Washington, D.C. 20549
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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.
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 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.
We generate the majority of our operating revenues from clients with operations in the US residential real estate, mortgage origination, and mortgage servicing markets. Approximately 30%34% and 32%30% of our operating revenues for the three months ended June 30, 20192020 and 2018,2019, respectively, were generated from our top ten clients, who consist of the largest US mortgage originators and servicers. None of our clients individually accounted for greater than 10% of our operating revenues for the three months ended June 30, 2019 nor 2018.during these periods. Approximately 29%32% and 33%29% of our operating revenues for the six months ended June 30, 20192020 and 2018,2019, respectively, were generated from our top ten clients with noneclients. None of our clients individually accountingaccounted for greater than 10% of our operating revenues during thethese periods.
We deem the carrying value of cash, cash equivalents, and restricted cash to be a reasonable estimate of fair value due to the nature of these instruments. Restricted cash is comprised of certificates of depositdeposits that are pledged for various letters of credit/bank guarantees secured by us, escrow accounts due to acquisitions and divestitures, as well as short-term investments within our deferred compensation plan trust. The following table provides a reconciliation of cash, cash equivalents, and restricted cash to amounts shown in the statement of cash flows:
Operating Revenue Recognition
We derive our operating revenues primarily from US mortgage lenders, servicers, and insurance companies with good creditworthiness. Operating revenue arrangements are written and specify the products or services to be delivered, pricing, and payment terms. Operating revenue is recognized when the distinct good or service or performance obligation,(also referred as "performance obligation"), is delivered and control has been transferred to the client. Generally, clients contract with us to provide products and services that are highly interrelated and not separately identifiable. Therefore, the entire contract is accounted for as one performance obligation. At times, some of our contracts have multiple performance obligations where we allocate the total price to each performance obligation based on the estimated relative standalone selling price using observable sales or the cost-plus-margin approach.
For products or services where delivery occurs at a point in time, we recognize operating revenue when the client obtains control of the products upon delivery. When delivery occurs over time, we generally recognize operating revenue ratably over the service period, once initial delivery has occurred. For certain of our products or services, clients may also pay upfront fees, which we defer and recognize as operating revenue over the longer of the contractual term or the expected client relationship period.
Licensing arrangements that provide our clients with the right to access or use our intellectual property are considered functional licenses for which we generally recognize operating revenue based on usage. For arrangements that provide a stand-ready obligation or substantive updates to the intellectual property which the client is contractually or practically required to use, we recognize operating revenue ratably over the contractual term.
Client payment terms are standard with no significant financing components or extended payment terms granted. In limited cases, we allow for client cancellations for which we estimate a reserve.reserve at the point-of-sale.
See further discussion in Note 87 - Operating Revenues.
Comprehensive Loss
Comprehensive lossincome/(loss) includes all changes in equity except those resulting from investments by shareholders and distributions to shareholders. Specifically, foreign currency translation adjustments, amounts related to supplemental benefit plans, unrealized gains and losses on interest rate swap transactions and investments are recorded in other comprehensive income/(loss)/income.. The following table shows the components of accumulated other comprehensive loss, net of taxes, as of June 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | |
| (in thousands) | 2020 | | 2019 |
| Cumulative foreign currency translation | $ | (134,513) | | | $ | (122,503) | |
| Cumulative supplemental benefit plans | (8,805) | | | (8,917) | |
| Net unrecognized losses on interest rate swaps | (73,743) | | | (35,296) | |
| Reclassification adjustment for gain on terminated interest rate swap included in net income | — | | | (67) | |
| Accumulated other comprehensive loss | $ | (217,061) | | | $ | (166,783) | |
|
| | | | | | | |
| (in thousands) | 2019 | | 2018 |
| Cumulative foreign currency translation | $ | (124,884 | ) | | $ | (129,406 | ) |
| Cumulative supplemental benefit plans | (5,257 | ) | | (4,958 | ) |
| Net unrecognized losses on interest rate swaps | (34,678 | ) | | (1,384 | ) |
| Reclassification adjustment for gain on terminated interest rate swap included in net income | (67 | ) | | — |
|
| Accumulated other comprehensive loss | $ | (164,886 | ) | | $ | (135,748 | ) |
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.
For the three and six months endedAs of June 30, 2020, and December 31, 2019, we did not have any operating revenues relatedhad 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 affiliates and had $0.3 million anda $0.6 million for the threestep-up gain which is reflected within gain/(loss) on investments and six months ended June 30, 2018, respectively. We recorded operating expensesother, net, in our condensed consolidated statement of $0.5 million and $2.0 million related to our investment in affiliates for the three months ended June 30, 2019 and 2018, respectively, and $0.7 million and $5.3 millionoperations for the six months ended June 30, 2019 and 2018, respectively.
As of June 30, 2019, and December 31, 2018, we had insignificant accounts payable and accounts receivable with these affiliates.
Discontinued Operations
In September 2014, we completed2020. See Note 12 - Acquisitions for additional information. Prior to the sale of our collateral solutions and field services businesses, which were included in the former reporting segment Asset Management and Processing Solutions. In September 2012, we completed the wind-down of our consumer services business and our former appraisal management company business. In September 2011, we closed our marketing services business. In December 2010, we completed the sale of our Employer and Litigation Services businesses.
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 are pursuing an appealacquisition of the verdict 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.
As of June 30, 2019, and December 31, 2018,remaining interest, we recorded assets of discontinued operations of $0.6 million within prepaid expenses and other current assets within our condensed consolidated balance sheets. Additionally, as of June 30, 2019 and December 31, 2018, we recorded liabilities of $2.1 million and $2.2 million, respectively, within accounts payable and other accrued expenses mainly consisting of legal related accruals.
Tax Escrow Disbursement Arrangements
We administer tax escrow disbursements as a service to our clients in connection with our tax services business. These deposits are maintained in segregated accountsaccounted for the benefit of our clients and totaled $754.2 million and $696.0 million as of June 30, 2019 and December 31, 2018, 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 two to five business days. We record earnings credits from these activities as a reduction to related administrative expenses, including the cost of 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 $20.6 million and $21.2 million as of June 30, 2019, and December 31, 2018, respectively. Within these amounts, $9.3 million and $9.2 million, respectively, are short-term and are reflected within accounts payable and other accrued expenses within our accompanying condensed consolidated balance sheets. The remaining reserves are reflected within other liabilities.
Recent Accounting Pronouncements
In April 2019, the Financial Accounting Standards Board ("FASB") issued guidance to amend or clarify certain areas within three previously issued standards related to financial instruments which includes clarification for fair value using the measurement alternative, measuring credit losses and accounting for derivatives and hedging. The amendments in this guidance are largely effective for fiscal years beginning after December 15, 2019 with early adoption permitted. We have not elected early adoption and do not anticipate that this guidance will have a material impact on our consolidated financial statements.
In August 2017, the FASB issued guidance to amend and improve the accounting for hedging activities. The amendment eliminates 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 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 changes will be recorded in other comprehensive loss and reclassified to earnings when the hedged item impacts earnings. The guidance is effective prospectively for fiscal years beginning after December 15, 2018. In October 2018, the FASB issued incremental guidance to this update to permit the Overnight Index Swap Rate and the Secured Overnight Financing Rate to be utilized as US benchmark interest rates for hedge accounting purposes. We have adopted this guidance in the current year as required, which has not had a material impact on our consolidated financial statements.
In February 2016, the FASB issued guidance on lease accounting which requires leases, regardless of classification, to be recognized on the balance sheet as lease assets and liabilities. The objective of this standard is to provide greater transparency on the amount, timing and uncertainty of cash flows arising from leasing arrangements. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee depends upon its classification as a finance or operating lease. On January 1, 2019, we adopted the new lease accounting standard, and all related amendments, using the modified retrospective approach. Comparative information has not been restated and continues to be reportedLocation under the standards in effect for those prior periods as allowed by the guidance. As partequity method and received dividends of our adoption we elected the package of practical expedients permitted under the transition guidance which allows us to carry forward our historical lease classification of pre-existing leases, treatment of pre-existing indirect costs, as well as our conclusions of whether a pre-existing contract contains a lease. We have implemented internal controls to enable the preparation of financial information upon our adoption$0.7 million in the first quarter of 2019.2020.
Adoption of the new lease accounting standard resulted in the recording of operating lease assets and lease liabilities of approximately $67.7 million and $103.9 million, respectively, as of January 1, 2019. There was no impact to opening equity as a result of adoption as the difference between the asset and liability balance is attributable to reclasses of pre-existing balances, such as deferred and prepaid rent, into the lease asset balance. The standard has not materially impacted our consolidated statement of operations or presentation of cash flows and we do not anticipate a material impact in the future based on our current operations. See below for our accounting policy reflecting the updated guidance.
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.term, which, if applicable, may factor in renewal or termination options. Finance leases incur interest expense using the 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.
