Management's discussion and analysis of financial condition and results of operations ("MD&A") is a supplement to the accompanying consolidated financial statements and is intended to provide a reader of our financial statements with a narrative from the perspective of management on our businesses, current developments, financial condition, results of operations and liquidity. Significant sections of the MD&A are as follows: Overview. This section, beginning below, provides a description of recent developments we believe are important in understanding our results of operations and financial condition as well as understanding anticipated future trends. It also provides a brief description of significant transactions and events that affect the comparability of financial results and a discussion of the progress being made on our strategic initiatives. Results of Operations. This section, beginning on page 31, provides an analysis of our consolidated results of operations for the two years endedDecember 31, 2021 . Liquidity and Capital Resources. This section, beginning on page 36, provides an analysis of our cash flows for the two years endedDecember 31, 2021 . We also discuss restrictions on cash movements, future commitments and capital resources. Critical Accounting Policies, Estimates and Recent Accounting Pronouncements. This section, beginning on page 39, identifies those accounting principles we believe are most important to our financial results and that require significant judgment and estimates on the part of management in application. We provide all of our significant accounting policies in Note 2 to the accompanying consolidated financial statements.
Other Matters. This section, beginning on page 41, provides a discussion of customer concentration.
OVERVIEW Our Business We are an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies,Altisource helps solve the demands of the ever-changing markets we serve.
The Company operates with one reportable segment (total Company).
We classify revenue in three categories: service revenue, revenue from reimbursable expenses and non-controlling interests. In evaluating our performance, we focus on service revenue. Service revenue consists of amounts attributable to our fee-based services. Reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin. Reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup. Non-controlling interests represent the earnings of Lenders One. Lenders One is a mortgage cooperative managed, but not owned, byAltisource . The Lenders One members' earnings are included in revenue and reduced from net income to arrive at net income attributable toAltisource .
Strategy and Core Businesses
We are focused on becoming the premier provider of mortgage and real estate marketplaces and related technology enabled solutions to a broad and diversified customer base of residential loan investors, servicers, and originators. The real estate and mortgage marketplaces represent very large markets, and we believe our scale and suite of offerings provide us with competitive advantages that could support our growth. As we navigate the COVID-19 pandemic and its impacts on our business, we continue to evaluate our strategy and core businesses and seek to position our businesses to provide long term value to our shareholders. Through our offerings that support residential loan investors and servicers, we provide a suite of solutions and technologies intended to meet their growing and evolving needs. We are focused on growing referrals from our existing customer base and attracting new customers to our offerings. We have a customer base that includes GSEs, asset managers, and several large bank and non-bank servicers including Ocwen and NRZ. We believe we are one of only a few providers with a broad suite of servicer solutions, nationwide coverage and scalability. Further, we believe we are well positioned to gain market share from existing and new customers in the event delinquency rates remain elevated following the expiration of the foreclosure moratoriums and forbearance plans, or customers and prospects consolidate to larger, full-service providers or outsource services that have historically been performed in-house. 25
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We also provide services to mortgage loan originators (or other similar mortgage market participants). We provide a suite of solutions and technologies to meet the evolving and growing needs of lenders, mortgage purchasers and securitizers. We are focused on growing business from our existing customer base, attracting new customers to our offerings and developing new offerings. We have a customer base that includes the Lenders One cooperative members, which includes independent mortgage bankers, credit unions, and banks, as well as bank and non-bank loan originators. We believe our suite of services, technologies and unique access to the members of the Lenders One mortgage cooperative position us to grow our relationships with our existing customer base by growing membership of Lenders One, increasing member adoption of existing solutions and developing and cross-selling new offerings. Further, we believe we are well positioned to gain market share from existing and new customers as customers and prospects consolidate to larger, full-service providers or outsource services that have historically been performed in-house. Our earlier stage business consists of Pointillist, a majority owned subsidiary ofAltisource . We developed the Pointillist business through our consumer analytics capabilities. We believe the Pointillist business is a potentially disruptive SaaS-based platform which provides unique customer journey analytics at scale and enables customers to engage through our intelligent platform. During 2019, we created Pointillist as a separate legal entity to position it for accelerated growth and outside investment and contributed the Pointillist business and$8.5 million to it. OnMay 27, 2021 , Pointillist issued$1.3 million in principal of convertible notes to related parties with a maturity date ofJanuary 1, 2023 . The notes bore interest at a rate of 7% per annum. The principal and unpaid accrued interest then outstanding under the notes (1) would automatically convert to Pointillist equity at the earlier of the time Pointillist receives proceeds of$5.0 million or more from the sale of its equity orJanuary 1, 2023 , or (2) are repaid in cash or converted into Pointillist common stock equity based on a$13.1 million Pointillist valuation (at the Lenders' option) in the event of a corporate transaction or initial public offering of Pointillist. OnOctober 6, 2021 , the shareholders of Pointillist, entered into a definitive Stock Purchase Agreement to sell all of the equity interests in Pointillist to Genesys for$150.0 million . The Purchase Price consisted of (1) an up-front payment of$144.5 million , subject to certain adjustments, (2)$0.5 million deposited into the Working Capital Escrow, with excess amounts remaining after satisfying such deficits (if any) being paid to the sellers, and (3)$5.0 million deposited into an escrow account to satisfy certain Genesys indemnification claims that may arise on or prior to the first anniversary of the sale closing and, at Genesys' election, any working capital deficits that exceed the Working Capital Escrow, with the balance to be paid to the sellers thereafter. The transaction closed onDecember 1, 2021 and the notes were converted to Pointillist equity in connection with the transaction. On a fully diluted basis, we owned approximately 69% of the equity of Pointillist. After working capital and other applicable adjustments, we received approximately$106.0 million from the sale of its Pointillist equity and the collection of outstanding receivables, with$102.2 million received at closing, approximately$0.3 million deposited into the Working Capital Escrow and approximately$3.5 million deposited into the Indemnification Escrow. We recognized a pre-tax and after-tax gain of$88.9 million from the sale.
