Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

CoreLogic Inc. (NYSE:CLGX)

Q4 2013 Earnings Call

February 26, 2014 11:00 AM ET

Executives

Dan Smith – SVP, IR

Anand Nallathambi – President and CEO

Frank Martell – CFO

Analysts

Darrin Peller – Barclays Capital, Research Division

Kevin McVeigh – Macquarie Research

Bose George – KBW

Glenn Greene – Oppenheimer & Co

Bill Warmington – Wells Fargo

Brett Horn – Morningstar Inc., Research Division

James Rutherford – Stephens Inc., Research Division

Brandon Dobell – William Blair & Company

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2013 CoreLogic Inc. Earnings Conference Call. My name is Chris, and I'll be your operator for today. At this time, all participants are in listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Dan Smith, Senior Vice President of 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 and full year 2013. 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 of 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 subsequent 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 counterparts is included in the appendix to today's presentation. Finally, unless specifically identified, comparisons of third quarter financial results to prior periods should be understood on a year-over-year basis, that is in reference to the fourth quarter of 2012.

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

Anand Nallathambi

Thanks, Dan, and good morning, everyone. Welcome to CoreLogic's fourth quarter earnings call. Today, I'm going to recap our 2013 operating results and provide updates on our strategic transformation plan and 2014 business priorities. Frank will then cover our 2013 financial results and 2014 financial guidance and we will end the call with Q&A.

I'll start my prepared remarks today with a brief discussion of our recently announced reorganization, which is an important milestone in our ongoing transformation program. In line with the Company's long-term strategic plan. We have established two core operating segments Data and Analytics, D&A and Technology and Processing Solutions, TPS.

Our D&A segment is a global leader in single and multifamily property data. Analytics and related workflow services. Our TPS segment formerly Mortgage Origination Services is the gold-standard in data-enabled services focused on loan origination, property tax payment processing and technology and outsourcing solutions.

We also announced, we are pursuing a divestiture of our asset management and processing solutions segment. We have taken the decision to divest AMPS after significant study and strategic review. We believe the business units that make up AMPS well not long-term strategic fits for CoreLogic are leaders in their respective fields and we look forward to their continued growth under new ownership.

The sale process is ongoing and we expect to complete the divestiture during 2014. The underlying purpose of the reorganization is to intensify our energy focus and investment accelerate CoreLogic's growth around a set of core businesses, which are uniquely position to capitalize on a competitive strength in data and analytics, payment processing and data-enabled services.

The next few years, will be ones to challenge and opportunity for the housing and mortgage markets. Overall mortgage origination volumes decline from approximately $2.1 trillion in 2012 to $1.8 trillion in 2013.

Over the second half of 2013, the industry experienced the beginning of a fundamental reset in the housing market. Away from refinancing dominated volumes, to a more traditional purchase driven market.

We expect volumes to decline further to $1.1 trillion in 2014 as mortgage originations trough and we begin to see long-term growth drivers such as household formation and increased employment drives sustainable new purchase demand. For the past three years, we have been preparing for this inevitable market shift by reshaping our revenue mix and leveraging our data assets, driving efficiency and operational excellence and building out our financial flexibility.

CoreLogic has boosted D&A revenues through almost 45% of total and significantly expanded our insurance, geospatial and international footprint. Our TPS businesses are taking share and are now number one or two in their respective markets. We also completed the Project 30 ahead of target another milestone in our conformational journey.

Project 30 has reshaped our cost structure and saved $104 million over the life of the program. Finally, we repurchased almost $28 million of our outstanding shares since 2011. The continued repurchased of significant numbers of our common shares, just like our confidence in long-term value creation opportunities presented by our strategic division for CoreLogic.

The benefit of these actions can be seen in our financial performance in 2013. Revenues grew almost 8% despite an estimated 20% pullback in origination volumes. Both D&A and TPS delivered top line growth as we continue to build out and scale our core data and analytics offerings, payment processing and data-enabled services.

Full year operating and net income from continuing operations were up 2% and 43% respectively. Adjusted EBITDA and EPS were also up year-over-year. As we head in to 2014, we will continue to drive toward our strategic business plan, which is been our roadmap over the past 2.5 years. As you know from past calls, our plan has four elements.

First; grow the D&A segment to over 50% of total revenues. Second; drive operating leverage and scale in TPS. Third; deliver operational and technology excellence and fourth; generate free cash flow at targeted levels and build the financial flexibility.

In terms of growing D&A and scaling TPS. We continue to focus on data monetization, product and service innovation and market share gains in our high operating leverage businesses. Our acquisitions of MSB, DataQuick, EQECAT and BoA's flood and tax operations, our catalysts to help us accelerate progress against each of our strategic growth goals.

MSB, DataQuick and EQECAT meaningfully expand our D&A segment. These firms benefit from data driven subscription based model and add unique and complementary data sets with analytical capabilities that will help us to create and market-leading insurance solutions group.

Growing CoreLogic's insurance and spatial related revenues should reduce our sensitivity to mortgage volume trends overtime. Following the completion of MSB acquisition, which we expect to close at the end of March. We estimate that roughly 10% of CoreLogic's total revenues will come from geospatial and insurance related businesses.

In terms of driving scale in TPS, the integration of BoA's flood and tax operations further augment the impact of other market share gains over the past year. We also believe, that industry trends such as MSR sales and the flight to high quality suppliers with robust compliance infrastructure provide a catalysts for continued growth in tax servicing and other work flow solution areas.

