76	$	1.24

For the three and nine months ended September 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 nine months ended September 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 nine months ended September 30, 2011 and 2010 are 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 16 — 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.

NOTE 17 — 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.

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

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 September 30, 2011
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue	$	82,170		$	17,303		$	14,827		$	(4,507	)	$	109,793
Cost of Revenue		55,106			12,676			9,700			(4,143	)		73,339

Gross Profit		27,064			4,627			5,127			(364	)		36,454
Selling, General and Administrative Expenses		4,227			4,268			756			6,078			15,329

Income (Loss) from Operations		22,837			359			4,371			(6,442	)		21,125
Other Income (Expense), net		(283	)		(9	)		(12	)		(16	)		(320	)

Income (Loss) Before Income Taxes	$	22,554		$	350		$	4,359		$	(6,458	)	$	20,805


Transactions with Related Parties:
Revenue	$	58,200		$	66		$	5,561		$	—		$	63,827

Selling, General and Administrative Expenses	$	—		$	—		$	—		$	506		$	506


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

Revenue	$	207,384	$	54,779		$	41,115		$	(11,547	)	$	291,731
Cost of Revenue		135,670		39,738			26,479			(10,502	)		191,385

Gross Profit		71,714		15,041			14,636			(1,045	)		100,346
Selling, General and Administrative Expenses		11,663		12,230			3,489			18,105			45,487

Income (Loss) from Operations		60,051		2,811			11,147			(19,150	)		54,859
Other Income (Expense), net		340		(27	)		(39	)		20			294

Income (Loss) Before Income Taxes	$	60,391	$	2,784		$	11,108		$	(19,130	)	$	55,153


Transactions with Related Parties:
Revenue	$	150,483	$	213		$	15,615		$	—		$	166,311

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	1,352		$	1,352

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


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

Revenue	$	49,523	$	18,939		$	12,963		$	(3,845	)	$	77,580
Cost of Revenue		31,383		13,870			7,239			(3,579	)		48,913

Gross Profit		18,140		5,069			5,724			(266	)		28,667
Selling, General and Administrative Expenses		3,899		4,692			1,610			4,529			14,730

Income (Loss) from Operations		14,241		377			4,114			(4,795	)		13,937
Other Income (Expense), net		687		(9	)		(24	)		44			698

Income (Loss) Before Income Taxes	$	14,928	$	368		$	4,090		$	(4,751	)	$	14,635


Transactions with Related Parties:
Revenue	$	34,765	$	34		$	4,660		$	—		$	39,459

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	223		$	223


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

Revenue	$	124,570	$	58,875		$	37,422		$	(10,966	)	$	209,901
Cost of Revenue		79,588		42,572			20,555			(10,073	)		132,642

Gross Profit		44,982		16,303			16,867			(893	)		77,259
Selling, General and Administrative Expenses		9,826		12,854			4,040			12,555			39,275

Income (Loss) from Operations		35,156		3,449			12,827			(13,448	)		37,984
Other Income (Expense), net		649		(38	)		(45	)		100			666

Income (Loss) Before Income Taxes	$	35,805	$	3,411		$	12,782		$	(13,348	)	$	38,650


Transactions with Related Parties:
Revenue	$	90,749	$	110		$	13,635		$	—		$	104,494

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	811		$	811

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 23, 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 24, provides an analysis of our consolidated results of operations for the three and nine months ended September 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 29, provides an analysis of each business segment for the three and nine months ended September 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 40, provides an analysis of our cash flows for the nine months ended September 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 improve margins;

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

	•		assumptions regarding the impact of seasonality;

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

	•		estimates regarding our reserves and valuations.

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. In 2011 we began to report our Consumer Analytics group within Technology Services. Previously this group was included in Corporate.

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 September 30, 2011, we have purchased 1.7 million shares of common stock on the open market at an average price of $31.02, leaving 2.1 million shares available for purchase under the program.

Acquisitions

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. In July 2011, we acquired the assembled workforce of a sub-contractor in India that performs asset recovery services. See Note 3 to the condensed consolidated financial statements.

