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CoreLogic (NYSE:CLGX)

Q1 2014 Earnings Call

April 29, 2014 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

Alexander Veytsman - Barclays Capital, Research Division

William A. Warmington - Wells Fargo Securities, LLC, Research Division

Kevin D. McVeigh - Macquarie Research

Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division

Glenn Greene - Oppenheimer & Co. Inc., Research Division

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

Brett Horn - Morningstar Inc., Research Division

Brett Huff - Stephens Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2014 CoreLogic Inc. Earnings Conference Call. My name is Janeta, 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, 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 first quarter of 2014. 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've 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 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 equivalents is included in the appendix to today's presentation. Finally, unless specifically identified, comparisons of first quarter financial results to prior periods should be understood on a year-over-year basis, that is in comparison to the first quarter of 2013.

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

Anand K. Nallathambi

Thank you, Dan. And good morning, everyone. I will lead off the call today with a brief discussion on market conditions, and an overview of our first quarter operating results. I'll also discuss the progress we're making against our strategic plans. Frank will cover our financial results and we will end the call with Q&A.

As we all know, the mortgage market has been undergoing a major reset from a refinanced to purchase-driven market cycle. This reset has been gathering steam since the middle of 2013. In the first quarter of this year, we estimate that mortgage volumes were down approximately 60%. The combination of higher mortgage rates, regulatory uncertainty, severe winter weather and seasonality produced the lowest level of originations in the last 14 years. Over the past 3 years, we have transformed our business in anticipation of this historic reset in the mortgage market. Specifically, we have expanded our D&A segment and created a significant footprint in insurance and spatial solutions.

We scaled up our TPS businesses and our international operations. In addition, we invested in our business operations and technology platforms. We reduced our costs by over $100 million and repurchased over 20% of our outstanding common shares. Finally, we exited non-core businesses, with revenues collectively exceeding $580 million.

Let me give you some numbers to demonstrate the impact of the successful execution of our plans so far. During the first quarter of 2014, we reported revenues of $310 million and adjusted EBITDA of $64 million in a mortgage market that totaled a little over $200 billion. These revenue and adjusted EBITDA figures are 30% and 25% higher than comparable first quarter 2011 figures, which were generated against mortgage volumes of $340 billion, greater than 30% higher than the current quarter.

Over the past 3 years, CoreLogic has become a higher growth, higher margin company built around unique data assets, patented analytics and data-enabled services. As we move forward, we expect to create additional value through the completion of our strategic plan.

Here are some of the major value catalysts we are currently working on for the balance of this year and next. In terms of the top line, we are focused on growth and diversification of our D&A segment, greater than 50% of total revenues through continued expansion in insurance and spatial, core mortgage, garment [ph] solutions and international markets. We're also expanding market share and driving operating leverage in tax payment processing, flood zone determination and Credit Services. We're driving margins and mitigating the impacts of the mortgage reset through our 2014 cost reduction programs, which should reduce our annual expenses by at least $25 million. We also expect to complete our data center migration in mid-2015 to realize annualized cost efficiencies of $30 million to $40 million.

In addition to the data center migration, we are building out our next-generation technology platform, which should help us to drive market penetration and future growth. And finally, we will continue to focus on expanding free cash flow generation and capital management. We made progress on many of these fronts during the first quarter. We closed the acquisitions of MSB and DataQuick in March. MSB and DataQuick, together with EQECAT, add unique complementary data sets and analytical capabilities that will help us to create a market-leading insurance solutions group.

Growing our insurance and spatial revenues adds adjacent vertical strengths to our leadership presence in mortgage and real estate, and helps us mitigate mortgage cyclicality. Following the completion of the MSB acquisition, we estimate that roughly 10% of CoreLogic's total revenues will come from spatial and insurance-related businesses. We also continue to integrate Bank of America's tax servicing and flood operations and now expect this effort to be complete by mid-year. We expanded our share in the small and midsized markets and our TPS businesses significantly outperformed industry volumes.

