ALTISOURCE PORTFOLIO SOLUTIONS S.A. - Quarter Report: 2009 June (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

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.)

2-8 Avenue Charles de Gaulle, L-1653 Luxembourg
Grand Duchy of Luxembourg, R.C.S. Luxembourg: B 72 391

(Address of principal executive offices) (Zip Code)

(407) 737-5419

(Registrant’s telephone number, including area code)

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 o No þ

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 o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

 

 

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
FORM 10-Q

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1. Interim Combined Consolidated Financial Statements (Unaudited)
Combined Consolidated Balance Sheets at June 30, 2009 and December 31, 2008			2
Combined Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008			3
Combined Consolidated Statements of Stockholder’s Equity for the Six Months Ended June 30, 2009			4
Combined Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008			5
Notes to Combined Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 6. Exhibits			30
Signatures			31
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART 1 — FINANCIAL INFORMATION

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

COMBINED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share data)

		June 30,				December 31,
		2009				2008
Assets
Current assets:
Cash		$	12,205			$	6,988
Accounts receivable, net			11,650				9,077
Prepaid expenses and other current assets			2,474				3,021
Deferred tax asset, net			—				268
Total current assets			26,329				19,354
Premises and equipment, net			8,062				9,304
Intangible assets, net			35,055				36,391
Goodwill			9,722				11,540
Other assets			91				86
Total assets		$	79,259			$	76,675
Liabilities and Invested Equity
Current liabilities:
Accounts payable and accrued expenses		$	5,320			$	4,767
Capital lease obligations — current			629				916
Line of credit and other secured borrowings			—				1,123
Current deferred tax liability, net			209				—
Other current liabilities			5,311				6,213
Total current liabilities			11,469				13,019
Capital lease obligations — non current			182				440
Deferred tax liability, net			2,089				2,670
Commitments and contingencies (Note 6)
Stockholder’s Equity
Common stock, $1.00 par value; 100,000,000 shares authorized, 9,341,907 shares issued and outstanding			9,342				6,059
Invested equity			56,177				54,487
Total stockholder’s equity			65,519				60,546
Total liabilities and stockholder’s equity		$	79,259			$	76,675

The accompanying notes are an integral part of these combined consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)

		Three Months								Six Months
		2009				2008				2009				2008
For the periods ended June 30,
Revenue		$	49,803			$	40,868			$	92,422			$	83,416
Cost of revenue			30,349				30,033				58,352				59,709
Gross profit			19,454				10,835				34,070				23,707
Selling, general and administrative expenses			8,673				6,754				16,151				14,143
Income from operations			10,781				4,081				17,919				9,564
Other income (expense), net
Interest income			—				1				—				14
Interest expense			(796	)			(654	)			(1,410	)			(1,337	)
Other, net			24				(4	)			19				7
Total other income (expense), net			(772	)			(657	)			(1,391	)			(1,316	)
Income before income taxes			10,009				3,424				16,528				8,248
Income tax provision			(2,994	)			(961	)			(5,074	)			(2,315	)
Net income		$	7,015			$	2,463			$	11,454			$	5,933
Transactions with related parties included above:
Revenue		$	24,342			$	16,496			$	44,507			$	33,290
Selling, general and administrative expenses		$	1,843			$	879			$	3,786			$	3,070
Interest expense		$	(528	)		$	(557	)		$	(1,097	)		$	(1,166	)

The accompanying notes are an integral part of these combined consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

COMBINED CONSOLIDATED STATEMENTS STOCKHOLDER’S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2009 (Unaudited)
(Dollars in thousands)

		Common Stock				Invested Equity
Balance at December 31, 2008		$	6,059			$	54,487
Share issuance due to conversion to a Luxembourg société anonyme			3,283				(3,283	)
Net income			—				11,454
Net transfers to parent			—				(6,481	)
Balance at June 30, 2009		$	9,342			$	56,177

The accompanying notes are an integral part of these combined consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)

		For the six months ended June 30,
		2009				2008
Cash flows from operating activities
Net income		$	11,454			$	5,933
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization			2,795				3,765
Amortization of intangible assets			1,336				1,295
Deferred income taxes, net			(104	)			—
Changes in operating assets and liabilities:
Accounts receivable, net			(2,573	)			1,973
Prepaid expenses and other current assets			547				246
Other assets			(5	)			19
Accounts payable and accrued expenses			553				(3,455	)
Other current liabilities			(902	)			1,205
Net cash flow from operating activities			13,101				10,981
Cash flows from investing activities
Additions to premises and equipment, net			(1,553	)			(770	)
Net cash flow from investing activities			(1,553	)			(770	)
Cash flows from financing activities
Repayment of short-term borrowings			—				(147	)
Principal payments on capital lease obligations			(545	)			(1,042	)
Payments of line of credit			(1,123	)			—
Net distribution to Parent			(4,663	)			(9,993	)
Net cash flow from financing activities			(6,331	)			(11,182	)
Net increase (decrease) in cash			5,217				(971	)
Cash at beginning of period			6,988				5,688
Cash at end of period		$	12,205			$	4,717
Supplemental schedule of non-cash investing and financing activities
Increase in common stock due to the Company’s conversion to a Luxembourg société anonyme		$	3,283			$	—

The accompanying notes are an integral part of these combined consolidated financial statements.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

NOTE 1 DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SEPARATION

Description of Business

     Altisource Portfolio Solutions S.A. (“Altisource” or the “Company”), together with its subsidiaries, provides real estate mortgage portfolio management and related technology products as well as asset recovery and customer relationship management services. Altisource was incorporated under the laws of Luxembourg on November 4, 1999 as Ocwen Luxembourg S.àr.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 (the “Conversion”). Altisource filed a Registration Statement on Form 10 with the U.S. Securities and Exchange Commission (the “SEC”) on May 13, 2009, as amended (the “Registration Statement”) and has been approved to list its common stock on the The NASDAQ Stock Market LLC under the symbol “ASPS.” The distribution of Altisource shares currently is scheduled to occur on August 10, 2009. Except as otherwise indicated or unless the context otherwise requires, “Altisource,” “we,” “us,” “our” and the “Company” refer to Altisource Portfolio Solutions S.A., a Luxembourg société anonyme, or public limited company, and its subsidiaries.