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 September 30, 2011 and 2010:


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

Service Revenue	$	86,169		$	62,159			39		$	230,403		$	172,725			33
Reimbursable Expenses		21,833			13,369			63			56,933			33,040			72
Cooperative Non-controlling Interest		1,791			2,052			(13	)		4,395			4,136			6

Total Revenue		109,793			77,580			42			291,731			209,901			39

Cost of Revenue		73,339			48,913			(50	)		191,385			132,642			(44	)


Gross Profit		36,454			28,667			27			100,346			77,259			30

Gross Profit/Service Revenue		42	%		46	%					44	%		45	%

Selling, General and Administrative Expenses		15,329			14,730			(4	)		45,487			39,275			(16	)

Income from Operations		21,125			13,937			52			54,859			37,984			44

Income from Operations/Service Revenue		25	%		22	%					24	%		22	%

Other Expense, net		(320	)		698			(146	)		294			666			(56	)

Income Before Income Taxes and Non-controlling Interests		20,805			14,635			42			55,153			38,650			43
Income Tax (Provision) Benefit		(1,843	)		(2,751	)		33			(5,377	)		(2,029	)		(165	)


Net Income		18,962			11,884			60			49,776			36,621			36

Net Income Attributable to Non-controlling Interests		(1,791	)		(2,052	)		13			(4,395	)		(4,136	)		(6	)

Net Income Attributable to Altisource	$	17,171		$	9,832			75		$	45,381		$	32,485			40


Earnings Per Share
Basic	$	0.71		$	0.39			82		$	1.84		$	1.30			42

Diluted	$	0.67		$	0.37			81		$	1.76		$	1.24			42


Transactions with Related Parties:
Revenue	$	63,827		$	39,459			62		$	166,311		$	104,494			59

Selling, General and Administrative Expenses	$	506		$	223			127		$	1,352		$	811			67

We recognized $230.4 million of Service Revenue for the nine months ended September 30, 2011, a 33% increase over the prior year. For the quarter, we recognized $86.2 million of Service Revenue, a 19% increase when compared to the quarter ended June 30, 2011. This sequential growth in Service Revenue was primarily due to an increase in the fulfillment of services to properties in pre-foreclosure (e.g., valuation, pre-foreclosure inspections), seasonally higher sales of real estate owned (REO) properties and expansion of insurance services. Sequential growth in Service Revenue for Technology Services improved due to Ocwen’s acquisition of the Litton platform and completion of certain development projects. The decline for Financial Services was principally due to seasonality.

We recognized $45.4 million in Income Attributable to Altisource or $1.76 per diluted share, for the nine months ended September 30, 2011, a 42% increase in diluted earnings per share over the same period in 2010. For the quarter, Income Attributable to Altisource was $17.2 million or $0.67 per diluted share, a 29% increase in diluted earnings per share when compared to the quarter ended June 30, 2011.

Gross margin for the quarter remained flat when compared to the quarter ended June 30, 2011 as the increase in gross margin attributable to Technology Services was offset by a decline in gross margin attributable to Mortgage Services. This was due to Mortgage Services segment’s mix of services delivered and the build out of infrastructure to support Ocwen’s September 1, 2011 boarding of the Litton portfolio. As a result of the boarding of the Litton portfolio, we delivered in the third quarter a proportionately higher percentage of services to homes in pre-foreclosure. For these services, the margins are generally lower. The delivery of pre-foreclosure services, however, is a strong leading indicator of future referrals of higher margin foreclosure and asset management services.

From an operating margin perspective, margins on a consolidated basis improved in the quarter when compared to the quarter ended June 30, 2011 by 300 basis points to 25% of Service Revenue. This reflects faster growth in the higher margin Mortgage Services segment as well as leveraging of the Corporate infrastructure.

For the fourth quarter, Service Revenue should continue to improve when compared to the third quarter based principally upon the expected growth in foreclosure and asset management related referrals.

Revenue

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


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Mortgage Services:
Service Revenue	$	58,915		$	34,909			69		$	147,768		$	89,623			65
Reimbursable Expenses		21,464			12,562			71			55,221			30,811			79
Cooperative Non-controlling Interest		1,791			2,052			(13	)		4,395			4,136			6

Mortgage Services — Total Revenue		82,170			49,523			66			207,384			124,570			66

Financial Services:
Service Revenue		16,934			18,132			(7	)		53,067			56,646			(6	)
Reimbursable Expenses		369			807			(54	)		1,712			2,229			(23	)

Financial Services — Total Revenue		17,303			18,939			(9	)		54,779			58,875			(7	)

Technology Services		14,827			12,963			14			41,115			37,422			10

Eliminations		(4,507	)		(3,845	)		(17	)		(11,547	)		(10,966	)		(5	)

Total Revenue	$	109,793		$	77,580			42		$	291,731		$	209,901			39


Transactions with Related Parties:
Mortgage Services	$	58,200		$	34,765			67		$	150,483		$	90,749			66
Financial Services		66			34			94			213			110			94
Technology Services		5,561			4,660			19			15,615			13,635			15

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.