With regard to achieving operational and technology excellence. We continue to progress the TTI. We have more to do, but I'm pleased with our efforts today. As recently announced, we also launched the program to raise productivity and reduce cost by $25 million in 2014.

Lastly with regard to building financial flexibility, we are continuing to work hard to generate free cash flow at targeted levels. Most of our cash flow generation has been returned to our shareholders in the form of share repurchases over the past several years.

In closing, CoreLogic has continued to deliver top and bottom line growth and consistent shareholder returns over the past several years. Our progress has been driven by a focused strategy that leverage us the Company's unique data assets and the market leading position and scale of our analytics and servicing businesses.

I'd like to thank our clients, employees and shareholders for their continued support. The entire CoreLogic team is excited by the opportunities presented by our ongoing business transformation and by the prospect of delivering outstanding results in 2014 and beyond. With that, I'll turn the call over to Frank.

Frank Martell

Thanks Anand and good morning, everyone. Today I'm going to discuss our fourth quarter financial results. I will also provide some color around our enhanced financial reporting, capital allocation priorities in our 2014 guidance. As Anand just mentioned CoreLogic delivered strong financial results from the fourth quarter and for the 12 months ended December 31, 2013.

Our success is the result of a singular focus on executing a business plan, centered around profitable growth, margin expansion and free cash flow generation. For the sake of clarity, the exception of certain stranded overhead cost. The financial result, I will discuss today exclude AMPS.

As a result of their planned divestiture. The business is comprising the AMPS segment are reported as discontinued operations held for sale as of December 31, 2013. Now specifically in terms of fourth quarter results, the major highlights were one; our business reorganization and planned AMPS to divestiture. Two; D&A growth and TPS revenue outperformance in the face of 50% drop in mortgage volumes, three; the completion of Project 30 and launch of our 2014 cost reduction program, four; continued progress on the role of TTI, five; the ongoing print integration of BoA tax and flood operations and sixth; the repurchase of $3.1 million of our common shares.

Fourth quarter revenues totaled $311.9 million, a 6.6% decline from prior year levels as market share gains organic growth and acquisition related revenues partially offset the impact of low origination volumes.

D&A revenues growth just over 4% driven principally by growth in spatial solutions, property information revenues in Australia, New Zealand as well as tenant screening and realtor workflow solutions which more than offset the impact of lower origination volumes and FX translations.

TPS revenues decreased 15.7% as the benefit of market share gains including the BoA acquisition were more than offset by sharply lower mortgage volumes and elevated levels of one-time project-related document processing revenues in the fourth quarter of 2012.

Operating income from continuing operations totaled $21.6 million for the fourth quarter compared with $46.1 million, fourth quarter of 2012. This 53% decrease in operating income was principally the result of lower mortgage origination volumes, integration costs of $6.7 million attributable to the BoA acquisition and severance and facilities related charges of $8.3 million related to the Company’s 2014 cost reduction program.

D&A revenue growth, lower spending for our Technology Transformation Initiative spending and the benefits of Project 30 positively impacted operating income in the fourth quarter.

Net income from continuing operations totaled $26.2 million, up 72.5% year-on-year. The increase was driven by lower provisions for income taxes which more than offset the impact of lower operating income in the one-time cost, I discussed earlier.

Diluted EPS from continuing operations totaled $0.28 for the fourth quarter up 86.7% from 2012. Adjusted diluted EPS totaled $0.23, which represented a 39.5% decrease over the same 2012 period reflecting the impact of lower mortgage volumes, integration costs related to the BoA integration cost as well as severance and facilities charges which more than offset the benefits of higher D&A revenues, lower TTI spending as well as share repurchases.

Adjusted EBITDA totaled $70.5 million in the fourth quarter, 26% below prior-year levels. D&A adjusted EBITDA totaled $42.9 million, a 6.4% increase from the fourth quarter 2012 as growth in the international and spatial more than offset the impact of lower mortgage volumes, declines in specialty credit and unfavorable FX translation.

TPS adjusted EBITDA decreased 49.3% to $36.2 million compared with prior-year levels driven primarily by lower market volumes and BoA integration costs. Fourth quarter adjusted EBITDA was also impacted by severance charges incurred in all segments and stranded AMPS costs held at the corporate segment.

For the full year revenues were up 7.7% to $1.331 million. TPS revenues grew 10.3% to $750 million fueled largely by share gains in payment processing. D&A revenues were up 4% to $591 million principally as result of gains in insurance, spatial solutions and international.

We delivered higher revenues in 2013, despite an estimated 20% decline in mortgage volumes which impacted TPS and to a lesser degree D&A. in 2013, we also grew operating and net income and EPS from continuing operations as well as adjusted EBITDA and EPS despite, the lower market volumes through a combination of revenue growth and Project 30 related cost reductions.

Full year adjusted EBITDA totaled $390 million up from $386 million in 2012. As a reminder, full year 2013 operating and net income and EPS from continuing operations as well as adjusted EBITDA and EPS were reduced by one-time items associated with the integration of BoA's tax and flood operations and charges attributable to our 2014 cost reduction plan, which collective totaled $22 million.

Stranded AMPS overhead cost were $8.9 million in 2013. Project 30 produced $22 million in cost saving in 2013. We also generated $196 million in free cash flow which equated to just over 50% of 2013 adjusted EBITDA. We spent a majority of that cash flow repurchasing $8.1 million of our common shares.

As Anand mentioned, one of our strategic pillars is moving the company towards best-in-class operational and technological excellence. Project 30 is been a great start in this journey. As we move forward, we will continue to become more efficient through our recently announced 2014 cost reduction program and in the medium-to-longer term by implementing the TTI.

Our 2014 cost reduction program is centered in a workforce reductions in operations and corporate shared services, extreme lining certain IT and business processes and lower spending our real estate and outside services.

The majority of the actions required to secured these savings have been initiated. In terms of the TTI, the main focus in 2014 as it was in 2013 is on consolidating profiting platforms and transitioning current legacy data centers and applications to a private cloud based environment.

We expect this work to continue for the next 12 months to 15 months. The transformation of CoreLogic's IT infrastructure is integral part of our long-term strategic technology plan and is expected substantially lower cost profile beginning in mid-2015.

Importantly the TTI will also provide a platform that enables future growth. With regard to financial presentation, in order to align with the reorganization we announced last week D&A and TPS have been incorporated into our financial reporting as follows; the operations comprising the property information Analytics, Insurance and Spatial Solutions and Multifamily and Specialty Services businesses continue to be reported within the D&A segment.

EQECAT will be reported within the Insurance and Spatial Solutions group. Following expected regulatory approval in closing. MSB will be integrated into Insurance and Spatial Solutions and DataQuick will be integrated into property information and analytics.

CoreLogic’s Residential and Commercial Property Tax Processing, Underwriting and Originations Services, and Technology and Outsourcing Solutions businesses will continue to be reported within the TPS segment. TPS will also include the Company's document processing, retrieval and loan file review operations which were previously reported as part of the D&A segment.

As mentioned previously, the businesses comprising the AMPS segment classified as held for sale as of December 31, 2013. We have retrospectively reclassified the financial statement balances for the AMPS segment to discontinued operations in our consolidated financial statements.

As a frame of reference, full-year 2013 AMPS revenues and operating income aggregated $266.9 million and $2.2 million, respectively. Fourth quarter, AMPS revenues and operating loss were $55.9 million and $42.2 million, respectively including, a non-cash impairment charge of $51.8 million.

In addition to the changes I just mentioned, the Company has updated its adjusted EPS metric to exclude non-cash expenses associated with the amortization of acquisition-related intangible assets. We believe this non-GAAP metric facilitates greater comparability with our peers.

A reconciliation of current and prior financial results including adjusted EPS are detailed in our financial supplement distributed for today's call and on our website. The final topics I will cover today are our 2014 capital allocation priorities and financial guidance.

We expect to continue to apply a balance capital allocation strategy during 2014. Our priorities remained to fund discipline reinvestment in the business to support future growth and operational efficiencies and to return significant capital for the purchase of our shares.

We also expect to maintain prudent debt to adjusted EBITDA leverage ratios. Regarding 2014 guidance, we expect to generate full year revenues between $1.35 billion and $1.4 billion adjusted EBITDA of $360 million to $390 million and adjusted EPS to $1.40 to $1.55.

This guidance based on the following estimates and assumptions; Projected mortgage origination volumes of $1.0 trillion to $1.1 trillion in 2014 versus 2013 estimate of $1.8 trillion. Consolidation of MSB and DataQuick results as of April 2014. 2014 adjusted EBITDA and adjusted EPS reflect the impact of $25 million and cost associated with integrated acquisitions, stranded AMPS, overhead allocations and charges associated with our cost reduction program.

Excluding these items, 2014 adjusted EBITDA and adjusted EPS ranges would be $385 million to $415 million and $1.55 to $1.70 respectively. We are also assuming $25 million in cost savings for our recently announced program and the repurchase of $3 million common shares. Finally, AMPS operating results are excluded from our 2014 guidance.

Based on our internal and publicly available forecast, we expect the first half of 2014 origination volume to be at much 50% to 60% lower in the first half of 2013. Specifically in terms of the first quarter of 2014, based on seasonality ongoing severe weather conditions across much of the country and a projected 50%, 60% decline origination volumes compared to 2013.

We believe that adjusted EBITDA in the first quarter should range from 50% to 60% in the first quarter 2013 levels. This estimate includes the impact of cost related integrating acquisitions. The company's cost reduction program and stranded AMPS overhead.

To sum it up, 2013 was another strong year for CoreLogic from both our strategic and the financial perspective. We continue to transform the business into a more data driven, subscription based model with unique property data and analytics capability and data-enabled services.

We reported revenue growth in our core business line, increased profits despite the significant challenges in the housing market. We have a solid plan to tackle a very challenging year in 2014. It positions us to capitalize on the historic resettling the housing market that is presently underway and in the medium to longer term deliver consistent and durable growth in revenues and profits in line with our successful execution of our strategic business plan.

Thank you for your time today. I'll now turn the call over to the operator to kick-off the Q&A session.

Question-and-Answer Session

(Operator Instructions)

Operator

Your first question comes from the line of Darrin Peller with Barclays. Please proceed.

Darrin Peller – Barclays Capital, Research Division

All right, thanks. Just want to start off with the sale of the AMPS business. Well, it definitely makes sense strategically. Can you just give us a sense into whether there is an active interest in the assets and also what you plan to do with the proceed a little more color on that will be helpful?

And then lastly, in stranded cost if you think about $8.9 million are they going to be ongoing or should that come down during 2014?

Anand Nallathambi

Darrin, this is Anand from an interest level on the AMPS business. There is a lot of interest level. We are trying to be sensitive to the customer relationships and to the businesses and we are going to take our time to make sure that the transition happens smoothly and we find the right home for these businesses.

If we think, it will take some time probably at best let's say second half of the year and top of close, and I'll let Frank talk to the number side.

Frank Martell

Sure. I think from my perspective this divestiture AMPS is really in line with the strategic plan to focus the company on data driven in analytical businesses from the AMPS [ph]. We have an ongoing process, there is a lot of interest in all of the assets in that segment.

In terms of proceeds we will see but we will apply them to all of the capital allocation priorities to repurchase of shares as well as reinvest in the business as events unfold.

Darrin Peller – Barclays Capital, Research Division

Okay, all right. Let me just shift gears to the actual business growing in terms of the performance. We saw some pretty good market share gains in the third quarter. Fourth quarter we didn't quite see as much at least on the TPS of the share gain event. I'm just wondering, if we should expect to see more in 2014.

Well on the topic of 2014, just D&A growth profile, organically it ended off being roughly flat when you back out the deal in constant currency. I think, it was about 6% if you exclude the origination sensitive business. So 2014 hopefully should be year, where we actually trough had an origination.

I mean, should we be thinking of that 6% range or better or can you give us a sense of what the growth were possibly?

Frank Martell

Obviously, the share gains I think were significant and we continue board the that was one, so you will see the share gains leading into and you'll see in the supplement the growth and build-out loan will continue. So there is a progression there, so I think that's one thing to consider.

Obviously, with the 50% decline in volumes the weather, there's a few factors there in terms of weather etc. that came into place. It was a pretty slow fourth quarter from a volume perspective. So I think our growth rate held up pretty well.

We're really pleased about growing 10% in TPS despite the 20% drop in the overall market. I think, the growth rates in D&A obviously dropped off toward the back off the year. Again reflecting really the volumes in terms of fraud analytics and ABMs.

As the market stabilizes, come out in the second half of the year. We will see that, growth rates tick up again that's pretty consistent well we've been telling people some period of time.

Darrin Peller – Barclays Capital, Research Division

But is that, rate. I mean we saw a 6% organic rate. I guess again if you back out the impact from origination in the past quarter. Is that a good starting point, where we should think about, as the growth profile of this business?

Frank Martell

Yes, I think certainly as we get out in the second half 2014, yes. I think as we said, we still believe the medium-to-long term growth profile from an organic perspective for D&A still in the upper single-digit.

Darrin Peller – Barclays Capital, Research Division

Got it. To last question, I'll turn it back to the queue. I mean, if we even think about looking forward to this, profile for this company entered at, into 2015 and beyond. We obviously starting off with the year in 2014, it doesn't look like it could be a trough or more mortgage origination and you combine that with having 2015 and with a year without all these one-time cost, potentially also having a full-year of MSB and DataQuick.

It seems like a pretty good set up in that regard. Can you help us understand exactly, when we already get in the sense of modeling in the top line. How much fixed cost, how much operating leverage is in this model, so we can get a better sense of we should think about the growth of EBITDA could be on a more normalized interest?

Frank Martell

Yes, well first of all. If you go back we feel great about where we are. I know there was a lot of movement in the structure as it relates to [indiscernible]. But we are so much better in the terms of the content of the company and the data intensity [ph] of the company and I think that makes a competitive advantages and to the other advantages that we have in terms of current composition of the company going forward.

We talked about planning and Anand talked about it for some period of time for the last couple of years about preparing for a $1 trillion market and tried to hold the margin that around 25% and if you look at the guidance in 2014 in the $1 trillion market, we are in the 26%, 27% range.

So we are ahead of the game there, so we feel really good about that. We think the long-term margin profile of the company is North [ph] of 30 and we expect to move up in that direction in 15 as the market returns.

I think in terms of incremental, profit margins. I think you will see they vary obviously dramatically by business but I think in the broad you're seeing a 40%, 50% in D&A and higher as you go volume up in volumes higher than that in the TPS segment again depending on what business unit you're in, but for blended.

And by the way sorry, I missed your other – addressing other point. In terms of AMPS, the stranded cost really relate to overhead allocations that can't be assigned to that transaction. Those will be worked down overtime, so we expect to not eliminate 100%, eliminate a substantial portion over the next one year or two years.

Darrin Peller – Barclays Capital, Research Division

Okay. Thanks guys.

Operator

All right. So it looks like your next questions comes from the line of Kevin McVeigh with Macquarie.

Kevin McVeigh – Macquarie Research

Great, thanks. You certainly outlook, nice execution in that. As you think about $1 trillion to $1.1 trillion. How were you thinking about that split between refinance and ultimately purchase and is it business sized to kind of that level of run rate into 2015 as well and anything above that is incremental?

Frank Martell

Yes, I would say that it's obviously not surely incremental Kevin but I think we are becoming more efficient the 2014 program, a lot of efficiency around the tax area which we still have a significant number of people. So I think as we go into 2015, you will see the margin accretion tick in, we feel pretty good about that.

In terms of the mix of the market, as Anand said it's going to shift back to more of a traditional mostly projections out there and kind of 35% to 40% refi, 60% purchase and that's similar to what our internal projection say.

As you know, we are really agnostic in terms of our revenue streams, refi or purchase. We feel actually in many respects, the trough year in 2014 sets the market up fundamentally the housing market anyway and the mortgage market for a more sustainable growth pattern going forward, which I think makes everybody lives a lot easier in terms of predictability and stability.

Kevin McVeigh – Macquarie Research

Understood and then just with LPS being folded in FNF, does that create some incremental opportunities integration occurs were you able to pick up some incremental market share or how you're thinking about that from a competitive perspective.

Anand Nallathambi

Given that we are, move the AMPS [ph] below the line and looking forward to divestiture there. I don't think there is any direct comparables there, but they have a very small technology in data and analytics piece. We are focused on growing the business and our focus now is an integrating behalf, we have position on the insurance solution side and creating a formidable foot print on that, on the PMP [ph] market.

So we are going to look for high operating leverage just to fit in the our core businesses in advance on the mortgage side and really look into advance into the new verticals for growth.

Kevin McVeigh – Macquarie Research

The $25 million a one-time cost, is it fair to say the stranded cost or another $8 million to $9 million and then just what are the other components to that broad $25 million in aggregate?

Frank Martell

Yes, the $25 million comes down to basically a couple things. One is the tail in the integration cost that we need to continue to integrate particularly the tax operation of BoA which is a very technology intensive operation and then we have a tail, we have some additional severance related cost related to 2014 program.

And then AMPS stranded cost roughly $10 million which again to the point of [indiscernible], we expect to work that down so that's kind of initial estimate.

Kevin McVeigh – Macquarie Research

Got it and then Frank, quick one. When you said, if Q1 EBITDA should be around 50% of the prior year does that exclude AMPS or including the AMP business in the prior year which is for modeling purposes?

Frank Martell

Excludes in both period.

Kevin McVeigh – Macquarie Research

Excludes in both, thank you so much.

Operator

All right. So it looks like you've another question, your next question comes from the line of Bose George with KBW.

Bose George – KBW

Good morning. As far as given your new structure excluding the AMPS, can you give us a refresh on what $100 million of incremental volume will be going thus for the EBITDA.

Frank Martell

It's roughly the same Bose because you know basically the AMPS segment was driven by problem loans primarily seriously delinquent loan in foreclosure starts.

Bose George – KBW

Okay, great thanks and then actually switching to the MSP acquisition. Can you just talk about sort of the specifics of what's delaying that? And that's part of the approval which you would expect by the end of the quarter, do you have to give up anything or is it the whole transaction is whole little close?

Anand Nallathambi

Well feel, this is Anand. We feel pretty comfortable that we have gone through the process with the regulatory bodies and we will be able to close it before the end of the first quarter. As far as the specifics of the deal. We can't get into it, but MSB is an important part for us because insurance solutions. It brings in real-time data in terms of replacement models that could be combined with granular property specific information that CoreLogic has.

Bose George – KBW

Okay, great and then actually, the EQECAT business you guys are buying, is that part of the EBITDA guidance for 2014 and how much is that contributing?

Frank Martell

Yes, it's really immaterial Bose in terms of, its important is in the sign [ph] in the models they bring to us and it's very synergistic from a revenue perspective. It's a small amount of revenue, frankly in the grand scheme of things and it's very small obviously even EBITDA contributor. It's really we are buying it in for the clients, client coverage expanding it build up the insurance vertical, more of a strategic way, if we think we can leverage overtime.

Bose George – KBW

Great and next one last thing on the new D&A segment. How much volume sensitivity is there left in that segment?

Frank Martell

It's primarily two areas, the vast majority of our sensitivity is in TPS obviously, but there is two areas in D&A that are sensitive. One if our fraud analytic tools that are run typically on mortgage apps and ABM obviously which is kind of mortgage and other, they're other drivers the mortgage is a driver of ABM.

So that's where the sensitivity is, those two businesses are collectively about 10% of the total segment in terms of the revenue.

Bose George – KBW

Okay, great. Thanks a lot.

Anand Nallathambi

Before we move up, EQECAT there was other question. To us EQECAT is a global catastrophe risk modeling platform and it gives us the opportunity to add financial loss model [indiscernible] and also to bring our Natural Hazard Risk model, so it's definitely a big analytical component and it's a market which is dominated by three players and we are happy to have one of them and it will be a great addition to our Insurance Solutions group.

Bose George – KBW

Great, thanks.

Operator

All right. So you have another question, next question comes from the line of Glenn Greene with Oppenheimer. And one moment, I do apologize there is a slight delay. All right, Glenn Greene. Please proceed.

Glenn Greene – Oppenheimer & Co

Good morning, guys. Can you hear me?

Anand Nallathambi

Yes Glenn.

Glenn Greene – Oppenheimer & Co

Just a couple of quick questions and clarifications. I guess the first one within the guide of $360 million to $390 million EBITDA and you're assuming MSB for three quarters of the year. How much EBITDA from MSB are you sort of assuming within the full year guide?

Frank Martell

We don't really talk about individual business units, Glenn but I think in the aggregate the acquired assets contributed about $40 million of EBITDA in aggregate.

