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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 March 31, 2020

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
cllogovcmyk20printjpg003a10.jpg
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

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 April 28, 2020 there were 79,411,399 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 March 31, 2020 and December 31, 2019
 
 
 
 
B. Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019
 
 
 
 
C. Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019
 
 
 
 
D. Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019
 
 
 
 
E. Condensed Consolidated Statement of Stockholders' Equity for the three months ended March 31, 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)
March 31,

December 31,
Assets
2020

2019
Current assets:
 
 
 
Cash and cash equivalents
$
152,822

 
$
105,185

Accounts receivable (less allowance for credit losses of $7,236 and $7,161 as of March 31, 2020 and December 31, 2019, respectively)
285,528

 
281,392

Prepaid expenses and other current assets
54,453

 
59,972

Total current assets
492,803

 
446,549

Property and equipment, net
443,998

 
451,021

Operating lease assets
61,754

 
65,825

Goodwill, net
2,381,309

 
2,396,096

Other intangible assets, net
364,425

 
378,818

Capitalized data and database costs, net
320,226

 
327,078

Investment in affiliates, net
11,339

 
16,666

Other assets
71,753

 
76,604

Total assets
$
4,147,607

 
$
4,158,657

Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and other accrued expenses
$
174,007

 
$
173,989

Accrued salaries and benefits
66,643

 
86,598

Contract liabilities, current
341,068

 
321,647

Current portion of long-term debt
77,724

 
56,022

Operating lease liabilities, current
17,532

 
18,058

Total current liabilities
676,974

 
656,314

Long-term debt, net of current
1,589,507

 
1,610,538

Contract liabilities, net of current
568,964

 
563,246

Deferred income tax liabilities
85,008

 
110,396

Operating lease liabilities, net of current
80,301

 
85,139

Other liabilities
219,855

 
181,814

Total liabilities
3,220,609

 
3,207,447




 


Stockholders' equity:
 

 
 

Preferred stock, $0.00001 par value; 500 shares authorized, no shares issued or outstanding

 

Common stock, $0.00001 par value; 180,000 shares authorized; 79,411 and 78,972 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
1

 
1

Additional paid-in capital
111,481

 
111,000

Retained earnings
1,057,692

 
1,006,992

Accumulated other comprehensive loss
(242,176
)
 
(166,783
)
Total stockholders' equity
926,998

 
951,210

Total liabilities and equity
$
4,147,607

 
$
4,158,657

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

1



CoreLogic, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
For the Three Months Ended March 31,
 
(in thousands, except per share amounts)
2020
 
2019
Operating revenues
$
443,885

 
$
417,708

Cost of services (excluding depreciation and amortization shown below)
215,565

 
219,061

Selling, general and administrative expenses
114,406

 
128,224

Depreciation and amortization
46,843

 
49,219

Total operating expenses
376,814

 
396,504

Operating income
67,071

 
21,204

Interest expense:
 

 
 

Interest income
414

 
978

Interest expense
18,193

 
19,703

Total interest expense, net
(17,779
)
 
(18,725
)
(Loss)/gain on investments and other, net
(3,047
)
 
734

Income from continuing operations before equity in earnings/(losses) of affiliates and income taxes
46,245

 
3,213

Provision for income taxes
12,951

 
1,058

Income from continuing operations before equity in earnings/(losses) of affiliates
33,294

 
2,155

Equity in earnings/(losses) of affiliates, net of tax
512


(422
)
Net income from continuing operations
33,806

 
1,733

Income/(loss) from discontinued operations, net of tax
13

 
(46
)
Net income
$
33,819

 
$
1,687



 

Basic income per share:


 


Net income from continuing operations
$
0.43

 
$
0.02

Income/(loss) from discontinued operations, net of tax

 

Net income
$
0.43

 
$
0.02

Diluted income per share:
 

 
 

Net income from continuing operations
$
0.42

 
$
0.02

Income/(loss) from discontinued operations, net of tax

 

Net income
$
0.42

 
$
0.02

Weighted-average common shares outstanding:
 

 
 

Basic
79,028

 
80,179

Diluted
80,525

 
81,277


The accompanying notes are an integral part of these condensed consolidated financial statements.