Our 2014 cost reduction program yielded $7.2 million in cost savings in the first quarter, which was higher than our target. Regarding the TTI, we have now successfully transitioned several of our key platforms to the Dell cloud and have also completed the development of our first application on the next-gen platform. Lastly, we continue to return capital to shareholders.

With regards to our financial performance, our first quarter 2014 results were in line with our expectations. Revenues declined 6% to $310 million, as gains from improved market share, organic and acquisition-related growth partially offset the impact of an estimated 60% decline in mortgage origination activity. Revenues in our TPS segment fell 11%, as the impact from market volume declines was offset somewhat by share gains in our flood, credit and tax servicing businesses and price increases. As we have discussed on past calls, our TPS businesses have achieved significant client gains over the past several years, as increasing automation and operational excellence have helped CoreLogic to benefit from an industry-wide flight to best-in-class vendor partners.

This quarter, D&A revenues fell 2% compared to first quarter 2013. The decline was primarily the result of lower mortgage applications tied to refinancing activity. D&A revenues were also impacted by foreign currency translation and lower tenant screening and specialty credit revenues. Growth in our insurance and spatial solutions and international revenues mostly offset these impacts.

Adjusted EBITDA in the first quarter of 2014 was $64 million, again in line with our expectations, but down 40% from a year ago. In addition to the market headwinds, first quarter 2014 included significant one-time costs attributable to the integration of Bank of America's tax and flood operations, as well as TTI investments and stranded overhead costs from AMPS. Frank will discuss these impacts in more detail later. In terms of capital allocation, we remain committed to continuing our share repurchase program. For the full year, we expect to repurchase at least 3 million shares.

In closing, CoreLogic has successfully transformed our business model over the past 3 years. Despite the current mortgage market reset, this transformation has resulted in a higher-growth, high-margin company, with a demonstrated ability to outperform its respective core markets. We're also excited about the growth prospects to our insurance solutions group. Our progress has been driven by a focused strategy that leverages the company's unique data assets, market-leading position of our analytics and the scale of our data-enabled 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 D. Martell

Thanks, Anand. Good morning, everyone. Today I'm going to discuss our first quarter financial results. I'll also provide some updates regarding our progress on acquisitions, TTI and our 2014 cost savings program. Finally, I'll provide some color around guidance and our 2014 capital management priorities. As Anand mentioned earlier, our financial results were in line with our expectations for the first quarter despite the challenges presented by the contraction in the mortgage market. Importantly, we continue to take aggressive actions needed to secure the major value catalysts for this year and next. As we look forward, we believe the continued aggressive transformation of our business operations will position us to capitalize on the opportunities presented by the eventual rebound in the housing and mortgage markets.

In terms of our first quarter results, the major highlights were: one, outperformance of D&A and TPS revenues in the face of a 60% drop in mortgage volumes; two, the closure of the MSB and DataQuick acquisitions; three, the overachievement of our 2014 cost savings targets; four, accelerating progress on the implementation of TTI; and finally, the completion of the integration of BofA's flood operations.

First quarter revenues totaled $310.4 million, 6% decline from prior year levels. The market share gains, organic growth and acquisition-related revenues partially offset the impact of lower origination volumes. D&A revenues decreased 2% to $142.5 million, primarily as a result of lower mortgage origination volumes and unfavorable currency translation, which we estimate collectively impacted Q1 revenues by $13 million. In addition, revenues in our tenant screening and specialty credit businesses declined as severe winter weather and ongoing regulatory pressures impacted their respective markets. Our insurance and spatial solutions group and International operations grew double digits in the first quarter. We anticipate that these areas will provide strong growth over the course of 2014 as we integrate recent acquisitions, diversify our client base and deliver new and innovative data, analytics and data-enabled services.

