Washington, D.C. 20549
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Item 1. Financial Statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only normal recurring items which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full year or for any future periods.
|
| | | | | | | |
| | 2017 | | 2016 |
| Cumulative foreign currency translation | $ | (95,310 | ) | | $ | (118,071 | ) |
| Cumulative supplemental benefit plans | (4,748 | ) | | (6,267 | ) |
| Net unrecognized gains on interest rate swaps | 3,541 |
| | 1,920 |
|
| Accumulated other comprehensive loss | $ | (96,517 | ) | | $ | (122,418 | ) |
Investment in Affiliates, net
Investments in affiliates are accounted for under the equity method of accounting when we are deemed to have significant influence over the affiliate but do not control or have a majority voting interest in the affiliate. Investments are carried at the cost of acquisition, including subsequent impairments, capital contributions and loans from us, plus our equity in undistributed earnings or losses since inception of the investment.investment, less dividends received.
We recorded equityAs of June 30, 2020, and December 31, 2019, we had insignificant revenue, expense, accounts receivable, and accounts payable with these affiliates.
In January 2020, we completed the acquisition of the remaining 66% of Location, Inc. ("Location") for $11.5 million, subject to certain working capital adjustments. In connection with this transaction, we remeasured our pre-existing 34% investment balance of $5.6 million to fair value based on the purchase price, resulting in losses of affiliates, net of tax of $0.2 million and equity in earnings of affiliates, net of tax ofa $0.6 million for the three months ended September 30, 2017 and 2016, respectively, and equity in losses of affiliates, net of tax of $1.2 million and equity in earnings of affiliates, net of tax of $0.6 million for the nine months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, we recorded $2.8 million and $2.5 million, respectively, of operating revenues and $3.2 million and $2.9 million, respectively, of operating expenses related to our investment in affiliates. For the nine months ended September 30, 2017 and 2016, we recorded $6.9 million and $7.7 million, respectively, of operating revenues and $8.9 million and $8.4 million, respectively, of operating expenses related to our investment in affiliates.
In June 2017, we acquired a 45.0% interest in Mercury Network, LLC ("Mercury") for $70.0 million,step-up gain which included a call option to purchase the remaining 55.0% interestis reflected within the next nine-month period. We fair-valued the call option using the Black-Scholes model at $4.6 million. In August 2017, we purchased the remaining 55.0% ownership of Mercury for an additional $83.0 million and wrote-off our related call option, which resulted in a net loss of $1.9 million within lossgain/(loss) on extinguishment of debtinvestments and other, net, in the accompanyingour condensed consolidated statement of operations for the threesix months ended SeptemberJune 30, 2017.2020. See Note 812 - Fair Value of Financial InstrumentsAcquisitions for further discussion.additional information. Prior to ourthe acquisition of the controllingremaining interest, we accounted for Location under the investmentequity method and received dividends of $0.7 million in Mercurythe first quarter of 2020.
Leases
We determine if an arrangement contains a lease at inception and determine the classification of the lease, as either operating or finance, at commencement.
Operating and finance lease assets and liabilities are recorded based on the present value of future lease payments over the lease term which factors in certain qualifying initial direct costs incurred as well as any lease incentives received. If an implicit rate is not readily determinable, we utilize our incremental borrowing rate and inputs from third-party lenders to determine the appropriate discount rate. Lease expense for operating lease payments are recognized on a straight-line basis over the lease term, which, if applicable, may factor in renewal or termination options. Finance leases incur interest expense using the equity method. effective interest method in addition to amortization of the leased asset on a straight-line basis, both over the applicable lease term. Lease terms may factor in options to extend or terminate the lease.
We adhere to the short-term lease recognition exemption for all classes of assets (i.e. facilities and equipment). As a result, leases with an initial term of twelve months or less are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. In addition, for certain equipment leases, we account for lease and non-lease components, such as services, as a single lease component as permitted.
Dividends
We record cash dividends as reductions to retained earnings upon declaration, with a corresponding increase to current liabilities, based on common shares outstanding on the record date. In addition, as part of our share-based compensation program, the terms of our restricted stock units (“RSUs”) and performance-based restricted stock units (“PBRSUs”) stipulate that holders of these awards are credited with dividend equivalent units on each date that a cash dividend is paid to holders of common stock. These dividend equivalents are subject to the same vesting and performance requirements of the underlying units and therefore are forfeitable (i.e. non-participating). Upon declaration of a dividend, we record dividend equivalents as a reduction to retained earnings, derived from the number of eligible unvested shares, with a corresponding increase to additional paid-in-capital.
In December 2019, we announced that our Board of Directors approved the initiation of a quarterly cash dividend to common shareholders. In connection with this, in December 2019, our Board of Directors initiated and declared a cash dividend of $0.22 per common share. As a result, as of December 31, 2019, we recorded a liability of $17.4 million within accounts payable and other accrued expenses, as well as $0.4 million in dividend equivalents reflected in additional paid-in-capital within our accompanying consolidated balance sheets. The dividend declared was paid in January 2020. In April 2020, our Board of Directors announced a cash dividend to common shareholders of $0.22 per share of common stock which was paid in June 2020 to stockholders of record at the close of business on June 1, 2020. In July 2020, our Board of Directors announced a 50% increase in our cash dividend to $0.33 per share. See Note 14 - Subsequent Events for further details.
Discontinued Operations
As of August 2017both June 30, 2020, and December 31, 2019, we completed the acquisition, see Note 11 - Acquisitions for further discussion.recorded assets of discontinued operations of $6.3 million within prepaid expenses and other current assets within our condensed consolidated balance sheets, mainly consisting of income tax-related assets. Additionally, as of both June 30, 2020 and December 31, 2019, we recorded liabilities of $0.4 million within accounts payable and other accrued expenses, which mainly consisted of legal-related accruals.
Tax Escrow Disbursement Arrangements
We administer tax escrow disbursements as a service to our clients in connection with our property tax processing solutions. These depositsservices business. Funds to be disbursed are deposited and maintained in segregated accounts for the benefit of our clients. Tax escrow depositsclients and totaled $1.3$832 million and $1.4 billion as of SeptemberJune 30, 20172020 and $619.4 million as of December 31, 2016.2019, respectively. Because these deposits are held on behalf of our clients, they are not our funds and, therefore, are not included in the accompanying condensed consolidated balance sheets.
These deposits generally remain in the accounts for a period of two2 to five5 business days. We earn interest income or earningsrecord credits from these deposits and bearactivities as a reduction to related administrative expenses, including the cost of bank-related fees.bank fees and other administration costs.
Under our contracts with our clients, if we make a payment in error or fail to pay a taxing authority when a payment is due, we could be held liable to our clients for all or part of the financial loss they suffer as a result of our act or omission. We maintained total claim reserves relating to incorrect disposition of assets of $21.2$22.5 million and $22.2$22.7 million as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. Within these amounts are $10.0 million and $9.8 million, respectively, which isare short-term and are therefore reflected inwithin accounts payable and other accrued expenses within our accompanying condensed consolidated balance sheets as a component ofsheets. The remaining reserves are reflected within other liabilities.
Pension Plan Buyout
We have historically offered a variety of employee benefit plans, including a defined benefit pension plan incorporated with the acquisition of RELS (the "RELS Pension Plan"). The RELS Pension Plan offered participants lump sum and annuity payment options based on a number of factors. In October 2016, RELS voted to terminate the RELS Pension Plan effective October 31, 2016.
In June 2017, we made a contribution of $13.5 million to settle the defined benefit pension plan incorporated with the acquisition of RELS. We recorded a loss of $6.1 million within loss on extinguishment of debt and other, net in our condensed consolidated statement of operations and cleared the corresponding RELS Pension Plan liability of $9.2 million and corresponding accumulated other comprehensive loss of $1.8 million within our condensed consolidated balance sheets and condensed consolidated statements of comprehensive income.
Recent Accounting Pronouncements
In August 2017,March 2020, the Financial Accounting Standards Board (“FASB”("FASB") issued guidance to amend and improveease the potential burden in accounting for, or recognizing the effects of, reference rate reform, in connection with the scheduled phase-out of LIBOR as a reference interest rate. The guidance provides practical expedients and exceptions in accounting for contracts, hedging activities. The amendment eliminatesrelationships, and other transactions affected by reference rate reform if certain criteria are met. Entities electing the requirement to separately measure and report hedge ineffectiveness. An initial quantitative assessment to establish that the hedge is highly effective is still required but the amendment allows until the end of the first quarter it is designated to perform to prepare the assessment. After initial qualification, a qualitative assessment can be performed if the hedge is highly effective and the documentation at inception can reasonably support an expectation of high effectiveness throughout the hedge’s term. The amendment requires companies to present all hedged accounting elements that affect earnings in the same income statement line as the hedged item. For highly effective cash flow hedges, fair value changespractical expedients will be recordedallowed, among other topics, to account for reference rate modification of debt and receivables prospectively; to not reassess lease classifications and discount rates in other comprehensive incomereference rate lease modifications; and reclassed to earnings when the hedged item impacts earnings.ease cash-flow hedge effectiveness testing guidelines for hedges affected by reference rate reform. The guidance is effective prospectivelythrough December 2022 with adoption permitted as of any date within the aforementioned time frame from the beginning of the selected interim period on a prospective basis. We have elected to adopt the guidance in the first quarter of 2020, which has not had a material effect on our condensed consolidated financial statements.
In December 2019, as part of a simplification initiative, the FASB issued guidance to remove certain exceptions and added further guidance to simplify the accounting for income taxes. The exceptions that were removed relate to recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The guidance reduces the complexity of recognizing deferred taxes for goodwill and allocating taxes to entities of a consolidated group. The guidance is effective for fiscal years beginning after December 15, 2018. Early2020 with early adoption permitted. We elected to early adopt on January 1, 2020 via the modified retrospective method with a cumulative effect adjustment at the date of initial application, resulting in an increase to retained earnings of $16.8 million. This impact results from the release of a deferred tax liability that had previously been established for the outside basis difference of an equity method investment that later became a subsidiary.
In November 2018, the FASB issued guidance to clarify the definition and interaction of collaborative arrangements with previously issued guidance on revenue recognition. This guidance is permitted but we do not anticipateeffective for fiscal years beginning after December 15, 2019 on a retrospective basis to elect early adoption. We do not expect the date of the initial adoption of the revenue standard. We adopted this guidance to havein the first quarter of 2020, which has not had a material impact on our condensed consolidated financial statements.
In May 2014,August 2018, the FASB issued updated guidance on revenue recognition in order to i) remove inconsistencies in revenue requirements, ii) provide a better framework for addressing revenue issues, iii) improve comparability across entities, industries, jurisdictions, and capital markets, iv) provide more useful information through improved disclosures, and v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. Under the amendment, an entity should recognize revenue to depict the transfer of promised goods or services to clients in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.amends fair value disclosure requirements. The guidance also specifiesremoves disclosure requirements on the accounting treatment for the incremental costs of obtaining a contract, which would not have been incurred had the contract not been obtained. Further, an entity is required to disclose sufficient information to enable the usertransfers between Level 1 and Level 2 of the financial statementsfair value hierarchy in addition to understand the nature, amount,disclosure requirements on the policy for timing of transfers between levels and the valuation process for Level 3 fair value measurements. The guidance clarifies the measurement uncertainty of revenuedisclosure and cash flows from contracts with clients.adds disclosure requirements for Level 3 unrealized gains and losses and significant unobservable inputs used to develop Level 3 fair value measurements. The updated guidance provides two methods of adoption: i) retrospective application to each prior reporting period presented, or ii) recognition of the cumulative effect from the retrospective application at the date of initial application. We elected the modified retrospective approach. As updated by FASB in August 2015, the guidance is effective for annual reporting periodsfiscal years beginning after December 15, 2017, including interim periods within that reporting period. Earlier2019. Entities were permitted to early adopt any removed or modified disclosures upon issuance and delay adoption was permittedof the additional disclosures until the effective date. We early adopted the removal of disclosure provisions of the new guidance in 2018 and adopted the measurement uncertainty disclosure and additional Level 3 disclosures in the current year as required. Adoption of this guidance has not had a material impact on our condensed consolidated financial statements.
In June 2016, the FASB issued guidance for annual reporting periodsaccounting of credit losses affecting the impairment model for most financial assets and certain other instruments. Entities are required to use a forward-looking current expected credit loss model for trade and other receivables, held-to-maturity debt securities, loans, and other instruments, which will generally lead to an earlier recognition of loss allowances. Entities will recognize expected losses on available-for-sale debt securities as allowances rather than a reduction in amortized cost of the security while the measurement process of such loss does not change. Disclosure requirements are expanded regarding an entity’s assumptions, models, and methods of estimations of the allowance. The guidance is effective for fiscal years beginning after December 15, 2016 but we did2019, and interim periods within those fiscal years. In November 2018 and 2019, the FASB issued updates to this standard which, amongst other items, clarified that impairment of receivables arising from operating leases should be accounted for under applicable leasing guidance. We adopted this guidance in the first quarter of 2020, which has not elect early adoption. Accordingly, we will adopt the new standard as of January 1, 2018.
In adopting the updated guidance, we are implementing changes tohad a material impact on our accounting policies, business and contract-management processes. We anticipate that our notes to thecondensed consolidated financial statements related to revenue recognition will be expanded and the most substantial change to our consolidated financial statements will be a net increase to total deferred revenue of approximately 5%, primarily within our Risk Management and Work Flow (“RMW”) reporting segment, in the initial year of adoption.statements.
The expected increase to deferred revenue is principally driven by a change in the accounting for contracts with future discounts that give rise to material rights. Under the current standard, these future discounts are recognized at a point-in-time whereas, under the updated guidance, a portion of the consideration is allocated to material rights and recognized when the future goods or services are transferred. The cumulative impact of all changes to stockholders’ equity is expected to be a net reduction of approximately 5% upon implementation. Further, the updated guidance is not expected to materially impact our revenues and results of operations in the upcoming fiscal years and interim periods. However, we are still in the process of updating our systems and financial controls and continue to review the presentation of our consolidated financial statements and related disclosures required by the updated guidance.
Note 2 - Property Equipment and SoftwareEquipment, Net
Property and equipment, net as of SeptemberJune 30, 20172020 and December 31, 20162019 consists of the following:
| | | | | | | | | | | |
| (in thousands) | 2020 | | 2019 |
| Land | $ | 7,476 | | | $ | 7,476 | |
| Buildings | 6,487 | | | 6,487 | |
| Furniture and equipment | 74,799 | | | 74,978 | |
| Capitalized software | 928,035 | | | 916,820 | |
| Leasehold improvements | 50,206 | | | 48,811 | |
| Construction in progress | 371 | | | 3,064 | |
| | 1,067,374 | | | 1,057,636 | |
| Less accumulated depreciation | (627,359) | | | (606,615) | |
| Property and equipment, net | $ | 440,015 | | | $ | 451,021 | |
|
| | | | | | | |
| (in thousands) | 2017 | | 2016 |
| Land | $ | 7,476 |
| | $ | 7,476 |
|
| Buildings | 6,487 |
| | 6,293 |
|
| Furniture and equipment | 64,843 |
| | 61,582 |
|
| Capitalized software | 917,825 |
| | 866,398 |
|
| Leasehold improvements | 41,031 |
| | 29,420 |
|
| Construction in progress | 1,461 |
| | 20,613 |
|
| | 1,039,123 |
| | 991,782 |
|
| Less accumulated depreciation | (585,247 | ) | | (542,583 | ) |
| Property and equipment, net | $ | 453,876 |
| | $ | 449,199 |
|
Depreciation expense for property and equipment, net, was approximately $21.4$23.1 million and $21.1$22.5 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $62.1$46.3 million and $61.7$45.9 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
Impairment losses for property and equipment of $1.2 million and $12.2 million were recorded for both the three and six months ended June 30, 2020 and 2019, respectively. See Note 6 - Fair Value for further discussion.
Note 3 – Goodwill, Net
A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by operating segment and reporting unit, for the ninesix months ended SeptemberJune 30, 2017,2020 is as follows:
| | | | | | | | | | | | | | | | | |
| (in thousands) | PIRM | | UWS | | Consolidated |
| Balance as of January 1, 2020 | | | | | |
| Goodwill | $ | 1,107,494 | | | $ | 1,296,127 | | | $ | 2,403,621 | |
| Accumulated impairment losses | (600) | | | (6,925) | | | (7,525) | |
| Goodwill, net | 1,106,894 | | | 1,289,202 | | | 2,396,096 | |
| Acquisition | 12,584 | | | — | | | 12,584 | |
| Measurement period adjustments | — | | | 17 | | | 17 | |
| | | | | |
| Translation adjustments | (8,285) | | | — | | | (8,285) | |
| | | | | |
| Balance as of June 30, 2020 | | | | | |
| Goodwill, net | $ | 1,111,193 | | | $ | 1,289,219 | | | $ | 2,400,412 | |
Note 5 – Long-Term Debt
Our long-term debt consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | | | December 31, 2019 | | | | |
| (in thousands) | | Gross | | Debt Issuance Costs | | Net | | Gross | | Debt Issuance Costs | | Net |
| Bank debt: | | | | | | | | | | | | |
| Term loan facility borrowings due May 2024, weighted-average interest rate of 2.26% as of June 30, 2020 | $ | 1,572,000 | | | $ | (13,097) | | | $ | 1,558,903 | | | $ | 1,672,188 | | | $ | (14,868) | | | $ | 1,657,320 | |
| Revolving line of credit borrowings due May 2024, weighted-average interest rate of 2.26% as of June 30, 2020 | — | | | (5,703) | | | (5,703) | | | $ | — | | | $ | (6,425) | | | $ | (6,425) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Notes: | | | | | | | | | | | | |
| | 7.55% senior debentures due April 2028 | 9,531 | | | (25) | | | 9,506 | | | $ | 9,524 | | | $ | (26) | | | $ | 9,498 | |
| Other debt: | | | | | | | | | | | | |
| | Various debt instruments with maturities through March 2024 | 6,090 | | | — | | | 6,090 | | | $ | 6,167 | | | $ | — | | | $ | 6,167 | |
| Total long-term debt | | 1,587,621 | | | (18,825) | | | 1,568,796 | | | $ | 1,687,879 | | | $ | (21,319) | | | $ | 1,666,560 | |
| Less current portion of long-term debt | | 2,504 | | | — | | | 2,504 | | | $ | 56,022 | | | $ | — | | | $ | 56,022 | |
| Long-term debt, net of current portion | | $ | 1,585,117 | | | $ | (18,825) | | | $ | 1,566,292 | | | $ | 1,631,857 | | | $ | (21,319) | | | $ | 1,610,538 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| (in thousands) | Gross | | Debt Issuance Costs | | Net | | Gross | | Debt Issuance Costs | | Net |
| Bank debt: | | | | | | | | | | |
|
|
| | Term loan facility borrowings due August 2022, weighted-average interest rate of 3.24% as of September 30, 2017 | $ | 1,800,000 |
| | $ | (18,039 | ) | | $ | 1,781,961 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | Revolving line of credit borrowings due August 2022 | — |
| | (7,036 | ) | | $ | (7,036 | ) | | — |
| | — |
| | $ | — |
|
| | Term loan facility borrowings due April 2020, weighted-average interest rate of 2.31% as of December 31, 2016, extinguished August 2017 | — |
| | — |
| | — |
| | 1,298,125 |
| | (12,419 | ) | | 1,285,706 |
|
| | Revolving line of credit borrowings due April 2020, weighted-average interest rate of 2.31% as of December 31, 2016, extinguished August 2017 | — |
| | — |
| | — |
| | 302,000 |
| | (4,761 | ) | | 297,239 |
|
| Notes: | |
| | |
| | | | |
| | |
| | |
| | 7.55% senior debentures due April 2028 | 14,645 |
| | (49 | ) | | 14,596 |
| | 14,645 |
| | (52 | ) | | 14,593 |
|
| Other debt: | |
| | |
| | | | |
| | |
| |
|
|
| | Various debt instruments with maturities through 2020 | 7,782 |
| | — |
| | 7,782 |
| | 4,509 |
| | — |
| | 4,509 |
|
| Total long-term debt | 1,822,427 |
|
| (25,124 | ) | | 1,797,303 |
| | 1,619,279 |
|
| (17,232 | ) | | 1,602,047 |
|
| Less current portion of long-term debt | 92,454 |
| | — |
| | 92,454 |
| | 105,158 |
| | — |
| | 105,158 |
|
| Long-term debt, net of current portion | $ | 1,729,973 |
| | $ | (25,124 | ) | | $ | 1,704,849 |
| | $ | 1,514,121 |
|
| $ | (17,232 | ) |
| $ | 1,496,889 |
|
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, we have recorded $1.0$0.9 million and $0.8$0.4 million, respectively, of accrued interest expense respectively, on our debt-related instruments.instruments within accounts payable and other accrued expenses.
Credit Agreement
In August 2017,May 2019, we amended and restated our credit agreement (the “Credit Agreement”) with Bank of America, N.A., as the administrative agent, and other financial institutions. The Credit Agreement provides for a $1.8 billion five-year5-year term A loan facility (the “Term Facility”), and a $700.0$750.0 million five-year5-year revolving credit facility ("Revolving Facility"(the “Revolving Facility”). The Term
Facility matures, and the Revolving Facility expires, in August 2022.May 2024. The Revolving facilityFacility includes a $100.0 million multicurrencymulti-currency revolving sub-facility and a $50.0 million letter of credit sub-facility. The Credit Agreement also provides for the ability to increase the Term Facility and/orand Revolving Facility by up to $100.0$300.0 million in the aggregate; however, the lenders are not obligated to do so.
The loans under the Credit Agreement will bear interest, at the election As of the Company, at (i) the Alternate Base Rate (defined as the greatest of (a) Bank of America's “prime rate”, (b) the Federal Funds effective rate plus 0.50% and (c) the reserve adjusted London interbank offering rate for a one month Eurocurrency borrowing plus 1.00%) plus the Applicable Rate (as defined in the Credit Agreement) or (ii) the London interbank offering rate for Eurocurrency borrowings, adjusted for statutory reserves (the “Adjusted Eurocurrency Rate”) plus the Applicable Rate. The initial Applicable Rate for Alternate Base Rate borrowings is 1.00% and for Adjusted Eurocurrency Rate borrowings is 2.00%. After December 31, 2017, the Applicable Rate will vary depending upon the Company's leverage ratio. The minimum Applicable Rate for Alternate Base Rate borrowings will be 0.25% and the maximum will be 1.00%. The minimum Applicable Rate for Adjusted Eurocurrency Rate borrowings will be 1.25% and the maximum will be 2.00%. The Credit Agreement also requires the Company to pay a commitment fee for the unused portion of the Revolving Facility, which will be a minimum of 0.25% and a maximum of 0.40%, depending on the Company's leverage ratio.
The Credit Agreement provides that loans under the Term Facility shall be repaid in equal quarterly installments, commencing on the last day of the next full fiscal quarter and continuing on each three-month anniversary thereafter. The loans under the Term Facility shall be repaid in an amount equal to $22.5 million for the first eight quarterly payments and in an amount equal to $45.0 million for each quarterly payment thereafter. The outstanding balance of the term loans will be due in August 2022.
