CoreLogic, Inc.
Q4 2015 Earnings Call Transcript

Published: 25 Feb 2016

[Operator:]

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2015 CoreLogic, Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer portion and instructions will follow at that time. As a reminder, this call is being recorded. I'd now like to introduce your host for today's conference Dan Smith, Investor Relations. Please go ahead.

[Dan L. Smith:]

Thank you and good morning. Welcome to our investor presentation and conference call, where we present our financial results for the fourth quarter and full year 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 non-GAAP measures to their GAAP equivalents is included in the appendix to today's presentation. Unless specifically identified, comparisons of fourth quarter financial results to prior periods should be understood on a year-over-year basis that is in reference to the fourth quarter of 2014. Finally, please limit yourself to one question with a brief follow-up. We'll take additional questions at the end of the call as time permits. Thanks. And now, let me introduce our President and CEO, Anand Nallathambi.

[Anand K. Nallathambi:]

Thanks, Dan and good morning everyone. Welcome to CoreLogic's fourth quarter earnings call. I will lead off the call today with a recap of our 2015 operating results as well as strategic areas of focus for 2016. Frank will summarize fourth quarter financial results and discuss 2016 guidance before we go to Q&A. CoreLogic delivered very strong results in 2015. For the year, revenues, operating income, and net income, free cash flow and EPS grew significantly and were all at record levels. We exceeded our financial targets and outperformed the market volumes in our core mortgage related operations. Importantly, we also continued to make progress with regards to our strategic business plan which has been our guide over the past five years. As I have outlined on past calls, we are focused on a strategic program which includes the following four imperatives. One, achieving market leadership in our core Property Intelligence 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 Gen2 platform. And four, building financial flexibility and consistently returning capital to our shareholders. CoreLogic celebrated its fifth anniversary as a publicly-traded company in 2015. Over the past five years, during a period of rapid change and unprecedented market headwinds, we transformed our company into a global leader providing must have data-driven property insight to an expanding blue-chip client base. We invested to build high operating leverage in our core business units and fostered technology leadership and innovation. We have also improved our quality and service by driving significant operating efficiencies. Over the past five years, we have delivered consistent growth in revenues, profits, and cash flow. Specifically, since 2011, we grew revenues at a compounded rate of 9%, adjusted EBITDA by 15%, and adjusted EPS by 30%. At the same time, we prudently invested in our business for long-term growth and returned more than $830 million in capital to our shareholders. Today, our core solutions truly sit at the heart of the global housing ecosystem. Our ability to consistently grow revenues in areas where we can secure market leadership and scale has been one of the keys to our success. Over the past five years, we have transformed the mix of our business to highlight data, analytics, and data-enabled solutions that help our clients address critical underwriting and risk management activities. This business mix has also helped us to improve profitability and increase free cash flow. As I mentioned earlier, CoreLogic delivered record operating results in 2015. Revenues were up 9%, operating income from continuing operations was up 20%, adjusted EBITDA was up 17%, and adjusted EPS was up 43%. Revenue in 2015 totaled $1.53 billion. Reported revenues grew 11% in our Property Intelligence segment. On a constant currency basis, Property Intelligence grew 15%. Our Risk Management and Work Flow segment grew 7% fueled by higher market volumes, pricing and share gains. Adjusted EBITDA was up 17% to $423 million in 2015. This increase was largely the result of revenue growth and the benefits of productivity which more than offset investments in innovation, technology, and ongoing cost management programs. Our strong financial results in 2015 reflect the strength of our business model. We are entering 2016 with a clear pathway to sustain growth. Our unique products and solutions help our clients to more precisely underwrite and manage their risks and capitalize on growth opportunities as they arise. One of the ways we are continuing to drive market leadership is through the realignment of our company to effectively address the current and emerging strategic, regulatory, and market-based needs of our clients. Our press release yesterday outlines our updated operating segmentation which we believe aligns with the evolving ways that our clients source and consume property information and data enabled workflow services. In line with our strategic objective of providing scaled and data enabled solutions, we launched the Valuation Solution Group or VSG in the fourth quarter of 2015. Over $4 billion is spent annually on residential property valuation. This area remains one of several underwriting and risk management activities in the property ecosystem that we believe would benefit from enhanced technology and the application of data and analytics. The VSG will provide a comprehensive array of property valuation and collateral assessment solutions and the technology platforms that connect market participants with supply chain service providers. The opportunity to transform the way assets in a real estate transaction are valued and to bring greater transparency to the process makes this a significant medium and long-term growth opportunity for us. We acquired LandSafe Appraisal Services and full ownership of RELS valuation in a second half of 2015. These businesses provide real estate asset valuation and appraisal solutions. In December 2015, we also entered into an agreement to acquire FNC, a leading provider of real estate collateral information technology and solutions that automate property appraisal workflows. The FNC transaction is subject to regulatory approval and other customary closing conditions. The combination of LandSafe, RELS and FNC together with CoreLogic's existing Property Intelligence assets provide the foundational elements of a scaled, integrated solutions provider powered by a broad suite of fulfillment platform, data and analytics capabilities. Completing the integration of our capabilities and realizing the full potential of the VSG will be a significant multi-year endeavor, but we believe the opportunities for our firm and the industry could be transformative. In many ways, the creation of the VSG demonstrates the power and opportunities resident in the increasing integration of CoreLogic's data analytical tools, domain expertise and technological capabilities. The U.S. mortgage market is continuing to transition to a purchase-driven cycle. With market fundamentals improving, purchase volumes are gathering steam and should help to at least partially offset the expected drop in refinancing activity in 2016. With sustainable job creation and overall economic recovery, we expect to see healthier housing starts and inventory levels over time. Overall, we believe this transition has set the stage for a more sustainable real-estate market for this year and beyond. In closing, CoreLogic delivered record operating results in 2015. I believe our strong performance demonstrates the benefits and value creation opportunities inherent in our strategic plan. We are deeply embedded in our clients' critical works flows. Our scale and ability to invest in the VSG and other unique solution sets; compliance, 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 businesses and government agencies with a need for property intelligence and insights. I want to thank our employees, clients and shareholders for their continued support. As always, our focus remains squarely on strong operational execution and positioning CoreLogic for a superior long-term growth and stakeholder value creation. With that, I'll turn it over to Frank.

