CoreLogic, Inc.
Q1 2016 Earnings Call Transcript

Published: 21 Apr 2016

[Operator:]

Good day ladies and gentlemen, and welcome to the First Quarter 2016 CoreLogic, Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator instructions] As a reminder, this conference call is being recorded. I’d now like to turn the conference over Dan Smith, Investor Relations of CoreLogic. You may begin.

[Dan Smith:]

Thank you and good morning. Welcome to our investor presentation and conference call, where we present our financial results for the first quarter of 2016. Speaking today will be CoreLogic’s President and CEO, Anand Nallathambi; and COO, Frank Martell. Before we begin, let me make a few important points. First, we posted our slide presentation which includes additional details on our financial results on our website. Second, please note that during today’s presentation, we may make forward-looking statements within the meaning of the Federal Securities Laws, including statements concerning our expected business and operational plans, performance outlook, and acquisition and growth strategies, and our expectations regarding industry conditions. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings, including the most recent annual report on Form 10-K and 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 measures to their GAAP equivalents is included in the appendix to today’s presentation. Unless specifically identified, comparisons of first quarter financial results to prior periods should be understood on a year-over-year basis that is in reference to the first quarter of 2015. Finally, please limit yourselves to one question with a brief follow-up. We’ll take additional questions at the end of the call as time permits. Thanks. And now, let me introduce our President and CEO, Anand Nallathambi.

[Anand Nallathambi:]

Thanks, Dan and good morning everyone. Welcome to CoreLogic’s first quarter earnings call. I will lead off the call today with a recap of our operating results for the recent quarter, and provide an update on important market trends and the areas of strategic focus. Frank will summarize our financial results and update you on the progress we are making, relative to the Valuation Solutions Group or VSG. We’ll then wrap up with Q&A. Before I begin my prepared remarks, I want to take this opportunity to introduce Jim Balas, who is appointed Chief Financial Officer of CoreLogic earlier this month. Jim joined us in early 2011 and was promoted to the position of Senior Vice President, Finance, Controller and Principal Accounting Officer in September of 2012. Jim has an outstanding talent with a proven track record in important financial leadership roles over the past 15 years. This appointment recognizes Jim’s strong leadership of our financial and accounting operations and the many important contributions he has made since joining us. As many of you know, Jim assumes the CFO role from Frank who’s been our Chief Operating Officers since June 2014 and our Chief Financial Officer since August of 2011. I want to thank Frank for doing a remarkable job running, both operations and finance over past three years. Both, Frank and I are excited that Jim is assuming this important role and we look forward to working as a team to pursue our strategic growth and operational excellence programs. CoreLogic is off to an outstanding start in 2016 with strong growth in revenues, operating profit, cash flow, and adjusted EPS. Revenues for the quarter were up 24%, operating income was up 16%, adjusted EBITDA was up 5%, and adjusted EPS was up 4%. All of these figures were at record levels for any first quarter in our history. We achieved higher revenue and profitability levels despite an estimated 10% drop in U.S. mortgage originations, the majority of which was due to lower refinancing activity, which was expected. We continued to expand our product offering, improve our technology, and operational capability, and gain market share during the quarter. We increased profitability while investing in the VSG, compliance, technology, and our ongoing cost management program. I expect the self funded reinvestments to yield significant benefits in the future. As I’ve mentioned on past earnings calls, the U.S. mortgage market is continuing to successful transition to a purchase driven cycle. We believe this transition will likely accelerate, underpinned by sustained job creation and continued economic growth. Expected increases in population in first time homebuyers plus fewer cash purchases should also support increasing loan transactions. Based on our research, we believe the acceleration in the underlying demand for home purchase supports the normalized mortgage market at $1.5 trillion in 2016 with a potential for growth beyond that level in the future. We have a long established track record of consistently outperforming market volume trends. Our ability to do so is a result of our long-term focus on scaling our core business units to the market share gains, product enhancement and development as well as smart acquisitions. Our consistent focus on driving operating leverage, cost productivity and cash flow conversion allows us to reinvest in our risk management program, product developments and technology initiatives to help sustain our competitive advantage and broaden our business capabilities. I believe that CoreLogic is well-positioned to take advantage of the rebound in housing and mortgage market activities. As I’ve mentioned before, over the past five years, we have transformed the mix of our business to highlight data analytics and data enabled solutions that help our clients address critical underwriting and risk management activities. Today, our core solutions truly fit at the heart of the global housing ecosystem. In line with our strategic objective of providing scale and data-enabled solutions, we launched the VSG in the second half of 2015. Over $4 billion are spent annually on residential property valuations. This area remains one of several underwriting and risk management activities in the property markets that we believe would benefit from enhanced technology and the application of data and analytics. VSG will provide a comprehensive set of property valuation and collateral assessment solutions and the technology platform that connect market participants with supply chain service providers. The opportunity to transform the way real estate assets are valued and to bring greater transparency to the underwriting process, makes this a significant medium and long-term growth opportunity for us. Completing the integration of our capabilities and realizing the full potential of the VSG would be a significant multi-year endeavor. Frank will talk about operational progress on this transformative opportunity a bit later in the call. In many ways, the creation of VSG demonstrates the power of integrating CoreLogic’s data, analytical tools, domain expertise, and technological capabilities. In closing, we’re off to a strong start in 2016. I believe our strong performance demonstrates the benefits in value creation opportunities inherent in our strategic plan. We are deeply embedded in our clients’ critical work flows. And our scale, quality and service focus and unique solutions make us a preferred partner for businesses and government agencies in need of property intelligence and insights. I want to thank our employees, clients and shareholders for their continued support. As always, our focus remains squarely on strong operational execution and positioning CoreLogic for superior long-term growth and stakeholder value creation. With that, I will turn it over to Frank.

