CoreLogic, Inc.
Q3 2014 Earnings Call Transcript

Published: 23 Oct 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 CoreLogic, Inc. Earnings Conference Call. My name is Lisa, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Dan Smith, Investor Relations. Please proceed, sir.

[Dan Smith:]

Thank you, and good morning. Welcome to our investor presentation and conference call where we present our financial results for the third quarter of 2014. Speaking today will be CoreLogic's President and CEO, Anand Nallathambi; and COO, Frank Martell. Before we begin, let me make a few important points. First, we posted our slide presentation, which includes additional details on our financial results, on our website. Second, please note that during today's presentation, we may make forward-looking statements within the meaning of the federal securities laws, including statements concerning our expected business and operational plans, performance outlook and acquisition and growth strategies and our expectations regarding industry conditions. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings, including the most recent annual report on Form 10-K and the subsequent 10-Qs. Our forward-looking statements are based on information currently available to us, and we do not intend, and undertake no duty, to update these statements for any reason. Additionally, today's presentation contains financial measures that are non-GAAP financial measures. A reconciliation of these non-GAAP measures to their GAAP equivalents is included in the Appendix to today's presentation. Finally, unless specifically identified, comparisons of third quarter financial results to prior periods should be understood on a year-over-year basis, that it is in reference to third quarter of 2013. Thanks. And now let me introduce our President and CEO, Anand Nallathambi.

[Anand K. Nallathambi:]

Thank you, Dan, and good morning, everyone. I will lead off the call today with an overview of our third quarter results and an update on our strategic transformation program. Frank will cover our operating and financial results. And we will end the call with Q&A. CoreLogic delivered excellent results in the third quarter. Revenue, operating and net income were up as we continue to expand our Data & Analytics footprint and reap the benefits of market leadership in our core mortgage operations in the Technology and Processing Solutions segment. Our strong operating performance is a clear validation that our strategic transformation plan, as it resulted in increased innovation, expanded scale and operating leverage and generated market share gains across our core business units. Total revenues in the third quarter were up about 3% year-over-year. We made solid progress building out and diversifying our D&A segment. We achieved double-digit growth in insurance and spatial solutions and international. Overall, the D&A segment organic growth accelerated in the third quarter. Core TPS mortgage operations benefited from market share gains and expanded product and service capabilities. In addition to delivering growth on the top line, we also expanded our adjusted EBITDA margins to 31% in third quarter. Margin expansion, in the face of historically low origination volumes, demonstrates our improved operational efficiency and reflects the value of our scale oriented businesses that are highly embedded in our clients' daily operations. D&A segment margins topped 35% during the quarter. Improved profitability in this segment was driven by growth in our high margin insurance and spatial solutions group and international. We also benefited from higher core property information and realtor workflow revenues. In addition to favorable revenue mix, ongoing product [indiscernible] boosted D&A margins. Adjusted EBITDA margins and TPS were 30% in the third quarter. This figure is well above our long-stated target of generating at least 25% margins in a $1 trillion U.S. originations market. This outstanding performance is directly attributable to the benefits of scale in our payment processing, credit services and flood zone determination businesses, as well as investments in automation and service delivery across the TPS segment. Margin expansion remains a critical focus for the company. I'm very encouraged by our exceptionally strong performance in D&A and our ability to progressively increase TPS profit margins throughout 2014. This trend should only strengthen as U.S. housing and mortgage markets recover. In addition to higher revenues and margins, we also generated strong free cash flow in the third quarter. As we have done consistently over the past several years, we returned significant capital to our shareholders through the repurchase of our shares. We've also continued to reinvest in the business for profitable growth and repay debt. The balance of my prepared remarks will focus on several important milestones, which were achieved during the past 3 months against our strategic transformation road map. In TPS, we have built our tax payment processing, credit and flood determination businesses into market leaders that support over half of all mortgage originations in the U.S. market. During the third quarter, we reaped the benefits of our successful integration of the tax and flood operations of Bank of America. In addition, our TPS teams increased revenues from mid and mass market firms. These firms are gaining market share in the shift to a purchase-driven cycle. In terms of our core mortgage operations, we also continued to benefit from the need for financial services customers to seek out partners with the capabilities and infrastructure to help navigate them to an increasingly complex regulatory environment. Our ongoing investment in compliance-related infrastructure and our ability to provide superior products and services make CoreLogic a great partner for mortgage market participants across our product lines. Our D&A business continues to grow rapidly in line with our strategic objective of this segment contributing to more than 50% of our total revenues by 2015. The acquisitions of MSB, EQECAT and DataQuick add new and complementary capabilities and data sets and expands the reach of our property level insights into insurance and other business verticals. In addition, we have scaled our international business, which is built around our Data & Analytics capabilities along with current consumer trends in mobility and social media technologies. In 2014, international, insurance and spatial solutions revenues are expected to contribute about 30% of D&A revenues. One of the most important growth enablers for CoreLogic is technology. Over the past few years, we have invested over $50 million in our TTI program. As you may recall, the TTI is a two-phased program. Phase 1 is focused on transitioning our legacy technology infrastructure assets to Dell Services. Stage 2 relates to building next-generation technology platforms and related capabilities. During the third quarter, we achieved 2 important milestones on TTI. First, we successfully transitioned out of our data center in Texas and continue to migrate systems and applications from our Southern California based facility. In addition, we launched our first new service on a next-gen technology platform. This service supplies important data and analytics, involving condominium and homeowners associations, to expedite loan underwriting and enhance risk management. As I mentioned before, we also ramped up our investment in mobility enabled services in both our U.S. and international markets. This is an area of high market demand and will be an increasing focus under the TTI umbrella. Over the past several years, we've been focused on scaling our core mortgage operations and building out our property level data and insights businesses. Our objective is simple, to become the market leader in each of our core businesses. At the core of everything we do is our unique data assets, whether it is data licensing, analytics or must-have workflow solutions. All of our data and TPS businesses collect data and property insights. These assets are managed by a common center of excellence and are made available to power all of our products and solutions. Our data-driven focus is one of the keys to our market leadership. Finally, the completion of the restructure of our AMPS segment was a significant milestone achievement in the third quarter. The completion of the sale of the majority of the AMPS segment and the consolidation of the remaining units into TPS [indiscernible] to increase our focus on building out our unique and innovative data-enabled workflow solutions. In closing, CoreLogic has delivered exceptional results over the course of 2014. And I believe our strong performance in the third quarter affirms the benefits and value creation opportunities inherent in our strategic plan. I'd like to thank our clients, employees and shareholders for their continued support. The entire CoreLogic team is excited about the future and by the prospect of delivering outstanding results in 2014 and beyond. With that, I'll turn the call over to Frank.

[Frank D. Martell:]

Thank you, Anand, and good morning, everyone. Today, I'm going to discuss our third quarter financial results as well as our full year guidance. As Anand just discussed, CoreLogic had a strong third quarter from both an operational and a financial perspective. We continue to shift our business mix toward data-driven, subscription-based models built around scaled market-leading solutions. As a result of this strategy, our core mortgage operations clearly outperform market volumes and we materially expanded and diversified our D&A revenues. The durability of our business model allows us to continue to invest in innovation and operational improvements and at the same time, return significant amounts of capital to our shareholders and reduce our debt balances. From a financial point of view, third quarter highlights include

[Operator:]

[Operator Instructions] Your first question comes from the line of Darrin Peller with Barclays.

[Darrin D. Peller:]

I just want hit on the guidance for a moment. I know, Frank, you just mentioned the discussion around some of the changes in guidance and maybe some of the nuanced items that may be higher but maybe we could break into that because again, if we -- one of the more common questions we're getting from investors, if you obviously add back the $4 million of EBITDA from the quarter from AMPS, you obviously still beat the quarter by about $10 million on EBITDA versus your prior guidance. But you're raising only $15 million for AMPS. So look, I mean, going into the guidance, you guys understood the seasonality impacts already from last guidance and you also probably knew about stranded AMPS costs, which you didn't pull out. You didn't pull out TTI costs. So what exactly changed here? In other words, why wouldn't you be passing through more of the bead unless it's just conservatism?

[Frank D. Martell:]

Darrin, I'll take that one. So essentially, as I said, earlier, the market -- essentially, the market is the same. As it relates to a flow-through, the entire -- the range, the updated bottom of the range does not reflect in its entirety the AMPS impact. So there is a flow-through effect in the timing of the range that I implied, okay? We did elect -- we are spending more money and we decided, it's a conscious decision to spend more money on the next-generation efforts that we have. We think that, that will bear fruit as we get into 2015, so we're spending a little bit more than we had expected. And I think that's a good thing for the company in the medium to longer term to do. Also, as you may remember, we weren't entirely sure, and assume that the AMPS segment will be sold in its entirety, we knew there was a possibility that there would be the potential of selling in individual units, which is what transpired and of course, we had 3 units that were not sold and were reincorporated. As a result of that, in the short run, there will be more complexity and more cost related to the reintegration of those units and the management of the units that were sold. We do have a support agreement in place that will support those units for the next roughly 6 to 12 months. So those add in. So collectively, each individual 1 is not a major amount of money but collectively, they add enough to essentially offset a fair chunk of the third quarter flow-through. We did flow through some benefit but not the entire benefit because of those items I just mentioned.

[Darrin D. Peller:]

All right. Well, that's helpful. I guess just a follow-up question. On the free cash flow conversion, really, the margin, I guess, this quarter was a strong and that free cash flow, once again, is better than, I guess, you had anticipated at the beginning of the year following the first quarter. And here's -- and we're in an environment still roughly at a pretty low trough environment from a mortgage standpoint, at least last quarter. When you look at that and you look at the costs you're still incurring around integration cost and other costs, TTI costs, I mean, 55% conversion levels now for free cash. Is that really the bottom now? I mean shouldn't that get better next year if we -- just taking out all the sort of nonrecurring costs, not to mention the potential for a market pick up. What could your free cash flow conversion be and what could your margins really be, I mean, notably from here?

[Frank D. Martell:]

Yes, I think if you look at that from my perspective, and I'll let Anand jump in, this is the whole purpose of the strategic transformation program with margin expansion and growth. I'm really happy about the fact that we're over 30% margin. As you remember a couple of years ago, we were in the low 20s. So we picked up a lot of margin. I think it's going to come through 2 main factors, 1 is the mix shift. We have a lot stronger mix of revenues. And secondly, the scaling and the operational leverage has allowed us to get more cost efficiencies. So I think the combination of those 2 as well as year-to-year cost programs, but I think those are driving, I think, what should be a progressive margin expansion. Obviously, we've had the shock of the mortgage market coming down this year but we worked through that. But I personally feel like the transformational program is achieving exactly what it was intended to do, probably in the case of margins, a little bit better than we had anticipated from a timing perspective. So I feel really good about that.

[Anand K. Nallathambi:]

To follow up, I think on the D&A side, we're seeing a lot of good pipeline activity. We're just coming off an MBA convention and international and insurance and spatial solutions also has a lot of possibilities for growth. So you will see a progressive uptick in the margins. It's tough to say pick a number and give you an exact target, but on the insurance side, what they've done so far is the back office admin and shared services integrations are completed. The go-to-market functions from the various businesses that go into that insurance vertical, they're being integrated right now and the plans are underway for combining the data sets and also cross-selling into the different plan stages. So all of those things, in addition to what we're doing with our core mortgage operations, should mean progressively our margins going up in 2015.

[Darrin D. Peller:]

Okay, that's helpful. Just last question for me, if you don't mind. The recent trends you talked about earlier, Frank, I think with [indiscernible] numbers and some of the regulatory changes. I mean, are you seeing it yet in your numbers? Give us a little sense into the quarter now. I know it's early, but we've seen a lot of moves in the indices, obviously in the MBA indices, and so could that help translate maybe a better-than-seasonal fourth quarter?

[Anand K. Nallathambi:]

We're hoping for it but we don't have -- see any immediate signs of it. I mean what we like about it is rates are still low, we're very encouraged by the FHFA director's speech at the MBA about opening up or relaxing the credit box but these initiatives have to be reflected in the standards and regulations around credit qualification. So it's too early to tell you how all of this improves the credit qualification criteria because the biggest problem in the industry today is just that, credit availability.

[Operator:]

Your next question comes from the line of Jason Deleeuw with Piper Jaffray.

[Jason S. Deleeuw:]

On the D&A organic revenue growth rate, it was great to see that, that accelerated to 4%. What is your outlook, what are your expectations going forward for that growth rate and what's the most important thing that's needed to continue that acceleration?

[Frank D. Martell:]

I think we have said for -- consistently that we believe that, that segment is -- should grow from an organic perspective in the upper single digits. That's in line with -- more if you look at 2009 to '11, '12 time frame. We did slow down as the mortgage market came down significantly in the last couple of quarters. We've now reaccelerated. I think that I would expect into '15 that we'll see a return and certainly a trajectory we're seeing now that supports that return to the upper single digits. So that remains very much our target. And I think the mix shift, some of the growth engines that we have also support that target as the company shifts, Anand mentioned, more toward some of the spatial solutions areas, the analytics leveraging, some of our core property areas and strengthen, really, some of the consortiums that we run, et cetera. So there's many angles that support the upper single-digit profile.

[Jason S. Deleeuw:]

Great. And then on the margins. I mean it was good to see the margin expansion this year. It sounds like we can probably expect even more margin expansion going forward. What about the EBITDA sensitivity to origination volumes, especially given with how rates have moved and some of the comments around -- and some of the initiatives with Mel Watt. Can you just give us an update on what you think each $100 billion in origination volume would impact EBITDA at these levels?

[Frank D. Martell:]

Yes, I think it's -- Jason, it's very similar to what we've said before, which is traditionally, if you look at kind of the base of a $1.5 trillion market, every $100 billion of originations, plus or minus from that point, has traditionally been roughly $20 million to $25 million of revenue and $12 million to $15 million of EBITDA. Now we haven't done the calculation but obviously as the business becomes more diversified, that number will continue to drop. Core mortgage is still our engine room of profitability and cash flow but it's come down as a percentage of our revenue to about 55%. So it will become a little bit more muted. As you may recall from the last quarter call, one of the things is, as the mortgage market is headed to $1 trillion, that sensitivity on the EBITDA side has increased, so the impact is more toward the 80% to 90% of the revenue decline in terms of EBITDA impact. Conversely, as we rebound off that $1 trillion troughing, we expect that, that high incrementality to come into play until we hit more toward that $1.5 trillion kind of base point.

[Operator:]

Your next question comes from the line of Bose George with KBW.

[Bose T. George:]

Just first on volume. Just based on your numbers, is third quarter volume do you think roughly flat with the second quarter for the industry?

[Frank D. Martell:]

We believe it is, it's slightly better.

[Bose T. George:]

And then just in terms of what your guidance is contemplating for the fourth quarter. Can you just sort of talk about the percentage decline you're thinking about, in terms of that's embedded in your numbers for the third quarter down to the fourth?

[Frank D. Martell:]

Yes, I think it's 15% to 20%.

[Bose T. George:]

Okay, great. Then just switching to the -- or a follow-up on an earlier question on just the recent improvement we've seen in application volume, et cetera. Can you just remind me in terms of when you see the revenues, so if applications pick up now -- between the application and the closing, when do you start seeing sort of pickup in your revenues if we see this pickup, if it's more sustained?

[Anand K. Nallathambi:]

Yes. First, to comment on this -- the application pickup. It's still not very robust. It still remains to be seen how sustainable it will be. So we haven't -- while it's slightly up, it's not dramatically up. And now coming back to the timing question, we're a transactional-oriented business. So on credit and flood, you will see it right up, credit on AMPS and when flood comes right after that, maybe 30 days and tax service at the boarding of the loan, after post-closing [indiscernible] a few days later.

[Operator:]

Your next question comes from the line of Alex Veytsman with Monness.

[Alexander Veytsman:]

Just a quick question on the cost takeouts. First of all, what is it to date for the first 3 quarters? And do you still kind of expect to see $25 million for the year or potentially more than that? And also, what are your expectations for cost takeouts potentially for '15? Should we expect to see some cost takeouts then?

[Frank D. Martell:]

Hey, I think right now we're running right around the $25 million level, which was the full year target. So we expect to exceed that. We had some savings in the fourth quarter last year. So the quantum of the savings will be slightly less than the run rate we've had the first couple of quarters. But it should be roughly $30 million for the full year. I think as we get into '15, we have ideas. As I mentioned, earlier, part of the question is we want to make sure that we're reinvesting in the next-gen technology platforms. So we will be -- you'll be hearing more about this as we go forward but I think it will be progressive so there won't be anything that's not very planfully done but we -- as Anand mentioned, we're investing in things like mobility. We have a lot of activities with Pivotal Labs so we want to keep that going. So we are going to reinvest some of the savings in that kind of number -- in that kind of effort but we feel pretty good about the $30 million in this kind of environment, it's really pretty good and the entire team has rallied around that to make that happen in a challenging year.

[Alexander Veytsman:]

Got it, got it. And then just to shift gears. So the organic growth [indiscernible] specifically within [Audio Gap] insurance [indiscernible]

[Frank D. Martell:]

Yes, I think you may want to handle that offline with Dan but the insurance in spatial, particularly insurance, obviously, is driven by the Marshall & Swift/Boeckh acquisition, which has more or less doubled our footprint in insurance. We've always had pretty strong organic growth in spatial solutions, our spatial solutions business. And so we expect that to continue, but the insurance piece is fueled by M&A, if I'm understanding your question correctly. We look at the aggregate level. Obviously we're impacted by originations in some of the analytics areas. So when we calculate our organic growth, we tend to factor that in and exclude that from the organic calculation. But Dan can give you a more granular view.

[Operator:]

Your next question comes from the line of Brandon Dobell from William Blair.

[Brandon Burke Dobell:]

If you look at the D&A business, domestic versus international, how do we think about the different growth rates there and is there an assumption that you guys are using for international D&A growth as part of that trajectory towards upper single-digits organic D&A growth?

[Anand K. Nallathambi:]

Yes. On the international side, product [indiscernible] the growth rate has been greater than 10%. On the D&A side, in the U.S., it's in the -- our target, it's been in the 4% and our target is obviously in the high-single digits. And what we are trying to do now is we're trying to see if there's adoptable solutions that we have in Australia that could be imported back here.

[Brandon Burke Dobell:]

Got it, okay. In terms of total company right now, what is the international versus domestic mix? I think last quarter, you have talked about some various numbers but I couldn't kind of drag out how much international was in terms of total revenues now.

[Anand K. Nallathambi:]

In general, it's about -- just about 10%.

[Brandon Burke Dobell:]

10%, okay. You mentioned the first next-generation product in the wake of the TTI progress. Maybe a little more kind on what you guys, or how you guys define next-generation both in terms of product but is there also a go-to-market strategy or a sales strategy that's different around these next-generation products? I guess I'm trying to get a feel for how impactful the TTI stuff is going to be on, I guess, new product rollouts looking into 2015 that are termed next-gen, I guess.

[Anand K. Nallathambi:]

Yes, I think it goes hand-in-hand, while we develop next-gen products with newer technology and the intersection of mobility based technology applications into our product sets is useful. We need to also have our GTM functions be in step with it. So we are kind of bringing in people who have a lot more experience on the data and analytics and data technology type sales, especially with a focus on subscription and recurring revenue base. Just to give you an example on the mobility-based things, we are not just selling property data now. We're kind of combining that location intelligence. So just take a case in Australia, an example in Australia, we do route optimization in addition to [indiscernible] workflow and compliance. So you can kind of see how these worlds collide with new technology.

[Brandon Burke Dobell:]

Got it, okay. And then finally, maybe, Frank, if we think about the performance but also the outlook in TPS for some of the more granular metrics like tax additions, life of loan recognition, periodic recognition, maybe if you kind of walk through what your expectations are in the near term, given the noise in the MSR space and all the puts and takes, BofA and stuff like that. Just trying to get a feel for how to model those and I recognize there are some different revenue impact depending on how those numbers move around. I just want to make sure we're set up correctly as we think about '15 for those different drivers.