The growth in Service Revenue continues to be primarily attributable to Mortgage Services for the periods presented and is the result of the development of mortgage and real estate portfolio management services across our national platform and the growth in loans serviced by Ocwen. The Technology Services segment also benefited from the growth in loans serviced by Ocwen principally due to revenue tied to loan volume. Financial Services revenue declined in both periods presented compared to the same periods in 2010 principally due to a decline in revenues from one of the segment’s largest customers. The decline was in part the result of the client shifting 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 and operations 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 September 30, 2011 and 2010:


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Compensation and Benefits	$	22,497		$	15,829			(42	)	$	59,296		$	45,519			(30	)
Outside Fees and Services		21,528			15,311			(41	)		57,221			41,092			(39	)
Reimbursable Expenses		21,834			13,369			(63	)		56,934			33,040			(72	)
Technology and Communications		5,904			3,198			(85	)		13,439			8,845			(52	)
Depreciation and Amortization		1,576			1,206			(31	)		4,495			4,146			(8	)

Cost of Revenue	$	73,339			48,913			(50	)	$	191,385			132,642			(44	)


Gross Profit Percentage:
Gross Profit/Service Revenue		42	%		46	%					44	%		45	%

For the nine months ended September 30, 2011, our gross margin percentage has remained fairly stable although we have and continue to make significant investments in personnel and technology to support our growth plans. Our gross margins are impacted by the timing and mix of services delivered which, in turn, are impacted by the timing of when loans are boarded by Ocwen. In the third quarter of 2011, we saw a significant increase in services related to homes in pre-foreclosure (e.g., valuation and inspection services) which is typical for newly boarded loan portfolios but for which gross margins are lower when compared to other types of services we deliver within our Mortgage Services segment. The provision of pre-foreclosure services though is generally a leading indicator for default and asset management referrals.

When compared to the same periods in 2010, the substantial increase in Cost of Revenue for the three and nine months ended September 30, 2011 is consistent with the growth in our Mortgage Services segment as we expanded our mortgage and real estate portfolio management services nationally and increased our personnel to support the growth in portfolios serviced by Ocwen.

Compensation and Benefits costs for the quarter ended September 30, 2011 increased sequentially as expected as we hired significant personnel to support the boarding of the Litton portfolio by Ocwen on September 1, 2011 and as we continue to invest in personnel for our new insurance and origination services that are under development and/or roll-out.

Outside Fees and Services reflects external vendor costs for which we are not reimbursed. These costs are principally incurred by our Mortgage Services segment in the provision of valuation and pre-foreclosure services. The increase in both periods presented over the same periods in 2010 reflects the growth in Ocwen’s portfolio. Sequentially, these costs increased due to the delivery of pre-foreclosure services as a result of the boarding of the Litton platform by Ocwen.

Technology and Communication costs continue to increase due to ongoing investment in personnel and licenses to support the growth of the businesses.

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 September 30, 2011 and 2010:


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Compensation and Benefits	$	5,530		$	5,250			(5	)	$	17,275		$	13,255			(30	)
Professional Services		1,479			1,812			18			4,636			5,869			21
Occupancy Related Costs		4,449			4,137			(8	)		12,008			9,978			(20	)
Amortization of Intangible Assets		1,339			1,450			8			3,952			4,089			3
Depreciation and Amortization		483			598			19			1,679			869			(93	)
Other		2,049			1,483			(38	)		5,937			5,215			(14	)

Total Selling, General & Administrative Expenses	$	15,329		$	14,730			(4	)	$	45,487		$	39,275			(16	)


Operating Percentage:
Income from Operations/Service Revenue		25	%		22	%					24	%		22	%

Our operating margin percentage in both periods increased over the same periods in 2010. Selling, General and Administrative costs have stabilized during 2011 even as our businesses have substantially grown. Thus leveraging of our Corporate infrastructure costs along with growth in our more profitable segments has contributed to the increase in margins.

Income Before Income Tax

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2011			2010			2011			2010

Mortgage Services:
Income Before Income Taxes	$	22,554		$	14,928		$	60,391		$	35,805
Non-controlling Interests		(1,791	)		(2,052	)		(4,395	)		(4,136	)

Pretax Income	$	20,763		$	12,876		$	55,996		$	31,669
As Percent of Service Revenue		35	%		37	%		38	%		35	%

Financial Services:
Income Before Income Taxes	$	350		$	368		$	2,784		$	3,411
As Percent of Service Revenue		2	%		2	%		5	%		6	%

Technology Services:
Income Before Income Taxes	$	4,359		$	4,090		$	11,108		$	12,782
As Percent of Revenue		29	%		32	%		27	%		34	%

Corporate:
Loss Before Income Taxes	$	(6,458	)	$	(4,751	)	$	(19,130	)	$	(13,348	)

Consolidated:
Income Before Income Taxes	$	20,805		$	14,635		$	55,153		$	38,650
Non-controlling Interests		(1,791	)		(2,052	)		(4,395	)		(4,136	)

Pretax Income	$	19,014		$	12,583		$	50,758		$	34,514


As Percent of Service Revenue		22	%		20	%		22	%		20	%

On a consolidated basis, income before income tax attributable to Altisource grew in both periods over the same 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.

