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

CoreLogic, Inc. (NYSE:CLGX)

Q2 2011 Earnings Call

August 4, 2011 5:00 p.m. ET

Executives

Dan Smith - Investor Relations

Anand Nallathambi - President and Chief Executive Officer

James Balas - Senior Vice President, Controller

Analysts

Carter Malloy - Stephens Inc.

George Mihalos - Bank of America Merrill Lynch

Darrin Peller - Barclays Capital

Bill Warmington - Raymond James

Kevin Mcveigh - Macquarie Research Equities

Thomas Egan - JPMorgan

Operator

Good day, ladies and gentlemen and welcome to the Second Quarter 2011 CoreLogic Incorporated Earnings Conference Call. My name is Stacey and I will be your conference moderator for today. At this time all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference. (Operator Instructions) I would now like to turn the presentation over to your host for today, Mr. Dan Smith, Head of Investor Relations. Please proceed.

Dan Smith

Thank you and good afternoon. Welcome to our investor presentation and conference call where we present our financial results for the second quarter of 2011. Speaking today will be CoreLogic's President and CEO, Anand Nallathambi, and Controller and Principal Accounting Officer Jim Balas. Before we begin, let me make a few important points. First, we have posted our slide presentation which includes additional details on our financial results on our website.

Second, please note that during today's presentation we may make forward-looking statements within the meaning of the federal securities laws, including statements concerning our expected business and operational plans; performance outlook and acquisition and growth strategies; and our expectations regarding industry conditions. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings including our most recent Annual Report on Form 10-K and subsequently filed 10-Qs. Our forward-looking statements are based on information currently available to us, and we do not intend and undertake no duty to update these statements for any reason.

Additionally, today's presentation contains financial measures that are non-GAAP financial measures. A reconciliation of these non-GAAP measures to their GAAP equivalents is included in the appendix to today's presentation. Finally, unless specifically identified, comparisons of second quarter financial results to prior periods should be understood on a year-over-year basis, that is in reference to the second quarter of 2010. Thanks. And now let me introduce our President and CEO, Anand Nallathambi.

Anand Nallathambi

Thank you, Dan, and good afternoon everyone. Welcome to our second quarter earnings conference call. During the second quarter CoreLogic recorded $409 million in adjusted revenue and $61 million in adjusted EBITDA. Our core businesses in tax servicing flood determination and risk and fraud analytic performed in line with or better than initial expectations. In these strategic areas we had significant client wins as well as revenue and EBITDA performance that were better than industry trends.

As we have discussed in the past, these areas benefit from significant competitive advantages and barriers to entry and represent the core of our company. In contrast to these businesses, results in our marketing services, appraisal and default related businesses experienced significant declines in revenue and EBITDA, as client losses, volume declines and other business specific issues impacted results.

Looking forward, it is critical for us to build on the success in our core business areas and mitigate the risks in others. This will improve overall operating efficiency and business mix. I will take you through our current plans in few minutes, but first let me give you a brief description of the final results from the quarter.

In the risk and fraud group, on an adjusted basis revenues increased 17% and EBITDA increased 20% from the same quarter last year. Excluding the acquisition of RP Data, risk and fraud revenues were up 7%, and EBITDA was up about 8%. Continued growth in risk and fraud reflects strong winds in data licensing, forensic due diligence and document retrieval solutions. In addition, continued growth in fraud detection, income verification and risk advisory services made for a great quarter.

In the specialty finance group, a significant decline in revenues from our marketing services business and increased associated with credit reports led to lower revenues and EBITDA compared to a year ago. In the mortgage origination services group, on an adjusted basis, revenues and EBITDA declined significantly as lower appraisal volumes in our captive appraisal company and in our national joint ventures led to weaker results. As we discussed on our first quarter call, increased competitive pressure and government actions have yielded an extremely difficult market environment for appraisal. We have been taking a longer-term view in responding to pricing and service terms and renewals.

As a result of these developments, we decided to walk away from significant customer volumes in our captive appraisal business during the quarter. While this decision will ultimately help us to improve our financial returns in the appraisal business, it produced a significant amount of the year-over-year decline in revenue and EBITDA for the segment. The same market pressures I commented on earlier impacted the revenues of the appraisal business within our joint ventures. In addition a large joint venture customer closed an origination division that focused on FHA loans.

Because we recognize our share of joint venture net earnings under the equity method of accounting, our results are affected disproportionately relative to these revenue changes. Tax servicing and flood zone determination businesses performed significantly better than the market as a whole. With a 6% decline in revenues verses roughly 25% lower origination volumes. In default and technology, the loss of client volumes led to decrease in revenues and EBITDA.

