CoreLogic, Inc.
Q1 2015 Earnings Call Transcript

Published: 25 Apr 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to CoreLogic's First Quarter 2015 Earnings Conference Call. At this time all participants are in listen-only mode. Later we'll 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. It's time I'd like to turn conference over to Mr. Dan Smith, Investor Relations. Sir, 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 2015. 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've posted our slide presentation, which includes additional details on our financial results, on our Web site. 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 non-GAAP measures to their GAAP equivalents is included in the Appendix to today's presentation. Finally, unless specifically identified, comparisons of first quarter financial results to prior periods should be understood on a year-over-year basis, that it is in reference to the first quarter of 2014. 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. This morning I'll recap our first quarter operating results including progress on several strategic initiatives. Frank will then summarize our financial results and we will conclude the call with Q&A. CoreLogic is off to an outstanding start in 2015 with strong growth in revenues, operating profits, free cash flow and earnings per share. Importantly we successfully captured the benefits of an up-ticking in U.S. mortgage volumes while we continue to expand our product offerings improve our technology and operation capabilities and gained market share. Overall over the balance of 2015, we will focus on expanding our market leadership in property driven underwriting and risk management solutions which are powered by our must-have data analytic and data enabled workflow tools and platforms. First quarter revenues were up 12% year-over-year as we capitalized on higher U.S. mortgage volumes and expanded our core op property, insurance and international operations. Our D&A segment is a global leader in residential property data, analytics and related workflow services. D&A revenues grew 19% in the first quarter fuelled by organic growth and the acquisition of MSB and DataQuick in late March 2014. Organic growth in the D&A segment accelerated to 7% in the first quarter representing our strongest performance in seven quarters. In this regard we benefited from expanded market share in several product and service areas, product innovation and an overall improvement in the U.S. housing and mortgage market. All international revenues jumped more than 10% in local currency terms given the quarter as the team drove product innovation and expanded market share amongst lease lenders and real estate brokers in Australia and New Zealand. Our TPS segment is a gold standard and data-enabled services focused on originations and underwriting services, property tax payment processing, compliance and mortgage technologies solutions. More than half of the mortgages originated in the U.S. over the past year utilized our credit reporting, flood zone determination or tax payment processing services. TPS revenues were up 6% for the quarter as growth in mortgage underwriting and workflow solutions offset lower specialty credit and project related volumes. Our tax, flood and credit operations continue to gain share and outperformed the broader mortgage market in the first quarter. During the quarter we also secured several important new wins which are expected to provide additional upside in our mortgage underwriting related units beginning from the second quarter of this year. Our market leading property insights and solutions are deeply embedded in our client's most critical workflows. CoreLogic's scale and ability to invest heavily in compliance infrastructure, automation and data enabled services as well as our reputation for delivering a high level of quality and service has made us a preferred partner for many financial services and insurance firms. We believe these factors position us for continued growth as we help our clients build their business and assess the managed risk 24 hours a day, 7 days a week. Before I leave this subject of revenues I want to provide you with a brief update on our progress on TTI next-gen. This space of the TTI focuses on building growth enabling platforms and capabilities which will augment and eventually replace substantial portions of our legacy system. The next-gen platform will also support and expanded focus on mobility and facilitate greater monetization of our data assets. Late in 2014, we announced the formation of CoreLogic Innovation Labs in collaboration with Pivotal Software. The Innovation lab will be the conduit through which we develop our next-gen technology platform. During the first quarter we completed initial staffing and secured facilities and we also rolled out our first product utilizing next-gen capabilities. We expect this compliance related product to contribute revenues beginning in the second half of 2015. Several other products are currently under development with projected launch date beginning from late 2015. Operating income and adjusted EBITDA were up strongly in the first quarter compared with the same 2014 period. Higher profitability was driven by top line growth, favorable shifts in revenue mix; operating leverage in our mortgage related businesses and cost management. Adjusted EBITDA margins for the first quarter were 28% up, almost 8 full percentage points year-over-year. As we announced in our earnings release yesterday we have launched and expanded an effort to reduce cost and continue to drive margins up in 2015 and in subsequent years. Specifically, over the next three years we are targeting to reduce annual [long grade] expenses by $60 million. This program incorporates expected savings from the migration of our legacy IT infrastructure to Dell Services under the company's previously announced TTI. Upon the successful completion of this program and continuing normalization of U.S. mortgage unit volumes we expect to be well positioned to generate sustained adjusted EBITDA margins significantly above 30%. I will focus the balance of my prepared remarks today on the progress we are making on building our financial flexibility. Over the past four quarters we generated a record level of free cash flow. We reinvested those funds in product and service development, productivity related investments including the TTI, debt retirement and the repurchase of $3.1 million of our common shares during 2014. On Tuesday of this week we completed an amendment of our credit facility; this transaction will reduced our interest cost significantly over the next five years and at the same time provided us with additional flexibility to invest in future growth while pursuing our capital return program over the longer term. In closing, CoreLogic delivered strong operating results in the first quarter. We grew revenues at a double digit rate and significantly increased operating profits and margins. We also substantially expanded free cash flow and EPS. The company’s focus on fundamental value drivers position us to execute on our strategic vision and accelerate growth. As we move forward, we will continue to perceive a focused strategy that leverages the company's unique data assets as well as the market leading position and scale of our data-enabled servicing businesses. I'd want to thank all of our employee’s, clients and shareholders for their continued support. I am excited about our future and believe we are a great partner for our clients and a value growth opportunity for our long-term investors. With that, I'll turn it over to Frank.