[Frank Martell:]

Thanks, Anand. Good morning, everyone. Today, I am going to recap our first quarter financial results and provide some additional color on the VSG and our cost management programs. I’ll close with the discussion on financial guidance including our plan to return capital to our shareholders over the balance of the year. As Anand mentioned earlier, first quarter reported revenues, operating income, adjusted EBITDA, cash flow and adjusted EPS set records. We delivered these results despite an estimated 10% decline in U.S. mortgage volume and importantly, as we continue to invest aggressively to transform our Company into a clear global leader built around truly unique data-driven property insight. The benefits of our transformation are clear, both operationally and from a financial perspective. From 2011 to 2015, our strategic growth and operational excellence programs have produced compound annual growth rates for revenues, adjusted EBITDA, and adjusted EPS of 9%, 15% and 31% respectively. At the same time, the year-end market closing price of our common shares is up almost three folds. Operating highlights of particular significance for the first quarter included the following

[Operator:]

Thank you. [Operator Instruction] Our first question comes from the line of Darrin Peller with Barclays. Your line is now open.

[Darrin Peller:]

I just want to talk about given the amount of change that’s occurred in the business with the deals and the organic growth, can you revisit for us the correlation and sensitivity to the mortgage origination side, the pro forma for all the VSG business you now have going forward, as a whole company; where does that stand today versus I think we used to say as may be half -- 50% correlation a little while ago. And then maybe touch on the margin for a moment. The revenue came in well, certainly above consensus and I think EBITDA was a little more in line. I guess it was some investments, you talk about on this that may be have an impact but there was also a mix issue on VSG, just give us a little bit color on what we should expect in terms of incremental margins going forward again?

[Frank Martell:]

So, thanks Darrin. This is Frank. I’ll try to parse out some answers, and please follow up, if I don’t answer your questions. But, in terms of core relation to the mortgage market, broadly, obviously the VSG is going to increase revenues there relating to the U.S. mortgage origination market, certainly in the short run. We have been trending down in terms of overall exposure to the mortgage market. Last year, we were in the low 60% range; this will take us up into the 70% range as we go forward. And again that will -- I think that will be that way for a while, until we bring the other revenue streams, will continue to grow and absorb some of that, but that 70% is roughly where we stand today. I think in terms of our sensitivity in the mortgage market, I think we still feel comfortable with the ranges that we talked about previously which is about $20 million to $25 million on the top line and $12 million to $15 million on the EBITDA line, maybe in the upper part of that range, given the increased exposure to the mortgage market related to VSG. But it’s really days yet to look at the -- updating that sensitivity.

[Darrin Peller:]

One follow-up to that. You guys have done a great job of consistently outperforming the origination market for a number of years now actually. And I just wonder if you can break down for us, as we look at this year ‘16 and maybe ‘17, what are the variables that could allow that to continue? I mean market share has been a big benefit for you. You’ve been able to take some share there, obviously through both organic and some acquisitions for all. Can you just walk through if we can expect that to continue and if so how?

[Frank Martell:]

Yes. I’d say that we have had tremendous success, as you know in growing our share and tax in particular, and to certain a degree, flood. Last year, we started to pick our share gain in credit, there is still plenty of room in that business to take share. I think there’s still room, considerable room in tax as well as in flood to pick up a wide space. We’ve had great success in the mid market the last couple of years and with non-bank originator as well. It’s a big space and I think there is still a lot of opportunities to grow share with some very significant opportunities as clients look to outsource either monitoring activities or full operational activities such as tax and flood and some other monitoring areas as well. So, I think there is still a significant room for us domestically and that’s before you even talk about international as well. Because one of the premises on the VSG we believe is that there is the ability to move offshore with property valuation. We certainly were a significant leadership position in Australia and New Zealand. So, I think there are other markets that our valuation service sits nicely as well. So, I think there is plenty of opportunity, as we go forward.

[Darrin Peller:]

I understand, makes sense. Thanks. Just last question, I’ll turn it to the queue, is on the cash flow front. You mentioned 70% conversion, I think if you back out the benefit you have last year of 20 plus million dollars; it was trending at 60 plus percent conversion from EBITDA to free cash. So that’s certainly coming -- continuing to be better than the 50% plus or 50%, 55%, you guys have guided. Is that sustainable going forward now and just a little bit [ph] of that? Thanks guys.

[Frank Martell:]

Yes. I mean I think we consistently outperformed the 50% the last couple of years. I think one of the things that VSG is a cash generative set of business activities, so that should help. I think as we move forward, I think certainly we see 55% is probably our new threshold target. So, I think we are still pretty good moving from the 50% that we used last couple of years to kind of a 55% benchmark as we go forward. And we are very focused on free cash flow and returning free cash flow to the investors through reinvestments or through share repurchase activity. And I think we feel really good about to be able to firm up a target of at least 2 million shares this year, because we believe the stock price certainly currently is too low.

[Operator:]

Thank you. And our next question comes from the line of John Campbell of Stephens Incorporated. Your line is now open.

[John Campbell:]

Hey, guys, congrats on the quarter and the build out of the VSG. So, just curious about the PI margins, as I look at the back half for the year, I mean you guys lap a small piece of that required LandSafe rev, you are getting the benefit of the higher margin FNC rev. And then as I look at 4Q ‘15, there is good bit of reinvestment spend there. Is it reasonable to assume you guys can maybe start to see a little bit of PI margin expansion towards the end of the year?

[Frank Martell:]

Hi, John, it’s Frank. So certainly, the first quarter, the margins reflect really I’d say kind of a pinch point. We’re really starting to stand up for VSG. We had that process squarely in PI. All the currency translation pressures in PI, that’s where our Australia and New Zealand operations sit. So, we have that factor. Then really, as you have the some of the other investments in technology and compliance that also allocated there. So, I’d say those will ameliorate as we go forward and then see the margins come up in PI for sure as we get into the stronger kind of quarters from a seasonal perspective and through the year. So, I think the answer to your question is yes.

[John Campbell:]

Okay, great. And then on PI, I think you guys said 12 million or so in integration and reinvestment spend. Can you maybe help isolate just how much of that was integration spend?

[Frank Martell:]

Yes. 12 million is not just PI, just to be clear, that’s the total Company. About 4 million of it was severance and a couple of million, so I’d say roughly about 5 million of the 12 million would be related to integration in the broad sense of VSG. Dan can give you the precise number, but directionally that would be the quantum.

[John Campbell:]

Got you. And you guys are not stripping that out of the adjusted EBITDA number, is that right?

[Frank Martell:]

No.

[John Campbell:]

Okay. And then last one from me, just housekeeping; it sounds like you might not have bought back any shares in the quarter, is that right, and you’ll start that pace with that 2 million starting in 2Q?

[Frank Martell:]

Yes. We don’t traditionally buy shares in the first quarter, it’s such a small window of opportunity, so effectively kind of blocked out. So, we traditionally do second, third, fourth quarters.

[John Campbell:]

Got you. So you are aimed to complete that 2 million maybe just 2Q through 4Q?

[Frank Martell:]

Yes, I mean how aggressive we are will depend on where we think the value is the most accretive, and certainly we will get started relatively quickly.

[Operator:]

Thank you. Our next question comes from the line of Edward Engel [ph] of Macquarie. Your line is now open.

[Kevin McVeigh:]

Hey, it’s actually Kevin. Hey, guys. Hey, nice job. I wonder, Frank, can you help us understand how we can help clients on the regulatory side, if there is an opportunity for you to help kind of manage some of the cost you’re seeing from a regulatory perspective in terms of being able to outsource some of that work to you or how are we thinking about that in terms of regulatory pressure on client businesses potentially being an opportunity for you folks?

[Anand Nallathambi:]

Kevin, this is Anand. In general, this outsourcing to CoreLogic, because a big portion of the regulatory compliance is managing their vendors and managing to higher quality of vendors, we’ve seen some benefits of the flight to quality. And it used to be in the top 25 distributions but now it’s kind of extending to the mid and mass market. So, we’ll see that. That’s one. The second one is even from the product standpoint, all the things that we’re trying to do with these fraud [ph] analytics and the analytics as we run off our consortium will help customers in their regulatory efforts. So, I think it’s going to be a positive for us. FNC is going to help because it’s a platform solution that connects 80,000 providers with mortgage clients within the financial services sector. So, there are a lot of touch points that we are going to be able to fact our influence in terms of regulatory compliance or at least in effecting the standards that are coming out now.

[Kevin McVeigh:]

Got it. And then, if I heard you right, it sounded like 1.5 trillion in terms of originations, some potential for growth in ‘17. Is there any sense to how you think the mix settles on that?

[Anand Nallathambi:]

Well, it’s really tough to kind of see where the mix is. We know it’s shifting. The first quarter was obviously lower refinancing and it’s shifting towards the purchase market. You have a population, there is a larger stage cohort; it’s in the 20 to 21-year grouping and they are getting closer to home buying decisions that’s going on. And as far refis, I would say, it’s about 60-40. But if you look at home sales, I think it’s going to be up. We believe that home sales increase is going to be the best. Home sales market is going to be the best since 2007, obviously mostly coming from resale. So, there are tones of things that we see as positive. What we need to kind of do is the credit availability is so tight and that has to kind of relax a little bit. And job creation and economic growth has to be at a sustainable level. If all of this happens, 1.5, 1.6 doesn’t seem to be a bad number for 2016.

[Kevin McVeigh:]

Got it. And then my last one, if I could. Jim, congratulations. Frank, with you shifting over more for COO, does that change your scope kind of for you to do more on VSG or just open up any other opportunities for you to grow the business, as you free up some time?

[Anand Nallathambi:]

Kevin, this is Anand. I think in a way -- in a broad way, yes, but let me just kind of unpack that a little bit. Frank is going to have direct involvement on the VSG because there is ton of integration and also growth opportunities there, especially in a transformative nature. In addition to that, we have been laying our infrastructure to more of an enterprise level functions out there. And with the organization by design that we’ve undertaken, now it’s ready to kind of look at CoreLogic in totality in terms of data, technology solutions, developments and kind of tying in different elements of our enterprise together. And I think Frank is going to be focused on that.

[Frank Martell:]

Kevin, I will just add my comment to Anand’s. We are really super excited about Jim taking over the finance part. He’s been around the Company for quite a long time. And I can personally say that he has been a tremendous value driver for the Company. So, I think finance is in very good hands. And I am looking forward to -- the VSG is a great transformational opportunity and one that I am really looking forward to and in addition to all the work we’re doing on technology, data and the other segments of the company. So, I think it’s a great win-win.

[Operator:]

Thank you. And our next question comes from the line of Brandon Dobell of William Blair. Your line is now open.

[Brandon Dobell:]

Thanks. I think that was a good way segue as we think about VSG. Frank, what are the mile markers, guideposts that we should be thinking of to either I guess judge or get some better visibility into making that collection of assets into a streamlined organization, one where you get the margins and the growth to whatever levels you think they can be? How do we think about the cadence of those events, those changes from your perspective, the next year or two I guess?

[Frank Martell:]

Sure, Brandon. First of all, I’d say that in the short run we’re going to add a lot of dollars, both from the topline and to the profit line with the pressure being the margin percentage and the short run. I personally believe the scale and with bringing in automation in data into the workflow of property valuation, there is no reason why the margins can’t be over the next couple of years come up in line with our overall Company targets that kind of the upper 20%, 30% margin in this business. The challenge primarily from a margin perspective is the today’s appraisal operations, where you have a lot of folks on the street appraising properties. And it’s a tough area, because every house is different and there is a lot of variation in terms of it’s done. We think we can move the margins up in the next 18 months to 24 months. Obviously FNC is a high margin component from the get go. So that’s going to help move the margins up. But we think on the appraisal side, we can do the same thing and bring margins up. It will be -- it will take a couple of years. I think this is going to be a high growth area for us. As Anand mentioned, it’s a really fragmented space; it’s one that’s relatively underdeveloped from using automation and experiencing scale. So, there is a lot of excitement among the client base for the VSG and what the VSG can potentially do, a lot of collaboration right now. So, I think this can be high growth area and one that we will be laser like focus as we always are on, getting margins up and extracting cash flow of secure levels as well. So, I’m very optimistic that we can pull this off.

[Brandon Dobell:]

Okay. And then, you talked about 3% total organic growth, I know there is a lot of moving parts within that given divestitures and mortgage market, but harkening back to when you guys used to talk a little bit with the more detail around D&A organic growth, if you were to look at just the non-mortgage assets and trying to get some sort of, I guess more detailed organic growth number, and then ex-VSG, how we should think about that collection of businesses growing in the current environment? How they kind of impact that, to use words, impact that to get a better feel for organic growth through this year, maybe even in the next year?

[Frank Martell:]

Yes. I think organic growth -- as you guys know, I mean we announced last quarter and as of last year, we reorganized -- the D&A was more of an internal segmentation. As Anand alluded, Brandon, the Company really revolves around the data assets we have. And increasingly it’s integrated and metrics, the organization structure. So, we’re getting some efficiency on the cost line there. So, it’s difficult now because of the way we’re now accounting for things to pull back to a like, like D&A. I’d say that growth rate continue -- we continue the same expectations of kind of mid to upper single-digit growth rates for those assets. I think what we saw in the first quarter, which I talked about was there is a couple of factors that first quarter is seasonally low any way. The mortgage, there is some mortgage exposure in those assets around analytics. We run broad analytics, we run various streams, AVMs et cetera that are high margin that are impacted in the short run by kind of the 10% mortgage pull back. But in terms of our organic growth rates, we’re talking about in total, because we believe that’s the more accurate structure and the nature of the company and parsing it down to kind of sub increasingly relevant sub-categories; it’s is not something we think is that helpful. I think Dan can take it offline, we can provide some additional maybe in the supplement as we go forward. But I think -- my feeling is 3% growth in the market conditions we had is a pretty good organic growth number frankly. I think our primary mark was down 10%, I think growing through that was pretty good result.

[Brandon Dobell:]

Okay. And then final one for me as we think about allocation and capital, I know you guys gave some broad strokes on free cash conversion. But capitalized data requirements going forward relative to other revenue or revenue growth or historical needs for capitalized data, how do we think about where the business is going from that point of view?

[Frank Martell:]

Capitalized, our expenses on capitalized data have been relatively flat the last couple of years. I don’t see any reason that that will change. Certainly the amount of data that we’re collecting is much greater. And we’re doing a lot of data capture through other means, straight from the web and that kind of stuff. So, I’d say that I don’t say individually that would increase and not necessarily decrease either, because a lot of those data that we capitalize or things like criminal records and other things, they are the longer used type records that need to be amortized.

[Operator:]

Thank you. Our next question comes from the line of Jason Deleeuw of Piper Jaffray. Your line is now open.

[Jason Deleeuw:]

Thanks, and nice work on the quarter. First question is on VSG. And when we’re thinking about the growth going forward, how much of the growth is expected to be driven by growth within the existing client base versus new clients?

[Frank Martell:]

Jason, the lot of growth will be in new client related as we -- I think we have talked about when we first announced FNC, they have a lot of mid-market clients also some larger client that we have some overlap, but they have a lot of clients that we don’t have or don’t have significant revenues, so we see some opportunities there with the existing kind of new FNC clients plus. Obviously LansSafe and RELS were captive operations so they are kind of single client. So we have a broad field of new clients that we can capture, I think we’ll be a logical choice for many, many clients because our scale and our innovation and what we can offer. So it's kind of -- Brandon [ph] alluded to, I think there is a lot of growth, this is a growth opportunity for a company, what we need to do is make sure that we are growing in a profitable way and leverage the margin and the scale in the right way as we have done, really, in all the other risk and under riding businesses that we have.

[Jason Deleeuw:]

And then I was hoping if we could get a little bit of color on the FNC client loss and just kind of what happened there? And I am sure you guys look at the rest of the book and how you are feeling about the rest of the client book in that business?

[Frank Martell:]

So the client really was -- it was a situation where it's a pretty unique client. They decided to insource the activity, they have a little bit of a different business proposition. So we are sure it's a unique situation that happened, things like that happen overtime. And I think we adjusted the consideration accordingly, so really kind of a one off in market.

[Jason Deleeuw:]

[Audio gap] called out versus price.

[Frank Martell:]

You broke up a little bit, can you repeat the question?

[Jason Deleeuw:]

Can you hear me?

[Frank Martell:]

Yes.

[Jason Deleeuw:]

All right, sorry about that, I am not sure what happened what with the phone here. But in the risk management segment, how much of the outperformance versus the industry volumes were share gains versus price that you called out in, can we expect that price going to be a contributor to grow?

[Frank Martell:]

The pricing gains were from a proportionality perspective. It is little less significant in the share gains. But they reflect passing out some cost increases that we have from suppliers and getting recognition from some of the value added that we are adding to the product, so those pricing gains will I think continue and that we expect to continue share gains as well. But it's a little bit slightly less significant pricing wise and the share gains.

[Jason Deleeuw:]

All right. Thank you for taking my questions.

[Operator:]

Thank you. Our next question comes from line of the Alex Veytsman of Monness Capital. Your line is now open.

[Alex Veytsman:]

I wanted to ask about the Australian RP Data Legacy business, was the topline growth in your international business overall stronger than the company wide organic growth you saw in the quarter? And if yes, what were some of the international drivers?

[Frank Martell:]

Yes, so in terms of 3% organic growth, yes we had strong growth in Australia and New Zealand. We’ve had for many years now, and in that business by the way is fairly integrated across the Tanzanian Sea. So you Australia and New Zealand as the highly integrated management structure and both are great businesses for CoreLogic. A lot of it is penetration of our existing client base additional analytic, white space, et cetera, we have some good growth going in insurance and spatial, we have some green-chip over there in that area, looking at geo spatial as well, so it's a variety of growth driver which is good. So there is not one single silver bullets and it's the consistent pattern that it's a power house in the property valuation space where the leading provider of valuation solution in Australia and that’s been an area of significant growth as well, so pretty balance and then pretty strong.

[Alex Veytsman:]

Okay and what percentage of total revenue do you guys drive now from the international business?

[Frank Martell:]

International business running kind of 8%, 9% of the total revenue.

[Alex Veytsman:]

Got you thank you.

[Operator:]

Thank you. Our next question will come from the line of [indiscernible] Zelman Associates. Your line is now open.

[Unidentified Analyst:]

Thanks guys, I guess on the VSG revenues, is a little bit stronger than we had expected, was there any traction on new clients that will be evident in the first quarter or is that a longer term trend?

[Frank Martell:]

The VSG first quarter loan is primarily LandSafe and RELS which are really the two clients because they were captives [ph], so no I think it was modestly ahead of what we saw but I think nothing material really.

[Unidentified Analyst:]

Okay. And do you have any particular agreements with those two customers on how long you will be using you guys for their appraisal work?

[Frank Martell:]

I mean we have a very, very long relationships, we were the managing partner of Wells for almost 20 years and so lead businesses are deeply embedded in the workforce of those clients. But clients are free to select any venders they want. It’s just that I think we believe we provide superior quality and service delivery and we work very, very closely with Wells Fargo and Bank of America are very large clients and we spend a lot of time focused on making sure that we deliver value for them.

[Unidentified Analyst:]

Okay. I guess over a multi-year timeframe, how do you think about the opportunity for potential pricing increases within appraisal, as you’ve mentioned in a number of other areas, especially in recent quarters. I was just wondering how you thought about that.

[Frank Martell:]

I would say there is certainly room for pricing adjustments in appraisal. I’d say the real magic frankly is around data enablement and the automation of the workflow in the arena. I think that this whole area is going to become much more digitized, much more efficient and that’s really to me were the economics really come into full play because it’s such a large area, I want to talk about 4 billion, just the U.S. alone in residential property. Our total valuation in NPI is about $0.5 billion roughly relates directly or pretty directly to property evaluation activity. So we can get much, much bigger -- I think it’s the margins through the automation digitization, it’s worth the magic that is going to happen.

[Unidentified Analyst:]

Okay. And then one last one on the credit and screening within RMW, you mentioned both share gains as well as some pricing. Were the share gains more resulting to more business from your existing customer and then gaining share as well or is it with from customers or a combination of the two?

[Frank Martell:]

It’s a combination.

[Unidentified Analyst:]

Okay. Would you say equally weighted across the two or more heavily towards one or the other?

[Frank Martell:]

It’s pretty close.

[Unidentified Analyst:]

Okay. Alright. Thanks.

[Operator:]

Thank you. And our next question comes from the line of Glenn Greene of Oppenheimer. Your line is now open.

[Glenn Greene:]

The first one question I just sort of a big picture sort of profitability potential you before sort of entering the VSG you sort of talked about the normalized mortgaged market, but I think [indiscernible] started describing this year as sort of a 30% to 35% EBITDA margin if they recall. Obviously the VSG sort of dilutes the margin percentage and it was encourage, Frank to hear talking about that up to the high 20s, low 30s over 18 months to 24 months timeframe. Could you just sort of give us some sense or how we should we be thinking about the margin potential now that we are in a more normalized mortgage market, some context with the drag from VSG right now?

[Frank Martell:]

Yes, so I think the business, we haven’t moved up off of -- I think the characteristics of the business is certainly in a 30 margin plus profile scale et cetera. We talked about this before and certainly and you picked up on the VSG has got the diluted margin percentage, not dollars, but percentage. It’s such a big opportunity that I think its worth -- and its right weight in our wheelhouse in terms of automating and data enabling, so I don’t see any reason why we can’t. As we talked about earlier if we can get the margins back up into the 30% then obviously you get the whole company at 30 plus percent margin. We’ve cutting -- by the way we didn’t talk a lot about it but the cost management program, we’re taking our $60 million. That’s things we should be doing as a high performing company, but also obviously we’re getting more efficient, constructurally, we’re integrating more and we’re preparing for the impact of the VSG. So, we are cutting a lot of cost as we have last couple of years that will help the margins as well so we believe in really continuous cost management and the productivity focus and every great company does that and we were certainly in that camp.

[Glenn Greene:]

And then just if you can help us quantify, I know you talked about the 3% organic growth including the mortgage market headwind which you caught up with 10% in the volume decline. Is there a way to acquaint that to revenue and EBITDA, I mean where we sort of thinking 5% organic growth ex the mortgage market. Just trying to get a sense how to think about that?

[Frank Martell:]

I’m sorry, I didn’t understand your question.

[Glenn Greene:]

How much of revenue and EBITDA drag did you see from a mortgage, the lower mortgage market, the 10% decline in mortgage activity?

[Frank Martell:]

Yes. So I’d say roughly speaking, you’re looking at from a top-line perspective 10 million to 12 million-ish and EBITDA 6 million-7 million.

[Glenn Greene:]

Okay. And are you still thinking sort of negative 15% for the year. Given what you saw in the first quarter? And then we will obviously see a sharp rebound in the weekly MBA indices for the last couple of months?

[Frank Martell:]

Yes. Look, I think the first quarter actually came in quite in line with what we expected from a mortgage market perspective. So early days, obviously rates used to stay down, so that’s having some effect. There is other constraints on it. So I think it’s too call to call the mortgage market differently and we ready it coming in the year, we’ll kind of look at them mid-year, but I think it’s too early. I mean certainly as Anand mentioned, I think the good thing is the rotation of purchase market is fundamentally, I think the quality, the market stronger in terms of market dynamics and market drivers, so that’s broadly encouraging.

[Glenn Greene:]

Okay. And then just as it relates to the, you called up the 12 million a sort of one-timer integration costs in the quarter across the business. How should we be thinking about as we go through the rest of the year, is this sort of, in the sort of a bleed-down? What we be thinking about going into 2Q as it relates to that, when do we cycle for this one-time cost.

[Frank Martell:]

Yes. So we’re going to have integration costs for VSG for some period of time. I think some of the other costs will abide a bit. Certainly the things like severance which we have 4 million in the quarter, obviously that’s a big one that will go down. As we try to do every time, we try to get as aggressively we can and frontload the actions required to realize the savings. So severance should tail down that’s quite a biggest single one. Some of the compliance expenses et cetera, should also moderate as we go forward in the year. But in terms of VSG, it will be a little lumpy, but that will continue for some period of time.

[Glenn Greene:]

Okay, great. Thanks a lot.

[Operator:]

Thank you. [Operator Instructions]. Our next question comes from the line of Bose George of KBW. Your line is now open.

[Chas Tyson:]

It’s actually Chas Tyson for Bose. Just want to go to VSG and how you scale that business as you noted and typically been a pretty heavily personal expense type of variable costs business. I was wondering, if you just maybe give us an example of how you digitize and how you automate it to scale up and get up to those low-20s, high-30s -- I’m sorry high-20s, low-30s EBITDA margin looking for?

[Anand Nallathambi:]

This is Anand. One other thing that we were attracted in setting up VSG was the fact that. I think the industry is ready for some transformation and we’ve had some really, really good experience in running platform solutions in Australia and it’s very, FNC is very similar to our offering in Australia whereby we pre-populate data for the appraisers and the valuers right from the get go. So you have one and then the second one as we have MSB with a really good market share where we provide replacement cost data, that could be integrated into it. And FNC changes again where, it is more like a network utility that really connect like I mentioned 80,000 providers with more than 100 financial institutions out there. And so you could kind of see us even playing a role of been a gateway for settlement services. All of those kind of thing have high margins, low-bulk type like type product compared to the traditional appraisals. Along with all of this stuff, we believe that integrating all of our data and coming up with new analytic, we’ll help us to boost margins. Obviously, this is not a immediate activity, it’s going to take a while, that’s why we kind of keep mentioning that is the medium to longer term growth opportunity for us.

[Chas Tyson:]

Okay. So is it more a question of scaling up and expanding the FNC offering, I suppose to really changing around how the appraisal processes is done?

[Anand Nallathambi:]

I would say, it’s using FNC’s REITs and with what we have as far as integrated data solutions along with the market preference of RELS and LandSafe.

[Chas Tyson:]

Okay. And then on market share in tax and credit. You guys said that, is there could be some potential expansion there, I was just wondering as your market share is very higher right now. But as a percentage of kind of what’s out there you guys have done a good job of helping clients got best in class providers like yourself. So what of the remaining market share that’s out there, the other sense of kind of what seats with competitors versus what’s in-sourced that you could potentially get customers to out-source to you?

[Anand Nallathambi:]

Yes. With drip down of market share from the top big banks to the mid and mass market There has been some fragmentation that has come into the market place, that is an opportunity for us to consolidate, and we have been doing that and that’s also is what should be driving the market share increases.

[Operator:]

Thank you. Our next question comes from the line of Oscar Turner of SunTrust. Your line is now open.

[Oscar Turner:]

First, I just wanted if you can provide more color on the evolution of your VSG strategy and more specifically did you already have plan to acquire the other two businesses when you first announce the LandSafe acquisition last August?

[Anand Nallathambi:]

I would say that the evolution of the strategy was more of RELS, we knew that we already had 51% and at some point we thought that we will be consolidating. The opportunity with the grander VSG strategy was when we start the technology platform solution type opportunity and with everything that’s going on well we felt like if we put all of this together, we have a great chance of influencing the future direction of the industry. Adding to all of this is a real life example of what we were able to do with the LandSafe that’s the platform solution that we have in Australia which basically has the 90% market share there.

[Oscar Turner:]

Okay, so when you bought LandSafe, you had already anticipated acquiring RELS and FNC?

[Frank Martell:]

Yes, I think when we LandSafe, we already had a strategy to expand our reach into property valuation. So that was one of many -- obviously we have specific opportunities in mind and both organically and inorganically, so we had a detail strategy of which LandSafe was part of in addition to RELS and FNC. Some of these deals you can never count on them happening, but we all made very much sense. Just a back, we are already a big player in property valuation prior to any other acquisitions. And as you know, this is really for many years now we have had a strategy of scaling up in the areas that we think are unique insight providers and property valuation underpin still much of risk management and under riding decision which really a logical strategic element that we’ve been pursuing and accelerating the pursued of recently.

[Oscar Turner:]

Okay thanks. And this is a follow up, how much revenue from the VSG is now included in your 2016 guidance, given the later than expected close for FNC?

[Frank Martell:]

We don’t guide on sub-level details, so don’t -- we got tell to level. In terms of the guidance, sorry about that but can't really provide that.

[Oscar Turner:]

Okay. I guess for the segments of VSG that you had in the first quarter, any reason to think that there will be in material differences in the last three quarters of the year? Is there any seasonality that we should be looking in those three, just not taking into account FNC?

[Frank Martell:]

Yes, I mean valuation like the other core mortgage operation that has a seasonal pattern fill it. So the second, third quarter are the strong quarters. To your point earlier, we have not -- we kept our guidance the same and as it relates to FNC, obviously you had the client loss, the jobs that had the month later closing, so that’s all been absorbed in our guidance, so our guidance has been restated despite those two items.

[Oscar Turner:]

Okay thank you.

[Operator:]

Thank you. And our next question comes from line of Jeff Meuler of Baird. Your line is now open.

[Nick Nikitas:]

Guys this is Nick Nikitas sound for Jeff. Most of my question already asked. The quick one on the VSGX, looking at LandSafe and RELS on a year-over-year basis do those businesses also outperform kind of 10% in the market decline you guys mentioned?

[Frank Martell:]

Yes, so there are actually, those businesses reflect what was reported by the two clients so if you look at what the BoA and Wells reported their margin [ph] was with their overall volume trend. So they wouldn’t reflect to broader market necessarily depending on how those companies performed, but I would say that as I mentioned earlier certainly the performance at RELS and LandSafe was terrific in the first quarter in my opinion and certainly in line with what we expected.

[Nick Nikitas:]

Its okay if the others number were higher than we expected. And then just on the buyback, I know you just mentioned that the guidance was adjusted to incorporate the delay with that on zero, broader integration just with the buyback, is that -- was that previously included in the guidance or is that incremental as well?

[Frank Martell:]

No, that would not be included in the -- was not a in the assumption on our guidance, so that would be a new item. But just to reiterate, we reiterate our guidance absorbing the impact of the FNC timing and client loss. So we are able to absorb that in our guidance range is. But the share buyback would be a new feature.

[Nick Nikitas:]

Okay, great. Thanks.

[Operator:]

Thank you. Our next question comes from the line of Chris Gamaitoni of Autonomous Research. Your line is now open.

[Chris Gamaitoni:]

Quickly, I was wondering if there is any opportunity to cross-sell your credit check and flood business into FNC clients that you may not currently have a relationship with?

[Anand Nallathambi:]

Yes. I think like I mentioned that, it is a platform solution. And we have had actually some conversations with customers who felt like we could be that gateway. But what we want to integrate FNC into our appraisal operations first, take a look at what they have, they have about 110 million of parcel data. Our flood operations has about 150 million parcel data in terms of property information. We want to make sure that we kind of take a look at low-hanging fruit first. And then in the future, maybe a medium to longer term opportunity would be kind of look at or other settlement services and see if FNC would provide the network utility function.

[Chris Gamaitoni:]

Sure. And where are you -- what is the additional information in the credit check business that you were getting paid for? Is that related to the trended data? Or is there a transition by Fannie, or something different?

[Anand Nallathambi:]

The translation from Fannie that you talking about is credit trended data. And that’s just going to be if it is successful, that’s going to be the standard product for them to be used an underwriting. But what we’re talking about is just providing additional type services.

[Chris Gamaitoni:]

Specifically, I was asking about the price increase you had mentioned, providing -- your costs had gone up, and you are passing those through. So I would assume that there was some type of added benefit to pass through those costs. Maybe I’m misunderstanding what you had said beforehand?

[Anand Nallathambi:]

What we have been able to do on the credit side is as for the compliance costs that headed down from the credit bureaus is passed on to us, we’ve been passing that through and also the data costs have constantly gone up and we’ve been able to pass that through in a successful way, especially in the automotive sector.

[Chris Gamaitoni:]

Perfect, thank you so much.

[Operator:]

Thank you. And our next question comes from the line of Bill Warmington of Wells Fargo. Your line is now open.

[Bill Warmington:]

Nice job on the quarter, especially given the headwinds from refi. And congratulations to Jim on the promotion, and welcome to the limelight. So first question on VSG, you guys have been talking about the appraisal services market as large, highly fragmented, and the real regulatory and operational pain point for mortgage originators and servicers. I wanted to ask, how big is the market that you consider to be your actual addressable market? I know a $4 billion market has been thrown out, but I want to know specifically what you guys consider to be your market and what your current share of that market is.

[Anand Nallathambi:]

In the limited markets that they serve today in the connecting appraisals and title providers with the banks. They probably have a market share of 40%, 45% and we believe that the grander market, that’s what, we talk about as the $4 billion includes a lot of appraisal analytics and also just property analytics that people do in terms of compliance, in terms of underwriting services and property intelligence and insights after the fact that the loan is boarded up. Those are all things that we have services. We just need to kind of make sure that we use the FNC gateway to push that through to the customers.

[Bill Warmington:]

And how, [Multiple Speakers] sorry, go ahead.

[Frank Martell:]

The 4 billion just to clarify, the 4 million Anand talked about is really traditional property appraisal services. So one of the things we are talking about, obviously is analytics and other applications that the analytics traditionally been offered in the market. We have plus or minus 15% a share of the valuation space, we estimate, so there is plenty of room. Some of that 4 billion obviously not accessible, it’s captive with other things. But a big chunk of that 4 billion is accessible. I think there is a significant additional amount of revenue to be had through additional things, like automated valuation models and other analytics that currently aren’t really apply in the valuation space, necessarily. And that is just domestic. So there’s many, many other opportunities globally as well.

[Bill Warmington:]

So how should we think about organic revenue for VSG starting in a year from now, maybe think about it in terms of organic revenue growth over the next three years?

[Frank Martell:]

I think organic revenue growth can be significant, I think we --.

[Bill Warmington:]

That may be double digits?

[Frank Martell:]

It can be significant. But we need to, Bill, I think, also we’re not interested in volume for volume’s sake. We are interested in transforming property valuation. So admittedly a lofty goal, but we think the industry is crying out for a better way to do property valuation. And so there’s a consensus that there should be a better way with the advent of technology and data. We think we are the logical player to provide that because of our scale. That’s the genesis and one of the tenant of VSG strategy. So I think growth is going to be there. We just want to make sure this growth in our wheelhouse, which is data enable insight. So that’s what we’re going to after, but I think there is going to be significant organic growth opportunity, because we have what we’re, it’s wide open in terms of client opportunity for us. But we’re going to be selective a bit, I think.

[Bill Warmington:]

Well, you mentioned in your comments market uptake of your portfolio of new products, and was hoping to get an update on some of the products that were being bought. And it seems like, you had talked about MyCoreLogic, CondoSafe, GoMLS as a few about a year ago at the investor day. But then also it sounded like the new TRID rules that went into effect on October 3rd were creating an opportunity to use your tax data to develop a product to help lenders improve the accuracy of their estimated tax payments for consumers. So I wanted to check and see what was helping you there.

[Frank Martell:]

Yes. So I’d say that the poster child, really, I’d say, is CondoSafe where we launch that a little while ago. But it’s increasingly being adopted and we’re seeing a ramp in the revenues in that business. That’s one of the examples of what we’re trying to build industry currency solutions. So even though the sell-in takes a little longer than you’d like, I think once it get traction, it’s a very sticky opportunity, so that’s a good example of where we got an uptake. Property tax estimate that you talked about, because we have unique visibility into property tax payment across the U.S. with 22,000 or so taxing jurisdictions, we’re really uniquely positioned for the industry to provide accurate estimation of liability. And so that is something we’re very excited about and we already have revenue lined up for. So that’s another good example of those two that you talked about where, what we’re seeing those upticks. But I think it’s important that we’re trying to focus on products that we think or have industry-wide application and that could be more or less consistently applied across the industry versus unique, bespoke-type products that could have significant revenue but are attached to one or two clients.

[Bill Warmington:]

And then one point of clarification, just to make sure there’s no confusion around it, the guidance previously and the guidance currently does not include -- does not embed share buybacks.

[Frank Martell:]

Correct.

[Bill Warmington:]

And also, it does not include any benefit from the refinancing, potential refinancing of the 400 million in 7.25 [ph] bonds callable on June 1.

[Frank Martell:]

That’s correct.

[Bill Warmington:]

Okay. All right. Well, thank you very much for the insight.

[Operator:]

Thank you. And that was the last question for today. Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program. You may all disconnect. Have a great day, everyone.