Glenn Greene – Oppenheimer & Co

For the three quarters of the year or within the full year guidance $40 million.

Frank Martell

Within the full year guidance, the full collective acquired growth.

Glenn Greene – Oppenheimer & Co

Okay and then on the AMPS, the discontinuing and the potential sale of that business, is there a sort of range of EBITDA multiples, you're thinking about what kind of potential value, you could get for this business, a range I suspect and then the base EBITDA on the $1 trillion basis, what should we'd be assuming sort of, I guess sort of on a run rate basis with sort of full burden corporate cost?

Frank Martell

It's hard to speculate on the multiples that business would accrue to it because it's – it depends on the form of the sale and etc. I mean there are business distinct business units within the segment that could be separated or it could be sold as complete segment. So and then Anand mentioned, there is a lot of interest.

So again, it's really pretty hard to speculate in terms of what exact multiple it would be.

Glenn Greene – Oppenheimer & Co

Okay. Thank you, that's all I had.

Operator

All right. So you have another question, next question comes from the line of Bill Warmington with Wells Fargo.

Bill Warmington – Wells Fargo

Good morning, everyone.

Frank Martell

Good morning Bill.

Bill Warmington – Wells Fargo

So couple questions for you, first on MSB, DataQuick? Did revenue believe was $115 million and EBITDA $47 million back in 2012? How did it do in 2013? And you mentioned about $40 million assumed for EBITDA and EBITDA, what kind of revenue do you think we are going to be getting from it?

Frank Martell

Yes, collectively the $40 million has about $120 million revenue associated with it.

Bill Warmington – Wells Fargo

Got it.

Frank Martell

I think in terms of, again we don't give business unit by business unit figures, but basically from what we have and provided the numbers look pretty good for 2013 more or less as compared to 2012.

Bill Warmington – Wells Fargo

Got you. You gave some color on Q1 that was very helpful and I just wanted to ask you, if basically from that point in terms of the progression quarterly going forward, whether we are looking at kind of sequential improvement into the quarters or just to so to set our expectations beyond Q1?

Frank Martell

I think, if you guys look at 2014 first of all I would say that you're going to see a return to the seasonality that we haven't seen in the last couple of years. This is typically a second and third quarters are big quarters. First and fourth are lower. Obviously the first quarter, you had terrible weather and I don't want to repeat what everything and the media, but that certainly has been a factor.

Bill Warmington – Wells Fargo

I'm in Boston, so I'm living it.

Frank Martell

Yes, so I think that, I think 2014 the way it's going to shape up, a really good plan as the first half obviously is going to be significant from a year-on-year comparison. It's going to be a significant challenge, as everybody knows that because first half of last year was pretty strong with a refi wave peaking, kind of May second quarter time period.

So I would say, you're going to see a challenge but you'll see a pickup in the second quarter and then in the third quarter and then ramp down the fourth quarter, but from a year-on-year comp perspective. The comps get a lot easier in the second half and then as you get into 2015 you'll – we should pick up – take a scheme in the overall market, but you know the other thing I'd just imply but onto, you know you got MSB and DataQuick coming in stream, you got EQECAT.

So we've got, I think really exciting application of our data sets and insurance and spatial, where that segment is going to essentially become 10% of the revenue, it's a great platform for growth beyond we are talking about in terms of mortgage origination volume. So there is that other overplay happening.

And then I think when you have, the AMPS segment has obviously the volumes of delinquent loans that foreclosure have it dropping at 20%, 25% a year less couple years and so you're that challenging area and a consolidating area. So with that coming out, we'll see a benefit from that as well from a trend perspective.

Bill Warmington – Wells Fargo

You mentioned in your remarks, with the guidance being $360 million to $390 million for 2014 EBITDA but then adding back some charges getting you $385 million to $415 million. Just wanted to ask, if you give us details of those charges for me again, that $25 million difference?

Frank Martell

Yes, so essentially they're composed of essentially – integration of acquisition. We have a little bit of a tail that's a significant piece stranded overhead pieces as I said about $10 million and then you have a small tail of severance charge related to 2014 program, that's what makes up the $25 million. Predominant one is the AMPS cost and then the integration cost, little tail on the 2014 cost structure program.

Bill Warmington – Wells Fargo

And another question for you on the TTI program, if you can just review for me again the, there's some savings I believe in 2014 coming from a reduction in investment but then the in terms of how the in 2015 the actual saving from the investment starts, you start to actually see those returns, can you just review that for me?

Frank Martell

Sure. So right now, what's happening is we are moving, our systems up to the Quincy [ph] data center, the Dell [ph] runs in Washington State. So we have two data centers, so that's a methodical move because our revenue systems are deeply embedded and the work flows of our clients that's one of the great things about our revenue durability. So we have to be very careful that we don't have a service interruption. So we are being very careful and methodic about moving them up, that's going to take a bulk of this year and into early next year.

And then once that, we have complete transfer when the data centers, we have our shutdown and till we realized, start to realize the savings from that. we believe that's kind of mid $15 million and I think as we talked about that we announced this thing and we expect to kind of $35 million run rate savings pattern to occur. So and that still should be the case.

So we will see the $35 million kind of coming down to extreme into mid $15 million.

Bill Warmington – Wells Fargo

And a last question for you, if you can give us an update on to streamlining of the mortgage origination of servicing products for the small-to-mid-sized bank markets and how far are we from starting to sell the new products in to that market?