Slide six shows that based on these results and the outlook for the second half of 2011, we have revised our full year guidance down to a range of $260 million to $280 million in adjusted EBITDA. Jim will take you through the details in a few minutes, but at a high level the revised guidance reflects no seasonal benefit in 2011, with the second half of the year that is flat with results from the first half. We expect data and analytics, tax service and flood to perform basically in line with expectations with underperformance and appraisals, default services and marketing services.

Obviously these results and the reduction in guidance are below expectations of our management team and the board but we are taking the necessary significant steps to position the company for improved performance. First, I’d point out that we have made significant progress on cost savings. At the bottom of slide six, we show the timing and amount of cost reductions by business area that we will realize this year. As we can see the majority of the savings come from servicing related areas in our business and information services segment and from corporate functions. We have taken significant action on the majority of these initiatives already and will realize their benefits through the remainder of the year.

We expect these projects to reduce expenses by $20 million in 2011, resulting in an annualized benefit of about $30 million. Looking past 2011, we are pursuing additional cost initiatives in information technology and other shared services. We estimate that these projects will yield about $50 million in annual savings with a majority hitting next year. Second, we have continued to reduce our exposure to non-core and low profitability businesses. The areas like appraisal and default have experienced significant changes in the past year due to regulatory and competitive pressure. These changes have reduced our profitability and future growth potential. We are reviewing these businesses and there cost structure to find ways to mitigate risk.

Third, we have continued to innovate in the risk and fraud area. During the second quarter we were issued two patents for technology that estimates payment default risk and provides improved loan outcome prediction. In addition we launched our new web based consumer portal, IdentityLogic that will be developed into a distribution channel for our suite of data and analytic products. Continued growth in these capabilities well help the data and analytic segment to grow even through challenging market environment.

Fourth, we have taken hard steps to rationalize our cost structure, continued to refine our back office and support areas to promote greater flexibility for future growth opportunities. A great example of this is our sale of CoreLogic India to Cognizant. As we disclosed last week, we are selling our India operations and outsourcing 40% of our workforce to Cognizant, a world class outsourced services provider in the technology and business services space. By entering into this multi-year strategic partnership, we will broaden our delivery capability and increase the resources that support future growth in new and adjacent markets.

In addition we expect to benefit from decreased inflation exposure and a more variable cost structure in future years as we benefit from Cognizant’s operational efficiency. Fifth, we have continued to balance the return of capital to shareholders with growth through acquisitions. During the second quarter we repurchased approximately 8.7 million shares bringing our total share count to about 106 million as of today. Going forward we will continue to review opportunistic share repurchases in the context of our leverage and capital structure.

Finally, we have continued to build out our senior management team with the announcement of Frank Martell as our CFO. As you can see from our actions in the quarter we believe we are taking the right steps to position CoreLogic for value growth in the future. The focus on mitigating the risks and we are investing in the core strategic areas of the firm. With that I will pass it over to Jim.

James Balas

Thank you, Anand and good afternoon. I will begin with slide seven of our presentation. On a consolidated GAAP basis CoreLogic generated net income of $31.5 million or $0.29 per share in the second quarter of 2011. As we highlighted in our press release, these results included a pre-tax gain of $59 million associated with the acquisition of RP Data in May of this year. This amount and other items can be seen on slide eight which lists the reconciling items between our GAAP and as adjusted results.

Other adjustments worth highlighting include, the re-class of pre-tax equity in earnings of affiliates into the adjusted revenue line item, as shown on lines one and two of $12.1 million. Severance of $3.8 million was paid in the second quarter and is shown on line three. Next, litigation settlements and acquisition related professional fees of $4.7 million are shown on line four. On line five we show the recognition of a $10.2 million non-cash write-off of deferred financing fees associated with our refinancing transactions in May of 2011. And finally non-capitalized investments relating to operating efficiency initiatives of about $7.5 million is shown on line six.

As discussed on our year-end earnings call we plan to spend about $20 million this year on projects tied to improving efficiency in our corporate, technology, servicing and outsourcing related businesses. Thus far, through the first half of the year we have spent about $11 million of this amount on projects focused on our efficiency improvements. As we have discussed, we are working closely with Deloitte on this front and we are confident that we will be able to achieve the savings that Anand identified earlier.

