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CoreLogic (NYSE:CLGX)

Q4 2012 Earnings Call

February 22, 2013 11:00 am ET

Executives

Dan Smith

Anand K. Nallathambi - Chief Executive Officer, President, Director and Member of Acquisition Committee

Frank D. Martell - Chief Financial Officer

Analysts

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Darrin D. Peller - Barclays Capital, Research Division

Kevin D. McVeigh - Macquarie Research

Carter Malloy - Stephens Inc., Research Division

Brett Horn - Morningstar Inc., Research Division

Bethany Caster

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 CoreLogic Incorporated Earnings Conference Call. My name is Chanel, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Dan Smith, Vice President, Investor Relations. Please proceed.

Dan Smith

Thank you and good morning. Welcome to our investor presentation and conference call where we present our financial results for the fourth quarter of 2012. Speaking today will be CoreLogic's President and CEO, Anand Nallathambi and CFO, Frank Martell.

Before we begin, let me make a few important points. First, we have posted our slide presentation, which includes additional details on our financial results on our website. Second, please note that during today's presentation, we may make forward-looking statements within the meaning of the federal securities laws, including statements concerning our expected business and operational plans, performance outlook and acquisition and growth strategies and our expectations regarding industry conditions.

All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings, including the most recent annual report on Form 10-K and subsequently filed 10-Qs. Our forward-looking statements are based on information currently available to us, and we do not intend and undertake no duty to update these statements for any reason.

Additionally, today's presentation contains financial measures that are non-GAAP financial measures. A reconciliation of these non-GAAP measures to their GAAP equivalents is included in the appendix to today's presentation.

Finally, unless specifically identified, comparisons of fourth quarter financial results to prior periods should be understood on a year-over-year basis. That is, in reference to the fourth quarter of 2011.

Thanks, and now let me introduce our President and CEO, Anand Nallathambi.

Anand K. Nallathambi

Thank you, Dan, and good morning, everyone. Welcome to CoreLogic's Fourth Quarter 2012 Earnings Call. I will begin today with an overview of our fourth quarter and full year operating performance. I will then recap our 2013 focus areas and growth opportunities. Frank will then cover our financial results, and we'll end the call with Q&A.

2012 was an exceptional year for CoreLogic, and we finished on a high note in the fourth quarter with record financial results. The fourth quarter marked our sixth consecutive quarter of exceeding market expectations. Over the last 3 months of 2012, we delivered double-digit revenue growth, significantly higher margins and earnings per share and record free cash flow.

Our 3 operating segments outperformed their respective markets and delivered EBITDA growth in the quarter. In addition, we made significant progress on the core elements of our Technology Transformation Initiative and exceeded our Project 30 cost savings target. Fourth quarter revenues were up almost 19%. Revenues in our Mortgage Origination Services and Data and Analytics segments jumped 38% and 12%, respectively; as we gained market share and capitalized on higher demand for our must-have property information, analytics and services. Revenues in our Asset Management and Processing Solutions segment, or AMPS as we now call it, contracted by a relatively modest 2% in the fourth quarter compared with a double-digit decline in overall market volumes.

For the full year, CoreLogic's revenues rose more than 17%, fueled by strong growth in our Mortgage Origination Services segment and Data and Analytics segment. Our Mortgage Origination Services segment benefited from elevated levels of refinancing in 2012. Our scale and strong operational performance also helped us to realize substantial market share gains. These gains were particularly strong in the flood data and tax servicing businesses, where new loan volumes processed grew at approximately 45% and 52%, respectively. This compares with the overall growth of mortgage originations volumes in the 30% range.

We continued to expand our D&A footprint in 2012. We grew data licensing and analytics revenues and rapidly expanded our advisory services business in response to our clients' need to navigate through today's evolving and complex regulatory and compliance environment.

We also grew our geospatial business, which leverages CoreLogic's unique property-related data assets. With the acquisition of CDS Business Mapping in December, CoreLogic is emerging as a leading provider of geospatial data and analytics to the P&C insurance, real estate, telecommunications and energy industries.

The company continued to boost productivity and improve profit margins in the fourth quarter. Progress in this area was evidenced by a 49% year-over-year increase in fourth quarter adjusted EBITDA. Adjusted EBITDA margins were 26%, 530 basis points higher than last year. Adjusted EBITDA for the full year was up 54% and adjusted EBITDA margins expanded 690 basis points from 2011.