Income Tax Provision

The Company recognized an income tax provision of $5.4 million for the nine months ended September 30, 2011 representing an effective tax rate of 9.7%. 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 a favorable tax ruling as well as the mix of income and losses in multiple taxing jurisdictions.

SEGMENT RESULTS OF OPERATIONS

The following section provides a discussion of pretax results of operations of our business segments for the three and nine months ended September 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 September 30, 2011
										Corporate
	Mortgage			Financial			Technology			Items and			Consolidated
(in thousands)	Services			Services			Services			Eliminations			Altisource

Revenue	$	82,170		$	17,303		$	14,827		$	(4,507	)	$	109,793
Cost of Revenue		55,106			12,676			9,700			(4,143	)		73,339

Gross Profit		27,064			4,627			5,127			(364	)		36,454
Selling, General and Administrative Expenses		4,227			4,268			756			6,078			15,329

Income (Loss) from Operations		22,837			359			4,371			(6,442	)		21,125
Other Income (Expense), net		(283	)		(9	)		(12	)		(16	)		(320	)

Income (Loss) Before Income Taxes	$	22,554		$	350		$	4,359		$	(6,458	)	$	20,805


Transactions with Related Parties:
Revenue	$	58,200		$	66		$	5,561		$	—		$	63,827

Selling, General and Administrative Expenses	$	—		$	—		$	—		$	506		$	506


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

Revenue	$	207,384	$	54,779		$	41,115		$	(11,547	)	$	291,731
Cost of Revenue		135,670		39,738			26,479			(10,502	)		191,385

Gross Profit		71,714		15,041			14,636			(1,045	)		100,346
Selling, General and Administrative Expenses		11,663		12,230			3,489			18,105			45,487

Income (Loss) from Operations		60,051		2,811			11,147			(19,150	)		54,859
Other Income (Expense), net		340		(27	)		(39	)		20			294

Income (Loss) Before Income Taxes	$	60,391	$	2,784		$	11,108		$	(19,130	)	$	55,153


Transactions with Related Parties:
Revenue	$	150,483	$	213		$	15,615		$	—		$	166,311

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	1,352		$	1,352


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

Revenue	$	49,523	$	18,939		$	12,963		$	(3,845	)	$	77,580
Cost of Revenue		31,383		13,870			7,239			(3,579	)		48,913

Gross Profit		18,140		5,069			5,724			(266	)		28,667
Selling, General and Administrative Expenses		3,899		4,692			1,610			4,529			14,730

Income (Loss) from Operations		14,241		377			4,114			(4,795	)		13,937
Other Income (Expense), net		687		(9	)		(24	)		44			698

Income (Loss) Before Income Taxes	$	14,928	$	368		$	4,090		$	(4,751	)	$	14,635


Transactions with Related Parties:
Revenue	$	34,765	$	34		$	4,660		$	—		$	39,459

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	223		$	223


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

Revenue	$	124,570	$	58,875		$	37,422		$	(10,966	)	$	209,901
Cost of Revenue		79,588		42,572			20,555			(10,073	)		132,642

Gross Profit		44,982		16,303			16,867			(893	)		77,259
Selling, General and Administrative Expenses		9,826		12,854			4,040			12,555			39,275

Income (Loss) from Operations		35,156		3,449			12,827			(13,448	)		37,984
Other Income (Expense), net		649		(38	)		(45	)		100			666

Income (Loss) Before Income Taxes	$	35,805	$	3,411		$	12,782		$	(13,348	)	$	38,650


Transactions with Related Parties:
Revenue	$	90,749	$	110		$	13,635		$	—		$	104,494

Selling, General and Administrative Expenses	$	—	$	—		$	—		$	811		$	811

Mortgage Services

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


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Service Revenue	$	58,915		$	34,909			69		$	147,768		$	89,623			65
Reimbursable Expenses		21,464			12,562			71			55,221			30,811			79
Cooperative Non-controlling Interest		1,791			2,052			(13	)		4,395			4,136			6

Total Revenue		82,170			49,523			66			207,384			124,570			66
Cost of Revenue		55,106			31,383			(76	)		135,670			79,588			(70	)


Gross Profit		27,064			18,140			49			71,714			44,982			59

Gross Profit/Service Revenue		46	%		52	%					49	%		50	%

Selling, General and Administrative Expenses		4,227			3,899			(8	)		11,663			9,826			(19	)

Income from Operations	$	22,837		$	14,241			60		$	60,051		$	35,156			71


Income from Operations/Service Revenue		39	%		41	%					41	%		39	%

Transactions with Related Parties Included Above:
Revenue	$	58,200		$	34,765			67		$	150,483		$	90,749			66

Our Mortgage Services segment continues to be the primary driver of growth for both year to date and quarterly 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.

