Q2 2020 Corelogic Inc Earnings Call
[music].
Two of the Corelogic second quarter 2020 conference call.
All participants will be unless.
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After today's presentation there'll be an opportunity to ask questions.
So it's about being recorded.
I'd now like to turn the conference over to dance with Investor Relations. Please go ahead.
Thank you good morning.
Welcome to our Investor presentation and conference call very present, our financial results for the second quarter 2020.
Speaking today will be Corelogics, president and CEO, Frank Martell, CFO, Jim Dallas.
Before we begin let me make a few important points.
First we hosted our slide presentation, which includes additional details in our financial results on our website.
Second please note the during todays presentation, we may make forward looking statements within the meaning of the federal Securities laws.
Putting statements concerning our expected business and operational plant performance outlook, an acquisition that 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 FCC filings, including the most recent annual report on form 10-K, and the subsequent 10-Q's.
Our forward looking statements are based on information currently available to us and we do not intend and undertake no duty to update the statements for any reason.
Additionally, today's presentation contains financial measures.
Non-GAAP financial measures a reconciliation of these non-GAAP measures to their GAAP equivalents is included in the appendix today's presentation.
Unless specifically identified comparison to second quarter financial results to prior period should be understood on a year over year basis that is in a reference the second quarter 29 Pete.
Finally, please limit yourself to one question with a brief follow up we will take additional questions at the end the call as time permits.
Thanks, and that would introduce our president and CEO Frank Martell.
Thank you Dan and good morning, everyone.
Thank you for joining us today for Corelogic second quarter 2020 earnings call.
Today, I will outline the major operating and financial highlights for our strong second quarter.
Our navigating the impacts of the cold in 19 pandemic.
Our plan divestiture of reseller businesses.
The 50% increase in our quarterly dividend and finally, our timeline for returning $1 billion to our shareholders in the near term through our share repurchase program.
Jim will follow me and provide detail our second quarter financial results and discuss our third quarter and full year 2020 financial guidance.
I will then finish up with a few comments regarding shareholder value creation.
Unsolicited takeover bid, we recently received before we wrap up with a QNX session.
Before I begin I want to take just a moment to congratulate our 5000 plus employees.
Like our clients and our shareholders as we celebrate corelogics 10th anniversary as a publicly traded company.
Together over the past decade, we have transformed corelogic into a clear market leader in residential property related data analytics and platforms that powered the housing finance insurance markets in North America, Australia, New Zealand.
Over the past 10 years on an annual compounded basis, we grew revenue, 6% adjusted EBITDA, 10% adjusted earnings per share, 21% and adjusted EBITDA margin of 900 basis points in the process, we returned over $1.5 billion to our shareholders.
Turning to our second quarter and first half financial performance Corelogic delivered outstanding operating and financial results. Despite the unprecedented challenges presented by the cold at 19 pandemic. Our performance stands as a clear confirmation that our copper company is entering its second decade with all of the fundamental building block.
In place to unleash a period of strong revenue and margin growth, which you should in turn drive superior shareholder value creation.
Over the first half would 2020 total company revenues of 921 million were up 14% normalizing for covert Nite TV impacts and the AMC transformation, an exit of non core technology units, which were largely completed over the first three quarters of last year.
Organic growth climbed from a little over 2% in the first quarter, the 5% in Q2, benefiting from new and or enhance solutions pricing and share gains.
We secured for Mega wind and other significant share gains that should propel future organic growth upside and the second half a year and beyond.
Adjusted EBITDA of 289 million was up 25% for the first half and adjusted EBITDA margins had 31 like 3% up approximately 500 basis points.
We also returned over $40 million to our shareholders in the forms of dividend and share repurchases and reduced our covenant debt leverage significantly.
Over the past five month, our team successfully navigated through the profound operating changes necessary to protect the health and welfare of our people and at the same time deliver exceptional performance for our clients.
Against this challenging backdrop, we delivered outstanding revenue and profit growth record free cash flow and returned substantial capital to our shareholders as well as significantly reduced our debt.
Jim will do a deeper dive on the second quarter a bit later, but here are just a few highlights that we believe should begin to drive multiple expansion cohort logic shares.
First regarding our topline we delivered strong growth and favorable revenue mix revenues are up 15% normalizing for the factors I cited earlier.
Organic growth was 5% and we secured two mega ones in insurance and spatial solutions, including a very significant strategic win other top five U.S. insurance carrier for Corelogics next generation integrated insurance solution.
These mega wins and other share gains will help us to continue to increase organic growth over the back half of this year and beyond.
Our core mortgage revenues and profitability continue expand rapidly paced by strong share gains as well as market volumes. Our mortgage solutions are central to the operation of the U.S. housing finance market with seven out of every 10 mortgage is underwritten in the U.S. using one or more of our data driven solutions.
Our profitability margins.
Stair stepped higher fuel by operating leverage and cost productivity.
Operating income and net income from continuing operations were up 76 million and 65 million respectively.
The benefit of operating leverage favorable mix and productivity allowed us to lower our operating cost by 3% in absolute terms, while delivering significantly higher revenues.
Adjusted EBITDA of 150 million was up 18% and adjusted EBITDA margins were up 400 basis points to 33% for the quarter.
Finally, adjusted EPS for the quarter was a dollar too which was up 29%.
Last but certainly not least we continue to use our considerable cash generation the power capital returned to our shareholders and reduce debt levels.
Trailing 12 month free cash flow totaled $393 million or 71% of adjusted EBITDA.
In Q2, we paid down 101 million of dead lowering covenant leverage below 3% three times.
We also returned $24 million to our shareholders.
We have been able to deliver free cash flow generation rates, well above 50% adjusted EBITDA over the past decade in all market conditions.
The durability of our cash generative model underpins our announcement today have a 50% increase in our quarterly dividend from 22 cents to 33 cents per share.
In addition, we announced today our intention to repurchase at least 500 million of our shares in 2020 300 million in 2021, and the remaining 200 million of our current 1 billion Cherry purchase authorization no later than the end of 2020 to.
This repurchase program is expected to reduce our share count by more than 15% and drive more than a 10% accretion and 2021.
Our long term commitment to consistent and significant capital term remains a strategic imperative for our company.
Now lets strongest our first half was based on an accelerating revenue growth trend competitive wins and share gains as well as expanded profitability that I. Just discussed we're looking ahead to an even stronger second half of the year.
Jim will discuss our guidance ranges for the third quarter and our updated view a 2024 year shortly.
Looking beyond this year in terms of 2021, specifically.
We have secured approximately 60% of our assumed organic revenue growth target of 5%.
Secured by contract wins, including four megawatts so far this year.
In addition, 2020 financial impact attributable to cold at 19.
40 to 45 million are expected to largely recovered 2021, we expect the benefit of the adoption of our next generation integrated insurance solution and the national expansion of our one home and home visits solution to further benefit 2021.
Further and importantly, approximately 95% of our revenues our recurring in nature. It foundational hallmark of a must have vertical information service provider.
Our 2020 operational financial performance contracted wind and share gains as well as current market conditions and our internal business plans give us high confidence in achieving our 2021 and longer term targets.
As we looked at 2021 and beyond your also strategically divesting our lower margin reseller businesses will which provide credits and bar verification and rental tenant screening solutions.
These businesses generated revenues aggregating approximately $340 million on a trailing 12 month basis as of June Thirtyth 2020.
While these businesses our market leaders.
They are volume sensitive and do not possess growth and margin characteristics inline with our strategic plan and long term financial targets.
The divestiture of these businesses is expected to increase EBITDA margins by approximately 350 basis points to 35% on a pro forma basis for 2020.
And also raised the share of subscription a longer term revenues to greater than 50% of Corelogics total revenues.
Approval to affect these divestitures was delegated to management by our board early this year in conjunction with our ongoing strategic planning efforts.
Advisors are now retained to conduct the sale processes, which will set a to commence early in the third quarter.
I want to close by thanking our employees clients and shareholders for their continued support as we celebrate our 10th anniversary as a public company Corelogic has emerged as an integrated innovated and data driven strategic partner for virtually every lender and thousands of other participants the collectively comprise the housing finance and insurance.
Landscape.
Accelerating revenue growth and financial performance demonstrate our ability to capitalize on a market leading share positions unmatched data and client platforms, which collectively connect the global housing economy and help millions of people find and buy and protect the home they love.
I'll now turn the call back over to Jim.
Thanks, Frank and good morning, everyone today, I'm going to discuss our second quarter 2020 financial results and provide updated views on capital structure and financial guidance.
As Frank mentioned Corelogic delivered strong operating and financial performance in the second quarter of 2020, while delivering on our client commitments and providing for the ongoing health and safety of our employees I made the covert 19 crisis.
Financial highlights for the quarter included.
First strong total revenue growth of 4%, which after adjusting for the 2019 effects of business exits and covert 919 impact was higher by approximately 15%.
Second continued momentum on revenue growth a strong market share gains across both segments contributed to an organic growth rate of 5%.
In addition, we added major client multiyear wins during the quarter, which are expected to benefit second half 2020 revenues as well as our outlook for 2021 and beyond.
Third significant adjusted EBITDA margin expansion of more than 400 basis points, driven by growth favorable business mix and productivity gains.
For the generation of $393 million in free cash flow.
This represents a conversion rate of 71% of our adjusted EBITDA on a trailing 12 month basis.
And finally, approximately $24 million in capital return to shareholders in debt reduction of $101 million.
Second quarter revenues totaled $477 million up $18 million for 4% driven by growth in core mortgage and insurance and spatial.
As noted in our press release second quarter 2019 revenues included $28 million attributable to non core default technology units sold and the AMC transformation, which have no 2020 counterpart.
Also as we noted in our press release, we experienced impacts related to the cobot 19 pandemic of approximately $15 million across both segments.
Revenues were up 15%, excluding these discrete items.
Also during the quarter, we secured a number of new multiyear client wins, including significant contracts in insurance GL spatial and the public sector vertical that will benefit our future results.
You Ws revenues totaled $305 million up $26 million or 9% driven by higher mortgage unit volumes inorganic growth fueled by market share gains in both flawed in property tax solutions and growth in our valuation platforms.
You Ws second quarter 2019 revenues included $28 million related to the transformational initiatives I mentioned earlier, while you Ws segment related cobot impacts were approximately $6 million and largely independent for mortgage related lines of business.
You Ws revenues were up 24%, excluding these discrete items.
Property tax solutions revenue growth of more than 35% benefited from strong origination volumes and market share gains as we look into the second half of 2020 are significant competitive takeaways in tax announced earlier this year.
Hi confidence that we will generate strong growth in the balance of 2020 and beyond.
In credit reporting mortgage credit revenues grew by approximately 30%, while auto and alternative credit volumes fell on curve at 19 related contraction.
Yeah, our Adam revenues totaled $177 million compared to $184 million in the prior year.
2022nd quarter, PRM revenues were unfavorably impacted by approximately $9 million of cobot 19 related impacts mainly in our international and housing activity businesses within property insights and project related insurance and spatial revenues.
Excluding cobot 19 impacts in FX PRM revenues for insurance and spatial and property in sites were both higher.
Looking ahead, our recent mega ones and PRM, including a strategic win of a top five U.S. insurance carrier will support segment growth and momentum for the remainder of 2020 and beyond.
Operating income from continuing operations totaled $91 million for the second quarter up $76 million compared to the same prior year period.
Higher operating income was principally attributable to revenue growth operating leverage improved business mix and cost productivity.
Second quarter net income from continuing operations totaled $59 million compared with a $6 million loss in 2019.
Diluted EPS from continuing operations totaled 73 cents, an increase of 80 cents over the same prior year period.
Adjusted EPS totaled one dollar and two cents compared with 79 cents in 2019.
An increase of 29%.
These increases were due to the company's strong operating performance discussed previously.
Adjusted EBITDA totaled $158 million up 18% compared to $134 million in the same prior year period.
Adjusted EBITDA margin was 33% an increase of 400 basis points. The increase in adjusted EBITDA margin was principally attributable to revenue growth improved business mix and the benefits of ongoing cost productivity programs.
You Ws adjusted EBITDA was $114 million compared to $89 million for the same prior year period.
Acting operating leverage benefits driven by higher revenues favorable revenue mix and continued productivity gains.
You know the U.S. adjusted EBITDA margins grew by approximately 600 basis points to 37%.
The IRS adjusted EBITDA totaled $56 million up from $53 million in the prior year.
Higher PRM adjusted EBITDA margins were driven by growth in insurance and spatial and international as well as the benefit of lower costs, which offset lower tenant screening volumes and the impacts of co the 19 and currency translation.
Adjusted EBITDA margins totaled 32% an increase of approximately 300 basis points.
Finally, we generated strong levels of free cash flow for the 12 months ending June 30, 20 June 32020 free cash flow totaled $393 million, a 71% conversion rate of last 12 months adjusted EBITDA.
In terms of capital return, we pay debt of more than $100 million and with our growing earnings profile, we lowered our covenant debt leverage to 2.8 times.
Further we repurchased 150000 shares and combined with our quarterly dividend distribution, we returned approximately $24 million and capital to our shareholders in second quarter.
As Frank mentioned earlier this week the board approved the 50% increase in a quarterly cash dividend to 33 cents per share.
To be paid starting in September 2020.
This increase represents approximately $105 million annual capital return.
Further we continue to maintain flexibility to repurchase shares while maintaining a prudent leverage profile.
As we have discussed we anticipate increasing the dividend further overtime as our financial results growth.
Finally in early July the board of directors authorized the repurchase of $1 billion of our common shares.
Given the strength of our earnings profile and the increasing strong cash flow generation, we expect to repurchase at least $500 million of shares and the remainder of 2020.
300 million in 2021, and the remaining 200 million in 2022.
Regarding our financial guidance, we've revised our full year 2020 guidance as follows.
We're now expecting revenues of $1.86 billion to $1.895 billion.
Adjusted EBITDA of $580 million to $600 million and adjusted EPS of $3.60 to $3.75 per share.
These ranges include Togut 19 related impacts on revenue and adjusted EBITDA of approximately 40 to 45 million. Each in addition, our revised 2020 guidance where agents continue to reflect that us mortgage unit volumes will increase by approximately 25% over 2019 levels.
You should be noted that our increased full year financial guidance implies a continued acceleration in second half revenue and adjusted EBITDA growth relative to our first half results.
With regard to the third quarter of 2020 based on normal seasonality patterns and our current view of market volumes, we expect revenue to be in the range of $485 million to $515 million and adjusted EBITDA in the range of $160 million to $175 million.
Longer term, we have high conviction in achieving the targets, we set out for 2021 and 2022.
These forecasts are supported by a high and ramping rate of contract wins and both of our operating segments and a strong and growing sales pipeline.
In addition, although our forecast assumes declining mortgage market unit volumes in both 2021 and 2022 the purchase market continues to grow in all major forecast.
Historically low rates, which are unlikely to be in the in place for the foreseeable future and significant population of existing loans that are in the money and the broad based eligibility criteria for refinanced loans support elevated levels of refinance volumes through at least the forecast period.
To summarize the Corelogic team delivered strong results in the second quarter, and we are well positioned to drive revenue growth and expand profitability this year and beyond.
Thanks for your support I will now turn the call back over to Frank for some concluding thoughts before we got to Q and <unk>.
Thanks, Jim.
I want to close out our prepared remarks today with some comments on our laser focused on and unyielding commitment to shareholder value creation.
With regard to the recent proposal received from the publicly traded can a holdings and hedge funds Senator I'd like to confirm that it came out of the blue.
We learned about it for the first time from their press release on June 26.
Prior to going public at no time to Senator can I attempt to discuss their interest or intentions with regard to corelogic with management or the board.
This hostile bid appears to be hasty response to corelogics barely very positively received.
Both market June 25th increase in our second quarter guidance.
After announcing their unsolicited $65 per share proposal Senator purchased over 2 million Corelogic shares at prices are high and $68.27 per share to increase its ownership position to support its threat to call a special meeting of our shareholders to force the company board to accept $65 per share.
After a thorough review of the proposal and the value creation opportunities inherent and Corelogic strategic plan, including multi year internal business and financial projections, which were made public with the Board's response Corelogics board unanimously rejected $65 based on its determination that the.
Proposal significantly undervalued the company.
Last week members of senior management, and our board plus our advisors engage with principles of Senator and can make and their advisors to discuss value financing and other matters bearing directly on their ability to consummate a purchase.
Senator can they declined to increase their proposal, which had been made based on our previous financial guidance. Despite having access to our increased to 2020 guidance and multiyear projections, which we have provided transparent transparently to the public markets.
We believe that are publicly announced 2020 2021, and 2022 potential financial forecast and operational plans are very achievable and are supported by demarco facts and visible trends.
Our track record on delivering on our forecasts and commitments speaks for itself.
Going forward, our profit margins and shareholder returns will be material enhanced by the divestiture of our lower margin reseller businesses as well as our $1 billion share repurchase program and 50% higher dividend.
We will provide pro forma estimates of the impacts of exiting our reseller businesses and the share repurchase program.
On our public forecast separately.
We plan to continue to provide significant transparency into our business. So that all shareholders can fully appreciate corelogic substantial current.
And potential value creation.
Canadian management through their controlled and our affiliated companies in the housing finance space now well the rapidly improving dynamics.
Underlying the residential property housing market and its bright prospects for the foreseeable future.
The robust as the housing market is widely and regularly reported in the media.
To be Crystal clear However, our board remains open to all past to create value and would consider an offer that appropriately values. The company and provides for certainty of closing.
Well largest board and management team have along in well documented history of generating shareholder value over the past 10 years, we delivered transparent transparency shareholder value capital return programs.
And have consistently met our financial and operational commitments.
From our initial public listing in 2010 and prior to the can make senator bid on the 26 of June our stock price had risen well over three fold and value and we had returned more than 1.5 billion and capital via share repurchases and dividends.
As I discussed earlier over the past decade, the company's successfully transformed itself into an integrated data different driven strategic partner for virtually every lender and thousands of other participants that collectively comprised the housing finance insurance landscape.
We have consistently outperformed our financial targets to all mortgage cycles as well as during the current profit 19 pandemic.
Our transform business market leadership positions and reduce cyclicality as well as comparable revenue growth.
Margin profile and cash flow generation are coming in line with our information services peer group. We believe this should mirror at multiple expansion to peer group levels over the forecast period.
We appreciate the ongoing dialogue in implies that we've received from our shareholders and look forward to continued engagement.
I'm going to now turn the call over to the operator for Q on a please keep your question focused on our earnings and business prospects.
We said all that we can say about the center to convey proposal.
Operator, please open the lines for questions.
Thank you we will now begin the question and answer session.
The question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing Nixon.
So with Joe Your question. Please press Star then too.
At this time, we'll pause momentarily to assemble there.
My first question comes from Andrew Jeffrey with Suntrust. Please go ahead.
Good morning, Thank you for taking the question.
I Wonder if you could elaborate a little bit.
These on these big wins and I'm thinking about insurance in particular that'll be exciting to see that revenue contingent numbers in the back half of next year.
With this.
Competitive takeaway and insurance and can you describe sort of the functionality and the nature of the business had a bit of detail for us.
Yes, good good morning, and is this is Frank so yes. So the Mega wins are our wood to end the tens of millions of of contract value.
And so just to give you some framing there in the case of insurance specifically talked about so as you know we have acquired full ownership of the stability business, which is a claims management.
Just a couple of years ago, we owned about a third of that company. We brought the whole thing and we combine that with our underwriting platform. So we now have an integrated end to end solution for the insurance carriers that we didnt have previously.
We've been out in the market with that solution, we think that the solution. When you married up with the analytics and the data that the rest of the company provides.
Creates unique insight for insurance carriers.
And this is the what the the one that we talked about in the call today really relates to the first major when we've had others frankly, but this is the first mega wind and it's a very important.
Strategic opportunity for us because it really opens up in north American market and the major insurance carrier market for us, particularly in the claims space.
So thats that's what.
That that that reference.
Is about.
Okay.
Helpful. Thank you and and can you quantify Frank.
The market share gains you think Corelogic has enjoyed anish mortgage cycle I know thats always a big part of your growth I.
I Wonder just how we can think about the contribution of share gains specifically to.
Revenue growth.
Yes.
It's about 50% of the revenue growth rate.
Andrew and I think the important thing I think the most important thing because there's been.
Some questions I think put into the market about the forecast.
And a lot of stuff about mortgage frankly speaking so this goes beyond mortgage.
We've taken a lot of share across the entire business. The last 12 months I think we have 60% or so the roughly 100 million.
Thats embedded in the forecast for 2021 for organic growth I think thats great visibility given the fact that were mid year, given the fact that Kobe. So I think it just goes to the strong underlying momentum across both PR and you'd be us frankly.
And look I think thats because of the market leadership positions, we have some of the through relates to.
Bundling solutions together.
Some of it relates to people looking for say para hands and some of the looks like.
Goes to the quality of our solutions that are services, I mean, thats were by far and away the.
The clear market leader in the segments that we operate in.
And collectively as well in mortgage finance so this.
Now that we represent as say peer has been a very uncertain time for a lot of clients.
So thats collectively helped us to secure the 60% of the organic growth profile profile for next year.
And so we feel good about that and then we have to certain degree pricing, obviously, and some product and and feature enhancements and that type of thing that accrual additional revenue growth opportunities, but the good news is.
Outside the Mega wise, it's pretty broad based.
And it's contractually locked in.
Great appreciate the color.
Our next question comes from Darrin Peller with Wolfe Research. Please go ahead.
Alright, Okay guys. Thanks.
No I want to hone it a little more on the organic growth profile I mean, it's been a number of quarters, where it's got low single digits.
As you guys are calling for 5% Bell.
And I understand the insurance wins, so I guess what would be great is if you can give us more of a breakdown of the organic growth expectations on your data analytics businesses in North America as well as internationally, which has been kind of I think relatively flat in the last several quarters.
But insurance does seems like it's got a real life with water do clients and some of these new products given the merger as you've done to be the the assets you put together.
So we think about it more from the building blocks up in terms of assets what are the growth rates you expect of each of these.
And then I guess on than other mortgage sensitive sensitive parts of the business. You know again, if we pulled out mortgage cyclicality, what would be the or I guess back to the question before will be the growth rate of that business.
Mortgage neutral environment.
Yes, so so look just.
In terms of non mortgage.
A couple of things and as Jim alluded too that's been Ironically the segment. That's in most impacted by covert nine team in the short run. So if you look at that segment. The two things that really stand out our the ensure the international business.
We're essentially as you know Australia New Zealand.
The UK have been locked down for most the second quarter. So obviously, that's going to have a big impact and obviously that's going to release. So if you look at the organic growth profile going into 2021, I don't expect that those countries will be locked down in 2021 like there were locked down and in 2020. So.
As you as Jim provided those numbers are significant so that's the other than that the international piece was growing very nicely for us we have tremendous market shares in those in those.
Areas and I would expect goes to continue to grow in the upper upper single digits inline with historical trends I think theres no reason to assume that thats not the case.
We also have major wins there recently for example, we had a.
Well over 50 million dollar.
Contract in Australia.
Which is which is somewhat of a renewal and somewhat of an expansion.
Of that contract value so.
A lot of good things are going on under the surface, but at the moment.
The reality is look at were not alone I mean this is.
We've had spectacular results in the second quarter.
And this is just one Rob area that I think you're going to see from coal that the other area that co that impacted obviously with the tenant screening business, which we've announced that.
His will be disposed of that business has declined.
Yes, you know its tenant screening so it involves turnover of tenants.
In multifamily properties, obviously, not a lot of people are moving these days. So the volumes there are down so those are the two kind of co bit areas.
We have had strong growth in the second quarter about 7% in insurance if you exclude the excluding the mega win and co bid.
So from that perspective.
There is good growth there good momentum and the Mega wins in insurance that I referred to in spatial those are those are second half and 21 benefit.
So they're not in the first half so the fact that we've accelerated the overall organic growth rate to 5%, which I think is it from a market perspective and from the from the sell side perspective. This has been a.
An area of focus obviously, weve accelerate a 5%, 5% that align with our with our kind of our second half in 2021 outlook. So I think it gives you some comfort level that we can we can we can move to that level.
And then.
Borrowing barring something with cobot or something else that an anomaly there I.
I think in terms of the other thing I would call out NPR I am as we have fantastic momentum in our real litter and marketing solutions area.
We've had a couple of public announcements around the launch of what is very exciting.
Kind of a digital visual driven suite of services around marketing for for Reorders. We have a platform that serves 850000 reorders in the U.S., that's a huge market share.
And were augmenting their ability to compete in a more digital world through some of these services.
Those are being launched now we have a couple of MLS isn't a bunch of agents using them now that's going to roll out nationally over the next kind of six to 12 months. So that that's going to give you a lot of momentum in that business. The fact that matters in the short run.
That business as Liftings dropped obviously because of the shock wave of co bid.
Listings will withdraw and a lot of temporarily.
And now our bank are coming back on the market you look at home sales here I think the.
The real it or association came out yesterday actually with the with the figure June June sales were up 20 little over 20%. So.
So the purchase market actually at all of the forecasts.
As showing an improvement over the forecast period.
And I think although overall purchase activity is down a little bit obviously, because you know you really lost the second quarter for some transactions is very strong and very solid if it wasn't for the lack of supply of even stronger so I think and and obviously there is building going on so.
Yeah, we feel pretty good about the realtors side of the business.
Especially as we get out in the back half of the year encoded kind of drops off.
And then I think on the on the.
The property intelligence side would data licensing.
Thats a long term contractual so the growth rates will be a little bit.
More static in a lower single digits.
But the steady high margin base for the other businesses, but I think once you see that when we pull out the tenant screening business, you're going to see a.
Even more improve profile of that PRM segment, so I'm feeling pretty good about the vast majority of the segment.
And the acceleration on the look I think we've seen at.
The last couple of quarters, and I think you're going to sit accelerate window when the big share gains kick in and also the other share gains kick in as well as you know we get some relief from Cowen.
All right. That's helpful. Thanks current I mean, it just when I think about the.
Well when we think about your strategy on a bigger picture basis of mortgage sensitive versus not it you obviously are exiting a couple of businesses.
Credit side on the tenant screening side, and they're not quite mortgage whether transactional.
At least on the tenant screening side.
The.
The credit side is you know we've gone through a number of years, where you've got you had suggested you were biblical ways are being ordered sensitive than we had seat further push it to the valuations of the appraisal site brought that back up again and now it seems like it's going to you're going back to 50 50.
Is that your goal is to keep that going in that direction. So that mortgage sensitivity is basically balanced or is it in a good about as a percentage of the backs.
Our to potentially support a better less cyclical multiple.
Yes, I'd say.
Darren definitely as you know I mean 10 years ago. The company was 90, 90% plus.
Mortgage in default, so weve radically reshaped the company really right what we have right now.
As a company that fits on top of an integrated data and technology stack. So we have that that's one of the reason why the margins that come up so we're able to fuel with our content different solutions in different verticals, that's really what's been underpinning.
The diversification efforts.
You can't do everything operationally forget about public markets, but because we transformed in the public markets and had a tremendous increase in our in our and our price our share price.
But having said that there is an operational amount that that any organization can tolerate to a reasonable degree.
We had talked about things like the divestitures.
As part of our planning cycle for 2020.
We had planned to do this actually a little bit earlier, but because of co bed, we had to kind of push back.
And so that's why we're kind of doing it now, but but look I think that.
The goal is still the same institute to push the Nonmortgage piece of the company and grow the Nonmortgage piece of the company.
Upward better than 50%, but I would say importantly to what we're signaling with the divestiture.
It's within our non within our mortgage mortgage provides the fuel and cash flow.
To give a billion dollars or share repurchase and the next.
Got a two two and half years is quite a significant amount if you look at dividends and and the capital insurance side of it yeah, we've done a billion and a half so far we're talking about another roughly between dividends and share repurchase another another billion three so that's almost 2.8 billion.
Dollars of capital return in 12, and a half years I mean, that's pretty phenomenal.
And I think thats somewhat supported by the mortgage related which are huge margins are highly automated what we have left after credit is sold is essentially platforms.
At our highly automated that have huge market shares.
And so they're going to be high margin in any it really any foreseeable cycle. So so I think we've got to what we have in mortgage is a lot less volatile.
Yes, essentially what we're doing Darren is that if you look at that overall revenue in mortgage.
About half of its modeled our long term so it doesnt move with daily volumes that much.
The other half, which is more sensitive were basically taking out about 50% to 60% of that have that daily sensitivity. So we're down to.
A relatively small amount and we'll provide more visibility into that.
That sensitivity, but we were at 12 12 million of EBITDA and 25 revenue that's going to drop.
Fairly significantly with this with this divestiture so mortgages has become a lot less of a swing factor for us.
And we'll continue to build the platform and content driven portion of the business that valuation business you mentioned the platform businesses.
Fantastic business is strong growth and it's got high margins.
That is an awesome business and we want to continue to grow businesses like that.
All right. Thanks, a lot guys.
Our next question comes from Kevin Kaczmarek with Zelman Associates. Please go ahead.
Hey, guys. Thanks for taking my questions I guess.
Regarding the divestiture of the credit business I mean, yes, sure optically helps margins given the Cogs associated with it but it's how much of this driven by the pricing pressure we've seen in wouldn't it make it a tougher time to sell that despite the elevated mortgage volumes.
No look I think Kevin obviously, you know that credit business. So we have.
You know a strong market share position.
The business you are the most the revenues underpinned by the the requirement for try merge reports.
So in terms of the revenue stream, it's kind of secured by regulatory fees so from that standpoint.
Yes, it's got a revenue projection we are growing significantly this year. So we're not getting rid of it because it's not not a growth play per se for us to change the trend line.
But it is more volatile in the and the challenges.
We've looked at various solutions the bid build value around the reseller model, but the vast majority of the cost remains that the bureau file cost.
And it's very difficult to add incremental value.
Perfect pricing and margins in that business. So.
But it does provide does provide a steady cash flow. It does provide a solid business proposition I think it's very marketable and sellable.
And I think there will be a lot of interest in that business because of those characteristics I just mentioned.
Okay and it can you remind us how the data from those credit reports in forms any other parts of your business or risk models that you have.
And also how do you think about the valuation of that business.
Yes look I think the the only impact quite honestly as I mentioned earlier, our company is very integrated so we have an integrated technology stack and integrated data operation because of the nature of the credit business Theres not a lot of data that exhaust from that business that comes in so it's not really a we don't lose.
The data per se.
It's really provided scale on cash flow over the years.
And also frankly, our customers some of our customers, it's convenient to do bundled solutions with us, though they buy everything because you know we touched so much of the mortgage finance market, so, but but I think there's many other credible providers there.
[music].
But it's difficult, it's really very difficult to to see a lot of synergy between that business in the balance of the business.
And that Weve never been able to really extract that it's just not the nature of that business quite honestly.
Okay and in terms of the valuation.
I am thinking about that or do you have a target or anything that you're kind of.
Turning to other people.
No as I mentioned on the call you know transparently speaking if you look at pro forma basis.
You know the to the tenant screening, which is small the credit the credit businesses the bigger piece by far.
Yeah, we'll see how we go there, but those two or $340 million. If you look at kind of a trailing 12 months. So.
I think I think you can do the math on a reseller business, but.
We're hopeful that it'll it the proceeds will be significant but I would say that.
We're not counting on I mean that that'll be a benefit.
To our liquidity planning, we have strong liquidity without assuming any proceeds obviously, we would like significant proceeds we expect significant proceeds but.
But that will be a benefit to help us.
De lever even further.
Yes, I think it's great that we moved from kind of three and half turns the two eight turns in a very short order while returning a lot of capital. So we have that we have the ability to do a lot on the capital allocation side.
Without that all right. Thanks a lot.
Our next question comes from Stephen Sheldon with William Blair. Please go ahead.
Hi, Thanks.
First on the planned divestitures wanted to confirm that the 2020 to 2022 guidance still has a contribution these businesses included and with that context following up on that last question sales again.
The approximate adjusted EBITDA contribution from those on a trailing basis.
Hey, Steve it's Jim on the on the divestitures the margin profile.
On a contribution basis will be upper teens.
And they are in the forecast period that we provided through 2022.
Okay. Thanks, and then I guess within insurance and spatial can you talk some about pipeline there for additional larger client and what type of contribution you would need from additional client wins beyond what you've announced.
Organic revenue growth to accelerate into that the mid or high single digits.
Yes, we havent.
We havent assumed anything beyond the initial one.
At least through 2021, so we've only factored in what we know today.
Thank you.
So again, if you'd like to ask a question. Please press Star then one.
Our next question comes from John Campbell with Stephens, Inc. Please go ahead.
Hey, guys good morning.
Morning.
Yes ill on property tax.
Another really good quarter. There for you guys I know theres a variable piece that revenue stream that obviously had some tailwinds this quarter, but jim or I'm going to be Frank. If you guys can maybe unpack kind of underlying recurring and property tax versus I guess the period left from the.
From the variable piece and then if you guys can maybe remind us or help probably little more color on the new wins and just roughly how much that helps in the back half of this year and then going in next year.
Hey, John This is a Frank so yes. So look I think as you know that business really has kind of two characteristics to at one is.
About 70% of it is what we call life of loan, which essentially you get paid upfront and you amortize the revenue over kind of a five to seven year life. So that it from that perspective itself to model revenue stream.
The balance is really what's called periodic recognition, which as you know you do a month to month to month. These are long term contracts. We provide this service we pay we make payments for really basically every every major service or in the country.
It to 22000 taxing jurisdictions, so incredibly sticky incredibly.
The strong business from that perspective.
So you've got really I'd say, primarily a model.
Revenue recognition in that business.
One of the Mega wins relates to that business.
So to your point about growth, we're going to get a turbo boost in that business as we look out in the second half.
And into 2021, especially so you're going to see a whopper.
Improvement in that business Im not sure whopper as a financial term but.
But it'll be a very strong improvement.
On an already strong situation.
So.
That's that's a very important business it kind of sit alongside flood because again flood has a very similar.
Longitudinal revenue stream it doesn't have the modeled characteristic because of the.
So some of the underlying.
It's a less intensive longer term support model, but by and large those two businesses both create a logical relationship at the clients, which help us to actually cross sells well over time, but.
We have tremendous terrific momentum and also you may recall from past calls, we have digitized and automated that business, so you're going to see even better margin characteristics as we go forward.
Because the and frankly better client service on an already strong kind of gold standard service model because of the automation that is already rolling out to our clients as we speak so.
Terrific.
Terrific business traffic momentum.
Okay. That's helpful and then.
You guys, obviously, historically haven't really guided.
Margin by segment, but just thinking about this out the 2022.
PRM. It seems like you look at some of the comps in the stays like it seems like there's love outside the margin there no Wes you got the US you've got some divestitures, you've got obviously property taxes going to help.
But just broadly speaking in both segments any in kind of idea where you can take the margin each each one of those in you can just talk to hundreds of bips or if there is like a margin target you're looking for each segment.
Yes look at I think first of all I.
I think if you look at the second quarter in first half.
I think you've got.
You Ws segment margins in the upper Thirtys at the moment.
And then you've got you that you got PRM, which actually is up quite a bit in the first half and though and kind of the lower to mid thirtys.
So.
And I think obviously, what we've done in the in the forecast for the total company before the impact of the divestitures is we've gone from kind of a 30% to 31% margin. This year and I think we're obviously first half year were 31.
Percent margin on upward to two at 35%. So we're going to get there much quicker, but I would expect that.
35% margin is kind of the baseline now re baseline and I think you're going to see kind of that 50 ish basis point to maybe 100 basis point improvement depending on how the revenue layers in but as you know we've been able to reduce our costs by 25 to 30 million pretty consistently over.
The years I would expect that that continues to that that's the baseline for.
For the margin the margin that we're assuming.
And then in the anything we do with the mix.
Should help buttress that and improve that so I.
I think we'll we'll move up from 35.
How that breaks out by segment.
I think both segments will be.
Kind of close to that.
That 35 overall company target so.
And look I think thats.
That's a that's.
Thats, a very strong margin.
For a business that has the scope that we have.
Because we don't some of the other players have monopoly businesses that have huge margins that impact there their margin rates, but I think at 35, an increasing that's a extremely.
Good starting point for us and.
I think is a great great foundation to build off of.
Okay. Thank you guys.
Our next question comes from our roots with Barclays. Please go ahead.
Yes. Thanks.
After some pretty lean years from your originator service or clients.
How does a lot more focused on expense containment there now seeing near record margins on pretty strong volumes are you seeing any kind of increasing their appetite to invest in their business in ways that really enhance your revenue opportunities whether that's in a pull in credit files earlier in the process or just investing and.
A new data or services that they had been paying for before.
Yeah, I mean look I think I think they are.
It was part of that part of the if you looked at the Mark. The obviously 19 for example, where people are losing money on on mortgages originated I think there was a lot of cost management Theres still as I mean people still are looking at Kobe than what that means medium to longer term for them, but there are definitely investing and customer experience every.
Just trying to automate digitize.
And that's right into our wheel House. In addition, you know a lot of our revenue people don't fully understand but a lot of our revenue relates to.
Monitoring.
Services versus a full outsourcing. So if you look at we do have some outsourced relationships that where we are providing a lot a lot more significant scope.
That that gives us a tremendous amount of room for expansion. In addition, we've got a nice business.
Foothold in the commercial space I hate to raise that up because that obviously is a lot of speculation about the health of the commercial space, but when you have a small base that allows you to grow as well. So I think there's there's the team has done just tremendous work there and I think you're going to see.
More expansion that business.
As we go forward and then in addition, just all the stuff we've already won.
That will flow through.
To an aggressive increasing degree in the second half the year and into next year.
Okay. Thanks.
Our next question comes from Tony Thompson.
VW. Please go ahead.
Hey, good morning, guys. Thanks for taking my question.
Confirming that the comments on meeting the $1 billion buybacks and continuing to increase the quarterly dividend is not dependent on this divestiture happening at uncertain time.
Yes, Tom Hey.
Yes, so so what I referred to so the capital return that Jim talked about.
We're going to do through cash flow.
And and I think that from that standpoint, and we have obviously revolving.
Facility in bank line that.
This 750 million so we could do the math the cash flow as plenty to support plus if we need to tap the line.
But we expect to do this at reasonable Leverages the EBITDA at the billion, it's not a it's not a high leverage profile for US which is great news and then as I said earlier, if we get whatever proceeds will get.
It will delever the company so.
No it's reasonable to assume that we could end up.
You know down to kind of where we are now when all said and done in the forecast period.
Even with a billion plus the plus the the dividend.
We put that into place obviously, we've kind of rerated upward from a stock price perspective. So we're we're catching up with that on a dividend perspective.
And also.
If you look at it it's a.
It's a good validation of the strength of the cash flow and the durability of the cash flow.
And then obviously, we expect that the.
Profitability to increase over the forecast period.
And I'll, just don't want to match a little bit on that for before we close but.
From that perspective, I think the dividend should grow even beyond where where it is as of today.
And then just one other comment on the on the on the mortgage forecast.
A lot of been talked about mortgage forecasts and all I kind of stuff.
As you all know the there's a lot of different.
Estimate the mortgage volumes they they vary greatly depending on who produces them.
We I would call your attention there is a slide in our second quarter financial supplement.
That talks about how in very precise terms.
What we've assumed versus the other major players.
You know so so I think you're going to see that our forecast is really.
Right in the range of all the other forecasts, it's not crazy by any stretch as very reasonable I think we see as I mentioned, we see the majority of the mortgage transactions.
We have great visibility in all the major players.
So I think that our mortgage forecasts are pretty much on the only variation in the 21 forecast of the major forecasts as one of the major forecasters has a much higher interest rate assumption than the others do which is driving a disconnect in there there are re fi level.
Versus the others everybody else. So if you normalize for that everybody's in the same ZIP code. So so I think if you look at the mortgage forecasts, we don't see that as being a a major impediment to hitting the hitting our forecast in 2021 and 22 so.
I think the company's cash flow generative model is.
Only getting stronger.
And it's supported by higher margins and better mix.
And more automation, so I think that all helps us to drive.
Really unparalleled levels of shareholder capital return.
And that's always been a hallmark of this company in the 10 years that we've been a publicly traded company and and will be up but will be a hallmark of our our approach.
Thanks, and then just slip Sam I just.
Moving on that slide of the kind of what you guys. Considering this highly recurring but just kind of in your own words. When you guys think about that 95% of revenue.
Being recurring how does obviously the cyclicality.
Of mortgage spent on data.
Yes, Hey, Tom It Jim in terms of the recurring nature.
Generally its contracts that are a year or more.
That can auto renewal and so forth.
In the fixed portion of that is where we have a fixed netted terminable price and then the variable component would be consumption or unit based.
So kind of splits out to that 45 50.
Between the two.
Okay got it thanks.
Great.
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