Turning to the next slide. Slide nine summarizes our adjusted financial results for the second quarter as compared to the prior and year ago periods. As you can see on line one, revenues fell by about 3% compared to the year ago period, as a result of weak performance in our marketing services, appraisal and default businesses. This weakness was partially offset by growth in risk and fraud revenues.

On the expense side, line two, shows that expenses remained high in second quarter as the majority of our cost initiatives will gain momentum in the third quarter of 2011. As Anand noted on slide six, we have identified initiatives that will yield about $20 million of cost savings this year. These steps will have an annualized impact of about $30 million in 2012. Moving to line five, second quarter pre-tax income was about $21 million, using our estimated effective tax rate of 40%, our adjusted net income for the quarter would be about $12.6 million or $0.12 per share.

For the balance of the presentation I’ll be referring to non-GAAP as adjusted financial results for the quarter and for prior periods. These figures allow us to present the company’s results without the effects of historical corporate expenses from First American without the onetime expenses associated with our spin-off and other adjustments. Reconciliation of the non-GAAP numbers to their GAAP counterparts are available in the appendix of our slide deck and in the press release as well.

Moving on to slide ten. Slide ten shows segment level detail for the second quarter. As Anand discussed, the acquisition of RP Data, growth in advisory projects, increased penetration of risk and fraud products and improved revenues from credit monitoring volumes provided growth of 8% in data and analytics revenues for the quarter compared to a year ago. This revenue growth contributed to margin expansion in the risk and fraud group where we achieved an adjusted EBITDA margin of 33%, a point higher than 2010.

Unfortunately the combined impact of our decision to write-off $5 million in accounts receivable balances and deferred revenue recognition of $6 million in a marketing services business negatively impacted EBITDA and EBITDA margin in our specialty finance solutions group. Since these two items have a dollar for dollar impact on EBITDA they disproportionately affected data and analytic EBITDA and margin in the quarter. We believe we have identified the key issues in the marketing services business and following a more detailed review in the third quarter, we will take appropriate actions.

Now turning to business and information services. Lower appraisal volumes in our captive and joint venture entity as well as reduced volumes in our default services and broker price opinion areas led to significant revenue and EBITDA declines in the segment. All these businesses have been impacted by declines in market volumes, the vast majority of the decrease came from specific client losses over the past 12 months. In appraisal these losses reflect our decisions to walk away from unprofitable business and the short-term breakage cost of exiting those relationships. Although we are confident that we made the right long term decision in appraisal, second quarter EBITDA was negatively impacted by about $4 million.

In the default businesses revenue and EBITDA declines reflect the loss of client volumes in the default technology services and broker price opinion businesses. In default technology services we were impacted by two client losses. The first which represents the majority of the impact reflects a client decision from 2009 where we actually lost revenues in July of 2010. So the second quarter of 2011 reflects a hard comparison to the second quarter of 2010 when we still had those volumes. The second reflects a previously disclosed client loss from 2010 which began to impact our results in June of this year.

In broker price opinions, the story is similar. With the majority of the volume declines coming from client decisions that we disclosed in the last 12 months and rolled of following the second quarter of 2010. Slide 11, provides some insight into our revised revenue guidance for 2011. As you can see we are anticipating continued growth in the data and analytics segment which reflects continued strength in data licensing and advisory revenues. In business and information services segment, reduced volumes and customer losses in the appraisal, bpo and default services businesses will lead to a weaker second half of 2011.

Slide 12 illustrates our revised outlook for adjusted EBITDA. As you can see this is largely in line with our revenue expectation. Increases in data and analytics and lower results in the business and information services segment. One point to make here is that we expect our efforts to drive efficiency and technology, infrastructure and expense management will generate savings of about $18 million in the second half as we begin to realize benefits from the cost initiatives we communicated on our last call.

Slide 13 summarizes our debt capital structure and second quarter cash interest expense. As we discussed in May, our decision to issue public notes and restructure or bank facility has provided us with significantly increased financial flexibility and a lower cost of borrowing than our previous funding mix. While we have significant availability on our credit line at our current debt levels, we will look to reduce our leverage over time.

Finally slide 14 shows our balance sheet at June 30 compared to year-end 2010. As you can see we have increased our borrowings in the past six months due to our issuance of $400 million of senior notes in May 2011. We have been quite active in the first six months of 2011 as the combined effect of share repurchases, the acquisition of RP Data and the cash purchase of non-controlling interest made up the majority of our cash uses in the first half of the year. As of June 30, 2011, we maintain cash balances of a $171 million and capacity of about $500 million on our line of credit.

