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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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.
CoreLogic, Inc., together with its subsidiaries (collectively “the Company”, “we”, “us” or “our”), is a leading global property information, insight, analytics and data-enabled solutions 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, consumer credit, tenancy,property risk and replacement cost, location, hazard risk and related performance information. The markets we serve include real estate and mortgage finance, insurance, capital markets, and the public sector. We deliver value to clients through unique data, analytics, workflow technology, advisory and managed solutions. Clients rely on us to help identify and manage growth opportunities, improve performance, and mitigate risk.
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 31%37% and 32%29% of our operating revenues for the three months ended September 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 September 30, 2019 nor 2018.during these periods. Approximately 30%35% and 32%26% of our operating revenues for the nine months ended September 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 these 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:
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.
Comprehensive loss includes all changes in equity except those resulting from investments by shareholdersstockholders and distributions to shareholders.stockholders. 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).loss. The following table shows the components of accumulated other comprehensive loss, net of taxes, as of September 30, 20192020 and December 31, 2018:2019:
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, less dividends received.
For the three and nine months endedAs of September 30, 2020 and December 31, 2019, we did not have any operating revenueshad insignificant revenue, expense, accounts receivable, and accounts payable related to our investmentinvestments in affiliates and had $0.3 million and $0.9 million for the three and nine months ended September 30, 2018, respectively. We recorded operating expenses of $0.4 million and $1.0 million related to our investment in affiliates forthese affiliates.
During the three months ended September 30, 2019 and 2018, respectively, and $1.1 million and $6.3 million for the nine months ended September 30, 2019 and 2018, respectively.
During the three and nine months ended September 30, 2019,2020, we recorded a non-cash impairment charge of $1.5 million insold our investment in affiliates, net, due to an other-than-temporary loss because we do not foresee an ability to recover the carrying amountequity related investment for $45.8 million in cash which resulted in a gain of the investment. This loss was recorded$35.1 million and is reflected within gain/(loss) on investments and other, net, in our condensed consolidated statementsstatement of operations. NaN such impairments were recorded inoperations for the three and nine months ended September 30, 2018.2020.
As of September 30, 2019, and December 31, 2018, we had insignificant accounts payable and accounts receivable with these affiliates.
Discontinued Operations
In September 2014,January 2020, we completed the saleacquisition 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-downremaining 66% 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.
Location, Inc. ("Location") for $11.5 million, subject to certain working capital adjustments. In connection with previous divestitures,this transaction, we retained certain contingent liabilitiesremeasured our pre-existing 34% investment balance of $5.6 million to fair value based on the businesses that were disposed of. These contingent liabilities include, among other items, liability for certain litigation matters, indemnification obligations and potential breaches of representations or warranties. With respect to our Employer and Litigation Services divestiture, we retained certain liabilities and,purchase price, resulting in September 2016, a jury returned an unfavorable verdict against this discontinued operating unit,$0.6 million step-up gain which we appealed. In August 2019, the verdict was upheld on appeal. We have accrued a potential loss of $21.7 million as of September 30, 2019 with respect to this verdict, although we are pursuing further review of the verdict. The liability is reflected in our results from discontinued operations.
As of September 30, 2019, and December 31, 2018, we recorded assets of discontinued operations of $6.3 million and $0.6 million, respectively, within prepaid expensesgain/(loss) on investments and other, current assets withinnet, in our condensed consolidated balance sheets, mainly consistingstatement of tax-related assets. Additionally, as ofoperations for the nine months ended September 30, 2019 and December 31, 2018, we recorded liabilities of $24.1 million and $2.2 million, respectively, within accounts payable and other accrued expenses, which mainly consisted of legal-related accruals.
Tax Escrow Disbursement Arrangements
2020. See We administer tax escrow disbursements as a serviceNote 12 - Acquisitions for additional information. Prior to our clients in connection with our tax services business. These deposits are maintained in segregated accounts for the benefit of our clients and totaled $1.3 billion and $0.7 billion as of September 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 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 partacquisition of the financial loss they suffer as a result of our act or omission. We maintained total claim reserves relating to incorrect disposition of assets of $21.4 million and $21.2 million as of September 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 clarificationinterest, we accounted 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 became 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 beginning with fiscal year 2019 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 reclassifications of pre-existing balances, such as deferred and prepaid rent, into the lease asset balance. The adoption of this 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 stockholders. In connection with this announcement, 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 stockholders 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 and declared a $0.33 per share cash dividend to common stockholders, which was paid in September 2020 to stockholders of record as of September 1, 2020. In October 2020, our Board of Directors declared a cash dividend of $0.33 per share of common stock to be paid in December 2020 to shareholders of record on the close of business December 1, 2020.
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 $1.4 billion as of both September 30, 2020 and December 31, 2019. 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 $24.8 million and $22.7 million as of September 30, 2020 and December 31, 2019, respectively. Within these amounts are $10.7 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 the London interbank offering rate (“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 adopted 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 September 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 | 68,362 | | | 74,043 | |
Capitalized software | 843,638 | | | 819,828 | |
Leasehold improvements | 50,334 | | | 48,811 | |
Construction in progress | 276 | | | 3,064 | |
| 976,573 | | | 959,709 | |
Less accumulated depreciation | (569,345) | | | (535,039) | |
Property and equipment, net | $ | 407,228 | | | $ | 424,670 | |
|
| | | | | | | |
(in thousands) | 2019 | | 2018 |
Land | $ | 7,476 |
| | $ | 7,476 |
|
Buildings | 6,487 |
| | 6,487 |
|
Furniture and equipment | 71,993 |
| | 68,851 |
|
Capitalized software | 897,990 |
| | 902,482 |
|
Leasehold improvements | 44,424 |
| | 43,476 |
|
Construction in progress | 3,297 |
| | 669 |
|
| 1,031,667 |
| | 1,029,441 |
|
Less accumulated depreciation | (585,610 | ) | | (572,944 | ) |
Property and equipment, net | $ | 446,057 |
| | $ | 456,497 |
|
Depreciation expense for property and equipment, net, was approximately $22.1$21.2 million and $22.6$20.4 million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $68.0$64.2 million and $66.8$63.6 million for the nine months ended September 30, 20192020 and 2018,2019, respectively.
Impairment losses for property and equipment net of $0.1$1.2 million and $12.3 million were recorded for the three and nine months ended September 30, 2020 and 2019, respectively. For the three and nine months ended September 30, 2018, impairment losses were less than $0.1 million. See Note 76 - Fair Value for further discussion.
Note 3 – Goodwill, Net
A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by reporting unit, for the nine months ended September 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 |
|
Acquisition | — |
| | 6,551 |
| | 6,551 |
|
Measurement period adjustments | (83 | ) | | — |
| | (83 | ) |
Disposal | — |
| | (1,337 | ) | | (1,337 | ) |
Translation adjustments | (4,113 | ) | | — |
| | (4,113 | ) |
Balance as of September 30, 2019 | | | | | |
Goodwill, net | $ | 1,102,670 |
| | $ | 1,290,302 |
| | $ | 2,392,972 |
|
| | | | | | | | | | | | | | | | | |
(in thousands) | PIRM | | UWS | | Consolidated |
Balance as of January 1, 2020 | | | | | |
Goodwill | $ | 1,078,225 | | | $ | 1,216,196 | | | $ | 2,294,421 | |
Accumulated impairment losses | (600) | | | (6,925) | | | (7,525) | |
Goodwill, net | 1,077,625 | | | 1,209,271 | | | 2,286,896 | |
Measurement period adjustments | 0 | | | 8 | | | 8 | |
Acquisition | 12,584 | | | 0 | | | 12,584 | |
| | | | | |
Translation adjustments | (612) | | | 0 | | | (612) | |
| | | | | |
Balance as of September 30, 2020 | | | | | |
Goodwill, net | $ | 1,089,597 | | | $ | 1,209,279 | | | $ | 2,298,876 | |
For the threeIn connection with our intent to exit our reseller businesses, we have reclassified $29.3 million and nine months ended$79.9 million of goodwill, net, from our Property Intelligence and Risk Managements Solutions (“PIRM”) and Underwriting and Workflow Solutions (“UWS”) segments, respectively, to assets of discontinued operations as of September 30, 2019, we recorded a goodwill disposal2020. See Note 14 - Discontinued Operations. As part of $1.3 million related tothe process of marketing the sale of a non-core business.these businesses, we updated our long-term projections and obtained indicative fair market values from potential participants. The level of indicative values supported the net book value of the businesses being marketed and our remaining reporting units within continuing operations with no impairment.
See Note 1312 - Acquisitions for discussion of current year acquisition and measurement period adjustments.
Note 4 – Other Intangible Assets, Net
Other intangible assets, net consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
(in thousands) | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Client lists | $ | 640,155 | | | $ | (364,295) | | | $ | 275,860 | | | $ | 645,770 | | | $ | (340,168) | | | $ | 305,602 | |
Non-compete agreements | 26,755 | | | (20,233) | | | 6,522 | | | 26,409 | | | (16,249) | | | 10,160 | |
Tradenames and licenses | 126,913 | | | (74,932) | | | 51,981 | | | 126,405 | | | (66,538) | | | 59,867 | |
| | | | | | | | | | | |
| $ | 793,823 | | | $ | (459,460) | | | $ | 334,363 | | | $ | 798,584 | | | $ | (422,955) | | | $ | 375,629 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
(in thousands) | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Client lists | $ | 660,010 |
| | $ | (342,276 | ) | | $ | 317,734 |
| | $ | 706,253 |
| | $ | (327,201 | ) | | $ | 379,052 |
|
Non-compete agreements | 35,559 |
| | (24,077 | ) | | 11,482 |
| | 35,224 |
| | (20,156 | ) | | 15,068 |
|
Tradenames and licenses | 126,642 |
| | (63,864 | ) | | 62,778 |
| | 131,130 |
| | (56,845 | ) | | 74,285 |
|
| $ | 822,211 |
| | $ | (430,217 | ) | | $ | 391,994 |
| | $ | 872,607 |
| | $ | (404,202 | ) | | $ | 468,405 |
|
Amortization expense for other intangible assets, net was $14.4$14.2 million and $16.3 million for both the three months ended September 30, 2020 and 2019, and 2018, respectively, and $46.4$42.5 million and $47.8$45.9 million for the nine months ended September 30, 20192020 and 2018,2019, respectively.
ForImpairment losses of $35.6 million were recorded for the nine months ended September 30, 2019, impairment losses for other intangible assets, net of $35.6 million were recorded, all of which were incurred in the second quarter of 2019. For boththe three months ended September 30, 2019, there were 0 impairments. For the three and nine months ended September 30, 2018,2020, there were 0 impairment losses recorded.impairments. See Note 76 - Fair Value for further discussion.