     We manage our operations through three reportable segments: Through our Mortgage Services business, we provide residential mortgage origination and default management services including due diligence, underwriting, valuation, real estate sales, default processing services, property inspection and preservation services, homeowner outreach, closing and title services and knowledge process outsourcing services. Through our Financial Services business, we provide asset recovery management and customer relationship management services primarily to the financial services, consumer products, telecommunications and utilities industries. Through our Technology Products business, we provide technology products and services to the mortgage industry including our proprietary REAL suite of applications that provide production applications and support to servicing and origination businesses.

Basis of Presentation

     The combined consolidated financial statements present the historical results of operations, assets and liabilities attributable to the Altisource businesses. These financial statements have been prepared on a “carve-out” basis from Ocwen Financial Corporation (“Ocwen” or “Parent’) and, because a direct ownership relationship did not exist among the various units comprising the Altisource business, combine and do not consolidate Altisource Portfolio Solutions S.A. and its subsidiaries with Ocwen’s wholly-owned subsidiaries. These include Altisource U.S. Holdings, Inc. (formerly NCI Holdings, Inc); Nationwide Credit, Inc.; Premium Title Services, Inc., REALHome Services and Solutions, Inc.; Portfolio Management Outsourcing Solutions, LLC; and Western Progressive Trustee LLC. Once Ocwen contributes the subsidiaries to Altisource Portfolio Solutions S.A. (the “Restructuring”), we will present these financial statements on a consolidated and not combined basis. Per share data have not been presented since these financial statements are prepared on a combined basis.

     Within these financial statements, entities that are part of Ocwen’s consolidated results of operations, but are not part of Altisource as defined above, are referred to as “related entities”. These combined consolidated financial statements also reflect the capital structures of the each of the combined subsidiaries. To the extent that an asset, liability, revenue or expense is directly associated with the Company, it is reflected in the accompanying combined consolidated financial statements. The Company eliminates from its financial results all intercompany transactions between entities included in the combination.

     These combined consolidated financial statements also include allocations of expenses from Ocwen. Ocwen currently provides certain corporate functions to Altisource, including insurance, employee benefit plan expense and allocations for certain centralized administration costs for executive management, treasury, real estate, accounting, auditing, tax, risk management, internal audit, human resources and benefits administration. We determined these allocations using proportional cost allocation methods including the use of relevant operating profit, fixed assets, sales and payroll measurements. Specifically, personnel and all associated costs, including compensation, benefits, occupancy and other costs, are allocated based on the estimated percentage of time spent by the individual in the various departments. External costs such as audit fees, legal fees, business insurance and other are allocated based on a combination of the sales, fixed assets and operating profits of the department, whichever is most appropriate given the nature of the expense. The charges for these functions are included primarily in “Selling, general and

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

administrative expenses” in the combined consolidated statements of operations. In addition, Ocwen has allocated interest expense to us based upon our portion of assets to Ocwen’s total assets which is reflected as “Interest expense” in the combined consolidated statements of operations.

     Management believes such allocations are reasonable; however, they may not be indicative of the actual expense that would have been incurred had the Company been operating as an independent company for the periods presented. The combined consolidated financial statements also do not necessarily reflect what the Company’s combined consolidated results of operations, financial position and cash flows would have been had the Company operated as an independent company during the periods presented. For instance, Altisource expects to incur costs in excess of those allocated by Ocwen for maintaining a separate Board of Directors, obtaining a separate audit, relocating certain executive management and hiring additional personnel to operate separate from Ocwen.

     We have prepared our combined 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, they do not include all of the information and notes required by GAAP for complete combined 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 combined 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 combined consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Our combined consolidated financial statements should be read in conjunction with our combined consolidated financial statements and notes for the year ended December 31, 2008 contained in our Registration Statement filed with the SEC.

Separation

     In November 2008, the Board of Directors of Ocwen authorized the pursuit of a plan to separate, through a tax free spin-off, the majority of the operations of the knowledge process outsourcing business currently known as the Ocwen Solutions business, into a separate public company (the “Separation”). The Company anticipates that the Separation will occur on August 10, 2009 (the “Separation Date”). Prior to the Separation Date, Ocwen will contribute to Altisource the business operations of Ocwen not already included in Altisource. Altisource also has business operations that will remain with Ocwen after the Separation, and we will distribute those operations to Ocwen as of the Separation Date. The operations of BMS Holdings, Inc., an equity investment which Ocwen refers to as BMS, and Global Servicing Solutions, LLC, a majority owned consolidated investment which Ocwen refers to as GSS, will remain with Ocwen after the Separation. As the operations of these businesses are not similar to our business, are managed and financed autonomously and do not share common offices with Altisource, we have excluded them from these combined consolidated financial statements. We intend for the Separation to be a tax-free spin-off for United States federal income tax purposes. The Separation is subject to certain conditions including but not limited to confirmation of the tax-free treatment of the spin-off, necessary regulatory approvals, any required lender counterparty consents and final approval by the Ocwen Board of Directors.

     In connection with the Separation, Ocwen will distribute all of the Altisource common stock to Ocwen’s shareholders (the “Distribution”). Ocwen’s stockholders will receive one share of Altisource common stock for every three shares of Ocwen common stock held as of the August 4^th Record Date. In addition, holders of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024 will receive one share of Altisource common stock deemed held on an as if converted basis. For such notes, the conversion ratio of 82.1693 shares of Ocwen common stock for every $1 in aggregate principal amount of notes held on the Record Date will be calculated first and then we will apply the distribution ratio of one share of Altisource common stock for every three shares of Ocwen common stock on an as converted basis to determine the number of shares each note holder will receive.

