XML 86 R10.htm IDEA: XBRL DOCUMENT

Note 3 - Segment Reporting

3 Months Ended

Mar. 31, 2020

We have two strategic business units that we manage separately—Mortgage and Real Estate. Our Mortgage segment derives its revenue from mortgage insurance and other mortgage and risk services, including contract underwriting services provided to lenders. Our Real Estate segment offers a broad array of title, valuation, asset management and other real estate services to market participants across the real estate value chain. In addition, we report as All Other activities that include income (losses) from assets held by our holding company, related general corporate operating expenses not attributable or allocated to our reportable segments and, for all periods through the first quarter of 2020, income and expenses related to Clayton prior to its sale in January 2020.

Subsequent to the sale of Clayton, our Chief Executive Officer (Radian’s chief operating decision maker) implemented certain organizational changes that caused the composition of our reportable segments to change. As revised, the Company’s Mortgage and Real Estate segments are managed by our President of Mortgage and Co-Heads of Real Estate, respectively, who are responsible for the overall profitability of their respective segments and who are directly accountable to our chief operating decision maker.

The differences in the basis of segmentation compared to our 2019 Form 10-K are as follows:



Business Activity	Current Segmentation	Prior Segmentation
Mortgage insurance and risk services	Mortgage	Mortgage Insurance
Contract underwriting services	Mortgage	Services
Title and real estate services (1)	Real Estate	Services
Clayton	All Other	Services
Income from holding company assets (and related corporate expenses)	All Other	Mortgage Insurance

______________________


(1)	Includes single family rental services.

These segment reporting changes align with the recent changes in personnel reporting lines, management oversight and branding following the sale of Clayton, and are consistent with the way our chief operating decision maker began assessing the performance of our reportable segments and other business activities effective in the first quarter of 2020. These changes to our reportable segments have been reflected in our segment operating results for all periods presented and are immaterial to segments presented. See Note 1 for additional details about our Mortgage and Real Estate businesses.

We allocate corporate operating expenses to both reportable segments based on each segment’s forecasted annual percentage of total revenue, which approximates the estimated percentage of management time spent on each segment. In addition, we allocate all corporate interest expense to our Mortgage segment, due to the capital-intensive nature of our mortgage insurance business.

With the exception of goodwill and other acquired intangible assets that relate to our Real Estate segment, which are reviewed as part of our annual goodwill impairment assessment, we do not manage assets by segment.

Adjusted Pretax Operating Income (Loss)

Our senior management, including our chief operating decision maker, uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of Radian’s business segments and to allocate resources to the segments. Adjusted pretax operating income (loss) is defined as pretax income (loss) excluding the effects of: (i) net gains (losses) on investments and other financial instruments; (ii) loss on extinguishment of debt; (iii) amortization and impairment of goodwill and other acquired intangible assets; and (iv) impairment of other long-lived assets and other non-operating items, such as losses from the sale of lines of business and acquisition-related expenses. See Note 4 of Notes to Consolidated Financial Statements in our 2019 Form 10-K for detailed information regarding items excluded from adjusted pretax operating income (loss), including the reasons for their treatment.

Although adjusted pretax operating income (loss) excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (i) not viewed as part of the operating performance of our primary activities or (ii) not expected to result in an economic impact equal to the amount reflected in pretax income (loss).

Adjusted pretax operating income (loss) for each segment represents segment results on a standalone basis; therefore, inter-segment eliminations and reclassifications required for consolidated GAAP presentation have not been reflected. Inter-segment activities are recorded at market rates for segment reporting and eliminated in consolidation.

The reconciliation of adjusted pretax operating income (loss) for our reportable segments and All Other activities to consolidated pretax income is as follows:



	Three Months Ended March 31,
(In thousands)	2020			2019
Adjusted pretax operating income (loss):
Mortgage (1)	$	205,667		$	203,631
Real Estate (2)	(4,867		)	(3,925		)
Total adjusted pretax operating income (loss) for reportable segments	200,800			199,706
All Other adjusted pretax operating income (loss)	3,799			2,364
Net gains (losses) on investments and other financial instruments	(22,027		)	21,913
Amortization and impairment of other acquired intangible assets	(979		)	(2,187		)
Impairment of other long-lived assets and other non-operating items	(300		)	(5,660		)
Consolidated pretax income	$	181,293		$	216,136

______________________


(1)	For the three months ended March 31, 2020, includes allocated corporate operating expenses and depreciation expense of $29.1 million and $3.7 million, respectively. For the three months ended March 31, 2019, includes allocated corporate operating expenses and depreciation expense of $25.6 million and $3.9 million, respectively.


(2)	For the three months ended March 31, 2020, includes allocated corporate operating expenses and depreciation expense of $3.8 million and $0.7 million, respectively. For the three months ended March 31, 2019, includes allocated corporate operating expenses and depreciation expense of $2.8 million and $0.6 million, respectively.

Revenue

The reconciliation of revenue for our reportable segments and All Other activities to consolidated revenues is as follows:



	Three Months Ended March 31,
(In thousands)	2020			2019
Revenues:
Mortgage (1)	$	315,084		$	302,370
Real Estate (1)	28,583			23,023
Total revenues for reportable segments	343,667			325,393
All Other revenues	7,633			16,839
Net gains (losses) on investments and other financial instruments	(22,027		)	21,913
Elimination of inter-segment revenues	(192		)	(516		)
Total revenues	$	329,081		$	363,629

______________________


(1)	Includes immaterial inter-segment revenues for the three months ended March 31, 2020 and 2019.

The accounting standard on revenue from contracts with customers is primarily applicable to our services revenue and is not applicable to our investments and insurance products, which represent the majority of our revenue. See Note 2 of Notes to Consolidated Financial Statements in our 2019 Form 10-K for additional information regarding our accounting policies and the services we offer.

The table below, which represents total services revenue on our condensed consolidated statements of operations for the periods indicated, represents the disaggregation of services revenues from external customers, by type:



	Three Months Ended March 31,
(In thousands)	2020		2019
Services revenue
Real Estate services:
Valuation services	$	11,844	$	12,706
Title services	7,305		1,600
Asset management services	6,374		6,272
Other real estate services	410		—
Mortgage services	3,133		644
All Other services	2,861		11,531
Total services revenue	$	31,927	$	32,753

Our services revenues are recognized over time and measured each period based on the progress to date as services are performed and made available to customers. Our contracts with customers, including payment terms, are generally short-term in nature; therefore, any impact related to timing is immaterial. Revenue expected to be recognized in any future period related to remaining performance obligations, such as contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, is not material.

Revenue recognized related to services made available to customers and billed is reflected in accounts and notes receivable. Accounts and notes receivable included $18.3 million and $10.8 million as of March 31, 2020 and December 31, 2019, respectively, related to services revenue contracts. Revenue recognized related to services performed and not yet billed is recorded in unbilled receivables and reflected in other assets. See Note 8 for additional information. Deferred revenue, which represents advance payments received from customers in advance of revenue recognition, is immaterial for all periods presented. We have no material bad-debt expense.