CoreLogic, Inc.
Q4 2018 Earnings Call Transcript

Published: 27 Feb 2019

[Operator:]

Good day and welcome to the CoreLogic Fourth Quarter 2018 Conference Call. Today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Dan Smith, Investor Relations. Please go ahead.

[Dan Smith:]

Thank you and good morning. Welcome to our Investor Presentation and Conference Call, where we present our financial results for the fourth quarter and full year 2018. Speaking today will be CoreLogic's President and CEO; Frank Martell and CFO, Jim Balas. 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 the Form 10-K and the subsequent 10-Qs. Our forward-looking statements are based on information currently available to us and we do not intend and undertake no duty to update these statements for any reason. Additionally, today's presentation contains financial measures that are non-GAAP financial measures. A reconciliation of these non-GAAP measures to their GAAP equivalents is included in the appendix to today's presentation. Unless specifically identified, comparisons of fourth quarter financial results to prior periods, should be understood on a year-over-year basis, that is in reference to the fourth quarter of 2017. Finally, please limit yourselves to one question with a brief follow-up. We will take additional questions at the end of the call, as time permits. Thanks. And now, let me introduce our President and CEO; Frank Martell.

[Frank Martell:]

Thank you, Dan and good morning, everyone. Welcome to CoreLogic's fourth quarter and full year 2018 earnings call. I'll lead off today with a recap of our 2018 operating performance and some key takeaways. Jim, will follow and summarize our fourth quarter and full year 2018 financial results and provide commentary on our first quarter and full year 2019 financial guidance. We'll then wrap up the call with a Q&A session. CoreLogic delivered a strong set of results, both operationally and financially in 2018 despite the second straight year of significant U.S. mortgage market headwinds. In line with our long-term strategic plan, which calls for the creation of market-leading solutions underpinned by unique data driven insights, we continue to scale our core mortgage operations, expanded our insurance international and platforms footprint, accelerated the transformation of our AMC and initiated the exit of certain non-core software units. In addition, we invested in the existing and next-generation capabilities with a particular focus on data structures and visualization, technology platforms as well as advanced automation techniques which we expect will set the foundation for future growth and margin expansion. We also reduced our costs significantly through productivity and higher levels of automation. I believe one of the more significant takeaways from 2018 in the past several years has been our continuing durability of our business model, which is built around critical market leading insights and solutions in North America and increasingly globally. Since the great recession, we have progressively reduced the impact of downcycles and U.S. mortgage market unit volumes on our financial results. Our ability to outperform the market over time is primarily attributable to the benefits of the continued shift in our revenue mix towards must have bundled solutions and expansion into non-mortgage adjacencies. We've also benefited from our relentless push for operating leverage and productivity. Our 2018 revenues were down about 3% compared with an estimated 15% drop in overall U.S. mortgage market unit volumes. In 2018, it was the seventh straight year our core mortgage operations outperformed overall market trends. Over the past two years, CoreLogic delivered positive organic growth, higher margins, and strong free cash flow despite an estimated 35% drop in U.S. mortgage market volumes. In 2018, we successfully expanded our non-U.S. mortgage footprint to almost 40% of our revenues. We expect that our non-U.S. mortgage revenues will increase over 40% exiting 2019 as we continue to grow revenues from our insurance and spatial solutions international and other non-U.S. mortgage volume sensitive businesses, wind-down certain non-core software units and accelerate the transformation of our AMC. As a matter of strategic intent, we're targeting to eventually grow our non-U.S. mortgage footprint to at least 50% of our total revenues. CoreLogic's continuing growth into new verticals, as well as our global expansion have been made possible in large part because of the scale and market leadership of the Company's core U.S. mortgage market businesses including tax payment processing, flood zone determinations, credit and borrower insights and collateral valuation. These businesses leverage common technology and back-office infrastructure and data repositories. During 2018, our core mortgage operations continued to gain scale and build market leadership through the provision of bundled solution packages that leverage our data-driven insights and unmatched service and quality. We also introduced new and or enhanced products and drove productivity to boost margins. The U.S. housing and mortgage markets are the largest consumer of residential property data and information services and our market leadership is essential to maintaining scale and operating leverage. We estimate that seven out of 10 mortgages originated in the U.S. during 2018 utilize one or more of our underwriting insights. Another highlight of 2018 was the successful scaling of our platforms businesses that helped to efficiently connect key constituencies in the housing ecosystem. These platforms are a distribution vehicle for unmatched data and analytics and provide high margin annuity revenue streams at real estate, the public sector and insurance and mortgage underwriting. Our acquisitions of FMC, Mercury Network and a la mode are great examples of how we use smart scaling place to build out a unique leading edge end-to-end collateral valuations platform that now connects almost 1000 lenders, 300 AMCs and 50,000 plus appraisal professionals. In addition, the combination of Symbility, which we acquired in late 2018 and our existing underwriting and geospatial data and analytics capabilities as well as our property-related data assets allow CoreLogic to provide our clients and the insurance industry with new and unique insights into underwriting property and natural hazard risk coverage while effectively processing claims. In December of 2018, we announced our intention to accelerate the transformation of our AMC operation by increasing the use of data driven analytics further automating critical workflows, and upping the utilization of our in-house staff appraiser model. The acceleration is expected to deliver improved client satisfaction, reduced appraiser turn times, enhanced quality, and increased productivity. Once implemented, our transformation program is expected to result in improved underlying organic growth trends and higher profit margins. Over the past year, we raised the level of investment in our current and next-gen technology and data platforms and operational capabilities. Areas of particular focus included our state-of-the-art integrated data and analytics platform, the development of our leading edge data repository as well as the migration to the Google Cloud platform and building out AI automation and related tools. These investments position us to be the logical long-term strategic partner for our clients as we drive to enhance and in some cases transform mortgage and insurance underwriting, as well as, property valuation, risk management, and monitoring solutions. Adjusted EBITDA totaled $493 million in 2018, adjusted EBITDA margin was 28%, which is up from 2017. It's notable that we boosted our adjusted EBITDA margin in 2018, despite the tapering of U.S. mortgage volumes and the investments I just discussed. We achieved this feat by driving our top line mix towards higher margin revenue sources and capturing the benefits of cost reduction programs and operating leverage. In addition, our durable and cash generative business model allowed us to deliver a free cash flow conversion rate in line with our long term targeted levels. As our long-term investors know, we have established track record of successfully driving productivity in the push towards first quartile levels of operational excellence. In this context, I'm pleased to confirm that we reduced our run rate cost in 2018 by more than $20 million by consolidating facilities, managing staffing costs, outsourcing certain activities, and other operational improvements. We expect to lower run rate cost by an additional $20 million in 2019. These reductions support our goal of achieving at least 30% adjusted EBITDA margins by 2020 based on a normalized U.S. mortgage market, and after accounting for the transformation of valuation solutions offerings and the wind down of the legacy non-core software business. One final point. Jim, will talk about our capital allocation and return policy and resulting value creation in a couple of minutes. But as you can see from our 2018 and our 2019 plan, we believe that the repurchase of significant quantities of our common shares remains an important vehicle to reward our long-term shareholders. To sum it up, 2018 was another year of foundational progress for CoreLogic and remain positioned for future success. I want to thank all of our employees, our clients and our shareholders for their continued support as the CoreLogic team successfully executes against our vision of creating a scaled, innovated, data-driven enterprise that delivers unique must-have solutions. Thanks for joining us today. Jim will now discuss our financial results.

[Jim Balas:]

Thanks Frank and good morning everyone. Today, I'm going to discuss our fourth quarter and full year 2018 financial results and then provide updated views on current market trends, capital return, and financial guidance for 2019. As Frank mentioned, CoreLogic delivered a strong operating and financial performance in 2018. Fourth quarter and full year 2018 financial highlights included

[Operator:]

[Operator Instructions] And we'll take our first question today from Bose George with KBW.

[Bose George:]

Can I just ask about the bridge between the $493 million of EBITDA you did this year and what you're guiding to next year, because if I take out the $15 million of legacy EBITDA the 4 million of net ForEx then offset by the $20 million of cost saves, you kind of back up to the 2018 level, so is the decline really being driven by volume growth ?

[Jim Balas:]

In terms of the bridge on EBITDA from '18 to '19, you have to factor in the $23 million that we had for the RevRec with that contract amendment. We also have the market that we articulate any assumptions. I don't know if you picked up the RevRec - that might be the delta. There is also FX included in our assumptions. We're expecting the top line impact to be approximately $10 million with an EBITDA impact about $4 million and then of course you have the announcement around the businesses we announced in December.

[Bose George:]

I think the revenue recognition was the piece I missed. And then just in terms of the range of $450 million to $480 million, is that the timing of the legacy that exit that's mainly driving that range or is there anything else in there ?

[Frank Martell:]

Bose, you're talking about the size of the range or what's your...?

[Bose George:]

Yes, the size of the range, the bit factors driving the size of that range ?

[Frank Martell:]

Yes, we normally do a $25 million-ish range, so it's not that much bigger. But the big moving part is the timeline there, because you have clients involved and operational transitions involved.

[Operator:]

Next, we'll hear from Chris Gamaitoni with Compass Point.

[Chris Gamaitoni:]

What was the FX headwind that you called out for the PIRM segment in the quarter ?

[Jim Balas:]

PIRM FX was about couple of million dollars top line and then you would apply like a third margin to it.

[Chris Gamaitoni:]

Can you give us an update on, yeah, I think previously you've stated that a lot of the productivity investments you're making in technology et cetera really kind of kick in 2020. How do we think about in terms of magnitude of that benefit, whether it would be on the expense line or the revenue line ?

[Frank Martell:]

Yes, so there is a big ramp in 2020, Chris. This is Frank and good morning to you, by the way. So if you look at the couple of initiatives, particularly the- we have an automation program going on in our tax operation and the Google Cloud initiative, those are implementations that has happened really over '18 little bit over '17, but '18-'19 with the benefit flowing through in 2020. So those are two of the biggest examples of what would be lifting the impact of the productivity actions in 2020 versus what you're seeing in '18 and '19.

[Chris Gamaitoni:]

Yes, I was just wondering, relative sense of magnitude versus the $20 million benefit in 2019 ?

[Frank Martell:]

I think, you're going to see well significantly north of that, we don't really forecast 2020, but I'd say, you're talking about maybe a doubling of the $20 million run rate.

[Chris Gamaitoni:]

And just getting back to the 30% margin target. I guess, first question is, what's the latest thought on normalized mortgage market, like, are we in one right now or do we need to see growth from here in the overall- the macro mortgage market ?

[Frank Martell:]

Yes, I think the mortgage market is under transition right now obviously. It's hard to tell. We talked about normalized mortgage market in the 15% to 17% range three years ago. I think, that still feels about right to me in terms of, of course, that's a dollar expression that but it kind of feels right to me. I think the challenge right now is that the market as you know in '18 was about twice as bad as we had originally forecast. I think a lot worse than most people had forecast going into the year, so we're calling 5% in '19. We'll see where that goes. I think there's still some open questions there, but I think 5% is probably a good call at this point. So we're managing through that. I think the important thing is we are at 20% margin absorbing essentially a 35% reduction in our core market, where we make a lot of money, so we've actually been able to overcome that and still keep that margin up at 27%, 28%. So we feel pretty good about that. And feel pretty good that that's a good baseline to shoot into 2020 within and hit the target.

[Chris Gamaitoni:]

And just a follow-up to that, when you say after accounting for the wind-down effects of the data platform and transformation of UWS relates to that margin. I'm just trying to figure out what that means. Like are we talking about lost EBITDA or like, I would assume cost related to that would be taken out of through adjustments, so I'm just trying to understand what that means?

[Frank Martell:]

No, we just, we have- I'd say, they're- as you said, they're kind of adjusted out. I don't know what they will be when they actually- everything shakes out. But by and large, we have, there is a timing, probably the biggest element is the timing element of it, because the AMC in particular is a lot of revenue but not so much profit. So how that plays out, we'll have some impact to it. I don't think that's a material portion of that discussion, honestly.

[Chris Gamaitoni:]

That's very helpful.

[Frank Martell:]

But it's still bit of a - still just a bit of an unknown. But it's not a material moving part of that I don't believe on the bottom line.

[Chris Gamaitoni:]

That's very helpful. Provides me a lot of clarity on that. Thank you.

[Operator:]

Next, we'll hear from Jason Deleeuw with Piper Jaffray.

[Jason Deleeuw:]

I was hoping to get some color on the segment revenue and margin outlooks for 2019. Is there any help you can kind of give us because you've had some of the revenue growth rates and the margins kind of move around a lot in each of the segments and just wondering if you can kind of help us think about the segments for the full year ?

[Jim Balas:]

Yes, as you know, we generally don't guide at the segment level but what we have said in the past is we expect as we target the 30% margin, you would see lift in both segments.

[Jason Deleeuw:]

And then when I think about kind of the business going forward and organic growth- revenue growth drivers, where are the growth investments being made right now across the business? Where we can expect to see more fast organic revenue growth as we head into the next couple of years ?

[Frank Martell:]

Yes, Jason, this is Frank. So I think one of the good examples of that is what I talked about which is the platform business, very strong margin business that we've assembled in our- integrated, so as I said, it's kind of a seamless end to end that connects on the collateral valuation side despite the mortgage market, we actually- that business grew last year at a good margin. So that's a good example of where we see growth in those platform areas. We see growth in and I think in insurance, spatial analytics as well. I think we see growth in some of the mortgage businesses as well, organically. So I think going forward, it's a good diversification mix, but some of the bigger ones be it insurance or spatial area, I think, we still have some good growth in International as well. Those have been traditional growth areas for us. In addition, I do still think there is the platform side and then a couple of other ones that I think you look at the alternative credit area as an example, and our realtor solutions area, which was a very significant benefit in terms of growth and margin expansion in 2018. We think that will continue as well. So I know that's four or five different areas. But I think the good news is there's, we are not really riding a single horse. There's a number of different ones and I think, we think that collectively, we can be in the middle kind of single-digit range as we get through this cycle on housing. I would say the cycle is pretty unique in history, you haven't seen an economic expansion like this and the housing market going the other way, some of that fundamentals and pressure points in the market and we expect that to eventually release a bit, but I think, you saw that particularly in '18, where you saw the market down 15% and also along with that a lot of pressure on the- the underwriters and the servicers in terms of their own margins as well and their spending pattern. So that should release, so as we get through this time period and then to 2020.

[Operator:]

Next, we'll hear from Jeffrey Meuler with Baird.

[Jeffrey Mueller:]

Just as we think about I guess 2019 being a rebase year and exiting some non-core solutions. So I guess, just the first question on just understanding the timing of the rebase. The decisions announced around the AMC transformation and exiting the non-core software and revenue and EBITDA headwinds that you've embedded into 2019 guidance, does that fully cover it or is there incremental headwinds beyond 2019 into 2020 that we should be contemplating. And then the related question, I guess, is this a final cleanup of anything today that you envision being anywhere close to non-core. We're kind of ripping the band-aid off and giving the full rebase in or are there other solutions that and I understand your business in the market is dynamic. But are there other solutions that are potentially still something that you would consider noncore over the next couple of years.

[Frank Martell:]

Yes, Jeff, so I think, as you rightly pointed out. I mean, it's a little bit of a moving target. I would say, specifically as it relates to the AMC, which is the biggest if you talk about revenue impact, again it doesn't. What we're talking about in terms of the reset on the AMC is not so much a profit issue. There's some profit, but it's more of a revenue issue. And that's more- and a good example for the markets kind of moved and the value in that business has moved a bit. So we are aggressively responding to that. I think there is a lot of value in taking that business towards a focused in-house staff panel model with a high automation factor and a high touch service model and that's the direction, we're going in, that will reduce the size of that initially. We think in the longer term will be a better growth platform for us. So that's probably the biggest moving part on the software piece of it. Those were legacy businesses, primarily the LLS platform that we had. That we kind of bought many, many, many years ago and it's very long contract cycles. We don't think that we can get the scale necessary and it doesn't add enough value to our data driven model that we're focused on through a content play. So we think that makes a lot of sense just as you said, kind of rip the band-aid off and move on there. That's a little bit more of the profit level involved in the numbers that Jim provided but from a revenue is less than AMC from an impact perspective. Other areas, I don't see any, and I don't anticipate there is any surprises there. I don't think that - I think the portfolio we have today of products and services. They are more tightly integrated from an operational and an infrastructure perspective, they all feed off the common repository. So I don't think that that's a - you will see many surprises there.

[Jeffrey Mueller:]

In other incremental financial headwinds from the decisions already announced in 2020. Or does the 2019 guidance fully account for what the ultimate run rate impact will be?

[Frank Martell:]

I would say that from a - probably the only area is revenue and the AMC piece of it, where that's a bigger number. Again, not a profit impact. But a bigger number. And that's a, we are embedded in the operations of these clients. So it's more the - A, are they, do they want to adopt a new model or not and B, how long it takes to reorder the workflow is to accommodate either a yes decision or no decision. So I would expect though the AMC piece to run off, do what it's going to do really pretty much in '19 and '20. So I don't see. I see the bigger impact in '19 with less in 2020. I don't think it will be zero, but I think, it'll be significantly less.

[Jeffrey Mueller:]

And then just the second question trying to kind of understand. Once we rebase the growth potential of the Company, and you're talking about mid-single digit growth and you listed out a lot of growth drivers that should be present today. So I understand it's a tough selling environment for your core mortgage business, but just what are the offsets, like are there because it seems like there has to be some offsets today to get to flat because some of those non-core businesses, I would expect to have some underlying organic growth, so just beyond it being tough to sell maybe new solutions into the core mortgage business. Are there other revenue streams that are serving as headwinds, are there current solutions that your mortgage clients are using less, but you're not adjusting out when you do your adjusted organic growth estimate? I'm just trying to, I guess get from maybe flattish to low-single digit to bridge it to what hopefully can be a mid-single growth business on a sustainable basis. Once you get to a new normal.

[Frank Martell:]

Yes, I don't think there's any, there's nothing unusual in terms of the organic growth pattern. I mean, I think you just have to be realistic. The fact that in a housing market itself and I would say, we talked mortgage, but it's a broader challenge in the overall housing market for things like supply and affordability, et cetera. So there is a lot of - there has been a lot of challenges in the market that I think have suppressed organic growth. I think the fact that we are able to generate some organic growth in '18 albeit smaller than our normal pattern. I think was a pretty strong indication of the strength of the business model we have. And I do think that we have plenty of - as I articulated in the discussion earlier with Bose. I think we have, there are a lot of operational or sort of products and services that will grow like the platform business that should continue to grow and perhaps accelerate in terms of growth. So I don't see any structural issues that wouldn't - would impede our ability to eventually get to the middle single digits growth rates, quite honestly. So I don't - I just. I think it's more of a function of where the housing markets headed the last couple of years, which is a very significant drop in activity that I think not only CoreLogic, but everything else has kind of worked through.

[Operator:]

John Campbell with Stephens Inc. has our next question.

[John Campbell:]

If you guys could - could you maybe help us size up what the Symbility contributions are for 2019 and then I think you guys maybe had a deferred revenue haircut with a la mode, so just curious about how much of a uplift you expect to get there as well?

[Jim Balas:]

Yes, Symbility was about CAD40 million. It's a standalone public company in Canada. So roughly $30 million on the top line and then the haircut on a la mode was fairly modest. It wasn't a huge number, it's not a big, big player or anything.

[John Campbell:]

So I mean, if I just run the math, I just want to make sure I'm getting this right. So for the guidance if I add in the revenue headwinds that you guys call out, if I back out the $23 million of one-time revenue recognition for 2018.

[Jim Balas:]

Right.

[John Campbell:]

I get - I back out the inorganic revenue. I'm getting to about negative 3 at the midpoint for organic growth, is that right?

[Jim Balas:]

For the quarter?

[John Campbell:]

For the full year.

[Jim Balas:]

For the year? For the full year. No, there is some embedded growth in the 2019 guidance, so negative 3 does not seem correct to me.

[John Campbell:]

So can you kind of isolate or maybe just stuff out what the implied organic growth is within 2019?

[Jim Balas:]

It's in line with what we've been doing historically. On average, I would say.

[John Campbell:]

And what was organic growth in the quarter?

[Jim Balas:]

In the fourth quarter?

[John Campbell:]

Yes.

[Jim Balas:]

It was flat essentially. We had a dampening effect from the AMC and then also the weather-related impact - impacted the organic growth.

[John Campbell:]

Last question from me, if you guys can maybe elaborate a little bit more on the margin pressure in PIRM, how much of that was just incremental investment spend versus the revenue decline?

[Jim Balas:]

It was - so on PIRM, you had a couple of things really hitting it. You had the market, obviously. There is a little bit of mortgage impact in that segment. And then you also had weather impact on year-over-year basis, you just didn't see the weather goes through in the fourth quarter like you did in the prior year. You also have a little bit of FX, which I mentioned earlier in my - on one of the questions.

[Operator:]

Our next question comes from Stephen Sheldon with William Blair.

[Stephen Sheldon:]

This is - first within the platform and workflow assets you've assembled in valuation so FMC, Mercury, and a la mode. I think you talked about those growing pipeline in 2018 and outpacing the broader mortgage market. But yeah - but just curious to get your view on the runway for continued growth in those businesses looking out over the next few years and what do you expect the majority of both revenue and profit in the valuations business to come from those assets kind of starting in 2019 versus the AMC ?

[Frank Martell:]

Sure, yes so first of all, I think it's a terrific business and I think we're really proud of the team and the way they've integrated that business and I think some of the upside has come through the connection points and providing a seamless platform and then putting our data in there. That business also by the way provides access to data assets that we can use in our repository, so I think that's something that we can build off of. My view is, we have some additional growth areas in that business that will help us to move forward. We are taking some share but we also have things like we've expanded into a processing title orders as an example, versus just valuations and we have other services like that that can be tied onto that platform. And as I talked about in my script, I mean one of the great things is we touched so many different constituencies that our ability to cross-sell there is significant, so we feel good, we feel really good about that business. I think as we talk about the mix of the valuation business to your last point, we talked about getting to 50% platform, 50% appraisal. I think depending on how the AMC goes, we could get beyond 50%, as we move forward, that's a distinct possibility. So we're certainly right on in terms of the 50% target and probably actually more so than 50% .

[Stephen Sheldon:]

And then a follow-up. I guess in the PIRM segment, I know there's some exposure to mortgage trends and weather events that could kind of swing a little bit, with an expected 5% mortgage unit decline, would you expect to see organic growth in both property insights and insurance and spatial in 2019 ?

[Jim Balas:]

Yes, we do expect perhaps some growth from those two.

[Operator:]

Next we'll hear from Kevin Kaczmarek with Zelman & Associates.

[Kevin Kaczmarek:]

Can you go into a little bit more detail on the AMC transformation and what types of appraisal work you'll be pursuing versus what you were pursuing previously ?

[Frank Martell:]

Yes, I think that Kevin, we are focused on really our - one of the biggest things is moving to a model that where we leverage to a much greater degree our in-house panel and focus on where we think we can get adoption of automation and analytical tools into that group more quickly than perhaps with an independent panel model. Today and historically, we've used a blended model. Most AMCs use almost a completely independent panel model. We bought a company called eTech in the U.K. eTech is one of the big providers of automation services to the appraisal industry in the U.K. We actually taking their platform and injecting it into our workflow. We think that can cut cycle times down significantly. So we're really looking to get a much more automated - much more as I described, higher touch model where we can turn things around quicker, look at the outputs and the content that's being outputted as part of the process and then we think we can leverage the fact that we have a la mode and some other the desk - which is the desktop solution for most realtors or the majority of the realtors in the U.S. So we think that we can do some work there as well. So I think that that is going to be a higher price point quite honestly than traditionally we charge. So some of the revenue attrition that we have projected will be that people will self select out that perhaps don't need that higher touch model, but don't feel they need the value we can offer. We're fine with that because I think that the lesson learned here is that we think there's more value in a higher touch more focused model, than there is and trying to be the same as everybody else. Maybe just a little bit better than everybody else, so we're looking at that and then how do we make progress quicker given the market conditions that we faced. I think when we put together the AMC pack - piece a couple of years ago, the market was projected to grow. It has shrunk. That's a fact. So we need to deal with that. I think, look at the relative value that can be extracted through the different models that we and I think that the model we selected is actually a good one.

[Kevin Kaczmarek:]

And when you think about approaching that new lenders, new customers for the appraisal services, does this mean you just won't be approaching certain lenders - could - because they're not willing to go with the higher touch model altogether or does that mean you'll be focusing more on specific originations or specific products within a given lender? I guess, I'm trying to figure out, what size of the market are you now targeting with the higher price points?

[Frank Martell:]

Yes. So to answer your question, we touch most lenders, so we will be approaching the market - everybody in the market. We're not going to select out lenders that we wouldn't approach. We're going to approach people and I think it's incumbent on us to sell the value creation. There is definitely value in delivering much more quickly. There's definitely value in delivering a higher quality product. So I think from that perspective, there is significant value in there. And it's really up to us to make sure that our customers understand that and appreciate that. I think they'll pay more, or at least a significant percentage they will pay more and I think that will result in the kind of economics that we're looking at there. There's some geographies, there's some areas that it's tough for different factors. But I think in the vast majority of area, I think that we have a compelling value proposition and we'll sell it to whoever wants to buy it.

[Operator:]

Next, we'll hear from Bill Warmington with Wells Fargo.

[Bill Warmington:]

I wanted to ask about 2019 revenue guidance and if you could talk us through the adjustments to get to an apples-to-apples constant currency, organic revenue growth that's embedded in the 2019 guidance. I know we have FX that you've pointed out, the revenue recognition, the phase out of some of the businesses. I just want to make sure I am getting to what the actual embedded organic level is on an apples-to-apples basis ?

[Jim Balas:]

Well, I think, I've already highlighted this but to get to the bridge from '18 to '19, first and foremost you need to account for the one time contract amendment RevRec charge that was about $23 million is both revenue and EBITDA. The market, a 5% down. We're saying it's approximately 5% down so there is a little, call it 1% or 2% up or down that's factored in there. There is the decision on the businesses in December that we outlined for the $70 million to $100 million and then the $10 million to $15 million on the EBITDA side, and then the FX. Those are the - really the key components to kind of reverse into what the implied growth rate could be ?

[Bill Warmington:]

So for that 1% to 2%, so the mortgage impact you're saying is about 100 basis points to 200 basis points off of that. Just to be clear.

[Jim Balas:]

I am sorry, can you repeat that Bill?

[Bill Warmington:]

I was just confirming that the revenue impact of the down 5% volumes on mortgage would be 100 basis points to 200 basis points, is that the way to interpret what you just said, or.

[Jim Balas:]

I mean if you - 5% that's going to be roughly $48 million, $50 million of top line $40 million and $50 million of top line on that range.

[Bill Warmington:]

And then it's my follow up. I just want to ask about the 2020 margin target hitting 30% or better. The forecast for 2020 from the MBA is for the volumes to be flat, that's better than '19 but it's not a great environment and I think, getting rid of Dorado and the less attractive AMC business, I think that'll help. And then you have some cost savings as well. But it seems - still seems like there's a fairly decent gap there. So what are the thoughts in terms of how you close that gap and is M&A part of that equation?

[Frank Martell:]

Bill, this is Frank. Thanks for the questions. Just before I hit the margin, just on organic growth, just so it's clear. We expect to get pricing - positive pricing increase in '19. We also expect to get some share gains, so I think the same drivers of our organic growth remain intact. So we do expect to get some points of organic growth and just to be clear in 2019 and I don't think that any of that changes from what we've had last couple of years. I think in terms of your question on 2020. We need kind of $50 million to $60 million, $70 million, we think that through the things you described in terms of the mix because there is a mix shift and I think if you look at the business that's very significant implications for our margins, number one. I think, number two, because we are taking share and we do have, we are taking share in some high growth areas. I think, we're going to see the margin pick up there. The tax automation program the Google Cloud migration those things are very significant dollar wise those are very large undertakings you're talking about the entire tech stack moving to the Public Cloud the economics of that so I think there are a number of those key initiatives then we have a raft or other things that we do every year headcount management stuff like that the facilities consolidations, those things are ongoing so I think that we have the plans in place we're acting on most of them that's why we talk about the fact that I think if the market doesn't go against us I think that we're going to get to those targets. So I don't think we're overly concerned about that, but the market is surprised everybody last couple of years, so we'll see how that goes but I think that in the absence of any really negative downside there I think we have a great shot at it.

[Operator:]

Next we'll hear from Glenn Greene with Oppenheimer.

[Glenn Greene:]

I just want to go back to the AMC transformation and I just want a better understand of myself and how that sort of ties in reconciles with the client diversification drags that you've been experienced from obviously Wells Fargo, maybe a little bit, Bank of America I guess the question is how much of a headwind or would you have seen in 2019 anyway versus how much is sort of you're doing on your own it's sort of change the business mix I don't know if my questions making sense, but I just want to understand how the two of those reconcile ?

[Frank Martell:]

Yes, so when one is that we have been diversifying we got, price 15% to 20% of our volumes plan for 2019 that would be in the diversification category before the reset that we're talking about so I think that's been okay. I think if you look at the fourth quarter of last year part of the revenue challenge we had was really AMC revenues coming down very much more quickly because there was some swing around the volume allocation so that's something that volatility should lessen which is a good thing, but I will tell you this that the move to this new model will significantly reduce the impact of these diversification programs, it may accelerate the volume declines of some clients and not others we don't know that yet, but it depends on who is out for the model, and who's not so, but I think that the revenue decline in the AMC we are projecting in the guidance is significantly more than we would have experienced had we just got business as usual.

[Glenn Greene:]

And then I don't know if you word, but could you parse that $70 million to $100 million, how much is from the software wind downs versus the AMC impact ?

[Frank Martell:]

I'd say it's probably my guess is probably much more significant on the AMC side honestly, I'd say that it's probably one quarter, three quarters software versus the AMC.

[Glenn Greene:]

And then one thing that was sort of stood out of the U.S. UWS margin performance in the quarter was pretty phenomenal up 370 basis points despite a 14% revenue decline can you help us understand that, was that largely mix and if that's the case, should we see sort of a similar directional level of margin improvement in 2019 ?

[Frank Martell:]

Yes, I'll make three points. One is, I'll give the team a tremendous amount of credit, we have a great team, I'd say that that's number one, number two is that certainly there was a very, very significant mix element there I mentioned you've got obviously the AMC revenue in there so that fell off significantly and there is not any really profit associated with that and then I think productivity has been a very significant benefit there we have really automated quite a bit of the workflow in those businesses we've also integrated more tightly around the infrastructure that goes more broadly across the company, but the infrastructure platforms, or kind of singular now versus multiple. So we've gotten the benefit from that so it's really the mix where we've had revenue attrition in the AMC. I would say that also we've had revenue growth in the platform side of it as well so that's been a double whammy there. I think also we've had very significant automation benefits and other productivity benefits as well.

[Operator:]

Next we'll hear from [indiscernible].

[Unidentified Analyst:]

Somewhat following up after that question as we think about your outlook for the first quarter, it's on a year-over-year comp basis you would expect you to be us do a bit better just with mix shift although how much given the fourth quarter, up, I'm not quite sure, but can you talk about how to think about the comp year-over-year in PIRM, again I'm finding a bit difficult trying to come together with a picture of how the margin developed in the coming year given we just saw in the fourth quarter and the guidance for 1Q?

[Frank Martell:]

In terms of the first quarter, the big weight will be obviously the market will be some other elements as well that helped us to get to the range that we provided in the market, if you think about it, the more majority does impact UWS, there is a little bit in the PIRM and then the other thing factor is the, announcement from December that $10 million to $15 million you'll start to see that in the first quarter. So that will also hit the UWS segment if that helps you from a modeling perspective.

[Unidentified Analyst:]

But that's is a lower margin business so net-net, that would increase?

[Frank Martell:]

It is.

[Jim Balas:]

It flows through that $10 million to $15 million probably do and pretty equal parts throughout the year is what I would, it was the gist of it whereas the revenue will probably be subject to the timing that Frank articulated earlier.

[Unidentified Analyst:]

And then, how about specifically on PIRM you had the margin at least for against our expectation was a bit softer in the fourth quarter than we expected you to 28.5 year ago, how do we think about any sequential seasonal development or comp against last year and thinking about the margin for that segment in Q1?

[Jim Balas:]

The market is a continuation in the first quarter of what we saw last year if you recall the first half of 2018, was a pretty good year. We got off to a good start and then the expectation of the market changed rather dramatically. So we're kind of seeing that same market condition flowing through into the first quarter and that's why we have that tough comp in the first quarter and then the expectation is the market - the market comps will not be as dramatic and the outgoing quarters. So it's just kind of a flow through. I would assume fairly similar continuation of the fourth quarter, the first quarter, but I think you'll have a little bit more challenge in UWS due to what I had mentioned earlier, market, plus kind of those the impacts of AMC and the software units.

[Unidentified Analyst:]

And then just last question, when we think about your - you indicated 2% to 3% expectation on the buyback. Do you still have cash flexibility after that, should we think about the delta there being additional voluntary repayments on the debt lines?

[Frank Martell:]

Jeff, this is Frank. We are focused on drilling back to debt. We made about $90 million of voluntary prepayments last year, we're going to continue to make voluntary payments as well this year. So yes, did largely to answer your question. The other thing on PIRM, just I would just say that if you're looking at quarter-to-quarter, especially the first quarter and the fourth quarter, which are seasonally low part of the fourth quarter was we, the investments that I mentioned in terms of data platforms and some of the other things actually tend to be more weighted towards the PRIM segment which skews the margin, if you're looking at quarters to quarters, skewed the margin a little bit as well. So just, you want to factor that and I think the fourth quarter and we were going pedal to the metal despite the mortgage market itself, because I want to make sure that we drive investments and things like AI and data visualization that kind of thing. So as we talked about our third quarter release, we upped the R&D spending a lot of that actually impacts both the corporate segment, but also PRIM versus the UWS segment. So just keep that in mind.

[Unidentified Analyst:]

Is there any way to quantify the drag that had in 4Q '18 versus maybe 4Q '17?

[Frank Martell:]

No other than to say it's significant because last year our initiatives were significantly more - the ones I've talked about actually grew and significance over really the balance of 2018. So 2017 comparing the like apples and apples, relatively little spending on things like the data platform, the visualization engine that kind of stuff, so it was a very - if you're looking at '17 to '18 fourth quarter it was a significant change.

[Operator:]

We’ll now hear from Oscar Turner with SunTrust.

[Oscar Turner:]

So I just had a question on Symbility, I was wondering, now that you own 100%, do you expect anything with regards to the go-to market to change there and also can you give some color on how we should think about the long-term growth opportunity in that segment.

[Frank Martell:]

Yes, a couple of things Oscar, one is we think that we own about a third of that company for quite a long time. We had a strategic relationship for quite a long time, but it's not the same as being part of a unified company. So I think this allows us to go-to market more seamlessly. I think it gives us better credibility in the North American market, which is quicker on the claims side, so I think this will open up growth business for us that we're not necessarily opened before. So - and if that's the case that's a very significant opportunity for the company. I would say the second thing about Symbility is that they have a good footprint in Western Europe, and we think that we have a good footprint in Australia, New Zealand. So we think the combination of the international piece is also attractive for us as well. So we really like the Symbility transaction, they've got a great team, they've got a great technology platform and we see a lot of upside there. We just think we need to execute and we think we can.

[Oscar Turner:]

And how should we think about timing of - I don't know if there's any replatforming to be done or integration?

[Frank Martell:]

Yes, that's not going to be that significant because as I mentioned earlier, we had an operational, strategic alliance for quite, quite a number of years. So I don't - I think probably there's investment and other things that are probably more focused on boosting the international footprint - sorry not platform but footprint and obviously the expense related to going to market in the U.S. in particular on the claims side, but that's not going to be all that meaningful in the grand scheme of things.

[Operator:]

That will conclude today's question-and-answer session. The conference has now concluded. Thank you for attending today's presentation.