[Frank D. Martell:]

Thank you, Anand. Good morning, everyone. Today I'm going to recap our fourth quarter 2015 financial results and provide some additional color around our cost management programs and 2016 guidance. As Anand mentioned earlier, 2015 was an outstanding year for CoreLogic. Operationally we continue to shift our business mix towards data-driven subscription based models built around scaled industry currency solutions. The strength of our business model and free cash flow profile allows us to invest in product and service innovation and operational improvements. At the same time, we have a well-established track record of returning significant capital to our shareholders and managing our debt balances. Over the past year, we strengthened our client engagement, further integrated and streamlined our organizational structure, and drove significant cost efficiencies. We also enhanced our technology leadership by ramping up the CoreLogic Innovation Center and completing the multiyear transition of our IT infrastructure to a managed service provider. From a financial point of view, our 2015 full year revenues, operating and net income, free cash flow and EPS were significantly above prior year levels and exceeded our financial targets. We drove up adjusted EBITDA margins by more than 200 basis points to 28% while investing in our product and service development, compliance and IT capabilities. We converted 60% of our adjusted EBITDA to free cash flow and returned 38% of that to our shareholders by repurchasing almost 3% of our common shares. Since 2011, we have reduced our outstanding share count by 29%. With regard to the fourth quarter of 2015, financial highlights include the following. First, top-line gains in each of our operating segments with accelerating organic growth trends in Property Intelligence. Second, market outperformance in Risk Management Work Flow. Third, the successful launch of the VSG including the acquisitions of LandSafe and RELS and the pending acquisition of FNC. And fourth and finally, the completion of our cost management program. Fourth quarter revenues totaled $391 million, 13% higher than prior year as market share gains, organic growth and acquisition related revenues more than offset unfavorable FX translation. Property Intelligence or PI segment revenues rose 24% to $192 million fueled by growth in insurance, Spatial Solutions, international, and core property data as well as the launch of the VSG which collectively were partially offset by FX. PI organic growth rates accelerated in Q4 resulting in a full year 2015 growth rate of approximately 5.5%. VSG revenues in the fourth quarter were $34 million. Benefits from market share and pricing gains drove Risk Management and Work Flow or RMW segment revenues up 4% year-over-year to $201 million despite modestly lower U.S. mortgage loan application volumes, the impact of reduced document processing and retrieval revenues and the planned run-off of a non-core credit reporting service. Operating income from continuing operations totaled $27 million for the quarter compared with $36 million in 2014 as benefits from revenue gains and productivity were offset by one-time expenses related to VSG launch and cost reduction programs which aggregated $14 million. Before the effect of these items, CoreLogic operating income from continuing operations increased by approximately $5 million or 14%. Fourth quarter net income from continuing operations totaled $38 million compared to $16 million in the same 2014 period. The $21 million year-over-year increase was driven primarily by operating upsides and a $26 million after tax gain on investments associated with the RELS acquisition which were partially offset by higher tax provisions, unfavorable FX translation and costs associated with the launch of VSG and efficiency programs. Adjusted diluted EPS totaled $0.35, up 25% year-over-year reflecting the positive impacts of growth, expense efficiencies, and share repurchases. Diluted EPS from continuing operations totaled $0.42 compared with $0.18 in Q4 of 2014. Adjusted EBITDA totaled $88 million in the fourth quarter compared with $84 million last year. The increase in adjusted EBITDA was primarily the result of revenue growth and benefits of expense reduction programs, which were partially offset by costs attributable to the VSG launch, ongoing productivity actions, and unfavorable FX. PI segment adjusted EBITDA totaled $47 million for the quarter compared with $48 million in 2014. Adjusted EBITDA was modestly higher than prior year on a local currency basis. During the quarter, the benefit of higher revenues funded investments in efficiency innovations of VSG. RMW adjusted EBITDA was $50 million, consistent with the same prior year period as the benefits of share gains in tax, flood, and credit services and improved pricing were offset by one-time cost efficiency programs, lower document processing and retrieval revenues and the run-off of a non-core credit reporting service. Fourth quarter 2015 adjusted EBITDA margin was 22% compared with 24% in the prior year. Fourth quarter 2015 EBITDA margin was negatively impacted by approximately 250 basis points due to the investments in efficiency innovation of the VSG, which I discussed earlier. I will focus the balance of my remarks today on cost management and 2016 guidance. As our long-term shareholders know, our commitment to a rigorous and ongoing focus on productivity margin expansion has been an integral part of our growth and success. Earlier in 2015, we announced a program designed to lower run rate expenses by $60 million exiting 2017. Savings are expected to be realized with the consolidation facilities, reduction in SG&A cost, outsourcing of certain business activities and other operational improvements. I'm pleased to report today that we achieved our $15 million in 2015 savings and we are on track to generate additional savings of $30 million and $15 million in 2016 and 2017 respectively. In terms of financial guidance for 2016, we announced on January 28, we expect to generate revenues of between $1.83 billion and $1.86 billion, adjusted EBITDA of $465 million to $485 million and adjusted EPS of $2.05 to $2.15. Each range incorporates significant increases in 2015 actual results. Our guidance is based on the following main assumptions. First, U.S. mortgage loan origination unit volumes are down 15% from 2015. Second, targeted cost savings at least $30 million. Third, the successful integration of LandSafe and RELS with integration costs expected to total $10 million to $12 million. Fourth, the completion of the FNC acquisition by March 31. Fifth, U.S. dollar appreciation against the Australian and New Zealand dollars and the euro of approximately 5%. And finally, the opportunistic repurchases of common shares and the management of our net debt to adjusted EBITDA in line with our long-term targets. Our long stated capital allocation strategy remains in place. We will continue to reinvest in product and service development, productivity, and cost management programs and we'll opportunistically repurchase common shares and retire outstanding debt. In terms of the first quarter of 2016 based on seasonality in our currency origination unit volumes, we believe that adjusted EBITDA should be modestly above first quarter 2015 levels. This favorable year-over-year performance includes the absorption of significant one-time costs associated with the VSG launch and ongoing cost productivity programs. To sum it up, 2015 was another outstanding year for CoreLogic strategically, operationally and financially. As we enter into 2016, our scaled and unique data-driven underwriting and risk management solutions are our platforms for sustained growth and market leadership. Thank you for your time today. I'll now turn the call back over to the operator for Q&A.

[Operator:]

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

[Darrin Peller:]

Thanks, guys. Looking just on the year, just look at (21

[Frank D. Martell:]

Darrin, this is Frank. You broke up a little bit but I'll try to answer your question, and please add if I don't. As Anand mentioned, this is an enormous space. It's over $4 billion annually. We look at this as a multi-vertical opportunity, not just mortgage although mortgage is obviously a significant portion of that. As Anand mentioned, we look at this as a significant growth engine for the company in the next several years. I think the growth rates could be very, very significant even though through the acquisition of FNC, LandSafe and RELS in addition to our existing capabilities, we already have a very significant amount of revenue related to property evaluation and assessment in both the financial services and the insurance vertical I'll say as well as I think public sector. So it's a big opportunity, a high growth opportunity. As Anand mentioned, I think the other thing is we do – it will take a couple of years to fully mature. We're going out at bringing data and analytics which we think will hopefully transform the way property valuation is done over time. So it's a big opportunity, big revenue opportunity, and I think a big strategic opportunity for the company across many verticals.

[Darrin Peller:]

Okay. I guess, when we look at the underlying growth for 2016, I think it's comforting for a lot of investors to see that you're including a conservative assumption of like a 15% drop off in originations. Can you just give us maybe in a different way to look at how you're approaching a flattish type growth rate in EBITDA? How much of that actually is from cost versus growth and where the growth initiatives are? Like, where we would expect to see growth in the other parts of your business on the top-line?

[Frank D. Martell:]

Yeah. So I think first of all – I think broadly speaking, at this point origination volumes, it's fairly unclear starting off the year. I think we're seeing some positive signals in terms of rates not being quite as high as I think initially forecast, but you're also seeing some weather and some other offset. So we want to make sure as we have in the past years that we're not over shooting from a market projection perspective.

[Darrin Peller:]

Right. Makes sense.

[Frank D. Martell:]

I think in terms of growth, we still see a lot of growth in insurance. Spatial has been a good growth on a local currency, strong growth in international. So we're riding a number of different horses in the PI segment. There's a lot of organic growth as well as it relates to valuations, things like our LSAM product which has been adopted widely across the industry in the valuation space. So we're seeing some good growth there. We did see acceleration as I mentioned in the organic growth rate in the fourth quarter in PI. That was a big topic on our third quarter call. We did see a pick up there. We exited the year in the fourth year just under 5%, and for the year a little bit under 6%. So that was a pretty good performance coming out of the year, so we expect that kind of performance level to continue as we go forward. So I think there's a lot of different growth drivers there. Clearly, cost management is going to help us to absorb any downside related to the volumes as they appear. I think, we feel like we're really on solid ground to get the $30 million that we committed to last year and so that's I think a very good insurance policy as well.

[Darrin Peller:]

Okay. All right, thanks. Last question – go ahead.

[Anand K. Nallathambi:]

Just add to that, Darrin on the strategy on VSG. We believe that there is a ton of things that are in our favor. The last time when we got out of being a direct appraisal management company, there wasn't any way to limit the exposure to liabilities. Standards were loose and the level of automation to bring transparency into the process wasn't valued as much. And with we have seen with our automated valuation models and the growth in LoanSafe Appraisal Manager, and the increased sign up and growth of industry leaders in the appraisal consortium that we run along with the insurance vertical, we believe that there is enough opportunities to grow even outside of the entities that we have that we're bringing in to the VSG. Valuation today is at the center of mortgage performance along with borrower qualification. Regulatory controls are strict to warrant transparency into the process. There is a lot more consistency in the valuation methodology. We see that in the need for that's consistently coming up in the appraisal consortiums and the availability of comprehensive data and analytics to assess risk, especially replacement cost data and Spatial Solutions. Those are all the things that made us feel very confident about VSG.

[Darrin Peller:]

Okay. All right, that's helpful. Just last quick question for a little more maintenance fees (27

[Frank D. Martell:]

Yeah. I think there was one anomaly that accounted for about $30 million of benefit in last year. So if you normalize, we're still in the low 50%s.

[Darrin Peller:]

Okay.

[Frank D. Martell:]

And that's been pretty consistent.

[Darrin Peller:]

And that's what we should expect...?

[Frank D. Martell:]

Now, obviously I think as we talked about, the other thing is (28

[Darrin Peller:]

All right. All right, very helpful, guys. Thanks.

[Operator:]

Thank you. Our next question comes from the line of Bose George with KBW. Your line is open. Please go ahead.

[Chas Tyson:]

Hey, guys. This is actually Chas Tyson on for Bose. I just wanted to ask on the VSG opportunity. Is that an opportunity that you feel like you can generate a lot of scale in. I mean there's kind of a fair amount of fixed cost to scale out over? Or is it probably going to be pretty consistently a 15% to 20% EBITDA margin type of business?

[Anand K. Nallathambi:]

We believe that the scale could be improved, and I also think that the margin profile could also be improved. What we are talking about, the numbers that you're saying are the traditional percentages. And one of the things that we kind of outlined and that's one of the reasons we say it's going to be a multi-year effort is to kind of move that needle up as we bring in more data and more analytics into the whole process.

[Chas Tyson:]

Okay. And is that due to kind of what you've done on some of the Risk Management Work Flow businesses where you automate the business a little more and maybe take some of the higher cost aspects out of it?

[Anand K. Nallathambi:]

Automation plays a role, but I think data plays a bigger role and analytics will pay a bigger role in it. Up until now like we talked about, the replacement cost data and Spatial data were not part of it. They were disjointed and what we are pegging on is to bring all of these solutions into an integrated way and FNC like we said, is still in process. FNC is the network utility that kind of actually connects it with the technology stacks of the consuming lenders.

[Chas Tyson:]

Okay. And then on the insurance and Spatial revenue line, I know that had been trending kind of in the high double-digit year-over-year growth range. Can you just maybe help us out with how that grew in the fourth quarter and how you guys see that growing over 2016?

[Frank D. Martell:]

Yeah. So in terms of the underwriting, slightly lower growth. We've had good growth internationally and with our Spatial Solutions unit. And then kind of a lower growth rate on the core underwriting business that it's a traditional business that we acquired from MSB a couple of years ago. But overall the combined growth rate was very strong this year. And I think we expect that to come back a little bit that and puts into our guidance in 2016 to a more normalized level in the mid-single-digits with Spatial probably growing more in the low double-digits as we go forward. Spatial is roughly half of that revenue stream. So you'll have a blend – the blended should be in the upper single-digits.

[Chas Tyson:]

Okay. Should we think that the fourth quarter was kind of close to that upper-single digits metric?

[Frank D. Martell:]

Yeah, it was a little bit higher actually. We traditionally – there's some timing always to the year-end with some data sales, et cetera. But it was slightly higher than the numbers I just gave you.

[Chas Tyson:]

Okay. Thank you very much, guys.

[Operator:]

Thank you. Our next question comes from the line of Glenn Greene with Oppenheimer. Your line is open. Please go ahead.

[Glenn Greene:]

Thank you. Good morning. Maybe if we could just come back to VSG a little bit. A lot of moving parts embedded in your fiscal 2016 guide including the RELS, LandSafe and then FNC, but maybe so we can get a better sense for the organic growth contribution. Could you give us a sense for the aggregate revenue contribution for the VSG components that you're sort of thinking about going into fiscal 2016 and then I have got a couple of follow-ups.

[Frank D. Martell:]

Yeah, Glenn. This is Frank. I mean obviously the vast majority of the VSG revenue is going to be coming through the acquisitions that Anand mentioned. We do have a fairly significant amount of data and analytics related valuation solutions that are growing I think in kind of an upper single digit growth rate through 2015 which we would expect to continue in 2016. So I'd say for the organic growth element of VSG, it's in that upper-single digits in 2016. And it's very significant revenue obviously contributed by the VSG. The focus is on the integration of LandSafe and RELS which are appraisal-focused. I think there is a lot of synergy there. There is a lot of integration and efficiency and operating leverage there because you're bringing two fairly significant players with established panels together, so you can imagine the synergy there. Obviously we need to make sure that that's done very, very carefully so there's no disruption in service. And then in terms of FNC as Anand mentioned, I think the major assumption at this moment is the closure by the end of the first quarter. That's obviously beyond our direct control. It's regulatory and normal closing conditions that have to be assumed. But assuming that closes, as Anand mentioned, that's a tremendous – the important platform in the industry and a tremendously sticky high margin business which makes our content that much more consumable within the industry. That firm has over 110 lenders on their platform so that gives the great distribution channel for other products beyond even VSG. So we're excited about that. So I think those are the major moving parts of VSG. Very, very high obviously inorganic growth, I think reasonably high organic growth through primarily the analytical piece within CoreLogic, that's in the PI segment.

[Glenn Greene:]

That's helpful. Let me try this another way. If we think about the PI and RMW segments at this point, it sounds like PI was close to 5% organic in 2015. Is that a reasonable expectation ex the acquisitions? And for RMW, I'm kind of thinking low-single-digit organic, ex sort of macro factors and FX. Are those kind of reasonable expectations?

[Frank D. Martell:]

Yeah. I'd say we were about 5.5% in PI non-VSG. I'd say that's a reasonably good assumption for 2016 based on the assumptions I gave you in terms of the market, et cetera. And then I think your other assumption's fine.

[Glenn Greene:]

And then just one quick follow-up. You're obviously spending I think it was $10 million or $12 million on integration related to VSG with the idea that there's some efficiencies and cost savings attached to that which my guess is you're going to start to realize and recognize in fiscal 2017. Is there a way to frame kind of the saving opportunity going into 2017?

[Frank D. Martell:]

That really is going to be in the run rate, Glenn. So I think as we guide for 2017, it will be an all included number. Most of what we're spending on VSG is integration and transactional related. So as we guide, I think those numbers will be inside the guidance numbers for 2017.

[Glenn Greene:]

Okay. All right. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Jason Deleeuw with Piper Jaffray. Your line is open. Please go ahead.

[Jason S. Deleeuw:]

Thank you. So a question on VSG with the competitors that you will be going up against. Is it mostly in-house or are there other larger competitors or is it fragmented and just talk about how VSG will be differentiated versus those other solutions?

[Frank D. Martell:]

Yeah. I think as Anand mentioned – I'll let Anand – there's nobody that looks like the CoreLogic offering today in terms of breadth and depth, the data elements of it. We're trying to bring something very unique to the market through the infusion of data and analytics which we think is very unique. There're many, many, many players in property valuation. It's a very fragmented space. We see the opportunity there in terms of creating something scale. So I think this is quite different and the opportunity is quite different. We're not going in this to be another small player in appraisal. So I think it's quite unique actually.

[Anand K. Nallathambi:]

This is Anand. Jason, I think the path to the future in VSG will be very similar to what happened in past. You had a few in-house and a big provider like us and then there was a highly fragmented industry. And you see that fragmentation being consolidated because the regulatory controls are such that they want the products and the service to be provided by bankable (38

[Jason S. Deleeuw:]

Thanks. That's very helpful. And then a question on 2016 guidance and thinking about it by segment. Just given the assumption that you're going to have the unit origination volumes down 15%. Should we think then for RMW that revenue and EBITDA should be down on the year just given that assumption? And then you're going to have some organic growth from the PI segment and then the acquisition benefit in PI. Is that the right way to kind of think about the segments for the year?

[Frank D. Martell:]

Obviously, we don't really guide by segment, but I wouldn't say that's necessarily the case. Obviously the growth rates which had been very strong last couple of years despite mortgage market fluctuations. In RMW, that will not necessarily be negative. We had some positive factors related to share gains coming through that were secured in 2015, pricing et cetera, so there are some offsets there. It may not be as robust as it's been in past years but certainly I think it's not necessarily a negative.

[Jason S. Deleeuw:]

Okay, great. Thank you very much.

[Operator:]

Thank you. Our next question comes from the line of Chris Gamaitoni with Autonomous Research. Your line is open. Please go ahead.

[Chris Gamaitoni:]

Hi. Thanks for taking my call. The $30-ish million step up quarter-over-quarter in the VSG line, was that just LandSafe or is Cordell in there as well?

[Frank D. Martell:]

Yeah, Cordell is not a VSG. That's LandSafe.

[Chris Gamaitoni:]

What is Cordell?

[Frank D. Martell:]

Cordell is actually – it's a property information company, small company in Australia.

[Chris Gamaitoni:]

Okay. And then can you give us any indication of kind of the margin of the VSG business. Is it similar to PI? Will it be lower to start and then grow over time, ex the charges? I'm just trying to understand the EBITDA margin kind of outlook for the PI business?

[Frank D. Martell:]

Yeah. I think as Anand mentioned, it's going to be lower than the aggregate margin of, traditional margin of PI in the short run but we expect that to be on a trajectory to come closer to that margin rate over the next couple of years through scale, leverage, et cetera.

[Anand K. Nallathambi:]

New products.

[Frank D. Martell:]

And the mix of the revenue which in 2016 will be skewed more towards the traditional appraisal work, and then because obviously things like FNC which is just partial year. So the richer mix of higher margin businesses will be more on display in 2017 as we see the full build out come into play.

[Chris Gamaitoni:]

And the timing of – think you had mentioned in the first quarter there is going to be more of the cost related to the cost efficiencies in VSG. Can you give us like a split of what percentage of all that will fall into the first quarter and kind of in throughout the year just a rough sense?

[Frank D. Martell:]

Yes. So clearly, the heavier expenditure is going to be in the first half of the year. We're trying to get as much done as we possibly can, early as possible. The challenge is more on the VSG side because we need to – we have client consideration and other things to make sure that we're doing the right thing. So that's a little bit a slower but on the cost programs, et cetera, we're trying to go as quickly as we can. So the skew is more in the first half of the year, than the second half.

[Chris Gamaitoni:]

Perfect. Thank you.

[Operator:]

Thank you. Our next question comes from the line of John Campbell with Stephens, Inc. Your line is open. Please go ahead.

[Hayden Blair:]

Hey guys. This is actually Hayden sitting in for John. I'm curious once VSG is ramped up a bit, can you help us frame up maybe some new kind of sensitivity analysis related to mortgage originations with that addition and with the segment realignment and that would be helpful either on a segment level or maybe just a total company level as well.

[Frank D. Martell:]

Sure, we can do that. I think we won't have time on this call but I think we'll provide that as we move forward.

[Hayden Blair:]

Got it. And then real quickly here. Are there any other large lenders like Bank of America that you can think you can win on the VSG front? I mean were those BAC and Wells deals kind of part of a larger trend in outsourcing these or were those kind of one-off deals talking only about kind of the top five or top 10 lenders?

[Frank D. Martell:]

Bank of America is in the VSG through the LandSafe Appraisal Services. But to go back to the second part of your question, I believe so. I think you see a lot of trend towards consolidated service providers and integrated service providers who can bring a lot to the table, especially like I said in my commentary that the valuation is now center of the mortgage performance along with borrower qualification. You got to get that thing right. And so there's a heightened need to make sure that they look at all the data, the lenders look at all the data as possible to take that value right. And also there's – regulatory controls are strict enough to warrant a heavy amount of transparency into the process, which are all things that we could help, especially major lenders.

[Hayden Blair:]

Great. Thanks for the questions.

[Operator:]

Thank you. Your next question comes from the line of Kevin McVeigh from Macquarie. Your line is open. Please go ahead. Kevin McVeigh - Macquarie Capital (USA), Inc. Great, thank you. Hey, has there been any kind of meaningful change in tone or anything obviously real nice job on the positive pre-announcement. But fast forward to today, anything kind of changed in the last six weeks or so or was it always going to be the assumption that originations were down 15% or is that up from down 10%?

[Frank D. Martell:]

No, nothing has changed. Same as what we released on the 28th. Kevin McVeigh - Macquarie Capital (USA), Inc. Okay. And then just – as you think longer-term, how should we think about margin progression, particularly given what's been a nice strategic shift towards the VSG. What does that do to the margin profile of the business? And is there a way to kind of frame, is it – what are you targeting from a margin perspective?

[Frank D. Martell:]

Yeah. We still believe, Kevin, that a long-term margin trajectory in the 30% is achievable. Clearly, in the short run, we'll have a lot more dollars of profit. Margin percentages will likely be a little bit more challenging in the short run because you're adding a fair amount of revenue in the integration, et cetera, in 2016, but we're doing a lot of the cost structure. We still think there's efficiency, as Anand mentioned, I think the long-term margin profile for VSG should be positive. So we're still convinced that the long-term target of above 30% makes sense for the mix of the company as it evolves. I think, in the short run, we just need to work hard to offset the integration in bringing VSG to the realization of its potential, which obviously we have the plan that we just talked about to do that. Kevin McVeigh - Macquarie Capital (USA), Inc. Thank you.

[Operator:]

Thank you.

[Frank D. Martell:]

Just to round out the margin answer, one of the things that we're looking at and we're happy with VSG is, we know that it's going to take a while to kind of get the margins to where we are happy with. But one of the other characteristics that we're seeing increasing at CoreLogic is that all of these businesses that we're now gathering and getting into and increasing in size and scale are heavy cash flow businesses. And that's a positive thing for us going into the future.

[Operator:]

Thank you. Our next question comes from the line of Keane McCarthy with William Blair. Your line is open. Please go ahead.

[Keane J. McCarthy:]

Hi, guys. Thanks. How are you viewing tread (48

[Anand K. Nallathambi:]

We don't see much of a change. I would just say, it's just a new process and we offered it as part of our solutions, because it's needed from a Mortgage Technology Solutions perspective. But we don't see any drastic changes to influx or any change at all.

[Keane J. McCarthy:]

Okay. And then, I guess, with respect to the VSG segment, how does the rollout of tread (49

[Anand K. Nallathambi:]

I don't think it's dramatically impacting anything. If at all what we're talking about is to pack that process with more analytics, more front-end things. Frank just mentioned about the increased adoption of LoanSafe Appraisal manager, which kind of tells us that they want to get the intelligence further up the process. That's the only main difference that we have seen.

[Keane J. McCarthy:]

Okay. And then, final one. With the tech-enabled network of appraisers that sounds like a few years away for the VSG, it seems like a pretty good opportunity and interesting. Just curious, is there anything like that in the market right now? And if there's any competitive what's that like that and then how would the lenders work with the third-party providers on that network? Thanks.

[Anand K. Nallathambi:]

FNC is a major foundational step towards that. And on top of it, you're talking about all the spatial and environmental data that we can bring in, in terms of a risk management perspective and analytics would be a unique thing in the marketplace. But from a tech-enabled network, FNC is already well on its way. But like we mentioned, we want to caution that it's still in process for the regulatory approval and customary closing conditions.

[Frank D. Martell:]

Yeah, I'd say, Keane, just one other point to Anand's. There's a tremendous demand for insight and data validation and accuracy and improvement in cycle times in the property valuation space, which all plays right down into CoreLogic's wheelhouse. So from that perspective, we think this is going to be an area that just is perfect for the integration of CoreLogic's data analytics and data-enabled workflow platforms because we have, we believe the most comprehensive data out there, nobody can match that, that we know of in the marketplace today, the breadth of analytics. So I think the VSG sets up very well according to strategic elements, and Anand talked about scale, data enablement, operating leverage, et cetera. So I think it's going to be a – VSG is going to drive demand for CoreLogic data and solutions because it's such a pain point for the industry right now in terms of getting properties valued quickly and accurately.

[Keane J. McCarthy:]

Okay. That's helpful. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Jeff Meuler with Robert W. Baird. Your line is open. Please go ahead.

[Nick J. Nikitas:]

Yeah, thanks. This is Nick Nikitas on for Jeff. It might be tough, given the realignment, but any color you guys can provide on how the legacy D&A organic performance would have been in the quarter? I know you mentioned PI rebounded, but just given the deceleration last quarter, wondering from an industry perspective, if you're seeing anything different?

[Frank D. Martell:]

Yeah. So the D&A segment, I think I referred to it in my presentation. But the D&A segment, more or less pretty close to apples and apples. It was up about 4.5% in the fourth quarter, which was an acceleration of the third quarter. When we finished the year, the D&A number was about 5.5% for the full year. So we did clearly see a reacceleration of that organic growth profile.

[Nick J. Nikitas:]

Okay, great. Thanks. And just circling back to the mortgage market expectations that are baked in the guidance, I think, the MBA is forecasting about a 9% decline. So is it kind of fair to say that your outlook is something similar as well as the interest rate outlook for 2016, and then just adding on some price increases to that?

[Frank D. Martell:]

Yeah. I'd say that we look at the MBA, I'd say, it's pretty good proxy. I mean, it's early days obviously but the market was better in 2015. Obviously then we are going into – people thought going into 2015. Hopefully that can be the case in 2016, but it's kind of early days.

[Nick J. Nikitas:]

Okay. Thanks for taking the questions.

[Operator:]

Thank you. Our next question comes from the line of Alex Veytsman with Monness, Crespi, Hardt & Co. Your line is open. Please go ahead.

[Alexander Veytsman:]

Yes. Hi. Good morning, guys. Could you give a little more color around the share gains with the RMW business during the fourth quarter and what we can potentially expect for 2016?

[Frank D. Martell:]

Yeah. I think, Alex, the share gains were similar to what they've been. They've been concentrated in tax and flood, but I think increasingly in credit as well. I think it's a combination of factors that continue to spur that on. I think Anand mentioned, flight to quality. I mean, the compliance area has been one that, over the last couple of years, benefited CoreLogic because of our scale and our investment in our compliance infrastructure. And I think it continues to favor bigger and more robust suppliers. We are a strategic partner for a lot of clients. So that's where a lot of the share gains have come. We continue to focus – and that's been a lot of spending on efficiency, cycle time quality, and that's clearly borne fruit there, but a pretty good distribution. We had very significant share gains in the early part of the year on tax. Those will flow through in a full year effect in 2016, so that all looks pretty good for our RMW and allows us to outperform the overall market trends in 2016.

[Alexander Veytsman:]

Great, that helps. Thank you.

[Operator:]

Thank you. And our next question comes from the line of Oscar Turner with SunTrust. Your line is open. Please go ahead.

[Oscar Turner:]

Good morning. Thanks for taking my question. In the past, you've spoken about the goal of bringing your mortgage market exposure down to the 40% to 50% range over the long-term. I was just wondering, does the company still maintain this target? And what is your mortgage exposure for 2016 taking into account these recent acquisitions?

[Frank D. Martell:]

Yeah. So our mortgage exposure, and frankly we've reduced it through growth, and we talk about that percentage as U.S. mortgage exposure. So we've grown from – we used to be about 90% U.S. mortgage related. That dropped back to about 60% through a combination of really growth in insurance, Spatial Solutions, international, et cetera. With VSG clearly, that's going to add back some exposure to the U.S. mortgage market. But really, from our perspective, since we're starting from a base of zero, and we think this is such a large fragmented consolidation opportunity. I think that additional exposure is actually pretty good, because we can do it in a different way at a higher margin. And I think with components like FNC where you have a fairly sticky platform-type industry utility, it's much more uniform in terms of volume expectations. So I think it's clearly it's going go up. I don't have an exact figure, but it's clearly going to go up from 60%. I don't think that's a bad thing frankly, given the opportunity, the transformative opportunity. This is a very, very large transformative opportunity in our opinion. And so I think that additional exposure is worth taking on as we move forward.

[Oscar Turner:]

Thanks. And can you provide any color on how each of the acquired businesses performed during the past periods of mortgage and market volatility? And I completely understand your point about it being a possibly transformative opportunity.

[Frank D. Martell:]

Yeah. I would say that, I think, as was discussed earlier. So obviously LandSafe and RELS are essentially one client operation. So they would mirror the outcomes of Bank of America and Wells Fargo. Obviously Wells Fargo has had tremendous success in the mortgage area for many, many years. So both LandSafe and RELS have been successful in their own right supporting those clients. So the relative success would mirror the success of those two end customers in the market. I think, in case of FNC, it's a much more distributed client base, and I think you see a much more consistent performance in spite of the vicissitudes of the other mortgage market, although clearly obviously there is some impact, but it's not really correlated. And obviously we talk about that there is a tremendous opportunity as it relates to additional clients, particularly as it relates to the appraisal area because we're starting out with concentration of two clients and that we expect that we will be able to grow the third-party revenue.

[Oscar Turner:]

Okay. Thank you.

[Operator:]

Thank you. And that does conclude today's Q&A portion of the call. We would like thank everyone for attending today's conference call. You may all disconnect. Everyone have a great day.