The completion of the MSB and DataQuick acquisitions on March 25 represents an important step in scaling our D&A segment, and at the same time, adds revenues in new growth verticals such as insurance, government services and energy. As we've discussed in the past, MSB and DataQuick benefit from data-driven, subscription-based models that add unique and complementary data sets and analytical capabilities to CoreLogic. With the acquisition closed, our business unit leaders are already working hard on new and unique solutions that we expect will provide future growth.

EPS revenues decreased 10.8% to $169.3 million, as the benefit of market share gains, including the BofA acquisition, were more than offset by the headwinds in mortgage, and lower project-related document processing and retrieval revenues. Each of our major businesses, tax services, flood zone determination and credit outperformed their respective markets. Our payment processing business, which represented about 48% of Q1 TPS segment revenues, grew 4% year-over-year.

As we outlined in our earnings release, operating and net income from continuing operations and adjusted EBITDA for the first quarter included significant levels of costs related to the implementation of our strategic transformation program. These include acquisition-related costs, severance charges, TTI investments and stranded AMPS costs. Operating income from continuing operations totaled $13.7 million for the first quarter compared with $47.3 million for the first quarter of 2013. The decrease in operating income was principally the result of lower mortgage volumes and costs attributable to our transformation program. Altogether, these charges totaled $20.2 million and impacted operating margin by approximately 650 basis points. These charges included transaction costs of $8.5 million related primarily to the MSB and DataQuick closing, expenses associated with the integration of BofA's tax and flood operations totaling $4.6 million, cash and noncash TTI-related charges of $4.4 million, severance of $300,000 and stranded AMPS cost of $2.4 million.

Net loss from continuing operations totaled $3.9 million compared to an income of $31.6 million in the first quarter of 2013. Net income decreased mainly as a result of the impact of lower operating income and the transformational charges I just discussed. Adjusted diluted EPS totaled $0.17, which represent a 61% decrease from the same 2013 period, reflecting the impact of the mortgage headwinds and transformational related expenses, which more than offset the benefit of share repurchases.

Adjusted EBITDA totaled $64 million in the first quarter, compared with $106 million in the same prior-year period. The decline was primarily attributable to the reset of the mortgage market, as well as costs related to the implementation of our strategic transformation program. D&A-adjusted EBITDA totaled $39 million, a 16% decrease from the first quarter of 2013, as the impact of lower mortgage volumes, declines in specialty credit and tenant screening and the unfavorable currency translation offset the growth in insurance, spatial solutions and international. EPS-adjusted EBITDA decreased 51% to $35 million in the first quarter, driven primarily by lower market volumes and BofA integration costs.

Expense management and sustained productivity improvements remain a top priority. During the third quarter of last year, we announced the launch of our 2014 cost reduction program, which we estimated would save the company $25 million. During the first quarter, we accelerated the implementation of several portions of this program and achieved $7.2 million of savings. As we move forward this year, we will continue to calibrate our cost reduction targets and mortgage market trends.

In terms of the TTI, the main focus in 2014, as it was in 2013, is on consolidating processing platforms and transitioning current legacy data centers and applications to a private cloud-based environment. As Anand mentioned earlier, we have successfully commenced moving our systems to Dell's data center based in Quincy, Washington. We expect that this work will continue over the next 12 to 15 months.

The transformation of CoreLogic's IT infrastructure is an integral part of our long-term strategic technology plan and is expected to substantially lower our cost profile beginning in mid-2015. Importantly, the TTI will also provide a platform that enables our future growth.

I'll conclude my prepared remarks today with some color around our capital management priorities and our financial guidance. As we stated in our last earnings call, we intend to follow a balanced capital allocation strategy during 2014. Our priorities remain to fund disciplined reinvestments in the business, to support future growth and operational efficiencies and to return capital through the repurchase of 3 million shares. We also expect to progressively reduce our debt levels over the next 18 months. On a trailing 12-month basis, as of March 31, 2014, our free cash flow was 38% of adjusted EBITDA. This compares with our long term target of converting at least 50% of adjusted EBITDA to free cash flow.