The growth in Mortgage Services in both periods presented over the same periods in 2010 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 482,973 loans for the nine months ended September 30, 2011 compared to 373,248 for the nine months ended September 30, 2010. The growth in loans was principally driven by Ocwen’s acquisition of the HomEq portfolio which boarded on REALServicing in September 2010 and the Litton portfolio which was partially boarded on September 1, 2011. We expect the remaining loans associated with the Litton portfolio to board on REALServicing in November 2011.

Sequentially, Service Revenue increased $13.4 million or 29% with each service group recognizing an increase in the quarter. Closing and insurance services recorded the most significant increases in Service Revenue sequentially driven by the development of services and increase in title searches attributable to pre-foreclosure activities. Additionally, asset management services and valuation services benefited from services attributable to pre-foreclosure activities. We continued to see elevated levels of REO sales as a result of seasonality and on-going process improvements meant to reduce the time to sell an REO.

An initiative for 2011 is the formation of Correspondent One which provides members of Lenders One additional avenues to sell loans beyond Lenders One’s preferred investor arrangements and the members’ own network of loan buyers. We anticipate this will result in improved capital markets execution for the members and facilitate the sale of our services to the members. As of July 2011, we fulfilled our funding obligations to Correspondent One and account for such investment under the equity method. In the third quarter of 2011, we recognized a net loss of $0.4 million attributable to Correspondent One. We expect Correspondent One to incur losses until the second half of 2012.

We continue to believe the development of origination services is important to balancing our service offerings and have invested significantly 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 second quarter acquisition of Springhouse to facilitate the growth of origination services. We will continue to leverage our global delivery model and our experience with technological based solutions, econometrics and behavioral science. These investments, the mix of services provided and the need to hire employees and lease facilities in advance of expected business referral growth, could limit our ability in the near term to significantly expand Mortgage Services margins calculated based upon Service Revenue.

Revenue


	Three Months Ended September 30,							Nine Months Ended September 30,
					% Better							% Better
(in thousands)	2011		2010		/(worse)			2011		2010		/(worse)

Service Revenue
Asset Management Services	$	18,281	$	10,450		75		$	45,122	$	25,171		79
Origination Management Services		4,760		4,802		(1	)		13,073		10,688		22
Residential Property Valuation		13,188		8,796		50			33,257		22,952		45
Closing and Insurance Services		15,013		6,359		136			34,505		17,703		95
Default Management Services		7,673		4,502		70			21,811		13,109		66

Total Service Revenue		58,915		34,909		69			147,768		89,623		65

Reimbursable Expenses:
Asset Management Services		20,643		11,899		73			52,288		29,027		80
Default Management Services		821		561		46			2,933		1,609		82
Closing and Insurance Services		—		102		(100	)		—		175		(100	)

Total Reimbursable Expenses		21,464		12,562		71			55,221		30,811		79

Non-controlling Interests:		1,791		2,052		(13	)		4,395		4,136		6

Total Revenue	$	82,170	$	49,523		66		$	207,384	$	124,570		66


Transactions with Related Parties:
Asset Management Services	$	38,924	$	21,250		83		$	97,410	$	53,099		83
Residential Property Valuation		12,158		8,729		39			31,358		22,182		41
Closing and Insurance Services		4,557		3,428		33			13,140		10,818		21
Default Management Services		2,561		1,358		89			8,575		4,650		84

Total	$	58,200	$	34,765		67		$	150,483	$	90,749		66

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, and lending institutions.

Asset Management Services. Asset Management Services principally include property preservation, property inspection, REO asset management and REO brokerage. Asset Management Services has been the largest contributor to Service Revenue growth year to date which reflects increased sales of REO properties, increased number of properties for which we provide property preservation services and an increase in pre-foreclosure inspection services. We expect to receive additional property preservation and brokerage referrals beginning in the fourth quarter as a result of Ocwen’s recent acquisition of the Litton portfolio for which the revenue will begin to be recognized in the 2012.

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 increased due to the performance of MPA and the slow but incremental roll-out of new origination services. For the nine months ended September 30, 2011, MPA experienced a net increase of 26 members (net increase of 12 members in the third quarter) and as of September 30, 2011 had 202 members.