Estimated amortization expense for other intangible assets, net is as follows:
| | | | | |
(in thousands) | |
Remainder of 2020 | $ | 14,294 | |
2021 | 53,770 | |
2022 | 51,953 | |
2023 | 43,642 | |
2024 | 37,303 | |
Thereafter | 133,401 | |
| $ | 334,363 | |
|
| | | |
(in thousands) | |
Remainder of 2019 | $ | 15,385 |
|
2020 | 56,797 |
|
2021 | 53,810 |
|
2022 | 52,039 |
|
2023 | 44,439 |
|
Thereafter | 169,524 |
|
| $ | 391,994 |
|
Note 5 – Long-Term Debt
Our long-term debt consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
(in thousands) | Gross | | Debt Issuance Costs | | Net | | Gross | | Debt Issuance Costs | | Net |
Bank debt: | | | | | | | | | | | |
| Term loan facility borrowings due May 2024, weighted-average interest rate of 1.91% as of September 30, 2020 | $ | 1,572,000 | | | $ | (12,242) | | | $ | 1,559,758 | | | $ | 1,672,188 | | | $ | (14,868) | | | $ | 1,657,320 | |
| Revolving line of credit borrowings due May 2024, weighted-average interest rate of 1.91% as of September 30, 2020 | 0 | | | (5,342) | | | (5,342) | | | 0 | | | (6,425) | | | (6,425) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Notes: | | | | | | | | | | | |
| 7.55% senior debentures due April 2028 | 9,531 | | | (24) | | | 9,507 | | | 9,524 | | | (26) | | | 9,498 | |
Other debt: | | | | | | | | | | | |
| Various debt instruments with maturities through March 2024 | 6,244 | | | 0 | | | 6,244 | | | 6,167 | | | 0 | | | 6,167 | |
Total long-term debt | 1,587,775 | | | (17,608) | | | 1,570,167 | | | 1,687,879 | | | (21,319) | | | 1,666,560 | |
Less current portion of long-term debt | 21,382 | | | 0 | | | 21,382 | | | 56,022 | | | 0 | | | 56,022 | |
Long-term debt, net of current portion | $ | 1,566,393 | | | $ | (17,608) | | | $ | 1,548,785 | | | $ | 1,631,857 | | | $ | (21,319) | | | $ | 1,610,538 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
(in thousands) | Gross | | Debt Issuance Costs | | Net | | Gross | | Debt Issuance Costs | | Net |
Bank debt: | | | | | | | | | | |
|
|
| Term loan facility borrowings due May 2024, weighted-average interest rate of 4.00% as of September 30, 2019 | $ | 1,706,250 |
| | $ | (15,747 | ) | | $ | 1,690,503 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Revolving line of credit borrowings due May 2024, weighted-average interest rate of 4.00% as of September 30, 2019 | — |
| | (6,786 | ) | | (6,786 | ) | | — |
| | — |
| | — |
|
| Term loan facility borrowings due August 2022, weighted-average interest rate of 4.05% as of December 31, 2018, modified May 2019 | — |
| | — |
| | — |
| | 1,597,500 |
| | (13,043 | ) | | 1,584,457 |
|
| Revolving line of credit borrowings due August 2022, weighted-average interest rate of 4.05% as of December 31, 2018, modified May 2019 | — |
| | — |
| | — |
| | 178,146 |
| | (5,216 | ) | | 172,930 |
|
Notes: | |
| | |
| | | | |
| | |
| | |
| 7.55% senior debentures due April 2028 | 14,524 |
| | (41 | ) | | 14,483 |
| | 14,645 |
| | (44 | ) | | 14,601 |
|
Other debt: | |
| | |
| | | | |
| | |
| |
|
|
| Various debt instruments with maturities through March 2024 | 6,319 |
| | — |
| | 6,319 |
| | 7,188 |
| | — |
| | 7,188 |
|
Total long-term debt | 1,727,093 |
|
| (22,574 | ) | | 1,704,519 |
| | 1,797,479 |
|
| (18,303 | ) | | 1,779,176 |
|
Less current portion of long-term debt | 68,247 |
| | — |
| | 68,247 |
| | 26,935 |
| | — |
| | 26,935 |
|
Long-term debt, net of current portion | $ | 1,658,846 |
| | $ | (22,574 | ) | | $ | 1,636,272 |
| | $ | 1,770,544 |
|
| $ | (18,303 | ) |
| $ | 1,752,241 |
|
As of September 30, 20192020 and December 31, 2018,2019, we recorded $1.4less than $0.1 million and $0.7$0.4 million,, respectively, of accrued interest expense on our debt-related instruments within accounts payable and other accrued expenses.
Credit Agreement
In May 2019, we amended and restated our credit agreement (the “Credit Agreement”) with Bank of America, N.A., as the administrative agent, and other financial institutions. The Credit Agreement provides for a $1.8 billion five-year5-year term loan A facility (the “Term Facility”), and a $750.0 million five-year5-year revolving credit facility (the “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.
The loans under the Credit Agreement bear interest, at the election of the Company, at (i) the Alternate Base Rate (defined as the greater of (a) Bank of America's "prime rate", (b) the Federal Funds effective rate plus 0.50% and (c) the reserve adjusted London interbank offering rate for a one-month Eurocurrency borrowing plus 1.00%) plus the Applicable Rate (as defined in the Credit Agreement) or (ii) the London interbank offering rate for Eurocurrency borrowings, adjusted for statutory reserves ("Adjusted Eurocurrency Rate") plus the Applicable Rate. The initial Applicable Rate for Alternate Base Rate borrowings is 0.75% and for Adjusted Eurocurrency Rate borrowings is 1.75%. After September 2019, the Applicable Rate will vary depending upon the Company's leverage ratio. The minimum Applicable Rate for Alternate Base Rate borrowings will be 0.25% and the maximum will be 1.00%. The minimum Applicable Rate for Adjusted Eurocurrency Rate borrowings will be 1.25% and the maximum will be 2.00%. The Credit Agreement also requires the Company to pay a commitment fee for the unused portion of the Revolving Facility, which will be a minimum of 0.20% and a maximum of 0.35%, depending on the Company's leverage ratio.
The Credit Agreement provides that loans under the Term Facility shall be repaid in equal quarterly installments of $21.9 million, commencing on September 30, 2019 and continuing on each three-month anniversary thereafter, subject to the application of prepayments to quarterly installments. The outstanding balance of the term loans will be due in May 2024.
The Credit Agreement contains the following financial maintenance covenants: (i) a maximum total leverage ratio not to exceed 4.50:1.00 (stepped down to 4.25:1.00 starting with the fiscal quarter ending on September 2020, with a further step down to 4.00:1.00 starting with the fiscal quarter ending on September 2021, followed by a final step down to 3.75:1.00 starting with the fiscal quarter ending on September 2022) and (ii) a minimum interest coverage ratio of 3.00:1.00.
As of September 30, 2019,2020, we had a remaining borrowing capacity of $750.0 million under the Revolving Facility and we were in compliance with all financial and restrictive covenants under the Credit Agreement.
Debt Issuance Costs
In connection with the amendment and restatement of the Credit Agreement, in May 2019, we incurred approximately $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) on investments and other, net, in the accompanying condensed consolidated statementstatements of operations for the nine months ended September 30, 2019, which resulted
in a remaining $14.6 million of previously unamortized costs. We will amortize all ofare amortizing these costs over the term of the Credit Agreement. For both the three months ended September 30, 20192020 and 2018,2019, $1.2 million and $1.4 million, respectively, werewas recognized in the accompanying condensed consolidated statements of operations related to the amortization of debt issuance costs. For the nine months ended September 30, 2020 and 2019, and 2018, $3.8$3.7 million and $4.1$3.8 million, respectively, were recognized in the accompanying condensed consolidated statements of operations related to the amortization of debt issuance costs.
7.55% Senior Debentures
In April 1998, we issued $100.0 million in aggregate principal amount of 7.55% senior debentures due 2028. The indentures governing these debentures, as amended, contain limited restrictions on us.
Interest Rate Swaps
We have entered into amortizing interest rate 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.LIBOR. The notional balances, terms and maturities of our Swaps are designed to have the effect of fixing the rate of interest on at least 50% of the principal balance of our debt as fixed rate.senior term debt.
As of September 30, 2019,2020, the Swaps have a combined remaining notional balance of $1.3$1.2 billion, a weighted average fixed interest rate of 2.05%2.40% (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 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 $1.3 billion andapproximately $1.2 billion through September 2021, then $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 2.39%2.59%, 2.64%2.77%, and 2.95%2.64%, respectively.
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 September 30, 2019,2020, the estimated fair value of certainthese cash flow hedges resulted in a liability of $87.7 million, of which $3.5 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 $1.2$0.6 million recorded within prepaid and other current assets, as well as a liability of $58.3 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 was recorded within prepaid expenses and other current assets, as well as a liability of $15.2 million.$47.7 million recorded within other liabilities.
Unrealized gains of $7.9 million (net of $2.6 million in deferred taxes) and unrealized losses of $8.1 million (net of $2.7 million in deferred taxes) and unrealized gains of $2.5 million (net of $0.8 million in deferred taxes) for the three months ended September 30, 20192020 and 2018,2019, respectively, were recognized in other comprehensive loss related to the Swaps. Unrealized losses of $41.4$30.5 million (net of $13.8$10.1 million in deferred taxes) and unrealized gains of $10.8$41.4 million (net of $3.6$13.8 million in deferred taxes) for the nine months ended September 30, 20192020 and 2018,2019, respectively, were recognized in other comprehensive loss related to the Swaps.
Note 6 – Leases
We have entered into renewable commitment agreements for certain real estate facilities and equipment, such as computers and printers, which we individually classify as either operating or finance leases. We possess contractual options to renew certain leases ranging from 2 months to 5 years at a time, as well as, in certain instances, contractual options to terminate leases with varying notification requirements and potential termination fees. As of September 30, 2019, our leases with initial terms greater than twelve months had remaining lease terms of up to 13 years.
The following table provides a breakdown of lease balances within our condensed consolidated balance sheet as of September 30, 2019 and December 31, 2018:
|
| | | | | | | | | | |
(in thousands) | | | | | | |
Lease Type and Classification | | Included Within | | September 30, 2019 | | December 31, 2018 (1) |
Assets | | | | | | |
Operating | | Operating lease assets | | $ | 65,302 |
| | $ | — |
|
Finance | | Property and equipment, net | | 6,203 |
| | 5,002 |
|
Total | | | | $ | 71,505 |
| | $ | 5,002 |
|
| | | | | | |
Liabilities | | | | | | |
Current | | | | | | |
Operating | | Operating lease liabilities, current | | $ | 16,839 |
| | $ | — |
|
Finance | | Current portion of long-term debt | | 2,622 |
| | 2,340 |
|
Long-term | | | | | | |
Operating | | Operating lease liabilities, net of current | | 85,844 |
| | — |
|
Finance | | Long-term debt, net of current | | 3,697 |
| | 2,753 |
|
Total | | | | $ | 109,002 |
| | $ | 5,093 |
|
| | | | | | |
(1) As permitted, December 31, 2018 is presented under the guidance in effect at that time. As such, 2018 does not contain comparable operating assets and/or liabilities. See Note 1 - Basis for Condensed Consolidated Financial Statements for further details. |
ForAs a result of our Swap activity, for the three and nine months ended September 30, 2020 and 2019, the componentsincluded within interest expense, on a pre-tax basis, we recognized interest expense of lease cost are as follows:
|
| | | | | | | | | | |
(in thousands) | | | | September 30, 2019 |
Lease Cost | | Included Within | | For the Three Months Ended | | For the Nine Months Ended |
Finance lease cost | | | | | | |
Amortization of lease assets | | Depreciation and amortization | | $ | 736 |
| | $ | 2,307 |
|
Interest on lease liabilities | | Interest expense | | $ | 39 |
| | $ | 107 |
|
| | | | | | |
Operating lease cost | | Selling, general and administrative expenses | | $ | 5,284 |
| | $ | 16,315 |
|
Operating lease cost | | Cost of services | | 136 |
| | 208 |
|
| | | | $ | 5,420 |
| | $ | 16,523 |
|
Total lease cost for all operating leases, including month-to-month rentals, for the three and nine months ended September 30, 2018, excluding taxes, was $5.5$7.1 million and $16.8interest income of $0.7 million, respectively.
Other supplementary information forFor the nine months ended September 30, 2020 and 2019, are as follows:
|
| | | | | | | | |
(in thousands) | | | | |
Other Information | | Finance Leases | | Operating Leases |
Cash paid for amounts included in measurement of liabilities | | | | |
Operating cash outflows | | $ | 107 |
| | $ | 19,714 |
|
Financing cash outflows | | $ | 2,306 |
| | $ | — |
|
| | | | |
Right-of-use assets obtained in exchange for lease liabilities | | $ | 3,537 |
| | $ | 9,587 |
|
Weighted average remaining lease term (years) | | 2.8 |
| | 8.4 |
|
Weighted average discount rate | | 3.78 | % | | 6.34 | % |
Maturitiesincluded within interest expense, on a pre-tax basis, we recognized interest expense of lease liabilities$14.3 million and interest income of $4.0 million, respectively. Estimated net losses included in accumulated other comprehensive loss related to the Swaps as of September 30, 2019 are2020, that will be reclassified into earnings as follows:interest expense over the next 12 months, utilizing September 30, 2020 LIBOR, is estimated to be $16.0 million, on a pre-tax basis.
|
| | | | | | | | |
(in thousands) | | Finance Leases | | Operating Leases |
2019 | | $ | 759 |
| | $ | 4,122 |
|
2020 | | 2,621 |
| | 24,732 |
|
2021 | | 1,737 |
| | 19,760 |
|
2022 | | 1,117 |
| | 12,911 |
|
2023 | | 446 |
| | 10,596 |
|
Thereafter | | 70 |
| | 63,691 |
|
Total lease payments | | 6,750 |
| | 135,812 |
|
Less imputed interest | | (431 | ) | | (33,129 | ) |
Total | | $ | 6,319 |
| | $ | 102,683 |
|
Future minimum lease commitments, undiscounted, as of December 31, 2018 were as follows:
|
| | | | |
(in thousands) | | |
2019 | | $ | 26,738 |
|
2020 | | 25,413 |
|
2021 | | 19,214 |
|
2022 | | 12,149 |
|
2023 | | 8,908 |
|
Thereafter | | 57,179 |
|
Total | | $ | 149,601 |
|
As of September 30, 2019, we have 3 operating leases for facilities which have not yet commenced with a combined initial lease liability of approximately $4.6 million and initial terms ranging from 2 to 8 years. These liabilities are not reflected in our condensed consolidated balance sheet or the maturity schedule as of September 30, 2019 shown above.
Note 76 – Fair Value
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.
In estimating fair value, we used the following methods and assumptions:
Cash and Cash Equivalents
For cash and cash equivalents, the carrying value is a reasonable estimate of fair value due to the short-term nature of the instruments.
Restricted Cash
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, andas well as short-term investments within our deferred compensation plan trust. We deem the carrying value to be a reasonable estimate of fair value due to the nature of these instruments.
Other Investments
Other investments isare currently comprised of a minority equity investment in a foreign enterprise which we measure at cost and adjust to fair value on a quarterly basis when there are observable price changes in orderly transactions for the identical, or similar, investments. Changes in fair value are recorded within gain/(loss) on investments and other, net, in our condensed consolidated statementstatements of operations.
Contingent Consideration
The fair value of our contingent consideration was estimated using the Monte-Carlo simulation model, which relies on significant assumptions and estimates including discount rates and future market conditions, among others.
Long-Term Debt
The fair value of debt was estimated based on the current rates available to us for similar debt of the same remaining maturities and consideration of our default and credit risk.
Interest Rate Swaps
The fair values of the Swaps were estimated based on market-value quotes received from the counterparties to the agreements.
The fair values of our financial instruments as of September 30, 20192020 are presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Fair Value Measurements Using | | |
As of September 30, 2020 | | Level 1 | | Level 2 | | Level 3 | | Fair Value |
Financial Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 302,329 | | | $ | 0 | | | $ | 0 | | | $ | 302,329 | |
Restricted cash | | 8,719 | | | 1,785 | | | 0 | | | 10,504 | |
Other investments | | 0 | | | 3,279 | | | 0 | | | 3,279 | |
Total | | $ | 311,048 | | | $ | 5,064 | | | $ | 0 | | | $ | 316,112 | |
| | | | | | | | |
Financial Liabilities: | | | | | | | | |
| | | | | | | | |
Total debt | | $ | 0 | | | $ | 1,590,260 | | | $ | 0 | | | $ | 1,590,260 | |
Total | | $ | 0 | | | $ | 1,590,260 | | | $ | 0 | | | $ | 1,590,260 | |
| | | | | | | | |
Derivatives: | | | | | | | | |
| | | | | | | | |
Liability for Swaps | | $ | 0 | | | $ | 87,725 | | | $ | 0 | | | $ | 87,725 | |
| | | | | | | | |
As of December 31, 2019 | | | | | | | | |
Financial Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 104,162 | | | $ | 0 | | | $ | 0 | | | $ | 104,162 | |
Restricted cash | | 9,791 | | | 726 | | | 0 | | | 10,517 | |
Other investments | | 0 | | | 1,898 | | | 0 | | | 1,898 | |
Total | | $ | 113,953 | | | $ | 2,624 | | | $ | 0 | | | $ | 116,577 | |
| | | | | | | | |
Financial Liabilities: | | | | | | | | |
| | | | | | | | |
Total debt | | $ | 0 | | | $ | 1,690,731 | | | $ | 0 | | | $ | 1,690,731 | |
Total | | $ | 0 | | | $ | 1,690,731 | | | $ | 0 | | | $ | 1,690,731 | |
| | | | | | | | |
Derivatives: | | | | | | | | |
Asset for Swaps | | $ | 0 | | | $ | 572 | | | $ | 0 | | | $ | 572 | |
Liability for Swaps | | $ | 0 | | | $ | 47,691 | | | $ | 0 | | | $ | 47,691 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
(in thousands) | | Fair Value Measurements Using | | |
As of September 30, 2019 | | Level 1 | | Level 2 | | Level 3 | | Fair Value |
Financial Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 88,238 |
| | $ | — |
| | $ | — |
| | $ | 88,238 |
|
Restricted cash | | 2,526 |
| | 11,092 |
| | — |
| | 13,618 |
|
Other investments | | — |
| | 1,825 |
| | — |
| | 1,825 |
|
Total | | $ | 90,764 |
| | $ | 12,917 |
| | $ | — |
| | $ | 103,681 |
|
| | | | | | | | |
Financial Liabilities: | | | | | | | | |
Contingent consideration | | $ | — |
| | $ | — |
| | $ | 4,895 |
| | $ | 4,895 |
|
Total debt | | — |
| | 1,731,066 |
| | — |
| | 1,731,066 |
|
Total | | $ | — |
| | $ | 1,731,066 |
| | $ | 4,895 |
|
| $ | 1,735,961 |
|
| | | | | | | | |
Derivatives: | | | | | | | | |
Asset for Swaps | | $ | — |
| | $ | 1,218 |
| | $ | — |
| | $ | 1,218 |
|
Liability for Swaps | | $ | — |
| | $ | 58,335 |
| | $ | — |
| | $ | 58,335 |
|
| | | | | | | | |
As of December 31, 2018 | | | | | | | | |
Financial Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 85,271 |
| | $ | — |
| | $ | — |
| | $ | 85,271 |
|
Restricted cash | | 1,366 |
| | 11,613 |
| | — |
| | 12,979 |
|
Other investments | | — |
| | — |
| | 7,930 |
| | 7,930 |
|
Total | | $ | 86,637 |
| | $ | 11,613 |
| | $ | 7,930 |
| | $ | 106,180 |
|
| | | | | | | | |
Financial Liabilities: | | | | | | | | |
Contingent consideration | | $ | — |
| | $ | — |
| | $ | 5,700 |
| | $ | 5,700 |
|
Total debt | | — |
| | 1,797,597 |
| | — |
| | 1,797,597 |
|
Total | | $ | — |
| | $ | 1,797,597 |
| | $ | 5,700 |
| | $ | 1,803,297 |
|
| | | | | | | | |
Derivatives: | | | | | | | | |
Asset for Swaps | | $ | — |
| | $ | 13,344 |
| | $ | — |
| | $ | 13,344 |
|
Liability for Swaps | | $ | — |
| | $ | 15,188 |
| | $ | — |
| | $ | 15,188 |
|
The following non-financial instruments were measured at fair value, on a non-recurring basis, as of and forFor the nine months ended September 30, 2019:
|
| | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using | | |
(in thousands) | Remaining Fair Value (1) | | Level 1 | | Level 2 | | Level 3 | | Impairment Losses |
Other intangible assets, net | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 35,600 |
|
Property and equipment, net | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 12,312 |
|
Investment in affiliates, net | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,511 |
|
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 49,423 |
|
| | | | | | | | | |
(1) Remaining fair value represents the post-impairment fair value2020, we recorded non-cash impairment charges of $1.2 million in property and equipment, net, related to the specifically impaired asset(s)
capitalized software within our UWS segment. For the nine months ended September 30, 2019, we recorded non-cash impairment charges of $35.6 million in other intangible assets, net, which were all incurredas well as $12.3 million in the second quarter of 2019.property and equipment, net. For both the three and nine months ended September 30, 2020, and 2019, non-cash impairment charges of $0.1 million and $12.3 million, respectively,there were recorded in property and equipment, net related to capitalized software. The current year0 impairments. Both impairments are primarily due to ongoing business transformation activities of our appraisal management company within our Underwriting & Workflow Solutions (“UWS”)UWS segment. The impairments were derived using an undiscounted cash flow methodology. The impairments within other intangible assets, net include $32.3 million for client lists and $3.3 million for licenses. For the threeThe impairments within property and nine months ended September 30, 2019, we also recorded a $1.5 million non-cash impairment charge in investment in affiliates,equipment, net which is included within gain/(loss) on investments and other, net in our condensed consolidated statement of operations.relate to capitalized software. All impairments were derived using an undiscounted cash flow methodology.
In connection with the 2017 acquisitions of Myriad Development, Inc. and an insignificant business, we entered into contingent consideration agreements for up to $20.5 million in cash by 2022 upon the achievement of certain revenue targets ending in fiscal year 2021. These contingent payments were originally recorded at a fair value of $6.2 million using the Monte-Carlo simulation model. In connection with the 2019 acquisition of National Tax Search, LLC (“NTS”), we entered into a contingent consideration agreement for up to $7.5 million in cash based upon certain revenue targets in fiscal years 2020 and 2021. This contingent consideration has been initially assessed with no fair value as of September 30, 2020 using the Monte-Carlo simulation model. The contingent payments are fair-valued quarterly, and changes are recorded within gain/(loss) on investments and other, net in our condensed consolidated statement of operations. During the nine months ended September 30, 2019, we decreased the fair value of our contingent considerations by $0.2 million and recorded the gain in our condensed consolidated statement of operations. During the three months ended September 30, 2019, there were no adjustments to our contingent consideration. During the three and nine months ended September 30, 2018, we recorded a loss of $0.1 million and a gain of $1.0 million, respectively.
Due to observable price changes in an inactive market, in the first half of 2019, we recorded a combined unfavorable fair value adjustment of $6.6 million to a minority equity investment, which was recorded within gain/(loss) on investments and other, net in our condensed consolidated statement of operations for the nine months ended September 30, 2019. AsNaN adjustments were necessary for the three and nine months ended September 30, 2020.
In connection with certain acquisitions in 2017 related to our discontinued operations, we entered into contingent consideration agreements for up to $17.5 million in cash by 2022 upon the achievement of certain revenue targets ending in fiscal year 2021. This contingent payment was originally recorded at a resultfair value of $4.4 million using the observable price changeMonte-Carlo simulation model. The contingent payments are remeasured at fair value quarterly, and changes are recorded within income/(loss) from discontinued operations, net of tax, in our condensed consolidated statements of operations. During the current year,three months ended September 30, 2020 we transferred the minority equity investment classification from Level 3 to Level 2 withindecreased the fair value hierarchy above.of our contingent consideration by $1.2 million and recorded the gain in our condensed consolidated statements of operations. During the three months ended September 30, 2019, there were 0 adjustments to our contingent consideration. During the nine months ended September 30, 2020 and 2019, we decreased the fair value of our contingent consideration by $3.8 million and $0.2 million, respectively, and recorded the gain in our condensed consolidated statements of operations.