As I mentioned on past calls, Project 30 was the single largest driver of CoreLogic's margin expansion in 2012. In addition to exceeding our cost savings target in 2012, Project 30 has also been a catalyst for transforming our technology operations and corporate shared services functions into higher performing contributors to the company's long-term success.

CoreLogic is emerging from 2012 as a significantly more profitable enterprise. Our adjusted EBITDA margins in 2012 demonstrate that the company is on track to reach its target of at least 30% sustained EBITDA margins as we exit 2013. CoreLogic's increased profitability and efficient management of working capital resulted in record free cash flow generation in 2012. For the year, we generated $278 million in free cash flow and reinvested much of those funds in our products and services offerings, lowering debt and returning capital to our shareholders.

With regard to returning capital to our shareholders, in December 2012, our Board of Directors increased our share repurchase authorization to $250 million. This action reflects our view that in addition to reinvesting for profitable growth and operating efficiency, the continued repurchase of CoreLogic shares remains an attractive avenue for rewarding our shareholders. We close on 2012 by almost any measure, it was an exceptional year for CoreLogic. Our relentless pursuit of our business plan objectives has resulted in CoreLogic becoming a more focused and highly integrated business model built around industry-leading data, analytics and service capabilities.

CoreLogic is entering 2013 positioned to capitalize on the opportunities presented by a gradually improving housing market. Our business plan for 2013 builds on our successful 2012 performance. Our 4 major imperatives for 2013 are as follows: First, we will reinvest to grow the D&A segment at double-digit rates. Our goal is to grow this segment to greater than 50% of company total revenues over the next 3 years. We believe that our unique data assets, patent protected analytics and value-added advisory services, along with the progressively improving market drivers will help us achieve this goal. Second, we will leverage the scale and operating efficiencies of our Mortgage Origination Services and AMPS segments to outperform their respective markets. In terms of MOS, we will redouble our focus on automation and service delivery and believe we are positioned to continue to gain market share. With regards to AMPS, our focus will remain squarely on margin expansion. Third, we will drive for operational excellence and cost reduction by completing Project 30 and other productivity initiatives. We will also continue the transformation of our technology infrastructure under the TTI program. Fourth and finally, we will continue to strengthen our financial flexibility. We expect to generate free cash flow of better than 50% of adjusted EBITDA and plan to reinvest that money in product and service development and to return capital to our shareholders by repurchasing common shares.

I would like to close by thanking our clients, employees and shareholders for their continued support. The entire CoreLogic team is excited about the future, and our ability to deliver on our business plans and generate outstanding results for all of our stakeholders in 2013 and beyond.

With that, I'll turn the call over to Frank.

Frank D. Martell

Thank you, Anand, and good morning, everyone. Today I'm going to discuss our fourth quarter and full year 2012 financial results. I will also provide some color around our recently issued 2013 guidance and conclude my prepared remarks with a discussion on some enhancement we have made to our financial reporting. As Anand mentioned, CoreLogic delivered record financial results in 2012 through a laser-like focus on profitable top line growth, margin expansion and free cash flow generation. We are entering 2013 with significant financial flexibility and a business plan that continues to progress an already successful transformation of CoreLogic's underlying financial and business model. From a financial point of view, the main highlights for the fourth quarter were double-digit top line growth, accelerating organic growth in D&A revenues, the scale up of our geospatial business, including the acquisition of CDS, and the successful execution of our cost-reduction programs and the TTI. From my perspective, all of these accomplishments help to position CoreLogic for continued success in 2013.

Fourth quarter revenues were up 18.8% to $410.4 million. MOS revenues jumped 37.6% year-over-year to $176.4 million. This $48.2 million increase was principally attributable to higher refinancing volumes, market share gains and increases in pricing of some units. MOS revenues increased 32% to $635.6 million for the 12 months ended December 31, 2012.

D&A revenues totaled $162.4 million for the fourth quarter, which was a year-on-year increase of 12.3%. Growth in the quarter was driven primarily by a 15% rise in the sale of core property data and analytics, as well as growth in advisory services. Market share gains in the realtor solutions also contributed to our growth during the quarter. D&A revenues increased by 12.4% to $616.1 million for the 12 months ended December 31, 2012. Consistent with fourth quarter trends, sales of core property data and analytic products, as well as growth in advisory services and spatial solutions powered top line upsides.

AMPS generated a total fourth quarter revenue of $77.2 million, a 2% decrease. The decline reflects lower field service revenues, which more than offset gains and loss mitigation in collateral solutions. For the year, AMPS revenues were up 2% to $335.2 million. This compares with a double-digit compression in overall market volumes of delinquent loans and foreclosures starts. During 2012, we continue to shift the revenue mix in AMPS away from lower margin products into areas such as loss mitigation, asset management and valuation.

Total CoreLogic revenues for the 12 months ended December 31, 2012, totaled $1.567 billion. This figure was $229 million or 17% higher than 2011. Operating income totaled $48.1 million for the fourth quarter compared to $15.4 million in the year-ago period. This more than threefold increase was driven primarily by high revenues and cost reductions. Operating margins were 11.7% for the most recent quarter compared to 4.5% for the fourth quarter of 2011. Fourth quarter 2012 operating margin before the impact of the TTI reinvestments was 14.4%. 2012 operating income was up 151% to $222.3 million. Operating margins for the year were 14.1% compared to 6.6% in 2011. 2012 operating margin, exclusive of the impact of TTI cost, aggregated 16.3%. All of CoreLogic's business segments improved operating margins in 2012.

Fourth quarter adjusted EBITDA totaled $106.4 million, up 49.5% from prior year levels. Adjusted EBITDA margins were 25.9%, up from 20.6% in the fourth quarter of 2011. Before TTI investments, adjusted fourth quarter 2012 EBITDA dollars and margins totaled $112.8 million and 27.5%, respectively. For the 12 months ended December 31, 2012, CoreLogic generated $450.5 million of adjusted EBITDA, up 54.5% from 2011. All 3 of our business segments grew adjusted EBITDA dollars and margins in 2012.

MOS margins jumped 10 percentage points to 40.7% in 2012. D&A adjusted EBITDA margins were up 360 basis points to 30.5%, despite reinvestments made during the latter part of the year to ramp up our document solutions group to meet growing client demand for advisory services tied to regulatory matters. AMPS adjusted EBITDA margins were up 190 basis points to 17.9%, reflecting our focus on improving revenue mix and cost efficiencies.

As Anand mentioned, Project 30 was a major driver behind our margin expansion in 2012. This enterprise-wide effort, which commenced in 2011 has reshaped our cost structure and delivered a total of $82 million in cost savings towards our 3-year Project 30 target of $100 million. Our 200 -- our 2013 savings target is $20 million, which is supported by actions embedded in our current business plans.

As many of you know, we launched the Technology Transformation Initiative in mid-2012. The TTI is a natural extension of Project 30, and we expect this multi-year initiative will provide the company with a state-of-the-art technology infrastructure, with new functionality, increased performance and an overall reduction in application management and development cost. The main focus of the TTI over the next 24 months is on consolidating processing platforms and transitioning current legacy data centers to a lower cost cloud-based platform. The transformation of CoreLogic's IT infrastructure is an integral part of our long term strategic technology plan that is expected to significantly lower our cost profile. Importantly, the TTI will also provide a platform that enables and supports future growth.

Fourth quarter net income from continuing operations totaled $16.6 million compared with a loss of $6.3 million in the same prior year period. The increase was attributable primarily to revenue growth and cost productivity, which more than offset TTI-related cost. The fourth quarter of 2011 net loss resulted primarily from onetime restructuring charges.

Diluted EPS from continuing operations totaled $0.17 in Q4 compared with a loss of $0.06 in 2011. Adjusted EPS for the fourth quarter was $0.36, which is $0.21 higher than last year. EPS growth reflects improved financial results and the impact of share repurchases. For all of 2012, adjusted EPS was $1.58, more than double 2011.

Our relentless focus on driving profitable revenue growth and increasing margin in 2012 translated into record levels of free cash flow. Fourth quarter cash flow totaled $82 million. For the 12 months ended December 31, 2012, CoreLogic generated $278.1 million of free cash flow, which was up from $99 million in 2011. Over the course of 2012, we put this money to work through the development of products and service capabilities, reinvestment in our technology infrastructure and cost productivity initiatives, the purchase of 10 million of our common shares, the reduction of debt by $116 million, and most recently, the purchase of CDS.

As of December 31, the company had unrestricted cash of $148.9 million and total debt of $792 million, with approximately $500 million available on our revolving credit facility. As we progress through 2013, CoreLogic will continue to pursue a balanced capital strategy as we did in 2012. Specifically, our priorities for 2013 are: First, to fund disciplined reinvestment in our businesses to support future profitable revenue growth in line with our business plans; and second, to return capital through repurchase of our common shares.

I will wrap up my prepared remarks today with a few comments on our 2013 financial guidance and changes in our financial reporting. We issued the following 2013 financial guidance on January 31: For the full year, we expect to generate revenues of between $1.575 billion and $1.6 billion, adjusted EBITDA of $460 million to $475 million and adjusted EPS of $1.65 to $1.75. These guidance ranges represent solid growth over 2012 actual levels. Our 2013 guidance reflects a $1.45 trillion to $1.55 trillion originations market. This represents a reduction of approximately 20% to 25% from 2012 levels. Based on our internal projections and other publicly available forecast, we expect that the level of refinancing activity will trend down progressively over the course of 2013, partially offset by increases in the level of purchase activity. Our guidance also assumes a 10% reduction in market volumes of delinquent loans and foreclosure starts in 2013. Finally our guidance also factors in our current view of revenue growth prospects in each of our business segments, Project 30 savings of $20 million and the repurchase of 3 million shares. Specifically in terms of the first quarter of 2013, based on current revenue and volume trends within our business, our latest view of Project 30 and TTI costs, as well as seasonality, we believe that adjusted EBITDA and adjusted EPS in the first quarter should be above first quarter 2011 levels.

My final comments relate to financial reporting where we made the following changes: First, the company's geospatial business operations are now reported as part of the D&A segment. The spatial business was initially launched as part of the company's flood operations, and as a result, was previously reported in the MOS segment. The CDS acquisition, along with the growth of our existing geospatial operations, has resulted in CoreLogic entering 2013 as a leading provider of precise, location-based data and analytics. The re-segmentation of spatial solutions reflects the growing size and importance of this data and analytics-focused business unit, and the fact that its subscription-based revenues and market drivers are consistent with those of other units in the D&A segment. Second, we have updated the presentation of our income statement to reflect the segregation of cost of services, as well as SG&A-related expenses. Our previous income statement reflected a legacy format utilized since our spin-off transaction in mid-2010. We believe that this new presentation will facilitate the understanding of our financial drivers and comparability of our results. Finally, we re-branded Default Services to Asset Management and Processing Solutions, or AMPS, to better reflect the business mix in this segment.

In conclusion, CoreLogic outperformed its business plan and delivered record financial results in 2012. All of the company's business segments grew revenues and margins. We are entering 2013 with substantial financial flexibility and a multi-year plan that should drive significant shareholder value.

Thanks for your time today. I'll now turn the call back over to the operator to kickoff the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Brandon Dobell, William Blair.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

A couple of quick ones here. Maybe your updated thoughts on the pacing of the TTI, kind of puts and takes on the income statement as you work through the expenses near-term and then how those should flow into savings a little bit later, and maybe perhaps the same thing relative to Project 30, how should we expect the pacing of the cost savings to feel in 2013?

Frank D. Martell

Brandon, this is Frank. So the cost expense profile was pretty level-loaded over the second half of 2012. We would expect there to be a similar quantum of total expenses in 2013, with a tailing down in 2014. In line, it's essentially in line with what we had said previously. And then the savings numbers will kick in 2015, and they're similar to the numbers that we have previously published, which was about $35 million to $40 million per year.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. As we think about moving the geospatial business from the MOS segment to D&A, a couple of things there. First, how should we think about the impact to margins this year, EBITDA margins within D&A from CDS now being in there, or I guess geospatial now being in there? And then within MOS now that, that business is out, does your kind of structure around what happens to the EBITDA number give or take $100 billion in origination volumes, how do we think about, I guess, how sensitive that segment now looks relative to mortgage numbers?

Frank D. Martell

Sure. So there won't be a meaningful change in the D&A margins from the re-segmentation of sub spatial. And in terms of the origination volumes, I think it's very similar to what we talked about, I would say broadly speaking, the company from a profitability perspective is more insulated from movements because of the efficiency that we're driving through the company. But having said that, I think the rule of thumb that we provided, for every $100 billion, the $20 million or so of revenue and the $12 million or so of EBITDA still holds as a rule of thumb.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. One final one, as we think about all the CFPB and QM and QRM regulations that kind of have been put out there and will be going into place, how much does that impact the timing around some of your revenue streams within the business. Are people front running and doing a lot of business to understand things and so we should see a downtick in revenue growth from those kinds of clients or opportunities or do you think you've got a good string here in '13, where the complexity of those rules keeps some of the advisory and some of the data requirements high for your customers?