Residential Property Valuation. The increase in both periods presented as compared to the same periods in 2010 was primarily a result of Ocwen’s residential loan portfolio growth and to a lesser degree results from the Springhouse acquisition in April 2011. Sequentially, Revenue increased significantly as expected due to Ocwen’s recent acquisition of the Litton portfolio and the aforementioned acquisition of Springhouse. We expect elevated levels of valuation referrals to continue into the fourth quarter.

Closing and Insurance Services. Closing and Insurance Services principally consists of title search, title agency and insurance services. During 2011, we remain 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 principally as we continue to expand our title agency and other insurance services offerings.

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 presented 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 an increase in Revenue primarily due to an increase in foreclosure referrals received in the second quarter. We expect referrals to further increase late in the fourth quarter due to the addition of Litton. These referrals will translate into revenue in the first half of 2012.

Cost of Revenue


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Expenditures	$	14,216		$	7,287			(95	)	$	33,498		$	19,343			(73	)
Outside Fees and Services		19,426			11,534			(68	)		46,951			29,434			(60	)
Reimbursable Expenses		21,464			12,562			(71	)		55,221			30,811			(79	)


Cost of Revenue	$	55,106		$	31,383			(76	)	$	135,670		$	79,588			(70	)


Gross Margin Percentage:
Gross Profit/Service Revenue		46	%		52	%					49	%		50	%

Expenditures, which consists primarily of compensation and technology costs, increased in both periods presented 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 fourth quarter as we continue to hire to support anticipated growth in referrals.

Outside Fees and Services increased over the same periods in 2010 due to the increase in default oriented services for the periods presented. Sequentially, Outside Fees and Services increased principally due to the provision of pre-foreclosure related services (e.g., valuation, property inspection services) for which vendor costs are generally not considered reimbursable expenses. We anticipate that Outside Fees and Services will continue to increase in the fourth quarter given the recent boarding of loans associated with the Litton platform and the subsequent boarding on to REALServicing of the remaining Litton loans in November.

Several factors impact our gross margins from period to period including seasonality, the mix of services delivered, timing of investments in new services, hiring of staff and leasing of facilities in advance of new business and the timing of when loans are boarded by our customers. Sequentially, our gross margin decreased principally as a result of increased Outside Fees and Services attributable to pre-foreclosure activities for which we earn a lower margin when compared to other services offered.

Selling, General and Administrative Expenses


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Total Selling, General and Administrative Expenses	$	4,227		$	3,899			(8	)	$	11,663		$	9,826			(19	)


Operating Percentage:
Income from Operations/Service Revenue		39	%		41	%					41	%		39	%

Selling, General and Administrative Expenses increased in both periods presented over the same periods in 2010 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 increased primarily due to reduced reserves for bad debt, reversal of stock compensation expense due to the departure of certain executives and lower expenses for professional services in the second quarter. Selling, General and Administrative Expenses for the third quarter in 2011 are consistent with the first quarter. As this segment continues to grow, we should begin to leverage Selling, General and Administrative Expenses resulting in increased margins.

Financial Services

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


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Service Revenue	$	16,934		$	18,132			(7	)	$	53,067		$	56,646			(6	)
Reimbursable Expenses		369			807			(54	)		1,712			2,229			(23	)

Total Revenue		17,303			18,939			(9	)		54,779			58,875			(7	)

Cost of Revenue		12,676			13,870			9			39,738			42,572			7

Gross Profit		4,627			5,069			(9	)		15,041			16,303			(8	)

Gross Profit/Service Revenue		27	%		28	%					28	%		29	%

Selling, General and Administrative Expenses		4,268			4,692			9			12,230			12,854			5

Income from Operations	$	359		$	377			(5	)	$	2,811		$	3,449			(18	)


Income from Operations/Service Revenue		2	%		2	%					5	%		6	%

Transactions with Related Parties Above:
Revenue	$	66		$	34			94		$	213		$	110			94

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 revenues attributable to asset recovery management and primarily from one of the segment’s largest customers. The decline was in part (i) a result of the client shifting work to the Company’s global delivery platform which resulted in lower revenue and (ii) the general economic environment which has kept collection rates depressed. This decline was partially offset by growth in new asset recovery management accounts and growth in customer relationship management revenues. Sequentially, Revenue was down due principally to seasonality associated with asset recovery management services, partially offset by a sequential increase in customer relationship management revenues.

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.

