CoreLogic, Inc.
Q2 2015 Earnings Call Transcript

Published: 24 Jul 2015

[Operator:]

Good day, ladies and gentlemen and welcome to CoreLogic, Inc. Q2 2015 Earnings Conference Call. At this time all participants are in a 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 is being recorded. I would now like to turn conference over to Mr. Dan Smith, Senior Vice President, Investor Relations for CoreLogic. Please go ahead.

[Dan Smith:]

Thank you and good morning. Welcome to our investor presentation and conference call where we present our financial results for the second 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 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 second quarter financial results to prior periods should be understood on a year-over-year basis that is in reference to second quarter of 2014. Finally please limit yourselves to one question with a brief follow-up. We will take additional questions at the end of the call as time permits. Thanks. Now let me introduce our President and CEO, Anand Nallathambi.

[Anand Nallathambi:]

Thanks Dan and good morning everyone. Welcome to CoreLogic's second quarter earnings call. This morning I'll recap our second 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. Over the first six months of the year, we delivered strong growth in revenues, operating profits, free cash flow and earnings per share. Year-to-date, our revenues are up by almost 9%. Operating income from continuing operations is up 97% and adjusted EPS is up 78%. We also repurchased about 2% of our outstanding share count. Our strong operating performance is driven by the continued implementation of our strategic transformation program which is focused on the following major objectives. One, achieving market leadership in our core underwriting and risk management solutions businesses; two, driving operating leverage and expanding margins through process reengineering, workflow optimization, and cost efficiency; three, optimizing our existing technology infrastructure and launching the CoreLogic Innovation Center and our NextGen platform; and finally 4, building financial flexibility and consistently returning capital to our shareholders. Over the course of this year we have continued to invest in products and service development. We have a robust pipeline of new products and products enhancements which we believe will collectively support positive growth trends in the future. We are also investing in our NextGen technology platform, compliance infrastructure, and a further monetization of our diversified databases. We believe that demand for our unique solutions has never been greater. As we move forward, we are squarely focused on enabling and accelerating the growth of our underwriting, compliance, and risk management solutions, which are powered by our industry leading property data, analytics, and data enabled workflow services. Specifically in terms of the second quarter revenues were up almost 6% year-over-year. As we capitalize on higher U.S. mortgage volume and expanded our core property, insurance, and international operations. Our DNA segment is a global leader in residential property data, analytics, and related workflow services. On a constant currency basis, DNA revenues grew 6% in the second quarter driven by upsides in our international, insurance and spatial, and property information businesses. During the second quarter we grew international local currency revenues at a double-digit rate through product innovation and expanded market share. Our TPS segment is the gold standard in data enabled services focused on underwriting and compliance solutions and property tax payment processing. TPS revenues were up 8% for the quarter as our tax, flood, and credit operations continued to gain share and outperform the broader mortgage market. Share gains were concentrated in the mid and mass markets which have been areas of focus over the past few years. For the company as a whole in addition to growing revenues, second quarter operating income and adjusted EBITDA was up 48% and 21% respectively. Adjusted EBITDA margins was 31%, up almost 4 percentage points. The increase in margins was a result of our relentless focus on driving favorable business mix, optimizing scale and operating leverage, enhancing process efficiency, and reducing cost. Regarding cost management during our last earnings call we announced a launch of a program intended to reduce cost and drive sustained margin expansion. Specifically over the next three years we are targeting to reduce annual run rate expenses by $60 million. The successful completion of this program together with the expected eventual normalization of U.S. mortgage unit volume, should position us to generate sustained adjusted EBITDA margins above 30%. Over the past 18 months or so, the U.S. mortgage markets have continued to transition to a purchase driven cycle. With market fundamentals improving, the recent pickup in purchase volume should help offset the eventual tapering of refinancing activities as interest rates rise. Also sustainable job creation and overall economic recovery should support housing starts and help the inventories overtime. Overall we believe this transition had set the stage for a healthier and more sustainable real estate market. CoreLogic has delivered exceptional results over the first six months of 2015 and I believe our strong performance, funds to benefit, and value creation opportunity inherent in our strategic plan. We are deeply embedded in our clients most critical workflows. Our 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 by identifying, assessing, and managing opportunities and risks 24 hours a day, seven days a week. As we move forward, we will continue to pursue a focused strategy that builds on the company's unique data assets and analytical tools as well as the market leading positions and scale of our data enabled servicing businesses. In closing I want to thank our employees, 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 will turn it over to Frank.