     Altisource and Ocwen also will enter into various agreements that address the allocation of assets and liabilities between them and that define their relationship after the Separation including a separation agreement, a tax matters agreement, an employee matters agreement, an intellectual property agreement, a data center and disaster recovery agreement, a transition services agreement and certain long-term servicing contracts (collectively, the “Agreements”).

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

Foreign Currency Translation

     Where the functional currency is not the U.S. dollar, we translate assets and liabilities of foreign entities into U.S. dollars at the current rate of exchange existing at the balance sheet date and revenues and expenses at average monthly rates. We include the resulting translation adjustments as a component of invested equity. Where the functional currency of a foreign entity is the U.S. dollar, re-measurement adjustments are included in the results of operations. Such adjustments were not material for any period presented.

NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), “Business Combinations — a replacement of FASB Statement No. 141” (“SFAS No. 141(R)”). SFAS No. 141(R) modifies certain elements of the acquisition method of accounting used for all business combinations. The statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at the full amounts of their fair values, with limited exceptions specified in the statement. If the business combination is achieved in stages (a step acquisition), an acquirer also is required to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values. The statement requires the acquirer to recognize restructuring and acquisition costs separately from the business combination. The statement also requires the disclosure of information necessary to understand the nature and effect of the business combination. This guidance was amended further by FASB Staff Position (“FSP”) no. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” that was issued in April 2009. The FSP requires that contingences acquired in a business combination be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. The FSP also requires that an acquirer disclose information that enables users of its financial statements to evaluate the nature and financial effects of a business combination that occurs either during the current reporting period or after the reporting period but before the financial statements are issued. The adoption of SFAS No. 141(R) and the related FSP on January 1, 2009 did not have an impact on our combined consolidated balance sheets or statements of operations.

     SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements-an Amendment of ARB No. 51.” The FASB issued SFAS No. 160 on December 4, 2007. The statement establishes new accounting and reporting standards for a non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements separate from the invested equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. The statement clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, when a subsidiary is deconsolidated, this statement requires that a parent recognize a gain or loss in net income based on the fair value of the entire entity, irrespective of any retained ownership, on the deconsolidation date. Such a gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. The adoption of SFAS No. 160 on January 1, 2009 did not have an impact on our combined consolidated balance sheets or statements of operations.

     SFAS No. 165, “Subsequent Events.” This statement, which we adopted during the quarter ended June 30, 2009, introduces the concept of financial statements being available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. A public entity is required to evaluate subsequent events through the date that the financial statements are issued. This statement did not result in changes in the subsequent events that we report, either through recognition or disclosure, in our financial statements upon adoption.

NOTE 3 RELATED PARTY TRANSACTIONS

     Altisource historically has conducted business with Ocwen and its subsidiaries. Concurrent with the Separation, we will enter into a transition services agreement under which Ocwen will provide to Altisource, and vice versa,

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

certain short term transition services, such as human resources, vendor management, corporate services, six sigma activities, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other areas. These agreements will go into effect at the time provided in such agreements.

     We recorded the revenues we earned from Ocwen based on our expectations of costs for providing such services in our historical results of operations for all periods up to the end of the first quarter of 2008. We recorded the revenues we earned from Ocwen since the beginning of the second quarter of 2008 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 being charged by our competitors. This change resulted in revenues of approximately $664 more in the first quarter of 2009 than we would have recorded under our former cost-based method. These revised rates are materially consistent with the rates we will charge Ocwen under the various long-term servicing contracts into which we will enter in connection with the Separation.

     Altisource currently provides Ocwen and its subsidiaries with the following services:

Mortgage Services		Technology Products
- valuation services		- residential loan servicing software
- residential due diligence		- vendor management and order fulfillment software
- residential fulfillment support services		- default resolution services
- real estate management and sales		- IT infrastructure support
- property inspection and preservation services		- invoice presentment and payment software
- closing and title services		- commercial loan servicing software
- homeowner outreach		Financial Services
- trustee foreclosure services		- mortgage charge-off and deficiency collections

Allocation of Corporate Costs

     We have recorded the costs of certain services that Ocwen has provided to the Company in these financial statements including charges for services such as insurance, employee benefit plan expenses and allocations for certain centralized administration costs for treasury, real estate, accounting, auditing, tax, risk management, internal audit, human resources and benefits administration. Ocwen determined these allocations of centralized administration costs using proportional cost allocation methods including use of relevant operating profit, fixed assets, sales and payroll measurements. We include allocated costs in selling, general and administrative expenses in the combined consolidated statements of operations and within invested equity in the combined consolidated balance sheets. The allocation of corporate costs was $1,843 and $879 for the three months ended June 30, 2009 and 2008, respectively and was $3,786 and $3,070 for the six months ended June 30, 2009 and 2008, respectively. These costs represent management’s allocation of the costs incurred. However, these amounts may not be representative of the costs necessary for the Company to operate as a separate standalone company. We reflect costs paid by Ocwen on behalf of the Company in “net transfers to parent” in the combined consolidated statements of stockholder’s equity.

     In addition, Altisource recognized $1.85 million of Separation related expenses in the second quarter that were paid for by Ocwen. All previous costs in connection with the Separation incurred prior to the second quarter of 2009 were recognized by Ocwen.