2



CoreLogic, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
For the Three Months Ended March 31,
 
(in thousands)
2020
 
2019
Net income
$
33,819

 
$
1,687

Other comprehensive loss
 

 
 

Market value adjustments on interest rate swaps, net of tax
(36,890
)
 
(12,206
)
Foreign currency translation adjustments
(38,690
)
 
5,342

Supplemental benefit plans adjustments, net of tax
187

 
(149
)
Total other comprehensive loss
(75,393
)
 
(7,013
)
Comprehensive loss
$
(41,574
)
 
$
(5,326
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3



CoreLogic, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

For the Three Months Ended March 31,

(in thousands)
2020

2019
Cash flows from operating activities:
 

 
Net income
$
33,819


$
1,687

Less: Income/(loss) from discontinued operations, net of tax
13


(46
)
Net income from continuing operations
33,806


1,733

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
 


 

Depreciation and amortization
46,843


49,219

Amortization of debt issuance costs
1,235


1,302

Amortization of operating lease assets
3,656

 
4,036

Provision for bad debt and claim losses
3,362


3,788

Share-based compensation
8,085


9,892

Equity in (earnings)/losses of affiliates, net of taxes
(512
)

422

Deferred income tax
2,092


4,346

Loss/(gain) on investments and other, net
3,047


(734
)
Change in operating assets and liabilities, net of acquisitions:
 


 

Accounts receivable
(4,011
)

(5,489
)
Prepaid expenses and other current assets
3,677


(2,778
)
Accounts payable and other accrued expenses
(8,112
)

(7,665
)
Contract liabilities
24,372


173

Income taxes
4,930


10,966

Dividends received from investments in affiliates
185



Other assets and other liabilities
(9,808
)

(4,630
)
Net cash provided by operating activities - continuing operations
112,847


64,581

Net cash provided by operating activities - discontinued operations
18



Total cash provided by operating activities
$
112,865


$
64,581

Cash flows from investing activities:
 


 

Purchases of property and equipment
$
(14,312
)

$
(24,020
)
Purchases of capitalized data and other intangible assets
(9,464
)

(8,947
)
Cash paid for acquisitions, net of cash acquired
(11,760
)


Purchases of investments
(631
)


Cash received from sale of business-lines

 
1,082

Proceeds from investments and other
651


1,157

Net cash used in investing activities - continuing operations
(35,516
)

(30,728
)
Net cash provided by investing activities - discontinued operations



Total cash used in investing activities
$
(35,516
)

$
(30,728
)
Cash flows from financing activities:
 


 

Repayment of long-term debt
$
(723
)

$
(25,563
)
Proceeds from issuance of shares in connection with share-based compensation
2,932


2,758

Payment of tax withholdings related to net share settlements
(8,051
)

(8,551
)
Shares repurchased and retired
(2,431
)


Dividends paid
(17,374
)


Contingent consideration payments subsequent to acquisitions

 
(600
)
Net cash used in financing activities - continuing operations
(25,647
)

(31,956
)
Net cash provided by financing activities - discontinued operations



Total cash used in financing activities
$
(25,647
)

$
(31,956
)
Effect of exchange rate on cash, cash equivalents, and restricted cash
(4,690
)

(200
)
Net change in cash, cash equivalents, and restricted cash
47,012


1,697

Cash, cash equivalents, and restricted cash at beginning of period
115,702


98,250

Less: Change in cash, cash equivalents, and restricted cash - discontinued operations
18



Plus: Cash swept from discontinued operations
18



Cash, cash equivalents, and restricted cash at end of period
$
162,714


$
99,947



 

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
16,391

 
$
17,351

Cash paid for income taxes
$
2,512

 
$
1,958

Cash refunds from income taxes
$
371

 
$
15,950

Non-cash investing activities:
 
 
 
Capital expenditures included in accounts payable and other accrued expenses
$
11,980

 
$
14,469


The accompanying notes are an integral part of these condensed consolidated financial statements.

4



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
(in thousands)
 
 
 
 
 
 
For the Three Months Ended March 31, 2020
 
 
 
 
 
 
Balance as of December 31, 2019
 
78,972

 
$
1

 
$
111,000

 
$
1,006,992

 
$
(166,783
)
 
$
951,210

Adoption of new accounting standards
 

 

 

 
16,827

 

 
16,827

Net income
 

 

 

 
33,819

 

 
33,819

Shares issued in connection with share-based compensation
 
489

 

 
2,932

 

 

 
2,932

Payment of tax withholdings related to net share settlements
 

 

 
(8,051
)
 

 

 
(8,051
)
Share-based compensation
 

 

 
8,085

 

 

 
8,085

Shares repurchased and retired
 
(50
)
 

 
(2,431
)
 

 

 
(2,431
)
Dividend declared
 

 

 
(54
)
 
54

 

 