As we have discussed in the past, we will continue to balance acquisition share repurchases and capital structure changes to promote financial flexibility and long-term growth and shareholder value. With that I will turn it back to Anand for the Q&A.

Anand Nallathambi

Thanks, Jim. Operator, let’s go to Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Carter Malloy with Stephens. Please proceed.

Carter Malloy - Stephens Inc.

Yeah, hey guys. I was just looking to build a bridge on the EBITDA line specifically. So last quarter the mid-point of guidance and this quarter the mid-point of guidance on revenue are the exact same. But on EBITDA mid-point went from $350 million down to $270 million and that’s taking into account that you have $18 million in additional cost saves in back half. So just try and help us build a bridge there on where the EBITDA shortcoming is coming from?

James Balas

Yeah, Carter, this is Jim Balas. The optics we realized, the optics versus expectations aren’t quite in alignment. And as we dug into the numbers what we found was really it’s – it’s really three factors. One we are not really getting the seasonal lift. Two, the weakness in marketing services our NJV, appraisal, bpo, default businesses that both Anand and I both alluded to in our opening comments. Those businesses represent 95% of the gap in the EBITDA versus the original guidance.

Then the third issue we are seeing is product mix effect. So for instance on the NJV, while that doesn’t have a big impact on revenues, it has a significant impact on EBITDA because it’s equity earnings that we layer into our adjusted revenues but it drops right to the bottom line. So it doesn’t move the needle on the topline but has a huge impact on EBITDA. And then another example we can point to is, for instance, we had growth in field services which was probably the only business in the BIS segment that had a seasonal lift in Q2. But then when you looked at default services there was a decline. And we will trade all day along the margin on default services in place of the field services. It’s a three to one ratio on the margin. So those are the factors I would look at in building that bridge.

Carter Malloy - Stephens Inc.

But effectively the mid-point revenue – there is no seasonal lift and this marketing services weakness. But the revenue guidance is still the same and we are talking about a very significant gap on EBITDA. So you are saying that that’s just really because really the bad margin business are growing and the good ones are going away? I don’t understand how the revenue guidance stays the same if EBITDA moves so dramatically.

Dan Smith

Carter, it’s Dan. So I think the points Jim was making are correct. So first, it’s NJV, significant decline in NJV volumes that come through 80% to 90% past their margin. Within default services you have revenue growth within field services that comes in thin margins and loss of high margin revenues in default technology services. So that right there shows revenue growth but significant margin decline and then (inaudible), significant declines there and appraisals. So I think those are the main factors.

Carter Malloy - Stephens Inc.

Okay. And then from an overall company EBITDA margin perspective this year somewhat disappointing, but are you expecting those mixes to switch back or how should we approach models for next year as well, because this obviously implies a pretty serious drag down on those also?

Anand Nallathambi

Yeah, Carter, this is Anand. For next year one of the things that we are trying to do, I did say that we are reviewing the non-core non-strategic assets. This is the second call that we have mentioned that. We are taking actions for next year where there is going to be – like Jim said there is going to be about $30 million of cost savings that’s going to be analyzed that will show up next year. We are also talking about $50 million in IT infrastructure type projects that’s going to drop to the bottom line. We have half a year of RP Data pickup that should show up in 2012. So the EBITDA numbers look completely differently even if you just did a take 2011 of this with no increases and just add on these things it looks better than what you would think otherwise.

Carter Malloy - Stephens Inc.

Okay. And then on this quarter as well look at – I mean going to the segment everything looks great. Revenues are in line, EBITDA is for most part in line, with the exception of that big hole in specialty finance. Can you guys talk a little bit more about how much of that was from the marketing services business in a sort of one time in nature? We could may be even add back the EBITDA number to get more of an apples to apples?

Dan Smith

Yeah, actually, Carter, it’s something we kicked around internally. We had two adjustments that we highlighted in the press release. So one was $5 million in receivables and so it was a larger amount than typical but it was a charge we had to take. And then the second was probably the more usual one of the two. It’s a deferred revenue, and we had something – an event late with the quarter with a significant customer. We weren’t in a position to say that this is not good revenue but under the SEC guidelines you are supposed to have a 90% certainty to recognize a revenue and we weren’t quite there. And so we hung it up on the balance sheet.

Now the thing that’s key to understand from a financial point of view is that the expense related to that revenue is flowing through the P&L. So normally when we defer revenues we defer the cost as well. But in this instance because we are on the hook for the expense that was associated with this business, it’s racing through the P&L in Q2. So you might have a timing difference of sorts.

Carter Malloy - Stephens Inc.