Anand Nallathambi

We are making pretty good progress Bill on that in our mid-to-mass market sales have been, has had a good pipeline, but after you know from the general market. The year has start off pretty slow mainly because of the uncertainty of implementation of the new regs out there and also the bad weather. So that's been one that's been a deflationary factor for the first couple of months, but we've seen some sparking activity over the last couple of weeks, which gives us some confidence that normal seasonality will return soon.

Bill Warmington – Wells Fargo

Got it, well thank you very much.

Operator

All right. So it looks like you do have another question. Next question comes from the line of Brett Horn.

Brett Horn – Morningstar Inc., Research Division

Yes, I just wanted to ask question on the BoA deal. Obviously you had a big GAAP between TPS decline of 16% and 50% fall off in the end market. How much of that GAAP is explained by the BoA deal, I just wanted to get a sense of the market share gains outside of that?

Frank Martell

I'm sorry, Brett. Can you repeat that again. You?

Brett Horn – Morningstar Inc., Research Division

Obviously, you had a substantial GAAP between TPS for the last 16% but it was about 50% fall off in the end market. How much of that GAAP is explained by the BoA deal, so I just wanted to get a sense of how sizeable the market share gains were outside of that deal?

Frank Martell

I'd say about BoA contributed about 40% of the closing of the GAAP. So it was a decent chump and not the majority.

Brett Horn – Morningstar Inc., Research Division

Okay, great and then.

Frank Martell

We expect as you know, the BoA deal was a really I think a great deal for the company. Obviously they're talking about mortgage volumes. There so, they've been impacted like everybody else in terms of downturn, but they come back as mortgage volumes come back and they implement their strategy and we expect that volume to ramp up, throughout 2014.

Brett Horn – Morningstar Inc., Research Division

Okay.

Frank Martell

And finally one other factor was, you know is a little bit that you should for your modeling purposes as you know, the Document Solutions business which is in the TPS business. We had terrific albeit one-time work done in 2012 that was project related around the State AG settlement where, we've done a lot of work for some big clients that didn't reoccur.

So some of the downward pressure, in addition to market was the fact that, if that project works which was material do not recur. So the market share gains and the impact to those are more pronouncing you would see in the numbers that you're dealing with.

Brett Horn – Morningstar Inc., Research Division

Okay and I guess one of the questions on AMPS. You know, it sounds like you guys are pretty optimistic that you can find a buyer. Is there anything that's changed in the last year in terms of interest picking up in that business because I feel like it's been you guys have been fairly clear for a while now, you see that as non-core, but the big sticking point seem to be realizing a fair price.

I'm just curios if, the situation is materially changed and if so why?

Anand Nallathambi

This is Anand, I will take the first part of that question. The AMPS business obviously from a defaults loans perspective, it's a little bit. It's getting more commoditized which is one of the reasons for us to be thinking what is the long-term effect with our company, but there are enough players out there.

There's a little bit of fragmentation going on in the market place, that there are enough player. So getting into it, so it remains to be seen we are just trying to make sure that we go through the profitability and looking at people who are interested and making sure that we match the business needs and with an ownership that would be specific to the client's needs too.

Brett Horn – Morningstar Inc., Research Division

Okay, great. Thank you.

Operator

All right. So it looks like you have another question coming from the line of Brett Huff with Stephens Inc. please proceed.

James Rutherford – Stephens Inc., Research Division

Hi, this is James Rutherford in for Brett. Just couple of questions, first just for clarity does your EPS guidance include purchase amortization and I think you're now adding back. If so, what's your assumption for that purchase amort for the year?

Frank Martell

So you're correct, our adjusted EPS metric excludes amortization for intangibles.

James Rutherford – Stephens Inc., Research Division

Okay, so exclude that for the 2014 guidance?

Frank Martell

Yes. And we don't guide on that levels thus in terms of the quoted number is but.

James Rutherford – Stephens Inc., Research Division

Okay. Thank you that's helpful and so next in the fourth quarter. It looks like D&A rems [ph] grew about a little bit over 4%, could you just provide some clarity about how much of that was organic?

Frank Martell

Yes, so basically organic growth excluding the impact of the market bonds we are talking about and the FX translation in Australia which quote us to $2 million basically the growth was 4% to 5%, which is in line with the full year number pretty much.

James Rutherford – Stephens Inc., Research Division

Okay, great. Thanks so much.

Operator

All right. So it looks like you have another question. The next question comes from the line of Brandon Dobell with William Blair. Please proceed.

Brandon Dobell – William Blair & Company

All right, at the risk of sounding like a fool, maybe if you can level set us all on the sub-segments within D&A. so property information analytics, insurance and spatial, multifamily and specialty. I know you gave some earlier comments about the exposure to the mortgage market, maybe if you could go through those sub-segments and give a little bit more detail on what the bigger drivers or maybe some example customers are within that, as we try and model those individual sub-segment, I want to make sure we are looking at the right, kind of macro drivers and then maybe any color you can give on, how MSB would change the drivers or the things that we should pay attention to within those sub-segments in D&A?

Frank Martell

Yes, so the three – I would say they are their business groups. So the three business. Tenant screening and specialty, there's two components to that. One is the, the payday lending data that we provide to support the payday lenders, that's kind an economic [ph] activity driven tech business.

