Company Quick10K Filing
Quick10K
CoreLogic
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$40.03 80 $3,220
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2018-12-20 Other Events, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-05-01 Shareholder Vote, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-02-26 Earnings, Exhibits
8-K 2018-02-06 Earnings, Exhibits
INFY Infosys
PAGS PagSeguro
NTCT Netscout Systems
CARS Cars.com
PRO Pros Holdings
AGMH AGM Group Holdings
FORTY Formula Systems
ZIXI Zix
DMRC Digimarc
HIVE Aerohive Networks
CLGX 2018-09-30
Part I: Financial Information
Item 1. Financial Statements.
Note 1 - Basis of Condensed Consolidated Financial Statements
Note 2 - Property and Equipment, Net
Note 3 - Goodwill, Net
Note 4 - Other Intangible Assets, Net
Note 5 - Long-Term Debt
Note 6 - Operating Revenues
Note 7 - Share-Based Compensation
Note 8 - Litigation and Regulatory Contingencies
Note 9 - Income Taxes
Note 10 - Earnings per Share
Note 11 - Fair Value of Financial Instruments
Note 12 - Acquisitions
Note 13 - Segment Information
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 3. Defaults Upon Senior Securities. None.
Item 4. Mine Safety Disclosures. Not Applicable.
Item 5. Other Information. Not Applicable.
Item 6. Exhibits.
EX-31.1 clgx-93018xex31110q.htm
EX-31.2 clgx-93018xex31210q.htm
EX-32.1 clgx-93018xex32110q.htm
EX-32.2 clgx-93018xex32210q.htm

CoreLogic Earnings 2018-09-30

CLGX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 clgx-93018x10q.htm 10-Q Document


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
  
x          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

o           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
92618-7471
(Address of principal executive offices)
(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)
 
 
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  x    No   o
 
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  x     No   o
 
Indicate by check mark whether the registrant: is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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
x
Accelerated filer
o
Non-accelerated filer
o  
Smaller reporting company
o
 
 
Emerging growth company
o

o 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  o    No   x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

On October 22, 2018 there were 80,561,463 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 September 30, 2018 and December 31, 2017
 
 
 
 
B. Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017
 
 
 
 
C. Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017
 
 
 
 
D. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017
 
 
 
 
E. Condensed Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 2018
 
 
 
 
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 3.
Defaults upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits





PART I: FINANCIAL INFORMATION
Item 1.  Financial Statements.
CoreLogic, Inc.
Condensed Consolidated Balance Sheets (Unaudited) 
(in thousands, except par value)
September 30,

December 31,
Assets
2018

2017
Current assets:
 
 
 
Cash and cash equivalents
$
97,884

 
$
118,804

Accounts receivable (less allowance for doubtful accounts of $6,936 and $8,229 as of September 30, 2018 and December 31, 2017, respectively)
254,263

 
256,595

Prepaid expenses and other current assets
53,515

 
47,220

Income tax receivable
8,984

 
7,649

Total current assets
414,646

 
430,268

Property and equipment, net
453,431

 
447,659

Goodwill, net
2,312,297

 
2,250,599

Other intangible assets, net
475,037

 
475,613

Capitalized data and database costs, net
324,779

 
329,403

Investment in affiliates, net
42,090

 
38,989

Other assets
119,380

 
104,882

Total assets
$
4,141,660

 
$
4,077,413

Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and other accrued expenses
$
157,580

 
$
145,655

Accrued salaries and benefits
79,171

 
93,717

Contract liabilities, current
308,659

 
303,948

Current portion of long-term debt
27,068

 
70,046

Total current liabilities
572,478

 
613,366

Long-term debt, net of current
1,737,855

 
1,683,524

Contract liabilities, net of current
520,544

 
504,900

Deferred income tax liabilities
109,356

 
102,571

Other liabilities
171,311

 
165,176

Total liabilities
3,111,544

 
3,069,537

 
 
 
 
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; 80,562 and 80,885 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
1

 
1

Additional paid-in capital
173,963

 
224,455

Retained earnings
962,765

 
877,111

Accumulated other comprehensive loss
(106,613
)
 
(93,691
)
Total stockholders' equity
1,030,116

 
1,007,876

Total liabilities and equity
$
4,141,660

 
$
4,077,413

 
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
 
For the Nine Months Ended
 
September 30,
 
September 30,
(in thousands, except per share amounts)
2018

2017
 
2018
 
2017
Operating revenues
$
451,768

 
$
483,131

 
$
1,385,069

 
$
1,396,960

Cost of services (excluding depreciation and amortization shown below)
230,419

 
244,186

 
709,154

 
745,314

Selling, general and administrative expenses
113,075

 
131,323

 
340,049

 
346,723

Depreciation and amortization
48,494

 
45,326

 
142,030

 
131,668

Total operating expenses
391,988


420,835

 
1,191,233

 
1,223,705

Operating income
59,780


62,296

 
193,836

 
173,255

Interest expense:
 


 

 
 

 
 

Interest income
299

 
393

 
1,053

 
1,323

Interest expense
19,382

 
16,686

 
56,061

 
45,352

Total interest expense, net
(19,083
)

(16,293
)
 
(55,008
)
 
(44,029
)
Gain/(loss) on investments and other, net
2,835

 
(3,095
)
 
5,124

 
(6,513
)
Income from continuing operations before equity in (losses)/earnings of affiliates and income taxes
43,532


42,908

 
143,952

 
122,713

Provision for income taxes
20,836

 
11,851

 
37,432

 
36,759

Income from continuing operations before equity in (losses)/earnings of affiliates
22,696


31,057

 
106,520

 
85,954

Equity in (losses)/earnings of affiliates, net of tax
(161
)
 
(229
)
 
2,909


(1,232
)
Net income from continuing operations
22,535


30,828

 
109,429

 
84,722

(Loss)/income from discontinued operations, net of tax
(84
)
 
(74
)
 
(175
)
 
2,421

Gain from sale of discontinued operations, net of tax

 

 

 
310

Net income
$
22,451


$
30,754

 
$
109,254

 
$
87,453

Basic income per share:





 
 
 
 
Net income from continuing operations
$
0.28


$
0.37

 
$
1.35

 
$
1.01

(Loss)/income from discontinued operations, net of tax



 

 
0.03

Gain from sale of discontinued operations, net of tax



 

 

Net income
$
0.28

 
$
0.37

 
$
1.35

 
$
1.04

Diluted income per share:
 


 

 
 

 
 

Net income from continuing operations
$
0.27


$
0.36

 
$
1.33

 
$
0.99

(Loss)/income from discontinued operations, net of tax



 

 
0.03

Gain from sale of discontinued operations, net of tax



 

 

Net income
$
0.27

 
$
0.36

 
$
1.33

 
$
1.02

Weighted-average common shares outstanding:
 


 

 
 

 
 

Basic
80,680


83,362

 
81,073

 
84,114

Diluted
82,017


85,090

 
82,528

 
85,840


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
 
For the Nine Months Ended
 
September 30,
 
September 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Net income
$
22,451

 
$
30,754

 
$
109,254

 
$
87,453

Other comprehensive (loss)/income
 

 
 

 
 

 
 

Adoption of new accounting standards

 

 
408

 

Market value adjustments on interest rate swaps, net of tax
2,532

 
41

 
10,770

 
1,621

Foreign currency translation adjustments
(6,129
)
 
6,078

 
(23,729
)
 
22,761

Supplemental benefit plans adjustments, net of tax
(124
)
 
(106
)
 
(371
)
 
1,519

Total other comprehensive (loss)/income
(3,721
)
 
6,013

 
(12,922
)
 