[Frank Martell:]

Thanks Anand. Good morning everyone. Today, I am going to recap our first quarter 2015 financial results and provide some additional color around the TTI, cost management, capital allocation and finally our 2015 financial guidance. CoreLogic's off to a strong start in 2015, both operationally and from a financial perspective. Operationally, we continue to shift our business mix towards data driven subscription based models built around scaled market leading solutions. We believe our core mortgage operations outperform market volumes and we continued to expand and diversify our DNA revenues. The durability of our business model allows us to continue to invest in innovation and operational improvements and at the same time return capital growth to our shareholders and reduce our debt balances. First quarter 2015 financial highlights include, first double digit revenue growth, second, accelerating organic growth trends in DNA, third, continued market outperformance by TPS, fourth, expanded EBITDA margins in both of our operating segments, fifth, the upsizing of our cost reduction program and finally the amendment and extension of our credit facility. First quarter revenues increased 12% to $364.8 million from prior year levels driven principally by higher demand for property data, analytics and underwriting solutions as well as share gains and the benefits associated with the acquisition of MSB and DataQuick. D&A revenues were up at 19% to $165.6 million as growth in property information and analytics, insurance and geospatial solutions and international more than offset of the impact of unfavorable foreign currency translation and lower tenant screening revenues. D&A, which now gets 35% of revenue from insurance, geospatial and international accounted of 45% of the total company revenues in Q1 2015. TPS segment revenues increased 6% year-over-year to $201.6 million driven principally by higher demand for underwriting services which more than offset lower especially credit and project related document processing and retrieval revenues. Operating income from continue operation totaled 49.3 million for the first quarter compared to 14.8 million in 2014. The 232% increase in operating income resulted primarily from high revenues, favorable operating leverage in our mortgage related underwriting solutions businesses and low expenses which will partially offset by increased acquisition related depreciation and amortization. 2014 Operating income also reflected 13 million in cost related acquisition in our transformational program which have no 2015 counterparts. First quarter net income from continuing operations totaled 29.3 million compared with the net loss of 3.2 million in 2014. The $32.5 million year-over-year increase was driven primarily by higher operating income and lower interest cost which more than offset the impact of unfavorable FX and higher tax provision. Diluted EPS from continue operation totaled $0.32 for the first quarter compared with loss at $0.03 in Q1 2014. Adjusted diluted EPS totaled $0.46, up 156% reflecting the project impact to revenue growth, margin improvement and share repurchases. Adjusted EBITDA totaled approximately 100.9 million in the first quarter compared with 65.4 million in the first quarter of last year. First quarter 2015 adjusted EBITDA margin with 27.7% up from 20.1% in 2014. Higher adjusted EBITDA and margins were driven principally by double digit revenue growth, favorable business mix and cost productivity. An integral part of CoreLogic's growth and success over the past four years has been our commitment to a rigorous and ongoing focus on cost productivity. A Project 30 program resulted in expense reduction of over $100 million from mid-2011 to 2013. In 2014, reduced expenses added additional $30 million. As Anand highlighted earlier, we've launched an expanded cost productivity program design to bring our overall adjusted EBITDA margins on a sustain basis to greater than 30% over the next three years. This program is designed to lower run rate expenses by $50 million by 2018. Savings are expected to be relies through the consolidation of facility, reduction in SG&A cost and other operational and process related improvement. This program also incorporates expected savings from the completion of Phase 1 of the company's previously announced TTI program. TTI Phase 1 relates to transition of the company’s existing technology infrastructure to a managed service arrangement with DELL, which is scheduled for completion in June of this year. The Companies expects to realize $15 million in total savings from its cost productivity program 2015 including 10 million savings attributable to the completion of TTI Phase 1. Additional run rate savings at $30 million target in 2016 with the final [tranche] $15 million in cost save expected during 2017. We expect to incur of about $20 million in cash and non-cash charges over the course of the three year program. I'll conclude my prepared remarks today with some color on capital management priorities and our financial guidance. Our 2015 capital allocation priorities are to fund disciplinary investment for future growth and operational efficiencies and to current capital through the repurchase of 2 to 3 million of our common shares. We also expect to continue to maintain prudent debt levels and in this regard, we reduced there by $36 million in the first quarter. Over the past four quarters we have generated record level of cash flow. On a trailing 12 month basis to the period ending March 31, 2015 we generated $276 million in cash flow, a 70% conversion ratio of adjusted EBITDA. This high level cash flow conversion reflects favorable changes in our business mix and improved margin levels as well as lower collection cycle and taxes. This level of cash flow together with our current ample cash reserves and the recently completed credit facility amendment provides Corelogic with significant financial flexibility to drive our state and capital allocation strategy. With regards to the amendment of our senior secure credit facility we extended the term of the loan by 13 months and reduced interest rates by 50 basis points. At closing we have a $540 million untapped revolving credit facility with additional borrowing capacity available within a context of an expanded debt to EBITDA leverage covenant of 4.5 times. In terms of 2015 guidance given the strength of our first quarter results we expect to achieve the high end of our previously issued ranges for revenues adjusted EBITDA and adjusted EPS. In line with our past practice we will provide a formal update to our 2015 guidance conjunction with our second quarter earnings release process. Specifically in terms of the second quarter 2015 based on normal seasonality pattern current projected market volumes and the timing of TTI next gen investments we believe that adjusted EBITDA in the second quarter should be 10% to 15% above Q2, 2014 levels. In closing Corelogic continued to delivered strong financial performance reflecting the benefits of continuing shift and our business mix towards scale platform that provide unique data driven insights with high level of subscription based revenues. Our focused remains squarely on strong operational execution in 2015 and positioning the company for accelerating growth and margin expansion over the next several years. Thank you very much for your time today I will now turn back over to the operator for Q&A.

