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CoreLogic (NYSE:CLGX)

Q3 2012 Earnings Call

October 25, 2012 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

Darrin D. Peller - Barclays Capital, Research Division

Carter Malloy - Stephens Inc., Research Division

Kevin D. McVeigh - Macquarie Research

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

Keane McCarthy

Brett Horn - Morningstar Inc., Research Division

Bethany Caster

Operator

Good morning, ladies and gentlemen, and welcome to the Third Quarter 2012 CoreLogic, Incorporated Earnings Conference Call. My name is Chris, and I will be your conference moderator for today. [Operator Instructions] And at this time, I would now like to turn the conference over to your presenter for today, Mr. Dan Smith, Senior Vice President of Investor Relations. Sir, you may proceed.

Dan Smith

Thank you, and good morning. Welcome to our investor presentation and conference call where we present our financial results for the third quarter of 2012. Speaking today will be CoreLogic's President and CEO, Anand Nallathambi; and CFO, Frank Martell. Before we begin, let me make a few important points. First, we'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-Q 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 in 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 third quarter of 2011.Thanks. And now let me introduce our President and CEO, Anand Nallathambi.

Anand K. Nallathambi

Thank you, Dan, and good morning, everyone. Welcome to CoreLogic's Third Quarter 2012 Earnings Call. I will lead off with a recap of the quarter and year-to-date operating performance and then discuss emerging trends in the housing market and our focus for the balance of 2012. Frank will follow and cover our financial results, and we will end the call with Q&A. CoreLogic delivered strong double-digit revenue growth, with significantly higher levels of operating and net income, earnings per share, adjusted EBITDA and free cash flow in the third quarter. All 3 of our operating segments delivered top line growth and expanded margins in the third quarter. We're also ahead of our year-to-date targets for Project 30 cost reductions, free cash flow conversion, debt reduction and repurchases of our common stock.

In terms of revenue growth, continued strength in origination volumes and share gains in a number of our mortgage originations businesses, as well as higher property data and analytics sales, propelled our revenues to almost $410 million during the third quarter. This represents a year-over-year growth of approximately 18%. Revenues in our Mortgage Origination Services segment jumped 36% in the third quarter. The scale and market-leading positions of these businesses that make up the segment position us to capitalize on the current refinancing wave.

The Data and Analytics and Default Services segments also grew revenues by approximately 7% and 5%, respectively. For the first 9 months of 2012, CoreLogic revenues are up 17%, with our Mortgage Origination Services and Data and Analytics segments growing at double-digit rates. Our Default Services segment is up 3% for the year despite a contraction in overall market volumes. The company continued to drive significant cost productivity and improved profit margins in the third quarter. Progress in this area was evidenced by a 38% year-over-year increase in third quarter adjusted EBITDA and adjusted EBITDA margins of 29%, 430 basis points higher than last year. For the first 3 quarters of 2012, adjusted EBITDA is up 56% and adjusted EBITDA margins of almost 30%, 750 basis points higher than 2011. Project 30 is the single largest driver of CoreLogic's margin expansion in 2012. Project 30 savings together with increasing operating leverage in our servicing businesses have enabled the company to expand profit margins and, at the same time, reinvest significant amounts into the transformation of our business operations and technology infrastructure. Year-to-date, Project 30 has delivered $51 million in cost savings against a full year target of $60 million. Based on current run rates, we expect to modestly exceed our full year Project 30 target. We believe that our focus on profitable revenue growth together with the strong expansion of our adjusted EBITDA margins so far in 2012 demonstrates that the company is on the right trajectory to reach its target of at least 30% sustained EBITDA margins as we exit next year.

As I've stated on previous calls, a key focus for CoreLogic in 2012 is building our financial flexibility and returning capital to our shareholders. I'm pleased to report that we have made excellent progress in these areas. Over the first 9 months of 2012, we reduced outstanding debt by over 10% and bought back 10 million of our common shares. Since CoreLogic became an independent company a little over 2 years ago, we have repurchased over 15% of our outstanding common shares at prices significantly below current trading levels. A repurchase of significant numbers of our shares reflects our belief that even at current price levels, our common stock remains below its long-term strategic value. As we move forward, we plan to continue to focus on providing our shareholders with the highest possible returns generated through a combination of investing in the future growth of the company and efficient returns of capital.

For the first 9 months of this year, CoreLogic has delivered record levels of revenue, operating and net income, earnings per share, adjusted EBITDA and free cash flow. As we look to the balance of this year and into 2013, we believe the successful execution of our strategic plan has positioned CoreLogic to capitalize on the emerging recovery in the housing markets in the U.S. and to further expand our footprint in data and analytics. Although we remain cautious due to the macroeconomic factors such as declining global growth rates, continued high unemployment and the European debt crisis, we believe that the U.S. residential housing market is exhibiting clear signs of stabilization and improvement in 2012.As you know, the current low interest rate environment has driven a high level of refinancing activity over the past year. Based on recent forecasts by the Mortgage Bankers Association and the GSEs, refinancing is expected to account for over 70% of all mortgage originations in 2012.

With rates expected to stay low for some time to come and the introduction of government programs such as HARP 2.0, many industry experts believe refinancing activity will remain at elevated levels into at least the first half of 2013. A continuation of the current refinancing wave provides time for the eventual recovery in the purchase market to gather steam. A sustainable recovery in the purchase market will require a progressive and orderly reduction in the shadow inventory, a balancing of supply and demand of housing stock and modest returns in home price appreciation. Continuing improvements and broader economic indicators such as lower unemployment will also be needed to fuel sustained buying demand. As we exit 2012, it appears there is positive momentum in many of these areas.

We're seeing a gradual decline in the shadow -- in the size of the shadow inventory. Increasingly, improving market conditions and industry and government policy are also allowing distressed homeowners to pursue refinancing, loan modifications or sharp sales rather than foreclosure. In many regions of the country, the supply of housing has decreased substantially over the past 6 months. Applications for new mortgages are up 27% during this period compared with a year ago. Not surprisingly, home prices are responding to improved market fundamentals like reduced inventories and improving buyer demand.

Year-to-date, in 2012, CoreLogic's Home Price Index is up 9% nationally. We expect 2012 to be the first year of significant price appreciation since 2006. Improvement in home prices is an important factor in reducing the effects of negative equity, which has been a significant drag on housing activity and the broader economy. The improving market outlook I have just described, coupled with the successful execution of our 2012 plan, are catalysts for increasing our full year financial guidance. We now expect to deliver year-over-year growth in revenues of 14% to 15%. Adjusted EBITDA is forecast to rise 49% to 52%. And adjusted EPS should increase between 99% and 105%.

In closing, CoreLogic has delivered 5 successive quarters of strong revenue and profit growth. Our progress has been driven by a focused strategy that leverages the company's unique data assets as well as the market leading position and scale of our servicing businesses. We believe CoreLogic is uniquely positioned to profit from a recovery in the housing and mortgage markets, which will drive growth and demand for our must-have data, analytics and business services. Finally, I'd like to thank our clients, employees and shareholders for their continued support. It has been a terrific year so far, and the entire CoreLogic team is focused on delivering an outstanding performance on all fronts in 2012.With that, I'll turn the call over to Frank.

Frank D. Martell

Thank you, Anand, and good morning, everyone. Today I'm going to review our third quarter financial results. I will also provide updates on our cost reduction programs and the launch of the Technology Transformation Initiative, or TTI. I will conclude with a brief discussion on free cash flow, capital allocation strategy and our updated 2012 financial guidance. As Anand mentioned, CoreLogic delivered strong top line growth and significantly higher profit margins in the third quarter. Margin expansion was driven by our aggressive cost reduction programs, as well as favorable operating leverage and revenue mix. Free cash flow generation remained strong during the quarter, fueled by revenue growth, improved profitability and a reduction in collection cycles. We aggressively repurchased our common shares in the third quarter, completing our previously announced 2012 program 3 months ahead of schedule. We will continue to successfully transform CoreLogic's underlying financial and business model. I believe that our year-to-date financial results, as well as our updated 2012 financial guidance, provide important insight into the progress the company is making with regard to profitable growth, best-in-class operational efficiency and superior cash flow generation. Third quarter revenues were up 17.6% to $409.8 million, a record level for CoreLogic. Our Mortgage Origination Services segment revenues jumped 35.6% year-over-year to $175.1 million. This $45.9 million increase was principally attributable to higher refinancing volumes, market share gains and increases in pricing in some business units.

Data and Analytics revenues totaled $149 million for the third quarter. This represents a year-on-year increase of 6.5%. Growth in this segment is principally attributable to higher sales of core property data and analytical products, growth in advisory services and benefits from the acquisition of Tarasoft in September of 2011. On an organic basis, the Data and Analytics segment grew by a little over 5% in the third quarter of 2012. Revenues related to the sales of our core property information and analytical products, which represent about 2/3 of the revenues in the Data and Analytics segment, rose 9.5% in the third quarter. Somewhat offsetting this growth, revenues attributable to our tenant screening and alternative credit business units were modestly below 2011 levels, primarily as a result of challenging market conditions in these sectors.

Default Services segment third quarter revenues totaled $89.4 million, a 5% increase from prior year. This increase comes despite a continuing decline in overall market activity related to delinquent loans and foreclosures and was mainly attributable to higher volumes and operating efficiencies in field services and client wins related to loss mitigation programs. Operating income from continuing operations totaled $61.4 million for the third quarter of 2012 compared to $27.8 million for the third quarter of 2011. This 120.5% increase was driven primarily by higher revenues and cost reductions. Third quarter 2012 operating income included $22.4 million in cash investments and one-time non-cash charges associated with the launch of the TTI. Operating income margins were 15% for the most recent quarter compared with 8% for the second quarter of 2011.

Third quarter 2012 operating income margins exclusive of the impact of the TTI was 20.4%. All of CoreLogic's business segments improved operating margins in the most recent quarter. Third quarter adjusted EBITDA totaled $118.7 million, which represents a 37.8% or $32.5 million increase from the prior year. Adjusted EBITDA margins were 29%, up from 24.7% in the third quarter of 2011. Third quarter 2012 adjusted EBITDA included $10.5 million in cash investments related to the TTI launch. Adjusted EBITDA and adjusted EBITDA margins excluding these investments would have totaled $129.2 million and 31.5%, respectively. Importantly, all 3 of our business segments grew EBITDA margins. Third quarter adjusted EBITDA margins for Mortgage Origination Services rose to 41.5% from 32.4% a year ago. Data and Analytics' adjusted EBITDA margins were 31.7%, 360 basis points higher than last year. Finally, Default Services' adjusted EBITDA margins increased to 19.7% from 16.5%. As Anand mentioned, Project 30-related cost savings are a major propellant of our margin expansion in 2012. We have now achieved 85% of our full year savings target of $60 million. Our fourth quarter 2012 savings targets are now largely secured by actions initiated prior to the end of the third quarter.

Our launch of the TTI during the third quarter is a significant milestone for CoreLogic. We expect this multi-year initiative will provide the company with a state-of-the-art technology infrastructure, with new functionality, increased performance and an overall reduction in application management and development costs. The transformation of CoreLogic's technology infrastructure is an integral part of our long-term strategic plan and is expected to substantially lower our cost profile. Importantly, the TTI will also provide a platform that enables and supports future growth.

Third quarter net income from continuing operations totaled $36.2 million, which represents an increase of $39.2 million from the prior year. This increase was attributable principally to revenue growth, cost productivity and lower interest expense. Third quarter 2011 net income from continuing operations include one-time charges and tax expense totaling $19.7 million related to the company's sale of its captive Indian outsourcing operation.

Diluted EPS from continuing operations totaled $0.35 in the third quarter, an increase of $0.38 from 2011. Adjusted EPS for the third quarter was $0.45, or $0.21 higher than Q3 of last year. Increases in EPS and adjusted EPS reflect improved financial results and the impact of share repurchases. The balance of my remarks today will focus on free cash flow, capital allocation strategy and updated financial guidance for 2012. As you know, generating significantly higher levels of free cash flow is a major focus for CoreLogic. Year-to-date, our free cash flow from continuing operations totaled $196 million or 57% of adjusted EBITDA. During the third quarter, CoreLogic generated $53.3 million of free cash flow, which represented 44.9% of adjusted EBITDA.

In Q3, the company increased its quarterly estimated tax payments to $20 million, reflecting CoreLogic's progressively higher levels of actual and forecasted profitability. Third quarter cash flow also reflects cash payments of $10.5 million associated with the launch of the TTI, which I discussed earlier.

As of September 30, the company had unrestricted cash of $154.6 million and total debt of $795 million, with approximately $499 million available on our revolving credit facility. Over the first 9 months of 2012, CoreLogic repurchased 10 million shares for a total of $226.6 million and retired $113.5 million in outstanding debt. As we exit 2012 and enter 2013, we intend to pursue a balanced capital allocation strategy that focuses on the following priorities: first, the funding of disciplined reinvestment in the business to support future profitable growth in line with our strategic business plan; and second, the long term efficient return of capital to our shareholders and/or repayment of outstanding debt.

The final topic I will cover today is our revised 2012 financial guidance. Based on our strong year-to-date financial performance and continued improvement in the U.S. housing and mortgage markets, we have substantially increased our 2012 revenue, adjusted EBITDA and adjusted EPS guidance.

For the full year, we expect to generate revenues of between $1.52 billion and $1.54 billion, with adjusted EBITDA of $435 million to $445 million and adjusted EPS of $1.45 to $1.50. This guidance reflects a 1.6 to 1.7 trillion originations market in 2012. It also factors in our current view of revenue growth prospects in each of our business segments, Project 30 cost savings and the impact of our 12 million -- or 10 million share repurchase program.

Specifically, in terms of the fourth quarter of 2012, based on current revenue and volume trends, our latest view of Project 30 savings and TTI reinvestments and expected seasonality, we believe that adjusted EBITDA and adjusted EPS from continuing operations in the fourth quarter should be substantially in line with first quarter levels.

In summary, CoreLogic delivered a very strong set of financial and business results in the third quarter. Our focus remains squarely on operational execution in 2012 and positioning CoreLogic to enter 2013 with strong and positive momentum. Thank you for your time today. I will now turn the call back over to the operator to kick off the Q&A session.

Question-and-Answer Session

Operator

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

Darrin D. Peller - Barclays Capital, Research Division

I just want to start off first. Obviously, there is material strength in the Origination Services line. And obviously, the Default Services also came in well. Data and Analytics, well, it grew decently. It showed organic growth of 5% on a year-over-year basis, I think, Frank, as you just mentioned, when you back out of a deal. It was a slight deceleration from the 6% organic growth that we saw last quarter. And while we understand that the core data businesses grew well, you did have some slower trends in tenant screening and MLS that, I think, drove down the whole segment. So I guess the question is, we knew that last quarter, you had those issues in those areas. Tenant screening, MLS. And yet I think you guys still expected overall data analytics to accelerate from the roughly 6% range up. So can you touch on what may have changed or what you're doing to get the overall segment to growth in the high-single digits again?

Frank D. Martell

Yes, Darrin, this is Frank. I think, as you may remember, last year, we had a pretty strong second and third quarter in D&A. We had a fair amount of growth over the last couple of years in the advisory area. That tends to be a little bit lumpier than the licensing and other data streams. So the comps were a little tough. But we do expect a reacceleration of growth in the fourth quarter. We expect growth in D&A, from an organic perspective, to be in the low double-digit rate area. So we do expect a reacceleration of growth there and finish the year in a 6% 7% organic growth profile. So we feel pretty good about that, and we do expect -- and hopefully, some pickup as we go along in the other business units as well that have been flat.

Darrin D. Peller - Barclays Capital, Research Division

So what exactly would drive that? I mean, tenant screening is a largely underlying market-driven segment, right, around rental turnover? And MLS obviously is brokerage. Just what exactly would drive the pick up sequentially?

Frank D. Martell

Yes. I'll take it, and maybe Anand will want to embellish it. But you look at the stats for REALTOR accounts, they've stabilized and they're starting to rebound a little bit. We expect that trend will probably continue with the market activity should that continue to be positive. Secondly, as the economy gets a little bit stronger and employment and people's confidence get up, I think that you'll see the turn over in the multi-family area to pick up a little bit, and that'll drive that business. And then in terms of the payday leading business, that's obviously a function somewhat of regulatory environment. And that's something that's more beyond the market control at this point.

Anand K. Nallathambi

This is Anand. Just to kind of round out what Frank was talking about, the core businesses and property and data -- and Data and Analytics are growing pretty good. Obviously, we would like it to have more robust growth, and we're working on it. We're working on some new products and stuff. The fourth quarter is going to be -- there's going to be some increased activity in the document solutions area. And in terms of tenant screening and payday lending, those are highly regulated businesses. And they're also businesses we have pretty good market share. And growth has to come through from distribution channels, and also maybe international growth. And the international growth has been severely hit because of what's happening in Europe and other areas. So it's something that we're working on, and we look to improve it going forward

Darrin D. Peller - Barclays Capital, Research Division

All right, that's helpful. I just want to ask one question on the margin also. I think there were a few areas that were somewhat one-time-ish in this quarter. Just to be clear, we're -- the numbers all work out -- our math works out correctly. Your margin, I know, reported, came in at 29%. But correct me if I'm wrong, there was -- the TTI cash expense of 10 million should be backed out of that if we'd consider kind of an ongoing recurring margin, as well as -- wasn't there also some sort of true-up on expenses?

Frank D. Martell

No. The big swing in the third quarter is the fact that we kicked off the TTI. So what we're doing is we are, as we talked about in the market, that we are including the cash expenses in our EBITDA numbers because that theoretically drives future benefit. If you look at operating income, we're including the entire charge, including non-cash obviously. But that's a 10.5. And then you may be thinking about -- I'm not sure, but the second quarter, we had an IP settlement. And so -- which netted again some offsets. But that was about a $5 million benefit to the second quarter.

Darrin D. Peller - Barclays Capital, Research Division

Okay. No, I thought maybe on the salary for other expenses. But overall -- I mean, I guess the normalized margin, if you even just back out TTI, would have been what? 31 percentage range probably? And the question...

Frank D. Martell

31.5.

Darrin D. Peller - Barclays Capital, Research Division

All right. So is that what we should -- I mean, at these level of refis, you still have another $20 million of expenses coming out as Project 30 coming up more or less, right? Or maybe $30 million overall. Is that a fair margin to look at, at these kinds of levels? Or should we just continue to expect more expansion?

Frank D. Martell

Yes. I think we're -- we have seasonality coming in, in the fourth quarter obviously. So I think the 30-plus percent is still where -- we're tracking very well against that right now. And obviously, we're going to drive hard to get above those levels as we go into '13. So I think that's still the trajectory that we're on.

Darrin D. Peller - Barclays Capital, Research Division

Just one last quick one and I'll turn it back to the queue. On the free cash flow conversion, 50 percentage range -- or above 50% is where you're running right now for the full year or the first 9 months at least. You're looking -- if we see refi stability in 2013, it looks like EBITDA should at least be flat, if not up, probably materially up, especially with the Analytics growth in 2013 combined with cost cutting. So you end up having free cash flows well over $200 million, probably closer to $240 million, $250 million in 2013, and yet we're still waiting to hear a more definitive plan on use of capital beyond the buyback that you just completed, Can you just again comment more specifically on your priorities?

Frank D. Martell

Yes. So I think our top priority -- and I'll also ask Anand to chime in, but our top priority at this point is to grow the business and to grow it in a profitable way. So I think you're going to see us aggressively investing in the business. We think there are a lot of high ROI opportunities out there. So I think you'll see that coming down the track as a major focus. That's number 1. Number 2, as we mentioned before publicly, that we will continue to buy shares as it relates to offsetting dilution from the benefit programs. So that's generally a couple of million shares a year. And then beyond that, we'll look to other areas as lower priorities at this point. But we think that -- I would stress, we think at this point, there's quite a few opportunities to employ the capital to reinvest in future growth. And that's what we'd like to do.

Anand K. Nallathambi

Yes, Darrin. This is Anand. Our priorities is to invest in growing, and I think the investments we're making in the Technology Transformation Initiative is a great sign to really go to a state-of-the-art technology and enable us to really leverage the data assets in a better way to come up with new product tranches. That's one. As far as programmatic capital allocation, we're trying to stay away from it. Obviously, we'll always look to -- look at opportunities to buy back our shares, because we do believe that we can continually drive value through that. As far as acquisitions, because I'm sure that, that was part of the reason for the question, there's no programmatic plan here to go after acquisitions. It's going to be more opportunistic -- opportunity-based. We're going to be opportunistic. We always -- any time something comes up in content and data and analytics, we tend to look at it. But that's going to be few and far between.

Operator

Our next question comes from the line of Carter Malloy with Stephens.

Carter Malloy - Stephens Inc., Research Division

Frank, can you remind us of your rule of thumb when we're thinking about origination headwinds or refi headwinds next year, specifically as it relates to your Origination Services business?

Frank D. Martell

Yes, Carter. So basically, and this is give or take depending on how far you go from the median, but generally speaking, for every 100 billion of origination activity, it's $20 million, $25 million of revenue and 15 to 20 of EBITDA.

Carter Malloy - Stephens Inc., Research Division

Okay. And is that also taking into account the Data and Analytics segment? Like if -- is that much more related to mortgage debt outstanding? If we have down transactions 10% or 20% next year, can that business still post mid- to upper single-digit growth?

Frank D. Martell

Yes. Yes. The -- obviously, the MOS segment is full-on exposed origination volumes. Not necessarily dollar volumes because dollars can fluctuate based on who's estimating. It's really units of volumes, but -- and then MOS is -- or sorry, D&A is -- you've got a fair chunk of that, that's contracted for long periods of time through licensing or other contractual arrangements, the workflow solutions, REALTORS, et cetera. So that has much, much less sensitivity to current-period volume fluctuations. It is impacted by general activity in the market, obviously, with things like our AVM business and so on and so forth. And yes, the good news is we are seeing good growth in areas that support clients as it relates to them dealing with the regulatory climate and compliance with new regulations and emerging regulations. So we don't expect that business to fluctuate dramatically with origination volumes.

Carter Malloy - Stephens Inc., Research Division

Okay. And then on Default business -- or let me just step back and -- at risk of getting ahead of ourselves. If we're thinking about a 30 to 50, maybe more than that EBITDA headwind next year on transactions, we back fill that out with 20 in cost saves plus 10 million in TTI roll off, plus additional proactive cost saves you could take in that transactional business. Is next year a year where you guys think about EBITDA being flat or up?

Frank D. Martell

We'll probably give '13 guidance probably in January. We’re working through our 2013 plan. I mean, I think, as Anand and I look at it, I think we're looking to do our very best to offset market headwinds to the extent that that's realistic. There's lots of favorability in terms of pundits out there talking about the housing market. But it's still a bit of an emerging picture, I think.

Carter Malloy - Stephens Inc., Research Division

Okay. And then one last one is can you remind us what you ended the period in as far as share count goes? Or where share count stands today would be helpful. And then if you guys do actually have authorization to buy back more or if you need to go to the board for that?

Frank D. Martell

Yes. So we have -- share count is about 103 million shares, and I think you can look at the earnings release. But the -- and then the authorization, we have an ongoing authorization to repurchase shares.

Carter Malloy - Stephens Inc., Research Division

Right. But on the share count, that was for the entire quarter. So I assumed you ended the quarter in a much lower run rate than that. Just trying to get a sense of where it stands today?

Frank D. Martell

Yes, sorry. That figure is 97 million shares.

Operator

Our next question comes from the line of Kevin McVeigh with CoreLogic.

Kevin D. McVeigh - Macquarie Research

Just to follow up on that, so Frank, if I heard you right, what is the current authorization? Or is that totally exhausted at this point?

Frank D. Martell

Obviously, it's been drawn down, Kevin. So we need to -- it's over 100 million still.

Kevin D. McVeigh - Macquarie Research

Okay. And just any reason for kind of the accelerated pace in kind of Q3 versus -- I know the initial goal was 2012. And it also looks like FAS sold down their shares. Was there any involvement from you folks in that? Is that what drew kind of the incremental 8.2 million shares? Or was it just kind of market opportunity? Because it seems like you're pretty aggressive in Q3.

Frank D. Martell

Yes. We had the opportunity to take some blocks of shares in the market, which we did. I wanted to make sure, because I think the stock was -- I think, at that point, still reasonably undervalued. So we jumped in to try to capitalize on that, and that's been a good thing for us. And then I think we obviously -- to Darrin's point, we've been generating a lot of cash flow, so we just were really aggressive. But we did buy a fair chunk of First American shares. And I think, importantly, to note there that there's a carve out in our debt covenants for those shares. So to the extent that it just gives us that much more flexibility going forward to buy additional shares and not have any debt covenant issues. So this gives us a lot more capacity going forward.

Kevin D. McVeigh - Macquarie Research

That's helpful. And then, Frank, not to get to kind of -- too far ahead on 2013, but do you guys have -- kind of have a range of how you're thinking about the origination market in '13 relative to '12? And I know there's a lot of moving parts here, but just any kind of baseline range you're thinking about?

Frank D. Martell

No. I mean, you saw the -- I think you may have saw, the MBA just came out with I think a little over a 1.3 trillion. So they moved up about 300 billion from their original estimate. So it's a moving target, I think. Fortunately, it's moving upward in a lot of areas. But it's still, as Anand said, there's a lot of uncertainty with the macroeconomic situation. So we're waiting as long as we can to make a call on it.

Kevin D. McVeigh - Macquarie Research

That's super. And then one last -- any thoughts on where you think unemployment needs to be to kind of really kick the purchase back into more of a trend type market opportunity on the origination side?

Anand K. Nallathambi

I would -- Kevin, I would think that the first wave of the purchase market coming back would be more on price appreciation and the improvement of negative equity and stuff. And I think the unemployment will directly impact probably more of the first-time homebuyers. That's probably later to come, and that's -- it's a guessing game for anybody at this point, given the political climate and economic climate of when that reduction in robust employment is going to happen. But the supply and demand and the dynamics for the mortgage markets are improving. You see homebuilders being very optimistic. So we think that there's going to be -- the purchase market is going to start to gear up. But we don't see a robust first home buyer activity till unemployment really gets to be much more manageable. That's going to take a while.

Operator

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

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

Frank, for the 22-odd million of investment in the quarter, was there any overweighting of the allocation of that cost in the segments? And then similarly, as we think about the remaining cost saves under Project 30, are those going to show up in any particular segments on an overweighted basis? Or is this still kind of a broad application of the efficiencies?

Frank D. Martell

Yes. I think if you look at, Kevin, most of the investment spending is not surprisingly in Data and Analytics and MOS. If you look at the -- because they are the more capital-intensive of the 3 segments. And a little bit higher weighting in some -- like the tax service business, tax processing business as an example. So I think, if you look at kind of the -- an equal weighting between MOS and D&A. And that would be similar going forward, I think.

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

In terms of the efficiency gains?

Frank D. Martell

Yes.

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

Okay. And then the last question, in terms of thinking about capital management, obviously your leverage is down, kind of a little bit below what might be considered optimal. Any thoughts on bringing that up, bringing that down further? I guess, obviously, there's some uncertainty as to where EBITDA goes over the next year. But any thoughts on the debt management side?

Frank D. Martell

No. I think if you -- as Anand said, we are looking at smart deals on the core property records and information area. We're looking at tax floods, geospatial as areas of focus. I think if something available to sell for -- we'll use the funds there. But we're not really looking to re-lever at this point in the time, unless there's a significant opportunity that make sense for the company.

Operator

Our next question comes from the line of Brandon Dobell with William Blair.

Keane McCarthy

It's actually Keane McCarthy in for Brandon. Perhaps an extension to the previous questioning. If we take a step back, just curious how you guys think about positioning the cost structure relative to, like you said, current MBA estimates calling for a 20% to 25% decrease in mortgage market for '13.

Frank D. Martell

Yes. I think we have a pretty aggressive cost program, obviously, this year and next year with Project 30. And then on top of that, you've got, '14 and beyond, with the TTI. So we have a $20 million to $40 million per year cost we're taking out. And then I think that if you look at the balance in terms of origination market, we have an ongoing efficiency programs that the team is driving, specifically within those business units as well beyond Project 30. So there's a lot of ongoing, very significant costs and productivity -- workflow productivity initiatives going on. I think, at this juncture, it's hard to tell. I mean, there's lots of positive green shoots in looking out in the '13 and '14. But there's also clouds around. So I'd just characterize it more of a "wait and see." I think we've got pretty aggressive cost reduction plans in place, and I would say that the point that I -- that we try to stress is that if you look at the Technology Transformation Initiative, that also is a growth enabler, not just a cost-reduction, because it gives us a common data warehouse and then the ability to distribute and analyze the data much more extensively than we do today. And that's something that we can attack the mid to lower tiers in the market, which we think is an exciting opportunity for the company.

Anand K. Nallathambi

Yes. From an overall perspective, we feel very good about what we have been able to accomplish so far. And our plan, obviously, continues into 2013. We plan for -- to get our infrastructure to operate at an acceptable level of margins in the 1 trillion, 1 trillion to -- because we felt like the mortgage markets are going to be between 1 trillion to 1.5 trillion. And if you look at the estimates, even going into '13, the MBA estimates are now about 1.3 trillion. [indiscernible] estimates are a little bit higher than that. We feel pretty good about our chances. And what we need to do is just stay focused on our execution on Project 30 and look for further opportunities to really improve our infrastructure and hold down cost. And we'll do well.

Keane McCarthy

Okay, that's helpful. And then outside of HARP 2.0, do you guys see any have government policies on the horizon that perhaps could change the way the momentum shapes out for the refi activity going forward?

Anand K. Nallathambi

HARP 2.0 is starting to kick in. And the major lenders -- we knew in the beginning of the year, even though it was announced, the big lenders who are more focused on immediate needs and -- in the second half of the year, things were starting to flow. And we are hearing from most of the lenders that the HARP 2.0 volumes are about 10% to 20%, and that it will continue at least in the early parts of 2013.

Keane McCarthy

Okay. And then last one from me. You guys talked about taking share in the mortgage market. More specifically, I think, earlier this week, you guys announced a deal signed with Fifth Third regarding a loan origination platform. Just curious if you guys could touch on that on the growth strategy going forward?

Anand K. Nallathambi

Growth strategy for us is we have always been a company that's been very heavily focused on the top 10. And one of the things that we're seeing is there is a shift happening in the mortgage space. The landscape is changing where the mid-market, it is gearing up and taking some share. And we wanted to make sure that we penetrate that market pretty well and have our fair share on that space. And the Fifth Third example is a great example on that side. So we're really looking at the next level of customers and increasing our presence there.

Operator

Next question comes from the line of Brett Horn with Morningstar.

Brett Horn - Morningstar Inc., Research Division

I wanted to ask a question on HARP and the refi volumes. I think the last number that you guys put out was that there was 11.4 million mortgages that were underwater. Obviously, HARP is starting to gain some traction but has still only touched a small fraction of that number. Have you looked at what percentage that 11.4 million might qualify for HARP and what the ultimate volumes through HARP might be?

Anand K. Nallathambi

Those numbers are shifting everywhere, Brett. It used to be 2.5 million, 3 million and -- so it remains to be seen. I mean, like we said, we talked to major lenders, and they're all talking about in the 10%, 20% range of their volumes today being impacted by HARP 2.0.

Operator

Next question comes from the line of Kevin McVeigh with Macquarie Capital.

Kevin D. McVeigh - Macquarie Research

Can you just remind us, Anand, how the HARP refinance impacts the business relative to traditional refinance from a P&L perspective?

Anand K. Nallathambi

Most of our services are transaction oriented. So it doesn't matter. If its a transaction, we -- the cash register rings for us. We -- there's not much of a difference for us. There may be a little bit of a difference in fallouts based on where the -- how much of it is closest and stuff. But we are more of a transaction-based business in most of our services.

Kevin D. McVeigh - Macquarie Research

Okay. So in terms of cost to credit score, appraisal or anything like that, there's no difference from a traditional refinance?

Anand K. Nallathambi

No, unless they use it for a different purpose. If it's in origination, for us, it's a transaction.

Operator

Our last question comes from the line of Bill Warmington with Raymond James.

Bethany Caster

This is a Bethany Caster standing in for Bill Warmington. I wanted to go back to an earlier question about Data and Analytics. It grew about 6% in the quarter. Can you talk about your plans to get it to double-digit revenue growth in terms of volume and pricing, new product intros and new market segments?

Anand K. Nallathambi

Well, we are constantly looking at revamping. Obviously, a lot of the things that we're doing now is to help lenders with the -- on regulatory compliance and reps and warrants, advisory services of that sort. But the valuation-based analytics is also picking up, and that's something that we are hoping to see some growth with the originations increasing also. Outside of it, it's just a focus on new products, leveraging the data from different areas to bring in added insights.

Bethany Caster

Okay. And then as you look at mortgage originations, the -- your goal -- your target is to grow this segment at rates greater than the end market. What strategic initiatives worked in this quarter? And what do you expect will help going forward?

Frank D. Martell

Yes. I think what we're seeing is we're clearly benefiting -- as Anand mentioned, we have big shares in these businesses, and I think the reason why we do is because of the quality and the service delivery in these businesses. So clearly, what we're doing is we're getting volume overflow from the lenders that are capacity-constrained, number one. Number two is I think we're getting some halo effect from the fact that, if you look at the regulatory environment, it's kind of a "Why take a risk? Why not go to the gold standard and protect yourself from a regulator perspective?" So I think we're getting some benefit from that. These businesses, particularly credit and flood, are electronic models. So you're getting most of your orders electronically and you're fulfilling them electronically. So they're great-scaling models as well. So I think we've clearly benefited from market leadership and just flat out quality of service and product delivery. And I think that trend, we expect, to continue into '13.

Bethany Caster

Okay. And then last question, can you talk about the mix of business in Default Services? It looks like field services were down. Presumably, you made up the difference with loss mitigation, which are higher-value products. But talk about that trend?

Frank D. Martell

Yes. I think, broadly speaking, if you look at our Field Services business, about half of the total segment. And we actually have about 500,000 properties under surveillance or management. So that's a key sector for us. And that business has actually been doing much better, still growing and margins have been coming up. The team has done, I think, a great job of managing the cost profile and getting more efficient in that area. So that's number one. I think where we've had some slippage is more in the broker price opinion area where overall, volumes of BPOs are coming down the market for a number of reasons. And then we've had a big upswing in our loss mitigation, mostly modification, a loan modification area where a number of the big lenders are looking for us to provide additional support for their loan modification programs. And that's a higher-margin business that's helped us to boost the margin. And we have a real strong push to get the margins over 20% in this business, and we're pushing that now with about 19.7% in the third quarter. So we feel pretty good about the trajectory there, and the team has really, I think, done a great job looking at efficiency and cost management to help get us on that trajectory.

Operator

And we have no further questions at this time. Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.

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