Other comprehensive loss
 

 

 

 

 
(75,393
)
 
(75,393
)
Balance as of March 31, 2020
 
79,411

 
$
1

 
$
111,481

 
$
1,057,692

 
$
(242,176
)
 
$
926,998

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
 
80,092

 
$
1

 
$
160,870

 
$
975,375

 
$
(135,748
)
 
$
1,000,498

Net income
 

 

 

 
1,687

 

 
1,687

Shares issued in connection with share-based compensation
 
541

 

 
2,758

 

 

 
2,758

Payment of tax withholdings related to net share settlements
 

 

 
(8,551
)
 

 

 
(8,551
)
Share-based compensation
 

 

 
9,892

 

 

 
9,892

Other comprehensive loss
 

 

 

 

 
(7,013
)
 
(7,013
)
Balance as of March 31, 2019
 
80,633

 
$
1

 
$
164,969

 
$
977,062

 
$
(142,761
)
 
$
999,271


The accompanying notes are an integral part of these condensed consolidated financial statements.


5




Note 1 – Basis of Condensed Consolidated Financial Statements

CoreLogic, Inc., together with its subsidiaries (collectively “the Company”, “we”, “us” or “our”), is a leading global property information, insight, analytics and data-enabled solutions provider operating in North America, Western Europe and Asia Pacific. Our combined data from public, contributory, and proprietary sources provides detailed coverage of property, mortgages and other encumbrances, 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") 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 2019 year-end condensed consolidated balance sheet was derived from the Company’s audited financial statements for the year ended December 31, 2019. 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.

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.

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 31% and 29% of our operating revenues for the three months ended March 31, 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.

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)
March 31, 2020
 
March 31, 2019
Cash and cash equivalents
$
152,822

 
$
86,828

Restricted cash included in other assets
9,714

 
11,134

Restricted cash included in prepaid expenses and other current assets
178

 
1,985

Total cash, cash equivalents, and restricted cash
$
162,714

 
$
99,947




6



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.

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.

See further discussion in Note 7 - Operating Revenues.

Comprehensive Income

Comprehensive income includes all changes in equity except those resulting from investments by shareholders and distributions to shareholders. Specifically, foreign currency translation adjustments, amounts related to supplemental benefit plans, unrealized gains and losses on interest rate swap transactions and investments are recorded in other comprehensive income. The following table shows the components of accumulated other comprehensive loss, net of taxes, as of March 31, 2020 and December 31, 2019:

(in thousands)
2020
 
2019
Cumulative foreign currency translation
$
(161,193
)
 
$
(122,503
)
Cumulative supplemental benefit plans
(8,730
)
 
(8,917
)
Net unrecognized losses on interest rate swaps
(72,253
)
 
(35,296
)
Reclassification adjustment for gain on terminated interest rate swap included in net income

 
(67
)
Accumulated other comprehensive loss
$
(242,176
)
 
$
(166,783
)



7



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.

We recorded equity in earnings of affiliates, net of tax, of $0.5 million, and equity in losses of affiliates, net of tax, of $0.4 million for the three months ended March 31, 2020 and 2019, respectively. For both the three months ended March 31, 2020 and 2019, we had no operating revenues related to our investment in affiliates. We recorded operating expenses related to our investment in affiliates of $0.1 million for the three months ended March 31, 2020 and $0.2 million for the three months ended 2019, respectively. As of March 31, 2020, and December 31, 2019, we had insignificant accounts payable and accounts receivable with these affiliates.

In January 2020, we completed the acquisition of the remaining 66% of Location, Inc. ("Location") for $11.5 million, subject to certain working capital adjustments. In connection with this transaction, we remeasured our pre-existing 34% investment balance of $5.6 million to fair value based on the purchase price, resulting in a $0.6 million step-up gain which was recorded within (loss)/gain on investments and other, net, in our condensed consolidated statement of operations for the three months ended March 31, 2020. The total investment balance was then reclassified in the application of purchase accounting for this acquisition. 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.

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 initiated and declared a cash dividend of $0.22 per common share. As a result, as of December 31, 2019, we recorded a liability of $17.4 million within accounts payable and other accrued expenses, as well as $0.4 million in dividend equivalents reflected in additional paid-in-capital within our accompanying consolidated balance sheets. The dividend declared was paid in January 2020 to shareholders of record at the close of business on January 10, 2020. In April 2020, the Board of Directors announced a cash dividend to common shareholders of $0.22 per share of common stock to be paid in June 2020.


