Document

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, 2020



☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-37394

Black Knight, Inc.

______________________________________________________________________________________________________________________________________________________

(Exact name of registrant as specified in its charter)



Delaware					81-5265638
(State or other jurisdiction of incorporation or organization)					(I.R.S. Employer Identification Number)

601 Riverside Avenue	,	Jacksonville	,	Florida	32204
(Address of principal executive offices)					(Zip Code)

(904) 854-5100

___________________________________________________________________

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value	BKI	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. (Check one):



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 ☑

There were 157,029,927 shares outstanding of the Registrant's common stock as of August 9, 2020.

FORM 10-Q

QUARTERLY REPORT

Quarter Ended June 30, 2020

TABLE OF CONTENTS




	Page
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
A. Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2020 and December 31, 2019	1
B. Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) for the three and six months ended June 30, 2020 and 2019	2
C. Condensed Consolidated Statements of Equity (Unaudited) for the three and six months ended June 30, 2020 and 2019	3
D. Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2020 and 2019	5
E. Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosure About Market Risk	35
Item 4. Controls and Procedures	36
Part II: OTHER INFORMATION	37
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3. Defaults Upon Senior Securities	38
Item 4. Mine Safety Disclosures	38
Item 5. Other Information	38
Item 6. Exhibits	39

Table of Contents

Part I: FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements (Unaudited)

BLACK KNIGHT, INC.

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)



	June 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	228.2		$	15.4
Trade receivables, net	172.7			175.1
Prepaid expenses and other current assets	79.5			64.8
Receivables from related parties	0.3			0.2
Total current assets	480.7			255.5
Property and equipment, net	169.5			176.9
Computer software, net	424.3			406.0
Other intangible assets, net	141.5			150.0
Goodwill	2,385.8			2,361.4
Investments in unconsolidated affiliates	259.9			294.9
Deferred contract costs, net	167.7			159.3
Other non-current assets	162.8			158.8
Total assets	$	4,192.2		$	3,962.8
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable and other accrued liabilities	$	75.2		$	65.3
Accrued compensation and benefits	59.7			65.5
Current portion of debt	80.0			79.1
Deferred revenues	47.3			50.9
Total current liabilities	262.2			260.8
Deferred revenues	101.5			98.0
Deferred income taxes	171.5			185.3
Long-term debt, net of current portion	1,115.8			1,465.1
Other non-current liabilities	88.0			55.1
Total liabilities	1,739.0			2,064.3
Commitments and contingencies (Note 13)
Equity:
Common stock; $0.0001 par value; 550,000,000 shares authorized; 160,085,741 shares issued and 157,046,894 shares outstanding as of June 30, 2020, and 153,062,920 shares issued and 149,697,754 shares outstanding as of December 31, 2019	—			—
Preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, none as of June 30, 2020 and December 31, 2019	—			—
Additional paid-in capital	2,055.9			1,586.8
Retained earnings	582.3			490.6
Accumulated other comprehensive loss	(41.9		)	(20.2		)
Treasury stock, at cost, 3,038,847 shares as of June 30, 2020 and 3,365,166 shares as of December 31, 2019	(143.1		)	(158.7		)
Total equity	2,453.2			1,898.5
Total liabilities and equity	$	4,192.2		$	3,962.8

See Notes to Condensed Consolidated Financial Statements (Unaudited).

BLACK KNIGHT, INC.

Condensed Consolidated Statements of Earnings and Comprehensive Earnings

(In millions, except per share data)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Revenues	$	293.1		$	294.9		$	583.8		$	578.0
Expenses:
Operating expenses	155.5			159.4			317.9			319.4
Depreciation and amortization	58.6			57.5			116.3			114.4
Transition and integration costs	2.5			1.0			4.9			1.9
Total expenses	216.6			217.9			439.1			435.7
Operating income	76.5			77.0			144.7			142.3
Other income and expense:
Interest expense, net	(13.0		)	(16.7		)	(27.7		)	(31.7		)
Other income (expense), net	18.8			(0.5		)	18.0			(0.8		)
Total other income (expense), net	5.8			(17.2		)	(9.7		)	(32.5		)
Earnings before income taxes and equity in losses of unconsolidated affiliates	82.3			59.8			135.0			109.8
Income tax expense	17.2			14.5			25.4			25.2
Earnings before equity in losses of unconsolidated affiliates	65.1			45.3			109.6			84.6
Equity in losses of unconsolidated affiliates, net of tax	(26.0		)	(12.7		)	(20.4		)	(26.0		)
Net earnings	$	39.1		$	32.6		$	89.2		$	58.6
Other comprehensive (loss) earnings:
Unrealized holding losses, net of tax⁽¹⁾	(2.6		)	(11.8		)	(24.2		)	(18.0		)
Reclassification adjustments for losses (gains) included in net earnings, net of tax⁽²⁾	3.2			(0.3		)	4.4			(1.0		)
Total unrealized gains (losses) on interest rate swaps, net of tax	0.6			(12.1		)	(19.8		)	(19.0		)
Foreign currency translation adjustment⁽³⁾	—			—			(0.2		)	—
Unrealized losses on investments in unconsolidated affiliates⁽⁴⁾	(1.5		)	(2.2		)	(1.7		)	(2.4		)
Other comprehensive losses	(0.9		)	(14.3		)	(21.7		)	(21.4		)
Comprehensive earnings	$	38.2		$	18.3		$	67.5		$	37.2

Net earnings per share:
Basic	$	0.26		$	0.22		$	0.60		$	0.40
Diluted	$	0.26		$	0.22		$	0.60		$	0.39
Weighted average shares of common stock outstanding (Note 4):
Basic	149.2			147.7			148.6			147.6
Diluted	150.0			148.5			149.3			148.4

______________________________


(1)	Net of income tax benefit of $0.9 million and $8.2 million for the three and six months ended June 30, 2020, respectively, and $4.1 million and $6.3 million for the three and six months ended June 30, 2019, respectively.


(2)	Amounts reclassified to net earnings relate to losses (gains) on interest rate swaps and are included in Interest expense, net above. Amounts are net of income tax benefit of $1.1 million and $1.5 million for the three and six months ended June 30, 2020, respectively, and net of income tax expense of $0.1 million and $0.4 million for the three and six months ended June 30, 2019, respectively.


(3)	Net of income tax benefit of $0.1 million for the six months ended June 30, 2020.

(4) Net of income tax benefit of $0.5 million and $0.6 million for the three and six months ended June 30, 2020, respectively, and $0.8 million and $0.9 million for the three and six months ended June 30, 2019, respectively.

See Notes to Condensed Consolidated Financial Statements (Unaudited).

BLACK KNIGHT, INC.

Condensed Consolidated Statements of Equity

(In millions)

(Unaudited)



	Three months ended June 30, 2020
	Common stock			Additional paid-in capital			Retained earnings		Accumulated other comprehensive loss			Treasury stock
	Shares	$		Additional paid-in capital			Retained earnings		Accumulated other comprehensive loss			Shares	$			Total equity
Balance, March 31, 2020	153.0	$	—	$	1,562.7		$	540.0	$	(41.0	)	3.0	$	(142.1	)	$	1,919.6
Issuance of common stock, net of underwriters' discount and issuance costs	7.1	—		484.2			—		—			—	—			484.2
Grant of restricted shares of common stock	—	—		(0.1		)	—		—			—	0.1			—
Forfeitures of restricted shares of common stock	—	—		0.1			—		—			—	(0.1		)	—
Tax withholding payments for restricted share vesting	—	—		(1.5		)	—		—			—	—			(1.5		)
Vesting of restricted shares granted from treasury stock	—	—		1.0			—		—				(1.0		)	—
Equity-based compensation expense	—	—		9.5			—		—			—	—			9.5
Net earnings	—	—		—			39.1		—			—	—			39.1
Equity-based compensation expense of unconsolidated affiliates	—	—		—			3.2		—			—	—			3.2
Unrealized gains on interest rate swaps, net	—	—		—			—		0.6			—	—			0.6
Other comprehensive loss on investments in unconsolidated affiliates	—	—		—			—		(1.5		)	—	—			(1.5		)
Balance, June 30, 2020	160.1	$	—	$	2,055.9		$	582.3	$	(41.9	)	3.0	$	(143.1	)	$	2,453.2



	Three months ended June 30, 2019
	Common stock			Additional paid-in capital			Retained earnings		Accumulated other comprehensive loss			Treasury stock
	Shares	$		Additional paid-in capital			Retained earnings		Accumulated other comprehensive loss			Shares	$			Total equity
Balance March 31, 2019	153.1	$	—	$	1,554.6		$	406.1	$	(5.8	)	3.2	$	(147.1	)	$	1,807.8
Grant of restricted shares of common stock	—	—		(0.1		)	—		—			—	0.1			—
Forfeitures of restricted shares of common stock	—	—		1.0			—		—			—	(1.0		)	—
Tax withholding payments for restricted share vesting	—	—		(1.3		)	—		—			—	—			(1.3		)
Vesting of restricted shares granted from treasury stock	—	—		1.0			—		—			—	(1.0		)	—
Purchases of treasury stock	—	—		—			—		—			0.2	(11.9		)	(11.9		)
Equity-based compensation expense	—	—		12.1			—		—			—	—			12.1
Net earnings	—	—		—			32.6		—			—	—			32.6
Equity-based compensation expense of unconsolidated affiliates	—	—		—			0.6		—			—	—			0.6
Unrealized losses on interest rate swaps, net	—	—		—			—		(12.1		)	—	—			(12.1		)
Other comprehensive loss on investments in unconsolidated affiliates	—	—		—			—		(2.2		)	—	—			(2.2		)
Balance, June 30, 2019	153.1	$	—	$	1,567.3		$	439.3	$	(20.1	)	3.4	$	(160.9	)	$	1,825.6

See Notes to Condensed Consolidated Financial Statements (Unaudited).

BLACK KNIGHT, INC.

Condensed Consolidated Statements of Equity (Continued)

(In millions)

(Unaudited)



	Six months ended June 30, 2020
	Common stock				Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock
	Shares		$		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Shares		$			Total equity
Balance, December 31, 2019	153.1		$	—	$	1,586.8		$	490.6		$	(20.2	)	3.4		$	(158.7	)	$	1,898.5
Effect of CECL adoption (Note 1)	—		—		—			(1.1		)	—			—		—			(1.1		)
Adjusted balance at January 1, 2020	153.1		—		1,586.8			489.5			(20.2		)	3.4		(158.7		)	1,897.4
Issuance of common stock, net of underwriters' discount and issuance costs	7.1		—		484.2			—			—			—		—			484.2
Grant of restricted shares of common stock	—		—		(24.6		)	—			—			(0.5	)	24.6			—
Forfeitures of restricted shares of common stock	—		—		0.3			—			—			—		(0.3		)	—
Tax withholding payments for restricted share vesting	(0.1	)	—		(19.7		)	—			—			0.1		—			(19.7		)
Vesting of restricted shares granted from treasury stock	—		—		8.7			—			—			—		(8.7		)	—
Equity-based compensation expense	—		—		20.2			—			—			—		—			20.2
Net earnings	—		—		—			89.2			—			—		—			89.2
Equity-based compensation expense of unconsolidated affiliates	—		—		—			3.6			—			—		—			3.6
Foreign currency translation adjustment	—		—		—			—			(0.2		)	—		—			(0.2		)
Unrealized losses on interest rate swaps, net	—		—		—			—			(19.8		)	—		—			(19.8		)
Other comprehensive loss on investments in unconsolidated affiliates	—		—		—			—			(1.7		)	—		—			(1.7		)
Balance, June 30, 2020	160.1		$	—	$	2,055.9		$	582.3		$	(41.9	)	3.0		$	(143.1	)	$	2,453.2



	Six months ended June 30, 2019
	Common stock				Additional paid-in capital			Retained earnings			Accumulated other comprehensive earnings			Treasury stock
	Shares		$		Additional paid-in capital			Retained earnings			Accumulated other comprehensive earnings			Shares		$			Total equity
Balance December 31, 2018	153.2		$	—	$	1,585.8		$	381.1		$	0.3		3.9		$	(180.7	)	$	1,786.5
Effect of ASU 2018-02 adoption	—		—		—			(1.0		)	1.0			—		—			—
Adjusted balance at January 1, 2019	153.2		—		1,585.8			380.1			1.3			3.9		(180.7		)	1,786.5
Grant of restricted shares of common stock	—		—		(37.3		)	—			—			(0.8	)	37.3			—
Forfeitures of restricted shares of common stock	—		—		1.0			—			—			—		(1.0		)	—
Tax withholding payments for restricted share vesting	(0.1	)	—		(12.2		)	—			—			—		—			(12.2		)
Vesting of restricted shares granted from treasury stock	—		—		4.6			—			—			0.1		(4.6		)	—
Purchases of treasury stock	—		—		—			—			—			0.2		(11.9		)	(11.9		)
Equity-based compensation expense	—		—		25.4			—			—			—		—			25.4
Net earnings	—		—		—			58.6			—			—		—			58.6
Equity-based compensation expense of unconsolidated affiliates	—		—		—			0.6			—			—		—			0.6
Unrealized losses on interest rate swaps, net	—		—		—			—			(19.0		)	—		—			(19.0		)
Other comprehensive loss on investments in unconsolidated affiliates	—		—		—			—			(2.4		)	—		—			(2.4		)
Balance, June 30, 2019	153.1		$	—	$	1,567.3		$	439.3		$	(20.1	)	3.4		$	(160.9	)	$	1,825.6

See Notes to Condensed Consolidated Financial Statements (Unaudited).

BLACK KNIGHT, INC.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)



	Six months ended June 30,
	2020			2019
Cash flows from operating activities:
Net earnings	$	89.2		$	58.6
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	116.3			114.4
Amortization of debt issuance costs and original issue discount	1.4			1.4
Deferred income taxes, net	0.9			1.0
Equity in losses of unconsolidated affiliates, net of tax	20.4			26.0
Equity-based compensation	20.2			25.4
Changes in assets and liabilities, net of acquired assets and liabilities:
Trade and other receivables, including receivables from related parties	6.6			0.7
Prepaid expenses and other assets	(14.0		)	(10.5		)
Deferred contract costs	(26.0		)	(20.9		)
Deferred revenues	(10.2		)	(11.3		)
Trade accounts payable and other liabilities	(9.5		)	(56.7		)
Net cash provided by operating activities	195.3			128.1
Cash flows from investing activities:
Additions to property and equipment	(12.6		)	(4.8		)
Additions to computer software	(38.2		)	(40.6		)
Business acquisition, net of cash acquired	(50.4		)	—
Investments in unconsolidated affiliate	—			(375.0		)
Proceeds from sale of investment in unconsolidated affiliate	8.4			—
Asset acquisition	(15.0		)	—
Net cash used in investing activities	(107.8		)	(420.4		)
Cash flows from financing activities:
Net proceeds from issuance of common stock, before offering expenses	484.6			—
Costs directly associated with issuance of common stock	(0.4		)	—
Revolver borrowings	266.6			611.8
Revolver payments	(576.6		)	(290.8		)
Term loan payments	(23.4		)	(15.6		)
Purchases of treasury stock	—			(11.9		)
Finance lease payments	(5.8		)	—
Tax withholding payments for restricted share vesting	(19.7		)	(12.2		)
Net cash provided by financing activities	125.3			281.3
Net increase (decrease) in cash and cash equivalents	212.8			(11.0		)
Cash and cash equivalents, beginning of period	15.4			20.3
Cash and cash equivalents, end of period	$	228.2		$	9.3

Supplemental cash flow information:
Interest paid, net	$	(26.1	)	$	(29.4	)
Income taxes paid, net	$	(5.4	)	$	(27.7	)

See Notes to Condensed Consolidated Financial Statements (Unaudited).

Table of Contents

BLACK KNIGHT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(1)	Basis of Presentation

The accompanying Condensed Consolidated Financial Statements (Unaudited) of Black Knight, Inc. and its subsidiaries ("Black Knight," the "Company," "we," "us" or "our") were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), and all adjustments considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated. The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements (Unaudited), as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission ("SEC") on February 28, 2020 and other filings with the SEC.

Description of Business

We are a leading provider of integrated software, data and analytics solutions to the mortgage and consumer loan, real estate and capital markets verticals. Our solutions facilitate and automate many of the mission-critical business processes across the homeownership lifecycle. We are committed to being a premier business partner that clients rely on to achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class software, services and insights with a relentless commitment to excellence, innovation, integrity and leadership.

Reporting Segments

We conduct our operations through two reporting segments: (1) Software Solutions and (2) Data and Analytics. See further discussion in Note 16 — Segment Information.

Share Repurchase Program

On February 12, 2020, our Board of Directors approved a three-year share repurchase program authorizing us to repurchase up to 10.0 million shares of our outstanding common stock through February 12, 2023, through open market purchases, negotiated transactions or other means, in accordance with applicable securities laws and other restrictions. This share repurchase program replaces our previous share repurchase program that expired on February 2, 2020.

There were no share repurchases during the six months ended June 30, 2020. During the six months ended June 30, 2019, we repurchased 0.2 million shares of our common stock for $11.9 million, or an average of $57.94 per share.

Common Stock Offering

On June 19, 2020, we issued and sold 7,130,000 shares of our common stock in an underwritten public offering pursuant to a registration statement filed with the SEC. We received net proceeds of approximately $484.6 million after deducting the underwriters' discount of $16.3 million. We also incurred costs directly related to the offering of $0.4 million. A portion of the net proceeds received from this offering was used to fully repay amounts outstanding under our revolving credit facility. Refer to Note 10 — Long-term Debt.

Cash and Cash Equivalents

Highly liquid instruments purchased with original maturities of three months or less are considered cash equivalents. Cash equivalents are invested with high credit quality financial institutions and consist of short-term investments, such as demand deposit accounts, money market accounts, money market funds and time deposits. The carrying amounts of these instruments reported in the Condensed Consolidated Balance Sheets (Unaudited) approximate their fair value because of their immediate or short-term maturities.

Table of Contents

BLACK KNIGHT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)

Cash and cash equivalents are unrestricted and include the following (in millions):



	June 30, 2020		December 31, 2019
Cash	$	102.8	$	8.2
Cash equivalents	125.4		7.2
Cash and cash equivalents	$	228.2	$	15.4

Trade Receivables, Net

The carrying amounts reported in the Condensed Consolidated Balance Sheets (Unaudited) for Trade receivables, net approximate their fair value because of their short-term nature.

A summary of Trade receivables, net of allowance for credit losses is as follows (in millions):



	June 30, 2020			December 31, 2019
Trade receivables — billed	$	131.5		$	136.6
Trade receivables — unbilled	43.2			39.8
Trade receivables	174.7			176.4
Allowance for credit losses	(2.0		)	(1.3		)
Trade receivables, net	$	172.7		$	175.1

In addition to the amounts above, we have unbilled receivables that we do not expect to collect within the next year included in Other non-current assets in our Condensed Consolidated Balance Sheets (Unaudited). Billings for these receivables are based on contractual terms. Refer to Note 9 — Other Non-Current Assets.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in millions):



	June 30, 2020		December 31, 2019
Prepaid expenses	$	50.0	$	37.1
Contract assets, net	21.4		19.5
Other current assets	8.1		8.2
Prepaid expenses and other current assets	$	79.5	$	64.8

Contract Assets

Our short-term contract assets are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets (Unaudited). Our long-term contract assets are included in Other non-current assets in our Condensed Consolidated Balance Sheets (Unaudited). Refer to Note 9 — Other Non-Current Assets.

Allowance for Credit Losses

We record our billed and unbilled trade receivables and contract assets at their amortized cost less an allowance for expected credit losses that are not expected to be recovered. We recognize an allowance for the remaining lifetime expected credit losses based on management’s expectation of collectability. We base our estimate on multiple factors including historical experience with bad debts, our relationship with our clients and their credit quality, the aging of respective asset balances, current macroeconomic conditions and management’s expectations of conditions in the future. Our allowance for expected credit losses is based on management’s assessment of the collectability of assets with similar risk characteristics. We pool our respective asset balances based on risk characteristics primarily related to financial asset type, extent of client relationship, product/solution, business division and delinquency status.

Subsequent changes are recorded as an adjustment in Operating expenses. We write off trade receivables in the period when the likelihood of collection of a trade receivable balance is considered remote.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)

Investments in Unconsolidated Affiliates

We account for our investments in unconsolidated affiliates using the equity method of accounting when we determine we have significant influence over our investee. We record our share of equity-based compensation expense from equity method investments as an adjustment to our investment with a related adjustment to our equity.

Deferred Revenues

Deferred revenues represent our obligations to transfer solutions or services to our clients for which we have received consideration, or an amount of consideration is due, from the client. During the three months ended June 30, 2020 and 2019, revenues recognized related to the amount included in the Deferred revenues balance at the beginning of each year were $12.7 million and $13.3 million, respectively. During the six months ended June 30, 2020 and 2019, revenues recognized related to the amount included in the Deferred revenues balance at the beginning of each year were $28.3 million and $32.6 million, respectively.

Equity-Based Compensation

We expense employee equity-based payments in accordance with Accounting Standards Codification ("ASC") Topic 718, Compensation—Stock Compensation, which requires compensation cost measured using the grant date fair value of equity-based payments to be recognized over the requisite service period, which generally equals the vesting period. For awards with a performance condition, we recognize compensation cost under the graded vesting method over the requisite service period of the award, which at times results in accelerated recognition of the cost. We do not recognize compensation cost if the performance condition is not considered probable of achievement. If at any point we determine that the performance condition is improbable of achievement, we reverse any previously recognized compensation cost for that award.

The fair value of our restricted stock awards is measured based on the closing market price of our stock on the grant date. Income tax effects of awards are recorded in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) when the awards vest or are settled. We account for forfeitures as they occur.

Depreciation and Amortization

Depreciation and amortization includes the following (in millions):



	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Computer software	$	26.4	$	23.4	$	52.2	$	47.1
Other intangible assets	13.4		14.6		26.4		29.1
Deferred contract costs	8.7		10.5		17.6		20.7
Property and equipment	10.1		9.0		20.1		17.5
Total	$	58.6	$	57.5	$	116.3	$	114.4

Deferred contract costs amortization for the three and six months ended June 30, 2019 includes accelerated amortization of $1.9 million and $3.6 million, respectively. We did not recognize any accelerated amortization during the 2020 periods.

Transition and Integration Costs

Transition and integration costs for the three and six months ended June 30, 2020 and 2019 primarily consisted of costs associated with acquisitions as well as costs associated with expense reduction initiatives for the six months ended June 30, 2020.

Recent Accounting Pronouncements

Current Expected Credit Losses ("CECL") (ASC Topic 326, Financial Instruments - Credit Losses ("ASC 326"))

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, as well as several other related updates, which were codified as ASC 326. This update changes how companies measure and recognize credit losses for many financial assets. The new standard requires companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets included in the scope of this standard.

Our financial assets that are included in the scope of ASC 326 are primarily receivables and contract assets. We applied an integrated approach to analyzing the effects of adopting ASC 326, including developing accounting policies and positions, evaluating differences from applying the requirements of the new standard to our previous business practices and assessing the need for any changes in our processes and design of internal controls.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)

The primary effect of adopting the new standard relates to the changes in our estimated credit losses and providing additional disclosures about our financial assets that are included in the scope of this new standard. Based on our assessment, we did not identify a material change in our financial condition, results of operation or business practices.

We adopted ASC 326 on January 1, 2020 using a modified retrospective approach. The effect of adoption was an adjustment of $1.1 million, net of tax to opening Retained earnings on our Condensed Consolidated Statements of Equity (Unaudited).

Other Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides for optional financial reporting alternatives to reduce the cost and complexity associated with the accounting for contracts and hedging relationships affected by reference rate reform. The accommodations are effective for all entities through December 31, 2022. They may be applied from the beginning of the interim period that includes the issuance of this update. We do not expect the adoption of this update to have a material effect on our Condensed Consolidated Financial Statements (Unaudited) and related disclosures.

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. This update also clarifies certain interactions between the guidance to account for certain equity securities, equity method investments and the guidance in Topic 815, including measuring certain purchased options and forward contracts to acquire investments. This update is effective prospectively for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the effect the adoption of this update will have on our Condensed Consolidated Financial Statements (Unaudited) and related disclosures.

(2) Business Acquisitions

We include the results of operations of acquired businesses beginning on the respective acquisition dates. The purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values, with the excess recorded as goodwill. Measurement period adjustments to provisional purchase price allocations are recognized in the period in which they are determined, with the effect on earnings of changes in depreciation, amortization or other income resulting from such changes calculated as if the accounting had been completed on the acquisition date. Acquisition-related costs are expensed as incurred.

Collateral Analytics Acquisition

On March 3, 2020, we completed the acquisition of Collateral Analytics, LLC ("Collateral Analytics"), a provider of real estate products and tools to support appraisers, appraisal management companies, lenders, investors and government agencies. Collateral Analytics is reported within our Data and Analytics segment because it enhances our real estate solutions and automated valuation model offerings. This acquisition does not meet the definition of "significant" pursuant to Article 3 of Regulation S-X (§210.3-05). The results of operations of Collateral Analytics are not material to our Condensed Consolidated Financial Statements (Unaudited) and related disclosures.

Allocation of purchase price

The purchase price of the Collateral Analytics acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The fair value of the acquired Computer software and Other intangible assets was primarily determined using a third-party valuation based on significant estimates and assumptions, including Level 3 inputs, which are judgmental in nature. These estimates and assumptions include the projected timing and amount of future cash flows, discount rates reflecting the risk inherent in the future cash flows and future market prices. These estimates are preliminary and subject to adjustments as we complete our valuation process with respect to Computer software, Other intangible assets, Goodwill and contingent consideration.

Total consideration, net of cash received, was $51.0 million for 100% of the equity interests in Collateral Analytics. The total consideration was as follows (in millions):



Cash paid	$	54.1
Contingent consideration