[Frank Martell:]

Thank you Anand and good morning everyone. Today I am going to recap our second quarter 2015 financial results and provide some additional color around margins and cost management as well as capital allocation and our updated financial guidance. As Anand just mentioned, CoreLogic is off to a strong start in 2015, operationally and from a financial perspective. In addition to strong top line growth, we expanded adjusted EBITDA margins to just over 29% in the first half of the year, an increase of 560 basis points. Higher margins were the result of favorable revenue mix, operating leverage generated by our mortgage related businesses, and ongoing cost management. Operationally we continue to shift our business mix towards data driven subscription based models both around scaled market leading solutions. We believe our core mortgage operations outperformed market volumes and we expanded and diversified our DNA revenues. The durability of our business model allows us to continue to invest in our products and services, technology leadership, and operational improvements, and at the same time return significant amounts of capital to our shareholders and manage our debt balances. From a financial point of view, second quarter highlights included first, strong top line gains supported by favorable organic growth trends and DNA and TPS market outperformance. Second, expanded EBITDA margins and a kickoff of our upsized cost reduction program; third, strong and accelerating free cash flow generation; fourth, the amendment and extension of our credit facilities, and finally, the repurchase of significant numbers of our common shares. Second quarter revenues increased 5.5% to $386 million versus prior year driven principally by higher demand for property related data, analytics, and underwriting solutions as well as market share gains. Before FX impacts, revenues were up 7.2%. TPS segment revenues increased 8% year-on-year to $214 million driven primarily by higher demand for underwriting related services which more than offset lower specialty credit and project related document processing and retrieval revenues. D&A revenues were up 5.8% on a constant currency basis. Reported revenues were up 2.2% to $174.6 million as growth in property information and analytics, insurance and geospatial solutions, as well as international more than offset the impact of unfavorable FX translation. Operating income from continuing operations totaled $60.7 million up 48% from last year. This increase resulted primarily from higher revenues, favorable operating leverage, and lower expenses related to ongoing cost management and the company's strategic transformation program. These costs related benefits were partially offset by increased depreciation and amortization. Second quarter operating income margin was approximately 16%, up from 11% in 2014. Net income from continuing operations totaled $33 million in Q2 compared with $26.7 million in 2014. This 23% increase was driven primarily by improved operating results which more than offset the impact of unfavorable FX and a onetime 2014 gain on investments that did not repeat. Diluted EPS from continuing operations totaled $0.36 from the second quarter of 2015 compared with $0.29 in the second quarter of 2014. Adjusted diluted EPS was $0.55, up 41% or $0.16 reflecting the positive impacts of revenue growth, margin improvement, and share repurchases. Adjusted EBITDA totaled 117.8 million in the second quarter of 2015, compared with 97.3 million last year. Second quarter 2015 adjusted EBITDA margin was 30.5% up from 26.6% in 2014. Adjusted EBITDA and margins were higher primarily as a result of revenue growth, favorable business mix, and operating leverage as well as 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. Last quarter we announced the launch of an expanded cost productivity program designed to bring our overall adjusted EBITDA margins on a sustained basis to greater than 30% over the next 3 years. This program is designed to lower run rate expenses by $60 million by 2018. Savings are expected to be realized through the consolidation of facilities, reduction in SG&A cost, outsourcing of certain business processes, and other operational improvements. This program also incorporates expected savings from our recently completed transition, the company’s existing technology infrastructure to a managed service arrangement. Over the past several months we have completed a significant amount of diligence and planning related to our cost management program and expect to commence the implementation of a number of key initiatives over the balance of 2015. The company expects to realize approximately $15 million in total savings from this cost productivity management program during 2015. Additional run rate savings of $30 million and $15 million are targeted in 2016 and 2017 respectively. Cash and non-cash charges to be incurred over the course of this three year program are expected to aggregate approximately $20 million. We expect to incur 5 million to 8 million of these charges in 2015. I will conclude my prepared remarks today with some color around our capital management priorities and our financial guidance. Our 2015 capital allocation priorities are to fund disciplined reinvestment to support future growth and operational efficiency and to return capital repurchase of at least 2 million of our common shares. We expect to continue to maintain prudent debt levels. Over the past four quarters we have continued to generate strong levels of free cash flow. On a trailing 12 month basis to the period ending June 30, 2015 we generated approximately 256 million in cash flow, a 62% conversion rate of adjusted EBITDA. This high cash flow conversion rate reflects favorable changes in our business mix and improved margin levels as well as enhanced collection processes. This level of cash flow together with our current cash reserves and the recently completed credit facility amendment provides CoreLogic with significant financial flexibility to apply our stated capital allocation strategy. During the second quarter we returned $58.7 million to our shareholders in the form of a buyback of 1.5 million of our common shares. Now in terms of our financial guidance, given the strength of our first half results projected investments in and benefits from our cost management initiatives and our latest view on second half 2015 mortgage origination unit volumes, we have revised upward of previously issued guidance. Our updated 2015 guidance ranges are as follows. Revenue of $1.49 billion to $1.51 billion, adjusted EBITDA of $410 million to $420 million, adjusted earnings per share of $1.75 to $1.85 per share. Specifically in terms of the third quarter of 2015 based on normal seasonality patterns, current projected market volumes, expected FX translation impacts, as well as the timing of cost related to our NextGen and cost efficiency programs we believe that adjusted EBITDA in the third quarter should approximate 93% to 97% of Q3 2014 levels. In closing CoreLogic’s continued strong financial performance reflects the benefit of our continuing shift in our business mix towards scale platforms that provide unique data insights and high levels of subscription based revenues. Our focus remains squarely on operational execution in 2015 and positioning CoreLogic for accelerating growth and margin expansion over the next several years. Thank you for your time today, I’ll now turn the call back over to the operator for Q&A.

