CoreLogic, Inc.
Q4 2014 Earnings Call Transcript

Published: 25 Feb 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2014 CoreLogic, Inc. Earnings Conference Call. My name is Dave, and I'll be your operator for today. At this time all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference. [Operator Instructions]. As a reminder, the call is being recorded for replay purposes. I'd now like to turn the call over to Mr. Dan Smith, Investor Relations at CoreLogic. 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 fourth quarter and full year 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 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 fourth quarter results to prior periods should be understood on a year-over-year basis, that it is in reference to the fourth quarter of 2013. Thanks. And now let me introduce our President and CEO, Anand Nallathambi.

[Anand 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 2014 operating results. I will then highlight focus areas for 2015 and discuss strategic growth initiatives. Frank will then summarize our fourth quarter financial results and provide 2015 guidance, before we go to Q&A. The past year was a successful and strategically important year for CoreLogic. During 2014, US mortgage volumes contracted by approximately 40% and the industry transitioned from the refinance driven to a purchase driven market cycle. Despite these headwinds, CoreLogic revenues were in line with 2013 and we continue to advance many important elements of our strategic transformation plan. Importantly, we accept the phase for accelerating our growth and creating additional shareholder value in the future. During 2014, we made significant progress on our long established goal of growing the DNA segment to over 50% of total revenues. For the full year of 2014, DNA accounted for approximately 46% of total revenues. Over the past year, the DNA segment grew at double-digit rates as we added significant scale in our insurance and geospatial solutions and our international businesses. Growing our insurance and geospatial revenues adds adjacent vertical strength to our leadership presence in real estate markets and helps us mitigate mortgage related cyclicality. The acquisition of MSB in March 2014 added property related replacement costs data and analytics for the insurance and housing industry. The addition of MSB more than doubles our revenues in the insurance vertical. In 2014, CoreLogic revenues from geospatial and insurance related businesses accounted for almost 8% of our total revenues. We also expanded our international operations which are primarily DNA focused through product innovation and growth and market share among lenders and real estate brokers. In 2014, our international revenues increased approximately 40% and now accounts for 10% of our total revenues up from about 5% just three years ago. Our TPS segment continue to gain market share in 2014 and as a result revenue trends significantly outperformed overall mortgage market volumes. More than half of the mortgages originated in the U.S. over the past year utilized our credit reporting, flood zone determination or escrow tax payment processing services. Strongest market participants faced with continued regulatory scrutiny and market related pressures. Our increasingly seeking out strategic partners with the resources to heavily invest in compliance infrastructure, automation, quality and data-enabled services. CoreLogic's strong reputation for quality, service excellence and regulatory compliance has helped to make us a preferred partner for many financial services and insurance firms. Our vision at CoreLogic is to deliver unique property level insights that power the global real estate economy. Over the past several years, we have pursued the realization of this vision by executing a strategic transformation program that is centered on CoreLogic’s unique market leading solutions, goals data assets, patent protected analytics and must have data-enabled services. As I have discussed in the past, our strategic plan revolves around five pillars. First, builds out unique market leading data driven solution sets in our DNA and TPS segments. Second, enhance and grow existing core real estate related services and build meaningful scale and insurance geospatial solutions and international. Third, drive operational excellence and progressive margin expansion. Fourth, invest behind the technology transformation initiative to support future growth and efficiency. And finally, build financial flexibility and consistently return capital to our shareholders. By almost every measure CoreLogic has become a higher growth, higher margin enterprise over the past years. We have focused relentlessly on operational excellence and building unique data-enabled insights and services. Our DNA segment is a global leader in residential property data, analytics and related workflow services. Our TPS segment is a gold standard and data-enabled services focused on originations and underwriting services, property tax payment processing, compliance and mortgage technologies. Our market leading property insights and solutions are deeply embedded in our client’s most critical workflows. This positions CoreLogic to help our clients build their business, assess and manage risk 24 hours a day, 7 days a week. We are continuing to drive margin expansion through ongoing focus on cost management and investing in innovation behind the TTI. Building on our successful Project 30 program, we reduced our annual expense run rates by $30 million in 2014. We also integrated recent acquisitions like Bank of America's tax and flood businesses, MSB and DataQuick in order to realize targeted synergies. With regards to the TTI, we are on target to complete Phase 1, our datacenter migration by mid-2015. We lost the second phase of the TTI in 2014. This phase focuses on the development of the company's next-gen technology platform which is designed to augment and eventually replace substantial portions of our legacy systems. Frank will discuss the TTI in greater detail later in the call. Our 2014 adjusted EBITDA totaled $360 million. Adjusted EBITDA margin was 25.6%. As many of our long-term shareholders will remember, a few years ago we set a strategic objective of delivering at least 25% margin in a $1 trillion of US mortgage markets. I believe that exceeding that target in 2014 was a validation of our execution against our strategic plan. Finally, we are continuing to build financial flexibility. In 2013, we generated a record level of free cash flow almost $250 million. We reinvested those funds in product and service development, productivity related investments including the TTI, progressive debt retirement and the return of capital to our shareholders. Regarding the last point, the company continued to repurchase sizeable amounts of our common shares during 2014. Since becoming an independent public company in mid-2010, we have reduced our overall share count by more than 25%. CoreLogic delivered strong operating results in 2014. We finished the year with accelerating momentum and believe we are positioned to capitalize on the opportunities presented by gradually improving US housing markets. We believe CoreLogic has achievable plans in place to deliver another strong operating performance in 2015 despite a low to no growth, the US mortgage environment. The company is focused on fundamental value drivers, positions us to execute on our strategic vision and accelerate growth. As we move forward, we will continue to transform through a focused strategy that leverages the company's unique data assets as well as the market leading position and scale of our data-enabled servicing businesses. In closing, I'd like to thank all of our employee’s clients and shareholders for their support. I am excited about our future and believe we are a great partner for our clients and a value growth opportunity for our long-term investors. With that, I'll turn it over to Frank.

[Frank Martell:]

Thank you Anand and good morning everyone. Today, I am going to recap our fourth quarter 2014 financial results and provide 2015 guidance, including some additional color around the TTI, cost management and capital allocation. As Anand mentioned earlier, 2014 was another strong year for CoreLogic both operationally and from a financial perspective. Operationally, we continue to shift our business mix towards data driven subscription based models built around scales, market leading solutions. As a result of this strategy, our core mortgage operations clearly outperform market volumes and expand and diversified our DNA revenues. The durability of our business model allows us to continue to invest in innovation and operational improvements and at the same time return significant capital to our shareholders and reduce our debt balances. In terms of financial results, full year 2014 revenues were essentially equivalent to 2013 levels despite an estimated a 40% drop in US mortgage volumes. DNA revenues grew 13% fueled by a significant expansion international insurance revenues. TPS revenues trend continue to consistently outperform overall market volumes and the segment also delivered solid margins and cash flows. We exceeded our cost reduction target in 2014 and set the stage for additional cost productivity in 2015.Finally, we generated a record free cash flow which funded capital return and debt reduction. Fourth quarter 2014 financial highlights include first, accelerating revenue growth trends, second, double-digit growth in DNA, third, market outperformance by TPS, fourth, expanded EBITDA margins, fifth, the over achievement of our cash flow, buyback and debt reduction targets and finally, the launch of CoreLogic innovation labs which will be the conduit through which we develop our next-gen technology platforms. Fourth quarter revenues totaled $346 million, a 5% increase from prior year levels, as share gains, organic growth and acquisition-related revenues more than offset the impact of an estimated 5% drop in US mortgage volumes. DNA revenues rose 16% driven principally by growth in insurance and geospatial solutions as well as international which more than offset the impact of lower mortgage volumes, unfavorable foreign currency translation and the exit of non-core product lines. TPS revenues decreased about 3% as lower mortgage volumes and project related revenues more than offset share gains. Operating income from continued operations totaled $36 million for the fourth quarter compared with a loss of approximately 19 million in 2013. The fourth quarter 2013 operating losses attributable to a pretax non-cash goodwill impairment charge of $42 million related to the plant divestiture of the company's amps businesses. Before the effect of the impairment charge, Q4 2014 operating income increased 58% reflecting the benefits of DNA growth, TPS share gains as well as ongoing cost efficiency programs which were partially offset by increased depreciation and amortization associated with the acquisition of MSB and DataQuick. Fourth quarter 2014 net income from continuing operations totaled $16.5 million compared with a net loss of $9 million in 2013. The increase was driven primarily by DNA growth, TPS share gains, the impairment charge discussed previously and lower taxes which more than offset lower U.S. mortgage volumes, unfavorable FX and higher interest expense. Diluted earnings per share from continuing operations totaled $0.18 for the fourth quarter of 2014 compared with a loss of $0.10 in 2013. Adjusted diluted EPS totaled $0.28 up 12% in the same 2013 period. Adjusted EBITDA totaled $84 million in the fourth quarter of 2014 up 16% from the same prior year period. The increase in adjusted EBITDA was principally the result of DNA revenue growth and favorable business mix as well as lower cost related to the ongoing execution of Project 30 program offset partially by lower mortgage market volumes, unfavorable FX translation and decreased client related project and discretionary spending. . An integral part of CoreLogic’s growth and success over the past four years has been our commitment to rigorous and ongoing focus on cost productivity. Project 30 resulted in the reduction of over $100 million from 2011 through 2013. In late 2013 we launched a new cost reduction initiative designed to lower 2014 expenses by 25 million. Actual savings from this programs in 2014 totaled $30 million. As we drive into 2015 we are focused on two principal areas of cost productivity that we believe will deliver additional future margin improvement. First, as many of you know we launched a Phase 1 of TTI back in 2012. This program is focused on migrating the company’s existing technology infrastructure from internal management to an outsourced service model. Phase 1 of the TTI is expected to be completed in mid-2015 and should provide new functionality increased performance and lower cost beginning in the second half of this year. Completion of Phase 1 is expected to yield cost efficiencies of $10 million in 2015. Beginning in 2016 we expect annual savings to reach $30 million. In addition to Phase 1 TTI savings we’re also targeting to further low our SG&A costs in line with our objective of achieving best in class cost benchmarks in this area. In this regard we are currently engaged with an external firm to analyze SG&A costs and determine next steps. We will update on - expected savings in the future call. Partially offsetting the savings I just discussed our required investments in Phase 2 of the TTI. As part of Phase 2 last December we announced the formation of the CoreLogic Innovation Lab in collaboration with Pivotal Software. The CoreLogic Innovation Lab is designed to accelerate progress on the next-gen platform and to support upgrades of existing products and technology assets as well as greater data monetization. As stated in our release last night, we expect to make incremental investments in Phase 2 to the TTI of about $15 million during 2015. In addition to our focused on cost productivity, we believe our consistent shareholder focused capital allocation program has also been a major value catalyst. Our priorities include funding disciplined reinvestment for profitable growth, share repurchases and maintaining a long-term debt-to-EBITDA ratio of 2.5 times. 2014 free cash flow totaled $240 million or 69% of adjusted EBITDA above our long-term targeted level of 50%. The principal drivers for this overage were a combination of reduced collection cycles and cash tax payments, dividends from our joint ventures and the timing of certain payments and collections. We used our strong cash flow generation 2014 to repurchase $3.1 million of our common shares for $92 million and to make $195 million in principal repayments or the final nine months of 2014 as part of the company’s ongoing debt reduction program. Regarding 2015, we expect free cash flow conversion rates of at least 50% of adjusted EBITDA. As I will outline in a minute, we plan to continue to make significant share repurchases as well as debt pay downs in 2015. I will conclude my prepared remarks today with an overview of our 2015 financial guidance. For the full year of 2015, we expect to generate revenues of between 1.47 and $1.5 billion, adjusted EBITDA of $390 million to $405 million and adjusted earnings per share of $1.50 to $1.60. All of these figures represent significant increases from 2014 actual results. This guidance is based on the following assumptions. First U.S. mortgage origination unit volumes in 2015 are soon to be essentially equivalent to 2014 levels. Second, a reduction in IT costs of $10 million during the second half of 2015 as a result of the completion of Phase 1 of TTI. Third, the investment in Phase 2 of TTI of approximately $15 million. Fourth, the devaluation of the Australian and New Zealand dollars of about 10% to 15% relative to the U.S. dollar. And finally a planning tax rate of 35% compared with 38% in 2014. We are also assuming the repurchase of 2 million to 3 million common shares during 2015 and a progressive reduction of term loan and revolving debt to achieve our long-term leverage goals. Specifically in terms of the first quarter of 2015 based on seasonality and our current view of origination unit volumes, we believe that adjusted EBITDA should exceed first quarter 2014 levels by 35% to 40%. To sum it up, 2015 was another strong year for CoreLogic from both a strategic and a financial perspective. We successfully navigated a historic reset in the US housing market and I believe we have a solid plan to grow the value of our firm for all of our stakeholders in 2015 and beyond. I appreciate your time today. I’ll now turn the call back over to our operator for Q&A.

[Operator:]

Thank you very much. [Operator Instructions]. Which comes from the line of Darrin Peller at Barclays. Go ahead please.

[Darrin Peller:]

Thanks guys. Listen I just want to start off first with the sort of understanding in your guidance you're including a flat mortgage market and I think that's pretty conservative, but can you just remind us again if we were to sort of look at the NDA forecast which obviously have some growth, what was you expect us, first, the incremental let's call it $100 billion of originations to mean from EBITDA just because I know they will fund you guys where you set around $15 million for every 100. But I think the first 100 might come at the higher the incremental margin the way it did on the way down also. So Frank can you give us a little color on what EBITDA guidance could have been or would have been if you assume something more in line with the industry forecasts?

[Frank Martell:]

Sure. I'll laid off with that Darrin, this is Frank. NDA outlook about $1.2 trillion forecast for '15 versus $1.1 trillion in '14. You have to deflate that for price appreciation which is projected to be 5% to 6% so when you deflate that it's about $50 billion. I would just remind you there our revenues are driven by unit volumes versus dollar volumes which are flattish. So I would just say that's a big factor to consider, now answer your question for $100 billion of mortgage originations we still expect the $12 million to $15 million of EBITDA benchmark to hold, I would expect that in the $1 trillion range we should still see the higher end of that range being delivered, so the closure to the 15 and the 12 as we come out of this that we set in the mortgage market of $1.1 trillion.

[Darrin Peller:]

Okay, alright. And so basically you're saying still about $15 million of incremental EBITDA even for the first incremental origination growth.

[Frank Martell:]

That's our expectations, yes.

[Darrin Peller:]

Okay alright. Let me just follow up now on the data analytics side I have been asked by a lot of investors in terms of sort of inflection on growth. You're running at around if we back out some of the moving parts around currency from this past quarter and inorganic growth. Organic constant currency growth was more like 4% I think. If we also back out the originations impact from the AVM part of the business. Again it's obviously similar to what it was in the third quarter, a little better than even at the beginning of the year. But still not that high single-digit range that I think you guys had hoped it would get to you at some point. Can you give us an idea as to what kind of timeframe we should think about in terms of when it could get there and maybe what the driving force will be to get it there?

[Frank Martell:]

I think we were around 4% to the second half if you aggregate the second half of '14 versus roughly a flat number in the first half. So we certainly bounced off the bottoms and the lows as it relates to the - I think the pressure as it relate to overall spending in the mortgage industry. So I think as we talked about in past calls, one of the collateral impacts of mortgage volumes coming down with the reduction discretionary spending and overall market activity, we still expect that this segment will deliver upper single-digits, growth we expect that 4% to accelerate and be higher in 2015. I'd say in the 5% to 7% range. So we see a reacceleration. We still are taking a prudent view on mortgage market activity in 2015, I think with the volatility and rates and other macroeconomic factors, I think if we have things like refi increase so much the better but I don't think that at this point that we want to plan on that. But we do think that despite that we believe that the DNA segment will reaccelerate into the 5% to 7% range from the 4% little over 2015.

[Darrin Peller:]

Okay and just to be clear that's without...

[Anand Nallathambi:]

This is Anand. I think the growth that Frank is talking about is something that we are planning on and we're hoping that we will get it internationally and also through the improved numbers from the insurance vertical which is post-integration. On the mortgage market generally like Frank said, the home price appreciation of about 4% to 5% is going to rob a lot of those things. Are we seeing increased refi volumes in the first quarter, yes we are. But the sustainability effort and what happens in the second half of the year and what the rates are going to look like is going to be a determining factor of where we end up it's as close [ph] we can be at this point.

[Darrin Peller:]

Okay so to be clear that's your expectation 5% to 7% for the year without including the impact of currency or mortgage market impact.

[Frank Martell:]

Obviously you have the seasonality pattern so we'll see a little bit, so you'll see strengthening as we progress through the year.

[Darrin Peller:]

Okay, alright. Thanks. Just last question is just on capital return I mean it maybe just me covering the company since you spun out because the new ones I sort of noticed that's 2 million to 3 million shares being repurchased versus typically saying 3 million shares plus and you've been obviously very shareholder friendly capital return lies over the past since you've come out from first American so is there any change there or is it just sort of balancing that debt levels versus the repurchase or is that a conservative starting point?

[Frank Martell:]

No, the share count has come down significantly as Anand mentioned so we will continue to drive into that share count at similar, substantially similar levels to what we have done so I'd say that the 2 million to 3 million is a pretty good figure to start out at this point.

[Darrin Peller:]

And no other deals in the near-term horizon that you are going to see for capital use?

[Frank Martell:]

None to require at the moment.

[Darrin Peller:]

Okay. Alright, guys thanks very much.

[Operator:]

Thank you. The next question is from the line of Bose George of KBW. Please go ahead.

[Bose George:]

Yes, good morning. Actually in terms of the debt goals, do you have a timeline or sort of a broad range that we think about in terms you're getting to that leverage ratio of 2.5 times?

[Frank Martell:]

Hi, Bose, no we talked about kind of an 18 to 24 months timeframe. We have been making significant debt reduction 195 million since we revived as part of the MSB in the early 14. So I think we will continue to look at our option at each quarter and just continue to, I'd say make measured reductions, we are not required really to do that but I think that we want to make sure that we have plenty flexibility to either make capital returns or invest in the business...

[Bose George:]

But just looking out into 2016 did TTI Phase 2 is there a way to think about the potential investment needs there?

[Frank Martell:]

No, I think as I talked, the $15 million for Phase 2 and we're very excited first of all about the Phase 2 we announced the Innovation Lab I think we've had terrific progress with Pivotal, our partnership with Pivotal and other partnerships as well as our internal. So we're really excited about the Innovation Lab that as I said that's the conduit through which we're going to accelerate our deployment of new technology which we think will enable growth particularly in the DNA area. But I would say the $15 million number at this moment appears to be kind of the right run rate for ’15 and subsequent periods. So I think that so the balance or the increase in the savings from Phase 1 there is no plan at this juncture to offset those with additional investment.

[Bose George:]

Great. And then just one last one on servicing transfer it looks like this year we are going to see a pickup, a lot of it just being sold by often to others potentially to initial start is there a revenue potential there from some of that servicing transfer?

[Frank Martell:]

I think we - one of the pressures for us in ’14 was assuming that we assume that the MSR market wouldn’t dry out like it did in '14 so, I think it's still to be seen obviously a lot of especially servicers were our clients, so, I don’t think the particular sale that you're talking about as a material change in our financial situation but there should be MSR market open up that will be an additional upside for the company.

[Bose George:]

Okay, great. Thanks.

[Operator:]

Thank you. The next question is from the line of Jason Deleeuw of Piper Jaffray. Go ahead please.

[Jason Deleeuw:]

Yeah, thanks and good morning. On the revenue guidance it was a little bit better than we thought and you are assuming flat origination volumes here. And then given your DNA organic revenue growth, it would seem that you're implying and we are going to see some growth in TPS even though we are going to have flat or your guidance assumes flat origination, so do you think TPS can keep outgrowing the market. Can you just give us a little help in thinking about TPS revenue?

[Frank Martell:]

Yeah, I do believe so. There is especially on our tax service, tax payment processing we do see some opportunities and also as we drift down mid to mass market we are seeing some opportunities even for our other solution sets that's comes out of TPS. Obviously you’re also going to see the pickup that we have through the acquisition of the Bank of America credit services so when you put all of this together we do feel good about the prospects for TPS.

[Jason Deleeuw:]

Okay. And then when we’re looking at your guidance, I think there was - the revenue was better than we thought, the EBITDA dollars little bit less and that would imply the margins a little bit less than we thought but how should we think about the core margins for the business should we take your guidance and then add back to 15 million of TTI Phase 2 spend this year to think about that as kind of a base level of margins for the business from which hopefully we get expansion from here?

[Frank Martell:]

Yeah Jason, this is Frank. I mean first of all if you look at our margins and as Anand mentioned we are more or less 26 margins in ’14 that’s going to trillion plus give or take a little bit market which is a historically low market. We’re very geared toward the upside for acceleration of mortgage activity and as I think as Darrin alluded to we will most of the initial flow will convert to EBITDA so we’re I think the margins as a base, the 26% should accelerate from there we don’t provide specific margin guidance but if you look at implicit in our guidance and again more or less a flat market, we’re still assuming a 50 basis points plus margin expansion implicit in the 2015 guidance so we’re not going to stop there. We continue to work on the cost side but from that perspective even assuming a very low market again in 2015 we think we can expand margins at least 50 basis points.

[Jason Deleeuw:]

Okay and then on for thinking about 2016 you said I believe you said you’re going to see another $30 million of annual savings from the completion of Phase 1 mid this year so but we're only 10 million this year so I guess kind of help us understand how we're going to get 30 million next year and then as you said you’re planning on not offsetting that 30 million with increased investment spend, so is it fair to take your current guidance range for 2015 and say all sequel we’re going to get another 30 million boost in 2016 just from the TTI Phase 1 being completed?

[Frank Martell:]

Yeah so obviously we’re not guiding for '16 but as it relates to TTI so as Anand mentioned we expect to be complete with TTI in the middle of 2015 it’s a very complex program with many parts so I think and it’s been spectacularly successful so the 10 million of the partial year we're assuming these programs normally generate some complexity toward the end so and we're assuming somewhat less than half year pro rates share from it as you may remember couple of years back we estimated a 30 million to 40 million per year number based on pro forma 2014 cost run rate so that’s where the $30 million comes from - it's obviously in between 2012 and now we've had some puts and takes on running costs and volumes particularly volumes that things like storage but the $30 million is a full year number, and the 10 million is kind of a partial year number so it’s more of a function of when we believe the TTI will be completed this year and then a full year of savings next year kind of full on, so that’s just more of a pro ration of savings. The 30 million if we would have been done 12/31/14 we would have gotten $30 million this year. So that’s more of a matter of timing and as I said earlier at this point we don’t really anticipate offsetting that $20 million delta in ’16 at this juncture with any additional investment.

[Jason Deleeuw:]

Okay. Thank you very much.

[Operator:]

Thanks. The next question is from the line of Chris Gamatoni [ph] at Autonomous. Please go ahead.

[Unidentified Analyst:]

Good morning. Thanks for taking my call. Was there, a housekeeping, was there any one-time item in the corporate sector without the expenses?

[Frank Martell:]

Hi Chris, this is Frank. I am not sure what your reference is, but if you look at third quarter, fourth quarter there is some timing on some accruals for expense nothing extraordinary unusual if that’s what you’re if you're talking about the run rate between the sequential quarters.

[Unidentified Analyst:]

Okay. And then just on the guidance. The 2014 guidance the start of the year was 1.35 billion to 1.4 billion and excluding the 25 million of cost related to acquisition severances, you stated 385 million to 415 million on adjusted EBITDA, which is a midpoint of 400 million. The guidance now is a little bit lower in midpoints with about $100 million more revenue. So can you walk us through why excluding those one-time costs and if there is a 10 million of saves from TTI Phase 1 50 million reinvestments is 5 million is a little bit? But it seems like a $100 million of revenues coming on it no margin compared to that prior statement so are there higher customer else?

[Frank Martell:]

Yeah, just to clarify, we have not, this is our first guide for 2015.

[Unidentified Analyst:]

2014 guidance of 385 to 415 excluding the 25 million as you said the start of the year so revenues up 100 million and the bottom-line isn't going up excluding those one-time costs in 2014?

[Frank Martell:]

Yeah, look I think the Dan can take us through the specific numbers. But basically I think the bigger, the two things I would call out to, they're different or number one is obviously the international revenues are primarily based in Australian and New Zealand dollars, those currencies that divide significantly so that's one fact, and I think that’s not new news for every corporate entity with international revenues or facing that issue. And secondly is the investment which as we launched the innovation center has become clear around what we want to do for the TTI Phase 2. Obviously we announced the innovation center in December. So I want to make sure that we brought it with FCL what we think of that investment we require. So from my perspective those are the two deltas and obviously the fact that 14 mortgage market and going into ’14, we thought it would be a little more robust and then it turned out to be we lost MSR sales. So there is a few factors that created a touch market in ’14 that we believe is, there'll be a similar market in ’15 and again from a unit volume perspective versus a dollar volume perspective.

[Unidentified Analyst:]

So just on the FX. Could you give us a sense of what that 10% to 15% headwind imply dollars or the adjusted EBITDA dollars for Australia, New Zealand in 2014 what the quarter-over-quarter change was, I am just trying to get the dollar impact in case things change?

[Frank Martell:]

Yeah, I think broadly if you look at, I’ll just, I’ll deal it with - for 15. So we’re looking at the Australian dollar within the upper $0.80 range, $0.88, $0.89 last year on average, we're looking at sub $0.80 at a $0.77, $0.78 right now for planning purposes. In total and it’s a similar quantum in New Zealand in terms of the devaluation. If you look at our overall revenue internationally it’s over $120 million.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

Thank you. And the next question comes from the line of Glenn Greene at Oppenheimer. Please go ahead.

[Unidentified Analyst:]

Hi, this is Andy Hummel [ph] in for Glenn Greene. Thanks for taking my question. Just kind of looking at the TPS margins for the year, I know you guys has said the target of 25 million or 25% TPS margins and showing our market talking about a flattish market into FY16. And you kind of exited the year on the high 20% range. I mean how do you guys look at that going into 2015 kind of considering where you ended the year and just without any mortgage market expansion where you’re getting that any margin expansion from the net segment?

[Frank Martell:]

Yeah, the team has made a lot of productivity improvements and automations. So if you look at, I've been taking so much market share is automation and it's also the fact that we have been able to improve our quality and so things like our claims experience drop significantly. So we expect to see continuation of that type of improvement in the business. And then also part of what's happened is if you remember we had the BVA tax and flood operations which came in '13 we had to integrate those who're pretty significant in terms of people that we assumed and operating infrastructure we assumed that we had to eliminate. So that is also a cost which resonate over the first kind of couple of quarters of '14 that has come out. That maybe another factor and while you're seeing your margin trend improve but I think also there is a big factor in terms of continual productivity and cost reduction focus by the team in TPS and I think we've done a great job.

[Unidentified Analyst:]

Okay so it wouldn't be unreasonable to see potentially high 20% margin continuing on through FY14 even in the flat market.

[Frank Martell:]

I would say that's a reasonable assumption yeah.

[Unidentified Analyst:]

Okay. And then just kind of shifting back to the accelerated cost you talked about for the TTI the 15 million, is there any sense for what the quarterly cadence might be in that is it just going to be '15 divided by the four quarters is that going to be front half back half weighted at all.

[Frank Martell:]

Yeah it will be a little heavier towards second and third quarter than first quarter. So you'll see a little bit of a ramp up. I mean reason for that is that a chunk of that costs relates to certain development work that will just progress over the year. And then there is also a chunk of that cost related to standing up the facility that we are colo with Pivotal will have some a development center where a lot of the next-gen stuff will be done. We've done a lot of it up to now in the Pivotal facility up in San Francisco and we want to move that so it's a little bit more cost effective.

[Unidentified Analyst:]

Great. Thanks for taking my questions.

[Operator:]

Thanks. Next question is from the line of Jeff Milner [ph] at Baird. Go ahead please.

[Unidentified Analyst:]

Yeah thank you. A follow up on TTI Phase 2, the $15 million of annual spend in '15. Is that one-time spend and maybe continued on into '16 or is that the spend on debt level of technology initiatives something that's going to be embedded in the business on a go forward basis.

[Frank Martell:]

Yeah I'd say over the next few years it will turn there is some setup cost will come out like I just mentioned standing up the facility with Pivotal. That type of thing. So there is some I'd say you want to call it one-time kind of set up cost that will come out. I would expect that will be replaced. And obviously we're in 2015 we're really focusing on a set of discrete products and services that we're developing under these offices. I think these one-time setups come down I think that will be somewhat replaced by just additional scope under the preview of the innovation center. But I would say that I mentioned earlier on the call the 15 million I don't expect that number to jump up. That to me will be a kind of a run rate obviously that will focus the businesses as it does in 2013.

[Unidentified Analyst:]

Got it. And then when do you guys expect to start generating some revenue from the initiatives coming out of TTI Phase 2 will that start in later 15 or will that not be until 2016?

[Frank Martell:]

I think we're in the process of launching those products, the early products of coming out of the innovation labs and partnership with Pivotal have been really good. We've kind of feel like the new product development that's been coming out of those partnerships, they have been excellent in terms of productivity and time to market metrics. The first product out of it condensate is in testing with them, lot of major customers and that we believe that will be one of the two products that we would be launching in early 2015.

[Unidentified Analyst:]

Okay. And then just finally you guys have done a lot on the expense side over the last couple of years. Just curious the new SG&A benchmarking that you are doing with the consultant what categories of spend are you looking at as part of this different from what you've done in the past.

[Frank Martell:]

As to release that it's on SG&A in terms of mostly corporate shared services. We have done a lot on the infrastructure and that we also feel like we need to kind of consistently look at it in terms of benchmarking into top quartile performance. So that's the review.

[Unidentified Analyst:]

Got it. Thank you guys.

[Operator:]

Thanks. Next question comes from the line of Kevin McVeigh at Macquarie. Please go ahead.

[Kevin McVeigh:]

Great, thanks. Frank can you give us the international revenue is helpful, how profitable is that business and how much is that weight on kind of the EBITDA outlook for ‘15

[Frank Martell:]

Yeah, Kevin it's a higher margin than the overall company. We don’t disclose segment margins or individually but it's a relatively materially higher margin percentage but I think that will be at least a total quantum but the impact because we also have revenues in Europe denominating the year on - which are also devaluing so if you look at the whole [indiscernible] it's kind of $5 million to $7 million kind of impact. We also had the Canadian dollar, we've got a little bit of the - all the devaluing currencies in our basket here that we're kind of working through.

[Kevin McVeigh:]

So the 5 million to 7 million so that was an EBITDA impact?

[Frank Martell:]

Yeah, about 5 million of EBITDA given as were the 120 million of revenue roughly at 10% to 15% that's the revenue impact.

[Kevin McVeigh:]

Yeah, that’s helpful. And then can you just and if you said I apologize but for 2014 overall how much of the revenue was acquired and what did that come in at from a margin perspective.

[Frank Martell:]

So the principal, obviously the principal acquired revenue was three quarters of martial slip back [ph] and DataQuick collectively the revenue contribution of all the acquisitions was over $100 million.

[Kevin McVeigh:]

Okay.

[Frank Martell:]

So and then from a margin perspective, the margins were higher, the business is more subscription based you have to do factor in the integration cost etc. and then we also as you guys know we have the talenting [ph] related haircuts in 2014.

[Kevin McVeigh:]

Super. That's helpful. Thank you.

[Operator:]

Thank you very much. The next question is from the line of Jeffrey Conrad [ph] from Accounting Partners. Please go ahead.

[Unidentified Analyst:]

Thanks. Good morning. I think some of your comments on buyback and debt it's clear but I just want it from a high level as we think about '15 and you talk about reinvesting in the business it sound like it's more continues to be focused on debt repayment TTI initiative and any kind of potential meaningful acquisition is more 16 and beyond is that a fair categorization?

[Frank Martell:]

Yeah, Jeff it's hard to be that definitive. I think what we try to do is maintain a pretty balanced approach. Obviously free cash flow is after investment in things like capital equipment and CapEx. So and essentially as you know last four or five years we just follow the free cash flow pretty much have gone to share buyback with the last year component of debt retirement so we continue to be very focused on that kind of shareholder friendly capital return. I think the level of investment, we're ramping at a little bit with the 15 million I talked about on Phase 2 but we have I think a pretty reasonable investment in the business through CapEx and other kind of ongoing programs so as the mortgage market improves and the demand for data driven products and validated services improve we get into the mid-market these are open and growth pass unfortunately it's a little stunted in '14 and ’15 because just the severity of the mortgage market downturn and the pressure on the - from the regulatory perspective on our clients.

[Unidentified Analyst:]

I guess I was more referencing on M&A so in '15 if that became along would you deviate from the rest of the debt payments and potentially relever up for the right property?

[Frank Martell:]

As I mentioned earlier there is really nothing in the immediate horizon I can't - I wouldn't say never obviously it depends on what opportunities present themselves and how they more importantly how they fit in the strategy of the company. I think we had a pretty consistent strategy about where we would what we acquire a dataset that we don't have like MS, a model that we don't have like [indiscernible]. Those are - we maintain the same screen that we've had in the last couple years so don't expect to survive something outside of that that stream. But we have to and obviously we want to and we have to look at the opportunities as they come. But nothing immediately at the moment.

[Unidentified Analyst:]

And just number follow up I apologize I missed your tax rate guidance. Could you just reiterate that please?

[Frank Martell:]

Yeah 2014 the planning rate was 38% and we're looking at kind of 35% for '15.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

Thanks. The next question is from the line of Alex Veytsman at Monness, Crespi. Please go ahead.

[Alexander Veytsman:]

Yes good morning guys. Just wanted to follow up on the 5% to 7% organic growth that you mentioned stability in any segment would you expect the drivers to be I mean I imagine it's probably be more geospatial and then the data legacy business. I mean like ours - is it those still or is there something else as well.

[Frank Martell:]

Yeah I think that as Anand mentioned most of the product development is DNA focused. And so if you look at condensate [ph] for example that's a significant - we believe it will be a significant product in the data and analytics space, we have some things on the multi-family side. So product development was a big area of the adoption of data and analytics by lenders and servicers and other participants in the market that's continue to progress. And then obviously international has been a strong growth engine for us. I would expect that to continue on a local currency basis we’ll see how currency translation may impact that but certainly that's also we expect that expansion that growth rate to continue to be very strong.

[Alexander Veytsman:]

And what percentage of your DNA business is the geospatial as well as the international segment.

[Frank Martell:]

Yeah we're up to about 30% of the D&A segment related to international and insurance and spatial I think about a third.

[Alexander Veytsman:]

Great, thank you.

[Operator:]

Thanks. The next question is from the line of John Campbell at Stephens, Inc. Please go ahead.

[Unidentified Analyst:]

Hey guys. This is Hayden Blair [ph] in for John Campbell. So a little bit on the DNA growth it looks like multi-family and specialty services is maybe off just little bit more than expected. What caused that and do you have any thoughts on the pace of growth or declines in 2015 to those.

[Frank Martell:]

Yeah I think first of all I don't know if you talk about the fourth quarter you tend to see a slowdown in that business. We've been seeing some attrition rates in some areas as well. So we're not entirely pleased by the growth pattern in that business. And we have a lot of focus on product enhancement which we've been working on. So but that business has been below expectations for us in '14 and we're working on addressing that.

[Anand Nallathambi:]

Especially credit market is obviously hit by regulatory oversize and that's been a consistent trend over the last 18 months.

[Unidentified Analyst:]

Got it. Thank for that. And then I guess do you guys see any potential impact from the expiration of the list hubs and group contract in April and any effect from that or any structural changes in your business.

[Frank Martell:]

I'm sorry you cut out could you repeat that question?

[Unidentified Analyst:]

Just on the any potential impacts from the list hub and contract expiring in April. Is that going to affect you guys at all and you guys going to make any changes to accommodate that?

[Frank Martell:]

No we don’t think there is an impact.

[Unidentified Analyst:]

Alright, thank you guys.

[Operator:]

Thanks. The next question is from the line of Bill Warmington of Wells Fargo.

[William Warmington:]

Good morning everybody.

[Frank Martell:]

Good morning.

[William Warmington:]

So one question I had for you was whether you are seeing any higher compliance costs heading into 2015 that maybe weighing on the 2015 guidance as well?

[Frank Martell:]

Yeah obviously the regulatory over side of our customers have a down the line impact to us and so we have been seeing some increase in cost. I wouldn't necessarily call a dramatic increase as probably in the $5 million range but conversely on the opportunity side we are signing up a special compliance solutions unit putting together all of our compliance type solution sets and there is a ton of activity there, where a lot of the major market players are looking for strategic partners who can invest in solid compliance infrastructure.

[William Warmington:]

But I'll tell you what I am asking if you look at the guidance for 2015 at 390 to 405 and I think back to when we’re setting the numbers for the back in October. There are few things that we hadn't factored in the devaluation of the Australian dollar which is about 5 million we hadn’t factored in the higher compliance cost in those 5 million and then the TTI Phase 2 we hadn’t put in either '15 so that would total about 25 and so without those elements the guidance, the EBITDA guidance have been 415 to 430 and we've been modeling like 412.5 so that’s just an observation I wanted to share. The second question I have for you was one of just make sure I understood the revenue guidance on the DNA organic growth 5% to 7% is that the growth for 2015 or is that the exit growth rate in Q4?

[Frank Martell:]

Yeah Bill this is Frank. What we talked about was that’s not a specific we don’t provide segment guidance growth of guidance but our expectation in terms of trends, so we’ve always maintained that DNA should grow in the upper single digits from an organic perspective obviously ’14 that was lower as the mortgage market kind of bottomed out. I think we’ve gone from again first half ’14 that's flat and second half kind of 4% as mentioned. Going into 15 that should reinflate into the 5%, 7% range. I am not being specific by quarter or by full year but I think as we get out of or we go through '15 I think you’re going to see a 5% to 7% rate as we get into ’15 and I think that will improve progressively.

[William Warmington:]

Got it. And so I also wanted to ask about the mortgage market assumption so the question on it is what needs to take place in your opinion for the mortgage market to sow some unit volume growth for you in 2015?

[Frank Martell:]

Bill I think the first one to talk about is the sustainability of the volumes and we are seeing an uptick like mostly on the finance settlement services in the first quarter. Is that’s going to be sustainable because we also are hearing that the rates are really low and the set could be taking up the rates in the second half of the year that’s going to have an negative impact on it. So number one it's sustainability and then the other thing is just all the things that we talked about we put in, we have grown the international segment obviously they've gone through some currency fluctuations as Frank outlined before or our insurance segment is just finishing up the integration of all the different subsets of services that we bring together and they have kind of putting together their plan of attack going forward. Our China venture is very, very early stages, so there is a things to be different in the upcoming quarters but at this point we have the call the year as we see it so.

[William Warmington:]

No problem. It seem like there were some one of the things that had weight on volumes last year with some of the large clients had pull back from the market because of regulatory pressures and are you seeing those clients returning to the market in 2015?

[Frank Martell:]

Yeah, there is definitely a general sense of going after customers and going after growth with the larger customers. At the same time, the regulatory over side you have to spread between service providers out there. So the winnings that we do in terms of TPS is more based on capabilities and execution ability. So it’s - there is still some uncertainty in the market about how many vendors they should use and is that a regulatory requirement or not.

[William Warmington:]

And then I guess last point would be in terms of the credit standard at the banks need to consumers. But do you think, you’re going to continue to see a trend towards loosening standard as we go out through the year?

[Frank Martell:]

On the consumer side, obviously Fannie and Freddie and FHA or trying to spur growth and I think we see that out there, we just need to see how is that going to be balanced with regulatory over side of repurchase kind of requirement so the lenders are trying to grapple with that. On one side you are seeing the agency try to start to go towards the 3% loan that supposed to be spurring up the first time home buyer market, the results of it directly to be seen in the upcoming quarters.

[William Warmington:]

And so you guys talked a little bit about additional cost savings. And you’ve got a pretty, like a pretty impressive track record over the last three years, I think around correct my numbers here around 20 million in 2012 and 30 million, in 13 and another 13 million in ’14. And so I guess my question is given that track record what are you thinking about for, I didn't see any mention of that in 2015 is that something you guys are just going to talk about later in the year?

[Frank Martell:]

From a cultural standpoint, we've kind of and still the culture where cost management is just part of competency that we try to shoot at every year. We haven't comped with any targets especially because of this SG&A review that we have coming in and benchmarking it and we'll try to see where we go. As far as the infrastructure and delivering service those guys are constantly working on automation and trying to get as efficient as they can and to just not to correct your numbers but over the last on the Project 30 up until now we have probably taken of about 130 million.

[William Warmington:]

Got you, right. I don’t want to understate it. Alright, listen thank you very much for the insight.

[Frank Martell:]

Thanks Bill.

[Operator:]

There are no further questions. Thank you for participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.