[Operator:]

[Operator Instruction] Your first question comes from Darrin Peller from Barclays. Your line is open. Please go ahead.

[Darrin Peller:]

Thanks, guys. Nice job on the quarter. Just wanted to start off, I know you just mentioned, Frank that the guidance range is coming in -- you expect to come in at the high end, now, but I guess, just given all the questions we gotten, it's important to sort of get this out of the way. Just being that you came in $10 million or so better than your guidance on EBITDA in the quarter, you clearly outperformed TPS in both revenue and margins. Is there anything that is unusual, first, about the first-quarter results that may have boosted anything? If not, sustainable or repeatable? And anything unusual about the next couple of quarters that would not make for potentially a bigger step up from Q1 to Q2, assuming the origination forecasts are right?

[Frank Martell:]

I would just say two major point Darrin on that score. One is that clearly the first quarter benefited from an elevated level of refinancing. I think the great news as we talked about previously, we converted most of that revenue upside to margin which was a terrific result. So we have a little bit of -- I think its early days you to call final mortgage volume trajectory for the full year. So give it a couple more quarter -- couple more months is kind of what we feel. And then secondly, there was little bit of timing in the first quarter related to TTI, as you know we've slated the spend about $15 million over the course of the year. Anand mentioned we did get the innovation center up and running little bit more slowly than we anticipated particularly around staffing and some of those areas that will come on I think a little bit more in the second quarter and subsequent quarter. So a little bit timing there not a huge amount of money but certainly a factor.

[Darrin Peller:]

Okay. Otherwise, some of this is just management company style in terms of waiting when they want to change -- formally change and these are the guidance.

[Frank Martell:]

I think you with the volatility to macro-economic environment and rate -- the rate environment. I think we've try to avoid a lot of changes to the guidance over each quarter and just stick kind of cadence of beginning of midyear update.

[Darrin Peller:]

Alright. That makes sense. I just want to quickly follow up. I think probably one of the most notable factors of your quarter was your growth in the TPS segment. Not just for market churns and refis, but it looked like you gained market share. If you could first comment on how that is happening? Where are you gaining share from? And then maybe just another comment on the incremental margin you just alluded to being converting most of that incremental growth to margin so well. I mean, where are we on the cost structure of the business? Can we -- is capacity, is there more capacity to go that, as we see more in flux upside on originations, you could still have very, very high incremental margins to go from here?

[Frank Martell:]

As we experienced last year I guess on the other side the fix cost structure and high operating leverage in particularly tax and credit and flood, we thought that we lost a significant margin as the market approached the trillion dollar level. We're seeing the inverse of that clearly which is exactly as we'd hope and expected. So those businesses have become a lot more efficient, in fact highly efficient. So we expect that the high incremental margin north of 80%, 90% to continue to accrual until the market heads back to one more normalize level which as know Anand said will last couple of years, kind of one five, one four, one five, one six levels. So we expect that high incremental margin to continue. I think we feel great about where the team has taken the operating leverage in those businesses, Credit and flood are electronic models, highly efficient and in the case of tax, the team is done a great job over the last couple of years really significantly reducing workflow cost in that business we are really excited about the prospect to this our ability to continue to take cost out. As Anand mentioned the longer term program we think is will be going to be a great boost in margins. So we feel good about where the cost structure is today and where it's heading importantly, you are never done as we demonstrated in last couple of years and we still think we can rip most cost out but we have to do it in plan full way.

[Darrin Peller:]

Okay. So to be clear, it sound like if we were to have a nice further pickup in originations, there really is not much of a need for fixed costs to go up from where we are today? It's really, if anything, just some of the variable costs?

[Frank Martell:]

Not until we get closer to the normalized volume levels in the market.

[Anand Nallathambi:]

You had mentioned market share increases I'm not sure if you meant the data and analytics segment or the TPS segment.

[Darrin Peller:]

Oh, yes. No, I was referring to the TPS side, just given the growth.

[Anand Nallathambi:]

Okay obviously we are still taken share on the flood side and also the tax service side which is always good for us. And on the cost thing as Frank mentioned there is still opportunity for us to continue to strive for a high level of operating efficiency and that should boost our margins.

[Darrin Peller:]

Is some of this is just working with the right players in terms of the market itself? The right companies that you service are the ones winning share on their own as well?

[Anand Nallathambi:]

You could say that yeah. Actually, if you look at the first quarter, at the beginning of the year we put our focus on the mid and mass market. And that has really benefited, we're seeing the results of it the highest amount of growth for us has come from the -- not the first half two tiers, but below that in the mid to mass market.

[Operator:]

Your next question comes from Bose George with KBW. Your line is open. Please go ahead.

[Bose George:]

Good morning. In terms of the timing of your flood and credit revenues, does it come in right after applications says it’s better for us to focus on the application volume versus closings in terms of just modeling that?

[Frank Martell:]

Yes the mortgage -- translation fees are right at mortgage app and right behind it is flood. So there used to be a normal seasonality of maybe 15 to 13 days lag between the credit and flood and then tax comes later than that when the loan is borrowed up maybe 60 days from that standpoint.

[Bose George:]

Okay, great. And then just switching to the organic growth rate in the D&A segment, you talked about 5% to 7% guidance for the year. You are at 7% this quarter. Just curious, could it go higher? Can you discuss the factors that has moved up pretty quickly from the 4% you saw in the back half of last year?

[Frank Martell:]

We certainly hope it to be higher and that we're working on it there is a lot of things that we're doing on the insurance side. We are focused on international areas or international business in Australia, New Zealand is also seeing a pretty good growth because Australia government has cut rates in February, I believe, and that has provided some uptick and activity there. State side I would say that growth is being coming more from the fraud detection side. And what we have done, we have a new innovative tool outfit where we are bringing in the fraud detection investigation and remediation processes of the lenders into [indiscernible] workflow efficiency at the same time bringing in more data enabled analytics.

[Bose George:]

Okay, great. And then actually, just one last one. On the foreign currency translation, did you mention how much, if any, was in terms of a lost there?

[Frank Martell:]

No it was roughly about 5 million for the quarter on the top line.

[Operator:]

Our next question comes from Brandon Dobell from William Blair. Your line is open. Please go ahead.

[Brandon Dobell:]

Focus on D&A for a second. How sustainable is that organic growth rate this year? Maybe a different way of asking it is, was there anything in the quarter that you would call out as especially noteworthy, project wise, or episodic and not sustainable? Just trying to get a feel for, as you look at the rest of this year to ’16, if that 7% number is a good way to think about organic growth?

[Frank Martell:]

I think we still believe we will get back on to that upper single digit long term trajectory for organic growth Brandon. First quarter was very clean and I think that the good news here is that and I think what validates the upper single digit growth for the balance as we move towards this end of this year is the fact that some of the new product items that Anand mentioned around next-gen or coming online now. So that should give us a little more support as well to accelerate that trend that we saw in the first quarter. So, then clearly the market pressure is a lot less this year at least certainly out of the gate with our clients do not [indiscernible] discretionary spending and some of the spending we've seen in previous year. We didn’t see necessarily 2014 when the market came down so much.

[Brandon Dobell:]

Okay. And then shifting to MSB for a second, what is some kind of sign posts or markers that we should look for especially as we move into second and third quarter for traction -- traction around cross sell, traction around getting into new clients because of the expanded offering? And then how do you guys think about the pricing opportunity as you try and drive subscription revenue within that MSB ecosphere?

[Frank Martell:]

We would be presenting at completed strategy on that integration and the cost sale that's evidence that we could be with MSB at our Investor Day but just to give you a little bit of preview we’ll be working on the cross sell side as we just try to see if we can combine our solution side with the lead generation for insurance so that's one area. On the offset, on the oil and gas side because of what's happening and that was in the crude market there is been a little bit of a lack of demand then we saw going into this year and that then the last piece is just say integrating all our data products together is something that's going on so for the second and third quarters is that we look to launch our presence in New Zealand and Australia and work on some of these cross sell things that I just talked about.

[Brandon Dobell:]

Okay. And then as we think about headcount, I guess especially within D&A, given your comments about fixed costs in TPS, but headcount going through this year into next, is it more just moving people around? Should we expect you guys to add people in support of the next gen products of some of these cross-sell opportunities? Or do you think you've got the right kind of product and sales people in place?

[Frank Martell:]

More of the most of the next gen products that we've been developing is more of driving efficiency out there it's not necessarily bringing in processing types services it's more data analytics based or in like in the thought solutions that I just talked about, in bringing in web based portals to combine facilities which would be beneficial on the client side so I would say if there is an increases it would be modest.

[Brandon Dobell:]

Okay, great. Thanks a lot.

[Operator:]

Thank you. Your next question comes from Jason Deleeuw from Piper Jaffray. Your line is open please go ahead.

[Jason Deleeuw:]

Thanks and good start to the year. First question is on the -- you guys did the 27.7% EBITDA margin this quarter and your implied margins on the high end of your guidance, I believe, are 27%. So were running ahead of that already, and this is usually the weakest quarter from a seasonal standpoint. So, should we just think about this as you guys are building in some conservatism around your margin expectations for the year based on the refinance volume and any uncertainty there? If you could help us out a little bit on that front.

[Frank Martell:]

No. I think. Hi Jason this is Frank. I know but as I mentioned in my comments we will provide update and guidance in part of second quarter's cycle. Its early day’s right now we think it were off to great start, the margins were working hard on. We guided up to the upper end of the range so more on that, we feel pretty good about where we’re positioned at the moment we’re working hard to drive the margins up. I think the good news is we think we have a path way to get up into the mid 30 margin rates as on Anand kind of describe in this remark so I know we had progress over the next couple of year’s effort but we can see a path way to get there. And as we know first quarter and fourth quarter tend to be a weaker quarter with a strong kind of middle of the year so will provide more update as we get into the middle of this year.

[Jason Deleeuw:]

Okay, and just to be clear on the longer-term margin goals. I believe you guys are saying above 30% or 30%, but I think you just said, mid 30s, is that kind of the longer term goal pass the mid-30s adjusted EBITDA margins?

[Frank Martell:]

Well Anand said well above 30%, so we want to be above 30% margins. On the sustain basis important note understand is that it assumes a normalized mortgage volume and it passes around the 15 trillion mark. So all of us being equal if you look at the 60 million, you look at where we are now from the margin perspective and then continue other operational efficiencies we think that we can post margins well above low about 30% as we get out into the next couple -- three years?

[Jason Deleeuw:]

Great. And then, I believe you guys mentioned that there were some new client wins in TPS. Can you help us with the sizing there and then also, you talked about the new products. I believe that's all D&A segment. Is that the case? And how much of an impact there as I think you guys talked about the second half 2015 launch?

[Frank Martell:]

Yes. I would just say we don't provide specific client related wins from a number perspective but I would say that the share gains that Anand was referring to earlier are they are not insignificant, they’re reasonably meaningful. As we get higher and higher shares in these businesses obviously the numbers come down a little bit. But they are meaningful improvements and the nice thing is as again as Anand kind of alluded to as you get the tax business, you tend to get the flood business and in some cases the credit business along with that that’s package deal as well; which is very, very helpful for us in terms of growth trajectory.

[Operator:]

Our next question comes from Glenn Greene from Oppenheimer. Your line is open. Please go ahead.

[Glenn Greene:]

Thanks. Good morning. Nice results. A couple of questions; might be just sort of a follow-up on the last one, but Anand talked about some of the newer products related to the next gen and TTI. Is there any way to size, directionally, the potential revenue lift in 2016 that you might get when you sort of launched a few new products?

[Anand Nallathambi:]

It all depends upon when we launched it and then the customer adoption starts. We feel pretty good about our strike rate so far. But we don’t necessarily provide that kind of guidance year and half apart.

[Glenn Greene:]

Yes, I was just looking for direction. And then, just similar to the last person's question on the TPS and the several new wins that you alluded to. Can without getting too specific, should we be expecting that the TPS growth rate might actually start to accelerate from what we saw the first quarter into 2Q and 3Q because of these new wins?

[Frank Martell:]

Obviously it’s a function of the market volumes and what they will be in the second quarter. I would say that will you will see the benefit of market -- these share gains as I mentioned beginning in the second quarter. So you will see a revenue pick up related to those wins starting to impact the numbers in the second quarter up from a percentage perspective I'm not sure that it will necessarily accelerate.

[Glenn Greene:]

Okay. And then just sort of looking at some of the detail on the tax business, it looked like the volume was actually up something like 24% year over year. I know you sort of defer the revenue recognition here, but would it be wrong of us to sort of be thinking about that as a leading indicator that we could see a nice step up at some point in that payment of processing line?

[Frank Martell:]

The payment processing line because of the differed revenue model you have the phenomenon of the smoothing effect of the transactional volumes in the revenue recognition side of it. So you won't see the same types of volatility that you see in credit and flood necessarily. Although I would remind you guys that -- the both the credit and flood business, there is a significant portion of the revenue that’s not U.S mortgage -- directly tied to U.S mortgage. For example the flood business about a third of it is related to insurance coverage and in terms of credit we have a significant flood related transportation. So these are diversified models where we've leveraged the platforms as well. There is a component that’s not tied to U.S mortgage.

[Glenn Greene:]

Okay and then just one more just to level set us. The interest expense in the quarter was really low, and I think there was a onetime item in there, maybe you could clarify that? And maybe give us a frame of reference how we should be thinking about the interest expense for the year, given the refinancing.

[Frank Martell:]

We did have an adjustment in the first quarter to match our interest accrual to our expected interest payment. But that will normalize over the balance of the year and so you will see an interest -- our interest payment will be in line with our debt balances. So you can look up of last year and portion that base on the debt balances that you're assuming in your models.

[Operator:]

Our next question comes from Bill Warmington from Wells Fargo.

[Bill Warmington:]

Good morning, everyone, and congratulations on a strong quarter. Definitely fat stacking blues. A question for you on the cost structure. You've been addressing that now for some time and I wanted to ask if CapEx was next? It's been running about 6%, 6.5% of revenue and are there a couple percentage points there that could go away over the next two to three years as well?

[Frank Martell:]

I think of a long term perspective 5% to 6% is a good one, Bill, to work with. I think that what you see that’s happening with the company is the areas of spending are changing, we're getting as Anand kind of mentioned the exciting thing about next gen is we're moving from what I'll call a remedial spend to more of a growth oriented spend. But I think the total quantum of the CapEx will stay at a 5% to 6% range.

[Bill Warmington:]

Okay. And then on the new wins in the TPS side. What type of clients are you bringing in now? Are we talking about large US financial institutions? Are we looking more small/mid-size? Where are they coming from?

[Anand Nallathambi:]

We have the pretty good market share on the top tiers but like I mentioned earlier the highest level of penetration that we’ve seen over the last four months has been in the mid mass market so I would say probably in the top 75 and above.

[Bill Warmington:]

So, are you basically coming in to these relationships where you have perhaps one product that you are selling and you're able to then cross sell? So, you're able to then sell all three tax, flood and credit? Is that what's helping to drive the share?

[Anand Nallathambi:]

There is a little bit of product extension and relationships that we have and we’ve always had it and that -- in that sense it's across the board, all peers are using a lot of those solutions like I mentioned, I profiled what we doing with the fraud suite. That's something that's the top tier is equally interested in as a community commercial bank, but I would say that the highest penetration has being just brining on fraud detection and compliance type analytics across the board that's where we have seen the growth.

[Frank Martell:]

I would say Bill the other thing is just from a enablement perspective a lot of what we're doing on technology side is around enabling data and analytics to be distributed to these smaller firms and so the adoption of the use of data and analytical technique is increasing so that from a long term perspective that's one of the trends that we like from a core logic perspective and very much are working towards leveraging as we go forward.

[Bill Warmington:]

If you look at your shares today in tax, flood and credit. If I could ask you just to go through each of those, share today versus what that was three or four years ago, ballpark, to get a sense for how much share has been increased?

[Anand Nallathambi:]

We've try not to go into a specific product market share I think I mentioned in my script that's a combined those -- all these services are sometimes, somewhere around the 50%.

[Bill Warmington:]

Okay.

[Anand Nallathambi:]

There is some market share.

[Operator:]

Thank you. Our next question comes from Kevin McVeigh from Macquarie Research. Your line is open. Please go ahead.

[Kevin McVeigh:]

Great, thanks. I wonder and is that well above 30% and $1.5 trillion in originations. What does the business mix look like to get to those margin levels?

[Anand Nallathambi:]

Well we've always talk about data and analytics been greater than 50 and that we have kind of rapidly approaching that and also growing core high operating leverage businesses on the TPS side and that's if we just continue on that path it will get us the.

[Kevin McVeigh:]

Okay. And then just. Go ahead.

[Frank Martell:]

A lot of our investment is you can calculate about scaling is operations up, so a lot of what we’ve been doing and I think was alluded to the past discussion, last question was that, I think the operating leverage as a key, as mentioned the 50 -- roughly 50-50 right now mix, we like to get D& A up more and more than 50% and I think one of the path way to do that those are good high margin businesses and that in conjunction with the things that we've announce in terms of SG&A and other -- the continued productivity improvement there and we think the combination of those elements are what's going to get us to a sustain margin but well above 30%.

[Kevin McVeigh:]

Got it. And then Frank, any thoughts on just it's really hard, but originations quarterly throughout 2015, just any sense do you expect the same type of strength you saw in Q1? Should it follow normal seasonal trends? Anything in particular you'd call out there?

[Frank Martell:]

No I mean I think the MBA just came out and April 20th was there forecast, I think they are calling the year at a [1 - 2 trillion]; obviously that's a dollar number. We’re a unit driven revenue base so you got to deflect that for price increase roughly 5% - 6% and I think clearly and there forecast reflects a more normalized seasonal pattern I think that part of it still yet to be seen because the re-file obviously moves out seasonal patterns typically so I think the script for 2015 is still to be written but I think that what we can control what control or controlling which is delivering as much incremental margin on those dollars of refis activity as humanly possible and ride that wave as long as it last this year, but it's difficult to call with Europe and from the macroeconomic cross winds I guess I’d call them it's hard to tell where rates are going and obviously the refi way is sensitive to rates.

[Anand Nallathambi:]

We believe the fundamentals are there and if it's continues we’ll have a good year. But it's a still too early, I mean everybody is working hard towards it if we see even the refis there has been a slight downward tick from 58% to 56% recently and which kind of tells me that the purchase market is also big enough and the housing stock seems to be improving, home sales seems to be improving. Plus homes sales seems to be coming down price depreciation is more in the right direction [FHFA] is pushing the right buttons on regulations. So it's all there and if it continues, that will be a really good market for us. At the same time there is an overhang globally with anything could blow up and that could really impact the markets here we've seen that in the past. So rather than calling us conservative I'd say we’re being as prudent as we can and delivering and executing the business that hand.

[Operator:]

Our next question comes from Geoffrey Dunn with Dowling & Partners. Your line is open. Please go ahead.

[Geoffrey Dunn:]

Frank, I understand your thoughts about the sustainable mid-30%s margin off of a normalized market of 1.5. But as we think about the three-year goal, is that a goal that's achievable if the market stays below 1.3?

[Frank Martell:]

I think, first of all we are -- our cost plan is achievable. Just like we've achieved the last two of them, were this one is kind of -- it reflects really actually the continuing evolution the structure of the company the more integration, et cetera. So I think that’s achievable number one, I think in terms of the market as Anand said I think we are modeling the sustained margins about 30% not 35% or 30%, using a 1.5 market and it think that something that we expect to see. As Anand alluded to I think the purchase markets been picking up, all the fundamentals of the housing market, all be it slowly are falling into a better share. So we don’t see it as an unreasonable expectation. We can get into that kind of mid-1.3 trillion range and if we do that with the evolution of the mix of the business we think we can deliver on that on a sustain basis is above 30%. If the mortgage market is at 1.3 or 1.2 it's more difficult but we'll deal with those market conditions as they evolve. So obviously we'll take counter measures and other things but it's obviously more difficult to drive margin in a 1.2 market.

[Operator:]

Our next question comes from Jason Campbell from Stephens. Your line is open. Please go ahead.

[Jason Campbell:]

Good rebound on D&A organic growth from 4Q. If I had to nitpick just one thing, the multifamily and specialty servicing, it looks like it's still having trouble finding a foothold. It would be great to get that -- flip that to a tailwind. I know its small business, but if you just hold that flat in the quarter, I think that adds about a point or so of D&A organic growth. So just curious about what's driving the continued weakness and how do you reverse that? And then, if you guys are seeing anything or maybe expecting anything, or any type of pressure from Zillow basically coming out in offering free data on the MLS side of the business?

[Anand Nallathambi:]

Let me address it one at a time. I think on the pressure points on D&A especially on this business that I talked about better on offset is that especially credit that’s directly related regulations and regulatory control over site. And we don’t necessarily see that as a robust market nor do we want to really go into that in any aggressive forms. So that’s going to be what it is. As far as some multi-family market that’s -- we have a pretty good base. I wouldn’t that they’re a small companies. I think we probably have some have somewhere in the neighborhood of 30% or 35% share in that market and we're doing really well. The growth in that area in not significant but that’s been a traditional thing in that market, you got to gain share at the landlord level one to four level, which we're doing slowly. So that’s the way I'd look at it and the other things on D&A I actually think are really good and it's a movement in the right direction and it's question of time where we are filling the pipeline with the new products to be launched in the second half of 2015 and beyond.

[Jason Campbell:]

And then any expectation or any type of concerns around the MLS business with Zillow offering that free data?

[Anand Nallathambi:]

Yes I forgot that point. We don’t see anything from Zillow on that standpoint and actually I think our MLS business is good and mobility, the GoMLS acquisition that we did, we are trying to roll out more mobility focus applications to the MLS and realtor market that we touched. We don’t see any pressures with Zillow and I think Zillow is probably got bigger deals that they got to work out with their direct competition like people like [Move] and [indiscernible] and those entities.

[Jason Campbell:]

Got you. Okay, I think that makes sense. Last question from me. Frank, I believe you mentioned some of -- acting as a little bit of a headwind, some of the project-related revs in TPS. Has most of that rolled off? If you can maybe help size that up a little bit?

[Frank Martell:]

I'd say that part of that is timing related, it’s just the nature of the business, loan filled reviews and different programs the banks come in with that they need our help with or just they’re just episodic, so that's a little bit of the nature. But having that aside what the team has been doing last a year -- it’s 18 months, is working on doing the business around more sustainable flow related areas like [Lean] release, chain of custody type of work that; it's just taking a little bit of time to get some scale around. I think that's the right way to take that business but by nature, it's been lumpy. It's come down from the last couple of years but we think that it's reached kind of a sustainable level there is going to be some swings around about each quarter but we think there is a positive pathway as we get through this year. So building that business around slow type revenue streams and last project related, it’ll just take us little bit of time to get that business restructured to do that.

[Jason Campbell:]

Got it. And I don't know if you have this off the top of your head, but what would have growth been X the project roll off?

[Frank Martell:]

I think that -- will I'll get back to you on that, I don't have in front of me.

[Jason Campbell:]

Okay. Great. If I could just do one more housekeeping item. The tax rate came in a little below us for the quarter. What are you looking at for the rest of the year? And then if you can update us on NOLs from MSB?

[Frank Martell:]

Yeah the playing rate 35%, I think that's a good number. That's come down a lot from last couple of years so that the team has done a terrific jobs there and now we are using the tax benefit that were picked progressively through in this quarter, I think the MSB tax attributes just a couple of million dollars, it wasn't it huge thing but would be using those for some period of time.

[Operator:]

Thank you. Our next question comes from Jeff Meuler from Baird. Your line is open. Please go ahead.

[Jeff Meuler:]

Yes. Thank you. The comment about increasing the investment in the next gen tech platform, are you accelerating spend or are you increasing the planned cumulative spend? And if you're increasing it, how does it change what you're planning for the platform?

[Frank Martell:]

Now the stand level that we talk about previously was $15 million over the course of this year and that remains the same, what I refer to earlier with simply that in the first quarter first month from a planning perspective we work pretty level loaded in terms of quarterly spend that's 15 million over the quarters and as is typically this project little bit slow in some areas, particularly we have staff [interval] tricky, the facility that Anand mentioned is in St. Monica, so getting people into that location it's a little bit slower than we thought but that should normalize I think through the middle of year so I there won't be any more spending than we talked about the 15 million so it's not an increase or decrease at this point, it's just the different in timing.

[Jeff Meuler:]

Okay. And then, as you make new product development, more important part of the organization on an ongoing basis, any significant sales-force changes that you are planning? Or how do you kind of push this through, your sales force to clients? What's the strategy?

[Anand Nallathambi:]

Yes. We brought on David Martin a while back and he’s been here for probably six months, six to nine months and there is been a re-feeding of talent so to speak. We have the aligned or mortgaged workforce with the more of a [indiscernible] data product selling sales force, so we have put that structure and also talent to roll out this kind of new product.

[Operator:]

Thank you. Our next question comes from Alex Veytsman from Monness, Crespi. Your line is open. Please go ahead.

[Alex Veytsman:]

Yes. Hi, guys. Just a quick question. Could you give more color on the FX expectations for the rest of the year? And how much of potential EBITDA softness are you potentially modeling?

[Frank Martell:]

Yeah so we I think we still believe that the currency translation headwinds, we talk about it in the overall guidance, we talked about a kind of 10% to 15% haircut on the international revenues. So I would say at this point you could we had 5 million haircut on the top line in the first quarter. I think kind of normalize to that the year, I'd say that times up by four, that's kind of the top line and they use the margin rates 30%, I think that gives you kind of an indicative level. That's based on the current kind of view of currencies and obviously there is some volatility there. But then [indiscernible] I think, I don’t see anything that's going to magically improve the -- weaken the dollar necessarily. So we continue to see it, particularly our primary foreign currencies or the Australian and New Zealand dollars and they are kind of weak at the moment.

[Operator:]

Thank you. And our next question comes from Bose George from KBW. Your line is open. Please go ahead.

[Bose George:]

Just a follow-up. Can you discuss acquisition opportunities? You've created some flexibility with your credit line, so I'm just curious if you are seeing anything? Just your thoughts there.

[Anand Nallathambi:]

We did look at obviously a lot of opportunities, but nothing to comment on it at this point.

[Bose George:]

Okay. So it's really just to, as you know, to give yourself flexibility, was there anything specific?

[Frank Martell:]

We're focused as we talked about last couple of years, data assets, analytical techniques and models, geo-special and tax of flood; those remain our primary areas of focus in building out D&A. So that’s where we focus on, we take advantage of the market as it relates to refinancing the amendment of our current deal and it was terrific deal for the company and the shareholders I think in terms of interest cost reduction overtime and flexibility. We sent the 8-K out that has kind of more details around the amendment. But we think it's a terrific deal for the company and does give us flexibility if and when the right assets comes along.

[Operator:]

I am showing no further questions at this time. Ladies and gentlemen this concludes our program for today. You may now disconnect. Have a wonderful day.