UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-13585
CORELOGIC, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
| Delaware | 95-1068610 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| | | | | | | | | | | | | | | | | |
| 40 Pacifica | Irvine | California | 92618 | |
| (Street Address) | (City) | (State) | (Zip Code) | |
(949) 214-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class: | Trading symbol(s) | Name of exchange on which registered |
Common Stock, $0.00001 par value | CLGX | New York Stock Exchange |
Preferred Stock Purchase Rights | CLGX | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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).
Yes ☒ No ☐
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.
| | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
On July 21, 2020May 4, 2021 there were 79,458,52273,618,482 shares of common stock outstanding.
CoreLogic, Inc.
Table of Contents
| | | | | | | | |
Part I: | Financial Information | |
| | |
Item 1. | Financial Statements (unaudited) | |
| | |
| A. Condensed Consolidated Balance Sheets as of June 30, 2020March 31, 2021 and December 31, 20192020 | |
| | |
| B. Condensed Consolidated Statements of Operations for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 | |
| | |
| C. Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 | |
| | |
| D. Condensed Consolidated Statements of Cash Flows for the sixthree months ended June 30,March 31, 2021 and 2020 and 2019 | |
| | |
| E. Condensed Consolidated StatementStatements of Stockholders' Equity for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 | |
| | |
| F. Notes to Condensed Consolidated Financial Statements | |
| | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
| | |
Item 4. | Controls and Procedures | |
| | |
Part II: | Other Information | |
| | |
Item 1. | Legal Proceedings | |
| | |
Item 1A. | Risk Factors | |
| | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| | |
Item 6. | Exhibits | |
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
CoreLogic, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| (in thousands, except par value) | (in thousands, except par value) | June 30, | | December 31, | (in thousands, except par value) | March 31, | | December 31, |
Assets | Assets | 2020 | | 2019 | Assets | 2021 | | 2020 |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | $ | 137,286 | | | $ | 105,185 | | |
Cash and Cash Equivalents | | Cash and Cash Equivalents | $ | 227,102 | | | $ | 167,422 | |
| Accounts receivable (less allowance for credit losses of $8,007 and $7,161 as of June 30, 2020 and December 31, 2019, respectively) | 290,199 | | | 281,392 | | |
Accounts receivable (less allowance for credit losses of $8,636 and $9,838 as of March 31, 2021 and December 31, 2020, respectively) | | Accounts receivable (less allowance for credit losses of $8,636 and $9,838 as of March 31, 2021 and December 31, 2020, respectively) | 320,609 | | | 303,202 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 68,991 | | | 59,972 | | Prepaid expenses and other current assets | 66,148 | | | 82,794 | |
| Assets of discontinued operations | | Assets of discontinued operations | 166,621 | | | 202,417 | |
| Total current assets | Total current assets | 496,476 | | | 446,549 | | Total current assets | 780,480 | | | 755,835 | |
Property and equipment, net | Property and equipment, net | 440,015 | | | 451,021 | | Property and equipment, net | 401,552 | | | 406,114 | |
Operating lease assets | Operating lease assets | 59,571 | | | 65,825 | | Operating lease assets | 80,724 | | | 82,459 | |
Goodwill, net | Goodwill, net | 2,400,412 | | | 2,396,096 | | Goodwill, net | 2,319,411 | | | 2,315,495 | |
Other intangible assets, net | Other intangible assets, net | 351,055 | | | 378,818 | | Other intangible assets, net | 310,226 | | | 320,921 | |
Capitalized data and database costs, net | Capitalized data and database costs, net | 327,936 | | | 327,078 | | Capitalized data and database costs, net | 321,528 | | | 321,211 | |
Investment in affiliates, net | 11,839 | | | 16,666 | | |
| Other assets | Other assets | 76,087 | | | 76,604 | | Other assets | 114,502 | | | 81,187 | |
Total assets | Total assets | $ | 4,163,391 | | | $ | 4,158,657 | | Total assets | $ | 4,328,423 | | | $ | 4,283,222 | |
Liabilities and Equity | Liabilities and Equity | | | | Liabilities and Equity | | | |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Accounts payable and other accrued expenses | Accounts payable and other accrued expenses | $ | 185,355 | | | $ | 173,989 | | Accounts payable and other accrued expenses | $ | 208,149 | | | $ | 177,606 | |
Accrued salaries and benefits | Accrued salaries and benefits | 67,039 | | | 86,598 | | Accrued salaries and benefits | 57,698 | | | 57,499 | |
| Contract liabilities, current | Contract liabilities, current | 362,702 | | | 321,647 | | Contract liabilities, current | 478,074 | | | 411,821 | |
| Liabilities of discontinued operations | | Liabilities of discontinued operations | 56,339 | | | 44,677 | |
Current portion of long-term debt | Current portion of long-term debt | 2,504 | | | 56,022 | | Current portion of long-term debt | 9,003 | | | 43,230 | |
Operating lease liabilities, current | Operating lease liabilities, current | 17,855 | | | 18,058 | | Operating lease liabilities, current | 14,833 | | | 15,566 | |
Total current liabilities | Total current liabilities | 635,455 | | | 656,314 | | Total current liabilities | 824,096 | | | 750,399 | |
Long-term debt, net of current | Long-term debt, net of current | 1,566,292 | | | 1,610,538 | | Long-term debt, net of current | 1,763,212 | | | 1,828,003 | |
Contract liabilities, net of current | Contract liabilities, net of current | 589,744 | | | 563,246 | | Contract liabilities, net of current | 631,019 | | | 617,318 | |
Deferred income tax liabilities | Deferred income tax liabilities | 85,280 | | | 110,396 | | Deferred income tax liabilities | 99,280 | | | 91,853 | |
Operating lease liabilities, net of current | Operating lease liabilities, net of current | 76,411 | | | 85,139 | | Operating lease liabilities, net of current | 97,953 | | | 99,966 | |
| Other liabilities | Other liabilities | 208,086 | | | 181,814 | | Other liabilities | 156,778 | | | 172,421 | |
Total liabilities | Total liabilities | 3,161,268 | | | 3,207,447 | | Total liabilities | 3,572,338 | | | 3,559,960 | |
| | Stockholders' equity: | Stockholders' equity: | | | | Stockholders' equity: | | | |
Preferred stock, $0.00001 par value; 500 shares authorized, 0 shares issued or outstanding | Preferred stock, $0.00001 par value; 500 shares authorized, 0 shares issued or outstanding | — | | | — | | Preferred stock, $0.00001 par value; 500 shares authorized, 0 shares issued or outstanding | 0 | | | 0 | |
Common stock, $0.00001 par value; 180,000 shares authorized; 79,459 and 78,972 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively | 1 | | | 1 | | |
Common stock, $0.00001 par value; 180,000 shares authorized; 73,619 and 73,152 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | | Common stock, $0.00001 par value; 180,000 shares authorized; 73,619 and 73,152 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | 1 | | | 1 | |
Additional paid-in capital | Additional paid-in capital | 120,029 | | | 111,000 | | Additional paid-in capital | 0 | | | 0 | |
Retained earnings | Retained earnings | 1,099,154 | | | 1,006,992 | | Retained earnings | 914,622 | | | 893,404 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (217,061) | | | (166,783) | | Accumulated other comprehensive loss | (158,538) | | | (170,143) | |
Total stockholders' equity | Total stockholders' equity | 1,002,123 | | | 951,210 | | Total stockholders' equity | 756,085 | | | 723,262 | |
| Total liabilities and equity | Total liabilities and equity | $ | 4,163,391 | | | $ | 4,158,657 | | Total liabilities and equity | $ | 4,328,423 | | | $ | 4,283,222 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CoreLogic, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| | | For the Three Months Ended | | | For the Six Months Ended | | | | For the Three Months Ended |
| | June 30, | | | June 30, | | | | March 31, |
(in thousands, except per share amounts) | (in thousands, except per share amounts) | 2020 | | 2019 | | 2020 | | 2019 | (in thousands, except per share amounts) | | 2021 | | 2020 |
Operating revenues | Operating revenues | $ | 477,464 | | | $ | 459,538 | | | $ | 921,349 | | | $ | 877,246 | | Operating revenues | | $ | 422,785 | | | $ | 352,920 | |
Cost of services (excluding depreciation and amortization shown below) | Cost of services (excluding depreciation and amortization shown below) | 214,491 | | | 227,210 | | | 430,056 | | | 446,271 | | Cost of services (excluding depreciation and amortization shown below) | | 162,559 | | | 144,525 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 124,061 | | | 122,798 | | | 238,467 | | | 251,022 | | Selling, general and administrative expenses | | 130,008 | | | 109,624 | |
Depreciation and amortization | Depreciation and amortization | 46,701 | | | 47,106 | | | 93,544 | | | 96,325 | | Depreciation and amortization | | 44,781 | | | 43,578 | |
Impairment loss | 1,228 | | | 47,834 | | | 1,228 | | | 47,834 | | |
| Total operating expenses | Total operating expenses | 386,481 | | | 444,948 | | | 763,295 | | | 841,452 | | Total operating expenses | | 337,348 | | | 297,727 | |
Operating income | Operating income | 90,983 | | | 14,590 | | | 158,054 | | | 35,794 | | Operating income | | 85,437 | | | 55,193 | |
Interest expense: | Interest expense: | | | | | | | | Interest expense: | | | | |
Interest income | Interest income | 98 | | | 401 | | | 512 | | | 1,379 | | Interest income | | 98 | | | 414 | |
Interest expense | Interest expense | 17,743 | | | 19,582 | | | 35,936 | | | 39,285 | | Interest expense | | 16,401 | | | 18,193 | |
Total interest expense, net | Total interest expense, net | (17,645) | | | (19,181) | | | (35,424) | | | (37,906) | | Total interest expense, net | | (16,303) | | | (17,779) | |
Gain/(loss) on investments and other, net | 7,136 | | | (2,884) | | | 4,089 | | | (2,150) | | |
Loss on investments and other, net | | Loss on investments and other, net | | (502) | | | (3,857) | |
| Tax indemnification release | — | | | (13,394) | | | — | | | (13,394) | | |
| Income/(loss) from continuing operations before equity in earnings/(losses) of affiliates and income taxes | 80,474 | | | (20,869) | | | 126,719 | | | (17,656) | | |
Provision/(benefit) for income taxes | 21,845 | | | (15,031) | | | 34,796 | | | (13,973) | | |
Income/(loss) from continuing operations before equity in earnings/(losses) of affiliates | 58,629 | | | (5,838) | | | 91,923 | | | (3,683) | | |
Equity in earnings/(losses) of affiliates, net of tax | 376 | | | 314 | | | 888 | | | (108) | | |
Net income/(loss) from continuing operations | 59,005 | | | (5,524) | | | 92,811 | | | (3,791) | | |
(Loss)/income from discontinued operations, net of tax | — | | | (48) | | | 13 | | | (94) | | |
| Net income/(loss) | $ | 59,005 | | | $ | (5,572) | | | $ | 92,824 | | | $ | (3,885) | | |
Income from continuing operations before equity in earnings of affiliates and income taxes | | Income from continuing operations before equity in earnings of affiliates and income taxes | | 68,632 | | | 33,557 | |
Provision for income taxes | | Provision for income taxes | | 13,689 | | | 9,785 | |
Income from continuing operations before equity in earnings of affiliates | | Income from continuing operations before equity in earnings of affiliates | | 54,943 | | | 23,772 | |
Equity in earnings of affiliates, net of tax | | Equity in earnings of affiliates, net of tax | | 0 | | | 512 | |
Net income from continuing operations | | Net income from continuing operations | | 54,943 | | | 24,284 | |
Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | | 3,907 | | | 9,535 | |
Loss from sale of discontinued operations, net of tax | | Loss from sale of discontinued operations, net of tax | | (5,288) | | | 0 | |
Net income | | Net income | | $ | 53,562 | | | $ | 33,819 | |
| Basic income per share: | Basic income per share: | | Basic income per share: | | |
Net income/(loss) from continuing operations | $ | 0.74 | | | $ | (0.07) | | | $ | 1.17 | | | $ | (0.05) | | |
(Loss)/income from discontinued operations, net of tax | — | | | — | | | — | | | — | | |
| Net income/(loss) | $ | 0.74 | | | $ | (0.07) | | | $ | 1.17 | | | $ | (0.05) | | |
Net income from continuing operations | | Net income from continuing operations | | $ | 0.75 | | | $ | 0.31 | |
Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | | 0.05 | | | 0.12 | |
Loss from sale of discontinued operations, net of tax | | Loss from sale of discontinued operations, net of tax | | (0.07) | | | 0 | |
Net income | | Net income | | $ | 0.73 | | | $ | 0.43 | |
Diluted income per share: | Diluted income per share: | | | | | | | | Diluted income per share: | | | | |
Net income/(loss) from continuing operations | $ | 0.73 | | | $ | (0.07) | | | $ | 1.15 | | | $ | (0.05) | | |
(Loss)/income from discontinued operations, net of tax | — | | | — | | | — | | | — | | |
| Net income/(loss) | $ | 0.73 | | | $ | (0.07) | | | $ | 1.15 | | | $ | (0.05) | | |
Net income from continuing operations | | Net income from continuing operations | | $ | 0.73 | | | $ | 0.30 | |
Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | | 0.05 | | | 0.12 | |
Loss from sale of discontinued operations, net of tax | | Loss from sale of discontinued operations, net of tax | | (0.07) | | | 0 | |
Net income | | Net income | | $ | 0.71 | | | $ | 0.42 | |
Weighted-average common shares outstanding: | Weighted-average common shares outstanding: | | | | | | | | Weighted-average common shares outstanding: | | | | |
Basic | Basic | 79,403 | | | 80,473 | | | 79,216 | | | 80,326 | | Basic | | 73,228 | | | 79,028 | |
Diluted | Diluted | 80,646 | | | 80,473 | | | 80,767 | | | 80,326 | | Diluted | | 75,135 | | | 80,525 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CoreLogic, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| | | For the Three Months Ended | | | For the Six Months Ended | | | | For the Three Months Ended |
| | June 30, | | | June 30, | | | | March 31, |
(in thousands) | (in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (in thousands) | | 2021 | | 2020 |
Net income/(loss) | $ | 59,005 | | | $ | (5,572) | | | $ | 92,824 | | | $ | (3,885) | | |
Net income | | Net income | | $ | 53,562 | | | $ | 33,819 | |
Other comprehensive income/(loss) | Other comprehensive income/(loss) | | | | | | | | Other comprehensive income/(loss) | | | | |
| Market value adjustments on interest rate swaps, net of tax | Market value adjustments on interest rate swaps, net of tax | (1,490) | | | (21,088) | | | (38,380) | | | (33,294) | | Market value adjustments on interest rate swaps, net of tax | | 13,330 | | | (36,890) | |
Reclassification adjustment for gain on terminated interest rate swap included in net income | — | | | (67) | | | — | | | (67) | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 26,680 | | | (820) | | | (12,010) | | | 4,522 | | Foreign currency translation adjustments | | (1,811) | | | (38,690) | |
Supplemental benefit plans adjustments, net of tax | Supplemental benefit plans adjustments, net of tax | (75) | | | (150) | | | 112 | | | (299) | | Supplemental benefit plans adjustments, net of tax | | 86 | | | 187 | |
Total other comprehensive income/(loss) | Total other comprehensive income/(loss) | 25,115 | | | (22,125) | | | (50,278) | | | (29,138) | | Total other comprehensive income/(loss) | | 11,605 | | | (75,393) | |
Comprehensive income/(loss) | Comprehensive income/(loss) | $ | 84,120 | | | $ | (27,697) | | | $ | 42,546 | | | $ | (33,023) | | Comprehensive income/(loss) | | $ | 65,167 | | | $ | (41,574) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CoreLogic, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | For the Six Months Ended June 30, | | | For the Three Months Ended March 31, |
| | | For the Three Months Ended March 31, |
(in thousands) | (in thousands) | 2020 | | 2019 | (in thousands) | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income/(loss) | $ | 92,824 | | | $ | (3,885) | | |
Less: Income/(loss) from discontinued operations, net of tax | 13 | | | (94) | | |
| Net income/(loss) from continuing operations | 92,811 | | | (3,791) | | |
Net income | | Net income | $ | 53,562 | | | $ | 33,819 | |
Less: Income from discontinued operations, net of tax | | Less: Income from discontinued operations, net of tax | 3,907 | | | 9,535 | |
Less: Loss from sale of discontinued operations, net of tax | | Less: Loss from sale of discontinued operations, net of tax | (5,288) | | | 0 | |
Net income from continuing operations | | Net income from continuing operations | 54,943 | | | 24,284 | |
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: | Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: | | | | Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: | | | |
Depreciation and amortization | Depreciation and amortization | 93,544 | | | 96,325 | | Depreciation and amortization | 44,781 | | | 43,578 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 2,493 | | | 2,583 | | Amortization of debt issuance costs | 1,237 | | | 1,235 | |
Amortization of operating lease assets | Amortization of operating lease assets | 7,284 | | | 7,923 | | Amortization of operating lease assets | 3,660 | | | 3,656 | |
Impairment loss | 1,228 | | | 47,834 | | |
| Provision for bad debt and claim losses | Provision for bad debt and claim losses | 7,893 | | | 7,577 | | Provision for bad debt and claim losses | 5,089 | | | 3,357 | |
Share-based compensation | Share-based compensation | 21,838 | | | 17,755 | | Share-based compensation | 9,634 | | | 7,961 | |
| Equity in (earnings)/losses of affiliates, net of taxes | (888) | | | 108 | | |
Equity in earnings of affiliates, net of taxes | | Equity in earnings of affiliates, net of taxes | 0 | | | (512) | |
| Loss on early extinguishment of debt | — | | | 1,453 | | |
| Deferred income tax | Deferred income tax | 3,087 | | | (8,291) | | Deferred income tax | 2,942 | | | 2,092 | |
| (Gain)/loss on investments and other, net | (4,089) | | | 2,150 | | |
Tax indemnification release | — | | | 13,394 | | |
Loss on investments and other, net | | Loss on investments and other, net | 502 | | | 3,857 | |
| Change in operating assets and liabilities, net of acquisitions: | Change in operating assets and liabilities, net of acquisitions: | | | | Change in operating assets and liabilities, net of acquisitions: | | | |
Accounts receivable | Accounts receivable | (9,545) | | | (38,845) | | Accounts receivable | (16,570) | | | 7,709 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (4,767) | | | (6,189) | | Prepaid expenses and other current assets | (5,755) | | | 3,538 | |
Accounts payable and other accrued expenses | Accounts payable and other accrued expenses | 4,889 | | | (24,962) | | Accounts payable and other accrued expenses | 26,907 | | | (15,459) | |
Contract liabilities | Contract liabilities | 66,786 | | | 12,329 | | Contract liabilities | 79,954 | | | 24,457 | |
| Income taxes | Income taxes | (7,893) | | | 15,890 | | Income taxes | 20,749 | | | 4,930 | |
Dividends received from investments in affiliates | Dividends received from investments in affiliates | 109 | | | — | | Dividends received from investments in affiliates | 0 | | | 185 | |
Other assets and other liabilities | Other assets and other liabilities | (31,660) | | | (22,649) | | Other assets and other liabilities | (39,936) | | | (9,808) | |
Net cash provided by operating activities - continuing operations | Net cash provided by operating activities - continuing operations | 243,120 | | | 120,594 | | Net cash provided by operating activities - continuing operations | 188,137 | | | 105,060 | |
Net cash provided by operating activities - discontinued operations | Net cash provided by operating activities - discontinued operations | 18 | | | — | | Net cash provided by operating activities - discontinued operations | 1,156 | | | 7,804 | |
Total cash provided by operating activities | Total cash provided by operating activities | $ | 243,138 | | | $ | 120,594 | | Total cash provided by operating activities | $ | 189,293 | | | $ | 112,864 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
| Purchases of property and equipment | Purchases of property and equipment | $ | (31,855) | | | $ | (44,714) | | Purchases of property and equipment | $ | (12,447) | | | $ | (12,344) | |
Purchases of capitalized data and other intangible assets | Purchases of capitalized data and other intangible assets | (18,535) | | | (18,307) | | Purchases of capitalized data and other intangible assets | (8,599) | | | (8,540) | |
Cash paid for acquisitions, net of cash acquired | Cash paid for acquisitions, net of cash acquired | (12,046) | | | (41) | | Cash paid for acquisitions, net of cash acquired | (8,072) | | | (11,760) | |
Purchases of investments | Purchases of investments | (631) | | | (658) | | Purchases of investments | 0 | | | (631) | |
Cash received from sale of business-lines | — | | | 1,082 | | |
| Cash received from sale of discontinued operations | | Cash received from sale of discontinued operations | 49,838 | | | 0 | |
| Proceeds from investments and other | Proceeds from investments and other | 2,281 | | | 1,157 | | Proceeds from investments and other | 0 | | | 651 | |
| Net cash used in investing activities - continuing operations | (60,786) | | | (61,481) | | |
Net cash provided by investing activities - discontinued operations | — | | | — | | |
Total cash used in investing activities | $ | (60,786) | | | $ | (61,481) | | |
Net cash provided by/(used in) investing activities - continuing operations | | Net cash provided by/(used in) investing activities - continuing operations | 20,720 | | | (32,624) | |
Net cash used in investing activities - discontinued operations | | Net cash used in investing activities - discontinued operations | (1,694) | | | (2,892) | |
Total cash provided by/(used in) investing activities | | Total cash provided by/(used in) investing activities | $ | 19,026 | | | $ | (35,516) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Proceeds from long-term debt | $ | — | | | $ | 1,770,000 | | |
Debt issuance costs | — | | | (9,621) | | |
| Repayment of long-term debt | Repayment of long-term debt | (101,680) | | | (1,789,702) | | Repayment of long-term debt | $ | (100,708) | | | $ | (723) | |
| Proceeds from issuance of shares in connection with share-based compensation | Proceeds from issuance of shares in connection with share-based compensation | 5,785 | | | 6,559 | | Proceeds from issuance of shares in connection with share-based compensation | 3,109 | | | 2,932 | |
Payment of tax withholdings related to net share settlements | Payment of tax withholdings related to net share settlements | (9,346) | | | (9,267) | | Payment of tax withholdings related to net share settlements | (21,417) | | | (8,051) | |
Shares repurchased and retired | Shares repurchased and retired | (9,273) | | | (29,030) | | Shares repurchased and retired | 0 | | | (2,431) | |
| Dividends paid | Dividends paid | (34,839) | | | — | | Dividends paid | (24,140) | | | (17,374) | |
Contingent consideration payments subsequent to acquisitions | Contingent consideration payments subsequent to acquisitions | — | | | (600) | | Contingent consideration payments subsequent to acquisitions | (6,448) | | | 0 | |
| Net cash used in financing activities - continuing operations | Net cash used in financing activities - continuing operations | (149,353) | | | (61,661) | | Net cash used in financing activities - continuing operations | (149,604) | | | (25,647) | |
Net cash provided by financing activities - discontinued operations | — | | | — | | |
Net cash used in financing activities - discontinued operations | | Net cash used in financing activities - discontinued operations | (41) | | | 0 | |
Total cash used in financing activities | Total cash used in financing activities | $ | (149,353) | | | $ | (61,661) | | Total cash used in financing activities | $ | (149,645) | | | $ | (25,647) | |
Effect of exchange rate on cash, cash equivalents, and restricted cash | Effect of exchange rate on cash, cash equivalents, and restricted cash | (1,553) | | | 26 | | Effect of exchange rate on cash, cash equivalents, and restricted cash | (561) | | | (4,690) | |
Net change in cash, cash equivalents, and restricted cash | Net change in cash, cash equivalents, and restricted cash | 31,446 | | | (2,522) | | Net change in cash, cash equivalents, and restricted cash | 58,113 | | | 47,011 | |
Cash, cash equivalents, and restricted cash at beginning of period | Cash, cash equivalents, and restricted cash at beginning of period | 115,702 | | | 98,250 | | Cash, cash equivalents, and restricted cash at beginning of period | 177,833 | | | 114,679 | |
Less: Change in cash, cash equivalents, and restricted cash - discontinued operations | Less: Change in cash, cash equivalents, and restricted cash - discontinued operations | 18 | | | — | | Less: Change in cash, cash equivalents, and restricted cash - discontinued operations | (579) | | | 4,912 | |
Plus: Cash swept from discontinued operations | Plus: Cash swept from discontinued operations | 18 | | | — | | Plus: Cash swept from discontinued operations | 941 | | | 4,051 | |
Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | $ | 147,148 | | | $ | 95,728 | | Cash, cash equivalents, and restricted cash at end of period | $ | 237,466 | | | $ | 160,829 | |
| Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | | | Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | Cash paid for interest | $ | 32,095 | | | $ | 35,393 | | Cash paid for interest | $ | 14,505 | | | $ | 16,391 | |
Cash paid for income taxes | Cash paid for income taxes | $ | 36,436 | | | $ | 9,909 | | Cash paid for income taxes | $ | 3,827 | | | $ | 2,218 | |
Cash refunds from income taxes | Cash refunds from income taxes | $ | 424 | | | $ | 16,061 | | Cash refunds from income taxes | $ | 156 | | | $ | 371 | |
Non-cash investing activities: | Non-cash investing activities: | | | | Non-cash investing activities: | | | |
Capital expenditures included in accounts payable and other accrued expenses | Capital expenditures included in accounts payable and other accrued expenses | $ | 12,374 | | | $ | 17,179 | | Capital expenditures included in accounts payable and other accrued expenses | $ | 13,017 | | | $ | 10,092 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CoreLogic, Inc.
Condensed Consolidated Statement of Stockholders' Equity (Quarter-to-Date)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Common Stock Shares | | Common Stock Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | | Total |
(in thousands) | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2020 | | | | | | | | | | | | | | |
Balance as of March 31, 2020 | | 79,411 | | | $ | 1 | | | $ | 111,481 | | | $ | 1,057,692 | | | $ | (242,176) | | | | | $ | 926,998 | |
Net income | | — | | | — | | | — | | | 59,005 | | | — | | | | | 59,005 | |
Shares issued in connection with share-based compensation | | 198 | | | — | | | 2,853 | | | — | | | — | | | | | 2,853 | |
Payment of tax withholdings related to net share settlements | | — | | | — | | | (1,295) | | | — | | | — | | | | | (1,295) | |
Share-based compensation | | — | | | — | | | 13,753 | | | — | | | — | | | | | 13,753 | |
Shares repurchased and retired | | (150) | | | — | | | (6,842) | | | — | | | — | | | | | (6,842) | |
Dividends on common shares | | — | | | — | | | 79 | | | (17,543) | | | — | | | | | (17,464) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 25,115 | | | | | 25,115 | |
Balance as of June 30, 2020 | | 79,459 | | | $ | 1 | | | $ | 120,029 | | | $ | 1,099,154 | | | $ | (217,061) | | | | | $ | 1,002,123 | |
| | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2019 | | | | | | | | | | | | | | |
Balance as of March 31, 2019 | | 80,633 | | | $ | 1 | | | $ | 164,969 | | | $ | 977,062 | | | $ | (142,761) | | | | | $ | 999,271 | |
| | | | | | | | | | | | | | |
Net loss | | — | | | — | | | — | | | (5,572) | | | — | | | | | (5,572) | |
Shares issued in connection with share-based compensation | | 200 | | | — | | | 3,801 | | | — | | | — | | | | | 3,801 | |
Payment of tax withholdings related to net share settlements | | — | | | — | | | (716) | | | — | | | — | | | | | (716) | |
Share-based compensation | | — | | | — | | | 7,863 | | | — | | | — | | | | | 7,863 | |
Shares repurchased and retired | | (700) | | | — | | | (29,030) | | | — | | | — | | | | | (29,030) | |
| | | | | | | | | | | | | | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (22,125) | | | | | (22,125) | |
Balance as of June 30, 2019 | | 80,133 | | | $ | 1 | | | $ | 146,887 | | | $ | 971,490 | | | $ | (164,886) | | | | | $ | 953,492 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CoreLogic, Inc.
Condensed Consolidated Statement of Stockholders' Equity (Year-to-Date)
(Unaudited)
| | | | Common Stock Shares | | Common Stock Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total | | Common Stock Shares | | Common Stock Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total |
(in thousands) | (in thousands) | | | | | | | | | | | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | | Total |
For the Six Months Ended June 30, 2020 | | | | | | | | | | | | | |
For the Three Months Ended March 31, 2021 | | For the Three Months Ended March 31, 2021 | | Common Stock Shares | | Common Stock Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total |
Balance as of December 31, 2020 | | Balance as of December 31, 2020 | | |
| Net income | | Net income | | — | | | — | | | — | | | 53,562 | | | — | | | | 53,562 | |
Shares issued in connection with share-based compensation | | Shares issued in connection with share-based compensation | | 467 | | | — | | | 3,109 | | | — | | | — | | | | 3,109 | |
Payment of tax withholdings related to net share settlements | | Payment of tax withholdings related to net share settlements | | — | | | — | | | (13,156) | | | (8,261) | | | — | | | | (21,417) | |
Share-based compensation | | Share-based compensation | | — | | | — | | | 10,103 | | | — | | | — | | | | 10,103 | |
| Dividend on common shares | | Dividend on common shares | | — | | | — | | | (56) | | | (24,083) | | | — | | | | (24,139) | |
Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | — | | | 11,605 | | | | 11,605 | |
Balance as of March 31, 2021 | | Balance as of March 31, 2021 | | 73,619 | | | $ | 1 | | | $ | 0 | | | $ | 914,622 | | | $ | (158,538) | | | | $ | 756,085 | |
| For the Three Months Ended March 31, 2020 | | For the Three Months Ended March 31, 2020 | | | |
Balance as of December 31, 2019 | Balance as of December 31, 2019 | | 78,972 | | | $ | 1 | | | $ | 111,000 | | | $ | 1,006,992 | | | $ | (166,783) | | | | $ | 951,210 | | Balance as of December 31, 2019 | | 78,972 | | | $ | 1 | | | $ | 111,000 | | | $ | 1,006,992 | | | $ | (166,783) | | | | $ | 951,210 | |
Adoption of new accounting standards | Adoption of new accounting standards | | — | | | — | | | — | | | 16,827 | | | — | | | | 16,827 | | Adoption of new accounting standards | | — | | | — | | | — | | | 16,827 | | | — | | | | 16,827 | |
Net income | Net income | | — | | | — | | | — | | | 92,824 | | | — | | | | 92,824 | | Net income | | — | | | — | | | — | | | 33,819 | | | — | | | | 33,819 | |
Shares issued in connection with share-based compensation | Shares issued in connection with share-based compensation | | 687 | | | — | | | 5,785 | | | — | | | — | | | | 5,785 | | Shares issued in connection with share-based compensation | | 489 | | | — | | | 2,932 | | | — | | | — | | | | 2,932 | |
Payment of tax withholdings related to net share settlements | Payment of tax withholdings related to net share settlements | | — | | | — | | | (9,346) | | | — | | | — | | | | (9,346) | | Payment of tax withholdings related to net share settlements | | — | | | — | | | (8,051) | | | — | | | — | | | | (8,051) | |
Share-based compensation | Share-based compensation | | — | | | — | | | 21,838 | | | — | | | — | | | | 21,838 | | Share-based compensation | | — | | | — | | | 8,085 | | | — | | | — | | | | 8,085 | |
Shares repurchased and retired | Shares repurchased and retired | | (200) | | | — | | | (9,273) | | | — | | | — | | | | (9,273) | | Shares repurchased and retired | | (50) | | | — | | | (2,431) | | | — | | | — | | | | (2,431) | |
Dividend on common shares | | — | | | — | | | 25 | | | (17,489) | | | — | | | | (17,464) | | |
Dividends declared | | Dividends declared | | — | | | — | | | (54) | | | 54 | | | — | | | | 0 | |
Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | — | | | (50,278) | | | | (50,278) | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (75,393) | | | | (75,393) | |
Balance as of June 30, 2020 | | 79,459 | | | $ | 1 | | | $ | 120,029 | | | $ | 1,099,154 | | | $ | (217,061) | | | | $ | 1,002,123 | | |
| For the Six Months Ended June 30, 2019 | | | | |
Balance as of December 31, 2018 | | 80,092 | | | $ | 1 | | | $ | 160,870 | | | $ | 975,375 | | | $ | (135,748) | | | | $ | 1,000,498 | | |
| Net loss | | — | | | — | | | — | | | (3,885) | | | — | | | | (3,885) | | |
Shares issued in connection with share-based compensation | | 741 | | | — | | | 6,559 | | | — | | | — | | | | 6,559 | | |
Payment of tax withholdings related to net share settlements | | — | | | — | | | (9,267) | | | — | | | — | | | | (9,267) | | |
Share-based compensation | | — | | | — | | | 17,755 | | | — | | | — | | | | 17,755 | | |
Shares repurchased and retired | | (700) | | | — | | | (29,030) | | | — | | | — | | | | (29,030) | | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (29,138) | | | | (29,138) | | |
Balance as of June 30, 2019 | | 80,133 | | | $ | 1 | | | $ | 146,887 | | | $ | 971,490 | | | $ | (164,886) | | | | $ | 953,492 | | |
Balance as of March 31, 2020 | | Balance as of March 31, 2020 | | 79,411 | | | $ | 1 | | | $ | 111,481 | | | $ | 1,057,692 | | | $ | (242,176) | | | | $ | 926,998 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Note 1 – Basis of Condensed Consolidated Financial Statements
CoreLogic, Inc., together with its subsidiaries (collectively “CoreLogic”, “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, property risk and replacement cost, consumer credit, tenancy, 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.
Our condensed consolidated financial information included in this report has been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States ("US"(“US”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and accompanying notes. Actual amounts may differ from these estimated amounts. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The 20192020 year-end condensed consolidated balance sheet was derived from the Company’s audited financial statements for the year ended December 31, 2019.2020. Interim financial information does not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
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.
Merger Agreement
In February 2021, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with Celestial-Saturn Parent Inc., a Delaware corporation (“Acquirer”), and Celestial-Saturn Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of the Acquirer (“Acquisition Sub”). Pursuant to the Merger Agreement, and subject to the terms and conditions set forth therein, Acquisition Sub would be merged with and into CoreLogic (“Merger”), with CoreLogic continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Acquirer.The Acquirer and Acquisition Sub are affiliates of Stone Point Capital Partners and Insight Partners.If the Merger is consummated, CoreLogic’s securities will be de-listed from the New York Stock Exchange and de-registered under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as practicable following the effective time of the Merger (“Effective Time”).
In the event the Merger is completed, except as otherwise provided in the Merger Agreement, each share of common stock, par value $0.00001 per share, of CoreLogic issued and outstanding immediately prior to the Effective Time would be converted into the right to receive $80.00 per share in cash, without interest (“Merger Consideration”).
Consummation of the Merger is subject to customary closing conditions, including, among other things, (i) the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of our common stock (“Requisite Stockholder Approval”), and (ii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), and the expiration of applicable waiting periods or clearance of the Merger, as applicable, under the antitrust and foreign investment laws of certain other jurisdictions (“Regulatory Approvals”).The Requisite Stockholder Approval was obtained at a special meeting of the Company’s stockholders on April 28, 2021. In addition, the applicable waiting period under the HSR Act expired on March 22, 2021 and clearance to proceed was obtained from the New Zealand Overseas Investment Office on March 8, 2021. CoreLogic made the filing required in Australia in February 2021 and is awaiting approval from the Australian Foreign Investment Review Board.
The consummation of the Merger is not subject to a financing condition, and the Acquirer has obtained equity and debt financing commitments for the purpose of financing the Merger and the other transactions contemplated by the Merger Agreement. Certain debt financing arrangements have already been secured by Acquisition Sub and, subject to the consummation of the Merger, will become indebtedness of CoreLogic at the Effective Time.
Either we or the Acquirer may terminate the Merger Agreement in certain circumstances, including if (i) the Merger shall not have been consummated on or before 5:00 p.m. (New York City time) on August 9, 2021, (ii) any of certain governmental authorities of competent jurisdiction has issued a final non-appealable law or order prohibiting the Merger, (iii) the Requisite Stockholder Approval is not obtained at the stockholders’ meeting duly convened therefor or (iv) the other party materially breaches, and does not cure, any representation or covenant that would cause the related condition to the other party’s obligation to consummate the Merger not to be satisfied, in each case subject to certain limitations set forth in the Merger Agreement. If we terminate the Merger Agreement because (i) the Acquirer or Acquisition Sub materially breaches, and does not cure, any representation or covenant that would cause any conditions to our obligation to consummate the Merger not to be satisfied or (ii) all conditions to the Merger have been and continue to be satisfied (subject to customary exceptions) and the Acquirer fails to consummate the Merger after receiving written notification from us, we would be entitled to receive a termination fee from the Acquirer of $330 million. If the Merger Agreement is terminated by us or the Acquirer under other certain circumstances specified in the Merger Agreement, we would be obligated to pay a termination fee of $165 million to the Acquirer. See the risk factor titled “If the Merger Agreement is terminated, under certain conditions, we may be obligated to pay the Acquirer a substantial termination fee, which could require us to incur additional debt or reduce the amount of cash we have available to fund our operations” under “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 10-K”) for further information about the termination fee we may be obligated to pay.
In March 2021, we filed a definitive proxy statement on Schedule 14A with the SEC (as supplemented, the “Definitive Proxy Statement”) related to the special meeting of stockholders called for the purpose of obtaining the Requisite Stockholder Approval. Please refer to the Definitive Proxy Statement for further information about the Merger, the Merger Agreement, and the other transactions contemplated thereby.
Rights Agreement Amendment
In February 2021, in connection with the execution of the Merger Agreement, we also entered into an amendment (“Rights Agreement Amendment”) to the Rights Agreement, dated as of July 6, 2020, by and between CoreLogic and Equiniti Trust Company, as rights agent (“Rights Agreement”), in order to (i) render the Rights Agreement inapplicable to the Merger and the transactions contemplated by the Merger Agreement, (ii) ensure that in connection with the transactions contemplated by the Merger Agreement, none of the Acquirer, Acquisition Sub, or any of their “Affiliates” or “Associates” (each as defined in the Rights Agreement) shall be deemed to be or become an “Acquiring Person” (as defined below) and (iii) provide that the “Expiration Date” (as defined in the Rights Agreement) shall occur immediately prior to the Effective Time.
Unsolicited Proposal and Proxy Contest Proposals
On June 26, 2020, we received an unsolicited proposal from Senator Investment Group, LP (“Senator”) and Cannae Holdings, Inc. (“Cannae”) to acquire the Company for $65.00 per share in cash, which initial proposal was increased by Senator and Cannae on September 14, 2020 by $1.00 per share to $66.00 per share in cash (the “Unsolicited Proposal”). In July 2020, our Board of Directors (“Board”), in consultation with its independent financial and legal advisors, unanimously determined to reject the Unsolicited Proposal. In July 2020, Senator and Cannae issued a press release announcing proposals to remove members of our Board and replace them with up to 9 individuals nominated by Senator and Cannae and to amend certain provisions of our Bylaws (“Proxy Contest Proposals”). In August 2020, the Board determined to call a special meeting of CoreLogic’s stockholders to allow our stockholders to consider and vote on the Proxy Contest Proposals. A special meeting of our stockholders to vote on the Proxy Contest Proposals was held in November 2020, with a record date of September 18, 2020, resulting in the removal of 3 members of our Board and the appointment of 3 of Senator and Cannae’s nominees to our Board, each with a term expiring at the Company’s 2021 annual meeting of stockholders. In connection with the Unsolicited Proposal, Proxy Contest Proposals, and related strategic transaction process we have incurred expenses of approximately $11.4 million for the three months ended March 31, 2021.
Reportable Segments
We have organized into the following 2 reportable segments: Property Intelligence & Risk Management (“PIRM”) and Underwriting & Workflow Solutions (“UWS”). Please refer to Note 13 - Segment Information for further information.
Discontinued Operations
In July 2020, we announced our intention to exit our reseller operations focused on mortgage credit and borrower verification and multi-family tenant screening. These businesses are comprised of our Rental Property Solutions (“RPS”) and Credit Solutions (“CS”) operations. 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 our revenue growth trends and revenue mix, and significantly enhance profit margins. As a result of this strategic decision, the businesses have been reflected in our condensed consolidated financial statements as discontinued operations for all periods presented.
In October 2020, we sold a portion of our multi-family tenant screening business, which resulted in a gain on sale of discontinued operations of $2.7 million, net of tax. In February 2021, we sold the remainder of RPS for $51.2 million which resulted in a loss of $5.3 million, net of tax, for the three months ended March 31, 2021.
In connection with businesses we have previously discontinued, we retain certain contingent liabilities of 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. Please refer to Note 14 - Discontinued Operations for further information.
Client Concentration
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 34%40% and 30% of our operating revenues for the three months ended June 30,March 31, 2021 and 2020, and 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 during these periods. Approximately 32% and 29% of our operating revenues for the six months ended June 30, 2020 and 2019, respectively, were generated from our top ten clients. None of our clients individually accounted for greater than 10% of our operating revenues during these periods.
Cash, Cash Equivalents, and Restricted Cash
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 deposits that are pledged for various letters of credit/bank guarantees secured by us, escrow accounts due to acquisitions and divestitures, as well as short-term investments within our deferred compensation plan trust. The following table provides a reconciliation of cash, cash equivalents, and restricted cash to amounts shown in the statement of cash flows:
| (in thousands) | (in thousands) | June 30, 2020 | | June 30, 2019 | (in thousands) | March 31, 2021 | | March 31, 2020 |
Cash and cash equivalents | Cash and cash equivalents | $ | 137,286 | | | $ | 82,042 | | Cash and cash equivalents | $ | 227,102 | | | $ | 150,937 | |
Restricted cash included in other assets | Restricted cash included in other assets | $ | 9,494 | | | 11,662 | | Restricted cash included in other assets | 9,966 | | | 9,714 | |
Restricted cash included in prepaid expenses and other current assets | Restricted cash included in prepaid expenses and other current assets | $ | 368 | | | 2,024 | | Restricted cash included in prepaid expenses and other current assets | 398 | | | 178 | |
Total cash, cash equivalents, and restricted cash | Total cash, cash equivalents, and restricted cash | $ | 147,148 | | | $ | 95,728 | | Total cash, cash equivalents, and restricted cash | $ | 237,466 | | | $ | 160,829 | |
Operating Revenue Recognition
We derive our operating revenues primarily from US mortgage lenders, servicers, and insurance companies with good creditworthiness. Operating revenue arrangements are written and specify the products or services to be delivered, pricing, and payment terms. Operating revenue is recognized when the distinct good or service (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.cost-plus margin approaches.
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 at the point-of-sale.reserve.
See further discussion in Note 7 - Operating Revenues.
Comprehensive Income/(Loss)Loss
Comprehensive income/(loss)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 June 30, 2020March 31, 2021 and December 31, 2019:2020:
| (in thousands) | (in thousands) | 2020 | | 2019 | (in thousands) | 2021 | | 2020 |
Cumulative foreign currency translation | Cumulative foreign currency translation | $ | (134,513) | | | $ | (122,503) | | Cumulative foreign currency translation | $ | (100,650) | | | $ | (98,839) | |
Cumulative supplemental benefit plans | Cumulative supplemental benefit plans | (8,805) | | | (8,917) | | Cumulative supplemental benefit plans | (10,880) | | | (10,966) | |
Net unrecognized losses on interest rate swaps | Net unrecognized losses on interest rate swaps | (73,743) | | | (35,296) | | Net unrecognized losses on interest rate swaps | (46,941) | | | (60,271) | |
Reclassification adjustment for gain on terminated interest rate swap included in net income | Reclassification adjustment for gain on terminated interest rate swap included in net income | — | | | (67) | | Reclassification adjustment for gain on terminated interest rate swap included in net income | (67) | | | (67) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | $ | (217,061) | | | $ | (166,783) | | Accumulated other comprehensive loss | $ | (158,538) | | | $ | (170,143) | |
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.
AsWe have 1 investment in an affiliate that is fully impaired as of June 30, 2020,March 31, 2021 and December 31, 2019,2020. For both the three months ended March 31, 2021 and March 31, 2020, we had insignificant revenue, expense, accounts receivable, and accounts payable withrelated to our investments in these affiliates.
In January 2020, we completed the acquisition of the remaining 66% of Location, Inc. ("Location") for $11.5 million, subject to certain working capital adjustments. In connection with this transaction, we remeasured our pre-existing 34% investment balance of $5.6 million to fair value based on the purchase price, resulting in a $0.6 million step-up gain which is reflected within gain/(loss) on investments and other, net, in our condensed consolidated statement of operations for the sixthree months ended June 30,March 31, 2020. See Note 12 - Acquisitions for additional information. Prior to the acquisition of the remaining interest, we accounted for Location under the equity method and received dividends of $0.7 million in the first quarter of 2020.
Leases
We determine if an arrangement contains a lease at inception and determine the classification of the lease, as either operating or finance, at commencement.
Operating and finance lease assets and liabilities are recorded based on the present value of future lease payments over the lease term which factors in certain qualifying initial direct costs incurred as well as any lease incentives received. If an implicit rate is not readily determinable, we utilize our incremental borrowing rate and inputs from third-party lenders to determine the appropriate discount rate. Lease expense for operating lease payments are recognized on a straight-line basis over the lease term, which, if applicable, may factor in renewal or termination options. Finance leases incur interest expense using the 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.
If we abandon our right of use to a leased property prior to the lease termination date, and have no intention or ability to sublease the space, we reduce the remaining right of use asset and record an impairment charge in the period we vacate or otherwise cease to use the leased asset. For the three months ended March 31, 2021 and March 31, 2020, we had 0 impairment charges.
We adhere to the short-term lease recognition exemption for all classes of assets (i.e. facilities and equipment). As a result, leases with an initial term of twelve months or less are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. In addition, for certain equipment leases, we account for lease and non-lease components, such as services, as a single lease component as permitted.
Dividends
We record cash dividends as reductions to retained earnings upon declaration, with a corresponding increase to current liabilities, based on common shares outstanding on the record date. In addition, as part of our share-based compensation program, the terms of our restricted stock units (“RSUs”) and performance-based restricted stock units (“PBRSUs”) stipulate that holders of these awards are credited with dividend equivalent units on each date that a cash dividend is paid to holders of common stock. These dividend equivalents are subject to the same vesting and performance requirements of the underlying units and therefore are forfeitable (i.e. non-participating). Upon declaration of a dividend, we record dividend equivalents as a reduction to retained earnings, derived from the number of eligible unvested shares, with a corresponding increase to additional paid-in-capital.
In December 2019, we announced that our Board of Directors approved the initiation of a quarterly cash dividend to common shareholders. In connection with this, in December 2019, our Board of Directors initiated and declaredCoreLogic paid a cash dividend of $0.22 per common share. As a result, as of December 31, 2019, we recorded a liability of $17.4 million within accounts payable and other accrued expenses, as well as $0.4 million in dividend equivalents reflected in additional paid-in-capital within our accompanying consolidated balance sheets. The dividend declared was paid in January 2020. In April 2020, our Board of Directors announced a cash dividend to common shareholders of $0.22 per share of common stock which was paid in January 2020 and June 2020 to stockholdersshareholders of record atas of the close of business on January 10, 2020 and June 1, 2020.2020, respectively. In July 2020, our Board of Directors announced a 50% increase in our cash dividend toand declared a $0.33 per share. See Note 14 - Subsequent Events for further details.
Discontinued Operations
As of both June 30,share cash dividend to common stockholders, which was paid in September 2020, December 2020, and December 31, 2019, we recorded assetsMarch 2021 to stockholders of discontinued operations of $6.3 million within prepaid expenses and other current assets within our condensed consolidated balance sheets, mainly consisting of income tax-related assets. Additionally,record as of both June 30,the close of business on September 1, 2020, December 1, 2020, and December 31, 2019,March 1, 2021, respectively. Pursuant to the Merger Agreement, we recorded liabilities of $0.4 million within accounts payableagreed to refrain from declaring or paying any further dividends during the Interim Operating Period, subject to the terms, limitations and other accrued expenses, which mainly consisted of legal-related accruals.exceptions set forth in the Merger Agreement.
Tax Escrow Disbursement Arrangements
We administer tax escrow disbursements as a service to our clients in connection with our tax services business. Funds to be disbursed are deposited and maintained in segregated accounts for the benefit of our clients and totaled $832 million$7.4 billion and $1.4$0.5 billion as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Because these deposits are held on behalf of our clients, they are not our funds and, therefore, are not included in the accompanying condensed consolidated balance sheets.
These deposits generally remain in the accounts for a period of 2 to 5 business days. We record credits from these activities as a reduction to related administrative expenses, including the cost of bank fees and other administration costs.
Under our contracts with our clients, if we make a payment in error or fail to pay a taxing authority when a payment is due, we could be held liable to our clients for all or part of the financial loss they suffer as a result of our act or omission. We maintained total claim reserves relating to incorrect disposition of assets of $22.5$27.8 million and $22.7$29.6 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Within these amounts are $10.0$11.7 million and $9.8$11.4 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,January 2021, the Financial Accounting Standards Board ("FASB"(“FASB”) issued guidance to ease the potential burdenclarify that all derivative instruments affected by changes to interest rates used for discounting, margining or contract price alignment can apply certain optional expedients and exceptions mentioned in accounting for, or recognizing the effects of,its reference rate reform in connection with the scheduled phase-out of LIBOR as a reference interest rate. The guidance provides practical expedients and exceptions in accounting for contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Entities electing the practical expedients will be allowed, among other topics, to account for reference rate modification of debt and receivables prospectively; to not reassess lease classifications and discount rates in reference rate lease modifications; and ease cash-flow hedge effectiveness testing guidelines for hedges affected by reference rate reform. The guidance is effective through December 2022 with adoption permitted as of any date within the aforementioned time frame from the beginning of the selected interim period on a prospective basis.guidance. We have elected to adoptadopted the guidance in the first quarter of 2020,2021, which has not had a material effect on our condensed consolidated financial statements.
In December 2019, as part of a simplification initiative, the FASB issued guidance to remove certain exceptions and added further guidance to simplify the accounting for income taxes. The exceptions that were removed relate to recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The guidance reduces the complexity of recognizing deferred taxes for goodwill and allocating taxes to entities of a consolidated group. The guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. We elected to early adopt on January 1, 2020 via the modified retrospective method with a cumulative effect adjustment at the date of initial application, resulting in an increase to retained earnings of $16.8 million. This impact results from the release of a deferred tax liability that had previously been established for the outside basis difference of an equity method investment that later became a subsidiary.
In November 2018, the FASB issued guidance to clarify the definition and interaction of collaborative arrangements with previously issued guidance on revenue recognition. This guidance is effective for fiscal years beginning after December 15, 2019 on a retrospective basis to the date of the initial adoption of the revenue standard. We adopted this guidance in the first quarter of 2020, which has not had a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued guidance that amends fair value disclosure requirements. The guidance removes disclosure requirements on the transfers between Level 1 and Level 2 of the fair value hierarchy in addition to the disclosure requirements on the policy for timing of transfers between levels and the valuation process for Level 3 fair value measurements. The guidance clarifies the measurement uncertainty disclosure and adds disclosure requirements for Level 3 unrealized gains and losses and significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019. Entities were permitted to early adopt any removed or modified disclosures upon issuance and delay adoption of the additional disclosures until the effective date. We early adopted the removal of disclosure provisions of the new guidance in 2018 and adopted the measurement uncertainty disclosure and additional Level 3 disclosures in the current year as required. Adoption of this guidance has not had a material impact on our condensed consolidated financial statements.
In June 2016, the FASB issued guidance for accounting of credit losses affecting the impairment model for most financial assets and certain other instruments. Entities are required to use a forward-looking current expected credit loss model for trade and other receivables, held-to-maturity debt securities, loans, and other instruments, which will generally lead to an earlier recognition of loss allowances. Entities will recognize expected losses on available-for-sale debt securities as allowances rather than a reduction in amortized cost of the security while the measurement process of such loss does not change. Disclosure requirements are expanded regarding an entity’s assumptions, models, and methods of estimations of the allowance. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. In November 2018 and 2019, the FASB issued updates to this standard which, amongst other items, clarified that impairment of receivables arising from operating leases should be accounted for under applicable leasing guidance. We adopted this guidance in the first quarter of 2020, which has not had a material impact on our condensed consolidated financial statements.
Note 2 - Property and Equipment, Net
Property and equipment, net as of June 30, 2020March 31, 2021 and December 31, 20192020 consists of the following:
| (in thousands) | (in thousands) | 2020 | | 2019 | (in thousands) | 2021 | | 2020 |
Land | Land | $ | 7,476 | | | $ | 7,476 | | Land | $ | 7,476 | | | $ | 7,476 | |
Buildings | Buildings | 6,487 | | | 6,487 | | Buildings | 6,487 | | | 6,487 | |
Furniture and equipment | Furniture and equipment | 74,799 | | | 74,978 | | Furniture and equipment | 62,186 | | | 60,433 | |
Capitalized software | Capitalized software | 928,035 | | | 916,820 | | Capitalized software | 878,925 | | | 862,984 | |
Leasehold improvements | Leasehold improvements | 50,206 | | | 48,811 | | Leasehold improvements | 50,076 | | | 50,477 | |
Construction in progress | Construction in progress | 371 | | | 3,064 | | Construction in progress | 203 | | | 1,275 | |
| | 1,067,374 | | | 1,057,636 | | | 1,005,353 | | | 989,132 | |
Less accumulated depreciation | Less accumulated depreciation | (627,359) | | | (606,615) | | Less accumulated depreciation | (603,801) | | | (583,018) | |
Property and equipment, net | Property and equipment, net | $ | 440,015 | | | $ | 451,021 | | Property and equipment, net | $ | 401,552 | | | $ | 406,114 | |
Depreciation expense for property and equipment, net, was approximately $23.1$22.0 million and $22.5$21.6 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $46.3 million and $45.9 million for the six months ended June 30, 2020 and 2019, respectively.
ImpairmentNaN impairment losses for property and equipment of $1.2 million and $12.2 million were recorded for both the three and six months ended June 30, 2020March 31, 2021 and 2019, respectively. See Note 6 - Fair Value for further discussion.2020.
Note 3 – Goodwill, Net
A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by reporting unit, for the sixthree months ended June 30, 2020March 31, 2021 is as follows:
| (in thousands) | (in thousands) | PIRM | | UWS | | Consolidated | (in thousands) | PIRM | | UWS | | Consolidated |
Balance as of January 1, 2020 | | | | | | |
Balance as of January 1, 2021 | | Balance as of January 1, 2021 | | | | | |
Goodwill | Goodwill | $ | 1,107,494 | | | $ | 1,296,127 | | | $ | 2,403,621 | | Goodwill | $ | 1,106,816 | | | $ | 1,216,204 | | | $ | 2,323,020 | |
Accumulated impairment losses | Accumulated impairment losses | (600) | | | (6,925) | | | (7,525) | | Accumulated impairment losses | (600) | | | (6,925) | | | (7,525) | |
Goodwill, net | Goodwill, net | 1,106,894 | | | 1,289,202 | | | 2,396,096 | | Goodwill, net | 1,106,216 | | | 1,209,279 | | | 2,315,495 | |
| Acquisition | Acquisition | 12,584 | | | — | | | 12,584 | | Acquisition | 4,641 | | | 0 | | | 4,641 | |
Measurement period adjustments | — | | | 17 | | | 17 | | |
| Translation adjustments | Translation adjustments | (8,285) | | | — | | | (8,285) | | Translation adjustments | (725) | | | 0 | | | (725) | |
| Balance as of June 30, 2020 | | |
Balance as of March 31, 2021 | | Balance as of March 31, 2021 | |
Goodwill, net | Goodwill, net | $ | 1,111,193 | | | $ | 1,289,219 | | | $ | 2,400,412 | | Goodwill, net | $ | 1,110,132 | | | $ | 1,209,279 | | | $ | 2,319,411 | |
See Note 12 - Acquisitions for discussion of current year acquisition and measurement period adjustments.acquisition.
Note 4 – Other Intangible Assets, Net
Other intangible assets, net consists of the following:
| | | June 30, 2020 | | | December 31, 2019 | | | March 31, 2021 | | December 31, 2020 |
(in thousands) | (in thousands) | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net | (in thousands) | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Client lists | Client lists | $ | 655,182 | | | $ | (367,000) | | | $ | 288,182 | | | $ | 662,611 | | | $ | (354,011) | | | $ | 308,600 | | Client lists | $ | 646,539 | | | $ | (386,923) | | | $ | 259,616 | | | $ | 644,000 | | | $ | (377,409) | | | $ | 266,591 | |
Non-compete agreements | Non-compete agreements | 26,752 | | | (18,900) | | | 7,852 | | | 26,409 | | | (16,249) | | | 10,160 | | Non-compete agreements | 26,903 | | | (22,905) | | | 3,998 | | | 26,763 | | | (21,570) | | | 5,193 | |
Tradenames and licenses | Tradenames and licenses | 127,311 | | | (72,290) | | | 55,021 | | | 127,176 | | | (67,118) | | | 60,058 | | Tradenames and licenses | 128,012 | | | (81,400) | | | 46,612 | | | 127,718 | | | (78,581) | | | 49,137 | |
| | | $ | 809,245 | | | $ | (458,190) | | | $ | 351,055 | | | $ | 816,196 | | | $ | (437,378) | | | $ | 378,818 | | | $ | 801,454 | | | $ | (491,228) | | | $ | 310,226 | | | $ | 798,481 | | | $ | (477,560) | | | $ | 320,921 | |
Amortization expense for other intangible assets, net was $14.3 million and $15.4$14.2 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $28.6 million and $32.0 million for the six months ended June 30, 2020 and 2019, respectively.
Impairment losses of $35.6 million were recorded for both the three and six months ended June 30, 2019.
For the three and six months ended June 30,March 31, 2021 and 2020, there were 0 impairments. See Note 6 - Fair Value for further discussion.
Estimated amortization expense for other intangible assets, net is as follows:
| (in thousands) | (in thousands) | | (in thousands) | |
Remainder of 2020 | $ | 28,862 | | |
2021 | 54,276 | | |
Remainder of 2021 | | Remainder of 2021 | $ | 39,927 | |
2022 | 2022 | 52,492 | | 2022 | 52,347 | |
2023 | 2023 | 44,248 | | 2023 | 44,541 | |
2024 | 2024 | 37,875 | | 2024 | 35,848 | |
2025 | | 2025 | 32,267 | |
Thereafter | Thereafter | 133,302 | | Thereafter | 105,296 | |
| | $ | 351,055 | | | $ | 310,226 | |
Note 5 – Long-Term Debt
Our long-term debt consists of the following:
| | | June 30, 2020 | | | December 31, 2019 | | | March 31, 2021 | | December 31, 2020 |
(in thousands) | (in thousands) | | Gross | | Debt Issuance Costs | | Net | | Gross | | Debt Issuance Costs | | Net | (in thousands) | Gross | | Debt Issuance Costs | | Net | | Gross | | Debt Issuance Costs | | Net |
Bank debt: | Bank debt: | | | | | | | | | | | | | Bank debt: | | | | | | | | | | | |
| | Term loan facility borrowings due May 2024, weighted-average interest rate of 2.26% as of June 30, 2020 | $ | 1,572,000 | | | $ | (13,097) | | | $ | 1,558,903 | | | $ | 1,672,188 | | | $ | (14,868) | | | $ | 1,657,320 | | | Term loan facility borrowings due May 2024, weighted-average interest rate of 1.63% as of March 31, 2021 | $ | 1,472,000 | | | $ | (10,555) | | | $ | 1,461,445 | | | $ | 1,572,000 | | | $ | (11,431) | | | $ | 1,560,569 | |
| | Revolving line of credit borrowings due May 2024, weighted-average interest rate of 2.26% as of June 30, 2020 | — | | | (5,703) | | | (5,703) | | | $ | — | | | $ | (6,425) | | | $ | (6,425) | | | Revolving line of credit borrowings due May 2024, weighted-average interest rate of 1.63% as of March 31, 2021 | 300,000 | | | (4,570) | | | 295,430 | | | 300,000 | | | (4,930) | | | 295,070 | |
| Notes: | Notes: | | | | | | | | | | Notes: | | | | | | | | |
| | 7.55% senior debentures due April 2028 | 9,531 | | | (25) | | | 9,506 | | | $ | 9,524 | | | $ | (26) | | | $ | 9,498 | | | 7.55% senior debentures due April 2028 | 9,531 | | | (23) | | | 9,508 | | | 9,531 | | | (23) | | | 9,508 | |
Other debt: | Other debt: | | | | | | | | | | Other debt: | | | | | | | | |
| | Various debt instruments with maturities through March 2024 | 6,090 | | | — | | | 6,090 | | | $ | 6,167 | | | $ | — | | | $ | 6,167 | | | Various debt instruments with maturities through March 2024 | 5,832 | | | 0 | | | 5,832 | | | 6,086 | | | 0 | | | 6,086 | |
Total long-term debt | Total long-term debt | | 1,587,621 | | | (18,825) | | | 1,568,796 | | | $ | 1,687,879 | | | $ | (21,319) | | | $ | 1,666,560 | | Total long-term debt | 1,787,363 | | | $ | (15,148) | | | 1,772,215 | | | 1,887,617 | | | (16,384) | | | 1,871,233 | |
Less current portion of long-term debt | Less current portion of long-term debt | | 2,504 | | | — | | | 2,504 | | | $ | 56,022 | | | $ | — | | | $ | 56,022 | | Less current portion of long-term debt | 9,003 | | | 0 | | | 9,003 | | | 43,230 | | | 0 | | | 43,230 | |
Long-term debt, net of current portion | Long-term debt, net of current portion | | $ | 1,585,117 | | | $ | (18,825) | | | $ | 1,566,292 | | | $ | 1,631,857 | | | $ | (21,319) | | | $ | 1,610,538 | | Long-term debt, net of current portion | $ | 1,778,360 | | | $ | (15,148) | | | $ | 1,763,212 | | | $ | 1,844,387 | | | $ | (16,384) | | | $ | 1,828,003 | |
As of June 30, 2020March 31, 2021 and December 31, 2019,2020, we recorded $0.9$0.5 million and $0.4$0.3 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 5-year term loan facility (the “Term Facility”), and a $750.0 million 5-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. As of June 30, 2020,March 31, 2021, we had a remaining borrowing capacity of $750.0$450.0 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, 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 June 30,March 31, 2021 and 2020, and 2019, $1.3$1.2 million was recognized in the accompanying condensed consolidated statement of operations related to the amortization of debt issuance costs. For the six months ended June 30, 2020 and 2019, $2.5 million and $2.6 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").LIBOR. The notional balances, terms and maturities of our Swaps are designed to have the effect of fixing the rate of interest on at least 50% of the principal balance of our senior term debt.
As of June 30, 2020,March 31, 2021, the Swaps have a combined remaining notional balance of $1.2 billion, a weighted average fixed interest rate of 2.34%2.68% (rates range from 0.66%2.61% 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 approximately $1.2 billion through September 2021, then $1.1 billion andthrough March 2022, $1.0 billion through August 2022, and $496.8 million and $465.0approximately $500.0 million through December 2025. Approximate weighted average fixed interest rates for the aforementioned time periods are 2.55%2.66%, 2.64%2.78%, and 2.61%2.77%, and 2.64%, respectively.
We have designated the Swaps as cash flow hedges. The estimated fair valuesvalue of these cash flow hedges are recorded in prepaid expenses and other current assets and/or other assets as well as accounts payable and other accrued expenses, as well as other assets and/or other liabilities in the accompanying condensed consolidated balance sheets. As of June 30,March 31, 2021, the estimated fair value of these cash flow hedges resulted in a liability of $63.7 million and an asset of $1.1 million. As of December 31, 2020, the estimated fair value of these cash flow hedges resulted in a liability of $98.3$80.4 million of which $5.2 million was recorded within accounts payable and other accrued expenses. As of December 31, 2019, the estimated fair value of these cash flow hedges resulted in an asset of $0.6 million which was recorded within prepaid expenses and other current assets, as well as a liability of $47.7 million recorded within other liabilities.less than $0.1 million.
Unrealized lossesgain of $1.5$13.3 million (net of $0.5$4.4 million in deferred taxes) and $21.1unrealized loss of $36.9 million (net of $7.0$12.3 million in deferred taxes) for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, were recognized in other comprehensive income/(loss) related to the Swaps. Unrealized losses of $38.4 million (net of $12.8 million in deferred taxes) and $33.3 million (net of $11.1 million in deferred taxes) for the six months ended June 30, 2020 and 2019, respectively, were recognized in other comprehensive income/(loss)loss related to the Swaps.
As a result of our Swap activity, for the three months ended June 30,March 31, 2021 and 2020, and 2019, included within interest expense, on a pre-tax basis, we recognized interest expense of $5.9$6.6 million and interest income of $1.7 million, respectively. For the six months ended June 30, 2020 and 2019, included within interest expense, on a pre-tax basis, we recognized interest expense of $7.2 million and interest income of $3.8$1.3 million, respectively. Estimated net losses included in accumulated other comprehensive loss related to the Swaps as of June 30, 2020,March 31, 2021, that will be reclassified into earnings as interest expense over the next 12 months, utilizing June 30, 2020March 31, 2021 LIBOR, is estimated to be $18.1$30.7 million, on a pre-tax basis.
Note 6 – 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 the 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 deposits that are pledged for various letters of credit/bank guarantees secured by us, escrow accounts due to acquisitions and divestitures, as well as short-term investments within our deferred compensation plan trust. We deem the carrying value to be a reasonable estimate of fair value due to the nature of these instruments.
Other Investments
Other investments are currently comprised of a minority equity investment in a foreign enterprise which we measure at cost and adjust to fair value on a quarterly basis when there are observable price changes in orderly transactions for the identical, or similar, investments. Changes in fair value are recorded within gain/(loss) on investments and other, net, in our condensed consolidated statement of operations.
Contingent Consideration
The fair value of ourthe contingent consideration was estimated using the Monte-Carlo simulation model,method, which relies on significant assumptions and estimates including discount rates and future market conditions, among others.
Long-Term Debt
The fair value of long-term debt was estimated based on the current rates available to us for similar debt of the same remaining maturities and consideration of our default and credit risk.
Swaps
The fair valuesvalue of the Swaps werewas estimated based on market-value quotes received from the counterparties to the agreements.agreements adjusted for credit-risk.
The fair values of our financial instruments as of June 30, 2020March 31, 2021 are presented in the following table:
| (in thousands) | (in thousands) | | Fair Value Measurements Using | | | (in thousands) | | Fair Value Measurements Using | |
As of June 30, 2020 | | Level 1 | | Level 2 | | Level 3 | | Fair Value | |
As of March 31, 2021 | | As of March 31, 2021 | | Level 1 | | Level 2 | | Level 3 | | Fair Value |
Financial Assets: | Financial Assets: | | | | | | | | | Financial Assets: | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 137,286 | | | $ | — | | | $ | — | | | $ | 137,286 | | Cash and cash equivalents | | $ | 227,102 | | | $ | 0 | | | $ | 0 | | | $ | 227,102 | |
Restricted cash | Restricted cash | | $ | 8,184 | | | 1,678 | | | — | | | 9,862 | | Restricted cash | | 8,683 | | | 1,681 | | | 0 | | | 10,364 | |
Other investments | Other investments | | — | | | 2,513 | | | — | | | 2,513 | | Other investments | | 0 | | | 1,218 | | | 0 | | | 1,218 | |
Total | Total | | $ | 145,470 | | | $ | 4,191 | | | $ | — | | | $ | 149,661 | | Total | | $ | 235,785 | | | $ | 2,899 | | | $ | 0 | | | $ | 238,684 | |
| Financial Liabilities: | Financial Liabilities: | | Financial Liabilities: | |
Contingent consideration | | $ | — | | | $ | — | | | $ | 1,900 | | | $ | 1,900 | | |
| Total debt | Total debt | | — | | | 1,590,050 | | | — | | | 1,590,050 | | Total debt | | $ | 0 | | | $ | 1,789,561 | | | $ | 0 | | | $ | 1,789,561 | |
Total | Total | | $ | — | | | $ | 1,590,050 | | | $ | 1,900 | | | $ | 1,591,950 | | Total | | $ | 0 | | | $ | 1,789,561 | | | $ | 0 | | | $ | 1,789,561 | |
| Derivatives: | Derivatives: | | Derivatives: | |
| Asset for Swaps | | Asset for Swaps | | $ | 0 | | | $ | 1,064 | | | $ | 0 | | | $ | 1,064 | |
Liability for Swaps | Liability for Swaps | | $ | — | | | $ | 98,259 | | | $ | — | | | $ | 98,259 | | Liability for Swaps | | $ | 0 | | | $ | 63,699 | | | $ | 0 | | | $ | 63,699 | |
| As of December 31, 2019 | | |
As of December 31, 2020 | | As of December 31, 2020 | |
Financial Assets: | Financial Assets: | | Financial Assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 105,185 | | | $ | — | | | $ | — | | | $ | 105,185 | | Cash and cash equivalents | | $ | 167,422 | | | $ | 0 | | | $ | 0 | | | $ | 167,422 | |
Restricted cash | Restricted cash | | 9,791 | | | 726 | | | — | | | 10,517 | | Restricted cash | | 8,713 | | | 1,698 | | | 0 | | | 10,411 | |
Other investments | Other investments | | — | | | 1,898 | | | — | | | 1,898 | | Other investments | | 0 | | | 3,523 | | | 0 | | | 3,523 | |
Total | Total | | $ | 114,976 | | | $ | 2,624 | | | $ | — | | | $ | 117,600 | | Total | | $ | 176,135 | | | $ | 5,221 | | | $ | 0 | | | $ | 181,356 | |
| Financial Liabilities: | Financial Liabilities: | | Financial Liabilities: | |
Contingent consideration | | $ | — | | | $ | — | | | $ | 4,509 | | | $ | 4,509 | | |
| Total debt | Total debt | | — | | | 1,690,731 | | | — | | | 1,690,731 | | Total debt | | $ | 0 | | | $ | 1,889,812 | | | $ | 0 | | | $ | 1,889,812 | |
Total | Total | | $ | — | | | $ | 1,690,731 | | | $ | 4,509 | | | $ | 1,695,240 | | Total | | $ | 0 | | | $ | 1,889,812 | | | $ | 0 | | | $ | 1,889,812 | |
| Derivatives: | Derivatives: | | Derivatives: | |
Asset for Swaps | Asset for Swaps | | $ | — | | | $ | 572 | | | $ | — | | | $ | 572 | | Asset for Swaps | | $ | 0 | | | $ | 29 | | | $ | 0 | | | $ | 29 | |
Liability for Swaps | Liability for Swaps | | $ | — | | | $ | 47,691 | | | $ | — | | | $ | 47,691 | | Liability for Swaps | | $ | 0 | | | $ | 80,426 | | | $ | 0 | | | $ | 80,426 | |
|
For both the three and six months ended June 30, 2020, we recorded non-cash impairment charges of $1.2 million in property and equipment, net, related to capitalized software within our Underwriting & Workflow Solutions ("UWS") segment. For both the three and six months ended June 30, 2019, we recorded non-cash impairment charges of $35.6 million in other intangible assets, net, as well as $12.2 million in property and equipment, net. Both impairments are due to ongoing business transformation activities of our appraisal management company within our UWS segment. The impairments within other intangible assets, net include $32.3 million for client lists and $3.3 million for licenses. The impairments within property and equipment, net relate to capitalized software. All impairments were derived using an undiscounted cash flow methodology.
In connection with certain acquisitions in 2017, we entered into contingent consideration agreements for up to $20.5 million in cash by 2022 upon the achievement of certain revenue targets ending in fiscal year 2021. These contingent payments were originally recorded at a fair value of $6.2 million using the Monte-Carlo simulation model. In connection with the 2019 acquisition of 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 assessed with no fair value as of June 30, 2020March 31, 2021 using the Monte-Carlo simulation model. The contingent payments are remeasured at fair value quarterly, and changes are recorded within gain/(loss) on investments and other, net, in our condensed consolidated statement of operations. During the three months ended June 30, 2020 and 2019, we decreased the fair value of our contingent consideration by $1.8 million and $0.6 million, respectively, and recorded the gain in our condensed consolidated statement of
operations. During the six months ended June 30, 2020 and 2019, we decreased the fair value of our contingent consideration by $2.6 million and $0.6 million, respectively, and recorded the gain in our condensed consolidated statement of operations.
During the three months ended June 30, 2019, dueDue to an observable price changechanges in an inactive market, we recorded an unfavorablea fair value adjustment of $4.3$2.3 million to ourlower the carrying amount of a minority equity investment for the three months ended March 31, 2021, which amount was recorded within gain/(loss) on investments and other, net, in our condensed consolidated statement of operations. For the six months ended June 30, 2019, the total unfavorable fair value adjustment for this minority owned equity investment was $6.6 million. NaN adjustments were necessary for the three and six months ended June 30,March 31, 2020.
Note 7 – Operating Revenues
Operating revenues by solution type consist of the following:
| (in thousands) | (in thousands) | | PIRM | | UWS | | Corporate and Eliminations | | Consolidated | (in thousands) | | PIRM | | UWS | | Corporate and Eliminations | | Consolidated |
For the Three Months Ended June 30, 2020 | | | | | | | | | |
For the Three Months Ended March 31, 2021 | | For the Three Months Ended March 31, 2021 | | PIRM | | UWS | | Corporate and Eliminations | | Consolidated |
Property insights | Property insights | | $ | 118,836 | | | $ | — | | | $ | — | | | $ | 118,836 | | Property insights | |
Insurance and spatial solutions | Insurance and spatial solutions | | 48,440 | | | — | | | — | | | 48,440 | | Insurance and spatial solutions | | 44,978 | | | 0 | | | 0 | | | 44,978 | |
Flood data solutions | Flood data solutions | | — | | | 29,977 | | | — | | | 29,977 | | Flood data solutions | | 0 | | | 31,602 | | | 0 | | | 31,602 | |
Valuation solutions | Valuation solutions | | — | | | 62,956 | | | — | | | 62,956 | | Valuation solutions | | 0 | | | 62,219 | | | 0 | | | 62,219 | |
Credit solutions | | — | | | 82,523 | | | — | | | 82,523 | | |
| Property tax solutions | Property tax solutions | | — | | | 125,950 | | | — | | | 125,950 | | Property tax solutions | | 0 | | | 153,105 | | | 0 | | | 153,105 | |
Other | Other | | 9,310 | | | 3,734 | | | (4,262) | | | 8,782 | | Other | | 0 | | | 2,395 | | | (1,748) | | | 647 | |
Total operating revenue | Total operating revenue | | $ | 176,586 | | | $ | 305,140 | | | $ | (4,262) | | | $ | 477,464 | | Total operating revenue | | $ | 175,212 | | | $ | 249,321 | | | $ | (1,748) | | | $ | 422,785 | |
| For the Three Months Ended June 30, 2019 | | |
For the Three Months Ended March 31, 2020 | | For the Three Months Ended March 31, 2020 | |
Property insights | Property insights | | $ | 122,737 | | | $ | — | | | $ | — | | | $ | 122,737 | | Property insights | | $ | 115,496 | | | $ | 0 | | | $ | 0 | | | $ | 115,496 | |
Insurance and spatial solutions | Insurance and spatial solutions | | 48,421 | | | — | | | — | | | 48,421 | | Insurance and spatial solutions | | 46,840 | | | 0 | | | 0 | | | 46,840 | |
Flood data solutions | Flood data solutions | | — | | | 21,613 | | | — | | | 21,613 | | Flood data solutions | | 0 | | | 27,603 | | | 0 | | | 27,603 | |
Valuation solutions | Valuation solutions | | — | | | 87,142 | | | — | | | 87,142 | | Valuation solutions | | 0 | | | 61,247 | | | 0 | | | 61,247 | |
Credit solutions | | — | | | 71,686 | | | — | | | 71,686 | | |
| Property tax solutions | Property tax solutions | | — | | | 92,471 | | | — | | | 92,471 | | Property tax solutions | | 0 | | | 101,991 | | | 0 | | | 101,991 | |
Other | Other | | 12,559 | | | 6,105 | | | (3,196) | | | 15,468 | | Other | | 0 | | | 3,653 | | | (3,910) | | | (257) | |
Total operating revenue | Total operating revenue | | $ | 183,717 | | | $ | 279,017 | | | $ | (3,196) | | | $ | 459,538 | | Total operating revenue | | $ | 162,336 | | | $ | 194,494 | | | $ | (3,910) | | | $ | 352,920 | |
| For the Six Months Ended June 30, 2020 | | |
Property insights | | $ | 235,813 | | | $ | — | | | $ | — | | | $ | 235,813 | | |
Insurance and spatial solutions | | 95,280 | | | — | | | — | | | 95,280 | | |
Flood data services | | — | | | 57,580 | | | — | | | 57,580 | | |
Valuation solutions | | — | | | 124,203 | | | — | | | 124,203 | | |
Credit solutions | | — | | | 163,650 | | | — | | | 163,650 | | |
Property tax solutions | | — | | | 227,941 | | | — | | | 227,941 | | |
Other | | 18,548 | | | 7,387 | | | (9,053) | | | 16,882 | | |
Total operating revenue | | $ | 349,641 | | | $ | 580,761 | | | $ | (9,053) | | | $ | 921,349 | | |
| For the Six Months Ended June 30, 2019 | | |
Property insights | | $ | 241,407 | | | $ | — | | | $ | — | | | $ | 241,407 | | |
Insurance and spatial solutions | | 93,837 | | | — | | | — | | | 93,837 | | |
Flood data services | | — | | | 38,589 | | | — | | | 38,589 | | |
Valuation solutions | | — | | | 153,465 | | | — | | | 153,465 | | |
Credit solutions | | — | | | 139,500 | | | — | | | 139,500 | | |
Property tax solutions | | — | | | 179,053 | | | — | | | 179,053 | | |
Other | | 24,281 | | | 12,928 | | | (5,814) | | | 31,395 | | |
Total operating revenue | | $ | 359,525 | | | $ | 523,535 | | | $ | (5,814) | | | $ | 877,246 | | |
|
Property Insights
Our property insights solutions combine our patented predictive analytics with our proprietary and contributed data to enable our clients to improve customer acquisition and retention, detect and prevent fraud, improve mortgage transaction cycle time and cost efficiency, identify real estate trends and neighborhood characteristics, track market performance, and increase market share. Our data is comprised of real estate information, incorporating crime, site inspection, neighborhood, document images, and other information from proprietary sources. We also offer verification of applicant income, identity and employment services. We typically license data in one of two forms: bulk data licensing and transactional licensing. Operating revenue for bulk data licensing contracts that provide a stand-ready obligation or include substantive updates to the intellectual property which is recognized ratably over the contractual term; otherwise, operating revenue is recognized upon delivery. For transactional licensing, we recognize operating revenue based on usage.
Insurance and Spatial Solutions
Our insurance and spatial solutions provide originators and property and casualty insurers the ability to more effectively locate, assess and manage property-level assets and risks through location-based data and analytics. We also provide cloud-based property claims workflow technology for property and casualty insurers. The licensed intellectual property data is generally provided to our clients on a subscription or usage basis. For subscription contracts, operating revenue is recognized ratably over the contractual term once initial delivery has occurred. For contracts to provide a license to data which is delivered via report or data file, operating revenue is recognized when the client obtains control of the products, which is upon delivery.
Property Tax Solutions
Our property tax solutions are built from aggregated property tax information from over 20,000 taxing authorities. We use this information to advise mortgage lenders and servicers of the property tax payment status of loans in their portfolio and to monitor that status over the life of the loans. If a mortgage lender or servicer requires tax payments to be impounded on behalf of its borrowers, we can also facilitate the transfer of these funds to the taxing authorities and provide the lender or servicer with payment confirmation. Property tax processing revenues are primarily comprised of periodic loan fees and life-of-loan fees. For periodic fee arrangements, we generate monthly fees at a contracted rate for as long as we service the loan. For life-of-loan fee arrangements, we charge a one-time fee when the loan is set-up in our tax servicing system.
Life-of-loan fees are deferred and recognized ratably over the expected service period of 10 years and adjusted for early loan cancellation. Revenue recognition rates of loan portfolios are regularly analyzed and adjusted monthly to reflect current trends.
Valuation Solutions
Our valuation solutions represent property valuation-related data driven services and analytics combined with collateral valuation workflow technologies which assist our clients in assessing risk of loss using both traditional and alternative forms of property valuation, driving process efficiencies as well as ensuring compliance with lender and governmental regulations. We provide collateral information technology and solutions that automate property appraisal ordering, tracking, documentation and review for lender compliance with government regulations. Revenue for the property appraisal service is recognized when the appraisal service is performed and delivered to the client. In addition, to the extent that we provide continuous access to the hosted software platform, we recognize operating revenue over the term of the arrangement.
Credit Solutions
Our credit solutions provide credit and income verification services to the mortgage and automotive industries. We provide comprehensive information, typically in the form of a report, about credit history, income verification, employment verification, and home address history. We normalize the data to provide a broad range of advanced business information solutions designed to reduce risk and improve business performance to mortgage and automotive lenders. Operating revenue is recognized when the report or information is delivered to the client.
Flood Data Solutions
Our flood data solutions provide flood zone determinations primarily to mortgage lenders in accordance with US Federal legislation passed in 1994, which requires that most lenders obtain a determination of the current flood zone status at the time each loan is originated and obtain applicable updates during the life of the loan if contracted to do so. We also provide flood zone determinations to insurance companies. We generally recognize operating revenue upon delivery of the initial determination. If contracted for life of loan monitoring, we recognize operating revenue over the estimated service period, as adjusted for early loan cancellation.
Contract Costs
Incremental costs to obtain or fulfill client contracts are recognized as an asset. As of June 30, 2020,March 31, 2021, we had $11.4$14.8 million of current deferred contract costs which are presented in prepaid expenses and other current assets, as well as $24.2 million of long-term deferred contract costs which are presented in other assets in our condensed consolidated balance sheet. As of December 31, 2019,2020, we had $9.8$13.2 million of current deferred contract costs which are presented in prepaid expenses and other current assets as well as $23.1$24.2 million of long-term deferred contract costs which are presented in other assets in our condensed consolidated balance sheet. Our deferred contract costs primarily include certain set-up and acquisition costs related to property tax solutions, which amortize ratably over an expected 10-year life, adjusted for early loan cancellations. For the three months ended June 30,March 31, 2021 and 2020, and 2019, we recorded amortization associated with deferred contract costs of $4.5$5.3 million and $3.3$3.7 million, respectively, and $8.2 million and $6.4 million, respectively, for the six months ended June 30, 2020 and 2019.respectively.
Contract Liabilities
We record a contract liability when amounts are invoiced, which is generally prior to the satisfaction of the performance obligation. For property tax solutions, we invoice upfront fees to clients for services to be performed over time. For property insights and insurance and spatial solutions we invoice quarterly and annually, commencing upon execution of the contracts or at the beginning of the license term, as applicable.
As of June 30, 2020,March 31, 2021, we had $952.4 million$1.1 billion in contract liabilities compared to $884.9 million$1.0 billion as of December 31, 2019.2020. The overall change of $67.5$80.0 million in contract liability balances is primarily due to $388.3$281.3 million of new deferred billings in the current year, partially offset by $321.1$201.2 million of operating revenue recognized, of which $192.6$112.8 million related to contracts previously deferred, and other increasesdecreases of $0.3$0.1 million.
Remaining Performance Obligations
The majority of our arrangements are between one1 and three3 years with a significant portion being one year or less. For the remaining population of non-cancellable and fixed arrangements greater than one year, as of June 30, 2020March 31, 2021 we had $1.1$1.3 billion of remaining performance obligations. We expect to recognize approximately 18%30% percent of this remaining revenue backlog in 2020, 29% in 2021, 18%24% in 2022, 16% in 2023 and 35%30% thereafter. See further discussion of performance obligations in Note 1 - Basis for Condensed Consolidated Financial Statements.
Note 8 – Share-Based Compensation
We currently issue equity awards under the 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 sixthree months ended June 30,March 31, 2021 and 2020, and 2019, we awarded 730,319188,475 and 628,730552,262 RSUs, respectively, with an estimated grant-date fair value of $25.8$15.0 million and $23.0$17.6 million, respectively. The RSU awards will vest ratably over 3 years. RSU activity for the sixthree months ended June 30, 2020March 31, 2021 is as follows:
| | | Number of Shares | | Weighted-Average Grant-Date Fair Value | | Number of Shares | | Weighted-Average Grant-Date Fair Value |
(in thousands, except weighted-average fair value prices) | (in thousands, except weighted-average fair value prices) | | | | (in thousands, except weighted-average fair value prices) | | Weighted-Average Grant-Date Fair Value |
Unvested RSUs outstanding at 12/31/2019 | 1,032 | | | $ | 39.84 | | |
Unvested RSUs outstanding at December 31, 2020 | | Unvested RSUs outstanding at December 31, 2020 | 1,194 | | | $ | 38.01 | |
RSUs granted | RSUs granted | 730 | | | $ | 35.39 | | RSUs granted | 188 | | | $ | 79.55 | |
RSUs vested | RSUs vested | (503) | | | $ | 40.40 | | RSUs vested | (429) | | | $ | 36.89 | |
RSUs forfeited | RSUs forfeited | (34) | | | $ | 33.74 | | RSUs forfeited | (10) | | | $ | 42.52 | |
Unvested RSUs outstanding at 6/30/2020 | 1,225 | | | $ | 37.15 | | |
Unvested RSUs outstanding at March 31, 2021 | | Unvested RSUs outstanding at March 31, 2021 | 943 | | | $ | 46.57 | |
As of June 30, 2020,March 31, 2021, there was $34.1$28.9 million of total unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 1.82.1 years. The fair value of RSU awards areis based on the market value of our common stock on the date of grant.
Performance-Based Restricted Stock Units
For the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, we awarded 296,24466,448 and 203,464181,365 PBRSUs, respectively with an estimated grant-date fair value of $11.1$5.4 million and $7.5$6.8 million, respectively. These awards are generally subject to service-based, performance-based, and market-based vesting conditions. In addition, we granted 227,781 and 111,488 as of March 31, 2021 and 2020, respectively, for changes in performance expectations under the corresponding plans.
The service and performance period for the 2021 PBRSU grants is from January 2021 to December 2023 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 2020 grantsPBRSUs is from January 2020 to December 2022 and the performance metric is adjusted earnings per share.share, subject to modification based on relative total stockholder return, a market-based vesting condition.
The performance and service period for the PBRSUs awarded in the first quarterfair value of 2019 is from January 2019 to December 2021. ThesePBRSU awards are generally subject to service-based, performance-based, andbased on the market value of our common stock on the date of grant. For PBRSUs with market-based vesting conditions, we also use the Monte-Carlo simulation with the performance metric as adjusted earnings per share. following weighted-average assumptions:
| | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2021 | | 2020 |
Expected dividend yield (1) | 0 | % | | 0 | % |
Risk-free interest rate (2) | 0.55 | % | | 0.60 | % |
Expected volatility (3) | 33.92 | % | | 32.53 | % |
Average total stockholder return (3) | (18.49) | % | | (21.47) | % |
| | | |
(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. |
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.
The fair values of the awards containing market-based vesting conditions were estimated using Monte-Carlo simulation with the following weighted-average assumptions:
| | | | | | | | | | | |
| For the Six Months Ended June 30, | | |
| 2020 | | 2019 |
Expected dividend yield (1) | — | % | | — | % |
Risk-free interest rate (2) | 0.60 | % | | 2.44 | % |
Expected volatility (3) | 32.53 | % | | 28.24 | % |
Average total stockholder return (3) | (21.47) | % | | 17.15 | % |
| | | |
(1) Since PBRSU participants are credited with dividend equivalent shares when dividends are paid, 0.00% was used in the Monte-Carlo simulation which is mathematically equivalent to paying dividend equivalents upon vesting. Please see Note 1 - Basis for Condensed Consolidated Financial Statements for further information regarding dividends. (2) The risk-free interest rate for the periods within the contractual term of the PBRSUs is based on the US Treasury yield curve in effect at the time of the grant. (3) The expected volatility and average total stockholder return are measures of the amount by which a stock price has fluctuated or is expected to fluctuate based primarily on our and our peers' historical data. | | | |
PBRSU activity for the sixthree months ended June 30, 2020March 31, 2021 is as follows:
| | | Number of Shares | | Weighted-Average Grant-Date Fair Value | | Number of Shares | | Weighted-Average Grant-Date Fair Value |
(in thousands, except weighted-average fair value prices) | (in thousands, except weighted-average fair value prices) | | | | (in thousands, except weighted-average fair value prices) | | Weighted-Average Grant-Date Fair Value |
Unvested PBRSUs outstanding at December 31, 2019 | 636 | | | $ | 42.62 | | |
Unvested PBRSUs outstanding at December 31, 2020 | | Unvested PBRSUs outstanding at December 31, 2020 | 671 | | | $ | 41.89 | |
PBRSUs granted due to change in units based on performance expectations | | PBRSUs granted due to change in units based on performance expectations | 228 | |
PBRSUs granted | PBRSUs granted | 296 | | | $ | 37.53 | | PBRSUs granted | 66 | | | $ | 80.93 | |
PBRSUs vested | PBRSUs vested | (184) | | | $ | 39.50 | | PBRSUs vested | (258) | | | $ | 46.04 | |
PBRSUs forfeited | PBRSUs forfeited | (12) | | | $ | 43.65 | | PBRSUs forfeited | (12) | | | $ | 36.32 | |
Unvested PBRSUs outstanding at June 30, 2020 | 736 | | | $ | 41.93 | | |
Unvested PBRSUs outstanding at March 31, 2021 | | Unvested PBRSUs outstanding at March 31, 2021 | 695 | | | $ | 44.03 | |
As of June 30, 2020,March 31, 2021, there was $21.4$17.1 million of total unrecognized compensation cost related to unvested PBRSUs that is expected to be recognized over a weighted-average period of 1.9 years. The fair value of PBRSU awards are based on the market value of our common stock on the date of grant.
Stock Options
Prior to 2015, we issued stock options as incentive compensation for certain employees. Option activity for the sixthree months ended June 30, 2020March 31, 2021 is as follows:
| (in thousands, except weighted-average price) | (in thousands, except weighted-average price) | Number of Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term | | Aggregate Intrinsic Value | (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 outstanding at December 31, 2020 | | Options outstanding at December 31, 2020 | 158 | | | $ | 27.26 | | | | | |
Options exercised | Options exercised | (46) | | | $ | 18.19 | | | | | | Options exercised | 0 | | | $ | 0 | | | | | |
Options outstanding at June 30, 2020 | 433 | | | $ | 19.73 | | | 2.1 | | $ | 20,604 | | |
Options outstanding at March 31, 2021 | | Options outstanding at March 31, 2021 | 158 | | | $ | 27.26 | | | 0.0 | | $ | 8,221 | |
As of June 30, 2020,March 31, 2021, there was 0 unrecognized compensation cost related to unvested stock options.
There were no options exercised during the three months ended March 31, 2021. The intrinsic value of options exercised was $1.2 million and $1.1$0.3 million for the sixthree months ended June 30, 2020 and 2019, respectively.March 31, 2020. 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 six months ended June 30, 2020March 31, 2021 and 2019:2020:
| | | For the Three Months Ended | | | For the Six Months Ended | | |
| | June 30, | | | June 30, | | |
(in thousands) | (in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (in thousands) | 2021 | | 2020 | |
RSUs | RSUs | $ | 5,601 | | | $ | 5,612 | | | $ | 11,412 | | | $ | 12,924 | | RSUs | $ | 6,993 | | | $ | 5,687 | | |
PBRSUs | PBRSUs | 7,363 | | | $ | 1,743 | | | 8,938 | | | $ | 3,658 | | PBRSUs | 1,920 | | | 1,575 | | |
Stock options | Stock options | — | | | $ | — | | | — | | | $ | — | | Stock options | 0 | | | 0 | | |
Employee stock purchase plan | Employee stock purchase plan | 789 | | | $ | 508 | | | 1,488 | | | $ | 1,173 | | Employee stock purchase plan | 720 | | | 699 | | |
| | $ | 13,753 | | | $ | 7,863 | | | $ | 21,838 | | | $ | 17,755 | | | $ | 9,633 | | | $ | 7,961 | | |
The table above includes $0.8$1.0 million and $0.6$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 June 30, 2020March 31, 2021 and 2019, respectively, and $1.5 million and $1.4 million for the six months ended June 30, 2020 and 2019, respectively.2020.
Note 9 – Litigation and Regulatory Contingencies
We have been named in various lawsuits and we are from time to time subject to audit or investigation by governmental agencies arising in the ordinary course of business.
On March 5, 2021, a purported stockholder of CoreLogic filed a complaint in the United States District Court for the Southern District of New York, captioned Stein v. CoreLogic, Inc., et al., Case No. 1:21-cv-01948 (referred to as the “Stein Complaint”), naming as defendants CoreLogic and each member of the Board. The Stein Complaint was voluntarily dismissed on April 20, 2021. On March 15, 2021, a purported stockholder of CoreLogic filed a complaint in the United States District Court for the District of Colorado, captioned Morse v. CoreLogic, Inc., et al., Case No. 1:21-cv-00770 (referred to as the “Morse Complaint”), naming as defendants CoreLogic and each member of the Board. The Morse Complaint was voluntarily dismissed on April 20, 2021. On March 29, 2021, a purported stockholder of CoreLogic filed a complaint in the United States District Court for the Central District of California, captioned Morgan v. CoreLogic, Inc., et al., Case No. 8:21-cv-00581 (referred to as the “Morgan Complaint”), naming as defendants CoreLogic and each member of the Board. The Morgan Complaint was voluntarily dismissed on April 29, 2021. On March 30, 2021, a purported stockholder of CoreLogic filed a complaint in the United States District Court for the District of Delaware, captioned Kent v. CoreLogic, Inc. et al., Case No. 1:21-cv-00473 (referred to as the “Kent Complaint”), naming as defendants CoreLogic and each member of the Board. The Kent Complaint was voluntarily dismissed on April 29, 2021. On March 31, 2021, a purported stockholder of CoreLogic filed a complaint in the United States District Court for the Eastern District of Pennsylvania, captioned Justice v. CoreLogic, Inc., et al., Case No. 2:21-cv-01542 (referred to as the “Justice Complaint”), naming as defendants CoreLogic and each member of the Board. The Justice Complaint was voluntarily dismissed on May 3, 2021. On April 7, 2021, a purported stockholder of CoreLogic filed a complaint in the United States District Court for the Southern District of New York, captioned Sangster v. CoreLogic, Inc., et al., Case No. 1:21-cv-02982 (referred to as the “Sangster Complaint”), naming as defendants CoreLogic and each member of the Board. The Sangster Complaint was voluntarily dismissed on April 29, 2021. On April 7, 2021, a purported stockholder of CoreLogic filed a complaint in the United States District Court for the Eastern District of New York, captioned Carlson v. CoreLogic, Inc., et al., Case No. 1:21-cv-01879 (referred to as the “Carlson Complaint” and, together with the Stein Complaint, the Morse Complaint, the Morgan Complaint, the Kent Complaint, the Justice Complaint and the Sangster Complaint, the “Complaints”), naming as defendants CoreLogic and each member of the Board.
The Complaints allege, among other things, that the defendants violated Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14a-9 promulgated thereunder. Specifically, one or more of the Complaints allege that the proxy statement filed by CoreLogic with the SEC on March 1, 2021 in connection with the Merger contains materially incomplete and misleading information concerning the Company’s financial forecasts, the financial analyses conducted by Evercore in support of its fairness opinion, services previously provided by Evercore to CoreLogic and/or Parent, the scope and terms of the non-disclosure agreements entered into between CoreLogic and potential bidders in connection with a potential strategic transaction involving CoreLogic and potential conflicts of interests of certain insiders of CoreLogic. The relief sought in one or more of the Complaints includes enjoining the consummation of the Merger unless and until the defendants disclose certain allegedly material information, rescinding, to the extent already implemented, the Merger Agreement or any of the terms thereof, granting rescissory damages, directing the defendants to disseminate a proxy statement that does not contain any untrue statements of material fact and that states all required or necessary material facts, directing the defendants to account for all alleged damages suffered as a result of the defendants’ alleged wrongdoing, declaring that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act as well as Rule 14a-9 promulgated thereunder, and awarding the plaintiffs their respective costs and disbursements, including reasonable attorneys’ and expert fees and expenses. CoreLogic believes that the Complaints were (and, in the case of the Carlson Complaint, is) without merit.
On April 27, 2021, a purported stockholder of CoreLogic filed in the Delaware Court of Chancery a complaint seeking to compel inspection of certain of CoreLogic’s books and records under 8 Del. C. § 220, captioned Teamsters Local 677 Health Services & Insurance Plan v. CoreLogic, Inc., C.A. No. 2021-0360-JTL, which names CoreLogic as the defendant.
With respect to matters where we determine that a loss is both probable and reasonably estimable, we record a liability representing our best estimate of the financial exposure based on known facts. For matters where a settlement has been reached, we record the expected amount of such settlements. With respect to audits, investigations or lawsuits that are ongoing, although their final dispositions are not yet determinable, we do not believe that the ultimate resolution of such matters, either individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties.
The actual outcome of such matters could differ materially from management’s estimates. We record expenses for legal fees as incurred. As of June 30, 2020,March 31, 2021 our accrual for litigation and regulatory contingencies was immaterial.
Fair Credit Reporting Act Class Actions
See
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 Note 14 - Discontinued Operations 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 Actadditional information on behalf of herself and a class of similarly situated consumers with respect to reports issued during the period of July 2015 to the present. In July 2019, the District Court issued an order certifying a class of approximately 2,000 consumers. In June 2020, we reached an agreement to resolve the case, which we expect to be finalized in the coming months. The settlement amount has been recorded for the quarter ended June 30, 2020.
In May 2020, Rental Property Solutions, LLC (“RPS”) was named as a defendant in Terry Brown v. CoreLogic Rental Property Solutions, LLC, a putative class action lawsuit filed in the US District Court for the Eastern District of Virginia. The named plaintiff alleges that RPS prepared a background screening report about him that included a sex offender record that did not relate to him. He seeks damages under the Fair Credit Reporting Act on behalf of himself and a class of similarly situated consumers, as well as a subclass of consumers for whom misattributed sex offender records were removed following a dispute. The Company intends to vigorously defend itself in the litigation.
In June 2020, CoreLogic Credco, LLC (“Credco”) was named as a defendant in Marco Fernandez v. CoreLogic Credco, LLC, a putative class action lawsuit filed in California Superior Court in San Diego County. The named plaintiff alleges that Credco provided a lender with a consumer report about him that erroneously indicated he is on the Office of Foreign Asset Control’s list of Specially Designated Nationals and Blocked Persons (“OFAC List”). He further alleges that Credco failed to provide him with a copy of the OFAC List designation upon request, failed to notify him of what entities had received such a notification in the past, and failed to respond to his effort to dispute the item. He seeks to represent three classes and four subclasses based upon these allegations, and asserts seven claims under the Fair Credit Reporting Act, the California Credit Reporting Agencies Act, and California’s Unfair Competition law. The Company has removed the case to the US District Court for the Southern District of California, and intends to vigorously defend itself in the litigation.
Separation
Following the separation of the financial services businesses of our predecessor company, The First American Corporation (“FAC”) on June 1, 2010 (the “Separation”), we are responsible for a portion of First American Financial Corporation's ("FAFC") contingent and other corporate liabilities. In the Separation and Distribution Agreement we entered into in connection with the Separation, we agreed with FAFC to share equally in the cost of resolution of a small number of corporate-level lawsuits, including certain consolidated securities litigation matters from which we have since been dropped. There were no liabilities incurred in connection with the consolidated securities matters. Responsibility to manage each case has been assigned to either FAFC or us, with the managing party required to update the other party regularlywithin RPS and consult with each other prior to certain important decisions, such as settlement. The managing party will also have primary responsibility for determining the ultimate total liability, if any, related to the applicable case. We will record our share of any such liability when the responsible party determines a reserve is necessary. As of June 30, 2020, 0 reserves were considered necessary.
CS.
In addition, the Separation and Distribution Agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of FAC's financial services business with FAFC, and financial responsibility for the obligations and liabilities of FAC's information solutions business with us. Specifically, each party will, and will cause its subsidiaries and affiliates to, indemnify, defend and hold harmless the other party, its respective affiliates and subsidiaries and each of its respective officers, directors, employees and agents for any losses arising out of or otherwise in connection with the liabilities each such party assumed or retained pursuant to the Separation.
Note 10 – Income Taxes
The effective income tax rate for income taxes as a percentage of income/(loss)income from continuing operations before equity in earnings/(losses)earnings of affiliates and income taxes was a provision of 27.2%19.9% and a benefit of 72.0%29.2% for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and a provision of 27.5% and a benefit of 79.1% for the six months ended June 30, 2020 and 2019, respectively.
For the three and six months ended June 30, 2020,March 31, 2021, when compared to the same periodsperiod for 2019,2020, the changedecrease in the effective income tax rate was primarily due to a nonrecurring benefittax benefits recorded in 20192021 related to the reversal of state tax reserves.share-based compensation.
We are currently under examination for the years 2010 through 2012 andtax year 2016 by the US Internal Revenue Service, ("IRS"), our primary taxing authority, and for other years by various other taxing authorities. It is reasonably possible the amount of theour unrecognized tax benefits as well as the valuation allowance, with respect to certain tax attributes, could be significantly impacted which would have an impact on net income. In the next 12 months, we expect expirationexpirations of statutes of limitations on reserves of approximately $1.3 million and the release of reserves and allowances of approximately $17 million to $20 million upon the conclusion of the IRS examination for years 2010 through 2012.$0.5 million.
Note 11 – Earnings Per Share
The following is a reconciliation of net income per share:
| | | For the Three Months Ended June 30, | | | For the Six Months Ended Jun 30, | | | For the Three Months Ended March 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
(in thousands, except per share amounts) | (in thousands, except per share amounts) | | | | | | | | (in thousands, except per share amounts) | | | | |
Numerator for basic and diluted net income per share: | Numerator for basic and diluted net income per share: | | | | | | | | Numerator for basic and diluted net income per share: | | | | |
Net income/(loss) from continuing operations | $ | 59,005 | | | $ | (5,524) | | | $ | 92,811 | | | $ | (3,791) | | |
(Loss)/income from discontinued operations, net of tax | — | | | (48) | | | 13 | | | (94) | | |
| Net income from continuing operations | | Net income from continuing operations | $ | 54,943 | | | $ | 24,284 | | |
Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | 3,907 | | | 9,535 | | |
Loss from sale of discontinued operations, net of tax | | Loss from sale of discontinued operations, net of tax | (5,288) | | | 0 | | |
Net income | Net income | $ | 59,005 | | | $ | (5,572) | | | $ | 92,824 | | | $ | (3,885) | | Net income | $ | 53,562 | | | $ | 33,819 | | |
Denominator: | Denominator: | | | | | | | | Denominator: | | | | |
Weighted-average shares for basic income/(loss) per share | 79,403 | | | 80,473 | | | 79,216 | | | 80,326 | | |
Weighted-average shares for basic income per share | | Weighted-average shares for basic income per share | 73,228 | | | 79,028 | | |
Dilutive effect of stock options and RSUs | Dilutive effect of stock options and RSUs | 1,243 | | | — | | | 1,551 | | | — | | Dilutive effect of stock options and RSUs | 1,907 | | | 1,497 | | |
Weighted-average shares for diluted income/(loss) per share | 80,646 | | | 80,473 | | | 80,767 | | | 80,326 | | |
Income/(loss) per share | | | | | | | | |
Weighted-average shares for diluted income per share | | Weighted-average shares for diluted income per share | 75,135 | | | 80,525 | | |
Income per share | | Income per share | | | | |
Basic: | Basic: | | | | | | | | Basic: | | | | |
Net income/(loss) from continuing operations | $ | 0.74 | | | $ | (0.07) | | | $ | 1.17 | | | $ | (0.05) | | |
(Loss)/income from discontinued operations, net of tax | — | | | — | | | — | | | — | | |
| Net income from continuing operations | | Net income from continuing operations | $ | 0.75 | | | $ | 0.31 | | |
Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | 0.05 | | | 0.12 | | |
Loss from sale of discontinued operations, net of tax | | Loss from sale of discontinued operations, net of tax | (0.07) | | | 0 | | |
Net income | Net income | $ | 0.74 | | | $ | (0.07) | | | $ | 1.17 | | | $ | (0.05) | | Net income | $ | 0.73 | | | $ | 0.43 | | |
Diluted: | Diluted: | | | | | | | | Diluted: | | | | |
Net income/(loss) from continuing operations | $ | 0.73 | | | $ | (0.07) | | | $ | 1.15 | | | $ | (0.05) | | |
(Loss)/income from discontinued operations, net of tax | — | | | — | | | — | | | — | | |
| Net income from continuing operations | | Net income from continuing operations | $ | 0.73 | | | $ | 0.30 | | |
Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | 0.05 | | | 0.12 | | |
Loss from sale of discontinued operations, net of tax | | Loss from sale of discontinued operations, net of tax | (0.07) | | | 0 | | |
Net income | Net income | $ | 0.73 | | | $ | (0.07) | | | $ | 1.15 | | | $ | (0.05) | | Net income | $ | 0.71 | | | $ | 0.42 | | |
The dilutive effect of share-based compensation awards has been calculated using the treasury-stock method. For both the three and six months ended June 30,March 31, 2021 and 2020, an aggregate of approximately 0.1 million of RSUs and PBRSUs were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect. Given our net loss position for the three and six months ended June 30, 2019, basic and diluted shares are the same, as the assumed exercise of stock options and restricted stock are anti-dilutive.
Note 12 – Acquisitions
In March 2021, we acquired 100% of the shares of ehouse Limited ("ehouse") for £6.9 million or approximately $9.7 million subject to certain working capital adjustments. ehouse delivers a full range of marketing services in the residential, commercial and leisure real estate sectors. ehouse 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 observable inputs. We have preliminarily recorded $1.3 million in proprietary technology and $3.1 million for client lists each with an estimated useful life of 9 years. We have also preliminarily recorded tradenames of $0.4 million with an estimated useful life of 10 years, noncompete agreements of $0.1 million with an estimated useful life of 2 years, deferred tax liabilities of $0.9 million and $4.6 million in goodwill.
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 Property Intelligence & Risk Management Solutions ("PIRM")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 six months ended June 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 sixthree months ended June 30,March 31, 2020.
In August 2019, we completed the acquisition of National Tax Search LLC ("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 6 - 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 fees, and inaccurate flood zone determinations. The NTS acquisition increases the Company's 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 $5.0 million with an estimated useful life of 10 years, proprietary technology of $3.3 million with an estimated useful life of 7 years, trademarks of $1.0 million with an estimated useful life of 7 years, non-compete agreements of $0.3 million with an estimated useful life of 5 years, contract liabilities of $2.5 million, and goodwill of $5.5 million, all of which is deductible for tax purposes. For the six months ended June 30, 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.
These business combinations did not have a material impact on our condensed consolidated statements of operations.
There were 0We incurred $0.3 million and $0.9 million of acquisition-related costs within selling, general and administrative expenses on our condensed consolidated statement of operations for the three months ended June 30,March 31, 2021 and 2020, and $0.1 million for 2019; additionally, we had $0.9 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively.
Note 13 – 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, and 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 $3.7$1.4 million and $2.2$3.1 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $7.7 million and $4.0 million for the six months ended June 30, 2020 and 2019, respectively. The segment also included intercompany expenses of $0.6$0.3 million and $1.0$0.8 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $1.4 million and $1.8 million for the six months ended June 30, 2020 and 2019, respectively.
Underwriting & Workflow Solutions. Our UWS segment combines property, mortgage, 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, and track this information, and assist our clients with vetting and onboarding prospects, meeting compliance regulations and understanding, evaluating, and monitoring property values. Our UWS solutions include property tax solutions, valuation solutions, credit solutions, and flood data 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 $0.6$0.3 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively. The segment also included intercompany expenses of $0.5 million and $1.0 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $1.3 million and $1.8 million for the six months ended June 30, 2020 and 2019 respectively. The segment also included intercompany expenses of $1.8 million and $2.2 million for the three months ended June 30, 2020 and 2019, respectively, and $3.6 million and $4.0 million for the six months ended June 30, 2020 and 2019, respectively.
We also separately report on our corporate and eliminations. Corporate consists primarily of corporate personnel and other expenses associated with our corporate functions and facilities, investment gains and losses, equity in earnings/(losses) of affiliates, net of tax, and interest expense. The results of our Corporate segment included intercompany expenses of $1.9 million and $4.1$0.9 million for the three ended March 31, 2021 and six$2.2 million for the three months ended June 30, 2020, respectively, and NaN for both the three and six months ended June 30, 2019.March 31, 2020.
Selected financial information by reportable segment related to our continuing operations is as follows:
| (in thousands) | (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 | (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 |
| | | | | | | | | | | | | (in thousands) | Operating Revenues | Depreciation and Amortization | Operating Income/(Loss) | | Equity in Earnings/(Losses) of Affiliates, Net of Tax | | Net Income/(Loss) From Continuing Operations | | Capital Expenditures |
For the Three Months Ended June 30, 2020 | | | | | | | | | | | | | |
For the Three Months Ended March 31, 2021 | | For the Three Months Ended March 31, 2021 | | 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 |
PIRM | PIRM | | $ | 176,586 | | | $ | 25,050 | | | $ | 30,159 | | | $ | 764 | | | $ | 30,792 | | | $ | 15,494 | | PIRM | |
UWS | UWS | | 305,140 | | | 13,283 | | | 96,365 | | | — | | | 98,170 | | | 2,112 | | UWS | |
Corporate | Corporate | | — | | | 8,368 | | | (35,541) | | | (388) | | | (69,957) | | | 9,008 | | Corporate | | 0 | | | 8,481 | | | (43,508) | | | 0 | | | (72,301) | | | 5,427 | |
Eliminations | Eliminations | | (4,262) | | | — | | | — | | | — | | | — | | | — | | Eliminations | | (1,748) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Consolidated (excluding discontinued operations) | Consolidated (excluding discontinued operations) | | $ | 477,464 | | | $ | 46,701 | | | $ | 90,983 | | | $ | 376 | | | $ | 59,005 | | | $ | 26,614 | | Consolidated (excluding discontinued operations) | | $ | 422,785 | | | $ | 44,781 | | | $ | 85,437 | | | $ | 0 | | | $ | 54,943 | | | $ | 21,046 | |
| For the Three Months Ended June 30, 2019 | | | | | | | | | |
For the Three Months Ended March 31, 2020 | | For the Three Months Ended March 31, 2020 | | | | | | | | |
PIRM | PIRM | | $ | 183,717 | | | $ | 26,113 | | | $ | 23,026 | | | $ | 482 | | | $ | 19,272 | | | $ | 14,290 | | PIRM | | $ | 162,336 | | | $ | 23,136 | | | $ | 14,353 | | | $ | 706 | | | $ | 15,267 | | | $ | 12,788 | |
UWS | UWS | | 279,017 | | | 13,757 | | | 19,779 | | | (8) | | | 20,377 | | | 4,861 | | UWS | | 194,494 | | | 12,035 | | | 67,520 | | | 0 | | | 67,530 | | | 1,481 | |
Corporate | Corporate | | — | | | 7,236 | | | (28,215) | | | (160) | | | (45,173) | | | 10,903 | | Corporate | | 0 | | | 8,407 | | | (26,680) | | | (194) | | | (58,513) | | | 6,614 | |
Eliminations | Eliminations | | (3,196) | | | — | | | — | | | — | | | — | | | — | | Eliminations | | (3,910) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Consolidated (excluding discontinued operations) | Consolidated (excluding discontinued operations) | | $ | 459,538 | | | $ | 47,106 | | | $ | 14,590 | | | $ | 314 | | | $ | (5,524) | | | $ | 30,054 | | Consolidated (excluding discontinued operations) | | $ | 352,920 | | | $ | 43,578 | | | $ | 55,193 | | | $ | 512 | | | $ | 24,284 | | | $ | 20,883 | |
| For the Six Months Ended June 30, 2020 | | | | | | | | | |
PIRM | | $ | 349,641 | | | $ | 50,061 | | | $ | 48,477 | | | $ | 1,470 | | | $ | 50,024 | | | $ | 29,570 | | |
UWS | | 580,761 | | | 26,528 | | | 171,979 | | | — | | | 174,603 | | | 4,016 | | |
Corporate | | — | | | 16,955 | | | (62,402) | | | (582) | | | (131,816) | | | 16,804 | | |
Eliminations | | (9,053) | | | — | | | — | | | — | | | — | | | — | | |
Consolidated (excluding discontinued operations) | | $ | 921,349 | | | $ | 93,544 | | | $ | 158,054 | | | $ | 888 | | | $ | 92,811 | | | $ | 50,390 | | |
| For the Six Months Ended June 30, 2019 | | | | | | | | | |
PIRM | | $ | 359,525 | | | $ | 52,912 | | | $ | 37,378 | | | $ | (42) | | | $ | 30,659 | | | $ | 29,903 | | |
UWS | | 523,535 | | | 29,532 | | | 65,631 | | | (8) | | | 65,812 | | | 10,629 | | |
Corporate | | — | | | 13,881 | | | (67,215) | | | (58) | | | (100,262) | | | 22,489 | | |
Eliminations | | (5,814) | | | — | | | — | | | — | | | — | | | — | | |
Consolidated (excluding discontinued operations) | | $ | 877,246 | | | $ | 96,325 | | | $ | 35,794 | | | $ | (108) | | | $ | (3,791) | | | $ | 63,021 | | |
|
| (in thousands) | (in thousands) | | (in thousands) | |
Assets | Assets | | June 30, 2020 | | December 31, 2019 | Assets | | March 31, 2021 | | December 31, 2020 |
PIRM | PIRM | | $ | 1,904,923 | | | $ | 1,988,915 | | PIRM | | $ | 1,896,018 | | | $ | 1,892,424 | |
UWS | UWS | | 2,167,497 | | | 2,159,403 | | UWS | | 2,026,550 | | | 2,013,089 | |
Corporate | Corporate | | 5,956,259 | | | 5,938,106 | | Corporate | | 6,110,945 | | | 6,046,238 | |
Eliminations | Eliminations | | (5,871,554) | | | (5,934,053) | | Eliminations | | (5,871,711) | | | (5,870,974) | |
Consolidated (excluding discontinued operations) | Consolidated (excluding discontinued operations) | | $ | 4,157,125 | | | $ | 4,152,371 | | Consolidated (excluding discontinued operations) | | $ | 4,161,802 | | | $ | 4,080,777 | |
Note 14 – Subsequent EventsDiscontinued Operations
As ofIn July 23, 2020, we haveannounced our intentions to pursue the sale of our reseller businesses 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 our revenue growth trends, revenue mix, and significantly enhance profit margins. In October 2020, we consummated the sale of a component of RPS for $9.0 million, which resulted in a gain on sale of discontinued operations of $2.7 million, net of tax. In February 2021, we sold the remainder of RPS for $51.2 million which resulted in a loss, net of tax, of $5.3 million for the three separate subsequent events as noted below.months ended March 31, 2021. We expect to sell the remainder of our reseller businesses to third parties by quarter ending September 30, 2021. RPS was included within the PIRM reporting unit and CS was included within the UWS reporting unit prior to the RPS and CS disposal groups being presented as discontinued operations.
Shareholder Rights Plan UpdatesFor the three months ended March 31, 2021, we recorded $1.7 million in costs directly related to the sale of the remainder of RPS. Each of these businesses is reflected in our accompanying condensed consolidated financial statements as discontinued operations.
Summarized below are certain assets and liabilities classified as discontinued operations as of March 31, 2021 and December 31, 2020:
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(in thousands) | | | | | | | | | | | | | | | | | | | | | | |
As of March 31, 2021 | | PIRM | | UWS | | AMPS | | ELI | | Total | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 381 | | | $ | 571 | | | $ | 0 | | | $ | 0 | | | $ | 952 | | | | | | | | | | | | | |
Accounts receivable and other assets | | 2,634 | | | 55,801 | | | 268 | | 0 | | | 58,703 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Property and equipment, net | | 0 | | | 25,998 | | | 0 | | | 0 | | | 25,998 | | | | | | | | | | | | | |
Goodwill, net | | 0 | | | 79,931 | | | 0 | | | 0 | | | 79,931 | | | | | | | | | | | | | |
Capitalized data and database costs, net | | 0 | | | 1,037 | | | 0 | | | 0 | | | 1,037 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,015 | | | $ | 163,338 | | | $ | 268 | | | $ | 0 | | | $ | 166,621 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 11,457 | | | $ | 34,429 | | | $ | 240 | | | $ | 0 | | | $ | 46,126 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Deferred income tax and other liabilities | | 18 | | | 9,802 | | | 0 | | | 393 | | | 10,213 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | $ | 11,475 | | | $ | 44,231 | | | $ | 240 | | | $ | 393 | | | $ | 56,339 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 971 | | | $ | 1,501 | | | $ | 0 | | | $ | 0 | | | $ | 2,472 | | | | | | | | | | | | | |
Accounts receivable and other assets | | 4,063 | | | 42,806 | | | 268 | | | 0 | | | 47,137 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Property and equipment, net | | 5,586 | | | 24,651 | | | 0 | | | 0 | | | 30,237 | | | | | | | | | | | | | |
Goodwill, net | | 24,272 | | | 79,931 | | | 0 | | | 0 | | | 104,203 | | | | | | | | | | | | | |
Capitalized data and database costs, net | | 17,377 | | | 991 | | | 0 | | | 0 | | | 18,368 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 52,269 | | | $ | 149,880 | | | $ | 268 | | | $ | 0 | | | $ | 202,417 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 2,584 | | | $ | 24,048 | | | $ | 240 | | | $ | 1 | | | $ | 26,873 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Deferred income tax and other liabilities | | 10,686 | | | 6,725 | | | 0 | | | 393 | | | 17,804 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | $ | 13,270 | | | $ | 30,773 | | | $ | 240 | | | $ | 394 | | | $ | 44,677 | | | | | | | | | | | | | |
For the year ended December 31, 2020, in connection with our intent to exit our reseller businesses, we reclassified $29.3 million and $79.9 million of goodwill, net, from our PIRM and UWS segments, to the RPS and CS disposal groups, respectively. The allocated amounts were determined by calculating the relative fair values between the disposal group and its respective reporting unit using a combination of the income and market approaches. Determining the fair value of a disposal group and a reporting unit is judgmental and requires assumptions and estimates of many critical factors, including revenue growth rates, cost of services, selling, general and administrative expenses, market multiples, discount rates, and indicative fair market values from potential participants at the time of valuation. The estimated fair values supported the net book value of our disposal groups.
Summarized below are the components of our income/(loss) from discontinued operations, net of tax for the three months ended March 31, 2021 and 2020:
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(in thousands) | | | | | | | | | | |
For the Three Months March 31, 2021 | | PIRM | | UWS | | AMPS | | ELI | | Total |
Operating revenues | | $ | 2,867 | | | $ | 103,582 | | | $ | 0 | | | $ | 0 | | | $ | 106,449 | |
Cost of services (exclusive of depreciation and amortization) | | 1,632 | | | 84,534 | | | 0 | | | 0 | | | 86,166 | |
Selling, general and administrative expenses | | 10,382 | | | 4,854 | | | 0 | | | 0 | | | 15,236 | |
| | | | | | | | | | |
Gain on investments and other, net | | 0 | | | (159) | | | 0 | | | 0 | | | (159) | |
Income/(loss) from discontinued operations before income taxes | | (9,147) | | | 14,353 | | | 0 | | | 0 | | | 5,206 | |
Provision/(benefit) for income taxes | | (2,282) | | | 3,581 | | | 0 | | | 0 | | | 1,299 | |
Income/(loss) from discontinued operations, net of tax | | $ | (6,865) | | | $ | 10,772 | | | $ | 0 | | | $ | 0 | | | $ | 3,907 | |
| | | | | | | | | | |
For the Three Months March 31, 2020 | | | | | | | | | | |
Operating revenues | | $ | 9,239 | | | $ | 81,727 | | | $ | 0 | | | $ | 0 | | | $ | 90,966 | |
Cost of services (exclusive of depreciation and amortization) | | 4,443 | | | 66,598 | | | 0 | | | 0 | | | 71,041 | |
Selling, general and administrative expenses | | 2,664 | | | 2,118 | | | 0 | | | (18) | | | 4,764 | |
Depreciation and amortization | | 1,875 | | | 1,390 | | | 0 | | | 0 | | | 3,265 | |
| | | | | | | | | | |
Gain on investments and other, net | | 0 | | | (809) | | | 0 | | | 0 | | | (809) | |
Income/(loss) from discontinued operations before income taxes | | 257 | | | 12,430 | | | 0 | | | 18 | | | 12,705 | |
Provision/(benefit) for income taxes | | 64 | | | 3,101 | | | 0 | | | 5 | | | 3,170 | |
Income/(loss) from discontinued operations, net of tax | | $ | 193 | | | $ | 9,329 | | | $ | 0 | | | $ | 13 | | | $ | 9,535 | |
| | | | | | | | | | |
Fair Value on Contingent Consideration
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 fair value of $4.4 million using the Monte-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 three months ended March 31, 2021, we decreased the fair value of our contingent consideration by $0.2 million. During the three months ended March 31, 2020, we decreased the fair value of our contingent consideration by $0.8 million.
Litigation Matters
In the RPS sale transaction, we retained liabilities relating to pending litigation involving RPS.
Fair Credit Reporting Act Class Actions
In July 2020, our Board2017, CoreLogic Rental Property Solutions, LLC (“RPS LLC”) 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 Directors adoptedNew York. The named plaintiff alleges that RPS LLC prepared a shareholder rights plan (the “Rights Agreement”).
Pursuantbackground 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 Rights Agreement,present. In July 2019, the District Court issued an order certifying a class of approximately 2,000 consumers. In June 2020, we reached an agreement to resolve the case. At a hearing on July 6, 2020, our Board of Directors declared a dividend distribution of 1 right (a “Right”) for each outstanding share of our common stock to shareholders of record on July 17, 2020. Each Right entitles its holder to purchase fromFebruary 23, 2021, the Company, when exercisable and subject to adjustment, a unit (“Unit”) consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.00001 per share, at an exercise price of $308 per Unit (the “purchase price”).
Under the Rights Agreement, the Rights will generally be exercisable only in the event that a person or group of affiliated or associated persons (such person or group being an “Acquiring Person”), other than certain exempt persons, acquires beneficial ownership of ten percent (10%) or moreDistrict Court granted final approval of the outstanding shares of our common stock (or twenty percent (20%) or more ofsettlement. The settlement amount was recorded during the outstanding shares of our common stock in the case of passive institutional investors reporting beneficial ownership on Schedule 13G). In such case, subject to certain exceptions specified in the Rights Agreement, each holder of a Right (other than the Acquiring Person, whose Rights would become null and void) will have the right to receive, upon payment of the purchase price, common stock (or, in certain circumstances, other securities, cash, or other assets of the Company) having a value equal to 2 (2) times the purchase price.quarter ended June 30, 2020.
In May 2020, RPS LLC was named as a defendant in Terry Brown v. CoreLogic Rental Property Solutions, LLC, a putative class action lawsuit filed in the eventUS District Court for the Eastern District of Virginia. The named plaintiff alleges that at any time afterRPS LLC prepared a person or group has becomebackground screening report about him that included a sex offender record that did not relate to him. He seeks damages under the Fair Credit Reporting Act on behalf of himself and a class of similarly situated consumers, as well as a subclass of consumers for whom misattributed sex offender records were removed following a dispute. Following a mediation on April 1, 2021, we reached an Acquiring Person, (i)agreement in principle, subject to agreement on written terms, to settle the Company is acquired in a merger or other business combination transaction in whichcase. We have recorded the Company is not the continuing or surviving corporation, (ii) the Company engages in a merger or other business combination transaction in which the Company is the continuing or surviving corporation and the shares of common stockamount of the Company are changed or exchanged or (iii) fifty percent (50%) or more ofsettlement for the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (other than the Acquiring Person, whose Rights would become null and void) would thereafter have the right to receive, upon payment of the purchase price, common stock of the acquiring company having a value equal to 2 (2) times the purchase price.
Our Board of Directors may redeem the Rights for $0.001 per Right, subject to adjustment, at any time until the earlier of 10 business days following a public announcement that an Acquiring Person has become such or the expiration of the Rights Agreement. The Rights will expire on July 6, 2021, unless the Rights are earlier redeemed, exchanged or terminated.
The Rights are not intended to prevent a takeover of the Company and should not interfere with any merger or other business combination approved by our Board of Directors. However, the overall effect of the Rights may render it more difficult or discourage a merger, tender offer or other business combination involving the Company that is not supported by our Board of Directors.
Additional details about the Rights Agreement are contained in a Form 8-K filed by the Company with the SEC on July 7, 2020.
Dividendsquarter ended March 31, 2021.
In JulyJune 2020, our BoardCoreLogic 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 Directors announcedForeign Asset Control’s list of Specially Designated Nationals and Blocked Persons (“OFAC List”). He further alleges that Credco failed to provide him with a 50% increasecopy of the OFAC List designation upon request, failed to notify him of what entities had received such a notification in the quarterly cash dividend, declaring a cash dividendpast, and failed to respond to his effort to dispute the item. He seeks to represent three classes and four subclasses based upon these allegations, and asserts seven claims under the Fair Credit Reporting Act, the California Credit Reporting Agencies Act, and California’s Unfair Competition law. The Company has removed the case to the US District Court for the Southern District of $0.33 per share of common stock to be paidCalifornia. The case has been stayed pending the U.S. Supreme Court’s decision in September 2020 to shareholders of a record as of September 1, 2020.
Trans Union, LLC v. Ramirez.
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, the near and long-term consequences of the unsolicited proposal from Senator Investment Group, L.P. and Cannae Holdings, Inc. to acquire the Company for $65.00 per share in cash (the “Unsolicited Proposal”) and our recent adoption of a shareholder rights plan.liabilities.
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:
•our ability to satisfy the remaining conditions to the closing of the Merger in a timely manner, or at all;
•the potential impact of, and any potential developments related to, the Unsolicited Proposal;
•our adoption of a shareholder rights plan;proposed Merger;
•the potential impact that the COVID-19 pandemic, or the perception of, its effects, may have on our business;and any potential developments related to, activist shareholder activity;
•compromises in the security or stability of our data and systems, including from cyber-based attacks, the unauthorized transmission of confidential information or systems interruptions;
•limitations on access to, or increase in prices for, data from external sources, including government and public record sources;
•interruptions, which could impair the delivery of our products and services;
•changes in applicable government legislation, regulations and the level of regulatory scrutiny affecting our clients or us, including with respect to consumer financial services and the use of public records and consumer data;
•difficult or uncertain conditions in the mortgage and consumer lending industries and the economy generally;
•reliance on our top ten clients for a significant portion of our revenue and profit;
•intense competition in the market against third parties and the in-house capabilities of our clients;
•risks related to the outsourcing of services and international operations;
•potential impairment of our ability to realize the anticipated benefits of certain acquisitionssubstantial goodwill and the timing thereof;other intangible assets;
•the potential impact that the COVID-19 pandemic, or the perception of its effects, may have on our ability to operate in international markets;business;
•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 attractrealize the anticipated benefits of certain acquisitions and retain qualified management; andthe timing thereof;
•the remaining tax sharing arrangementsimpact of our adoption of a shareholder rights plan;
•difficult or uncertain conditions in the mortgage and other obligations associated withconsumer lending industries and the spin-off of First American Financial Corporation (“FAFC”).economy generally; and
•our ability to attract and retain qualified personnel.
We urge you to carefully consider 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 Report on Form 10-Q for the quarter ended March 31, 2020 and Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019,2020, 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, 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 structured property-specific data consisting of over 150 million parcel records covers over 99% of the United States ("US"),US, includes both residential and commercial real estate data and is enriched by over 1one billion historical sales, mortgage, and pre-foreclosure transactions. Our consortium data covers loan levelloan-level mortgage performance, appraisal, as well as mortgage 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 spatial database covering more than 150 million parcel polygons across the US. We believe the quality of the data we offer is distinguished by our broad range of data sources and our experience in aggregating, organizing, normalizing, processing, and delivering data to our clients.
With our data as a foundation, we have built strong analytics capabilities and a variety of value-added business services to meet our clients’ needs for property tax processing, property valuation, mortgage and automotive credit reporting, tenancy screening, hazard risk, property risk and replacement cost, flood plain location determination, other geospatial data, analytics, and related services.
Reportable Segments
We have organized into the following two reportable segments:
Our Property Intelligence & Risk Management (“PIRM”)PIRM segment combines property information, mortgage information, and consumer information to deliver unique housing market and property-level insights, predictive analytics and risk management capabilities. We have also developed proprietary technology and software platforms to access, automate or track this information and assist our clients with decision-making and compliance tools in the real estate industry insurance industry and the single and 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”)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
Merger Agreement
In February 2021, CoreLogic entered into the Merger Agreement with the Acquirer and Acquisition Sub providing for the Merger, subject to the terms and conditions set forth therein. The Acquirer and Acquisition Sub are affiliates of Stone Point Capital Partners and Insight Partners. In the event the Merger is completed, except as otherwise provided in the Merger Agreement, each share of common stock issued and outstanding immediately prior to the Effective Time would be converted into the right to receive the Merger Consideration.
Consummation of the Merger is subject to customary closing conditions, including, among other things, receipt of the Requisite Stockholder Approval and Regulatory Approvals.The Requisite Stockholder Approval was obtained at a special meeting of the Company’s stockholders on April 28, 2021. In addition, the applicable waiting period under the HSR Act expired on March 22, 2021 and clearance to proceed was obtained from the New Zealand Overseas Investment Office on March 8, 2021. CoreLogic made the filing required in Australia in February 2021 and is awaiting approval from the Australian Foreign Investment Review Board.
The consummation of the Merger is not subject to a financing condition, and the Acquirer has obtained equity and debt financing commitments for the purpose of financing the Merger and the other transactions contemplated by the Merger Agreement. Certain debt financing arrangements have already been secured by Acquisition Sub and, subject to the consummation of the Merger, will become indebtedness of CoreLogic at the Effective Time.
Either we or the Acquirer may terminate the Merger Agreement in certain circumstances, including if (i) the Merger shall not have been consummated on or before 5:00 p.m. (New York City time) on August 9, 2021, (ii) any of certain governmental authorities of competent jurisdiction has issued a final non-appealable law or order prohibiting the Merger, (iii) the Requisite Stockholder Approval is not obtained at the stockholders’ meeting duly convened therefor or (iv) the other party materially breaches, and does not cure, any representation or covenant that would cause the related condition to the other party’s obligation to consummate the Merger not to be satisfied, in each case subject to certain limitations set forth in the Merger Agreement. If we terminate the Merger Agreement because (i) the Acquirer or Acquisition Sub materially breaches, and does not cure, any representation or covenant that would cause any conditions to our obligation to consummate the Merger not to be satisfied or (ii) all conditions to the Merger have been and continue to be satisfied (subject to customary exceptions) and the Acquirer fails to consummate the Merger after receiving written notification from us, we would be entitled to receive a termination fee from the Acquirer of $330 million. If the Merger Agreement is terminated by us or the Acquirer under other certain circumstances specified in the Merger Agreement, we would be obligated to pay a termination fee of $165 million to the Acquirer. See the risk factor titled “If the Merger Agreement is terminated, under certain conditions, we may be obligated to pay the Acquirer a substantial termination fee, which could require us to incur additional debt or reduce the amount of cash we have available to fund our operations” under “Risk Factors” in Item 1A of Part I of our 2020 10-K for further information about the termination fee we may be obligated to pay.
Please refer to the Definitive Proxy Statement for further information about the Merger, the Merger Agreement, and the other transactions contemplated thereby.
Rights Agreement Amendment
In February 2021, in connection with the execution of the Merger Agreement, CoreLogic also entered into the Rights Agreement Amendment with Equiniti Trust Company, in order to (i) render the Rights Agreement inapplicable to the Merger and the transactions contemplated by the Merger Agreement, (ii) ensure that in connection with the transactions contemplated by the Merger Agreement, none of the Acquirer, Acquisition Sub, or any of their “Affiliates” or “Associates” (each as defined in the Rights Agreement) shall be deemed to be or become an “Acquiring Person” (as defined below) and (iii) provide that the “Expiration Date” (as defined in the Rights Agreement) shall occur immediately prior to the Effective Time.
Unsolicited Proposal and Proxy Contest Proposals
In connection with the Unsolicited Proposal, Proxy Contest Proposals, and related strategic transaction process, we have incurred expenses of approximately $11.4 million for the three months ended March 31, 2021.
Please refer to Note 1 - Basis for Condensed Consolidated Financial Information under the heading “Unsolicited Proposal and Proxy Contest Proposals” for further information.
COVID-19
The global coronavirus ("COVID-19")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 mitigationrisk-mitigation activities, safety practices, and business continuity strategies so that we can continue offering our clients consistent service offerings while continuing to protect our employees.
The volume of US mortgage loan originations serves as a key market driver for more than half of our business. We believe the volume and related volatility of real estate and mortgage transactions is primarily affected by real estate prices, the availability of funds for mortgage loans, mortgage interest rates, housing supply, employment levels, actions by the Federal Reserve, and the overall state of the US economy. Mortgage interest rates are extremely low by historical standards, and are resulting in higher demand for refinance activity, while the purchase market has been adversely impacted by reduced construction and sales of new and existing homes, and more recently, the COVID-19 pandemic and resulting economic instability. For the three and six months ended June 30, 2020, weMarch 31, 2021, our continuing operations experienced unfavorable business and revenue impacts of approximately $15.1 million and $20.9$0.8 million, respectively, related to the COVID-19 pandemic, exclusive of the increased mortgage refinance volumes. As of June 30, 2020,For the impact we have experienced as a result ofthree months ended March 31, 2021, the COVID-19 pandemic has not had a significant impact on our financial condition, cash flows, control environment, or any related disclosures.
We will continue to monitor our business trends, financial condition, and liquidity, and are taking steps to manage our operating cash flows, by prioritizing our investments, and evaluating our capital needs and activities. Our liquidity as of June 30, 2020March 31, 2021 consisted primarily of $137.3$227.1 million of cash and cash equivalents, and $750.0$450.0 million of unused committed capacity under our revolving credit facility, and we are in compliance willwith all financial covenants.
Business Environment
We believe mortgage origination unit volumes increased by approximately 30% in the secondfirst quarter of 20202021 relative to the same period in 2019,2020, primarily due to higher mortgage refinance volumes resulting from lower interest rates.rates which favorably impacted overall mortgage unit volumes. For 2020,2021, we expect total mortgage unit volumes to increasebe relatively flat or decline slightly when compared to 2020 levels supported by approximately 25% relative to 2019 levels, with historicallya continued low interest rates benefiting refinance volumes. Further, in June 2020, the Federal Reserve indicated that short-term rates will remain near zero until at least 2022 and expectations are that mortgage rates will remain near historically low levels through 2022. Given this favorable rate environment and the significant population of existing loans that are in the money and meet broad-based eligibility criteria for refinance, we expect refinance volumes to remain at elevated levels through at least 2022.environment.
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 34%40% and 30% of our operating revenues for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, were generated from our top ten clients, who consist of the largest US mortgage originators and servicers. None of our clients individually accounted for greater than 10% of our operating revenues for the three months ended June 30, 2020March 31, 2021 or 2019. Approximately 32% and 29% of our operating revenues for the six months ended June 30, 2020 and 2019, respectively, were generated from our top ten clients. None of our clients individually accounted for greater than 10% of our operating revenues during the six months ended June 30, 2020 or 2019.2020.
While the majority of our revenues are generated in the US, continued strengthening of the US dollar versus other currencies in 2020 unfavorablyforeign exchange translation impacted the translation of theour financial results offrom our international operating revenues favorably by $2.0 million and $4.5$5.8 million for the three and six months ended June 30, 2020,March 31, 2021, 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 worthAs of outstanding shares by the end of 2022, inclusive of at leastMarch 31, 2021, we had $500.0 million in value of shares (inclusive of commissions and fees) available to be repurchased under the share repurchase authorization. Pursuant to the Merger Agreement, we agreed to refrain from repurchasing shares of our common stock during the period between February 4, 2021 and the earlier of (i) the consummation of the Merger or (ii) the termination of the Merger Agreement (the “Interim Operating Period”), subject to the terms, limitations and exceptions set forth in 2020.the Merger Agreement.
In July 2020, our BoardDecember 2019, we announced the initiation of Directors announced a 50% increase to the quarterly cash dividend declaring a cash dividend of$0.33 per share ofto common stock to be paid in September 2020 to shareholders of record as of the close of business on September 1, 2020. Weshareholders. CoreLogic paid a cash dividend of $0.22 per share of common stock in each of January 2020 and June 2020 to shareholders of record as of the close of business on January 10, 2020 and June 1, 2020.2020, respectively. 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, December 2020, and March 2021 to stockholders of record as of the close of business on September 1, 2020, December 1, 2020, and March 1, 2021, respectively. Pursuant to the Merger Agreement, we agreed to refrain from declaring or paying any further dividends during the Interim Operating Period, subject to the terms, limitations and exceptions set forth in the Merger Agreement.
Acquisitions
In January 2020, we acquired the remaining 66% of Location Inc. ("Location") for $11.5 million, subject to certain working capital adjustments. Location is included as a component of our PIRM segment.
In March 2021, we acquired 100% of the shares of ehouse for £6.9 million (or approximately $9.7 million), subject to certain working capital adjustments. ehouse is included as a component of our PIRM segment. See Note 12 - Acquisitions for further discussion.
Technology Transformation
In September 2018, we announced the adoption of the Google Cloud Platform (“GCP”) as a foundational element of our ongoing technology transformation program to further expand infrastructure capabilities and drive efficiencies. Successful deployment of this technology has already begun and we expect to completeWe successfully completed the initial transformation phase, of GCP by December 2020. After the initial deployment, weand will continue transitioning our technology over the foreseeable future on an opportunistic basis. As weThe transition to GCP we will continueallows 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.
Business Exits & TransformationDiscontinued Operations
In December 2018,July 2020, we announced our intentintention 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 and revenue mix, and significantly enhance profit margins. As a loan origination software unit and its remaining legacy default management related platforms,result of this strategic decision, the businesses have been reflected in our condensed consolidated financial statements as well as accelerate an appraisal management company ("AMC") transformation program. We believediscontinued operations for all periods presented. In October 2020, we sold a portion of our multi-family tenant screening business, which resulted in a gain on the sale of discontinued operations of $2.7 million, net of tax. In February 2021, we sold the remainder of RPS for $51.2 million which resulted in a loss, net of tax, of $5.3 million for the three months ended March 31, 2021. For the three months ended March 31, 2021, these actions have expanded our overall profit margins and provide for enhanced long-term organic growth trends. In September 2019, we divested our default management related platforms and received proceedsbusinesses generated revenues of $3.8 million. The AMC transformation was concluded in December 2019. Operating revenues attributable to the aforementioned business exits and AMC transformation were $27.9$106.4 million and $48.7 million foroperating income of $5.2 million. For the three and six months ended June 30, 2020, respectively.
Unsolicited Proposal
On June 26, 2020, we received an unsolicited proposal from Senator Investment Group, LP (“Senator”) and Cannae Holdings, Inc. (“Cannae”) to acquire the Company for $65.00 per share in cash (the “Unsolicited Proposal”). Our Board of 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 of the proposed acquisition of the Company by Senator and Cannae and requesting that we produce information in connection with that investigation. The events surrounding the Unsolicited Proposal and related circumstances, and our response, have required us, and may continue to require us, to incur significant legal and advisory fees and expenses; and significant time and attention by management and our Board of Directors.
For a further discussion of risks, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” in Item 1A of Part I of this Quarterly Report on Form 10-Q as well as in Item 1A of Part II in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, these business generated revenues of $91.0 million and in Item 1Aoperating income of Part I of our Annual Report on Form 10-K $12.7 million. Please refer to Note 14 - Discontinued Operations for the fiscal year ended December 31, 2019.further information.
Unless otherwise indicated, the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q relate solely to the discussion of our continuing operations.
Consolidated Results of Operations
Three Months Ended June 30, 2020March 31, 2021 Compared to the Three Months Ended June 30, 2019March 31, 2020
Operating Revenues
Our consolidated operating revenues were $477.5$422.8 million for the three months ended June 30, 2020,March 31, 2021, an increase of $17.9$69.9 million, or 3.9%19.8%, when compared to the comparable period in 2019,2020, and consisted of the following:
| (in thousands, except percentages) | (in thousands, except percentages) | 2020 | | 2019 | | $ Change | | % Change | | (in thousands, except percentages) | 2021 | | 2020 | | $ Change | | % Change | |
PIRM | PIRM | $ | 176,586 | | | $ | 183,717 | | | $ | (7,131) | | | (3.9) | % | | PIRM | $ | 175,212 | | | $ | 162,336 | | | $ | 12,876 | | | 7.9 | % | |
UWS | UWS | 305,140 | | | 279,017 | | | 26,123 | | | 9.4 | | | UWS | 249,321 | | | 194,494 | | | 54,827 | | | 28.2 | | |
Corporate and eliminations | Corporate and eliminations | (4,262) | | | (3,196) | | | (1,066) | | | 33.4 | | | Corporate and eliminations | (1,748) | | | (3,910) | | | 2,162 | | | (55.3) | | |
Operating revenues | Operating revenues | $ | 477,464 | | | $ | 459,538 | | | $ | 17,926 | | | 3.9 | % | | Operating revenues | $ | 422,785 | | | $ | 352,920 | | | $ | 69,865 | | | 19.8 | % | |
Our PIRM segment operating revenues decreasedincreased by $7.1$12.9 million, or 3.9%7.9%, for the three months ended June 30, 2020,March 31, 2021, when compared to 2019.2020. Excluding acquisition activity of $0.9 million, operating revenues decreased $8.0the increase of $12.0 million was primarily due to the impacthigher revenues of COVID-19 totaling $9.5$7.0 million across our solution groups.from property insights and insurance and spatial solutions due to increased market volumes, market-share gains and pricing. Additionally, included within our property insights and spatial solutions revenues is unfavorablea favorable foreign exchange impact of $2.0$5.8 million. The decrease was offset by higher market volumes and market share gains of $3.5 million primarily within our property insights business.
Our UWS segment revenues increased by $26.1$54.8 million, or 9.4%28.2%, for the three months ended June 30, 2020,March 31, 2021, when compared to 2019. Excluding acquisition activity of $1.8 million, operating revenues increased $24.4 million2020. The increase was primarily due to higher property tax solutions revenues of $31.7$51.1 million, higher credit solutions revenues of $10.8 million, and higher flood data solutions revenues of $8.4$4.0 million, and higher valuation solutions revenue of $1.0 million, primarily related to increased volumes.market volumes, market-share gains, and pricing. These increases were partially offset by lower valuation solutions revenueother revenues of $24.2$1.3 million due to the impacts of our AMC transformation program, and lower other revenues of $2.3 million. Operating revenues attributable to the aforementioned business exits and AMC transformation were $27.9 million for the quarter ended June 30, 2019. Refer to "Business Exits & Transformation" discussion above for further details. Additionally, the UWS segment revenues reflected a total adverse impact of $5.6 million related to COVID-19.product wind-downs.
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 $214.5$162.6 million for the three months ended June 30, 2020, a decreaseMarch 31, 2021, an increase of $12.7$18.0 million, or 5.6%12.5%, when compared to 2019.2020. Excluding acquisition activity of $1.7$0.5 million, the decreaseincrease of $14.5$17.5 million was primarily due to favorable product mix.higher revenue.
Selling, General and Administrative Expenses
Our consolidated selling, general and administrative expenses was $124.1were $130.0 million for the three months ended June 30, 2020,March 31, 2021, an increase of $1.3$20.4 million, or 1.0%18.6%, when compared to 2019.2020. Excluding acquisition activity of $1.0$0.1 million, the increase of $0.3$20.5 million was primarily due to higher costs as a result of the Unsolicited Proposal, Proxy Contest Proposals, and related strategic transaction process of $11.4 million, higher other external services costs of $4.9 million, and higher compensation costs of $4.6 million and higher other expenses of $1.8$6.5 million, partially offset by lower travel costs of $3.9 million and lower professional fees of $2.2$2.3 million.
Depreciation and Amortization
Our consolidated depreciation and amortization expense was $46.7$44.8 million for the three months ended June 30, 2020, a decreaseMarch 31, 2021, an increase of $0.4$1.2 million, or 0.9%2.8%, when compared to 2019. Excluding acquisition activity of $0.5 million, the decrease of $0.9 million was primarily2020 due to assets that were fully impairedasset additions made during the prior year.
Impairment Loss
Our consolidated impairment loss was $1.2 million for the three months ended June 30, 2020, a decrease of $46.6 million, or 97.4%, when compared to 2019, primarily due to prior year write-offs of clients lists of $32.3 million, software of $12.3 million, and licenses of $3.3 million related to the transformation of our AMC business, offset by current year impairment charges related to software.
Operating Income
Our consolidated operating income was $91.0$85.4 million for the three months ended June 30, 2020,March 31, 2021, an increase of $76.4$30.2 million, or 523.6%54.8%, when compared to 2019,2020, and consisted of the following:
| (in thousands, except percentages) | (in thousands, except percentages) | | 2020 | | 2019 | | $ Change | | % Change | (in thousands, except percentages) | | 2021 | | 2020 | | $ Change | | % Change |
PIRM | PIRM | | $ | 30,159 | | | $ | 23,026 | | | $ | 7,133 | | | 31.0 | % | PIRM | | $ | 20,152 | | | $ | 14,353 | | | $ | 5,799 | | | 40.4 | % |
UWS | UWS | | 96,365 | | | 19,779 | | | 76,586 | | | 387.2 | | UWS | | 108,793 | | | 67,520 | | | 41,273 | | | 61.1 | |
Corporate and eliminations | Corporate and eliminations | | (35,541) | | | (28,215) | | | (7,326) | | | 26.0 | | Corporate and eliminations | | (43,508) | | | (26,680) | | | (16,828) | | | 63.1 | |
Operating income | Operating income | | $ | 90,983 | | | $ | 14,590 | | | $ | 76,393 | | | 523.6 | % | Operating income | | $ | 85,437 | | | $ | 55,193 | | | $ | 30,244 | | | 54.8 | % |
Our PIRM segment operating income increased by $7.1$5.8 million, or 31.0%40.4%, for the three months ended June 30, 2020March 31, 2021, when compared to 2019.2020. Excluding acquisition activity of $0.1$0.4 million, operating income increased by $7.3$5.4 million and margins increased by 470247 basis points primarily due to higher revenue, favorable product mix and the impact of our ongoing operational efficiency programs.
Our UWS segment operating income increased by $76.6$41.3 million, or 387.2%61.1%, and margins increased by 892 basis points for the three months ended June 30, 2020March 31, 2021, when compared to 2019. Excluding acquisition activity of $0.6 million, operating income increased by $77.2 million and margins increased by 2,480 basis points,2020 primarily driven by lower impairment loss,due to higher revenues, favorableimproved product mix, and the impact of our ongoing operational efficiency programs.
Corporate and eliminations had an unfavorable variance of $7.3$16.8 million, or 26.0%63.1%, for the three months ended June 30, 2020 when compared to 2019,March 31, 2021, primarily due to higher compensation costs.costs associated with the Unsolicited Proposal, Proxy Contest Proposals, and related strategic transaction process.
Total Interest Expense, net
Our consolidated total interest expense, net, was $17.6$16.3 million for the three months ended June 30, 2020,March 31, 2021, a decrease of $1.5 million, or 8.0%8.3%, when compared to 2019.2020. The decrease was primarily due to lower interest rates as well as lower average outstanding principal balances.and debt levels.
Gain/(Loss)Loss on Investments and Other, net
Our consolidated gainloss on investments and other, net, was $7.1$0.5 million for the three months ended June 30, 2020,March 31, 2021, a favorable variance of $10.0$3.4 million, or 347.4%, when compared to 2019.2020. The variance is primarily due to higher gains of $2.9 millionlosses related to our supplemental benefit plans,plan in 2020. This variance is partially offset by a $1.2 million gain fromloss due to a fair value adjustment on an acquisition-related contingent consideration,of $2.3 million to lower the carrying value of a prior year loss of $4.3 million related to a non-cash impairment charge on anminority equity method investment and a prior year $1.5 million loss of unamortized debt issuance cost write-offs due to financing activities.in 2021.
Tax Indemnification Release
In the prior year, we recorded a $13.4 million loss related to the release of a tax indemnification receivable due to the expiration of the statutes of limitations in our principal state jurisdictions. Associated state tax reserves of $15.3 million were also released and recognized, in the prior year, as income tax benefit through the provision for income taxes.
Provision/(Benefit)Provision for Income Taxes
Our consolidated provision/(benefit)provision for income taxes from continuing operations before equity in earnings/(losses)earnings of affiliates and income taxes was a provision of $21.8$13.7 million and a benefit of $15.0$9.8 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively. The effective tax rate was 27.2% on our provision19.9% and 72.0% on our benefit for income taxes29.2% for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively. The changedecrease in the effective income tax rate was primarily due to the nonrecurring benefittax benefits recorded in 20192021 related to the reversal of state tax reserves.share-based compensation.
Equity in Earnings/(Losses)Earnings of Affiliates, net of tax
We had no consolidated equity in earnings of affiliates, net of tax for the three months ended March 31, 2021. Our consolidated equity in earnings of affiliates, net of tax was $0.4 million for the three months ended June 30,March 31, 2020 a favorable variance of $0.1 million when compared to 2019.was $0.5 million. We have equity interestsone investment in various affiliates which had higher earnings in the current period compared to the prior year period.
Consolidated Resultsan affiliate that is fully impaired as of OperationsMarch 31, 2021.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
Operating Revenues
Our consolidated operating revenues were $921.3 million for the six months ended June 30, 2020, an increaseIncome/(Loss) from Discontinued Operations, Net of $44.1 million, or 5.0%, when compared to 2019, and consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except percentages) | 2020 | | 2019 | | $ Change | | % Change | |
PIRM | $ | 349,641 | | | $ | 359,525 | | | $ | (9,884) | | | (2.7) | % | |
UWS | 580,761 | | | 523,535 | | | 57,226 | | | 10.9 | | |
Corporate and eliminations | (9,053) | | | (5,814) | | | (3,239) | | | 55.7 | | |
Operating revenues | $ | 921,349 | | | $ | 877,246 | | | $ | 44,103 | | | 5.0 | % | |
Our PIRM segment revenues decreased by $9.9 million, or 2.7%, for the six months ended June 30, 2020, when compared to 2019. Excluding acquisition activity of $1.5 million, the decrease of $11.4 million primarily due to the impact of COVID-19 totaling $10.9 million across our solution groups. Additionally, included within our property insights revenues is unfavorable foreign exchange of $4.5 million. The decrease was offset by higher market volumes and market share gains of $4.0 million primarily within our property insights business.Tax
Our UWS segment revenues increased by $57.2consolidated income from discontinued operations, net of tax was $3.9 million or 10.9%, for the six three months ended June 30, 2020,March 31, 2021, an unfavorable variance of $5.6 million when compared to 2019. Excluding acquisition activity of $3.3 million, the increase of $53.9 million was primarily due to higher property tax solutions revenues of $45.6 million, higher credit solutions revenues of $24.2 million, and higher flood data solutions revenues of $19.0 million primarily related to increased volumes. These increases were partially offset by lower valuation solutions revenue of $29.3 million due to the impacts of our AMC transformation program, and lower other revenues of $5.6 million. Operating revenues attributable to the aforementioned business exits and AMC transformation were $48.7 million for the six months ended June 30, 2019. Additionally, the UWS segment revenues reflected a total adverse impact of $10.0 million related to COVID-19.
Our corporate and eliminations were comprised of intercompany revenue eliminations between our operating segments.
Cost of Services (excluding depreciation and amortization)
Our consolidated cost of services was $430.1 million for the six months ended June 30, 2020, a decrease of $16.2 million, or 3.6%, when compared to 2019. Excluding acquisition activity of $3.3 million, the decrease of $19.5 million was primarily due to favorable product mix.
Selling, General and Administrative Expenses
Our consolidated selling, general and administrative expenses were $238.5 million for the six months ended June 30, 2020, a decrease of $12.6 million, or 5.0%, when compared to 2019. Excluding acquisition activity of $1.8 million, the decrease of $14.4 million was primarily due to lower compensation costs of $13.1 million, lower professional fees of $9.3 million and lower travel cost of $4.3 million, offset by higher external services and other of $12.3 million.
Depreciation and Amortization
Our consolidated depreciation and amortization expense was $93.5 million for the six months ended June 30, 2020, a decrease of $2.8 million, or 2.9%, when compared to 2019. Excluding acquisition activity of $1.0 million, the decrease of $3.8 million2020. The change is primarily due to assets that were fully impaired during the prior year.a litigation settlement pertaining to a discontinued operating unit, for which we recorded additional liability of $8.3 million as of March 31, 2021, partially offset by higher gains from our reseller businesses related to increased market volumes. See Note 14 - Discontinued Operations for further information.
Impairment Loss
Our consolidated impairment loss was $1.2 million for the six months ended June 30, 2020, a decrease of $46.6 million, or 97.4%, when compared to 2019, primarily due to prior year write-offs of clients lists of $32.3 million, software of $12.3 million, and licenses of $3.3 million related to the transformation of our AMC business, offset by current year impairment charges related to software.
Operating IncomeLoss from Sale of Discontinued Operations, Net of Tax
Our consolidated operating income was $158.1 million for the six months ended June 30, 2020, an increaseloss from sale of $122.3 million, or 341.6%, when compared to 2019, and consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except percentages) | | 2020 | | 2019 | | $ Change | | % Change |
PIRM | | $ | 48,477 | | | $ | 37,378 | | | $ | 11,099 | | | 29.7 | % |
UWS | | 171,979 | | | 65,631 | | | 106,348 | | | 162.0 | |
Corporate and eliminations | | (62,402) | | | (67,215) | | | 4,813 | | | (7.2) | |
Operating income | | $ | 158,054 | | | $ | 35,794 | | | $ | 122,260 | | | 341.6 | % |
Our PIRM segment operating income increased by $11.1 million, or 29.7%, for the six months ended June 30, 2020, when compared to 2019. Excluding acquisition activity of $0.5 million, operating income increased by $11.6 million and margins increased by 370 basis points primarily due to favorable product mix and the impact of our ongoing operational efficiency programs.
Our UWS segment operating income increased by $106.3 million, or 162.0%, for the six months ended June 30, 2020, when compared to 2019. Excluding acquisition activity of $0.9 million, operating income increased by $107.3 million and margins increased by 1,740 basis points, primarily impacted by lower impairment loss, higher revenues, improved product mix, and the impact of our ongoing operational efficiency programs.
Corporate and eliminations had a favorable variance of $4.8 million, or 7.2%, for the six months ended June 30, 2020, primarily due to lower investments in data and technology capabilities as well as lower compensation costs.
Total Interest Expense, net
Our consolidated total interest expense, net, was $35.4 million for the six months ended June 30, 2020, a decrease of $2.5 million, or 6.6%, when compared to 2019. The decrease was primarily due to lower interest rates as well as lower average outstanding principal balances.
Gain/(Loss) on Investments and Other, net
Our consolidated gain on investments and other, net, was $4.1 million for the six months ended June 30, 2020, a favorable variance of $6.2 million or 290.2%, when compared to 2019. The variance is due to a prior year loss of $6.6 million related to revaluation of an equity investment, a prior year loss of $1.5 million from unamortized debt issuance cost write-offs due to financing activities, a current year $2.6 million gain related to acquisition activities, and other gains of $0.5 million; partially offset by higher losses of $4.6 million related to supplemental benefit plans.
Tax Indemnification Release
In the prior year, we recorded a $13.4 million loss related to the release of a tax indemnification receivable due to the expiration of the statutes of limitations in our principal state jurisdictions. Associated state tax reserves of $15.3 million were also released and recognized, in the prior year, as income tax benefit through the provision for income taxes.
Provision/(Benefit) for Income Taxes
Our consolidated provision/(benefit) for income taxes from continuingdiscontinued operations, before equity in earnings/(losses) of affiliates and income taxes was a provision of $34.8 million and a benefit of $14.0 million for the six months ended June 30, 2020 and 2019, respectively. The effective tax rate was 27.5% on our provision and 79.1% on our benefit for income taxes for the six months ended June 30, 2020 and 2019, respectively. The change in the effective income tax rate was primarily due to the nonrecurring benefit recorded in 2019 related to the reversal of state tax reserves.
Equity in Earnings/(Losses) of Affiliates, net of tax
Our consolidated equity in earnings of affiliates, net of tax was $0.9$5.3 million for the six three months ended June 30, 2020, a favorable varianceMarch 31, 2021 due to the sale of $1.0 when compared to 2019. We have equity interests in various affiliates which had higher earnings in the current period compared to prior year.remainder of RPS.
Liquidity and Capital Resources
Cash and cash equivalents as of June 30, 2020March 31, 2021 totaled $137.3$227.1 million, an increase of $32.1$59.7 million from December 31, 2019.2020. As of June 30, 2020,March 31, 2021, our cash balances held in foreign jurisdictions totaled $56.2$72.8 million and are primarily related to our international operations. We plan to maintain significant cash balances outside of the US for the foreseeable future.
Restricted cash of $9.9$10.4 million as of June 30, 2020both March 31, 2021 and $10.5 million as of December 31, 20192020 is comprised of deposits that are pledged for various letters of credit/bank guarantees secured by us, escrow accounts due to acquisitions and divestitures, as well as short-term investments within our deferred compensation plan trust.
Cash Flow
Operating Activities. Cash provided by operating activities reflects net income adjusted for certain non-cash items and changes in operating assets and liabilities. Total cash provided by operating activities was approximately $243.1$189.3 million and $120.6$112.9 million for the sixthree months ended June 30,March 31, 2021 and 2020, respectively. Cash used in discontinued operating activities was $1.2 million and 2019,$7.8 million for the three months ended March 31, 2021 and 2020, respectively. The increase in cash provided by operating activities wascontinuing and discontinued operations were primarily due to higher net income from continuing operations, as adjusted for non-cash activities and favorable changes in working capital items.
Investing Activities. Total cash provided by investing activities was approximately $19.0 million during the three months ended March 31, 2021 and total cash used in investing activities was approximately $60.8 million and $61.5$35.5 million during the sixthree months ended June 30,2020. Cash used in discontinued operating activities was $1.7 million and $2.9 million for the three months ended March 31, 2021 and 2020, and 2019, respectively. The decrease
Cash provided by investing activities in continuing operations during 2021 was primarily related to lower investments in technology and innovationnet cash received from the sale of $12.6RPS of $49.8 million, net of selling costs, partially offset by higher net cash paid for acquisitionsinvestments in property and equipment and capitalized data of $12.0$12.4 million and $8.6 million, respectively. Additionally, we paid cash of $8.1 million, net of cash acquired, related to the ehouse acquisition.
Cash used in investing activities from continuing operations during 2020 was primarily related to investments in property and equipment and capitalized data of $12.3 million and $8.5 million, respectively. Additionally, we paid net cash of $11.8 million primarily related to the Location acquisition and made other investments of $0.6 million. These outflows were partially offset by proceeds from other investments of $0.7 million.
Financing Activities. Total cash used in financing activities was approximately $149.4$149.6 million for the sixthree months ended June 30,March 31, 2021, which was primarily comprised of dividends paid of $24.1 million, net outflows from share-based compensation-related transactions of $18.3 million, and net repayments of long-term debt of $100.7 million. Total cash used in financing activities was approximately $25.6 million for the three months ended March 31, 2020, which was primarily comprised of dividends paid of $34.8$17.4 million, share repurchases of $2.4 million, net outflows from share-based compensation-related transactions of $3.6$5.1 million, share repurchases of $9.3 million, and repayments of long-term debt of $101.7 million. Total cash used in financing activities was approximately $61.7 million for the six months ended June 30, 2019, which was primarily comprised of net repayment of long-term debt of $29.3 million, share repurchases of $29.0 million, net outflows from share-based compensation-related transactions of $2.7 million, and contingent consideration payments of $0.6$0.7 million.
Financing and Financing Capacity
We had total debt outstanding of $1.6$1.8 billion for both June 30, 2020as of March 31, 2021 and December 31, 2019.2020. Our significant debt instruments and borrowing capacity are described below.
Credit Agreement
The existing Credit Agreement provides for a $1.8 billion term loan facility (the “Term Facility”), and a $750.0 million revolving credit facility (the “Revolving Facility”). The Term Facility matures and the Revolving Facility expires in May 2024. As of June 30, 2020,March 31, 2021, we had borrowing capacity under the Revolving Facility of $750.0$450.0 million and were in compliance with the financial and restrictive covenants of the Credit Agreement. See Note 5 - Long-Term Debt for further discussion.
In connection with the Merger, we expect to repay and discharge in full all amounts outstanding under the Term Facility and Revolving Facility and to terminate the existing Credit Agreement. At the time of the Merger, as contemplated by the Merger Agreement, we expect to enter into a new credit agreement (the “New Credit Agreement”) with a consortium of lenders pursuant to a debt commitment letter with such lenders. Please see the section titled “Financing of the Merger” in the Definitive Proxy Statement for more information regarding the financing commitments entered into in connection with the Merger.
Senior Secured Notes
In anticipation of the Merger, Acquisition Sub issued 4.500% senior secured notes in the principal amount of $750,000,000 with a maturity date of May 1, 2028 (the “Senior Notes”, and together with the New Credit Agreement, the “New Financing Arrangements”). The Senior Notes issuance is part of the financing for the Merger. Substantially concurrently with the consummation of the Merger, Acquisition Sub will be merged with and into CoreLogic, with CoreLogic continuing as the surviving corporation and assuming all the obligations of Acquisition Sub with respect to the Senior Notes.
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. The notional balances, terms and maturities of our Swaps are designed to have the effect of fixing the rate of interest on at least 50% of the principal balance of our senior term debt.
As of June 30, 2020,March 31, 2021, the Swaps have a combined remaining notional balance of $1.2 billion, a weighted average fixed interest rate of 2.34%2.68% (rates range from 0.66%2.61% 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 approximately $1.2 billion through September 2021, then $1.1 billion andthrough March 2022, $1.0 billion through August 2022, and $496.8 million and $465.0approximately $500.0 million through December 2025. Approximate weighted average fixed interest rates for the aforementioned time periods are 2.55%2.66%, 2.64%2.78%, 2.77%, and 2.61%2.64%, respectively.
Liquidity and Capital Strategy
We expect that cash flow from operations and current cash balances, together with available borrowings under our Revolving Facility (until the closing of the Merger) and under the New Financing Arrangements (following the closing of the Merger), will be sufficient to meet operating requirements through the next twelve months. Cash available from operations, however, could be affected by any general economic downturn, such as financial impacts related to COVID-19, or any decline or adverse changes in our business such as a loss of clients, challenges collecting payments from clients, competitive pressures, or other significant change in our business environment.
We strive to pursue a balanced approach to capital allocation and have initiated a dividend in December 2019. We will also continue to evaluate the repurchase of shares, management of outstanding debt, and the pursuit of strategic acquisitions and investments on an opportunistic basis.
In October 2018, our Board of Directors established a new share repurchase authorization of up to $500.0 million of our common stock. During the six months ended June 30, 2020, we repurchased 0.2 million shares of our common stock for $9.3 million. In July 2020, our Board of Directors canceled all prior repurchase authorizations and established a new share repurchase authorization of up to $1.0 billion.The Company expects to fully utilize suchbillion. During the three months ended March 31, 2021, we did not repurchase authorization by the endany shares of 2022, inclusiveour common stock. As of March 31, 2021, we had $500.0 million in value of shares byavailable to be repurchased under the end of 2020. Purchases may be madeplan. Pursuant to the Merger Agreement, we agreed to refrain from timerepurchasing our capital stock during the Interim Operating Period, subject to timethe terms, limitations and exceptions set forth in the open market at prevailing market prices or in privately negotiated transactions, and may be made according to a plan adopted pursuant to Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended. See Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds - Purchases of Equity Securities by the Issuer and Affiliated Purchasers for further discussion.Merger Agreement.
For the sixthree months ended June 30, 2020,March 31, 2021, we paid cash dividends of $34.8$24.1 million. In July 2020, our Board of Directors announced a 50% increase to the quarterly cash dividend, declaring a cash dividend of $0.33 per share of common stock to bewhich was paid in September 2020. 2020, December 2020, and March 2021. Pursuant to the Merger Agreement, we agreed to refrain from declaring or paying any further dividends during the Interim Operating Period, subject to the terms, limitations and exceptions set forth in the Merger Agreement.
We expectstrive to pursue a balanced approach to capital allocation. Subject to the limitations during the Interim Operating Period on our ability to (i) make regular quarterly dividend payments foracquisitions or capital expenditures above certain thresholds, (ii) repurchase our capital stock, subject to certain exceptions, (iii) declare or pay dividends, and (iv) incur indebtedness in excess of certain thresholds, in each case pursuant to the foreseeable future. The timing, declaration,Merger Agreement and paymentsubject to the terms, limitations and exceptions set forth therein, we will also continue to evaluate management of future dividends, however, falls within the discretionoutstanding debt and pursuits of our Board of Directorsstrategic acquisitions and will depend upon many factors, including the Company’s financial condition and earnings, the capital requirements of our businesses, restrictions imposed by applicable law, and any other factors our Board of Directors deems relevant from time to time.investments on an opportunistic basis.
Availability of Additional Capital
Our access to additional capital fluctuates as market conditions change. There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be able to access capital from these sources. Based on current market conditions and our financial condition (including our ability to satisfy the conditions contained in our debt instruments that are required to be satisfied to permit us to incur additional indebtedness), we believe that we have the ability to effectively access these liquidity sources for new borrowings.
However, continued general economic instability, such as financial impacts resulting from COVID-19 which has caused, and may continue to cause, disruptions in the financial markets or a weakening of our financial condition, including a significant decrease in our profitability or cash flows or a material increase in our leverage, could adversely affect our ability to access these markets on acceptable terms or at all and/or increase our cost of borrowings.
Additionally, if the Merger is consummated, our capital structure will change, as our common stock will no longer be publicly traded and we will be subject to the New Financing Arrangements. Please refer to the section titled “Financing of the Merger” in the Definitive Proxy Statement for more information regarding the equity and debt financing commitments entered into in connection with the Merger.
Critical Accounting Policies and Estimates
For additional information with respect to our critical accounting policies, which are those that could have the most significant effect on our reported results and require subjective or complex judgments by management, see Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2019.2020. Management believes there have been no material changes to this information.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our primary exposure to market risk relates to interest-rate risk associated with certain financial instruments. We monitor our risk associated with fluctuations in interest rates and currently use derivative financial instruments to hedge some of these risks.
As of June 30, 2020,March 31, 2021, we had approximately $1.6$1.8 billion in gross, long-term debt outstanding, predominately all of which was variable-interest-rate debt. An increase in interest rates could increase the costs of our variable-interest-rate debt obligations. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness.
To manage our interest rate risk we have entered into Swaps in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. Under the Swaps, we agree to exchange floating rate for fixed rate interest payments periodically over the life of the agreement. The notional balances, terms and maturities of our Swaps are designed to have the effect of fixing the rate of interest on at least 50% of the principal balance of our senior term debt. As of June 30, 2020,March 31, 2021, the combined remaining notional balance of the Swaps was $1.2 billion, with a weighted average fixed interest rate of 2.34%2.68% (rates range from 0.66%2.61% to 2.98%), and scheduled terminations through December 2025. Notional balances under our Swaps are scheduled to increase and decrease over their contract lengths based on our expectations of the level of variable rate debt to be in effect in future periods. After giving effect to the Swaps, a hypothetical 1% increase or decrease in interest rates would result in an approximately $0.8$1.4 million change to interest expense on our existing indebtedness as of June 30, 2020,March 31, 2021, on a quarterly basis.
Although we are subject to foreign currency exchange rate risk as a result of our operations in certain foreign countries, the foreign exchange exposure related to these operations, in the aggregate, is not material to our financial condition or results of operations.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer have concluded that, as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b).
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the quarter ended June 30, 2020,March 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
For a description of our legal proceedings, see Note 9 – Litigation and Regulatory Contingencies and our discussion of discontinued operationswithin Note 14 - Discontinued Operations of our condensed consolidated financial statements, which is incorporated by reference in response to this item.
Item 1A. Risk Factors.
We have describedSee section entitled “Risk Factors” in Part I, Item 1A of Part I of our Annual Report on Form2020 10-K for the fiscal year ended December 31, 2019 and in Part II, Item 1Aa full description of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, the primary risks related to our business, and we may periodically update those risks for material developments. Those risks are not the only ones we face, but do represent those risks that we believe are material to us. Our business is also subject to the risks that affect many other companies, such as general economic conditions, geopolitical events and employment relations. Additional risks and uncertainties not presently known toregarding us or that we currently deem immaterial may also harmand our business. Please read the cautionary notice regarding forward-looking statements under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations.” You should carefully consider theThere have been no material changes to these risks and uncertainties our business faces. We are including two supplemental risk factors below, which disclosures should be read in conjunction with the risk factors describeddisclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
The Unsolicited Proposal may be disruptive to our business and could create uncertainty that may adversely affect our operations.
On June 26, 2020 we received an unsolicited proposal from Senator and Cannae to acquire the Company for $65.00 per share in cash (the “Unsolicited Proposal”). Our Board of Directors, in consultation with its independent financial and legal advisors, unanimously determined to reject the Unsolicited Proposal, as it significantly undervalues the Company, raises serious regulatory concerns and is not in the best interests of the Company and its stockholders. On July 14, 2020, we received written notification from the FTC that the FTC is conducting an investigation of the proposed acquisition of the Company by Senator and Cannae and requesting that we produce information in connection with that investigation.
The events surrounding the Unsolicited Proposal and related circumstances, and our response, have required us, and may continue to require us, to incur significant legal and advisory fees and expenses, and have required, and may continue to require, significant time and attention by management and our Board of Directors. Further, actions taken by Senator and Cannae or other third parties as a result of the Unsolicited Proposal, including a proxy contest or consent solicitation, could disrupt our business, distract us from efforts to improve our business, cause us to incur substantial additional expense, create perceived uncertainties among current and potential customers, clients, suppliers, employees and other constituencies as to our future direction as a consequence thereof that may result in lost sales or other business arrangements and the loss of potential business opportunities, and make it more difficult to attract and retain qualified personnel and business partners. There is no assurance that any acquisition proposal will lead to any transaction. Actions that our Board of Directors has taken, and may take in the future, in response to any offer or other related actions by Senator and Cannae, including the Unsolicited Proposal, or any other offer or proposal may result in litigation against us. These lawsuits may be a significant distraction for our management and employees and may require us to incur significant costs. If determined adversely to us, these lawsuits could harm our business and have a material adverse effect on our results of operations. We also believe the future trading price of our common stock could be subject to wide price fluctuations based on uncertainty associated with the Unsolicited Proposal.
The shareholder rights plan adopted by our Board of Directors may impair a takeover attempt.
On July 6, 2020, our Board of Directors adopted a shareholder rights plan (the “Rights Agreement”).
Pursuant to the Rights Agreement, on July 6, 2020, our Board of Directors declared a dividend distribution of one right (a “Right”) for each outstanding share of our common stock to shareholders of record on July 17, 2020. Each Right entitles its holder to purchase from us, when exercisable and subject to adjustment, a unit (“Unit”) consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.00001 per share, at an exercise price of $308 per Unit (the “purchase price”).
Under the Rights Agreement, the Rights will generally be exercisable only in the event that a person or group of affiliated or associated persons (such person or group being an “Acquiring Person”), other than certain exempt persons, acquires beneficial ownership of ten percent (10%) or more of the outstanding shares of our common stock (or twenty percent (20%) or more of the
outstanding shares of our common stock in the case of passive institutional investors reporting beneficial ownership on Schedule 13G). In such case, subject to certain exceptions specified in the Rights Agreement, each holder of a Right (other than the Acquiring Person, whose Rights would become null and void) will have the right to receive, upon payment of the purchase price, common stock (or, in certain circumstances, other securities, cash, or other assets of the Company) having a value equal to two (2) times the purchase price.
In the event that, at any time after a person or group has become an Acquiring Person, (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the continuing or surviving corporation, (ii) the Company engages in a merger or other business combination transaction in which the Company is the continuing or surviving corporation and the shares of common stock of the Company are changed or exchanged or (iii) fifty percent (50%) or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (other than the Acquiring Person, whose Rights would become null and void) would thereafter have the right to receive, upon payment of the purchase price, common stock of the acquiring company having a value equal to two (2) times the purchase price.
Our Board of Directors may redeem the Rights for $0.001 per Right, subject to adjustment, at any time until the earlier of 10 business days following a public announcement that an Acquiring Person has become such or the expiration of the Rights Agreement. The Rights will expire on July 6, 2021, unless the Rights are earlier redeemed, exchanged or terminated.
The Rights are not intended to prevent a takeover of the Company and should not interfere with any merger or other business combination approved by our Board of Directors. However, the overall effect of the Rights may render it more difficult or discourage a merger, tender offer or other business combination involving the Company that is not supported by our Board of Directors.
Additional details about the Rights Agreement are contained in a Form 8-K filed by the Company with the SEC on July 7, 2020.10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
During the quarter ended June 30, 2020, we did not issue any shares of our common stock in any transaction that was not registered under the Securities Act of 1933, as amended.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In October 2018, our Board of Directors canceled all prior repurchase authorizations and established a new share repurchase authorization of up to $500.0 million. As of June 30, 2020, we had $382.0 million in value of shares of common stock (inclusive of commissions and fees) available to be repurchased under the plan. In July 2020, our Board of Directors canceled all prior repurchase authorizations and established a new share repurchase authorization of up to $1.0 billion. The stock repurchase authorization has no expiration date and repurchases may be made in the open market, in privately negotiated transactions or pursuant to a Rule 10b5-1 plan.
Under our Credit Agreement, our stock repurchase capacity is restricted to $150.0 million per fiscal year, with the ability to undertake an additional amount of repurchases in such fiscal year provided that, on a pro forma basis after giving effect to the stock repurchase, our total leverage ratio does not exceed 3.5 to 1.0. While we continue to preserve the capacity to execute stock repurchases under our existing share repurchase authorization, going forward we will strive to pursue a balanced approach to capital allocation and will consider the repurchase of shares of our common stock, the retirement of outstanding debt and the pursuit of strategic acquisitions on an opportunistic basis.
During the quarter ended June 30, 2020, we repurchased 0.2 million shares of our common stock in an open market purchase pursuant to the terms of our stock repurchase authorization.
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Issuer Purchases of Equity Securities | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs |
April 1 to April 30, 2020 | — | | | $ | — | | | — | | | $ | 388,858,603 | |
May 1 to May 31, 2020 | 100,000 | | | $ | 44.69 | | | 100,000 | | | $ | 384,389,603 | |
June 1 to June 30, 2020 | 50,000 | | | $ | 47.46 | | | 50,000 | | | $ | 382,017,157 | |
Total | 150,000 | | | $ | — | | | 150,000 | | | |
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(1) Calculated inclusive of commissions.
Item 6. Exhibits.
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Exhibit Number | | Description | |
2.1 | | | |
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3.1 | | | |
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3.2 | | | |
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3.3 | | | |
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4.14.4 | | | |
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10.1 | | | |
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10.2 | | | |
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31.1 | | | |
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31.2 | | | |
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32.1 | | | |
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32.2 | | | |
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101 | | The following unaudited consolidated financial statements for the quarter ended March 31, 20202021 included in this quarterly report on Form 10-Q formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated StatementStatements of Stockholders' Equity, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tagstags.ü | |
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104 | | Cover Page Interactive Data File (formatted in Inline XBRL and included in the interactive data files submitted as Exhibit 101).ü | |
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ü | | Filed herewith. | |
** | | Furnished herewith. | |
† | | Indicates a management contract or compensatory plan or arrangement in which any director or named executive officer participates. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | CoreLogic, Inc. |
| | (Registrant) |
| | |
| | By: /s/ Frank D. Martell |
| | Frank D. Martell |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | By: /s/ James L. Balas |
| | James L. Balas |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
| | |
| | By: /s/ John K. Stumpf |
| | John K. Stumpf |
| | Controller |
| | (Principal Accounting Officer) |
Date: | July 23, 2020May 7, 2021 | |