25,901

Comprehensive income
$
18,730

 
$
36,767

 
$
96,332

 
$
113,354

 
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 Nine Months Ended

September 30,
(in thousands)
2018

2017
Cash flows from operating activities:
 

 
Net income
$
109,254


$
87,453

Less: (Loss)/income from discontinued operations, net of tax
(175
)

2,421

Less: Gain from sale of discontinued operations, net of tax


310

Net income from continuing operations
109,429


84,722

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


 

Depreciation and amortization
142,030


131,668

Amortization of debt issuance costs
4,103


4,263

Provision for bad debt and claim losses
11,113


12,268

Share-based compensation
29,574


29,558

Equity in (earnings)/losses of affiliates, net of taxes
(2,909
)

1,232

Gain on sale of property and equipment
(19
)

(227
)
Deferred income tax
10,279


(7,038
)
(Gain)/loss on investment and other, net
(5,124
)

6,513

Change in operating assets and liabilities, net of acquisitions:
 


 

Accounts receivable
2,619


(5,655
)
Prepaid expenses and other current assets
(7,617
)

2,414

Accounts payable and other accrued expenses
(22,037
)

(40,681
)
Contract liabilities
(18,406
)

26,037

Income taxes
7,847


644

Dividends received from investments in affiliates
775


1,198

Other assets and other liabilities
(9,353
)

21,765

Net cash provided by operating activities - continuing operations
252,304


268,681

Net cash (used in)/provided by operating activities - discontinued operations
(4
)

3,660

Total cash provided by operating activities
$
252,300


$
272,341

Cash flows from investing activities:
 


 

Purchases of property and equipment
$
(41,020
)

$
(28,534
)
Purchases of capitalized data and other intangible assets
(25,013
)

(25,744
)
Cash paid for acquisitions, net of cash acquired
(140,977
)

(188,372
)
Cash received from sale of business-line
3,245

 

Proceeds from sale of property and equipment
198


316

Proceeds from investments
980



Net cash used in investing activities - continuing operations
(202,587
)

(242,334
)
Net cash provided by investing activities - discontinued operations



Total cash used in investing activities
$
(202,587
)

$
(242,334
)
Cash flows from financing activities:
 


 

Proceeds from long-term debt
$
120,095


$
1,995,000

Debt issuance costs


(14,294
)
Repayment of long-term debt
(114,626
)

(1,796,661
)
Proceeds from issuance of shares in connection with share-based compensation
19,585


6,330

Payment of tax withholdings related to net share settlements
(12,623
)

(13,629
)
Shares repurchased and retired
(87,028
)

(132,460
)
Net cash (used in)/provided by financing activities - continuing operations
(74,597
)

44,286

Net cash provided by financing activities - discontinued operations



Total cash (used in)/provided by financing activities
$
(74,597
)

$
44,286

Effect of exchange rate on cash, cash equivalents and restricted cash
2,039


(1,324
)
Net change in cash, cash equivalents and restricted cash
(22,845
)

72,969

Cash, cash equivalents and restricted cash at beginning of period
132,154


89,974

Less: Change in cash, cash equivalents and restricted cash - discontinued operations
(4
)

3,660

Plus: Cash swept (to)/from discontinued operations
(4
)

3,660

Cash, cash equivalents and restricted cash at end of period
$
109,309


$
162,943



 

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
50,108

 
$
37,283

Cash paid for income taxes
$
25,406

 
$
45,702

Cash refunds from income taxes
$
3,271

 
$
524

Non-cash investing activities:
 
 
 
Capital expenditures included in accounts payable and other accrued expenses
$
16,911

 
$
6,281


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

4



CoreLogic, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
 
(in thousands)
Common Stock Shares
 
Common Stock Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss)/Income
 
Total
Balance as of December 31, 2017
80,885

 
$
1

 
$
224,455

 
$
877,111

 
$
(93,691
)
 
$
1,007,876

Adoption of new accounting standards

 

 

 
(23,600
)
 
408

 
(23,192
)
Net income

 

 

 
109,254

 

 
109,254

Shares issued in connection with share-based compensation
1,428

 

 
19,585

 

 

 
19,585

Payment of tax withholdings related to net share settlements

 

 
(12,623
)
 

 

 
(12,623
)
Share-based compensation

 

 
29,574

 

 

 
29,574

Shares repurchased and retired
(1,751
)
 

 
(87,028
)
 

 

 
(87,028
)
Other comprehensive loss

 

 

 

 
(13,330
)
 
(13,330
)
Balance as of September 30, 2018
80,562

 
$
1

 
$
173,963

 
$
962,765

 
$
(106,613
)
 
$
1,030,116


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 "we", "us" or "our"), is a leading global property information, insight, analytics and data-enabled solutions provider operating in North America, Western Europe and Asia Pacific. Our combined data from public, contributory and proprietary sources provides detailed coverage of property, mortgages and other encumbrances, consumer credit, tenancy, 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 in the U.S. (“GAAP”) 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 2017 year-end condensed consolidated balance sheet was derived from the Company's audited financial statements for the year ended December 31, 2017. 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, 2017.

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 U.S. residential real estate, mortgage origination and mortgage servicing markets. Approximately 32% and 37% of our operating revenues for the three months ended September 30, 2018 and 2017, respectively, and 32% and 39% for the nine months ended September 30, 2018 and 2017, respectively, were generated from our top ten clients, who consist of the largest U.S. mortgage originators and servicers. None of our clients accounted for greater than 10% of our operating revenues for the three months ended September 30, 2018, and one of our clients accounted for approximately 11% of our operating revenues for the three months ended September 30, 2017. None of our clients accounted for greater than 10% of our operating revenues for the nine months ended September 30, 2018, and two of our clients accounted for approximately 12% and 10% of our operating revenues for the nine months ended September 30, 2017.

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. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows:

(in thousands)
September 30, 2018
 
September 30, 2017
Cash and cash equivalents
$
97,884

 
$
149,411

Restricted cash included in other assets
10,355

 
13,532

Restricted cash included in prepaid expenses and other current assets
1,070

 

Total cash, cash equivalents and restricted cash
$
109,309

 
$
162,943


Operating Revenue Recognition

We derive our operating revenues primarily from U.S. mortgage lenders, servicers and insurance companies with good creditworthiness. Operating revenue arrangements are written and specify the products or services to be delivered, pricing and payment terms. Operating revenue is recognized when the distinct good or service, or performance obligation, is delivered and

6



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.

See further discussion in Note 6 - 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 unrealized gains and losses on investment are recorded in other comprehensive (loss)/income. The following table shows the components of accumulated other comprehensive loss, net of taxes as of September 30, 2018 and December 31, 2017:

(in thousands)
2018
 
2017
Cumulative foreign currency translation
$
(119,369
)
 
$
(95,630
)
Cumulative supplemental benefit plans
(7,008
)
 
(5,461
)
Net unrecognized gains on interest rate swaps
19,764

 
7,400

Accumulated other comprehensive loss
$
(106,613
)
 
$
(93,691
)

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.

We recorded equity in losses of affiliates, net of tax of $0.2 million for both the three months ended September 30, 2018 and 2017, and equity in earnings of affiliates, net of tax of $2.9 million and equity in losses of affiliates, net of tax of $1.2 million for the nine months ended September 30, 2018 and 2017, respectively. For the three months ended September 30, 2018 and 2017, we recorded $0.3 million and $2.8 million, respectively, of operating revenues and $1.0 million and $3.2 million, respectively, of operating expenses related to our investment in affiliates. For the nine months ended September 30, 2018 and 2017, we recorded $0.9 million and $6.9 million, respectively, of operating revenues and $6.3 million and $8.9 million, respectively, of operating expenses related to our investment in affiliates.