Note 87 – Operating Revenues
Operating revenues by solution type consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | PIRM | | UWS | | Corporate and Eliminations | | Consolidated |
For the Three Months Ended September 30, 2020 | | | | |
Property insights | | $ | 126,325 | | | $ | 0 | | | $ | 0 | | | $ | 126,325 | |
Insurance and spatial solutions | | 49,923 | | | 0 | | | 0 | | | 49,923 | |
Flood data solutions | | 0 | | | 34,351 | | | 0 | | | 34,351 | |
Valuation solutions | | 0 | | | 58,434 | | | 0 | | | 58,434 | |
| | | | | | | | |
Property tax solutions | | 0 | | | 166,858 | | | 0 | | | 166,858 | |
Other | | 0 | | | 3,699 | | | (2,863) | | | 836 | |
Total operating revenue | | $ | 176,248 | | | $ | 263,342 | | | $ | (2,863) | | | $ | 436,727 | |
| | | | | | | | |
For the Three Months Ended September 30, 2019 | | | | | | | | |
Property insights | | $ | 120,340 | | | $ | 0 | | | $ | 0 | | | $ | 120,340 | |
Insurance and spatial solutions | | 48,739 | | | 0 | | | 0 | | | 48,739 | |
Flood data solutions | | 0 | | | 22,983 | | | 0 | | | 22,983 | |
Valuation solutions | | 0 | | | 77,426 | | | 0 | | | 77,426 | |
| | | | | | | | |
Property tax solutions | | 0 | | | 103,671 | | | 0 | | | 103,671 | |
Other | | 0 | | | 5,058 | | | (2,646) | | | 2,412 | |
Total operating revenue | | $ | 169,079 | | | $ | 209,138 | | | $ | (2,646) | | | $ | 375,571 | |
| | | | | | | | |
For the Nine Months Ended September 30, 2020 | | | | | | | | |
Property insights | | $ | 359,175 | | | $ | 0 | | | $ | 0 | | | $ | 359,175 | |
Insurance and spatial solutions | | 145,204 | | | 0 | | | 0 | | | 145,204 | |
Flood data services | | 0 | | | 91,931 | | | 0 | | | 91,931 | |
Valuation solutions | | 0 | | | 182,637 | | | 0 | | | 182,637 | |
| | | | | | | | |
Property tax solutions | | 0 | | | 394,799 | | | 0 | | | 394,799 | |
Other | | 0 | | | 11,088 | | | (10,101) | | | 987 | |
Total operating revenue | | $ | 504,379 | | | $ | 680,455 | | | $ | (10,101) | | | $ | 1,174,733 | |
| | | | | | | | |
For the Nine Months Ended September 30, 2019 | | | | | | | | |
Property insights | | $ | 359,278 | | | $ | 0 | | | $ | 0 | | | $ | 359,278 | |
Insurance and spatial solutions | | 142,576 | | | 0 | | | 0 | | | 142,576 | |
Flood data services | | 0 | | | 61,572 | | | 0 | | | 61,572 | |
Valuation solutions | | 0 | | | 230,891 | | | 0 | | | 230,891 | |
| | | | | | | | |
Property tax solutions | | 0 | | | 282,724 | | | 0 | | | 282,724 | |
Other | | 0 | | | 17,988 | | | (6,997) | | | 10,991 | |
Total operating revenue | | $ | 501,854 | | | $ | 593,175 | | | $ | (6,997) | | | $ | 1,088,032 | |
|
| | | | | | | | | | | | | | | | |
(in thousands) | | PIRM | | UWS | | Corporate and Eliminations | | Consolidated |
For the Three Months Ended September 30, 2019 | | | | |
Property insights | | $ | 121,843 |
| | $ | — |
| | $ | — |
| | $ | 121,843 |
|
Insurance and spatial solutions | | 48,739 |
| | — |
| | — |
| | 48,739 |
|
Flood data services | | — |
| | 22,983 |
| | — |
| | 22,983 |
|
Valuation solutions | | — |
| | 77,426 |
| | — |
| | 77,426 |
|
Credit solutions | | — |
| | 71,687 |
| | — |
| | 71,687 |
|
Property tax solutions | | — |
| | 103,671 |
| | — |
| | 103,671 |
|
Other | | 11,067 |
| | 5,061 |
| | (3,520 | ) | | 12,608 |
|
Total operating revenue | | $ | 181,649 |
| | $ | 280,828 |
| | $ | (3,520 | ) | | $ | 458,957 |
|
| | | | | | | | |
For the Three Months Ended September 30, 2018 | | | | | | | | |
Property insights | | $ | 125,319 |
| | $ | — |
| | $ | — |
| | $ | 125,319 |
|
Insurance and spatial solutions | | 41,666 |
| | — |
| | — |
| | 41,666 |
|
Flood data services | | — |
| | 18,213 |
| | — |
| | 18,213 |
|
Valuation solutions | | — |
| | 73,468 |
| | — |
| | 73,468 |
|
Credit solutions | | — |
| | 75,283 |
| | — |
| | 75,283 |
|
Property tax solutions | | — |
| | 94,637 |
| | — |
| | 94,637 |
|
Other | | 13,622 |
| | 12,024 |
| | (2,464 | ) | | 23,182 |
|
Total operating revenue | | $ | 180,607 |
| | $ | 273,625 |
| | $ | (2,464 | ) | | $ | 451,768 |
|
| | | | | | | | |
For the Nine Months Ended September 30, 2019 | | | | | | | | |
Property insights | | $ | 363,250 |
| | $ | — |
| | $ | — |
| | $ | 363,250 |
|
Insurance and spatial solutions | | 142,576 |
| | — |
| | — |
| | 142,576 |
|
Flood data services | | — |
| | 61,572 |
| | — |
| | 61,572 |
|
Valuation solutions | | — |
| | 230,891 |
| | — |
| | 230,891 |
|
Credit solutions | | — |
| | 211,187 |
| | — |
| | 211,187 |
|
Property tax solutions | | — |
| | 282,724 |
| | — |
| | 282,724 |
|
Other | | 35,348 |
| | 17,989 |
| | (9,334 | ) | | 44,003 |
|
Total operating revenue | | $ | 541,174 |
| | $ | 804,363 |
| | $ | (9,334 | ) | | $ | 1,336,203 |
|
| | | | | | | | |
For the Nine Months Ended September 30, 2018 | | | | | | | | |
Property insights | | $ | 376,284 |
| | $ | — |
| | $ | — |
| | $ | 376,284 |
|
Insurance and spatial solutions | | 119,691 |
| | — |
| | — |
| | 119,691 |
|
Flood data services | | — |
| | 54,098 |
| | — |
| | 54,098 |
|
Valuation solutions | | — |
| | 226,368 |
| | — |
| | 226,368 |
|
Credit solutions | | — |
| | 235,651 |
| | — |
| | 235,651 |
|
Property tax solutions | | — |
| | 301,998 |
| | — |
| | 301,998 |
|
Other | | 41,054 |
| | 37,155 |
| | (7,230 | ) | | 70,979 |
|
Total operating revenue | | $ | 537,029 |
| | $ | 855,270 |
| | $ | (7,230 | ) | | $ | 1,385,069 |
|
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 contractual term once initial delivery has occurred. For contracts to provide a license to data which is delivered via report or data file, operating revenue is recognized when the client obtains control of the products, which is upon delivery.
Property Tax Solutions
Our property tax solutions are built from aggregated property tax information from over 20,000 taxing authorities. We use this information to advise mortgage lenders and servicers of the property tax payment status of loans in their portfolio and to monitor that status over the life of the loans. If a mortgage lender or servicer requires tax payments to be impounded on behalf of its borrowers, we can also facilitate the transfer of these funds to the taxing authorities and provide the lender or servicer with payment confirmation. Property tax processing revenues are primarily comprised of periodic loan fees and life-of-loan fees. For periodic fee arrangements, we generate monthly fees at a contracted rate for as long as we service the loan. For life-of-loan fee arrangements, we charge a one-time fee when the loan is set-up in our tax servicing system. Life-of-loan fees are deferred and recognized ratably over the expected service period of 10 years and adjusted for early loan cancellation. Revenue recognition rates of loan portfolios are regularly analyzed and adjusted monthly to reflect current trends.
Valuation Solutions
Our valuation solutions represent property valuation-related data driven services and analytics combined with collateral valuation workflow technologies which assist our clients in assessing risk of loss using both traditional and alternative forms of property valuation, driving process efficiencies as well as ensuring compliance with lender and governmental regulations. We provide collateral information technology and solutions that automate property appraisal ordering, tracking, documentation and review for lender compliance with government regulations. Revenue for the property appraisal service is recognized when the appraisal service is performed and delivered to the client. In addition, to the extent that we provide continuous access to the hosted software platform, we recognize operating revenue over the term of the arrangement.
Credit Solutions
Our credit solutions provide credit and income verification services to the mortgage and automotive industries. We provide comprehensive information, typically in the form of a report, about credit history, income verification and home address history. We normalize the data to provide a broad range of advanced business information solutions designed to reduce risk and improve business performance to mortgage and automotive lenders. Operating revenue is recognized when the report or information is delivered to the client.
Flood Data 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, as adjusted for early loan cancellation.
Contract Costs
Incremental costs to obtain or fulfill client contracts are recognized as an asset. As of September 30, 2019,2020, we had $9.5$13.0 million of current deferred contract costs which are presented in prepaid expenses and other current assets, as well as $21.4$23.4 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 contract costs.costs which are presented in other assets in our
consolidated balance sheet. Our deferred contract costs primarily include certain set-up and acquisition costs related to property tax solutions, which amortize ratably over an expected 10-year life, adjusted for early loan cancellations. For the three months ended September 30, 20192020 and 2018,2019, we recorded amortization associated with deferred contract costs of $3.4$5.6 million and $3.8$3.4 million, respectively, and $9.8$13.9 million and $10.7$9.8 million, respectively, for the nine months ended September 30, 20192020 and 2018.2019.
Contract Liabilities
We record a contract liability when amounts are invoiced, which is generally prior to the satisfaction of the performance obligation. For property tax solutions, we invoice upfront fees to clients for services to be performed over time. For property insights and insurance and spatial solutions we invoice quarterly and annually, commencing upon execution of the contracts or at the beginning of the license term, as applicable.
As of September 30, 2019,2020, we had $853.9$986.9 million in contract liabilities compared to $833.0$883.8 million as of December 31, 2018.2019. The overall change of $20.9$103.1 million in contract liability balances areis primarily due to $453.9$632.4 million of new deferred billings in the current year, partially offset by $433.9$530.2 million of operating revenue recognized, of which $253.6$292.8 million related to contracts previously deferred, and other increases of $0.9 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 September 30, 20192020 we had $968.4 million$1.2 billion of remaining performance obligations. We expect to recognize approximately 9%11% percent of this remaining revenue backlog in 2019,2020, 31% in 2020,2021, 21% in 20212022 and 39%37% thereafter. See further discussion of 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”), 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”)RSUs, 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 nine months ended September 30, 20192020 and 2018,2019, we awarded 640,339777,139 and 537,022640,339 RSUs, respectively, with an estimated grant-date fair value of $23.5$28.8 million and $25.1$23.5 million, respectively. The RSU awards will vest ratably over 3 years. RSU activity for the nine months ended September 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 December 31, 2019 | 1,032 | | | $ | 39.84 | |
RSUs granted | 777 | | | $ | 37.10 | |
RSUs vested | (524) | | | $ | 40.51 | |
RSUs forfeited | (47) | | | $ | 36.53 | |
Unvested RSUs outstanding at September 30, 2020 | 1,238 | | | $ | 37.98 | |
|
| | | | | | |
| 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 | 640 |
| | $ | 36.67 |
|
RSUs vested | (549 | ) | | $ | 40.49 |
|
RSUs forfeited | (98 | ) | | $ | 39.94 |
|
Unvested RSUs outstanding at September 30, 2019 | 1,080 |
| | $ | 39.84 |
|
As of September 30, 2019,2020, there was $26.7$29.7 million of total unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 1.91.7 years. The fair value of RSUsRSU awards is based on the market value of our common stock on the date of grant.
Performance-Based Restricted Stock Units
For the nine months ended September 30, 2020 and 2019, we awarded 321,014 and 203,464 PBRSUs, respectively, with an estimated grant-date fair value of $13.0 million and $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 2020 PBRSU grants is from January 2020 to December 2022 and the performance metric is adjusted earnings per share, subject to modification based on relative total stockholder return, a market-based vesting condition. The performance and service period for the 2019 PBRSUs is from January 2019 to December 2021 and the performance metric is adjusted earnings per share, subject to modification based on relative total stockholder return, a market-based vesting condition.
The fair value of PBRSU awards are based on the market value of our common stock on the date of grant.
Performance-Based Restricted Stock Units
For the nine months ended September 30, 2019 and 2018, we awarded 203,464 and 408,097 PBRSUs respectively, with an estimated grant-date fair value of $7.5 million and $19.2 million, respectively. These awards are generally subject to service-based, performance-based and market-based vesting conditions. The service and performance period for the 2019 grants is from January 2019 to December 2021 and the performance metric is adjusted earnings per share.
The performance and service period for the PBRSUs awarded during 2018 is from January 2018 to December 2020 and the performance metrics are generally adjusted earnings per share and market-based conditions. These grants include 232,225 PBRSUs that do not include a market-based condition but have adjusted margin or operating revenue as the performance metric through the service period ending December 2020 or December 2021.
The fair values of the awards containing market-based vesting conditions, were estimated usingwe also use the Monte-Carlo simulation with the following weighted-average assumptions:
| | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2020 | | 2019 |
Expected dividend yield (1) | 0 | % | | 0 | % |
Risk-free interest rate (2) | 0.60 | % | | 2.44 | % |
Expected volatility (3) | 32.53 | % | | 28.24 | % |
Average total stockholder return (3) | (21.47) | % | | 17.15 | % |
| | | |
(1) Since PBRSU participants are credited with dividend equivalent shares when dividends are paid, 0.00% was used in the Monte-Carlo simulation which is mathematically equivalent to paying dividend equivalents upon vesting. Please see Note 1 - Basis for Condensed Consolidated Financial Statements for further information regarding dividends. (2) The risk-free interest rate for the periods within the contractual term of the PBRSUs is based on the US Treasury yield curve in effect at the time of the grant. (3) The expected volatility and average total stockholder return are measures of the amount by which a stock price has fluctuated or is expected to fluctuate based primarily on our and our peers' historical data. |
|
| | | | | |
| For the Nine Months Ended September 30, |
| 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 US 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. |
Additionally, within our outstanding unvested PBRSUs shown in the table below, there are prior year grants which do not include market-based conditions, but instead have adjusted EBITDA margin or organic revenue growth rate as the performance metric.
PBRSU activity for the nine months ended September 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 | 321 | | | $ | 40.64 | |
PBRSUs vested | (184) | | | $ | 39.50 | |
PBRSUs forfeited | (29) | | | $ | 44.77 | |
Unvested PBRSUs outstanding at September 30, 2020 | 744 | | | $ | 42.58 | |
|
| | | | | | |
| 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 | (106 | ) | | $ | 45.36 |
|
Unvested PBRSUs outstanding at September 30, 2019 | 621 |
| | $ | 42.61 |
|
As of September 30, 2019,2020, there was $16.3$20.1 million of total unrecognized compensation cost related to unvested PBRSUs that is expected to be recognized over a weighted-average period of 1.7 years. The fair value of PBRSUs 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 nine months ended September 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 | (82) | | | $ | 18.34 | | | | | |
Options outstanding at September 30, 2020 | 397 | | | $ | 19.84 | | | 1.9 | | $ | 19,024 | |
|
| | | | | | | | | | | | |
(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 | (80 | ) | | $ | 24.20 |
| | | | |
Options vested, exercisable, and outstanding at September 30, 2019 | 490 |
| | $ | 19.51 |
| | 2.6 | | $ | 13,095 |
|
As of September 30, 2019,2020, there was 0 unrecognized compensation cost related to unvested stock options.
The intrinsic value of options exercised was $1.4$2.9 million and $14.3$1.4 million for the nine months ended September 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 recognize 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 nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, | | September 30, |
(in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
RSUs | $ | 6,378 | | | $ | 4,521 | | | $ | 17,446 | | | $ | 17,063 | |
PBRSUs | 5,468 | | | 3,893 | | | 14,264 | | | 7,390 | |
Stock options | 0 | | | 0 | | | 0 | | | 0 | |
Employee stock purchase plan | 700 | | | 392 | | | 2,188 | | | 1,565 | |
| $ | 12,546 | | | $ | 8,806 | | | $ | 33,898 | | | $ | 26,018 | |
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, | | September 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
RSUs | $ | 4,715 |
| | $ | 5,752 |
| | $ | 17,639 |
| | $ | 20,385 |
|
PBRSUs | 4,001 |
| | 3,621 |
| | 7,659 |
| | 7,780 |
|
Stock options | — |
| | — |
| | — |
| | — |
|
Employee stock purchase plan | 392 |
| | 402 |
| | 1,565 |
| | 1,409 |
|
| $ | 9,108 |
| | $ | 9,775 |
| | $ | 26,863 |
| | $ | 29,574 |
|
The table above includes $0.6$1.1 million and $1.0$0.5 million of share-based compensation expense within cost of services in the accompanying condensed consolidated statements of operations for the three months ended September 30, 20192020 and 2018,2019, respectively, and $2.0$2.2 million and $4.4$1.7 million for the nine months ended September 30, 2020 and 2019, respectively. Additionally, we recognized $0.3 million of share-based compensation expense for both the three months ended September 30, 2020 and 2019, and 2018, respectively.$0.8 million for both the nine months ended September 30, 2020 and 2019, reported within income/(loss) from discontinued operations.
Note 109 – Litigation and Regulatory Contingencies
We have been named in various lawsuits and we are from time to time subject to audit or investigation by governmental agencies arising in the ordinary course of business.
With respect to matters where we 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 September 30, 2020 our accrual for litigation and regulatory contingencies was immaterial.
Fair Credit Reporting Act Class Actions
In July 2017, Rental Property Solutions, LLC (“RPS”) was named as a defendant in Claudinne Feliciano, et. al., v. CoreLogic SafeRent, LLC, a putative class action lawsuit in the US District Court for the Southern District of New York. The named plaintiff alleges that RPS prepared a background screening report about her that contained a record of a New York Housing Court action without noting that the action had previously been dismissed. On this basis, she seeks damages under the Fair Credit Reporting Act and the New York Fair Credit Reporting Act on behalf of herself and a class of similarly situated consumers with respect to reports issued during the period of July 2015 to the present. In July 2019, the District Court issued an order certifying a class of approximately 2,000 consumers. We haveIn June 2020, we reached an agreement to resolve the case. The settlement has been preliminarily approved by the District Court, and a final approval hearing is scheduled for February 23, 2021. The settlement amount was recorded during 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 petitionbackground 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 reviewwhom 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 certification orderOFAC 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 Second CircuitUS District Court for the Southern District of Appeals. The petition is pending.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”("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 September 30, 2019,2020, 0 reserves were considered necessary by the applicable responsible party.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
The effective income tax rate for income taxes as a percentage of income from continuing operations before equity in earnings/(losses)earnings of affiliates and income taxes was 26.6%a benefit of 10.4% and 47.9%and provision of 27.1% for the three months ended September 30, 20192020 and 2018,2019, respectively, and 1.4%a provision of 10.0% and 26.0%a benefit of 718.7% for the nine months ended September 30, 20192020 and 2018,2019, respectively.
During the quarter ended September 30, 2020, the Internal Revenue Service ("IRS") concluded their examination of our 2010 to 2012 income tax returns resulting in the recognition of a discrete tax benefit of approximately $24 million, inclusive of anticipated interest and state taxes.
For the three months ended September 30, 2019,2020, when compared to 2018, the decreasesame period for 2019, the change in the effective income tax rate was primarily due to a one-time charge of $12.5 million for the transition tax (in connection with the Tax Cuts and Jobs Act) which wasbenefit recorded in relation to the prior year.
settlement of the IRS examination in 2020. For the nine months ended September 30, 2019,2020, when compared to 2018, the decreasesame period for 2019, the change in the effective income tax rate was primarily due to a $15.3 million discretethe benefit recorded duringin relation to the current year forsettlement of the releaseIRS examination in 2020 as compared to a smaller nonrecurring benefit recorded in 2019 related to the reversal of state tax reserves and a prior year one-time charge of $12.5 million for the transition tax.reserves.
We are currently under examination for the years 2010 through 2012 andyear 2016 by the US Internal Revenue Service,IRS, our primary taxing authority, and for other years by various stateother taxing authorities. It is reasonably possible the amount of the unrecognized benefits with respect to certain unrecognized tax positions could be significantly increase or decrease within the next twelve months andimpacted which would have an impact on our net income. Currently, we expect expiration of statutes of limitations, within the next twelve months, for which we have tax reserves recorded of approximately $0.9 million as of September 30, 2019.
Note 1211 – Earnings Per Share
The following is a reconciliation of net income per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended Sep 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
(in thousands, except per share amounts) | | | | | | | |
Numerator for basic and diluted net income per share: | | | | | | | |
Net income from continuing operations | $ | 102,467 | | | $ | 31,668 | | | $ | 177,820 | | | $ | 8,225 | |
Income/(loss) from discontinued operations, net of tax | 10,679 | | | (8,485) | | | 28,149 | | | 11,073 | |
| | | | | | | |
Net income | $ | 113,146 | | | $ | 23,183 | | | $ | 205,969 | | | $ | 19,298 | |
Denominator: | | | | | | | |
Weighted-average shares for basic income/(loss) per share | 79,467 | | | 79,761 | | | 79,300 | | | 80,138 | |
Dilutive effect of stock options and RSUs | 1,935 | | | 1,153 | | | 1,836 | | | 1,067 | |
Weighted-average shares for diluted income/(loss) per share | 81,402 | | | 80,914 | | | 81,136 | | | 81,205 | |
Income/(loss) per share | | | | | | | |
Basic: | | | | | | | |
Net income from continuing operations | $ | 1.29 | | | $ | 0.40 | | | $ | 2.24 | | | $ | 0.10 | |
Income/(loss) from discontinued operations, net of tax | 0.13 | | | (0.11) | | | 0.35 | | | 0.14 | |
| | | | | | | |
Net income | $ | 1.42 | | | $ | 0.29 | | | $ | 2.59 | | | $ | 0.24 | |
Diluted: | | | | | | | |
Net income from continuing operations | $ | 1.26 | | | $ | 0.39 | | | $ | 2.19 | | | $ | 0.10 | |
Income/(loss) from discontinued operations, net of tax | 0.13 | | | (0.10) | | | 0.35 | | | 0.14 | |
| | | | | | | |
Net income | $ | 1.39 | | | $ | 0.29 | | | $ | 2.54 | | | $ | 0.24 | |
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, | | September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
(in thousands, except per share amounts) | | | | | | | |
Numerator for basic and diluted net income per share: | | | | | | | |
Net income from continuing operations | $ | 40,545 |
| | $ | 22,535 |
| | $ | 36,754 |
| | $ | 109,429 |
|
Loss from discontinued operations, net of tax | (17,362 | ) | | (84 | ) | | (17,456 | ) | | (175 | ) |
Net income | $ | 23,183 |
| | $ | 22,451 |
| | $ | 19,298 |
| | $ | 109,254 |
|
Denominator: | |
| | |
| | |
| | |
|
Weighted-average shares for basic income/(loss) per share | 79,761 |
| | 80,680 |
| | 80,138 |
| | 81,073 |
|
Dilutive effect of stock options and RSUs | 1,153 |
| | 1,337 |
| | 1,067 |
| | 1,455 |
|
Weighted-average shares for diluted income/(loss) per share | 80,914 |
| | 82,017 |
| | 81,205 |
| | 82,528 |
|
Income/(loss) per share | |
| | |
| | |
| | |
|
Basic: | |
| | |
| | |
| | |
|
Net income from continuing operations | $ | 0.51 |
| | $ | 0.28 |
| | $ | 0.46 |
| | $ | 1.35 |
|
Loss from discontinued operations, net of tax | (0.22 | ) | | — |
| | (0.22 | ) | | — |
|
Net income | $ | 0.29 |
| | $ | 0.28 |
| | $ | 0.24 |
| | $ | 1.35 |
|
Diluted: | |
| | | | | | |
Net income from continuing operations | $ | 0.50 |
| | $ | 0.27 |
| | $ | 0.45 |
| | $ | 1.33 |
|
Loss from discontinued operations, net of tax | (0.21 | ) | | — |
| | (0.21 | ) | | — |
|
Net income | $ | 0.29 |
| | $ | 0.27 |
| | $ | 0.24 |
| | $ | 1.33 |
|
The dilutive effect of share-based compensation awards has been calculated using the treasury-stock method. For both the three months ended September 30, 2019 and 2018, an aggregate of less than 0.1 million RSUs were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect. For both the nine months ended September 30, 20192020 and 2018,2019 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 January 2020, we acquired the remaining 66% of Location for $11.5 million, subject to certain working capital adjustments. Location is a leading provider of geographic location indicators for crime and 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. Location is included as a component of our 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 proprietary technology of $6.0 million with an estimated useful life of 10 years, client lists of $0.3 million with an estimated useful life of 5 years, trademarks of $0.8 million with an estimated useful life of 8 years, non-compete agreements of $0.4 million with an estimated useful life of 5 years, and goodwill of $12.6 million. For the nine months ended September 30, 2020, goodwill increased by $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 nine months ended September 30, 2020.
In August 2019, we completed the acquisition of National Tax Search LLC ("NTS")NTS for $15.0 million, subject to certain working capital adjustments, 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 76 - Fair Value for further details). NTS is a leading provider of commercial property tax payment services and specializes in identifying potential collateral loss related to unpaid property tax, homeowners association fee management,fees, and inaccurate flood zone determination.determinations. The NTS acquisition increases the Company'sour commercial property information offerings and is expected to drive future growth in the US. NTS is included as a component of our UWS 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 client lists of $4.6$5.0 million with an estimated useful life of 10 years, proprietary technology of $3.2$3.3 million with an estimated useful life of 7 years, trademarks of $0.9$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, contract liabilities of $1.8$2.5 million, and goodwill of $6.6 million, all of which is deductible for tax purposes.
In December 2018, we acquired the remaining 72.0% of Symbility Solutions Inc. (“Symbility”) for C$107.1 million, or approximately US $80.0 million, subject to certain working capital adjustments. Symbility is a leading global provider of cloud-based property claims workflow solutions for the property and casualty insurance industry, headquartered in Canada. This acquisition further progresses our long-term strategic plan by adding scale to our insurance and spatial businesses and international presence. Symbility is included as a component of our Property Intelligence & Risk Management (“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
proprietary technology of $14.9 million with an estimated useful life of 8 years, client lists of $6.4 million with an estimated useful life of 12 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 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 gain/(loss) on investments and other, net in our consolidated statement of operations in the fourth quarter of 2018. For the nine months ended September 30, 2019, goodwill decreased by $0.2 million as a result of a change in the purchase price allocation for certain working capital adjustments.
