CoreLogic® (NYSE:CLGX), a leading global property information, analytics and data-enabled services provider, today reported financial results for the quarter ended June 30, 2014.
“CoreLogic delivered strong operating results in the second quarter despite the continuing contraction in U.S. mortgage volumes. We continued to scale and grow our D&A and TPS segments in line with our strategic business plan and we also invested in areas of strategic growth and operational excellence which we believe will provide sustainable, long-term value creation for our stakeholders," said Anand Nallathambi, President and Chief Executive Officer of CoreLogic. “As we move forward, we will continue to aggressively shift our business mix toward data-driven, subscription based models built around unique data sets, analytics and data-enabled services. The successful transformation of our business operations over the past three years has underpinned our consistent outperformance of the broader housing and mortgage markets and positions us for growth and margin expansion in the future.”
“We grew revenues and delivered strong margins and free cash flow in the second quarter. We also progressed our major operational initiatives, exceeded our cost reduction targets, reduced our debt and repurchased close to one million of our common shares,” added Frank Martell, Chief Operating and Financial Officer of CoreLogic. “Over the balance of 2014, we will remain focused on progressing our imperatives of growing our D&A segment to over 50% of our total revenues and ensuring that our TPS operations outperform their respective markets and are well-positioned to capitalize on a rebound in U.S. mortgage volumes from current trough levels.”
Second Quarter Financial Highlights
Second quarter revenues totaled $349.4 million, 0.4% higher than prior-year levels and a 13% increase from the first quarter of 2014. Year-on-year revenue gains were principally attributable to market share gains and acquisition-related revenues which offset the impact of an estimated 50% decline in U.S. mortgage origination volumes. D&A revenues of $174.1 million were 14% above prior year levels driven principally by higher insurance, spatial solutions, international and core property data revenues, which more than offset the impact of lower mortgage volumes, declines in specialty credit and multifamily tenant screening revenues and the exit of certain non-core product lines. TPS revenues fell 11% to $177.3 million year-over-year as the benefit of market share gains in payment processing were more than offset by the impact of contracting mortgage volumes and lower project-related document processing and retrieval revenues related to the transfer of mortgage servicing rights (MSRs) portfolios.
Operating income from continuing operations totaled $42.1 million for the second quarter, an 11% decrease from prior-year levels and a 208% increase from the first quarter of 2014. The year-over-year 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 second quarter of 2014 the Company incurred (1) costs associated with the acquisition and integration of Bank of America (BAC) tax services operations, Marshall & Swift/Boeckh (MSB) and DataQuick Information Systems (DQ) totaling $6.7 million, (2) cash and non-cash charges attributable to the Technology Transformation Initiative (TTI) of $5.3 million, (3) severance and other charges of $2.6 million related to the Company’s 2014 cost reduction program and (4) overhead costs previously allocated to the AMPS segment (stranded AMPS costs) of $2.4 million. Second quarter 2014 operating margin was 12% including the impact of approximately 487 basis points attributable to the transformation program costs discussed above.
Second quarter net income from continuing operations totaled $25.2 million compared with $32.0 million in the same 2013 period and a net loss from continuing operations of $3.9 million in the first quarter of 2014. The year-over-year decrease was driven primarily by the impact of lower mortgage volumes, higher interest expense and the transformation program costs discussed previously. Diluted EPS from continuing operations totaled $0.27 for the second quarter of 2014 compared with $0.33 in the second quarter of 2013. Adjusted diluted EPS totaled $0.36, down from $0.48 in the same 2013 period reflecting the impact of lower mortgage volumes, higher interest expense, integration and transition costs related to the BAC, MSB and DQ acquisitions as well as severance and stranded AMPS costs.
Adjusted EBITDA totaled $94.1 million in second quarter 2014 compared with $111.0 million in the same prior year period and $64.0 million in first quarter 2014. Second quarter 2014 adjusted EBITDA margin was 27%, compared with 32% in the second quarter of 2013. The year-over-year decrease in adjusted EBITDA was principally the result of lower mortgage volumes; one-time non-operating costs attributable to the BAC, MSB and DQ acquisitions and severance charges related to the Company’s 2014 cost reduction program which collectively totaled $8.2 million; cash charges related to TTI of $4.6 million, and the stranded AMPS costs of $2.4 million discussed previously. D&A adjusted EBITDA totaled $56.7 million, an 11% increase from 2013, as higher revenues in the insurance and spatial solutions and international operations more than offset the impact of lower mortgage loan application volumes and declines in specialty credit and tenant screening. TPS adjusted EBITDA decreased 37% to $47.2 million compared with prior-year levels driven primarily by lower market volumes and integration costs related to the acquisition of BAC’s tax operation.
Operational Excellence 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 in corporate shared services and information technology (IT), 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 $2.6 million and $10.1 million, respectively, for the second quarter of 2014.
CoreLogic launched the 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 the second half of 2015. Second quarter 2014 cash and non-cash charges related to TTI implementation totaled $5.3 million.
During the first half of 2014, the Company successfully completed the integration of BAC’s flood zone determination and tax services operations.
Liquidity and Capital Resources
At June 30, 2014, the Company had cash and cash equivalents of $140.9 million compared with $134.7 million at December 31, 2013. Total debt as of June 30, 2014 was approximately $1.5 billion, up $633.7 million from December 31, 2013. The increase in outstanding debt was primarily the result of the completion of the acquisition of MSB and DQ on March 25, 2014. As of June 30, 2014, the Company had available capacity on its revolving credit facility under the Credit Agreement of $365.0 million.
During the second quarter of 2014, the Company repaid approximately $51 million in term loan and revolving debt. The Company also repurchased 848,779 of its common shares for a total of $25.2 million during the second quarter. Through the first six months of 2014, the Company has repurchased approximately 1.1 million of its common shares.
Free cash flow (FCF) for the twelve months ended June 30, 2014 totaled $197.1 million, which represented 60% of adjusted EBITDA. Year-to-date 2014 FCF totaled $82.6 million or 52% of adjusted EBITDA. 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. Net operating cash provided by continuing operations for the six months ended June 30, 2014 was $125.5 million.
2014 Financial Guidance (Continuing Operations)
Based on current market trends, the Company has reduced its full-year 2014 estimate for U.S. mortgage originations by ten percent to approximately $1 trillion. The impact of lower volumes of originations, as well as continuing headwinds in the U.S. housing market, and expected reductions in discretionary client spending is reflected in the following updated 2014 guidance: revenues; adjusted EBITDA and adjusted EPS of $1.33 to $1.37 billion, $335 to $360 million, and $1.25 to $1.40 per share, respectively.
The CoreLogic press release announcing its financial results for the second quarter 2014 is available to download as a PDF by clicking the link below.
CoreLogic Reports Second Quarter 2014 Financial Results
CoreLogic management will host a live webcast and conference call on Thursday, July 24, 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: 1-877-280-4953 for U.S./Canada callers or 857-244-7310 for international callers. The Conference ID for the call is 11918268.
Additional detail on the Company's second 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 8969743.
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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 3.5 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, such as plans to transform to a higher-growth, higher-margin company through enhancements to its business operations, growing D&A to over 50% of revenues, 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 updated 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 reduce our outstanding debt and continue to return capital to shareholders through our share repurchase program. 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 and DQ; 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 EBIDTA 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.