COVID-19 Pandemic Impacts
In response to the COVID-19 pandemic, various governmental entities and servicers implemented unprecedented foreclosure and eviction moratoriums, forbearance programs and loss mitigation measures to help mitigate the impact to borrowers and renters. As a result of these measures and other related actions, industry-wide foreclosure initiations were 89% and 67% lower for the years endedDecember 31, 2021 and 2020, compared to the same period in 2019, respectively (with such foreclosure initiations representing 3%, 38% and 96% of seriously delinquent loans as of the beginning of the year in 2021, 2020 and 2019, respectively). The decline in foreclosure initiations resulted in significantly lower REO referrals toAltisource and negatively impacted virtually all ofAltisource's default related services performed on delinquent loans, loans in foreclosure and REO. At the same time, beginning in the first half of 2020 theFederal Reserve lowered the target for the federal funds rate to 0% to 0.25% and bought billions of dollars of mortgage backed securities on the secondary market to reduce interest rates. As a result of the lower interest rate environment, mortgage originations were 77% and 82% higher for the years endedDecember 31, 2021 and 2020 compared to 2019, respectively (according to theMortgage Bankers Association ) driving higher demand for origination related services. We cannot predict the duration of the pandemic and future governmental measures. The Federal government's foreclosure and eviction moratoriums expired at the end ofJuly 2021 . TheCFPB's rules on temporary loss mitigation measures essentially prohibited foreclosure initiations untilJanuary 1, 2022 other than a few exceptions, including for those loans that were 120 days or more delinquent prior to the pandemic. Based on these events, we believe the demand for our Default business will grow in 2022 after the expiration of theCFPB's temporary loss mitigation rules, and stabilize during 2023 when we anticipate foreclosures commenced after the expiration of the foreclosure moratoriums, forbearance plans and temporary loss mitigation rules become REO and are sold. We further anticipate that despite the forecasted decline in origination volumes in 2022 compared to 2021, our origination business will continue to grow from new customer wins, and cross selling existing and new offerings to customers. 26
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During 2021, to address lower revenue,Altisource worked to (1) reduce our cost structure, (2) maintain the infrastructure to deliver default related services for our customer base and support the anticipated increase in demand following the expiration of the moratoriums and forbearance plans, (3) accelerate the growth of our originations businesses, and (4) generate cash.
Share Repurchase Program
OnMay 15, 2018 , our shareholders approved the renewal and replacement of the share repurchase program previously approved by the shareholders onMay 17, 2017 . Under the program, we are authorized to purchase up to 4.3 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval, at a minimum price of$1.00 per share and a maximum price of$500.00 per share, for a period of five years from the date of approval. As ofDecember 31, 2021 , approximately 2.4 million shares of common stock remain available for repurchase under the program. There were no purchases of shares of common stock during the years endedDecember 31, 2021 and 2020. Luxembourg law limits share repurchases to the balance ofAltisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings, less the value of shares repurchased. As ofDecember 31, 2021 , we can repurchase up to approximately$80 million of our common stock under Luxembourg law. Our senior secured term loan agreement also limits the amount we can spend on share repurchases, which limit was approximately$437 million as ofDecember 31, 2021 , and may prevent repurchases in certain circumstances, including if our leverage ratio exceeds 3.50 to 1.00. Ocwen Related Matters During the year endedDecember 31, 2021 , Ocwen was our largest customer, accounting for 31% of our total revenue. Additionally, 5% of our revenue for the year endedDecember 31, 2021 was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or the MSR owner selectedAltisource as the service provider. Ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions and is subject to pending and threatened legal proceedings, some of which include claims against Ocwen for substantial monetary damages. Previous regulatory actions against Ocwen have subjected Ocwen to independent oversight of its operations and placed certain restrictions on its ability to acquire servicing rights. Existing or future similar matters could result in adverse regulatory or other actions against Ocwen. In addition to the above, Ocwen may become subject to future adverse regulatory or other actions. Ocwen has disclosed that NRZ is its largest client. As ofDecember 31, 2021 , approximately 21% of loans serviced and subserviced by Ocwen (measured in UPB) were related to NRZ MSRs or rights to MSRs. InJuly 2017 andJanuary 2018 , Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen's legal title to the Subject MSRs and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years. NRZ can terminate its sub-servicing agreement with Ocwen in exchange for the payment of a termination fee. The existence or outcome of Ocwen regulatory matters or the termination of the NRZ sub-servicing agreement with Ocwen may have significant adverse effects on Ocwen's business and/or our continuing relationship with Ocwen. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services, it may be required to seek changes to its existing pricing structure with us, it may lose its non-GSE servicing rights or subservicing arrangements or may lose one or more of its state servicing or origination licenses. Additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in Ocwen's business that could require it to sell assets or change its business operations. Any or all of these effects and others could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers. During the second quarter of 2020, Ocwen informed us that an MSR investor instructed Ocwen to use a field services provider other thanAltisource on properties associated with certain MSRs. Based upon the impacted portfolios and the designated service provider,Altisource believes that Ocwen received these directions from NRZ. We believe Ocwen commenced using another field services provider for these properties inJuly 2020 and continued to transition services during the third quarter of 2020. We believe that the transition to the replacement field service provider was largely completed as ofSeptember 30, 2020 . We estimate that$0.5 million and$70.1 million of service revenue from Ocwen for the years endedDecember 31, 2021 and 2020, respectively, was derived from Field Services referrals from the NRZ portfolios. Ocwen also communicated toAltisource in the fourth quarter of 2020 that the same investor instructed Ocwen to use a provider for default valuations and certain default title services other thanAltisource on properties associated with such certain MSRs and commenced moving these referrals to other service providers in the fourth quarter of 2020, with the bulk of such transition occurring during 2021. We anticipate that the transition of such default valuations and title services will continue during the course of 2022. We estimate that$2.9 million and$18.2 million of service revenue from Ocwen for the years endedDecember 31, 2021 and 2020, 27
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respectively, was derived from default valuations and title services referrals from the NRZ portfolios. To address the reduction in revenue,Altisource undertook several measures to further reduce its cost structure, strengthen its operations and generate cash. OnMay 5, 2021 we entered into an Agreement with Ocwen pursuant to which the terms of certain services agreements between us and Ocwen were extended fromAugust 2025 throughAugust 2030 and the scope of solutions we provide to Ocwen was expanded to include, among other things, the opportunity for the Company to provide first and second chance foreclosure auctions on Government Loans, and title services on FHA andVeterans Affairs loans, subject to a process to confirmAltisource's ability to meet reasonable performance requirements, which process is continuing. The Agreement established a framework for us to expand the foreclosure trustee solutions we provide to Ocwen in additional states, and, as mutually agreed upon by the parties, to deliver reverse mortgage related solutions to Ocwen, subject to negotiation of appropriate statements of work or other agreements, a process to confirmAltisource's ability to meet reasonable performance requirements, and technical integrations, as may be applicable. The Agreement further resolved the contractual dispute between the parties related to Ocwen's transfer to NRZ the rights to designate service providers other thanAltisource , including mutual releases with respect to such dispute. The Agreement also addressed Ocwen's rights in the event of certain change of control or sale of a business transactions by us on or afterSeptember 1, 2028 . Since the date of the Agreement, Ocwen has transitioned over 2,300 of its foreclosure auction inventory on Government Loans to us and increased our percentage of field services referrals on its Government Loans. In addition to expected reductions in our revenue from the transition of referrals for default related services previously identified, if any of the following events occurred,Altisource's revenue could be further significantly reduced and our results of operations could be materially adversely affected, including from the possible impairment or write-off of goodwill, intangible assets, property and equipment, other assets and accounts receivable:
•Altisource loses Ocwen as a customer or there is an additional significant reduction in the volume of services they purchase from us
•Ocwen loses, sells or transfers a significant portion of its servicing rights or subservicing arrangements andAltisource fails to be retained as a service provider •The contractual relationship between Ocwen and NRZ changes significantly, including Ocwen's sub-servicing arrangement with NRZ expiring without renewal, and this change results in a change in our status as a provider of services related to the Subject MSRs
•Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen's servicing portfolio
•The contractual relationship between Ocwen andAltisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue
•Altisource otherwise fails to be retained as a service provider
Management cannot predict whether any of these events will occur or the amount of any impact they may have onAltisource . However, we are focused on diversifying and growing our revenue and customer base and we have a sales and marketing strategy to support these efforts. Moreover, in the event one or more of these events materially negatively impactAltisource , we believe the variable nature of our cost structure would allow us to realign our cost structure to address some of the impact to revenue and that current liquidity would be sufficient to meet our working capital, capital expenditures, debt service and other cash needs. There can be no assurance that our plans will be successful or our operations will be profitable.