In July 2011, we purchased the assembled workforce of a sub-contractor in India that performs asset recovery services. For periods prior to the acquisition, the costs paid to the sub-contractor were included as a component of Outside Fees and Services. Since acquisition, the costs have been recorded as employee costs, technology or occupancy as appropriate which has resulted in some movement between Cost of Revenue and Selling, General and Administrative Expense categories.

Revenue


	Three Months Ended September 30,							Nine Months Ended September 30,
					% Better							% Better
(in thousands)	2011		2010		/(worse)			2011		2010		/(worse)

Service Revenue
Asset Recovery Management	$	8,778	$	10,735		(18	)	$	29,220	$	34,708		(16	)
Customer Relationship Management		8,156		7,397		10			23,847		21,938		9

Total Service Revenue		16,934		18,132		(7	)		53,067		56,646		(6	)

Reimbursable Expenses:
Asset Recovery Management		369		807		(54	)		1,712		2,229		(23	)

Total Reimbursable Expenses		369		807		(54	)		1,712		2,229		(23	)


Total Revenue	$	17,303	$	18,939		(9	)	$	54,779	$	58,875		(7	)


Transactions with Related Parties:
Asset Recovery Management	$	66	$	34		94		$	213	$	110		94

In our Financial Services segment, we generate revenue from asset recovery services and customer relationship management.

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 increased 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. We recently strengthened the management team for customer relationship services with the intention of growing these services.

Cost of Revenue


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Expenditures	$	10,435		$	9,287			(12	)	$	28,241		$	28,685			2
Outside Fees and Services		1,872			3,776			50			9,785			11,658			16
Reimbursable Expenses		369			807			54			1,712			2,229			23


Cost of Revenue	$	12,676		$	13,870			9		$	39,738		$	42,572			7


Gross Margin Percentage:
Gross Profit/Service Revenue		27	%		28	%					28	%		29	%

Our gross margin increased sequentially from 26% to 27% principally as a result of the acquisition of Tracmail which resulted in changes to how costs were categorized since the date of acquisition. When compared to the same periods in 2010, Expenditures in both periods 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 September 30,								Nine Months Ended September 30,
							% Better								% Better
(in thousands)	2011			2010			/(worse)		2011			2010			/(worse)

Total Selling, General and Administrative Expenses	$	4,268		$	4,692			9	$	12,230		$	12,854			5


Operating Percentage:
Income from Operations/Service Revenue		2	%		2	%				5	%		6	%

Selling, General and Administrative Expenses in both periods decreased slightly compared to the same periods in 2010 principally as a result of reduced legal costs. Sequentially, Selling, General and Administrative Expenses increased due to the previously mentioned acquisition and its impact on cost classifications.

Technology Services

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


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Revenue	$	14,827		$	12,963			14		$	41,115		$	37,422			10
Cost of Revenue		9,700			7,239			(34	)		26,479			20,555			(29	)

Gross Profit		5,127			5,724			(10	)		14,636			16,867			(13	)

Gross Profit/Revenue		35	%		44	%					36	%		45	%

Selling, General and Administrative Expenses		756			1,610			53			3,489			4,040			14

Income from Operations	$	4,371		$	4,114			6		$	11,147		$	12,827			(13	)


Income from Operations/Revenue		29	%		32	%					27	%		34	%

Transactions with Related Parties Above:
Revenue	$	5,561		$	4,660			19		$	15,615		$	13,635			15

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 are expending 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 and efficiently manage our operations; and

•

The development and early stage incubation of technology solutions.

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 September 30,						Nine Months Ended September 30,
					% Better						% Better
(in thousands)	2011		2010		/(worse)		2011		2010		/(worse)

Revenue:
REALSuite	$	8,964	$	7,864		14	$	25,395	$	22,415		13
IT Infrastructure Services		5,863		5,099		15		15,720		15,007		5

Total Revenue	$	14,827	$	12,963		14	$	41,115	$	37,422		10


Transactions with Related Parties:
REALSuite		3,493		2,744		27		9,506		7,952		20
IT Infrastructure Services		2,068		1,916		8		6,109		5,683		7

Revenue	$	5,561	$	4,660		19	$	15,615	$	13,635		15

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 revenues in both periods were generally declining when compared to the same periods in 2010 due to our change in pricing for infrastructure services; however this trend reversed in the third quarter 2011 as a result of the growth in Ocwen’s personnel as its servicing business has grown. Mark-ups for infrastructure services are based upon economic studies performed that are generally consistent with our transfer pricing methodology.