During the first quarter, we generated a modestly negative free cash flow due to the weak mortgage market, incurrence of approximately $20 million in transformational costs and the timing of certain tax refunds and collections. For the full year of 2014, we expect to generate free cash flows of approximately 35% of adjusted EBITDA. This level of cash flow, together with our current ample cash reserves and expected proceeds from the sale of AMPS, provides CoreLogic with significant financial flexibility to apply our stated capital allocation strategy. We expect to return to free cash flow conversion rate of 50% in 2015 based on a normalization of mortgage volumes, benefits from the high free cash flow contributions of MSB and DataQuick and improved cost and tax efficiencies.

In regards to 2014 guidance, we are reaffirming that we expect to generate full year revenues of between $1.35 billion and $1.4 billion, adjusted EBITDA of $350 million to $390 million and adjusted EPS of $1.40 to $1.55. This guidance is based on projected mortgage origination volumes of $1 trillion to $1.1 trillion. We are assuming $25 million in cost takeouts and the repurchase of 3 million common shares. Specifically in terms of the second quarter 2014, based on normal seasonality patterns, higher purchase market volumes, continuing cost efficiency efforts and the forecasted impact of the MSB and DataQuick acquisitions, we believe that adjusted EBITDA in the second quarter should be 50% to 60% above first quarter 2014 levels.

In closing, we have a solid plan to tackle a very challenging year in 2014. We will continue to transform our business into a more subscription-based model, underpinned by unique property data assets, analytical capabilities and data-enabled services. I appreciate your time and attention today. I'll now turn the call back over to the operator to kick off the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Darrin Peller with Barclays.

Alexander Veytsman - Barclays Capital, Research Division

This is Alex Veytsman in for Darrin. I just wanted to get a little more color on the EBITDA, I mean, with guidance at $360 million to $390 million and 1Q EBITDA of $64 million, this implies an average of $100 million in quarterly EBITDA going forward and that's what you're guiding to really for the second quarter. But could you provide more color on what should be driving the upside, besides an improvement in originations?

Frank D. Martell

Yes, Alex, this is Frank. So obviously, one big driver is seasonality. So as you know, normal seasonality for the company is basically our big quarters are the second and third quarters, so we expect to ramp up as it relates to the market from that perspective. Secondly, closing MSB and DataQuick at the end of March, we'll get the pickup of the income from those businesses for the balance of the year. In addition, the cost savings we expect to accelerate throughout the year. So those are really the 3 main factors, seasonality, the contribution from MSB and DataQuick and then the cost reduction activity.

Alexander Veytsman - Barclays Capital, Research Division

Got it. Got it. And then -- I mean, like regarding in '14, I know you mentioned that you'll be back to the 50%-plus EBITDA free cash flow conversion by '15. Could you just provide more color as to kind of why 35% in '14, what's pushing it down? I know that you said that it's been 38% over the last 4 quarters. But I mean, since you guys are expecting a pickup in origination activity I mean, we would be thinking that it should accelerate to maybe like 40%, 50% in '14. I guess what's keeping it down at 35%?

Frank D. Martell

Yes, the big drivers for that this year are -- obviously, we spent a lot of time on the call talking about the extraordinary transformational costs and investments back into the business. Those should abate in 2015, so we'll have less pressure there. We expect to become more efficient on CapEx as we transition to the Dell cloud so that reduction in CapEx should help us from a cash flow perspective. And then we also have, as you may recall, we have the effect of AMPS being below the line as a discontinued operation, and the introduction of MSB and DataQuick. But you don't have MSB and DataQuick really coming onboard until the second quarter from a cash flow contribution perspective and these businesses contribute around 80% of their EBITDA to free cash flow. So that gives us a lot of comfort that we'll get back on the 50% track. As you know, really we've been hitting that pretty consistently, in fact a little bit above that the last couple of years. So it's really the timing of the MSB transaction, the AMPS discontinuation and then these extraordinary expenses that we expect to abate in 2015.