Factors Affecting Comparability
The following items impact the comparability of our results:
•The Company's financial performance in its default businesses was negatively impacted by the COVID-19 pandemic for the year endedDecember 31, 2021 . Governmental, and in some instances servicer, measures to provide support to borrowers, including foreclosure and eviction moratoriums, forbearance programs, and loss mitigation measures, reduced referral volumes and inflows of REO. COVID-19 pandemic related governmental restrictions and changing vendor and consumer behavior also impacted financial performance. These impacts were partially offset by stronger performance from the Company's origination businesses that benefited from lower interest rates, customer wins and new offerings for the year endedDecember 31, 2021 compared to 2020. Across the Company's three core businesses, service revenue from customers other than Ocwen,NRZ and Front Yard Residential Corporation ("RESI") for the year endedDecember 31, 2021 decreased by 5% compared to 2020. Compared to the year endedDecember 31, 2020 , the decrease is primarily from a 64% decline in our default business, partially offset by a 11% growth in our origination businesses. Service revenue from our default and other business was$107.2 million and$290.9 million for the years 28
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endedDecember 31, 2021 and 2020, respectively, and service revenue from our origination business was$58.0 million and$52.3 million for the years endedDecember 31, 2021 and 2020, respectively. •OnOctober 6, 2021 , the shareholders of Pointillist, a majority owned subsidiary ofAltisource , entered into a definitive Stock Purchase Agreement to sell all of the equity interests in Pointillist to Genesys for$150.0 million . The Purchase Price consisted of (1) an up-front payment of$144.5 million , subject to certain adjustments, (2)$0.5 million deposited into the Working Capital Escrow, with excess amounts remaining after satisfying such deficits (if any) being paid to the sellers, and (3)$5.0 million deposited into an escrow account to satisfy certain Genesys indemnification claims that may arise on or prior to the first anniversary of the sale closing and, at Genesys' election, any working capital deficits that exceed the Working Capital Escrow, with the balance to be paid to the sellers thereafter. The transaction closed onDecember 1, 2021 . On a fully diluted basis,Altisource owned approximately 69% of the equity of Pointillist. After working capital and other applicable adjustments,Altisource received approximately$106.0 million from the sale of its Pointillist equity and the collection of outstanding receivables, with$102.2 million received at closing, approximately$0.3 million deposited into the Working Capital Escrow and approximately$3.5 million deposited into the Indemnification Escrow. We recognized a pre-tax and after-tax gain of$88.9 million from the sale. For the year endedDecember 31, 2021 and 2020, service revenue from Pointillist was$4.8 million and$2.2 million , respectively. •Altisource used approximately$20.0 million of the proceeds from the sale of its equity interest in Pointillist to repay the outstanding balance on its revolving line of credit. This revolving line of credit remains available toAltisource according to its terms. •During the second quarter of 2020, Ocwen informed us that an MSR investor instructed Ocwen to use a field services provider other thanAltisource on properties associated with certain MSRs. Based upon the impacted portfolios and the designated service provider,Altisource believes that Ocwen received these directions from NRZ. We believe Ocwen commenced using another field services provider for these properties inJuly 2020 and continued to transition services during the third quarter of 2020. We believe that the transition to the replacement field service provider was largely completed as ofSeptember 30, 2020 . We estimate that$0.5 million and$70.1 million of service revenue from Ocwen for the years endedDecember 31, 2021 and 2020, respectively, was derived from Field Services referrals from the NRZ portfolios. Ocwen also communicated toAltisource in the fourth quarter of 2020 that the same investor instructed Ocwen to use a provider for default valuations and certain default title services other thanAltisource on properties associated with such certain MSRs and commenced moving these referrals to other service providers in the fourth quarter of 2020, with the bulk of such transition occurring during 2021. We anticipate that the transition of such default valuations and title services will continue during the course of 2022. We estimate that$2.9 million and$18.2 million of service revenue from Ocwen for the years endedDecember 31, 2021 and 2020, respectively, was derived from default valuations and title services referrals from the NRZ portfolios. To address the reduction in revenue,Altisource undertook several measures to further reduce its cost structure, strengthen its operations and generate cash. •During the year endedDecember 31, 2020 we recognized an unrealized gain of$4.0 million from the change in fair value on our investment inRESI in other income (expense), net in the consolidated statements of operations and comprehensive income (loss) from a change in the market value ofRESI common shares (no comparative amount for the year endedDecember 31, 2021 ). In 2020, the Company sold all of its remaining 3.5 million shares ofRESI for net proceeds of$46.6 million . As required by our senior secured term loan agreement, the Company used the net proceeds to repay a portion of its senior secured term loan. •InAugust 2018 ,Altisource initiated Project Catalyst, a project intended to optimize its operations and reduce costs to better align its cost structure with its anticipated revenues and improve its operating margins (finalized in 2020). During the year endedDecember 31, 2020 ,Altisource incurred$12.0 million of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan (no comparative amount for the year endedDecember 31, 2021 ). •OnJuly 1, 2019 ,Altisource sold its Financial Services business, consisting of its post-charge-off consumer debt and mortgage charge-off collection services and customer relationship management services (the "Financial Services Business") toTransworld Systems Inc. ("TSI") for$44.0 million consisting of an upfront payment of$40.0 million , subject to a working capital adjustment (finalized during 2019) and transaction costs upon closing of the sale, and an additional$4.0 million payment on the one year anniversary of the sale closing. OnJuly 1, 2020 , the Company received net proceeds of$3.3 million representing TSI's final installment payment less certain amounts owed to TSI. •The Company recognized an income tax provision of$3.2 million for the year endedDecember 31, 2021 . The income tax provision for the year endedDecember 31, 2021 was driven by no income tax provision on the gain on sale of Pointillist, income tax on transfer pricing income fromIndia , no tax benefit on the pretax loss from our Luxembourg operating company and Pointillist, uncertain tax position and tax on unrepatriated earnings inIndia . •The Company recognized an income tax provision of$8.6 million for the year endedDecember 31, 2020 . The income tax provision on losses before income taxes and non-controlling interests for the year endedDecember 31, 2020 was primarily driven by income in our US and other foreign operations from transfer pricing on services provided to our Luxembourg operating company, no tax benefit on the pretax losses from our Luxembourg operating company for the 29
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RESULTS OF OPERATIONS
Following is a discussion of our results of operations for the years ended
The following table sets forth information on our consolidated results of
operations for the years ended
(in thousands, except per share data) 2021 % Increase (decrease) 2020 Service revenue$ 170,613 (51)$ 347,313 Reimbursable expenses 6,555 (60) 16,285 Non-controlling interests 1,285 (34) 1,949 Total Revenue 178,453 (51) 365,547 Cost of Revenue 171,366 (44) 305,194 Gross profit 7,087 (88) 60,353 Operating expense (income): Selling, general and administrative expenses 67,049 (28) 92,736 Gain on sale of businesses (88,930) N/M - Restructuring charges - (100) 11,972 Income (loss) from operations 28,968 165 (44,355) Other income (expense), net: Interest expense (14,547) (18) (17,730) Unrealized gain on investment in equity securities - (100) 4,004 Other income, net 864 130 375 Total other income (expense), net (13,683) (2) (13,351) Income (loss) before income taxes and non-controlling interests 15,285 126 (57,706) Income tax provision (3,232) (62) (8,609) Net income (loss) 12,053 118 (66,315) Net income attributable to non-controlling interests (241) (71) (841) Net income (loss) attributable to Altisource$ 11,812 118$ (67,156) Margins: Gross profit/service revenue 4 % 17 % Income (loss) from operations/service revenue 17 % (13) % Earnings (loss) per share: Basic$ 0.75 117$ (4.31) Diluted$ 0.74 117$ (4.31) Weighted average shares outstanding: Basic 15,839 2 15,598 Diluted 16,063 3 15,598
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N/M - not meaningful.
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Revenue
Revenue by line of business consists of the following for the years ended
(in thousands, except per share data) 2021 % Increase (decrease) 2020 Service revenue: Field Services$ 45,576 (71)$ 157,100 Marketplace 35,956 (56) 82,189 Mortgage and Real Estate Solutions 83,627 (20) 103,906 Earlier Stage Business 4,821 115 2,243 Other 633 (66) 1,875 Total service revenue 170,613 (51) 347,313 Reimbursable expenses: Field Services 1,459 (66) 4,344 Marketplace 2,481 (70) 8,331 Mortgage and Real Estate Solutions 2,615 (28) 3,610 Total reimbursable expenses 6,555 (60) 16,285 Non-controlling interests: Mortgage and Real Estate Solutions 1,285 (34) 1,949 Total revenue$ 178,453 (51)$ 365,547 N/M - not meaningful. 2021 service revenue of$170.6 million was 51% lower than 2020 primarily from COVID-19 pandemic related foreclosure and eviction moratoriums and borrower forbearance plans, and an MSR investor's 2020 instructions to Ocwen to transition field services, title and valuation referrals historically provided toAltisource to the MSR investor's captive vendors. The decrease for the year endedDecember 31, 2021 was partially offset by an increase in revenue from our origination business of 11%, from higher origination related volumes driven by a lower interest rate environment, customer wins and new offerings. We recognized reimbursable expense revenue of$6.6 million for the year endedDecember 31, 2021 , a 60% decrease compared to the year endedDecember 31, 2020 . The decreases in reimbursable expense revenue for the year endedDecember 31, 2021 was consistent with the decline in service revenue discussed above. Certain of our revenues can be impacted by seasonality. More specifically, revenues from property sales, loan originations and certain property preservation services in Field Services typically tend to be at their lowest level during the fall and winter months and at their highest level during the spring and summer months. However, as a result of the pandemic and related measures, the seasonal impact to revenue may not follow historical patterns.
Cost of Revenue and Gross Profit
Cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service, operations and technology roles, fees paid to external providers related to the provision of services, reimbursable expenses, technology and telecommunications costs and depreciation and amortization of operating assets. 32
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Cost of revenue consists of the following for the years ended
(in thousands) 2021 % Increase (decrease) 2020 Compensation and benefits$ 69,990 (26)$ 94,365 Outside fees and services 66,386 (55) 146,322 Technology and telecommunications 25,273 (30)
35,912
Reimbursable expenses 6,555 (60)
16,285
Depreciation and amortization 3,162 (74) 12,310 Total$ 171,366 (44)$ 305,194 We recognized cost of revenue of$171.4 million for the year endedDecember 31, 2021 , a 44% decrease compared to the year endedDecember 31, 2020 . The decrease in outside fees and services was primarily driven by lower service revenue in the Field Services, Marketplace and Mortgage andReal Estate Solutions businesses, discussed in the revenue section above. Compensation and benefits decreased primarily due to cash cost savings measures taken in 2020 in response to the COVID-19 related decrease in service revenue and reduction in revenue from Ocwen discussed in the revenue section above. The Company also continued to reduce employee costs in the year endedDecember 31, 2021 as a result of the extension of the expiration of foreclosure moratoriums and forbearance plans. In addition, depreciation and amortization was lower from the completion of the depreciation periods of certain premises and equipment and the reduction in capital expenditures. The decrease in reimbursable expenses was consistent with the changes in reimbursable expense revenue discussed in the revenue section above. Gross profit decreased to$7.1 million , representing 4% of service revenue, for the year endedDecember 31, 2021 compared to$60.4 million , representing 17% of service revenue, for the year endedDecember 31, 2020 . Gross profit as a percentage of service revenue in 2021 decreased compared to 2020, primarily due to revenue mix with lower revenue from the higher margin Marketplace businesses and lower gross profit margin in the Field Services business. These decreases were partially offset by our COVID-19 cash cost savings measures.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses includes payroll for personnel employed in executive, sales and marketing, finance, technology, law, compliance, human resources, vendor management, facilities and risk management roles. This category also includes professional services fees, occupancy costs, marketing costs, depreciation and amortization of non-operating assets and other expenses.
SG&A expenses consist of the following for the years ended
(in thousands) 2021 % Increase (decrease) 2020 Compensation and benefits$ 28,367 (20)$ 35,521 Occupancy related costs 9,332 (52) 19,363 Amortization of intangible assets 9,467 (36) 14,720 Professional services 10,163 (11) 11,444 Marketing costs 2,157 (35) 3,325 Depreciation and amortization 1,430 (45) 2,580 Other 6,133 6 5,783 Selling, general and administrative expenses$ 67,049 (28)$ 92,736 SG&A for the year endedDecember 31, 2021 of$67.0 million decreased by 28% compared to the year endedDecember 31, 2020 . The decrease was primarily driven by lower compensation and benefits, occupancy related costs and amortization of intangible assets. Compensation and benefits decreased primarily due to cash cost savings measures taken in 2020 and 2021 in response to the COVID-19 related decrease in service revenue and reduction in revenue from Ocwen discussed in the revenue section above. The decreases in occupancy related costs primarily resulted from facility consolidation initiatives. The decrease in amortization of intangible assets was driven by the completion of the amortization period of certain intangible assets during 2021 and 2020. In addition, the decrease in marketing costs were primarily driven by COVID-19 cost savings measures and the decline in revenue. 33
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Other Operating Expenses (Income)
Other operating expenses (income) include the gain on sale of businesses and restructuring charges.
Other operating expenses (income) consist of the following for the years endedDecember 31 : (in thousands) 2021 % Increase (decrease) 2020 Gain on sale of businesses$ (88,930) N/M $ - Restructuring charges - (100) 11,972 Other operating (income) expenses, net$ (88,930) N/M$ 11,972 N/M - not meaningful. OnDecember 1, 2021 ,Altisource sold its equity interest in Pointillist (see subsection Strategy and Core Businesses in MD&A Overview for more details). After working capital and other applicable adjustments,Altisource received approximately$106.0 million from the sale of its Pointillist equity and the collection of outstanding receivables, with$102.2 million received at closing, approximately$0.3 million deposited into the Working Capital Escrow and approximately$3.5 million deposited into the Indemnification Escrow. We recognized a pre-tax and after-tax gain of$88.9 million from the sale. InAugust 2018 ,Altisource initiated Project Catalyst, a project intended to optimize its operations and reduce costs to better align its cost structure with its anticipated revenues and improve its operating margins (finalized in 2020). During the year endedDecember 31, 2020 we incurred$12.0 million (no comparative amount for the year endedDecember 31, 2021 ), of severance costs, professional services fees, facility consolidation costs, technology costs and business wind down costs related to the reorganization plan.
Income (Loss) from Operations
Income from operations increased to$29.0 million , representing 17% of service revenue, for the year endedDecember 31, 2021 compared to a loss from operations of$(44.4) million , representing (13)% of service revenue, for the year endedDecember 31, 2020 . Income from operations as a percentage of service revenue increased for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , primarily as a result of the gain on sale of business recognized during the year endedDecember 31, 2021 , lower SG&A expenses and restructuring charges, partially offset by lower gross profit margins, as discussed above.
Other Income (Expense), net
Other income (expense), net principally includes interest expense, unrealized
gain (loss) on our investment in
Other income (expense), net was$(13.7) million for the year endedDecember 31, 2021 compared to$(13.4) million for the year endedDecember 31, 2020 . The increase in other expense for the year endedDecember 31, 2021 was primarily driven by a$4.0 million unrealized gain on our investment inRESI common shares in 2020 (no comparative amount in 2021). The increase in other expense was partially offset by lower interest expense during the year endedDecember 31, 2021 . Interest expense decreased primarily due to lower average outstanding balances of the senior secured term loan as a result of repayments during 2020 and lower interest rates. For the year endedDecember 31, 2021 , the interest rate of the senior secured term loan was 5.0% compared to 5.3% for the year endedDecember 31, 2020 .
Income Tax Provision
We recognized an income tax provision of
The income tax provision for the year endedDecember 31, 2021 was driven by no income tax provision on the gain on sale of Pointillist, income tax on transfer pricing income fromIndia , no tax benefit on the pretax loss from our Luxembourg operating company and Pointillist, uncertain tax position and tax on unrepatriated earnings inIndia . The income tax provision on losses before income taxes and non-controlling interests for the year endedDecember 31, 2020 was primarily driven by income in our US and other foreign operations from transfer pricing on services provided to our Luxembourg operating company, no tax benefit on the pretax losses from our Luxembourg operating company for the year 34
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our primary source of liquidity has historically been cash flow from operations, cash proceeds from sales of businesses and cash on hand. However, due to the COVID-19 pandemic and an MSR investor's instructions to Ocwen to transition field services, valuation and title services to the investor's captive service providers, revenue has declined significantly. The lower revenue, partially offset by cost savings initiatives, resulted in negative operating cash flow from operations for the year endedDecember 31, 2021 . To increase our liquidity we entered into a$20 million revolving credit facility during the second quarter of 2021. In addition,Altisource's December 1, 2021 sale of its equity interest in Pointillist increased our liquidity. The Pointillist sale generated approximately$106.0 million in cash, with$102.2 million received at closing, approximately$0.3 million deposited into the Working Capital Escrow and approximately$3.5 million deposited into the Indemnification Escrow. Finally, we believe the anticipated 2022 growth in our origination and default businesses along with our reduced cost structure should help reduce negative operating cash flow. We seek to deploy cash generated in a disciplined manner. Principally, we intend to use cash to develop and grow complementary services and businesses that we believe will generate attractive margins in line with our core capabilities and strategy and fund negative operating cash flow. We also use cash for repayments of our long-term debt and capital investments. In addition, from time to time we consider and evaluate business acquisitions, dispositions, closures or other similar actions that are aligned with our strategy.
Credit Agreement
InApril 3, 2018 ,Altisource Portfolio Solutions S.A. and its wholly-owned subsidiary, Altisource S.à r.l. entered into a credit agreement (the "Credit Agreement") pursuant to whichAltisource borrowed$412.0 million in the form of Term B Loans and obtained a$15.0 million revolving credit facility. The Term B Loans mature inApril 2024 . We terminated the revolving credit facility onDecember 1, 2021 . As ofDecember 31, 2021 , the principal balance of the Term B Loans was$247.2 million . There are no mandatory repayments of the Term B Loans due until maturity inApril 2024 , except as otherwise described herein and in the Credit Agreement. All amounts outstanding under the Term B Loans will become due on the earlier of (i)April 3, 2024 , and (ii) the date on which the loans are declared to be due and owing by the administrative agent at the request (or with the consent) of the Required Lenders (as defined in the Credit Agreement; other capitalized terms, unless defined herein, are defined in the Credit Agreement) or as otherwise provided in the Credit Agreement upon the occurrence of any event of default. In addition to the scheduled principal payments, subject to certain exceptions, the Term B Loans are subject to mandatory prepayment upon issuances of debt, certain casualty and condemnation events and sales of assets, as well as from a percentage of Consolidated Excess Cash Flow if our leverage ratio as of each year-end computation date is greater than 3.00 to 1.00, as calculated in accordance with the provisions of the Credit Agreement (the percentage increases if our leverage ratio exceeds 3.50 to 1.00).
The interest rate on the Term B Loans as of
Altisource may incur incremental indebtedness under the Credit Agreement from one or more incremental lenders, which may include existing lenders, in an aggregate incremental principal amount not to exceed$125.0 million , subject to certain conditions set forth in the Credit Agreement, including a sublimit of$80.0 million with respect to incremental revolving credit commitments and, after giving effect to the incremental borrowing, the Company's leverage ratio does not exceed 3.00 to 1.00. The lenders have no obligation to provide any incremental indebtedness. The Credit Agreement includes covenants that restrict or limit, among other things, our ability, subject to certain exceptions and baskets, to incur additional debt, pay dividends and repurchase shares of our common stock. In the event we require additional liquidity, our ability to obtain it may be limited by the Credit Agreement. Credit Facility OnJune 22, 2021 Altisource S.à r.l, a subsidiary ofAltisource Portfolio Solutions S.A. , entered into a revolving credit facility with a related party, STS. STS is an investment fund managed byDeer Park Road Management Company, LP .Deer Park Road Management Company, LP owns approximately 24% ofAltisource's common stock as ofDecember 31, 2021 and its Chief Investment Officer and managing partner is a member ofAltisource's Board of Directors. Under the terms of the Credit Facility, STS will make loans toAltisource from time to time, in amounts requested byAltisource andAltisource may voluntarily prepay all or any portion of the outstanding loans at any time. The Credit Facility providesAltisource the ability to borrow a maximum amount of$20.0 million throughJune 22, 2022 ,$15.0 million throughJune 22, 2023 , and$10.0 million until the end of the term. Amounts that are repaid may be re-borrowed in accordance with the limitations set forth below. 36
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Outstanding amounts borrowed pursuant to the Credit Facility will amortize over the three-year term as follows: onJune 22, 2022 , the difference between the then outstanding balance above$15.0 million and$15.0 million , will be due and payable byAltisource ; onJune 22, 2023 , the difference between the then outstanding balance above$10.0 million and$10.0 million , will be due and payable byAltisource ; and onJune 22, 2024 , the then outstanding balance of the loan will be due and payable byAltisource . Borrowings under the Credit Facility bear interest of 9.00% per annum and are payable quarterly on the last business day of each March, June, September and December, commencing onSeptember 30, 2021 . In connection with the Credit Facility,Altisource is required to pay customary fees, including an upfront fee equal to$0.5 million at the initial extension of credit pursuant to the facility, an unused line fee of 0.5% and, an early termination fee in the event of a refinancing transaction.Altisource's obligations under the Credit Facility are secured by a lien on all equity inAltisource's subsidiary incorporated inIndia ,Altisource Business Solutions Private Limited , pursuant to a pledge agreement entered into by Altisource Asia Holdings Ltd I, a wholly owned subsidiaryAltisource . The Credit Facility contains additional representations, warranties, covenants, terms and conditions customary for transactions of this type, that restrict or limit, among other things, our ability to use the proceeds of credit only for general corporate purposes. The Credit Facility contains certain events of default including (i) failure to pay principal when due or interest or any other amount owing on any other obligation under the Credit Facility within three business days of becoming due, (ii) failure to perform or observe any material provisions of the Credit Documents to be performed or complied with, (iii) material incorrectness of representations and warranties when made, (iv) default on any other debt that equals or exceeds$40.0 million that causes, or gives the holder or holders of such debt the ability to cause, an acceleration of such debt, (v) entry by a court of one or more judgments against us in an amount in excess of$40.0 million that remain unbonded, undischarged or unstayed for a certain number of days after the entry thereof, (vi) occurrence of a Change of Control, (vii) bankruptcy and insolvency events. If any event of default occurs and is not cured within applicable grace periods set forth in the Credit Facility or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated.
As of
Cash Flows
The following table presents our cash flows for the years endedDecember 31 : (in thousands) 2021 % Increase (decrease) 2020 Cash flows used in operating activities$ (60,405) (170)$ (22,401) Cash flows provided by investing activities 102,762 118 47,224 Cash flows used in financing activities (2,304) 95 (49,310)
Net increase (decrease) in cash, cash equivalents and restricted cash
40,053 264 (24,487) Cash, cash equivalents and restricted cash at the beginning of the period 62,096 (28) 86,583
Cash, cash equivalents and restricted cash at the end of the period
$ 102,149 65$ 62,096
Cash Flows from Operating Activities
Cash flows from operating activities generally consist of the cash effects of transactions and events that enter into the determination of net income. For the year endedDecember 31, 2021 , cash flows used in operating activities were$(60.4) million , or approximately$(0.35) for every dollar of service revenue, compared to cash flows used in operating activities of$(22.4) million , or approximately$(0.06) for every dollar of service revenue, for the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , the increase in cash used in operating activities was primarily driven by a$10.6 million increase in net loss excluding the gain on sale of business and a$26.3 million decrease in non-cash depreciation, amortization of intangibles, stock based compensation and deferred income tax expenses. The increase in net loss excluding the gain on sale of business was primarily due to lower gross profit during the year endedDecember 31, 2021 from lower service revenue driven by the COVID-19 pandemic and the loss of certain services relating to one of Ocwen's subservicing customers, partially offset by decreases in expenses as a result of COVID-19 cash cost savings measures, the Project Catalyst cost reduction initiatives and lower SG&A expenses. Operating cash flows can be negatively impacted because of the nature of some of our services and the mix of services provided. Certain services are performed immediately following or shortly after the referral, 37
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but the collection of the receivable does not occur until a specific event occurs (e.g., the foreclosure is complete, the REO asset is sold, etc.). Furthermore, lower margin services generate lower income and cash flows from operations. Consequently, our cash flows from operations may be negatively impacted when comparing one period to another.
Cash Flows from Investing Activities
Cash flows from investing activities generally include additions to premises and equipment, acquisitions and sales of businesses, and sales of equity securities. Cash flows provided by investing activities were$102.8 million and$47.2 million for the years endedDecember 31, 2021 and 2020, respectively. The change in cash provided by investing activities was primarily driven by$104.1 million in proceeds from the sale of businesses for the year endedDecember 31, 2021 , including$101.1 million from the sale of equity in Pointillist and$3.0 million in connection with the second installment from theAugust 2018 sale of the rental property management business toRESI , compared to$3.3 million in proceeds from the sale of the Financial Services Business for 2020. We used$1.4 million and$2.7 million for the years endedDecember 31, 2021 and 2020, respectively, for additions to premises and equipment primarily related to investments in the development of certain software applications and facility improvements. In addition, we sold 3.5 million shares ofRESI stock for net proceeds of$46.6 million during the year endedDecember 31, 2020 .
Cash Flows from Financing Activities
Cash flows from financing activities primarily included payments of tax withholdings on issuance of restricted share units and restricted shares, distributions to non-controlling interests, debt repayments and for the year endedDecember 31, 2021 , included proceeds from issuance of debt and debt issuance costs. Cash flows used in financing activities were$(2.3) million and$(49.3) million for the years endedDecember 31, 2021 and 2020, respectively. During the years endedDecember 31, 2021 and 2020, we used$(20.0) million and$(46.6) million , respectively, for repayments of debt from proceeds from the sale of equity in Pointillist and from proceeds from the sale ofRESI common shares as discussed in the cash flows from investing activities section above. We distributed$(2.0) million and$(1.1) million , to non-controlling interests for the years endedDecember 31, 2021 and 2020, respectively. In addition, we made payments of$(1.0) million and$(1.6) million for the years endedDecember 31, 2021 and 2020, respectively, to satisfy employee tax withholding obligations on the issuance of restricted shares. These payments were made to tax authorities, at the employees' direction, to satisfy the employees' tax obligations rather than issuing a portion of vested restricted shares to employees. During the year endedDecember 31, 2021 , we received proceeds from the issuance of debt of$20.0 million and used$(0.5) million in debt issuance costs in connection with borrowings under the Credit Facility, and received proceeds from the Pointillist convertible notes payable to related parties of$1.2 million (no comparable amounts for the year endedDecember 31, 2020 )
Short-term Liquidity Requirements after
Our significant future short-term liquidity obligations primarily pertain to interest expense under the Credit Agreement (see Liquidity section above), lease payments and distributions to Lenders One members. During the next 12 months, we expect to pay$12.4 million of interest expense (assuming no further principal repayments and theDecember 31, 2021 interest rate) under the Credit Agreement and make lease payments of$3.1 million . We believe that our existing cash and cash equivalents balances and available borrowings under the Credit Facility, net of our anticipated cash flows used in operations, will be sufficient to meet our liquidity needs, including required interest and lease payments, for the next 12 months.
Long-term Liquidity Requirements after
Our significant future long-term liquidity obligations primarily pertain to long-term debt repayments, interest expense under the Credit Agreement (see Liquidity section above) and operating lease payments on certain of our premises and equipment. The outstanding balance of our Credit Agreement of$247.2 million is due onApril 1, 2024 . During 2023 and 2024, we expect to pay$15.5 million of interest expense under the Credit Agreement (estimated future interest payments based on the interest rate as ofDecember 31, 2021 and theApril 1, 2024 maturity date). During 2023 and 2024, we expect to make lease payments of$3.7 million . During 2025 and 2026 we expect to make lease payments of$1.7 million . For further information, see Note 13 and Note 24 to the consolidated financial statements.
We expect to fund long-term liquidity requirements with a combination of existing cash balances, cash generated by operating activities and proceeds from the refinancing of our Credit Agreement.
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Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of escrow arrangements.
We hold customers' assets in escrow accounts at various financial institutions pending completion of certain real estate activities. These amounts are held in escrow accounts for limited periods of time and are not included in the consolidated balance sheets. Amounts held in escrow accounts were$27.5 million and$20.0 million as ofDecember 31, 2021 and 2020, respectively.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RECENT ACCOUNTING PRONOUNCEMENTS
We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and judgments, however, are often subjective. Actual results may be negatively affected based on changing circumstances. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We have identified the critical accounting policies and estimates addressed below. We also have other key accounting policies, which involve the use of assumptions, estimates and judgments that are significant to understanding our results. For additional information, see Note 2 to the consolidated financial statements. Although we believe that our assumptions, estimates and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.
Revenue Recognition
We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer in an amount that reflects the consideration that we expect to receive. This revenue can be recognized at a point in time or over time. We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenues are recognized. When there is a timing difference between when we invoice customers and when revenues are recognized, we record either a contract asset (unbilled accounts receivable) or a contract liability (deferred revenue or other current liabilities), as appropriate.
Descriptions of our principal revenue generating activities are as follows:
Core Businesses
Field Services
•For property preservation and inspection services and payment management technologies, we recognize transactional revenue when the service is provided. •For vendor management transactions and our vendor management oversight SaaS platform, we recognize revenue over the period during which we perform the services. •For reimbursable expenses related to our property preservation and inspection services, we recognize revenue when the service is provided and recognize an equal amount in cost of revenue. These amounts are recognized on a gross basis, principally because generally we have control over selection of vendors and the vendor relationships are with us, rather than with our customers.
Marketplace
•For the real estate auction platform, real estate auction and real estate brokerage services, we recognize revenue on a net basis (i.e., the commission we retain on the sale) as we perform services as an agent without assuming the risks and rewards of ownership of the asset and the commission earned on the sale is a fixed percentage or amount. •For SaaS based technology to manage REO, short sales, foreclosure, bankruptcy and eviction processes, we recognize revenue over the estimated average number of months the REO are on the platform. We generally recognize revenue for professional services over the contract period. •For reimbursable expenses revenue related to our real estate sales is included in revenue with an equal amount recognized in cost of revenue. These amounts are recognized on a gross basis, principally because generally we have control over selection of vendors and the vendor relationships are with us, rather than with our customers. 39
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Mortgage and
•For the majority of the services we provide, we recognize transactional revenue when the service is provided. •For title insurance services on real estate closings, we recognize revenue on a gross basis as we assume the responsibilities of the searches conducted and we are the primary obligor in the arrangement. Underwriting fees related to the issuance of the title policy are recognized separately as outside fees and services. •For loan disbursement processing services, we recognize revenue over the period during which we perform the processing services with full recognition upon completion of the disbursements. For foreclosure trustee services, we recognize revenue over the period during which we perform the related services, with full recognition upon completion and/or recording the related foreclosure deed. We use judgment to determine the period over which we recognize revenue for certain of these services. •For reimbursable expenses related to our title and foreclosure trustee services businesses, we recognize revenue when the service is provided and recognize an equal amount in cost of revenue. These amounts are recognized on a gross basis, principally because generally we have control over selection of vendors and the vendor relationships are with us, rather than with our customers.
Other Businesses
Earlier Stage Business
•For our customer journey analytics platform (sold onDecember 1, 2021 ), we recognized revenue primarily based on subscription fees. We recognized revenue associated with implementation services and maintenance services ratably over the contract term. Other •For loan servicing technologies, we recognized revenue based on the number of loans on the system. We generally recognized revenue from professional services over the contract period.
We evaluate goodwill for impairment annually during the fourth quarter or more frequently when an event occurs or circumstances change in a manner that indicates the carrying value may not be recoverable. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether we need to perform the quantitative goodwill impairment test. Only if we determine, based on qualitative assessment, that it is more likely than not that a reporting unit's fair value is less than its carrying value will we calculate the fair value of the reporting unit. We estimate the fair value of the reporting units using discounted cash flows and market comparisons. The discounted cash flow method is based on the present value of projected cash flows. Forecasts of future cash flows are based on our estimate of future sales and operating expenses, based primarily on estimated pricing, sales volumes, market segment share, cost trends and general economic conditions. The estimated cash flows are discounted using a rate that represents our estimated weighted average cost of capital. The market comparisons include an analysis of revenue and earnings multiples of guideline public companies compared to the Company.
Identifiable Intangible Assets
Identified intangible assets consist primarily of customer related intangible assets, operating agreements, trademarks and trade names and other intangible assets. We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any arrangements, the history of the asset, our long-term strategy for use of the asset and other economic factors. We amortize intangible assets that we deem to have definite lives in proportion to actual and expected customer revenues or on a straight-line basis over their useful lives, generally ranging from 4 to 20 years. We perform tests for impairment if conditions exist that indicate the carrying value may not be recoverable. When facts and circumstances indicate that the carrying value of intangible assets determined to have definite lives may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of cash flows of discrete intangible assets generally consistent with models utilized for internal planning purposes. If the sum of the undiscounted expected future cash flows is less than the carrying value, we recognize an impairment to the extent the carrying amount exceeds fair value. 40
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Income Taxes
We record income taxes in accordance withFinancial Accounting Standards Board Accounting Standards Codification Topic 740, Income Taxes ("ASC Topic 740"). We account for certain income and expense items differently for financial reporting purposes and income tax purposes. We recognize deferred income tax assets and liabilities for these differences between the financial reporting basis and the tax basis of our assets and liabilities as well as expected benefits of utilizing net operating loss and credit carryforwards. The most significant temporary differences relate to accrued compensation, amortization, loss carryforwards and valuation allowances. We measure deferred income tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we anticipate recovery or settlement of those temporary differences. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions including evaluating uncertainties under ASC Topic 740. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Resolution of these uncertainties in a manner inconsistent with management's expectations could have a material impact on our results of operations.
Recently Adopted and Future Adoption of New Accounting Pronouncements
See Note 2 to the consolidated financial statements for a discussion of the recent adoption of a new accounting pronouncements and the future adoption of new accounting pronouncements.
OTHER MATTERS Customer Concentration Ocwen Revenue from Ocwen primarily consists of revenue earned from the loan portfolios serviced and subserviced by Ocwen when Ocwen engages us as the service provider, and revenue earned directly from Ocwen, pursuant to the Ocwen Services Agreements. For the years endedDecember 31, 2021 and 2020, we recognized revenue from Ocwen of$55.6 million and$197.8 million , respectively. Revenue from Ocwen as a percentage of consolidated revenue was 31% and 54% for the years endedDecember 31, 2021 and 2020, respectively. We earn additional revenue related to the portfolios serviced and subserviced by Ocwen when a party other than Ocwen or the MSR owner selectsAltisource as the service provider. For the years endedDecember 31, 2021 and 2020, we recognized$9.5 million and$23.8 million , respectively, of such revenue. These amounts are not included in deriving revenue from Ocwen and revenue from Ocwen as a percentage of revenue discussed above. During the second quarter of 2020, Ocwen informed us that an MSR investor instructed Ocwen to use a field services provider other thanAltisource on properties associated with certain MSRs. Based upon the impacted portfolios and the designated service provider,Altisource believes that Ocwen received these directions from NRZ. We believe Ocwen commenced using another field services provider for these properties inJuly 2020 and continued to transition services during the third quarter of 2020. We believe that the transition to the replacement field service provider was largely completed as ofSeptember 30, 2020 . We estimate that$0.5 million and$70.1 million of service revenue from Ocwen for the years endedDecember 31, 2021 and 2020, respectively, was derived from Field Services referrals from the NRZ portfolios. Ocwen also communicated toAltisource in the fourth quarter of 2020 that the same investor instructed Ocwen to use a provider for default valuations and certain default title services other thanAltisource on properties associated with such certain MSRs and commenced moving these referrals to other service providers in the fourth quarter of 2020, with the bulk of such transition occurring during 2021. We anticipate that the transition of such default valuations and title services will continue during the course of 2022. We estimate that$2.9 million and$18.2 million of service revenue from Ocwen for the years endedDecember 31, 2021 and 2020, respectively, was derived from default valuations and title services referrals from the NRZ portfolios. To address the reduction in revenue,Altisource undertook several measures to further reduce its cost structure, strengthen its operations and generate cash. OnMay 5, 2021 we entered into an Agreement with Ocwen pursuant to which the terms of certain services agreements between us and Ocwen were extended fromAugust 2025 throughAugust 2030 and the scope of solutions we provide to Ocwen was 41
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expanded to include, among other things, the opportunity for the Company to provide first and second chance foreclosure auctions on Government Loans, and title services on FHA andVeterans Affairs loans, subject to a process to confirmAltisource's ability to meet reasonable performance requirements, which process is continuing. The Agreement established a framework for us to expand the foreclosure trustee solutions we provide to Ocwen in additional states, and, as mutually agreed upon by the parties, to deliver reverse mortgage related solutions to Ocwen, subject to negotiation of appropriate statements of work or other agreements, a process to confirmAltisource's ability to meet reasonable performance requirements, and technical integrations, as may be applicable. The Agreement further resolved the contractual dispute between the parties related to Ocwen's transfer to NRZ the rights to designate service providers other thanAltisource , including mutual releases with respect to such dispute. The Agreement also addressed Ocwen's rights in the event of certain change of control or sale of a business transactions by us on or afterSeptember 1, 2028 . Since the date of the Agreement, Ocwen has transitioned over 2,300 of its foreclosure auction inventory on Government Loans to us and increased our percentage of field services referrals on its Government Loans. As ofDecember 31, 2021 , accounts receivable from Ocwen totaled$3.0 million ,$2.8 million of which was billed and$0.2 million of which was unbilled. As ofDecember 31, 2020 , accounts receivable from Ocwen totaled$5.9 million ,$5.1 million of which was billed and$0.8 million of which was unbilled.
NRZ
Ocwen has disclosed that NRZ is its largest client. As ofDecember 31, 2021 , approximately 21% of loans serviced and subserviced by Ocwen (measured in UPB) were related to NRZ MSRs or rights to MSRs. InJuly 2017 andJanuary 2018 , Ocwen and NRZ entered into a series of agreements pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen's legal title to certain of its Subject MSRs and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years, subject to early termination rights. OnAugust 28, 2017 ,Altisource , through its licensed subsidiaries, entered into a Brokerage Agreement with NRZ which extends throughAugust 2025 . Under this agreement and related amendments,Altisource remains the exclusive provider of brokerage services for REO associated with the Subject MSRs, irrespective of the subservicer, subject to certain limitations. NRZ's brokerage subsidiary receives a cooperative brokerage commission on the sale of REO properties from these portfolios subject to certain exceptions. The Brokerage Agreement may be terminated by NRZ upon the occurrence of certain specified events. Termination events include, but are not limited to, a breach of the terms of the Brokerage Agreement (including, without limitation, the failure to meet performance standards and non-compliance with law in a material respect), the failure to maintain licenses which failure materially prevents performance of the contract, regulatory allegations of non-compliance resulting in an adversarial proceeding against NRZ, voluntary or involuntary bankruptcy, appointment of a receiver, disclosure in a Form 10-K or Form 10-Q that there is significant uncertainty aboutAltisource's ability to continue as a going concern, failure to maintain a specified level of cash and an unapproved change of control. For the years endedDecember 31, 2021 and 2020, we recognized revenue from NRZ of$3.1 million and$8.6 million , respectively, under the Brokerage Agreement. For the years endedDecember 31, 2021 and 2020, we recognized additional revenue of$13.6 million and$35.1 million , respectively, relating to the Subject MSRs when a party other than NRZ selectsAltisource as the service provider.
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