8



Discontinued Operations

As of March 31, 2020, and December 31, 2019, we recorded assets of discontinued operations of $6.3 million within prepaid expenses and other current assets within our condensed consolidated balance sheets, mainly consisting of income tax-related assets. Additionally, as of March 31, 2020 and December 31, 2019, we recorded liabilities of $0.4 million within accounts payable and other accrued expenses, which mainly consisted of legal-related accruals.

Tax Escrow Disbursement Arrangements

We administer tax escrow disbursements as a service to our clients in connection with our tax services business. Funds to be disbursed are deposited and maintained in segregated accounts for the benefit of our clients and totaled $6.8 billion and $1.4 billion as of March 31, 2020 and December 31, 2019, respectively. Because these deposits are held on behalf of our clients, they are not our funds and, therefore, are not included in the accompanying condensed consolidated balance sheets.

These deposits generally remain in the accounts for a period of two to five business days. We record credits from these activities as a reduction to related administrative expenses, including the cost of bank fees and other administration costs.

Under our contracts with our clients, if we make a payment in error or fail to pay a taxing authority when a payment is due, we could be held liable to our clients for all or 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 $22.4 million and $22.7 million as of March 31, 2020 and December 31, 2019, respectively. Within both of these amounts, $9.8 million are short-term and are reflected within accounts payable and other accrued expenses within our accompanying condensed consolidated balance sheets. The remaining reserves are reflected within other liabilities.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform, in connection with the scheduled phase-out of LIBOR as a reference interest rate. The guidance provides practical expedients and exceptions in accounting for contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Entities electing the practical expedients will be allowed, among other topics, to account for reference rate modification of debt and receivables prospectively; to not reassess lease classifications and discount rates in reference rate lease modifications; and ease cash-flow hedge effectiveness testing guidelines for hedges affected by reference rate reform. The guidance is effective as of March 12, 2020 through December 31, 2022 with adoption permitted as of any date within the aforementioned time frame from the beginning of the selected interim period on a prospective basis. We have elected to adopt the guidance in the current quarter 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 tax 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 which represents 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 have adopted this guidance in the current year as required, 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

9



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 have adopted this guidance in the current year as required, 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 March 31, 2020 and December 31, 2019 consists of the following:

(in thousands)
2020
 
2019
Land
$
7,476

 
$
7,476

Buildings
6,487

 
6,487

Furniture and equipment
71,993

 
74,978

Capitalized software
906,590

 
916,820

Leasehold improvements
49,858

 
48,811

Construction in progress
480

 
3,064

 
1,042,884

 
1,057,636

Less accumulated depreciation
(598,886
)
 
(606,615
)
Property and equipment, net
$
443,998

 
$
451,021



Depreciation expense for property and equipment, net, was approximately $23.2 million and $23.4 million for the three months ended March 31, 2020 and 2019, respectively.

Note 3 – Goodwill, Net

A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by reporting unit, for the three months ended March 31, 2020 is as follows:
 
(in thousands)
PIRM
 
UWS
 
Consolidated
Balance as of January 1, 2020
 
 
 
 
 
Goodwill
$
1,107,494

 
$
1,296,127

 
$
2,403,621

Accumulated impairment losses
(600
)
 
(6,925
)
 
(7,525
)
Goodwill, net
1,106,894

 
1,289,202

 
2,396,096

Acquisition
12,301

 

 
12,301

Measurement period adjustments

 
(98
)
 
(98
)
Translation adjustments
(26,990
)
 

 
(26,990
)
Balance as of March 31, 2020
 
 
 
 
 
Goodwill, net
$
1,092,205

 
$
1,289,104

 
$
2,381,309


See Note 12 - Acquisitions for discussion of current year acquisition and measurement period adjustments.


10



Note 4 – Other Intangible Assets, Net

Other intangible assets, net consists of the following:

 
March 31, 2020
 
December 31, 2019
(in thousands)
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Client lists
$
650,380

 
$
(352,847
)
 
$
297,533

 
$
662,611

 
$
(354,011
)
 
$
308,600

Non-compete agreements
26,746

 
(17,565
)
 
9,181

 
26,409

 
(16,249
)
 
10,160

Tradenames and licenses
126,173

 
(68,462
)
 
57,711

 
127,176

 
(67,118
)
 
60,058

 
$
803,299

 
$
(438,874
)
 
$
364,425

 
$
816,196

 
$
(437,378
)
 
$
378,818



Amortization expense for other intangible assets, net was $14.3 million and $16.6 million for the three months ended March 31, 2020 and 2019, respectively.