In June 2017, we acquired a 45.0% interest in Mercury Network, LLC ("Mercury") for $70.0 million, which included a call option to purchase the remaining 55.0% interest within the next nine-month period. We initially fair-valued the call option using the Black-Scholes model at $4.6 million. In August 2017, we purchased the remaining 55.0% ownership of Mercury for an additional $83.0 million and wrote-off our related call option, which resulted in a net loss of $1.9 million within gain/(loss) on investments and other, net, in the accompanying consolidated statement of operations for the three months ended September 30, 2017. Prior to our acquisition of the controlling interest in August 2017, we accounted for the investment in Mercury using the equity method. See Note 12 - Acquisitions for further discussion.

7




Discontinued Operations

In September 2014, we completed the sale of our collateral solutions and field services businesses, which were included in the former reporting segment Asset Management and Processing Solutions ("AMPS"). In September 2012, we completed the wind down of our consumer services business and our appraisal management company business. In September 2011, we closed our marketing services business. In December 2010, we completed the sale of our Employer and Litigation Services businesses.

In connection with previous divestitures, we retain the prospect of contingent liabilities for indemnification obligations or breaches of representations or warranties. With respect to one such divestiture, in September 2016, a jury returned an unfavorable verdict against a discontinued operating unit that, if upheld on appeal, could result in indemnification exposure up to $25.0 million, including interest. We do not consider this outcome to be probable and are pursuing an appeal of the verdict to eliminate or substantially reduce any potential post-divestiture contingency. Any actual liability that comes to fruition would be reflected in our results from discontinued operations.

For the nine months ended September 30, 2017, we recorded a gain of $4.5 million related to a pre-tax legal settlement in AMPS within our discontinued operations. There was no such legal settlement for the nine months ended September 30, 2018. As of September 30, 2018 and December 31, 2017, we recorded assets of discontinued operations of $0.4 million for both periods within prepaid expenses and other current assets within our condensed consolidated balance sheets. Additionally, as of September 30, 2018 and December 31, 2017, we recorded liabilities of $1.8 million for both periods within accounts payable and other accrued expenses.

Tax Escrow Disbursement Arrangements

We administer tax escrow disbursements as a service to our clients in connection with our property tax processing solutions. These deposits are maintained in segregated accounts for the benefit of our clients. Tax escrow deposits totaled $909.5 million as of September 30, 2018, and $961.5 million as of December 31, 2017. 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 generally derive operating income and expenses from these deposits and bear the risk of loss. To mitigate the risk of loss, we diversify the placement of funds across institutions with high credit ratings.

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 $21.5 million and $21.7 million as of September 30, 2018, and December 31, 2017, respectively, of which $9.3 million and $9.4 million, respectively, are short-term and are reflected within accounts payable and other accrued expenses within our accompanying condensed consolidated balance sheets. The remaining reserves are reflected within other liabilities.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("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 are permitted to early adopt any removed or modified disclosures upon issuance and delay adoption of the additional disclosures until the effective date. We have elected to early adopt the removed disclosures and do not anticipate adoption of the modified or added disclosures to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The guidance removes certain disclosures, while modifying and adding others, and is effective for fiscal years ending after December 15, 2020 on a retrospective basis. Early adoption is permitted, however we have not elected early adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

8




In August 2018, the FASB issued new guidance on accounting for implementation, set-up and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor under a service contract. This new guidance aligns the requirements for capitalization with those for capitalizing implementation costs incurred for internal-use software with additional quantitative and qualitative disclosures required. The guidance is effective for fiscal years beginning after December 15, 2018. As permitted, we have elected early adoption as of period-end on a prospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In March 2018, the FASB issued guidance pertaining to the accounting for the Tax Cuts and Jobs Act ("TCJA"), allowing companies a year to finalize and record any provisional or inestimable impacts for the TCJA. This guidance was effective upon issuance during the first quarter. The adoption of this guidance did not have a material effect on our financial statements. See Note 9 - Income Taxes for discussion of the impacts of the TCJA on our Company.

In February 2018, the FASB issued guidance permitting companies to reclassify stranded tax effects from the TCJA from accumulated other comprehensive loss to retained earnings. The stranded tax effects consist of deferred taxes originally recorded in accumulated other comprehensive loss that exceed the newly enacted federal corporate tax rate. As permitted in the guidance, we elected to early adopt as of January 1, 2018. The net impact of adoption was a balance sheet reclassification of a $0.4 million unrealized loss within accumulated other comprehensive loss to retained earnings.

In August 2017, the FASB issued guidance to amend and improve the accounting for hedging activities. The amendment eliminates the requirement to separately measure and report hedge ineffectiveness. An initial quantitative assessment to establish that the hedge is highly effective is still required but the amendment allows until the end of the first quarter it is designated to perform the assessment. After initial qualification, a qualitative assessment can be performed if the hedge is highly effective and the documentation at inception can reasonably support an expectation of high effectiveness throughout the hedge’s term. The amendment requires companies to present all hedged accounting elements that affect earnings in the same income statement line as the hedged item. For highly effective cash flow hedges, fair value changes will be recorded in other comprehensive income and reclassified to earnings when the hedged item impacts earnings. The guidance is effective prospectively in fiscal years beginning after December 15, 2018. Early adoption is permitted, however we have not elected early adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued guidance that affects the presentation of restricted cash in the statement of cash flows and related disclosures. The guidance requires that the statement of cash flows explain the change in the combined total of restricted and unrestricted balances. Disclosure of how the statement of cash flows reconciles to the balance sheet is required if restricted cash is shown separately from cash and cash equivalents and the nature of the restrictions. We have adopted this guidance in the current year as required. Please see further discussion above within this Note.

In February 2016, the FASB issued guidance on lease accounting which requires leases with durations greater than 12-months to be recognized on the balance sheet as lease assets and lease liabilities beginning after December 15, 2018. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. Early adoption is permitted, however we will elect to adopt on the required date of January 1, 2019 via the new transition method election issued by the FASB in July 2018 where comparative periods presented in the period of adoption do not need to be restated. We are continuing to evaluate the impact of adopting this standard on our consolidated financial statements, controls and processes, and are in the process of implementing a new lease administration software solution. We anticipate that our notes to the consolidated financial statements related to leases will be expanded and the most substantial change to our consolidated financial statements will be a gross-up of our total assets and liabilities of less than 5%, based on our preliminary analysis. Further, the guidance is not expected to materially impact our results of operations in the upcoming fiscal years and interim periods. We will continue to monitor the overall impact of adoption and update our disclosures as appropriate.

In January 2016, the FASB issued guidance on accounting for equity investments and financial liabilities. The standard does not apply to equity method investments or investments in consolidated subsidiaries. The update provides that equity investments with readily determinable values be measured at fair value and changes in the fair value flow through net income. These changes historically have been included in other comprehensive income. Equity investments without readily determinable fair values have the option to be measured at fair value or at cost adjusted for changes in observable prices minus impairment. Changes in fair value from the application of either method are also recognized in net income. The standard requires a qualitative assessment of impairment indicators at each reporting period. For financial liabilities, entities that elect the fair value option must recognize the change in fair value attributable to instrument-specific credit risk in other comprehensive loss rather than net income. Lastly, regarding deferred tax assets, the need for a valuation allowance on a

9



deferred tax asset will need to be assessed in relation to available-for-sale debt securities. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We have adopted this guidance in the current year, which has not had a material impact on our financial statements.

In May 2014, the FASB issued updated guidance on revenue recognition in order to i) remove inconsistencies in revenue requirements, ii) provide a better framework for addressing revenue issues, iii) improve comparability across entities, industries, etc., iv) provide more useful information through improved disclosures, and v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. Under the amendment, an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting treatment for the incremental costs of obtaining a contract, which would not have been incurred had the contract not been obtained. Further, an entity is required to disclose sufficient information to enable the user of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. The updated guidance provides two methods of adoption: i) retrospective application to each prior reporting period presented, or ii) recognition of the cumulative effect from the retrospective application at the date of initial application.

On January 1, 2018, we adopted this new accounting standard, and all the related amendments, using the modified retrospective approach for all contracts that were not in effect as of the adoption date. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those prior periods. We also applied practical expedients which permit (i) the omission of remaining performance obligations that have contracts with an original expected duration of one year or less, (ii) the omission of performance obligations, which are for usage-based variable consideration, which we will recognize over the term of the arrangements based on the actual usage by the customers and (iii) expensing incremental contract costs, which would have otherwise been recognized in one year or less.

The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2018 for the adoption of the new accounting standard is as follows:

(in thousands)
December 31, 2017
 
Adoption Adjustments
 
January 1, 2018
Assets
 
 
 
 
 
Accounts receivable, net
$
256,595

 
$
(941
)
 
$
255,654

Prepaid expenses and other current assets
47,220

 
(965
)
 
46,255

Other assets
104,516

 
2,546

 
107,428

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Contract liabilities, current
$
303,948

 
$
6,767

 
$
310,715

Contract liabilities, net of current
504,900

 
24,801

 
529,701

Deferred income tax liability
102,571

 
(7,736
)
 
94,835

 
 
 
 
 
 
Equity
 
 
 
 
 
Retained earnings
$
877,111

 
$
(23,183
)
 
$
853,928

Accumulated other comprehensive loss
(93,691
)
 
(9
)
 
(93,700
)

In connection with the adoption of the new accounting guidance, we increased our total contract liabilities by $31.6 million of which $23.2 million was the result of a change in the accounting for contracts containing material rights the client would have not received without entering into the contract. The performance obligation associated with the material right is recognized when the future products or services are transferred or when the option expires. Further, we recorded $1.6 million of contract-related assets associated with the change in accounting, which are presented in prepaid expenses and other current assets and other assets in our condensed consolidated balance sheet. As a result of the adoption-related adjustments previously discussed, we adjusted our related deferred income tax and retained earnings accounts.

The impact of the adoption of the new accounting standard on our condensed consolidated balance sheet is as follows:


10



 
September 30, 2018
(in thousands)
As Reported
 
Balances Without Adoption Adjustments
 
Effect of Change Higher/(Lower)
Assets
 
 
 
 
 
Accounts receivable, net
$
254,263

 
$
255,364

 
$
(1,101
)
Prepaid expenses and other current assets
53,515

 
53,153

 
362

Income tax receivable
8,984

 
7,985

 
999

Other assets
119,380

 
117,013

 
2,367

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Accounts payable and other accrued expenses
$
157,580

 
$
157,908

 
$
(328
)
Contract liabilities, current
308,659

 
299,617

 
9,042

Contract liabilities, net of current
520,544

 
523,175

 
(2,631
)
Deferred income tax liability
109,356

 
110,101

 
(745
)
 
 
 
 
 
 
Equity
 
 
 
 
 
Accumulated other comprehensive loss
$
(106,613
)
 
$
(106,642
)
 
$
29

Retained earnings
962,765

 
965,505

 
(2,740
)

The impact of the adoption of the new accounting standard on our condensed consolidated statement of operations is as follows:
 
For the Three Months Ended September 30, 2018
(in thousands)
As Reported
 
Balances Without Adoption Adjustments
 
Effect of Change Higher/(Lower)
Operating revenue
$
451,768

 
$
451,239

 
$
529

Cost of services
230,419

 
230,361

 
58

Selling, general and administrative expenses
113,075

 
113,814

 
(739
)
Operating income
59,780

 
58,570

 
1,210

Provision for income taxes
20,836

 
20,534

 
302

Net income
22,451

 
21,543

 
908


 
For the Nine Months Ended September 30, 2018
(in thousands)
As Reported
 
Balances Without Adoption Adjustments
 
Effect of Change Higher/(Lower)
Operating revenue
$
1,385,069

 
$
1,359,966

 
$
25,103

Cost of services
709,154

 
709,550

 
(396
)
Selling, general and administrative expenses
340,049

 
340,985

 
(936
)
Operating income
193,836

 
167,401

 
26,435

Provision for income taxes
37,432

 
31,440

 
5,992

Net income
109,254

 
88,811

 
20,443


During the second quarter of 2018, we amended contractual terms, which eliminated certain performance obligations that would have otherwise been fulfilled over time. For the nine months ended September 30, 2018, the difference between the reported revenues and the pro forma revenues without adoption adjustments from the new revenue guidance is primarily due to the removal of the aforementioned performance obligations. We do not expect the new accounting standard to have a material impact to net income prospectively, based on the terms and conditions of contracts in effect at this time. See Note 6 - Operating Revenues for additional information.

11




Note 2 - Property and Equipment, Net

Property and equipment, net as of September 30, 2018 and December 31, 2017 consists of the following:

(in thousands)
2018
 
2017
Land
$
7,476

 
$
7,476

Buildings
6,487

 
6,487

Furniture and equipment
65,560

 
63,255

Capitalized software
926,312

 
878,156

Leasehold improvements
42,036

 
39,990

Construction in progress
4,191

 
1,349

 
1,052,062

 
996,713

Less accumulated depreciation
(598,631
)
 
(549,054
)
Property and equipment, net
$
453,431

 
$
447,659


Depreciation expense for property and equipment was approximately $22.6 million and $21.4 million for the three months ended September 30, 2018 and 2017, respectively, and $66.8 million and $62.1 million for the nine months ended September 30, 2018 and 2017, respectively.

Note 3 – Goodwill, Net

A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by operating segment and reporting unit, for the nine months ended September 30, 2018, is as follows:
 
(in thousands)
PIRM
 
UWS
 
Consolidated
Balance as of January 1, 2018
 
 
 
 
 
Goodwill
$
1,029,223

 
$
1,228,901

 
$
2,258,124

Accumulated impairment losses
(600
)
 
(6,925
)
 
(7,525
)
Goodwill, net
1,028,623

 
1,221,976

 
2,250,599

Acquisitions
14,257

 
63,112

 
77,369

Disposal
(1,803
)
 

 
(1,803
)
Translation adjustments
(13,868
)
 

 
(13,868
)
Balance as of September 30, 2018
 
 
 
 
 
Goodwill, net
$
1,027,209

 
$
1,285,088

 
$
2,312,297


For the nine months ended September 30, 2018, we recorded goodwill of $14.1 million within our Property Intelligence & Risk Management ("PIRM") reporting unit related to the acquisition of eTech Solutions Limited ("eTech") and $0.2 million in measurement period adjustments attributable to prior year acquisitions. In addition, we recorded a loss of $1.8 million associated with a non-core business-line disposal within PIRM that was not significant. Further, we recorded goodwill of $63.6 million within our Underwriting & Workflow Solutions ("UWS") reporting unit related to the acquisition of a la mode technologies, LLC ("a la mode"), partially offset by a $0.5 million measurement period adjustment attributable to a prior year acquisition. See Note 12 - Acquisitions for further discussion.