NOTE 4 LINE OF CREDIT AND OTHER SECURED BORROWINGS

     Our debt consisted of the following:

		Balance at
		June 30,				December 31,
Description		2009				2008
Line of credit maturing July 2011		$	—			$	1,123
Current portion of line of credit and other secured borrowings			—				1,123
Long-term portion		$	—			$	—

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

     In July 2008, NCI entered into a revolving secured credit agreement with a financial institution that provided for borrowings of up to $10,000 through July 2011. All borrowings outstanding on December 31, 2008 were floating rate advances with an interest rate of 2.25%. Substantially all of NCI’s assets, which comprise substantially all of the assets in our Financial Services segment, were pledged as collateral for this credit agreement. On June 23, 2009 the Company terminated the agreement. There were no borrowings outstanding on the line of credit since the Company repaid the balance in full in January 2009.

NOTE 5 BUSINESS SEGMENT REPORTING

     Our business segments reflect the internal reporting that we use to evaluate operating performance and to assess the allocation of our resources by our chief operating decision maker. Our segments are based upon our organizational structure which focuses primarily on the products and services offered.

     We conduct our operations through three reporting segments and corporate. A brief description of our business segments are as follows:

     Mortgage Services includes due diligence, valuation, real estate sales, default processing services, property inspection and preservation services, homeowner outreach, closing and title services and knowledge process outsourcing services. Mortgage Services supports mortgage originators and servicers, insurance companies, hedge funds and commercial banks. Our services span the lifecycle of a mortgage loan from origination through the disposition of real estate owned properties.

     Financial Services provides asset recovery and customer relationship management services principally to the financial services, consumer products, telecommunications and utilities industries.

     Technology Products consists of products and services utilized in the mortgage industry including our REAL suite of applications that provide technology products to serve the needs of servicing and origination businesses. Our offerings include residential and commercial loan servicing and loss mitigation software, vendor management and a patented vouchless payable system and information technology solutions to manage and oversee payments to large-scale vendor networks.

     Corporate Items and Other. For the 2008 periods reported here, we have included only intercompany eliminations in Corporate Items and Other. Ocwen allocated interest income and expense to each business segment for funds raised or funding of investments made. Beginning with the second quarter of 2009, Altisource began paying the expenses relating to the Separation, and we reflected these expenses in Corporate Items and Other. Ocwen also allocated expenses generated by corporate support services to each business segment.

     Financial information for our segments is as follows:

														Corporate								Business
		Mortgage				Financial				Technology				Items and				Corporate				Segments
		Services				Services				Products				Other				Eliminations				Consolidated
For the three months ended June 30, 2009
Revenue		$	24,020			$	16,469			$	12,109			$	—			$	(2,795	)		$	49,803
Cost of revenue			13,369				13,810				5,965				—				(2,795	)			30,349
Gross profit			10,651				2,659				6,144				—				—				19,454
Selling, general and administrative expenses			1,957				3,748				1,118				1,850				—				8,673
Income (loss) from operations			8,694				(1,089	)			5,026				(1,850	)			—				10,781
Other income (expense), net			(10	)			(647	)			(115	)			—				—				(772	)
Income (loss) before income taxes		$	8,684			$	(1,736	)		$	4,911			$	(1,850	)		$	—			$	10,009
Depreciation and amortization		$	—			$	646			$	714			$	—			$	—			$	1,360
Amortization of intangibles		$	—			$	699			$	—			$	—			$	—			$	699

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

														Corporate								Business
		Mortgage				Financial				Technology				Items and				Corporate				Segments
		Services				Services				Products				Other				Eliminations				Consolidated
For the three months ended June 30, 2008
Revenue		$	13,358			$	19,030			$	12,410			$	—			$	(3,930	)		$	40,868
Cost of revenue			9,035				16,502				8,426				—				(3,930	)			30,033
Gross profit			4,323				2,528				3,984				—				—				10,835
Selling, general and administrative expenses			754				4,627				1,373				—				—				6,754
Income (loss) from operations			3,569				(2,099	)			2,611				—				—				4,081
Other income (expense), net			(9	)			(494	)			(154	)			—				—				(657	)
Income (loss) before income taxes		$	3,560			$	(2,593	)		$	2,457			$	—			$	—			$	3,424
Depreciation and amortization		$	—			$	848			$	1,154			$	—			$	—			$	2,002
Amortization of intangibles		$	—			$	629			$	—			$	—			$	—			$	629
For the six months ended June 30, 2009
Revenue		$	41,720			$	33,787			$	22,682			$	—			$	(5,767	)		$	92,422
Cost of revenue			23,780				27,879				12,460				—				(5,767	)			58,352
Gross profit			17,940				5,908				10,222				—				—				34,070
Selling, general and administrative expenses			3,675				7,830				2,796				1,850				—				16,151
Income (loss) from operations			14,265				(1,922	)			7,426				(1,850	)			—				17,919
Other income (expense), net			(23	)			(1,115	)			(253	)			—				—				(1,391	)
Income (loss) before income taxes		$	14,242			$	(3,037	)		$	7,173			$	(1,850	)		$	—			$	16,528
Depreciation and amortization		$	3			$	1,291			$	1,501			$	—			$	—			$	2,795
Amortization of intangibles		$	—			$	1,336			$	—			$	—			$	—			$	1,336
For the six months ended June 30, 2008
Revenue		$	28,559			$	38,529			$	22,894			$	—			$	(6,566	)		$	83,416
Cost of revenue			19,430				31,267				15,578				—				(6,566	)			59,709
Gross profit			9,129				7,262				7,316				—				—				23,707
Selling, general and administrative expenses			2,395				8,870				3,103				—				(225	)			14,143
Income (loss) from operations			6,734				(1,608	)			4,213				—				225				9,564
Other income (expense), net			(37	)			(962	)			(92	)			—				(225	)			(1,316	)
Income (loss) before income taxes		$	6,697			$	(2,570	)		$	4,121			$	—			$	—			$	8,248
Depreciation and amortization		$	27			$	1,313			$	2,425			$	—			$	—			$	3,765
Amortization of intangibles		$	—			$	1,295			$	—			$	—			$	—			$	1,295
Total Assets
June 30, 2009		$	4,633			$	61,334			$	8,502			$	4,790			$	—			$	79,259
December 31, 2008		$	3,361			$	59,744			$	8,836			$	4,734			$	—			$	76,675
June 30, 2008		$	2,819			$	63,891			$	11,421			$	4,719			$	—			$	82,850

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

	(1)		Intercompany transactions primarily consist of information technology infrastructure services and charges for the use of certain REAL products from our Technology Products 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.
	(2)		Includes depreciation and amortization of $529 and $880 in the three months ended June 30, 2009 and 2008, respectively, and $1,057 and $1,100 in the six months ended June 30, 2009 and 2008, respectively, for assets reflected in the Technology Products segment.

NOTE 6 COMMITMENTS AND CONTINGENCIES

Litigation

     We have filed suit against a former equipment vendor seeking revocation of acceptance of the equipment and damages for breaches of implied warranties and related torts. Separately, we are party to a pending arbitration brought by the vendor seeking payment of annual support and maintenance fees for periods subsequent to when we returned the equipment to the vendor. The vendor also is requesting payment of discounts it provided to us purportedly to be a marketing partner for the vendor. In total, the former vendor is seeking damages of approximately $3,100. We believe that the vendor’s claims against us are without merit and intend to defend vigorously against this matter while at the same time pursue our claims against this vendor.

     Altisource is subject to various other pending legal proceedings. In our opinion, the resolution of the matter above and those other proceedings will not have a material effect on our financial condition, results of operations or cash flows.

Taxation

     We intend for the Distribution to be a tax-free transaction under Section 355 of the Code. However, Ocwen will recognize, and pay tax on, substantially all the gain it has in the assets that comprise Altisource as a result of the Restructuring. If the Distribution were not to qualify as a tax-free transaction, Ocwen may not recognize substantial taxable gain because most, if not all, of such gain would already have been recognized pursuant to the Restructuring of Altisource. Altisource has agreed to indemnify Ocwen for certain tax liabilities. As of June 30, 2008, the Company does not believe it has an indemnity obligation.

NOTE 7 SUBSEQUENT EVENTS

     In July 2009, the Company communicated to its employees a plan to close two of its offices within its Financial Services segment. The offices will be closed in August 2009, and the closures will result in severance costs, losses on the disposal of the assets that will be abandoned and lease termination costs. The Company will record the actual and estimated costs in the third quarter of 2009. The Company is unable to estimate the total costs of these office closures at this time. The Company currently is negotiating with the landlords for the leased space in order to exit the leases early and expects to incur additional costs relating to the leases.

     We have evaluated subsequent events through August 4, 2009.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands)

     The following discussion should be read in conjunction with our Interim Combined Consolidated Financial Statements and the related notes, included in Item 1 of this Quarterly Report of Form 10-Q and with our Registration Statement on Form 10 as filed with the Securities and Exchange Commission on May 13, 2009, as amended.

     The discussion below contains forward-looking statements that are based upon our current expectations, which are subject to uncertainty and changes in circumstances. Our actual results may differ materially from the expectations due to changes in global, political, economic, business, competitive and market factors many of which are beyond our control. See “Forward-Looking Statements” included later in this Item 2.

     All dollar amounts not related to compensation are in thousands, unless otherwise indicated. We have not presented actual per share data since Altisource was included within Ocwen during all periods presented.

     Significant components of the management’s discussion and analysis of results of operations and financial condition include:

		Page
Overview — The overview section provides a summary of Altisource and our reportable business segments and the principal factors affecting our results of operations. In addition, we provide a brief description of our basis of presentation for our financial results			14
Combined Consolidated Results of Operations — The combined consolidated results of operations section provides an analysis of our results on a combined consolidated basis for the three and six months ended June 30, 2009 and June 30, 2008			16
Segment Results of Operations — The segment results of operations provides an analysis of our results on a reportable operating segment basis for the three and six months ended June 30, 2009 and June 30, 2008			19
Liquidity and Capital Resources — The liquidity and capital resources section provides a discussion of our combined consolidated cash flows for the six months ended June 30, 2009 and June 30, 2008 and of our outstanding debt and commitments existing at June 30, 2009			25
Other Matters — The other matters section provides a discussion of related party transactions and provisions of the various separation related agreements with Ocwen			28
Market Risk — We are principally exposed to market risk related to foreign currency exchange rates and interest rates. The market risk section discusses how we manage our exposure to these and similar risks			29

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

OVERVIEW

     Altisource provides real estate mortgage portfolio management and related technology products as well as asset recovery and customer relationship management services.

     We believe our competitive advantage is the ability to manage high value, knowledge-based job functions with our global platform while reducing operating variability. In general, we utilize integrated technology solutions that include enhanced call scripts for our customer service personnel based on psychological principles and decision models. We operate our technology platforms to manage large scale distributed networks of vendors. This allows our customers to improve their business processes while reducing costs. Along with expanding our use of integrated technology solutions, a central tenet to our strategy is a focus on selling output or solutions (the number of units we produce or manage on behalf of our client), thereby enabling us to convert operational efficiency gains into higher margins and profitability per employee.

     We manage our operations through three reporting segments: Mortgage Services, Financial Services and Technology Products.

     Mortgage Services provides due diligence, valuation, real estate sales, default processing services, property inspection and preservation services, homeowner outreach, closing and title services and knowledge process outsourcing services. Our services span the lifecycle of a mortgage loan from origination through the disposition of real estate owned properties.

     Financial Services comprises our asset recovery management and customer relationship management offerings to the financial services, consumer products, telecommunications and utilities industries. We specialize in, and our primary source of revenues for this segment is, contingency collections and customer relationship management for credit card issuers and other consumer credit providers.

     Technology Products is responsible for the design, development and delivery of technology products and services to the mortgage industry, including our REAL suite of applications that provide technology products to serve the needs of servicing and origination businesses. Our offerings include residential and commercial loan servicing and loss mitigation software, vendor management and a patented vouchless payable system to manage and oversee payments to large-scale vendor networks and information technology services. We build all of our technology platforms to be scalable, highly secure, flexible, standards-based and web connected. Standards and web connectivity ensure that our customers find our products easy to use. Further, we bring new products to market quickly because of the investments that we made in integrating our technology.

Separation from Ocwen

     In November 2008, the Board of Directors of Ocwen authorized management to pursue a reorganization of a number of predominantly non-U.S. operations including its knowledge process outsourcing business to be known as Altisource. On the Separation Date, Ocwen will distribute all of the shares of Altisource common stock to its shareholders in a tax-free distribution. Ocwen’s shareholders will receive one share of Altisource common stock for every three shares of Ocwen common stock they hold on the Record Date, which is scheduled to be August 4, 2009. In addition, each holder of Ocwen’s 3.25% Contingent Convertible Unsecured Senior Notes due 2024 (the “Convertible Notes”) will participate in the distribution of Altisource shares based on the conversion ratio of the Convertible Notes, consistent with the pro rata distribution ratio of one share of Altisource common stock for every three shares of Ocwen common stock, without conversion of the Convertible Notes into common shares of Ocwen. Upon the Separation, Altisource will no longer be part of Ocwen. We currently expect the Separation Date to be August 10, 2009.

     In connection with the Separation, we and Ocwen will enter into a Separation Agreement as well as certain other agreements to govern the terms of the separation and certain ongoing relationships between Ocwen and us subsequent to the Separation. These agreements include a Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Intellectual Property Agreement, Services Agreement, Technology Products Services Agreement and Data Center and Disaster Recovery Services Agreement. These related party agreements are more fully described in our Registration Statement on Form 10.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Basis of Presentation

     Our historical combined consolidated financial statements include assets, liabilities, revenues and expenses directly attributable to our operations carved out of the historical operations of Ocwen’s consolidated financial statements. Our historical financial statements also reflect allocations of corporate expenses from Ocwen based on use, percentage of time or other methodologies management believes appropriate for such expenses. These corporate expenses primarily reflect an allocation to us of a portion of the compensation and related costs of certain senior officers and other personnel of Ocwen who will not be our employees after the Separation but who historically provided services to us.

     The historical financial statements included in this information statement may not be indicative of our future performance as a separate company following the Separation and do not necessarily reflect what our financial position, results of operations and cash flows would have been had we operated as a separate, stand-alone public entity during the periods presented. As part of Ocwen, we share certain corporate functions with Ocwen, and Ocwen allocates a portion of its expenses to us to reflect our share of such expenses. We expect to enter into a Transition Services Agreement with Ocwen under which we and Ocwen will continue to share resources and provide services to each other on a fully allocated cost basis for up to two years. These services will include such services as human resources, vendor management, corporate services, six sigma activities, quality assurance, quantitative analytics, treasury, accounting, risk management, legal, strategic planning, compliance and other services. Given that these services will be at fully allocated cost, we expect that our costs will be approximately equal before and immediately after the Separation. However, we will transition from receiving such services from Ocwen over the next two years which likely will increase the overall costs that we incur as we no longer will benefit from the economies of scale we generated as part of a larger organization and likely will have duplication of functions that would not be necessary if we were to remain a part of the Ocwen organization. We expect to incur between $2,000 and $4,000 per year of other expenses as a result of being a separate publicly traded company that are not reflected in our historical financial statements as more fully described in our Registration Statement.

     We generated 40.1% of our revenues in calendar year 2008 and 48.2% of our revenues in the first half of 2009 from Ocwen businesses not included in the Separation or from providing services derived from Ocwen’s loan servicing portfolio. We anticipate that Ocwen will continue to be a significant customer for Altisource for the foreseeable future. We currently provide these services at rates that we consider to be market-based. We expect that the prices that we will charge for these services beginning with the Separation Date will be determined pursuant to these services agreements, which are subject to revision at specified intervals. If market conditions change and we are required to provide services to Ocwen at below market rates, we could experience decreased earnings and cash flows as well as greater variability in our performance compared to our historical results.

     The assets and liabilities assigned to us pursuant to the Separation Agreement are accounted for at the historical book values of such assets and liabilities. Ocwen centrally manages the cash flows generated from our various activities and will continue to do so through the Separation Date.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

COMBINED CONSOLIDATED RESULTS OF OPERATIONS

     The following table summarizes our combined consolidated operating results for the periods indicated. The transactions with related parties included in this table and throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations consist of transactions with Ocwen businesses not included in the Separation or transactions derived from Ocwen’s loan servicing portfolio.

		Three Months Ended												Six Months Ended
		June 30,				June 30,								June 30,				June 30,
		2009				2008				% change				2009				2008				% change
Revenue		$	49,803			$	40,868				21.9	%		$	92,422			$	83,416				10.8	%
Cost of revenue			30,349				30,033				1.1	%			58,352				59,709				(2.3)	%
Gross profit			19,454				10,835				79.5	%			34,070				23,707				43.7	%
Selling, general and administrative expenses			8,673				6,754				28.4	%			16,151				14,143				14.2	%
Income from operations			10,781				4,081				164.2	%			17,919				9,564				87.4	%
Other income (expense), net
Interest income			—				1			NM					—				14			NM
Interest expense			(796	)			(654	)			(21.7)	%			(1,410	)			(1,337	)			(5.5)	%
Other, net			24				(4	)		NM					19				7			NM
Total other income (expense), net			(772	)			(657	)			(17.5)	%			(1,391	)			(1,316	)			(5.7)	%
Income before income taxes			10,009				3,424				192.3	%			16,528				8,248				100.4	%
Income tax provision			(2,994	)			(961	)			(211.6)	%			(5,074	)			(2,315	)			(119.2)	%
Net income		$	7,015			$	2,463				184.8	%		$	11,454			$	5,933				93.1	%
Transactions with related parties included above:
Revenue		$	24,342			$	16,496				47.6	%		$	44,507			$	33,290				33.7	%
Selling, general and administrative expenses		$	1,843			$	879				109.7	%		$	3,786			$	3,070				23.3	%
Interest expense		$	(528	)		$	(557	)			5.2	%		$	(1,097	)		$	(1,166	)			5.9	%

Revenues

     We completed the three and six months ended June 30, 2009 with $49,803 and $92,422 in consolidated revenues, respectively, as compared to $40,868 and $83,416, respectively, in the same periods in 2008. The following table summarizes the revenues by segment for the three and six months ended June 30, 2009 and 2008:

		Three Months Ended												Six Months Ended
		June 30,				June 30,								June 30,				June 30,
		2009				2008				% change				2009				2008				% change
Mortgage Services		$	24,020			$	13,358				79.8	%		$	41,720			$	28,559				46.1	%
Financial Services			16,469				19,030				(13.5	)%			33,787				38,529				(12.3	)%
Technology Products			12,109				12,410				(2.4	)%			22,682				22,894				(0.9	)%
Corporate and eliminations			(2,795	)			(3,930	)			28.9	%			(5,767	)			(6,566	)			12.2	%
Total revenues		$	49,803			$	40,868				21.9	%		$	92,422			$	83,416				10.8	%

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

     Mortgage Services principally generates revenue by providing professional outsourced services that span the lifecycle of a mortgage loan other than loan origination services. Although we provide services related to both mortgage originations and mortgage defaults, our revenues are subject to fluctuation based on prevailing market conditions. Revenues relating to mortgage originations declined from the three and six months ended June 30, 2008 to the three and six months ended June 30, 2009 due to the decline in mortgage originations in the overall market. We anticipated this change and began in 2008 to develop new services relating to mortgage default management including property inspection and property preservation, closing and title services, real estate sales and default management services. We also renewed and expanded a contract with a knowledge process outsourcing customer to increase the outsourcing services we provide to the customer. Revenues from these new services and from the contract expansion more than offset the decline in origination-related services in the first half of 2009, resulting in an overall increase in revenues of 79.8% and 46.1% for Mortgage Services in the three and six months June 30, 2009, respectively compared to the same periods in 2008.

     Financial Services revenues declined 13.5% and 12.3%, respectively, for the three and six months ended June 30, 2009 compared to the same periods in 2008 due primarily to lower collection rates from obligors on the credit card or other consumer debt that we are attempting to collect on behalf of our customers. We experienced declining collection rates throughout 2008 and the first half of 2009. Based on collections statistics we receive from our customers and general industry data, we believe this decline is reflective of the current economic climate and is consistent with the collections industry in general.

     Technology Products revenues decreased slightly in the second quarter of 2009 compared to the second quarter of 2008 due primarily to lower revenues from Ocwen as our REALServicing revenues represent the largest revenue stream in Technology Products, and these revenues have declined as Ocwen’s loan servicing portfolio has contracted. We also billed less internally to NCI as we have lowered costs in this area, and our billings are based on cost. This revenue decline is offset by a decline in expense for NCI and therefore does not impact our overall profitability. The REALServicing and NCI revenue declines were mostly offset by an increase in revenues from the contract expansion noted above, as we provide services to this customer in both our Mortgage Services and our Technology Products segments. For the six month period, Technology Products revenues declined only 0.9% as we further offset the REALServicing contraction when we changed our billings to Ocwen and inter-segment charges from a cost-based method to a market-based rate card in the second quarter of 2008. This change resulted in approximately $664 greater revenues in the first quarter and first half of 2009 than we would have recorded under the cost-based method. See further discussion of these changes in the Segment Results of Operations section later in this Quarterly Report.

     We intend to cross-sell our mortgage services and technology products going forward and doing so should increase the overall value we provide to our customers as well as improve our profitability.

Cost of revenue

     Cost of revenue includes: (i) payroll and employee benefits associated with personnel employed in customer service roles; (ii) fees paid to external providers of valuation, title, due diligence, agency and other outsourcing services, as well as printing and mailing costs for correspondence with debtors; and (iii) technology and telephony expenses as well as depreciation and amortization of operating assets. The components of cost of revenue were as follows:

		Three Months Ended												Six Months Ended
		June 30,				June 30,								June 30,				June 30,
		2009				2008				% change				2009				2008				% change
Compensation and benefits		$	12,803			$	15,558				(17.7	)%		$	25,877			$	30,108				(14.1	)%
Outside fees and services			13,677				8,723				56.8	%			24,281				19,285				25.9	%
Technology and communications			3,869				5,752				(32.7	)%			8,194				10,316				(20.6	)%
Total		$	30,349			$	30,033				1.1	%		$	58,352			$	59,709				(2.3	)%

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

     Cost of revenue increased 1.1% in the second quarter of 2009 and decreased 2.3% in the first half of 2009 compared to the same periods in 2008. We generated the decreases in compensation and benefits primarily in our Financial Services segment, where we aggressively reduced the number of collectors and further reduced their cost by relocating many positions to less expensive locations.

     Outside fees and services primarily increased in our Mortgage Services segment due to greater revenues in our new services, primarily property inspection and property preservation and our default management services. Outside fees and services also increased in our Financial Services segment as we are attempting to collect on more accounts in 2009 than in 2008 and therefore incurred greater costs relating to collection letters. NCI also increased its use of external collectors, resulting in a shift in costs from compensation and benefits to outside fees and services.