[Operator:]

[Operator Instructions]. And our first question comes from the line of Bill Warmington of Wells Fargo, your line is now open.

[William Warmington:]

Good morning everyone.

[Frank Martell:]

Good morning.

[William Warmington:]

Well congratulations on a solid quarter and also on the guidance. I wanted to start out with a question on the guidance, specifically around the mortgage market assumptions that are built into the revised 2015 guidance and in that context also some thoughts around the margin assumptions for the second half of the year. You hit 30% or above 30% in the second quarter, it looks like the guidance for the second half is below that, so that is the first question?

[Frank Martell:]

Okay, hey good morning Bill, this is Frank. So, I will take it in two steps; one is on the mortgage market outlook. I think that we -- our current view is pretty much in line with the most recent MBA number that just came out a couple of days ago. They have upped their dollar volume projection for the year. From a unit perspective you have to deflate that obviously for price escalation. We are assuming pretty much a unit improvement versus our original guidance of about 10%.

[William Warmington:]

Got it.

[Frank Martell:]

And that is just reflected in our guidance. In terms of the shape of the year, I would say that the margin profile we believe that first of all the first half we did benefit somewhat from timing of expenses and the investments that we are making both in the NextGen platform as well as in the cost management programs. So I talked about the additional 5 million to 8 million we expect to spend this year. That is all in the second half obviously. So our guidance does absorb those, both the timing element of our expense profile as well as the additional expenses that were not in the original numbers related to the cost management and the cost improvement that we wanted. We want to get off to a strong start. And the last thing I would say is that obviously you could see the impact of currency translation in the second quarter primarily centered in DNA, in the DNA segment where our international operations reside. And so we are continuing to look at kind of 15% share cut versus last year although currently there is additional pressure but we will absorb that additional pressure through the current guidance.

[William Warmington:]

Got it. And then for my follow-up question, I want to ask about your appetite for acquisitions and if you could remind us of what your total purchasing power would be, any cash and available debt?