There is some regulatory challenges obviously that have impacted that business, that's a small business. The bulk of it is penetrating and that's really tenant turnover, which is been pretty stable last couple of years. Multifamily is been relatively solid area, over the last couple of years. So that drives that, in terms of the bigger pieces is obviously real estate information and analytics.

A lot of that is data licensing, clearly volumes that are long term contracts and subscriptions based models. The analytics and quoting fraud and valuation. Those are where the sensitivity to volumes are and so not all of those revenues to volume sensitive bet a portion of them are and that's those analytics are used by wide variety of people in the real estate ecosystem not just the major lenders in financial institution for originating loans there and then we have, and in that thing we also have an advisory capability that does.

It's a data-enabled advisory, we're doing specific analysis and specific reviews of portfolio etc. to be [indiscernible] key clients. And then I'll let Anand talk about the insurance because that's kind of something we are really building out.

Anand Nallathambi

Okay, I'll kind of give a little bit of a brief overview on the insurance solutions group. To start off with, obviously we had our internal spatial solutions which brings in all the property specific Natural Hazard Risk modeling. We've taken that and we've added CDS Mapping, which gives us the opportunity to cross-out a great distribution platform to the Tier-2 through Tier-4 of insurance companies out there.

Now EQECAT like I mentioned before, is a global catastrophe risk modeling platform and that gives us the opportunity to add financial loss models to it because of the ability to bring in property values and the impact of Natural Hazards Risk to the property values. EQECAT is a platform that's used in Europe, in US and also in Southeast Asia.

MSB, the market leader for replacement cost analysis for the Tier-1 insurance providers and MSB brings real-time market data on rebuilding cost and then that combined with CoreLogic's property specific information gives us a leg up and this is something that we've noticed that insurance companies have been looking for and they've been [indiscernible] towards getting more specific flood information and flood risk, which we specialize in.

So those are some of the drivers in the insurance solutions, we are excited about the growth prospects there.

Brandon Dobell – William Blair & Company

Okay and to take that one level deeper. The headwinds obviously, you had mortgage headwinds, payday lending headwinds seemed pretty. I mean not huge, but certainly material through 2013 and then some FX. Anything else that we should be aware that currently organic growth rate, through 2013 or stuff that was and maybe one-time as in nature, that won't recur in 2014, as we try and think about well in those business segments for business units?

Frank Martell

No, I mean I'd say it really comes down to the mortgage volumes. I mean, I think we made progress on all fronts. Payday lending is really small and it's really diminutive [ph]. It's really that the mortgage volumes and I'd say frankly, I think what not only CoreLogic but across industry, it was a cliff kind of in the some later summer, where things kind of dropped pretty sharply versus a gradual tail, that would have been more traditional.

So I think that was responding that sharp drop with a little unusual, but I think we did a great job of cutting cost, you know when we could in the short-term than putting the 2014 plan together. I think the big thing, which I think ultimately is the right thing to happen and will be CoreLogic, as the market troughs in 2013, which is really it's been fueled by lot of refi volumes obviously at low interest rates.

So as that comes out, purchase market is going to come back because you do have household formation another more fundamental drivers. So I think that's a good thing for the industry and for CoreLogic really.

Brandon Dobell – William Blair & Company

Okay and maybe final, boring ones. Your expectation for 2014 stock comp on the tax rate and then we could probably work our way backwards into it, given the adjusted EPS guidance, but I'll make sure we are not missing anything just given the divestiture of AMPS and how that might those two drivers of net income?

Frank Martell

I think you could use that comp with approximately 2013 for 2014 and on the other item, [Audio Gap] the tax rate 38%. Sorry. You went from 40% to 38%.

Brandon Dobell – William Blair & Company

Some big numbers. Appreciated. Thanks guys.

Anand Nallathambi

Thank you.

Operator

All right. So it looks like your next question comes from the line of Darrin Peller with Barclays. Please proceed.

Darrin Peller – Barclays Capital, Research Division

Just a quick follow-up on the buyback for [indiscernible] capital [indiscernible] should say, we are getting questions from clients in emails right now and really just about revisiting your plan. I mean, you talked about 3 million shares, which is really what you typically talk about in the past couple of years. I think two years ago, you had about 10 million shares, last year was it 8 million shares.

Now again, with the sale of AMPS, you'll have potentially more cash coming in. so just talk us about the capacity what you can do this year potentially assuming right entry opportunity for the stock factoring in some of the thoughts that what kind of cash you can get as well as obviously the leverage of bring on to buy MSB and DataQuick?

Frank Martell

Yes, so I think we certainly have the capacity to more than 3 million share and I would expect – you can expect us to as we've done before. We are going to hit the targets we set out there. So we will continue to look at the 3 million it's kind of floor number, as we get into the year and see how things unfold, we will opt that as appropriate like we done last couple of years.

So we are committed to at least the 3 million shares. We have plenty capacity beyond that, if that's the right thing to do and as honest as, we are huge believer in returning capital through share repurchase because we think, it's good for the shareholders. The vision is going to create a lot of value. So it's going to be a good return on investment.

Darrin Peller – Barclays Capital, Research Division

Got it, all right. Thanks.

Operator

All right. So ladies and gentlemen that does conclude today's conference. Thank you all for your participation. You may disconnect and everyone have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: CoreLogic's CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts