CoreLogic® (NYSE:CLGX), a leading global property information, analytics and data-enabled services provider, today reported financial results for the quarter ended March 31, 2014.
“CoreLogic continued to execute against its strategic plan in the first quarter despite stiff headwinds in mortgage. We completed the acquisition of MSB and DQ and continued to drive productivity and the transformation of our technology infrastructure. The aggressive transformation of our business operations over the past three years has underpinned our consistent outperformance of the broader housing and mortgage markets," said Anand Nallathambi, President and Chief Executive Officer of CoreLogic. “Despite the historic reset in the mortgage market, we continue to aggressively build out our D&A segment and position our TPS operations to outperform their respective markets.”
“Our financial results were in line with our expectations in the first quarter. Importantly, we continued to take aggressive actions to transform CoreLogic into a higher-growth, higher-margin company despite challenges presented by the troughing of the mortgage market,” added Frank Martell, Chief Financial Officer of CoreLogic. “Over the balance of 2014, we will continue to invest in areas of strategic growth and operational excellence which we believe will provide sustainable, long-term value creation.”
First Quarter Financial Highlights
First quarter revenues totaled $310.4 million, a 6% decline from prior-year levels, as market share gains, organic growth and acquisition-related revenues partially offset the impact of an estimated 60% decline in mortgage origination volumes. TPS revenues fell 11% to $169.3 million as the benefit of market share gains in payment processing were more than offset by the impact of lower mortgage origination volumes and project-related document processing and retrieval revenues. D&A revenues fell 2% to $142.5 million driven principally by the impact of lower origination volumes, unfavorable currency translation and declines in specialty credit and multifamily tenant screening revenues which more than offset growth in insurance and spatial solutions and property information revenues in Australia and New Zealand (Pacific region).
Operating income from continuing operations totaled $13.7 million for the first quarter of 2014 compared with $47.3 million for the first quarter of 2013. The 71% decrease in operating income was principally attributable to lower mortgage volumes and costs related to the ongoing execution of the Company’s strategic transformation program. Regarding the latter, during the first quarter of 2014 the Company incurred (1) transaction costs of $8.5 million related primarily to closing the MSB and DQ acquisitions, (2) cash and non-cash charges attributable to TTI implementation of $4.6 million, (3) costs associated with the integration of the tax and flood services operations of Bank of America (BAC) totaling $4.4 million, (4) severance charges of $0.3 million related to the Company’s 2014 cost reduction program and (5) overhead costs previously allocated to the AMPS segment (stranded AMPS costs) of $2.4 million. Reported first quarter 2014 operating margin was 4% including the impact of approximately 650 basis points attributable to the transformation program costs discussed above. First quarter 2013 operating margin was 14%.
First quarter net loss from continuing operations totaled $3.9 million compared with a profit of $31.6 million in the same prior year period. The decrease was driven primarily by the impact of lower operating income including the transformation program costs discussed previously, which more than offset lower provisions for income taxes. Diluted EPS from continuing operations totaled $(0.04) for the first quarter of 2014 compared with $0.32 in the first quarter of 2013. Adjusted diluted EPS totaled $0.17, down from $0.44 in the same 2013 period reflecting the impact of lower mortgage origination volumes, integration and transition costs related to the BAC, MSB and DQ acquisitions as well as severance and facilities charges and stranded AMPS costs.
Adjusted EBITDA totaled $64.0 million in first quarter 2014 compared with $106.1 million in the same 2013 period. First quarter 2014 adjusted EBITDA margin was 21%, compared with 32% in the first quarter of 2013. The decrease was principally the result of lower mortgage origination volumes; integration costs attributable to the BAC, MSB and DQ acquisitions and severance charges related to the Company’s 2014 cost reduction program which collectively totaled $4.7 million; cash charges related to TTI implementation of $3.7 million, and the stranded AMPS costs of $2.4 million discussed previously. TPS adjusted EBITDA decreased 51% to $35.0 million compared with prior-year levels driven primarily by lower market volumes and integration costs related to the BAC acquisition. D&A adjusted EBITDA totaled $39.0 million, a 16% decrease from the prior year, due to the impact of lower mortgage loan application volumes, declines in specialty credit and tenant screening and unfavorable currency translation offset the growth in insurance and spatial solutions and the Pacific region.
Cost Reduction Programs
During the fourth quarter of 2013, CoreLogic launched a cost reduction program designed to lower 2014 operating expenses by at least $25 million. Cost savings relate primarily to workforce reductions, the outsourcing of certain business process functions and cuts in spending on real estate and outside services. Severance charges and savings associated with this program totaled $0.3 million and $7.2 million, respectively, for the first quarter of 2014.
CoreLogic launched the Technology Transformation Initiative (TTI) during mid-2012. The primary objective of the TTI is to convert the Company's existing technology infrastructure to a new platform which is expected to provide new functionality, increased performance and a reduction in application management and development costs commencing in mid-2015. First quarter 2014 cash and non-cash charges related to TTI implementation totaled $4.6 million.
Liquidity and Capital Resources
At March 31, 2014, the Company had cash and cash equivalents of $122.9 million compared with $134.7 million at December 31, 2013. CoreLogic repurchased 216,224 of its common shares for a total of $6.9 million during the first quarter.
Total debt as of March 31, 2014 was approximately $1.5 billion, up $684.6 million from December 31, 2013. The increase in outstanding debt was attributable to the completion of the acquisition of MSB and DQ on March 25, 2014. In connection with this, the Company executed a credit agreement (CA) to refinance its existing term loan debt and fund the acquisition. For information on the material terms of the CA, refer to the Company’s Form 8-K filed on September 19, 2013 and subsequent filings on Form 10-K and Form 10-Q. As of March 31, 2014, the Company had available capacity on its revolving credit facility under the CA of $335.0 million.
Free cash flow (FCF) for the twelve months ended March 31, 2014 totaled $133.4 million, which represented 38% of adjusted EBITDA. Year-to-date 2014 FCF totaled $(7.9) million reflecting the impact of lower mortgage volumes, costs related to the ongoing execution of the Company's strategic transformation program as discussed previously and the timing of certain tax refunds and collections. Net cash provided by continuing operations for the twelve months ended March 31, 2014 was $233.0 million.
2014 Financial Guidance (Continuing Operations)
The Company reaffirms its previously-issued guidance for 2014 revenue, adjusted EBITDA and adjusted EPS.
The CoreLogic press release announcing its financial results for the first quarter 2014 is available to download as a PDF by clicking the link below.
CoreLogic Reports First Quarter 2014 Financial Results
CoreLogic management will host a live webcast and conference call on Tuesday, April 29, 2014, at 8:00 a.m. Pacific time (11:00 a.m. Eastern Time) to discuss these results. All interested parties are invited to listen to the event via webcast on the CoreLogic website at http://investor.corelogic.com. Alternatively, participants may use the following dial-in numbers: 1-800 591.6942 for U.S./Canada callers or 617-614-4909 for international callers. The Conference ID for the call is 58967906.
Additional detail on the Company's first quarter results is included in the quarterly financial supplement, available on the Investor Relations page at http://investor.corelogic.com.
A replay of the webcast will be available on the CoreLogic investor website for 30 days and also through the conference call number 1-888-286-8010 for U.S./Canada participants or 617-801-6888 for international participants using Conference ID 25716851.
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CoreLogic (NYSE: CLGX) is a leading global property information, analytics and data-enabled services provider. The company's combined data from public, contributory and proprietary sources includes over 3.3 billion records spanning more than 40 years, providing detailed coverage of property, mortgages and other encumbrances, consumer credit, tenancy, location, hazard risk and related performance information. The markets CoreLogic serves include real estate and mortgage finance, insurance, capital markets, and the public sector. CoreLogic delivers value to clients through unique data, analytics, workflow technology, advisory and managed services. Clients rely on CoreLogic to help identify and manage growth opportunities, improve performance and mitigate risk. Headquartered in Irvine, Calif., CoreLogic operates in North America, Western Europe and Asia Pacific. For more information, please visit www.corelogic.com.
Safe Harbor / Forward Looking Statements
Certain statements made in this press release are forward-looking statements within the meaning of the federal securities laws, including but not limited to those statements related to the Company's investment and strategic growth plans, including plans to transform to a higher-growth, higher-margin company through enhancements to its business operations, cost productivity and the TTI; the Company's overall financial performance, including future revenue and profit growth and market position, and the Company's margin and cash flow profile; the Company's full-year expected results and 2014 financial guidance; mortgage and housing market trends, including mortgage origination and mortgage delinquency volumes; the anticipated benefits of the acquisitions of MSB, DQ, and Bank of America's flood and tax processing operations to the Company's financial results; and our plans to continue to return capital to shareholders through our share repurchase program, including the expected number of shares expected to be repurchased. Risks and uncertainties exist that may cause the results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements include failure to successfully integrate the operations, technology, infrastructure and employees of MSB, DQ and Bank of America's flood and tax processing operations; and the additional risks and uncertainties set forth in Part I, Item 1A of our most recent Annual Report on Form 10-K, as amended or updated by our Quarterly Reports on Form 10-Q. These additional risks and uncertainties include but are not limited to: limitations on access to or increase in prices for data from external sources, including government and public record sources; changes in applicable government legislation, regulations and the level of regulatory scrutiny affecting our customers or us, including with respect to consumer financial services and the use of public records and consumer data; compromises in the security of our data, including the transmission of confidential information or systems interruptions; difficult conditions in the mortgage and consumer lending industries and the economy generally; our ability to protect proprietary rights; our TTI and growth strategies and our ability to effectively and efficiently implement them; risks related to the outsourcing of services and international operations; our indebtedness and the restrictions in our various debt agreements; our ability to realize the anticipated benefits of certain acquisitions and/or divestitures and the timing thereof; the inability to control the dividend policies of our partially-owned affiliates; and impairments in our goodwill or other intangible assets. The forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
Use of Non-GAAP (Generally Accepted Accounting Principles) Financial Measures
This press release contains certain non-GAAP financial measures which are provided only as supplemental information. Investors should consider these non-GAAP financial measures only in conjunction with the most directly comparable GAAP financial measures. These non-GAAP measures are not in accordance with or a substitute for U.S. GAAP. A reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures is included in this press release. The Company is not able to provide a reconciliation of projected adjusted EBITDA or projected adjusted earnings per share, where provided, to expected results due to the unknown effect, timing and potential significance of special charges or gains.
The Company believes that its presentation of non-GAAP measures, such as adjusted EBITDA, adjusted EPS and FCF, provides useful supplemental information to investors and management regarding CoreLogic's financial condition and results. Adjusted EBITDA is defined as earnings from continuing operations before interest, taxes, depreciation, amortization, non-cash stock compensation, non-operating gains/losses and other one-time adjustments plus pretax equity in earnings of affiliates. Adjusted net income is defined as income from continuing operations before equity earnings of affiliates, adjusted for non-cash stock compensation, amortization of acquisition-related intangibles, non-operating gains/losses, and other adjustments plus pretax equity in earnings of affiliates, tax affected at an assumed effective tax rate of 38% for 2014 and 40% for all periods prior to 2014. Adjusted EPS is derived by dividing adjusted net income by diluted weighted average shares. FCF is defined as net cash provided by continuing operating activities less capital expenditures for purchases of property and equipment, capitalized data and other intangible assets. Other firms may calculate non-GAAP measures differently than CoreLogic, which limits comparability between companies.