Cost of Revenue


	Three Months Ended September 30,									Nine Months Ended September 30,
							% Better									% Better
(in thousands)	2011			2010			/(worse)			2011			2010			/(worse)

Cost of Revenue	$	9,700		$	7,239			(34	)	$	26,479		$	20,555			(29	)


Gross Margin Percentage:
Gross Profit/Total Revenue		35	%		44	%					36	%		45	%

Our gross margin declined to 36% for the nine months ended September 30, 2011 as we now report our Consumer Analytics group within Technology Services during 2011 (previously reported in our Corporate Segment). 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 September 30,								Nine Months Ended September 30,
							% Better								% Better
(in thousands)	2011			2010			/(worse)		2011			2010			/(worse)

Total Selling, General and Administrative Expenses	$	756		$	1,610			53	$	3,489		$	4,040			14


Operating Percentage:
Operating Income/Total Revenue		29	%		32	%				27	%		34	%

Selling, General and Administrative Expenses decreased sequentially principally as a result of reduction in bad debt reserves due to improved collections. This as well as the increase in Revenues led to a significant increase in sequential margins.

Corporate

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


	Three Months Ended September 30,							Nine Months Ended September 30,
					% Better							% Better
(in thousands)	2011		2010		/(worse)			2011		2010		/(worse)

Total Selling, General and Administrative Expenses	$	6,078	$	4,529		(34	)	$	18,105	$	12,555		(44	)

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 second quarter, corporate costs remained 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 September 30, 2011, we purchased 1.7 million shares of our common stock on the open market at an average price of $31.02, leaving 2.1 million shares still available for purchase under the program.

Cash Flows

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


	Nine Months Ended September 30,
							%
(dollars in thousands)	2011			2010			Better/(worse)

Net Income Adjusted for Non-Cash Items	$	62,757		$	46,819			34
Working Capital		5,994			(13,558	)		144

Cash Flow from Operating Activities		68,751			33,261			107
Cash Flow from Investing Activities		(28,983	)		(35,744	)		19
Cash Flow from Financing Activities		(40,652	)		(4,936	)		N/M

Net Change in Cash		(884	)		(7,419	)		88
Cash at Beginning of Period		22,134			30,456			(27	)

Cash at End of Period	$	21,250		$	23,037			(8	)

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 $68.8 million in positive cash flow from operations or approximately $0.30 per every dollar of Service Revenue. This primarily reflects our profitability adjusted for non-cash items in the period primarily as a result of our year-over-year growth in mortgage related services.

Cash Flow from Investing Activities

During the nine months ended September 30, 2011, we invested $15.0 million in Correspondent One to facilitate the establishment of this business. In 2011, we acquired Springhouse for net consideration of $1.8 million and Tracmail for net consideration of $0.7 million. We estimate our capital expenditures for the full year 2011 to be at the lower end of our previously provided range of $16 million 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. In the third quarter, we returned $22.9 million to shareholders through our stock repurchase program.

Liquidity Requirements after September 30, 2011

During the fourth quarter, we expect to distribute $1.8 million to the Lenders One members representing non-controlling interests. Between October 1 and 21, 2011, we purchased 0.1 million shares at a total cost of $4.1 million.

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 nine months ended September 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 16 to the condensed consolidated financial statements.

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 September 30, 2011.

OTHER MATTERS

Related Party — Ocwen

For the nine months ended September 30, 2011, approximately $150.5 million of the Mortgage Services ($58.2 million for the third quarter), $0.2 million ($0.1 million for the third quarter) of the Financial Services and $15.6 million ($5.5 million for the third quarter) of the Technology Services 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.

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 nine months ended September 30, 2011 and 2010, Altisource billed Ocwen $1.7 million and $1.2 million respectively ($0.8 million and $0.5 million for the third quarter of 2011 and 2010, respectively), and Ocwen billed Altisource $1.4 million and $0.8 million respectively ($0.5 million and $0.2 million for the third 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.


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 September 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 September 30, 2011:

Total number

Maximum

of shares

number

purchased as

of shares

part of

that may

publicly

yet be

Total

Weighted

announced

purchased

number of

average

plans

under the

price paid

plans or

Period

purchased⁽¹⁾

per share

programs⁽²⁾

programs

Common shares:

July 1 – 31, 2011

89,459

37.01

89,459

2,655,074

August 1 – 31, 2011

256,091

32.26

245,003

2,410,071

September 1 – 30, 2011

310,000

35.59

310,000

2,100,071

Total common shares

655,550

34.48

644,462

2,100,071


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

⁽²⁾		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 September 30, 2011, is formatted in XBRL interactive data files: (i) Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010; (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010; (iii) Condensed Consolidated Statements of Equity for the nine months ended September 30, 2011 and 2010; (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 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: October 27, 2011	By:	/s/ Robert D. Stiles
		Robert D. Stiles
		Chief Financial Officer (On behalf of the Registrant and as its principal financial officer)