Estimated amortization expense for other intangible assets, net is as follows:

(in thousands)
 
Remainder of 2020
$
42,951

2021
54,061

2022
52,314

2023
44,156

2024
37,821

Thereafter
133,122

 
$
364,425




11



Note 5 – Long-Term Debt

Our long-term debt consists of the following:

 
 
March 31, 2020
 
December 31, 2019
(in thousands)
Gross
 
Debt Issuance Costs
 
Net
 
Gross
 
Debt Issuance Costs
 
Net
Bank debt:
 
 
 
 
 
 
 
 
 
 


 
Term loan facility borrowings due May 2024, weighted-average interest rate of 3.42% as of March 31, 2020
$
1,672,188

 
$
(13,996
)
 
$
1,658,192

 
$
1,672,188

 
$
(14,868
)
 
$
1,657,320

 
Revolving line of credit borrowings due May 2024, weighted-average interest rate of 3.42% as of March 31, 2020

 
(6,064
)
 
(6,064
)
 

 
(6,425
)
 
(6,425
)
Notes:
 

 
 

 
 
 
 

 
 

 
 
 
7.55% senior debentures due April 2028
9,531

 
(25
)
 
9,506

 
9,524

 
(26
)
 
9,498

Other debt:
 

 
 

 
 
 
 

 
 

 


 
Various debt instruments with maturities through March 2024
5,597

 

 
5,597

 
6,167

 

 
6,167

Total long-term debt
1,687,316


(20,085
)
 
1,667,231

 
1,687,879


(21,319
)
 
1,666,560

Less current portion of long-term debt
77,724

 

 
77,724

 
56,022

 

 
56,022

Long-term debt, net of current portion
$
1,609,592

 
$
(20,085
)
 
$
1,589,507

 
$
1,631,857


$
(21,319
)

$
1,610,538



As of March 31, 2020 and December 31, 2019, we recorded $0.6 million and $0.4 million, respectively, of accrued interest expense on our debt-related instruments within accounts payable and other accrued expenses.

Credit Agreement

In May 2019, we amended and restated our credit agreement (the “Credit Agreement”) with Bank of America, N.A., as the administrative agent, and other financial institutions. The Credit Agreement provides for a $1.8 billion 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 March 31, 2020, we had a remaining borrowing capacity of $750.0 million under the Revolving Facility and we were in compliance with all financial and restrictive covenants under the Credit Agreement.

Debt Issuance Costs

In connection with the amendment and restatement of the Credit Agreement, in May 2019, we incurred approximately $9.7 million of debt issuance costs of which $9.6 million were initially capitalized within long-term debt, net of current, in the accompanying condensed consolidated balance sheets. In addition, when we amended and restated the Credit Agreement, we wrote-off previously unamortized debt issuance costs of $1.5 million within (loss)/gain on investments and other, net, in the accompanying consolidated statement of operations, which resulted in a remaining $14.6 million of previously unamortized costs. We will amortize all of these costs over the term of the Credit Agreement. For the three months ended March 31, 2020 and 2019, $1.2 million and $1.3 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.


12



Interest Rate Swaps

We have entered into amortizing interest rate swaps (“Swaps”) in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. Under the Swaps, we agree to exchange floating rate for fixed rate interest payments periodically over the life of the agreement. The floating rates in our Swaps are based on the one-month London interbank offering rate ("LIBOR"). The notional balances, terms and maturities of our Swaps are designed to have the effect of fixing the rate of interest on at least 50% of the principal balance of our senior term debt.

As of March 31, 2020, the Swaps have a combined remaining notional balance of $1.3 billion, a weighted average fixed interest rate of 2.08% (rates range from 0.66% to 2.98%), and scheduled terminations through December 2025. Notional balances under our Swaps are scheduled to increase and decrease based on our expectations of the level of variable rate debt to be in effect in future periods. Currently, we have scheduled notional amounts of between $1.3 billion and $1.2 billion through September 2021, then $1.1 billion and $1.0 billion through August 2022, and $496.8 million and $465.0 million through December 2025. Approximate weighted average fixed interest rates for the aforementioned time periods are 2.51%, 2.64%, and 2.61%, respectively.

We have designated the Swaps as cash flow hedges. The estimated fair values of these cash flow hedges are recorded in prepaid expenses and other current assets or other assets as well as accounts payable and other accrued expenses or other liabilities in the accompanying condensed consolidated balance sheets. As of March 31, 2020, the estimated fair value of these cash flow hedges resulted in a liability of $96.3 million of which $6.2 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.