12



Note 4 – Other Intangible Assets, Net

Other intangible assets, net consist of the following:

 
September 30, 2018
 
December 31, 2017
(in thousands)
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Client lists
$
720,525

 
$
(336,422
)
 
$
384,103

 
$
690,693

 
$
(303,632
)
 
$
387,061

Non-compete agreements
33,833

 
(18,913
)
 
14,920

 
28,118

 
(15,528
)
 
12,590

Trade names and licenses
133,231

 
(57,217
)
 
76,014

 
125,090

 
(49,128
)
 
75,962

 
$
887,589

 
$
(412,552
)
 
$
475,037

 
$
843,901

 
$
(368,288
)
 
$
475,613


Amortization expense for other intangible assets, net was $16.3 million and $14.9 million for the three months ended September 30, 2018 and 2017, respectively, and $47.8 million and $42.9 million for the nine months ended September 30, 2018 and 2017, respectively.

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

(in thousands)
 
Remainder of 2018
$
15,963

2019
62,431

2020
60,263

2021
57,557

2022
55,518

Thereafter
223,305

 
$
475,037


Note 5 – Long-Term Debt

Our long-term debt consists of the following:

 
 
September 30, 2018
 
December 31, 2017
(in thousands)
Gross
 
Debt Issuance Costs
 
Net
 
Gross
 
Debt Issuance Costs
 
Net
Bank debt:
 
 
 
 
 
 
 
 
 
 


 
Term loan facility borrowings due August 2022, weighted-average interest rate of 3.84% and 3.28% as of September 30, 2018 and December 31, 2017, respectively
$
1,642,500

 
$
(14,008
)
 
$
1,628,492

 
$
1,755,000

 
$
(17,017
)
 
$
1,737,983

 
Revolving line of credit borrowings due August 2022, weighted-average interest rate of 3.84% as of September 30, 2018
120,000

 
(5,580
)
 
114,420

 

 
(6,672
)
 
(6,672
)
Notes:
 

 
 

 
 
 
 

 
 

 
 
 
7.55% senior debentures due April 2028
14,645

 
(45
)
 
14,600

 
14,645

 
(48
)
 
14,597

Other debt:
 

 
 

 
 
 
 

 
 

 


 
Various debt instruments with maturities through 2023
7,411

 

 
7,411

 
7,662

 

 
7,662

Total long-term debt
1,784,556


(19,633
)
 
1,764,923

 
1,777,307


(23,737
)
 
1,753,570

Less current portion of long-term debt
27,068

 

 
27,068

 
70,046

 

 
70,046

Long-term debt, net of current portion
$
1,757,488

 
$
(19,633
)
 
$
1,737,855

 
$
1,707,261


$
(23,737
)

$
1,683,524



13



As of September 30, 2018 and December 31, 2017, we have recorded $1.5 million and $1.0 million of accrued interest expense, respectively, on our debt-related instruments within accounts payable and other accrued expenses.

Credit Agreement

In August 2017, we amended and restated our credit agreement (“Credit Agreement”) with Bank of America, N.A. as the administrative agent, and other financial institutions. The Credit Agreement provides for a $1.8 billion five-year term loan A facility (“Term Facility”), and a $700.0 million five-year revolving credit facility ("Revolving Facility"). The Term Facility matures and the Revolving Facility expires in August 2022. The Revolving facility includes a $100.0 million multicurrency 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/or Revolving Facility by up to $100.0 million in the aggregate; however the lenders are not obligated to do so. As of September 30, 2018, we had a remaining borrowing capacity of $580.0 million under the Revolving Facility and we were in compliance with all of our covenants under the Credit Agreement.

Debt Issuance Costs

In connection with the amendment and restatement of the Credit Agreement, in August 2017, we incurred approximately $14.3 million of debt issuance costs of which $14.0 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 recognized a $1.8 million loss within gain/(loss) on investments and other, net in the accompanying consolidated statement of operations; resulting in a remaining $12.0 million of previously unamortized costs. We will amortize all of these costs over the term of the Credit Agreement. For both the three months ended September 30, 2018 and 2017, $1.4 million were expensed in the accompanying condensed consolidated statement of operations related to debt issuance costs. For the nine months ended September 30, 2018 and 2017, $4.1 million and $4.3 million, respectively, were expensed in the accompanying condensed consolidated statement of operations related to 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. The notional balances, terms and maturities of our Swaps are designed to have at least 50% of our debt as fixed rate.

In the current year we entered into additional Swaps and, as of September 30, 2018, the Swaps have a combined remaining notional balance of $1.3 billion, a weighted average fixed interest rate of 1.80% (rates range from 1.03% to 2.98%), and scheduled terminations through December 2025. As previously indicated, notional balances under our Swaps are scheduled to increase and decrease over their contract lengths based on our expectations of variable debt levels. Currently, we have scheduled notional amounts of between $1.3 billion and $1.5 billion through December 2020, then $1.0 billion and $1.2 billion through August 2022, and $400.0 million thereafter until December 2025.

We have designated the Swaps as cash flow hedges. The estimated fair value of these cash flow hedges is recorded in prepaid expenses and other current, assets and other assets and other liabilities in the accompanying condensed consolidated balance sheets. As of September 30, 2018 the estimated fair value of these cash flow hedges resulted in an asset of $26.9 million, of which $1.1 million is classified within prepaid expenses and other current assets, as well as a liability of $0.5 million. As of December 31, 2017, we recorded an asset of $12.0 million within other assets.

Unrealized gains of $2.5 million (net of $0.8 million in deferred taxes) and unrealized gains of less than $0.1 million (net of less than $0.1 million in deferred taxes) for the three months ended September 30, 2018 and 2017, respectively, and unrealized gains of $10.8 million (net of $3.6 million in deferred taxes) and unrealized gains of $1.6 million (net of $1.0 million in deferred taxes) for the nine months ended September 30, 2018 and 2017, respectively, were recognized in other comprehensive (loss)/income related to the Swaps.


14



Note 6 – Operating Revenues

Operating revenues by solution type consists of the following:

(in thousands)
 
For the Three Months Ended September 30, 2018
 
 
PIRM
 
UWS
 
Corporate and Eliminations
 
Consolidated
Property insights
 
$
125,319

 
$

 
$

 
$
125,319

Insurance & spatial solutions
 
41,666

 

 

 
41,666

Flood data services
 

 
18,213

 

 
18,213

Valuations solutions
 

 
73,468

 

 
73,468

Credit solutions
 

 
75,283

 

 
75,283

Property tax solutions
 

 
94,637

 

 
94,637

Other
 
13,622

 
12,024

 
(2,464
)
 
23,182

Total operating revenue
 
$
180,607

 
$
273,625

 
$
(2,464
)
 
$
451,768


(in thousands)
 
For the Nine Months Ended September 30, 2018
 
 
PIRM
 
UWS
 
Corporate and Eliminations
 
Consolidated
Property insights
 
$
376,284

 
$

 
$

 
$
376,284

Insurance & spatial solutions
 
119,691

 

 

 
119,691

Flood data services
 

 
54,098

 

 
54,098

Valuations solutions
 

 
226,368

 

 
226,368

Credit solutions
 

 
235,651

 

 
235,651

Property tax solutions
 

 
301,998

 

 
301,998

Other
 
41,054

 
37,155

 
(7,230
)
 
70,979

Total operating revenue
 
$
537,029

 
$
855,270

 
$
(7,230
)
 
$
1,385,069


Property Insights

Our property insights combine our patented predictive analytics and 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 with crime, site inspection, neighborhood, document images and other information from proprietary sources. We also provide verification of applicant income, identity and certain employment verification services. We typically license data in one of two forms: bulk data licensing and transactional licensing. Operating revenue for bulk data licensing contracts that provide a stand-ready obligation or include substantive updates to the intellectual property is recognized ratably over the contractual term; otherwise operating revenue is recognized upon delivery. For transactional licensing we recognize operating revenue based on usage.