[Frank D. Martell:]

So I think we haven't finalized our '15 view yet. But in terms of '14, I'll take MSRs first. The last couple of years, CoreLogic benefited from MSR sales significantly. This year, for all intents and purposes, MSR sales have been more balanced. So -- and I think at least for now, we expect that trend to continue or MSR sales to be muted into '15 but obviously it's not in our number in '14, where it's kind of a level playing field. As it relates to volumes, we -- there's a lot of volume shifting that's going around in the industry. We have all of the major originators and servicers as clients. So we feel pretty good. There's definitely been, as Anand talked about, a shift towards -- in market share, in a purchase market to the mid and mass market where we've been trying to expand our share. We have great share in the big players. And so we want -- as share shifts around, we want to catch up with that share in the mid and mass market. So that's a big focus for us. It has been for the last couple of years but it takes some time. The volumes, we had a good third quarter from the standpoint of volumes held firm and if anything, picked up a little bit in September. I think as we get into this quarter, it's a little bit of wait-and-see. It's a little bit choppy, to be honest with you, I think, on the mortgage side. We do have some non-mortgage volumes going through both credit and flood. In flood, we have insurance clients that are using some of those flood certs. And then in credit, we have auto dealers. So that also provides a little bit of a smoothing effect. But I think so far, so good. I think the good news, at least the troughing part of the market seems to be -- have occurred. The question to me is, where's the lift? I mean it feels a little bit, frankly, like déjà vu from last year from the standpoint of there's similar optimism going into '15 about mortgage volumes. We're positioned to capitalize on it if it comes.

[Brandon Burke Dobell:]

Okay. And then final one for me. Going back to one of the previous questions, or I guess answers, about continued investment in products and I guess, people. How do we think about the size of that or the magnitude of that continuing investment, relative to what you guys have talked about historically for TTI cost savings or TTI efficiencies?

[Frank D. Martell:]

I don't think it will be a material change. Obviously, as Anand mentioned, the TTI is a 2-phased approach. One is a data center migration. The second is the next-gen platform. So you'll have a ramp down of DCM and a ramp up of the next-gen platform spending. But in totality, I would expect to see decreases in that profile as we go forward and exit the DCM. Mid-'15 is still the target for the data center migration completion. We feel pretty good about that. We feel pretty good about the savings profile that we deed up, that $30 million to $35 million. So far, that's unchanged.

[Operator:]

Your next question comes from the line of Glenn Greene with Oppenheimer.

[Glenn Greene:]

I just want to go back to the 4Q guidance for a second. And maybe it would be helpful, we were getting a lot of questions on this as well but maybe bridge the 3Q to 4Q kind of decline, sort of looking at the mid-point -- implies about $35 million Q decline in EBITDA. Maybe, Frank, you can help us bridge how much of that might be sort of normal seasonality in mortgage volumes. By my math, it's something like maybe a $12 million EBITDA headwind, the reintegration of AMPS and the incremental spending on next-generation spending or TTI. Just to kind of help us sort of think through how the EBITDA trends down as much is it does q-to-q.

[Frank D. Martell:]

Yes. I think, Glenn, first of all, the -- with a purchase market, the seasonality impact is much more pronounced across all of our TPS businesses and our mortgage-related businesses in D&A. So the biggest single factor for the decline relates to that. We've had some savings numbers. The AMPS numbers, the benefit in the fourth quarter is significantly less than what it was in the third quarter, just again normal patterns. And as I mentioned, we have -- there's 4 or 5 areas that we're going to spend a little bit more money in than we did in the third quarter certainly as it relates to the [indiscernible] overhead and support agreement area. So those are a few million each. So if you collectively add them up, they're $7 million, $8 million, $9 million. So that in conjunction, with seasonality -- and then the other factor that is -- as I mentioned in my prepared remarks, we do have, particularly as we get more into compliance, the nature of some of those products are project-related and demand-driven. And so the timing has been challenging this year a little bit, to pin those down because, frankly, not because of us but just the client's priorities and spending patterns. And so we're trying to reflect that in the fourth quarter numbers, which, by their nature, at least the years I've been with CoreLogic, tend to be the most project heavy quarter, is the fourth quarter because people are trying to get stuff done before year end. So those all come into play. There's no big unusual items here. It's a combination of just the factors there. And I think it's better to view them all in the guidance numbers.

[Glenn Greene:]

Okay. And then just to be clear, I think you said it but it's not like you saw any sort of meaningful fall off in volume exiting the quarter or through what we have seen thus far in October in terms of your leading indicators for volume activity certainly in the market data that we see, suggest not. But is that clear? Is that kind of the inference of the message, nothing's unusual?

[Frank D. Martell:]

That's totally correct. Yes.

[Glenn Greene:]

Okay. And just to be clear, I think you said at the last question. TTI is on track for midyear '15 in similar savings that you were thinking before?

[Frank D. Martell:]

Yes, we feel really good. As Anand talked about it, I mean, the -- we were square on the timetable for the Dallas data center exit and working hard on the one in Southern California and June -- June is the target date, feel good about that and the savings line up pretty much with what we thought, which is also a terrific result.

[Glenn Greene:]

Okay. And then just real quickly, the growth of MSB, is it kind of tracking with what you thought?

[Frank D. Martell:]

Yes. I mean MSB is really pretty much in line. We've had a lot of it. We're still integrating. That was always a revenue integration play. So from that perspective, it's a little bit longer time frame but so far, so good. The performance is pretty much in line with what we thought.

[Operator:]

Your next question comes from the line of Jordan Maka from Macquarie.

[Kevin D. McVeigh:]

This is actually Kevin. Just a little bit more on the client mix. In terms of -- on the origination side, is it pretty similar, kind of the client mix that you service on purchase versus refinance relative to what the market data suggests?

[Frank D. Martell:]

No, I think refis, Kevin, a lot of refi volume is driven through the bigger players.

[Kevin D. McVeigh:]

So if you were to look at your business overall, Frank, what percent is kind of refinanced today versus purchase overall?

[Frank D. Martell:]

I'd say we mirror the market pretty much. It's kind of 35% refi, 65% purchase right now, kind of where things are settling out. We kind of [indiscernible] that. The challenge is we have been attacking the midmarket and the mass market is an area of growth for the last couple of years. But as you know, Kevin, our big clients account for a fairly large percent of our revenue. So in a rapid shift from a refi driven to a purchase market, share shifting is a factor in our volumes. I think that's played out now though, largely.

[Kevin D. McVeigh:]

In terms of where you are? And then just any thoughts on how you're thinking about positioning on '15 for originations overall?

[Anand K. Nallathambi:]

Well, it's -- everybody's got it anywhere between 1 to 1.3. So it's still remains to be seen. The aggressive estimates are at 1.3 and the conservative ones are about 1, 1 1-ish.

[Frank D. Martell:]

Kevin, just one other clarification. Just to -- I think you know. Dollar volumes is a very crude approximator for our inputs because we're more of a unit driven. So to the extent there's been a fairly significant home price appreciation, if you look at the actual unit volume, they're not trending as favorably as the dollar -- the dollars are. We've talked about it before, but just to be clear.

[Kevin D. McVeigh:]

No, no, understood. That's helpful. And then just to the extent Fannie and Freddie does kind of lose some credit standards, does that help the subscription business in terms of banks would want more analytics just off a lower credit score, is it pretty agnostic to the business overall?

[Anand K. Nallathambi:]

I think just lowering the credit box should help all of our businesses across the board from the Data & Analytics all the way to the workflow solutions. So we're looking forward to how that matches up with the regulatory oversight relaxing and the standards being reestablished.

[Operator:]

Your next question comes from the line of Bill Warmington with Wells Fargo.

[William A. Warmington:]

I want to ask about what it is it that is actually enabling you guys to gain share among smaller players in the shift toward purchases?