[Frank Martell:]

So, we have plenty of fire power. We have $550 million undrawn revolver. We are carrying a lot of free cash flow obviously and we have a significant cash reserve on the balance sheet. So, we have significant dry powder. We have remained very disciplined in terms of acquisitions around, really looking at data assets, analytical models, and scaling place. So we continue to be active in terms of looking at opportunities in the market. And the ones that make sense we will go after. No big news at the moment but certainly there is an active pipeline of opportunities in the market and we are looking at the ones that make sense to the company in the context of that screen I just gave you.

[William Warmington:]

Got it, thank you very much.

[Frank Martell:]

Thanks Bill.

[Operator:]

Thank you and our next question comes from the line of Darrin Peller from Barclays. Your line is now open.

[Darrin Peller:]

Thanks guys, look I just want to jump back on the data analytics growth rate. I mean obviously it was so much similar to first quarter's levels. We are having a pretty good trashing from the origination market in terms of growth year-over-year, probably also contributing I guess if you can maybe pass out what contribution of the growth came from originations and then really just more importantly what the opportunities still remains to be for the second half of the year in terms of acceleration closer to the high single digits you guys had talked about from whether it is international drivers or new products and how that is all going?

[Frank Martell:]

Sure, so I think we are very happy. I mean if you may remember on the first quarter call, I told everybody that the first quarter we grew a little over 7% organically in DNA. Obviously that was against a very weak comp in the preceding year and certainly from a mortgage market perspective. So, we expected the second quarter to be a little bit harder comp and that’s kind of played out a little. I think that we had a very good result. I mean international insurance, spatial solutions, a lot of our mortgage related analytics did very well in the second quarter. We are very pleased. We are taking some share in the analytics area. So we are happy about that. We continue to see a relatively flat trajectory in the multifamily tenant screening area and then obviously we have currency translation that impacted us. But overall we like to trend, we think it will continue to accelerate back in line with our longer-term targets in the upper single digits. And that’s still in line. We’d like to get the multifamily business up a little bit, we are working on that. We have had some management changes so we’ll really have all the 4 core press on that and we’ll continue to look at that. But in general the business has performed well. I think the other thing is the mortgage contribution, the unit volumes are up still at a fairly low level so we feel there is still opportunity but it’s a couple of million dollar contribution in the total scheme of things in that segment.

[Darrin Peller:]

Alright, that’s helpful and then I guess in terms of timing around your upper sale digit trajectory, I mean is that something that we expect to hit this year.

[Frank Martell:]

Yes, I think it’s still the same as we talked about. We exit, you should see that trend as we exit the year. We talked about it, we have I think the best pipeline of new products opportunities that we’ve ever launched as a company last five years. So, we feel good about that, the sale and cycle took a little longer in this industry than I would like but we certainly are getting traction. So we should see the contributions from those products coming on as we go through the end of the year. And then I think we are still, the mortgage market will play out but I think still taking share gains across international spatial and we feel good about those areas as well.

[Darrin Peller:]

Alright, that’s great to hear. Just one follow up, we obviously have heard a lot of noise around one of your competitors that recently spun out and so I guess just a follow up. I mean are you hearing anything from clients with regards to their offerings and data analytics new offerings come into the market are more aggressively trying to sell, obviously their management was on the road speaking a lot so was just curious to hear if you have seen anything or have any anticipation of any more competitive dynamics?

[Anand Nallathambi:]

Darrin, this is Anand. We haven’t seen anything new. We have heard the same story that we have heard for the last five years and our focus is pretty much based on our growth targets. In the U.S. its more on the analytics side, in the international it’s more on platforms, data, analytics, and stock, and insurance and spatial you already know. So we’re more focused on our business and we haven’t seen anything new.

[Darrin Peller:]

Alright that’s good to hear guys. Thanks very much.

[Operator:]

Thank you. And our next question comes from the line of Jeff Meuler from Baird, please go ahead.

[Jeff Meuler:]

Yes, thank you. Could you guys spend a bit more time on the DNA margins. I didn’t fully catch what drove the down margin in the quarter despite still solid organic growth there and as a part of that, can you remind us what the margins are internationally meaning to the FX driven mix shift, was that one of the big factors on the margins.

[Frank Martell:]

Hi Jeff, it is Frank. So to answer your last question first, margins are similar. Our revenues and cost are in the same currency so we have a national offset there. So the margins are – and the margins profile internationally are slightly higher than our aggregate segment margins so but in the lower 30s. So and in terms of your first question on -- so if you look at the investments that we are making in the business, a lot of those technology, the data, monetization area fall within DNA. So you are seeing in the second quarter the expenditure of some of those initiatives and so that was where the impact on the margin in the second quarter was a little bit disproportionate. You know that’s a function of timing more than anything else. We still think that, that segment will continue to expand margins as we get into the cost benefits of these programs. So it is more of a function of investing for the future and those investments happen to be centered really in the DNA area. And I think as we pointed out in the earnings release, the final item is really that $2 million hit related to currency when you compare dollars year-over-year in that segment.

[Jeff Meuler:]

Okay, that is helpful. And then I guess I was a bit surprised about the, I know you guys have a big pipeline of new products but I was a bit surprised they could drive acceleration by year-end, are those products largely sold on a subscription basis or a license basis or how are they sold and then how are you incorporating the new products into the existing sales force or is it a dedicated sales force, just how does that work?

[Frank Martell:]

Yes, that is hard to generalize because the products are different. But what we have been focused on is really industry solution and so we have some products around condominium, it is called [indiscernible] if we sit out in the market and that is around data basis related to underwriting into a condo type situation. And these are industry pain points that we are addressing. So, we developed and done in consultation with the key players in the market. They tend to be subscription based or based on a rate card and volume driven if they are in the underwriting area typically. But typically they are in annual contract or multi-year contracted that is either volume based or subscription based. And some of these are quite meaningful. We believe they will be quite meaningful in the medium to long-term but as I said the mortgage industry because of their compliance related areas and because things need to be embedded carefully through work flows and the compliance departments of our clients that sell a little bit longer. So that is why they take a little bit longer to get up to scale but they will be meaningful overtime.

[Jeff Meuler:]

Got it, thank you Frank.

[Operator:]

Thank you and our next question comes from the line Bose George from Keefe, Bruyette & Woods. Your line is now open.

[Bose George:]

Hey good morning. I guess first just to be 5 million to 8 million of charges, is most of that coming in the back half of the year?

[Frank Martell:]

It is all in the back half Bose.

[Bose George:]

Okay, great. And then just in terms of switching to the TPS segment, the MBA numbers have a reasonable decline in 2016, I am just curious of your thoughts on how that impacts the revenue and margin of that segments and what is kind of the organic growth there, if you are in some kind of a flat market year-over-year?

[Frank Martell:]

Yes, so I think first of all I will just say that we feel great about the margins in TPS. The team has done a wonderful job. And I would just point out it is not just about revenue, it is about the cost efficiency and the automation that that team has driven into the business. So, some of the margin expansion you are seeing is not only operating leverage related but also automation and cost productivity benefit. We believe therefore the margins should expand in a flat market. Last year we talked a lot about it. We had a long-term strategic goal for which we said really in 2011 but Anand said the target of having that segment deliver at least to 25% adjusted EBITDA margin in a trillion dollar market. We kind of tested that last year. We are at 26 unchanged from a margin perspective. So, we feel really good about that. That should only go up all staying equal because of the cost reduction activity that we have. In addition frankly we are much larger as a scale, from a scale and share perspective than we were a couple of years ago. So, that translates to operating leverage. So, we think that we will do very well in a flat market. We prefer a slowing market. But certainly we still think we can continue to spend margins even if the market is flat.

[Bose George:]

Okay, great, thanks.

[Operator:]

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

[Chris Gamaitoni:]

Good morning, thanks for taking my call. On the 5 million to 8 million and the related additional cost saves in the future, could you give us an idea of which segments does it fall in?

[Frank Martell:]

Yes, you broke up Chris a little bit did you said the 5 million to 8 million and what segments did that fall into?

[Chris Gamaitoni:]

Correct.

[Frank Martell:]

Okay it’s more, I would say it is pretty equally weighted but basically a lot as I mentioned is, this components are related to real estate which is kind of broadly distributed. Of course SG&A is a component of that. SG&A, some of its allocated, some of its corporate level, and so but again the allocable portion to that will be I think pretty ratable across the two segments. The two segments roughly are the same in terms of revenue weighting about 50%. So if you are modeling that I would I think assuming half-half is not a bad.

[Chris Gamaitoni:]

Perfect and then just as a follow up, could you give us a sense of the impact in DNA on margins from the investments in the quarter?

[Frank Martell:]

Well I think, well I don’t have that figure off of top of my head so we’ll have a follow up. But it’s in the low single-digits.

[Chris Gamaitoni:]

Perfect, thank you so much.

[Operator:]

Thank you and our next question comes from the line of Jason Deleeuw of Piper Jaffray, your line is now open.

[Jason Deleeuw:]

Yes, thank you and good morning. And nice work on the quarter. Question on the 5 million to 8 million in charges for the second half of the year, is that incremental to what you are originally expecting and had embedded in the guidance for the full year?

[Frank Martell:]

Yes, it is.

[Jason Deleeuw:]

Okay and then the investments in the DNA segments, it sounds like there is little bit heavier investment cycle right now and maybe a little bit more to continue but when do you think you are going to have an inflection point in terms of the timing of those investments for the DNA segment.

[Frank Martell:]

I think that, I mean A) as I talked about the first half we bet a little bit from delayed timing on a few of the investments as we got through things like the data center migration. Now focused on CoreLogic Innovation Lab etc, so they are all growth there -- primarily growth related on the NextGen side. And then on the cost side obviously that’s a little bit of a different situation. So I think we should see most of those play out the second half of the year. The timing is really largely dependent ultimately on the planning cycle and when we think we can actually make decisions. A lot of the 5 million to 8 million relates to the implementation of real estate related activities and then any reduction in staff count.

[Jason Deleeuw:]

Got it and then just a last one on the DNA segment, the property inflow, and analytics revenue it was a down a little bit year-over-year I know, is all the FX impact running through that revenue line item in the segment, are there any other call outs there besides the FX headwinds?

[Frank Martell:]

The majority of the FX runs to that line so that’s what you are seeing primarily.

[Jason Deleeuw:]

Okay, thank you very much.

[Operator:]

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

[John Campbell:]

Hey guys, good morning.

[Frank Martell:]

Good morning John.

[John Campbell:]

If you could talk a little bit about pricing, you guys have obviously taken a lot of share in the business over the last years and then I think you guys mentioned that a lot of that as of late has been coming from kind of the mid market. Just talk to us a little bit about pricing, is that a lever that you guys you know see in the future maybe over the next six months or two years or so?

[Anand Nallathambi:]

The advancements that we’ve made especially in those of kind of products is because of our the compliance infrastructure and the gold standard that we bring there. And the regulatory oversight and the impact that’s on all the customers has been what's turning them towards quality players like us. So it’s not necessarily a pricing driven thing at this point.

[John Campbell:]

Got it and then you guys are obviously generating pretty strong free cash and it sounds like the share repurchases is always going to be an option but just on debt, I think you got 250 million or so in callable debt next year so, I guess first is that right and then if so what’s the rate on that debt?

[Frank Martell:]

I think what you are referring to is we have some bonds that are out there that will come due next year, middle of next year. Its higher than that, a little over $400 million. There is several tranche then roughly that rough cost is kind of 7.5% is the interest rate.

[John Campbell:]

Got it and then just last one for me. I know I am beating a dead horse here, but the 5 million to 8 million in incremental cost, I mean it is symbol of saying that the high end guidance you guys are at 420 million for EBITDA, that was in 425 to 428 excess?

[Frank Martell:]

Correct.

[John Campbell:]

Got it, thanks guys.

[Operator:]

Thank you and our next question comes from the line of Kevin McVeigh from Macquarie, your line is now open.

[Kevin McVeigh:]

Great, thanks. Hey nice job on the quarter. Just wanted to make sure I heard your comments right in terms of, it sounds like the sequential progression for the EBITDA will be about 105 million or so. So, the incremental 15 million in cost saves, that was already in the guidance right, the step up was basically the improvement in the fundamentals or the adjustment to the cost?

[Frank Martell:]

Yes, I think it’s basically the market volume improvement. We did have some of the cost is being offset in additional investment Kevin is being offset by savings though we had a higher savings number and a higher cost related to the programs so they are not exactly cancelling themselves out but they mitigate, the savings mitigate that. So, better market conditions of the program and then currency is a little bit around in currency. That’s sort of the basic bridge between the old guidance and new guidance.

[Kevin McVeigh:]

Got it, that’s helpful and then as we think about the transition approaches from refinance, can you kind of point to just obviously I know you have a rich history in the business, any period where its similar and things we should look for as we start to see more of a shift towards purchases opposed to refinancing and does that change in the go to market strategy at all?

[Anand Nallathambi:]

No, I think there is a lot of positive signs on the shift towards the purchase market and I think it’s always good. I believe that the inventory levels are still a little tight and need that to open up with new constructions. And we see that through the insurance solutions that we have in the marketplace. And what we seen now is the gates are starting to open up, the market is improving, the unemployment is coming down, the labor markets, and then overall economic recovery. Once they are strengthened this is going to be more broad based. That’s what we need in the purchase market. There is a little bit more robustness at the higher end of the market that we see now then in all the rest of the markets and that’s where I think this is going to be, the growth is going to be more sustainable in the purchase side.

[Kevin McVeigh:]

Got it and then just my last question Frank 2015 to 2016 I just want to make sure the number is right, the incremental step up in cost saves is about 30 million based on the most recent program is there anything else that’s going to continue to kind of runoff and help the EBITDA in 2016 or is it just that incremental 30 million?

[Frank Martell:]

I think that is Kevin the other big factor is we will continue to rotate the business mix. So that’s been a big focus. So continue to drive subscription based models to the extent possible and I think to pickup one of the questions earlier we are focused on price increases where that’s feasible and can be supported by improved products and services and future enhancement. So that is the future as well that will help on terms of the margin development of the company.

[Kevin McVeigh:]

Understood, thank you.

[Operator:]

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

[Glenn Greene:]

Thanks, good morning guys, couple of questions. I guess the first one maybe Frank on the TPS margin improvement which was, it looks like 500 basis points Q-to-Q and to do the math its almost its more than a 100% contribution margin Q-to-Q and it does not look like you had an easy comp from 1Q where the margin improvement was 900 to a 1000 basis points. So could you help me understand that a little bit and maybe I think you gave some commentary on it but are we sort of at a sustainable in going higher level on the TPS margins or was there some seasonality here?

[Anand Nallathambi:]

No, I think the margins are, there is a very high operating leverage and particularly the credit of the flood businesses and then on the tax business we picked up a lot of market share as well. So, those margins I think will continue to increment at a very high rate. So we are very sensitive to volume on the upside. I think that was the last year we took the pain, this year we are taking the gain of it. But we are delivering incremental margins in the $0.80 and the dollar or more depending on the business unit in that segment. Secondly, you may remember part of the benefit in the first quarter and the second quarter this year it’s also being derived from the fact that last year and the first half we are integrating some acquisitions in the TPS segment that entailed integration cost. So there is a benefit of that that’s resonant in the margin increase this first half of the year in TPS. But that aside I think the margin expectation that we have, those businesses generate over 40% margin in the $1.85ish trillion mortgage market a couple of years ago. So that will just give you some dimensionality in terms of honest point about normalization of the market. Overtime that translates to a significant upside potential for the company from a margin expansion perspective in TPS. And also that’s a bit of DNA that is exposed to mortgage volume as well.

[Glenn Greene:]

Okay and then you alluded to this so it’s a good follow up, but if I look at the tax additions in the datasheet it looks like it was up 48% year-over-year and you’ve alluded to market share gains. I was wondering If maybe at a high level you can sort of dimensionalize how much came from market improvement versus the market share gains, are there any big notable clients that we are going to see continued carry forward of strong growth, and which will help obviously TPS?

[Frank Martell:]

It’s definitely a combination Glenn but we have honest point what do you call a mid or mass market. A lot of these mid mass market players are very large. So we have some significant wins in tax that are flowing to the number, that are driving that upside.

[Glenn Greene:]

Okay and then the final one I may have missed the number but more importantly on the free cash flow conversion you gave the trailing four quarters, did you say 62% or 52% conversion and more importantly are you still comfortable with 50% free cash flow conversion from EBITDA or is that too conservative at this point?

[Frank Martell:]

The number is 62 not 52. We feel great about our cash flow conversion ratios. Some of the 62 was attributable to some tax benefits that won’t repeat and a few other things. We did have a pretty good compression in the collection cycles over that 12 months. So those types of things are now built in the run rate. So we do feel that the free cash flow is sustainably above 50%. And so I think that would have been told buts it is sustainably in excess of 50%. I think that’s been proven now pretty conclusively over the last couple of years even in the lower mortgage market.

[Glenn Greene:]

Okay, great. Thanks, appreciate it.

[Operator:]

Thank you and our next question comes from the line of Alex Veytsman of Monness, Crespi. Your line is now open.

[Alex Veytsman:]

Good morning guys, wanted to ask you about the Q3 EBITDA guides, it looks like you are guiding to 105 million to 110 million which is sequentially lower than the second quarter numbers. I am just wondering what’s driving that, is it primarily TPS refys [ph] driven because I think MBA expect an equal decline in refys from Q2 to Q3 which is -- and we just appreciate further color on this?

[Frank Martell:]

The forecasts are roughly for about $50 billion decline between second and third quarter and that’s with refy going down and purchase going up slightly. So it’s your point it’s all refy market dropping is what's really feeling the shape of our guidance. The other thing though is non-market related is the profile we talked about earlier on the investment related to NextGen and the cost reduction program.

[Alex Veytsman:]

Got it, thank you.

[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, good morning guys. I thought you had the MSB assets for little over a year so maybe some color on what you have done there to accelerate the growth, maybe in the context of kind of what the product pipeline coming out of the MSB integration looks like or if there are certain things that you have kind of prioritized to get MSB growing faster and how do we think about the impact of the MSB growth opportunity relative to that acceleration and DNA growth for the balance of this year and the next?

[Anand Nallathambi:]

Brandon, this is Anand. MSB is obviously a great fit with our core competency and underwriting and we see a lot of areas where that could grow. We are very happy with the acquisition and it also in addition to fitting with our core competency and underwriting it builds on our risk management and solutions platform with the replacement cost data and stuff. It also extends CoreLogic in adjacent markets and in that area we are taking some pressure or oil and gas initiatives that they get some pressure because of the market pressure. As far as new products are concerned, we are working on a lot of new products related to spatial solutions and risk and construction cost indexes and stuff. If it is going to show up immediately in the next six months that remains to be seen. We are looking at picking up our international expansion in Australia and New Zealand and that looks like it is well underway. So, it continues to grow, it is probably going to be a lot more meaningful and needle moving in 2016. That is the best way to put it. It leverages CoreLogic assets and it also helps us to cross sell a lot but lot of things are still in motion in that development.

[Brandon Dobell:]

Fair enough. And then last one from me, how do you think about the impact of the RESPA-TILA rule implementation, whether it is going to be August or October, some combination of the two dates, how you factored that into the back half of the year guidance, how do you think it impacts your business or the mortgage market I guess?

[Anand Nallathambi:]

It doesn’t directly impact us in the market. It has been settled pretty much, it is October 3rd is the compliance date. There has been some pressure points for some lenders who have spent the money and are ready to comply now and they had put everything on hold till October. And then you got some other lender who just had tough time getting ready for it who are going to be going through this October. In terms of settlement services for us we are more on the transactional side, so I don’t see a whole lot of impact to us.

[Brandon Dobell:]

Okay, great, thanks guys.

[Operator:]

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.