Insurance & Spatial Solutions

Our insurance & spatial solutions provide originators and property and casualty insurers the solutions required to more effectively locate, assess and manage property-level assets and risks through location-based data and analytics. 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 service period 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.


15



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.

Valuations 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, and ensuring compliance with lender and governmental regulations. We provide collateral information technology and solutions that automate property appraisal ordering, tracking, documentation and review for lender compliance with government regulations. Revenue for the property appraisal service is recognized when the appraisal service is performed and delivered to the client. In addition, to the extent that we provide continuous access to the hosted software platform, we recognize operating revenue over the term of the arrangement.

Credit Solutions

Our credit solutions provide credit and income verification services to the mortgage and automotive industries. We provide comprehensive information, typically in the form of a report, about credit history, income verification and home address history. We normalize the data to provide a broad range of advanced business information solutions designed to reduce risk and improve business performance. Operating revenue is recognized when the report or information is delivered to the client.

Flood Data Services

Our flood data services provide flood zone determinations primarily to mortgage lenders in accordance with U.S. 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.

Contract Costs

Incremental costs to obtain or fulfill client contracts are recognized as an asset. As of September 30, 2018, we had $10.5 million of current deferred costs which are presented in prepaid expenses and other current assets and $21.0 million of long-term deferred costs which are presented in other assets in our condensed consolidated balance sheet. These deferred costs primarily include certain set-up and acquisition costs related to property tax solutions and amortize ratably over an expected ten year life and adjusted for early loan cancellations. For the three and nine months ended September 30, 2018 we recorded $3.8 million and $10.7 million, respectively, of amortization associated with these deferred costs.

Contract Liabilities

We record a contract liability when amounts are invoiced prior to the satisfaction of a performance obligation. For property tax solutions, we invoice our clients upfront fees for services to be performed over time. For property insights and insurance & spatial solutions we invoice quarterly and annually, commencing upon execution of the contracts or at the beginning of the license term.

As of January 1, 2018, we had $840.4 million in contract liabilities compared to $829.2 million as of September 30, 2018. The overall change of $11.2 million in contract liability balances are primarily due to $407.9 million of new deferred billings in the current year, offset by $428.4 million of operating revenue recognized, of which $269.7 million related to contracts previously deferred.


16



Remaining Performance Obligations

The majority of our arrangements are between one and three years with a significant portion being one year or less. For the remaining population of non-cancellable and fixed arrangements greater than one year, as of September 30, 2018, we had $942.4 million of remaining performance obligations. We expect to recognize approximately 10% percent of our remaining revenue backlog in 2018, 30% in 2019, 21% in 2020 and 39% thereafter. See further discussion on performance obligations in Note 1 - Basis for Condensed Consolidated Financial Statements.

Note 7 – 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") 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 shares on the date of grant and is recognized as compensation expense over its vesting period.

Restricted Stock Units

For the nine months ended September 30, 2018 and 2017, we awarded 537,022 and 671,568 RSUs, respectively, with an estimated grant-date fair value of $25.1 million and $26.9 million, respectively. The RSU awards will vest ratably over three years. RSU activity for the nine months ended September 30, 2018 is as follows:

 
Number of
 
Weighted-Average
Grant-Date
(in thousands, except weighted-average fair value prices)
Shares
 
Fair Value
Unvested RSUs outstanding at December 31, 2017
1,309

 
$
37.54

RSUs granted
537

 
$
46.78

RSUs vested
(672
)
 
$
37.06

RSUs forfeited
(52
)
 
$
41.45

Unvested RSUs outstanding at September 30, 2018
1,122

 
$
42.07


As of September 30, 2018, there was $30.5 million of total unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 1.9 years. The fair value of RSUs is based on the market value of our common stock on the date of grant.

Performance-Based Restricted Stock Units

For the nine months ended September 30, 2018 and 2017, we awarded 408,097 and 288,331 PBRSUs, respectively, with an estimated grant-date fair value of $19.2 million and $11.5 million, respectively. These awards are generally subject to service-based, performance-based and market-based vesting conditions. The service and performance period for the 2018 grants is from January 2018 to December 2020 and the performance metrics are generally adjusted earnings per share. The 2018 grants included 232,225 PBRSUs that did not include a market-based condition but had operating revenue or adjusted EBITDA margin as the performance metric through the service period ending December 2020.

The performance and service period for the PBRSUs awarded during the nine months ended September 30, 2017 is from January 2017 to December 2019 and the performance metrics are adjusted earnings per share and market-based conditions.


17



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 Nine Months Ended September 30,
 
2018
 
2017
 
 
 
 
Expected dividend yield
%
 
%
Risk-free interest rate (1)
2.38
%
 
1.47
%
Expected volatility (2)
23.63
%
 
27.83
%
Average total stockholder return (2)
6.11
%
 
1.46
%

(1)
The risk-free interest rate for the periods within the contractual term of the PBRSUs is based on the U.S. Treasury yield curve in effect at the time of the grant.
(2)
The expected volatility and average total stockholder return are measures of the amount by which a stock price has fluctuated or is expected to fluctuate based primarily on our and our peers' historical data.

PBRSU activity for the nine months ended September 30, 2018 is as follows:

 
Number of
 
Weighted-Average
Grant-Date
(in thousands, except weighted-average fair value prices)
Shares
 
Fair Value
Unvested PBRSUs outstanding at December 31, 2017
659

 
$
37.22

PBRSUs granted
408

 
$
47.15

PBRSUs vested
(239
)
 
$
39.91

PBRSUs forfeited
(43
)
 
$
39.10

Unvested PBRSUs outstanding at September 30, 2018
785

 
$
42.10


As of September 30, 2018, there was $22.7 million of total unrecognized compensation cost related to unvested PBRSUs that is expected to be recognized over a weighted-average period of 2.1 years. The fair value of PBRSUs is based on the market value of our common stock on the date of grant.

Stock Options

Prior to 2015, we issued stock options as incentive compensation for certain employees. Option activity for the nine months ended September 30, 2018 is as follows:

(in thousands, except weighted-average price)
Number of
Shares
 
Weighted-Average
Exercise Price
 
Weighted-Average
Remaining
Contractual Term
 
Aggregate
Intrinsic
Value
Options outstanding at December 31, 2017
1,186

 
$
20.67

 
 
 
 
Options exercised
(615
)
 
$
21.13

 
 
 
 
Options vested, exercisable, and outstanding at September 30, 2018
571

 
$
20.18

 
3.4
 
$
16,706


As of September 30, 2018, there was no unrecognized compensation cost related to unvested stock options.

The intrinsic value of options exercised was $14.3 million and $3.3 million for the nine months ended September 30, 2018 and 2017, respectively. This intrinsic value represents the difference between the fair market value of our common stock on the date of exercise and the exercise price of each option.


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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 recognized an expense for the amount equal to the estimated fair value of the discount during each offering period.

The following table sets forth the share-based compensation expense recognized for the three and nine months ended September 30, 2018 and 2017.

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
(in thousands)
2018
 
2017
 
2018
 
2017
RSUs
$
5,752

 
$
6,924

 
$
20,385

 
$
23,303

PBRSUs
3,621

 
1,400

 
7,780

 
4,877

Stock options

 

 

 
144

Employee stock purchase plan
402

 
294

 
1,409

 
1,234

 
$
9,775

 
$
8,618

 
$
29,574

 
$
29,558


The table above includes $1.0 million and $1.7 million of share-based compensation expense within cost of services in the accompanying condensed consolidated statements of operations for the three months ended September 30, 2018 and 2017, respectively, and $4.4 million and $4.7 million for the nine months ended September 30, 2018 and 2017, respectively.

Note 8 – Litigation and Regulatory Contingencies

We have been named in various lawsuits and we may from time to time be subject to audit or investigation by governmental agencies. Currently, governmental agencies are auditing or investigating certain of our operations.

With respect to matters where we have determined that a loss is both probable and reasonably estimable, we have recorded a liability representing our best estimate of the financial exposure based on known facts. For matters where a settlement has been reached, we have recorded 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.

Fair Credit Reporting Act Class Actions

In February 2012, CoreLogic National Background Data, LLC (n/k/a CoreLogic Background Data, LLC ("CBD")) was named as a defendant in a putative class action styled Tyrone Henderson, et. al., v. CoreLogic National Background Data, in the U.S. District Court for the Eastern District of Virginia. Plaintiffs allege violation of the Fair Credit Reporting Act, and pled a putative class claim relating to CBD’s return of criminal record data in response to search queries initiated by its consumer reporting agency customers, which then prepare and transmit employment background screening reports to their employer customers. The parties agreed to settle the case on a class-wide basis and the settlement was approved in March 2018.

In June 2015, a companion case, Witt v. CoreLogic National Background Data, et. al. was filed in the U.S. District Court for the Eastern District of Virginia by the same attorneys as in Henderson, alleging the same claim against CBD. Witt also names as a defendant CoreLogic SafeRent, LLC (n/k/a CoreLogic Rental Property Solutions, LLC (“RPS”)) on the theory that RPS provided criminal record reports to CBD at the same time that CBD delivered reports to CBD’s consumer reporting agency customers. The parties agreed to settle the case on a class-wide basis and the settlement was approved in March 2018.
    
In July 2017, RPS was named as a defendant in a putative class action lawsuit styled Claudinne Feliciano, et. al., v. CoreLogic SafeRent, LLC, in the U.S. District Court for the Southern District of New York. The named plaintiff alleges that RPS prepared a background screening report about her that contained a record of a New York Housing Court action without noting that the action had previously been dismissed. On this basis, she seeks damages under the Fair Credit Reporting Act and

19



the New York Fair Credit Reporting Act on behalf of herself and a class of similarly situated consumers with respect to reports issued during the period of July 2015 to the present. RPS has denied the claims and intends to defend the case vigorously.
    
Separation

Following 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 (the "Separation and Distribution Agreement"), we agreed with FAFC to share equally in the cost of resolution of a small number of corporate-level lawsuits, including certain consolidated securities litigation matters from which we have since been dropped. There were no liabilities incurred in connection with the consolidated securities matters. Responsibility to manage each case has been assigned to either FAFC or us, with the managing party required to update the other party regularly and consult with the other party prior to certain important decisions, such as settlement. The managing party will also have primary responsibility for determining the ultimate total liability, if any, related to the applicable case. We will record our share of any such liability when the responsible party determines a reserve is necessary. As of September 30, 2018, no reserves were considered necessary.

In addition, the Separation and Distribution Agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our predecessor, The First American Corporation's ("FAC") 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 9 – Income Taxes

In December 2017, the U.S. passed the TCJA which included a reduction of the U.S. corporate income tax rate from 35.0% to 21.0%, an assessment of a one-time transition tax on certain foreign earnings that were previously tax deferred, a new provision that taxes certain income from foreign operations, a new limitation on deductible interest expense and limitations on the deductibility of certain executive compensation.

As of September 30, 2018, we have not completed our accounting for the tax effects of the TCJA. When our analysis is finalized, any resulting adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. We currently anticipate finalizing and recording any such adjustments and related elections by the end of 2018. For the quarter ended September 30, 2018, we have recorded a provisional estimate of the one-time transition tax under the TCJA.

The effective income tax rate for income taxes as a percentage of income from continuing operations before equity in (losses)/earnings of affiliates and income taxes was 47.9% and 27.6% for the three months ended September 30, 2018 and 2017, respectively, and 26.0% and 30.0% for the nine months ended September 30, 2018 and 2017, respectively.
    
For the three months ended September 30, 2018, when compared to 2017, the increase in the effective income tax rate was primarily due to the recording of a $12.5 million provisional estimate of the one-time transition tax and a prior year favorable domestic out-of-period adjustment recorded in the third quarter of 2017, partially offset by the reduction in the Federal statutory tax rate from the enactment of the TCJA.

For the nine months ended September 30, 2018, when compared to 2017, the decrease in the effective income tax rate was primarily due to lower Federal statutory tax rate from the enactment of the TCJA, partially offset by the recording of a $12.5 million provisional estimate of the one-time transition tax.

We are currently under examination for the years 2010 through 2012, by the U.S., our primary taxing jurisdiction, and various other state taxing authorities. It is reasonably possible the amount of the unrecognized benefits with respect to certain unrecognized tax positions that are not subject to the FAFC indemnification could significantly increase or decrease within the next twelve months and would have an impact on net income. Currently, the Company expects expiration of statutes of limitations, excluding indemnified amounts, on reserves of $4.7 million within the next twelve months.


20



Note 10 – Earnings Per Share

The following is a reconciliation of net income per share:

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
(in thousands, except per share amounts)
 
 
 
 
 
 
 
Numerator for basic and diluted net income per share:
 
 
 
 
 
 
 
Net income from continuing operations
$
22,535

 
$
30,828

 
$
109,429

 
$
84,722

(Loss)/income from discontinued operations, net of tax
(84
)
 
(74
)
 
(175
)
 
2,421

Gain from sale of discontinued operations, net of tax

 

 

 
310

Net income
$
22,451

 
$
30,754

 
$
109,254

 
$
87,453

Denominator:
 

 
 

 
 

 
 

Weighted-average shares for basic income per share
80,680

 
83,362

 
81,073

 
84,114

Dilutive effect of stock options and restricted stock units
1,337

 
1,728

 
1,455

 
1,726

Weighted-average shares for diluted income per share
82,017

 
85,090

 
82,528

 
85,840

Income per share
 

 
 

 
 

 
 

Basic:
 

 
 

 
 

 
 

Net income from continuing operations
$
0.28

 
$
0.37

 
$
1.35

 
$
1.01

(Loss)/income from discontinued operations, net of tax

 

 

 
0.03

Gain from sale of discontinued operations, net of tax



 

 

Net income
$
0.28

 
$
0.37

 
$
1.35

 
$
1.04

Diluted:
 

 
 
 
 
 
 
Net income from continuing operations
$
0.27

 
$
0.36

 
$
1.33

 
$
0.99

(Loss)/income from discontinued operations, net of tax

 

 

 
0.03

Gain from sale of discontinued operations, net of tax



 

 

Net income
$
0.27

 
$
0.36

 
$
1.33

 
$
1.02


The dilutive effect of share-based compensation awards has been calculated using the treasury-stock method. For the three months ended September 30, 2018 and 2017, an aggregate of less than 0.1 million RSUs were excluded from the weighted-average diluted common shares outstanding for both periods due to their anti-dilutive effect. For the nine months ended September 30, 2018 and 2017, an aggregate of less than 0.1 million RSUs and PBRSUs were excluded from the weighted-average diluted common shares outstanding for both periods due to their anti-dilutive effect.

Note 11 – Fair Value of Financial Instruments

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.

21




In estimating the fair value of the financial instruments presented, we used the following methods and assumptions:

Cash and cash equivalents

For cash and cash equivalents, the carrying value is a reasonable estimate of fair value due to the short-term nature of the instruments.

Restricted cash

Restricted cash is comprised of certificates of deposit that are pledged for various letters of credit/bank guarantees secured by us, escrow accounts due to acquisitions and divestitures and 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.

Contingent consideration

The fair value of the contingent consideration was estimated using the Monte-Carlo simulation model, which relies on significant assumption 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 interest rate swap agreements were estimated based on market-value quotes received from the counterparties to the agreements.

The fair values of our financial instruments as of September 30, 2018 are presented in the following table:

 
Fair Value Measurements Using
 
 
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
97,884

 
$

 
$

 
$
97,884

Restricted cash
2,271

 
9,154

 

 
11,425

Total
$
100,155

 
$
9,154

 
$

 
$
109,309

 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
Contingent consideration
$

 
$

 
$
5,520

 
$
5,520

Total debt

 
1,786,397

 

 
1,786,397

Total
$

 
$
1,786,397

 
$
5,520


$
1,791,917

 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Asset for Swaps
$

 
$
26,856

 
$

 
$
26,856

Liability for Swaps

 
522

 

 
522


22



The fair values of our financial instruments as of December 31, 2017 are presented in the following table:

 
Fair Value Measurements Using
 
 
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
118,804

 
$

 
$

 
$
118,804

Restricted cash

 
11,065

 

 
11,065

Total
$
118,804

 
$
11,065

 
$

 
$
129,869

 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
Contingent consideration
$

 
$

 
$
6,500

 
$
6,500

Total debt

 
1,780,547

 

 
1,780,547

Total
$

 
$
1,780,547

 
$
6,500

 
$
1,787,047

 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Asset for Swaps
$

 
$
11,985

 
$

 
$
11,985


In connection with our 2017 acquisitions, we entered into contingent consideration agreements, which we originally fair valued as $6.2 million using the Monte-Carlo simulation model. See Note 12 - Acquisitions for further discussion. The contingent payments are fair-valued quarterly and changes are recorded within gain/(loss) on investments and other, net in our condensed consolidated statement of operations. For the three and nine months ended September 30, 2018, we increased the fair value of our contingent considerations by $0.1 million and decreased by $1.0 million, respectively, and recorded the respective loss and gain in our condensed consolidated statement of operations.

Note 12 – Acquisitions

In April 2018, we completed the acquisition of a la mode for $120.0 million, exclusive of working capital adjustments. a la mode is a provider of subscription-based software solutions that facilitate the aggregation of data, imagery and photographs in a government-sponsored enterprise compliant format for the completion of U.S. residential appraisals. This acquisition contributes to our continual development and scaling of our end-to-end valuation solutions workflow suite, which includes data and market insights, analytics as well as data-enabled services and platforms. a la mode is included as a component of our UWS reporting segment. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. We have preliminarily recorded contract liabilities of $7.5 million, proprietary technology of $15.8 million with an estimated useful life of 7 years, customer lists of $32.5 million with an estimated average useful life of 13 years, tradenames of $9.0 million with an estimated useful life of 8 years, non-compete agreements of $5.7 million with an estimated useful life of 5 years, and goodwill of $63.6 million, of which $61.4 million is deductible for tax purposes. The business combination did not have a material impact on our condensed consolidated statements of operations.

In February 2018, we completed the acquisition of eTech for cash of approximately £15.0 million, or approximately $21.0 million, exclusive of working capital adjustments. eTech is a leading provider of innovative mobile surveying and workflow management software that enhances productivity and mitigates risk for participants in the U.K. valuation market. This acquisition expands our U.K. presence and strengthens our technology platform offerings. eTech is included as a component of our PIRM reporting segment. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. We have preliminarily recorded a deferred tax liability of $1.6 million, proprietary technology of $7.0 million with an estimated useful life of 5 years, customer lists of $1.7 million with an estimated average useful life of 9 years, and goodwill of $14.1 million. The business combination did not have a material impact on our condensed consolidated statements of operations.

In August 2017, we completed the acquisition of Myriad Development, Inc. ("Myriad") for $22.0 million, exclusive of working capital adjustments, and up to $3.0 million to be paid in cash by 2019, contingent upon the achievement of certain revenue targets in fiscal years 2017 and 2018. We fair valued the contingent payment using the Monte-Carlo simulation model and preliminarily recorded $1.8 million as contingent consideration. The contingent payment is fair valued quarterly, and

23



changes are recorded within gain/(loss) on investments and other, net in the condensed consolidated statement of operations. See Note 11 - Fair Value of Financial Instruments for further discussion. This acquisition builds on our software-as-a-service capabilities by offering a workflow tool used by the insurance industry for policy underwriting. Myriad is included as a component of our PIRM reporting segment. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. We have recorded a deferred tax liability of $3.1 million, customer lists of $1.7 million with an estimated average life of 12 years, tradenames of $1.6 million with an estimated average life of 7 years, proprietary technology of $5.8 million with an estimated useful life of 8 years and goodwill of $17.2 million. The business combination did not have a material impact on our condensed consolidated statements of operations.

In August 2017, we completed the acquisition of Clareity Ventures, Inc. ("Clareity") for $15.0 million, exclusive of working capital adjustments. This acquisition leverages our market leading position in real estate and provides authentication-related services to real estate brokers and agents. Clareity is included as a component of our PIRM reporting segment. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. We have recorded a deferred tax liability of $2.5 million, customer lists of $3.4 million with an estimated average life of 10 years, tradenames of $0.9 million with an estimated average life of 7 years, proprietary technology of $2.0 million with an estimated useful life of 5 years and goodwill of $11.1 million. The business combination did not have a material impact on our condensed consolidated statements of operations.

In June 2017, we acquired a 45.0% interest in Mercury for $70.0 million, which included a call option to purchase the remaining 55.0% interest within the next nine-month period. In August 2017, we purchased the remaining 55.0% ownership of Mercury for an additional $83.0 million, exclusive of working capital adjustments. Mercury is a technology company servicing small and medium-sized mortgage lenders and appraisal management companies to manage their collateral valuation operations. This acquisition 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 recorded a deferred tax liability of $19.8 million, tradenames of $3.6 million with an estimated life of 8 years, customer lists of $41.3 million with an estimated life of 10 years, proprietary technology of $20.1 million with an estimated life of 8 years, and goodwill of $104.8 million. During the nine months ended September 30, 2018, goodwill was reduced by approximately $0.5 million as a result of certain working capital adjustments. This business combination did not have a material impact on our condensed consolidated statements of operations.

We incurred $0.2 million and $0.9 million of acquisition-related costs within selling, general and administrative expenses on our condensed consolidated statements of operations for the three months ended September 30, 2018 and 2017, respectively, and $1.9 million and $1.8 million for the nine months ended September 30, 2018 and 2017, respectively.


24



Note 13 – Segment Information

We have organized into two 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 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 multifamily 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 and insurance & 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 $1.7 million and $1.6 million for the three months ended September 30, 2018 and 2017, respectively, and $4.9 million and $4.6 million for the nine months ended September 30, 2018 and 2017, respectively. The segment also included intercompany expenses of $0.7 million and $1.0 million for the three months ended September 30, 2018 and 2017, respectively, and $2.3 million and $2.5 million for the nine months ended September 30, 2018 and 2017, respectively.

Underwriting & Workflow Solutions. Our UWS segment combines property information, mortgage information and consumer information to provide comprehensive mortgage origination and monitoring solutions, including, underwriting-related solutions and data-enabled valuations and appraisals. We have also developed proprietary technology and software platforms to access, automate or track this information and assist our clients with vetting and onboarding 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. 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 $0.7 million and $1.0 million for the three months ended September 30, 2018 and 2017, respectively, and $2.3 million and $2.5 million for the nine months ended September 30, 2018 and 2017, respectively. The segment also included intercompany expenses of $1.7 million and $1.6 million for the three months ended Se