[Anand K. Nallathambi:]

It's just market penetration of the same services. Flood, we have focused heavily on the mid and mass market and in fact, the same could be said about credit and we are picking up. There was about a 20% growth this year in the tax service side. Our loans and service now approach about $35 million. It's a $35 million loan so we're kind of putting on market share wherever we can.

[William A. Warmington:]

On the tax side of the business, in terms of some cost cutting opportunities, how many of those payments are still being made by physical check?

[Anand K. Nallathambi:]

A significant portion of our business relies on physical checks. But that's not just necessarily because of lack of automation, it's also because of the receiving end depends upon how the county infrastructure is set up. We could send wireless or electronic forms of disbursements but the counties, some of them require physical checks.

[William A. Warmington:]

Got it. And on MSB, have you guys talked about a timeline for beta testing some of the new products that are going to combine the property data on both sides?

[Anand K. Nallathambi:]

We're starting to do that now. We haven't rolled out the products yet. It will be probably early 2015. But we're already talking about prefilling MSB data into the appraisal forms and using that as part of our offering on the technology side. And there's some risk -- like Frank talked about, there's some risk prediction products that we have from flood that brings those back into the insurance periods because flood risk and assessing storm surge damage seems to be a thing that they're really looking for.

[Frank D. Martell:]

Yes. I think, Bill, that's a super exciting area for us because it's not only selling Property Information and insurance but it's also selling insurance-related underwriting insight into lender, as an example. I think it's kind of a '15 event, to be honest. I think it takes a little time because the closing was just a couple -- it seems like a long time ago, but it was only 6 months ago.

[William A. Warmington:]

The -- now on the project base revenue, I know you've have expressed some caution and some conservatism in the fourth quarter guidance. But I wanted to ask if basically you're essentially excluding most of that revenue or excluding that type of revenue from the forecast and whether, if the market actually picks up there, that would offer a source of upside.

[Frank D. Martell:]

Yes, we were careful on that because it does take a little bit of time. It's just not a kind of 1 day to the next. So takes a little time to ramp up. We have the infrastructure, people and et cetera. So the good news is we won some very large project-related work. Unfortunately, some of it's just coming on, on a lot slower than we had hoped and that was originally planned for and it's just the nature of just -- it's frankly not within our control, it's more with our clients' plan and control. And so unfortunately, I think, the good news is compliance is a great area for us come, a great application of our insights. The challenge is it tends to be more project-oriented and big lumps of revenue. So when they fall out of a quarter, it can tweak the percentage change by some amount.

[William A. Warmington:]

Got it. So you -- in terms -- you had talked a little bit about capital allocation but I wanted to ask about your M&A appetite now that it sounds like the MSB, DataQuick integration is going along very well. Certainly generating enough cash. With the high level of the market and the low level of interest rates, there are a lot of properties out there potentially for sale. What's your appetite now?

[Anand K. Nallathambi:]

Our appetite has always been let's be opportunistic about it. There are some high-value assets. If it works, then we will be looking at it. Anything that advances our strategy that we've been talking about, in terms of strategic transformation programs that we have. If it aligns well with it, we will look at it. But needless to say, with all of this excitement, we're going to be very disciplined on the capital allocation side towards M&A.

[Operator:]

And your last question comes from the line of Brett Horn with Morningstar.

[Brett Horn:]

Yes, maybe if I could ask a more specific question on M&A. You guys have been talking about the opportunity in the insurance vertical for quite some time now. You did the major acquisition at MSB. At this point, do you feel like you have what you need to exploit those opportunities in insurance? And/or do you really -- do you foresee further acquisitions in that area?

[Anand K. Nallathambi:]

Tough to tell. I will tell you what we have and what we feel very strong about and where we feel like we're looking [indiscernible] to grow. On the risk prediction catastrophic modeling, probability -- loss probability and financial loss estimates, we -- I think we've got it covered and it's a question of just growing through organic growth. In terms of claims management solutions, and if you look at aerial imagery, because that seems to be an area that kind of comes into the whole property and casualty underwriting, those are areas that we could even get better. So if there's anything that we look at, it could be an area that could be attractive for us.

[Operator:]

Ladies and gentlemen, that concludes today's presentation. Thank you for your participation. You may now disconnect. Have a great day.