Unrealized losses of $36.9 million (net of $12.3 million in deferred taxes) and $12.2 million (net of $4.1 million in deferred taxes) for the three months ended March 31, 2020 and 2019, respectively, were recognized in other comprehensive loss related to the Swaps.

As a result of our Swap activity, for the three months ended March 31, 2020 and 2019, included within interest expense, on a pre-tax basis, we recognized interest expense of $15.8 million and interest income of $1.7 million, respectively. Estimated net losses included in accumulated other comprehensive loss related to the Swaps as of March 31, 2020, that will be reclassified into earnings as interest expense over the next 12 months, utilizing March 31, 2020 LIBOR, is estimated to be $21.1 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 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.


13



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 (loss)/gain on investments and other, net, in our condensed consolidated statement of operations.

Contingent Consideration

The fair value of our contingent consideration was estimated using the Monte-Carlo simulation model, which relies on significant assumptions and estimates including discount rates and future market conditions, among others.

Long-Term Debt

The fair value of debt was estimated based on the current rates available to us for similar debt of the same remaining maturities and consideration of our default and credit risk.

Swaps

The fair values of the Swaps were estimated based on market-value quotes received from the counterparties to the agreements.


14



The fair values of our financial instruments as of March 31, 2020 are presented in the following table:

(in thousands)
 
Fair Value Measurements Using
 
 
As of March 31, 2020
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
152,822

 
$

 
$

 
$
152,822

Restricted cash
 
8,196

 
1,696

 

 
9,892

Other investments
 

 
2,232

 

 
2,232

Total
 
$
161,018

 
$
3,928

 
$

 
$
164,946

 
 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
 
Contingent consideration
 
$

 
$

 
$
3,700

 
$
3,700

Total debt
 

 
1,688,230

 

 
1,688,230

Total
 
$

 
$
1,688,230

 
$
3,700


$
1,691,930

 
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
Liability for Swaps
 
$

 
$
96,272

 
$

 
$
96,272

 
 
 
 
 
 
 
 
 
As of December 31, 2019
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
105,185

 
$

 
$

 
$
105,185

Restricted cash
 
9,791

 
726

 

 
10,517

Other investments
 

 
1,898

 

 
1,898

Total
 
$
114,976

 
$
2,624

 
$

 
$
117,600

 
 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
 
Contingent consideration
 
$

 
$

 
$
4,509

 
$
4,509

Total debt
 

 
1,690,731

 

 
1,690,731

Total
 
$

 
$
1,690,731

 
$
4,509

 
$
1,695,240

 
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
Asset for Swaps
 
$

 
$
572

 
$

 
$
572

Liability for Swaps
 
$

 
$
47,691

 
$

 
$
47,691



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 March 31, 2020 using the Monte-Carlo simulation model. The contingent payments are remeasured at fair value quarterly, and changes are recorded within (loss)/gain on investments and other, net, in our condensed consolidated statement of operations. During the three months ended March 31, 2020, we decreased the fair value of our contingent consideration by $0.8 million and recorded the gain in our condensed consolidated statement of operations. During the three months ended March 31, 2019, we increased the fair value of our contingent consideration by $0.4 million and recorded the loss in our condensed consolidated statement of operations.

Due to observable price changes in an inactive market, for the three months ended March 31, 2019 we recorded an unfavorable fair value adjustment of $2.3 million to a minority equity investment, within (loss)/gain on investments and other, net, in our condensed consolidated statement of operations. No adjustments were necessary for the three months ended March 31, 2020.


15



Note 7 – Operating Revenues

Operating revenues by solution type consist of the following:
(in thousands)
 
PIRM
 
UWS
 
Corporate and Eliminations
 
Consolidated
For the Three Months Ended March 31, 2020
 
 
 
 
Property insights
 
$
116,977

 
$

 
$

 
$
116,977

Insurance and spatial solutions
 
46,840

 

 

 
46,840

Flood data solutions
 

 
27,603

 

 
27,603

Valuation solutions
 

 
61,247

 

 
61,247

Credit solutions
 

 
81,127

 

 
81,127

Property tax solutions
 

 
101,991

 

 
101,991

Other
 
9,238

 
3,653

 
(4,791
)
 
8,100

Total operating revenue
 
$
173,055

 
$
275,621

 
$
(4,791
)
 
$
443,885

 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
Property insights
 
$
118,670

 
$

 
$

 
$
118,670

Insurance and spatial solutions
 
45,416