In December 2018, we completed the acquisition of Breakaway Holdings, LLC d.b.a Homevisit (“HomeVisit”) for $12.7 million, subject to certain working capital adjustments. HomeVisit is a leading provider of marketing focused real estate solutions, including property listing photography, videography, 3D modeling, drone imagery and related services. Given anticipated synergy with our pre-existing real estate solutions platforms, this acquisition is expected to enable the next generation of property marketing solutions for real estate professionals, multiple listing services (“MLSs”), brokers and agents across North America. HomeVisit is included as a component of our 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 $1.4 million for non-compete agreements with an estimated useful life of 5 years, client lists of $0.9 million with an estimated useful life of 11 years, trademarks of $0.2 million with an estimated useful life of 3 years, and goodwill of $10.4$5.5 million, all of which is deductible for tax purposes. For the nine months ended September 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.
We incurredThere was $0.1 million and $0.2 million of acquisition-related costs within selling, general and administrative expenses on our condensed consolidated statementstatements of operations for both the three months ended September 30, 2020 and 2019, and 2018, respectively,$0.1 million and $0.3 million and $1.9 millionof these costs for the nine months ended September 30, 20192020 and 2018,2019, respectively.
Note 1413 – Segment Information
We have organized into 2 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 multifamilyinsurance 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 $2.7$2.3 million and $1.7$1.9 million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $6.7$8.2 million and $4.9$4.4 million for the nine months ended September 30, 20192020 and 2018,2019, respectively. The segment also included intercompany expenses of $0.8$0.6 million and $0.7$0.8 million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $2.6$1.9 million and $2.3$2.6 million for the nine months ended September 30, 20192020 and 2018,2019, respectively.
Underwriting & Workflow Solutions. Our UWS segment combines property information,and 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 $0.8$0.6 million and $0.7$0.8 million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $2.6$1.9 million and $2.3$2.6 million for the nine months ended September 30, 20192020 and 2018,2019, respectively. The segment also included intercompany expenses of $2.7$0.9 million and $1.7$1.0 million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $6.7$2.7 million and $4.9$3.5 million for the nine months ended September 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 $1.5 million and $5.6 million for the three and nine months ended September 30, 2020, respectively, and $0.9 million for both the three and nine months ended September 30, 2019.
Selected financial information by reportable segment related to our continuing operations 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 September 30, 2020 | | | | | | |
PIRM | | $ | 176,248 | | | $ | 23,474 | | | $ | 22,670 | | | $ | 1,013 | | | $ | 58,325 | | | $ | 16,957 | |
UWS | | 263,342 | | | 12,017 | | | 124,699 | | | 0 | | | 124,834 | | | 2,366 | |
Corporate | | 0 | | | 8,119 | | | (74,186) | | | (42) | | | (80,692) | | | 5,768 | |
Eliminations | | (2,863) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Consolidated (excluding discontinued operations) | | $ | 436,727 | | | $ | 43,610 | | | $ | 73,183 | | | $ | 971 | | | $ | 102,467 | | | $ | 25,091 | |
| | | | | | | | | | | | |
For the Three Months Ended September 30, 2019 | | | | | | | | | | | | |
PIRM | | $ | 169,079 | | | $ | 23,061 | | | $ | 18,375 | | | $ | 762 | | | $ | 19,366 | | | $ | 10,706 | |
UWS | | 209,138 | | | 11,800 | | | 70,831 | | | (4) | | | 70,642 | | | 1,942 | |
Corporate | | 0 | | | 7,528 | | | (27,339) | | | (151) | | | (58,340) | | | 13,766 | |
Eliminations | | (2,646) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Consolidated (excluding discontinued operations) | | $ | 375,571 | | | $ | 42,389 | | | $ | 61,867 | | | $ | 607 | | | $ | 31,668 | | | $ | 26,414 | |
| | | | | | | | | | | | |
For the Nine Months Ended September 30, 2020 | | | | | | | | | | | | |
PIRM | | $ | 504,379 | | | $ | 69,833 | | | $ | 65,249 | | | $ | 2,483 | | | $ | 102,451 | | | $ | 42,813 | |
UWS | | 680,455 | | | 36,091 | | | 281,567 | | | 0 | | | 281,717 | | | 5,891 | |
Corporate | | 0 | | | 24,715 | | | (136,229) | | | (624) | | | (206,348) | | | 20,200 | |
Eliminations | | (10,101) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Consolidated (excluding discontinued operations) | | $ | 1,174,733 | | | $ | 130,639 | | | $ | 210,587 | | | $ | 1,859 | | | $ | 177,820 | | | $ | 68,904 | |
| | | | | | | | | | | | |
For the Nine Months Ended September 30, 2019 | | | | | | | | | | | | |
PIRM | | $ | 501,854 | | | $ | 72,135 | | | $ | 44,110 | | | $ | 720 | | | $ | 38,382 | | | $ | 36,767 | |
UWS | | 593,175 | | | 39,391 | | | 121,946 | | | (12) | | | 121,745 | | | 8,472 | |
Corporate | | 0 | | | 21,241 | | | (94,386) | | | (210) | | | (151,902) | | | 33,413 | |
Eliminations | | (6,997) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Consolidated (excluding discontinued operations) | | $ | 1,088,032 | | | $ | 132,767 | | | $ | 71,670 | | | $ | 498 | | | $ | 8,225 | | | $ | 78,652 | |
| | | | | | | | | | | | | | |
(in thousands) | | | | |
Assets | | September 30, 2020 | | December 31, 2019 |
PIRM | | $ | 1,851,655 | | | $ | 1,932,643 | |
UWS | | 2,019,299 | | | 2,008,233 | |
Corporate | | 6,185,679 | | | 5,950,472 | |
Eliminations | | (5,870,954) | | | (5,934,053) | |
Consolidated (excluding discontinued operations) | | $ | 4,185,679 | | | $ | 3,957,295 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(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 September 30, 2019 | | | | | | |
PIRM | | $ | 181,649 |
| | $ | 25,015 |
| | $ | 23,443 |
| | $ | 762 |
| | $ | 27,197 |
| | $ | 12,221 |
|
UWS | | 280,828 |
| | 13,012 |
| | 77,758 |
| | (4 | ) | | 74,803 |
| | 2,319 |
|
Corporate | | — |
| | 7,690 |
| | (27,501 | ) | | (153 | ) | | (61,455 | ) | | 15,078 |
|
Eliminations | | (3,520 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Consolidated (excluding discontinued operations) | | $ | 458,957 |
| | $ | 45,717 |
| | $ | 73,700 |
| | $ | 605 |
| | $ | 40,545 |
| | $ | 29,618 |
|
| | | | | | | | | | | | |
For the Three Months Ended September 30, 2018 | | |
| | |
| | | | | | |
| | |
|
PIRM | | $ | 180,607 |
| | $ | 26,143 |
| | $ | 22,978 |
| | $ | (168 | ) | | $ | 24,242 |
| | $ | 12,200 |
|
UWS | | 273,625 |
| | 16,402 |
| | 61,850 |
| | (12 | ) | | 61,621 |
| | 3,151 |
|
Corporate | | — |
| | 5,916 |
| | (25,048 | ) | | 19 |
| | (63,328 | ) | | 10,715 |
|
Eliminations | | (2,464 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Consolidated (excluding discontinued operations) | | $ | 451,768 |
| | $ | 48,461 |
| | $ | 59,780 |
| | $ | (161 | ) | | $ | 22,535 |
| | $ | 26,066 |
|
| | | | | | | | | | | | |
For the Nine Months Ended September 30, 2019 | | |
| | |
| |
|
| |
|
| | |
| | |
|
PIRM | | $ | 541,174 |
| | $ | 77,927 |
| | $ | 60,821 |
| | $ | 720 |
| | $ | 57,856 |
| | $ | 42,124 |
|
UWS | | 804,363 |
| | 42,544 |
| | 143,389 |
| | (12 | ) | | 140,615 |
| | 12,948 |
|
Corporate | | — |
| | 21,571 |
| | (94,716 | ) | | (211 | ) | | (161,717 | ) | | 37,567 |
|
Eliminations | | (9,334 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Consolidated (excluding discontinued operations) | | $ | 1,336,203 |
| | $ | 142,042 |
| | $ | 109,494 |
| | $ | 497 |
| | $ | 36,754 |
| | $ | 92,639 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
For the Nine Months Ended September 30, 2018 | | |
| | |
| |
|
| |
|
| | |
| | |
|
PIRM | | $ | 537,029 |
| | $ | 77,341 |
| | $ | 72,730 |
| | $ | 3,843 |
| | $ | 77,208 |
| | $ | 39,323 |
|
UWS | | 855,270 |
| | 47,849 |
| | 195,800 |
| | (4 | ) | | 195,243 |
| | 7,850 |
|
Corporate | | — |
| | 16,758 |
| | (74,694 | ) | | (930 | ) | | (163,022 | ) | | 18,860 |
|
Eliminations | | (7,230 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Consolidated (excluding discontinued operations) | | $ | 1,385,069 |
| | $ | 141,948 |
| | $ | 193,836 |
| | $ | 2,909 |
| | $ | 109,429 |
| | $ | 66,033 |
|
Note 14 – Discontinued Operations
|
| | | | | | | | |
(in thousands) | | | | |
Assets | | September 30, 2019 | | December 31, 2018 |
PIRM | | $ | 1,906,138 |
| | $ | 1,953,732 |
|
UWS | | 2,170,041 |
| | 2,200,292 |
|
Corporate | | 6,056,340 |
| | 5,995,787 |
|
Eliminations | | (6,000,412 | ) | | (5,981,450 | ) |
Consolidated (excluding discontinued operations) | | $ | 4,132,107 |
| | $ | 4,168,361 |
|
In July 2020, we announced our intentions to pursue the sale of our reseller businesses as these are lower-margin businesses that are highly influenced by vendor pricing. These businesses are comprised of our Credit Solutions and Rental Property Solutions operations. We expect to sell these businesses to unrelated third parties within one year of the quarter ended September 30, 2020. These reseller business were included within the PIRM and UWS segments.
For both the three and nine months ended September 30, 2020, we recorded $0.6 million in costs directly related to the sale of these reseller businesses. Each of these businesses is reflected in our accompanying condensed consolidated financial statements as discontinued operations.
In September 2014, we completed the sale of our collateral solutions and field services businesses, which were included in the former reporting segment Asset Management and Processing Solutions ("AMPS"). In connection with the sale of our Employer and Litigation Services businesses (“ELI”) in December 2010, we retained certain liabilities and, in September 2016, a jury returned an unfavorable verdict against this discontinued operating unit, which we appealed. In August 2019, the verdict was upheld on appeal. We were unable to secure further review of the appellate decision and paid $23.0 million to satisfy the judgement in December 2019.
In October 2020, we consummated the sale of a component of the reseller operations for $9.0 million.
Summarized below are certain assets and liabilities classified as discontinued operations as of September 30, 2020 and December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2020 | | PIRM | | UWS | | AMPS | | ELI | | Total | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 941 | | | $ | 1,369 | | | $ | 0 | | | $ | 0 | | | $ | 2,310 | | | | | | | | | | | | | |
Accounts receivable | | 4,304 | | | 39,689 | | | 0 | | | 0 | | | 43,993 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Property and equipment, net | | 5,257 | | 22,960 | | 0 | | | 0 | | | 28,217 | | | | | | | | | | | | | |
Goodwill, net | | 29,269 | | 79,931 | | 0 | | | 0 | | | 109,200 | | | | | | | | | | | | | |
Capitalized data and database costs, net | | 16,643 | | 941 | | 0 | | | 0 | | | 17,584 | | | | | | | | | | | | | |
Other assets | | 537 | | 5,682 | | 268 | | 0 | | | 6,487 | | | | | | | | | | | | | |
Total assets | | $ | 56,951 | | | $ | 150,572 | | | $ | 268 | | | $ | 0 | | | $ | 207,791 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 2,460 | | | $ | 24,590 | | | $ | 240 | | | $ | 0 | | | $ | 27,290 | | | | | | | | | | | | | |
Accrued salaries and benefits | | 487 | | 3,073 | | 0 | | | 0 | | | 3,560 | | | | | | | | | | | | | |
Deferred income tax liabilities | | 8,206 | | | 9,637 | | 0 | | | 393 | | | 18,236 | | | | | | | | | | | | | |
Other liabilities | | 389 | | 1,022 | | 0 | | | 0 | | | 1,411 | | | | | | | | | | | | | |
Total liabilities | | $ | 11,542 | | | $ | 38,322 | | | $ | 240 | | | $ | 393 | | | $ | 50,497 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 711 | | | $ | 313 | | | $ | 0 | | | $ | 0 | | | $ | 1,024 | | | | | | | | | | | | | |
Accounts receivable | | 3,538 | | | 30,171 | | | 0 | | | 0 | | | 33,709 | | | | | | | | | | | | | |
Income tax receivable | | 0 | | | 0 | | | 0 | | | 6,166 | | 6,166 | | | | | | | | | | | | | |
Property and equipment, net | | 4,831 | | 21,520 | | 0 | | | 0 | | | 26,351 | | | | | | | | | | | | | |
Goodwill, net | | 29,269 | | 79,931 | | 0 | | | 0 | | | 109,200 | | | | | | | | | | | | | |
Capitalized data and database costs, net | | 17,781 | | 888 | | 0 | | | 0 | | | 18,669 | | | | | | | | | | | | | |
Other assets | | 598 | | 5,981 | | 268 | | 20 | | 6,867 | | | | | | | | | | | | | |
Total assets | | $ | 56,728 | | | $ | 138,804 | | | $ | 268 | | | $ | 6,186 | | | $ | 201,986 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 987 | | | $ | 15,881 | | | $ | 240 | | | $ | 22 | | | $ | 17,130 | | | | | | | | | | | | | |
Accrued salaries and benefits | | 785 | | 2,395 | | 0 | | | 0 | | | 3,180 | | | | | | | | | | | | |
Deferred income tax liabilities | | 8,206 | | 9,637 | | 0 | | | 393 | | | 18,236 | | | | | | | | | | | | |
Other liabilities | | 456 | | 3,706 | | 0 | | | 0 | | | 4,162 | | | | | | | | | | | | |
Total liabilities | | $ | 10,434 | | | $ | 31,619 | | | $ | 240 | | | $ | 415 | | | $ | 42,708 | | | | | | | | | | | | | |
Summarized below are the components of our income/(loss) from discontinued operations, net of tax for the three and nine months ended September 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | | | | | | | |
For the Three Months September 30, 2020 | | PIRM | | UWS | | AMPS | | ELI | | Total |
Operating revenues | | $ | 9,904 | | | $ | 93,262 | | | $ | 0 | | | $ | 0 | | | $ | 103,166 | |
Cost of services (exclusive of depreciation and amortization) | | 4,711 | | | 75,732 | | | 0 | | | 0 | | | 80,443 | |
Selling, general and administrative expenses | | 2,989 | | | 4,539 | | | 0 | | | (1) | | | 7,527 | |
Depreciation and amortization | | 1,204 | | | 957 | | | 0 | | | 0 | | | 2,161 | |
Gain on investments and other, net | | 0 | | | (1,194) | | | 0 | | | 0 | | | (1,194) | |
Income from discontinued operations before income taxes | | 1,000 | | | 13,228 | | | 0 | | | 1 | | | 14,229 | |
Provision for income taxes | | 250 | | | 3,300 | | | 0 | | | 0 | | | 3,550 | |
Income from discontinued operations, net of tax | | $ | 750 | | | $ | 9,928 | | | $ | 0 | | | $ | 1 | | | $ | 10,679 | |
| | | | | | | | | | |
For the Three Months September 30, 2019 | | | | | | | | | | |
Operating revenues | | $ | 11,066 | | | $ | 72,317 | | | $ | 0 | | | $ | 0 | | | $ | 83,383 | |
Cost of services (exclusive of depreciation and amortization) | | 5,112 | | | 58,359 | | | 0 | | | 0 | | | 63,471 | |
Selling, general and administrative expenses | | 2,763 | | | 1,913 | | | 5 | | | 23,129 | | | 27,810 | |
Depreciation and amortization | | 1,953 | | | 1,375 | | | 0 | | | 0 | | | 3,328 | |
Impairment Loss | | (1) | | | 78 | | | 0 | | | 0 | | | 77 | |
Loss on investments and other, net | | 0 | | | 3 | | | 0 | | | 0 | | | 3 | |
Income/(loss) from discontinued operations before income taxes | | 1,239 | | | 10,589 | | | (5) | | | (23,129) | | | (11,306) | |
Provision/(benefit) for income taxes | | 309 | | | 2,642 | | | (1) | | | (5,771) | | | (2,821) | |
Income/(loss) from discontinued operations, net of tax | | $ | 930 | | | $ | 7,947 | | | $ | (4) | | | $ | (17,358) | | | $ | (8,485) | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | | | | | | | |
For the Nine Months Ended September 30, 2020 | | PIRM | | UWS | | AMPS | | ELI | | Total |
Operating revenues | | $ | 28,452 | | | $ | 258,058 | | | $ | 0 | | | $ | 0 | | | $ | 286,510 | |
Cost of services (exclusive of depreciation and amortization) | | 14,054 | | | 211,604 | | | 0 | | | 0 | | | 225,658 | |
Selling, general and administrative expenses | | 9,674 | | | 8,816 | | | 1 | | | (19) | | | 18,472 | |
Depreciation and amortization | | 4,906 | | | 3,770 | | | 0 | | | 0 | | | 8,676 | |
(Gain)/loss on investments and other, net | | 0 | | | (3,803) | | | 0 | | | 0 | | | (3,803) | |
Income from discontinued operations before income taxes | | (182) | | | 37,671 | | | (1) | | | 19 | | | 37,507 | |
Provision for income taxes | | (45) | | | 9,398 | | | 0 | | | 5 | | | 9,358 | |
Income from discontinued operations, net of tax | | $ | (137) | | | $ | 28,273 | | | $ | (1) | | | $ | 14 | | | $ | 28,149 | |
| | | | | | | | | | |
For the Nine Months Ended September 30, 2019 | | | | | | | | | | |
Operating revenues | | $ | 35,348 | | | $ | 212,822 | | | $ | 0 | | | $ | 0 | | | $ | 248,170 | |
Cost of services (exclusive of depreciation and amortization) | | 16,009 | | | 171,475 | | | 0 | | | 0 | | | 187,484 | |
Selling, general and administrative expenses | | 8,139 | | | 5,373 | | | 6 | | | 23,252 | | | 36,770 | |
Depreciation and amortization | | 5,791 | | | 3,484 | | | 0 | | | 0 | | | 9,275 | |
Impairment Loss | | 0 | | | 78 | | | 0 | | | 0 | | | 78 | |
Gain on investments and other, net | | 0 | | | (191) | | | 0 | | | 0 | | | (191) | |
Income/(loss) from discontinued operations before income taxes | | 5,409 | | | 32,603 | | | (6) | | | (23,252) | | | 14,754 | |
Provision/(benefit) for income taxes | | 1,350 | | | 8,133 | | | (1) | | | (5,801) | | | 3,681 | |
Income/(loss) from discontinued operations, net of tax | | $ | 4,059 | | | $ | 24,470 | | | $ | (5) | | | $ | (17,451) | | | $ | 11,073 | |
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. ( “Senator”) and Cannae Holdings, Inc. (“Cannae”) to acquire the Company for $66.00 per share in cash (the “Unsolicited Proposal”), and the outcome and consequences of certain proposals, including the removal and replacement of up to nine members of our Board of Directors, that Senator and Cannae have requested be presented to our stockholders and that will be voted upon at a special meeting of stockholders on November 17, 2020 (the “Proxy Contest”).
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 and the Proxy Contest;
•the impact of 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;
•changes in prices at which we are able to repurchase our shares and limitations on our ability to repurchase our shares;
•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”).
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 of this Quarterly Report on Form 10-Q, Item 1A of Part II of our Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2020 and June 30, 2020, and Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as such risk factors may be amended, supplemented, or superseded from time to time by other reports we file with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of the filing of this Quarterly Report on Form 10-Q.
Business Overview
We are a leading global property information, analytics and data-enabled software platforms and services provider operating in North America, Western Europe and Asia Pacific. Our 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 United States (“US”).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”) 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 multifamilyinsurance 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 as well as insurance and spatial solutions in North America, Western Europe and Asia Pacific.
Our Underwriting & Workflow Solutions (“UWS”) segment combines property information and mortgage information and consumer information to provideprovide 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 nine months ended September 30, 2020, our continuing operations experienced unfavorable business and revenue impacts of approximately $4.3 million and $16.1 million, respectively, related to the COVID-19 pandemic, exclusive of the increased mortgage refinance volumes. We have also incurred COVID-19 related expenses of $0.6 million and $2.3 million for the three and nine months ended September 30, 2020, respectively. As of September 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 September 30, 2020 consisted primarily of $302.3 million of cash and cash equivalents, and $750.0 million of unused committed capacity under our revolving credit facility, and we are in compliance with all financial covenants.
Business Environment
We believe mortgage origination unit volumes wereincreased by approximately 20%35% to 25% higher40% in the third quarter of 20192020 relative to the same period in 2018,2019, primarily due to a continued low interest rate environment during which the 10 year US Treasury yield andhigher mortgage interest rates significantly declined. As a result, refinance volumes activity has strengthened andresulting from lower interest rates. For 2020, we now expect full-year 2019total mortgage unit volumes to beincrease by approximately 8%35% relative to 10% higher than 20182019 levels, with historically low interest rates benefiting refinance volumes and increasing purchase activity. Further, we anticipate that short-term rates will remain near zero for the foreseeable future and we expect mortgage rates will also remain at near historically low levels. 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 the foreseeable future.
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 31%37% and 32%29% of our operating revenues for the three months ended September 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 September 30, 2019 nor 2018.2020 or 2019. Approximately 30%35% and 32%26% of our operating revenues for the nine months ended September 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 these periods.the nine months ended September 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 2019 unfavorablyforeign exchange translation impacted the translation of theour financial results offrom our international operating revenues favorably by $8.2$1.4 million and unfavorably by $3.0 million for the three and nine months ended September 30, 2019.2020, 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 which was paid in September 2020 to stockholders of record as of the close of business on September 1, 2020. In October 2020, our Board of Directors declared a cash dividend of $0.33 per share of common stock to be paid in December 2020 to shareholders of record on the close of business December 1, 2020.
Acquisitions
In August 2019,January 2020, we completedacquired the acquisitionremaining 66% of National Tax Search, LLC (“NTS”Location, Inc. ("Location") for $15.0$11.5 million, subject to certain working capital adjustments. NTSLocation is included as a component of our UWSPIRM segment. See Note 1312 - Acquisitions for further discussion.
Business Exits &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. We successfully completed the initial transformation phase, and will continue transitioning our technology over the foreseeable future on an opportunistic basis. The transition to GCP allows us 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 continue the transition.
Divestiture of Non-Core Businesses & Transformations
In July 2020, we announced our intention to exit our reseller operations focused on mortgage credit and borrower verification and multi-family tenant screening. Although market leaders in their respective business areas, these reseller businesses are not compatible with our long-term strategic imperatives. The divestiture of these operations is expected to improve the Company’s revenue growth trends, revenue mix, and significantly enhance profit margins. As a result of this strategic decision, the businesses have been reflected in our consolidated financial statements as discontinued operations for all periods presented. For the three and nine months ended September 30, 2020, these businesses generated revenues of $103.2 million and $286.5 million, respectively, and operating income of $14.2 million and $37.5 million, respectively. Please refer to Note 14 - Discontinued Operations for further information.
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”("AMC") transformation program. We believe these actions will expandhave expanded our overall profit margins and provide for enhanced long-term organic growth trends. In September 2019, we divested our default technology-relatedmanagement related platforms and received proceeds of $3.8 million. The AMC transformation concluded in December 2019. Operating revenues attributable to the aforementioned business exits and AMC transformation were $17.0 million and expect$65.6 million for three and nine months ended September 30, 2019, respectively.
Unsolicited Proposal and Proxy Contest
On June 26, 2020, we received the AMC transformationUnsolicited Proposal from Senator and Cannae to be concludedacquire the Company for $65.00 per share in cash, which initial proposal was revised by December 31, 2019.Senator and Cannae on September 14, 2020 by $1.00 per share to $66.00 per share in cash. 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 Federal Trade Commission (the “FTC”) that the FTC is conducting an investigation (the “FTC Investigation”) of the proposed acquisition of the Company by Senator and Cannae and requesting that we produce information in connection with that investigation. On August 7, 2020, we received a Civil Investigative Demand from the FTC in connection with the FTC Investigation into Senator and Cannae, requesting that the Company produce additional information in connection with that investigation.
On July 29, 2020, in connection with the Unsolicited Proposal, Senator and Cannae issued a press release announcing their initiation of the Proxy Contest.Although our Board of Directors opposes the actions being pursued by Senator and Cannae because they believe these proposals are not in the best interests of the Company’s stockholders, on August 9, 2020, the Board of Directors determined to call a special meeting to provide stockholders the opportunity to vote and express their views. The Board of Directors set the special meeting for November 17, 2020, with a record date of September 18, 2020.