Frank D. Martell

Yes, let me -- so as you will have noticed, the margins were slightly -- the incremental margins in D&A were slightly down in the fourth quarter. And that reflects a ramp-up -- we stood up an entirely new facility, which is a function of how strong the demand that we're seeing for this type of advisory services around compliance. We expect that level of demand to probably increase in the medium-term through '13, and so it was important to invest behind that. We think we're a leader in the area, particularly around stuff like document solutions, where we're doing things like loan file protection, and so that's an important business for our clients, and one that we add a lot of value because we can mine our database to help them. So it's a terrific business for us, and so we invested aggressively behind that to drive capacity and be ready for '13.

Operator

Our next question comes from the line of Darrin Peller, Barclays.

Darrin D. Peller - Barclays Capital, Research Division

Let me just ask the first question on capital allocation. When I see in the guidance 3 million shares included in terms of buybacks, and we compare that to your authorization that you recently announced of $250 million, and then we obviously compare that to your very strong free cash generation, which looks like it was around -- well over the 55% conversion from EBITDA, well over $250 million also. And then also add to that, your guidance of EBITDA going up next year, meaning, it should have a pretty good impact on free cash. Can you just help us understand what your thought processes is around 3 million shares? I mean, is that just the starting point in terms of guidance and a conservative data point or is that what you actually expect to do this year? I mean, that's obviously only about, I think, $80 million.

Frank D. Martell

Yes, I think, Darrin, what we've told everybody is that -- pretty consistently is that, we will do at least what's required to absorb any dilution from equity programs. So that's where the 3 million shares comes in. That's probably a little heavy impact from that perspective, and I think we've said that we will do at least that amount, if not more. So I'd say yes, it's a conservative number that we've pegged out there, and we've put in the guidance just to give everybody a floor.

Darrin D. Peller - Barclays Capital, Research Division

Okay. I mean, I guess, Frank, what I'm trying to get at -- I appreciate that, I mean, I kind of figured it was really just to offset dilution, but when you think about the strategy, I mean, last year you obviously had a very well-telegraphed and stated and executed strategy of buying back 10 million shares. The stock price is a different level now than it was then, we understand that. But again, I mean, you're generating enough capital, enough cash, you have enough cash on the balance sheet, I mean, you're in a pretty good position just for us to understand at least strategically, can you at least maybe just run through it again? I know you want to reinvest in data analytics, but how high on the ranking order is buybacks? Is dividends still in the potential down the road? I know it wasn't near-term thought process last time we spoke, but can you give us a sense of the pecking order?

Frank D. Martell

Yes, I think, Darrin, just dialing it back to last year. We announced that we went in there with no share buybacks and announced 5 million and upped it to 10 million in the middle of the year as we saw the market going on. So I think as we go into this year, we're going to aggressively return capital to the shareholders like we did in 2012, and so we feel pretty good about what we did on the cash flow side, as Anand mentioned, a lot of that was driven by the cost activities. We're still reinvesting a lot in the business, and so having said that, to your point, we have the flexibility to be aggressive on capital return. In terms of a dividend, I think we have looked at that from time to time and we'll continue to look at that. So that's not off the table, but I think in terms of 2013, we believe from an out-of-the-chute perspective, the share buybacks makes a lot of sense for CoreLogic and is an efficient way to return capital to shareholders.

Darrin D. Peller - Barclays Capital, Research Division

All right, that's helpful. Just one follow-up to a question that was asked earlier on the data analytics growth rate. The consulting side obviously was a mix driver for the margin. I understand it was a little lower due to the mix and also from last year's events. First of all, just to be clear, I mean, the EBITDA growth rate of data analytics should be going forward more or less closer -- more closely aligned to revenue growth, Frank, is that fair?

Frank D. Martell

Yes.

Darrin D. Peller - Barclays Capital, Research Division

Okay. And then when would you -- I mean, I guess, secondly, when you talk about reinvesting in the business in order to ensure double-digit growth, maybe just more specific examples, where is the biggest 2 or 3 levels of reinvestment you expect to be the main drivers to enable you to show data analytics to grow sustainably for many years in the double-digit range, so that you can get to 50%. I mean, I'm assuming there are some tuck-in deals, but can you give us some other examples?