     Technology and communications decreased due primarily to our efforts to decrease the NCI technology expenses that we accomplished in part by reducing the number of internal collectors and in part by reducing telephony and related costs. Finally, we incurred lower depreciation in 2009 as several assets became fully depreciated late in 2008 and we accelerated the depreciation of some inadequate technology that impacted the 2008 periods but not those in 2009.

Selling, general and administrative expenses

     Selling, general and administrative expenses increased 28.4% in the second quarter of 2009 and 14.2% in the first half of 2009 compared to the same periods in 2008. The components of selling, general and administrative expenses were as follows:

		Three Months Ended												Six Months Ended
		June 30,				June 30,								June 30,				June 30,
		2009				2008				% change				2009				2008				% change
Occupancy and equipment		$	1,975			$	2,000				(1.3	)%		$	4,110			$	4,023				2.2	%
Corporate allocations			1,843				878				109.9	%			3,786				3,070				23.3	%
Professional services			2,529				1,033				144.8	%			3,356				1,746				92.2	%
Other			2,326				2,843				(18.2	)%			4,899				5,304				(7.6	)%
Total		$	8,673			$	6,754				28.4	%		$	16,151			$	14,143				14.2	%

     Occupancy and equipment was relatively unchanged from the prior year. Corporate allocations increased as Altisource represented a more significant portion of Ocwen in 2009 and incurred additional payroll and related costs as it utilized more legal, finance, executive and human resource services in connection with the growth in revenues and the planned Separation from Ocwen. The increase was magnified by our shifting certain accounting and management functions from NCI to Ocwen’s corporate department late in 2008, so we recorded these expenses as Other in the table above for 2008 and as Corporate allocations in 2009, resulting in the decrease in Other above. Professional services increased in 2009 as Ocwen considered all costs of the Separation through the end of the first quarter of 2009 to be corporate expenses and recorded them within its Corporate Items and Other category, but Altisource incurred these costs in the second quarter of 2009. Ocwen initially incurred these costs while it was determining the feasibility of the Separation. By the beginning of the second quarter of 2009, it was apparent that the Separation was feasible and that Ocwen likely would receive all necessary approvals to effect the Separation, and therefore Ocwen determined that Altisource should begin incurring these costs. We anticipate that Altisource will incur additional costs in the third quarter of 2009 as well, but that these costs will cease late in the third quarter after the Separation is complete.

Income from Operations and Income Before Income Taxes

     We improved income from operations by 164.2% and 87.4% in the three and six months ended June 30, 2009, respectively, compared to the same periods in 2008. We increased income before income taxes by 192.3% and 100.4% in the same periods. These increases were due primarily to our ability to scale mortgage services revenue with limited additional costs.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Income Tax Provision

     Income tax provision was $2,994 and $5,074 in the three and six months ended June 30, 2009, respectively. Our effective tax rate was 29.9% and 30.7% in the three and six months ended June 30, 2009, respectively, compared to 28.1% in the same periods in 2008. Income tax provision on income before income tax differs from amounts that would be computed by applying the Luxembourg federal corporate income tax rate of 28.6% primarily because of the effect of differing tax rates outside of Luxembourg, indefinite deferral on earnings of non-U.S. affiliates and additional foreign income taxes. The additional non-U.S. foreign income taxes were the primary reason for the increase in our effective tax rate between periods.

SEGMENT RESULTS OF OPERATIONS

     The following section provides a discussion of pre-tax results of operations of our business segments for the three and six months ended June 30, 2009 and 2008.

     A summary of our operating results by segment for the periods ended June 30, 2009 is as follows:

														Corporate								Altisource
		Mortgage				Financial				Technology				Items and				Corporate				Portfolio
		Services				Services				Products				Other				Eliminations				Solutions
Three Months Ended June 30, 2009
Revenue		$	24,020			$	16,469			$	12,109			$	—			$	(2,795	)		$	49,803
Cost of revenue			13,369				13,810				5,965				—				(2,795	)			30,349
Gross profit			10,651				2,659				6,144				—				—				19,454
Selling, general and administrative expenses			1,957				3,748				1,118				1,850				—				8,673
Income from operations			8,694				(1,089	)			5,026				(1,850	)			—				10,781
Other income (expense), net			(10	)			(647	)			(115	)			—				—				(772	)
Income before income taxes		$	8,684			$	(1,736	)		$	4,911			$	(1,850	)		$	—			$	10,009
Transactions with related parties included above:
Revenue		$	18,599			$	364			$	8,174			$	—			$	(2,795	)		$	24,342
Selling, general and administrative expenses		$	1,053			$	194			$	596			$	—			$	—			$	1,843
Interest expense		$	(11	)		$	(424	)		$	(93	)		$	—			$	—			$	(528	)

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

														Corporate								Altisource
		Mortgage				Financial				Technology				Items and				Corporate				Portfolio
		Services				Services				Products				Other				Eliminations				Solutions
Six Months Ended June 30, 2009
Revenue		$	41,720			$	33,787			$	22,682			$	—			$	(5,767	)		$	92,422
Cost of revenue			23,780				27,879				12,460				—				(5,767	)			58,352
Gross profit			17,940				5,908				10,222				—				—				34,070
Selling, general and administrative expenses			3,675				7,830				2,796				1,850				—				16,151
Income from operations			14,265				(1,922	)			7,426				(1,850	)			—				17,919
Other income (expense), net			(23	)			(1,115	)			(253	)			—				—				(1,391	)
Income before income taxes		$	14,242			$	(3,037	)		$	7,173			$	(1,850	)		$	—			$	16,528
Transactions with related parties included above:
Revenue		$	32,960			$	731			$	16,583			$	—			$	(5,767	)		$	44,507
Selling, general and administrative expenses		$	2,181			$	382			$	1,223			$	—			$	—			$	3,786
Interest expense		$	(23	)		$	(882	)		$	(192	)		$	—			$	—			$	(1,097	)