On October 28, 2020, we issued a press release confirming that we are engaging with third parties that have indicated interest in a potential acquisition of the Company at a value at or above $80 per share. On November 3, 2020, we issued a press release announcing that our Board of Directors is conducting a thorough strategic review (the “Strategic Review”) to maximize shareholder value.
The outcome of the Unsolicited Proposal, the Proxy Contest, the FTC Investigation, the Strategic Review and related circumstances are uncertain. These events have required us, and will continue to require us, to incur significant legal and advisory fees and expenses, and require significant time and attention by management and our Board of Directors. For a further discussion of risks, uncertainties and other factors relating to the Unsolicited Proposal, the Proxy Contest, the FTC Investigation and the Strategic Review that could impact our business and 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 June 30, 2020. The Company can offer no assurance that it will enter into any transaction with respect to a potential acquisition of the Company in the future or, if entered into, what the terms of any such transaction would be.
In connection with the Unsolicited Proposal and Proxy Contest, we accrued expenses of $36.9 million for the three and nine months ended September 30, 2019, we incurred lower revenues2020.
Unless otherwise indicated, the Management’s Discussion and Analysis of approximately $16.0 millionFinancial Condition and $30.0 million, respectively, attributable to our business exits and strategic transformation. We also recorded non-cash impairment chargesResults of $47.8 million and severance expense of $5.4 millionOperations in 2019 relatingthis Quarterly Report on Form 10-Q relate solely to the AMC transformation program.
Productivity and Cost Management
In line withdiscussion of our on-going commitment to operational excellence and margin expansion, we are targeting a cost reduction of at least $20.0 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 facilities and other operational improvements.
Consolidated Results of Operations
Three Months Ended September 30, 20192020 Compared to the Three Months Ended September 30, 20182019
Operating Revenues
Our consolidated operating revenues were $459.0$436.7 million for the three months ended September 30, 2019,2020, an increase of $7.2$61.2 million, or 1.6%16.3% when compared to the comparable period in 2018,2019, and consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except percentages) | 2020 | | 2019 | | $ Change | | % Change | |
PIRM | $ | 176,248 | | | $ | 169,079 | | | $ | 7,169 | | | 4.2 | % | |
UWS | 263,342 | | | 209,138 | | | 54,204 | | | 25.9 | | |
Corporate and eliminations | (2,863) | | | (2,646) | | | (217) | | | 8.2 | | |
Operating revenues | $ | 436,727 | | | $ | 375,571 | | | $ | 61,156 | | | 16.3 | % | |
|
| | | | | | | | | | | | | | |
(in thousands, except percentages) | 2019 | | 2018 | | $ Change | | % Change |
PIRM | $ | 181,649 |
| | $ | 180,607 |
| | $ | 1,042 |
| | 0.6 | % |
UWS | 280,828 |
| | 273,625 |
| | 7,203 |
| | 2.6 |
|
Corporate and eliminations | (3,520 | ) | | (2,464 | ) | | (1,056 | ) | | 42.9 |
|
Operating revenues | $ | 458,957 |
| | $ | 451,768 |
| | $ | 7,189 |
| | 1.6 | % |
Our PIRM segment operating revenues increased by $1.0$7.2 million, or 0.6%4.2%, for the three months ended September 30, 20192020, when compared to 2018.2019. Excluding acquisition activity of $11.1$1.0 million, operating revenues decreased $10.1 million due to lower property insights revenues of $5.6 million which included unfavorable foreign exchange of $2.5 million and weaker market conditions in Australia of $3.1 million. Insurance and spatial solutions revenues decreased by $1.9increased $6.2 million primarily due to softerour property insights and insurance solutions business gaining market-share of approximately $6.4 million and increased market demand mainly in catastrophic risk modeling. Other revenues decreasedvolumes & pricing and favorable foreign exchange impacting property insights by $2.6 million.an additional $2.7 million and $1.4 million, respectively. These gains were partially offset COVID-19 impacts totaling $4.3 million across our solution groups.
Our UWS segment revenues increased by $7.2$54.2 million, or 2.6%25.9%, for the three months ended September 30, 20192020, when compared to 2018. The variance is primarily2019. Excluding acquisition activity of $1.2 million, operating revenues increased $53.0 million due to higher mortgage marketproperty tax solutions revenues of $62.0 million, and higher flood data solutions revenues of $11.4 million primarily related to increased volumes, and market share gains, across our property tax, flood data and valuation solutions,pricing. These increases were partially offset by lower valuation solutions revenue of $19.0 million due to the impactimpacts of our AMC transformation program, and lower other revenues of $1.4 million. Operating revenues attributable to the aforementioned business exits and AMC transformation initiatives which lowered our revenues by approximately $16.0were $17.0 million within valuation solutions and other revenues.for the quarter ended September 30, 2019. Refer to "Business Exits & Transformation" discussion above for further details. Additionally, the UWS segment did not experience significant adverse impacts related to COVID-19 during the current period.
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 $228.2$154.2 million for the three months ended September 30, 2019,2020, a decrease of $2.2$10.5 million, or 1.0%6.4%, when compared to 2018.2019. Excluding acquisition activity of $6.2$1.4 million, the decrease of $8.4$11.9 million was primarily due to lower operating revenues and favorable product mix.
Selling, General and Administrative Expenses
Our consolidated selling, general and administrative expenses was $111.3were $165.7 million for the three months ended September 30, 2019, a decrease2020, an increase of $1.8$59.1 million, or 1.6%55.5%, when compared to 2018.2019. Excluding acquisition activity of $5.4$1.1 million, the decreaseincrease of $7.2$58.0 million was primarily due to lower professional feeshigher costs as a result of $7.9the Unsolicited Proposal and the Proxy Contest of $36.9 million, lower outsourcedhigher other external services costs of $4.4$13.9 million, and personnel-related savings of $1.7 million. These were$11.5 million in compensation, primarily due to higher variable compensation costs relating to operating performance, partially offset by higher productivity-related investmentslower travel costs of $6.1$3.1 million and higherlower other expenses of $0.7$1.2 million.
Depreciation and Amortization
Our consolidated depreciation and amortization expense was $45.7$43.6 million for the three months ended September 30, 2019, a decrease2020, an increase of $2.7$1.2 million, or 5.7%2.9%, when compared to 2018.2019. Excluding acquisition activity of $1.2$0.3 million, the decreaseincrease of $3.9$0.9 million was primarily due to assets that were fully impaired during the previous quarter.addition of completed software projects and increased licenses in the current period.
Operating Income
Our consolidated operating income was $73.7$73.2 million for the three months ended September 30, 2019,2020, an increase of $13.9$11.3 million, or 23.3%18.3%, when compared to 2018,2019, and consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except percentages) | | 2020 | | 2019 | | $ Change | | % Change |
PIRM | | $ | 22,670 | | | $ | 18,375 | | | $ | 4,295 | | | 23.4 | % |
UWS | | 124,699 | | | 70,831 | | | 53,868 | | | 76.1 | |
Corporate and eliminations | | (74,186) | | | (27,339) | | | (46,847) | | | 171.4 | |
Operating income | | $ | 73,183 | | | $ | 61,867 | | | $ | 11,316 | | | 18.3 | % |
|
| | | | | | | | | | | | | | | |
(in thousands, except percentages) | | 2019 | | 2018 | | $ Change | | % Change |
PIRM | | $ | 23,443 |
| | $ | 22,978 |
| | $ | 465 |
| | 2.0 | % |
UWS | | 77,758 |
| | 61,850 |
| | 15,908 |
| | 25.7 |
|
Corporate and eliminations | | (27,501 | ) | | (25,048 | ) | | (2,453 | ) | | 9.8 |
|
Operating income | | $ | 73,700 |
| | $ | 59,780 |
| | $ | 13,920 |
| | 23.3 | % |
Our PIRM segment operating income increased by $0.5$4.3 million, or 2.0%23.4%, for the three months ended September 30, 20192020 when compared to 2018.2019. Acquisitions lowered operating income by $0.3 million primarily due to investments in data and technology capabilities and the amortization of acquisition-related intangible assets. Excluding acquisition activity, of $0.1 million operating income increased by $0.6$4.6 million and margins increased by 108220 basis points, primarily due to higher revenues and the impact of our ongoing operational efficiency programs.
Our UWS segment operating income increased by $15.9$53.9 million, or 25.7%76.1%, for the three months ended September 30, 20192020 when compared to 2018.2019. Acquisitions lowered operating income by $0.4 million primarily due to investments in data and technology capabilities and the amortization of acquisition-related intangible assets. Excluding acquisition activity, of $0.1 million, operating income increased by $16.0$54.3 million and margins increased by 5171,380 basis points, primarily driven by higher revenues, favorable product mix, and the impact of our ongoing operational efficiency programs.
Corporate and eliminations had an unfavorable variance of $2.5$46.8 million, or 9.8%171.4%, for the three months ended September 30, 20192020 when compared to 2018,2019, primarily due to higher investments in datacosts associated with the Unsolicited Proposal and technology capabilities.the Proxy Contest and higher variable compensation costs relating to operating performance.
Total Interest Expense, net
Our consolidated total interest expense, net was $19.5$16.9 million for the three months ended September 30, 2019, an increase2020, a decrease of $0.4$2.6 million, or 2.2%13.2%, when compared to 2018.2019. The increasedecrease was primarily due to higherlower interest rates on our interest rate swaps (“Swaps”). See Note 5 - Long-Term Debt for further discussion on the Swaps.as well as lower average outstanding principal balances.
Gain/(Loss) on Investments and Other, net
Our consolidated gain on investments and other, net was $0.2$35.7 million for the three months ended September 30, 2019, an unfavorable2020, a favorable variance of $2.6$35.4 million, when compared to 2018.2019. The current period netvariance is primarily includes $1.3 million gain related to the sale of a non-core business unit and other gains of $0.4 million, largely offset by a loss of $1.5 million relateddue to a non-cash impairment charge on an equity method investment. The prior year period primarily reflects $1.0 million in gains related to supplemental benefit plans as well as a $1.7$35.1 million gain from the sale of an equity method investment and higher gains of $1.7 million related to supplemental benefit plans, offset by a non-core business-line.loss of $1.4 million related to the impairment of an equity method investment.
ProvisionProvision/(Benefit) for Income Taxes
Our consolidated provisionprovision/(benefit) for income taxes from continuing operations before equity in earnings/(losses)earnings of affiliates and income taxes was $14.5a benefit of $9.6 million and $20.8a provision of $11.5 million for the three months ended September 30, 20192020 and 2018,2019, respectively. The effective tax rate was 26.6%a benefit of 10.4% and 47.9%a provision of 27.1% for the three months ended September 30, 20192020 and 2018,2019, respectively. The change in the effective income tax rate was primarily due to the one-time charge of $12.5a $24 million for the transitiondiscrete tax (in connection with the Tax Cuts and Jobs Act) which webenefit recorded in relation to the prior year.settlement of an IRS examination in 2020.
Equity in Earnings/(Losses)Earnings of Affiliates, net of tax
Our consolidated equity in earnings of affiliates, net of tax was $0.6$1.0 million for the three months ended September 30, 2019,2020, a favorable variance of $0.8$0.4 million when compared to 2018.2019. We have equity interests in various affiliates which had higher earnings in the current period compared to the prior year losses causing the favorable variance.period.
Income/(loss) from Discontinued Operations, netNet of taxTax
Our consolidated lossincome/(loss) from discontinued operations, net of tax was $17.4$10.7 million for the three months ended September 30, 2020, a favorable variance of $19.2 million when compared to 2019. ThisThe increase is primarily due to higher gains from our reseller businesses related to increased market volumes and a prior year loss principally related to the impact of an appellate court decision in August 2019 pertaining to a discontinued operating unit, for which we recorded a liability of $21.7 million as of September 30, 2019. See Note 114 - Basis of Condensed Consolidated Financial Statements Discontinued Operationsfor further information.
Our corporate and eliminations were comprised of intercompany revenue eliminations between our operating segments.
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.
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.senior term debt. As of September 30, 2019,2020, the combined remaining notional balance of the Swaps was $1.3$1.2 billion, with a weighted average fixed interest rate of 2.05%2.40% (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. AAfter giving effect to the Swaps, a hypothetical 1% increase or decrease in interest rates would result in an approximately $0.9 million change to interest expense on our existing indebtedness as of September 30, 20192020, 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 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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 continueare currently prioritizing capital return to preserve the capacity to executeour stockholders through stock repurchases, under our existing share repurchase authorization, going forward we will strivecontinue to pursue a balanced approach to capital allocation and will consider the repurchase of shares of our common stock, the retirement of outstanding debt and the pursuit of strategic acquisitions on an opportunistic basis.
Item 6. Exhibits.
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.