Frank D. Martell

Yes, obviously, on the technology side, one of the big thrusts of the Technology Transformation Initiative is around delivery of data and analytics. So that's -- a big component of that is data warehouse and aggregation engine, a portal-type of a system to deliver analytics and that will open up things like the mid-market in a bigger way for us. So that's a tremendous growth driver, one that is a high-impact, high-ROI investment, and so we need to make the investments. And obviously, technology and the evolution of technology is a fluid situation. So we know what we know today, we think we have a great plan, but want to make sure we're investing behind technology. That's a key enabler. We have put a lot of money behind our go-to-market strategy, where we're beefing up our sales and marketing teams. So that's another investment. I think that will help us and then of course product and service development and broadening -- investment behind broadening our data sets is a focus because, of course, content is king, and we believe we have a clear lead or the gold standard in data and want to build that -- build that leadership position and not sit on it.

Darrin D. Peller - Barclays Capital, Research Division

All right, that's helpful. So is this segment -- last question, is this segment something we should expect to see double digits now going forward or is this near-term, this quarter or next quarter just basically back to double digits for the time being given where your comps combined with the consulting services, given regulatory work that may get that back down again to the single digits before getting back? Do you see what I'm trying to ask? I mean, do we need to wait for some time for more investments to kick in?

Frank D. Martell

So we should see a strong upper single-digit organic growth rate in the near term, and I think that may from quarter-to-quarter be double-digit, but I think in the main, a strong upper single-digit growth rate organically and then obviously with the addition of things like CDS Mapping and some of the advisory services wins that we may get that are in the pipeline, you could see that tick up as well into the mid-double digits.

Operator

Our next question comes from the line of Kevin McVeigh, Macquarie.

Kevin D. McVeigh - Macquarie Research

Frank, if you said this, I apologize, but in terms of the delta for 2013, how much is TTI going to impact the adjusted EBITDA in terms of the investment in TTI in 2013? I know we have about $20 million of projected cost savings from Project 30, but how much is the TTI going to weigh on EBITDA in 2013?

Frank D. Martell

Yes, so Kevin, as you know, we have both cash and noncash charges. We include the cash charges in EBITDA. This year we had about a $13 million to $15 million -- or last year, I'm sorry, 2012, about $13 million to $14 million of charges. I would expect that, that level will be similar based on the current plan.

Kevin D. McVeigh - Macquarie Research

As then just, as we think about kind of the origination in the range of $1.45 trillion to $1.55 trillion, can you help us understand just round numbers, what should be refinance versus purchase? And your business specifically, how much was purchase versus refinance in 2012? And what can we expect for '13, if you have that level of detail?

Anand K. Nallathambi

Kevin, this is Anand. We are more of a transaction service provider, so we're agnostic towards the refi versus purchase. In general, I think for the industry, it was in the 70-plus percent range in 2012, and I think it would come down a little bit to -- maybe in the 65-plus percent range this year and then moving on for next year. But for us, it's no difference between refi and purchase.

Operator

Our next question comes from Carter Malloy, Stephens.

Carter Malloy - Stephens Inc., Research Division

So first on the default or AMPS business going forward. Can you help us understand your outlook for this year given the 10% market pressure? And in particular, this quarter as well, why the valuation and field services business was down given BPO and the inspection stuff looked actually pretty good in terms of volumes?

Frank D. Martell

Yes, so I think first of all, in AMPS, as we mentioned, we've been working hard obviously on automation, but the other thing is shifting the business mix, Carter. So we've been actually exiting a number of unprofitable contracts and also small business lines, which are not material enough to talk about in the grand scheme of things, but they do -- we have been having some cost to exit some of those smaller units and product lines. So if you see some of the reduction in some of the operating income and margin levels in that segment in the fourth quarter, those we expect to be temporary related charges to do that and set us up for a good '13. We expect that mix to continue to shift towards higher profit margin activities, the loss mitigation, valuation is a big focus for us going into '13. So we think that the margin will continue to improve in that segment. I think one of the things that you talked about is the growth versus -- clearly, we've outperformed. If you look at the macro level drivers in the market, year-over-year, we've clearly outperformed that. That to me is more of a function of the fact that our service is really a bespoke service for 10 key clients, where we are doing higher value-added work for them versus trying to be a mass-market offering in the default space.

Carter Malloy - Stephens Inc., Research Division

Okay, and so how should we think about your outlook for overall top line growth in that business now given all of those dynamics?

Frank D. Martell

I think, I would expect to see 2013 look a lot like 2012, a flat to modest growth rate with improved margins.

Operator

Our next question comes from Brett Horn - Morningstar.

Brett Horn - Morningstar Inc., Research Division

Just one quick one, on the geospatial business. I was just curious if you had seen any discernible impact from Hurricane Sandy? And maybe just more generally, if you see catastrophes having any impact on that business or is it just a matter of steadily increasing market penetration?

Anand K. Nallathambi

The impact from the geospatial side, yes, on the storm surge model, it was a very positive impact from us in the flood business, and we expect that to continue with the acquisition of CDS Business Mapping.

Operator

Our next question comes from Bill Warmington - Raymond James.

Bethany Caster

This is Bethany Caster in for Bill Warmington. To jump into the question, in your guidance, how much EBITDA contribution are you assuming from the recent CDS acquisition?

Frank D. Martell

Bethany, it's Frank. We don't disclose that level, but it's not a material amount if you look at it quarter-to-quarter. It's -- from a revenue perspective, it's a $20 million business, but the margins are really in line with our MOS business.

Bethany Caster

Okay. You've touched on this earlier, but can you talk about the quarterly revenue pattern we should -- and I know your guidance is annual, but can you talk about the quarterly pattern we should expect for MOS revenue. It sounds like it should be a gradual ramp down over the course of the year, but I'm curious to hear any thoughts.

Frank D. Martell

Yes, I think that it's probably similar to what you're seeing in some of the market publications. I think we believe the same thing, that you'll see a progressive decline in refi activity over the course of this year and into next year. Some people are relatively more positive than others. We pegged our guidance, we believe, to as conservative a forecast as reasonably possible. So that's why we're at the $1.450 trillion, $1.550 trillion level. And we expect purchase activity will pick up, but certainly not anywhere near the level to overcome the refi. But we expect it to be progressive versus any sudden shock.

Bethany Caster

And a couple more. You mentioned outperforming the underlying market in AMPS. What are you using as a market number for your fourth quarter? Basically, what was your assumption for the market level of decline in foreclosures and related activity?

Frank D. Martell

Yes, depends on what metric you're using, but it's generally between 7% and 10%.

Bethany Caster

Okay. And last one from me, within Data and Analytics, you had a few onetime expenses that skewed your fourth quarter margins. Can you talk about what kind of margin and product mix you're targeting for the next year?

Frank D. Martell

I think we've talked about, for D&A, the margin should be in the 30% to 35% as we go out in the next year -- in a couple of years. So we're at 30.5% for 2012. We expect that, with continued efficiency drive, that should continue to move north of that level over time, but we expect that margin will be in the 30% to 35% in the medium term.

Bethany Caster

Okay. And give us a sense of the product mix that would drive that?

Frank D. Martell

So we're seeing a lot of this, as we talked, the great news is as the housing market starts to pick up, we are the beneficiary of that across the data, the data side, the analytics side, a lot more things like automated valuation model, which we're a market leader in; data licensing, which we're a clear market leader in. So we have -- those type of activities. We're taking share, we believe, in our realtor workflow solutions business. We have double-digit growth in our Australian RP Data business. So those are some of the key drivers. And I think more broadly speaking, I think somebody alluded to it earlier, is the compliance area. Advisory services, it's a great place for CoreLogic to be right now because clearly our clients need help to navigate through the regulatory environment, and we're there to help them. And the great news is, we can leverage our data assets in some of these business lines to do that efficiently and at solid margins. So that's one of the reasons why we did invest pretty aggressively in the second half of '12 to expand capacity in that area.

Operator

Ladies and gentlemen, that concludes the Q&A session. And I would now like to turn the call back over to management for closing remarks.

Anand K. Nallathambi

Well, 2012 has been a great year, and we have done a lot of investment into the business to position ourselves better for the future. There has been a lot of talk about what this year is going to be, especially with refis waning down. Those kinds of things. If we have to look at our business, we haven't seen any slowdown yet, and the pipeline is strong with a lot of opportunities. It's a reflection of flight back to quality, and that helps our front-end high operating leverage businesses. So we're very positive at this point towards our outlook towards 2013.

So that will be our closing comments. Thank you very much.

Operator

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.

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