Operator

Your next question comes from the line of Bill Warmington with Wells Fargo.

William A. Warmington - Wells Fargo Securities, LLC, Research Division

So I wanted to ask a little bit about the Q2 EBITDA guidance. I just wanted to double check what the -- if there are any -- or get a listing of the EBITDA adjustments that are going to be part of that in terms of the charges. I know you guys did a good job breaking that out for the Q1.

Frank D. Martell

Yes, I think the big thing, Bill, is we won't have obviously the transactional closing costs as it relates to MSB and DataQuick, so that was almost $10 million in normal fees, et cetera. The big lift that we're seeing in terms of the volumes is the spring selling season so as you know, the first quarter was a little over $200 billion in originations, so quite a low quarter. Some of that frankly had to do with the weather, which was a factor. I hate to talk about the weather but that was truly a factor in a number of the business units. And so that's abated and we're getting into the summer season. So we're seeing our volumes pick up. So that supports the normal balance you get with the seasonality, and then MSB and DataQuick, as you know, it's going to add over $10 million in terms of EBITDA. So we have that lift as well and then we have the continued cost reduction. So those are really the 4 big drivers.

William A. Warmington - Wells Fargo Securities, LLC, Research Division

Okay. Well and you've talked about, with the guidance of $360 million to $390 million on the EBITDA line, you've also talked about another $25 million of charges that are not being added back to that EBITDA line, maybe you could review what those charges are for us?

Frank D. Martell

You say -- sorry, can you repeat that?

William A. Warmington - Wells Fargo Securities, LLC, Research Division

Sure. You're talking about the $360 million to $390 million in EBITDA guidance. I believe you guys have talked about another $25 million of charges that are included in there that are not being added back to -- as expenses that are not being added back to the EBITDA line? If I...

Frank D. Martell

Sure. I'm sorry, so yes, those are really the $25 million we talked about, we're not adjusting EBITDA for severance charges and the charge related to the integration of the acquisition. So obviously, we call out the BofA, for example, but we're not excluding those. So those are in the dialogue that we just had. We're trying to not to exclude those items from the EBITDA to reflect an EBITDA number, but calling out the numbers so that you have that visibility. Obviously, we expect as I mentioned, we have integrated the BofA flood operation as of the end of this month. We expect the tax business to integrate at the midpoint of the year. So from a -- as an example of the BofA integration costs, those should be really all said and done by the first half of this year as an example. So those will tread off. Severance, the majority of the severance charges we expect will be within the fourth quarter of last year and in the first part of this year but those will tread. So the second half of the year really we'll see a significant abatement in those $25 million that concentrate really during the first part of the year. But just...

William A. Warmington - Wells Fargo Securities, LLC, Research Division

One final question for you on MSB. Just if you could talk a little bit about the plans for that business now that you've closed the acquisition over the next 6 to 12 months.

Anand K. Nallathambi

What we -- Bill, this is Anand. That's the business that we're really excited about, especially to take our solutions that have a granular level of detail on the property to be integrated with all the data that the MSB has and go to the insurance carriers and cross-sell and that activity would be of primary importance in the first 6 to 12 months.

Operator

Your next question comes from the line of Kevin McVeigh with Macquarie.

Kevin D. McVeigh - Macquarie Research

Any update on -- kind of comment on AMPS? I know it's kind of a bit of fluid, but just intent [indiscernible] and we thought if I had it right that we closed it before '14. But just any clarity on that would be helpful.

Frank D. Martell

Yes, Kevin. The process is pretty active so I could say that much. Timing wise, it is a fluid situation. We're working very hard to get it done sooner than later. But I think I don't have much of an update on timing other than I think we expect within 2014 to have AMPS divested.

Kevin D. McVeigh - Macquarie Research

Got it. And then Frank, any sense of originations on the transactions side relative to subscription? Is subscription models still hanging in there pretty good? Or as expected, any changes to thoughts on how the subscription model kinds of works its way through 2014?

Frank D. Martell

Yes, as I said in my comments, I think we're becoming much more subscription-based in terms of our revenue flows than we've ever been. And certainly, MSB and DataQuick add to that. We feel pretty good about that. And the origination pressure really is where we expected it to be and primarily in TPS, but in a few of the areas in D&A, specifically fraud and evaluation and income verification. Those businesses are performing really as expected. We're seeing a bounce obviously when you get to the spring season, but I think it's early days and we're still calling it $1 trillion to $1.1 trillion market. I think it's now in line with pretty much all the major external projections.

Kevin D. McVeigh - Macquarie Research

Got it. In terms of the weather, are you kind of expecting a snapback? Said another way, stuff that didn't close if you will in Q1, we'll pick that up into Q2 or is that something that's more balanced towards the back end of the year? Or how should we think about kind of the catch-up on the weather, if you will?

Frank D. Martell

Yes, our volumes in March traded up in line with normal seasonality. So I think there wasn't a snapback or a tidal wave of pent-up demand, I would say per se. But it's early days. Obviously, you've got kind of through May, April, May, June to see how this plays out, the summer selling season. But I think we've definitely seen a lift in March and April so that's encouraging.

Operator

Your next question comes from the line of Bose George from KBW.

Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. First, I just wanted to confirm, is the 35% free cash flow conversion a number that you gave, is that for the full year 2014?

Frank D. Martell

Correct -- Correct yes.

Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, great. And then you said you expected free cash flow to go back to that -- the conversion to go back to the 55% number in 2015, as volumes normalize. Is there a way to kind of think about what normalized volumes you guys are thinking when you -- in that assumption?

Frank D. Martell

We don't guide for long-term volumes. But I think what we're saying is obviously this year, you're hopefully in a trough year. And I think Anand has said on numerous cases that we expect to have the new normal to be in the $1.5 trillion range as the market resets. But hopefully, we trend from the $1.1 trillion-ish level to the $1.5 trillion level progressively over '15 and beyond. So that's what I alluded to.

Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. Great. And then just -- actually, the comment you made about the cash conversion, cash flow conversion, at MSB, DataQuick, was that 80%?

Frank D. Martell

Correct.

Operator

Your next question comes from the line of Glenn Greene with Oppenheimer

Glenn Greene - Oppenheimer & Co. Inc., Research Division

First question really for Frank, I guess on Slide 6, where you sort of allude to the mortgage market sensitivity and the revenue being $41 million headwind and then the EBITDA headwind being more than that. So a couple of questions related to that. The revenue sensitivities will actually be less than you've historically implied. And the EBITDA obviously implies 100%, more than 100% of the revenue impact, where it's sort of been more like a 60% headwind. Can you maybe some of talk about the dynamics there and should we get a reversal as the mortgage volumes come back?

Frank D. Martell

Glenn. So basically what happened is we have the [indiscernible] joint venture, which is a fairly significant contributor to our EBITDA. That's an impact from the large markets so the delta between EBITDA and revenue that you're seeing is that's the major contributor to that is the fact that you have that EBITDA coming down with no revenue component to it. So that skews the number a little bit but I would say that the severity of the mortgage -- when we gave our sensitivities, we talked about them kind of plus or minus the $1.5 trillion number. We've tested a pretty significant low at $200 billion. Some of the businesses I think are pretty lean now and the -- so that you're testing some of the fixed cost structures. An example will be our flood business, where it's essentially a database related business where the orders come in electronically and fulfill, so there's not much room to cut. You're seeing a little bit of that phenomenon in the first quarter. As volumes lift, there will be a reversal of that. And that's one of the things that's contributing to the lift in EBITDA that some of the questions earlier were related to. And obviously, we need a little bit of time for the cost structure to come down, as we look for workflow efficiencies and other efficiencies. We've had the staffing reductions and other things that we're working on, other productivity-related items that should help us to reduce costs even further but it takes a bit longer time. And by the way, on the top line, I think part of the offset of the traditional volumes is the market share related gains that we've had in some of the businesses that helped us soften that impact a little bit.

Glenn Greene - Oppenheimer & Co. Inc., Research Division

Okay, it's hard to believe where the 1Q to 2Q RAM [ph] questions but just a couple of clarifications. So the first quarter EBITDA absorbed, call it $10.8 million of kind of one-time items. What of those $10.8 million, like what should we assume sort of goes away into 2Q and how meaningful is that to the 1Q to 2Q ramp and you're kind of implying a guide of $95 million to $100 million in EBITDA for 2Q?

Frank D. Martell

Yes, the biggest jumps are the contributions from MSB and DataQuick obviously, which I mentioned earlier, and the seasonality. So those are really the big drivers. In terms of the cost structure, the AMPS cost will be similar in the second quarter is the estimate. We don't really have the integration costs will decline significantly, so there'll be a decline there in terms of BofA costs in particular. TTI will be -- should be about the same. So it's really the BofA cost. But the big drivers are adding in MSB and DataQuick significant and then the seasonality pattern.

Glenn Greene - Oppenheimer & Co. Inc., Research Division

And then just sort of -- just to get clarity on the seasonality, as -- if what's said in mortgage market in 1Q was call it $225 billion or something like that, what's sort of your -- at a high-level, your sort of assumption for the overall mortgage market for 2Q?

Frank D. Martell

We are talking, I think, about roughly a 50% increase, maybe a little bit more off the $200 billion level Anand talked about.

Glenn Greene - Oppenheimer & Co. Inc., Research Division

Off the $200 billion? Okay. So you're assuming about $300 billion market? And then the free cash flow conversion, I know you alluded to back to the 50% in fiscal '15, is there any reason that shouldn't be higher, given the mix has changed meaning MSB, DataQuick? It sounds like it's more like an 80% conversion and these one-time items go away and whatnot? Or you're just being conservative there?

Frank D. Martell

No. I mean, it's obviously 2015. So I think it's -- we should get more efficient in terms of some areas, cost structure, obviously. We think that the tax number bumps around a little bit. So I think 50% to 55% has proved out the last couple of years in a fairly high origination market, with tax and some of the timing issues being swing factors. That's why looking at any individual quarter is a little bit, I think, difficult to get a true judge. I think as we get into '15, I think with the normal running of the business, I think 50% to 55% is a pretty good number. And I don't think it's conservative because the other thing is, you may recall the AMPS business contributed fairly high conversion and that's come out so you've got MSB and DataQuick coming in.

Glenn Greene - Oppenheimer & Co. Inc., Research Division

Got it. One quick follow-up. The D&A business, I mean, you did a sort of a good job explaining why it declined year-over-year. And I think you called out $13 million of combined headwinds for the mortgage market and FX. Could you parse that, how much was from the mortgage market and how much was FX and I assume that's Australia?

Frank D. Martell

Yes, you're right, FX was about $3 million of the $13 million, [indiscernible].

Operator

Your next question comes from the line of Geoffrey Dunn with Dowling & Partners.

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

I guess first, I want to clarify for the quarter, what exactly the EPS number looked like, excluding these items -- these costs that eventually go away? It sounds -- we already backed out transaction costs. So it sounds like if we wanted to get to that clean $1.55 to $1.70 number, we're backing out TTI, BofA integration and severance, is that correct, about $0.05?

Frank D. Martell

Well integration, severance and AMPS is about $0.05, yes. TTI is a couple of cents.

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

And then, in terms of just the implied math of your 35% conversion rate for the year, it looks like the implication given what you guided on EBITDA for 2Q is basically a conversion rate of about 45%-plus for the remainder of the year. Is that consistent with your expectations?

Frank D. Martell

Yes.

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

Okay. And then the last thing, on the TPS margin, obviously it looks like tax is running it to kind of bare bones fixed cost, you can't really cut into it. And as a result, you had a higher kind of incremental negative margin this quarter. Is the same true in the near-term on the bounce back, meaning that coming off this level, we could be looking at 80%-plus incremental margins on a rebound over the next quarter or 2 versus the 65% we discussed in the past?

Frank D. Martell

Yes, I'd say initially that's correct. But by the way, just to clarify, Geoff, on the cost structure, the leaner businesses are credit and flood. Tax we still have -- we believe process efficiency that we're taking out of the business. So there is an expectation of cost reduction in TPS over time.

Operator

Your next question comes from the line of Brett Horn with Morningstar.

Brett Horn - Morningstar Inc., Research Division

In discussing capital allocation, you guys mentioned that you'll be looking to reduce debt over the next 18 months. I was just wondering if you could share do you have a targeted debt level that you're looking to get to?

Frank D. Martell

Yes, we've always talked about, Brett, the 2.5x leverage from an EBITDA to a debt perspective, and so that's the longer-term. We feel we have a business that supports a higher leverage, but we'd like to give ourselves some flexibility there. So that's a longer-term target. The first thing we want to do is make sure we're reinvesting appropriately in the business. The second thing is we will repurchase at least the 3 million shares that we've committed to, and then we'll take the debt down as appropriate.

Brett Horn - Morningstar Inc., Research Division

I guess if I am hearing right, you're saying you're not targeting an absolute level. You're looking more at a debt to EBITDA number, which would imply that you want to be a little lighter on debt during market trough periods. Would that be correct?

Frank D. Martell

I'm not sure that that's exactly correct. I mean, we want to make sure that we have prudent debt levels. So we think sub-3 is the prudent debt level over the long term. We can run higher if necessary. But I think just from our perspective, we just want to keep the debt levels at the 2.5x to 3x, close to 2.5x from a long-term perspective, but we feel pretty comfortable where we are now. But we'd like to bring it down after we obviously take care of investment in the business and returning capital.

Operator

Our next question comes from the line of Brett Huff with Stephens Inc.

Brett Huff - Stephens Inc., Research Division

First question is, can you just -- I don't think you've talked about this quite yet, or at least I didn't -- I don't think I heard it in your prepared comments. Can you just walk through the puts and takes on the negative 2% D&A revenue growth, and the specific -- you talked about $10 million of mortgage impact, I believe, in D&A, if I heard that right, $3 million to 4x. And can you articulate what the organic revenue was, so that we can get an idea of the revenue x inorganic, and x ForEx, and x mortgage?

Frank D. Martell

Yes, so I guess I could shortcut that a little bit. The organic growth rate is about 2% for the quarter.

Brett Huff - Stephens Inc., Research Division

Okay. And then the second question is the -- as we look forward for the rest of the year and we're looking at EBITDA contributions or maybe even revenue contributions, can you just talk about the phasing of how or the split between the contribution of the 2 businesses, I guess, specifically on EBITDA over the next 3 quarters?

Frank D. Martell

Yes, I'm sorry, but I didn't hear what businesses you were referring to.

Brett Huff - Stephens Inc., Research Division

I just want the -- if you could split it into the TPS and the D&A business, how do you guys see the EBITDA changing in each of those businesses over the next 3 quarters? I'm just trying to understand how the D&A or -- the EBITDA on both those businesses is going to go, if one is going to be growing faster than the other one, et cetera.

Frank D. Martell

I think implicit in our second quarter guidance here, you'll see a bit of a snapback in the TPS EBITDA as we get through the year. That business is driven by the origination market. So you'll see an acceleration of growth in that -- that business. You'll see a definite pickup in D&A, but the rate of growth will be faster in TPS. By the way, the other thing, just to remember, is that DataQuick and MSB are in the -- it's not organic but they're in the D&A segment, obviously. So you'll see a big jump in their -- both revenue and EBITDA from that perspective, as those businesses are integrated in the financial report.

Operator

[Operator Instructions] We have no further questions at this time. Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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