The Credit Agreement contains the following financial maintenance covenants: (i) a maximum total leverage ratio not to exceed 4.50:1.00; (stepped down to 4.25:1.00 starting with the fiscal quarter ending on September 30, 2018, with a further step down to 4.00:1.00 starting with the fiscal quarter ending on September 30, 2019, with an additional step down to 3.75:1.00 starting with the fiscal quarter ending on SeptemberJune 30, 2020, andwe had a final step down to 3.50 to 1.00 starting with the fiscal quarter ending on September 30, 2021) and (ii) a minimum interest coverage ratio of at least 3.50:1.00.
At September 30, 2017, we hadremaining borrowing capacity of $700.0$750.0 million under the Revolving Facility and we were in compliance with all of ourfinancial and restrictive covenants under the Credit Agreement.
Debt Issuance Costs
In connection with the amendment and restatement of the Credit Agreement, in May 2019, we incurred approximately $14.3$9.7 million of debt issuance costs of which $0.3$9.6 million were expensed in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2017. Weinitially capitalized the remaining $14.0 million of debt issuance costs within long-term debt, net of current, in the accompanying condensed consolidated balance sheets,sheets. In addition, when we amended and restated the Credit Agreement, we wrote-off previously unamortized debt issuance costs of $1.5 million within gain/(loss) on investments and other, net, in the accompanying consolidated statement of operations, which resulted in a remaining $14.6 million of previously unamortized costs. We will amortize all of these costs over the term of the Credit Agreement. When we amended and restatedFor both the Credit Agreement, we had unamortized costs of $13.8 million, of which we wrote-off $1.8 million for the year ended September 30, 2017 and the remaining $12.0 million will amortize over the term of the Credit Agreement.
For the ninethree months ended SeptemberJune 30, 2016, we recorded $6.32020 and 2019, $1.3 million was recognized in the accompanying condensed consolidated statement of operations related to the amortization of debt issuance costs of which $0.3costs. For the six months ended June 30, 2020 and 2019, $2.5 million and $2.6 million, respectively, were expensedrecognized in the accompanying condensed consolidated statements of operations. We capitalizedoperations related to the remaining $6.0 millionamortization of debt issuance costs within long-term debt, net in the accompanying condensed consolidated balance sheets. Further, we wrote-off $10.2 million of unamortized debt issuance costs during the nine months ended September 30, 2016.costs.
7.55% Senior Debentures
In April 1998, we issued $100.0 million in aggregate principal amount of 7.55% senior debentures due 2028. The indentures governing these debentures, as amended, contain limited restrictions on the Company.us.
Interest Rate Swaps
We have entered into amortizing interest rate swaps ("Swaps"(“Swaps”) in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. InUnder the Swaps, we agree to exchange floating rate for fixed rate interest payments periodically over the life of the agreement. The floating rates in our Swaps are based on the one-month London interbank offering rate ("LIBOR"). The notional balances, terms and maturities of our Swaps are designed to have the effect of fixing the rate of interest on at least 50% of the principal balance of our senior term debt.
As of June 2017, we entered into30, 2020, the Swaps which become effective in March 2018 and terminate in March 2021. The Swaps entered in June 2017 are for an initialhave a combined remaining notional balance of $275.0 million, with$1.2 billion, a notional step up of $200.0 million in March 2019 and aweighted average fixed interest rate of 1.83%. In
August 2016, we entered into Swaps which became effective in September 2016 and terminate in April 2020. The Swaps entered in August 2016 are for an initial notional balance of $500.0 million, with a fixed interest rate of 1.03%2.34% (rates range from 0.66% to 2.98%), and amortize quarterly by $25.0scheduled terminations through December 2025. Notional balances under our Swaps are scheduled to increase and decrease based on our expectations of the level of variable rate debt to be in effect in future periods. Currently, we have scheduled notional amounts of approximately $1.2 billion through September 2021, then $1.1 billion and $1.0 billion through August 2022, and $496.8 million and $465.0 million through December 2018, with a notional step up of $100.0 million in March 2019, continued quarterly amortization of $25.0 million through April 2020, and a remaining notional amount of $275.0 million. In May 2014, we entered into Swaps which became effective in December 2014 and terminate in March 2019. The Swaps entered in May 2014 are for an initial notional balance of $500.0 million, with a2025. Approximate weighted average fixed interest rate of 1.57%rates for the aforementioned time periods are 2.55%, 2.64%, and amortize quarterly by $12.5 million through December 31, 2017 and $25.0 million through December 31, 2018.2.61%, respectively.
We have designated the Swaps as cash flow hedges. The estimated fair valuevalues of these cash flow hedges isare recorded in prepaid expenses and other current assets or other assets and/as well as accounts payable and other accrued expenses or other liabilities in the accompanying condensed consolidated balance sheets. TheAs of June 30, 2020, the estimated fair value of these cash flow hedges resulted in a liability of $98.3 million, of which $5.2 million was recorded within accounts payable and other accrued expenses. As of December 31, 2019, the estimated fair value of these cash flow hedges resulted in an asset of $6.0$0.6 million which was recorded within prepaid expenses and other current assets, as well as a liability of $0.2$47.7 million as of September 30, 2017. We recorded an asset of $5.4 million and a liability of $2.3 million as of December 31, 2016.within other liabilities.
Unrealized gainslosses of less than $0.1$1.5 million (net of less than $0.1$0.5 million in deferred taxes) and unrealized gains of $0.4$21.1 million (net of $0.2$7.0 million in deferred taxes) for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and unrealized gainswere recognized in other comprehensive income/(loss) related to the Swaps. Unrealized losses of $1.6$38.4 million (net of $1.0$12.8 million in deferred taxes) and unrealized losses of $2.7$33.3 million (net of $1.7$11.1 million in deferred taxes) for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, were recognized in other comprehensive income/(loss) related to the Swaps.
Note 6 – Income Taxes
The effective income tax rate for income taxes asAs a percentageresult of income from continuing operations before equity in losses of affiliates and income taxes was 27.6% and 31.0%our Swap activity, for the three months ended SeptemberJune 30, 20172020 and 2016, respectively,2019, included within interest expense, on a pre-tax basis, we recognized interest expense of $5.9 million and 30.0% and 33.5% forinterest income of $1.7 million, respectively. For the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, included within interest expense, on a pre-tax basis, we recognized interest expense of $7.2 million and interest income of $3.8 million, respectively.
For the three months ended September 30, 2017, when compared to 2016, the decrease Estimated net losses included in the effective income tax rate was primarily attributable to a favorable domestic out-of-period adjustment recorded in the third quarter of 2017 and favorable discrete items, partially offset by unfavorable foreign rate differentials, due to foreign exchange gain and losses in jurisdictions with tax rates lower than the U.S., and a nonrecurring prior year favorable adjustment related to contingent consideration recorded in connection with an acquisition.
For the nine months ended September 30, 2017 when compared to 2016, the decrease in the effective tax rate was primarily attributable to a favorable domestic out-of-period adjustment recorded in the third quarter of 2017 and favorable discrete items and favorable tax benefitsaccumulated other comprehensive loss related to the adoptionSwaps as of stock-based compensation accounting guidance, partially offset by unfavorable foreign rate differentials, due to foreign exchange gain and losses in jurisdictions with tax rates lower than the U.S., and a nonrecurring prior year favorable release of reserves for foreign uncertain tax benefits.
Income taxes included in equity in losses of affiliates were a benefit of $0.1 million andJune 30, 2020, that will be reclassified into earnings as interest expense of $0.5 million for the three months ended September 30, 2017 and 2016, respectively, and a benefit of $0.8 million and expense of $0.9 million for the nine months ended September 30, 2017 and 2016, respectively. For the purpose of segment reporting, these amounts are included in corporate and therefore not reflected in our reportable segments.
We are currently under examination for the years 2006-2011, by the US, our primary taxing jurisdiction, and various other state taxing authorities. It is reasonably possible the amount of the unrecognized benefits with respect to unrecognized tax positions could change withinover the next twelve months. The portion of uncertain tax benefits that are not subject12 months, utilizing June 30, 2020 LIBOR, is estimated to the First American Financial Corporation (“FAFC”) indemnification could significantly increase or decrease and have an impactbe $18.1 million, on net income. The FAFC indemnification could change by up to $14.0 million due to statutory requirements and would have no impact on net income.a pre-tax basis.
Note 7 – Earnings Per Share
The following is a reconciliation of net income per share: |
| | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| (in thousands, except per share amounts) | | | | | | | |
| Numerator for basic and diluted net income per share: | | | | | | | |
| Net income from continuing operations | $ | 30,828 |
| | $ | 36,002 |
| | $ | 84,722 |
| | $ | 103,965 |
|
| (Loss)/gain from discontinued operations, net of tax | (74 | ) | | (936 | ) | | 2,421 |
| | (998 | ) |
| Gain from sale of discontinued operations, net of tax | — |
| | — |
| | 310 |
| | — |
|
| Net income attributable to CoreLogic | $ | 30,754 |
| | $ | 35,066 |
| | $ | 87,453 |
| | $ | 102,967 |
|
| Denominator: | |
| | |
| | |
| | |
|
| Weighted-average shares for basic income per share | 83,362 |
| | 87,584 |
| | 84,114 |
| | 88,141 |
|
| Dilutive effect of stock options and restricted stock units | 1,728 |
| | 1,604 |
| | 1,726 |
| | 1,560 |
|
| Weighted-average shares for diluted income per share | 85,090 |
| | 89,188 |
| | 85,840 |
| | 89,701 |
|
| Income per share | |
| | |
| | |
| | |
|
| Basic: | |
| | |
| | |
| | |
|
| Net income from continuing operations | $ | 0.37 |
| | $ | 0.41 |
| | $ | 1.01 |
| | $ | 1.18 |
|
| (Loss)/gain from discontinued operations, net of tax | — |
| | (0.01 | ) | | 0.03 |
| | (0.01 | ) |
| Gain from sale of discontinued operations, net of tax | — |
|
| — |
| | — |
| | — |
|
| Net income attributable to CoreLogic | $ | 0.37 |
| | $ | 0.40 |
| | $ | 1.04 |
| | $ | 1.17 |
|
| Diluted: | |
| | | | | | |
| Net income from continuing operations | $ | 0.36 |
| | $ | 0.40 |
| | $ | 0.99 |
| | $ | 1.16 |
|
| (Loss)/gain from discontinued operations, net of tax | — |
| | (0.01 | ) | | 0.03 |
| | (0.01 | ) |
| Gain from sale of discontinued operations, net of tax | — |
|
| — |
| | — |
| | — |
|
| Net income attributable to CoreLogic | $ | 0.36 |
| | $ | 0.39 |
| | $ | 1.02 |
| | $ | 1.15 |
|
The dilutive effect of stock-based compensation awards has been calculated using the treasury-stock method. For the three months ended September 30, 2017 an aggregate of less than 0.1 million restricted stock units ("RSUs") were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect. There were no anti-dilutive common shares for the three months ended September 30, 2016. For the nine months ended September 30, 2017 and 2016, an aggregate of less than 0.1 million RSUs and an aggregate of less than 0.1 million stock options, respectively, were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect.
Note 86 – Fair Value of Financial Instruments
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).date. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable.
The market approach is applied for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value balances are classified based on the observability of those inputs.
A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize observable inputs in active markets for similar assets and liabilities, or, quoted prices in markets that are not active.
In estimating the fair value, of the financial instruments presented, we used the following methods and assumptions:
Cash and cash equivalentsCash Equivalents
For cash and cash equivalents, the carrying value is a reasonable estimate of fair value due to the short-term nature of the instruments.
Restricted cashCash
Restricted cash is comprised of certificates of depositdeposits that are pledged for various letters of creditcredit/bank guarantees secured by us, and escrow accounts due to acquisitions and divestitures.divestitures, as well as short-term investments within our deferred compensation plan trust. We deem the carrying value to be a reasonable estimate of fair value due to the nature of these instruments.
Other Investments
Other investments are currently comprised of a minority equity investment in a foreign enterprise which we measure at cost and adjust to fair value on a quarterly basis when there are observable price changes in orderly transactions for the identical, or similar, investments. Changes in fair value are recorded within gain/(loss) on investments and other, net, in our condensed consolidated statement of operations.
Contingent considerationConsideration
The fair value of theour contingent consideration was estimated using the Monte-Carlo simulation model, which relies on significant assumptionassumptions and estimates including discount rates and future market conditions, among others.
Long-term debtLong-Term Debt
The fair value of debt was estimated based on the current rates available to us for similar debt of the same remaining maturities and consideration of our default and credit risk.
Swaps
The fair valuevalues of the interest rate swap agreementsSwaps were estimated based on market-value quotes received from the counterparties to the agreements.
The fair values of our financial instruments as of SeptemberJune 30, 20172020 are presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Fair Value Measurements Using | | | | | | |
| As of June 30, 2020 | | Level 1 | | Level 2 | | Level 3 | | Fair Value |
| Financial Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 137,286 | | | $ | — | | | $ | — | | | $ | 137,286 | |
| Restricted cash | | $ | 8,184 | | | 1,678 | | | — | | | 9,862 | |
| Other investments | | — | | | 2,513 | | | — | | | 2,513 | |
| Total | | $ | 145,470 | | | $ | 4,191 | | | $ | — | | | $ | 149,661 | |
| | | | | | | | |
| Financial Liabilities: | | | | | | | | |
| Contingent consideration | | $ | — | | | $ | — | | | $ | 1,900 | | | $ | 1,900 | |
| Total debt | | — | | | 1,590,050 | | | — | | | 1,590,050 | |
| Total | | $ | — | | | $ | 1,590,050 | | | $ | 1,900 | | | $ | 1,591,950 | |
| | | | | | | | |
| Derivatives: | | | | | | | | |
| | | | | | | | |
| Liability for Swaps | | $ | — | | | $ | 98,259 | | | $ | — | | | $ | 98,259 | |
| | | | | | | | |
| As of December 31, 2019 | | | | | | | | |
| Financial Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 105,185 | | | $ | — | | | $ | — | | | $ | 105,185 | |
| Restricted cash | | 9,791 | | | 726 | | | — | | | 10,517 | |
| Other investments | | — | | | 1,898 | | | — | | | 1,898 | |
| Total | | $ | 114,976 | | | $ | 2,624 | | | $ | — | | | $ | 117,600 | |
| | | | | | | | |
| Financial Liabilities: | | | | | | | | |
| Contingent consideration | | $ | — | | | $ | — | | | $ | 4,509 | | | $ | 4,509 | |
| Total debt | | — | | | 1,690,731 | | | — | | | 1,690,731 | |
| Total | | $ | — | | | $ | 1,690,731 | | | $ | 4,509 | | | $ | 1,695,240 | |
| | | | | | | | |
| Derivatives: | | | | | | | | |
| Asset for Swaps | | $ | — | | | $ | 572 | | | $ | — | | | $ | 572 | |
| Liability for Swaps | | $ | — | | | $ | 47,691 | | | $ | — | | | $ | 47,691 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements Using | | |
| (in thousands) | Level 1 | | Level 2 | | Level 3 | | Fair Value |
| Financial Assets: | | | | | | | |
| Cash and cash equivalents | $ | 149,411 |
| | $ | — |
| | $ | — |
| | $ | 149,411 |
|
| Restricted cash | — |
| | 13,532 |
| | — |
| | 13,532 |
|
| Total Financial Assets | $ | 149,411 |
| | $ | 13,532 |
| | $ | — |
| | $ | 162,943 |
|
| | | | | | | | |
| Financial Liabilities: | | | | | | | |
| Contingent consideration | $ | — |
| | $ | — |
| | $ | 1,800 |
| | $ | 1,800 |
|
| Total debt | — |
| | 1,825,984 |
| | — |
| | 1,825,984 |
|
| Total Financial Liabilities | $ | — |
| | $ | 1,825,984 |
| | $ | 1,800 |
|
| $ | 1,827,784 |
|
| | | | | | | | |
| Swaps: | | | | | | | |
| Asset for swap | $ | — |
| | $ | 5,951 |
| | $ | — |
| | $ | 5,951 |
|
| Liability for swap | $ | — |
| | $ | 217 |
| | $ | — |
| | $ | 217 |
|
The fair values of our financial instruments as of December 31, 2016 are presented in the following table:
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements Using | | |
| (in thousands) | Level 1 | | Level 2 | | Level 3 | | Fair Value |
| Financial Assets: | | | | | | | |
| Cash and cash equivalents | $ | 72,031 |
| | $ | — |
| | $ | — |
| | $ | 72,031 |
|
| Restricted cash | — |
| | 17,943 |
| | — |
| | 17,943 |
|
| Total Financial Assets | $ | 72,031 |
| | $ | 17,943 |
| | $ | — |
| | $ | 89,974 |
|
| | | | | | | | |
| Financial Liabilities: | | | | | | | |
| Total debt | $ | — |
| | $ | 1,622,811 |
| | $ | — |
| | $ | 1,622,811 |
|
| | | | | | | | |
| Swaps: | | | | | | | |
| Asset for swap | $ | — |
| | $ | 5,392 |
| | $ | — |
| | $ | 5,392 |
|
| Liability for swap | $ | — |
| | $ | 2,283 |
| | $ | — |
| | $ | 2,283 |
|
There were no transfers between Level 1, Level 2 or Level 3 securities during the three and nine months ended September 30, 2017. In connection with our call option related to the Mercury acquisition, we recorded a loss of $4.6 million in our condensed consolidated statement of operations forFor both the three and ninesix months ended SeptemberJune 30, 2017. See Note 11 - Acquisitions2020, we recorded non-cash impairment charges of $1.2 million in property and equipment, net, related to capitalized software within our Underwriting & Workflow Solutions ("UWS") segment. For both the three and six months ended June 30, 2019, we recorded non-cash impairment charges of $35.6 million in other intangible assets, net, as well as $12.2 million in property and equipment, net. Both impairments are due to ongoing business transformation activities of our appraisal management company within our UWS segment. The impairments within other intangible assets, net include $32.3 million for further discussion.client lists and $3.3 million for licenses. The impairments within property and equipment, net relate to capitalized software. All impairments were derived using an undiscounted cash flow methodology.
In connection with ourcertain acquisitions in 2017, we entered into contingent consideration agreements for up to $20.5 million in cash by 2022 upon the achievement of certain revenue targets ending in fiscal year 2021. These contingent payments were originally recorded at a fair value of $6.2 million using the Monte-Carlo simulation model. In connection with the 2019 acquisition of Myriad in August 2017,National Tax Search, LLC (“NTS”), we entered into a contingent consideration agreement offor up to $3.0$7.5 million to be paid in cash in 2019based upon the achievement of certain revenue targets in fiscal years 20172020 and 2018. See Note 11 - Acquisition for further discussion. We2021. This contingent consideration has been assessed with no fair valued the contingent paymentvalue as of June 30, 2020 using the Monte-Carlo simulation model and initially recorded $1.8 million as contingent consideration.model. The contingent payment is fair-valuedpayments are remeasured at fair value quarterly, and changes are recorded within lossgain/(loss) on extinguishment of debtinvestments and other, net, in our condensed consolidated statement of operations. During the three months ended June 30, 2020 and 2019, we decreased the fair value of our contingent consideration by $1.8 million and $0.6 million, respectively, and recorded the gain in our condensed consolidated statement of
operations. During the six months ended June 30, 2020 and 2019, we decreased the fair value of our contingent consideration by $2.6 million and $0.6 million, respectively, and recorded the gain in our condensed consolidated statement of operations.
During the three months ended June 30, 2019, due to an observable price change in an inactive market, we recorded an unfavorable fair value adjustment of $4.3 million to our minority equity investment, which was recorded within gain/(loss) on investments and other, net in our condensed consolidated statement of operations. For the six months ended June 30, 2019, the total unfavorable fair value adjustment for this minority owned equity investment was $6.6 million. NaN adjustments were necessary for the three and six months ended June 30, 2020.
Note 97 – Stock-BasedOperating Revenues
Operating revenues by solution type consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | PIRM | | UWS | | Corporate and Eliminations | | Consolidated |
| For the Three Months Ended June 30, 2020 | | | | | | | | |
| Property insights | | $ | 118,836 | | | $ | — | | | $ | — | | | $ | 118,836 | |
| Insurance and spatial solutions | | 48,440 | | | — | | | — | | | 48,440 | |
| Flood data solutions | | — | | | 29,977 | | | — | | | 29,977 | |
| Valuation solutions | | — | | | 62,956 | | | — | | | 62,956 | |
| Credit solutions | | — | | | 82,523 | | | — | | | 82,523 | |
| Property tax solutions | | — | | | 125,950 | | | — | | | 125,950 | |
| Other | | 9,310 | | | 3,734 | | | (4,262) | | | 8,782 | |
| Total operating revenue | | $ | 176,586 | | | $ | 305,140 | | | $ | (4,262) | | | $ | 477,464 | |
| | | | | | | | |
| For the Three Months Ended June 30, 2019 | | | | | | | | |
| Property insights | | $ | 122,737 | | | $ | — | | | $ | — | | | $ | 122,737 | |
| Insurance and spatial solutions | | 48,421 | | | — | | | — | | | 48,421 | |
| Flood data solutions | | — | | | 21,613 | | | — | | | 21,613 | |
| Valuation solutions | | — | | | 87,142 | | | — | | | 87,142 | |
| Credit solutions | | — | | | 71,686 | | | — | | | 71,686 | |
| Property tax solutions | | — | | | 92,471 | | | — | | | 92,471 | |
| Other | | 12,559 | | | 6,105 | | | (3,196) | | | 15,468 | |
| Total operating revenue | | $ | 183,717 | | | $ | 279,017 | | | $ | (3,196) | | | $ | 459,538 | |
| | | | | | | | |
| For the Six Months Ended June 30, 2020 | | | | | | | | |
| Property insights | | $ | 235,813 | | | $ | — | | | $ | — | | | $ | 235,813 | |
| Insurance and spatial solutions | | 95,280 | | | — | | | — | | | 95,280 | |
| Flood data services | | — | | | 57,580 | | | — | | | 57,580 | |
| Valuation solutions | | — | | | 124,203 | | | — | | | 124,203 | |
| Credit solutions | | — | | | 163,650 | | | — | | | 163,650 | |
| Property tax solutions | | — | | | 227,941 | | | — | | | 227,941 | |
| Other | | 18,548 | | | 7,387 | | | (9,053) | | | 16,882 | |
| Total operating revenue | | $ | 349,641 | | | $ | 580,761 | | | $ | (9,053) | | | $ | 921,349 | |
| | | | | | | | |
| For the Six Months Ended June 30, 2019 | | | | | | | | |
| Property insights | | $ | 241,407 | | | $ | — | | | $ | — | | | $ | 241,407 | |
| Insurance and spatial solutions | | 93,837 | | | — | | | — | | | 93,837 | |
| Flood data services | | — | | | 38,589 | | | — | | | 38,589 | |
| Valuation solutions | | — | | | 153,465 | | | — | | | 153,465 | |
| Credit solutions | | — | | | 139,500 | | | — | | | 139,500 | |
| Property tax solutions | | — | | | 179,053 | | | — | | | 179,053 | |
| Other | | 24,281 | | | 12,928 | | | (5,814) | | | 31,395 | |
| Total operating revenue | | $ | 359,525 | | | $ | 523,535 | | | $ | (5,814) | | | $ | 877,246 | |
Property Insights
Our property insights solutions combine our patented predictive analytics with our proprietary and contributed data to enable our clients to improve customer acquisition and retention, detect and prevent fraud, improve mortgage transaction cycle time and cost efficiency, identify real estate trends and neighborhood characteristics, track market performance, and increase market share. Our data is comprised of real estate information, incorporating crime, site inspection, neighborhood, document images, and other information from proprietary sources. We also offer verification of applicant income, identity and employment services. We typically license data in one of two forms: bulk data licensing and transactional licensing. Operating revenue for bulk data licensing contracts that provide a stand-ready obligation or include substantive updates to the intellectual property is recognized ratably over the contractual term; otherwise, operating revenue is recognized upon delivery. For transactional licensing, we recognize operating revenue based on usage.
Insurance and Spatial Solutions
Our insurance and spatial solutions provide originators and property and casualty insurers the ability to more effectively locate, assess and manage property-level assets and risks through location-based data and analytics. We also provide cloud-based property claims workflow technology for property and casualty insurers. The licensed intellectual property data is generally provided to our clients on a subscription or usage basis. For subscription contracts, operating revenue is recognized ratably over the contractual term once initial delivery has occurred. For contracts to provide a license to data which is delivered via report or data file, operating revenue is recognized when the client obtains control of the products, which is upon delivery.
Property Tax Solutions
Our property tax solutions are built from aggregated property tax information from over 20,000 taxing authorities. We use this information to advise mortgage lenders and servicers of the property tax payment status of loans in their portfolio and to monitor that status over the life of the loans. If a mortgage lender or servicer requires tax payments to be impounded on behalf of its borrowers, we can also facilitate the transfer of these funds to the taxing authorities and provide the lender or servicer with payment confirmation. Property tax processing revenues are primarily comprised of periodic loan fees and life-of-loan fees. For periodic fee arrangements, we generate monthly fees at a contracted rate for as long as we service the loan. For life-of-loan fee arrangements, we charge a one-time fee when the loan is set-up in our tax servicing system. Life-of-loan fees are deferred and recognized ratably over the expected service period of 10 years and adjusted for early loan cancellation. Revenue recognition rates of loan portfolios are regularly analyzed and adjusted monthly to reflect current trends.
Valuation Solutions
Our valuation solutions represent property valuation-related data driven services and analytics combined with collateral valuation workflow technologies which assist our clients in assessing risk of loss using both traditional and alternative forms of property valuation, driving process efficiencies as well as ensuring compliance with lender and governmental regulations. We provide collateral information technology and solutions that automate property appraisal ordering, tracking, documentation and review for lender compliance with government regulations. Revenue for the property appraisal service is recognized when the appraisal service is performed and delivered to the client. In addition, to the extent that we provide continuous access to the hosted software platform, we recognize operating revenue over the term of the arrangement.
Credit Solutions
Our credit solutions provide credit and income verification services to the mortgage and automotive industries. We provide comprehensive information, typically in the form of a report, about credit history, income verification, employment verification, and home address history. We normalize the data to provide a broad range of advanced business information solutions designed to reduce risk and improve business performance to mortgage and automotive lenders. Operating revenue is recognized when the report or information is delivered to the client.
Flood Data Solutions
Our flood data solutions provide flood zone determinations primarily to mortgage lenders in accordance with US Federal legislation passed in 1994, which requires that most lenders obtain a determination of the current flood zone status at the time each loan is originated and obtain applicable updates during the life of the loan if contracted to do so. We also provide flood zone determinations to insurance companies. We generally recognize operating revenue upon delivery of the initial determination. If contracted for life of loan monitoring, we recognize operating revenue over the estimated service period, as adjusted for early loan cancellation.
Contract Costs
Incremental costs to obtain or fulfill client contracts are recognized as an asset. As of June 30, 2020, we had $11.4 million of current deferred contract costs which are presented in prepaid expenses and other current assets, as well as $24.2 million of long-term deferred contract costs which are presented in other assets in our condensed consolidated balance sheet. As of December 31, 2019, we had $9.8 million of current deferred contract costs which are presented in prepaid expenses and other current assets as well as $23.1 million of long-term deferred contract costs which are presented in other assets in our consolidated balance sheet. Our deferred contract costs primarily include certain set-up and acquisition costs related to property tax solutions, which amortize ratably over an expected 10-year life, adjusted for early loan cancellations. For the three months ended June 30, 2020 and 2019, we recorded amortization associated with deferred contract costs of $4.5 million and $3.3 million, respectively, and $8.2 million and $6.4 million, respectively, for the six months ended June 30, 2020 and 2019.
Contract Liabilities
We record a contract liability when amounts are invoiced, which is generally prior to the satisfaction of the performance obligation. For property tax solutions, we invoice upfront fees to clients for services to be performed over time. For property insights and insurance and spatial solutions we invoice quarterly and annually, commencing upon execution of the contracts or at the beginning of the license term, as applicable.
As of June 30, 2020, we had $952.4 million in contract liabilities compared to $884.9 million as of December 31, 2019. The overall change of $67.5 million in contract liability balances is primarily due to $388.3 million of new deferred billings in the current year, partially offset by $321.1 million of operating revenue recognized, of which $192.6 million related to contracts previously deferred, and other increases of $0.3 million.
Remaining Performance Obligations
The majority of our arrangements are between one and three years with a significant portion being one year or less. For the remaining population of non-cancellable and fixed arrangements greater than one year, as of June 30, 2020 we had $1.1 billion of remaining performance obligations. We expect to recognize approximately 18% percent of this remaining revenue backlog in 2020, 29% in 2021, 18% in 2022 and 35% thereafter. See further discussion of performance obligations in Note 1 - Basis for Condensed Consolidated Financial Statements.
Note 8 – Share-Based Compensation
We currently issue equity awards under the Amended and Restated CoreLogic, Inc. 20112018 Performance Incentive Plan (the “Plan”), which was initially approved by our stockholders at our Annual Meeting held onin May 19, 2011 with an amendment and restatement approved by our stockholders at our Annual Meeting held on July 29, 2014, and a subsequent technical amendment by the Board in December 2016 (the “Plan”).2018. The Plan includes the ability to grant RSUs,share-based instruments such as restricted stock units ("RSUs"), performance-based restricted stock units ("PBRSUs"), and stock options. Prior to the approval of the Plan, we issued share-based awards under the CoreLogic, Inc. 2011 Performance Incentive Plan, as amended, which was preceded by the CoreLogic, Inc. 2006 Incentive Plan. The Plan provides for up to 21,909,00015,139,084 shares of the Company's common stock to be available for award grants.
We have primarily utilizeutilized RSUs and PBRSUs as our share-based compensation instruments for employees and directors. The fair value of any share-based compensation instrument grant is based on the market value of our sharescommon stock on the date of grant and is recognized as compensation expense over its vesting period.
Restricted Stock Units
For the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, we awarded 671,568730,319 and 967,826628,730 RSUs, respectively, with an estimated grant-date fair value of $26.9$25.8 million and $33.7$23.0 million, respectively. The RSU awards will vest ratably over three years from their grant date.
3 years. RSU activity for the ninesix months ended SeptemberJune 30, 20172020 is as follows:
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average
Grant-Date Fair Value |
| (in thousands, except weighted-average fair value prices) | | | |
| Unvested RSUs outstanding at 12/31/2019 | 1,032 | | | $ | 39.84 | |
| RSUs granted | 730 | | | $ | 35.39 | |
| RSUs vested | (503) | | | $ | 40.40 | |
| RSUs forfeited | (34) | | | $ | 33.74 | |
| Unvested RSUs outstanding at 6/30/2020 | 1,225 | | | $ | 37.15 | |
|
| | | | | | |
| | Number of | | Weighted-Average Grant-Date |
| (in thousands, except weighted-average fair value prices) | Shares | | Fair Value |
| Unvested RSUs outstanding at December 31, 2016 | 1,555 |
| | $ | 34.14 |
|
| RSUs granted | 672 |
| | $ | 39.99 |
|
| RSUs vested | (858 | ) | | $ | 34.29 |
|
| RSUs forfeited | (61 | ) | | $ | 35.87 |
|
| Unvested RSUs outstanding at September 30, 2017 | 1,308 |
| | $ | 37.22 |
|
As of SeptemberJune 30, 2017,2020, there was $31.8$34.1 million of total unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 2.01.8 years. The fair value of RSUs isRSU awards are based on the market value of our common stock on the date of grant.
Performance-Based Restricted Stock Units
For the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, we awarded 288,331296,244 and 285,475203,464 PBRSUs, respectively, with an estimated grant-date fair value of $11.5$11.1 million and $10.1$7.5 million, respectively. These awards are generally subject to service-based, performance-based, and market-based vesting conditions. For PBRSUs awarded duringThe service and performance period for the nine months ended September 30, 2017, the performance period2020 grants is from January 1, 20172020 to December 31, 20192022 and the performance metrics aremetric is adjusted earnings per shareshare.
The performance and market-based conditions. Subject to satisfaction of the performance criteria, the 2017 awards will vest on December 31, 2019.
The performanceservice period for the PBRSUs awarded duringin the nine months ended September 30, 2016first quarter of 2019 is from January 1, 20162019 to December 31, 20182021. These awards are generally subject to service-based, performance-based, and market-based vesting conditions with the performance metrics aremetric as adjusted earnings per share andshare. Additionally, within our unvested PBRSUs, there are prior year grants which do not include market-based conditions. Subject to satisfaction ofconditions but have adjusted EBITDA margin or organic revenue growth rate as the performance criteria, the 2016 awards will vest on December 31, 2018.metric.
The fair values of the 2017 and 2016 awards containing market-based vesting conditions were estimated using Monte-Carlo simulation with the following weighted-average assumptions:
| | | | | | | | | | | |
| For the Six Months Ended June 30, | | |
| 2020 | | 2019 |
Expected dividend yield (1) | — | % | | — | % |
Risk-free interest rate (2) | 0.60 | % | | 2.44 | % |
Expected volatility (3) | 32.53 | % | | 28.24 | % |
Average total stockholder return (3) | (21.47) | % | | 17.15 | % |
| | | |
(1) Since PBRSU participants are credited with dividend equivalent shares when dividends are paid, 0.00% was used in the Monte-Carlo simulation which is mathematically equivalent to paying dividend equivalents upon vesting. Please see Note 1 - Basis for Condensed Consolidated Financial Statements for further information regarding dividends. (2) The risk-free interest rate for the periods within the contractual term of the PBRSUs is based on the US Treasury yield curve in effect at the time of the grant. (3) The expected volatility and average total stockholder return are measures of the amount by which a stock price has fluctuated or is expected to fluctuate based primarily on our and our peers' historical data. | | | |
|
| | | | | |
| | For the Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | | | |
| Expected dividend yield | — | % | | — | % |
Risk-free interest rate (1) | 1.47 | % | | 0.99 | % |
Expected volatility (2) | 27.83 | % | | 25.12 | % |
Average total stockholder return (2) | 1.46 | % | | (1.23 | )% |
| |
(1) | The risk-free interest rate for the periods within the contractual term of the PBRSUs is based on the U.S. Treasury yield curve in effect at the time of the grant. |
| |
(2) | The expected volatility and average total stockholder return are measures of the amount by which a stock price has fluctuated or is expected to fluctuate based primarily on our and our peers' historical data. |
PBRSU activity for the ninesix months ended SeptemberJune 30, 20172020 is as follows:
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average
Grant-Date Fair Value |
| (in thousands, except weighted-average fair value prices) | | | |
| Unvested PBRSUs outstanding at December 31, 2019 | 636 | | | $ | 42.62 | |
| PBRSUs granted | 296 | | | $ | 37.53 | |
| PBRSUs vested | (184) | | | $ | 39.50 | |
| PBRSUs forfeited | (12) | | | $ | 43.65 | |
| Unvested PBRSUs outstanding at June 30, 2020 | 736 | | | $ | 41.93 | |
|
| | | | | | |
| | Number of | | Weighted-Average Grant-Date |
| (in thousands, except weighted-average fair value prices) | Shares | | Fair Value |
| Unvested PBRSUs outstanding at December 31, 2016 | 738 |
| | $ | 34.13 |
|
| PBRSUs granted | 288 |
| | $ | 39.79 |
|
| PBRSUs vested | (227 | ) | | $ | 31.90 |
|
| PBRSUs forfeited | (159 | ) | | $ | 36.48 |
|
| Unvested PBRSUs outstanding at September 30, 2017 | 640 |
| | $ | 36.91 |
|
As of SeptemberJune 30, 2017,2020, there was $10.3$21.4 million of total unrecognized compensation cost related to unvested PBRSUs that is expected to be recognized over a weighted-average period of 1.81.9 years. The fair value of PBRSUs isPBRSU awards are based on the market value of our common stock on the date of grant.
Stock Options
Prior to 2015, we issued stock options as incentive compensation for certain employees. Option activity for the ninesix months ended SeptemberJune 30, 20172020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except weighted-average price) | Number of
Shares | | Weighted-Average
Exercise Price | | Weighted-Average
Remaining
Contractual Term | | Aggregate
Intrinsic
Value |
| Options outstanding at December 31, 2019 | 479 | | | $ | 19.59 | | | | | |
| Options exercised | (46) | | | $ | 18.19 | | | | | |
| Options outstanding at June 30, 2020 | 433 | | | $ | 19.73 | | | 2.1 | | $ | 20,604 | |
|
| | | | | | | | | | | | |
| (in thousands, except weighted-average price) | Number of Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Options outstanding at December 31, 2016 | 1,504 |
| | $ | 21.22 |
| | | | |
| Options exercised | (215 | ) | | $ | 24.69 |
| | | | |
| Options vested, exercisable, and outstanding at September 30, 2017 | 1,289 |
| | $ | 20.64 |
| | 2.4 | | $ | 32,985 |
|
As of SeptemberJune 30, 2017,2020, there was no0 unrecognized compensation cost related to unvested stock options.
The intrinsic value of options exercised was $3.3$1.2 million and $4.4$1.1 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. This intrinsic value represents the difference between the fair market value of our common stock on the date of exercise and the exercise price of each option.
Employee Stock Purchase Plan
The employee stock purchase plan allows eligible employees to purchase our common stock at 85.0% of the lesser of the closing price on the first day or the last day of each quarter. Our employee stock purchase plan was approved by our stockholders at our 2012 annual meeting of stockholders and the first offering period commenced in October 2012. We recognizedrecognize an expense for the amount equal to the estimated fair value of the discount during each offering period.
The following table sets forth the stock-basedshare-based compensation expense recognized for the ninethree and six months ended SeptemberJune 30, 20172020 and 2016.2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | For the Six Months Ended | | |
| June 30, | | | | June 30, | | |
| (in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
| RSUs | $ | 5,601 | | | $ | 5,612 | | | $ | 11,412 | | | $ | 12,924 | |
| PBRSUs | 7,363 | | | $ | 1,743 | | | 8,938 | | | $ | 3,658 | |
| Stock options | — | | | $ | — | | | — | | | $ | — | |
| Employee stock purchase plan | 789 | | | $ | 508 | | | 1,488 | | | $ | 1,173 | |
| | $ | 13,753 | | | $ | 7,863 | | | $ | 21,838 | | | $ | 17,755 | |
|
| | | | | | | | | | | | | | |
| | For the Three Months Ended | For the Nine Months Ended |
| | September 30, | September 30, |
| (in thousands) | 2017 | | 2016 | 2017 | | 2016 |
| RSUs | $ | 6,924 |
| | $ | 6,209 |
| $ | 23,303 |
| | $ | 19,757 |
|
| PBRSUs | 1,400 |
| | 3,766 |
| 4,877 |
| | 8,312 |
|
| Stock options | — |
| | 213 |
| 144 |
| | 813 |
|
| Employee stock purchase plan | 294 |
| | 352 |
| 1,234 |
| | 977 |
|
| | $ | 8,618 |
| | $ | 10,540 |
| $ | 29,558 |
| | $ | 29,859 |
|
The table above includes $1.7$0.8 million and $0.7$0.6 million of stock-basedshare-based compensation expense within cost of services in the accompanying condensed consolidated statements of operations for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $4.7$1.5 million and $3.6$1.4 million for the ninesix months ended SeptemberJune 30, 2020 and 2019, respectively.
Note 9 – Litigation and Regulatory Contingencies
We have been named in various lawsuits and we are from time to time subject to audit or investigation by governmental agencies arising in the ordinary course of business.
With respect to matters where we determine that a loss is both probable and reasonably estimable, we record a liability representing our best estimate of the financial exposure based on known facts. For matters where a settlement has been reached, we record the expected amount of such settlements. With respect to audits, investigations or lawsuits that are ongoing, although their final dispositions are not yet determinable, we do not believe that the ultimate resolution of such matters, either individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates. We record expenses for legal fees as incurred. As of June 30, 2020, our accrual for litigation and regulatory contingencies was immaterial.
Fair Credit Reporting Act Class Actions
In July 2017, Rental Property Solutions, LLC (“RPS”) was named as a defendant in Claudinne Feliciano, et. al., v. CoreLogic SafeRent, LLC, a putative class action lawsuit in the US District Court for the Southern District of New York. The named plaintiff alleges that RPS prepared a background screening report about her that contained a record of a New York Housing Court action without noting that the action had previously been dismissed. On this basis, she seeks damages under the Fair Credit Reporting Act and the New York Fair Credit Reporting Act on behalf of herself and a class of similarly situated consumers with respect to reports issued during the period of July 2015 to the present. In July 2019, the District Court issued an order certifying a class of approximately 2,000 consumers. In June 2020, we reached an agreement to resolve the case, which we expect to be finalized in the coming months. The settlement amount has been recorded for the quarter ended June 30, 2020.
In May 2020, Rental Property Solutions, LLC (“RPS”) was named as a defendant in Terry Brown v. CoreLogic Rental Property Solutions, LLC, a putative class action lawsuit filed in the US District Court for the Eastern District of Virginia. The named plaintiff alleges that RPS prepared a background screening report about him that included a sex offender record that did not relate to him. He seeks damages under the Fair Credit Reporting Act on behalf of himself and a class of similarly situated consumers, as well as a subclass of consumers for whom misattributed sex offender records were removed following a dispute. The Company intends to vigorously defend itself in the litigation.
In June 2020, CoreLogic Credco, LLC (“Credco”) was named as a defendant in Marco Fernandez v. CoreLogic Credco, LLC, a putative class action lawsuit filed in California Superior Court in San Diego County. The named plaintiff alleges that Credco provided a lender with a consumer report about him that erroneously indicated he is on the Office of Foreign Asset Control’s list of Specially Designated Nationals and Blocked Persons (“OFAC List”). He further alleges that Credco failed to provide him with a copy of the OFAC List designation upon request, failed to notify him of what entities had received such a notification in the past, and failed to respond to his effort to dispute the item. He seeks to represent three classes and four subclasses based upon these allegations, and asserts seven claims under the Fair Credit Reporting Act, the California Credit Reporting Agencies Act, and California’s Unfair Competition law. The Company has removed the case to the US District Court for the Southern District of California, and intends to vigorously defend itself in the litigation.
Separation
Following the separation of the financial services businesses of our predecessor company, The First American Corporation (“FAC”) on June 1, 2010 (the “Separation”), we are responsible for a portion of First American Financial Corporation's ("FAFC") contingent and other corporate liabilities. In the Separation and Distribution Agreement we entered into in connection with the Separation, we agreed with FAFC to share equally in the cost of resolution of a small number of corporate-level lawsuits, including certain consolidated securities litigation matters from which we have since been dropped. There were no liabilities incurred in connection with the consolidated securities matters. Responsibility to manage each case has been assigned to either FAFC or us, with the managing party required to update the other party regularly and consult with each other prior to certain important decisions, such as settlement. The managing party will also have primary responsibility for determining the ultimate total liability, if any, related to the applicable case. We will record our share of any such liability when the responsible party determines a reserve is necessary. As of June 30, 2020, 0 reserves were considered necessary.
In addition, the Separation and Distribution Agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of FAC's financial services business with FAFC, and financial responsibility for the obligations and liabilities of FAC's information solutions business with us. Specifically, each party will, and will cause its subsidiaries and affiliates to, indemnify, defend and hold harmless the other party, its respective affiliates and subsidiaries and each of its respective officers, directors, employees and agents for any losses arising out of or otherwise in connection with the liabilities each such party assumed or retained pursuant to the Separation.
Note 10 – Income Taxes
The effective income tax rate for income taxes as a percentage of income/(loss) from continuing operations before equity in earnings/(losses) of affiliates and income taxes was a provision of 27.2% and a benefit of 72.0% for the three months ended June 30, 2020 and 2019, respectively, and a provision of 27.5% and a benefit of 79.1% for the six months ended June 30, 2020 and 2019, respectively.
For the three and six months ended June 30, 2020, when compared to the same periods for 2019, the change in the effective income tax rate was primarily due to a nonrecurring benefit recorded in 2019 related to the reversal of state tax reserves.
We are currently under examination for the years 2010 through 2012 and 2016, respectively.by the US Internal Revenue Service ("IRS"), our primary taxing authority, and for other years by various other taxing authorities. It is reasonably possible the amount of the unrecognized benefits, as well as the valuation allowance with respect to certain tax attributes, could be significantly impacted which would have an impact on net income. In the next 12 months we expect expiration of statutes of limitations on reserves of approximately $1.3 million and the release of reserves and allowances of approximately $17 million to $20 million upon the conclusion of the IRS examination for years 2010 through 2012.
Note 10 – Litigation and Regulatory Contingencies
We have been named in various lawsuits and we may from time to time be subject to audit or investigation by governmental agencies. Currently, governmental agencies are auditing or investigating certain of our operations.
With respect to matters where we have determined that a loss is both probable and reasonably estimable, we have recorded a liability representing our best estimate of the financial exposure based on known facts. For matters where a settlement has been reached, we have recorded the expected amount(s) of such settlements. With respect to audits, investigations or lawsuits that are ongoing, although their final dispositions are not yet determinable, we do not believe that the ultimate resolution of such matters, either individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows. As of September 30, 2017, we do not believe that a material loss exceeding amounts accrued of $20.1 million is probable, of which $17.6 million was recorded in the three months ended September 30, 2017. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates. We record expenses for legal fees as incurred.
Fair Credit Reporting Act Class Actions
In February 2012, CoreLogic National Background Data, LLC (n/k/a CoreLogic Background Data, LLC) (“CBD”) was named as a defendant in a putative class action styled Tyrone Henderson, et. al., v. CoreLogic National Background Data, in the United States District Court for the Eastern District of Virginia. Plaintiffs allege violation of the Fair Credit Reporting Act, and have pled a putative class claim relating to CBD’s return of criminal record data in response to search queries initiated by its consumer reporting agency customers, which then prepare and transmit employment background screening reports to their employer customers. Plaintiffs contend that CBD failed to send notice letters to consumers each time search results were returned to CBD’s consumer reporting agency customers. In February 2016, the court denied CBD’s motion for partial summary judgment. Plaintiffs initially sought to represent a nationwide class of consumers who were the subject of searches conducted by CBD’s customers. The court denied without prejudice Plaintiffs’ motion to certify a nationwide class on three separate occasions in April 2015, April 2016 and September 2016. However, in September 2016, the court allowed Plaintiffs to seek certification of three subclasses and in March 2017, Plaintiffs filed a motion for class certification as to one of these subclasses, seeking to certify a class of consumers for whom sex offender records were returned that did not reflect a date of birth associated with the record. Following a series of judicial settlement conferences concluding in August 2017, the parties entered into an agreement to settle the case with respect to a class of 75,400 consumers. In September 2017, the court preliminarily approved the settlement. A final fairness hearing is set for January 2018.
In June 2015, a companion case, Witt v. CoreLogic National Background Data, et. al. was filed in the United States District Court for the Eastern District of Virginia by the same attorneys as in Henderson, alleging the same claim against CBD. Witt also names as a defendant CoreLogic SafeRent, LLC (n/k/a CoreLogic Rental Property Solutions, LLC (“RPS”)) on the theory that RPS provides criminal record “reports” to CBD at the same time that CBD delivers reports to CBD’s consumer reporting agency customers. Witt is pending in the same court and before the same judge as Henderson, and the two cases have been deemed related by the Court. In April 2017, Plaintiffs filed a motion for class certification, seeking to certify a class of consumers for whom Virginia criminal record data was returned that did not reflect a year of birth associated with the record. Following a series of judicial settlement conferences concluding in August 2017, the parties entered into two agreements to settle the case with respect to two classes, which together total 216,226 consumers. In September 2017, the court preliminarily approved the settlements. A final fairness hearing is set for January 2018.
On July 2017, CoreLogic SafeRent, LLC (n/k/a CoreLogic Rental Property Solutions, LLC (“RPS”)) was named as a defendant in a putative class action lawsuit styled Claudinne Feliciano, et. al., v. CoreLogic SafeRent, LLC, in the United States District Court for the Southern District of New York. An amended complaint was filed on August 9 to name RPS as the Defendant, and service was made on August 11. The case alleges violation of the Fair Credit Reporting Act and the New York Fair Credit Reporting Act. The named plaintiff alleges that RPS prepared a background screening report about her that contained a record of a New York Housing Court action without noting that the action had previously been dismissed. Plaintiff seeks to represent a class of similarly situated consumers with respect to reports issued during the period of July 2015 to the present. RPS filed an answer on October 2017, denying liability. RPS intends to defend against these claims vigorously.
Separation
Following the Separation, we are responsible for a portion of FAFC's contingent and other corporate liabilities. In the Separation and Distribution Agreement we entered into in connection with the Separation (the "Separation and Distribution Agreement"), we agreed with FAFC to share equally in the cost of resolution of a small number of corporate-level lawsuits, including certain consolidated securities litigation matters from which we have since been dropped. There were no liabilities incurred in connection with the consolidated securities matters. Responsibility to manage each case has been assigned to either FAFC or us, with the managing party required to update the other party regularly and consult with the other party prior to certain important decisions, such as settlement. The managing party will also have primary responsibility for determining the ultimate total liability, if any, related to the applicable case. We will record our share of any such liability when the responsible party determines a reserve is necessary. At September 30, 2017, no reserves were considered necessary.
In addition, the Separation and Distribution Agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our predecessor, The First American Corporation's ("FAC") financial services business, with FAFC and financial responsibility for the obligations and liabilities of FAC's information solutions business with us. Specifically, each party will, and will cause its subsidiaries and affiliates to, indemnify, defend and hold harmless the other party, its respective affiliates and subsidiaries and each of its respective officers, directors, employees and agents for any losses arising out of or otherwise in connection with the liabilities each such party assumed or retained pursuant to the Separation
Note 11 – Earnings Per Share
The following is a reconciliation of net income per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | | | For the Six Months Ended Jun 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| (in thousands, except per share amounts) | | | | | | | |
| Numerator for basic and diluted net income per share: | | | | | | | |
| Net income/(loss) from continuing operations | $ | 59,005 | | | $ | (5,524) | | | $ | 92,811 | | | $ | (3,791) | |
| (Loss)/income from discontinued operations, net of tax | — | | | (48) | | | 13 | | | (94) | |
| | | | | | | |
| Net income | $ | 59,005 | | | $ | (5,572) | | | $ | 92,824 | | | $ | (3,885) | |
| Denominator: | | | | | | | |
| Weighted-average shares for basic income/(loss) per share | 79,403 | | | 80,473 | | | 79,216 | | | 80,326 | |
| Dilutive effect of stock options and RSUs | 1,243 | | | — | | | 1,551 | | | — | |
| Weighted-average shares for diluted income/(loss) per share | 80,646 | | | 80,473 | | | 80,767 | | | 80,326 | |
| Income/(loss) per share | | | | | | | |
| Basic: | | | | | | | |
| Net income/(loss) from continuing operations | $ | 0.74 | | | $ | (0.07) | | | $ | 1.17 | | | $ | (0.05) | |
| (Loss)/income from discontinued operations, net of tax | — | | | — | | | — | | | — | |
| | | | | | | |
| Net income | $ | 0.74 | | | $ | (0.07) | | | $ | 1.17 | | | $ | (0.05) | |
| Diluted: | | | | | | | |
| Net income/(loss) from continuing operations | $ | 0.73 | | | $ | (0.07) | | | $ | 1.15 | | | $ | (0.05) | |
| (Loss)/income from discontinued operations, net of tax | — | | | — | | | — | | | — | |
| | | | | | | |
| Net income | $ | 0.73 | | | $ | (0.07) | | | $ | 1.15 | | | $ | (0.05) | |
The dilutive effect of share-based compensation awards has been calculated using the treasury-stock method. For the three and six months ended June 30, 2020 an aggregate of 0.1 million of RSUs were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect. Given our net loss position for the three and six months ended June 30, 2019, basic and diluted shares are the same, as the assumed exercise of stock options and restricted stock are anti-dilutive.
Note 12 – Acquisitions
In June 2017,January 2020, we acquired a 45.0% interest in Mercury for $70.0 million, which included a call option to purchase the remaining 55.0% interest within the next nine-month period. We fair-valued the call option using the Black-Scholes model and preliminarily recorded $4.6 million. In August 2017, we purchased the remaining 55.0% ownership66% of MercuryLocation for an additional $83.0$11.5 million, and wrote-off the aforementioned call option, which resulted in a net loss of $1.9 million within our loss on extinguishment of debt and other, net, in the accompanying condensed consolidated statement of operations. Mercurysubject to certain working capital adjustments. Location is a technology company servicing smallleading provider of geographic location indicators for crime and medium-sized mortgage lendersnon-weather related events connected to underwriting risk assessment. This acquisition further progresses our long-term strategic plan by adding scale to our insurance and appraisal management companies to manage their collateral valuation operations. This investment rolls intospatial businesses. Location is included as a component of our PIProperty Intelligence & Risk Management Solutions ("PIRM") segment. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. We have preliminarily recorded a deferred tax liabilityproprietary technology of $14.4 million, tradenames of $3.6$6.0 million with an estimated useful life of 10 years, client lists of $0.3 million with an estimated useful life of 5 years, trademarks of $0.8 million with an estimated useful life of 8 years, customer listsnon-compete agreements of $41.3$0.4 million with an estimated useful life of 10 years, proprietary technology of $20.1 million with an estimated life of 95 years, and goodwill of $99.5$12.6 million. This business combination did not haveFor the six months ended June 30, 2020, goodwill increased by $0.3 million as a material impactresult of a change in the purchase price allocation for certain working capital adjustments. In connection with this acquisition, we remeasured our then-existing 34% investment ownership in Location which resulted in a $0.6 million step-up gain that we recorded within gain/(loss) on investments and other, net, in our condensed consolidated statementsstatement of operations.operations for the six months ended June 30, 2020.
In August 2017,2019, we completed the acquisition of MyriadNational Tax Search LLC ("NTS") for $22.0$15.0 million, subject to certain working capital adjustments, and up to $3.0$7.5 million to be paid in cash in 2019,by 2022, contingent upon the achievement of certain revenue targets in fiscal years 20172020 and 2018. We fair valued the contingent payment using the Monte-Carlo simulation model and preliminarily recorded $1.8 million as contingent consideration. The contingent payment is fair valued quarterly and changes are recorded within loss on extinguishment of debt and other, net in our consolidated statement of operations. See 2021 (see Note 86 - Fair Value of Financial Instrumentsfor further discussion. Thisdetails). NTS is a leading provider of commercial property tax payment services and specializes in identifying potential collateral loss related to unpaid property tax, homeowners association fees, and inaccurate flood zone determinations. The NTS acquisition builds on our software-as-a-service capabilities by offering a workflow tool used byincreases the insurance industry for policy underwriting. MyriadCompany's commercial property information offerings and is expected to drive future growth in the US. NTS is included as a component of our PI reportingUWS segment. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. We have preliminarily recorded a deferred tax liability of $3.1 million, customerclient lists of $1.7 million with an estimated average life of 12 years, tradenames of $1.6 million with an estimated average life of 7 years, proprietary technology of $5.8$5.0 million with an estimated useful life of 810 years, and goodwillproprietary technology of $17.3 million. The business combination did not have a material impact on our consolidated statements of operations.
In August 2017, we completed the acquisition of Clareity for $15.0 million, subject to working capital adjustments. This acquisition leverages our market leading position in real estate and provides authentication-related services to real estate brokers and agents. Clareity is included as a component of our PI reporting segment. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. We preliminarily recorded a deferred tax liability of $2.8 million, customer lists of $3.4$3.3 million with an estimated averageuseful life of 107 years, tradenamestrademarks of $0.9$1.0 million with an estimated averageuseful life of 7 years, proprietary technologynon-compete agreements of $2.0$0.3 million with an estimated useful life of 5 years, contract liabilities of $2.5 million, and goodwill of $11.1 million. The business combination did not have a material impact on our consolidated statements$5.5 million, all of operations.
In April 2016, we completed the acquisition of FNCwhich is deductible for up to $475.0 million, with $400.0 million in cash paid at closing, subject to certain closing adjustments, and up to $75.0 million to be paid in cash in 2018, contingent upon the achievement of certain revenue targets in fiscal 2017. We fair-valued the contingent payment using the Monte Carlo simulation model and initially recorded $8.0 million as contingent consideration, which was fully reversed as of December 31, 2016. The contingent payment is fair-valued quarterly and changes are recorded within our condensed consolidated statement of operations. See Note 8 - Fair Value of Financial Instruments for further discussion. FNC is a leading provider of real estate collateral information technology and solutions that automates property appraisal ordering, tracking, documentation and review for lender compliance with government regulations and is included as a component of our PI reporting segment. The acquisition expands our property valuation capabilities. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. We recorded a deferred tax liability of $85.4 million, property and equipment of $79.8 million with an estimated average life of 12 years, customer lists of $145.3 million with an estimated average life of 16 years, trade names of $15.9 million with an estimated average life of 19 years, non-compete agreements of $18.8 million with an estimated average life of 5 years, and goodwill of $220.2 million.purposes. For the ninesix months ended SeptemberJune 30, 2017,2020, goodwill was reducedincreased by $5.4less than $0.1 million as a result of a change in the purchase price allocation for certain taxworking capital adjustments. This
These business combinationcombinations did not have a material impact on our condensed consolidated statements of operations.
In January 2016, we completed the acquisition of the remaining 40% mandatorily redeemable noncontrolling interest in New Zealand-based Property IQ Ltd ("PIQ") for NZD $27.8 million, or $19.0 million, and settled the mandatorily redeemable noncontrolling interest. PIQ is included as a component of our PI reporting segment.
We incurred $0.9 million and $1.4 million ofThere were 0 acquisition-related costs within selling, general and administrative expenses on our condensed consolidated statementsstatement of operations for the three months ended SeptemberJune 30, 20172020 and 2016, respectively, and $1.8$0.1 million for 2019; additionally, we had $0.9 million and $7.5$0.2 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. For the nine months ended September 30, 2017, we also incurred a $6.1 million loss related to the final settlement of a previously terminated pension plan from a recent acquisition. See Note 1 - Basis for Condensed Consolidated FinancialStatements for further discussion.
Note 12 – Discontinued Operations
In September 2014, we completed the sale of our collateral solutions and field services businesses, which were included in the former reporting segment Asset Management and Processing Solutions ("AMPS"). In September 2012, we completed the wind down of our consumer services business and our appraisal management company business, which were included in our PI and Risk Management and Work Flow ("RMW") segments, respectively. In September 2011, we closed our marketing services business, which was included in our PI segment. In December 2010, we completed the sale of our Employer and Litigation Services businesses ("ELI").
In connection with previous divestitures, we retain the prospect of contingent liabilities for indemnification obligations or breaches of representations or warranties. With respect to one such divestiture, in September 2016, a jury returned an unfavorable verdict against a discontinued operating unit that, if upheld on appeal, could result in indemnification exposure up to $25.0 million, including interest. We do not consider this outcome to be probable and intend to vigorously assert our contractual and other rights, including to pursue an appeal to eliminate or substantially reduce any potential post-divestiture contingency. Any actual liability that comes to fruition would be reflected in our results from discontinued operations.
Each of these businesses is reflected in our accompanying condensed consolidated financial statements as discontinued operations. For the nine months ended September 30, 2017, we recorded a gain of $4.5 million related to a pre-tax legal settlement in AMPS within our discontinued operations. Summarized below are certain assets and liabilities classified as discontinued operations as of September 30, 2017 and December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | | | | | | | | | |
| As of September 30, 2017 | | PI | | RMW | | ELI | | AMPS | | Total |
| Deferred income tax asset and other current assets | | $ | 325 |
| | $ | (231 | ) | | $ | 82 |
| | $ | 568 |
| | $ | 744 |
|
| | | | | | | | | | | |
| Accounts payable, accrued expenses and other current liabilities | | $ | 12 |
| | $ | 154 |
| | $ | 190 |
| | $ | 1,658 |
| | $ | 2,014 |
|
| | | | | | | | | | | |
| As of December 31, 2016 | | | | | | | | | | |
| Deferred income tax asset and other current assets | | $ | 325 |
| | $ | (231 | ) | | $ | — |
| | $ | 568 |
| | $ | 662 |
|
| | | | | | | | | | | |
| Accounts payable, accrued expenses and other current liabilities | | $ | 202 |
| | $ | 167 |
| | $ | 624 |
| | $ | 2,130 |
| | $ | 3,123 |
|
Summarized below are the components of our gain/(loss) from discontinued operations for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | |
| |
| | | | | | |
| For the Three Months Ended September 30, 2017 | | PI | | RMW | | ELI | | AMPS | | Total |
| Operating revenue | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Gain/(loss) from discontinued operations before income taxes | | 67 |
| | 7 |
| | (193 | ) | | (1 | ) | | (120 | ) |
| Income tax expense/(benefit) | | 26 |
| | 3 |
| | (74 | ) | | (1 | ) | | (46 | ) |
| Gain/(loss) from discontinued operations, net of tax | | $ | 41 |
| | $ | 4 |
| | $ | (119 | ) | | $ | — |
| | $ | (74 | ) |
| | | | | | | | | | | |
| For the Three Months Ended September 30, 2016 | | | | | | | | | | |
| Operating revenue | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Loss from discontinued operations before income taxes | | (36 | ) | | (4 | ) | | (948 | ) | | (529 | ) | | (1,517 | ) |
| Income tax benefit | | (14 | ) | | (1 | ) | | (363 | ) | | (203 | ) | | (581 | ) |
| Loss from discontinued operations, net of tax | | $ | (22 | ) | | $ | (3 | ) | | $ | (585 | ) | | $ | (326 | ) | | $ | (936 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | | | | | | | | | |
| For the Nine Months Ended September 30, 2017 | | PI | | RMW | | ELI | | AMPS | | Total |
| Operating revenue | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Gain/(loss) from discontinued operations before income taxes | | 205 |
| | 6 |
| | (445 | ) | | 4,154 |
| | 3,920 |
|
| Income tax expense/(benefit) | | 78 |
| | 2 |
| | (170 | ) | | 1,589 |
| | 1,499 |
|
| Gain/(loss) from discontinued operations, net of tax | | $ | 127 |
| | $ | 4 |
| | $ | (275 | ) | | $ | 2,565 |
| | $ | 2,421 |
|
| | | | | | | | | | | |
| For the Nine Months Ended September 30, 2016 | | | | | | | | | | |
| Operating revenue | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Loss from discontinued operations before income taxes | | (37 | ) | | (7 | ) | | (948 | ) | | (624 | ) | | (1,616 | ) |
| Income tax benefit | | (14 | ) | | (3 | ) | | (362 | ) | | (239 | ) | | (618 | ) |
| Loss from discontinued operations, net of tax | | $ | (23 | ) | | $ | (4 | ) | | $ | (586 | ) | | $ | (385 | ) | | $ | (998 | ) |
Note 13 – Segment Information
We have organized ourinto 2 reportable segments into two segments: PIPIRM and RMW.UWS.
Property Intelligence & Risk Management Solutions. Our PIPIRM segment owns or licenses realcombines property information, mortgage information, and consumer information which includes loan information, property salesto deliver unique housing market and characteristic information, propertyproperty-level insights, predictive analytics and risk and replacement cost, natural hazard data, geospatial data, parcel maps and mortgage-backed securities information.management capabilities. We have also developed proprietary technology and software platforms to access, automate, orand track our datathis information and assist our clients with decision-making and compliance regulations.tools in the real estate industry, insurance industry, and the single and multifamily industry. We deliver this information directly to our clients in a standard format over the web, through customizablehosted software platforms, or in bulk data form. Our productsPIRM solutions include property insights and services include data licensinginsurance and analytics, data-enabled advisory services, platform solutions and valuationspatial solutions in North America, Western Europe, and Asia Pacific. The segment's primary clients are commercial banks, mortgage lenders and brokers, investment banks, fixed-income investors, real estate agents, Multiple Listing ServiceMLS companies, property and casualty insurance companies, title insurance companies, government agencies, and government-sponsored enterprises.
The operating results of our PIPIRM segment included intercompany revenues of $1.1$3.7 million and $1.5$2.2 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $3.3$7.7 million and $4.2$4.0 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The segment also included intercompany expenses of $1.0$0.6 million and $1.0 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $2.5$1.4 million and $3.9$1.8 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
Risk Management and Work Flow.
Underwriting & Workflow Solutions. Our RMWUWS segment owns or licenses realcombines property, information, mortgage, information and consumer information which includes loan information, property salesto provide comprehensive mortgage origination and characteristic information, natural hazard data, parcel maps, employment verification, criminal recordsmonitoring solutions, including, underwriting-related solutions, and eviction records.data-enabled valuations and appraisals. We have also developed proprietary technology and software platforms to access, automate, orand track our datathis information, and assist our clients with vetting and onboarding prospects, meeting compliance regulations.regulations and understanding, evaluating, and monitoring property values. Our products and servicesUWS solutions include credit and screening solutions, property tax processing,solutions, valuation solutions, credit solutions, and flood data services and technology solutions in North America. The segment’s primary clients are large, national mortgage lenders and servicers, but we also serve regional mortgage lenders and brokers, credit unions, commercial banks, fixed-income investors, government agencies, and property and casualty insurance companies.
The operating results of our RMWUWS segment included intercompany revenues of $1.0$0.6 million and $1.0 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $2.5$1.3 million and $3.9$1.8 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019 respectively. The segment also included intercompany expenses of $1.1$1.8 million and $1.5$2.2 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $3.3$3.6 million and $4.2$4.0 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
We also separately report on our corporate and eliminations. Corporate consists primarily of corporate personnel and other expenses associated with our corporate functions and facilities, investment gains and losses, equity in earningsearnings/(losses) of affiliates, net of tax, and interest expense. The results of our Corporate segment included intercompany expenses of $1.9 million and $4.1 million for the three and six months ended June 30, 2020, respectively, and NaN for both the three and six months ended June 30, 2019.
It is impracticable to disclose revenues from external clients for each product and service offered.
Selected financial information by reportable segment is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Operating Revenues | | Depreciation and Amortization | | Operating Income/(Loss) | | Equity in Earnings/(Losses) of Affiliates, Net of Tax | | Net Income/(Loss) From Continuing Operations | | Capital Expenditures |
| | | | | | | | | | | | |
| For the Three Months Ended June 30, 2020 | | | | | | | | | | | | |
| PIRM | | $ | 176,586 | | | $ | 25,050 | | | $ | 30,159 | | | $ | 764 | | | $ | 30,792 | | | $ | 15,494 | |
| UWS | | 305,140 | | | 13,283 | | | 96,365 | | | — | | | 98,170 | | | 2,112 | |
| Corporate | | — | | | 8,368 | | | (35,541) | | | (388) | | | (69,957) | | | 9,008 | |
| Eliminations | | (4,262) | | | — | | | — | | | — | | | — | | | — | |
| Consolidated (excluding discontinued operations) | | $ | 477,464 | | | $ | 46,701 | | | $ | 90,983 | | | $ | 376 | | | $ | 59,005 | | | $ | 26,614 | |
| | | | | | | | | | | | |
| For the Three Months Ended June 30, 2019 | | | | | | | | | | | | |
| PIRM | | $ | 183,717 | | | $ | 26,113 | | | $ | 23,026 | | | $ | 482 | | | $ | 19,272 | | | $ | 14,290 | |
| UWS | | 279,017 | | | 13,757 | | | 19,779 | | | (8) | | | 20,377 | | | 4,861 | |
| Corporate | | — | | | 7,236 | | | (28,215) | | | (160) | | | (45,173) | | | 10,903 | |
| Eliminations | | (3,196) | | | — | | | — | | | — | | | — | | | — | |
| Consolidated (excluding discontinued operations) | | $ | 459,538 | | | $ | 47,106 | | | $ | 14,590 | | | $ | 314 | | | $ | (5,524) | | | $ | 30,054 | |
| | | | | | | | | | | | |
| For the Six Months Ended June 30, 2020 | | | | | | | | | | | | |
| PIRM | | $ | 349,641 | | | $ | 50,061 | | | $ | 48,477 | | | $ | 1,470 | | | $ | 50,024 | | | $ | 29,570 | |
| UWS | | 580,761 | | | 26,528 | | | 171,979 | | | — | | | 174,603 | | | 4,016 | |
| Corporate | | — | | | 16,955 | | | (62,402) | | | (582) | | | (131,816) | | | 16,804 | |
| Eliminations | | (9,053) | | | — | | | — | | | — | | | — | | | — | |
| Consolidated (excluding discontinued operations) | | $ | 921,349 | | | $ | 93,544 | | | $ | 158,054 | | | $ | 888 | | | $ | 92,811 | | | $ | 50,390 | |
| | | | | | | | | | | | |
| For the Six Months Ended June 30, 2019 | | | | | | | | | | | | |
| PIRM | | $ | 359,525 | | | $ | 52,912 | | | $ | 37,378 | | | $ | (42) | | | $ | 30,659 | | | $ | 29,903 | |
| UWS | | 523,535 | | | 29,532 | | | 65,631 | | | (8) | | | 65,812 | | | 10,629 | |
| Corporate | | — | | | 13,881 | | | (67,215) | | | (58) | | | (100,262) | | | 22,489 | |
| Eliminations | | (5,814) | | | — | | | — | | | — | | | — | | | — | |
| Consolidated (excluding discontinued operations) | | $ | 877,246 | | | $ | 96,325 | | | $ | 35,794 | | | $ | (108) | | | $ | (3,791) | | | $ | 63,021 | |
| | | | | | | | | | | | | | |
| (in thousands) | | | | |
| Assets | | June 30, 2020 | | December 31, 2019 |
| PIRM | | $ | 1,904,923 | | | $ | 1,988,915 | |
| UWS | | 2,167,497 | | | 2,159,403 | |
| Corporate | | 5,956,259 | | | 5,938,106 | |
| Eliminations | | (5,871,554) | | | (5,934,053) | |
| Consolidated (excluding discontinued operations) | | $ | 4,157,125 | | | $ | 4,152,371 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2017 | | Operating Revenues | | Depreciation and Amortization | | Operating Income/(Loss) | | Equity in Earnings/(Losses) of Affiliates, Net of Tax | | Net Income/(Loss) From Continuing Operations | | Capital Expenditures |
| PI | | $ | 257,987 |
| | $ | 34,086 |
| | $ | 34,737 |
| | $ | (274 | ) | | $ | 31,661 |
| | $ | 11,517 |
|
| RMW | | 227,329 |
| | 6,018 |
| | 52,593 |
| | — |
| | 52,584 |
| | 3,273 |
|
| Corporate | | 1 |
| | 5,222 |
| | (25,034 | ) | | 45 |
| | (53,417 | ) | | 2,049 |
|
| Eliminations | | (2,186 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Consolidated (excluding discontinued operations) | | $ | 483,131 |
| | $ | 45,326 |
| | $ | 62,296 |
| | $ | (229 | ) | | $ | 30,828 |
| | $ | 16,839 |
|
| | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2016 | | |
| | |
| | | | | | |
| | |
|
| PI | | $ | 280,620 |
| | $ | 33,280 |
| | $ | 28,822 |
| | $ | 872 |
| | $ | 28,325 |
| | $ | 12,517 |
|
| RMW | | 245,764 |
| | 6,304 |
| | 76,758 |
| | — |
| | 76,749 |
| | 2,658 |
|
| Corporate | | 2 |
| | 4,914 |
| | (19,859 | ) | | (265 | ) | | (69,072 | ) | | 1,408 |
|
| Eliminations | | (2,490 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Consolidated (excluding discontinued operations) | | $ | 523,896 |
| | $ | 44,498 |
| | $ | 85,721 |
| | $ | 607 |
| | $ | 36,002 |
| | $ | 16,583 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| For the Nine Months Ended September 30, 2017 | | |
| | |
| |
|
| |
|
| | |
| | |
|
| PI | | $ | 736,530 |
| | $ | 98,383 |
| | $ | 79,984 |
| | $ | (1,700 | ) | | $ | 68,303 |
| | $ | 35,212 |
|
| RMW | | 666,206 |
| | 18,121 |
| | 158,866 |
| | — |
| | 158,838 |
| | 11,014 |
|
| Corporate | | (1 | ) | | 15,164 |
| | (65,595 | ) | | 468 |
| | (142,419 | ) | | 8,052 |
|
| Eliminations | | (5,775 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Consolidated (excluding discontinued operations) | | $ | 1,396,960 |
| | $ | 131,668 |
| | $ | 173,255 |
| | $ | (1,232 | ) | | $ | 84,722 |
| | $ | 54,278 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| For the Nine Months Ended September 30, 2016 | | |
| | |
| |
|
| |
|
| | |
| | |
|
| PI | | $ | 798,741 |
| | $ | 93,580 |
| | $ | 80,931 |
| | $ | 1,424 |
| | $ | 78,122 |
| | $ | 38,476 |
|
| RMW | | 687,023 |
| | 20,635 |
| | 196,023 |
| | — |
| | 195,991 |
| | 7,786 |
|
| Corporate | | 5 |
| | 13,218 |
| | (56,609 | ) | | (829 | ) | | (170,148 | ) | | 16,106 |
|
| Eliminations | | (8,125 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Consolidated (excluding discontinued operations) | | $ | 1,477,644 |
| | $ | 127,433 |
| | $ | 220,345 |
| | $ | 595 |
| | $ | 103,965 |
| | $ | 62,368 |
|
Note 14 – Subsequent Events
As of July 23, 2020, we have three separate subsequent events as noted below.
Shareholder Rights Plan Updates
In July 2020, our Board of Directors adopted a shareholder rights plan (the “Rights Agreement”).
Pursuant to the Rights Agreement, on July 6, 2020, our Board of Directors declared a dividend distribution of 1 right (a “Right”) for each outstanding share of our common stock to shareholders of record on July 17, 2020. Each Right entitles its holder to purchase from the Company, when exercisable and subject to adjustment, a unit (“Unit”) consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.00001 per share, at an exercise price of $308 per Unit (the “purchase price”).
Under the Rights Agreement, the Rights will generally be exercisable only in the event that a person or group of affiliated or associated persons (such person or group being an “Acquiring Person”), other than certain exempt persons, acquires beneficial ownership of ten percent (10%) or more of the outstanding shares of our common stock (or twenty percent (20%) or more of the outstanding shares of our common stock in the case of passive institutional investors reporting beneficial ownership on Schedule 13G). In such case, subject to certain exceptions specified in the Rights Agreement, each holder of a Right (other than the Acquiring Person, whose Rights would become null and void) will have the right to receive, upon payment of the purchase price, common stock (or, in certain circumstances, other securities, cash, or other assets of the Company) having a value equal to 2 (2) times the purchase price.
In the event that, at any time after a person or group has become an Acquiring Person, (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the continuing or surviving corporation, (ii) the Company engages in a merger or other business combination transaction in which the Company is the continuing or surviving corporation and the shares of common stock of the Company are changed or exchanged or (iii) fifty percent (50%) or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (other than the Acquiring Person, whose Rights would become null and void) would thereafter have the right to receive, upon payment of the purchase price, common stock of the acquiring company having a value equal to 2 (2) times the purchase price.
Our Board of Directors may redeem the Rights for $0.001 per Right, subject to adjustment, at any time until the earlier of 10 business days following a public announcement that an Acquiring Person has become such or the expiration of the Rights Agreement. The Rights will expire on July 6, 2021, unless the Rights are earlier redeemed, exchanged or terminated.
The Rights are not intended to prevent a takeover of the Company and should not interfere with any merger or other business combination approved by our Board of Directors. However, the overall effect of the Rights may render it more difficult or discourage a merger, tender offer or other business combination involving the Company that is not supported by our Board of Directors.
Additional details about the Rights Agreement are contained in a Form 8-K filed by the Company with the SEC on July 7, 2020.
Dividends
In July 2020, our Board of Directors announced a 50% increase in the quarterly cash dividend, declaring a cash dividend of $0.33 per share of common stock to be paid in September 2020 to shareholders of a record as of September 1, 2020.
|
| | | | | | | | |
| (in thousands) | | As of | | As of |
| Assets | | September 30, 2017 | | December 31, 2016 |
| PI | | $ | 2,783,263 |
| | $ | 2,429,167 |
|
| RMW | | 1,311,730 |
| | 1,328,008 |
|
| Corporate | | 5,658,980 |
| | 5,575,846 |
|
| Eliminations | | (5,614,829 | ) | | (5,426,149 | ) |
| Consolidated (excluding assets of discontinued operations) | | $ | 4,139,144 |
| | $ | 3,906,872 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Quarterly Report, other than statements that are purely historical, are forward-looking statements. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “should,” “would,” “could,” “may,” and similar expressions also identify forward-looking statements. The forward-looking statements include, without limitation, statements regarding our future operations, financial condition and prospects,operating results, revenues and earnings liquidity, our estimated income tax rate, unrecognized tax positions, amortization expenses, impact of recent accounting pronouncements, our cost management program, our acquisition strategy and our growth plans, expectations regarding our recent acquisitions, share repurchases, the level of aggregate U.S.US mortgage originations, and the reasonableness of the carrying value related to specific financial assets and liabilities.liabilities, the near and long-term consequences of the unsolicited proposal from Senator Investment Group, L.P. and Cannae Holdings, Inc. to acquire the Company for $65.00 per share in cash (the “Unsolicited Proposal”) and our recent adoption of a shareholder rights plan.
Our expectations, beliefs, objectives, intentions and strategies regarding future results are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from results contemplated by our forward-looking statements. These risks and uncertainties include, but are not limited to:
•the potential impact of, and any potential developments related to, the Unsolicited Proposal;
•our adoption of a shareholder rights plan;
•the potential impact that the COVID-19 pandemic, or the perception of its effects, may have on our business;
•compromises in the security or stability of our data and systems, including from cyber-based attacks, the unauthorized transmission of confidential information or systems interruptions;
•limitations on access to, or increase in prices for, data from external sources, including government and public record sources;
•interruptions which could impair the delivery of our products and services;
•changes in applicable government legislation, regulations and the level of regulatory scrutiny affecting our clients or us, including with respect to consumer financial services and the use of public records and consumer data;
the inherent uncertainty and unpredictability of our litigation;
compromises in the security or stability of our data and systems, including from cyber-based attacks, the unauthorized transmission of confidential information or systems interruptions;
•difficult or uncertain conditions in the mortgage and consumer lending industries and the economy generally;
•reliance on our abilitytop ten clients for a significant portion of our revenue and profit;
•intense competition in the market against third parties and the in-house capabilities of our clients;
•risks related to protect proprietary technology rights;the outsourcing of services and international operations;
•our ability to realize the anticipated benefits of certain acquisitions and the timing thereof;
risks related to the outsourcing of services and international operations;
our cost-containment and growth strategies and •our ability to effectivelyoperate in international markets;
•our ability to protect proprietary technology rights and efficiently implement them;avoid infringement of others’ proprietary technology rights;
•the level of our indebtedness, our ability to service our indebtedness and the restrictions in our various debt agreements;
intense competition in the market against third parties and the in-house capabilities of our clients;
•our ability to attract and retain qualified management; and
impairments in our goodwill or other intangible assets; and
•the remaining tax sharing arrangements and other obligations associated with the spin-off of First American Financial Corporation ("FAFC"(“FAFC”).
We urge you to carefully consider these risks and uncertainties and review the additional disclosures we make concerning risks and uncertainties that may materially affect the outcome of our forward-looking statements and our future business and operating results, including those made in Item 1A of Part II below,of this Quarterly Report on Form 10-Q, Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, as such risk factors may be amended, supplemented, or superseded from time to time by other reports we file with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of the filing of this Quarterly Report on Form 10-Q.
Business Overview
We are a leading global property information, analytics and data-enabled software platforms and services provider operating in North America, Western Europe and Asia Pacific. Our vision is to deliver unique property-level insights that power the global real estate economy, differentiated by superior data, analytics and data-enabled solutions. Our mission is to empower our clients to make smarter decisions through data-driven insights.
Our combined data from public, contributory and proprietary sources provides detailed coverage of property, mortgages, and other encumbrances, property risk and replacement cost, consumer credit, tenancy, location, hazard risk and related performance information. We have more than one million users who rely on our data and predictive decision analytics to reduce risk, enhance transparency and improve the performance of their businesses.
We offer our clients a comprehensive national database of public, contributory and proprietary data covering real property and mortgage information, judgments and liens, building and replacement costs, parcel and geospatial data, criminal background records, eviction information, non-prime lending records, credit information, and tax information, among other data types. Our databases include over 904 million historical property transactions, over 100 million mortgage applications andstructured property-specific data covering approximatelyconsisting of over 150 million parcel records covers 99% of U.S.the United States ("US"), includes both residential properties,and commercial real estate data and is enriched by over 1 billion historical sales, mortgage, and pre-foreclosure transactions. Our consortium data covers loan level mortgage performance, appraisal, as well as commercial locations, totaling nearly 150mortgage application data and is in excess of 300 million records. We are also the industry's first parcel-based geocoder and have developed a proprietary parcelspatial database covering more than 140150 million parcelsparcel polygons across the U.S.US. We believe the quality of the data we offer is distinguished by our broad range of data sources and our expertiseexperience in aggregating, organizing, normalizing, processing, and delivering data to our clients.
With our data as a foundation, we have built strong analytics capabilities and a variety of value-added business services to meet our clients’ needs for property tax processing, property valuation, mortgage and automotive credit reporting, tenancy screening, hazard risk, property risk and replacement cost, flood plain location determination, and other geospatial data analytics, and related services.
Reportable Segments
We have organized our reportable segments into the following two reportable segments:
Our Property Intelligence ("PI") and& Risk Management and Work Flow ("RMW"(“PIRM”).
Our PI segment owns or licenses realcombines property information, mortgage information, and consumer information which includes loan information, property salesto deliver unique housing market and characteristic information, propertyproperty-level insights, predictive analytics and risk and replacement cost, natural hazard data, geospatial data, parcel maps and mortgage-backed securities information.management capabilities. We have also developed proprietary technology and software platforms to access, automate or track this information and assist our clients with decision-making and compliance regulations.tools in the real estate industry, insurance industry and the single and multifamily industry. We deliver this information directly to our clients in a standard format over the web, through customizablehosted software platforms or in bulk data form. Our solutions include data licensingproperty insights as well as insurance and analytics, data-enabled advisory services, platform solutions and valuationspatial solutions in North America, Western Europe and Asia Pacific.
Our RMWUnderwriting & Workflow Solutions (“UWS”) segment owns or licenses realcombines property information, mortgage information and consumer information which includes loan information, property salesto provide comprehensive mortgage origination and characteristic information, natural hazard data, parcel maps, employment verification, criminal recordsmonitoring solutions, including underwriting-related solutions and eviction records.data-enabled valuations and appraisals. We have also developed proprietary technology and software platforms to access, automate or track this information and assist our clients with vetting and on-boarding prospects, meeting compliance regulations.regulations and understanding, diagnosing and monitoring property values. Our solutions include credit and screening, property tax processing,solutions, valuation solutions, credit solutions and flood data services and technology solutions in North America.
RESULTS OF OPERATIONS
Results of Operations
Overview of Business Environment and Company Developments
Business EnvironmentCOVID-19
The global coronavirus ("COVID-19") pandemic and the mitigation efforts by governments to attempt to control its spread have adversely impacted the global economy, leading to disruptions and volatility in the global financial markets. Most states and many countries have issued policies intended to stop or slow the further spread of the disease. Our first priority remains ensuring the safety and health of our employees, clients, and others with whom we partner in conducting our business. We have deployed risk mitigation activities, safety practices, and business continuity strategies so that we can continue offering our clients consistent service offerings while continuing to protect our employees.
The volume of U.S.US mortgage loan originations serves as a key market driver for more than half of our business. We believe the volume and related volatility of real estate and mortgage transactions is primarily affected by real estate prices, the availability of funds for mortgage loans, mortgage interest rates, housing supply, employment levels, actions by the Federal Reserve, and the overall state of the U.S.US economy. Mortgage interest rates are extremely low by historical standards, and are resulting in higher demand for refinance activity, while the purchase market has been adversely impacted by reduced construction and sales of new and existing homes, and more recently, the COVID-19 pandemic and resulting economic instability. For the three and six months ended June 30, 2020, we experienced unfavorable business and revenue impacts of approximately $15.1 million and $20.9 million, respectively, related to the COVID-19 pandemic, exclusive of the increased mortgage refinance volumes. As of June 30, 2020, the impact we have experienced as a result of the COVID-19 pandemic has not had a significant impact on our financial condition, cash flows, control environment, or any related disclosures.
We will continue to monitor our business trends, financial condition, and liquidity, and are taking steps to manage our operating cash flows, by prioritizing our investments, and evaluating our capital needs and activities. Our liquidity as of June 30, 2020 consisted primarily of $137.3 million of cash and cash equivalents, and $750.0 million of unused committed capacity under our revolving credit facility, and we are in compliance will all financial covenants.
Business Environment
We believe mortgage originations loan applications decreasedorigination unit volumes increased by approximately 25%30% in the thirdsecond quarter of 20172020 relative to the same period in 2016,2019, primarily due to significantly lowerhigher mortgage refinance volumes resulting from risinglower interest rates. WeFor 2020, we expect full-year 2017total mortgage unit volumes to beincrease by approximately 20% lower25% relative to 20162019 levels, mostly duewith historically low interest rates benefiting refinance volumes. Further, in June 2020, the Federal Reserve indicated that short-term rates will remain near zero until at least 2022 and expectations are that mortgage rates will remain near historically low levels through 2022. Given this favorable rate environment and the significant population of existing loans that are in the money and meet broad-based eligibility criteria for refinance, we expect refinance volumes to lower expectedremain at elevated levels of refinance activity due to rising interest rates.through at least 2022.
We generate the majority of our operating revenues from clients with operations in the U.S.US residential real estate, mortgage origination, and mortgage servicing markets. Approximately 37%34% and 41%30% of our operating revenues for the three and nine months ended SeptemberJune 30, 20172020 and 2016, respectively, and 39% and 42% for the nine months ended September 30, 2017 and 2016,2019, respectively, were generated from our top ten clients, who consist of the largest U.S.US mortgage originators and servicers. OneNone of our clients individually accounted for approximately 11%greater than 10% of our operating revenues for the three months ended SeptemberJune 30, 20172020 or 2019. Approximately 32% and two of our customers accounted for approximately 15% and 11%29% of our operating revenues for the threesix months ended SeptemberJune 30, 2016. Two2020 and 2019, respectively, were generated from our top ten clients. None of our clients individually accounted for approximately 12% andgreater than 10% of our operating revenues during the six months ended June 30, 2020 or 2019.
While the majority of our revenues are generated in the US, continued strengthening of the US dollar versus other currencies in 2020 unfavorably impacted the translation of the financial results of our international operating revenues by $2.0 million and $4.5 million for the ninethree and six months ended SeptemberJune 30, 2017 and 15% and 12%2020, respectively.
Capital Return
In July 2020, our Board of Directors authorized the repurchase up to $1.0 billion of outstanding shares of our operating revenues forcommon stock. The authorization has no expiration date and supersedes our previous share repurchase authorization. We expect to repurchase approximately $1 billion worth of outstanding shares by the nine months ended September 30, 2016.end of 2022, inclusive of at least $500.0 million of shares in 2020.
Acquisitions
In August 2017, we completed three acquisitions: Mercury Network, LLC ("Mercury"), Myriad Development, Inc. ("Myriad") and Clareity Ventures, Inc. ("Clareity") forJuly 2020, our Board of Directors announced a 50% increase to the quarterly cash dividend, declaring a cash dividend of$0.33 per share of approximately $189.4 million. The acquisition of Myriad included contingent consideration of up to $3.0 million,common stock to be paid in September 2020 to shareholders of record as of the close of business on September 1, 2020. We paid a cash dividend of $0.22 per share of common stock in each of January and June 2020 to shareholders of record as of the close of business on June 1, 2020.
Acquisitions
In January 2020, we acquired the remaining 66% of Location, Inc. ("Location") for $11.5 million, subject to certain working capital adjustments. Location is included as a component of our PIRM segment. See Note 12 - Acquisitions for further discussion.
Technology Transformation
In September 2018, we announced the adoption of the Google Cloud Platform (“GCP”) as a foundational element of our ongoing technology transformation program to further expand infrastructure capabilities and drive efficiencies. Successful deployment of this technology has already begun and we expect to complete the initial transformation phase of GCP by December 2020. After the initial deployment, we will continue transitioning our technology over the foreseeable future on an opportunistic basis. As we transition to GCP, we will continue to leverage the capabilities of the cloud platform to achieve best-in-class system performance and reliability and to facilitate the deployment of unique business insights fueled by gold-standard data, information, and analytics. Additionally, we expect to realize cost efficiencies and enhanced security as we transition.
Business Exits & Transformation
In December 2018, we announced our intent to exit a loan origination software unit and its remaining legacy default management related platforms, as well as accelerate an appraisal management company ("AMC") transformation program. We believe these actions have expanded our overall profit margins and provide for enhanced long-term organic growth trends. In September 2019, uponwe divested our default management related platforms and received proceeds of $3.8 million. The AMC transformation was concluded in December 2019. Operating revenues attributable to the achievementaforementioned business exits and AMC transformation were $27.9 million and $48.7 million for three and six months ended June 30, 2020, respectively.
Unsolicited Proposal
On June 26, 2020, we received an unsolicited proposal from Senator Investment Group, LP (“Senator”) and Cannae Holdings, Inc. (“Cannae”) to acquire the Company for $65.00 per share in cash (the “Unsolicited Proposal”). Our Board of certain revenue targetsDirectors, in fiscal years 2017consultation with its independent financial and 2018. The acquisitions are all includedlegal advisors, unanimously determined to reject the Unsolicited Proposal, as it significantly undervalues the Company, raises serious regulatory concerns and is not in the PI reporting segment. See Note 11 - Acquisitions forbest interests of the Company and its stockholders. On July 14, 2020, we received written notification from the Federal Trade Commission (the “FTC”) that the FTC is conducting an investigation of the proposed acquisition of the Company by Senator and Cannae and requesting that we produce information in connection with that investigation. The events surrounding the Unsolicited Proposal and related circumstances, and our response, have required us, and may continue to require us, to incur significant legal and advisory fees and expenses; and significant time and attention by management and our Board of Directors.
For a further discussion.
Amendment and Restatementdiscussion of Credit Agreement
In August 2017, we amended and restated our credit agreement (the “Credit Agreement”) with Bank of America, N.A. as the administrative agent,risks, uncertainties and other financial institutions. The Credit Agreement provides for a $1.8 billion five-year term A loan facility (the “Term Facility”), and a $700.0 million five-year revolving credit facility ("Revolving Facility). The Term Facility matures andfactors that could impact our operating results, see the Revolving Facility expiressection entitled “Risk Factors” in August 2022. The Revolving Facility includes a $100.0 million multicurrency revolving sub-facility and a $50.0 million letterItem 1A of credit sub-facility. The Credit Agreement also providesPart I of this Quarterly Report on Form 10-Q as well as in Item 1A of Part II in our Quarterly Report on Form 10-Q for the ability to increasequarter ended March 31, 2020 and in Item 1A of Part I of our Annual Report on Form 10-K for the Term Facility and/or Revolving Facility by up to $100.0 million in the aggregate; however the lenders are not obligated to do so. See Note 5 -Long Term Debt for further discussion.fiscal year ended December 31, 2019.
Productivity and Cost Management
In line with our on-going commitment to operational excellence and margin expansion, we are continuing to target a cost reduction of at least $30 million in 2017. Savings are expected to be realized through the reduction of operating costs, selling, general and administrative costs, outsourcing certain business process functions, consolidation of facilities and other operational improvements.
Unless otherwise indicated, the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q relate solely to the discussion of our continuing operations.
Consolidated Results of Operations
Three Months Ended SeptemberJune 30, 20172020 Compared to the Three Months Ended SeptemberJune 30, 20162019
Operating Revenues
Our consolidated operating revenues were $483.1$477.5 million for the three months ended SeptemberJune 30, 2017, a decrease2020, an increase of $40.8$17.9 million, or 7.8%,3.9% when compared to 2016,the comparable period in 2019, and consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except percentages) | 2020 | | 2019 | | $ Change | | % Change | |
| PIRM | $ | 176,586 | | | $ | 183,717 | | | $ | (7,131) | | | (3.9) | % | |
| UWS | 305,140 | | | 279,017 | | | 26,123 | | | 9.4 | | |
| Corporate and eliminations | (4,262) | | | (3,196) | | | (1,066) | | | 33.4 | | |
| Operating revenues | $ | 477,464 | | | $ | 459,538 | | | $ | 17,926 | | | 3.9 | % | |
|
| | | | | | | | | | | | | | |
| (in thousands, except percentages) | 2017 | | 2016 | | $ Change | | % Change |
| PI | $ | 257,987 |
| | $ | 280,620 |
| | $ | (22,633 | ) | | (8.1 | )% |
| RMW | 227,329 |
| | 245,764 |
| | (18,435 | ) | | (7.5 | ) |
| Corporate and eliminations | (2,185 | ) | | (2,488 | ) | | 303 |
| | (12.2 | ) |
| Operating revenues | $ | 483,131 |
| | $ | 523,896 |
| | $ | (40,765 | ) | | (7.8 | )% |
Our PIPIRM segment operating revenues decreased by $22.6$7.1 million, or 8.1%3.9%, for the three months ended June 30, 2020, when compared to 2016. Acquisition activity contributed $8.3 million of additional revenues in 2017.2019. Excluding acquisition activity the decrease of $30.9$0.9 million, was primarily due to lower valuation solutionsoperating revenues of $31.1 million, which included a decline in U.S. mortgage market unit volumes and planned vendor diversification by a significant appraisal management client. Property information and analytics revenues increased by $0.2decreased $8.0 million primarily due to the impact of COVID-19 totaling $9.5 million across our solution groups. Additionally, included within our property insights revenues is unfavorable foreign exchange of $2.0 million. The decrease was offset by higher insurance, spatial solutionsmarket volumes and international operations, which benefited from improved pricing, market share gains of $3.5 million primarily within our property insights business.
Our UWS segment revenues increased by $26.1 million, or 9.4%, for the three months ended June 30, 2020, when compared to 2019. Excluding acquisition activity of $1.8 million, operating revenues increased $24.4 million due to higher property tax solutions revenues of $31.7 million, higher credit solutions revenues of $10.8 million, and new product contributions. The increase washigher flood data solutions revenues of $8.4 million primarily related to increased volumes. These increases were partially offset by lower mortgage market unit volumes.
Our RMWvaluation solutions revenue of $24.2 million due to the impacts of our AMC transformation program, and lower other revenues of $2.3 million. Operating revenues attributable to the aforementioned business exits and AMC transformation were $27.9 million for the quarter ended June 30, 2019. Refer to "Business Exits & Transformation" discussion above for further details. Additionally, the UWS segment revenues decreased by $18.4reflected a total adverse impact of $5.6 million or 7.5%, when comparedrelated to 2016. The decrease was primarily due to lower mortgage market unit volumes, partially offset by a mix of new product contributions, market-share gains and improved pricing.COVID-19.
Our corporate and eliminations were comprised of intercompany revenue eliminations between our operating segments.
Cost of Services (excluding depreciation and amortization)
Our consolidated cost of services was $244.2$214.5 million for the three months ended SeptemberJune 30, 2017,2020, a decrease of $31.3$12.7 million, or 11.4%5.6%, when compared to 2016. Acquisition activity contributed $2.2 million of additional expense in 2017.2019. Excluding acquisition activity of $1.7 million, the decrease of $33.5$14.5 million was primarily due to lower operating revenues andfavorable product mix.
Selling, General and Administrative ExpenseExpenses
Our consolidated selling, general and administrative expenses were $131.3was $124.1 million for the three months ended SeptemberJune 30, 2017,2020, an increase of $13.1$1.3 million, or 11.1%1.0%, when compared to 2016. Acquisition activity contributed $4.1 million of additional expense in 2017.2019. Excluding acquisition activity of $1.0 million, the increase of $9.0$0.3 million was primarily relateddue to legal settlementhigher compensation costs totaling $18.0of $4.6 million and higher other expenses of $1.8 million, partially offset by lower travel costs of $3.9 million and lower professional fees of $4.5 million and higher external services costs of $4.0 million. The increases were partially offset by our ongoing operational efficiency programs which contributed to lower compensation-related expenses of $14.4 million, lower integration costs of $1.5 million and lower other costs of $1.6$2.2 million.
Depreciation and Amortization
Our consolidated depreciation and amortization expense was $45.3$46.7 million for the three months ended SeptemberJune 30, 2017, an increase2020, a decrease of $0.8$0.4 million, or 1.9%0.9%, when compared to 2016. Acquisition activity contributed $1.5 million of additional expense in 2017.2019. Excluding acquisition activity of $0.5 million, the decrease of $0.7$0.9 million was primarily due to lower depreciation as a result of assets that were fully depreciated inimpaired during the prior year.
Impairment Loss
Operating Income
Our consolidated operating incomeimpairment loss was $62.3$1.2 million for the three months ended SeptemberJune 30, 2017,2020, a decrease of $23.4$46.6 million, or 27.3%97.4%, when compared to 20162019, primarily due to prior year write-offs of clients lists of $32.3 million, software of $12.3 million, and licenses of $3.3 million related to the transformation of our AMC business, offset by current year impairment charges related to software.
Operating Income
Our consolidated operating income was $91.0 million for the three months ended June 30, 2020, an increase of $76.4 million, or 523.6%, when compared to 2019, and consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except percentages) | | 2020 | | 2019 | | $ Change | | % Change |
| PIRM | | $ | 30,159 | | | $ | 23,026 | | | $ | 7,133 | | | 31.0 | % |
| UWS | | 96,365 | | | 19,779 | | | 76,586 | | | 387.2 | |
| Corporate and eliminations | | (35,541) | | | (28,215) | | | (7,326) | | | 26.0 | |
| Operating income | | $ | 90,983 | | | $ | 14,590 | | | $ | 76,393 | | | 523.6 | % |
|
| | | | | | | | | | | | | | | |
| (in thousands, except percentages) | | 2017 | | 2016 | | $ Change | | % Change |
| PI | | $ | 34,737 |
| | $ | 28,822 |
| | $ | 5,915 |
| | 20.5 | % |
| RMW | | 52,593 |
| | 76,758 |
| | (24,165 | ) | | (31.5 | ) |
| Corporate and eliminations | | (25,034 | ) | | (19,859 | ) | | (5,175 | ) | | 26.1 |
|
| Operating income | | $ | 62,296 |
| | $ | 85,721 |
| | $ | (23,425 | ) | | (27.3 | )% |
Our PIPIRM segment operating income increased by $5.9$7.1 million, or 20.5%31.0%, for the three months ended June 30, 2020 when compared to 2016. Acquisition activity contributed $0.5 million of higher operating income in 2017.2019. Excluding acquisition activity of $0.1 million operating income increased by $5.4$7.3 million and margins increased by 470 basis points, primarily due to improvements in pricing, market share gains, new products and the impact of our ongoing operational efficiency programs, which contributedprograms.
Our UWS segment operating income increased by $76.6 million, or 387.2%, for the three months ended June 30, 2020 when compared to lower compensation-related expenses. Operating2019. Excluding acquisition activity of $0.6 million, operating income increased by $77.2 million and margins increased by 3432,480 basis points. These increases were partially offsetpoints, primarily driven by lower mortgage market unit volumes and a planned vendor diversification by a significant appraisal management client.
Our RMW segment operating income decreased by $24.2 million, or 31.5%, and operating margins decreased 810 basis points when compared to 2016. The decrease was primarily related to legal settlement costs totaling $16.4 million,impairment loss, higher external services costs and lower mortgage market unit volumes, partially offset by newrevenues, favorable product contributions, market-share gains, improved pricing, lower compensation-related expensesmix, and the impact of our ongoing operational efficiency programs.
Corporate and eliminations had an unfavorable variance of $5.2$7.3 million, or 26.0%, for the three months ended June 30, 2020 when compared to 2019, primarily due to higher external services costs, partially offset by the impact of ongoing operational efficiency programs.compensation costs.
Total Interest Expense, Netnet
Our consolidated total interest expense, net was $16.3$17.6 million for the three months ended SeptemberJune 30, 2017, an increase2020, a decrease of $1.9$1.5 million, or 13.6%8.0%, when compared to 2016.2019. The increasedecrease was primarily due to a higherlower interest rates as well as lower average outstanding balance and higher interest rates.principal balances.
LossGain/(Loss) on Extinguishment of DebtInvestments and Other, Netnet
Our consolidated lossgain on extinguishment of debtinvestments and other, net was $3.1$7.1 million for the three months ended SeptemberJune 30, 2017,2020, a favorable variance of $17.0$10.0 million or 347.4%, when compared to 2016.2019. The favorable variance wasis primarily due to higher gains of $2.9 million related to supplemental benefit plans, a $1.2 million gain from a fair value adjustment on an acquisition-related contingent consideration, a prior year lossesloss of $4.3 million related to a non-cash impairment charge on an equity method investment and a prior year $1.5 million loss of unamortized debt issuance cost write-offs due to financing activities.
Tax Indemnification Release
In the prior year, we recorded a $13.4 million loss related to the extinguishmentrelease of debt of $24.4 million in connection with the redemption of all outstanding balances under the 7.25% senior notes, partially offset by lower gains on investments of $3.7 million, current year losses relateda tax indemnification receivable due to the Credit Agreement amendmentexpiration of $1.8the statutes of limitations in our principal state jurisdictions. Associated state tax reserves of $15.3 million were also released and a net loss of $1.9 millionrecognized, in connection with the purchase of Mercury.prior year, as income tax benefit through the provision for income taxes.
ProvisionProvision/(Benefit) for Income Taxes
Our consolidated provisionprovision/(benefit) for income taxes from continuing operations before equity in lossesearnings/(losses) of affiliates and incomesincome taxes was $11.9a provision of $21.8 million and $15.9a benefit of $15.0 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The effective tax rate was 27.6%27.2% on our provision and 31.0%72.0% on our benefit for income taxes for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The decreasechange in the effective income tax rate was primarily attributabledue to the nonrecurring benefit recorded in 2019 related to the reversal of state tax reserves.
Equity in Earnings/(Losses) of Affiliates, net of tax
Our consolidated equity in earnings of affiliates, net of tax was $0.4 million for the three months ended June 30, 2020, a favorable domestic out-of-period adjustment recordedvariance of $0.1 million when compared to 2019. We have equity interests in various affiliates which had higher earnings in the third quarter of 2017 and favorable discrete items, partially offset by unfavorable foreign rate differentials, duecurrent period compared to foreign exchange gain and losses in jurisdictions with tax rates lower than the U.S., and a nonrecurring prior year favorable adjustment related to contingent consideration recorded in connection with an acquisition.period.
Consolidated Results of Operations
Nine
Six Months Ended SeptemberJune 30, 20172020 Compared to NineSix Months Ended SeptemberJune 30, 20162019
Operating Revenues
Our consolidated operating revenues were $1.4 billion$921.3 million for the ninesix months ended SeptemberJune 30, 2017, a decrease2020, an increase of $80.7$44.1 million, or 5.5%5.0%, when compared to 2016,2019, and consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except percentages) | 2020 | | 2019 | | $ Change | | % Change | |
| PIRM | $ | 349,641 | | | $ | 359,525 | | | $ | (9,884) | | | (2.7) | % | |
| UWS | 580,761 | | | 523,535 | | | 57,226 | | | 10.9 | | |
| Corporate and eliminations | (9,053) | | | (5,814) | | | (3,239) | | | 55.7 | | |
| Operating revenues | $ | 921,349 | | | $ | 877,246 | | | $ | 44,103 | | | 5.0 | % | |
|
| | | | | | | | | | | | | | |
| (in thousands, except percentages) | 2017 | | 2016 | | $ Change | | % Change |
| PI | $ | 736,530 |
| | $ | 798,741 |
| | $ | (62,211 | ) | | (7.8 | )% |
| RMW | 666,206 |
| | 687,023 |
| | (20,817 | ) | | (3.0 | ) |
| Corporate and eliminations | (5,776 | ) | | (8,120 | ) | | 2,344 |
| | (28.9 | ) |
| Operating revenues | $ | 1,396,960 |
| | $ | 1,477,644 |
| | $ | (80,684 | ) | | (5.5 | )% |
Our PIPIRM segment revenues decreased by $62.2$9.9 million, or 7.8%2.7%, for the six months ended June 30, 2020, when compared to 2016. Acquisition activity contributed $26.9 million of additional revenues in 2017.2019. Excluding acquisition activity of $1.5 million, the decrease of $89.1$11.4 million primarily due to the impact of COVID-19 totaling $10.9 million across our solution groups. Additionally, included within our property insights revenues is unfavorable foreign exchange of $4.5 million. The decrease was offset by higher market volumes and market share gains of $4.0 million primarily within our property insights business.
Our UWS segment revenues increased by $57.2 million, or 10.9%, for the six months ended June 30, 2020, when compared to 2019. Excluding acquisition activity of $3.3 million, the increase of $53.9 million was primarily due to higher property tax solutions revenues of $45.6 million, higher credit solutions revenues of $24.2 million, and higher flood data solutions revenues of $19.0 million primarily related to increased volumes. These increases were partially offset by lower valuation solutions revenue of $29.3 million due to the impacts of our AMC transformation program, and lower other revenues of $83.5$5.6 million. Operating revenues attributable to the aforementioned business exits and AMC transformation were $48.7 million which included a decline in U.S. mortgage market unit volumes and planned vendor diversification by a significant appraisal management client. Property information and analytics revenues decreased by $5.6 million primarily due to lower mortgage market volumes and project-related revenues, partially offset by higher insurance, spatial solutions, international operations, improved pricing, market share gains and new product contributions.
Our RMWfor the six months ended June 30, 2019. Additionally, the UWS segment revenues decreased by $20.8reflected a total adverse impact of $10.0 million or 3.0%, when comparedrelated to 2016. The variance was primarily due to lower mortgage market unit volumes and the exit of certain business lines, partially offset by a mix of new product contributions, market share gains and improved pricing.COVID-19.
Our corporate and eliminations were comprised of intercompany revenue eliminations between our operating segments.
Cost of Services (excluding depreciation and amortization)
Our consolidated cost of services was $745.3$430.1 million for the ninesix months ended SeptemberJune 30, 2017,2020, a decrease of $40.3$16.2 million, or 5.1%3.6%, when compared to 2016. Acquisition activity contributed $13.7 million of additional expense in 2017.2019. Excluding acquisition activity of $3.3 million, the decrease of $53.9$19.5 million was primarily due to lower operating revenues, partially offset byfavorable product mix.
Selling, General and Administrative ExpenseExpenses
Our consolidated selling, general and administrative expenses were $346.7$238.5 million for the ninesix months ended SeptemberJune 30, 2017, an increase2020, a decrease of $2.4$12.6 million, or 0.7%5.0%, when compared to 2016. Acquisition activity contributed $1.1 million of additional expense in 2017.2019. Excluding acquisition activity of $1.8 million, the increasedecrease of $1.3$14.4 million was primarily due to higher legal settlementlower compensation costs of $20.8$13.1 million, lower professional fees of $9.3 million and lower travel cost of $4.3 million, offset by higher external services costsand other of $17.8 million (including investments in technology, innovation and compliance-related capabilities), higher stock-based compensation of $4.2 million from a one-time vesting acceleration in accordance with our Plan, higher severance of $2.8 million and higher other costs of $2.6 million. These increases were partially offset by our on-going operational efficiency programs which contributed to lower compensation-related expenses of $40.6 million and lower integration costs of $6.3$12.3 million.
Depreciation and Amortization
Our consolidated depreciation and amortization expense was $131.7$93.5 million for the ninesix months ended SeptemberJune 30, 2017, an increase2020, a decrease of $4.2$2.8 million, or 3.3%2.9%, when compared to 2016. Acquisition activity contributed $7.8 million of additional expense in 2017.2019. Excluding acquisition activity of $1.0 million, the decrease of $3.6$3.8 million wasis primarily due to lower depreciation from assets that were fully depreciated inimpaired during the prior year.
Impairment Loss
Our consolidated impairment loss was $1.2 million for the six months ended June 30, 2020, a decrease of $46.6 million, or 97.4%, when compared to 2019, primarily due to prior year write-offs of clients lists of $32.3 million, software of $12.3 million, and licenses of $3.3 million related to the transformation of our AMC business, offset by current year impairment charges related to software.
Operating Income
Our consolidated operating income was $173.3$158.1 million for the ninesix months ended SeptemberJune 30, 2017, a decrease2020, an increase of $47.1$122.3 million, or 21.4%341.6%, when compared to 2016,2019, and consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except percentages) | | 2020 | | 2019 | | $ Change | | % Change |
| PIRM | | $ | 48,477 | | | $ | 37,378 | | | $ | 11,099 | | | 29.7 | % |
| UWS | | 171,979 | | | 65,631 | | | 106,348 | | | 162.0 | |
| Corporate and eliminations | | (62,402) | | | (67,215) | | | 4,813 | | | (7.2) | |
| Operating income | | $ | 158,054 | | | $ | 35,794 | | | $ | 122,260 | | | 341.6 | % |
|
| | | | | | | | | | | | | | | |
| (in thousands, except percentages) | | 2017 | | 2016 | | $ Change | | % Change |
| PI | | $ | 79,984 |
| | $ | 80,931 |
| | $ | (947 | ) | | (1.2 | )% |
| RMW | | 158,866 |
| | 196,023 |
| | (37,157 | ) | | (19.0 | ) |
| Corporate and eliminations | | (65,595 | ) | | (56,609 | ) | | (8,986 | ) | | 15.9 |
|
| Operating income | | $ | 173,255 |
| | $ | 220,345 |
| | $ | (47,090 | ) | | (21.4 | )% |
Our PIPIRM segment operating income decreasedincreased by $0.9$11.1 million, or 1.2%29.7%, for the six months ended June 30, 2020, when compared to 2016. Acquisition activity contributed $4.3 million of higher operating income in 2017.2019. Excluding acquisition activity of $0.5 million, operating income decreasedincreased by $5.2$11.6 million and operating margins decreased 67increased by 370 basis points primarily due to lower mortgage market unit volumes and planned vendor diversification by a significant appraisal management client, partially offset by improvements in pricing, newfavorable product contributions, market share gains, international operationsmix and the impact of our ongoing operational efficiency programs.
Our RMWUWS segment operating income decreasedincreased by $37.2$106.3 million, or 19.0%162.0%, and operating margins decreased 469 basis pointsfor the six months ended June 30, 2020, when compared to 20162019. Excluding acquisition activity of $0.9 million, operating income increased by $107.3 million and margins increased by 1,740 basis points, primarily due to legal settlement costs of approximately $17.2 million,impacted by lower impairment loss, higher external services costs including investments in technology, innovation and compliance-related capabilities and lower mortgage market unit volumes, partially offset by pricing, newrevenues, improved product contributions and market-share gainsmix, and the impact of our ongoing operational efficiency programs.
Corporate and eliminations had an unfavorablea favorable variance of $9.0$4.8 million, or 15.9%7.2%, for the six months ended June 30, 2020, primarily due to higher stock-basedlower investments in data and technology capabilities as well as lower compensation of $4.2 million from a one-time vesting acceleration in accordance with our Plan and higher external services costs, partially offset by the impact of ongoing operational efficiency programs.costs.
Total Interest Expense, net
Our consolidated total interest expense, net, was $44.0$35.4 million for the ninesix months ended SeptemberJune 30, 2017,2020, a decrease of $3.1$2.5 million, or 6.6%, when compared to 2016.2019. The decrease was primarily due to lower average interest rates as well as lower average outstanding principal balances.
Gain/(Loss) on Investments and Other, net
Our consolidated gain on investments and other, net, was $4.1 million for the six months ended June 30, 2020, a favorable variance of $6.2 million or 290.2%, when compared to 2019. The variance is due to a prior year loss of $6.6 million related to revaluation of an equity investment, a prior year loss of $1.5 million from unamortized debt issuance cost write-offs due to financing activities, a current year $2.6 million gain related to acquisition activities, and other gains of $0.5 million; partially offset by higher average outstanding balance.losses of $4.6 million related to supplemental benefit plans.
Loss on Extinguishment of Debt and Other, NetTax Indemnification Release
Our consolidated loss on extinguishment of debt and other, net was $6.5 million forIn the nine months ended September 30, 2017, a favorable variance of $11.4 million when compared to 2016. The favorable variance was primarily due to prior year, losseswe recorded a $13.4 million loss related to the extinguishment of debt of $24.4 million in connection with the redemption of all outstanding balances under the 7.25% senior notes, partially offset by losses recorded on the final settlementrelease of a previously terminated pension plan of $6.1 million, losses relatedtax indemnification receivable due to the current year Credit Agreement amendmentexpiration of $1.8the statutes of limitations in our principal state jurisdictions. Associated state tax reserves of $15.3 million a net loss of $1.9 million in connection with the purchase of Mercurywere also released and higher realized gains on investmentsrecognized, in the prior year, of $3.2 million.as income tax benefit through the provision for income taxes.
ProvisionProvision/(Benefit) for Income Taxes
Our consolidated provisionprovision/(benefit) for income taxes from continuing operations before equity in lossesearnings/(losses) of affiliates and income taxes was $36.8a provision of $34.8 million and $52.0a benefit of $14.0 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The effective tax rate was 30.0%27.5% on our provision and 33.5%79.1% on our benefit for income taxes for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The decreasechange in the effective income tax rate was primarily attributabledue to a favorable domestic out-of-period adjustmentthe nonrecurring benefit recorded in the third quarter of 2017 and favorable discrete items and favorable tax benefits2019 related to the adoptionreversal of stock-based compensation accounting guidance, partially offset by unfavorable foreign rate differentials, due to foreign exchange gain and lossesstate tax reserves.
Equity in jurisdictions withEarnings/(Losses) of Affiliates, net of tax rates lower than the U.S., and a nonrecurring prior year favorable release of reserves for foreign uncertain tax benefits.
Gain/(loss) from Discontinued Operations, Net of Tax
Our consolidated gain from discontinued operations,equity in earnings of affiliates, net of tax was $2.4 million$0.9 for the ninesix months ended SeptemberJune 30, 2017, an increase2020, a favorable variance of $3.4 million$1.0 when compared to 2016, due primarily to a legal settlement gain2019. We have equity interests in various affiliates which had higher earnings in the current year, partially offset by legal costs.
period compared to prior year.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
Cash and cash equivalents as of SeptemberJune 30, 20172020 totaled $149.4$137.3 million, an increase of $77.4$32.1 million from December 31, 2016. Our2019. As of June 30, 2020, our cash balances held outside of the U.S.in foreign jurisdictions totaled $56.2 million and are primarily related to our international operations and, as of September 30, 2017, totaled $42.7 million. Most of the amounts held outside of the U.S. could be repatriated to the U.S. but, under current law, would be subject to U.S. federal income taxes, less applicable foreign tax credits.operations. We plan to maintain significant cash balances outside of the U.S.US for the foreseeable future.
Restricted cash of $13.5$9.9 million as of SeptemberJune 30, 20172020 and $17.9$10.5 million as of December 31, 2016 represents cash2019 is comprised of deposits that are pledged for various letters of credit provided in the ordinary course of business to certain vendors in connection with obtaining insurance and real property leases andcredit/bank guarantees secured by us, escrow accounts due to acquisitions.acquisitions and divestitures, as well as short-term investments within our deferred compensation plan trust.
Cash Flow
Operating Activities. Cash provided by operating activities reflects net income adjusted for certain non-cash items and changes in operating assets and liabilities. Total cash provided by operating activities was approximately $272.3$243.1 million and $316.8$120.6 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The decreaseincrease in cash provided by operating activities was primarily due to unfavorablehigher net income from continuing operations, as adjusted for non-cash activities, and favorable changes in working capital items and lower cash generated from lower profitability as adjusted for non-cash activities.items.
Investing Activities. Total cash used in investing activities was approximately $237.9$60.8 million and $476.1$61.5 million during the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The decrease in investing activities was primarily related to lower investments in technology and innovation of $12.6 million, partially offset by higher net cash paid for acquisitions in the prior year including $394.9 million for FNC and an acquisition that was not significant for $1.9of $12.0 million. Also in the prior year, we acquired the remaining 40.0% interest in Property IQ Ltd ("PIQ") for $18.0 million. For the nine months ended September 30, 2017, we completed the acquisitions of Mercury for $153.0 million, Myriad for $22.0 million and Clareity for $15.0 million. Further, for the nine months ended September 30, 2017 and 2016, we had investments in property and equipment of $28.5 million and $35.2 million, respectively, and capitalized data and other intangible assets of $25.7 million and $27.2 million, respectively.
Financing Activities. Total cash provided byused in financing activities was approximately $44.3$149.4 million for the ninesix months ended SeptemberJune 30, 2017,2020, which was primarily comprised of proceedsdividends paid of $34.8 million, net outflows from share-based compensation-related transactions of $3.6 million, share repurchases of $9.3 million, and repayments of long-term debt issuance $2.0 billion, partially offset byof $101.7 million. Total cash used in financing activities was approximately $61.7 million for the six months ended June 30, 2019, which was primarily comprised of net repayment of long-term debt of $1.8 billion, share repurchases of $132.5 million, debt issuance costs of $14.3 million, and stock-based compensation-related transactions of $7.3 million. Total cash provided by financing activities was approximately $140.1 million for the nine months ended September 30, 2016, which was primarily comprised of proceeds from debt issuance of $915.0 million and net proceeds from stock-based compensation-related transactions of $5.9 million, partially offset by repayment of long-term debt of $647.3$29.3 million, share repurchases of $113.0$29.0 million, debt extinguishment premiumnet outflows from share-based compensation-related transactions of $14.2$2.7 million, and debt issuance costscontingent consideration payments of $6.3$0.6 million.
Financing and Financing Capacity
TotalWe had total debt outstanding gross, was $1.8 billion andof $1.6 billion as of Septemberfor both June 30, 20172020 and December 31, 2016, respectively.2019. Our significant debt instruments and borrowing capacity are described below.
Credit Agreement
In August 2017, we amended and restated our Credit Agreement. The Credit Agreement provides for a $1.8 billion Term Facilityterm loan facility (the “Term Facility”), and a $700.0$750.0 million Revolving Facility.revolving credit facility (the “Revolving Facility”). The Term Facility matures and the Revolving Facility expires in August 2022. The Credit Agreement also provides for the ability to increase the Term Facility and/or Revolving Facility by up to $100.0 million in the aggregate; however, the lenders are not obligated to do so. For a detailed description of our Credit Agreement, see Note 5 - Long-Term Debt of our condensed consolidated financial statements.May 2024. As of SeptemberJune 30, 2017,2020, we had borrowing capacity under the Revolving Facility of $700.0$750.0 million and were in compliance with the financial and restrictive covenants of the Credit Agreement. See Note 5 -Long Term- Long-Term Debt for further discussion.
Interest Rate Swaps
We have entered into amortizing interest rate swaps ("Swaps"(“Swaps”) in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. In June 2017,Under the Swaps, we entered intoagree to exchange floating rate for fixed rate interest payments periodically over the life of the agreement. The floating rates in our Swaps which become effective in March 2018are based on the one-month London interbank offering rate. The notional balances, terms and terminate in March 2021. Thematurities of our Swaps entered in June 2017 are for an initial notional
designed to have the effect of fixing the rate of interest on at least 50% of the principal balance of $275.0 million, withour senior term debt.
As of June 30, 2020, the Swaps have a combined remaining notional step upbalance of $200.0 million in March 2019, and$1.2 billion, a weighted average fixed interest rate of 1.83%. In August 2016, we entered into Swaps which became effective in September 2016 and terminate in April 2020. The Swaps entered in August 2016 are for an initial notional balance of $500.0 million, with a fixed interest rate of 1.03%2.34% (rates range from 0.66% to 2.98%), and amortize quarterly by $25.0scheduled terminations through December 2025. Notional balances under our Swaps are scheduled to increase and decrease based on our expectations of the level of variable rate debt to be in effect in future periods. Currently, we have scheduled notional amounts approximately $1.2 billion through September 2021, then $1.1 billion and $1.0 billion through August 2022, and $496.8 million and $465.0 million through December 2018, with a step up in the notional balance of $100.0 million in March 2019 and continued quarterly amortization of $25.0 million through April 2020. In May 2014, we entered into Swaps which became effective in December 2014 and terminate in March 2019. The Swaps entered in May 2014 are for an initial notional balance of $500.0 million, with a2025. Approximate weighted average fixed interest rate of 1.57%rates for the aforementioned time periods are 2.55%, 2.64%, and amortize quarterly by $12.5 million through December 31, 2017 and $25.0 million through December 31, 2018.2.61%, respectively.
Liquidity and Capital Strategy
We expect that cash flow from operations and current cash balances, together with available borrowings under our Revolving Facility, will be sufficient to meet operating requirements through the next twelve months. Cash available from operations, however, could be affected by any general economic downturn, such as financial impacts related to COVID-19, or any decline or adverse changes in our business such as a loss of clients, challenges collecting payments from clients, competitive pressures, or other significant change in our business environment.
We strive to pursue a balanced approach to capital allocation and have initiated a dividend in December 2019. We will consideralso continue to evaluate the repurchase of common shares, the retirementmanagement of outstanding debt, investments and the pursuit of strategic acquisitions and investments on an opportunistic basis.
In October 2018, our Board of Directors established a new share repurchase authorization of up to $500.0 million of our common stock. During the ninesix months ended SeptemberJune 30, 2017,2020, we repurchased 3.00.2 million shares of our common stock for $132.5$9.3 million. In July 2020, our Board of Directors canceled all prior repurchase authorizations and established a new share repurchase authorization of up to $1.0 billion.The Company expects to fully utilize such repurchase authorization by the end of 2022, inclusive of $500.0 million of shares by the end of 2020. Purchases may be made from time to time in the open market at prevailing market prices or in privately negotiated transactions, and may be made according to a plan adopted pursuant to Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended. See Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds - Purchases of Equity Securities by the Issuer and Affiliated Purchasers for further discussion.
For the six months ended June 30, 2020, we paid cash dividends of $34.8 million. In July 2020, our Board of Directors announced a 50% increase to the quarterly cash dividend, declaring a cash dividend of $0.33 per share of common stock to be paid in September 2020. We expect to make regular quarterly dividend payments for the foreseeable future. The timing, declaration, and payment of future dividends, however, falls within the discretion of our Board of Directors and will depend upon many factors, including commission costs.the Company’s financial condition and earnings, the capital requirements of our businesses, restrictions imposed by applicable law, and any other factors our Board of Directors deems relevant from time to time.
Availability of Additional Capital
Our access to additional capital fluctuates as market conditions change. There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be able to access capital from these sources. Based on current market conditions and our financial condition (including our ability to satisfy the conditions contained in our debt instruments that are required to be satisfied to permit us to incur additional indebtedness), we believe that we have the ability to effectively access these liquidity sources for new borrowings. However, continued general economic instability, such as financial impacts resulting from COVID-19 which has caused, and may continue to cause, disruptions in the financial markets or a weakening of our financial condition, including a significant decrease in our profitability, or cash flows, or a material increase in our leverage, could adversely affect our ability to access these markets on acceptable terms or at all and/or increase our cost of borrowings.
Critical Accounting Policies and Estimates
For additional information with respect to our critical accounting policies, which are those that could have the most significant effect on our reported results and require subjective or complex judgments by management, see Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2016 and Note 1 – Basis for Condensed Consolidated Financial Statement, of our quarterly report on Form 10-Q for the period ended June 30, 2017 and incorporated by reference in response2019. Management believes there have been no material changes to this item, for updates on our policies over pension, goodwill and other intangible assets and stock-based compensation.information.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our primary exposure to market risk relates to interest-rate risk associated with certain financial instruments. We monitor our risk associated with fluctuations in interest rates and currently use derivative financial instruments to hedge some of these risks. We
As of June 30, 2020, we had approximately $1.6 billion in gross, long-term debt outstanding, predominately all of which was variable-interest-rate debt. An increase in interest rates could increase the costs of our variable-interest-rate debt obligations. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness.
To manage our interest rate risk we have entered into Swaps in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. In June 2017,Under the Swaps, we entered intoagree to exchange floating rate for fixed rate interest payments periodically over the life of the agreement. The notional balances, terms and maturities of our Swaps which become effective in March 2018 and terminate in March 2021. The Swaps entered in June 2017 are for an initial notionaldesigned to have the effect of fixing the rate of interest on at least 50% of the principal balance of $275.0 million, with a notional step up of $200.0 million in March 2019 and a fixed interest rate of 1.83%. In August 2016, we entered into Swaps which became effective in September 2016 and terminate in April 2020. The Swaps entered in August 2016 are for an initial notional balance of $500.0 million, with a fixed interest rate of 1.03%, and amortize quarterly by $25.0 million through December 2018, with a step-up in the notional balance of $100.0 million in March 2019 and continued quarterly amortization of $25.0 million through April 2020. In May 2014, we entered into Swaps which became effective in December 2014 and terminate in March 2019. The Swaps entered in May 2014 are for an initial notional balance of $500.0 million, with a fixed interest rate of 1.57%, and amortize quarterly by $12.5 million through December 31, 2017 and $25.0 million through December 31, 2018. We entered into the Swaps in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. We have designated the Swaps as cash flow hedges.
As of September 30, 2017, we had approximately $1.8 billion in gross long-term debt outstanding, all of which was variable-interest-ratesenior term debt. As of SeptemberJune 30, 2017,2020, the combined remaining notional balance of the Swaps was $762.5 million. A$1.2 billion, with a weighted average fixed interest rate of 2.34% (rates range from 0.66% to 2.98%), and scheduled terminations through December 2025. Notional balances under our Swaps are scheduled to increase and decrease over their contract lengths based on our expectations of the level of variable rate debt to be in effect in future periods. After giving effect to the Swaps, a hypothetical 1% increase or decrease in interest rates couldwould result in an approximately $1.9$0.8 million change to interest expense on our existing indebtedness as of June 30, 2020, on a quarterly basis.
Although we are subject to foreign currency exchange rate risk as a result of our operations in certain foreign countries, the foreign exchange exposure related to these operations, in the aggregate, is not material to our financial condition or results of operations.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer have concluded that, as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b).
Changes in Internal Control over Financial Reporting
There werehas been no changeschange in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the quarter ended SeptemberJune 30, 20172020, that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
For a description of our legal proceedings, see Note 109 – Litigation and Regulatory Contingencies and Note 12 - Discontinued Operations of our condensed consolidated financial statements, which is incorporated by reference in response to this item.
Item 1A. Risk Factors.
A restated description of the risk factors associated with our business is set forth below. This description supersedes the description of the risk factors associated with our business previously disclosedWe have described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. TheMarch 31, 2020, the primary risks discussed belowrelated to our business, and we may periodically update those risks for material developments. Those risks are not the only ones facing our businesswe face, but do represent those risks that we believe are material to us. Our business is also subject to the risks that affect many other companies, such as general economic conditions, geopolitical events and employment relations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. Please read the cautionary notice regarding forward-looking statements under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations.” You should carefully consider the risks and uncertainties our business faces. We are including two supplemental risk factors below, which disclosures should be read in conjunction with the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Risks RelatedThe Unsolicited Proposal may be disruptive to our business and could create uncertainty that may adversely affect our operations.
On June 26, 2020, we received an unsolicited proposal from Senator and Cannae to acquire the Company for $65.00 per share in cash (the “Unsolicited Proposal”). Our BusinessBoard of Directors, in consultation with its independent financial and legal advisors, unanimously determined to reject the Unsolicited Proposal, as it significantly undervalues the Company, raises serious regulatory concerns and is not in the best interests of the Company and its stockholders. On July 14, 2020, we received written notification from the FTC that the FTC is conducting an investigation of the proposed acquisition of the Company by Senator and Cannae and requesting that we produce information in connection with that investigation.
| |
1. | We depend on our ability to access data from external sources to maintain and grow our businesses. If we are unable to access needed data from these sources or if the prices charged for these services increase, the quality, pricing and availability of our products and services may be adversely affected, which could have a material adverse impact on our business, financial condition and results of operations. |
We rely extensively upon dataThe events surrounding the Unsolicited Proposal and related circumstances, and our response, have required us, and may continue to require us, to incur significant legal and advisory fees and expenses, and have required, and may continue to require, significant time and attention by management and our Board of Directors. Further, actions taken by Senator and Cannae or other third parties as a result of the Unsolicited Proposal, including a proxy contest or consent solicitation, could disrupt our business, distract us from efforts to improve our business, cause us to incur substantial additional expense, create perceived uncertainties among current and potential customers, clients, suppliers, employees and other constituencies as to our future direction as a varietyconsequence thereof that may result in lost sales or other business arrangements and the loss of external sourcespotential business opportunities, and make it more difficult to maintainattract and retain qualified personnel and business partners. There is no assurance that any acquisition proposal will lead to any transaction. Actions that our proprietaryBoard of Directors has taken, and non-proprietary databases,may take in the future, in response to any offer or other related actions by Senator and Cannae, including data from third-party suppliers, various governmentthe Unsolicited Proposal, or any other offer or proposal may result in litigation against us. These lawsuits may be a significant distraction for our management and public record sourcesemployees and data contributed by our clients. Our data sources could cease providing or reduce the availability of their datamay require us to incur significant costs. If determined adversely to us, increase the price we pay for their data, or limitthese lawsuits could harm our use of their data for a variety of reasons, including legislatively or judicially imposed restrictions on use. If a number of suppliers are no longer able or are unwilling to provide us with certain data, or if our public record sources of data become unavailable or too expensive, we may need to find alternative sources. If we are unable to identifybusiness and contract with suitable alternative data suppliers and efficiently and effectively integrate these data sources into our service offerings, we could experience service disruptions, increased costs and reduced quality of our services. Moreover, some of our suppliers compete with us in certain product offerings, which may make us vulnerable to unpredictable price increases from them. Significant price increases could have a material adverse effect on our operating margins and our financial position, in particular if we are unable to arrange for substitute sources of data on favorable economic terms. Loss of such access or the availability of data in the future on commercially reasonable terms or at all may reduce the quality and availability of our services and products, which could have a material adverse effect on our business, financial condition and results of operations.
| |
2. | Our clients and we are subject to various governmental regulations, and a failure to comply with government regulations or changes in these regulations could result in penalties, restrict or limit our or our clients' operations or make it more burdensome to conduct such operations, any of which could have a material adverse effect on our revenues, earnings and cash flows. |
Many of our and our clients' businesses are subject to various federal, state, local and foreign laws and regulations. Our failure to comply with applicable laws and regulations could restrict our ability to provide certain services or result in the imposition of civil fines and criminal penalties, substantial regulatory and compliance costs, litigation expense, adverse publicity and loss of revenue.
In addition, our businesses are subject to an increasing degree of compliance oversight by regulators and by our clients. Specifically, the Consumer Financial Protection Bureau ("CFPB") has authority to write rules affecting the business of consumer reporting agencies and also to supervise, conduct examinations of, and enforce compliance as to federal consumer financial protection laws and regulations with respect to certain “non-depository covered persons” determined by the CFPB to be “larger participants” that offer consumer financial products and services. Two of our credit businesses - CoreLogic Credco and Teletrack - are subject to the CFPB non-bank supervision program. The CFPB and the prudential financial institution regulators such as the Comptroller of the Currency ("OCC") also have the authority to examine us in our role as a service provider to large financial institutions, although it is yet unclear how broadly they will apply this authority going forward. In addition, several of our largest bank clients are subject to consent orders with the OCC and/or are parties to the National Mortgage Settlement, both of which require them to exercise greater oversight and perform more rigorous audits of their key vendors such as us.
These laws and regulations (as well as laws and regulations in the various states or in other countries) could limit our ability to pursue business opportunities we might otherwise consider engaging in, impose additional costs or restrictions on us, result in significant loss of revenue, impact the value of assets we hold, or otherwise significantly adversely affect our business. In addition, this increased level of scrutiny may increase our compliance costs.
Our operations could be negatively affected by changes to laws and regulations and enhanced regulatory oversight of our clients and us. These changes may compel us to increase our prices in certain situations or decrease our prices in other
situations, may restrict our ability to implement price increases, and may limit the manner in which we conduct our business or otherwise may have a negative impact on our ability to generate revenues, earnings and cash flows. If we are unable to adapt our products and services to conform to the new laws and regulations, or if these laws and regulations have a negative impact on our clients, we may experience client losses or increased operating costs, and our business and results of operations could be negatively affected.
| |
3. | Regulatory developments with respect to use of consumer data and public records could have a material adverse effect on our business, financial condition and results of operations. |
Because our databases include certain public and non-public personal information concerning consumers, we are subject to government regulation and potential adverse publicity concerning our use of consumer data. We acquire, store, use and provide many types of consumer data and related services that are subject to regulation under the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, and the Driver's Privacy Protection Act and, to a lesser extent, various other federal, state, and local laws and regulations. These laws and regulations are designed to protect the privacy of consumers and to prevent the unauthorized access and misuse of personal information in the marketplace. Our failure to comply with these laws, or any future laws or regulations of a similar nature, could result in substantial regulatory penalties, litigation expense and loss of revenue.
In addition, some of our data suppliers face similar regulatory requirements and, consequently, they may cease to be able to provide data to us or may substantially increase the fees they charge us for this data which may make it financially burdensome or impossible for us to acquire data that is necessary to offer our products and services. Further, many consumer advocates, privacy advocates and government regulators believe that existing laws and regulations do not adequately protect privacy or ensure the accuracy of consumer-related data. As a result, they are seeking further restrictions on the dissemination or commercial use of personal information to the public and private sectors as well as contemplating requirements relative to data accuracy and the ability of consumers to opt to have their personal data removed from databases such as ours. Any future laws, regulations or other restrictions limiting the dissemination or use of personal information may reduce the quality and availability of our products and services, which could have a material adverse effect on our business, financial condition and results of operations.
| |
4. | If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, or if we are unable to provide adequate security in the electronic transmission of sensitive data, it could have a material adverse effect on our business, financial condition and results of operations. |
We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for business-to-business and business-to-consumer electronic commerce. Security breaches of this infrastructure, including physical or electronic break-ins, computer malware, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information, including non-public personal information and consumer data. Unauthorized access, including through use of fraudulent schemes such as "phishing" or zero-day vulnerability, could jeopardize the security of information stored in our systems. In addition, malware could jeopardize the security of information stored or used in a user's computer. If we are unable to prevent such security or privacy breaches, our operations could be disrupted, or we may suffer loss of reputation, financial loss, lawsuits and other regulatory imposed restrictions and penalties because of lost or misappropriated information, including sensitive consumer data.
Likewise, our clients are increasingly imposing more stringent contractual obligations on us relating to our information security protections. If we are unable to maintain protections and processes at a level commensurate with that required by our clients, it could negatively affect our relationships with those clients or increase our operating costs, which could harm our business or reputation.
| |
5. | We rely on our top ten clients for a significant portion of our revenue and profit, which makes us susceptible to the same macro-economic and regulatory factors that our clients face. If these clients are negatively impacted by current economic or regulatory conditions or otherwise experience financial hardship or stress, or if the terms of our relationships with these clients change, our business, financial condition and results of operations could be adversely affected. |
Our ten largest clients generated approximately 37% of our operating revenues for the quarter ended September 30, 2017, and one of our largest clients generated approximately 11% of our revenue in the third quarter of 2017. We expect that a limited number of our clients will continue to represent a significant portion of our revenues for the foreseeable future, and that
our concentration of revenue with one or more clients may continue to be significant or increase. These clients face continued pressure in the current economic and regulatory climate. Many of our relationships with these clients are long-standing and are important to our future operating results, but there is no guarantee that we will be able to retain or renew existing agreements or maintain our relationships on acceptable terms or at all. In addition, in response to increased regulatory oversight, clients in the mortgage lending industry may have internal policies that require them to use multiple vendors or service providers, thereby causing a diversification of revenue among many vendors. Deterioration in or termination of any of these relationships, including through vendor diversification policies or merger or consolidation among our clients, could significantly reduce our revenue and could adversely affect our business, financial condition and results of operations. In addition, certain of our businesses have higher client concentration than our company as a whole. As a result, these businesses may be disproportionately affected by declining revenue from, or loss of, a significant client.
| |
6. | Systems interruptions may impair or terminate the delivery of our products and services, causing potential client and revenue loss. |
We depend heavily upon computer systems and our existing internal and outsourced technology infrastructure. System interruptions, including but not limited to damage or interruption from natural disasters, floods, fires, power losses or telecommunications outages, terrorist attacks or acts of war, could disrupt our business or the economy as a whole, or may impair or terminate the delivery of our products and services, in each case resulting in a loss of clients and a corresponding loss in revenue. Our technology infrastructure runs primarily in a private dedicated cloud-based environment hosted in NTT Data Corporation's ("NTT") technology center in Quincy, WA with a disaster recovery capability in NTT’s technology center in Plano, TX. We cannot be sure that certain systems interruptions or events beyond our control, including issues with NTT's technology center or our third-party network and infrastructure providers or in connection with our upgrading or replatforming key systems, will not interrupt or terminate the delivery of our products and services to our clients. These interruptions also may interfere with our suppliers' ability to provide necessary data to us and our employees' ability to attend to work and perform their responsibilities. Any of interruption or termination of our systems could result in a loss of clients or a loss in revenue, which could have an adverse effect on our business or operations.
| |
7. | Becauseour revenue from clients in the mortgage, consumer lending and real estate industries is affected by the strength of the economy and the housing market generally, including the volume of real estate transactions, a negative change in any of these conditions could materially adversely affect our business and results of operations.
|
A significant portion of our revenue is generated from solutions we provide to the mortgage, consumer lending and real estate industries and, as a result, a weak economy or housing market or adverse changes in the interest rate environment may adversely affect our business. The volume of mortgage origination and residential real estate transactions is highly variable. Reductions in these transaction volumes could have a direct impact on certain portions of our revenues and may materially adversely affect our business, financial condition and results of operations. Moreover, negative economic conditions and/or increasing interest rate environments could affect the performance and financial condition of some of our clients in many of our businesses, which may lead to negative impacts on our revenue, earnings and liquidity in particular if these clients go bankrupt or otherwise exit certain businesses.
| |
8. | Our acquisition and integration of businesses may involve increased expenses, and may not produce the desired financial or operating results contemplated at the time of the transaction. |
We have acquired and expect to continue to acquire, on an opportunistic basis, companies, businesses, products and services. These activities may increase our expenses, and the expected results, synergies and growth from these initiatives may not materialize as planned. While management believes that acquisitions will improve our competitiveness and profitability, no assurance can be given that acquisitions will be successful or accretive to earnings.
In addition, we may have difficulty integrating our completed or any future acquisitions into our operations, including implementing at the acquired companies controls, procedures and policies in line with our controls, procedures and policies. If we fail to properly integrate acquired businesses, products, technologies and personnel, it could impair relationships with employees, clients and strategic partners, distract management attention from our core businesses, result in control failures and otherwise disrupt our ongoing business and harm our results of operations. We also may not be able to retain key management and other critical employees after an acquisition. Although partbelieve the future trading price of our business strategy may include growth through strategic acquisitions, we may notcommon stock could be ablesubject to identify suitable acquisition candidates, obtain the capital necessary to pursue acquisitions or complete acquisitionswide price fluctuations based on satisfactory terms.
9. We operate in a competitive business environment, and if we are unable to compete effectively our results of operations and financial condition may be adversely affected.
The markets for our products and services are intensely competitive. Our competitors vary in size and in the scope and breadth of the services they offer. We compete for existing and new clients against both third parties and the in-house capabilities of our clients. Many of our competitors have substantial resources. Some have widely-used technology platforms that they seek to use as a competitive advantage to drive sales of other products and services. In addition, we expect that the markets in which we compete will continue to attract new competitors and new technologies. These competitors and new technologies may be disruptive to our existing technology or service offerings, resulting in operating inefficiencies and increased competitive pressure. We cannot assure you that we will be able to compete successfully against current or future competitors. Any competitive pressures we face in the markets in which we operate could materially adversely affect our business, financial condition and results of operations.
| |
10. | Our reliance on outsourcing arrangements subjects us to risk and may disrupt or adversely affect our operations. In addition, we may not realize the full benefit of our outsourcing arrangements, which may result in increased costs, or may adversely affect our service levels for our clients. |
Over the last few years, we have outsourced various business process and information technology services to third parties, including the outsourcing arrangements we entered into with a subsidiary of Cognizant Technology Solutions and the technology infrastructure management services agreement we entered into with NTT. Although we have service-level arrangements with our providers, we do not ultimately control their performance, which may make our operations vulnerable to their performance failures. In addition, the failure to adequately monitor and regulate the performance of our third-party vendors could subject us to additional risk. Reliance on third parties also makes us vulnerable to changes in the vendors' business, financial condition and other matters outside of our control, including their violations of laws or regulations which could increase our exposure to liability or otherwise increase the costsuncertainty associated with the operationUnsolicited Proposal.
The shareholder rights plan adopted by our Board of Directors may impair a takeover attempt.
On July 6, 2020, our Board of Directors adopted a shareholder rights plan (the “Rights Agreement”).
Pursuant to the Rights Agreement, on July 6, 2020, our Board of Directors declared a dividend distribution of one right (a “Right”) for each outstanding share of our business. The failurecommon stock to shareholders of record on July 17, 2020. Each Right entitles its holder to purchase from us, when exercisable and subject to adjustment, a unit (“Unit”) consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.00001 per share, at an exercise price of $308 per Unit (the “purchase price”).
Under the Rights Agreement, the Rights will generally be exercisable only in the event that a person or group of affiliated or associated persons (such person or group being an “Acquiring Person”), other than certain exempt persons, acquires beneficial ownership of ten percent (10%) or more of the outstanding shares of our outsourcing partners to perform as expectedcommon stock (or twenty percent (20%) or as contractually required could resultmore of the
outstanding shares of our common stock in significant disruptions and costs to our operations and to the services we provide to our clients, which could materially and adversely affect our business, client relationships, financial condition, operating results and cash flow.
| |
11. | Our international service providers and our own international operations subject us to additional risks, which could have an adverse effect on our results of operations and may impair our ability to operate effectively. |
Over the last few years, we have reduced our costs by utilizing lower-cost labor outside the U.S. in countriescase of passive institutional investors reporting beneficial ownership on Schedule 13G). In such as India and the Philippines through outsourcing arrangements. It is likely that the countries where our outsourcing vendors are located may becase, subject to higher degreescertain exceptions specified in the Rights Agreement, each holder of political and social instabilitya Right (other than the U.S.Acquiring Person, whose Rights would become null and may lack the infrastructure to withstand political unrest or natural disasters. Such disruptions could impact our ability to deliver our products and services on a timely basis, if at all, and to a lesser extent could decrease efficiency and increase our costs. Fluctuations of the U.S. dollar in relation to the currencies used and higher inflation rates experienced in these countries may also reduce the savings we planned to achieve. Furthermore, the practice of utilizing labor based in foreign countries has come under increased scrutiny in the U.S. and, as a result, many of our clients may require us to use labor based in the U.S. We may not be able to pass on the increased costs of higher-priced U.S.-based labor to our clients, which ultimately couldvoid) will have an adverse effect on our results of operations.
In addition, the U.S. or the foreign countries in which we have service provider arrangements or operate could adopt new legislation or regulations that would adversely affect our business by making it difficult, more costly or impossible for us to continue our foreign activities as currently being conducted. Furthermore, in many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by laws and regulations applicable to us, such as the FCPA. Any violations of FCPA or local anti-corruption laws by us, our subsidiaries or our local agents could have an adverse effect on our business and reputation and result in substantial financial penalties or other sanctions.
| |
12. | We rely upon proprietary technology and information rights, and if we are unable to protect our rights, our business, financial condition and results of operations could be harmed. |
Our success depends, in part, upon our intellectual property rights. We rely primarily on a combination of patents, copyrights, trade secrets, and trademark laws and nondisclosure and other contractual restrictions on copying, distribution and creation of derivative products to protect our proprietary technology and information. This protection is limited, and our intellectual property could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of
competitive products. Any infringement, disclosure, loss, invalidity of, or failure to protect our intellectual property could negatively impact our competitive position, and ultimately, our business. Moreover, litigation may be necessary to enforce or protect our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation could be time-consuming, result in substantial costs and diversion of resources and could harm our business, financial condition, results of operations and cash flows.
| |
13. | If our products or services are found to infringe on the proprietary rights of others, we may be required to change our business practices and may also become subject to significant costs and monetary penalties. |
As we continue to develop and expand our products and services, we may become increasingly subject to infringement claims from third parties such as non-practicing entities, software providers or suppliers of data. Likewise, if we are unable to maintain adequate controls over how third-party software and data are used we may be subject to claims of infringement. Any claims, whether with or without merit, could:
be expensive and time-consuming to defend;
cause us to cease making, licensing or using applications that incorporate the challenged intellectual property;
require us to redesign our applications, if feasible;
divert management's attention and resources; and
require us to enter into royalty or licensing agreements in order to obtain the right to use necessary technologies.
| |
14. | Our level of indebtedness could adversely affect our financial condition and prevent us from complying with our covenants and obligations under our outstanding debt instruments. Further, the instruments governing our indebtedness subject us to various restrictions that could limit our operating flexibility. |
As of September 30, 2017, our total debt was approximately $1.8 billion, and we had unused commitments of approximately $700.0 million under our Revolving Facility. In July 2016, we completed $525.0 million of incremental term loan borrowings through an amendment to our Credit Agreement. A portionreceive, upon payment of the proceedspurchase price, common stock (or, in certain circumstances, other securities, cash, or other assets of the new borrowings were usedCompany) having a value equal to completetwo (2) times the redemption of all outstanding balances under our outstanding senior notes due June 2021 plus accrued and unpaid interest for approximately $411.0 million. The remaining portion of the proceeds were utilized to reduce our outstanding balance within the Revolving Facility.purchase price.
Subject to the limitations contained in the Credit Agreement governing our credit facilities and our other debt instruments, we may incur additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other general corporate purposes. If we do so, the risks related to our level of debt could increase. Specifically, our level of debt could have important consequences to us, including increasing our vulnerability to adverse economic and industry conditions and compromising our flexibility to capitalize our business opportunities and to plan for, or react to, competitive pressures and changes in our business or market conditions.
The Credit Agreement governing our credit facilities imposes operating and financial restrictions on our activities. These restrictions include the financial covenants in our credit facilities which require ongoing compliance with certain financial tests and ratios, including a minimum interest coverage ratio and maximum leverage ratio, and could limit or prohibit our ability to, among other things:
create, incur or assume additional debt;
create, incur or assume certain liens;
redeem and/or prepay certain subordinated debt we might issue in the future;
pay dividends on our stock or repurchase stock;
make certain investments and acquisitions, including joint ventures;
enter into or permit to exist contractual limits on the ability of our subsidiaries to pay dividends to us;
enter into new lines of business;
engage in consolidations, mergers and acquisitions;
engage in specified sales of assets; and
enter into transactions with affiliates.
These restrictions on our ability to operate our business could impact our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities that might otherwise be beneficial to us. Our failure to comply with these restrictions could result in an event of default which, if not cured or waived, could result in the acceleration of substantially all our debt.
15. We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our outstanding debt instruments, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations. If we cannot make scheduled payments on our debt, we will be in default and the lenders under our credit facilities could declare all outstanding principal and interest to be due and payable and could terminate their revolving commitments to loan money and foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation.
| |
16. | We may not be able to attract and retain qualified management or develop current management to assist in or lead company growth, which could have an adverse effect on our ability to maintain or expand our product and service offerings. |
We rely on skilled management and our success depends on our ability to attract, train and retain a sufficient number of such individuals. If our attrition rate increases, our operating efficiency and productivity may decrease. We compete for talented individuals not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, and there is a limited pool of individuals who have the skills and training needed to grow our company, especially in the increasingly-regulated environment in which we operate. Increased attrition or competition for qualified management could have an adverse effect on our ability to expand our business and product offerings, as well as cause us to incur greater personnel expenses and training costs.
| |
17. | We have substantial investments in recorded goodwill as a result of prior acquisitions and an impairment of these investments would require a write-down that would reduce our net income. |
Goodwill is assessed for impairment annually or sooner if circumstances indicate a possible impairment. Factors that could lead to impairment of goodwill include significant underperformance relative to historical or projected future operating results, a significant decline in our stock price and market capitalization and negative industry or economic trends. In the event that, at any time after a person or group has become an Acquiring Person, (i) the book value of goodwillCompany is impaired, any such impairment would be charged to earningsacquired in a merger or other business combination transaction in which the period of impairment. InCompany is not the event of significant volatilitycontinuing or surviving corporation, (ii) the Company engages in a merger or other business combination transaction in which the capital marketsCompany is the continuing or a worsening of current economic conditions, we may be required to record an impairment charge, which would negatively impact our results of operations. Possible future impairment of goodwill may have a material adverse effect on our business, financial condition and results of operations.
18. We may not be able to effectively achieve our cost-containment or growth strategies, which could adversely affect our financial condition or results of operations.
Our ability to execute on our cost-containment and growth strategies depends in part on maintaining our competitive advantage with current solutions in new and existing markets, as well as our ability to develop new technologies and solutions to serve such markets. There can be no assurance that we will be able to realize all of the projected benefits of our cost-containment plans or that we will be able to compete successfully in new markets or continue to compete effectively in our existing markets. In addition, development of new technologies and solutions may require significant investment by us. If we fail to introduce new technologies or solutions on a cost-effective or timely basis, or if we are not successful in introducing or obtaining regulatory or market acceptance for new solutions, we may lose market share and our results of operations or cash flows could be adversely affected.
| |
19. | We share responsibility with First American for certain income tax liabilities for tax periods prior to and including the date of the Separation. |
Under the Tax Sharing Agreement, by and between FAC and FAFC, dated as of June 1, 2010 (the "Tax Sharing Agreement") we entered into in connection with the Separation transaction, we are generally responsible for taxes attributable to our business, assets and liabilities and FAFC is generally responsible for all taxes attributable to members of the FAFC group of companiessurviving corporation and the assets, liabilities or businessesshares of the FAFC group of companies. Generally, any liabilities arising from tax adjustments to consolidated tax returns for tax periods prior to and including the date of the Separation will be shared in proportion to each company's percentage of the tax liability for the relevant year (or partial year with respect to 2010), unless the adjustment is attributable to either party, in which case the adjustment will generally be for the account of such party. In addition to this potential liability associated with adjustments for prior periods, if FAFC were to fail to pay any tax liability it is
required to pay under the Tax Sharing Agreement, we could be legally liable under applicable tax law for such tax liabilities and required to make additional tax payments. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our agreed-upon share of tax liabilities.
| |
20. | If certain transactions, including internal transactions, undertaken in anticipation of the Separation are determined to be taxable for U.S. federal income tax purposes, we, our stockholders that are subject to U.S. federal income tax and FAFC will incur significant U.S. federal income tax liabilities. |
In connection with the Separation we received a private letter ruling from the Internal Revenue Service to the effect that, among other things, certain internal transactions undertaken in anticipation of the Separation will qualify for favorable treatment under the U.S. Internal Revenue Code of 1986, as amended (the ‘‘Code’’), and the contribution by us of certain assets of the financial services businesses to FAFC and the pro-rata distribution to our shareholders of the common stock of FAFC will, except for cash received in lieu of fractional shares, qualify as a tax-free transaction for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D)the Company are changed or exchanged or (iii) fifty percent (50%) or more of the Code. In addition, we received opinionsCompany’s assets, cash flow or earning power is sold or transferred, each holder of tax counsel to similar effect. The rulinga Right (other than the Acquiring Person, whose Rights would become null and opinions relied on certain facts, assumptions, representations and undertakings from us and FAFC regarding the past and future conduct of the companies' respective businesses and other matters. If any of these facts, assumptions, representations or undertakings is incorrect or not otherwise satisfied, we and our stockholders may not be able to rely on the ruling or the opinions of tax counsel and could be subject to significant tax liabilities. Notwithstanding the private letter ruling and opinions of tax counsel, the IRS could determine on audit that the Separation is taxable if it determines that any of these facts, assumptions, representations or undertakings were not correct orvoid) would thereafter have been violated or if it disagrees with the conclusions in the opinions that were not covered by the private letter ruling, or for other reasons, including as a result of certain significant changes in the stock ownership of us or FAFC after the Separation. If the Separation is determined to be taxable for U.S. federal and state income tax purposes, we and our stockholders that are subject to income tax could incur significant income tax liabilities.
In addition, under the terms of the Tax Sharing Agreement, in the event a transaction were determined to be taxable and such determination were the result of actions taken after the Separation by us or FAFC, the party responsible for such failure would be responsible for all taxes imposed on us or FAFC as a result thereof.
Moreover, the Tax Sharing Agreement generally provides that each party thereto is responsible for any taxes imposed on the other party as a result of the failure of the distribution to qualify as a tax-free transaction under the Code if such failure is attributable to post-Separation actions taken by or in respect of the responsible party or its stockholders, regardless of when the actions occur after the Separation, and the other party consents to such actions or such party obtains a favorable letter ruling or opinion of tax counsel as described above.
| |
21. | In connection with the Separation, we entered into a number of agreements with FAFC setting forth rights and obligations of the parties post-Separation. In addition, certain provisions of these agreements provide protection to FAFC in the event of a change of control of us, which could reduce the likelihood of a potential change of control that our stockholders may consider favorable. |
In connection with the Separation, we and FAFC entered into a number of agreements that set forth certain rights and obligations of the parties post-Separation, including the Separation and Distribution Agreement, the Tax Sharing Agreement and the Restrictive Covenants Agreement. We possess certain rights under those agreements, including without limitation indemnity rights from certain liabilities allocated to FAFC. The failure of FAFC to perform its obligations under the agreements could have an adverse effect on our financial condition, results of operations and cash flows.
In addition, the Separation and Distribution Agreement gives FAFC the right to purchase the equity or assets of our entity or entities directly or indirectly owning the real property databases that we currently ownreceive, upon the occurrence of certain triggering events. The triggering events include the direct or indirect purchasepayment of the databases bypurchase price, common stock of the acquiring company having a title insurance underwriter (or its affiliate)value equal to two (2) times the purchase price.
Our Board of Directors may redeem the Rights for $0.001 per Right, subject to adjustment, at any time until the earlier of 10 business days following a public announcement that an Acquiring Person has become such or an entity licensed as a title insurance underwriter, including a transaction where a title insurance underwriter (or its affiliate) acquires 25% or more of us. The purchase right expires June 1, 2020. Until the expiration of the purchase right, this provision could haveRights Agreement. The Rights will expire on July 6, 2021, unless the Rights are earlier redeemed, exchanged or terminated.
The Rights are not intended to prevent a takeover of the Company and should not interfere with any merger or other business combination approved by our Board of Directors. However, the overall effect of limitingthe Rights may render it more difficult or discouraging an acquisitiondiscourage a merger, tender offer or other business combination involving the Company that is not supported by our Board of us or preventingDirectors.
Additional details about the Rights Agreement are contained in a change of control that our stockholders might consider favorable. Likewise, if a triggering event occurs,Form 8-K filed by the loss of ownership of our real property database could have a material adverse effectCompany with the SEC on our financial condition, business and results of operations.July 7, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
During the quarter ended SeptemberJune 30, 2017,2020, we did not issue any unregistered shares of our common stock.stock in any transaction that was not registered under the Securities Act of 1933, as amended.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
OnIn October 27, 2016, the2018, our Board of Directors canceled all prior repurchase authorizations and established a new share repurchase authorization of up to $500.0 million. The new share repurchase authorization replaces the unused portion of our previous share repurchase authorization, which was announced in July 2015. As of SeptemberJune 30, 2017,2020, we had $285.5$382.0 million in value of shares remaining that couldof common stock (inclusive of commissions and fees) available to be purchased in the futurerepurchased under the current authorization.plan. In July 2020, our Board of Directors canceled all prior repurchase authorizations and established a new share repurchase authorization of up to $1.0 billion. The stock repurchase authorization has no expiration date and repurchases may be made in the open market, in privately negotiated transactions or underpursuant to a Rule 10b5-1 plan.
Under our Credit Agreement, our stock repurchase capacity is restricted to $150.0 million per fiscal year, with the ability to undertake an additional amount of repurchases in such fiscal year provided that, on a pro forma basis after giving effect to the stock repurchase, our total leverage ratio does not exceed 3.5 to 1.0. While we continue to preserve the capacity to execute sharestock repurchases under our existing share repurchase authorization, going forward we will strive to pursue a balanced approach to capital allocation and will consider the repurchase of shares of our common shares,stock, the retirement of outstanding debt and the pursuit of strategic acquisitions on an opportunistic basis.
The following table summarizes our share repurchase activity duringDuring the quarter ended SeptemberJune 30, 2017. All2020, we repurchased 0.2 million shares of our share repurchases were madecommon stock in an open market purchase pursuant to the terms of our existing sharestock repurchase authorization.
| | | Issuer Purchases of Equity Securities | Issuer Purchases of Equity Securities | | | | | | | Issuer Purchases of Equity Securities | | |
| | | | (a) | | (b) | | | |
| Period | Total Number of Shares Purchased | | Average Price Paid per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | Period | Total Number of Shares Purchased | | Average Price Paid per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs |
July 1 to July 31, 2017
| 110,000 |
| | $ | 45.63 |
| | 110,000 |
| | $ | 371,990,128 |
| |
| August 1 to August 31, 2017 | 1,678,966 |
| | $ | 45.56 |
| | 1,678,966 |
| | $ | 295,496,437 |
| |
September 1 to September 30, 2017
| 211,034 |
| | $ | 47.39 |
| | 211,034 |
| | $ | 285,497,755 |
| |
| April 1 to April 30, 2020 | | April 1 to April 30, 2020 | — | | | $ | — | | | — | | | $ | 388,858,603 | |
| May 1 to May 31, 2020 | | May 1 to May 31, 2020 | 100,000 | | | $ | 44.69 | | | 100,000 | | | $ | 384,389,603 | |
| June 1 to June 30, 2020 | | June 1 to June 30, 2020 | 50,000 | | | $ | 47.46 | | | 50,000 | | | $ | 382,017,157 | |
| Total | 2,000,000 |
| | $ | 45.76 |
| | 2,000,000 |
| | | Total | 150,000 | | | $ | — | | | 150,000 | | |
| | | | | | | | | | | | | |
(1) Calculated inclusive of commissions.
Item 3. Defaults upon Senior Securities. None.
Item 4. Mine Safety Disclosures. Not applicable.
Item 5. Other Information. None.
Item 6. Exhibits.
See Exhibit Index.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
Exhibit
Number | | Description | |
| | |
| | CoreLogic, Inc. |
| | (Registrant) |
| | |
| | By: /s/ Frank Martell |
| | Frank Martell |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | By: /s/ James L. Balas |
| | James L. Balas |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
| | |
| | By: /s/ John K. Stumpf |
| | John K. Stumpf |
| | Controller |
| | (Principal Accounting Officer) |
Date: | October 26, 2017 | |
EXHIBIT INDEX
|
| 3.1 | | |
Exhibit
Number
| | Description |
| | Agreement and Plan of Merger, dated December 17, 2015, by and among CoreLogic Solutions, LLC, CoreLogic Acquisition Co., Inc., FNC Holding Company, Inc. and, solely in his capacity as Shareholder Representative, Dennis S. Tosh, Jr. (incorporated by reference to Exhibit 2.2 to the Company's Annual Report on Form 10-K as filed with the SEC on February 26, 2016)^+ |
| | |
| | First Amendment to Agreement and Plan of Merger, dated as of April 7, 2016, by and among CoreLogic Solutions, LLC, CoreLogic Acquisition Co., Inc., FNC Holding Company, Inc. and Dennis S. Tosh, Jr. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K as filed with the SEC on April 8, 2016)^ |
| | |
| | Amended and Restated Certificate of Incorporation of CoreLogic, Inc., dated May 28, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on June 1, 2010) | |
| | | |
| | | |
| | | |
| 3.3 | | Second AmendedCertificate of Designation, Preferences, and Restated Credit Agreement, dated asRights of August 10, 2017, amongSeries A Junior Participating Preferred Stock of CoreLogic, Inc., CoreLogic Australia Pty Limited, the lenders party thereto, the other parties thereto and Bank of America, N.A. as administrative agent and collateral agentdated July 7, 2020 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K as filed with the SEC on August 15, 2017)July 7, 2020) | |
| | | |
| 4.1 | | | |
| | | |
| 31.1 | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 101 | | Extensible Business Reporting Language (XBRL)The following unaudited consolidated financial statements for the quarter ended March 31, 2020 included in this quarterly report on Form 10-Q formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Stockholders' Equity, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tagsü
| |
| | | |
| 104 | | Cover Page Interactive Data File (formatted in Inline XBRL and included in the interactive data files submitted as Exhibit 101)ü | |
| | | | | | | | |
| ü | | Filed herewith. |
| ** | | Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | CoreLogic, Inc. |
| | (Registrant) |
| | |
| | By: /s/ Frank D. Martell |
| | Frank D. Martell |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | By: /s/ James L. Balas |
| | James L. Balas |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
| | |
| ü | Included in this filing.By: /s/ John K. Stumpf |
| ^ | Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby agrees to furnish supplementally copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.John K. Stumpf |
| + | This agreement contains representations and warranties by us or our subsidiaries. These representations and warranties have been made solely for the benefit of the other parties to the agreement and (i) have been qualified by disclosures made to such other parties, (ii) were made only as of the date of such agreement or such other date(s) as may be specified in such agreement and are subject to more recent developments, which may not be fully reflected in our public disclosures, (iii) may reflect the allocation of risk among the parties to such agreement and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the actual state of affairs at the date hereof and should not be relied upon.
Controller |
| * | Indicates a management contract or compensatory plan or arrangement in which any director or named executive officer participates.(Principal Accounting Officer) |
| Date: | July 23, 2020 | |