And was that the same customer for both those reasons?

Dan Smith

No, totally different isolated incidents. Not related.

Carter Malloy - Stephens Inc.

Okay. May be we can follow up after the call for some more details. Thanks.

Operator

Your next question comes from the line of George Mihalos with Bank of America Merrill Lynch. Please proceed.

George Mihalos - Bank of America Merrill Lynch

Close enough, George Mihalos. A couple of questions guys. Just a follow up again on the prior question. Some of these businesses that you guys are exiting, certainly appraisal where you are saying you got a $40 million-$50 million hit on the top line, is it – I mean the margin on that business is very low single digit. Right? Am I not correct there?

James Balas

Yeah, that’s correct.

George Mihalos - Bank of America Merrill Lynch

And so it’s all essentially the JVs that are really dragging down the EBITDA that much?

Dan Smith

It’s not all the JV but they are playing a – the JV income that we have been enjoying is down significantly. It’s a good chunk of it.

George Mihalos - Bank of America Merrill Lynch

Okay. Are there any other – you had mentioned some things in specialty finance, are there any other one time hits that we should be aware of as we kind of think through building our models going forward.

James Balas

The marketing services was one we highlighted and then we did highlight in our opening comments, appraisal, there was $4 million associated with that large customer that we couldn’t come to terms with. And any other items guys? I think those are the main ones that we have highlighted.

Anand Nallathambi

We are shutting down a facility and starting a platform.

James Balas

Yeah, the $4 million does include – I guess we could add a little color there. The $4 million includes expense that we have not one time. There was additional severance of about a $1 million that is included in our onetime adjustments in our slide deck.

George Mihalos - Bank of America Merrill Lynch

Okay. And just it’s sort of early days but as you kind of look at the origination market, you guys have kind of put out an estimate of about $1.2 trillion for this year. It seems like some of the data that has been aggregated, whether it’s mortgage bankers or Fannie, Freddy seem to be suggesting or bumping their numbers off closer to your number for this year. Are you worried that they’ll be more significant downtrend as you look out into 2012 that you may have a, just sort of another origination headwind?

Anand Nallathambi

We don’t see – George this is Anand, if I had to look at incoming application volumes, you know they are picking up but I am not sure if it is sustainable. And with what we have seen with the lack of seasonality in the second quarter that was a phenomenon that we have never experienced before and that partly plays into our expectations for the rest of the year to be flat. And so if you look at our guidance, that just assumes we repeat the first quarter over the second quarter with some minor improvements in cost savings and stuff. That’s how we look at the air. Is it okay?

George Mihalos - Bank of America Merrill Lynch

Thank you.

Anand Nallathambi

It’s a tough prediction.

Operator

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

Darrin Peller - Barclays Capital

Can you just comment on the normalized margins we should expect from the specialty finance segment going forward? What we should kind of think about from a modeling standpoint given the $11.3 million of what’s seemingly one time or non-operating I guess you can say, from this part quarter. And then may be talk a little bit about what you would expect if this were the constant environment from a mortgage standpoint whether it’s on the origination side, what we should expect on the margins there? Then last question is, are you starting to see any evidence of a refi pickup given the potential rate changes we have seen so far, given some of the recent regulatory moves?

Dan Smith

Hey, Darrin it’s Dan. I would say on the margin, generally speaking, I think with the marketing business under pressure, that was the reason for the significant drop off in margin this quarter. But generally speaking I think our guidance for this year was that we would be in the 15% to 20% range for this year.

Darrin Peller - Barclays Capital

The specialty finance segment in particular, Dan?

Dan Smith

Exactly.

Darrin Peller - Barclays Capital

Okay.

Darrin Peller - Barclays Capital

The specialty finance in particular. I think on originations, as Anand said we haven’t seen very significant response to lower rates. So 1.1 trillion to 1.2 trillion I think is probably still the operable originations range. I would point out that in flood and tax and in the trimerge mortgage credit report which is the most sensitive businesses to originations, those were all down in revenue on the order of – sort of 3% to 6% year-over-year. So in line with what we would expect our typical sensitivity to mortgage originations to be. And the key event unfortunately, as Jim pointed out, in the quarter was one (inaudible) and two the loss of a significant appraisal client. Those were the two that put the big impact on the financial results for the quarter, not originations. And you had a third question, I am sorry, what was the third one?