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 both June 30, 2020, and December 31, 2019, we 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 tax services business. Funds to be disbursed are deposited and maintained in segregated accounts for the benefit of our clients and totaled $832 million and $1.4 billion as of June 30, 2020 and December 31, 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 2 to 5 business days. We record credits from these activities as a reduction to related administrative expenses, including the cost of 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 $22.5 million and $22.7 million as of June 30, 2020 and December 31, 2019, respectively. Within these amounts are $10.0 million and $9.8 million, respectively, which are short-term and are therefore reflected within accounts payable and other accrued expenses within our accompanying condensed consolidated balance sheets. The remaining reserves are reflected within other liabilities.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board ("FASB") issued guidance to ease 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 relationships, and other transactions affected by reference rate reform if certain criteria are met. Entities electing the practical expedients will be allowed, among other topics, to account for reference rate modification of debt and receivables prospectively; to not reassess lease classifications and discount rates in reference rate lease modifications; and ease cash-flow hedge effectiveness testing guidelines for hedges affected by reference rate reform. The guidance is effective through 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, 2020 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 effective for fiscal years beginning after December 15, 2019 on a retrospective basis to the date of the initial adoption of the revenue standard. We adopted this guidance in the first quarter of 2020, which has not had a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued guidance that amends fair value disclosure requirements. The guidance removes disclosure requirements on the transfers between Level 1 and Level 2 of the fair value hierarchy in addition to the 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 disclosure and adds disclosure requirements for Level 3 unrealized gains and losses and significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019. Entities were permitted to early adopt any removed or modified disclosures upon issuance and delay adoption of 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 accounting 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, 2019, 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 had a material impact on our condensed consolidated financial statements.
Note 2 - Property and Equipment, Net
Property and equipment, net as of June 30, 20192020 and December 31, 20182019 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) | 2019 | | 2018 |
| Land | $ | 7,476 |
| | $ | 7,476 |
|
| Buildings | 6,487 |
| | 6,487 |
|
| Furniture and equipment | 72,951 |
| | 68,851 |
|
| Capitalized software | 899,840 |
| | 902,482 |
|
| Leasehold improvements | 43,230 |
| | 43,476 |
|
| Construction in progress | 2,582 |
| | 669 |
|
| | 1,032,566 |
| | 1,029,441 |
|
| Less accumulated depreciation | (583,949 | ) | | (572,944 | ) |
| Property and equipment, net | $ | 448,617 |
| | $ | 456,497 |
|
Depreciation expense for property and equipment, net, was approximately $22.5$23.1 million and $22.4$22.5 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $45.9$46.3 million and $44.2$45.9 million for the six months ended June 30, 20192020 and 2018,2019, 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, 2019. For the three2020 and six months ended June 30, 2018, impairment losses were less than $0.1 million.2019, respectively. See Note 76 - Fair Value of Financial Instrumentsfor further discussion.
Note 3 – Goodwill, Net
A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by reporting unit, for the six months ended June 30, 20192020 is as follows:
|
| | | | | | | | | | | |
| (in thousands) | PIRM | | UWS | | Consolidated |
| Balance as of January 1, 2019 | | | | | |
| Goodwill | $ | 1,107,466 |
| | $ | 1,292,013 |
| | $ | 2,399,479 |
|
| Accumulated impairment losses | (600 | ) | | (6,925 | ) | | (7,525 | ) |
| Goodwill, net | 1,106,866 |
| | 1,285,088 |
| | 2,391,954 |
|
| Measurement period adjustments | (124 | ) | | — |
| | (124 | ) |
| Translation adjustments | 3,582 |
| | — |
| | 3,582 |
|
| Balance as of June 30, 2019 | | | | | |
| Goodwill, net | $ | 1,110,324 |
| | $ | 1,285,088 |
| | $ | 2,395,412 |
|
| | | | | | | | | | | | | | | | | |
| (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 | |
See Note 1312 - Acquisitions for further discussion overof current year acquisition and measurement period adjustments.
Note 4 – Other Intangible Assets, Net
Other intangible assets, net consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | December 31, 2019 | | | | |
| (in thousands) | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| Client lists | $ | 655,182 | | | $ | (367,000) | | | $ | 288,182 | | | $ | 662,611 | | | $ | (354,011) | | | $ | 308,600 | |
| Non-compete agreements | 26,752 | | | (18,900) | | | 7,852 | | | 26,409 | | | (16,249) | | | 10,160 | |
| Tradenames and licenses | 127,311 | | | (72,290) | | | 55,021 | | | 127,176 | | | (67,118) | | | 60,058 | |
| | | | | | | | | | | |
| | $ | 809,245 | | | $ | (458,190) | | | $ | 351,055 | | | $ | 816,196 | | | $ | (437,378) | | | $ | 378,818 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| (in thousands) | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| Client lists | $ | 658,022 |
| | $ | (334,312 | ) | | $ | 323,710 |
| | $ | 706,253 |
| | $ | (327,201 | ) | | $ | 379,052 |
|
| Non-compete agreements | 35,231 |
| | (22,771 | ) | | 12,460 |
| | 35,224 |
| | (20,156 | ) | | 15,068 |
|
| Tradenames and licenses | 126,153 |
| | (61,252 | ) | | 64,901 |
| | 131,130 |
| | (56,845 | ) | | 74,285 |
|
| | $ | 819,406 |
| | $ | (418,335 | ) | | $ | 401,071 |
| | $ | 872,607 |
| | $ | (404,202 | ) | | $ | 468,405 |
|
Amortization expense for other intangible assets, net was $15.4$14.3 million and $16.3$15.4 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $32.0$28.6 million and $31.5$32.0 million for the six months ended June 30, 20192020 and 2018,2019, respectively.
Impairment losses of $35.6 million were recorded for both the three and six months ended June 30, 2019. For the three and six months ended June 30, 2018,2020, there were no0 impairments. See Note 76 - Fair Value of Financial Instrumentsfor further discussion.
Estimated amortization expense for other intangible assets, net is as follows:
| | | | | |
| (in thousands) | |
| Remainder of 2020 | $ | 28,862 | |
| 2021 | 54,276 | |
| 2022 | 52,492 | |
| 2023 | 44,248 | |
| 2024 | 37,875 | |
| Thereafter | 133,302 | |
| | $ | 351,055 | |
|
| | | |
| (in thousands) | |
| Remainder of 2019 | $ | 29,124 |
|
| 2020 | 56,443 |
|
| 2021 | 53,339 |
|
| 2022 | 51,514 |
|
| 2023 | 43,900 |
|
| Thereafter | 166,751 |
|
| | $ | 401,071 |
|
In connection with the amendment and restatement of the Credit Agreement, in May 2019, we incurred approximately $9.9$9.7 million of debt issuance costs of which $9.6 million were initially capitalized within long-term debt, net of current, in the accompanying condensed consolidated balance 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)/gain on investments and other, net, in the accompanying consolidated statement of operations; resultingoperations, 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. For both the three months ended June 30, 20192020 and 2018,2019, $1.3 million was recognized in the accompanying condensed consolidated statement of operations related to the amortization of debt issuance costs. For the six months ended June 30, 2020 and 2019, and 2018, $2.6$2.5 million and $2.7$2.6 million, respectively, were recognized in the accompanying condensed consolidated statements of operations related to the amortization of debt issuance costs.
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 us.
We have designated the Swaps as cash flow hedges. The estimated fair values of these cash flow hedges are recorded in prepaid expenses and other current assets or other assets as well as accounts payable and other assets andaccrued expenses or other liabilities in the accompanying condensed consolidated balance sheets. As of June 30, 2019,2020, the estimated fair value of certainthese 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 $2.2 million recorded within prepaid and other current assets, with the remainder resulting in a liability of $48.5 million. As of December 31, 2018, the estimated fair value of certain of these cash flow hedges resulted in an asset of $13.3 million, of which $0.6 million is classifiedwhich was recorded within prepaid expenses and other current assets, with the remainder resulting inas well as a liability of $15.2 million.$47.7 million recorded within other liabilities.
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. 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.
For cash and cash equivalents, the carrying value is a reasonable estimate of fair value due to the short-term nature of the instruments.
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.
The fair values of the Swaps were estimated based on market-value quotes received from the counterparties to the agreements.
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)/gain 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. As a result ofNaN adjustments were necessary for the observable price change in the second quarter, we transferred the minority owned equity investment classification from Level 3 to Level 2 within the fair value hierarchy above.three and six months ended June 30, 2020.
|
| | | | | | | | | | | | | | | | |
| (in thousands) | | PIRM | | UWS | | Corporate and Eliminations | | Consolidated |
| For the Three Months Ended June 30, 2019 | | | | |
| Property insights | | $ | 122,737 |
| | $ | — |
| | $ | — |
| | $ | 122,737 |
|
| Insurance and spatial solutions | | 48,421 |
| | — |
| | — |
| | 48,421 |
|
| Flood data services | | — |
| | 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 Three Months Ended June 30, 2018 | | | | | | | | |
| Property insights | | $ | 127,293 |
| | $ | — |
| | $ | — |
| | $ | 127,293 |
|
| Insurance and spatial solutions | | 40,861 |
| | — |
| | — |
| | 40,861 |
|
| Flood data services | | — |
| | 18,911 |
| | — |
| | 18,911 |
|
| Valuation solutions | | — |
| | 81,456 |
| | — |
| | 81,456 |
|
| Credit solutions | | — |
| | 78,883 |
| | — |
| | 78,883 |
|
| Property tax solutions | | — |
| | 117,480 |
| | — |
| | 117,480 |
|
| Other | | 14,501 |
| | 11,496 |
| | (2,480 | ) | | 23,517 |
|
| Total operating revenue | | $ | 182,655 |
| | $ | 308,226 |
| | $ | (2,480 | ) | | $ | 488,401 |
|
| | | | | | | | | |
| 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 |
|
| | | | | | | | | |
| For the Six Months Ended June 30, 2018 | | | | | | | | |
| Property insights | | $ | 250,965 |
| | $ | — |
| | $ | — |
| | $ | 250,965 |
|
| Insurance and spatial solutions | | 78,025 |
| | — |
| | — |
| | 78,025 |
|
| Flood data services | | — |
| | 35,885 |
| | — |
| | 35,885 |
|
| Valuation solutions | | — |
| | 152,900 |
| | — |
| | 152,900 |
|
| Credit solutions | | — |
| | 160,368 |
| | — |
| | 160,368 |
|
| Property tax solutions | | — |
| | 207,361 |
| | — |
| | 207,361 |
|
| Other | | 27,432 |
| | 25,131 |
| | (4,766 | ) | | 47,797 |
|
| Total operating revenue | | $ | 356,422 |
| | $ | 581,645 |
| | $ | (4,766 | ) | | $ | 933,301 |
|
Property Insights
Our property insights solutions combine our patented predictive analytics andwith 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, withincorporating crime, site inspection, neighborhood, document images, and other information from proprietary sources. We also provideoffer verification of applicant income, identity and certain employment verification 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 solutions requiredability 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 service periodcontractual 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.performance to mortgage and automotive lenders. Operating revenue is recognized when the report or information is delivered to the client.
Flood Data ServicesSolutions
Our flood data servicessolutions 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.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, 2019,2020, we had $9.2$11.4 million of current deferred contract costs which are presented in prepaid expenses and other current assets, as well as $20.7$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, 2018,2019, we had $9.7$9.8 million of current deferred contract costs which are presented in prepaid expenses and $20.8other current assets as well as $23.1 million of long-term deferred costs.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 year10-year life, adjusted for early loan cancellations. For the three months ended June 30, 20192020 and 2018,2019, we recorded amortization associated with deferred contract costs of $3.3$4.5 million and $3.5$3.3 million, respectively, and $6.4$8.2 million and $6.9$6.4 million, respectively, for the six months ended June 30, 20192020 and 2018.2019.
Contract Liabilities
We record a contract liability when amounts are invoiced, which is generally prior to the satisfaction of athe performance obligation. For property tax solutions, we invoice our clients 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.term, as applicable.
As of June 30, 2019,2020, we had $845.2$952.4 million in contract liabilities compared to $833.0$884.9 million as of December 31, 2018.2019. The overall change of $12.2$67.5 million in contract liability balances areis primarily due to $292.7$388.3 million of new deferred billings in the current year, partially offset by $280.5$321.1 million of operating revenue recognized, of which $179.1$192.6 million related to contracts previously deferred.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, 20192020 we had $967.1 million$1.1 billion of remaining performance obligations. We expect to recognize approximately 18% percent of ourthis remaining revenue backlog in 2019, 28%2020, 29% in 2020, 19%2021, 18% in 20212022 and 35% thereafter. See further discussion onof performance obligations in Note 1 - Basis for Condensed Consolidated Financial Statements.
Note 98 – Share-Based Compensation
We currently issue equity awards under the CoreLogic, Inc. 2018 Performance Incentive Plan (the "Plan"“Plan”), which was approved by our stockholders at our Annual Meeting held in May 2018. The Plan includes the ability to grant 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 15,139,084 shares of the Company's common stock to be available for award grants.
We have primarily utilized 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 common stock on the date of grant and is recognized as compensation expense over its vesting period.
Restricted Stock Units
For the six months ended June 30, 20192020 and 2018,2019, we awarded 628,730730,319 and 529,725628,730 RSUs, respectively, with an estimated grant-date fair value of $23.0$25.8 million and $24.8$23.0 million, respectively. The RSU awards will vest ratably over 3 years. RSU activity for the six months ended June 30, 20192020 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 Shares | | Weighted-Average Grant-Date Fair Value |
| (in thousands, except weighted-average fair value prices) | |
| Unvested RSUs outstanding at December 31, 2018 | 1,087 |
| | $ | 42.04 |
|
| RSUs granted | 629 |
| | $ | 36.50 |
|
| RSUs vested | (513 | ) | | $ | 40.36 |
|
| RSUs forfeited | (61 | ) | | $ | 40.15 |
|
| Unvested RSUs outstanding at June 30, 2019 | 1,142 |
| | $ | 39.85 |
|
As of June 30, 2019,2020, there was $32.5$34.1 million of total unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 2.11.8 years. The fair value of RSUsRSU awards are based on the market value of our common stock on the date of grant.
Performance-Based Restricted Stock Units
For the six months ended June 30, 20192020 and 2018,2019, we awarded 203,464296,244 and 327,018203,464 PBRSUs, respectively, with an estimated grant-date fair value of $7.5$11.1 million and $15.1$7.5 million, respectively. These awards are generally subject to service-based, performance-based, and market-based vesting conditions. The service and performance period for the 20192020 grants is from January 20192020 to December 20212022 and the performance metric is adjusted earnings per share.
The performance and service period for the PBRSUs awarded during 2018in the first quarter of 2019 is from January 20182019 to December 20202021. These awards are generally subject to service-based, performance-based, and market-based vesting conditions with the performance metrics are generallymetric as adjusted earnings per share and market-based conditions. Theseshare. Additionally, within our unvested PBRSUs, there are prior year grants include 232,225 PBRSUs thatwhich do not include a market-based conditionconditions but have adjusted EBITDA margin or operatingorganic revenue growth rate as the performance metric through the service period ending December 2020 or December 2021.metric.
The fair values of the 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 Six Months Ended June 30, |
| | 2019 | | 2018 |
| Expected dividend yield | — | % | | — | % |
Risk-free interest rate (1) | 2.44 | % | | 2.38 | % |
Expected volatility (2) | 28.24 | % | | 23.63 | % |
Average total stockholder return (2) | 17.15 | % | | 6.11 | % |
| | | | |
(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 six months ended June 30, 20192020 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 Shares | | Weighted-Average Grant-Date Fair Value |
| (in thousands, except weighted-average fair value prices) | |
| Unvested PBRSUs outstanding at December 31, 2018 | 774 |
| | $ | 42.11 |
|
| PBRSUs granted | 203 |
| | $ | 36.82 |
|
| PBRSUs vested | (250 | ) | | $ | 34.40 |
|
| PBRSUs forfeited | (100 | ) | | $ | 45.07 |
|
| Unvested PBRSUs outstanding at June 30, 2019 | 627 |
| | $ | 42.68 |
|
As of June 30, 2019,2020, there was $18.5$21.4 million of total unrecognized compensation cost related to unvested PBRSUs that is expected to be recognized over a weighted-average period of 2.01.9 years. The fair value of PBRSUsPBRSU 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 six months ended June 30, 20192020 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, 2018 | 570 |
| | $ | 20.17 |
| | | | |
| Options exercised | (70 | ) | | $ | 25.24 |
| | | | |
| Options vested, exercisable, and outstanding at June 30, 2019 | 500 |
| | $ | 19.46 |
| | 2.8 | | $ | 11,175 |
|
As of June 30, 2019,2020, there was no0 unrecognized compensation cost related to unvested stock options.
The intrinsic value of options exercised was $1.1$1.2 million and $13.6$1.1 million for the six months ended June 30, 20192020 and 2018,2019, 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 share-based compensation expense recognized for the three and six months ended June 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 Six Months Ended |
| | June 30, | | June 30, |
| (in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
| RSUs | $ | 5,612 |
| | $ | 7,238 |
| | $ | 12,924 |
| | $ | 14,633 |
|
| PBRSUs | 1,744 |
| | 3,445 |
| | 3,658 |
| | 4,159 |
|
| Stock options | — |
| | — |
| | — |
| | — |
|
| Employee stock purchase plan | 507 |
| | 439 |
| | 1,173 |
| | 1,007 |
|
| | $ | 7,863 |
| | $ | 11,122 |
| | $ | 17,755 |
| | $ | 19,799 |
|
The table above includes $0.6$0.8 million and $1.2$0.6 million of share-based compensation expense within cost of services in the accompanying condensed consolidated statements of operations for the three months ended June 30, 20192020 and 2018,2019, respectively, and $1.4$1.5 million and $3.4$1.4 million for the six months ended June 30, 20192020 and 2018,2019, respectively.
Note 109 – Litigation and Regulatory Contingencies
We have been named in various lawsuits and we mayare from time to time be subject to audit or investigation by governmental agencies. Currently, governmental agencies are auditing or investigating certainarising in the ordinary course of our operations.business.
With respect to matters where we have determineddetermine that a loss is both probable and reasonably estimable, we have recordedrecord a liability representing our best estimate of the financial exposure based on known facts. For matters where a settlement has been reached, we have recordedrecord 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"(“RPS”) was named as a defendant in Claudinne Feliciano, et. al., v. CoreLogic SafeRent, LLC, a putative class action lawsuit in the U.S.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. We have deniedIn July 2019, the claims and are defendingDistrict Court issued an order certifying a class of approximately 2,000 consumers. In June 2020, we reached an agreement to resolve the case, vigorously.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,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, (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 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, 2019, no2020, 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 our predecessor, The First American Corporation's ("FAC")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 1110 – Income Taxes
In May 2019, the statute of limitations expired for our principal state jurisdictions in relation to the prior closure of our 2005-2009 IRS exam which resulted in a discrete tax benefit for the reversal of state tax reserves in the amount of $15.3 million. These reversals largely offset a concurrent write-off of a related FAFC pre-tax indemnification receivable.
The effective income tax rate for income taxes as a percentage of income/(loss)/income 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% and a provision of 23.7% for the three months ended June 30, 2020 and 2019, respectively, and 2018, respectively,a provision of 27.5% and a benefit of 79.1% and a provision of 16.5% for the six months ended June 30, 20192020 and 2018,2019, respectively.
For the three and six months ended June 30, 2019,2020, when compared to 2018,the same periods for 2019, the change in the effective income tax rate was primarily due to the aforementioned $15.3 milliona 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, by the US Internal Revenue Service ("IRS"), our primary taxing jurisdiction,authority, and for other years by various stateother taxing authorities. It is reasonably possible the amount of the unrecognized benefits, as well as the valuation allowance with respect to certain unrecognized tax positionsattributes, could be significantly increase or decrease within the next twelve months andimpacted which would have an impact on net income. Currently,In the next 12 months we expect expiration of statutes of limitations within the next twelve months, for which we have taxon reserves recorded of approximately $1.0$1.3 million asand the release of June 30, 2019.reserves and allowances of approximately $17 million to $20 million upon the conclusion of the IRS examination for years 2010 through 2012.
Note 1211 – Earnings Per Share
The following is a reconciliation of net (loss)/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) | |
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 30, | | June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| (in thousands, except per share amounts) | | | | | | | |
| Numerator for basic and diluted net (loss)/income per share: | | | | | | | |
| Net (loss)/income from continuing operations | $ | (5,524 | ) | | $ | 58,532 |
| | $ | (3,791 | ) | | $ | 86,894 |
|
| Loss from discontinued operations, net of tax | (48 | ) | | (16 | ) | | (94 | ) | | (91 | ) |
| Net (loss)/income | $ | (5,572 | ) | | $ | 58,516 |
| | $ | (3,885 | ) | | $ | 86,803 |
|
| Denominator: | |
| | |
| | |
| | |
|
| Weighted-average shares for basic (loss)/income per share | 80,473 |
| | 81,284 |
| | 80,326 |
| | 81,269 |
|
| Dilutive effect of stock options and restricted stock units | — |
| | 1,156 |
| | — |
| | 1,416 |
|
| Weighted-average shares for diluted (loss)/income per share | 80,473 |
| | 82,440 |
| | 80,326 |
| | 82,685 |
|
| (Loss)/Income per share | |
| | |
| | |
| | |
|
| Basic: | |
| | |
| | |
| | |
|
| Net (loss)/income from continuing operations | $ | (0.07 | ) | | $ | 0.72 |
| | $ | (0.05 | ) | | $ | 1.07 |
|
| Loss from discontinued operations, net of tax | — |
| | — |
| | — |
| | — |
|
| Net (loss)/income | $ | (0.07 | ) | | $ | 0.72 |
| | $ | (0.05 | ) | | $ | 1.07 |
|
| Diluted: | |
| | | | | | |
| Net (loss)/income from continuing operations | $ | (0.07 | ) | | $ | 0.71 |
| | $ | (0.05 | ) | | $ | 1.05 |
|
| Loss from discontinued operations, net of tax | — |
| | — |
| | — |
| | — |
|
| Net (loss)/income | $ | (0.07 | ) | | $ | 0.71 |
| | $ | (0.05 | ) | | $ | 1.05 |
|
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. For both the three and six months ended June 30, 2018, respectively, an aggregate of less than 0.1 million of RSUs and PBRSUs, were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect.
Note 1312 – Acquisitions
In December 2018,January 2020, we acquired the remaining 72.0%66% of Symbility Solutions Inc. ("Symbility")Location for C$107.1 million, or approximately $80.0$11.5 million, subject to certain working capital adjustments. SymbilityLocation is a leading global provider of cloud-based property claims workflow solutionsgeographic location indicators for the propertycrime and casualty insurance industry, headquartered in Canada.non-weather related events connected to underwriting risk assessment. This acquisition further progresses our long-term strategic plan by adding scale to our insurance and spatial businesses and international presence. Symbilitybusinesses. Location is included as a component of our Property 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 $14.9proprietary technology of $6.0 million in proprietary technologywith 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, client listsnon-compete agreements of $6.4$0.4 million with an estimated useful life of 125 years, trademarks of $1.2 million with an estimated useful life of 4 years, $5.3 million of deferred tax liabilities, and goodwill of $75.6$12.6 million. In connection with this acquisition, we remeasured our existing 28.0% investment ownership in Symbility which resulted in a $13.3 million step-up gain that we recorded within (loss)/gain on investments and other, net in our consolidated statement of operations in the fourth quarter of 2018. For the six months ended June 30, 2019,2020, goodwill decreasedincreased by $0.2$0.3 million as a result 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 statement of operations for the six months ended June 30, 2020.
In December 2018,August 2019, we completed the acquisition of Breakaway Holdings,National Tax Search LLC d.b.a Homevisit ("HomeVisit"NTS") for $12.7$15.0 million, subject to certain working capital adjustments. HomeVisitadjustments, and up to $7.5 million to be paid in cash by 2022, contingent upon the achievement of certain revenue targets in fiscal years 2020 and 2021 (see Note 6 - Fair Value for further details). NTS is a leading provider of marketing focused real estate solutions, includingcommercial property listing photography, videography, 3D modeling, drone imagerytax payment services and specializes in identifying potential collateral loss related services. Given anticipated synergy with our pre-existing real estate solutions platforms, thisto unpaid property tax, homeowners association fees, and inaccurate flood zone determinations. The NTS acquisition increases the Company's commercial property information offerings and is expected to enabledrive future growth in the next generation of property marketing solutions for real estate professionals, multiple listing services ("MLSs"), brokers and agents across North America. HomeVisitUS. NTS is included as a component of our PIRMUWS 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 $1.4client lists of $5.0 million forwith an estimated useful life of 10 years, proprietary technology of $3.3 million with an estimated useful life of 7 years, trademarks of $1.0 million with an estimated useful life of 7 years, non-compete agreements of $0.3 million with an estimated useful life of 5 years, client listscontract liabilities of $0.9$2.5 million, with an estimated useful life of 11 years, trademarks of $0.2 million with an estimated useful life of 2.5 years, and goodwill of $10.3$5.5 million, all of which is deductible for tax purposes. For the six months ended June 30, 2019,2020, goodwill increased by less than $0.1 million as a result of a change in the purchase price allocation for certain working capital adjustments.
In April 2018, we completed the acquisition of a la mode technologies, LLC ("a la mode") for $120.0 million, exclusive of working capital adjustments. a la mode is a provider of subscription-based software solutions that facilitate the aggregation of data, imagery and photographs in a government-sponsored enterprise compliant format for the completion of US residential appraisals. This acquisition contributes to our continual development and scaling of our end-to-end valuation solutions workflow suite, which includes data and market insights, analytics as well as data-enabled services and platforms. a la mode is included as a component of our UWS 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 recorded contract liabilities of $7.5 million, proprietary technology of $15.8 million with an estimated useful life of 7 years, customer lists of $32.5 million with an estimated average useful life of 13 years, tradenames of $9.0 million with an estimated useful life of 8 years, non-compete agreements of $5.7 million with an estimated useful life of 5 years, and goodwill of $63.6 million, of which $61.4 million is deductible for tax purposes.
In February 2018, we completed the acquisition of eTech Solutions Limited ("eTech") for cash of approximately £15.0 million, or approximately $21.0 million, exclusive of working capital adjustments. eTech is a leading provider of innovative mobile surveying and workflow management software that enhances productivity and mitigates risk for participants in the United Kingdom ("UK") valuation market. This acquisition expands our UK presence and strengthens our technology platform offerings. eTech is included as a component of our PIRM 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 recorded a deferred tax liability of $1.6 million, proprietary technology of $7.0 million with an estimated useful life of 5 years, customer lists of $1.7 million with an estimated average useful life of 9 years, and goodwill of $14.1 million.
These business combinations did not have a material impact on our condensed consolidated statements of operations.
There were 0 acquisition-related costs within selling, general and administrative expenses on our condensed consolidated statement of operations for the three months ended June 30, 2020 and $0.1 million for 2019; additionally, we had $0.9 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively.
Note 1413 – Segment Information
We have organized into two2 reportable segments: PIRM and UWS.
Property Intelligence & Risk Management Solutions. Our PIRM segment combines property information, mortgage information, and consumer information to deliver unique housing market and property-level insights, predictive analytics and risk management capabilities. We have also developed proprietary technology and software platforms to access, automate, orand track this information and assist our clients with decision-making and compliance 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 hosted software platforms, or in bulk data form. Our PIRM solutions include property insights and insurance and spatial 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, MLS companies, property and casualty insurance companies, title insurance companies, government agencies, and government-sponsored enterprises.
The operating results of our PIRM segment included intercompany revenues of $2.2$3.7 million and $1.7$2.2 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $4.0$7.7 million and $3.2$4.0 million for the six months ended June 30, 20192020 and 2018,2019, respectively. The segment also included intercompany expenses of $1.0$0.6 million and $0.8$1.0 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $1.8$1.4 million and $1.6$1.8 million for the six months ended June 30, 2020 and 2019, and 2018, respectively
Underwriting & Workflow Solutions. Our UWS segment combines property, information, mortgage, information and consumer information to provide comprehensive mortgage origination and monitoring solutions, including, underwriting-related solutions, and data-enabled valuations and appraisals. We have also developed proprietary technology and software platforms to access, automate, orand track this information, and assist our clients with vetting and onboarding prospects, meeting compliance regulations and understanding, diagnosingevaluating, and monitoring property values. Our UWS solutions include property tax solutions, valuation solutions, credit solutions, and flood servicesdata 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 UWS segment included intercompany revenues of $1.0$0.6 million and $0.8$1.0 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $1.8$1.3 million and $1.6$1.8 million for the six months ended June 30, 20192020 and 2018,2019 respectively. The segment also included intercompany expenses of $2.2$1.8 million and $1.7$2.2 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $4.0$3.6 million and $3.2$4.0 million for the six months ended June 30, 20192020 and 2018,2019, 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 earnings/(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.
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) | | 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, 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 Three Months Ended June 30, 2018 | | |
| | |
| | | | | | |
| | |
|
| PIRM | | $ | 182,655 |
| | $ | 25,463 |
| | $ | 28,974 |
| | $ | 3,740 |
| | $ | 32,295 |
| | $ | 13,917 |
|
| UWS | | 308,226 |
| | 16,483 |
| | 85,897 |
| | (10 | ) | | 85,868 |
| | 2,386 |
|
| Corporate | | — |
| | 5,401 |
| | (25,234 | ) | | (893 | ) | | (59,631 | ) | | 4,180 |
|
| Eliminations | | (2,480 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Consolidated (excluding discontinued operations) | | $ | 488,401 |
| | $ | 47,347 |
| | $ | 89,637 |
| | $ | 2,837 |
| | $ | 58,532 |
| | $ | 20,483 |
|
| | | | | | | | | | | | | |
| 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 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| For the Six Months Ended June 30, 2018 | | |
| | |
| |
|
| |
|
| | |
| | |
|
| PIRM | | $ | 356,422 |
| | $ | 51,198 |
| | $ | 49,752 |
| | $ | 4,011 |
| | $ | 52,966 |
| | $ | 27,123 |
|
| UWS | | 581,645 |
| | 31,447 |
| | 133,950 |
| | 8 |
| | 133,622 |
| | 4,699 |
|
| Corporate | | — |
| | 10,842 |
| | (49,646 | ) | | (949 | ) | | (99,694 | ) | | 8,145 |
|
| Eliminations | | (4,766 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Consolidated (excluding discontinued operations) | | $ | 933,301 |
| | $ | 93,487 |
| | $ | 134,056 |
| | $ | 3,070 |
| | $ | 86,894 |
| | $ | 39,967 |
|
|
| | | | | | | | |
| (in thousands) | | | | |
| Assets | | June 30, 2019 | | December 31, 2018 |
| PIRM | | $ | 1,947,601 |
| | $ | 1,953,732 |
|
| UWS | | 2,162,222 |
| | 2,200,292 |
|
| Corporate | | 6,021,103 |
| | 5,995,787 |
|
| Eliminations | | (5,981,051 | ) | | (5,981,450 | ) |
| Consolidated (excluding discontinued operations) | | $ | 4,149,875 |
| | $ | 4,168,361 |
|
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.
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 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;
•difficult or uncertain conditions in the mortgage and consumer lending industries and the economy generally;
•reliance on our top 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 the outsourcing of services and international operations;
•our ability to realize the anticipated benefits of certain acquisitions and the timing thereof;
our cost-reduction program and growth strategies, and •our ability to effectively and efficiently implement them;operate in international markets;
•our ability to protect proprietary technology rights and 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;
•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 SEC.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 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 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 900 million historical property transactions, over 100 million mortgage applications andstructured property-specific data covering approximatelyconsisting of over 150 million parcel records covers 99% of USthe 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 150 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, other geospatial data analytics, and related services.
Reportable Segments
We have organized into the following two reportable segments:
Our Property Intelligence & Risk Management ("PIRM"(“PIRM”) segment combines property information, mortgage information, and consumer information to deliver unique housing market and property-level insights, predictive analytics and risk 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 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 hosted software platforms or in bulk data form. Our solutions include property insights andas well as insurance and spatial solutions in North America, Western Europe and Asia Pacific.
Our Underwriting & Workflow Solutions ("UWS"(“UWS”) segment combines property information, mortgage information and consumer information to provide comprehensive mortgage origination and monitoring solutions, including underwriting-related solutions and 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 and understanding, diagnosing and monitoring property values. Our solutions include property tax solutions, valuation solutions, credit solutions and flood services in North America.
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 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 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 origination unit volumes were flat to modestly higherincreased by approximately 30% in the second quarter of 20192020 relative to the same period in 2018,2019, primarily due to a change in outlook for long-term interest rates which significantly lowered the 10 year US Treasury yield andhigher mortgage refinance volumes resulting from lower interest rates. As a result,For 2020, we now expect full-year 2019total mortgage unit volumes to be flatincrease by approximately 25% relative to modestly above 2018 levels.2019 levels, with 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 remain at elevated levels through at least 2022.
We generate the majority of our operating revenues from clients with operations in the US residential real estate, mortgage origination, and mortgage servicing markets. Approximately 30%34% and 32%30% of our operating revenues for the three months ended June 30, 20192020 and 2018,2019, respectively, were generated from our top ten clients, who consist of the largest US mortgage originators and servicers. None of our clients individually accounted for greater than 10% of our operating revenues for the three months ended June 30, 2019 nor 2018.2020 or 2019. Approximately 29%32% and 33%29% of our operating revenues for the six months ended June 30, 20192020 and 2018,2019, respectively, were generated from our top ten clients with noneclients. None of our clients individually accountingaccounted for greater than 10% of our operating revenues during the period.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 20192020 unfavorably impacted the translation of the financial results translation of our international operating revenues by $5.7 million.$2.0 million and $4.5 million for the three and six months ended June 30, 2020, respectively.
Capital Return
In July 2020, our Board of Directors authorized the repurchase up to $1.0 billion of outstanding shares of our common 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 end of 2022, inclusive of at least $500.0 million of shares in 2020.
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 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 theour intent to exit a loan origination software unit and ourits remaining legacy default management related platforms, as well as accelerate ouran appraisal management company ("AMC") transformation program. We believe these actions will expandhave expanded our overall profit margins and provide for enhanced long-term organic growth trends. DuringIn September 2019, we 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 aforementioned business exits and AMC transformation were $27.9 million and $48.7 million for three and six months ended June 30, 2019,2020, respectively.
Unsolicited Proposal
On June 26, 2020, we incurred non-cash impairment chargesreceived 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 $47.8 millionDirectors, in consultation with its independent financial and severance expenselegal 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 $5.8 million.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.
Productivity and Cost Management
In line with our on-going commitment to operational excellence and margin expansion, we are targetingFor a cost reductionfurther discussion of approximately $20 million in 2019. Savings are expected to be realized through the reduction of operating costs, selling, general and administrative costs, outsourcing certain business process functions, consolidation of facilitiesrisks, uncertainties and other operational improvements.factors that could impact our operating results, see the section entitled “Risk Factors” in Item 1A of Part 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 quarter ended March 31, 2020 and in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
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 June 30, 20192020 Compared to the Three Months Ended June 30, 20182019
Operating Revenues
Our consolidated operating revenues were $459.5$477.5 million for the three months ended June 30, 2019, a decrease2020, an increase of $28.9$17.9 million, or 5.9%,3.9% when compared to 2018,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) | 2019 | | 2018 | | $ Change | | % Change |
| PIRM | $ | 183,717 |
| | $ | 182,655 |
| | $ | 1,062 |
| | 0.6 | % |
| UWS | 279,017 |
| | 308,226 |
| | (29,209 | ) | | (9.5 | ) |
| Corporate and eliminations | (3,196 | ) | | (2,480 | ) | | (716 | ) | | 28.9 |
|
| Operating revenues | $ | 459,538 |
| | $ | 488,401 |
| | $ | (28,863 | ) | | (5.9 | )% |
Our PIRM segment operating revenues increaseddecreased by $1.1$7.1 million, or 0.6%3.9%, for the three months ended June 30, 2020, when compared to 2018.2019. Excluding acquisition activity of $11.3$0.9 million, operating revenues decreased $10.2 million due to lower property insights revenues of $7.1 million and lower insurance and spatial solutions revenues of $0.7$8.0 million primarily due to lower volumes. Propertythe impact of COVID-19 totaling $9.5 million across our solution groups. Additionally, included within our property insights was also impacted byrevenues is unfavorable foreign exchange of $2.6$2.0 million. Other revenues decreasedThe decrease was offset by $2.4 million.higher market volumes and market share gains of $3.5 million primarily within our property insights business.
Our UWS segment revenues decreasedincreased by $29.2$26.1 million, or 9.5%9.4%, for the three months ended June 30, 2020, when compared to 2018.2019. Excluding acquisition activity of $1.8 million, the decrease of $31.0operating revenues increased $24.4 million was driven by lowerdue to higher property tax solutions revenues of $25.0$31.7 million, primarily due to a prior year benefit of accelerated revenue recognition, and lowerhigher credit solutions of $7.2 million due to lower volumes. Additionally, we had lower other revenues of $5.1 million driven by the wind-down of our non-core mortgage and default technology related platforms. These were offset by higher valuation solutions revenue of $3.6$10.8 million, and higher flood data servicessolutions revenues of $8.4 million primarily related to increased volumes. These increases were partially offset by lower valuation solutions revenue of $2.7$24.2 million due to higher mortgage market volumesthe impacts of our AMC transformation program, and market share gains.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 reflected a total adverse impact of $5.6 million related to 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 $227.2$214.5 million for the three months ended June 30, 2019,2020, a decrease of $12.1$12.7 million, or 5.1%5.6%, when compared to 2018.2019. Excluding acquisition activity of $5.9$1.7 million, the decrease of $18.0$14.5 million was primarily due to lower operating revenues.favorable product mix.
Selling, General and Administrative Expenses
Our consolidated selling, general and administrative expenses were $122.8was $124.1 million for the three months ended June 30, 2019,2020, an increase of $10.8$1.3 million, or 9.6%1.0%, when compared to 2018.2019. Excluding acquisition activity of $6.3$1.0 million, the increase of $4.5$0.3 million was primarily due to higher productivity-related investmentscompensation costs of $7.6$4.6 million and higher severance expenseother expenses of $4.1$1.8 million, partially offset by lower outsourced servicestravel costs of $5.1$3.9 million and personnel-related savingslower professional fees of $2.1$2.2 million.
Depreciation and Amortization
Our consolidated depreciation and amortization expense was $47.1$46.7 million for the three months ended June 30, 2019,2020, a decrease of $0.2$0.4 million, or 0.5%0.9%, when compared to 2018.2019. Excluding acquisition activity of $1.3$0.5 million, the decrease of $1.5$0.9 million was primarily due to assets that were fully impaired during the current quarter.prior year.
Impairment Loss
Our consolidated impairment loss totaled $47.8was $1.2 million for the three months ended June 30, 2020, a decrease of $46.6 million, or 97.4%, when compared to 2019, representingprimarily due to prior year write-offs of clientclients lists of $32.3 million, software of $12.2$12.3 million, and licenses of $3.3 million related to ongoing businessthe transformation activities of our AMC business, within our UWS segment.offset by current year impairment charges related to software.
Operating Income
Our consolidated operating income was $14.6$91.0 million for the three months ended June 30, 2019, a decrease2020, an increase of $75.0$76.4 million, or 83.7%523.6%, when compared to 2018,2019, 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) | | 2019 | | 2018 | | $ Change | | % Change |
| PIRM | | $ | 23,026 |
| | $ | 28,974 |
| | $ | (5,948 | ) | | (20.5 | )% |
| UWS | | 19,779 |
| | 85,897 |
| | (66,118 | ) | | (77.0 | ) |
| Corporate and eliminations | | (28,215 | ) | | (25,234 | ) | | (2,981 | ) | | 11.8 |
|
| Operating income | | $ | 14,590 |
| | $ | 89,637 |
| | $ | (75,047 | ) | | (83.7 | )% |
Our PIRM segment operating income decreasedincreased by $5.9$7.1 million, or 20.5%31.0%, for the three months ended June 30, 2020 when compared to 2018. Acquisition activity lowered operating income by $0.4 million in 2019 primarily due to the amortization of acquisition-related intangible assets.2019. Excluding acquisition activity of $0.4$0.1 million operating income decreasedincreased by $5.5$7.3 million and margins decreasedincreased by 225470 basis points, primarily due to lower operating revenues and unfavorable foreign exchange, partially offset by the impact of our ongoing operational efficiency programs.
Our UWS segment operating income decreasedincreased by $66.1$76.6 million, or 77.0%387.2%, for the three months ended June 30, 2020 when compared to 2018.2019. Excluding acquisition activity of $0.9$0.6 million, operating income decreasedincreased by $67.0$77.2 million and margins increased by 2,480 basis points, primarily impacteddriven by anlower impairment loss, of $47.8 million, lowerhigher revenues, favorable product mix, and higher severance charges related to ongoing business transformation activities of our AMC business, partially offset by the impact of our ongoing operational efficiency programs.
Corporate and eliminations had an unfavorable variance of $3.0$7.3 million, or 11.8%26.0%, for the three months ended June 30, 2020 when compared to 20182019, primarily due to higher investments in data and technology capabilities.compensation costs.
Total Interest Expense, net
Our consolidated total interest expense, net was $19.2$17.6 million for the three months ended June 30, 2019, an increase2020, a decrease of $0.4$1.5 million, or 2.2%8.0%, when compared to 2018.2019. The increasedecrease was primarily due to higherlower interest rates as well as lower average outstanding balances and interest rates.principal balances.
Gain/(Loss)/Gain on Investments and Other, net
Our consolidated lossgain on investments and other, net was $2.9$7.1 million for the three months ended June 30, 2019, an unfavorable2020, a favorable variance of $5.0$10.0 million or 347.4%, when compared to 2018.2019. The unfavorable 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 loss of $4.3 million related to a fair value adjustmentnon-cash impairment charge on an equity method investment and a write-off ofprior year $1.5 million loss of unamortized debt issuance costscost write-offs due to financing activities in May 2019, and a prior year gain of $1.5 million on our contingent consideration agreements. This was partially offset by gains in the current year on our contingent consideration agreements of $0.6 million, a gain of $1.4 million from a favorable contingent payout on a prior year investment, and other gains of $0.3 million.activities.
Tax Indemnification Release
DuringIn the second quarter of 2019,prior year, we recorded a $13.4 million loss related to the release of a tax indemnification receivable due to the expiration of the statutes of limitations in our principal state jurisdictions. Associated state tax reserves of $15.3 million were also released and recognized, in the prior year, as income tax benefit through the provision for income taxes.
Provision/(Benefit)/Provision for Income Taxes
Our consolidated benefitprovision/(benefit) for income taxes from continuing operations before equity in earnings/(losses) of affiliates and income taxes was $15.0 million compared to an income taxa provision of $17.3$21.8 million and a benefit of $15.0 million for the three months ended June 30, 20192020 and 2018,2019, respectively. The effective tax rate was a27.2% on our provision and 72.0% on our benefit of 72.0% and a provision of 23.7%for income taxes for the three months ended June 30, 20192020 and 2018,2019, respectively. The change in the effective income tax rate was primarily due to the nonrecurring benefit recorded in 2019 related to the reversal of state tax reserves in the amount of $15.3 million in the second quarter of 2019.reserves.
Equity in Earnings/(Losses) of Affiliates, net of tax
Our consolidated equity in earnings of affiliates, net of tax was $0.3$0.4 million for the three months ended June 30, 2019, an unfavorable2020, a favorable variance of $2.5$0.1 million when compared to 2018. The decrease was primarily related2019. We have equity interests in various affiliates which had higher earnings in the current period compared to the acquisitionprior year period.
Consolidated Results of Symbility Solutions Inc. ("Symbility") in December 2018 which had previously been an equity method investment.
Six Months Ended June 30, 20192020 Compared to Six Months Ended June 30, 20182019
Operating Revenues
Our consolidated operating revenues were $0.9 billion$921.3 million for the six months ended June 30, 2019, a decrease2020, an increase of $56.1$44.1 million, or 6.0%5.0%, when compared to 2018,2019, 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) | 2019 | | 2018 | | $ Change | | % Change |
| PIRM | $ | 359,525 |
| | $ | 356,422 |
| | $ | 3,103 |
| | 0.9 | % |
| UWS | 523,535 |
| | 581,645 |
| | (58,110 | ) | | (10.0 | ) |
| Corporate and eliminations | (5,814 | ) | | (4,766 | ) | | (1,048 | ) | | 22.0 |
|
| Operating revenues | $ | 877,246 |
| | $ | 933,301 |
| | $ | (56,055 | ) | | (6.0 | )% |
Our PIRM segment revenues increaseddecreased by $3.1$9.9 million, or 0.9%2.7%, for the six months ended June 30, 2020, when compared to 2018.2019. Excluding acquisition activity of $25.6$1.5 million, the decrease of $22.5 million was primarily due to lower property insight revenues of $18.1 million and lower insurance and spatial solutions revenues of $0.8$11.4 million primarily due to lower volumes. Property insights was also impacted by the impact of COVID-19 totaling $10.9 million across our solution groups. Additionally, included within our property insights revenues is unfavorable foreign exchange translation of $5.7$4.5 million. Other revenues decreased by $3.6 million.
Our UWS segment revenues decreased by $58.1 million, or 10.0%, when compared to 2018. Excluding acquisition activity of $7.4 million, the decrease of $65.5 million was primarily due to lower property tax solutions of $28.3 million primarily driven by a prior year benefit of accelerated revenue recognition, lower credit solutions of $20.9 million and lower valuation solutions of $8.2 million mainly driven by lower mortgage market volumes. Additionally, we had lower other revenues of $10.8 million driven by the wind-down of our non-core mortgage and default technology related platforms. 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 servicessolutions revenues of $2.7$19.0 million primarily related to increased volumes. These increases were partially offset by lower valuation solutions revenue of $29.3 million due to increased market share gains.the impacts of our AMC transformation program, and lower other revenues of $5.6 million. Operating revenues attributable to the aforementioned business exits and AMC transformation were $48.7 million for the six months ended June 30, 2019. Additionally, the UWS segment revenues reflected a total adverse impact of $10.0 million related to 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 $446.3$430.1 million for the six months ended June 30, 2019,2020, a decrease of $32.5$16.2 million, or 6.8%3.6%, when compared to 2018.2019. Excluding acquisition activity of $13.9$3.3 million, the decrease of $46.4$19.5 million was primarily due to lower operating revenues.favorable product mix.
Selling, General and Administrative Expenses
Our consolidated selling, general and administrative expenses were $251.0$238.5 million for the six months ended June 30, 2019, an increase2020, a decrease of $24.0$12.6 million, or 10.6%5.0%, when compared to 2018.2019. Excluding acquisition activity of $14.5$1.8 million, the increasedecrease of $9.5$14.4 million was primarily due to higher productivity-related investmentslower compensation costs of $17.4$13.1 million, lower professional fees of $9.3 million and higher severance expenselower travel cost of $8.9$4.3 million, partially offset by lower outsourcedhigher external services and other of $11.5 million and personnel-related savings of $5.3$12.3 million.
Depreciation and Amortization
Our consolidated depreciation and amortization expense was $96.3$93.5 million for the six months ended June 30, 2019, an increase2020, a decrease of $2.8 million, or 3.0%2.9%, when compared to 2018.2019. Excluding acquisition activity of $4.3$1.0 million, the decrease of $1.5$3.8 million is primarily due to assets that were fully impaired during the currentprior year.
Impairment Loss
Our consolidated impairment loss totaled $47.8was $1.2 million for the six months ended June 30, 2020, a decrease of $46.6 million, or 97.4%, when compared to 2019, representingprimarily due to prior year write-offs of clientclients lists of $32.3 million, software of $12.2$12.3 million, and licenses of $3.3 million related to ongoing businessthe transformation activities of our AMC business, within our UWS segment.offset by current year impairment charges related to software.
Operating Income
Our consolidated operating income was $35.8$158.1 million for the six months ended June 30, 2019, a decrease2020, an increase of $98.3$122.3 million, or 73.3%341.6%, when compared to 2018,2019, 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) | | 2019 | | 2018 | | $ Change | | % Change |
| PIRM | | $ | 37,378 |
| | $ | 49,752 |
| | $ | (12,374 | ) | | (24.9 | )% |
| UWS | | 65,631 |
| | 133,950 |
| | (68,319 | ) | | (51.0 | ) |
| Corporate and eliminations | | (67,215 | ) | | (49,646 | ) | | (17,569 | ) | | 35.4 |
|
| Operating income | | $ | 35,794 |
| | $ | 134,056 |
| | $ | (98,262 | ) | | (73.3 | )% |
Our PIRM segment operating income decreasedincreased by $12.4$11.1 million, or 24.9%29.7%, for the six months ended June 30, 2020, when compared to 2018. Acquisition activity lowered operating income by $0.4 million in 2019 primarily due to the amortization of acquisition-related intangible assets.2019. Excluding acquisition activity of $0.5 million, operating income decreasedincreased by $12.0$11.6 million and margins decreasedincreased by 257370 basis points primarily due to lower operating revenuesfavorable product mix and unfavorable foreign exchange, partially offset by the impact of our ongoing operational efficiency programs.
Our UWS segment operating income decreasedincreased by $68.3$106.3 million, or 51.0%162.0%, for the six months ended June 30, 2020, when compared to 2018.2019. Excluding acquisition activity of $0.6$0.9 million, operating income decreasedincreased by $68.9$107.3 million and margins increased by 1,740 basis points, primarily impacted by anlower impairment loss, of $47.8 million, lowerhigher revenues, improved product mix, and higher severance charges related to ongoing business transformation activities of our AMC business, partially offset by the impact of our ongoing operational efficiency programs.
Corporate and eliminations had an unfavorablea favorable variance of $17.6$4.8 million, or 35.4%7.2%, for the six months ended June 30, 2020, primarily due to higherlower investments in data and technology capabilities and higher severance.as well as lower compensation costs.
Total Interest Expense, net
Our consolidated total interest expense, net, was $37.9$35.4 million for the six months ended June 30, 2019, an increase2020, a decrease of $2.0$2.5 million, or 5.5%6.6%, when compared to 2018.2019. The increasedecrease was primarily due to higherlower interest rates as well as lower average outstanding balancesprincipal balances.
Gain/(Loss) on Investments and interest rates.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 losses of $4.6 million related to supplemental benefit plans.
Tax Indemnification Release
DuringIn the second quarter of 2019,prior year, we recorded a $13.4 million loss related to the release of a tax indemnification receivable due to the expiration of the statutes of limitations in our principal state jurisdictions. Associated state tax reserves of $15.3 million were also released and recognized, in the prior year, as income tax benefit through the provision for income taxes.
(Loss)/Gain on Investments and Other, net
Our consolidated loss on investments and other, net was $2.2 million for the six months ended June 30, 2019, an unfavorable variance of $4.4 million, or 193.9%, when compared to 2018. The unfavorable variance was primarily due to a loss of $6.6 million related to a fair value adjustment on an equity investment, a write-off of $1.5 million of unamortized debt issuance costs due to financing activities in May 2019, and a prior year gain of $1.1 million on our contingent consideration agreements. These were partially offset by higher realized gains related to our deferred compensation plan trust of $2.7 million, a gain of $1.4 million from a contingent payout on a prior year investment, and other gains of $0.7 million.
Provision/(Benefit)/Provision for Income Taxes
Our consolidated benefitprovision/(benefit) for income taxes from continuing operations before equity in earnings/(losses) of affiliates and income taxes was $14.0 million compared to an income taxa provision of $16.6$34.8 million and a benefit of $14.0 million for the six months ended June 30, 20192020 and 2018,2019, respectively. The effective tax rate was a27.5% on our provision and 79.1% on our benefit of 79.1% and a provision of 16.5%for income taxes for the six months ended June 30, 20192020 and 2018,2019, respectively. The change in the effective income tax rate was primarily due to the nonrecurring benefit recorded in 2019 related to the reversal of state tax reserves in the amount of $15.3 million in the second quarter of 2019.reserves.
Equity in Earnings/(Losses) of Affiliates, net of tax
Our consolidated equity in lossesearnings of affiliates, net of tax was $0.1 million$0.9 for the six months ended June 30, 2019, an unfavorable2020, a favorable variance of $3.2 million, or 103.5%$1.0 when compared to 2018. The decrease was primarily related to a decrease of $2.5 million due to the acquisition of Symbility2019. We have equity interests in December 2018various affiliates which had previously been an equity method investment, and higher losses on our other equity method investmentsearnings in the current period.
period compared to prior year.
Liquidity and Capital Resources
Cash and cash equivalents as of June 30, 20192020 totaled $82.0$137.3 million, a decreasean increase of $3.2$32.1 million from December 31, 2018.2019. As of June 30, 2019,2020, our cash balances held in foreign jurisdictions totaled $41.5$56.2 million and are primarily related to our international operations. We plan to maintain significant cash balances outside of the US for the foreseeable future.
Restricted cash of $13.7$9.9 million as of June 30, 20192020 and $13.0$10.5 million as of December 31, 20182019 is comprised of certificate of deposits that are pledged for various letters of credit/bank guarantees secured by us, escrow accounts due to 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 $120.6$243.1 million and $148.4$120.6 million for the six months ended June 30, 20192020 and 2018,2019, respectively. The decreaseincrease in cash provided by operating activities was primarily due to lower cash generatedhigher net income from decreased profitability,continuing operations, as adjusted for non-cash activities.activities, and favorable changes in working capital items.
Investing Activities. Total cash used in investing activities was approximately $60.8 million and $61.5 million and $179.8 millionduring the six months ended June 30, 20192020 and 2018,2019, respectively. The decrease in cash used 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 of $141.0 million, partially offset by higher investments in technology and innovation of $23.1$12.0 million.
Financing Activities. Total cash used in financing activities was approximately $149.4 million for the six months ended June 30, 2020, which was primarily comprised of dividends 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 of $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 repaymentsnet repayment of long-term debt of $1.8 billion, debt issuance costs of $9.6$29.3 million, sharesshare repurchases of $29.0 million, net outflows from share-based compensation-related transactions of $2.7 million, offset by proceeds from long-term debtand contingent consideration payments of $1.8 billion. Total cash used in financing activities was approximately $6.2 million for the six months ended June 30, 2018, which was primarily comprised of repayment of long-term debt of $68.9 million and share repurchases of $63.3 million, partially offset by share-based compensation-related transactions of $5.9 million and proceeds from long-term debt of $120.1$0.6 million.
Financing and Financing Capacity
TotalWe had total debt outstanding gross, was $1.8of $1.6 billion for both periods as of June 30, 20192020 and December 31, 2018, respectively.2019. Our significant debt instruments and borrowing capacity are described below.
Credit Agreement
In May 2019, we amended and restated our credit agreement (the "Credit Agreement"). The Credit Agreement provides for a $1.8 billion term loan facility (the "Term Facility"“Term Facility”), and a $750.0 million revolving credit facility (the "Revolving Facility"“Revolving Facility”). The Term Facility matures and the Revolving Facility expires in May 2024. The Revolving Facility includes a $100.0 million multi-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 Revolving Facility by up to $300.0 million in the aggregate; however, the lenders are not obligated to do so. As of June 30, 2019,2020, we had borrowing capacity under the Revolving Facility of $740.0$750.0 million and were in compliance with the financial and restrictive covenants of the Credit Agreement. See Note 5 - 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. Under 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. 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 debt as fixed rate.senior term debt.
As of June 30, 2019,2020, the Swaps have a combined remaining notional balance of $1.4$1.2 billion, a weighted average fixed interest rate of 2.00%2.34% (rates range from 1.03%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. Currently, we have scheduled notional amounts of between $1.4 billion andapproximately $1.2 billion through September 2020,2021, then $1.2$1.1 billion and $1.0 billion through August 2022, and $416.0$496.8 million and $400.0$465.0 million thereafter untilthrough December 2025. Approximate weighted average fixed interest rates for the aforementioned time intervalsperiods are 2.18%2.55%, 2.61%2.64%, and 2.95%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, market and orchallenges 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 quartersix months ended June 30, 2019,2020, we repurchased 0.70.2 million shares of our common stock for $29.0$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 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, 2018 and Note 1 – Basis for Condensed Consolidated Financial Statements, which is incorporated by reference in response2019. Management believes there have been no material changes to this item, for updates on our policies over lease accounting.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.
WeAs 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. Under the Swaps, we agree 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 are currently designed to have the effect of fixing the rate of interest on at least 50% of the principal balance of our debt as fixed rate. As of June 30, 2019, we had approximately $1.8 billion in gross long-term debt outstanding, predominately all of which was variable-interest-ratesenior term debt. As of June 30, 2019,2020, the combined remaining notional balance of the Swaps was $1.4 billion. 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 $1.0$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
Beginning January 1, 2019, we implemented the updated guidance on lease accounting. In connection with the adoption of this standard, we implemented changes to our disclosure controls, procedures related to lease accounting as well as the associated control activities within. These included the implementation of a lease management and accounting software, development of new policies based on the updated guidance, new training, ongoing contract review requirements and gathering of information provided for disclosures.
Other than the updates described above, there wereThere has been no other 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 six monthsquarter ended June 30, 20192020, 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 1 - Basis for Condensed Consolidated Financial Statements andNote 109 – Litigation and Regulatory Contingencies of our condensed consolidated financial statements, which is incorporated by reference in response to this item.
Item 1A. Risk Factors.
We have described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, the primary risks related to our business, and we may periodically update those risks for material developments. Those risks are not the only ones we 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.
There have been no material changes to We are including two supplemental risk factors below, which disclosures should be read in conjunction with the Risk Factorsrisk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
The 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 Board 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.
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 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 consequence thereof that may result in lost sales or other business arrangements and the loss of potential business opportunities, and make it more difficult to attract and retain qualified personnel and business partners. There is no assurance that any acquisition proposal will lead to any transaction. Actions that our Board of Directors has taken, and may take in the future, in response to any offer or other related actions by Senator and Cannae, including the 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 employees and may require us to incur significant costs. If determined adversely to us, these lawsuits could harm our business and have a material adverse effect on our results of operations. We also believe the future trading price of our common stock could be subject to wide price fluctuations based on uncertainty associated with the Unsolicited 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 common 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 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 two (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 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 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
During the quarter ended June 30, 2019,2020, 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
In October 2018, theour Board of Directors canceled all prior repurchase authorizations and established a new share repurchase authorization of up to $500.0 million. As of June 30, 2019,2020, we have $448.9had $382.0 million in value of shares of common stock (inclusive of commissions and fees) available to be repurchased under the 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 pursuant 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.
During the quarter ended June 30, 2019,2020, we repurchased 0.70.2 million shares of our common stock.stock in an open market purchase pursuant to the terms of our stock repurchase authorization.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Issuer Purchases of Equity Securities | | | | | | | |
| 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 |
| April 1 to April 30, 2020 | — | | | $ | — | | | — | | | $ | 388,858,603 | |
| May 1 to May 31, 2020 | 100,000 | | | $ | 44.69 | | | 100,000 | | | $ | 384,389,603 | |
| June 1 to June 30, 2020 | 50,000 | | | $ | 47.46 | | | 50,000 | | | $ | 382,017,157 | |
| Total | 150,000 | | | $ | — | | | 150,000 | | | |
| | | | | | | |
(1) Calculated inclusive of commissions.
|
| | | | | | | | | | | | | |
| | | | | | | | |
| Issuer Purchases of Equity Securities | | | | | | |
| 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 |
| April 1 to April 30, 2019 | 50,000 |
| | $ | 40.84 |
| | 50,000 |
| | $ | 475,922,717 |
|
| May 1 to May 31, 2019 | 270,000 |
| | $ | 40.65 |
| | 270,000 |
| | $ | 464,947,217 |
|
| June 1 to June 30, 2019 | 380,000 |
| | $ | 42.14 |
| | 380,000 |
| | $ | 448,934,432 |
|
| Total | 700,000 |
| | $ | — |
| | 700,000 |
| | |
| | | | | | | | |
Item 3. Defaults upon Senior Securities. None.
Item 4. Mine Safety Disclosures. Not applicable.
Item 5. Other Information. Not applicable.
Item 6. Exhibits.
See Exhibit Index.
EXHIBIT INDEX
| | | | | | | | | | | |
Exhibit
Number | | Description | |
| | |
Exhibit
Number
| | Description |
2.13.1 | | 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)v+ |
| | |
2.2 | | 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)v |
| | |
3.1 | | | |
| | | |
| 3.2 | | | |
| | | |
10.13.3 | | |
| | |
10.2 | | First Amendment to Second Amended and Restated Credit Agreement, dated as of May 31, 2019, among 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 agentJuly 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 May 31, 2019)July 7, 2020) | |
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10.34.1 | | | |
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| 31.1 | | |
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31.2 | | | |
| 31.2 | | |
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32.1 | | | |
| 32.1 | | | |
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| 32.2 | | |
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101 | | Extensible Business Reporting Language (XBRL)ü
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| 101 | ü | IncludedThe following unaudited consolidated financial statements for the quarter ended March 31, 2020 included in this filing.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 | |
| v | 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. | |
| 104 | + | 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. |
| * | Indicates a management contract or compensatory plan or arrangement in which any director or named executive officer participates. |
| ± | Confidential treatment has been requested with respect to portions of this exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 and these confidential portions have been redacted from this exhibit. A complete copy of this exhibit, including the redacted terms, has been separately filed with the Securities and Exchange Commission. |
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| Certain information has been omitted from the exhibit index because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed. |
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| 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) |
| | |
| | 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) |
| | |
| | By: /s/ John K. Stumpf |
| | John K. Stumpf |
| | Controller |
| | (Principal Accounting Officer) |
| Date: | July 25, 201923, 2020 | |