Darrin Peller - Barclays Capital

No, I think you basically addressed it. It was really just what you are saying on the origination front. Anand when you look at the, some of the initiatives you have kicked in on since coming out a separate company, can you tell us which you think are the main ones that are going to show sustainable revenue even during a downturn? What I guess I am trying to get at is, our view is that obviously there is a fair amount of innovation possible within this model given the data and analytics. And then really the data – the propitiatory data that do have, I’d just be curious to hear what you think is really going to show resilience in this environment?

Anand Nallathambi

Sure. I think the risk and fraud group has shown a lot of resilience. Our fraud products have been adopted in general out there with very good response and reaction from the marketplace. So I would place emphasis there. The IdentityLogic launch in the consumer services side is an area that we are making good headway. So in addition to risk and fraud products and then we the consumer services is a good growth area. And the rest of the business is – the core businesses in mortgage origination holding their own. The third area would be the cost savings initiatives. That’s a big area that we have seen a lot of progress. The initiatives that Deloitte has helped us with, we have now about six key initiatives with main tracks and project plans and people working on it. Obviously project Lotus which is this outsourcing of our India subsidiary to Cognizant is one of them. So we are – those are the things that I would point towards the future.

Darrin Peller - Barclays Capital

Got it, thank you.

Operator

Your next question comes from the line of Bill Warmington with Raymond James. Please proceed.

Bill Warmington - Raymond James

That’s Bill Warmington. Good afternoon everyone. I want to ask you about – if you take a look at the run rate revenue going forward including RP Data and Dorado, what percentage is a function of new residential mortgage originations and what percentage is coming from default?

James Balas

So you are saying inside of the second half guidance what percentage is originations and what percentage is default?

Bill Warmington - Raymond James

No, I am saying going forward now that you have…

James Balas

RP Data and Dorado?

Bill Warmington - Raymond James

Right, well now you’re including RP and Dorado in there into the whole revenue mix. There are adjustments there, and if you want to just look at the ongoing business if you will, I just want to get a sense for what percentage is going to be sensitive to residential mortgage originations? What percentage is going to be sensitive to default?

James Balas

So that’s for – just to clarify is that for CoreLogic as a whole?

Bill Warmington - Raymond James

Yes. Total revenue.

James Balas

I don’t think either one of those moves the needle significantly on revenue. RP Data was far and away the bigger of the two and total revenue for RP Data, when we acquired them the guidance was 90 million annually. So I think in general I would say that our exposure to origination is still probably on the order of 45% to 50%. And default closure to around 20% and risk and fraud – so obviously what’s happened as those businesses have been more highly impacted by origination delays and default delays and risk and fraud has grown nicely, risk and fraud has become a larger percentage of the business as a whole. And that’s been largely cyclical for us.

Bill Warmington - Raymond James

Okay. I wanted to know – I wanted to ask you if you could run through the cost savings again just to make sure I follow in terms of how much is being spent now and what the payback is going to be and when that payback is going to come? Because you have mentioned several different programs. I’ll make sure I capture them all correctly.

James Balas

There is basically two that we identified during our opening remarks. One that was announced, I believe it was in the fourth quarter of last year, $50 million program, which where we believe the bulk of those savings are going to come out of IT optimization program. And the second one is one that we announced during the course of this year on our first quarter earnings call. Where we were targeting saving of $20 million to be realized during the course of 2011. All in total we have spent $11 million for the one program. And the second program is really a result of internal types of initiatives that we have undertaken.

Bill Warmington - Raymond James

Okay.

Anand Nallathambi

So to round up for you Bill, the way to look at the numbers are, this year we are going to save $20 million that will have an annualized impact of $30 million in the future years. And as the projects that we have been investing in, that we talked about the $50 million originally in 2012, that is still on target and we will believe that we will get it. And the main areas that we will get it is obviously information technology and corporate infrastructure. And a little bit of the businesses too.

Bill Warmington - Raymond James

So on the first program you’re spending 20 this year and you’re going to get…

Anand Nallathambi

We haven’t spent the 20, we have spent 11 of that.

Bill Warmington - Raymond James

You’ve spend 11 of the 20 but you plan to spend the 20 this year.

Anand Nallathambi

But it seems this year may be it’ll spill into next year.

James Balas

Yeah, probably spill over into next year.

Bill Warmington - Raymond James

And that’s going to generate ongoing savings of $30 million.

James Balas

$50 million

Anand Nallathambi

$50 million

James Balas

$50 million. With a good chunk of it being realized next year.

Bill Warmington - Raymond James

Got you. Let me also ask, what’s the fully diluted share count exiting the second quarter?

James Balas

I had that. I think it’s a 108 believe. Yeah, 108.6.

Bill Warmington - Raymond James

I don’t mean the actual average for the quarter, I mean – because you bought back a lot of stock.

James Balas

The actual share count?

Bill Warmington - Raymond James

Yeah, the actual fully diluted share count.

James Balas

106

Bill Warmington - Raymond James

106, okay.

James Balas

We are expecting the full year to be 108. We were at 116 or so at the beginning of the year so you average it.

Bill Warmington - Raymond James

Okay. Got it. I want to ask also about the IdentityLogic program that you guys have launched and whether you guys are actually doing that or are you having another vendor provide that for you?

Anand Nallathambi

No, it’s a portal that we have launched. And the first products coming out of this would be the credit monitoring service. But our plan is to just build it into a complete consumer portal whereby the whole complete suite of data and analytic products could be sold directly to consumers.

Bill Warmington - Raymond James

Okay. And then any plans for lead click segment. You know that was the one left over piece from the employer and legal part of the business that was not sold back in December. What are the thoughts on that going forward?

James Balas

Yeah, that business is actually the marketing services business that we have identified in the press release. And that’s the same business that we are currently undertaking a business review of this quarter and we will have an update for third quarter.

Bill Warmington - Raymond James

Okay. Thank you very much.

Operator

(Operator Instructions) Your next question comes from the line of Kevin Mcveigh with Macquarie. Please proceed.

Kevin Mcveigh - Macquarie Research Equities

Great, thanks. And I apologize to be leading with but if the EBITDA guidance this year is 260 to 280, assuming the cost initiatives you take in and assuming no other improvement in the business, what would that suggest for EBITDA in 2012 based on the cost actions that you have taken thus far?

Dan Smith

Sorry, Kevin, we will give guidance as we normally would, next year. But one way to look at it is if you were to take the full year guidance, the mid-point which gets you to 270 and overlay the cost savings that we are going to get, that would be a starting point. So in terms of cost savings that we have identified. It will be the 20 that we are going to get this year but you get the annualized impact, so that would be another 10. And then you would get – we have said that you are going to get the majority of the 50 in cast savings next year, so say 25 to 30 and a full year of RP Data which is 15. So 15, let’s call it 30 plus another 10 gets you to additional 60 on top of this year.

Kevin Mcveigh - Macquarie Research Equities

Understood. And again I just want to go back to – so is the model scaled right now for an origination market of 1.1 trillion, is that right?

Anand Nallathambi

You know we just use the – the market originations number is just a one factor in what we do. As we explained today there is a lot of things that go into our forecast. So that hasn’t really married much like we said in this market even though market originations are doing about 1.1 to 1.2. Our national joint ventures which is as you see with the market makers out there. Where they retain share better, there revenue decreases were like 15% to 20%. So much of it has to relate to the distraction with the government actions and other things that are going on and then the delays because of lack of standards being established for modifications and through the default process. So it’s not a direct correlation anymore and that’s what we have talked about, where we didn’t see the seasonality and we don’t see the impact of any seasonality in the second half of the year.

Kevin Mcveigh - Macquarie Research Equities

Understood. And is it fair to say, are you buying back stock at this point or is the buyback going to be suspended. And just also on what type of leverage ratios you want to carry on a go forward basis?

Anand Nallathambi

Well, we have to look at – we haven’t suspended anything but we have to look at it in context of our leverage and capital structure and that’s what we said.

Dan Smith

Kevin, this is Dan. I don’t think we have changed our long-term outlook on what we think is the right long term leverage ratio to run out. Which is as we have said is sort of in the mid twos. But given the change in forward-looking expectations and the activity that we have had in share repurchases and acquisitions in the first half of the year, we are above that at this point. And we would look to bring it down overtime closer to that range.

Kevin Mcveigh - Macquarie Research Equities

Okay. And Dan can you just – where are you right now in terms of leverage?

Dan Smith

So I guess our total debt is about 950 – 939 and the midpoint of guidance is 270, that gets you to sort of you know a little, probably between 3.25-3.5. That’s on a forward-looking basis.

Kevin Mcveigh - Macquarie Research Equities

Right. Okay. Thank you.

James Balas

Currently we would be sub 3.

Dan Smith

2.9 or something.

James Balas

I think 2.7

Operator

Your next question comes from the line of Thomas Egan with JPMorgan. Please proceed.

Thomas Egan - JPMorgan

Thank you for taking my call. I just wanted to clarify a little bit, may be where some of the changes were coming from? If you could sort of help us out if I think about the changes in a pie chart. If the guidance is down on EBITDA about 80 million, do I take out the onetime charges which are 5 million receivables 6.3 million deferred. And then if you could just sort of say where are the bulk or the rest of it? So how much is appraisal, how is much is JVs, how much is the rest?

James Balas

I am sorry, Tom, could you repeat your question?

Thomas Egan - JPMorgan

Sure, hold on. I was just curious if you could sort of help us put a pie chart in our head of may be where the changes in the EBITDA are coming from. So you have got a reduction of about 80 million and it sounds like 5 million is one time for receivables, 6.3 million is one time for deferred. So out of the rest of it, which is 80 million minus that 11 million or so. Let’s call it 69 million, out of the rest of it, how much of it is due to the appraisal, walking away? How much of it is due to marketing, how much is it due to the JVs?

James Balas

Yeah, earlier we stated that 95% of that delta was due to the weakness in those businesses. And the NJV business, the appraisal, marketing services and the default related businesses. I think if you use 25% share for each of those effectively you get pretty close.

Thomas Egan - JPMorgan

Okay. That’s helpful. And then the – your bonds are probably – I thinking they were trading about $0.92 on the dollar before the call, my guess is they will probably be trading about $0.90 on the dollar post the call. And you expressed the desire to delever. Is it – would it be among your considerations to potentially buyback bonds at $0.90 on the dollar as opposed to say may be buying back stock?

Anand Nallathambi

What we said was, look at the share repurchase in context of leverage. Our priority is to get the leverage back to where our comfortable zone is overtime. We haven’t made any specific thoughts about how we are going to allocate capital at this point?

Thomas Egan - JPMorgan

Okay. Would it be at least one of things on the table?

Anand Nallathambi

We could consider it but like I said we have not made any policy decisions at that time.

Thomas Egan - JPMorgan

Understand. Okay, thank you very much.

Operator

Your next question comes from the line of (inaudible) with Prudential. Please proceed.

Unidentified Analyst

How are doing guys? Question, have you spoken to the rating agencies post this downward guidance?

Dan Smith

So we would typically speak to the rating agencies in the context of any earnings release, so yes.

Unidentified Analyst

You already have or you plan on it?

Dan Smith

You’d typically speak to those agencies in the context of the release, right?

Unidentified Analyst

Okay.

Dan Smith

So we have an ongoing dialogue with the agencies and you speak to them in the context of earnings and then after you make your full disclosure, you typically have a more full meeting with them?

Unidentified Analyst

Okay. When you issued bonds in the middle of May, you know you couldn’t have known that the size of this decline in guidance was coming at that point? But how could you not have any inkling because the sheer scale of the decline is, to be blunt, pretty shocking.

Dan Smith

So the issues that we identified in the quarter that gave us the decline were really two big items. The first was the $11 million item in Lequick [ph], our marketing services business. And the second was a loss of a significant client in the appraisal business. And the two of those combined totaled about $16 million in the quarter which were unknowable at the time of the first quarter earnings call. And so I would say the majority of the miss, all of the miss and more from the first quarter is attributable to those two items.

Operator

Our next question is a follow up question from line of Carter Malloy with Stephens. Please proceed.

Carter Malloy - Stephens Inc.

Hey guys, couple of follow-ups. One is on the guidance for the second half of the year to basically flat. And I realize we are fairly decoupled or not nearly as correlated as anyone would expect with origination volumes but the fact is that origination volumes are expected to just to have their typical seasonality and actually decline through the rest of the year. So can you talk about your guidance for being flat first half to second half in light of that?

James Balas

You know the guidance on the D&A segment, I mean that is going to be modestly higher for the second half of the year. And then the BIS segment we have alluded to that, that we will be a little softer in the back half. So it’s pretty much – and that business follows the origination market much more closely than the default, yeah.

Carter Malloy - Stephens Inc.

Okay. And then if you were to make a decision to divest the marketing services business, would that actually make – does that actually make your EBITDA for the year look better?

James Balas

We haven’t made any such decision yet. We are going through an evaluation during the is quarter now, in the third quarter. So we haven’t made any final decisions yet.

Carter Malloy - Stephens Inc.

But that business is currently less then break-even with even on a typical quarter sort of near break-even EBITDA, is that a correct assumption?

James Balas

I mean it definitely has a modest EBITDA profile. It’s a single digits type of profile.

Carter Malloy - Stephens Inc.

Okay. All right, thank you.

Operator

Ladies and gentlemen, we thank you for your participation in today’s conference. This does conclude your presentation. You may now disconnect and 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 Q2 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts